haidi: welcome to daybreak

australia. >> we are counting down to asia's major market open. shery: the top stories this hour. u.s. stocks erased gains. another gauge show signs of moderating. consumer prices are falling for the first time in two years. shery: apple is asking suppliers to make at least 90 million of its newest devices. u.s. futures are up after we have the s&p 500 erasing more than 1% of gains earlier in the day. we have tech underperforming. treasury yields rising across the curve. the two year yield jumping but not as much as the 10 year.

the 30 year yield at the highest in three weeks given that we had a weaker than expected bond sale on the 30 year note. the iea upgraded their outlook for global demand which is quite the contrast from what we heard from opec which expects there to be a surplus this quarter. look at ppi up from the u.s. because it was the falling energy prices recently that led to the first decline since the early onset of the pandemic. add that to the cooler inflation numbers cpi early this week is adding optimism that the economy is starting to cool down. we had jobless claim numbers come out a second consecutive week of gains perhaps moderating the labor market here in the u.s.. >> still a lot of uncertainty going on in the market as well. ubs is saying now is not the

time to make any big directional calls. we are seeing that reflected in what we got for the futures today. this will be the first chance to react to the inflation data. let's have a check of what is happening in the fx space. we have technical indicators saying the pace of the dollars gains may have peaked. the aussie and yen are trading tightly. we saw moves in the treasury particularly in the longer duration bonds this morning and the 10 year yield moving a little bit high. yield differentials, we saw un-inversion in new zealand for the first time this week now moving away from that as we see the signs of inflation cooling in the u.s.. >> this is the kind of balance that markets and analysts are

starting to strike. we saw the big market surge after the softer than expected inflation data. it created a lot of optimism. we saw a 20% bounce for the nasdaq 100. the european stocks fading after hitting -- because there skeptics saying just because the worst case scenario is perhaps unlikely, it doesn't mean we should be repricing for another super bullish outcome when it comes to equities. we know the fed is determined to go down the rate hike path. parts of the market could be getting ahead of itself that we need to see a few more months of data first. >> some are saying the cpi doesn't signal a dovish pivot. you have the likes of morgan

stanley and jp morgan coming out with market calls on debts. jp morgan on the other side of that call saying this is an unsustainable rally and to ditch em debt. let's get more from kathleen hays. for all of these numbers and what they make on the market. the ppi numbers are easing today falling for the first time in two years. >> a big surprise. producer prices are wholesale prices. business-to-business prices. you're looking at the inflation trend, the dynamic further back from the retail sector. when you see this happening and everyone's trying to figure out where the momentum is, this is why it's important. the monthly number was down 0.5% in july.

it was expected to be up 1%. it was up 1% in june. it has a lot to do with energy prices and it reflects in the year-over-year numbers. the headline ppi up 9.8% year-over-year but that is down from 11.3% in june. it was expected to come in stronger than that at 10.4%. even the core ppi slowed. stepping back from the numbers, you can see this is a sense of has this peaked out. it's true a lot of this is due to falling goods prices. 80% of the drop in goods prices was due to nearly 17% drop in gasoline prices. some people even ahead of this report said commodity prices falling, maybe we will see this

reflected in the ppi. not everyone was expecting that. the talk about pipeline inflation, you have the finished goods prices in the ppi then intermediate and first stage crude prices. intermediate is in between the materials you take out of the ground and products you are selling to a retail outlet, that pipeline inflation east as well on diesel cost. there's iron ore and other metals prices falling. the fed is worried about rising inflation expectations. this is definitely something to watch because is -- if this continues, it could signal more important trends in the cpi as well. >> too early to tell, but the markets have taken this narrative and run with it. there is a sense that maybe we've gotten ahead of ourselves. does this tell us maybe this is not the time to take very strong

views either way given the amount of ambiguity we see in the economy and therefore fed policy? >> i would totally disagree with that. i think there's less ambiguity than the markets are seeing. kathleen love you that was a great analysis. the problem i have is that we are going to see more likely than not 75 basis points from the fed in september. the bond market that's why it reacted the way it did today, they firmly got their arms around the fact that whatever the inflation numbers are showing, it's going to go in september. it's a matter of how much. i believe it will be 75 basis points just to hammer the point home. women get into the fourth quarter, we're going to see the trend continue.

disposable income is not keeping pace with the current inflation even though it is slowing. it's a simple fact, the fed is trying to slow down demand. demand is slowing down by itself. we're going to get another interesting indicator tomorrow import and export prices. all of this plays well going into the fourth quarter. the economy is only subject to a decline if the fed gets carried away. >> given the uncertainty in the u.s., a lot of investors were so focused on china, fiscal and monetary stimulus. not surprising given that price rises in china are pretty benign compared to the rest of the world yet the pboc doesn't want to over issue money.

