paul: welcome to "daybreak australia." i'm shery ahn of bloomberg world headquarters in new york. sophie: we are counting down to asia's major market opens. ♪ paul: here are the top stories we are covering in this hour -- preparations are under way for the resumption of trade talks. chinese state media say at this time, negotiations must be effective. street a lift.

the s&p 500 rises and bonds tumble. wework is said to have slashed valuations in its upcoming share sale. shery: let's get you started -- let's get you a quick check on how markets closed. we have equities rallying, treasury yields rallying, strong economic data. the s&p 500 jumped to the highest level in five weeks. it actually broke above its 50-day moving average. tech shares led the gains. from thest losers trade tensions between china and the u.s. we also have banks rallying as we saw the two-year yield at one point seeing the biggest jump in about a decade. the focus is shifting toward that we arembers getting out tomorrow. today, very strong private

payrolls numbers, but at the same time, jobless claims numbers little changed, so the focus is what happened out of the numbers that we get tomorrow on friday here in the u.s. futures at the moment not doing much, but let's see how we are setting up for the markets in asia. friday, we're looking at this to continue, gold holding onto losses after spot prices fell nearly 3% overnight. we're looking at bond bulls to continue being tested today. , risingt 10-year yields about six basis points early in the session, tracking what they saw in the treasury yields rally overnight. it looks like stop bulls may also be looking to move higher when it comes to futures. gaining ground while nikkei chicago futures are trading around a july 31 high ahead of july 31 data. will get household spending along with wage growth, both data points expected to show

slowing momentum in july in the face of sluggish corporate profits. quite a bit to look out for this friday. paul: thanks very much. let's check in on first word news now with jessica summers. jessica: thanks, paul. saysederal reserve uncertainty around trade policy is holding back global growth and may further dragged into 2020. the rising trade conflict for the first half of last year accounts for the decline in global gdp of .8% in the first six months of this year. it also adds that had trade tensions not escalated in may and june, the fed would have expected the drive on growth to have these -- the drag on growth to have eased. outgoing ecb president mario draghi is meeting growing opposition to his plan to revive qe and support the arizona economy. the bank of france is skeptical about the need for new bond purchases, adding to criticism of the plan from german, austrian, and dutch policy

makers. the ecb meets next thursday. draghi faces the choice of adding qe without the support of europe's leading economies. embattled u.k. prime minister boris johnson says he does not want a snap election, but it is the only way out of the brexit quagmire. cameras with his policy in tatters and his own brother resigning parliament in protest of his plan. rebel conservative mp's joined opposition parties to block johnson's drive toward no deal brexit. a new delay in the process is now expected. >> i hate dining on about brexit. i don't want to go on about it anymore and i don't want an election at all. frankly, i cannot see any other way. the only way to get this thing done, to get this thing moving is to make that decision. jessica: hurricane dorian is

strengthening as it moves slowly toward the seaport of the u.s. the storm is once again a category three system, and it sustained wind of 135 kilometers an hour and a storm surge of about two meters. it is moving at about 10 kilometers an hour and is expected to touch the coast of north carolina in the coming hours before heading northeast toward new england. global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and analysts in more than 100 20 countries. i'm jessica summers. this is bloomberg. given aond bulls were tough wake-up call on thursday. an enormous surge in yields along the treasury curve shows that bond trading is still a two-way street. kathleen hays has been sifting through the wreckage. this was one of the biggest bond routes in years. kathleen: it certainly was. depending on which part of the curve you are looking at, but definitely, i think no matter what part of the curve you were trading, you got hit hard if you

were not expecting this to happen. it started the day with maybe there would be trade talks in october, that got the selloff started, but the strong services report from the institute for supply management -- look at that -- it jumped back up at 56.4 in august. look how that downtrend -- oh, my goodness. services weakening, too. suddenly, you get a different picture even though earlier in the week, the i.s. and manufacturing index and older index may be the -- maybe the more important one, fell below 50, but today it was all about the services. two-day note our yield chart. this was really something to see. at one point, the jump in that yield was 14 basis points. a pullback to 11. 5.5-point more like a loss. nevertheless, that was quite a move. probably the biggest one-day

