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-- daybreak australia. >> good evening from bloomberg world headquarters in new york. u.s. stocks and bonds fall as traders weigh the possibility of a u.s. recession from either a debt default or higher in just rates. kevin mccarthy says there is time to reach a deal. >> i am not going to give up. we are not going to default, we are going to solve this problem. i will stay with it until we can get it done. let's be honest, we have to spend less than we spent last year. >> the latest fed minutes show their leaning toward a pause in june. robert kaplan joins us later this hour. >> nvidia gives a bullish forecast that shatters expectations.

after hours the stock is up 26.4%. u.s. futures pushing higher. this after two days of losses for u.s. stocks. we had real estate and financials leading the declines. it was all about digesting the fed minutes. oil also gaining ground. u.s. crude inventories fell the most since november, but we were watching treasury yields higher across the curve. this chart shows it's all about the debt.

we are not necessarily seeing any progress, we are hearing from kevin mccarthy expressing optimism but both sides pretty far apart when it comes to key issues like the spending cuts demanded by the gop and the fact remains the house speaker says there is still no meeting schedule with president biden despite the fact the next meeting he said they would probably be speaking every day. all of that is weighing on market sentiment. >> there's been a lot of mixed messages and not a lot of transparency. he says there is still time to talk, so does that mean they will be willing to push it to the brink? the idea that we see permeating into markets as well. we don't how long it's going to

be until we get to a debt deal. yes we saw some declines when it comes to stocks and bonds but certainly you would think that at any other time, we would see a whole lot more when it comes to volatility. i get the feeling the republicans push back it comes to janet yellen state is becoming something of a bargaining chip. shery: we heard from a columnist yesterday about how perhaps it's not just about the exit, it's about what happens after. the x date plus one. in the 2011 debt crisis, we saw stocks dropping much more after the debt ceiling was raised. investors are concerned not only about what happens on this front, but also with monetary policy. fed officials, it looks like they are leaning toward pausing rate hikes in june but are not

necessarily ready to stop according to minutes released from the policy meeting earlier this month. kathleen hays has the details. >> we got a more comprehensive view with nuances because the fed went into the main meeting with -- the may meeting with a big debate as well. they decided to hike rates again , some people were opposed to that. they were looking at the fact that inflation is too hot, the job market is still hot. bank stresses could be controlled. what everyone's looking at is the language of the minutes. the fed uses particular words to send certain signals. they talk about the divide not so much on what happened, but further rate hikes. several disciplines, that

probably means more than half of the members noted that if the economy turned out to evolve the way they thought, maybe it -- cooling off, then further policy firming may not be necessary. some participants said based on our expectations the progress of getting back to the target of 2% could be unacceptably slow and that means they will probably have to do more rate hikes. they all agreed inflation was too hot and many, so that's probably not quite half officials focused on retaining optionality. so that means were going to wait and see what's happening. in terms of the banks come at the minute said system is resilient, they have tools to handle financial instability

problems coming from the banks. when it comes to the debt limit, they were concerned that it might not be raised in a timely manner. this was back may 2 may 3. they will already watching -- they were already watching closely. chris weller said he was asked about does this affect decision at the next meeting and he said i'm not letting it. he's going to focus on the economy and he said he is assuming its went to get done that's why he's not looking at that. he's looking at the economy and the rest of it. haidi: we're looking at a hold from the be ok. >> bank of korea like the rbnz have led, this would be their

third hold if they do. i love this chart because you can see how they took those rates right up and several steps . two meetings ago, they said we aren't sure maybe were going to hold and the decision today is expected to be unanimous. two things we have to watch closely. they think growth is going to slope. bubble demand is getting weaker. they are an export driven economy. and inflation is looking better part of the headline inflation is down 3.7%. we will probably get the same kind of messaging from them that we got from another to four

hours ago. they've done hikes and another what to sit back and watch her come down. i think the surprise would be them looking at a cut but they probably won't because they are a target yet for inflation. everyone will be waiting to see. definitely making progress on the headline, but a ways to go. haidi: let's get a set up of the thursday markets. annabelle: this chart doesn't show. this is as we unacceptably -- unexpectedly saw the rbnz signal that it was at the end of its tightening program.