that's not good news for the market. >> at the same time there in a catch-22. we saw the issues with the property developers and people not paying mortgages because they work delivering. i think this is a balance the pboc has. their story is different from the rest of the world. it is controlled economy. they do control prices to some extent. there's a lot more they can do to either support the economy, support the real estate, support consumers than the u.s. or other democratic nations can do. there are limited in that sense. one thing i like is that while we are seeing consumer and producer prices drop, producer prices are falling more than cpi which means the import prices for companies is lower than what they are able to charge in terms of the export price. in that dynamic, that will help

earnings. with the lower dollar as stocks rise, the dollar goes lower. put that together and that spells for positive reaction. if the fed gets the hit that inflation is rolling over and you look at portfolio managers, more bears than bulls, if this trend continues, there's a lot of catching up to do and i think there will be a surge in equity prices going into the fourth quarter. >> great to have you with us. stay with us for more insight. we will be hearing from the san francisco fed president. let's get the vonnie quinn. vonnie: merrick garland says he personally approved the decision to search donald trump's florida residents. the search has drawn criticism

from donald trump and his allies. it focused on whether he unlawfully held onto presidential materials. >> the department filed the motion to make public the warrant and receipt in light of the former presidents public confirmation of the search the surrounding circumstances and the substantial public interest in this matter. vonnie: argentina's central bank has raised its rate to 69.5%. it battles its highest inflation and 30 years. the inflation rate surged to 71% in july and the backdrop of clinical turmoil. this is the eight increase this year. daily covid cases surged on a resort island. the people there including

visitors are struggling for food and other necessities. almost the entire island is locked down. officials say the virus may have been spreading silently for some time. a power failure in downtown toronto -- >> still ahead, we will discuss the anger at qantas as the industry struggles to deal with the rebound in demand tourism. up next, we will discuss the latest on the markets. this is bloomberg. ♪

>> u.s. futures marginally higher in the asian session. the s&p 500 is wiping out earlier gains. tech underperformed with treasury yields rising.

we have the cpi numbers cooling a bit. some analysts are saying this one-month print does not necessarily indicate a dovish pivot from the fed. we have the push and pull in the markets. let's bring in our next guest to discuss. joining us is shayna sissel. why are verse fires important in this volatile environment and what do you mean by liquid diversifiers what do you like? >> volatile environments is exactly why you need to reconsider how you build portfolios and add additional ways to diversify. what i mean when i talk about liquid alternatives, i'm talking about things that are -- trade on the public markets. ets, usual funds but using

strategies that are historically only seen in hedge funds. they use options, derivatives, what they are is a hedge strategy of some sort. they have done quite well throughout the year because the volatility in the market has benefited. there's a couple i really like. one of them is mrf k. it's an equity fixed income with an option over light. -- overlay. it is a risk print fund. an interesting strategy. it provides the hedge but can also give you equity strategy. there's another one i like that goes long and short. another fund that has done quite well our product called -- it

takes advantage of highly volatile markets. there's a couple different ways you can do this and these types of products are important when the market is like we are seeing. we have these whipsaw events. you have rates going up, equities have headwinds. >> how are you factoring in the state of the economy because it seems that data is still going through a resilient u.s. economy but at the same time, for how much longer can consumers continue to spend this much? >> i've been presently surprised with the resilience of the u.s. economy. what stood out to mate with the cpi and ppi reports for july is we saw energy prices decline. we've been talking about pain at the gas pump. we've seen some of those numbers come down. we saw airfares come down.

there was a survey recently and 90% of americans are concerned about food price inflation. the one thing that has not subsided and is not showing any signs of coming back is food prices. they were up 1.1% in july. that's an increase even from june. this is a serious concern and consumers the main street are feeling the pressure. that is something i would be concerned about. >> what have you been looking for when it comes to guidance and the businesses that are looking more resilient in the economic uncertainty? >> i've been really surprised at some of the more speculative growth names having better-than-expected earnings reports. we had rivian today that surprised and a positive way with a smaller loss than expected.

