haidi: good morning and welcome to "daybreak australia", i am in

sydney. kathleen: good evening. stocks fall for a third straight day. commodities from oil to copper sinking, as the dollar rises. haidi: china sets the date for its leadership congress. he kathleen: goldman sachs looks covid requirements as it pushes for staff to return. that's get a quick check on wall street. another down day, thursday and aro where stocks close lower. we had three fed presidents putting their two cents in, to stronger-than-expected economic reports from the consumer and economy suggesting there is plenty of room.

the s&p 500 and nasdaq closing 1.1% lower. you can see on the futures market, the nasdaq is steadying. it had been down 1%. they all go negative. the 10-year note traded around 3.1, the two-year trading at 2%. upper pressure on bond yields. in the crude oil market, enclosed around $97 per barrel with concerns around conflict in baghdad. oil close down -- closed down. the risk off move -- in terms of the move, the 75 point rate hike.

in december, this is what we will see filtering. annabelle: that chart is the main front and center picture today. the odds of a 75 basis point move because we have futures trading like this. july jobs openings, the u.s. consumer confidence beating estimates. it's packed data. japan, korea, the big highlight will be the pmi data later this morning. it's expected to fall further into contractionary territory. there is a pileup of problems. covid flareups, property slumps.

chinese stocks are down for a second straight month. on the global picture, we are down over the month as well. we lost 2.5%. it's also down to what happens in where the fed goes next. haidi: that is key. fed chair powell started the fire at jackson hole. officials are continuing to fan the flames. we have heard from three separate fed officials renewing the rate hike theme, the size of future moves. the new york fed is saying rates probably need to advance to be on 3.5%. we heard from richmond reiterating they will do whatever it takes. an essay from the atlanta fed

calling the duty to curb inflation unshakable. kathleen: the big question is, two more reports. inflation numbers got better. jobs report this friday. depending on what the numbers due will determine how aggressive they are. when you see something like a strong indicator of the labor market, you get to see the fed looks like there will be leeway going down the rate hike path, that is a big question we're waiting to hear. getting into the numbers, let's bring in bloomberg reporters. when you look at the numbers, what stands out to you? reporter: as you mentioned, we

have seen more evidence of strong u.s. household, strong consumer confidence, continue demand from consumers. that is one thing. remember, inflation. haidi: did we learn anything from the most recent round of fed speak? reporter: you summed it up quite nicely. the message is they will keep raising rates. people are all saying the fed will keep raising rates. everyone is trying to figure out if it's 50 or 75, but the

bottom-line is they will go up until we see inflation come down. kathleen: what about the market reaction? reporter: it's very revealing. equities and credits are having difficulties at the moment. they have bounceback very strongly and we saw the pecan inflation. that is the narrative with powell at jackson home and other fed speakers have pushed back really strongly. the bond market has had some strong reaction but not as much because the market was mostly expecting the fed to stay aggressive and the fed to tame inflation fairly rapidly once it starts coming down, but that requires economic pain.

that is what you have inverted yield curves. you have strong demand coming through for treasuries and other government bonds at levels like 3%, 3.5%. that's as investors think the elevated inflation will be transitory, it's just like a year or two instead of a few months. haidi: garfield reynolds. investors are watching >> playing out in beijing. president xi jinping is one step closer to an unprecedented third term. stephen engle joins us for more. we have been anticipating, we know what the outcome is going to be, despite it having been a volatile year. stephen: the big issues are led

by xi jinping, whether it's the crackdown on tech platforms, over leveraging the property sector, the overarching dampener to growth has been the covid zero emphasis. we have seen outbreaks of covid in all corners of china, putting added pressure on this man as he seeks and very likely secures a third straight term as president. i have covered a number of these party congresses. it's a highly secretive affair with the biggest secret not a secret. the biggest question is, who will be the man placed underneath it? the standing committee has seven

members. the number two ranking official said he will not step down. keep in mind there is an unwritten retirement age of 60. xi jinping is 69. there are two other members above the retirement age, number three and number seven. the big question, will xi jinping use the mandate developed of the last 10 years to put his people in place? kathleen: china's biggest banks have been suffering saw earnings after being roped into help the struggling economy. would've we seen so far? stephen: absolutely. the property/banking sector is the most exposed industry to the property sector. that's going to be a big challenge going forward. you've seen the big banks being

