haidi: welcome to they break australia. we are counting down to asia's major market opens. >> u.s. stocks and treasuries

decline as strength and the services industry adds to the higher for longer rates narrative. bets on a november fed hike rising to 60%. >> apple citing the most and a month saying some chinese government agencies are banning the use of iphones. >> japan's trouble outlook from the ana ceo who says demand from china is soaring. a quick check on wall street, not the best of openings to a month ever. three down sessions, it looks like as futures open we might be pointed to a fourth-down session. the s&p 500 down .7%, big tech leading the time for the most part. apple with their drop after we had sourced the idea that china would be banning iphones from the workplace. we had treasuries falling as well. that was to do with the services data which was really strong,

except for prices paid being strong. that adds to inflation. perhaps in place and will be stickier, there will be another fed rate hike in november perhaps. we had to fed speakers -- rwo fed speakers, they both said there may be another rate hike in november. futures, 2-year yield above 5% for most of the day. and crude firmly on its way towards $88 per barrel. a continuation of the story following the opec longer cuts. haidi: let's get back to apple suffering its worst stock decline in a month following the report that some chinese agencies have barred staff from using the iphone and other foreign devices at work. more details from our chief technology correspondent. this coming as we expect the big

reveal of the launch of these products. what are we hearing when it comes to these stories? mike: this situation is interesting because a year and a half ago, this ban on having foreign devices within the chinese government workplace, that band was announced. it was some thing they wanted to phase out within two years. to me it is not a surprise that they are implementing this ban on iphones. there is also foreign devices band as well, samsung, those are made in korea. the chinese government wants to use their homemade devices. i think that is where the confusion comes in in terms of the surprise of this ban. obviously it is a strong headline, and it is something that, given how strong the

chinese had economy has been for apple sales, it makes sense why investors might be score mission. -- squeamish. >> how many china government workers are using iphones in the workplace? mike: i do not think it is a significant amount. i do not think the investor concern is loss of sales to chinese government customers. i think it is people concerned, is there going to be a domino effect? first it is the chinese government who does not want their employees using the devices. is there something that is going to happen next in terms of the chinese consumer being able to buy the apple devices? is the chinese government going to clamp down on apple's ability to sell services, retail stores, care and support? there is a potential domino effect that investors are afraid of.

haidi: china was one of the highlights in recent quarters despite the economic slowdown there. can you give us an idea of what we are expecting when it comes to the new product range are anticipating? mike: this is going to be a significant update in the process of the iphone 15 pro and pro max. they will move to a titanium case, the first redesign in three years. the first material change to the device in six years. quite a big bump there on the camera, much faster processor. it will be a pretty hot lunch my only in the u.s. but china as well. haidi: always with the first scoop on what is coming out apple wise. our chief technology technologist. the feds beige book it says the growth in the u.s. company --

economy slowed in august and committees expect wage increases to ease. emily, it seems like the data changes on a daily basis but the beige book is a fascinating history of the previous month in middle america. what has the beige book told us about the strength of the u.s. economy. ? emily: it gives on them inside look on these smaller metrics that are overlooked. in terms of the housing market, the supply constraint is still apparent, delinquencies for consumers are picking up. it is nothing we have not heard before. for the market, it was not very exciting because the treasury market had sold off so much on the ism data that was strong. maybe on a day that we did not have that, we would see rates move lower. because it did show inflation

starting to moderate, growth slowing a little bit. but that market was very high today. and this was not enough to change the narrative. vonnie: what is the outlook when it comes to stocks as we get uncertainty when it comes to yields? it is back-and-forth when it comes to fed expectations. emily: there is a lot of back-and-forth when we have days like this, we have ism showing strong economies and the beige book showing pockets of weakness and inflation coming down. for stocks it is unclear where we can go from here, if you look at volatility metrics, we have seen the vix very low. and according to sentiment trader data, what we saw in august, where the vix dipped below 14, we did see a little bit more of the volatility pickup, it tends to mean the stock market will rally on a one month and six month basis.