on target to meet their delivery goals. uber had better-than-expected earnings. these are stocks that i would not have expected that from. i think it's a good sign although i'm still not willing to dip into those areas right now. i want to focus on quality companies with good long-term tailwinds. those names are not necessarily the speculative names. i am encouraged by this and i think a lot of the guidance has been better-than-expected. i want to make sure i point out that it has been broadly negative which we expected but not as negative as we had been anticipating. these are positive signs for the economy, but i also think while they are positive signs, what it means is the fed is going to continue to be hawkish and keep their foot on the gas pedal. >> you talk about those pandemic

darling even meme stocks. take a look at this chart which shows the basket of profitless tech or nonprofit tech that is up 16% this month. we are just a few trading days into outperforming the s&p 500. this is with the fed that is potentially more hawkish than we have seen at the start of the month. what does that tell you? how do you separate what is still perhaps speculation and growth in tech to the tech names that have meaningfully recovered and might find more value going forward? >> this along with the fact that non-dividend paying stocks have been outperforming dividend paying stocks shows me there is still excess liquidity in the market which tells me the fed continue to be quite hawkish and we have not seen the worst of the rate increases.

as we have been hearing from folks like mary bailey and others, they intend to continue this rate hike process for as long as it takes in their opinion to get inflation under control and stable which is different than just seeing a couple of prints where you see the inflation coming down. i'm concerned that you're still seeing nondividend payers and more speculative growth names do well because it's not necessarily what i would expect. that means to me there is still downside in the market that we have yet to see. >> still remaining cautious. you can get around up for all of these stories in today's edition of daybreak. this is bloomberg. ♪

>> the most ambitious upgrade to the ethereum lock chain is expected to take place in september. let's get the details from our crypto reporter. why is the software upgrade for ethereum such a big deal? is it the reason by which we are seeing token prices drive higher? >> absolutely it has been a major driver for a number of tokens. the way to think about this upgrade which is really unprecedented and crypto is you have a skyscraper and you're trying to replace the elevator mid air while there are people on it trying to get on and off. this is pretty much what is expected to happen in september. the way the blockchain orders transactions will be changed. a lot of apps, investors depend

on this going smoothly. >> ethereum is one of the most important commercial highways and crypto. are there risks in this upgrade? >> absolutely a lot of risks that something is going to go wrong. developers have been working on this upgrade for years. they have tested things. the last test hopefully took place last night. you never know what kind of issues might pop up that did not come up in actual deployment. it's going to be a nailbiter. >> here's a quick check of the latest is this flash headlines. insurance -- against the proposed spinoff of ages operations.

the chinese insurer believes it is need of large change. a spinoff would generate an additional market value of up to $35 billion and reduce costs. sales from rivian rose to $364 million in the second quarter well above analyst expectations. rivian lowered its earnings guidance. the company says it is expecting to make a full your loss of $5.5 billion. plenty more to come, this is bloomberg. ♪

>> we had the new zealand manufacturing pmi showing arise.

we have recently been getting some recession fears with the yield curve inversion. that is passing through to some asian markets the likes of new zealand. the july pmi rising to 52.7 with concerns continuing to loom over the rbnz. >> let's turn to apple because bloomberg has learned that the company is asking suppliers to build at least as many of its next-generation iphones this year as in 2021 despite worsening projections for the smartphone market. let's bring in mark gurman for more on this. we are getting indications that perhaps they are being more cautious about the economic outlook. what is this telling us about how they see their demand for this year?

parks tim cook was pretty clear on the earnings call that these microeconomic issues that apple is seeing, the problems in the supply chain, people buying, the war and all of that, iphone is left out of all of that. the iphone is on its own island where people buying iphones will continue to buy them apple continuing from its number from last year 90 million units, that's the new generation iphone compared to 2021 it's going to be the same in 2022. that means that positive trend is continuing. tim cook meant what he said. they are projecting that they will continue to sell the same amount of iphones this year as last year. if you look at the market as a whole, the impact everything is having on the android ecosystem and other devices, lack of growth is pretty good compared to a negative drop off. until lester, 90 million units was an increase of 10 million to

15 million units. that's not a great, given that the end of 2021 we had vaccines, economies were reopening rings were getting back to normal. whereas fall of 2020, things were still in shambles and we were at the height of covid. >> at the same time, we're seeing things that aren't the iphones starting to slow like -- narrowly missing estimates as well. would apple be concerned about the comparative weakness across the other business units? >> i will be honest, the wearables situation was pretty concerning to me. they came in $750 million less than the year prior and well below analyst expectations. the wearables business think is good to pick up a little bit. three new apple watches this fall.

the pro will probably come in between 900 and thousand dollars. to apple watch series eight will have a body temperature scanner which i think is going to be pretty fancy and interesting to some people. a newer low-cost apple watch will help them move units. >> china's largest chipmaker has defied u.s. concerns and sanctions and slowing global demand with better second quarter profit. let's bring in stephen engle and hong kong. >> it was not a bad set of results given the headwinds.