the debt talks in washington are dragging on and that impasse is setting the tone in futures today. kiwi stocks online to the downside. the other market we are watching is what's happening in china. we saw the csi 300 totally erasing all of its gains for the year in the prior session. a lot of outflows from for -- for investors. a lot of reasons for traders to not want to be invested in this market at the moment. geopolitical tensions. a deteriorating backdrop inside the country weakening external demand. then the anyttbe a focused.

haidi: nvidia shares trading up after hours after a bullish forecast. this is still down to the exuberance and unexpected demand for ai. >> exuberance at this point is the wrong word. coming into nvidia's report, there was a question like can this company that is had so much money pulled into it justify that? is this the company we thought it was that is going to turn this interest in ai into something tangible which is orders and ship sales? the answer is absolutely it has. the numbers are spectacular.

53% higher than what analysts said. even though they are not guiding for the second half, the cfo was very careful to say we have secured a ton more supply from our asian partner tsmc to build to meet that demand. shery: how does this compare to other chipmakers? >> you can see that within nvidia's numbers, is basic business which is gaming gpu down a lot from yesterday. pc demand is not great, it's not getting any worse but that's the overall picture. whether you're talking about industry or automotive, all the sectors are suffering from this week demand outlook. not nvidia.

shery: our tech reporter there with the latest. now let's get to su keenan with the first word headlines. >> we start with xi jinping who wants china and russia to work together to improve their ties at multilateral groups. amid growing pressure from the west. xi jinping told the russian prime minister that beijing and moscow could better collaborate at the u.n. and g20. both china and russia are facing sanctions from the west. governor ron desantis of florida has officially jumped into the presidential race giving donald trump his strongest challenge yet for the republican nomination. he made his candidacy official in a filing and also planned a twitter session with elon musk.

m wrong con has offered to hold talks with the pakistani government as well as the military after his party was threatened with a ban. the defense prime minister says that the party was behind the violence on may not when he was briefly arrested by pakistan's graft agency. m wrong con announced he is able -- ready to talk with anyone in power. finally tina turner has died. she was 83. the queen of rock 'n' roll was known for her hyper energetic dance moves and sold out massive stadiums. tributes are pouring in with people like mick jagger: her inspiring, funny, and generous.

her death has been called a massive loss to the communities who loved her. global news powered by more than 2700 journalists and analysts in over 120 countries. haidi: still ahead, our exclusive interview with the former dallas fed president. plus more analysis on market sentiment. this bloomberg.

>> they may get to the last hour before there is an agreement. it's possible there is not an agreement, then the market could crash and that might force an agreement. >> history tells us that the u.s. would wrestle with this notion of default but comes the 11th hour, it gets resolved. i have confidence we will see that again. >> we have seen these debates before and it is usually resolved. sometimes the last second, but

we are used to that. >> it is not easy to play with the international markets. >> that was the economic forum discussing the u.s. debt ceiling negotiations. our next guest thinks that u.s. lawmakers will reach a resolution on the debt ceiling. she expects market volatility until then. she is that frank and templeton investment solutions svp joining us from california. we know they have taken default of the table. is it good for markets to not be putting pressure from the investment community side onto lawmakers? >> i do think so. a resolution will occur like a

lot of folks that were just debating it. there's back-and-forth and it will come down to the 11th hour, but none of it is great for markets. maybe you can say it's different this time, but it feels like the same. i'm not a policy expert, but we have to be positioned for the long-term and also very aware of what's going on in the short-term. with the vix relatively low, it's got,. we are positioned risk off for the near term and the macro uncertainty that we see. haidi: to that end, you are apportioning to cash and fixed income at this point? >> yes and even with the discussions around the debt ceiling, we see a lot of uncertainty around their. devon pockets of strength. we saw nvidia report earnings today. we still see lots of concern in the u.s. economy in particular.

