haidi: you are watching "daybreak: asia, from'asia,"

from new york,. shery: stocks or to ride the tailwinds of u.s. rally as fed hocks downplay recession risks while backing another 75 basis point rate hike. china made $220 billion in stimulus with local government fast tracking unprecedented bond sales. boris johnson facing pressures as the conservative party plans to choose his successor. haidi: this week was all about recession in markets. we could see the peak of that. i will hand it back to you. -- shery: given it is out right now. peru's central bank raises the rate to 6% from 5.5%. pretty much as expected.

50 basis point rate hike. inflation at the highest in 25 years topping 8% growth for the month of june. this will be the 12th street hike in a cycle that has already added more than 500 basis points of rate hikes since august. the narrative over inflation concerns globally continues. peru just the latest in a string of central banks to hike rates. haidi: what is interesting, we had seen really recession overtaking inflation as the number one risk in markets. even now coming into friday, we could possibly pass the peak. we saw the massive move higher in the u.s. we are setting up for risk on trading in asia. asx 200 futures close like this. new zealand in the green. -- flat right now, but closed to the upside. what was important was what we heard from the fed governor.

the underscoring of the restrictive policy, but we can't avoid a downturn. the aussie dollar another good proxy for risk assets. timing above that level. also what matters is what we heard from china and the process -- diction we got of infrastructure spending. but the big question for local governments in china is how to spend the money, put it into high quality projects continuing to grapple with the covid lockdown. shery: taking a look at how u.s. futures are trading. a sea of red. down for the s&p many futures. but really, this as we saw the s&p 500 gaining ground for a fourth consecutive session. we see some of those concerns about the strength of the economy leading to that inflationary spiral. really easing a little bit, given we saw jobless claims rising. perhaps a moderation of the

strength of the labor market. we had the philadelphia semiconductor index rallying. summer earnings and a rally in asian chip stocks. we are watching the recession fears. when it comes to the two tens. part of the yield curve we are watching closely. it has remained inverted for a third consecutive day. haidi: two of the fed's leading hawks are looking for a 75 basis point rate hike at the july 27 meeting. they insist these aggressive hikes will not cause a recession. kathleen hays is here. what do we hear from them? the markets are quite confident. kathleen: they spoke at two separate events, but in the same voice. chris mahler and jim bullard said they are backing 75 basis point rate hikes. chris said maybe after this one. jim says another 75 basis point

hike july 27 will get the fed to neutral. that is when they can look around and say how much more do we have to do? chris waller saying 50 after that. maybe even back to 25 basis points if inflation behaves. both of them say a soft landing is possible. chris saying the fed can pull this off cleanly. let's listen to how jim said it. >> a good chance of a soft landing going forward. there are always risks. or a shock we can't even think about today that will hit us. that could happen. we are always cognizant of risk. the base case is for soft landing at this point. haidi: jim bullard worried about -- kathleen: jim bullard worried about inflation expectations. chris waller saying aggressive rate hikes are needed. the jobs report a little bit

softer in june. looking at the bloomberg terminal chart. the payroll number, up 390,000 in may, expected to be 260,000 in june. unemployment expected to be unchanged. even back to 260,000 jobs is still phenomenal. that is where you say it was a good jobs report. he said -- they both talked about the strength of the economy and labor market as something they see holding up. it is another important reason they say we are at such a strong labor market now. if we hit it hard now and finish up quickly, we can have the strength to avoid that recession. they are not the only hawks we will be hearing from. many more before the meeting. shery: kathleen hays on the strength, perhaps, of the u.s. economy and optimism about the u.s. economy. perhaps a different story for china.

authorities may be concerned about economic strength. bloomberg has learned chinese officials may push up $220 billion of bond sales to the second half of this year in an unprecedented boost to infrastructure spending. for more on this, bringing in james mager. how much would this help? >> this is a massive increase in the amount of money that would be into infrastructure investment. local governments have sold 3.6 5 trillion yuan worth of these bonds. the government just announced last week policy banks like the china development bank would get about 1.1 trillion yuan of extra spending from selling bonds and making a stir loans. these investments, now there is a possibility in the second half of this year for another 1.5 trillion yuan of money that they will be able to spend on

infrastructure investment, trains, roads, these kinds of things. if this is all spent, and if the money that is available to these local governments is spent on infrastructure investment jex around the country, it would be a boost to the economy. the problem is last year they would get saved in bank accounts. first half of this year, you have not seen a big pickup in investment. even though they had the money available. the main reason for that, two reasons. first, the government has problem finding good projects to spend money on. for years, they have been told not to waste the money on bad projects and get returns. don't throw good money out of the bad and digging holes and filling them in. they are reticent to spend the money on anything, because they want to get a good return. not a lot of good opportunities. the second problem is the lockdowns we saw in china and the spring. also across the country.

it made it impossible for the investments to happen. if they are reticent to go to work, you can have construction projects. if that doesn't happen, big outbreaks in the second half of the year, it would be a boost. it remains to be seen what happens. haidi: our china economy editor with the latest on that proposed stimulus. getting the latest when it comes to boris johnson's plans for an orderly retreat. the conservative party drawing up plans for an accelerated contest to his successor. leeann joins us from london. it is unusual to propose this three month swansong. what do we expect to happen next? >> you are absolutely right. it is unusual and has come with controversy. we heard from a former conservative prime minister

earlier today. he said it was unwise for boris johnson to not step down with the media effect after resigning almost 12 hours ago. he stood in front of downing street after an avalanche because of them losing confidence due to a series of scandals. where does that leave the conservative party? it hangs in the balance. attention turning to the very influential 1922 committee to draw the leadership process going ahead. we will find out more about that at the beginning of next week. they want to whittle down the next contenders for prime minister by the 21st of july. >> who could succeed boris johnson at this point? >> this is where things become tricky. so many people putting their hat in the ring. let's start with the first two.