domestically china's economy has slowed. there is a covid zero policy that has halted some manufacturing and orders and there is an industrywide probe into alleged or possible corruption. a lot of headwinds at smic but they still posted a net income in the second quarter. they beat by $45 million u.s. despite the tightening u.s. export restrictions and slowing global demand for electronics. micron the latest to warn about slowing demand globally. this is -- they have made advancements to what they claim to seven nanometers but it is still seen as well behind the likes of the industry leader tsmc. they cautioned that the designation might be different

characterizations or different standards than what is employed at the bigger like tsmc. >> how are u.s. china tensions affecting u.s. mic and its board? >> it has great ramifications. they claim that this technology blockade hurts them from collaboration. this industry is all about collaboration and partnerships. one can't make all the equipment that goes into these advanced chips. with the sanctions, they have been cut off from the likes of nikon, asml and others. it's isolating western board members who have been on smic's board. the latest is kind of a celebrity engineer in the tech industry. the former president of arm holdings before it was bought

back in 2016. he posted this on his linkedin page it has been confirmed by smic. after nine years i resigned from the board. the international divide has further widened. he went on to say it is become too hard to carry on having these board meetings in the middle the night without seeing people in person. he is alluding to those sanctions in the first part of the call but also covid zero is isolating westerners and chinese from each other's businesses it just became too much after nine years. it's another parch or. there are others who have also quit since the end of 2020. >> this decoupling happening on all fronts. u.s. futures are fractionally higher right now even as investors continue to be split

on the outlook for the s&p 500. let's bring in annabelle for morning calls. one saying the worst of the selloff may be over. >> this is from j.p. morgan strategist. he says u.s. stocks could rebound to record highs. he is saying if you want to call yourself a true bull that timeframe needs to be in about three years. primarily looking at the inflation data, he says as long as we are continuing on this path to returning to 2% inflation in the u.s. than there is not a need to tip into a recession. the same time if companies can retain their profit margin that's also a supportive measure as well for stock prices. we are releasing the diversions reflected in the data. if you look at what we are seeing and positioning, professional investors are the most short since 2016. look at what we are seeing in

sentiment indicators, it shows that pessimism is declining a little bit as well. >> what about the outlook for energy prices? >> goldman sachs has spoken to bloomberg about this. a lot of biggest use because we did see the iea raising their demented forecast while at the same time opec -- there are bullish bearish segments in the market. in terms of where we go from here, this is what goldman sachs head of energy research told us. >> the forecast for gasoline prices has been going back to five dollars. that is the level at which we need to see sustained prices to eventually solve the market deficit.

>> you can see gasoline prices in the u.s. just below the four dollar level currently. what does that mean for the consumers as well. as gasoline prices retreat, that gives them leeway to spend more money on big-ticket items. that would make the u.s. retail earnings next week very closely watched. bank of america saying the core number is expected to come in at robust. >> speaking of travel, sydney airport has been named one of the world's worst for cancellations and delays. we will discuss all of that with one of the industries weakest groups. -- biggest groups. this is bloomberg. ♪

>> you are watching daybreak australia. opec doesn't expect to dip into surplus this quarter. it bolstered estimates for non-opec supplies. it cut forecast for demand. the revision is a diversions from the international energy agency that boosted its demand for oil. all off schultz his promised

citizens a package to offset inflation. he says the government has the situation under control but he is warning that winter will be tough. as the war in ukraine goes on, the government has struggled to address the reliance on russian gas. kim jong-un has revealed he was seriously ill with a high fever during the recent covid outbreak. they're claiming south korea for the outbreak. hong kong's population has fallen by 1.6% with 120 thousand people leaving the city in the past 12 months. that is the third straight annual decline. the government cited district covid restrictions as a factor.

hong kong has only seen a few population declines since the 1960's. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm vonnie quinn. this is bloomberg. >> as global travel slowly reopens, airlines and airports are struggling to curb anger. sydney's airport has been named as the worst airport. let's discuss all of this with the ceo of the industry lobby group. great to have you as always. it's not just a reputational problem for qantas but for the ceo. how did we get to this point? it feels like a problem that was

very much evidently in the making as we saw all of the jobs being cut for airports and airlines through the course of the pandemic. >> you have to put this in perspective. it's not a uniquely australian problem, it is happening all over the world. we talk about sydney airport, if you look at the list of so-called worst airports, they are all the biggest airports in the world. the ones that were most likely to see big volume and big problems. i would also say the industry said for a moment it's not going to be a simple as just turning the tap back on. there are some complexities to getting the transport prices back up and running. >> i feel like your dog might disagree with your points. >> sorry about that. this is the busy part of travel

