haidi: you are watching

daybreak: asia. we are counting down to the market open in tokyo and seal -- seoul. shery: australia has just come online, our top stories this hour. haidi: asian stocks are set for more losses. there is a vow to end markets support this friday. more restrictive policy is needed to tame inflation. >> the funds rate is just approaching a neutral funds rate and we need to get it above neutral for a time of we want to put inflation down. shery: it was already a choppy

trading session before the boe's commissioner's comments. the yield is jumping up of the 390 level, wti is falling below the $90 a barrel level and we see the downside pressure in the asian session. we are looking ahead to inflation numbers and as we look back in september we have a hot august cpi trend. we saw a decline of 4% on the s&p 500. jp morgan saying that if we have a too hot cpi, when it comes to the u.s. stocks. haidi: a lot of headwind facing investors but they the asx 200 opening low today, we are entering a do wait and see mode. in terms of the set up vote, we are keeping an eye on what we heard from the rba assistant

governor. he was speaking about where he sees the neutral interest rate being around 2.5%. that is adding to the level of more an aide than a goal for them to be achieving. we are seeing the reaction of the bonds this morning they shorter duration shorter than what you said -- this morning. the shorter duration. policy is stimulating the economy. we see it coming through in the housing market. we have seen property prices in the most popular city, sydney, dropping eight straight months. it is an indication that rba policy has been having an impact on the economy. the conversation we had from earlier this week, it is time to ease the policy and push forward. shery: it led to investors being more careful about the rate hike

path, if there was any doubt, the cleveland fed president has made it crystal clear. more rate hikes are in store. let us bring in kathleen hays has this conversation. really, we heard from this before you had the conversation and we are doubling down even more. >> they did not change their message one bit. i try to get her to say 25 basis points is more likely on the rate hike in the next three weeks because she said earlier today 50 or 75, she did say i like to go into meetings with my mind made up. the point is she said that they have to get policy that is more restrictive, they cannot let inflation be too high for too long. maybe all of them, listen to what she said.

>> i want to make sure we have all of the data before i go into that meeting and hear what my colleagues are saying around the table. the real issue is we need to do more, we have not inflation move back down. we need to see that because leaving inflation where it is is a higher chance of it becoming embedded in the economy and affecting pricing decisions of firms and also getting into the psyche of households. that adds long-term negative connotations for the economy. this is a question of we know that it is time to continue on and persevere and bring the funds rate up. we know that we will have to keep it there for a time until we see inflation beginning to come back down because we want to make sure it is on the sustainable downward path of 2%. if you remember the dot plot and the medium path, we are much aligned in where we are seeing

positive needing to get to. >> after 300 basis of rate hikes, it seems that has a rate, does it look like maybe it is going to end up having to be higher than you thought? do you have any confidence now in knowing what the terminal rate is going to be? many people talk about maybe 75%. >> we have to see how the economy involves. we are going through the end of this year and into next year we want to basically get inflation on a downward path. labor markets continue to be strong, we have seen some moderation to it, some moderation on the product side of the economy and it is now, we calibrate going forward. right now, the funds rate is just approaching a neutral funds rate and we need to get it above neutral for a time if we want to put inflation on a downward path

and we do. >> that is what we are hearing from the imf and the world bank this week at the annual meeting in washington, aggressive central bank rate hikes, they say the world needs it. it is the big risk in growth and they are definitely looking for weaker economies, for the fact that the worst is yet to come, they have estimates for 2023. it is not that much. 22%. as a 25% this, the number could be much lower. a third of the global economy made it into contractions. it will get support, emerging-market, developing countries, it is the most. when you look at the unusually large risk, russia is at the top of the list. inflation peaks in late 2022 but remains higher longer.

we have covered that a lot in the shows and monetary policy is ever stronger and a risk of missed calibration. all of the risk is saying that we had to take the risk and they talk about in their remarks 50 that -- they need to have a policy that would have an entire debt financing and other issues. it has to be done. that is the message too. haidi: let us kathleen hays with the latest. take a look at when monetary policy and fiscal policy has the intended effect. look at the pound trading at the moment. this is after the bank of england has warnings that some managers have whined it up their positions -- winded up their

positions. a swift reaction from traders and investors, treasury yields and the u.s. dollar is trading at 1% against the greenback. a big part of that story is how much dollar support and strength we continue to see. we see the weakness in the bloomberg dollar per pound index. the currency pairs as we get to the end of the deadline. listen to what bailey had to say. >> we think the predominant message is the funds involved and all of the funds involved, you have three days left, you have got to get this done. part of the essence of your financial stability and connection is it is clearly temporary. haidi: let us get more with

mark. we had a period of calm when it comes to the u.k. assets. this setting up the next leg lower? >> for the pound. this could have actual damage in the situation where a major disconnect is between the central bank and the u.k. government. part of what they are addressing here is trying to say that the bank of england's job is maintaining stability and the financial sector related to the banks. one of the most interesting comments he made was leverage in a non-bank world is a slippery concept. he does not want the bank of england to start taking responsibility for something that is happening with insurance companies. he wants to pull back into the responsibility of the banks who took out the leveraged contracts and other people involved in them. his job is to target to get inflation down.

inflation is way too high in the u.k. and interest rates need to go up in order to suspend that. the government is not doing its part. it is increasing the fiscal deficit without any clear plan as to how get numbers down in the future. they want to raise spending when they are not making it clear how they intend to finance it. that puts the pressure back onto the u.k. bond market. the bank of england is caught in between. there's only so much that they can do before they kill the economy. that is not enough to really help the situation stabilize quickly. the pound is by default. until the government and u.k. and the bank of england are back on the same page, the pound is going to be the default exit for traders and speculators. it is quite likely we will be heading back towards parity in

the pound against the u.s. dollar. shery: how does this play into how central banks become such a big players that if the bond space? we have talked about liquidity being a problem, we are going to get qt, we have talked about the doj being a huge whale in the bond space. piercing the trading for the third consecutive session. >> many central bankers were honest about it, they would have started reducing balance sheets a long time ago. the bond markets were stable. what has called them out is the rising inflation. they increased their balance sheets which was the right thing to do at the time when the global financial crisis and central banks needed to support the instability in the world economy. they maintained the balance sheets they did not start until

