haidi: good morning and welcome to daybreak australia.

>> we are counting down to asia's major market open. shery: the top stories this hour, u.s. stocks rally as fed hawks downplay recession risk. >> local governments fast tracking unprecedented on sales. >> boris johnson faces pressure to speed up his exit as the conservative pressure draws up plans to choose its successor. u.s. futures, this is after the s&p 500 gaining ground for the fourth consecutive session. we are seeing a mixed picture when it comes to the futures trading. the nasdaq rallied the most in two weeks. we have seen some of the fears about inflation and recession easing a little bit. had jobless claims rising last

week showing the labor market strength might be moderating. we are also watching the philadelphia semiconductor index . we had a gain ground and that's important because we are continuing to see the plunge of 30% year-to-date. we also had commodities gaining ground. a jump that we haven't seen in three days. oil markets, tight supply is an issue. not to mention that we also had news from china that perhaps we might be seeing more stimulus measures. we continue to see the twos intends invert. keep an eye on twitter, the washington post is reporting that elon musk deal to buy the company is in serious jeopardy. we are seeing the downside in the after our session. take a look at retail gas prices. we're seeing a fall for the first time in 20 days.

this was after a bloomberg commodity spot index fell quite a lot the recent high. we are seeing the downside pressure with recession fears rising. you can see it in the gas prices at the pump in the u.s.. >> that speaks to the goldilocks scenario we are expecting which is the fed bringing down inflation without causing recession. we have asx 200 futures pointing higher. aussie dollar is another focus as a risk proxy. we could see more stimulus coming from china. as is all looking a little bit too positive.

we could see more volatility ahead. >> potentially more volatility when it comes to u.s. -- u.k. assets. boris johnson has finally resigned, but not immediately. his colleagues who no longer support him have rallied against him. they had asked him to accelerate the process of choosing his successor. we are all riveted by this, the only people who don't seem to be riveted by it are the actual markets because it seems like traders are really much more preoccupied with the economic situation at hand. your acro forces like inflation, cost-of-living, the strong

dollar, the war in ukraine, the supply-side crisis, all of this seems to be more fundamentally impact of for markets than the roller coaster on downing street. >> especially when you have government action from the u.k., the boe action and its hawkish this will have an impact. the same thing here in the u.s., we continue to see these that hawks backing 75 basis point hike for the second straight month. we are talking about the fed governor christopher waller saying that raising interest rates for a second straight month, he supports that measured not to mention that he probably expects a 50 basis point hike at the following gathering in september. we also heard from james bullard as well. now we are joined by kathleen hays. .

let's start on the fed hawks. we continue to hear more backing about the bigger sized hikes. >> more important that this comes just one day after we got the minutes from the fed june meeting where they made it clear that they need to get the restrictive, they are not concerned about recession as they are about bringing down inflation. chris waller, he along with jim bullard both backing the 75 basis point hike. let's listen to how he said simply put. >> we need to move to a much more restrictive setting in terms of interest rates and policy. we need to do that as quickly as possible. i am definitely in support of doing another 75 basis point hike in july. probably 50 in september then after that, we can debate whether or not to go back down to 25. inflation does not seem to be

coming down, then we need to do more. >> the markets are worrying about recession, not these two hawks. the fed can pull this off cleanly. jim bullard says 75 basis point rate hike would make sense. they have to get to neutral expeditiously. he also says there is a good chance of a soft landing. >> we have a good chance at a soft landing going forward. there are always risks. or shock we can even think about today that will hit us. that could happen, but we are always cognizant of risk. the base case is for soft landing at this point. >> they feel an economy labor market is still strong even though jobs come at the payrolls slow down and we get the jobs

report tomorrow, waller says it will still be a spectacular job market. they worked together, it's no wonder that their thinking is so much in the same thing. >> when it comes to the market, it seems like they are really buying into this soft landing no recession scenario. >> especially after the commodity price. we see that oil is down over the past month and 10 year yield is down 50 basis points during the same time. if you are equity investor, your discount rate has become a little lower. in terms of equity investors, the earnings estimation remains high so if we are seeing a recession risky increase going