they resigned within 10 minutes of each other, really starting the snowballing effect that essentially saw the resignation of boris johnson -- the trade minister is also keen to run. ben wallace is the defense. he's really popular with the tory grassroots. also liz trust, who has come back from bali. so a lot of people in the ring. i did speak to a few conservative mps. they are not putting their head above to say who they want. so everyone is keeping it quiet. that will all come to light in the next few days. shery: we will be looking forward to that. our bloomberg reporter with the latest on u.k. politics. let's get to su keenan. su: the foreign ministers of australia and china will hold

talks for the first time in almost three years. they will meet at the g20 in bali to reset a strange relationship. rising political tensions as china imposed tariffs on australian wine and barley in 2020 and blocked trade and other goods. it is in both countries interests for ties to be stabilized. as christopher wray is escalating the suit between the u.s. and china over hacking, he's warned western companies china aims to ransack their intellectual property so it could eventually dominate key industries. he told an event in london the chinese spies are snooping on fortune 100 companies. the president of theranos has been found guilty of fraud for his role in the collapse of the startup. the decision comes a six month after his former partner, elizabeth holmes, was convicted of defrauding investors in the

company. he faces as much as 20 years in prison. twitter shares were falling after the bell on a report that elon musk's $44 billion takeover deal is in serious jeopardy. the washington post says his over concerned with the social media platform cannot confirm spam users. the team has reportedly stopped engaging with funding discussions. twitter intends to close the deal with musk at the agreed-upon terms. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm su keenan, this is bloomberg . shery: still ahead, diving into the u.k.'s political future following boris johnson's resignation. the worldwide financial's loreen gilbert joins us on fixed income and why she says using cash is for digging -- using cash for

digging into investor assets is the right move for retirees. this is bloomberg. ♪

>> the market pushing the fed right now. >> the fed wants to go to 3% in early 2023. >> they may need to slow down rate hikes than later. >> the deal is over 100 basis points below that level. it doesn't make any sense. >> how much longer is the rate hiking cycle going to last? >> the bond market saying taking at -- >> we know the fed will be -- >> 75 basis points baked in the

cake for the july fed meeting? >> absolutely. >> 3.5, i think it will be hard for them. >> we have already seen that. >> the market has readjusted their expectations. >> the hawkish in us well ahead of central -- the hockessin us well ahead of central banks. -- haidi: asian stocks are poised to open higher, extending the thursday gains following the tailwind from the u.s. rally. policymakers pushing back amid fears of a recession and confident to get inflation under control without the downsides. bringing in loreen gilbert. we see risk returning to markets . is it because there is more confidence of a soft landing to be executed? >> yes it i think there is confidence about many things. in the economy, if we look at

the numbers we are seeing, we have seen ism numbers and ish numbers look good. employment looks good. look at the baseline foundations of the economy, and even look at her earnings expectations over the next quarter, 5% to 7% year-over-year earnings growth. i think it all speaks to a somewhat solid economy. even now, gdp first quarter -1.6. second quarter, probably -2.1. in the midst of those numbers, we see positive economic data. haidi: what about the consumer? are you slightly more conservative when it comes to consumer stocks, or is there some resilience? >> i do think we have to be careful with consumer discretionary in general right now. but i think the consumer, when we look at them, is strong. look at about 9% being dedicated

towards debt services right now. and the consumer is still healthy, still have savings, using savings with the inflation numbers that have impacted them. the impact to the consumer has to do with gasoline prices. as we have seen oil coming down, it will help the consumer. haidi: we have seen retail prices at the pump for gasoline also coming down more than 20 days or so. does it give you more confidence about those sectors that are more consumer oriented? whether it is discretionary sector or some goods, as well? >> i think we are really looking at some of the areas like financial energy materials and sectors we do like right now more so than consumer discretionary. shery: why is that? >> if you look at valuations, we

see those areas i just mentioned at historic 30 year lows, as far as valuation. we will be looking for those areas of the market, specifically at companies with free cash flow, spending on cap x, companies increasing dividends. those are some of the areas i mentioned. those are areas for investors to be looking at. shery: how important will the profit margin narrative be? >> that is a great question. that is one of the things we are definitely looking at. and how much compression there is with profit margin and how companies continuing to deal with inflationary pressures and cost increases are able to maintain profit margins, or are they being squeezed? that is where some names have a more difficult time.

when you look at discount retailers. for instance, those with very small profit margins. those are the areas. retail sales. those are the areas we might see it. shery: always good having you with us, loreen gilbert. get the round of stories you need to know to get your day going in today's edition of daybreak. subscribers go to gtv . you can customize your settings where you only get the news on the industries and apps that you care about. this is bloomberg. ♪

haidi: a quick check of the latest business flash headlines. narrowly avoided a bondi default after failing to repay a dollar loan to the chinese property

developer. extending repayment of a one billion yuan note for two years after a loan from creditor approvers. developers are worried outright defaults on shore. -- set to be stepping back from his main role at soft ink group. sources say he will retain a senior position with the first vision fund. but he will give up other roles to set up talks which were already secured in backing. shares with extending trading after the company fired the cfo. they are weighing companywide job cuts. gamestop says in a filing -- the cfo affected immediately. shery: as elon musk prepares to attend the sun valley conference with the world's top executive,

reports say the billionaires twitter deal is in serious jeopardy. getting more with the conference. this will be a very interesting event. now that we continue to see the latest development with that twitter drama and elon musk unfold. >> it is not only that elon musk is one of the most coveted speakers at this event intended to speak on saturday. he is moments away from being at the event. we see on twitter that he has landed in idaho. and we know that the twitter executives have already been here for a while. that includes the cfo. i've also seen the board chair. under $38 after hours. to the extent investors at this conference care about that deal. the opportunity to maybe buy

twitter shares if it were to go through or be involved in financing in some fashion. that is what they are talking about. on the other hand, they are interested in elon musk for different reasons as well. but it will be a very interesting moment in all of these executives in the same conference together in a fairly confined area. it is all one resort area. peers come arrive us and fellow billionaires and social media companies, as well. it is truly the moment. haidi: who else is in that space? what else is dominating the talk? >> it is interesting, because you see a host of investors that are either very interested in the twitter deal, or marginally invested. this is one of the biggest deals announced this year with volumes of under pressure. the expectation is there will not be deals announced right

away. the next six to 12 months, elon musk himself has voiced concerns about the economy. other investors are very concerned about the economy and other entrepreneurs here to map out the future and what it doesn't look like for social media. but also electric vehicles, space, and other emerging technologies to shape the next economic future and the next set of great investments in that economic cycle. haidi: the latest right there. take a look at how it is setting up in asia. we are seeing stocks looking to potentially harness some of the tailwind coming from the u.s. to help policymakers say they can get under control with a soft landing without causing a recession. that is looking to be extended in the gains in asia. 3% from the previous session.