in 10 years.seen other things were going on besides this. u.k. and european bond yields were rising. the german 30-year dipped briefly below -- actually went briefly positive. big supply wave. what we're looking at now is the 10-year yield. it had its biggest move since january. of course, it is something people have been watching very closely. a lot of traders thinking this rally would continue, and it may, but for today, it was a really big push back, and i think a reminder to people you got to be ready for both sides of any trade. call: it may continue, but it may not. the key question is -- is this sustainable, or is this just a one-day wonder? kathleen: one thing our bond bondsointed out was that

often sell off after natural disasters because insurers have to raise cash. what are we having? giant hurricane started in the bahamas, sweeping up the east coast of the united states, so let's put that into context as to what might also have been driving this. over at td ameritrade, they're looking for the 10-year yield in the first part of the year at 1.3%. guess what? already seeparibas the 10-year yield at 1% by the end of the year, so there is obviously still a lot of bullishness. now the bond market has sold off so much, will it be vulnerable to more whip sawing if the jobs report comes in weaker than forecast? if i were a bond trader, i think i would have even out a lot of my positions and just wait to see what happens. shery: thank you for that. our bloomberg economics and

policy editor. we have more coming out of the u.k. we're hearing from opposition earlys in talks over election. is coming from a person familiar with the matter speaking on condition of anonymity saying that the u.k. labour party and s&p are discussing calling for an october 29 election after the u.k. prime minister, boris johnson, already proposed a general election for october 15. he said that he would come out on monday and try again to deliver a snap election. this after he was blocked by parliament and after suffering three major defeats in the past 24 hours, failing in his attempt to trigger that snap general election and also having parliamentarians vote to delay to january 31. in the meantime now we are hearing that u.k. opposition parties are in talks over the date for early election.

paul: the u.s.-china trade talks look to be back on track. the two sides must meet the broad agreement reached by president xi and trump of the g20 earlier this year. talks will resume in washington early next month after weeks of uncertainty and escalation. let's get over to beijing now and our correspondent, tom mackenzie. what do we know at this point? tom: we know they finally agreed, the two sides, to have this meeting. we don't have a date yet. we heard it will be in early october, as you say, in washington. china's vice premier along with the central governor from the pboc, also the commerce minister, will be heading over with the teams from washington to sit down with lighthizer and mnuchin. we know up until that point, , the we get a date deputies for both sides will be setting up talks because they say they want to make meaningful progress during this next round

of negotiations. it comes at an interesting time. we had tariffs ratcheted up on september 1. we got the threat of additional tariffs on october 1. i think those have to be put into question now. it will be hard to see or some would say it would be surprising if china agreed to these talks if those additional tariffs from trump are going to be put in place. then you have the december 15 tariffs which would effectively hit all of china's exports to the u.s. and also the u.s. consumer according to many economists. that is the context in which these talks look set to take place. in the u.s., there's concerns, this divisions and have been for a long time on these issues. those concerned with the market and economic impact and those who want to see a substantial deal from china, so there's a big question as to if they go back to this may draft with the u.s. said 90% of their demands have been met by china and china walked away from that draft. if they go back to that is the key question. how much progress can really be made. markets are reacting positively, some would say it is a little

bit strange given that the divisions between these two remain as white as ever. earlier toalluded the state of the two economies having an impact on these trade negotiations. as we continue to see this mixed economic data from the u.s. but a more significant slowdown in china, how significant are these factors in getting these two giants to talk? are very significant. kathleen was right to point out the better-than-expected services data, but as you allude to, other data sets in the u.s. are looking pretty weak, if its manufacturing or exports or business sentiment. that is a factor. we sat down with the imf chief economist who said these tensions now, trade tensions were posing a threat to the imf forecast. they forecast growth of about 3.5%. she said the tensions are weighing clearly on the global economy. take a listen. these trade tensions are a

big factor that has been weighing on growth going forward. the sooner this can get done, the better. tom: and the imf chief economist saying for now, most pressure is being felt by china versus the u.s. in terms of trade tensions. we have seen the state council here, china's cabinet hearsay pressures are mounting on the economy, calling or the central bank to cut those reserve ratios for the banking sector, and of course, we have had other measures outlined by policymakers to support the economy in terms of the likelihood of any significant movement at these talks, an economist at maybank said no one is holding their breath. china correspondent tom mackenzie, thanks for joining us. still to come, wework getting to work on its investor roadshow. we look at the appetite for its scaled-down ipo. but first, rebecca felton says their investment strategy is the tracking the water.