it is pretty low here, which could mean it will not have a big fall selloff. seasonally september is not a good month for stocks. haidi: suddenly a rate hike is very much, it feels like this has happened since jackson hole. the rate hike was maybe -- but probably not. emily: we have a lot of time until the rate hike, particularly if it is going to be in november. there is a lot of room for more data. traders have to be nimble, the fed keeps saying they are so data-dependent. even if the vix is low, interest rate volatility, these metrics are showing all attila t is low, it does not mean that the intraday moves cannot bring people on the wrong side of a trade. haidi: let's take a look at how

we are setting up for the thursday session in asia. annabelle: it is all about the high for longer -- higher for longer narrative. it will be playing out across the bond space. kiwi 2-year yield fell. the currency is a big focus. the king dollar narrative is playing out. still holding above the 147 level despite japanese government officials yesterday in the session. we heard from japan's top ranked fx forecaster and says it could be around 150 by the end of the year. offshore yuan holding above 7.13, drug or than affected fixed income coming through. -- stronger than affected fixed income coming through. the other watching today will be the property sector, take a look

at the moves we have seen in china property stocks over the course of this week. the essence of those days are too long to talk about one of the best weeks, but that is what we are looking at. you can see the surge of 15% so far. some of the big names that rose yesterday, sunak, country garden, evergrande, rallying above 50% with speculators wanting to enter the market, expecting to have further government stimulus. vonnie: it will be an exciting session and asia. breaking news, lisa cook has been confirmed by the senate to a full 14 year term as fed governor. she is fully confirmed to a 14 year term as a full fed governor. we are anticipating this would happen, the senate had the votes, and now that vote has taken place. the senate has confirmed lisa

cook to a full 14 year term as a fed governor. she has served as a member of the fed board of governors since 2022. the first african-american woman and first woman of color to sit on the board. still ahead, our exposed interview with the ceo of japanese airlines, his thoughts on travel demand and the rising tensions between tokyo and beijing, later this hour. franklin templeton investment solutions shares their market strategy as they expect the federal reserve to continue hiking lakes. this is bloomberg. ♪

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>> it is probably wise from a rich -- risk management basis that they keep that extra rate hike in there. haidi: former st. louis fed president on the central banks rate hike path. our next guest is the next -- it has not been fully absorbed. kim strand is the senior vice president and head of purple you management at franklin templeton investments. the transmission of -- effect has not been priced in. what you make of the market psychology at the moment, looking for reasons to believe that this is the peak and potentially we could see easing? kim: i think it is a tricky time, but while we are risk off, we are looking for pullbacks,

opportunity to get more positive on the markets. this earnings season we proved to ourselves that we have reached a bottom, earnings expectations were better, and guidance was better than expected. we are seeing things like today's ism, other indicators, the labor market, they are positive signs. it is a matter of what you are willing to pay. it is interesting days like today, you see the market sell off on macro market fundamentals. but we think there is one more that we start to taper off from there. we are waiting for the right time to get more positive. haidi: you talk about what you are willing to pay, does that mean you will see better opportunities and better valuations outside the u.s.? kim: right now we are bullish on emerging markets. emerging markets -- the are

looking at valuations, almost half of what the u.s. is at that is -- is at that point. seeing trends from things like ai, some of the strong tech things we are seeing in names like tsmc. other parts of the world where you are going to get the same growth what at a cheaper cost. we are also looking at, you cannot ignore what we are seeing in the u.s. relative to the technologies. we are trying to wrap our heads around, what are the actual earnings impact for companies like nvidia. and what do the earnings estimates look like moving forward. in some cases you can paint a positive picture in the u.s.. but we see some of these standout opportunities outside of the u.s.. vonnie: dealing with the inside the u.s. and technology. the nasdaq has pulled back a little bit, the nasdaq 100 is still up 28% for the year.