forward, it is a more increasing -- optimistic forecast needs to be adjusted. >> when it comes to market reaction not that much from u.k. assets despite the fact that it was a pretty historic day for britain, what comes next for boris johnson? >> it has been close to 24 hours here in the u.k.. the conservative party is looking for a new leader. here in britain, we are looking for a new prime minister after really not wanting to give up power, he was clinging on so hard. boris johnson did finally resigned this lunchtime. he did say that he was going to stay as the caretaker leader of the conservative party and of britain until a new prime ministers found. this is caused so much controversy because many people in the party are saying he should go now. many in the opposition labour

party are also calling for him to step down with immediate effect to get caretaker prime minister. this is because we are in a precarious position. we are facing this cost-of-living squeeze in the u.k.. there is also a war in europe. >> when you take a look at the runners and writers should be in contention for the leadership, what are we seeing? >> so many names. this was one of the problems when it came to getting rid of orth johnson originally. he has faced so much controversy. the biggest thing was who was going to succeed him? he was out there to take his place. we found out this evening that an mp says he is going to throw his hat into the ring. also in wallace is the defense secretary. he is popular with the conservative restaurant. penny morgan she is the

conservative trade minister. so many names in the ring. the chancellor who resigned on tuesday and also the new chancellor. there is a whole host of names. the 1922 committee will set out the leadership bids next week. it could be possible that boris johnson be staying on until september. >> let me ask about china, because we continue to see this uncertainty globally about central banks tightening. in china, it seems they are going in the opposite direction. unprecedented bond sales. how important will not be for global markets? >> what separates china from the rest of the world is china does not really have an inflation problem. they are facing economic slowdown. they have the space to do stimulus. it was reported that the

government is considering bringing forward next year's quote for the local government. because the local government pretty much used up the quote for this year so they need to keep spending for the rest of the year. these special bonds are mainly used for infrastructure spending. that has become the main lever for the chinese government to support the economy because the consumption is hindered by the covid containment and the market is still struggling a little bit. this shows that china will continue to support the economy. >> back to the old playbook. let's get over to su keenan. >> we start with the four ministers of australia and china. they will hold talks for the

first time in almost three years. trying to reset a strained relationship. rising political tensions resulted in china imposing tariffs on wine and barley and blocking trade and other goods. the australian representative since -- says it's in both countries interest for ties to be stabilized. the state bank has raised rates by 125 basis points a move that was predicted by only three of 24 economists. it aims to tame the second fastest inflation rate.

the central bank sees inflation this year at 18% to 20%. the former president of their nose has been found guilty of fraud for his role in the collapse of the blood testing startup. the decision comes six months after the former partner was convicted of defrauding investors in the company. he faces as many as 20 years in prison. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. >> still ahead, china may sell $220 billion worth of special bonds to boost the economy. a closer look at that plan later this hour. just ahead, consumers still have the covid blues and businesses are short on confidence. we will see how that is

affecting their market playbook. this is bloomberg. ♪

>> the market is really pushing the fed right now. >> the fed is telling us they want to go to 3.8%. >> the fed may need to slow down its rate hike sooner than later. >> the yield is over 100 basis points below that level. this doesn't make any sense. >> how much longer is the rate hiking cycle going to last? >> the market saying it will peek at some point in december.

