Cut. Unemployment is rising but so are home prices. On the edge, hong kong leader carrie lam under pressure after new reports that says she will quit if she could. We have the latest on the unrest. Kathleen it may be u. S. Labor day monday holiday, but that does not mean futures markets are trading. Lets start with the s p futures contract. 48 . Now down about Bloomberg News reported u. S. And china officials are having trouble scheduling actual talks after donald trump keeps more tariffs on the chinese. Chinese have retaliated. Trump says they will move ahead. That news is putting pressure on stocks. The dollar is pretty much flat, a little stronger. A mixed picture of a quarter of a percent. Weaker after Boris Johnson threatened a snap election. Everyone wonders what is going on with brexit . As for crude oil, with Hurricane Dorian having smashed across the bahamas, so much wreckage, heading for florida. People are wondering what is going to happen with oil demand . You have a trade war raging, not letting up. The new york crude, west texas intermediate price down half a percent. Weve got brent crude down a full percentage point. As for asian markets, what is going on there, selina . Selina you mentioned a lot of red onausing a sea of the board for the second day of trading this month. U. S. China officials are struggling to find a time to meet. That is not a great catalyst for the next movement on trade. Potentially opening the second straight day of losses. The unrest in hong kong continuing with officials calling it a catastrophe during the weekend, police officials. We want to give you a quick look at what is on tap in terms of Economic Data. We have the final reading on secondquarter gdp. That is likely to be unchanged from the advanced estimate of 2. 1 . That is in south korea. I want to take a look at the commodities. You mentioned what is going on with crude oil futures. Below the 55 per barrel point, partially because of the hurricane. Also, they did lose about 6 of their value in august. Gold did gain earlier. Nickel reached its highest level since 2014. Paul thanks very much. Lets check in on the first word news. The u. K. Prime minister repeated his bow to leave the European Union at the end of october and threatened a snap election if mps rebel against his plan. Lawmakers return on tuesday after their summer break and the labor opposition will present legislation to force johnson to delay a brexit if a deal has not been reached. The u. K. Manufacturing slumping to its lowest level since 2012. I want everybody to know there are no circumstances in which i will ask brussels to delay. We a re leaving are leaving on the 31st of october, no ifs or buts. We will not accept any attempt to scrap the referendum. Kathleen Hurricane Dorian is slowed after killing five people in the bahamas, but still seen as highly dangerous as it moves towards the eastern seaboard of the u. S. The stormtural disaster for two years. Ubs raised its total to 40 billion depending on how dorian hits florida. Paul iran is warning it is prepared to step away from the 2015 nuclear deal if europe does not come up with new terms by the end of this week. Iran has set a friday deadline for germany, france and the u. K. To offer a way to continue selling oil on the global market. Top diplomats are heading for paris and moscow for talks on the issue in the coming days. Kathleen the central bank of argentina is talking to the imf about revising his Monetary Policy for this month, a day after the government reimposed currency control in an effort to contain the rising financial crisis. Policymakers failed to make their Monetary Base goals for july and august but only the quarterly target is binding for the imf aid program. Lets get to the top story. The u. S. And china said to be struggling to agree on a schedule for planned trade talks in washington. The impasse comes after the white house rejected requests from beijing to delay President Trumps latest tariffs. Lets cross to our china correspondent tom mackenzie. The storms are still brewing. Tom absolutely. What we are hearing now from our sources in washington but also in beijing is the two sides essentially have come to the talks hoping to set aside and put in place agreements that they could meet in order to move the talks forward, in order to where they can get to d. C. And continue negotiations facetoface. They have been holding phone calls. The chinese side have wanted commitment from the u. S. That they would hold back from the tariffs imposed of the weekend. That didnt happen. The u. S. Side wanted to the chinese to agree to a set of parameters for the next round of talks, so they can get some kind of movement. You remember when manoj and and lighthizer came to shanghai, there was little achieved in those discussions. That is where the disagreement lies. Both sides have failed to meet agreements so we dont yet have a date for those talks. President trump says september is still the month where the two sides are going to sit down. We dont yet have a date because they cannot agree to how to frame the talks and what is going to be at the heart of those conversations. On the chinese side, they are already preparing for a long, drawnout fight. The economic implications for china are clear and the political pressures on