she will explain what that means just ahead. this is bloomberg.

a rally in u.s. stocks fueled by strong economic data and a glimmer of hope on the trade front. the s&p 500 jumping to a five-week high led by tech and banks. su keenan has more really positive news from different fronts moving the market. su: as one strategist said, stocks need earnings growth of power forward and we cannot get that with a trade war, so this latest news definitely positive. let's get look at the market snapshot. notice that the hint of a possible trade truce caused stocks and the semiconductor index to soar. that was among the tech strength you saw a earlier in the sector. the falling jobless rate was also part of the economic strength we saw in the latest data, although even of the data decline isoblessness

helping boost consumer spending, there's a lot of concern that the job creation is in the lower paying service sector, so that is in -- that is a lingering concern. let's get to big movers. banks moving higher on a lot of the yield play. cloudera up in a big way. nvidia pacing the gains. take a look at the fangs -- facebook, by the way, getting into the dating business with a dating app, and that helped boost after hours. --ulemon defying the did defying the declines we've seen apparel retailers. they boosted their economic outlook. paul: the corporate bond outlook continues to be on fire.

dozens of companies continuing to refinance. what is the story? one market watcher called it a frenzy. take a look at the companies that this week alone have sold debt. apple as $7 billion. walt disney, coca-cola, deere and many others. it was to say, apple is probably the most cash-rich company on the planet. it just shows that these plunging yields are making it very profitable for companies to borrow at this time. shery: thank you so much for that. as we continue to see volatility in the markets, one sector that has felt the impact is small caps. the russell 2000 lagging the s&p 500 this year. joining us now is the riverfront investment group senior portfolio manager. great to have you with us.

in your notes, you tell us you sold off your small-cap exposure. what happened? they were supposed to be insulated from all these trade tensions and other headwinds for the u.s. >> absolutely. that is one of the reasons we bought into it back in january, believing that same thing, but our risk management discipline has us measure things against the asset class from which we sold the large caps, so it did underperform for the balance of the year and what we learned was earnings estimates had come down more dramatically and growth rates had come down more dramatically. they were unable to ship supply chains as well. they were not able to pass along price increases, owing to the tariffs, so they ended up having indirect exposure. shery: how do you feel about the broader u.s. market as compared to overseas? >> we are still positive. we are overweight u.s. in that regard.

our longer horizon portfolios, we still have that exposure to a larger degree, but we still prefer the u.s. because the growth rates here still are better. strategies youe are using is avoid crowds at the extremes. i wonder, were small crowds getting at a crowded and where are you seeing the crowds now? >> we put money this week in andter horizon portfolios dividend growers, both of which are presumably expensive, but we felt in the event we see downside volatility, they would provide a buffer for those more conservative clients, and we are still overweight tech, as a lot of people are. we are more tilted toward software and services. we still like the consumer, so we watching that closely, too. seen the crowd exiting havens overnight. the bond rally, the gold has given up about 3%. is this a good buying opportunity for havens? >> you know, again, i don't know

that i would go that far. we are tilted toward growth and we purchase in utilities and dividend growers. for us, we think they could be safe havens, so that is about as far down that path as we are willing to go at this point. shery: when it comes to growth and tech stocks, how concerned are you about potential regulation to come given that we are headed to the 2020 election cycle? >> that almost requires a crystal ball, right? what we are going to do is rely on what we know. even though earnings or that sector have decelerated in 2019 compared to 2018, we would expect to see a resumption next year and some of the slower growth has come from semiconductors, the volatility we have seen their because of their exposure. we are not going to make any bets on the regulatory side. we're just going to focus on where we see consistent revenue growth. make yout trying to put up bets on china because the trade tensions continue, but we have seen chinese stocks

outperform. how exposed are you to the chinese market? >> we are minimally exposed. in terms of our u.s. companies, the revenues they generate from than 10%,bably less maybe 6% or 7% in terms of revenue generated from china. add? would you >> not yet. this is wonderful, the movement we saw today on the hope these negotiations will materialize and be meaningful, but i think we would rather see some solid talks rather than just this hope. s&p beingsee the aroundound pretty much where it is. do you feel the bull run is getting old or do you think the fed will keep it going as long as it can? >> i think the fed and consumer could keep the party going for a wild. the consumer is 60% of gdp, so