inflation came along way too high and they are trying to sell off bonds into an unstable bond market where yields are rising. that is making things worse. it is a difficult situation and they wish they started earlier. haidi: that was mark there. let us get you to vonnie quinn. >> the u.k. has called china an essential threat. liz truss is expecting and preparing to harden the government's stance against china after she reviewed policy towards beijing last month. the u.k.'s chief warns that china is seeking to use technology to tighten his grip over finance abroad. china's uniqlo has ramped up infrastructure investments and

work on demands. aggregate financing came in. financial institutions offer $250 billion. those figures are higher than expected as beijing pushes local governments during a faltering economy. g-7 nations fell to support ukraine -- vow ukraine for as long as it takes. the ukrainian president said leaders need to provide military and other support as he blames russia for the attack on the nord stream pipelines. elon musk has denied he spoke with vladimir putin about ukraine. moscow is refusing a claim, they said muska told him about the alleged conversation. the call came before muska sent a series of tweets asking ukraine to ce crimea for

goodde. -- cede crimea for good. global news 24 hours a day, on-air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. shery: a bloomberg exclusive with hedge fund manager david, the greenlight capital president tells us what he thinks value investing may never come back. before that we will have market strategy with a guest who has big opportunity in asia's travel reopening.

>> as far as investing in china, china is the main competitor. it is neither -- in my opinion,

you have to have a certain amount in china read the longer term in china is still bright. the people and i know the culture and i think it is good. they have major issues. shery: ray dalio on a long-term investment pick your four china. -- picture for china. now we have manishi raychaudhuri , head of research at bnp paribas. is this to do with the covid zero policy? from the valuation side of things it would be a more attractive proposition and the likes of india? manishi: a downgrade to china in may and april was predicated on the covid zero policy having a disproportionate impact on

economic domestic consumption and the properties sector problems is dragging on. on the first, we think there is light at the end of the tunnel after the party congress. we do expect archewell, a gradual slope reopening. the end of the policy meeting last year. we are keeping a close eye on the policy space in china and we think we are continuing the stance for now but there are important policy beneficiaries and consumption and reopening plays. this could potentially be even more interesting. shery: as we are seeing china reopen a little bit after the party congress we see the downside in global demand coming from the developing economies, especially with much faster

tightening coming from some central banks. is that a factor in how you position across asia? a lot of these economies depend on exports. >> they are moving from the north asian areas and the other exporters across asia. they are linked by market demand and we see continuing risk over there. tightening by the fed, we are mindful of quantitative tightening in supply that has been accelerated in september. it is likely to continue for the time horizon. i think it is moving from market demand and link sectors and domestic sectors and particularly into asian reopening plays.

haidi: you talk about evaluation premiums for india being the greatest. can you tell us more about how you approach that market? manishi: we are overweight in india for five to six months despite the egregiously excessive valuations on the relative multiples. be aware that asia has been dragged down by north asia, by china, korea, taiwan. india has stayed but the valuation premia over india to asia looks quite aggressive now. that said, we think investors are looking for insurance -- assurance. [indiscernible]

there are supply-side measures that have taken over the past 2-3 years. it is beginning to bear fruit. it is becoming apparent to everyone, some sectors are branching off, it is also currency depreciation. the markets, you find them in india. some of the pockets that we are bringing, the private sector banks and so on. it is a critical juncture right now because if china begins to outperform consequent to reopening at some point of time, that is the time to rethink the cross markets in asia. haidi: it is great to talk to you.

you can always get a round up of the stories and news you need to know in today's addition of daybreak. terminal subscribers can find that a dayb . you can also customize so that you get the news on the industries and assets that matter to you. this is bloomberg. ♪

haidi: a quick check on the latest business flash headlines, the u.s. justice department is investigating clients invading taxes, this comes after a bank paid a tax evasion settlement. credit suisse denies any improper conduct and says it is incorporating -- cooperating with authorities. the bank has seen a problem

returning to profitability. the u.s. alternate reality headset, branded as oculus costs $1600 and will allow people to have meetings while working remotely and use microsoft software. the company wants to remove the idea that virtual reality is mainly for gamers. shery: until is -- intel is looking to cope to expiring with a personal computer market. market joins us know what the latest, how much pressure is intel under that they have to do this at a time when just this year it was lobbying for a chip act and expand manufacturing here in the u.s.? >> until is under a ton of pressure from shareholders and -- intel is under a lot of

pressure from shareholders. it is in decline. that is not so great. the share price is down 53% from this year so far this year, and 20% down in the last month or so. it is not looking so hot and major changes need to be made. their profit is thinking and the pc market is shrinking. their biggest moneymaker is selling chips and the layoffs are in the cards i am told in order to stop the bleeding. shery: i wonder what intel looks like. it is a confluence of events. look at political tensions with china, too. >> these layoffs have been in the works over the last several weeks but clearly there has been

talk internally over the last several months of restructuring, they have some research charges that may hit in the third quarter. people have speculated that there would be layoffs and i can confirm there will be layoffs. there will be announced on earnings day in the u.s., expect a 20% decline. it is not that surprising you will have layoffs to go along with that. we were told about 2000 at least, in the thousands range of layoffs there. 20% reduction in markets and sales. shery: that is marked with the latest on intel. haidi: we will be reviewing the bank of korea's rate hike decision. outsized 50 basis point

