haidi: a very good morning. welcome to daybreak australia. annabelle: we are counting down to asia's major market opens. shery: good evening from new york. haidi: stocks and bonds whipsaw after u.s. inflation comes in at the highest in over four decades, boosting bets on even more aggressive fed action. we speak exclusive we to the cleveland fed president loretta mester about whether a 100 basis point move is on the table. president biden: the cpi number out of date as he visits the middle east to help reign in price pressures. shery: those are really being felt across the board. the hike is to 9.75%, much

bigger than economists had expected. of course they were already at the highest interest rate since 1998. they beat the expectation of a 50 basis point hike for 75 basis points. i will tell you more about what is happening in chile, but u.s. futures right now are down, this of course after we had a volatile new york session trying to digest the inflation numbers. we had an actual loss of more than 1.5% for the new york session. s&p 500 turned positive, then that did not last, and it fell throughout the day's end. this coming at a time where we continue to see right -- to see recession fears being felt across the board. fears all bundled together. we saw the two year yield jump and the 10 year yield fall. deeply inverted to a level we have not seen in 22 years. a lot to do with what is happening here. this is the cpi components.

for an 11th straight month energy prices continue to rise, and really adding to inflationary pressures we are seeing in the u.s. and of course we also have shelter, not to mention food prices continuing to rise. the 9.1% rise year-on-year, a 41 year high, the biggest jump we have seen since the 1980's. take a look at what is happening in chile, because that is the same thing with inflation fears. you take a look at inflation, 12.5% for june. you have activity data starting to slow down but really not doing anything to curve the price pressures. not surprising that chile hiked by 75 basis points. we member we also had a surprise upside with the bank of canada hiking rates by a full percentage point earlier today as well. annabelle: what we are seeing is the rush among policymakers to

be following the fed and hiking rates. what is happening is central bankers being perceived to be slow to do that, exchange rates are being punished. the yen, one of the weakest against the g10 space over the past session. in the emerging markets space, the philippine peso, indian rupee another gainesville -- another good example. the ecb as well, having to come out after below parity following the cpi print saying it is sensitive to the impact of price pressures on the exchange rate. you hong kong dollar as well, the monetary authority forced to spend $1.6 billion to defend the peg. how we are looking for the equity set up across asia this thursday, we're looking to pretty mixed trading at the start. if we can change now, taking a look at the future space as well. kiwi stocks coming online. continuing to track what we are seeing with the bond as well

because we saw the rbnz yesterday committing to keep up with the pace of hiking. haidi: and committing when it comes to the fed as well is the expectation. the searing cpi print, we knew it was likely to come in at a high, even as president biden says it does not fully reflect the gasoline prices. he says it is still an unacceptably high print of price pressures. does this now put 100 basis points into play for the fed? we will be speaking to loretta mester a little later. in the past she said the fed used to be forceful when it comes to bringing down inflation expectations. 100 basis would be historic, but of course we did not expect a few weeks ago that 75 basis points would almost become the norm either. shery: you have to put that into perspective. we are talking at least another 75 basis point hike, that would be two back-to-back 75 basis point hikes, much more than what we saw in the two years worth of

tightening from 2015 to 2018. it is not just about the fed. take a look at what the central bank in chile has done. they see elevated macro i got -- macroeconomic risks. it was unanimous. they say the more rate hikes also will be needed. so, inflation a concern worldwide, and the superhot u.s. inflation report rattling global financial market, boosting bets fed could get even more aggressive. let's get more from kathleen hays and cross asset reporter katie greifeld. give us more details to those cpi numbers. what was interesting to you? kathleen: let's start with headline cpi. it was 8.6% year-over-year in may. it just did not come a little higher than expected at 8.8%. it came in at 9.1% year-over-year. you can say what is a couple of

percentage points, but look at what a big move that is in a single month. the core cpi which was at 5.7%, people thought it would stay or get a little weaker, it is back up to 5.9%. that takes out food and energy prices. even without those volatile prices, inflation pressures are still there. on a monthly basis, 1.1% in may, 1.3% in june, and that is the highest monthly gain since 1981. that is when paul volcker was hiking rates hard because inflation was so hard. even the core cpi, the monthly basis going up. three components i think are most in focus, because you look at energy, you look at food prices, you look at rents, you look at mortgage payments and how they translate into an equivalent of rent, and then you see some pressures. let's look at another set of numbers, because fuels were up 19%. half of the rise was due to gasoline prices. groceries up 10.4% on the month.