we are watching all of that information very closely. sentiment numbers have sort of turned south, not what people wanted to see, but still in record territory, and the fed obviously is on our side, which is one of our three rules. it is the best growth you are seeing worldwide, so we are content -- willing to continue to be in the market and continue to put money there. to one wanted to return of your other strategies that i thought was quite interesting. you call it drinking the water. can you explain what you mean by that? >> the adage is if you are at a party and need to slow down and stay, you switch to drinking water. that is what we have done. we know what is driving our performance both on up and down days. the small-cap position out of the portfolio, adding the buffers that we have dividendies and in growers, so we want to stay invested, but we just have to make sure that we know exactly where our risks lie.

paul: thank you. you can get a roundup of the stories you need to know to get your day going in today's edition of "daybreak." bloomberg subscribers can go to the terminals. it's also on mobile on the bloomberg anywhere app. you can customize your settings so you only get news on the industries and assets that you care about. this is bloomberg. ♪

shery: shery:i'm shery ahn in new york. paul: i'm call allen in sydney. you are watching "daybreak australia." lululemon jumped after the bell after it boosted full-year profit forecast once more and posted more brisk sales growth. comparable sales stretched past estimates to rise 17% in the last quarter. this is the seventh straight

quarter lululemon comparable sales have been above 10% and the company announced profits up to $4.70 a share, 12 since more than previously forecast. shery: samsung's much anticipated holding smartphone finally hits stores on friday. it will be available in south korea after a long delay caused by defects in its original design. the android device has a price tag of almost 2000 u.s. dollars and was originally due to launch in april. he goes on sale in the u.s. on sentiment 27 before launching in france, germany, the u.k., and singapore. ail: the world's top start-up says it is now worth 57 point $5 billion and is in no hurry to go public. -- $57.5 billion and is in no hurry to go public. the ceo told bloomberg's sooner than you think conference in singapore that they are looking at other sectors including memory chips. , wework lowers

its goals ahead of its anticipated ipo. we gauge potential investor demand. this is bloomberg. ♪

warm friday morning in sydney. futures pointing higher by a modest .1%. perhaps a rational response to some of the developments we've seen in the past few hours. in new york it is 6:30 p.m. you are watching daybreak australia. let's get to first word news with jessica summers. jessica: commentary on chinese state media says trade negotiators must aim to reach

the consensus 8 -- agreed by xi and trump. the asset talks must be effective and the teams need to communicate and expand common interest. a hedge fund veteran, sees a 25% chance of recession in the u.s. both this year and next and warns the fed has limited tools to deal with it. he also says jay powell should cut rates slowly. he also blames the trade war for more than 10,000 job losses last month. he said it's the first time the trade war has been given as a reason for layoffs. pressure is mounting on the nissan board after the ceo admitted that he and other executives and managers have been paying more than they should. board members are being briefed on the inquiry.

we will meet monday -- they will meet monday to decide what action to take. beneficiaries include one of the key whistleblowers in the downfall of former chairman carlos ghosn. india says landline communication has been restored in jammu and kashmir after being cut last month in a security crackdown in the disputed region. the suspension almost completely isolated the area. cell phone and internet services remain cut off. local media say there are no longer restrictions on daytime travel, but police and army checkpoints remain in place. global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. right. we seem to be headed towards a risk on session. for more on markets this morning, let's turn to sophie. sophie: i want to check in on

the aussie dollar trading near a one month high, so we are seeing cautious bullishness for the currency. it has rallied this week on our ba holding steady on rates and gdp data, meeting estimates. broadly, the data has been looking positive out of australia this morning. we got the construction index for august rising about 5.5 points on a monthly basis. we are also keeping and i am gold stocks after rbc said they offer attractive upside to the long-term price for gold established at $1400. prices raised its outlook. we are also watching fonterra after the company deferred its reporting date for results to no later than november 30. the company also confirmed it expects a loss for fiscal 2019. fortescue is on the radar after pricing its 600 million dollar high-yield bond offer as they seek a wrap up in corporate debt issuance, particularly in the ig space with asian sales set for