does that conform to your expectations for a pullback or do we need to see something more? and do we need to see the fed start cutting? kim: i think we are close to that. today, the ism index, we can start to see more normal environment, business travel, things that look like a pre-covid world. but these fundamentals continue to stack up and look good. even in that sense, if the fed holds the line but we get a good -- get good data, and we skirt a recession, that is the picture we are painting right now. and stocks lf today on the news that may be -- stock selloff today that may be there. we are slightly underweight these pullbacks, we are close to

their. haidi: you said something very enticing, you said china except for certain errors. there is some thing attractive in china for you guys. where are the areas of opportunity? kim: there are certain places where you can see, back to secular trends, back to localized growth in the region. and cheaper evaluations like an alibaba, you are seeing some of the parts valuations you can do to see attractive growth. but generally speaking as we look around the world, in areas like korea, taiwan, there is less geopolitical risk and more tech exposure we are looking for. and more post-covid cyclicality

left to go and pretty cheap valuations. haidi: how do you feel about bonds as part of the portfolio? kim: that is one of the million dollar questions and why we are overweight with fixed income. given the carry you can get from even the treasury at this point. as we weigh the uncertainties and the richer valuations on the equity side, it is very attractive to invest in things like investment-grade high-yield and treasuries. at this point that is what tips the balance towards the fixed income bucket. but over time i can see is more neutral and going more overweight equities. we know the equities can move quickly. they have come down this week. we are going to be nimble here over the next six months. vonnie: thank you so much for joining us today. a pleasure to have you on. senior vice president and head of sustainable investments and what folio management at

franklin templeton investment solutions. you can get around of of the stories you need to know in today's addition of daybreak, terminal subscribes can go to daybgo, you can customize your settings so you only get news on the industries and assets you care about. this is bloomberg. ♪

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haidi: the pentagon is pushing to have thousands of arc and land-based military drones ready to deploy by 2025. it was to counter china's superiority and weapon systems. walk us through the pentagon's plans, it is usually significant to geopolitics. these are two boys trying to go at it. >> what this is about, on one

level, is that u.s. wants to highlight to china that we can play in this game two. china has numeric superiority and the amount of weapons systems they have. and the u.s. is saying, he can do this. we heard from the deputy director of the pentagon, the number two in the pentagon, saying this is something they aim to do in the air, sea and land. they will have real significant deployment of drones and trying to highlight to china that we are playing in this game. she was very clear on that. haidi: how expensive will this strategy be? jodi: that is one of the things the u.s. likes about this, it is a relatively inexpensive strategy. drones do not require the investment that other kinds of

weaponry do. and they will not have to make a separate budget request for this. this can come in under their regular budget request. and budgeting is a big issue on capitol hill. if you want to come in with a big number, it will be scrutinized. this way they are saying they can do it for relatively inexpensively and have significant firepower. that is white military industries like drones, they give a lot of firepower for a lot of value for what they cost. vonnie: it is pretty phenomenal. we get a criticism from u.s. lawmakers, we should have anticipated this. tell us more about what was said. jodi: we heard a speech, the top republican on the house foreign affairs committee. he said there needs to be a lot more investigating done of tennis largest semiconductor

company. that it may be doing business with a sentient company. if that is the case, he is saying this will require investigation and the u.s. is not going to allow this. they are going to take this seriously. i presume we will be hearing from other lawmakers. perhaps other democrats. going against these moves by china is something that has gained bipartisan support on the hill. and i presume we will hear from the pentagon. haidi: let's get you to the latest stories we are talking -- tracking. resident biden is expected to travel to new delhi for the g20 summit. he continues to test negative for covid. biden is taking steps to protect himself in keeping with health guidelines. the first lady jill biden has tested positive for the virus, raising questions about whether he will be able to travel.

asean leaders have said they are disappointed by bidens absence. they hoped he would turn up as he did in cambodia last year. connelly harris met with the indonesian president, saying they see growing ties between the countries. let's get a check on u.s. futures, very early in the session, pointed lower once again. could it be another down session for u.s. stocks? the first three days of trading in september, it has been down for the s&p 500 and the nasdaq, which does not bode well. but we will wait and see my you never know what might come out between now and the u.s. regular session in terms of currencies. the dxy is close to 105, bitcoin , not much happening.

and as for other movers, let's take a look at the yen, 147.60. haidi: the dollar strength story will dominate on it comes to trading currency in asia. watching the yen, our top currency forecast projecting that when the yen weakness is not over yet. he sees 152 by the end of 2023. we are seeing the yen trading close to intervention territory. japan could be close to intervening to push up its currency according to one warning sign. we are also watching the fraud dollar rally and the impact of the geopolitical aspect, given we have seen authorities in beijing and tokyo stepping up efforts to defend currencies against the surging dollar.

we had the warning from japan yesterday, the strongest in a few weeks, expecting that intervention might not be far behind. we are seeing the aussie dollar seeing strength, but the outperformance is for the greenback. coming up next, a look at how markets are doing, key opec+ members extending forecast, this is bloomberg. ♪ so... i know you and george were struggling with the possibility of having to move.