those rent payments were up the most since 1986, equivalent rents the most in 32 years. home prices have risen, so all these things are getting higher. is there some relief? we did see gas prices come down 4% by the middle of this month, but we see new and used car prices continuing to rise. services prices, goods prices, appliances and cars, they have not cooled off very much. services, plane tickets, they were up the most in 21 years in this report. no relief there either, so that is why this is such an issue. it is not just high, it is not getting lower, and there is still a lot of upward forces in-flight. shery: what we really care about is what this means for the fed. remember in june when they made a u-turn and hike by a bigger more -- a bigger margin than expected? could we see something similar this time around? kathleen: everyone has jumped to that conclusion. bank of canada adjusted a 100

basis point hike. raphael bostic was speaking today and in a scrum with reporters afterwards, look what he said when asked about the possibility of 100 basis point rate hike. everything is in play. there is a water -- a lot of work to do. it is coming in different than we expected. how much i need to adapt is the next question. market expectations for fed rate hikes this year have corrected. they have gotten down to about 3%. they are back up to about 3.5%, where some say that's where you have to end the first half of 2022, and by the first half of next year you have to go to 4%. so these numbers are going to reinforce that. we will see if anyone wants to up that ante, like raphael bostic. haidi: in terms of how traders and investors are parsing this, we saw that whipsaw market when

it comes to equities. the yield curve inversion continues to be a major story that tells us how much nervousness there is about this. katie: i really think it was the bond market where all the action was. you have the s&p 500 figure -- finish about .5% lower after a big intraday reversal. had turned positive at one point, that went away. the big story was in the bond market. we break it down, you saw the front end rising as traders priced in the supersized hikes that kathleen was talking about. if you look further out the curve, it was a bid into bonds, sort of like a waterfall, the yields falling in longer duration debt. you put that together, it's an inverted curve to the tune of over 20 basis points. the readthrough there is investors are concerned basically at the expense of inflation is growth, that this economy is not going to be able to withstand really some of those big, big rate hikes that

could be coming down the pike. shery: what is happening to the dollar? i just don't understand what the readthrough there was. katie: let dollar was interesting today. you saw the dollar cool off a little. it could do with the fact the mating -- the major trading partner the euro, we finally got to parity and there is a wall of options sitting there. and you saw the euro bounce back a little bit, that might have weighed on the broader dollar index. to your point, interesting to see steam come out of the dollar rally today. haidi: kathleen hays and cross asset reporter katie greifeld there with all of the overnight action. don't miss our exclusive interview with loretta mester in about half an hour. we will be put into her whether 100 basis points will be on the table. you can also listen in on bloomberg radio. as president biden meets with middle eastern leaders, he is seeking to downplay the higher than report for june. he is calling it out of date

because it does not take into account declining u.s. gas prices. let's get more on that with jodi schneider. he called the reaction to the cpi print unacceptably high. but he also wanted to counter that pump prices have been coming down. obviously this is an election issue going into midterms. jodi: that is right. he did say that inflation was unacceptably high, but he also then said this out of date comment, trying to make this case that this inflationary report was a backward looking because gas prices have come down somewhat in the last few weeks. of course he did not address the fact that other things like food, like rents, those kinds of things, are higher, and will likely remain higher. but of course joe biden, it's a very tough situation, the inflation numbers are very high, and voters see it every time they go out. and the democrats are going to

have a very hard time hanging onto the house and the senate in november. he knows that and he is trying to make the best case he can about these numbers, the numbers of his administration did today as well. shery: why are we making such a big deal of a handshake with benjamin netanyahu? jodi: there are all these things going on in the world, and the handshake gets the attention. president biden decided he was not going to shake hands on this trip. he was going to do fist bumps, given covid, and covid was also convenient because he did not want to be seen necessarily shaking hands with the saudi crown prince when he goes there friday, given that a lot of members of his own party are not so happy about that visit. but he started off on the first one and fist bumped a few officials, including the israeli premier. then he had a handshake with