the best start to september on record. joining them, the lot of issuance adding to the upside pressure on bond yields. get more on what you should be watching is trading gets under way in asia. adam, is there enough juice in this rally to sustain moves through friday in asia, or will it peter out like so many before it? adam: it pick up in the middle of the week and it is setting us up for a reasonably positive end to the week, but of course, we had a decent rally in equities pretty much across the whole region of asia on thursday. we have had the additional data, of course, out of the u.s., which is showing some signs of not just as deep worries as some people have thought about u.s. economic growth, so that is obviously playing into the narrative there, but i think it is worth highlighting on this chart how close the s&p 500 is now back to kind of hitting those all-time highs and good potential that if we do get a

firming up of the moves throughout the friday session that we could be testing all-time highs pretty soon again, maybe even in the friday session for u.s. equities, just less than 2% now away from that high that we reached early on in the year. the setup is pretty well, but of course, the two big things for friday, of course the commentary we will get from fed chair jay powell and that big nonfarm payrolls piece of data as well. there is a lot there that could one the dial for this risk tone we have had over the last 24, 48 hours. shery: we have seen equities rallying, yields rallying at the same time, but given the broader macro environment, large pension funds in australia sounding the alarm on how low returns might be going forward. tell us what they are saying? is, of course, something we have been hearing from a large pensionr he funds around the world and more recently from some of the australian funds this week, and

the idea really is that with inetch valuations clearly many people's opinion in the fixed income market and equities as well, the chance of generating those returns if you look out over the next six to 12 months, it's looking harder and harder. the idea here is and what most of these pension funds have been telling us is they will have to allocate more and more money away from equities and bonds and into less traditional type alternative assets. that could be anything from apartmentin an development or a piece of an airport or any of those longer-term infrastructure assets, but it also can mean things like unlisted corporate debt and direct lending to companies, private loans and those kinds of less traditional investments, so the feeling really is that it's just getting harder and harder for these returns to be generated, especially when you are looking returnlus inflation-type

targets. it looks like that will be a tall order over the next 12 months or so. paul: thanks for joining us. you can check out some of the charts we have been talking about their at gtb go on the bloomberg terminal. office space sharing company wework is significantly reducing the valuation it is the king and its ipo. originally pegged to a $47 billion valuation at its last funding round, sources now say it could target closer to $20 billion. reporter eric newcomer covers for bloomberg. that was the valuation they got with their biggest backer as softbank. what happened since then? >> i think there's just a lot of skepticism, looking at the perspective from investors. even at as little as $20 say it, you see analysts is still a pretty high multiple for the company, given its fundamentals as compared to uber more real estate-type

competitors. i think people are just trying to understand the company and are not as bullish as softbank has been. paul: softbank certainly seems .onvinced is this vote of confidence misplaced? it's going to take a .onger period of time to see softbank thinks on a very long time horizon. we will have to see if wework can get there. softbank bet at a higher price than the market seems willing to bear. they will have to say wait and see, but you could buy -- it seems like you could buy into the ipo now and get a better deal.

especially since when we dided about uber, their ipo not turn out well. >> on the one hand, softbank is saying we have vision and maybe the markets don't yet, so i'm reluctant to say to definitively. there was skepticism around facebook and things turned around. wework has not even gone public yet, so we are just and the discovery process here. certainly, investors, especially as the market has been very volatile, are nervous about the launch of these companies we have reported on for years. losses almost equal its revenue. it is just startling. i wrote that the losses relative to revenue are pretty stark. us.: thanks for joining still to come, investors,

economists, and, yes, the fed, will be laser focused on the august jobs report which comes out friday. we will tell you what to watch out for next. this is bloomberg. ♪

i'm all allen in sydney. shery: i'm shery ahn in new york. you are watching "daybreak australia." markets around the world are bracing for the august report to see if it is weak enough to seal the deal or a federal reserve rate cut at its meeting in two weeks or strong enough to put a roadblock in the fed's policy path. is standing by with a preview. kathleen: thank you so much. as i said earlier in the show, after that big bond market selloff, i think there is even that much more weight on this report. top the list to because the federal reserve again is trying to gauge the momentum in the economy.