we are expecting your from new zealand already. certainly japan stocks looking to extend the rally when they jumped the most since june. in particular watching china stocks to the new stimulus proposal eventually around $224 billion of bonds. a local government bonds to go into infrastructure projects. that is looking likely to drive gains. after days of political chaos, the conservative party is pushing boris johnson to exit downing street quicker. he will be speaking with a former senior policy advisor to the prime minister.

haidi: breaking news out of japan. looking at the household spending number year on year. a contraction of .5% for the month of may.

really disappointing those expectations by economists that have expected household spending numbers to gain more than 2%. so we are talking about three months of contraction for households in japan when it comes to spending. with those figures, with consumption in japan. i was especially curious about this number. japan climbing to the highs level of 14 years. a third month of contraction. of course i talked about inflation. politicians around the world are rushing to tamp down inflation.

the pie minister is betting all of the voters in particular will look past a surge in prices in sunday's election. isabel reynolds joins us now. how is the prime minister expected to fair in the election? >> at this point, looking at the polling, we have seen relatively well. this is an upper house selection, which doesn't involve a change in administration. and the seats up for contention every three years. he and his coalition need to win at least 56 this time in order to maintain majority at the half, which is important for legislation. a moment from polling, it seems they will win probably at least 65 or so, probably even more. although some seats are quite hotly contested at the moment. there is still something to play

for. but if he gets good results, it means his party will be happy with him and he can look forward to as many as three whole years for another national election. haidi: when it comes to the most important issues, is japan also grappling with the global themes of higher inflation, cost of living? >> yes. that is an issue. the headline inflation, not nearly as high as anything you see, for example in the u.k. or u.s. even the small amount of inflation has had a very kind of negative effect on the mindset in japan. because people are not used to it for one thing. and we had inflation for so many years. it is not rising for very much. you see the top issue that people want the government to deal with is inflation. and the opposition parties

haven't tried to make monetary policy issue in the campaign by saying he's supporting the very easy monetary policy, causing the yen to weaken and worsen inflation. which is arguable. they are more interested in what the government can do more directly in terms of the handouts to people on low incomes and so on. and that the government has not done enough. >> isabel reynolds. let's get straight to hong kong. let's get to debt demand for the japanese markets. >> picking up on what isabel was saying. because we do have him on track for a convincing win in the election on sunday. that will determine where the boj goes from here. if we do get that result, it will allow the boj to really stick with its policy settings

going the other direction. and it will be more of a push to really grapple with these inflation concerns. take a look at what we saw in the most recent debt auction results. we have seen demand weakening in the longer duration bonds. traders could have perhaps targeted it from the boj's yield curve control program. we have seen weakness. in the most recent auction, the positive signal from the boj. we saw buyers coming back into the market, yields a relatively high and cheaper providing a better than expected result. recession risks is also a result. and moving on the board, checking what is happening in the dollar index. and the biggest one of them has been the beneficiary of those. topping 107 since 2002.

so the change now, we can look at the pound this morning. it heat has announced his political move. number 10 downing street further boj. haidi: he did say he will stay on until a new leader is in place. the former senior policy advisor under the former prime minister, james crabtree. we appreciate your time. the swansong has not been proposed.

having that elongated notice period. what does it mean behind the scenes what is happening at the moment to find a replacement. >> the upside for boris johnson and you will see boris johnson will be forced to leave downing street. while they are for a short-term period of instability, and the rise suggested investors were more optimistic. and there will be a lot of lack of clarity. haidi: you mentioned more than a dozen contenders, and it looks like such a busy field and so many people throwing their hats into the ring. and in terms of finding a

credible single or a couple of options. there are dozen people throwing their hat into the ring, is it problematic in terms of so many different people going into a top job. does a credit hindrance to find one or a couple of credible leadership options. >> i think it is what it is. sometimes you have an obvious candidate like boris johnson who won easily. sometimes you don't. there will be a longer and more open contest. it means unlikely that potentially candidates can come to the front. sometimes it can be a bit of a mess. that is what we are in for.

that is why investors should prepare. haidi: getting the latest reaction when it comes to boris johnson's resignation from new zealand's prime minister. saying new zealand has exceptionally strong relationship with the u.k. and expects cooperation to continue. what can we expect from the next prime minister in terms of geopolitics? can we expect big changes or are we seeing the partyline? >> the u.k. has a job to do to rebuild its international reputation in the aftermath of the johnson administration. all of it comes to the brexit vote, and britain had rolling theories of the leadership crises. but i don't think any leaders will take and erratically different consensus.

trying to go back to the european union or anything like that. but he has plenty of work to do to rebuild its reputation after the ups and downs. i think investors might be sending stocks to the pound. and certainly, the difficulties in british politics and the leadership crisis has stopped the amount of focus. in trying to arrest before in their economy.

haidi: we wanted to get your views on the other big story. with the rollout of local government bond issuance to go into the infrastructure projects. we know it is the classic stimulus play from the government. your thoughts when it comes to the leverage and productivity and adding debt like that? >> i think it is a curious decision. the chinese central government level, there is definitely physical space to allow the central government to borrow more and invest. going back to the old playbook of using local government debt. the way they are doing this is not entirely clear. you end up creating all of the old problems you had before. on the other hand, it is clear china's economy is not in a good place. with those whom call with over 100,000 party a few years ago. that shows the government is worried heading into the party congress later this year and

needs to do something to make sure the economy is growing again. shery: james crabtree, thank you very much for joining us. let's get to su keenan with the first word headlines. su: we start with the fed governor christopher waller. he said he's -- interest rates by 75 basis points this month, probably 50 basis points in september. fears of a recession due to higher borrowing costs are overblown, stressing the urgent need to tame inflation. he's a voting member of the fomc. >> we need to move to much more restrictive steadying in terms of policy. we need to do it as quickly as possible. definitely in support of another 75 basis point hike in july. probably 50 in september. after that, we can debate whether to go back to 25. inflation just doesn't seem to be coming down. we have to do more. su: meanwhile, size and strength

in the u.s. labor market may be monitoring -- moderating. rose last week slightly to the highest since january. initial jobless claims were up 235,000. the moving average has been higher in 12 of the last 13 weeks. and the state bank of pakistan raised rates by 105 basis points. a move predicted by only three of our economists in a bloomberg survey. and to meet conditions for a loan from the imf. central blank sees inflation this fiscal year at around 18% to 20%. finally, to tennis. rafe on the doll has withdrawn from wimbledon because of a torn abdominal muscle. the grand slam champion was supposed to play his semi final friday, but says he is into much pain.