>> is 75 basis points baked in the cake already for the july fed meeting? >> they may top 3.5%. >> we have already seen that. >> market has readjusted their expectations. >> guests on bloomberg speaking about fed hawkish this. our next guest expect another 15% downside to the s&p 500. it's ring in cheryl smith. how fairly valued or markets right now especially when everyone seems so concerned about potential recession? >> i think everybody is concerned about the potential recession and the fed can turn on a dime. the market is fairly valued if earnings were to continue where they are. we do not expect earnings to

make the current expectations. we are still expecting another 10% downside in earnings which would give us a 15% downside in s&p 500. >> does that mean you go more defensive for the bigger names with best balance sheets and cash flows? >> exactly. we are looking for larger companies, quality companies, companies with steady earnings. we think the earnings are going to be more stable so when you look through to an earnings decline for the more cyclically oriented companies, is going to look better to have been in the health care companies, the steadier parts of the consumer discretionary elements more in the clothing area and real estate companies as well. >> when you take a look at gas prices, oil prices, i was going to bring up this chart that shows the decline we have seen

in retail gas prices for 23 days. this is the most since just after the outbreak of covid. does that give you some optimism that the u.s. consumer can stay resilient and perhaps you should not write off a lot of these consumer facing companies? >> i would take that as more of a blip. we have seen movements like releasing strategic petroleum reserves. i think it's a bit of a head fake. i'm not going to believe it and i think that consumers come up the prices of food continue to be high. as we look at food and energy being a component of the consumer budget, it has jumped up remarkably over the last two years. reminiscent of what was happening in the 1970's with respect to that proportion that goes into food and energy. even though the gas prices at

the pump are lower, i would still expect to see a lot of pressure on the oil prices going into the fall. >> do you want any exposure to international? we see the likes of china looking like they may release significant stimulus for the economy and that could add more optimism for chinese shares. you see expectations that the very little growth we expect lovely could come from asian economies. >> the preference for the u.s. is economics dominated. typically, i think the stimulus measures china is taking with the new bonds and direct into infrastructure is a positive move, but in terms of when you see such a strong dollar and the u.s. moving into, we're still thinking the u.s. is going to be into recession, we don't think the fed is going to be able to turn on a dime and prevent that,

we would rather be in what is a leading currency and a leading market. china is going to be a help, it's went to be a positive, but looking at other markets, i think they are going to be caught in the downdraft. >> we have seen with the risks shifting to growth, more investors taking a look at treasuries as a portfolio hedge. where you stand? >> i think there could still be some upside in yields perhaps to 3.25% on the 10 year. the fed has said they are going to move to a restrictive policy. i have always found that when the fed says they're going to do something, it's best to believe them. even though that rate is going to be a rate that is restrictive and i don't think it's going to lead to a soft landing, i still don't think they have the

ability as long as inflation is up there, is going to take a while for it to come down and they are pretty much stake there lyrical future on it. his said we are going to cut inflation and they're going to have a very hard time backing down from cutting back on rates until they begin to see a lot more inflation softening them we have already seen. it's going to take a while for that to move through. we still have supply chain problems from covid. you can't just snap your fingers to make this happen. >> always great to have you with us. you can get a roundup of the stories you need to know to get your day going on today's edition of daybreak. customize the settings as well so you just get the news on industries and assets you care about. this is a bluebird. -- this is bloomberg. ♪

♪♪ ♪♪ ♪♪ real luxury, real thrill. feel the rush of performance at the lexus golden opportunity sales event.

here is a quick check of the latest business flash headlines. a california public employees retirement system is selling $6 billion of private equity funds to secondhand buyers. sources say the pension giant sold its holdings at a 10% discount to their september 2021 value. the transaction frees up cash and it looks to directly buy stakes in private companies. the key lieutenant of the softbank founder is set to step down. they are said to be in talks to launch a new fund for which he has secured $6 billion in backing. gamestop shares tumbled after the company fired its cfo.

they are also weighing potential companywide job cuts. gamestop says it is supporting the cfo role immediately. a pretty good set up when it comes to the start of this final trading session of the week in asia. look at aussie futures looking like they will be broadly extending the thursday session gains. u.s. stocks are rallying for a fourth straight session. the most in two weeks for the s&p 500 on the optimism that we could see a soft landing executed by the fed and being able to curb inflation with no recession. the aussie dollar, we are seeing more strength. kiwi stocks are also up. chicago nikkei futures looking