naftali bennett, a short one. then he had an extended handshake with a former prime minister, benjamin netanyahu, which of course causes everyone to say what is going on here. and secondly, it will be very hard for him now to fist pump the crown prince when he meets with him in saudi arabia friday. shery: we will be watching that one. is it a for story handshake -- will it be a fist or a handbump? vonnie: sri lankan protesters have stormed to the prime minister's office after the president fled to the maldives, leaving authorities to impose emergency rule. he defended the decision on security grounds. he has taken the role of acting president, angering protesters who want him to resign. in a tv address, he restated that parliament will choose a new president july 20. sources tell us pakistan has reached an agreement with the imf to resume its loan program.

the $1.2 billion disbursement is expected in august. a deal what offer relief to pakistan, whose foreign exchange reserves can cover less than two months of imports. inflation is also at a 13 year high. rushi sunak has taken an early lead in the race to succeed boris johnson as britain's prime minister. he won 88 votes in the first ballot. the contest still remains wide open, with the next round of ballots starting thursday. the biden administration is making a last-ditch effort to move forward a deadlock to build targeting china. the commerce secretary and defense secretary say the chips act is the only way to reduce reliance on foreign-made my conductors. the bill has bipartisan support, but senate minority leader mitch mcconnell is blaming it, while

democrats negotiate a spending package. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm vonnie quinn. this is bloomberg. haidi: coming up next, as inflation in the u.s. gets hotter, our next guest tells us how the increasing negative sentiment of american consumers is becoming a major risk. erin gibbs joins us next. this is bloomberg. ♪

>> this inflation print is a problem. >> there's no slowdown. >> domestic price pressures are still quite strong. >> this is going to amp up pressure on policymakers. >> this keeps pressure on the fed to keep going. >> it needs to keep moving at a rapid clip. >> the fed probably will go 75 basis points. >> it will be very difficult to get off 75 basis point hikes. >> this morning's report seems to solidify that 75 basis point. >> they should be careful here because this is actually turning. >> these rate rises are coming as growth is slowing. >> they cannot respond to slowing growth. we know growth is slowing but they will keep going. >> that is a real concern. >> tightening policy into slowing growth is not a good combo for risk assets. >> they can slow the pace but they are not anywhere close to stopping. shery: bloomberg tv guests reacting to the inflation data in the u.s. let's bring in our next guest,

who says a recession is more likely, but a strong labor environment could help keep up with the inflationary pressure. with us now is erin gibbs. erin, good to see you in person. erin: happy to be here. shery: tell us a little about what we are seeing in terms of the inflation picture versus a recession picture, because people are worried about how consumers are feeling and how this could impact the markets. erin: it is a very cautious balance that we are all worried about. obviously when we keep hitting these record inflation numbers of course there's fear that that will slow the economy so much and then we will hit the recession. one of the things we talk about, we're often looking at the 2007 financial crisis or other inflationary periods, where the employment picture was not as robust as that is right now. as we know, we still have about 3.6% unemployment, 11 million job openings, which essentially means two job openings for every

unemployed person. that is still very robust and strong. when we talk about a fear of slowing down, it is ok if it slows down. people really want to be employed are employed. it is unfortunate obviously your wages buy a little less, a little slow down is exactly what we need because consumers are keeping the prices so high. shery: what do we need to see from bank earnings this week? erin: what we are really going to need to see is how they guide forward. we know that the second forward was phenomenal and most of them are going to post record profits. the problem is we know the economy is starting to slow and that loan growth is starting to slow and we have seen that already with mortgage rates and less loans. so it is really going to be about how much are they going to forecast on slowing growth and how much is that growth going to be hit for the full year. so, no matter how great they

report, it is going to be about the future. haidi: how much significance are you assigning to the yield curve inversion? erin: i think it is important to look at. certainly the bond market is very good at predicting what happens in the economy, and even where equity goes. and when you see this really dramatic inversion, where even the one year is trading at a higher yield, or it briefly was today, versus the 10 year, that is something you have to take note of, obviously. and so i think that really is saying that, a, we're at at the very least going to see a slowdown, if not a recession. it could be something very brief. a simple two quarter recession. we already had one quarter of negative growth, so it could be something very miner. but certainly the bond markets are telling us that we are expecting this, and they are