look at payrolls where they have been. certainly in the last month, to 164,000. we are looking at those white bars on the far right hand side of your screen. as payrolls went from 193 to 164, the peak in the three-month moving average was at the beginning of the year around 245. that's right over here if you can see where i'm pointing to, and it's now down in july to 140,000. bloomberg economics as one very important point -- beware of headline fakes in the payrolls report because the number could come out strong. bloomberg economics sees 175,000, but guess what? the government tarted adding temporary census workers in august. bloomberg economics estimates there could be about 40,000 workers added to the tally, but they are temporary workers. in a way, they don't count. in a way, people could pull that number out and get a much weaker

number. let's move on to this lovely chart. this one points out that yes, we have had some strong indicators, but this is showing you some cracks, some things that don't look so good. the first is the turquoise line. we don't talk about this very much, maybe not as much because average weekly hours, hours worked, are kind of a proxy for gdp. if you see hours falling, maybe they are not letting workers go, but cutting back on their hours. in the latest reading, that fell in july to the low end of the range since early 2011. that is a sign pointing maybe to some weakness that will show up in this report. maybe that will help the bond bulls who got beaten up so badly today. the underlining yellow line, we got that strong i assume services index and it had a big new orders were really strong, but the employment index got weaker.

that is what you see in that yellow line. you are seeing the value for it here on this side of the screen down to 53.2 from 56.1. this is just one more reason to thek services, about 80% of jobs in the u.s. economy. if this report is signaling weakness, that, too, could show through in the payroll tally tomorrow. those are key things to get you ready for tomorrow. maybe again bullish surprise for bonds, but maybe for equities, not so much. paul: thanks very much for that. joining us for a preview of the job report and the general outlook, we have the steeple nicolaus-- stifel chief economist. there is a case to be made for a reasonably strong jobs report as kathleen outlined, but with some caveats. what are you expecting? >> i think we will see a relatively modest headline number. excluding census workers, we are looking for around 130,000.

there has been a tremendous amount of volatility in payrolls as of late. we saw a disappointing number in may, outright strength in june, and july pretty much split the difference, but we are expecting the downward trend to become more evidence in the latest nonfarm payroll reports tomorrow. this will be in our opinion another likely feather in the cap of those more dovish fed members that have been arguing for more aggressive accommodative policy. paul: we will maybe get to the fed in a moment. a want to get to another point that was not included in the preamble. there is an interesting survey bloomberg has reported on the says nearly 10,500 jobs have been lost due to the trade war. does that sound reasonable to you? >> i think it will be a little difficult at this point to qualify -- quantify specific jobs that were lost because of the tariffs, because of the rising tensions between u.s. and

china, but absolutely we are seeing a very clear deterioration, particularly in manufacturing, which when we talk to interest rate insiders, they are talking about the trade war being at the heart of that weakness. we are seeing pockets of the economy that are being disproportionately impacted by the trade war. if we do start to see a decline in jobs, at least a good portion can be attributed directly to the trade war. the fedet's now turn to then. we have seen market expectations pretty strong for a fed rate cut to come. this chart showing that investors have priced in between now and january 2021 five rate cuts. how rational or reasonable is this and what happens to the economy when you start from such a low base? can the fed have the ability to support the economy here? amazing how times have changed. it was not long ago the fed was aggressively raising rates, but

it's very clear now the economy has peaked in terms of fundamental growth and there's ample evidence of weakness bubbling underneath the surface. it's really providing ample evidence for the fed's need to provide that additional accommodation. if we do see five rate cuts, as you just pointed out the market is anticipating, we certainly do see the fed cutting once again in september. if that weakness continues, we would likely see another rate cut in december, but to your point, we're starting at such an extremely low level, historically low rates, as it is . will an additional 25, 50 basis points be enough to provide enough ammunition to prop up the u.s. economy? probably not in an of itself. another rate cut or two is likely to boost confidence and maybe even stabilize the market, but it's not going to be enough to jumpstart another credit cycle or infuse investment and consumption back into the economy. fed really chases down the market expectations for further rate cuts, they will of tools they run out

pretty quickly, at least from traditional policy metrics, meaning that as we approach that iser zero bound, the fed likely to have to turn to nontraditional metrics to really provide that stimulus if we see compounding weakness or even recession looking around the corner. when it comes to that compounding weakness, we have had a lot of fed speak this week and a couple of officials mentioning the threat to the consumption side of things that could and it from other parts of the economy -- say, manufacturing. how long will consumers be able to support the economy? >> i don't think they are going to be able to support the economy in and of themselves much longer. if you look at the composition of q2 gdp, the consumer was the sole organic support to growth, but as we continue to see deterioration in housing, manufacturing, business investment, these are the other key sectors that have to go along to support consumer spending. i do think we will start to see that break down on the consumer side as early as q3.