more muted, but remember japan stocks jumped the most since june. it is a data light date. the big story we will be watching, chinese equities will be have the start of the trading day because they seem to advance as we get the reaction to the new stimulus proposal almost $224 billion in infrastructure bonds directed toward infrastructure funding and we could see china sovereign bonds as well. this is xfinity rewards. our way of showing our appreciation. with rewards of all shapes and sizes. [ cheers ] are we actually going? yes!! and once in a lifetime moments. two tickets to nascar! yes! find rewards like these

and so many more in the xfinity app. vo: when times get dark, we can't see the help that's all around us. let 2-1-1 be your guiding light. for help with food, health care, and other resources. operator: 2-1-1, how can i help you? vo: call 211 or visit 211.org 2-1-1

get connected. get help.

meanwhile christopher waller says he supports raising interest rates by 75 basis points this month and probably 50 basis points in september.

he says fears of a recession are overblown. waller is a voting member of the fomc this year. >> we need to move to a much more restrictive setting in terms of interest rates and policy. we need to do that as quickly as possible. i am definitely in support of doing 75 basis point hike in july. probably 50 in september than after that, we can debate whether to go back down to 25. inflation doesn't seem to be coming down, we could be doing more. >> twitter shares slumped after the bell after news that elon musk's takeover could be in jeopardy. his team has reportedly stopped engaging with funding discussions. twitter says it intends to close

the deal at the agreed terms. roughly on the doll has withdrawn from wimbledon because of a torn abdominal muscle. he was supposed to play his semifinal later friday but says he is into much pain. the controversial australian star is directly into his first grand slam final where he will raise novak djokovic or the british player. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. >> china's minister of finance is said to be considering a hundred $50 billion sale of special bonds accelerating fundraising to shore up the economy. let's get more from our china economy editor. they are actually selling bonds before the start of the new year. how much will this help?

>> this is unprecedented. they're usually not sold until well into the year. the question of how this will help is unclear because they are stopping the money being spent from this year's bonds and the lockdowns in shanghai and other places stopped construction happening. if there are no more outbreaks of the coronavirus, no more lockdowns in major cities or large places in china going forward, this may well help the economy and the activity. more lockdowns, if we see them

in large places in china, it is unclear how this is going to assist when people can't go to work, can't go spend and can't go do infrastructure projects. >> this is what got us into trouble when it comes to over leverage in the first place. local government debt doesn't tend to work out well. is that a concern? >> definitely. one of the reasons why it hasn't worked the last couple of years is because local governments are reticent to spend the money they get from previous lots of bonds. this year they have already sold 3.6 trillion worth of bonds. one of the reasons why that hasn't spurred a big boom in infrastructure investment is because they are very cautious about what they spend it on because they have had so many bad projects in the past and central government has been

telling them don't waste the money. on one hand they are being told to spend it as quickly as possible and on the other hand, there being told not to spend it on bad projects that will generate returns. in terms of what to do with this money, it could lead to bad debt or it could just pile up and not be used for effective stimulus. >> china's economy looks different now compared to 2019. that was the last time we had a face-to-face meeting between the foreign ministers of australia and china. one has been working very hard overseas since taking the foreign ministry role. she is meeting on the sidelines of the g20 meeting. what is going to be in these conversations? how hard is it going to be to reset this relationship where we haven't even seen beijing pick up the phone for the past three years? >> this will beat the second

meeting that australian ministers have had since the new government took office in may. the defense minister and the deputy prime minister met with his counterpart. there was no announcement of any kind of decision to move forward and reduce tensions. it was just we met, it was good that we talked, maybe we will see something more specific coming out of this meaning. i think it's going to be very hard for there to be a real reset of relations to return the relationship to where it was to a good place where it was five years ago. there are some i things that have happened and so many things that both sides have said they are not willing to compromise on. the austrian government has said unless there's a reduction in tariffs, unless those things stop there won't be a reset in relations.

china has made no sign it's willing to make that decision. the new government says it's not going to change. the specific rings that china had a problem with that australia was doing, australia's government has already said they're not going to change this policies. there may be a change in rhetoric, but it's hard to see how it can go further than that. >> so many challenges ahead. coming up, we wrap up reaction in the currency markets after boris johnson finally agrees to step down although not quickly enough for some within his own party. this is bloomberg. ♪