♪ quinn: -- bonnie -->> the bank

of england governor warned investors to wind up positions they can't maintain. he says temporary intervention will end on friday despite calls from a log guys lobby group to extend the program. it triggered a selloff of the pound and the dollar. >> we think rebalancing must be done. our message to all the ferns -- firms is, you have got three days. you have got to get this done. the intervention was clearly temporary. vonnie: the imf has warned the worst is to come for the global economy after cutting its growth forecast. it is citing monetary tightening, damage from the russian war in ukraine and the chinese slowdown. the imf says one third of the

world economy is at risk of contracting in 2023. nasa successfully changed the path of an asteroid in what the agency is called -- is calling a watershed moment. the 160 -- the refrigerator-sized object collided into the object, raising hopes potential asteroid strikes on earth can be prevented. israel and lebanon have reached agreement to settle a border dispute in the mediterranean sea. the deal will allow israel to begin expecting natural gas without threat of attack by hezbollah. the u.s.-brokered deal could pave the way for both countries to ramp up offshore gas production including exports to europe. 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: the cleveland fed president says there is no reason to open the fed's balance sheet plans. she spoke to kathleen hays earlier and says inflation is running hot and the fed should do more. >> i want to make sure we have all the data before the meeting and i want to hear what my colleagues are saying around the table. the real issue is, we need to do more. we have not seen inflation move back down and we need to see that because leaving inflation where it is, if it continues, the higher chance it becomes embedded in the economy, affecting pricing decisions of firms, also getting into the psyche of households and that has long-term negative connotations for the economy. this is a big question. we know it is time to persevere

and bring the funds rate up. we know we are going to have to keep it there for a time until we see inflation beginning to come down. because we want to make sure it is on a sustainable downward path to 2%. if you remember the dot plot, we are very much aligned in terms of policy. >> does this mean when you think you are neutral at 4.5% that you are going to pause, even with the funds rate below the rate of inflation? because that is what it will be. loretta: we are going to see inflation come down next year. when i think about how far above a neutral rate we are going to get come i think we have to be in restricted territory. remember, as inflation comes down, we are becoming more restrictive. this is what we have to do. the appropriate path is, we continue to raise rates a bit

more until we get it to that level where we are positive in terms of the real funds rate, based on expected inflation over the next year. then, wait and assess data, but not only backward-looking data, also information we are getting from the street in terms of main street. real consumers, households, real businesses telling us how they thinking about the economy. kathleen: could this be an instance where you could consider giving more support the mortgage market, after it has borne a lot of the brunt of policy moves? and actually slowing down the runoff in the balance sheet? loretta: we set out our plan for the balance sheet well in advance of the plan. and we are letting both run off up to an amount. the treasuries and mortgages.

mortgages are longer-term, so they are going to run off much more slowly than the treasuries. we want to stick to that plan because the markets have understood the plan, they see it. we did become a very well, broadcast what we were planning to do and then implemented it. my feeling is, that is going to run and then, we are going to try to get our funds rate calibrated to make sure it is on this downward path. i don't think there is any need to adjust that plan, there is a lot of benefit to leaving that plane in place and allowing the funds rate to be our main tool of policy. shery: cleveland fed president loretta mesler with bloomberg's kathleen hays. the bank of korea is expected to give it back to an outside rate increase. -- pivot back to an outside rate increase. let's bring in our rates

correspondent. exports are slowing, confidence is down, how much leeway does the central bank have? >> is a confused picture, but they have little option if you look at it. their last meeting day, they moved down to a 25 basis point type, but it looks like they don't have that comfort anymore because inflation continues to move in the wrong direction. their currency is at a low. and they rely so much on imported raw materials and food. if we also consider where the fed is going, by now, there was expectation the fed might have slowed down. the market is betting on another 75 basis points move. on securities. if you are in a central bank in seoul, you probably feel you don't have another option other than go for the 50 basis point hike. and they are going to do that

when we have all of the old, familiar concerns as created by high levels of debt in households and growth slowing on the export side. it is a confusing picture. but the south korean central bank probably feels it has little other option. haidi: our chief asia economics correspondent enda curran. let's look at the market. turmoil continues given what weird from the bop overnight -- bor o bl -- boe overnight and u.s. stocks. the trading continues to be dollar strength and currency pairs. when it comes to the aussie dollar, the longest losing streak in two months for the

aussie. the broader asian equities, a friday deadline for traders. a disruption in futures trading in japan, hong kong lower and australian equities looking bad. there is a lot more to come on "daybreak: asia," this is bloomberg. ♪

♪ >> it doesn't really matter with we are technically in a recession or it is a soft landing or hard landing. we are in an economic slowdown, or deterioration. >> there is an enormous amount of debt and credit. and it created a giant lurch forward and a bubble. and now, they are putting on the brakes. now, we are going to create a giant lurch backward. >> powell, they were like, let's continue easing because we only have 1.7% in laois and. there is full employment everywhere. >> you can't slow the economy with the rates the monetary

policy is leading to today without expecting some actions. >> interest rates today have to go to a level that constricts private credit. when that happens, there is less benefit and that is the mechanics. >> there is going to be a default cycle. >> it is definitely coming. haidi: our guests speaking about recession risks. greenlight capital president david einhorn has come back to the value of value investing in says it might never come back as investors shift their approaches . he spoke with us exclusively on the sidelines of the robinhood conference. >> the value investing, i don't know that it ever comes back. there have been serious changes to market structure. most of the value masters have been put out of business, so value investing is security

analysis, think about what companies are worth, why they might be mis-valued and then do valuation analysis that tells you that is true. there is just very few of us left. most market participants these days either cannot do value, they are not trained or experienced on how to do valuations, or their structure doesn't allow them to. like if they are in a passive thing, the last thing are doing is value. or their system is a quantitative system or algorithmic system, or their style, their path charts just go up and took the right and none of those participants are doing value. it used to be that on every conference call of every company, there was dozens of analysts on competing hedge funds come along-short people, trying to figure -- hedge funds, long-short people, trying to figure things out and those

funds have been gutted. >> your saying so much analysis is passive or want to take to. has that make your job different as someone who makes specific securities? david: absolutely not. we used to be able to buy something at a low multiple and think the company could benefit from doing something better and other investors would see what he saw a year later in rerate the shares. you could buy something 11 times earnings and maybe they would earn and percent more but you get another three points on the multiple intimate 50% over three years. that isn't happening anymore because there is nobody to notice what happens at these companies. the other side he is, nobody knows what anything is worth, so there is an enormous number of companies that are dramatically valued in ways that we haven't seen before. where before, we would be eight times or 12 times multiples, we