expect in the fed to increase rates by at least 75 basis points this next round. haidi: how do you trade around the u.s. consumer story then if there is this risk of u.s. inflation, that the mindset is already entrenched? erin: already it has been a very challenging market in how to pick stocks, particularly in the consumer area. and so, i really look for strong balance sheets and places where consumers will still be spending no matter what the prices are. and so, one of those areas is the home. so, companies like lowes has still been doing very well. another company, a small cap, front door home. it provides all the services you need as a homeowner. so it takes all of europe -- so it takes care of all of your plumbing, electricity. being very tactical also making

sure you have strong balance sheets and thematic. shery: erin gibbs, really good to see you in person again. thank you for joining us here in the new york studio. you can get a round up of all of those stories that you need to know. dayb is your function. this is bloomberg. ♪

shery: here's a quick check of the latest business flash headlines. li auto is aiming mentorship to 2 million cars or 20% of china's ev market by 2025. to put that in perspective, toyota delivered fewer than 2 million vehicles in china last year. the auto's president told bloomberg supply chains are one of its biggest challenges, but the company is laser focused on his target. -- on its target.

>> in terms of our market share, our target, we cannot guarantee that we will definitely get that 20%, but our target is 20%. and we are very serious about this 20%. shery: morning star is cutting hundreds of jobs and shenzhen. the ceo said the move was necessary due to an increasingly complex business environment. the company said the rules will be moved to other countries and is chinese operators will focus solely on the domestic market. their shift is one of the biggest yet among american financial firms operating in china. china security regulators has suspended betting and onshore fund distribution application by goldman sachs. global banks have rushed into mainland expansion, but regulatory hurdles are one factor slowing them down. credit suisse has added a similar -- has had a similar application put on hold. it is not clear if firms can renew applications in the

future. haidi: let's take a look at the moves we saw in the u.s. dollar, cooling a little bit after we saw that red-hot inflation print from the u.s. as well as these concerns, or speculation we could get a full percentage point move from the fed. we also had the euro dropping to dollar parity in a meaningful way for the first time in two decades. the dollar kind of eventually paring most of those losses, but a lot to talk about when it comes to expectations from the fed. we heard from the bank of atlanta president saying everything will be in-flight. we will be speaking with loretta mester from the cleveland fed a little later to get her views as to where the fed goes next, given these intense levels of inflation. we do have lots more to come here on daybreak australia. this is bloomberg. ♪

kathleen: welcome back.

we'd also like to welcome our bloomberg radio listeners. with u.s. inflation roaring to a four decade high last month, the federal reserve may get more ingressive -- aggressive with its belt-tightening campaign. joining us now exclusively with her views is cleveland fed president loretta mester. loretta: thank you. good to be with you. kathleen: and quite a day to have you here. about 1.5 weeks ago you said that if conditions were pretty much the same as they were then, you would be on board, you would probably be supporting a 75 basis point rate hike. now we saw the inflation report even higher than expected, few signs inflation is easing up. would you be on board potentially with a 100 basis point hike at this new july meeting? loretta: we don't have to make that decision today and there is more data coming out that i am going to bury -- to be very

attuned to. we have retail sales friday and a very important michigan report, and that is important because it has the inflation expectations measure, a consumer measure in there. so we have data coming out. i take from the report, and it was uniformly bad, there was no good news in that report at all, was that reflation remains at and unacceptably high level. we at the fed have to be very deliberate to continue on a path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner and is on a downward path, and is sustainably on a downward path. and that we just have more work to do. so, we will make that decision about what the right number is in terms of the rate increases, but we have to continue on this path because we have not seen monthly numbers coming down. as you pointed out at the top of

the hour, even the monthly numbers are moving in the wrong direction. so we just have to be very intentional here. the beige book came out today as well, and as you saw in that report, and that's a nice report because it really shows you across the country our business contacts and consumer contacts. there is concern about recessionary risk going up. but the main report in that that i took was there is continuing to be price pressures, no alleviation there, and that some of the moderation in demand is really being driven by the fact that consumers have to pull back some of the discretionary spending because the prices of food and energy and other essentials are so high. kathleen: so let me ask you this. if we had ask you about 100 basis point a couple weeks ago, two or three months ago, i don't think we would have even thought to ask you.