>> you are watching daybreak australia. let's bring in annabelle for morning calls. >> we have seen it rising, but what could be a positive here moving forward is we are seeing that drop in farm futures. we are seeing slumps across the board in the soft commodity space for the likes of corn, soybeans, wheat.

we will also get another reading . we are back at levels from before russia invaded ukraine. what that means for central banks and food inflation in general, j.p. morgan has been talking what this. saying we could see food inflation going down this year. paying attention to moves we are seeing in wheat. that essential for emerging markets across the board. >> what does that mean for headline inflation particularly in asia? >> it's important to look at the consumption basket for emerging markets because that tends to have a higher weighting of food.

any drop we see in food prices will be a net positive for inflation readings. we have seen those surging around the region. a lot of these countries are net food importers. there is also the leg picture because food costs despite earlier in the year that take around six months to fully reflect what we see in asia. now we are seeing a drop in food prices where morgan stanley that inflation in asia caught a peek this quarter. food cost is a big part of that. other factors, changes to supply, imbalances and wage pressure. morgan stanley says what that means for central banks that could also be a positive because there is no need to hike as fast or as aggressively as what we are seeing from the fed. the other big boost is the timing of this because we have

the global outlook picture weakening now. we are seeing that expectation that the fed may need to drop their rates moving forward. >> rampant inflation cost-of-living surging hundred just some of the themes that are impacting the u.k.. the end of boris johnson's run as prime minister could ease political tensions over the past days and weeks. investors say it will not fix any of the other fundamental issues depressing u.k. assets. let's bring in our senior currency strategist. we were only half jerk -- half joking earlier woman said everyone is riveted by the drama of the political situation other than actual traders themselves. >> obviously it doesn't change

the big picture, but if i look at my favorite bloomberg page, the pound was the second strongest currency in the g10 over the past 24 hours. maybe a little bit of relief there in terms of some degree of resolution. rather than force johnson hanging on and keeping these challenges particularly disturbing earlier in the week when the chancellor resigns, it's a bad sign. if we can get some stability there, the markets will probably like to see someone with economic experience. the big picture, the bank of england is expecting zero growth over the next 12 months. inflation heading to 10% or 11%. a lot of productivity growth in the u.k. has been week and

brexit has only accentuated that. it's probably just very reef pop in sterling. >> tax cuts are likely to feature heavily in his replacement. what are markets looking for? >> it's not really the perfect time, the bank of england is working very hard to slow inflation and that does mean slow growth. job markets are tight also. growth is sluggish, but it will have to ease up a little bit further. the timing of tax cuts is not ideal. it's a very awkward policy equation where central banks are trying to hit the brakes to get on top of inflation and on the fiscal side, many political leaders are keen to try to be

seen to do something and that often means looser fiscal policies. to some degree, they are working against each other. maybe that's what it takes, but not with the economy needs. >> across europe, we are seeing the ecb moving to tighten. how much will this help when it comes to the euro-dollar given that we continue to talk about what this chart on the bloomberg shows? >> that's right. parity getting back on the agenda. it has really been a great pressure from the yield spreads. the ecb is realizing that quantitative easing was not the correct policy.

it took them a while to wrap that up and was to have benchmark rates at -.5. a long way to go before the eurozone yields become more attractive. in the meantime, strong u.s. dollar is probably going to persist. in the eurozone economy like britain is a huge net energy importer. that's await on growth in contrast to the u.s. is a net energy exporter. we do think that the euro is going to remain under pressure. it probably looks better on a six-month and it would be brave to say -- >> tell us about the dollar strength because we have seen some downtrend when it comes to treasury yields, but how long can it be sustained? ask it was a bit of a circuit