can now buy a lot of those same companies that three times earnings and if they are buying back 20% or 40% of their stock in some cases, we are going to have to get paid by the company as opposed to having other investors figure out what we thought we figured out before them. >> some are saying there are better valuations in the market to buy specific stocks, why do you think there are still bubbles in the market? we have seen a draw down, there are words the drop-down might be bigger, do you still see bubbles? david: a force. because the absence of people doing valuations means that nobody knows what anything is worth. shery: greenlight capital president david einhorn speaking exclusively with bloomberg's sonali bass talk. annabelle is looking at performance of some of the biggest hedge funds. annabelle: not great results coming through. that is the big take of the day,

focusing on the industry and not at a great time to have poor performance. because if you are a hedge fund clients, you are probably looking toward this sort of trading strategy to buffer you in the bear market. look at this chart showing the share of runs by return so far this year. the vast majority have seen a drop of more than 10%. i do look at some of the bigger names, tiger global in the worst shape globally, more than 50% of a drop rate d1 capital partners declining 30%. lone pine capital, assets up 42%. the list goes on. this is around 25% of hedge funds have seen declines up to 10%, but less than a quarter are getting a positive return. now, in terms of which hedge fund style has seen the biggest change, one clear standout is

the long-short hedge fund trading strategy. we are seeing outflows, clients really taking money out of these funds, around $25 billion this year so far. that is net withdrawals. when you look at a longer-term basis, five years, it is $100 billion. issues are facing the hedge fund industry. it has been something that has been years in the making. if you take a look at performance of hedge funds's is the s&p 500 index, the argument is being made in the piece that the problem is that hedge fund traders got out of the habit of hedging itself. because their tactics were owned during a decade of low-interest rates. that powered rising share prices, but also got them out of that habit, like i was saying.

you can see that equity hedge funds underperformed of the s&p 500 index even during the best years. shery: get more on what val is telling us about on teddy's big take on the terminal. terminal subscribers can also access top stories. big take go is your function. a quick check of business flash headlines -- this on joins toyota in deciding to pull out of russia. the next -- the exit will cost the automaker $687 million. shares of nissan -- the one-time loss is forecast based on the current exchange rate and could change. cathie woods' etf has doubled to its lowest level since the pandemic. it has plunged more than 60% so far this year, more than twice that of the s&p 500.

woods says trading algorithms are fleeing to safety in passive index tracking products as the fed hikes rates. . >> we have had this incredible decline. we have so many more problems now. supply chains, russia's invasion of ukraine. innovation solves problems and yet these algorithms have very short-term time horizons. ours is five years. the market and risk off goes through one quarter. algorithms are dominating the market. shery: tune into bloomberg radio to hear more from denny's big newsmakers, get in-depth analysis from the daybreak team broadcasting live from our studio in hong kong. and listen across bloombergradio.com. stay with us.

♪ haidi: currency now weakening through the september intervention levels, a 24-year low. when we had the intervention, we saw that fade quickly. the overall effect of curbing earmarks for about a week, we have seen that narrow range bound trading for the yen.

japanese authorities are once again stepping into prevent further currency losses. japanese government bonds are following compared to their safe peers. when we look at the rating on the yen at the moment, there is concern we will see intervention as it approaches the 145 and 146 level. there is concern. we saw recent comments from policymakers within the government that if the news is rapid, we could see more intervention trading they are cautious at these elevated levels, and moving too much in either direction. shery: yen volatility is spiking higher. breaking out of japan, machine orders contracting 5.8% for the month of august, bigger than the 2.8 percent expected. it is falling from a rebound we saw in july.

the outlook for capital spending, still remaining week. -- weak. we have weakening global demand and there are worse about a slowdown in chinese activity weighing on investor sentiment and machine deliveries contracting 5% month on month for japan for august. haidi: chip design firms are set to start trading in tokyo. let's bring in our equity markets reporter. if you look at the week that has been, a difficult time in britain for chip companies to go public. >> correct, what a week for a chip company to debut in any market but this is interesting, we are talking about a company that had panasonic, fujitsu and

they were shareholders and they were the ones seven shares in this ipo that was upsize throughout the ipo process. we are talking about foreign to $30 million u.s. in proceeds that were raised in japan through this deal. this is the biggest deal so far in tokyo in 2022 and is way bigger than anything we have seen so far. japanese markets usually have smaller tickets for ipo's. as we can see on the chart on the screen, this is eight times bigger than the second ipo -- second-biggest ipo this year. also, a lot of institutional investors. this is an interesting case, starting to trade in a week. shery: is that why it has attracted interest, the fact it is unique in asian markets? filipe: it is unique within the japanese market. for example, look at

semiconductors that came to market in japan over the past two years. this is the fourth debut. the other deals were much smaller. if you extend that timeline over the past decade, this is the ninth company to list within the japanese market. when we heard analysts were looking at this deal, they said it was priced at the top of the range and even though it was upsize from the additional plant, -- from the initial plant, this was iced with a very good valuation, a very good comparison. two big fears that are already listed in the u.s. and here in hong kong, so pricing is quite good for investors. there is potentially upside. but again, this is a hard week for semiconductors in general, so it not be surprising to see the stocks trading lower at the opening. shery: bloomberg equity capital markets reporter filipe pacheco. we will be watching at the open

in korea and japan asian-energy stocks that could be active given the slump in oil prices given fears of an economic slowdown. chipmakers we will be watching, asian suppliers as well and intel news broke, it is said to be planning a major reduction in headcount as we look at the stocks. haidi: coming up in the next hour, the all nippon airways ceo on travel demand in japan, looking to bounce back in the reopening. the airline says, ready -- be ready to be cope with -- be ready to cope with demand. michael metcalfe of state street bank joins us. this is bloomberg. ♪

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shery: this is "daybreak: asia," counting down to asian major market opens as we get hawkish fed speak, a stronger u.s. dollar, the japanese yen at a 24-year low against the greenback as we hear the drumbeat of recession warnings. did i get everything in? [laughter] haidi: we are hearing escalating fears from the likes of the imf, cutting the global growth forecast, saying there is more risk of sub 2% growth globally. output is already being flagged. all of this is playing in two how markets are responding. annabelle: headwinds facing investors us trading gets underway in japan. we have the opens and also the open for the treasury markets. 10-year yield coming online like this.