paul: we have a quote or observation from ray dalio saying he sees a 25% chance of recession. we talked about the consumer's ability to insulate the u.s. economy against that, but how about the fed? is it getting a bit limited in its ability to insulate as well, especially considering a lot of the problems it faces are political ones? >> absolutely. very limiteded is in terms of their arsenal to continue to support the economy and i would agree the risk of recession is quite high as we look up to 2020 and the on. i would actually assign an even higher probability, near 40% of recession in 2020 and the on. we are seeing very clear signs the u.s. economy is losing momentum at a relatively rapid pace, so that should be putting extreme pressure on the fed to act, but as you mentioned, there are still and number of fed officials that appear quite hesitant to engage in additional

rate cuts, pointing to a still moderate growth rate, at least in the rearview mirror, if we look at that 2% growth rate in the second quarter. paul: thank you very much for joining us. up, the u.s. national economic council director joins nightsn team at 11:32 sydney time. don't miss that. this is bloomberg. ♪

little bit of movement on the bond markets in the past 24 hours or so, and the aussie, no exception. the 10-year bond topping 1% for the first time since early august almost a month ago. was, of course, a few days ago the reserve bank was keeping steady on interest rates and was chasing their bond yield down to an extent, but amd bank now toects the bank to go back

cutting the interest rate. michael, how low are we going to go here? >> is an interesting time, obviously. that bondstand with yield, that's chasing u.s. treasuries, so nothing particularly significant for us, but we had some pretty interesting data this week but really week gdp, weakest in a decade. given we have 1.6% population growth and we grew at 1.4%, it's actually a shockingly bad number. perhaps what was more concerning, that rearview mirror sort of stuff, was in july, retail sales actually fell. july was the first month where you would have got some of the tax cuts coming through, and to have no impact on spending is a little bit worrying. i think all that points to the market being right, that there's further raising to come, basically. where does the lower rate

bound lie, and what happens when the market reaches it? does it immediately become qe? is .25 toeral view .5, which is what senior officials of the rba note. banks a sort of look to as being similar in a way to ours, but that's where they got to a quarter to half a point. once we get to have a point, which economist are pricing in by march of next year, tens on the trajectory or momentum of the economy. stimulus is flowing through, we have a lower dollar, tax cuts, rate cuts. there's a mining investment coming, government infrastructure. if that is starting to hit the economy, it may sit there, but if it looks like inflation is meaning week, growth is still slowing, they will really have to consider. my understanding is they prefer that you have to do anything unless it looks like we are tipping into recession or

unemployment is really spiking, but the pressure may be too much. to the really be left rba to try to keep things going. paul: in terms of the government not doing much and you mentioned week inflation, maybe a bit of a chat with the rba about inflation. >> very interesting. in a post gp press conference, which is a traditional thing every three months, he mentioned a were going to sign a new agreement between the government and the rba. as i understand it, that did not actually need to be done because the government -- it was not a change of governance. it's the same governor. he was talking about bit more focus on inflation because it has been low for a long time and i think the central bank expect that -- accept that. there might be a bit more midpoint,ng past the which we understand. the other thing was there was talk of a letter being written 20 bank of england p are the question is if they will write a former letter or if it might be included in the quarterly statement of monetary policy, but there might be an exclusive

statement as to how we got where we are and where we might be. let's get a quick check of the latest business flash headlines. sued by 14 women for alleged sexual assault. the lawsuit accuses the company of hiring drivers without adequate background checks and of not doing enough to protect passengers. the company says it has deactivated eight of the drivers named in the suit and is trying to identify the rest. it is also making an emergency button in the app available to all customers which automatically calls 911. planning an ipo that is less dramatic than what it was hoping for. sources tell us the start of is seeking a valuation of $20 billion to $30 billion, roughly half the amount that was given less than a month ago. up massive losses over expansion plans and investor sentiment is cooling after disappointing debuts by other tech companies.

u.s.-china business council head craig allen tells us what he wants to see next month with resumed trade talks. this is bloomberg. ♪

paul: good morning. i am paul allen in sydney. we are under one hour away from the market open. shery: good evening. i am shery ahn. >> i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this friday, preparations underway for the resumption of trade talks. this time, negotiations must be affected. the s&p 500 rises