President Trump are clear. We have the u. S. Business lobbyists coming out, talking about the pain the tariffs are having and the impact on u. S. Households. Paul tom, you mentioned china is preparing for what may be a long, drawnout fight so what are they doing to get ready for that . Tom a long, drawnout fight we could get additional tariffs on october 1, that is what President Trump says he wants to do. December 15 is when the u. S. Is likely going to add the last amount of tariffs on chinese exports to the u. S. Market. The chinese aside has said they will retaliate. In terms of preparing for the trade tensions, there was the shift in strategy in may in china, according to the many china watchers. China decided they could not come to a sure deal with the u. S. , so they have been waiting for this long haul. We got more of that with the state council putting up a statement saying the Economic Risks are manageable. They would do what was needed to ensure they could stabilize the economy. They put in place a package of support measures for the consumer. They are also going to the wto and filing a complaint against the u. S. Tariffs. They are putting in an additional measure to support the economy and preparing again for a long, drawnout trade fight that they are expecting to go well beyond 2020. Paul all right, china correspondent tom mackenzie. Thank you for joining us. The Hong Kong Government has for the first time used the term terror in regard to the growing unrest in china. City leaders have not ruled out the possibility of invoking Emergency Powers to clampdown on violent protesters. Our chief north asia correspondent Stephen Engle joins us now. The keyword what is the latest . Stephen interesting terminology because it could be invoking this emergency ordinance, emergency regulations ordinance which would give the Hong Kong Government and police a bit more power for sweeping arrests, as well as searching of properties. Also, clapping that on the internet as well as publications. We have not gotten to that point yet, but officials have not ruled out. It was first brought up last week by carrie lam not ruling it out. The chief secretary and other secretaries of the Hong Kong Government also would not rule it out. Actually saying we are reviewing comprehensively with an open attitude of what could be used. Any actions, he cautioned, would need to be reasonable. Basically, they are saying radical protesters showed signs of terror. This is a similar comment that was used by mainland officials at the Hong Kongmacau Affairs Office back in august 12 during the sit in protest and the disruptions at the airport. China, at least translated from interim, mandarin, they said the protest movement is showing signs of terrorism, terror or terrorism. Demonstrators have countered by saying the police used industry Different Levels of force over the weekend, including on the subway cars and subway stations on saturday. It is devolving a bit into semantics right now, but the bottom line according to the government is stopping the violence is the top priority. These are some of the numbers we have already accumulated. 86 days of unrest since june 9. That is surpassing the 79 days we have seen of the Umbrella Movement in 2014. The police in a briefing late yesterday set at least 100 central bombs were used on the protesters on the violent night of august 31. 16 people have been charged with writing over those august 31 clashes. Far, including a total of 159 over this weekend. 2300plus teargas canisters have been used, as well as 468 rubber bullets. One of the Police Commissioners saying the radical behavior now is spreading his words like the plague. Kathleen when you see the flames and the records wreckage, smoke, teargas, it is surprising that those numbers are not considerably higher. Most important is to hear from china and will they continue to step back and let this play out . What are they saying now . Stephen we are going to hear from them today at 3 p. M. For the Third Press Conference from the hong kong macau Affairs Office in beijing. Before earlier this month last month in august, they have not held a press conference at all since 1997. This will be the third one they are doing. They are taking this quite seriously. China in a statement saying the protests have evolved into extreme violence. They have reaffirmed their support for carrie lam as well as the Hong Kong Police to control the rest. A little bit of an assurance that perhaps they will not be sending in the pla at this time. They believe hong kong and its authorities can control the unrest, but in a sharply worded commentary two days ago by the news agency by the middle of this unrest during the weekend, is comingthe end for those trying to disrupt hong kong and antagonize china. Any attempts to use hong kong to infiltrate and undermine the mainland will fail. We will get clarity later today at 3 p. M. Beijing time on beijings position. Paul chief north asia correspondent Stephen Engle, thank you for joining us. Still to come, the rba, will they go lower . We discussed the chances of another cut as they make a policy decision later. Kathleen Kramer Capital Research cio says a price cut is priced in this month but do not believe it until you see it. Find out why. This is bloomberg. Paul