our base case is still a moderate recession toward the end of this year. we think the rate hike cycle could be over but there's still a lot left in terms of macro economic uncertainty and how that ripples through the economy. growth has held up pretty well, but leading indicators there's a lot of pieces of the puzzle that we think still have risk. we see growth coming down a e makets are priced for a yet. shery: given that we are so focused on the u.s. government defaulting, what happens to the corporate defaults that people are concerned about? the credit stress especially after the banking turmoil we have had. are these fears making bankers at least a little more discerning despite the rally we have seen in recent weeks? guest: you haven't really seen the broad market's come off until the last couple days. as the debt date lynn --looms.

the turmoil we have seen will have an impact. alone survey came out weekly -- weak. we don't think it's the magnitude of the recession will be on par with gfci or anything to that magnitude but we do think all of these things come together to mean slower growth over time. shery: you sound cautious about what's happening at the u.s.. do you look to other parts of the world for the growth? guest: yes definitely. the u.s. is a big part of our global markets. it's about 60%. broadly speaking, we see signs of life in china although there are near-term uncertainties. we do like certain parts of the fixed income market. when you can earn a higher yield

in high-quality companies, we like that better than equities at this point. through this medium term uncertainty, we have good pockets of growth still meaning yields of returns over the shorter term. we are still cautious on equities relatively speaking. shery: good to have you with us. you can get a roundup of all of the stories you need to know to get your day going on today's edition of daybreak. you can customize your settings so you only get the news on the industries and assets you care about. this is bloomberg. ♪

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haidi: wider than expect tangled in a price war sparked by tesla. it reported a quarterly loss. it expects to deliver 22,000 vehicles at most this quarter. a chinese streaming platform is exploring a second listing and hong kong. it says it wants to bring in more investors as it seeks to compete rivals backed by alibaba and tencent. speaking exclusively to bloomberg, the ceo said the company is working to boost

revenue significantly this year. >> from an operations standpoint, we hope our revenue this year will have double-digit growth rates. wall street forecasts say 33 billion you want. haidi: nvidia shares are surging after hours after the chipmaker made bullish revenue forecast that beat estimates thanks to booming demand for ai. the sales shattered estimates. revenue in the first quarter also be estimates of the widest margin in five years. shery: pushing u.s. futures higher, we are talking about the nasdaq 100 many futures up 1.5%. what we saw with nvidia, very interesting because before the

results, we have another chipmaker falling after a week outlook. semiconductors had been under pressure. broadly speaking, u.s. stocks were down for a second session in new york. we didn't see that much progress when it comes to the debt negotiations. even fed minutes showing split support for more rate hikes. coming up next, our exclusive conversation with the former dallas fed president. his thought on the central bank rate hike path. this is bloomberg. ♪ we moved out of the city so our little sophie could appreciate nature. but then he got us t-mobile home internet. i was just trying to improve our signal, so some of the trees had to go. i might've taken it a step too far. (chainsaw revs) (tree crashes) (chainsaw continues) (daughter screams) let's pretend for a second that you didn't let down your entire family. what would that reality look like? well i guess i would've gotten us xfinity... and we'd have a better view.