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vonnie: more companies will default on their debt, let's bring in annabel a more calls. it seems like higher interest rates are fighting. annabelle: it really makes servicing and honoring existing

debt harder because as he expunged in our interview, when you have tough borrowing environments, it makes it more expensive to refinance your existing debt but it makes it more difficult to find acquisition. we can accept more defaults in the years ahead. to sectors that he is watching, the bios industry and the real estate industry. oaktree is a distressed asset, $180 billion in assets under management. we spoke about opportunities that the asset manager is seeing in another interview you had -- we had with the incoming co-ceo, he told us which areas he is excited about. >> investors recognize that private credit offers some of the best risk-adjusted returns of the market, relative to the past. we are seeing fund flows into

private credit. and a decline in interest and private equity. annabelle: we are seeing a lot of money flowing into china's distressed developers. what do we read into that? annabelle: this was one of the biggest moves we saw in the prior session. evergrande had a jump of 80%, the biggest intraday gain we have seen since its listing in 2009. these are some of the most heavily indebted developers in the china parties space. -- properties space. down to buyers who are coming into the sector on the anticipation we are going to see further stimulus measures from beijing. have seen authorities or officials lowering down payments, loosen or get restrictions, plus we had local media saying that china could drop homebuying restrictions in most regions other than top-tier cities. these are some of the -- is the

sector? we have been speaking to analysts, we can hear from one of them, this is kg i asia saying this is a sector issue, if you are a long-term investor, stay away. they are expecting more property firms to come under distress by the end of the year. vonnie: you would want to have a lot of nerve to invest in that area at the moment. thank you for that. we will be back in a few minutes with you. oil is at a nine-month high as investors digest the decision by saudi arabia and russia to extend supply curves -- curbs through the end of the year. joining us now is tomorrow -- tamara esner. what are the fundamental saying?

are those prices or they completely detached. tamar: i think the market has found a equilibrium. we see that inventories are tightening. and demand is steady. the iea says that world order -- oil demand is at a high level. i think the interesting thing is that saudi arabia has not seen a problem in fundamentals, but bulls are on the sidelines, they are not bearish, they do not have enough conviction to be bullish. with record levels of oil demands, saudi arabia is still pumping 20%, less than their productive capacity, which tells us that there is a lot of slack in supply in the system. i think the goal of saudi was to shore up sentiment because fundamentals are good, but investors do not want to get behind it. vonnie: have saudi arabia and

russia back to themselves into a corner in the sense they need to keep prolonging these curbs? tamar: what they have done is established a floor an update. -- and upped it. they are establishing a ceiling them a -- establishing a ceiling. if demand creeps up higher, and prices go with it, there is ample supply to meet it. i do not think that is far off from the truth. haidi: when you take a look at the demand side, how impactful is the economic slowdown in china? tamar: actually not that impactful because we are seeing as economies mature, demand is quite sticky for oil. even though the headlines have

been concerning about the real estate sector there, it has led to a slight decrease in demand for petrochemicals. but demand for transportation, gasoline, jet fuel, that has been enough to compensate. same in the u.s.. there are concerns about a recession and a slowdown. industrial use of oil is coming down a bit, what it has been offset by mobility demand from consumers. vonnie: who are the biggest and a fisheries of this rally when you take a look across the major players? tamar: the producers have been doing well. i think that the rally is in the short-term, benefiting saudi arabia and other producing companies, producing companies in the u.s. and globally. everyone on the production side is benefiting. and on the downstream side, for

refining, they are doing well because demand is quite strong. and refining capacity globally is not enough to keep up with demand. the margins are quite good there as well. especially when you look at what the barrels that saudi and opec countries are cutting back, it is the sour grades. that is increasing the flow of gasoline and decreasing the flow of diesel and other product because of the sour grades not doing as much for creating gasoline. vonnie: why aren't we seeing substitution effects? why is national gas creating -- natural gas cratering? and also coal has not been rising all that much. tamar: a lot depends on what happens this winter in europe.