the controversial australian star nick curious in his first grand slam final, where he will face novak djokovic. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm su keenan, this is bloomberg . shery: 15 minutes from the open of major markets across asia. plenty more to come. this is bloomberg. ♪

shery: more reports about covid cases from north korea. the very secretive nation. is cussing the fallout on human rights and women's rights issues in the nation. we are joined by the south korean all-star. cowrote the hard road out, detailing the journey fleeing north korea. thank you so much for coming here. talking to us about this very important issue. a lot of time to focus on these missile test from north korea. the geopolitics of it all. we have really not paid great attention to the humanitarian issues within the country as we continue to see these covid cases reported out of north korea. very secretive nations.

what have you learned about human rights talking to a north korean refugee? >> the important thing to remember is the information i got is by definition, primary source. it is not something i find googling or reading a newspaper. it is from somebody who lives there and escaped north korea in 2008. so what is interesting here is the fact that she escaped north korea to flee to china and in the u.k. by 2008. ever since, she has been an activist for human rights. i met her by accident. the book that we wrote together

describes her life after she left to north korea. we end up connecting it in a very personal level which is completely unexpected. shery: part of the book talks about her working in cornfields. how likely is it that we see this mass infection in a north korea and we might not even hear about it, given the experiences she tells about really not having any freedom of information in the country? >> the covid situation is not something i can really confidently talk about because we don't have any fact. the only fact information i have is they have very recently accused south korea of having transmitted the virus through the balloons the scout three and

-- south koreans have sent to north korea. this group of refugees who live in south korea who every year send balloons in an attempt to bring them information from the outside world. the latest accusation is the fact south korea would have transmitted covid virus. let's not forget here that we see kim jong-un from the outside. but he has a story to tell to his people. he needs to make sure he needs to feel popular in the country, and he needs to justify why he is the leader of that country. how does he do that? by accusing other people, accusing south korea of giving them the virus, and also by telling them they are the most powerful country in the world. haidi: the pandemic has made it

very difficult for diplomacy and humanitarian aid. what do you think with insights that you have would be the most effective way foreign governments can improve the situation? >> the fact is we don't have much information about what really goes on in north korea. and the fact they have refused help, in terms of getting vaccines. they have refused south korean help, yuan help, all sort of help. i think instead of speculating on what is going on there, it is no secret that the country was locked down for three years. it is no secret of country has had covid. and they have come up with this

story about how they came up with their own medicine to covid in north korea. the point being they always need to choose somebody. south korea has been the escape again. haidi: this year has been extremely active when it comes to the nuclear ambitions more than any other year in the decade in power. how do you think it plays out domestically, and how does it play into the way the leadership treats human rights? >> if you ask me should they spend money building more missiles, no. have they spent the same amount -- so they could have fed one

person for a year? that kind of money is going into developing weapons. let's not forget that we are all responsible for having made that situation. north korea joins the united nations in 1991. and the international community signed up for it. they signed off knowing that it was a dictatorship. so we all have to take responsibility for the situation. shery: you talk about how personal this book is to you. you are south korean writing about a north korean refugee. tell us about a sentiment between the two countries. can there be a reunification after this long? more than half a century of being separated? >> not having an answer to that

specific question. i want to tell you about my personal experience of how i manage to connect with these women. in my opinion, we have been sort of -- we have been put in the mindset with so much information that has to do with historical backgrounds how south koreans with the anti-communist mindset. and north koreans thinking on their side. the only way we could go beyond it and divide and impose external forces. and by that, i mean talking extensively about childhoods, family relations, and all of these personal connections that

are allowed to put arms down. haidi: that was seh-lynn chai joining us. more to come. this is bloomberg. ♪

shery: japan numbers coming through. the maker and account surplus -- market estimate of ¥171.9 billion. the trade deficit just shy of 2 trillion yen. that is actually better than the expectations of a contraction of 2 trillion yen. more to come. this is bloomberg. ♪

haidi: this is daybreak asia. counting down to the major market opens.

hearing more hawkish rhetoric from fed officials potentially signaling another 75 basis point rate hike this month. but this as china seems to be going in a completely different direction. haidi: that is right. mulling the bump at $224 billion government bond issuance. back to the old stimulus playbook. will it see gains in the market? we saw that. . in the index taking a look at the market open. shery: also reflected in the moves we saw in treasury futures sec. out from the open. japan, korea, and the trade. 10 year yield at the open, as well. we mentioned the infrastructure spending we could get from china. certainly hoping it helps with the risk on moving markets. we had the giant tailwind from the session in wall street overnight. the session we have seen in two weeks. in terms of what we see domestically in japan, there are

still signs we are getting that perhaps the recovery is not taking hold as fast as what had been expected. households cutting spending in may. the first time we have seen that in three months. japanese stocks still checking to the outside. it does change, look at what we see with south korea. tech stocks really the main focus. immediately opening outpacing the gains we see for the broader index. we had seen the nasdaq rallying for the last four sessions. on track for its longest stretch of gains since march. domestic factors are at play. watching for any lines we get from the president. he will be meeting later this morning to talk about inflation risks in the economy. we also see the country deciding to really rein in its spending. the goal is to bring the debt to gdp ratio to around 50% by 2027. now moving to the open in australia. we see the asx 200 moving