breaker to have that pullback. while times in treasury markets struggling to work out what to price in in terms of the inflation peak, when does the fed finish with the frontloading? are they really frontloading and how seriously do you take recession talk? is it more of a technical thing in the first half of the year? a couple of fed officials pushing back on the notion of recession. that's volatility, but looking at the big picture, we think there's enough mental behind the u.s. dollar in terms of the fed being on track for another 75 basis point hike in a couple of weeks. long and yields probably haven't peaked yet. in terms of this wave of strength, it's probably got another few months to run. that does main renewed pressure

on sterling, euro, and commodity currencies and asian currencies. >> where to for the aussie because there has been so much push poll. the risk outlook has not been good. what is the stronger impetus here? >> the way it has been trading the past couple weeks, it does seem that the poor risk appetite globally is the key factor. interest-rate spreads haven't changed that much. it does look as though downside is still the risk for the aussie at 6650, 6670. that looks like a degree of support. the aussie correlations with equities have been elevated even by historical standards over the past few months. the global economy, there is so much uncertainty there, skepticism over whether china

can restock its economy. it has 25% fall in metals prices over the second quarter which means not a lot of confidence in china's outlook. for the time being, it looks like downside prevails. we are more optimistic on multiple quarter basis. thinking it gets back to the low to mid 70's later in the year, but in the meantime it looks vulnerable to us. >> we will see if china pulls with the $250 billion stimulus package. be sure to tune into bloomberg radio to hear more from today's big newsmakers and more analysis from our team. plenty more ahead, stay with us. ♪

bloomberg sources say new york-based investment firm general atlantic is exploring and ipo. we are told they are working with advisors on a plan to go public. volatile equity markets may delay a listing, so it may not have -- may not happen until next year. the firm has offices worldwide

including shanghai and singapore. a group has avoided a domestic bond fall after failing to repay a dollar note. it is extending repayment of a one billion note for two years after approval from creditors. a wave of debt extensions has helped chinese developers avoid default on short. an agreement to head off a strike. the unions say they will ballot members on the proposed offer which includes higher pay. >> is elon musk prepares to attend the sun valley conference , experts say his twitter deal is in jeopardy. what is the latest in the

ongoing drama relating to this deal? >> obviously, we already have a lot of doubts over twitter deal just by where it is trading. under $39. the deal price is above $54. the washington post reporting that amid this concern about twitter, elon musk is putting the deal in jeopardy not expanding on negotiations and conversations with the potential backer or the bid. our sources in sun valley also have a lot of skepticism about this. they think that a lot of this is a way to renegotiate the deal. he waived the right to see all of the data behind twitter beforehand. he waived access to the deal room. he does have a nonbinding agreement and twitter will want to hold him accountable to buying this company. another thing we are hearing is if a deal didn't go through, what is the future for twitter?

the cfo is also here at sun valley as well as the ceo and the lead director, the chairman of the company. this is going to be a very significant moment that is pretty imminent where elon musk will arrive in this town where there is only a small and elite group of investors at this conference. >> what else is dominating the chatter there? >> we asked a bunch of investors, are people interested in twitter itself? a lot of investors say from a potential investing perspective is the deal going to go through or not? there are a lot of investors here. we have warren buffett, bill gates. there are a lot of acid ending investors plus a lot of newer companies coming off the pipeline. startups on saturday are expected to speak to high net worth individuals. a lot of venture investors very worried about recession.

also really excited about the opportunity that volatility has come down just a bit and prices have come down so much. looking to the future, they are excited about clean energy deals, biotechnology deals, and the future of technology as defined by elon musk. >> coming up, we will look at the fallout of britain's political turmoil with a former senior policy advisor to the u.k. government. this is bloomberg. ♪

millions have made the switch from the big three to xfinity mobile. that means millions are saving hundreds a year on their wireless bill. and all of those millions are on the nation's most reliable 5g network, with the carrier rated #1 in customer satisfaction. that's a whole lot of happy campers out there. and it's never too late to join them. get unlimited data with 5g included for just $30 a line per month when you get 4 lines. switch to xfinity mobile today.

haidi: you are watching