at least for now europe is a good place, they have natural gas supplies up to capacity. we are seeing that oil is being used as a transportation fuel, and also for petrochemical and industrial use. but natural gas is being used for electrification. and the winter has been mild. other forms of energy are doing well in terms of providing power. renewables have done well with the mild summer in the northeastern part of europe. coal has come down a little bit. but it is being used as a source of power in china and elsewhere. there has been more flexibility within the power system, power will be supplied by wherever can get the best price. right now gas supplies in europe are good. so we are waiting to see how the winter plays out.

haidi: does the inverse relationship between the u.s. and -- u.s. dollar and oil still hold giving -- given the input of u.s. shale? tamar: it is interesting how well oil has held up in spite the dollar being so strong. one of the things we are seeing is the higher interest rates in the u.s. are supportive of the u.s. dollar, but it has made drilling for oil more expensive and storage of oil more expensive. we are basically -- front month prices are lower than future prices. and that has provided upward support for prices. i think there is less of that inverse correlation because we are having higher interest rates for a longer period of time than we have had. haidi: great to chat with you. japanese carrier ana holdings

has tensions over the release of treated wastewater from the fukushima plant has not affected travel to china. we spoke exclusively to the ceo. >> [speaking another language] >> we are closely watching current demand what i do not think the water from fukushima is having a big impact on demand from china. if you look at the movement of chinese customers over the past six months, for example from january to july, it is a tenfold increase from 30,000 to over 300,000. i think this growth will continue steadily in the future. in line with this growth in demand, we will also increase the number of flights. before the pandemic, there were 175 round-trip flights per week. currently, not even half of that number is actually in operation. we would like to increase the number of flights as demand

grows and recovers. >> how do you see the demand over the next year playing out. will you see it revenge trouble continue longer? given it was late to reopen from the covid pandemic. is there an issue with the slowing economy in china that is going to affect the outlook for chinese tourists? >> [speaking another language] >> compared to our initial expectations, the travel demand is showing solid growth. this can be said for both international and domestic flights. but for domestic flights, the number has already returned to around 90% compared to the pandemic levels. it would be nice if business travel, which is a bit slow to recover, returns. i the end of the fiscal year, --

and by the end of the fiscal year, i believe domestic lights will return to the prepaid make level. overall, international flights are still back at just under 70% . but unlike domestic flights, business demand is firmly driving up as miss. there are different -- but excluding china and europe, the demand for other international flights is strong. i think the growth will continue. i think the demand for connecting flights from asia to north america and from china to north america via japan is strong. we are expecting it will return to nearly 80% overall. >> what is the outlook overall for international business travel? do you see business travel coming back to what was the pre-pandemic level? and if so, not leisure -- will leisure offset business travel?

>> [speaking another language] >> as for international is as passengers, we showed a faster return than we had expected good business traffic is rubbing our international routes. in addition, the growth in number of visitors to japan has exceeded our forecast. we are receiving a very high yield. as for growth, outbound leisure trips from japan to overseas are less than half of the numbers before the pandemic. if we return, profitability of the international flight business will increase even further. >> for most of us, the pandemic is over. what has changed, if anything today? >> [speaking another language] >> i did a lot of thinking during the pandemic period. what we were grateful for is that we were able to reaffirm

the significance of aviation. it is human nature, wanting to go out, beat people and talk to them face-to-face. i get the feeling that demand will not change. and i can say one thing. i feel the nature of demand has greatly diversified. before the pandemic, transit passengers traveling from japan to overseas and from overseas to japan were about 15%. the customers from japan going overseas were 50%. in the customers from overseas or 35%. during the pandemic period, the number of transit passengers increased to 50%. and now it has decreased to about 35%. the type of demand changes. what is required of us from now on is to respond to the change in demand in a timely manner. and keep working to improve yield management.

vonnie: speaking with bloomberg news. coming up, outgoing rba governor is said to give his final public speech soon. reflecting on his seven years in charge. or on the central bank's leadership change next. this is bloomberg. ♪ how can you sleep on such a firm setting? gab, mine is almost the same as yours.