higher at the start of trade. keeping an iron commodities. continuing to see brent crude trading. commodities on the promise of infrastructure spending. the aussie dollar also reflecting the risk on move. and also watching the ftse 100 futures. that move higher in u.k. stocks overnight. markets really preferring boris johnson gone from the prime ministership. the goal or idea being we see a new prime minister that could improve relationships across europe and support a further fiscal stimulus. shery: our next guest staying overweight china an sees earnings improving along the macro recovery. let's bring in sunil koul. good to have you with us. how much would this potential 220 billion dollars stimulus and

infrastructure help markets when it comes to sentiment improving for the country? >> very pleased to see it. look at the china views, policy easing from china was one of the key pillars. quickly backing about views on china. we have been overweight the market. the earnings momentum. and commodities starting third quarter. we already see some of that in the higher frequency data. policy stimulus across dimensions in terms of fiscal, covid policies, immigration coming through. you see evidence of that, as well. the valuations have come up because of the recovery in the market. but still kind of reasonable. backing up all of that, we think china equities should be doing much better than the rest of the world. especially the united states. expecting around 14% this year. shery: how much will positivity over china help other markets in

the region? this chart on the bloomberg shows the tech heavy korean and taiwanese markets losing so much capital outflows recently. >> we are somewhat more cautious on the global cyclical markets. so we have technically taken our view down -- tactically taken our view down to neutral. taken the view down to underway. i think the risk is more coming from externally, more from soft session risks in the u.s. because these markets are quite sensitive to that. so there is a larger amount of earnings downside for equity and taiwan. because of that, i think we still play china in parts of asean, including singapore and indonesia. demand oriented economies as opposed to more globally sensitive. haidi: does it seem like we have really hit the conflation?

-- peak inflation? what does it add for the risk in these markets? >> that is a great question. in terms of our global views, we are somewhat still -- and the outlook for the risky assets is still challenged. i think the main reason goes to what you mentioned. we haven't seen peak inflation yet. and we think we will need to see a better mix of growth in inflation, inflation peeking, but also growth signals dropping before we see more pricing in the risky assets. around the board views is broadly, it is neutral equities on a global asset allocation basis. but in different reasons, we think asia and china should outperform the u.s. in terms of

valuation differentials, boosting differentials, and china. on a very different cycle compared to the u.s. haidi: what about earnings expectations? are they at a level where we can see a chance of upside surprise? >> again, for earnings -- for example, in china at the top of the call as the macroeconomy comes through, we should see better earnings in the third quarter onwards. for the rest of the region, we have taken our numbers down. but it comes from global markets like korea and taiwan. so we still think it will be further downside risk. in the u.s., we have taken numbers down for earnings a couple of percentage points. we think the consensus expectations look optimistic. so there could be further downside risk on earnings. but china stands up much better than the rest of the globe.

shery: on the other hand, which regions and assets outperform when recession risks arise, or during recession risks? >> just circling our views on recession. we generally think there is a 30% chance around the u.s. 40% in the next 12 months. softer session is not our base case, even though the market is pricing the higher risk. in terms of assets that perform generally in a recession, it is commodities. equities generally fare more neutral. i think they do much better. but the best assets looking at real flesh -- recessionary period, cash, as well. with equity sectors, financials should be doing much better. because they are genuinely accompanied with the rate hike cycle, as well.

haidi: always great to have you with us, sunil koul. let's get a look at the early movers. >> checking in on where we are looking at commodities. brent crude and copper coming online at the top of the hour alongside japan, australia, and korea. early trading. brent crude coming off a little bit. tracking the losses of the wti. what is happening in the oil market, we see demand and fears of recession really taking over the fundamental supply, which seems to be that tight supply. in the metals space, we see gains. down to what we hear from china. the report we had this morning that we could see more than $220 billion of stimulus spending. so copper gaining as much as 6.5% in london in the last session. changing to how it moves, we see

material stocks leading the asx 200 higher. we see that reflected in the prices of some of the biggest names in australia and in japan. turning to what we see for the big coin names. certainly the day where we see the big move into risk on trading. we see the bitcoin companies that either operate or have exchanges, they are tracking higher. bitcoin steadying this morning. but importantly, getting above 21,500. it has been stuck in the 20 k range for quite a while. shery: let's get to su keenan. su: starting with boris johnson, who is facing pressure from his party to speed up after finally agreed to quit as prime minister after days of political chaos. his team suggested he stay on as caretaker until october. the conservative party chooses its next leader. possible successes include foreign secretary liz truss

and rishi sunak -- richie soon i. it could be unveiled as early as next week. >> i say i will give you as much support as i can. and to you, the british public, i know that there will be many people who are relieved and perhaps quite a few who will be disappointed. and i want you to know how sad i am to be giving up the best job in the world. su: fed governor christopher waller says he supports raising interest rates by 75 basis points this month. probably 50 basis points in september. he says fears of a recession due to higher borrowing costs are overblown, especially the urgent need to tame inflation. he's a voting member of the fomc this year. >> we need to move to much more

restrictive steadying, in terms of interest rates and policy. we need to do that as quickly as possible. i'm definitely in support of another 75 basis point hike in july. probably 50 in september. after that, we can debate whether to go back down to 25. if inflation doesn't seem to be coming down, we have to do more. >> the foreign ministers of australia and china will hold talks on friday for the first time in almost three years. they will meet at the g20 in bali to reset a strained relationship. rising political tensions saw china impose tariffs on australian wine and barley, and block trade and other goods. penny wong says it is in both of their interest for ties to be stabilized. twitter shares fell after hours in the u.s. on a report elon musk's $44 billion takeover deal is in serious jeopardy. the washington post says it's

over concerns with the social media platform can concern -- confirm total spam users. his team stopped engaging with twitter, but they want to close the deal at the agreed-upon terms. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm su keenan. this is bloomberg. haidi: still ahead come -- shery: still ahead, we are joined a little later to preview the upper house elections and how the results may impact the yen and more. before that, restarting relations. the foreign ministers of china and australia set to meet for the first time in three years. a look at what is on the agenda. this is bloomberg. ♪

