Haidi welcome to daybreak australia. Annabelle we are counting down asias major market opens. Kathleen good evening from bloombergs World Headquarters in new york. Asian stocks set to start the week under pressure following mixed signals in fridays jobs report. Fresh inflation prints coming out in the u. S. And china. Haidi israels Prime Minister tells us he will not pursue the entire judicial oversaw initially planned tray saying he is trying to with store balance. Cap Kathleen Warren buffetts profit gains. Haidi the week were taking a look at u. S. Futures. The focus will be on the fed given the commentary from two fed officials and a jobs number saying if we see a sustained weakness in jobs data in the u. S. The fed may have to start thinking about pivoting. We are seeing u. S. Futures looking modestly higher. S p futures up a 10th of 1 . The big story is going to be will we see a seventh straight week of gains when it comes to crude . The bti getting 20 over the past six weeks as we see restrictive demand continues to tighten and supply continuing to tighten. Goldman sachs saying we sell some of the most amid all year in july. Brent crude sitting higher i4 tenths of 1 . That higher by 4 10 of 1 . That he ran crow raising prices to all customers in asia and europe. That is going to create more of the tightening effect. Take a look at the set up when it comes to leos drill you session. Futures looking a little bit like this. The aussie dollar which did see modest gains on friday. Pretty flat at the moment at the start of trading. Annabelle going to be keeping an eye on the commodity currencies. Also watching the japanese yen because we do have the summary of opinion coming up for the july meeting in the next hour. Us more clues into what policymakers were thinking when they decided to make the surprise change to program of yield control. Equities, the future set up is mixed for the session today. We are a little bit lower for the guiding of the start for the sx 600 the key events on the agenda, one of them is the chinese inflation numbers. We could see Consumer Prices going lower for the first time in two years on wednesday. Deflation is one of the big issues in china. This chart here puts the concern around chinas economy versus what is happening into japan into further focus. Taking a look at what we are seeing on japanese stocks. The msci china index, you can see we are setting up for at performance for a Third Straight year. Some of that those come down to concern still present in chinas economy around the outlook for growth. Can add to that geopolitical tensions. That is another reason investors are continuing to steer clear of stocks on the benchmark it. In japan the story has been more rug Corporate Governance reforms. The boj, we did see the surprise change last week to the yield curve control program. Any sort of normalization is expected to be gradual. A sharp rear appreciation of the japanese yen is not expected to take place. Something else that is a positive for the stocks. Kathleen lets move on to look at the employment report. What it means for the fed and what it means for the markets. The president and ceo of banyan Capital Management joins us to is one person put it the jobs report was not Strong Enough to convince the doves are wrong that the fed should be done with rate hikes or was it weaken enough to convince the hawks more should be done . What do you see for the markets in all of this . I think the job reporter was mixed but unemployment fell. 3. 5 in july. It is still down. Wages were up 4. 4 . It is hard to imagine a 2 inflation number when Wage Inflation is up. The fed has been saying they were looking for a little over a percent unemployment number in the Fourth Quarter and that does not seem likely based on the night the number they came out last week. For me i dont we have seen the last of the rate hikes. I think from a market perspective there is a number of signs there is a weakness to come. I would be cautious and defensive. There is not enough to suggest we have a recession with coming. We have mixed Economic Data but we have strength in the consumer, the labor market remains tight. There is some negatives and some positives. Nothing that says recession but also nothing that says the fed should pause. Kathleen lets take a look at the bond market because we solve the big move up broke through the move up. Was it 4. 09 . Got as high as 4. 3 percent. That seemed to unsettle stocks on many days. Where is that going to go . Shana that is something that should be concerning for equity investors. The peak of 10 year yields in october when we saw the market bottom is 4. 3 5 . 10 year yields and bond yields are in the 10th decile. According to strategics they have done some great work. There are seven years of rolling fiveyear data. When yields get into the 10th decile the s p performance forward is below average. It is also if you think about the similarities to what we saw in a tober that might suggest there is downside in the market. Yield rising like this is typically negative for equities. We are seeing rising volatility we have not seen in yield since the 1980s. There is a lot to be concerned about. These are signals that suggest their hard times coming in equities and there is is in equities. I would be cautious right now. Haidi does that mean the real bear market bottom has yet to hit us . Shana that is the debate. A lot of people thought over 2022 was the bear market bottom but there are things that typically happen on the bottom that never happened following that. You saw financials broadly underperform. You never saw a rebound in small caps. We are back at the same place in terms of yield which suggests there is downside under the market. If you look and see the russell 2000 and only recently broke out of 17 straight months of rolling negative performance. Typically that can be a good sign. I have been watching small caps to see if there is any breakout but we are seeing change in leadership to energy and materials away from technology and consumer discretionary. That is indicative may be a change in the way the market is trending in not in necessarily a positive way. It is hard to imagine a scenario where we see continuing Earnings Growth when you have rising rates, inflation and weakness in the economy in places like manufacturing. Nonmanufacturing was we. There are things that have me concerned but nothing that screams recession. Haidi it is interesting. We talk about the consumer is resilient. You look at these specifics. Backtoschool spending for example report showing we could see that decline for the first time in a decade. They are not insubstantial declines either. Shana no, there is that. We have seen Rising Consumer defaults but nothing really concerning. We saw in november 2021 we hit an alltime low. We have risen from there. The low was. 37 . It has arisen to. 72 . The longterm historical average is over one and a half percent. We are are nowhere near default rates that are concerning but they are rising so that is something to be of concern. There is no fiscal stimulus. There is a desire to pull liquidity from the system. None of those things are positive for equities or earnings. They are headwinds to those things and to the economy. Some of the leading indicators you definitely see a mess. There is reason for concern. Nothing that screams recession now. But definitely things that suggest this idea we are not going to have a recession at all is probably not true. I could see that in early 2024. Kathleen and you are not alone. What do i do with my money . Move over into cash . Do i find the defensive stocks . How do i handle this at least until early next year when you know if there is going to be a recession or not . Shana a lot of people are going to cash right now. We have seen record flows into Retail Money Market accounts. The average money market account is yielding pre. 9 . There is something to be said for that. I am looking at stocks and positioning that will benefit from rising correlations between equity and fixed income which tends to happen when rates are rising. I like my liquid alternatives. I like my morris k. I fmf. As a three etf those are three etfs i like. In terms of stock ideas and sectors, i like sectors that will benefit from scenarios where there is leslie the in the system should things like energy, materials, health care, industrials. Some of my favorite names for onto those cap worries. Southern copper been he is one i have talked about a lot. It was a 15 in the last month. Market multiple is i with the average. There are a lot of tailwinds to the business in terms of the macro. You look at a company like caterpillar. Caterpillar has a lot of correlation to rising rates. It tends to outperform trading at a 12 market. Really good financials. Very stable business. Great management. That is another company i really like. In health care you have Something Like cigna. That is a company that has been growing membership. It has been making acquisitions. Great Capital Allocation strategy. Trading at a low multiple. But have had going earnings for the last 12 months. Something worth considering. Those are the names im looking at. Things that will benefit from the liquidity being moved from the system as opposed to the tech names that tend to do better when there is more the energy in the system than when rates are lower. Haidi always great to chat with you. President and ceo of banner in Capital Management. Lets take a look at some of the top political stories. Regiment and yahoo says he is no longer pursuing the entire judicial overhaul planned by his government to he wants to change the makeup of the Selection Committee for judges. His plans had led to the largest antigovernment protest movement in the nations history. He spoke exclusively to bloomberg in jerusalem. I am still going to give it several months to try to get another consensus. It will probably be about the composition of the committee that elects judges. I dont think we should move from one extreme or we have the most activist Judicial Court on the planet to getting to a point where the legislature are defensive and knockout any decision the court meets. There has to be a balance. That is what we are trying to restore. Haidi haidi you can hear more from our exclusive interview with the israeli Prime Minister in the next hour. Ukraines attacks on a Russian Naval vessel and oil tanker are signaling a rapidly expanding were putting at risk russias commodity exports. A marketing technologies firm says freight rates are blooming and the cost of shipping russian crude may rise as much as 50 . Russia exports most of its grain and up to 20 of oil via the secor door. Chinas foreign minister has invited the e. U. s top diplomat and his delegation for a visit should he says the visit will allow for preparations to be made before a Leaders Summit later this year. He was scheduled to visit beijing last month and be at the foreign minister. Kathleen still ahead, a look into what is raven that will markets as wti sets the longest string of weekly gains in more than a year. Up next, the u. S. Economy is getting a boost from bidenonmics and abel ching federal budget and a bulging federal budget estimate. This is bloomberg. Grand canyon universitys rn to bsn Online Degree Program makes earning your bachelors in nursing possible. Balance online coursework with local inperson clinicals to prepare you to lead as a charge nurse in the time you have from wherever you are leaving room for what matters. Achieve your goals with your personalized plan and team behind you. Find your purpose at grand canyon university. Visit gcu. Edu it is a job report that has something for everybody. This is an in line payrolls report. In line with market consensus but also in line with fed wishes. Gradual labor market normalization. Our view is the fed is done. We may still be looking at either a september rate hike or another rate hike before the end of the year. The hawks in the fed are going to focus in on the wage growth. We can accommodate this for percent wage growth. They are going to argue the labor market is too strong. It feels like the soft landing camp is definitely winning out here. The marketplace favors at the margin for softer landing interpretation as of now. Haidi very different views from our recent guests weighing in on the u. S. Jobs report. That is why we have to bring in another big fed watch church a look at the report, what it means for the economy. He is a Foreign PolicyInstitute Senior fellow at the John Hopkins School of advanced International Studies and a managing director at the imf. You heard both sides of the story. One person on friday put it so well. This report was not Strong Enough to convince the doves they are wrong or we can enough to convince the hawks that they are wrong about wanting to hike rates more. What is this report in a nutshell . It showed solid but definitely slowing growth and indications that should lead to easing in pressures. This is where the argument is going to lie in the next few months. What will be crucial is developments in the labor sector and the interpretation of those developments. For right now a softening economy which was necessary if we are going to get to a soft landing. The latest data looked to me on favoring the soft landing view. Kathleen what about the more hawkish view that wages are growing and it is a sign that there is not tightening enough in the labor market as well as 187,000 new jobs still indicating the economy is moving along nicely . Those arguments depend on what economists call the phillips curve view of how the labor market interacts with the economy broadly and with inflation. Generally that have you would hold the lower the employment rate goes the higher the inflation would ensue. This comes from an older view of the economy in which there is not that much competition and companies have a lot of Pricing Power and reflect ability to reset prices. In the model road the modern word in which there is more competition. It is not clear to me the right way to view wages is they cause inflation rather than they follow inflation. So far the u. S. Wage growth has barely done more than make up for the inflation that already has occurred. Haidi when you take a look at the inflation outlook, is there a possibility we are going to see structural issues come into play . We are already seeing oil, wti 20 over the past six weeks. We are seeing grains pricing, commodities pricing start to take up again. Is that a concern . John of course. There are always risks that can unsettle the outlook. A serious increase in commodity and Energy Prices will it affect the view of the strength of economic growth. If we look at lets call it a more core view of where inflation is going and look on the margins, we have already seen goods prices in the u. S. Are growing at less than 2 . In the margin, it appears housing and rent prices are slowing substantially despite how they calculated in the price indexes. So far, it appears wages have made up for past inflation in a context in which the strength of the job market is waiting. As you notice in the latest figures, there was an increase in average Hourly Earnings but a decline in the average work week that suggests growth in personal income which is the primary determinant of Household Spending is slowing and slowing notably. It looks like it seems to me there is a lot of reason for the fed to stay on hold for the next period and see where inflation, the outlook is going. It seems to me there are signs very clearly that point in a direction that says inflation pressure should be easing. Haidi you mentioned the international factors as well a little while ago. Are you watching china . We are expecting consumer and factory gay prices to be firmly deflationary this week. Is that going to have an exported element for some of its trading partners . John of course. It is not just through those kind of prices but demand in general. When we look to europe, we can see there has been a slowdown after better performance. Now things have slowed substantially. The International Environment is hardly an inflationary one. We are paying close attention to china. Kathleen i want to zero in on this. He said there is enough for the fed to pause. Michelle bowman of the board of governors says they will probably have to hike rates more and we can assume their other hawks that agree with her. Why are they wrong and what do we have to see next for the pause to take place instead of another rate hike in september . John remember, in 2021 the fed was telling you they were going to keep rates low for a long time. The facts intervened and they reacted. They reacted late but they reacted. There is a good reason to think the of gone from too loose to two tight. We will have to watch how the data unfolds. The fed says it is data dependent but it cannot describe exactly which data it is dependent on and how the dependence translates into policy. Lets presume if the data continued to show a slowing of demand growth, especially a slowing in the cyclical and sensitive cyclical and in the sensitive sectors is what is happening and if the wage pressures continued to moderate as it appears they are, then it becomes much harder to build a case that says more is needed. We will see. There is an elemental difference in view about how you should look at the labor market. Whether using data from the 1960s, 70s, 80s, 90s and in order to develop this phillips curve view about how you relate unemployment to inflation, whether it remains as valid as it was way back when because in recent years has not been a very good guide inflation. Guide to inflation. Haidi so great to have you with us. Policy Institute Senior fellow at johns in school of advanced