this is daybreak asia. I am paul allen. Kathleen i am Kathleen Hays. Investors made it through a volatile august but with no trade deal insight and inverted yield curve, stocks may not go far this month. Lets discuss all that and more with Kramer Capital Research even vested officer hillary claimant chief Investment Officer hilary kramer. One of your recent notes, i just love. Basically, the talk market the stock market, people are too scared to short it. There is no real reason to buy. You say dont blame stocks in the economy. Blame the nerves, the nerve of investors. What do you mean . Hilary it is all emotion. You have seen so much over the years, we both have. This is a market that really has been about headlines. For somata years, we have been turning so many years, we have been turning to the technicals. The headlines happen on the twitter posts that are nonstop. Concerns about the trade war, which we know that ultimately will be resolved. It may not be resolved until after the election, but we will get there. It is in everyones interest to have trade. Everyone wants to have the upper hand, but those concerns have worried the market. Ultimately, our earnings were good. Earnings were solid and even the financials, jp morgan, they are not seeing cracks yet with credit. It is just not there. Insurance companies, we have been watching them carefully. This massive storm dorian that is making his way to the southeast. They have hardly moved. Insurers have a hiccup because they are the ones ultimately paying. We have strengthened this market. You have to find the right stocks. Kathleen you are playing into the argument of policymakers at the Federal Reserve who say, wait a minute, we dont need to cut rates. Stocks are doing well. Labor market, we will still get a decent amount of jobs and people will keep spending money, why would you cut rates . How do you factor that into your equation . Hilary at this point, although the Federal Reserve has been really important so far, if we dont have that cut even though 25 basis points is in there, i think the fact that we could have strong companies, strong fundamentals, that is good enough. The Federal Reserve look, the bottom line is they have listened to the white house. Federal chairman powell unfortunately has had to play both sides of it. Saying if he keeps there is global recession, we will have to cut rates. You never saw the Federal Reserve have to cut rates kathleen wasnt there a trade war before . Hilary we have had lots of issues but it does not mean the Federal Reserve was not just jumping in there every time there was a sneeze in asia. Paul what has really caused all of these nerves and emotions . Would you park it at the door of the trade war . If that is the case, is the president has the president really forced jay powell to act . Hilary i think so because first, chairman powell said we have to rein it back in. He raised rates. We saw the market go down in Christmas Eve 2018. That was ok, we were letting off that steam. Hes had such tremendous pressure. I think that the Federal Reserve we might not have a rate cut and that is because at this point, they might just say, look, we are not going to bend to the will of tweets. It is not what we are going to. We are going to look at the fundamentals. We are going to look at the market itself. We have the unemployment number coming out on friday. Pmi tomorrow. We will see how manufacturing does. I think we are going to be fine. I think we are going to be stable there. Paul ok, so optimism then. You look past the emotions and nerves and you want to invest, where do you put your money . Hilary lots of opportunities. Im staying away from the traditional things overvalued. That is last decades investment. If you want to be in technology, ok, be in twitter. Look at the chart. Roku. Whoever wins those streaming wars, roku is still going to be the winner beyond anyone else because they are the backbone of streaming. I love some of these smallcap, midcap value plays that are wonderful. There are a few of them. One is ufs dome tar, a Paper Company. It is the largest uncoated Paper Company based in montreal. You have the dividend yield with it. Oln, they are the dividend yield at 4. 7 . Winchester ammunition, the bleaches, these are companies that have been around forever. It is very interesting. 1848. R is from so, not everything just comes and goes. One of my favorites is ingr. That was the old corn products. Ok, that is in everything. That is your sugars kathleen we have that chart now of your dividend yields. Hilary good. Kathleen lets move on to the small biotech, you think they will keep moving forward. It is a fascinating area to invest. Help people save lives, etc. Who do you like and why . Hilary there are a few. Ubx, unity biotechnology. Ubx has just fallen out of bed. Goldman sachs is behind this. We are talking singledigit now. This company has been cut in half but these are the attempts to have antiaging therapeutics. Twor first drug in phase now with longer trials for degenerative knee disease. They are going to move on to the raji and pulmonology. Gwph, gw pharmaceuticals. It is trading in the 140s. It has been below 100. Cannabis. Epilepsy,dication for pediatric epilepsy. The train has left the station. Cannabis, including thc, is there. It is mainstream. A company like gwph is really at the forefront of it. Kathleen i just want to quickly get a lot of information. Nervous capital tends to stay at home when the markets get stormy. You are looking at asia and the implications of all of that. What you are seeing their, and what kind of investment is it . Stay away or is there something to buy . Hilary the theme is that obviously now countries like vietnam, thailand. Theres a lot of opportunity for them now because major s p 500 companies are going to be going there. Especially after announcements like stop doing business in china. You have opportunities, so really if you want to play those, you want to do etfs, country etfs because there is still a lot of volatility. Theres a lot of unknowns. I think there is nervousness. It does make sense to stick with the companys back here in the five ort are trading at six times earnings. Some of the retailers have been beaten down. There is a lot of opportunities but look at the u. K. , the pmi was the worst in seven years. Youve got to stay away from europe. You want to stay away from germany. Asia is a nice opportunity for modest countries to come up. And i think china is really strong. Wants investor that longterm buy and hold, u. S. Companies, you have the dividend yield and you know what you are getting. Paul hilary kramer, thank for joining us. You can get a roundup of the stories you need to know in todays edition of daybreak. Bloomberg subscribers can go on their terminals. It is also available on mobile on the bloomberg anywhere app. You can customize the settings so you only get news on the industries and assets you care about. This is bloomberg. Kathleen now for a quick check on the latest business flash headlines. Facebook is considering a test to stop showing the public likes to lower the competitive nature of social media. The test project was revealed by a security researcher and later confirmed by facebook. In the test, only the poster can see the likes. Facebook has been trying to have policy on a photo sharing instagram app. Paul the founder of lululemon has made more than 30 million in threemonth from his investments. Dennis wilsons stakes in chinas biggest ports where maker has gone up 24 , extending a rally above 70 for the year. Question its who accounting and governance. Coming up, sterling remains under pressure as the battle over a no deal brexit continues. Details in a moment. This is bloomberg. Paul 8 30 a. M. Tuesday morning in sydney. Pleasant spring morning. Markets open 90 minutes away. Down for tense of a percent on monday. Looks like we are getting more losses today. Almost a quarter of 1 for futures. Im paul allen. Kathleen im Kathleen Hays in new york. The downward drift in u. S. Stock futures after the disappointing news on progress in trade having a big role. P. M. And you are watching daybreak australia. Lets get the first word news with tom mackenzie. Tom the u. S. And china are struggling to agree on a schedule for new trade talks this month after washington rejected beijings request that the latest tariffs be delayed. President trumps attempt to convince markets things are back on track. The two sides are yet to agree on the basic terms of reengagement. Chinese state media says the government is ready to whether the tensions. Reports from hong kong say embattled leader carrie lam would have quit if she could and that she feels there is only a limited window to resolve the unrest gripping the city. An audioites recording where she says she would apologize and resign if i had a choice. Chinas office for hong kong and macau are expected to comment on the unrest litter tuesday. Italy is a step closer to a new government after a coalition was agreed between the democrats and fivestar movement. 69 of Democrat Members said they were in favor. 51 of fivestar members back to the idea. The Prime Minister is set to form a new government, although it is not clear what role fivestar will fill. Reports from japan say the government is planning a new police unit on islands disputed by china. Nhk says members of the operation would tackle any unorganized on the landing. Japan goten china and to the worst voice in decades after the abe government bought disputes from a private owner in 2012. Global news 24 hours a day on air and on tictoc on twitter, by more than 2700 journalists and analysts. Im tom mackenzie. This is bloomberg. Kathleen now we are going to find out what to watch of the markets this morning. We are going back to selina. Selina in australia, i am watching a few stocks. New hope is cutting 150 jobs at its new mine. Watching for hayes or group. Conditional approval to this company to turn biogas from sewage into hydrogen and graphite. That Company Plans to sell the Renewable Hydrogen for industrial applications and slowing markets for graphite. Also watching westpac. It was upgraded to outperform at credit suisse. A quick look at the new zealand dollar. We did see a drop versus all of its major peers, reacting to the imposition of new tariffs over the weekend. The selldowns of risk assets. We saw as much as 6 10 of a percent, carrying back those losses now. I want to give you a look at what is on tap for Economic Data later today. South korea is going to have its final reading of secondquarter gdp. It is inspected to be similar at the earlier advanced estimate which was 2. 1 . 2 10 of 1 ind to august, but still far below the bank of koreas 2 target. Jumping to the rba, we will talk more about it later in the show. The reserve bank of australia is expected to keep rates on hold for a second straight meeting today after back to back cuts in june and july. In terms of australias retail sales, that growth is a prejudice low to 2 10 of percent in july. Paul thanks very much. Lets get more on what we should be watching as trading gets underway in asia. Our cross asset asia editor Andreea Papuc is here. Not a great start in september despite stocks getting cheaper. Still not seeing a rebound. Andreea that is right. We know things can turn quickly nowadays, but certainly in asia, strategists are not overly confident that we will get a bounce anytime soon. This is despite stocks getting cheaper. We do have a chart that shows the fiveyear average for the estimated price of ratio being slow and going down. Actually warning of an unlucky month. He points to september as the and month when the s p 500 having negative returns in the past 40 years. We also have ubs Global Wealth management cutting its japan Earnings Growth or cast. In asia, we have this hong kong protests that are worrying investors. Weve got markets like taiwan and korea that are heavily dependent on exports and on technology being the hardest hit. Having said that, it is a very different story in the u. S. Jp morgan last night came out and reiterated this might be a good time to buy stocks based on positive technical indicators and monetary easing. They believe that will outweigh these uncertainties around trade. It is very similar to what we saw from bank of america, Merrill Lynch at the end of last week saying they are getting positive assets into the end of the year. A tale of two different markets in a way. Kathleen surprisingly, on another topic, asias highest yielding bond market provided the worst returns in august. What is going on . Andreea hi. That is right. Indonesia and india virtually returned not think for investors last month despite real yields of at least 3 . The reason is because of the trade war and concerns about slowing Global Growth, investors are shunning these less creditworthy markets. That has pulled down prices in these bonds and capital markets. Bondsample, in indonesia, handed investors a small loss last month and that is despite real yields of about 4 . A for part of that was global funds selling poor returns in india. As the Global Growth situation deteriorates, it will weigh on currencies and bonds and that will be bad news for some of the high yields like indonesia. A test for some of these markets will come this week with cpi seekers coming up in places like indonesia, thailand and south korea, amongst others. Kathleen thank you so much, andreea. You can check out those charts again if you want. They are on the bloomberg terminal. The u. K. Prime minister Boris Johnson this threatening a snap election if you loses a vote in parliament next week. His critics and labor opposition are trying to force him to delay brexit but he says that is not going to happen. I want everybody to know there are no circumstances in which i will a brusselssk will ask brussels to delay. We are leaving on october 31. Kathleen the pound took it hard, weakening to its lowest level in three weeks as investors digested the prospect of snap elections. Phone from us on the chicago. David, if he wanted to write a political soap opera, you could be writing it right now. In terms of the political turmoil, how do you sort out what is the important aspects and negative aspects that pound traders are taking from this . David basically how you view it, the outlook from the pound is not good. Boris johnson has continued to go with the no deal brexit. Basically, people are trying to stop him and he is going to try to if you can. If they did stop him, the extension, the question is is that beneficial for the pound . That does not provide an answer. To get that far, Boris Johnson is say i will not let you do that. I will do an election if i need to. If you look at the latest poll, thehe conservatives had 35 lead compared to labour. That translates into a conservative majority. It would imply that he will get his mandate if it does go to an election and a no deal is very viable without question and sterling is not positive at all. Paul yes, so what are the odds of that happening . History suggests polls including in the u. K. Are often violently wrong. What if we end up with another Hung Parliament and i am questioning the brexit party . David the brexit party came in fourth. If they were taken out of the poll, the majority jumps to 45 seats so it is a big difference. Hinged on party is Boris Johnson because it will take away some of the votes they may get without him. Theres a chance of pulling being wrong before. The question becomes very quickly how will we solve this problem . People said we dont want a no deal. That is fine. We need an answer to avoid a no deal. Even amongst themselves, politicians have not been able to achieve that. With the default continue being, the no deal being the default option, if you can come up with a solution which they have not again, the no deal comes to the fold and yet again. Is way you play it, no deal the most viable option. Kathleen one impossible situation to another and that is argentina. Capital controls by the aesident, who has had terrible showing ahead of the election has got this prices going. Analysts are saying this is not going to work. Argentina has been talking to the imf about their september Monetary Policy target. Im sure that is important but that seems so minute compared to what the heck are you guys going to do . David obviously fundamental problems that started when the president lost the primary election. That was a good indication he would not win the general election later this year. The market started to get worried because he was more market friendly. The opposition is more loose with the budget. From a bond perspective, they are worried about the money being paid back and that is what you are seeing now. Capital outflows last week. They impose capital controls. From the nearterm impact, we are seeing some with the labor day market america, it is very thin. Argentina rallied to 56. I think the key thing comes tomorrow when the markets return to america and how do they penalize them . You may see some shortterm gains but at the end of the day, the problem is you have to solve this ability to repay the debt and that is what the market is focused on. Paul Bloomberg Asia rates and fx reporter david finnerty, thank you. The rba open to further easing. We ask when that might happen. This is bloomberg. Kathleen markets await the latest Rate Decision in australia as most is expecting the reserve bank of australia to stay on hold after back to back cuts in june and july. Still, markets expecting another cut before the year ends. We are looking at a 90 probability the cash rate will be lower than 1 by december. Or more bigor two reasons the rba woodcut now . We will show you this chart. The Unemployment Rate is rising again in australia. 5. 2 . Along the bottom, you can see a turquoise line. That is the yearoveryear inflation rate. 1. 6 but there is the 2 to 3 target, you are not there yet, rba. That could be a reason to cut. On the flipside, another reason not to cut. We are now seeing on this chart two straight months of rising home prices. Look at all of those red bars. The Property Market was slumping. This was hurting australian homeowners. Now that has turned around so that is another reason why Bloomberg Economics says another reason the rba could be patient, they dont see even one more cut this year. Hole,nal point, i jackson the rba governor said very clearly the main problem in the Global Economy is political shocks like the trade war. He put the tried were out the trade war other top of the list. He says it is up to politicians to fix that. Rate cuts alone cannot do that. Another reason the fed governor himself is not ready to push for rate cut just yet. Paul thank you very much. For more on what to expect from the rba, lets bring it michael. Everyone is expecting the rba to not cut today and probably go twice more in the next few months. The question is if it is coming anyway, why not go now . Michael really good question. I think the rba are professional optimists. The basic point is we have had real weakness since the middle of 2018 that has flooded through to the second quarter. Gdp tomorrow is likely to be very weak. Since june, we have had two rate cuts. We have had government tax cuts, the doll the depreciating. We have had a recovery in housing. The basic weakness in the australian economy is consumption which is 3 5 of gdp. Their bet is that perhaps with all of that coming through that people will start to spend again. If that happens, maybe they dont have to cut. The governor mentioned earlier sees a gentle turning point in the economy. Hes a professional optimists, that is what he is expecting. On the other hand, i am sure it is just chaos basically. Consumers are very heavily burdened by debt. An optimistic scenario is they dont have to. A realistic one is they do. If you look at the forecast, it is based on two cuts. Kathleen there is so much talk about unconventional measures. Every central bank around the world who has so little room between the key rate they govern and the bound, yeah, we have to look at that. The rba does not seem to have signaled they are ready to rush through that door even though they have talked about it. They are doing a lot of work on it. They are upfront that this is a genuine possibility. They still dont believe they will have to go there, keep saying they dont have to go there. They would say that. They have to try to instill confidence in the economy. Haveuestion is economists addicted by the end of the first quarter, we are at 0. 5 . The governor has mentioned a quarter to half point being the lower bound. What will happen then . As you pointed out with inflation, missing in action for three years, four years now. Unemployment is fairly steady. It is a little bit high but it is not showing any signs of coming down. There has not been the need to meet and they have flexibility but that can only go on for so long. If there is not a decent upturn in the economy, we can expect at some point next year, they will have to break the seal on that. Paul michael heath, thank you for that. Our next guest is likely to sit this one out. Joining us in sydney is felicity emmons. I want to pick up on a point michael was making. Even the rbas own productions are based on half a percent cat rate cash rate. It looks like they will have to break the seal on unconventional measures eventually. What does qe look like . Felicity it is difficult to say. The rba are looking at the different options they could have. They will be taking into account that qe will work quite differently. We have a different Interest Rate structure. Most people that borrow, households at the shorter end on variable rate mortgages. The impact will be different but they have said that think it is important they have a combination of measures and that they communicate their intentions very clearly. I think to some extent, they were already sort of taking the first steps on that communication with phil low saying that rates are likely to stay low for an extended period. They are going down some of the paths the other Central Banks have gone down already. Making those next steps on whether it is bond purchases or mortgagebacked bond purchases, it is difficult to know at this stage but i am sure they are doing a lot of research internally. Paul the rba has this dual mandate. Stable prices, full employment. The response ability seems to be parked at their door all the time. We were talking about the difficulties of the trade war, other political considerations. But then there is this. I want to show you this chart. Company profits growing way faster than wages. The rba has been complaining about weak wages growth for as long as i can remember. Surely, you got to park some of the blame on this at the big end. Felicity when you look at things like the profit share and the wage share, the wage share has been lower than history. Some of the recent data are probably overstating that. When you look at what is driving that strengthen profit, it is concentrated in the Mining Sector and due to the high commodity prices. You look at nonmining profits, that is only growing just above zero at the moment. I think that is something the rba is probably concerned about in terms of the outlook for business investment. Thats just another way of looking at it. The wage growth story, i think we are seeing this gap between the profit share around the world that relationship has changed. Kathleen i think the issue is for a lot of central bankers, you are right but guess what, Monetary Policy cannot change that. Certainly the wage gap between the poorer people and wealthier people, number one. I would repeat that phil lowe and jackson hole keep to be saying seem to be saying that Interest Rate cuts cannot cure what ails the Global Economy and australian economy. Making it sound like a worried man who was on the verge of cutting rates. But maybe you are getting Something Different from these remarks. What do you see . Felicity i think they realize that Monetary Policy is not as effective as it used to be. That does worry them, that they are using up their ammunition and it might not be very effective. I think it when it comes to the end of the day, they have a job to do and they have to do the best they can under difficult circumstances. I think when you look at the economy now, it really is quite weak. We have gdp coming out tomorrow. Our view is that will show the economy growing at 1. 1 , which gst inducedhe slowdown in 2000, that is the slowest rate of growth since the recession in the early 1990s. I think the rba will be quite concerned about that. It is a lot lower, 1. 1 is a lot lower than what they were forecasting a month ago. 1. 7 . The economy has turned out to be quite a bit weaker. When we look at the international backdrop, if anything, that has worsened. We have had trump announced other tariffs. The debacle around brexit. It is not getting any better. We should see some stimulus on the tax cuts and Interest Rate cuts in the second half come through. Kathleen your view is at the rba cuts and market responds positively. What if they dont cut . Felicity i think if they dont cut, we are likely to see this continuation of very modest growth. You will likely see some continued trend down in inflation. I think what the problem is after four years of missing their target, if inflation continues to miss the target, you find that two to 3 target of the rba becomes unbelievable. Inflation expectations will continue to fall and then you end up being in some sort of deflationary cycle. I think that is what the rba is becoming to be worried about if they miss their targets. Thank youcity emmett, for joining us. Later today, our exclusive interview with australias trade minister. That is coming up at 10 40 a. M. Sydney time. Dont miss it. This is bloomberg. Paul a quick check of the headlines. Saudi arabia has shaken up the energy sector, removing the chairman of aramco. Backole has been scaled and part of his ministerial job has been taken away, keeping the focus on the oil markets. He will be replaced by the head of the saudi sovereign wealth fan fund. Keep it right here. This is bloomberg. Paul good morning. We are one hour away from the Australia Market open. Kathleen good evening from new york. Selena welcome to daybreak asia. Paul our top stories, stock futures fall with the u. S. And china said to be struggling with negotiations. Reports from hong