>> his government was very supportive of what we are doing. we are building fiber throughout the u.k., investing in 5g, leveling up and upgrading the market in the way it deserves and requires and spending billions doing it. we thought they were supportive of the investment and giving us a shot of that great return. let's hope it continues. >> the u.k. will have the prime minister in the midst of what could be a severe economic downturn. you clearly got very dramatic,

further increase in the national gas prices. you have very high level inflation. interest rates likely to rise further, most market indicators projecting a likely recession. this is not a time to be without a captain on the ship. haidi: some of our early guests reacting to boris johnson stepping down as prime minister. the uk's ruling conservative party throwing up plans for a conservative contest to choose his successor. leanne joins us from london. obviously this three-month notice is not possible for his colleagues, his support that he has already lost. what is next? >> you are completely right. there has been so much controversy after his tweet saying he will stay in power

until his successor is elected. really what comes next is all eyes are turning to the 1922 committee. this was a body of very influential conservative mps. they will speed up that process to make sure a new prime minister is elected by september. instead of the current deadline of october. there are so many runners and riders happening at the moment. a lot of names being thrown into the hat. first of all, we know that rishi sunak resigned on tuesday, 10 minutes before -- resigned. it really started the snowball effect that has seen a resignation of the prime minister. they said going for that leadership contest. also liz truss. and there is also ben wallace. he is interesting. the defense secretary. he's really popular with the

grassroots conservative. and also the new chancellor who has been elected. a lot of people are going for this. it will all be outlined next week. the possibility of those people coming forward. it is difficult at the moment to see where boris johnson is going to go. is he going to step down and leave number 10 like all of the senior conservatives and the labour party, too? so we are really in a state of paralysis. shery: you mentioned a series of contenders. what could it mean for policy, especially economic policy, given the challenges the country faces? >> this is the main question. i had a look at the front pages of the newspapers coming out this morning in the u.k. that is what everyone is asking. what happens now? boris johnson says he will not bring any policy, he's just

going to be there to see the administration through. the big question is what happens? especially as we heard earlier, the u.k. facing a big economic crisis. inflation rising, but people are seeing a huge squeeze on their personal finances. things are getting more expensive. also there is a war in ukraine. we also see the possibility of strike action on the horizon. if we don't have a leader at the helm of the ship, what is going to happen in the future? shery: leigh-ann gerrans with the latest on the policy. discussing the implications with david finnerty. should i say the lack of market implications? is the focus on the economy why u.k. politics and the drama ongoing right now doesn't seem to have moved assets as much as some had expected? >> yes, it focuses on the u.k.

economy. yesterday, boris johnson resigned. if you think about it, with so many resigning, that it continued, the government couldn't effectively work or operate. so it is a relief that has happened. also you have positive hawkish comments coming from the bank of england saying we may frontload rate hikes. and the sentiment of u.s. equities rallying. but certainly moving forward, you have to think next week, the attention will turn back to u.k. data and how the economy is performing. gdp data coming out. if it shows a decline month over month. it doesn't bode well for the economy. u.k. business confidence at a 15 month low. consumer confidence at a record low.

and it has come out and said it viewed work -- if russia continues to cut the play, forcing gas prices and oil prices higher, there's a good chance the u.k. can plunge into recession. worries of the economy will exist, no matter who is at the helm of the conservative party moving forward. and those parties will not be good for sterling. if it backs up that recession is in the -- moving forward. haidi: a lot of this comes to dollar strength. is there some concern valuations have become quite stretched? >> i think in the short-term, it is hard to say. the fed is so hawkish. the focus really isn't inflation, rather biting the bullet now and hiking aggressively. because they say if we delay it down low, it will be even more and be the worst case scenario. so they are very hawkish. and you have data today, u.s.

inflation data next week. arguably just as important, inflation expectations index. because inflation looks like it is becoming entrenched in the u.s., the fed will have to say we have a problem. we have to hike higher and higher to really get that under control. if the fed becomes more and more hawkish compared to other central banks, dollar strength moving forward. and the pound again can come under additional pressure to make economic headwinds. >> david finnerty there. liberty global's ceo says u.k. consumers are struggling with the rise in prices, but optimistic in the medium term. spoke with ed ludlow at the sidelines of the conference in sun valley. >> from our perspective, the u.k. consumer has a great option for essential services, conductivity services for us, and we make it easier for consumers who are struggling. the market as a whole is

trending in a negative way. i think we are making it affordable. >> in the u.k., do you see a pocket of the consumer society that is struggling? is it due to inflation? >> that is inevitable. the answer is yes. and we do offer a 15 pound service, give people a break if they are struggling. working with our government to make that possible. cost of living, it is something we are very sensitive to. we will be around a very long time. we will keep them happy and stable. >> you are sitting on cash, a lot of cash, but you have strategic options. what will you do with those? could you spin it out, ipo it, not do that? >> the other thing is virgin media creates cash for us. we anticipate significant dividends, so that is a good

thing. in terms of the $4 billion of cash, we will be patient. and opportunistic about how we put it to work. we are buying over 10% a year. likely more this year. we are big investors in our own stock. and the u.k. will be opportunistic about transactions that further solidify our scale, position, and rationalize the market. there will be interesting developments. >> we have talked a lot about public market volatility. some folks are pretty optimistic, they see some that are quite dire about the economy. where do you sit? >> i'm always a medium to longer term optimist. we are heading into continued volatility. that is inevitable. consumers will feel like they have spent quite a bit. maybe all of their savings, more

credit card debt. the fall will be bumpy. but long-term as inflation settles, interest rates find their balance, you will find things coming back to more normal levels. i'm meeting the long term optimist, but it could be tough. haidi: mark fries speaking with ed ludlow. let's see how futures in europe are opening up. this is the picture across the stocks. pretty much unchanged. msci europe seeing upside of about 2%. flat when it comes to dax futures in germany. the ftse 100 futures. given all of the political uncertainty. european stocks rose by boris johnson's resignation. also lifted some of the mid-cap names trading in the u.k. european stocks will broadly jumping the most in about two weeks, mostly on the back of destabilization in oil prices. 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 gtv for that. it is also available in the bloomberg anywhere app. customize the settings to get the news on the industries and assets you care about. this is bloomberg. ♪