roped in to help support stabilize the economy. that will cut down the net interest margins. the capital constraints adjust as they are being asked, strong-armed for an economy that does not want to borrow. especially to the property sector. three of the big four reported yesterday, the top of the pyramid, net income up 4.9% seems to be ok. property, nonperforming loans up 5.47%. the bank of china, net income up. china construction bank up 5.4%. the industry nonperforming loans rose to a record 2.5 trillion

yuan. exposure to the property sector is more than any other industry. 39 trillion yuan, plus 12 trillion yuan in loans to developers. the bank of china, the most exposed bank to the property sector with 38% of its total loan growth in the real estate sector. there will be pressure on the big state banks and others as well. kathleen: that is stephen engle. let's get to vonnie quinn. >> the european union met a gas storage goal two months early. [indiscernible] high energy prices are worsened

by russia limiting flows. >> at the european level, we agreed all member states. the second pillar is reliable sources. we have reached an average of 80%. >> taiwan soldiers have fired warning shots. a taiwanese military statement did not identify them as having come from china, but said they were from the direction of the chinese city.

chinese stocks in the u.s. tumbled. three like a has announced new reforms and raised taxes amid bailout talks. in a budget speech, the president said value-added taxes would be raised to 15%. he also announced farm debt write-offs. administration is looking to reach an agreement with an imf team. mikal gorbachev has died. russian news agencies say he died in a moscow hospital. he pushed for radical changes to the soviet economy after becoming the leader in 1985. the overhaul on these two political avalanche that brought down the berlin wall and ended soviet rule two years later. 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: they think the market has priced rate cuts too early. first we are asking an investment management company how they are finding assets ahead of the recession that they see coming in the first half of 2023. this is bloomberg. ♪

kathleen: employment is strong but we are beginning to see signs of stress. with us now is an economist. we were looking for a recession. what did you think when you saw the jump? does it look like the fed will have to work a little bit harder to slow down the economy? guest: first quarter of 2023.

unemployment are lagging indicators. we will not have a recession until we have unemployment rising. you typically see a topping off behavior which is what we got today. for the last couple of months, it has not been going up, and has been flattening. it was a strong number. you can see it is starting to head down as we get the effects of the interest rate hikes. kathleen: the fed moved to the

mortgage market and home prices very rapidly. how do you play this market? looking at the bloomberg survey, the consensus is 300,000 jobs. that's a healthy number. if it stays steady, are you in an investor limbo? guest: we have been moving incrementally more cautious over the past six months. while we think we are early on that and when we see the market come around with the kind of rally we have in the last couple of months, it's hard to keep up with that. we think we will concede more market damage -- can see more market damage. we have an increasing holdings of health care. we have been cutting back and

aiming below-market beta. the idea that we would try and cushion the downside. we think corporate earnings -- [no audio] we will see the fed interest rate increasing that is kicking up into high gear. we have been moving out of more exposed positions, elements of consumer discretionary and into the somewhat less cyclical elements. overall, lower beta, decreasing exposure to the more variable segments of corporate earnings. haidi: how does the rebound mean

you are not willing to tread back into tech stocks? guest: we have not exited much from tech. because we are sustainable and responsible, we have exposure to a series -- jobs in cleantech, hydrogen and other elements. the inflation reduction act has had a positive effect. figuring out what elements of the portfolio we can use to fund the transition to a lower carbon economy. haidi: we have deals from california to hasten the transition. is that a major theme? the big run-up in fossil fuels, the global energy crisis.

does that change any of your positioning? guest: the big run-up has been painful for us. we anticipate the run-up in fossil fuel prices will be transitory, as the world realizes, it's not a good idea to be utterly dependent for your energy supplies, and that fossil fuel, unlike energy, solar and wind can't be regenerated. you can look for more commodity exposure as energy prices were rising, but we feel comfortable.

haidi: thank you for your views. plenty more to come. this is bloomberg. ♪ (♪ ♪)

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kathleen: goldman sachs a all covid-19 protocols including vaccination, testing and masking as it orders staff back to the office five days a week. let's get more. two big parts of that, dropping the masking requirements. going back to the office five days a week. guest: they have said since

early on and emphasized they need people to go back to the office. the memo they sent to staff did not specify how many days they are expected back to the office. the likes of the executive officer, morgan stanley, they have been at the forefront. now, they perhaps have more leverage to do that. people are nervous about the jobs. doing the deals. they don't want to be on the endless hiring. haidi: there also lifting restrictions when it comes to vaccinations as well. reporter: that's right. the banks have been having this message of wanting to give more

flexibility to incorporate more hybrid work. they will match cdc guidelines, and in this case, goldman sachs is lifting vaccination requirements. they are trying to bring people back after labor day. that is the idea. haidi: we have more ahead. this is bloomberg. ♪ hi, i'm denise. i've lost over 22 pounds with golo in six months and i've kept it off for over a year. i was skeptical about golo in the beginning because i've tried so many different types of diet products before. i've tried detox, i've tried teas, i've tried all different types of pills, so i was skeptical about anything working because it never did. but look what golo has done. look what it has done. i'm in a size 4 pair of pants.

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>> you are watching "daybreak australia." fed officials are vague on rate hikes. fed president said repeatedly

curbing the hottest prices and decades are the top priority. john williams sees -- richmond will focus on data. the u.s. job openings rose unexpectedly in july as employers compete for a limited supply of workers. the number of available positions aged 211.2 million. the chinese communist party leadership congress will begin on october 16 area xi jinping is closer to his third term in power. pakistan and the united nations medline stem appeal for 160

million dollars in emergency funding after floods caused by weeks of monsoon rain. the government said more than 1000 people have been killed. the foreign minister says shelters, tents and mosquito nets are needed. 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 am vonnie quinn. this is bloomberg. kathleen: let's take a deeper dive into the european energy crisis. su keenan joins us. su: victory lap in meeting goals for storing gas. let's drop into this chart to show you how german tanks have

been filling up considerably. they are on track to meet goals for november which translate into winter. the big concern. the european commission is the executive arm of the eu. let's check the two week chart of natural gas, it's an odd looking chart because prices soared last week. we are down in the prior session and down again in terms of the benchmark for european natural gas. it's intact with the announcement that they are trying to do something, the bloomberg shows the urgency the eu is faced with, electricity prices are soaring tenfold driven by the rise in natural

gas. the eu believes it has a lot to do with speculation and concern that things can get worse. haidi: tell us what we know about the planned intervention. su: it's all about the nord stream 1 pipeline. the black coming out of russia and going into germany and the rest of european nation. announcing various maintenance phases, the fear in europe is there will be a cut off which would be catastrophic for the european nations. stepping up the movement. making these countries less dependent. this is on the forefront in europe and president biden's white house is watching closely.

we're getting a bid on west texas intermediate, both brent crude and west texas intermediate took a big step back in the latest trading, that has a lot to do with exports not being affected. there is the lower liquidity issue, because summer here in the u.s. were wall street and traders take a break so lower liquidity has taken a break. back to you. haidi: two keenan with the latest. the bank of israel said it's likely to raise interest rates and keep them higher until inflation remains in the government target range. a governor told us he expects

that won't happen until the middle of next year. >> the economy is in a relatively good situation. we have grown in q2 by 6.8%, in 21 by 8.6 sent. low unemployment. tight labor market. government inflation is going out but is probably among the lowest in any developed economies, perhaps the bottom 10%. 5.2%. we are determined to bring it back into her target. -- our target. we are likely to continue to raise interest rates.

we expect inflation to come back down into the target somewhere around the summer of 2023, of course, as the rest of the world is facing uncertainty, there are pressures on supply chains and other factors. >> you are starting from a lower level than jay powell. you expect to reach neutrality before other countries? >> it's very hard to tell. several principles, regarding inflation is essentially a tax, drag on economy once it's beyond a certain level. it hurts the lower income segments of society. it's imperative we bring it back to target.

that is why we did the rate we did. all of these principles you saw at the recent jackson hole meeting. >> you are frontloading. you made that clear. >> it takes a while to cool down inflation. israel is in a good situation, so we expect the process of cooling down in the economy to be able to absorb that. it's going to take some time. at this time as was also mentioned, interest rates are likely to be at the higher level

until we see inflation stabilizing around and inside our target range. >> you were in jackson hole last week along with many central bankers listening to jay powell's words. to what extent does the federal reserve policy guide your own, and did you stay in touch with jay powell and other central bankers around the world? >> of course, all central bankers meet and we discuss. as you know, there are supply shocks that ultimately that show up on the demand side. the process of raising interest rates breeds pain for many, but it's pain today to avoid greater

pain in the future. kathleen: the bank of israel governor speaking with bloomberg. next, how bond investors prematurely priced in rate cuts prior to jackson hole and how comments reset expectations. this is bloomberg. ♪

kathleen: you are watching "daybreak australia." let's bring in annabelle for morning calls. annabelle: the issue was investors have been expecting central banks to pivot away from a rapid rate hike. but certainly not go to be the case. there has been a recess or recessive expectations. this is the bloomberg global aggregate index. it tracks investment that. the risk of dropping 20%. there is more pressure because we have key payroll data.

bank of america says credit could be vulnerable. it shows great shocks front and center. this is both for high-grade and investment. global recession fears. elevated energy prices. they are again rising. haidi: morgan stanley see a canary in the credit call mine. annabelle: what has been the harbinger of an economic recession, that was traditionally signaled by junk rated bonds. deposition could be $1 trillion worth of loans.

they do keep pace with the benchmark and offer higher returns. it has wobbled this year. in particular, what that means for the underlying borrowers, that they are more sensitive to rate rises and weaker earnings. this is the index they are -- it has only fallen below two times. you can see the covid phil of 2020. it could fall below the 85 level . easily, even in a mild recession. haidi: that's bring in our next guest who says powell reset expectations. joining us now is a portfolio

manager. as we heard, they are committed to getting back to 2%. what are you thinking in terms of how it takes? guest: we have seen speakers, and powell's comments cannot reset expectations. it's hard to say where we are pricing rates down is where it will be. it could go higher. even though the pace of the rate hikes slow down early next year, it does not mean the fed is

going into a cut. they will hold rates higher for longer. we feel like the selloff is 25 basis points. it feels a little bit early. we are still waiting for cpi data and we will need a lot more signs to be confident that we have hit peacock christmas and now is the time to act. haidi: when you look at the correlation or connection between u.s. and australian credit, is it a story of possible contagion or divergent opportunity? guest: that's a good question. we see a lot of leg at the

beginning of this year, even when we look at the june to august rally, the u.s. rallied faster than nausea credit. now when we see the selloff in u.s. credit, policy credit is still performing very strongly. when you are looking at the aussie dollar market, it is extremely quiet. that is helping. however, the aussie market will follow. kathleen: it wasn't just a august message, it was ecb member. yesterday was the european bond, german bonds in particular that that the selloff.

guest: that is right. we pay a lot of attention to the u.s. bond market. as you said, the euro bond market has gone through a tough time, with inflation going faster, dependency on russian commodities, we are quite worried. because the market has seen potential new issues, when you look at -- that is something we keep an eye on. kathleen: if you look at the future, the federal reserve has signaled they are going to raise rates at least as high as 4% and

will keep them there. that is something bond traders had not realized. if the economy is slowing down, you have the fed holding a key rate so high. guest: it's not going to be good. we have seen a bit of that earlier this year. you have this negative correlation the selloff has been led by the central banks hiking, the correlation between credit and rates. to your point earlier, we're going to go in recession. that is going to hurt credit investors.

the best way we want to protect ourselves and preserve capital is stay short, rates have further to go. in the credit space, if we believe in the story of recession, which is what we do, credit will be going wider. we want to stay at a short duration, at the same time, roll a lot faster. if there is a selloff, we're going to be rolling back faster. haidi: great to have you with us. we have some numbers when it comes to new zealand building permits, the number coming through his 5% for july.

an improvement on a contraction we saw in june. the 5% is showing a little bit of confidence deteriorating in the property market for the first three quarters of the year. building approvals fell on a consecutive basis. we're seeing the combined impacts of soaring interest rates, the rbnz being aggressive, supply chain issues, materials shortages. building permits are up 5% july. kathleen: let's take a look at some pictures that tell a story of what going on in the market lately. it's interesting, they are surprised by a volatile risk

rally going around the world between mid june and august. if you look at asia, the s&p 500, emerging markets are down. it's interesting. the fed did its first interest rate hike. now, there is definitely a down. the rate hike in july. traders figured out that it's stocks down again. this shows the stock market by sector. if you look at what is down, it's interesting to see some of these numbers. information technology was --

new zealand, australia, quite a picture. energy is the only one standing. very striking. haidi: a better picture when it comes to asia. the idiosyncratic resilience and some of the growth stories around asia. take a look at the performance, it's always the most interesting or volatile stock market. we are up 8/10 of a percent. you are seeing resilience in gains of when it comes to southeast asia markets as well. second straight month, both are doing well in august. when it comes to chinese stocks, the golden dragon is up 3%. haidi: plenty more ahead on daybreak. this is bloomberg. ♪

kathleen: let's take a quick check of the business flash headlines. net income came to $25 million. the most since 2007.

china banking reported a rising profit becoming the first property developer to report stronger earnings amid the downturn. this is bloomberg. ♪

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haidi: we are live from new york,