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>> i do not support stopping rate hikes unless we get clear evidence that inflation is moving down toward the 2% objective. whether we should hike or skip

at the june meeting will depend on how the data come in over the next three weeks. shery: let's bring back kathleen hays for more perspective on where we are at in the u.s. economy. even the latest fed minutes, it seems officials are divided. >> not just divided, but undecided. chris wallace saying that he's going to be data-dependent. that's one thing we get over and over in the statements. joining us now is the former dallas fed president robert kaplan. you are with us three weeks ago, the day before the fomc meeting. you said you thought the fed should take a pause and they

might do that. when you read the minutes today, what does it tell you about what they were thinking now and where they are leaning at this point? >> it feels to me that they're moving toward a pause. it doesn't surprise me they are having the debate. despite the rate increases, the economy is holding up pretty well and i think that's a surprise. part of the reason it has been holding up i believe is you still have the remnants of fiscal prone -- fiscal programs and current programs, infrastructure bill, the inflation reduction act, the remnants of the american rescue plan that still has not been spent on a local level. i think that is working to some extent cross purposes with the fed increase is.

the data is still stronger than they would have expected, but i think art of the reason why is what's happening on the physical side of the house. guest: we had the meeting three weeks from now. are they more data-dependent than they were in the past? were you guys always watching the data so closely? is it more driven by that looking at three more numbers that are going to determine the next hike or pause potentially? guest: in times were the economy is at the point of inflection, i have always been strongly of the view that data should be a part of the equation. you have to look at fundamental drivers, what's going on and what's likely to happen over the next year or two. i think it's dangerous to be to data dependent because data is backward looking definition. if i were in the seat right now, i would look at the data but i would also be aware of what's

happening with fiscal policy and that it is blunting to some extent the fed funds rate. other thing i would be looking at is that the curve is historically inverted. they don't negatively impact the abilities of big companies to finance because they look at the treasury curve which is downwardly sloping. fed funds increases at this point disproportionately hurt small and midsize businesses and small and midsize banks. that would be another factor for me to say i think a marginal return of additional rate increases is diminishing and i would rather pause. i like the idea of a hawkish pause meaning we are in a tightening stance but we are going to digest the data and

turnover a few more cards before we take action. that's what i would be doing. haidi: i wanted to pick up what you mentioned about the fiscal impact because there are still multiple fiscal programs going. that you might typically see after a recession. how much do they in addition to what shape the final debt deal takes place in and spending cuts tied to that package, how much does that complicate the outlook for the fed? guest: it complicates it in that the american rescue act money was passed in 2020. i can tell you firsthand, a good chunk of that money has been spent by the federal government but has not yet been spent the local level. it is sitting end accounts. local municipalities are flush with money. that has to be spent between now and the end of 2024. then there's the inflation

reduction act, particularly the chip component where that's going to stimulate demand for goods and services and workers. infrastructure bill does the same thing. these are programs you would normally see implemented after a downturn to help stimulate us out of a downturn. instead, they are being done before the downturn. that's what i have said given the crosscurrents, i think at this point the fed can say it's our job and we will do this alone but i think it would be wiser to call for a whole of government approach to fighting inflation. i think you need other parts of the government to do their part here because the danger if they don't is the fed is going to keep raising rates and eventually, i think they should already pause but it will go too far, cause damage to the economy to offset. shery: is there still stigma on

pausing then resuming rate hikes? we have seen other central banks do it in this cycle, so why not do that when there is so much uncertainty? >> i think it's a misconception to think if we pause now, we will never be able to get started. i don't think that is a valid reason to not pause. i think you simply communicate we are in a tightening stance. people need to be prepared that rates are going to stay higher for longer and we will move further if we need to in the months ahead. >> what about the argument that you maybe are close enough to putting a lid on inflation? jim bullard says two more hikes this year. is that perhaps not the better choice? there's still a lot of fiscal stimulus. when i use that as an

opportunity to get inflation down once and for all? >> i don't think the inflation fight is a six-month fight. i don't think it's like a fever and if you raise high enough you break the fever. think it's more of a chronic issue this going to go on for the next couple of years. i say that because of the service sector. the ground of the inflation challenges with the $50,000 per year worker that can't make ends meet right now. they work heavily in the circus -- service sector and they need more money to make ends meet and there is a wage price spiral going on at that level at the $50,000 worker level and i think it's one to take a while to settle that down. it's not six months. it's more likely the next couple of years. if i were the fed, i would be worried about sustaining the fed funds rate longer than i would

be sneaking in one or two more rate increases. i would try to avoid that. shery: at the moment we are hearing that the united states aaa rating could be cut. there saying that the expected resolution to the debt limit before the date but that there are higher risks that the debt limit won't be raised or suspended so fitch is releasing a press statement they are putting the u.s. aaa rating on watch negative. the factors now signal downside risks. could you react to this? we have seen this play out with a cut in the 2011 debt crisis. we saw the market reaction there. how much risk does this bring? >> firstly, i would say neither

side want should want a default. it is unthinkable. shouldn't happen. having said that, there needs to be a real discussion about more fiscal discipline. we have a different kind of crisis right now which is debt is 120% of gdp. the deficit in 2024 is approaching $2 trillion. we need to control fiscal spending. i think what's going on with fitch speaks to the fact that default should be off the table but we do need a real discussion because we are going to have problems if we don't get fiscal discipline. >> a quick final question on regional banks and where we are in that whole drama. is it another reason why the fed should be pausing now? could the fed hurt banks with more hikes? >> it will disproportionately

hurt small midsize banks. they are very sensitive to the fed funds increase and their clients who borrow with the fed funds rate, small businesses are very sensitive. the drama headline making part of this crisis is probably over. there is still a slow bleed going on beneath the surface in that most small midsize banks are trying to shrink their loan portfolios because they have lost some capital. they may have had some asset liability mismatch in their account, so they are trying to accommodate that by shrinking their loan books. it's harder to get a loan for a small midsize business today than it was two months ago. >> we always appreciate your time with us. just recapping, we have just

seen the announcement from fitch saying the u.s. aaa rating may be cut. the probability of a default is not a high one, but a lot of criticism when it comes to the governance and the brakeman chip we have seen continuing with these talks. we are saying that when it comes to u.s. futures. >> absolutely somewhere tracking quite closely. what's going on in washington has been snapping -- sapping any risk appetite. in terms of what we are focusing on, it's the concern. what would be the effects if the x date were passed and there was not time before the government right -- ran out of cash. in the event this happens, the treasury will prioritize

interest. odds are currently at 25% but they also say the odds are rising. >> with all of this uncertainty, where should investors be looking? >> high-quality corporate credit. a guest earlier said hiding from u.s. default and high-quality credit is what he calls a fools errand because everything comes from the risk-free rate said that gets repriced. it has a huge ramification for everything else. he saying that yields are too low currently with markets already pricing in a recession. >> watching u.s. futures seeing

the dip as the early rally was driven weather news flow on nvidia. the fitch news is coming through in downside and sentiment. this is bloomberg. ♪ did you know y ghop for you? with stitch fix, it couldn't be easier. i share my style, size and budget. and they shop just for me. my shopper sends me stuff i feel good in. i keep what works, and send back the rest. stitch fix.

given the boost coming from after-hours trading, we are now, dow jones futures taking a hit. fitch saying the u.s. aaa rating could be cut. a default is a low probability event but given we have seen the repeated moves leading to near default, episodes that that is eroding the confidence in the government's repayment capacity. overall when it comes to governance being a weakness relative to aaa rated peers, fitch saying that the u.s. aaa rating could be cut. we saw a push up of the japanese

yen relative to the u.s. dollar. su: kevin mccarthy has expressed optimism on striking the deal to avert a debt default. he says they have time to strike an agreement and get it done. his comments came after for our meeting between negotiators that he and president biden have handpicked. janet yellen has warned the u.s. could run out of money to pay its bills as soon as june 1. the strident government is asking police to consider a criminal investigation of the pwc scandal. it involves the use of confidential information to shop tax planning advice to clients. the ceo stepped down earlier this month after emails were released.

another has been broadened to conduct an independent review. the court in montenegro has annulled a previous decision to release two people on bail. they will now remain in jail. global news powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. shery: ron desantis has officially jumped into the race for the american presidency giving donald trump his strongest challenger yet for the republican nomination. suffice it to say this is a very unorthodox campaign announcement. guest: he decided to do it on

twitter spaces which is the audio platform on the social media site. it did not go off without a hitch. the first headline that we moved off of his announcement event was a tech headline that twitter was having trouble keeping up the load on the servers. they finally had to drop out of twitter spaces event. there were 500,000 people listening in. last time i looked, i think 200,000 made it back on. it wasn't a flawless performance, but this is going to be an unorthodox campaign and santos is going to try to use social media as president trump did to galvanize his base and circumvent the traditional news media. haidi: he has lost some momentum since the november reelection.

how do we see him in terms of the lag behind the former president? guest: the polls have not been looking good for governor desantis. he is trailing by 34 points to donald trump in the averages. his excuse to this point is that he's not a candidate and that's true enough. he will have to see some momentum if he's going to make the case that he is the successor to who is still the de facto leader of the republican party. the other problem he has is not just looking up to donald trump but looking down to other candidates who are not going after trump, they are going after desantis. you have candidates like nikki haley, tim scott, asa hutchinson and others who might get in the race making the case that they should be the second-place

candidate to take on trump so they are all going after ron desantis. >> we have much more ahead here on daybreak. this is bloomberg. ♪ ♪ for financial insights from merrill. is he hailing a ride to the concert hall? no. he's making sure his portfolio and retirement plans work in harmony. they want to adopt a child and build a new home. so they're talking numbers with their merrill adviser. she's not researching her next role. she's learning how to handle market ups and downs without the drama. personalized advice so impressive your money never stops working for you with merrill. a bank of america company. he snores like an angry rhino yoyou've never heardps working an angry rhinoerrill. baby i hear one every night... every night. okay. i'll work on that. save 50% on the sleep number limited edition smart bed, plus, special financing and free home delivery when you add any base. only at sleep number.

>> the number of people living

and modern slavery conditions has jumped by 25% over the past five years. human rights group says this comes against a backdrop of a rollback of women's rights. earlier i spoke with the director and esther what can be done to mitigate risks. >> it's deftly part of it, we can -- we refer to it as compounding crises. we know that this compounding crisis has increased modern slavery risk in every part of the world. the fact there has been a 10 million person increase in the last five years is staggering. 50 million people throughout the world are living in modern slavery. another area of concern is import risk at the hands of the g20. half $1 trillion of goods using -- made using forced labor being put into the economy every day.

haidi: i want to talk about the import risk. even where progress is being made, we are seeing the import risk in terms of sensitive sectors like electronics and solar panels and fashion. what is being done to mitigate these risks particularly from the developed nations that are still seeing troubling numbers? guest: the answer is not nearly enough. 50% of all people experiencing modern slavery are experiencing it in g20 countries. the import risk combined with the shows us where the greatest responsibility is. the fact that australia has seen the figure grove -- going from 15,000 people to 41,000 people living in modern slavery shows us how urgent this issue is. when it comes to the products, they include things such as the shirt on your back.

the garment industry remains one of the most exquisite of and dirtiest. bringing into question the cyclical relationship between the climate crisis and humanitarian crisis. from that i would like to speak to a new import risk for australia and the g20 which is solar panels. looking at the essential need for greener economy where any governments are stepping up to the responsibility to do better, we are seeing a severe disconnect between humanitarian legislation and climate legislation. we need them brought together from a transparency and accountability perspective. electronics remain in the top five. we want people to understand modern slavery could be as close as shirt on your back, as the technology we are speaking on or the solar panels that every country in the g20 trying to order. with buying power comes power to put pressure where we know modern slavery is occurring for the most vulnerable people.

india has seen an increase in millions of people. we know agreements are important, but we want to ensure that human rights conversations are happening at the center of these agreements and not on the sidelines are at the end of the conversation. haidi: that is it for daybreak australia. this is bloomberg. ♪

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