but is that something you could see being discussed? is it something that given where we see inflation now, that is, quote-unquote, on the table, that has to be under consideration because the fed has to figure out how aggressive you have to beat? loretta: we are going to have the meeting and we will talk about what the appropriate path of policy is. and again, we don't have to make a decision today. we are going to take into account all the data. but we will have this conversation, the markets are having a conversation and putting their money where their mouth is in terms of where market expectations are pretty so we are going to be talking about the appropriate path of policy. and i have not seen any convincing evidence that inflation has turned a corner. we have not seen anything in that new cpi report that suggests inflation is turning that. we do know that energy prices have fallen compared to the prior month. so there is some expectation that the next report on

inflation, we might see that going down. on the other hand we have shelter prices going up. so again, i think the focus is on the fact that we are going to have to keep moving interest rates up, being very deliberate and intentional about it. if we are moving towards a 2.5%, with the long run neutral rate is, my own belief is we are going to after go beyond that because inflation and inflation expectations are higher than 2% now. so we are going to have to keep moving. and the pace at which we do that is really going to be driven by, are we seeing demand get into better balance with constrained supply, which remains constrained, in order to see that reflation get on a sustainable downward trajectory. and we have not seen that. kathleen: so given what you have seen, given today's report, will

you consider, are you in a position to -- again, you have a couple weeks or so to figure it out, but 75 basis points for example, is that something that you are leaning more now towards saying yes, that is something i may be supporting at the july meeting? loretta: well, certainly the inflation report suggests that there is no reason to say a smaller rate increase than we did last time, because nothing moved in that direction. there are very early signs in some of the reports of an easing of demand. but again, not enough that you actually saw price pressures being alleviated. we have our board of directors meeting tomorrow. i am particularly interested in what they are seeing in the economy. i have those data reports you mentioned, they are going to be significant. but right now, job one for us is to get inflation under control. and i say that knowing that the risk of recession has gone up.

but that's part of what we're trying to do is normalize, or moderate demand. because if we don't do this, we're going to have many more problems in the economy going forward. so we have got to do what we can do on the demand side, and that is where our tools work, to get that demand moderation. if you read the reports, we're looking for some moderation demand. the economy is still strong on the demand side. there is preparation and concerns about recession. but if you look at some of the data, firms in our district are telling us they may be moderating some of their plans because they think demand will slow, but other firms are saying they are holding pact. so again, the focus has to be on the inflation part of the mandate. haidi: does the fed --

shery: does the fed have enough time to telegram a 75 basis point hike or more? given the last time you hike to more, there were a lot of questions about the credibility of the fed, and does that even matter at this point? loretta: i think our credibility is that we showed at the last meeting that we are responding to not one data report -- and i know that was kind of the report. wow, that one report made them move. again, it was looking at the plethora of data, all of the data coming in, and recognizing that in this environment, given what the data is pointing to, we needed to be more aggressive. i think that enhances our credibility, it does not detract from our credibility. but i take your point in that we don't want to do things that are not communicative. we want to make sure that we are communicating as clear as we can

how we are judging policy and what our rationale is for moving policy rates up. i was fully on board with 75 at the last meeting because data moved in the direction that suggested we have got to go faster and we have to move to what would even be a long run neutral fed funds rate. and in this environment, that is not neutral because inflation is so high. haidi: could a full percentage point move be more about signaling as opposed to even transmission? are you worried that there is now pretty meaningful entrenchment of the inflation psyche when it comes to the consumer? loretta: not yet, but i do think we have to be very attuned to that. so, for example, so far if you look at longer-term inflation expectations, they have moved up but they are still at the upper range that we have seen since the mid-2000's. so in that sense, we haven't