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>> this is "daybreak asia." 30 minutes into the trading session for japan, korea, and australia we are looking

moderately risk on across the board. the asia msci index moving up. consumer staples and health care mirroring moves we saw on the wall street session overnight otherwise it was the best session for u.s. stocks in two weeks and what we are seeing perhaps strategists say is the end of this peak recession fear in markets. we did hear that reflected from the fed governors chris waller and jim bullard. two well-known hawks both saying we can keep up this pace of aggressive tightening and achieve the goldilocks scenario of bringing down price pressures at the same time. the other sectors that are moving is higher this morning, definitely energy and materials. we are seeing materials jumping by one .35%, of course on this news that china may push up $220 billion of bond sales. we see that reflected in what we have in bond issuance. that heavy reliance on

government growth target for the year. many economists saying that could be unrealistic. >> this will be an unprecedented move -- boost to infrastructure spending. let's bring in our china economy editor. we have never seen them sell bonds before the start of the year. how significant would this be? >> this is a big boost to the amount of debt the government -- for the local governments to borrow this money. it is a big boost to the bonds they are going to sell and the debt they are going to take on. this is almost a 40% increase. which really indicates how concerned the central government is about the economy and how much -- what happened in the first half of the year really was not going the direction they

would like. they seem to be reaching back into the playbook of the 2008 financial crisis that was used. trying to stimulate the economy through infrastructure spending and also what would be a massive increase in debt. >> the criticism about this playbook is the productivity or lack of productivity of this debt. >> that is right. the big problem i think with these kinds of stimulus is it is not just michael pettis and other people. april's china realize this kind of debt is often unproductive -- people in china realize this kind of debt is often unproductive. this kind of money being used for unproductive or bad projects that don't create revenue, it cannot be used to pay back the debt being borrowed. local governments are between a rock and a hard place.

there has been no indication the central government is decreasing its demand as though in 2021 we saw a large amount of money that was borrowed and never spent or the spending was delayed because local governments could not find projects they could spend the money on which met the high standard for what they were meant to use money on. i do not think that situation has changed. they do not want to waste the money on bad investments, but at the same time they are being told they have to spend -- borrow and spend very quickly. that contradiction has to be resolved or this money would sit in a bank account and not be used. >> the infamous ghost cities from the last stimulus binge. our china economy editor with the latest on stimulus plans, james maygar.

she mao group has narrowly avoided default. our china credit editor joins us now. why is shimao taking this approach? still seeking to delay repayment when it comes to local denominated debt. >> we have seen quite a few developers taking this approach of defaulting on offshore debt but still trying to avoid official delinquency or default in the onshore space with extensions. in reality of course ultimately that means creditors often aren't seeing any kind of repayment anytime soon. what it does allow is developers to continue operating as normal onshore and it sort of does highlight the emphasis that authorities have on making sure developers, even ones that are as stressed as shimao that has defaulted on some of its debt

are continuing to deliver homes and continuing to deliver payments to all of the workers and the network of supplies and contractors. it does highlight the diverging treatment of onshore versus offshore creditors. as well in some sort of investors have expressed frustration about preferential treatment to onshore investors. i do think there is an emerging sense of frustration among domestic creditors about how long extensions are going on. sometimes we are seeing extensions of extensions onshore bonds -- of extended onshore bonds. >> what is happening with while wrong? -- with huarong? >> a dramatic afternoon of trading. we saw short, sharp drops in one of huarong's perpetual dollar bonds, which followed a drop off

in great wall's dollar bonds. there is speculation around what is going on. very little clarity. it will be watched today because the rest of the huarong universe broadly traded sideways or remains unchanged. there is not really a sentiment shift. there are some clues. when we look at the price action we saw on that huarong perpetual, the only perpetual to drop something like $.10 in a short period of time, it might suggest an unwinding of one or several large positions of the bond in quite a short, sharp period of time. we have seen that happen elsewhere during the property crisis. we know elsewhere property bonds were used as leverage to backup unsecured or to secure other sort of structured notes. we did see margin calls being made on other developer bonds. ultimately we do not know -- traders will be looking at this very closely today. and i think start to look at the perpetual's and wondering if this could happen on any other

dollar note. >> let's now get to su keenan with the first word headlines. >> we start with president biden who will discuss possible reduction in chinese tariffs in a meeting with advisers set friday. it is not clear if he descends -- intends to decide on a path forward. biden has been weighing a decision to remove some tariffs to curb inflation. his predecessor donald trump impose duties on $300 billion worth of chinese imports. hong kong's longest-serving market regulator will unexpectedly leave the post. the securities and futures commission -- will take up the new role in january amongst one of the highest profile departures from the asian financial hub. he has been ceo since 2011.

we are seeing signs of strength in the u.s. labor market may be moderating. applications for unemployment insurance rose last week to the highest since january. jobless claims were up 4000. meanwhile, the moving average has been higher in 12 of the last 13 weeks. the state bank of pakistan raised rates by 125 basis points, a move that is predicted by only three of 24 economists on the bloomberg survey. the price hike aims to tame ages second-highest inflation rate and seek a loan for the imf. the central bank sees inflation about 18% to 20%. finally to tennis, rafael the doll has withdrawn from -- rafael nadal has withdrawn from wimbledon because of a torn abdominal muscle. he was supposed to play his

semifinal friday but said he is in too much pain. it moves nick kgyrios into his wimbledon final. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm su keenan. this is bloomberg. >> japan's prime minister is betting older voters will look past the surge in prices in this weekend's upper house elections. this is bloomberg. ♪

>> we are seeing gains on the nikkei of 1% led higher by energy, materials, and industrials. perhaps not surprising given that though oil is under pressure in the asian session, commodities were jumping in the new york session. we have the dollar retreating for the first time in five days area oil rising for the first time in three days. a lot to do with news china may be considering 200 million to -- $220 million of stimulus with unprecedented bond sales. we are seeing consumer staples

leading declines in japan. >> japan's prime minister fumio kishida sharing this. he has endorsed the bank of japan's unorthodox stance of keeping borrowing costs at rock-bottom levels even as cost pressures heat up. let's bring in nick smith, the japan strategist at clsa. we know the inflation picture for japan is fascinating and quite complicated in terms of how enduring these price pressures are, how transitory whether it leads through to wage growth. how does it play into the selection and i guess the consumer given the household spending numbers suggest we are potentially seeing weakness in this recovery? >> obviously we do not know whether the leading party is going to win or not. the question is whether it is going to get the super majority. in order to make constitutional change it needs both houses.