going into christmas. do you think exuberant to get better? what are you hearing from your membership in terms of the biggest concerns? >> number one, i think travelers here in australia deserve a gold star because they have absorbed the new normal in terms of travel and what it looks like and how complex it can be. the jobs pace is critical. once again it is not unique to australia. it isn't as simple as let's change the system and ring a lot of new people into us joya who could fill those jobs. the government here in australia is planning a major job summit for september this year specifically to start unpacking some of these issues. they will be running a full day before that which will be specifically about jobs and tourism. the airports are having open

hirings to try to attract staff. you know you're in a different place than before the pandemic. it's going to take some time. we could be 12-18 months away from the lines disappearing and a lot of that people will be factoring into their travel process. >> how can the improvement be accelerated? what measures can be put into place? >> here in australia and other parts of the world in the u.k. in particular, they significantly increased the staff they have available with things like passport offices. the other one is really airline capacity. for many countries in the world including australia, we lost a lot of our international capacity during covid and it has to be brought back. it's not just coming back because we would like it to. many of the state governments in australia have aviation

attraction funds to get the international flights back. you have to have the seats to put the bottoms on. we have to get the international capacity backup. >> how long do you think the reputational damage healing will take even what we are seeing in their reports with the airlines but also you have to woo the tourists back. >> being honest, i flight myself two or three times a week and i continue all the conversation about airport chaos is overstated. that's not what it's like in the mainstream when you're flying. yes, there will be pressure in school holidays but that's the same at heathrow, washington, everywhere else in the world. i think really in terms of recovery process, we are legitimately looking at 12 month time before it looks the way it did before covid. >> what are we looking at when

it comes to talent and recruitment within these industries? with the super tight labor market, is there a concern that we won't be able to get enough staff to be able to fill the crucial roles and there have been realistically just a big chunk of the workforce across travel and leisure and aviation that are not coming back. >> that's an important point because there's a difference between the lower-level jobs within the industry for example and what you might need in the aviation community. i think across the board in the tourism sector, you have seen a generation of skilled workers who are probably 15 year veterans or employees within the sector who have taken their skills elsewhere. there is a job is to to go out to get people to understand its sexy industry and they should come back. that's going to take time.

there is a global shortage of those skills for this industry because it's not that they just moved to another part of the world, they have moved to other industries. they will have to be convinced come back. it's a big job and it is the kind of job that we need to see national governments engaging with. it's a big structural impact for the tourism sector. the one who has probably worn a more transient impact than any other industry then perhaps the health care sectors. tourism has taken a beating over the last three years. >> always great to speak with you. inflation is the other major theme that will continue. look at new zealand food prices. when it comes to the numbers,

the fastest paces we have seen. this as we continue to see prices over the last few months increasing across all categories. we have also seen strong gains across restaurant meals, ready-to-eat foods. there are seasonal effects but certainly we are seeing a sustained time of high food inflation continuing to play out for new zealand. let's look at the bond market because we have seen big moves when it comes to higher new zealand yields. having to do with what we get before the rbnz meets before next week. some of that recessionary risk being played out in that we have seen the yield curve inversion across new zealand sovereign bonds. the three year rising seven

basis points. more to come here on daybreak. this is bloomberg. ♪

>> johnson & johnson will change

the way it produces baby powder making all of its products based on cornstarch. this comes amid legal action against its baby powder with some consumers claiming it makes them sick. mitsubishi has established its own direct lending business that makes it the latest bank to try to take a share of the lucrative private credit market. the unit formalizes an existing operation that has offered loans since 2019. it has created more than 50 direct lending deals in the u.s.. >> we've been talking all things cba this week after earnings released but they are really now the world's least loved mega

bank after they lost their last remaining bulls. it's interesting because now we see jeffries on the bullish side standing downgrading it to hold after their full-year earnings. this is australia's biggest lender. it now has zero by equivalent recommendations. saying they are worried about stolen credit growth, rising pressures and we did see them warning of a dire outlook. >> we continue to see them in the tightening path. we haven't seen the rise of problem loans as of yet but investors are becoming more cautious about these financials given that we have seen sentiment starting to sour across australia. household spending perhaps a

little bit more depressed. now the consensus targets seems to see 10% decline over the next 12 months. we will be watching that stock as the market opens. coming up, san francisco fed president mary daly joining us live in the next hour. that's it for daybreak australia. daybreak asia is next. this is bloomberg. ♪

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shery: