Arrivedtwitter ahead of trade talks, raising the presence among the american people. Shery later in Bloomberg Technology global link, ibm closely 34 billion purchase of red hat, sealing the worlds secondlargest tech deal ever. Will this help ibm catch up in Cloud Services . We will discuss. First, a quick check of how the markets closed in the u. S. The s p 500 pushing higher. In the last hour or so of trading after fluctuating between gains and losses. We have fang stocks meeting the gains. We saw some declines when it came to the consumer staples. Not to mention material stocks that led the gains. We have the dow unchanged at the toent, falling slightly down 26,783. Investors still bracing for powells testimony to the house tomorrow and the senate on thursday. Lots of Central Bank News this week. Fed minutes on wednesday, ecb minutes on thursday, and Inflation Numbers on thursday. For the time being, we are seeing u. S. Futures unchanged. Investors being cautious at the moment. Lets see how we are shipping upper asia. Paul caution seems to be the word around the world as well. Futures in most markets pointing modestly higher, particularly the nikkei to a 10th of 1 higher. We are here in sydney as well. New zealand has been trading for a couple of minutes. Higher by 1 5 of 1 . Lets get the first word news with riddick a grougupta. Qatar has agreed to spend billions of dollars on planes and jet engines and to work on a petrochemical project. The deal was signed tuesday during a visit. The agreement includes qatar buying u. S. Military equipment and the Patriot Missile defense system. Qatar airways with going planes and gulfstream jet. The former head saudi intelligence says washingtons longawaited vision for middle east peace will fail unless it involves a palestinian state in the capital of jerusalem. The plan laid out by Jared Kushner is up in the air and will not succeed without the palestinian nation. The palestinians boycotted where kushner presented his plan last month. The British Parliament has voted to prevent the next Prime Minister, coursing through a no deal brexit. The house of commons backed the bill by just one vote. Meanwhile, the Opposition Labour Party has changed strategy and now backs a second referendum on brexit. Jeremy corbyn says the party would campaign to stay in the eu if a second vote were called. The Iranian Military is having to retaliate against britain for the seizure of a tanker, accused of taking oil to syria. The tanker was in International Waters and not headed to syria and describes the u. K. Action as piracy. The retaliation threat highlights the growing threat of shipping in the gulf. B. P. Is said to be keeping an md carrier close to the coast rather than having it seized by iran. Global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts. This is bloomberg. Shery thank you. Federal reserve chairman jay powell is likely to face questions on everything from stubbornly low inflation to President Trumps constant attacks. Hes testifying to congress on wednesday and thursday. For investors, there was only one question though he indicate a rate cut by the end of the month . Our Kathleen Hays is here with a preview. Would this question have been easier to answer if last weeks job data had not been so strong . Kathleen we can only assume that is the case because then we would have seen two months in a row, may and june, where payrolls were far shorter than recent averages. Putting the pressure on jay powell and his colleagues to say no doubt about it, we have to cut the rate now. Hes testifying to the House Financial Services committee on the economy and the appropriate Monetary Policy given its condition. Speaking of this, lets remember at the june meeting, the fed, this powellled fed made a historic shift. First, they took rate hikes off the table. Next thing you know, about half of them are saying it is time to have rates lower. What these dots show you, eight represents the thoughts of eight fomc members. At least one, if not two rate cuts this year. Another eight say they are not ready to see any rate cuts in 2019. The outlier, the person who sees one rate increase. Nonetheless, what it boils down to is, yes, we have seen a rebound in payrolls. Consumer spending has come back a bit. The data do not clearly signal the need for a rate cut just yet. On the other hand, we can look at invaded inverted yield curve which many people say that is a sign that recession worries are growing. That is why in insurance rate cut is needed now. What we will look at here is how the odds with the markets pricing in in terms of rate cuts have shifted. The market is looking for a 25 basis point rate cut. What about the 50 basis point that the market was seeing . Thats gone away, particular since i sat down with jim bullard on june 25. A 50 basis point cut would be overdone even though his colleagues had days before said that is what the fed needs to do. Heres powells challenge. How is he going to send a clear signal of that intention . He has to represent himself and the entire fomc, at a time where the entire fomc may be divided. Paul when jay powell does Start Talking and giving his testimony, what are we going to be watching for . Is there a risk he might overdo things, is he going to be walking back these expectations . Kathleen whether he tries to walk them back a bit or tries to make clear they are on the table, i think you make a good point. What does he say to make sure he does not emphasize whatever he says too much and gets the markets going. What people want to know, will he repeat what he said recently that the fed will act as appropriate to sustained economic expansion . That is important because people think sustained economic expansion, the fed opens doors to the rate cut. Lets look at things we are looking for. After we saw the Monetary Policy report that will be presented to Congress Wednesday are the kinds of things we get from that. People are looking to see if we get an upgraded assessment of the economic risk. If we see powell talking about the risk rising, he is establishing the rationale for a cut potentially. The fed sees weaker global trade, business uncertainty, curbing investment. Those are the kinds of things people are looking for to see how much powell emphasizes. Of course, he is going to be asked to respond to donald trump and his constant attacks on the fed, on jay powell himself. Going into the testimony today, larry kudlow, Economic Advisor to President Trump, said powells job is safe at the present time. It isr, he did say advised to take back the rate cut. Republicans and democrats, this will probably be a three hour testimony, plus question and answer. 60 members of this committee, the majority of the republicans, you will hear politicized questions from both sides. As i said, what does jay powell signal . How does he handle this point where the fomc itself may not have its mind fully made up ahead of the meeting and this is on july 31 . Paul Kathleen Hays, thanks for joining us. Still to come, urgent and desperate. How the trade war is threatening the existence of many chinese factories. Our exclusive interview with the head of the Worlds Largest supplier of goods. Shery wells fargo offers us arguments to shifts to riskier assets. Stay with us. This is bloomberg. Paul we are counting down to the sydney open. A cool and clear morning. Futures pointing higher by half of 1 right now, following mixed positive day in u. S. Equities. Im paul allen. Shery im shery ahn. Lets have a closer look at the u. S. Market action. Late p 500 eeked out a session gain. A rally in the faang stocks helped offset losses in material and consumer staples. Su keenan has more. Who can blame investors for being more cautious given where we are headed into this week . Su everyone seems to believe there will be a fed rate cut. It is what happens next is the big question. What investors dont know what is happening next, they tend to go to the sidelines. We did see the s p hundred each out a gain. We also saw the dollar at a three week high. Index, the semiconductor was an area of strength. Again, you have the s p 500 futures flat as we look ahead to the wednesday session. Bloomberg andthe find our library of charts. Good news with bad news. We have the s p 500 moving higher. Lastly, we were at alltime highs. We are starting to see a drop in futures. That kind of disparity is an issue because one of those is going to be proven to be the right direction and that will tend to be a wakeup call for the markets. Lets move into some of the big movers. You will see that carlyle group, interesting story, the private equity firm. They will convert to a corporation when they report secondquarter earnings. The washingtonbased firm will be the last of the private equity giants to switch from a partnership to a corporation. Facebook also got a big boost. A lot of talk about its libra coin. Advanced micro devices showing strength in the chip stocks. Levi strauss was up ahead of earnings but take a look at how it is moving after hours as it fell bigtime after missing its earnings. s the Second Quarter as a Public Company and tumbled earlier. 21 from the prior year. Big disappointment there. Paul su, commodities in the spotlight. Different reasons though. The stronger dollar putting pressure on gold. Then, we have oil surging on reports on wednesday that supply data will be bullish. Su supply data appears to be front and center. You can still see it is on a wild ride. But, it has definitely finished on a high note and surged an extra 2 after hours on the api report showing stocks fell by 8. 1 billion Million Barrels last week. It is confirmed by the government report on wednesday. Set thedown should stage for a rebound because prices have been way down because of fears of slowing demand. Gold. As we talked about yesterday, it is a no mans land. It has been seeing some of the wildest price swings since 2015. The latest price swings had to do with a stronger dollar, although it did gain, closing above 1400. Take a look at copper. Fell 1. 3 in the latest session but look at the threemonth low. Copper way down by trade concerns, above everything else. That reflects the weakness we have seen in material and material stocks. Shery thank you for the latest on the markets. We have this perennial debate when it comes to risk on versus risk off. Wells Fargo Securities is encouraging investors to think about moving money back to the risk on side. Anna han, strategist for wells fargo, is with me in new york. That is hard to do when you have so much uncertainty over Monetary Policy and trade policy. Is there a risk this week that mr. Powell could disappoint markets given that we have been really expecting rate cuts to come soon . Anna i dont think in the way he will disappoint with no cut. What i think is important in the takeaway is that unless you get some huge red flags in the testimony, we are going to enter into a more accommodative environment. When you have that, that is an opportunity you take to put risk on. Now that it is a bit overcrowded and a little bit overvalued. Fory does it matter that, example, corporate earnings outlook do not seem to be too great . This chart on the bloomberg showing you the more companies are lowering the profit outlook. This is a number of companies that has rate forecast minus those that have cuts. Is this because companies are cutting in order to make it easier to clear a lower bar or could this spell a little bit of trouble later on . Anna you certainly want to have an easier bar to jump over but the way we look at earnings, it is a Temperature Check on how the u. S. Economy is doing. How is the u. S. Consumer doing. The past earnings quarters as we have gone through this tariffs and trade turmoil, we have see from the earnings in the s p 500 that companies are able to mitigate. They will move the supply chain around and pass on price. Unless you see a big shift or a red flag in this earnings season, we expect a steady path but a steady u. S. Economy. Paul so, you are expecting a steady u. S. Economy. You also feel some of these defensive plays are a bit overdone. Why do you expect the fed to cut 50 basis points this year . Anna wells fargo security is for 25 points in july and another one later this year. I agree, the markets are considering a 50 point cut. Maybe that is something chairman powell can clarify in the next few days. Paul how about the trade war as well . I know you have some optimism that will be resolved before the end of the year. Anna yes, we believe the trade war will find some sort of resolution by the end of the year. As we are getting closer to the election and other macro events, you see a little bit more of heating up in the debate. The g20 came out, volatility in the market has dropped and i think people and investors believe we are progressing towards a better deal. Shery yet, would you be more cautious when it comes to different sectors of the market . Because whether it is trade tensions between u. S. And china, you have the huawei issue, or south korea and japan, semiconductors seem to be always caught in the middle. Anna i hear you on that one. Semis have had a bumpy ride year to date. If you believe like we do that trade and tariffs find some sort of solution, that will go well for the Semiconductor Space in the s p 500. Markets dont happen in isolation. We are keeping an eye on what happens in japan and korea but we think that is a minor magnitude than what has been going on in the chinese trade war. Shery going back to your point about defenses and how they can be overvalued. This chart showing the premium of defensive stocks versus cyclicals at the moment. Does that mean you have let go of some of those defensive sectors . Anna yes, we were overweight and brought it down to neutral. We saw the Technical Analysis space over but. Looking at this low volatility index, look at the performance of that. It has had a great run over the past couple of years because of the macro overhang. Now we think that boat is tipping too far to one side. If you are too late, youll get run over. Paul youre broadly optimistic but do you see some Political Risk coming down the road . Im thinking in terms of the debt ceiling which has been reached again. That appears to be rife for a political showdown . Anna i think definitely in the last quarter of this year, we will have a keep an eye on it. With that, we will see in accommodative fed environment and powell has given is no reason to believe they have lost touch with the market orally might see something we saw in december. Shery how much will regulation affect the faang stocks that has not had a good run but at the same time we saw apple plunged more than 2 because of a downgrade . We are now seeing this election season where you can see more and more talk about oversight for these giants. Anna that actually plays into her thesis quite well. We are in the value cap. You see a lot of the regulation move into the growth side. For us, we see that as certainly something to watch for but not something of a huge concern because we think the opportunity is when things are priced cheaply. Where you can find lower multiples that have an epic opportunity for expansion. Shery thank you so much for joining us today. Anna han, wells fargos securities equity strategist. You can find a roundup of the stories you need to know to get your day going in todays edition of daybreak. Bloomberg subscribers, go to your terminal. It is available on mobile on the bloomberg anywhere app. You can customize the settings so you get the news and settings of assets you care about. This is bloomberg. Shery this is Bloomberg Technology global length. I am shery ahn new york alongside paul allen and emily chang in san francisco. Lets get thought it with a look at the top global tech stories of the day. Emily cisco will buy Acacia Communications for 70 a share, or 2. 6 billion. The price for the deal expected to be completed in the second half of 2020 which represented 46 premium to acacias monday u. S. Close. Facebook is fighting another blockbuster court fight in europe over privacy. The eu court of justice hears arguments wednesday on the legality of rules used by companies to move commercial data outside the region. Critics say eus citizen data is at risk and at the moment it is transferred overseas. Facebook insists the information is protected. Why might plans to raise the equivalent of 1. 5 billion from a group up chinese lenders and its first financing since the u. S. Restricted its access to key suppliers. It would be the companys first time tapping the syndicated market without the help of at least one international. Those are the global tech stories we are watching. Paul . Paul thanks. Ibm has closed its 34 billion purchase over red hat, the second largest Tech Acquisition on record. The deal is helping ibm play catch up Cloud Technology. The chairman and ceo told bloomberg there is more to come. We will help extend their reach into 175 countries. On the other hand, the synergy at ibm with our current products are those are going to work and you will see a lot of announcements this summer. Paul the deal not only has competition on the cloud but also the sometimes rocky path. Olivia carville covers this for bloomberg. What does this do for ibm and the cloud . Olivia we know that ibm is an american icon. It has been around for 108 years. Economic booms and busts and survived. And has gone through a transformation before to stave off bankruptcy. With this acquisition, ibm is essentially reinventing itself to become a competitive provider it is pretty fierce cloud marketplace. Emily what are some of the risks with this ne