a long list of investors to focus on this morning including news from the bop concerning its emergency program on friday, the imf morning as well that the worst is yet to come for the economy. no doubt that is why we are seeing the nikkei the start of trade inclining. we have a chip design firm that is making its debut on the exchange this morning, but not a great moment for any company to be starting to trade. other assets we are watching, the yen is shy of the level the boj intervened in the market at the end of september, 145.90 right now. let's change to the open in korea this morning. the kospi, we can see it declining at the start of trade. we are watching lj electronics, a customer of intel, which we know is announcing major job

cuts amid a slow down we have in the pc market. keeping an eye on the korean yuan, functionally stronger ahead of a be ok meeting where it is expected to raise rates, but probably not enough to stem router losses in the currency. still holding about the 1400 level. in australia, we did hear from the rba assistant governor earlier, guiding for a neutral rate that is lower than the current cash rate. the neutral rate is 2.5%. we are seeing moves in short-derision bonds. also keeping an eye on oil that is weakening, due to broader recession fears in the market. haidi: and commitment from the fed or the current tightening trajectory. we heard from cleveland fed president laura messer earlier

saying she sees no see -- is no need to alter balance sheet plans. take a listen. >> i want to make sure we have all the data before i go into that meeting and care what my colleagues are saying around the table. the real issue is, we need to do more. we have not seen inflation move back down, and we need to see that. because leaving inflation where it is, if it continues, there is a higher chance it becomes embedded in the economy, affecting pricing decisions of firms, and also getting into the psyche of households. and that has long-term negative connotations for the economy. again, we know it is time to continue and persevere and ring the funds rate up. we know we have to keep it there for a time until we see inflation beginning to come down. because we want to make sure it

is at a sustainable balance path to 2%. you remember the dot plot and the medium path from the sec in september, we are very much aligned and where we think policy needs to get to. kathleen: after 300 basis points of right hikes, it seems that the terminal rate, i want to ask you, does it work like it is maybe going to end up having to be higher than you thought? do you have confidence in even knowing with the terminal rate is going to be? many people talk about as high as 5%? loretta: we have to see the economy evolve. this is the assessment process we are going to be going through into next year. we want to get inflation on a downward path. labor markets continue to be very strong. we have seen some adoration. we have seen some moderation on the product side of the economy and now, we are going to calibrate going forward. right now, the funds rate is

just approaching a neutral funds rate at we need to get it above neutral for a time if we want to put inflation on a downward path. shery: cleveland fed president loretta mester with bloomberg' kathleen hays. i would guest thinks a new macro development has been an awakening of bond vigilantes. let's bring in michael metcalfe, global head of strategy at state street bank. we are seeing a tug-of-war, how much are we starting to see breaking points in different markets whether it is u.k. or liquidity in the treasury space or dysfunction in the markets as well? michael: i think what we saw in the u.k. is the most obvious place where things are broken. central banks, all of a sudden, have this conflict between their

role as lender of last resort and their inflation target. it is going to be interesting to see how the bank of england to get through that in the next couple of weeks big you have to think it is going to need serious hiking at the front end of the curve to reassert their inflation fighting credibility while at the same time, providing liquidity at the long end of the curve as lender of last resort. shery: we heard from governor bailey that he would be ending boe support this friday. and we have the pound plunging. given what is happening in the broader macro space and the pressures on the pound and euro and other currencies that trade against the u.s. dollar, can we expect the strengthening of the greenback to continue? michael: yeah. the first thing i would say is that i agree it is an overshoot. by our metric, we have the dollar 20% overvalued on an index basis, the yen even more

extreme than that. it was interesting hearing comments earlier about the potential to coordinate intervention, from daily. the u.s. itself is tightening natural conditions and a strong dollar is still in their interest. but it would not surprise me in the next six months that we are in a position where a stronger dollar is not in anyone's interests across the g7. we are looking at the plaza hotel again, but the dollar overshoot, the other interesting part is that in europe, and japan, the weaker domestic currencies are making inflation worse. it is a real challenge for it when at the moment, the strong dollar. haidi: the agency has gone from no way to maybe something like

plaza adjacent. when you look at dysfunction in the bond markets, starting with treasury, where do you see contagion and is that the biggest risk? michael: i think it is. the one thing we have learned from the u.k. situation is that, in the past decade cometh ex-income markets have been happy to give governments a pass on their fiscal spending. at the time, the economic environment supported that. now, we are in a world of constant tightening, low growth and high inflation. i think orchids are looking much more closely at fiscal policy -- i think markets are looking much more closely at fiscal policy. the u.k. gilt market is nowhere as look and as it once was and there are open pressures now. that would also be the case in the treasury market. we have seen liquidity concerns, particularly at the long end of the curve in the treasury market itself. but if you are taking a lesson

from at the bank of england has subsequently done, if we know that central banks still have that mandate for financial stability, it is a really important part of that mandate as well as inflation fighting. you know that the fed will be there if there are any dislocations, but it is just a risk over and above the macro risks we have been trying to price in, that fixed income orchids might be less liquid than we are hoping. haidi: it certainly is a conviction. is it just defensive writing out the storm -- riding out the storm? maybe after the party congress, chinese policy could change significantly. michael: yeah, in another week or another environment, the chinese party congress would be the main thing people were talking about, and they would

seem to have a lot more room than other economies to re-stimulate. i think that would put a floor in commodity markets. but i think right now, to your question about high conviction traits right now, it is very difficult to have high conviction. your comment earlier from loretta mester, they don't know what the pt rate is because they don't know which rate will slow inflation, which is the primary target. in the u.s., you stick in dollars and that is why the dollar is overshooting at the moment, simply because we don't have the conviction. china is certainly a potential place host party congress. haidi: and if you trade the yuan as an em asia anchor, could we see opportunities for emerging-market asia fx, particularly if we believe this