seen that entrenchment yet. but the longer inflation remains at these very high levels. the more risk there is that that could happen, and that means that getting inflation down will be that much more costly. that is why it is very incumbent upon us to stay the course here, continue moving in this direction, and really be very looking for compelling evidence. it cannot be one inflation reading moving down and then we say we declare victory. you have got to really stay the course here. and that is what it's going to take because that will alleviate pressures as demand moderate, getting more in balance with supply. kathleen: to be very specific, you have to see the headline inflation, year-over-year stabilizing. does it have to go down for three months, four months? is there a level it has to hit

in a certain period to say ok, we can pause, or slow down the rate hikes? give us a more specific idea of how you are looking at this. loretta: personally, i want to see a series of monthly increases in core and in headli ne where it's moving down. that is what i want to see. the reason headline is so important is that that is what people actually pay. and that has a bigger impact on inflation expectations because that is what people see. and i also want to see evidence that inflation expectations have stabilized. think of a risk-management way of viewing policy. we have to be really pretty much not allowing inflation expectations to move up. so you are better off from a risk management effective. if you think they are moving up, treat them as if you are moving up in your policy decision. kathleen: thank you for clarifying the monthly changes.

a lot of people think fed is looking at year-over-year. one more thing, shelter cost. they were up on the monthly rent payments, up by very big amounts, highest in 20 or 30 years. how concerned are you about that? and the upward pressure that it will continue to put on inflation, even as costs are coming down. could that extend the period of aggressive rate hikes? loretta: the shelter cost thing is definitely something to be concerned about, because typically as you said, that is a more persistent part of the inflation. right? so, we see that coming. what is interesting about this environment is we have seen housing activity moderate in response to the fed moving interest rates up, as you would expect. but because housing inventory is so low, you have not really seen that much happening in terms of demand for housing. so, demand is coming down

because of the mortgage, but the actual sales data has not really moderated, at least not in our district, from what our contacts are telling us. again, this is a very challenging environment for a number of reasons, and the reads from the economy are, there's some conflict. we see slowing activity like in the gdp report negative, and some slowing in retail sales. but on the other hand we see very strong labor markets and continuing slowing growth in employment. so again, i think there is a lot of uncertainty over the outlook. i think what is not uncertain at all is that inflation is way too high, and that we need to use our tools at the fed to do our work to get inflation under control and moving down over time to 2%. i think you are exactly right, kathleen, that it is going to take time for inflation to come down. my forecast does not have inflation coming back to 2% until late 2024, a little bit

beyond that. so again, can we tolerate that? yes, as long as we know it is sustainably on that downward path back to 2%, and we know that inflation expectations are aimed at 2%. this is the key thing for me. haidi: so it may not be a straight trajectory. when we spoke a month ago, you said at that point you are not predicting a recession. have both recession risks reason for you now? has that view changed, and the newman this -- the nimbleness of how the fed response, has that changed? loretta: i think we have seen we have had to go more aggressively in july. and we have seen that inflation has been stubborn. we know that it is stubborn and it will take time. so the recession risks have risen. that said, there are a number of things that are still strong in the economy. demand has moderated a bit, but

we still have strong demand in travel for sure and certain service sectors. we certainly have a strong labor market. so again, i think the path towards price stability is going to -- but less pain if we do it than if we don't do it. so again, we're going to have to make some trade-offs later on, and as you looked at the sep forecast from the fed the last time, you see that we do have the trajectory of unemployment moving up. but still, a strong labor market. and the reason forecast suggests that growth in the second quarter is flattish, maybe negative again. shery: so is the labor market the indicator for you about recession fears when you start worrying about that? loretta: well, a strong labor market and a healthy labor market certainly mitigates some

of the pain that a reduction in output would have. so again, to the extent that we can keep people employed, if the unemployment rate goes up a bit and that is the price we have to pay for getting this inflation down from on acceptably high levels, i think that is how i am doing it. because it is really important to do this, because i don't even really see this as a trade-off at this point. if we do not do what we need to do to get inflation under control, we're not going to have healthy labor markets over the medium to longer run. the only way to have a strong economy and healthy labor markets is to make sure we are on a path back to price stability. so i am not even thinking, we're facing a trade up and we have to make a choice. we have to do it. kathleen: you are part of the global, central bank brotherhood, sisterhood. a lot of rate hikes. we had the bank of korea, and

