>> good morning and welcome to daybreak australia.

i am heidi stroud watts in sydney. >> we are counting down to asia's major market opens. chris good evening from new york, i am sherry on. the top stories this hour. president biden says he is optimistic they will reach identity as he holds talks with kevin mccarthy. bracing for uncertainty as janet yellen says it is highly unlikely the u.s. will run out of cash in early june. >> modi kicks off his two-day visit to australia. we are live as the city braces for modi mania. this is what u.s. futures are looking like right now. not a lot of change at the moment. it is all about those crucial debt negotiations. we were looking at the nasdaq 100 top in high. a lot of uncertainty over where that goes.

yields rising across a curve. you're looking at the tenured yield above. they are getting for seven consecutive days above that 4.3% level. this coming at a time when we have two fed officials with more hawkish rhetoric when it comes to the trajectory of rate hikes. they are reversing earlier losses after the hawkish fed commentary. traders avoiding a device -- any decisive action. given the debt negotiations ongoing right now. also, the talks themselves have been between progress and deadlock for days. janet yellen also warning cash could run out by early june, joe matthew has the latest in washington. you have been following negotiations as long as they were happening. what are the key disagreements right now? have we achieved any progress? >> it is hard to frame the level

of progress but the talking points going into the meeting today -- they are in the oval office as we speak. speaker mccarthy and a few select staffers are negotiating this. the posturing was actually sounding but he optimistic, joe biden saying that we need to cut spending. kevin mccarthy says we both agree we need to change the trajectory. that's a lot different than the language we heard last week. there are a number of different sticking points here. the extent to which that the length of time we should be raising the debt limit and what spending level should go into the next fiscal year and how long those spending cuts proposed by speaker mccarthy might last. there are couple of other things like additional work requirements for food stamps and other social programs that many progressive democrats do not

like. it is difficult to tell exactly where they are in the negotiations. they have been a couple of other things like clawing back of money from the states that was not used in the pandemic. this is a potential key to unlocking a deal here. you mentioned janet yellen's letter here. the date has not changed. june 1 released as early as the xa here in washington. the party is at the table here. joe biden and kevin mccarthy know they are playing with very little time and that the markets are watching and listening. it will be very important to hear what he says he emerges from the west wing. assuming kevin mccarthy talks to reporters there. the way he frames this meeting depending on his mood when he emerges will go a long way to the way the markets look right now. >> has this level we have been seeing so far been in anyway

surprising given that so much is being said about how vulnerable the economy is to recessionary risk at the moment? is this something that will come into play as we get to the final hours, days of talks? >> it is hard to say. they are talking about the regular stuff right now. and comes to a potential looming recession, i don't know if that has been a motivator or not. the first of june is the real motivator. they have been given a pretty easy time from the equity markets. we have seen gyrations in the bond markets. treasuries have reacted to this. there has not been a bloodletting on wall street like the way we saw in 2011. some investors just believe they are going to figure it out. that is the way it ended every other time. that is a dangerous view. they are just beating the drum here as we get ever closer to

this. they have 10 days to figure this out. it looks like they are making some progress tonight. quick speaker mccarthy saying the majority of house republicans will support any deal. how confident are we on this? >> the majority, that may be the case. the right wing of the republican party in house will not be included in that. they do not agree with any negotiating here. it is very likely kevin mccarthy will have to reach a deal that does not include those lawmakers and that will include some centrist democrats. that is the rub here. that is where the negotiating takes place. they not only have to have an agreement between the two of

them but they have to get this passed the house and the senate. >> that was joe matthew joining us from washington. give us some more clues as to how those negotiations are going. and the monetary policy front, the divide between the fed doves and hawks could be getting wider. this as a top official sees not one but two more rate hikes while others are open to a pause in june. kathleen hayes is here. what separates the fed president trump everyone else? >> jim bowden is a hawk. he was the first advocate raising rates. certainly the first to say we have to be aggressive. hit ablation and hit it hard.

there has to be more of that downward push. >> you want to get the downward pressure on ablation while you can. >> he did not comment on this hold in the june meeting, skipped the rate hike. neil says it is a very close call on the june hike. he also wants to be emphatic, if we skipped a rate hike, it does not mean the end of rate hikes.

she thinks tighter credit conditions are maybe one or two rate hikes. i want to be mindful of that. all the way up to 200 basis points. there is a pretty broad range. >> no one knows for sure at all what the credit tightening is going to mean. there is no equation for that.

she also said the predicting fed policy made it a distraction. you have to watch the numbers. there is plenty of time to collected data before they get to the june meeting. raphael said he is comfortable with fed pause. if they have to do anything else, it probably is a hike. he says let's take a one meeting at a time. he is waiting for the numbers on jobs. he is not prejudging june at this point but is not like they are so far apart. some are more convinced about what has to happen, what is going to need to happen legibly. others are saying 500 basis

points. we may need to stop to assess. even that is not a done deal. >> so much uncertainty. that was our global policy editor there. this was kind of to the point. we have not really seen wall street punishing policymakers for the uncertainty at the moment. how are we setting up here in asia? >> you can see just how range bound we are in the session, everything is sitting fairly flat at this moment. we could see at least another couple. we are looking at the equities picture here.

in terms of which assets we are watching, we are watching the japanese and in focus. we have seen that weakness pull them back through. in terms of what us we are watching today, something that plays into the investor, we will track the nikkei 225. this rose for the eighth straight session on monday. some are saying there is further upside here to come. we are already at an all-time high.

let's get over to vonnie quinn with the prestwood headlines. quick the turkish president as when the support of the bible, boosting his bid to extend the role. he has asked his supporters to back this on runoff. they fell short of the 50% majority needed. thailand's pro-democracy parties are getting ready to form the next government. they signed a pact that lays out their ambitious plans including charter amendments. they stop short of adding changes. that is a move that may be a support for this one to become prime minister. steering clear of the u.s. china competition.

the lender is focused on integrating the e -- the regions countries through infrastructure and power products. this marks a stark difference between the predecessor here. however more than 2700 journalists and analyst in more than 120 countries, i am vonnie quinn and this is bloomberg. >> modi is in sydney to meet with his counterpart and the broader business community. we will take a look at what is on the agenda later this hour. assessing the market sentiment as investors ask whether a deal would be reached in time before the government runs out of money. this is bloomberg. ♪

>> futures muted. this is a of crucial debt negotiations. we are still waiting for has bigger kevin mccarthy to come out of the house and give us some clues about how those talks with president biden went. we continue to watch where the dollar is headed. given that we have a hawkish

tone, for two fed officials. it is really all about the debt ceiling negotiation. analysts say the dollar is still hostage. the dead drama in washington hitting wti prices as well. we continue to watch all those assets fluctuate between gains and losses as we get more clarity on where u.s. negotiators on the debt ceiling or going from here. >> treading water at this point. our next guest has not discounted the deputy crisis. there has been the overarching narrative has been we've been to this point before, read to the edge. do you think the risks are markedly higher?

do you think they will get there? >>, think that they will necessarily get there. it just depends on the timing. gold rose 20%. you have a record amount of typing that has not gone through the system yet. as qt has resumed, there is more tightening going on, the credit risks are going to go back up again. you see the high yield spreads. you could have a perfect storm. suddenly you have some other shoe to in credit land. i think it will get a deal through, it is just whether or not they do it on time. >> are you position given there is quit a bit of uncertainty to come in the next few hours?

>> i'm in the camp that we will see a recession and we will see more credit problems. we remain fairly defensive. it is more of a tactical move. we have seen a couple of roundtrips on that. when you start to have credit problems, you start with a correlation between the u.s. dollar and gold. those go up together. we are seeing a balance sheet in the tech companies. apple and microsoft represent more than 40% of x ok. you are seeing this flight to safety. that is undoing the negative correlation between rates going up and tech.

tech is becoming a balance sheet safety play. i don't think bridgewater says earnings had to go down another 10% in order to approach that 2% inflation target. i don't think the earnings recession is complete yet. as that continues to progress, i think they will move away from balance sheet safety and and go back to old faithful which is gold and silver. goaltends to go up when rebates are going down. >> it was interesting to see the move intact. this broke above the 52 week high. what does this mean in terms of how much more leeway they have to continue this upside? given it lacks breadth and we know about the challenges. it is a balance sheet safety play. >> it depends on what the

earnings reports for the second quarter in july say, are they going to be ugly for the first quarter? people are looking at expectations. they are not looking at the rate of change. we are either going to wait for earnings, in the short-term, it is definitely overbought tech where we will have a credit event in the interim before the negative earnings. their credit event is going to dictate further consequences in the economy. question kept mentioning the credit risks. are we talking about households being pressured by debt? give us a little more on what you are afraid of, what could play out in the markets?

>>, really have a crystal ball but when you look at the commercial real estate assets on the bank balance sheets, you have 3 trillion in assets there. 1.8 trillion role in around somewhere in july. those loans provisionally had 3.5 or 4% interest rates. now those will be building over 6.5%. that is problematic. i don't know how many defaults are going to occur there. what kind of ones will do anything. i don't know about the corporate debt rollover. that how yield has doubled in essence when you look at the yield. they are putting a record amount on credit cards. credit card interest rates are

at record highs. they are starting to default on auto loans. reports that they are not paying their phone bills. i don't know which one of the issues drops first. i think one or multiple of these things that occur. >> could have your perspective. you can actually get around -- a round up of all of these stories. you can customize your settings. this is bloomberg. ♪ n you such a firm setting? gab, mine is almost the same as yours. almost... just another word for not as good as mine. save 50% on the sleep number limited edition smart bed.

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>> a quick check of the latest business-class headlines. 70% of forgers equity will be ludwell fortress management will hold 30% equity interest. softbank is working on plans to become a lender in private credit. the complaint filed in a california federal court accuses hsbc of posing for two-baggers and misusing the proprietary and trade secret information. pack questionnaires surged after it agreed to sell a $2.6 billion portfolio of construction loans

at a discount. the move is part of a previously announced plan to sell assets to shore up liquidity. the buyer is producing seven furloughs were about two point -- $2.4 billion. it will assume all remaining future funding obligations of about $2.7 billion. india's prime minister is in australia for top-level political meetings and events. this is bloomberg. ♪

>> i can't do this forever. but know that. my intensity -- i don't think

they should just cut back. i think that is a mistake. let's discuss what else they are from diamond. this was not surprisingly another topic. >> it was quit a fire engine q&a session for the bank. take a listen. i have been advising mr. client and banks.

this was very particular for the nonbank lenders. cliques there will be a credit cycle. my view is i will give you an exception. the upside in this case will probably be real estate. it will be certain locations, certain office properties. you could be very isolated. bank of america taking a glass half full view on the u.s. economy. >> that is right.

all let's talk about why bank of america is saying this. the era of easy money is behind us. that is not a bad thing either. the past few decades have been all about financially engineered growth. efficiency, automation, ai. they are saying this is why they are more optimistic about the outlooks. >> we have more stories on corporate america right now. we are hearing from the wall street journal that they have built a stake in yellow.

this should be $70 a share. >> the two are holding talks at the white house just after janet yellen warned it is highly likely her department will run out of sufficient cash in early

june. the question is too large and spoke about the need to cut spending. the st. louis fed president says he is backing to her increases well ne-yo says applause does not mean tightening is over. their comments bolster the case that the fed might skip a move while keeping the door open for further hikes. a panel overseeing the credit default swap has billed the government really does not constitute a bankruptcy event. this would have triggered an insurance payout. the same panel last week ruled against a similar question. global news, 24 hours a day on air and on quicktake, powered by more than 2700 journalists and

analysts in more than 120 countries. before that, he will be attending an event in front of 20,000 expatriate indians. everybody is preparing for a possible surprise visit from the indian prime minister.

this has become something of a moody trademark. this is the official residence of the australian prime minister. there will be meetings with the opposition leader as well.

one of the key things on the agenda is advancing the free trade agreement between india and australia. there is a push to get that done this year. the majority of products are already free. both countries are working to shippers by their trade away from china. china is australia's largest trading partner. they are not facing the kind of threat again. that sort of discussion is what will be happening tomorrow. >> we do have much more to come here on daybreak australia. this is bloomberg. ♪

>> investors may be planting -- planning to ramp up beds. >> global economic pain may turn into emerging markets gain. they plan to allocate more funds to emerging markets over the next year.

more than 60% are betting emerging markets will either push higher or outperform -- dominated the rest of the world. market watchers rent stocks followed by a tie between local currencies and u.s. dollars. the s&p 500 has a multiple of more than 18.5. external factors may be proving to be bigger influences than domestic politics. countries that did not pop up your economies may be better positioned to return to a growth

rate that is sustainable. respondents overwhelmingly made southeast edge of the topic. beating out latin america by a wide margin. >> credit through there on the latest bullishness on emerging markets. the next guest also sees a catchable opportunity after underperforming the u.s. for a decade. how much is this called to do with the evaluation aspect of things? >> that is a good point. valuations -- they are below the historical average. at the same time, and they most alligators and investors were possibly allocated to the us over the past decade or so.

>> you can see the discount on that chart. i have to talk about the direction of the u.s. dollar. that is what a lot of people are pointing to. >> i thought the two main drivers were for emerging outperformance. developed markets are slowing down from 3% to 1% while emerging markets are still living around 4% annual growth. that is driving close to these countries. you can translate that into character being that second biggest driver. the u.s. dollar denominated debt.

as the dollar weakens, you should see the balance sheet shrink. this should translate into a weaker dollar looking forward. we are optimistic about that. >> you could see there has been exposure. you should see a stronger correlation in terms of what is exposed to china. >> if you're looking at the asset class broadly, china is still a key driver for emerging markets. if you are within active manager that can position yourself separately, i would say these

economies have begun to decouple. there has been a lot more focus on domestic consumer growth. all of these are benefiting from china's demise. i definitely see the correlation coming down. southeast asia has been seen to other peer regions. if you look at the recent celebration of flows from thailand, and as a reminder that domestic as well as international politics is still at play here. a pretty major risk. >> we are talking about 26 different countries, political systems and economies and currencies. that is one reason why you have to have an advisor with a close eye on what is happening in these countries.