is not the asian financial crisis? michael: interesting point, because fundamentally, em economies are almost -- the bank of korea is still going -- but in a lot places, we are almost the cycle. there is clear value in em currencies and they are significantly under owned as well. there will be huge opportunities at some point. i think we need to get more confident and where we think the peak in rates is for investors to want to go back in. at the moment, everyone is hesitant. but there will be opportunities. one thing forward is that this crisis has road fx valuations -- has thrown off fx valuations in particular. haidi: great to have you with us , michael metcalfe at state

street bank. vonnie. vonnie: bank of england governor andrew bailey is warning fund managers that they have the end of the week to wind up position they can't maintain. he says temporary intervention is ending on friday despite calls from a lobbying group to extend graham. the comments rattled world markets, triggering a selloff in the pound and in u.s. stocks. >> we think rebalancing is a must. my message to the funds is coming you have got to get this done. financial stability intervention is clearly temporary. vonnie: china ramps up infrastructure investment. financing came in at 490 billion

dollars. financial institutions also up 300 billion dollars in new loan. both were higher than expected as beijing pushes local governments to support the faltering economy. leaders of g-7 nations have vowed to support ukraine for as long as it takes despite russian steps to escalate the war. in a video call with ukrainian president volodymyr zelenskyy, g-7 leaders clenched -- pledged financial and military support while condemning russian attacks and sabotage. the u.s. is sending new air defense systems to ukraine. 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. ♪ shery: it has not been a great week in terms of news around chipmakers. let's turn to bell to see how they are doing in the asian trading session. annabelle: intel is personifying

the broader slow down we are seeing not only in the pc market, but general concerns around chip making as an industry. this morning, planning a major reduction at intel, thousands of people forced to leave to cut costs and cope the downturn facing the industry. that is our exclusive reporting according to people familiar with the situation. in terms of reaction, we are looking at their key customer in asia, lg electronics and we are seeing decline for its suppliers in japan. another sector we are focusing on this morning is the energy space. brent crude online for a third straight session in the red. a lot of concerns around the global slow and how that will hurt energy demand. a chip away from risk assets as well. one company we have an exclusive interview with is japan's ana,

and the carrier is very confident about the outlook despite what we are seeing in the markets that are risk off, the airline rising at the start of trade. it says bookings increased fivefold since japan announced easing of restrictions. here is what the carrier's ceo told us in an exclusive interview. >> asia and the u.s. should prepare for the rising demand. ana did not lay off any employees during the pandemic. this allowed us to restore our stability for demand increases. shery: we will have more of that exclusive conversation with the head of ana. first, central banks continue to tighten to manage the hottest inflation in decades. this is bloomberg. ♪

♪ >> the financial system has got

to go through the windshield. this is slamming the brakes. we didn't need to do this. this is a self-inflicted wound by the central bank. this is a reminder a little bit of october 2000 date, when people gather in washington and realize we have a global problem that needs a global solution shery: mohamed el-erian on comments -- comments on central banks' aggressive right hikes. we have a perfect storm of negative forces taking its toll on growth. our global policy and economics editor kathleen hays, the outlook dimming and it could get worse? kathleen: not looking great, absolutely, but they are not trying to sugarcoat it for us.

the imf is doing what it has been doing for a while, downgrading both forecasts. and it is everything from the russian war in ukraine to aggressive central bank rate hikes but overall, they are estimating growth next year will be 2.7%, that is down from their last forecast by 2.0%. but in the global economy, if you say what is a recession, the cutoff is not zero, it is 2.5 percent getting weaker. that is how perilously close the economy is to a recession and the imf is saying the worst is yet to come. and there is a 25% chance this could be even worse. about one third of the world is expected to feel that it is in a recession. russia is destabilizing the global economy and that shows no sign of letting up. inflation, they think, is going to 8.8% this year, 6% next year

and that is very high for a long time. and we have been talking about this as we get ready for the chinese party congress that lockdowns have not let up the property sector crisis is getting worse. angina is a very important driver of the global economy. that is a problem. and because they already have central bank rate hikes, especially by the fed come of the dollar keeps getting stronger and that is pressuring emerging markets you can at least afford having their economies weaken and they have to raise rates. it is down to 1.6% this year in the u.s., 1% next year. not a recession, but weaker. 3.1 and 0.5, u.k. at .6. they are taking it on the chin. the imf thinks that while china is weakening to its worst the growth rate in about four decades, it is going to do better next year. that is a positive note.

haidi: our bloomberg policy and economics editor kathleen hays. when you look at futures trading in europe, quite a bit of downside, the index trading off by .7%. german-backed futures, down 1.1%. we do see european stocks declining for a fifth straight session, rising for more monetary tightening and also disruption when it comes to guilt and pounds -- pounds trading. you can get a roundup of these stories on daybreak and bloomberg subscribers can get it on the terminal, and customize

your settings for the industries that you care about. this is bloomberg. ♪

shery: japan's ana says bookings have increased fivefold since restriction were lifted for travelers. >> the situation is extremely positive. we hope we can bring back many visitors to japan. before covid, there were 13 million visitors to japan a year. there was consumption of ¥5 million. ana is ready to contribute to the revitalization of the japanese economy annabelle: what else does japan need to do to

bring back more international visitors? >> you do not need a negative rate in japan. however, you do not need proof of vaccination to enter countries in europe as well as canada. i hope japan will align at least with the u.s.. >> tell us about international bookings. what countries are people booking flights to come to japan? >> after i told my prime minister to ease entry restrictions, bookings from overseas increased five fold. bookings are increasing especially from countries like singapore, hong kong, and strong

with business. where there is restrictions, bookings from overseas of flights this week increased 30% compared to flights last week. >> tell us about the number of your international flights? how many are you flooding more or less of compared to the pandemic? >> we are making progress. flights between north america and japan have almost recovered to pre-pandemic levels this winter. >> just in time for skiing season. you raised your target to become profitable at the earliest possible timing. are you facing any hurdles? >> i am set of -- i am satisfied with the way we have made progress this year. and i am confident we can extend it. for international route, bookings have been increasing

significantly after the announcement by the government to restore the visa program. we will be increasing flights from october, especially from the u.s. and asia, to appear for the rise in demand. and we did not lay off any employees during the pandemic. this will allow us to restore our flights and meet the demand increases. >> there is the weak yen but you are facing several headwinds. what concerns you? >> various factors like rising you will prices and geopolitical issues -- rising fuel millions have made the switch from the big three to the best kept secret in wireless: xfinity mobile. that means millions are saving hundreds a year with the fastest mobile service. and now, introducing, the best price for two lines of unlimited. just $30 per line.