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haidi: australia's trade balance first july, we are watching the contract talks between chevron and labor unions. they are set to continue for another day, prompting workers to put their threatened strikes on hold. and phillip lowe is excited to speak at a charity lunch, delivering his final public remarks as rba governor. let's get more on his swan song with the economics reporter. he is undoing -- his undoing was for guidance when it comes to rates. we have seen an aggressive tightening campaign. we asked to hear anything today that is going to be moving the needle? guest: his speech is called final closing remarks.

i think he is going to be talking about his term, but he is going to talk about his expectation around what he thinks the economy should be or what he expects interest rates to be. he comes across as an optimistic guy. he is probably going to talk about his expectations around where he wants to see the economy. it is hard for him to give guidance anymore after the 2024 debacle. he is probably not going to do that. vonnie: at the same time, is there the sense, that because he was cautious on rate hikes, and inflation is coming down and the economy is doing ok, that he is winning in the end? swati: yes it does look like he can walk out of the office with his held -- with his head held

high. his cautious stance has worked for australia's economy. we are seeing and pushing coming down, we had gdp data yesterday which showed the economic mental was maintained. it was higher than the forecast. in terms of that, it does look like he is a winning and the strategy has worked. haidi: does that mean that rehabilitate his legacy? what is he doing next? swati: he has not spoken about that, he was asked about his tyrant plans and whether he wants to be a public commentator. and he is a reserved public servant, he does not like the spotlight. and he has said that he would not be a public commentator. he said he wants to bring his -- to single digits. it does look like he will

retire. haidi: maybe he will join him on the golf course. take a look at how we are shaping ahead of that one it comes to trading. australia and new zealand bonds, not expecting anything groundbreaking as he hands over the reins. the challenge is to see how the monetary policy plays out for the australia economy at this point. we are very focused when it comes to the currency situation. the strength in the dollar accelerating with the services sector data, continuing to paint the picture of economic resilience. the aussie dollar is the outlier when it comes to seeing a boost. we are seeing weakness across other currencies including the yen. given how close we are to

intervention levels and the firm remarks we had from tokyo and beijing, fx authorities. vonnie: a lot of sleepless nights at those central banks. staying on bonds, south korea poised to price its first yen bond in japan. it highlights warming relations between neighbors whose relations are scarred by history. data compiled by bloomberg shows the samurai notes will sell at the titus's rights of any issuer in the market in recent years. it may carve the way for other yen bond sales by south korean banks and companies. plenty more ahead on daybreak, stay with us, this is bloomberg. ♪

vonnie: let's take a look at currencies, we are watching the yen and you want with the strengthening dollar having an impact on the currencies. the g20 meeting will be full of chatter about those two currencies. you can see the yen trading at 47.65. mere levels of scene prior to the previous intervention in october 2022. another sign the japanese

officials might beginning closer to intervening. you know that is the last straw. because that invites more speculation. we heard the finance minister say it creates uncertainty to businesses and households to see these currency fluctuations. the you want offshore --the yuan offshore coming in about two my five hours. haidi: we are bracing for more of those headwinds when it comes to how that lows back onto these asian currency trading pairs. we are watching the likes of the yuan. take a look at how the equity set up is looking. we are at the start of cash trading and austria, futures looking like this as we had -- have side when it comes to the

aussie dollar, getting a boost from better news from the chinese property and eco-story. we are seeing a bit of downside, .5% lower, the softness in sydney futures at the moment. s&p futures looking flat. kiwi stocks rating sideways as we get into three weeks away from the election. the nikkei futures are looking flat. most of the action remains firmly on where the dollar goes from here. vonnie: and cannick keep strengthening, and will it if the fed in case there will be another rate hike? the next few weeks are sure to be full of activity. it might not be a quiet september after all. canadian prime minister justin trudeau is set to speak at bloomberg's new economy series

on thursday, the interview happening at 6:45 center court -- singapore time. tune in for that, that is the canadian prime minister. that is it for daybreak australia, stay tuned, daybreak: asia is next. this is bloomberg. ♪

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>> you're watching "daybreak asia" coming to you live from new york and sydney. >> counting down to asia's major market open. >> asia stocks are set to follow stocks lower.