the bank of new zealand doing 50 basis point rate hikes. new zealand saying they are going to do more. are you concerned with so many central banks around the world, not just hiking rates at the same time, but boosting the size of their rate hikes, that this is going to take a toll on the global economy, that it could lead to more of a global slowdown, which will surely affect the u.s. as much as it affects other countries in the world? loretta: yes, you are right, we have seen this high inflation being a problem globally, and we have seen monetary policy makers take actions globally to get demand into better balance with supply. so as we're going through the rest of the year and into next year, one of the things we are going to be gauging is, well, how much is demand slowing in the u.s., and is it getting into better balance with supply? some conditions globally will affect the u.s. economy as they always do.

that is part of the assessment as we go forward that is important that we do, so that we can then calibrate our policy appropriately for what is happening in the u.s. economy. so you are exactly right, that is one of the factors that is going to affect the u.s. economy going forward, and that is one of the things we are going to have to keep when we look at, well, what are we projecting for the economy, that will be one of the factors we are looking at. if we see this tightening in financial conditions globally, that affects the u.s. economy. kathleen: loretta mester, thank you so very much. we got a much better understanding. you have gone in-depth with us, we really appreciate it. loretta: thanks for having me, and i am always happy to be with you. shery: of course with those comments about stubborn inflation, not to mention recession risks arising, we're now seeing u.s. futures are celebrating declines. of course we are talking s&p and

futures down about .5%, after u.s. stocks fell on the new york session. we did get some outperformance in the afternoon but that did not last. the treasury markets have been really whipsawed with the 10 year yield still holding below 3%. this is bloomberg. ♪

shery: dollar strength among the headwinds facing fx markets. what are you seeing in terms of analysts saying where this will go from here? annabelle: certainly a lot of crosswinds for fx strategists to consider, and the aggressive fed is one of them. you also just had that great interview with loretta mester saying the next fed rate hike should be no less than 75 basis point. other factors we are considering, risks in the euro zone. we also had that draft note from the ecb saying they would be downgrading the growth forecast for the year, seeing inflation a 7.6%. as for what morgan stanley is saying, they are saying the malaysian ringgit and the most vulnerable. we can take a look at what they are going long on the u.s. dollar versus these currencies. particularly looking up the commodity-linked currencies.

the indonesian or indian rupee as well. they are also shorting the singapore dollar with a limit order of 1.44. haidi: we were actually just saying exactly the same thing with erin gibbs earlier. the environment is getting much harder for stock pickers. annabelle: that's right. we are really starting to see stocks being left driven -- less driven by idiosyncratic factors because the volatility we are seeing in equities here is really climbing back to average levels, given the broader volatility and the macro headwinds we have in markets. so what that means is the environment is starting to prefer the quant funds instead. we could take a look at the importance of quant funds that we can look at a risk adjustment performance basis. you can see the market improvement we have seen since the lows of december 2019 and

november 2020. shery: of course you can get more on the markets. tune into bloomberg radio hear more from the day's bays newsmakers, also in-depth analysis from the daybreak team, now broadcasting live from our studio in hong kong. listen through the app or bloombergradio.com. plenty more ahead. ♪

shery: let's get you a quick check of the latest headlines. haidi: china volcker is looking to pick up the hong kong ipo of its property management arm as early as september. sources say the developer's unit aims to raise at least $2 billion. it could be among the biggest ipo's in hong kong this year amid a sharp slump in listings. netflix has chosen microsoft as the tech and sales partner for its new add supported streaming service. the absence of ads has been a long time -- microsoft generated $10 billion in advertising sales last year. second quarter earnings at delta airlines missed expectations. the airline said high operating costs will persist the rest of the year. u.s. carriers are trying to return to consistent earnings

after the pandemic hammer to travel. shery: coming up, tbw advisory chief jay pelosky tells us his investment tragedy. -- strategy. plus, what they may suggest about global economic activity in the rest of the year. that is it for daybreak australian. daybreak asia is next as we continue to watch the markets. u.s. futures under pressure after the s&p 500 lost ground in the new york session. the hot u.s. inflation report really rattling financial markets. this is bloomberg. ♪