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vonnie: this is "daybreak:

asia." the cleveland fed president says officials need to keep raising interest rates to quell inflation. a third 75 basis point hike is orderly coming next month. loretta mester says the fed should also stick with plans to shrink its balance sheet. >> because the markets have understood the plan. they see it, they understand it. we did very well broadcasting what we were planning to do and then implemented it. vonnie: the imf warned the worst is yet to come for the world economy at the world economy after cutting its growth forecast. the fund lowered it global gdp projection next year to 2.9% -- 2.7% from 2.9%. the imf says one third of the global economy is at risk of contracting in 2023. nasa is calling it a watershed

moment for defense and humanity. a refrigerator sized probe slammed into an asteroid two weeks ago, to determine whether its path should be altered. nasa released data showing the asteroid moved more than participating -- more than anticipated, potentially, and spreading how -- a report says elon musk told him about an alleged conversation with the russian president that came before elon musk sent tweets urging crimea to cede territory to russia for months. musk says the discussion was about space. 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. ♪ shery: let's look at how

currencies are trading across asia with the japanese yen having touched a 24 year low against the u.s. dollar. annabelle: this is the big focus at the start of trading. a half-hour into the session for japan and korea, very much on yen watch, trading above 1.46. our market watch team says the next line for traders could be 147 point 66, last reached in 1998. but we are at a level that triggered intervention from authorities in september, so traders could favor the dollar for the rest of the session today. look at what we are seeing in terms of implied volatility. even if we did see the yen breaching that key resistance level, we have seen implied volatility still well above the run-up that we had a head the

intervention in september. it is a suggestion that perhaps traders don't think any intervention from the boj will have any sort of meaningful effect given that the fed does continue to hike rates. and the boj is sticking with its fuel curve control program for now. other central banks, the korean yuan on a one-day basis is one of the few that is gaining today in asia against the greenback. we had seen it leading the losses in a previous session. certainly a lot of focus ahead of the be ok decision that could come within the hour. -- bok decision that could come within the hour. and the yuan is under pressure. shery: i almost forgot that we have the bok coming up anytime now. thank you for reminding me.

there is so much happening. we are watching the british pound which we conduct a bank andrew bailey warned fund managers that they have until the end of the week to wind up fund decisions that they cannot maintain. this was before -- this is before the central bank halts monetary intervention. >> all the funds involved, you have got three days left. you have got to get this done. because part of the essence of financial stability intervention is that it is clearly temporary. shery: that puts pressure on the pound and other u.k. assets, falling below the 110 level. it paired back earlier gains that we had in the pound. another consecutive session of losses against the u.s. dollar by the pound and you can see it rated against other currency pairs. haidi: we always forget about --

when we forget about the bok decision, we know it is a big news day. let's focus on headwinds facing the u.k. and europe and the contagion spreading across the rest of the world. citigroup's christian schulz joins us. we were saying that this is market dysfunction you might expect from an emerging market. christian schulz this is a government -- christian: this is a government that wants to support the economy. normally, it wouldn't get a positive reaction that the government is supporting growth, but you get the opposite. the bank of england came in to buy them time. time is now running out. there is a message that andrew bailey gave, either change

course or find a different way of funding this rate or there's going to be trouble. haidi: how do they right the path? i guess we will know by the end of the month. christian: indeed, we need to know what this is going to cost us. we need to know what this is going to cost the government. the office of budget responsibility needs to publish its numbers. we also need to fund this somehow. we touched on this earlier in the week. the policy institute came up with 60 billion in spending cuts the u.k. government would have to do to fund this. that is a very challenging number because you want to raise defense spending. the pool spending you can actually cut becomes very, very small. it is local government services, work benefits, can you really cut them by 20% to fund tax cuts for companies and wealthy households?

is that politically sustainable? the government will have to potentially change course on tax cuts and energy. shery: given challenges in the u.k. economy and volatility in the markets, how does this code or the ecb and tightening as well? christian: on september 23, the u.k. government comes up with a big budget. six days later, the german government announces a similar package. and nothing happens in the markets. there is a credibility deficit that the u.k. has that the continent doesn't have. now that germany said it and has arguably given the rest of europe covert to follow suit to support the economy as well, it all depends on how this is designed, whether it works to lowering inflation had --

inflation and helping the ecb or making it worse. if it makes it worse, the ecb hikes further and we could experience a situation as in the u.k.. but giving europe the benefit of the doubt, some of the packages look more compatible than what we have seen in the u.k.. shery: is germany going to be one of the economies that is going to fail relatively well -- fare relatively well with the drumbeat of recession across the board, and their exports have been slowing, right? christian: indeed. quite the contrary, i think journey is going to -- germany is going to be one of the hardest-hit in this crisis. it is an overvalued economy. it is a shock. german manufacturing is experiencing tough, short-term

headwinds from the energy crisis, but also long-term headwinds and not just from energy. there is a broader challenge to globalization and vulnerable global supply chains that feed in to german manufacturing. we need less attention toward efficiency and more attention toward reliability and that is a long-term challenge germany faces that is going to probably throw the economy into recession this winter. germany is more vulnerable than other countries. as long as we can avoid financial turbulence. this shock to germany has been a focus. haidi: the yen has gone past the intervention level, the pound continues to we can come of the greenback continues to be relentlessly strong. we heard from the ecb saying the

alignment of the markets could be corrected by coordinated action. is this an opening? christian: if the dollar were to weaken, it would help everybody. at the same time, the u.s. has an overheating economy. it needs to raise interest rates. there is only so much the fed can do. an intervention will help, but if you can't back it up with action and the fed can't slow rate hikes, there is probably only going to be a temporary, short-term relief. but coordination would send a good signal to the world. lack of international coordination is sometimes find what we are seeing. haidi: lack of ordination when

it comes to the energy crisis in europe as well. the war continues to drag on, as allies try to push back against it. what is the future, even if energy levels managed to be ok this winter? christian: this winter, the sources can't be any fuller than they are with guest supplies in norway and the u.s. as well and i think we are going to survive the winter without rationing or additional cuts. but it is going to be difficult to refill storage next winter. that is going to keep prices high and that causes the challenge i was talking about, we need to adjust to where gas is permanently higher. we need to use less gas.

it doesn't provide enough incentives to businesses or households to adjust to the new world, and it is going to make things even worse. it increases long-term inflation and therefore, calls on the central banks to respond with higher interest rates. haidi: citigroup chief global economist christian schulz, thank you. bank of korea trying to keep pace with the fed with a possible outsized rate hike. more on the decision next. this is bloomberg. ♪

♪ shery: look at currencies trading across asia. that line in green is the only one gaining ground against the u.s. dollar. that is the south korean yuan. the japanese yen the big loser, 24-year low against the u.s. dollar. we are expecting the bank of korea at any moment to come out on the expectation is for an outsized interest rate increase of 50 basis points to 3%. this comes after tightening in august. let's bring in our guest to preview the decision, catherine

-- katherine oh. it seems we are back to the 50 basis points ike. whykatherine: -- why? katherine: the fed. currency issues, cpi inflation higher. be ok's concerned about inflation and fx. shery: and yet we hear from policymakers across the world warning about the potential economic recession around the world. korea is not immune to that. we have seen exports slowing and confidence plunging. how much of a leeway and window of opportunity do they have to keep hiking? katherine: exports are slowing end interest rates are rising.

that is a concern. the consumption is pretty solid, at least until the third quarter of next year, in our view. think household option -- we think household consumption is still there. with higher rates and higher inflation next year, it might slow down. the be ok things that would be ok to still make the rate hikes. -- the bok thinks that would be ok to still make the right hikes. haidi: we heard interesting murmuring from an ecb policy makers saying that you could see more coordinated action. would intervention be top of mind? kathleen: bok is concerned about the level of currency and relative you week -- rapid weakness of the yuan, but the bok is quite cautious about intervening a disturbing the market. they would be quite cautious to

control the level of currency, but morgan operation took control volatility would be on their mind. but going forward, if there is another rapid weakness of the currency. there would be some action going forward at a rate we had seen three or four weeks ago, 19 billion down in fx reserves last month other than that, i think they will be quite cautious not to disrupt the markets. haidi: we have seen earnings estimates when it comes to chipmakers falling at the fastest pace since 2008. what impact do you see on the macro environment from the data in south korea given how dominant the sector is? kathleen: we have been closely monitoring u.s. export control against china.

for now though, we remain neutral and confident that korean chipmakers would not be immediately impacted by the measures. korean chipmakers mostly manufacture memory chips for pcs, consumer goods, and that is not one of those sensitive products the u.s. government is closely monitoring. for now, it would may be creating more competitive environment for chip acres, but not to the point where we have to make the adjustment down word on the outlook for chips in the next 12 months. shery: kathleen, when we talk about korea, we have to mention record household debt. given rising borrowing costs, how painful is this? kathleen: the pain is growing for sure. but when we look at the composition of debtholders in korea, 60% of the debt and

household are the top 30% income households. 60%, they are 70% in the top percentile of income. very solid middle-class households. until the 10-year rate goes up beyond 3.75%, that pushes up the mortgage rate to 7.7 5%. second quarter next year is when we will probably see more pain feeding through to consumption. but for now, consumption wouldn't be much affected because of solid spending and demand holding up in high-end income households. shery: how vulnerable is the korean public when it comes to rising borrowing costs and mortgage rates rising? in the u.s., most f 30-year fixed rates on mortgages. does it look like in south korea -- what does it look like in

south korea? i have to pause for a second. bok numbers, raising key rates to 3% from 2.5%. as expected, 50 basis points rate hike. this was expected by 16 of 19 economists surveyed by bloomberg. a 50 basis points rate hike to 3% coming from 25 basis points the previous meeting. kathleen, your reaction to what we are seeing, and what i was asking about how the property sector is overheated in south korea and how rising rates will affect koreans on the ground? kathleen: after this morning's decision of they 50 basis point hike, i think the bok from here

on would like to keep a hawkish stance to prevent further rising of inflation expectations and we know that headline inflation is saying above 5% until june next year, that is what governor reed recently commented. i think it was a hawkish signal likely to keep the market on alert for a coming rate hike in the as well as next year. and back to real estate market issues, for korea, the downturn is what we were expecting. it is not as large a collapse as we were expecting in australia, where we were expecting dirty percent down your -- 30% downward direction in housing prices. in south korea, at the same time as monetary tightening, there are macro measures for real estate loosening at the same time. the real estate market is very sensitive to policies.

and for the new government to reverse what the last korean government has done come of the tightening of the real estate market, that would offset some of the downward pressure on housing prices. so, it would maybe be a more mild downturn on households in korea versus other countries. haidi: a half-point hike today and already, there is talk of another half-point in november. what does the cpi print need to look like? and if it is softer, do we expect a resumption of two point hikes -- of quarter-point hikes? >> it comes down to inflation. oil prices are putting pressure on the headlines oer -- headlines, so we are watching core inflation. if prices rise above the 4.5% that we have seen in september,

that would be a signal that bok needs to be more heightened about inflationary pressure. our forecast is that core inflation will peak in october as domestic spending pressure slowly moderate. then, we will see the bok probably coming back to 25 basis points on a regular basis until february next year. shery: kathleen oh, good to see you. coming up, cutting global growth forecast amid a surge in inflation. plus, more on the markets. this is bloomberg. ♪

♪ shery: look at how futures are trading. we have seen the s&p 500 index at the 2020 low. upside in the asian trading session. chinese offshore yuan close to the 720 level. the "china open" is next. this is bloomberg. ♪