as we see political risks emerge in countries like china and thailand, that goes into evaluations and we account for that with our cost of equity. on the other, we see opportunities with some political situations where we he risks diminished. we saw elections in greece that show the new democracy hold power by a wide margin of victory. we think that will show prospects for a continuity of economic policy which will be very positive for the greek equity market. >> we have seen this process on the emerging markets at the start of the year. now we are about may and was he does bullishness again. looking lead to sustained gains in the ems this time around? was i think most -- growth prospects have been there. we saw that start out early on in the year.

the doll has got a little stronger recently. counterintuitively, it has been quality. that has been interesting to monitor. they are really looking for diversification. they had a ton of exposure to the u.s. and u.s. assets over the next decade or so. they understand we can see a weaker dollar environment. >> this is another one of the mark is that you might like. are you reassured given that this brother seems to have come out of the crisis? do you see the guest benefit from these economies that are trying to diversify from china? >> absolutely. i think on your data point, and he along with mexico is one of the structural stores within emerging markets. we are seeing fiscal reform, tax

reform, this is low hanging fruit that creates a better competitive environment for businesses to operate in. in addition to that, as global companies are looking for diversification of their supply chains away from china, india is in a prime spot to benefit from that. they have the largest working population in the world. and they are ready to take advantage of any uncertainty in china were other parts of the world will people are moving on their supply chains. >> terminal users can get more on these big stories, this is a function for your em stories of the day. tune into bloomberg radio as well to hear more from the makers. listen through the app, radio plus. plenty more ahead, stay with us.

♪ ♪ ♪ the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪ ♪

>> ford is accelerating is ev push. the company's vice president for the industrialized nation tells bloomberg the deals will help boost production to about 2 million ev's per year by 2026.

>> lithium itself is abundantly available. mining it, there are various ways to extracted. processing it is a much more difficult thing to do. a lot of that processing is not done domestically today. it is done overseas. we wanted to make sure we were working with the most reputable global lithium suppliers. this is a joint venture between investment quebec. this is what eric tonight vehicle capacity. some of that could be in the form of lithium carbonate. you have to continue to invest and develop it. we also announced developers with three junior developers all in the united states to support domestic production.

it was a lot of work by all raw materials to you over the last two months but i thought they did a great job. >> a lot of the processing is done in china. which is politically unpleasant right now. are you then trying to move or bring that processing here to the u.s.? can ford do that with its partners? do you need government help? >> what is important to note is the deals we announced today our lithium hydroxide. they have production in the united states today. lithium will be in canada. that is for hydroxide covenant. we don't have to plan anything for china. we have diversified ourselves away from that. >> does not move the needle on the percentage of lithium

process outside of china? 80% is done in china? >> it absolutely moves the needle. >> that was the vice president of ev industrialization. we do have an alert when it comes to qantas at the moment. qantas given an update when it comes to capex. 2.6 billion to 2.7 billion. it did say between 2.7 and $2.9 billion as the end of june. just over 2.4 billion to two point -- just under 2.5 billion aussie dollars there as well. continued strong travel demand. they're looking at that increase and planning activity in the second half to be expected as well.

they will put into storage as a result of the pandemic back into operation. they are talking about the improvement of operational liabilities. this ties into the most recent expectation to see international flight capacity back to three -- back to. of course, the capacity issue has been such a big one. not just for qantas but a lot of global airlines as well given that we have seen just a lot of aircraft returned to service. they are talking about going to 80% of pre-crippled others. all this by the end of the second half of this year. >> we will be watching how it opens trading in the past year. investors are very much focused on what is happening with the debt negotiations here in the u.s.. we are still waiting for any clarity on how those talks

between president biden and congressional leaders including house speaker kevin mccarthy have gone. we are waiting for the pastor from speaker mccarthy who has already said the two parties must strike adult deal this week in order to avoid the u.s. default despite the fact that this could happen as soon as possible -- as early as june 1. we know the house and congress needs time to build in the past it. this morning we had other negotiators talking for about 2.5 hours. president biden going into this meeting said he was optimistic the speaker mccarthy said that both agreed they need to change the trajectory but supper we have not done any more insight into what is happening in the white house right now. close nursing that we need to get something done but of course it seems like these gaps still remain. it comes at a time when they

have more potential than we have seen historically to wreak havoc on the economy than any other time. we have seen this extreme political polarization. there weekend session was inconclusive as president biden came back from the g7 visit. all eyes are really from religion. this comes as the u.s. economy remains very vulnerable given the rate hikes we have seen. more to come, this is bloomberg.

shery: you are watching daybreak: asia.