polls are suggesting it along with other parties that want to get the constitution changed would give them the seats they need. you asked about the inflation. inflation is running at 2.5%. from the point of view of someone in the u.s. or europe, they must be doing something right. we have seen no inflation in japan to speak of for years. they went into deflation in 1995. people are complaining about that. the problem is wage hikes are not enough. the government managed to work with the labor unions. for the first time in a very long time, fumio kishida that a lot of meetings with the labor unions. they worked hard on this but the wage hikes were not going through. stunning given how tight the labor market is in japan.

since 2012, the number of jobs, people employed is up 4.4 million, but the working age population is down 6.6 million. what we end up with is an incredibly tight labor market that is only going to get tighter as the country reopens from the pandemic. we are basically hitting singularity, the point at which you cannot generate any more jobs from the workforce. the only place to get them from will be from your investors. >> how problematic is the yen, the level we have seen domestically? going into this election. >> it is fair to say japan has dealt with the currency better than nearly anywhere else. we came in 1971 from 360 under the dollar, we beat out in 1979.

japan can handle the level of the yen. what is difficult for everyone is rapid changes in the level. i would have said the governor of the bank of japan has repeatedly said a weak yen is good for japan. evidence shows that is the case. if you look at the real effects of trade-weighted yen adjusted for inflation elsewhere and not japan, that to june 1972, as a production base japan is competitive. that means if you do not get wages up people are going to suffer reduced buying power. >> we are seeing that already. japan's household spending falling in today's numbers unexpectedly, contracting for a third consecutive month. as heidi was saying, how problematic is this going into this election when you have people, average japanese people

not happy with economic policies that lead to them not having the spending power they want? >> sure. it depends on which numbers you are talking about but instead of going into that area, yes, there is a lot of unhappiness amongst voters. obviously we are coming to the point where for all that, the bank of japan is coming to the end of this 10 year period and the question is who is going to replace him. the leading contenders much more minded to be conservative than the extreme methods of kuroda. i think as a result of this unhappiness with lack of spending power, we are going to end up with a governor of the bank of japan who is more minded to say open up the trading range of the 10 year bond. at the moment zero plus or -25 basis points may under a new governor go to plus or -50.

>> are we expecting any big policy changes from the election? that is hard to see in japan sometimes but what would you be watching going into the polls this weekend? >> the thing about fumio kishida is he looks like a gray man. a lot of people say yes, but after elections, he is restraining himself until he gets the elections out of the way and then we will see who he really is. i think what we see is he is still a gray man but there are four things we need to watch. tourism, defense, nuclear power reopening, and the boj. tourism, japan has been restrained on opening up to tourism. perhaps we will see more of that. defense is powered by shinzo abe who is more powerful behind the throne then in it and pushing to move defense spending from 1% to

2% of gdp. then of course we are lacking generating power and japan needs to restart its nuclear reactors. fortunately the polls are suggesting there is more support for that than there has been at any time, but the years of -- but going 11 years without making a decision regarding nuclear power is quite disappointing. >> nicholas smith, clsa japan strategist with a preview of the upcoming election. tune in to bloomberg radio, get in depth analysis from the bloomberg team broadcasting from our studio in hong kong. listen through the app or bloombergradio.com. plenty more ahead. stay with us. ♪

>> bloomberg sources say new york-based investment firm general atlantic is exploring an ipo. the manager of 79 billion dollars in assets is working with advisors on a plan to go public. volatile equity markets may delay a listing so it may not happen until next year. the firm has offices worldwide including shanghai and singapore. the california public employees retirement system is selling about $6 billion of stake in

private equity funds to secondhand buyers. sources say the pension giant sold its holdings at roughly a 10% discount to their september 20 21 value. the transaction frees up cash as the company looks to directly by stake in private companies. >> volkswagen with six new battery dashes and europe as automakers are racing to electrify their lineup and compete with tesla. the vw ceo spoke with bloomberg about the outlook for the ev supply chain. >> we feel now in good shape to get up to six plants in europe, $20 billion investment, 5000 people here, 5000 jobs here, 20,000 jobs in europe will be created by this endeavor. as you said, we are still open for partners because the demand

for batteries will be huge. also beyond auto. >> in what sense beyond auto? you mean batteries -- >> as the renewables are getting more shared, they will need storage. the batteries we are producing could also be used for storage capacity. >> you are building next to an i.t. plant. you are looking for a place in europe where you also build cars, for a place in the u.s. where you also build cars. are you trying to become more self-reliant in each of your local regions? of course you are a very global company, but are you looking to do a local deglobalization? >> know, battery production should be local because it is heavy weightlifting. it is a lot of raw material. it is a significant supply chain. you need a lot of those,.

phosphate, cobalt, nickel. huge amounts. you should be close to the battery plant because if not, transport costs are too much. it cannot work if you would wait for batteries coming from asia into europe or to the u.s.. you have to be local. this is why also our investment will be local or relatively close to our plants. >> what do you think about the idea of getting away from the global supply chain, becoming more self-reliant? a lot of companies have been talking about that after the supply chain problems we have seen. >> if i look back through the supply chain problems, it was not about logistics or regional. it was about covid and it could happen here or 5000 kilometers

in another continent. as a company we are relatively self-sufficient in the region. we are producing in north america, in mexico, for the american market. we produced 90% of our chinese product in china. we produce 95% of our latin american product in brazil and argentina and the rest in europe. there are always a few components you would ship. semiconductors. i think we should keep it because everything will get more expensive if we dream of localizing everything. there are societies, countries, of conditions which give some nations an advantage cost wise, and we should use that competitive advantage. i am not in favor of becoming fully self-sufficient.

i think it is also a dream. everything gets more expensive and we are not really getting better. >> vw ceo herbert deiss. let's take you live to sydney. we are seeing the new australian prime minister holding a press conference after the australian p.m. hosted talks in sydney. the new zealand prime minister is the first foreign leader to visit after taking power last month. talking about potential voting rights for kiwi residents. this is bloomberg. ♪

david: good friday from the asia-pacific. welcome