Shery welcome to daybreak asia. We are counting down to asias major market opens. Haidi asian markets are set for a cautious open ahead of the fed, with bets piling up on higher for longer rates. Treasury yields are getting some of their highest levels since 2007. Oil prices giving u. S. Housing makers a headache before wednesdays fed meeting adding to inflationary pressures while curbing growth. Indonesia pushing it critical deal with the u. S. As the green transition accelerates. We hear exclusively from their president. Shery the newest futures muted as we saw stocks and bonds falling in new york. The s p 500 down to a three week low. It is the eve of the fed Rate Decision and the bets are that centralbank policy makers will deliver. A hawkish hold. Of course we have Higher Oil Prices and you can cwt i at the moment above 91 a barrel. Brent just touched 95 a barrel at one point. Every time we have had Surging Energy costs we have seen the u. S. Tip into a recession in the mid1970s, in the 1980s and 1990s as well. You can see how we are setting up broadly with what we can expect from the fed with traders also thinking about the hot canadian inflation data we got when trying to figure out where the fed goes from here. We had treasury yields rising across the board. Five year and 10 year yields hitting highest since 2007. Oil prices still high, but well below their 2020 highs. This latest search as posing risks of the feds efforts to engineer a soft landing. Our reporters join us here in the new york studio. Let me start with you stuart. We are expecting a hold wednesday from the fed but what happens if Oil Prices Continue to move higher . If Oil Prices Continue to move higher we are going to see another surge in headline inflation. We saw the same thing in the headline at that time we were looking primarily in the quarter and what was most notable to us is new car prices continued rising. Something that is interestrate sensitive continued rising. You can expect the fed will keep its foot on the brakes if it sees any surge in inflation but particularly any consequences of oil prices trickling in in an inflationary sense. Higher Energy Prices will be the headline, but most important to the fed will be the quarter. Shery so what are we expecting from oil prices from here on out . Su it seems productions for 100 oil are coming in left and right. Even from some of the more bearish analysts over at citigroup and we heard from the chevron cdl yesterday that 100 oil seems around the corner. You look at the yeartodate gains which have been significant for both west texas intermediate and brent, and the ignition in this runup had a lot to do with the saudis and russia, the two key members of the opecplus oil cartel, extending voluntary curbs through the end of the year. The latest upswing has been marked in major moves in what is called time spreads. Some of the markets most widely tracked gauges. For both brent in west texas intermediate, we are trading in backward is asian. That is a very bullish pattern. The front end is a lot more expensive than the backend. There is about one dollar difference. Traders and burgers say this happens as premiums for realworld barrels soar higher and that is what we are seeing in the u. S. Oils relentless surge also went even higher after on monday. We heard from the Saudi Oil Minister in a conference in canada they are working to keep markets stable. Many translating that is they are doing everything they can to keep prices high. They say the output their output plans will be reviewed every month. So again, the nearterm direction looks like we are going right at 100 once again. Haidi bloomberg has learned a single firm is behind the recent price runup when it comes to physical barrels . Su yesterday we reported the most recent runup has a lot to do with the fact that the physical price is prices being paid for crude is off the hook. Sources are telling us that tested with one firm in particular called Atlantic Trading and marketing. It is the trading arm of the french firm, total energies. And they have been bidding up u. S. Physical crude markets, according to people close to the matter. Many say this is a sign of the fact the refining margins at are an enormous premium, and that is what is driving competition. But you have the physical market moving higher, complicating the futures market also moving higher. The trading on oil futures is relatively paper trading, but the physical receipt of the oil is something many countries, for instance, u. S. , asia and europe, depend on. They tend to look at the u. S. As an oil market of last resort but they are now being priced out of the market if they want to use u. S. Oil. These charts are as bullish as they come, and that exacerbates the pressure on President Biden who had promised he would keep gas prices down. You can see we are looking at some of the highest gasoline prices seasonably in a decade, and that tends to proceed a recession. Again, a lot of concern about this runaway rally. Back to you. Haidi stuart, how much to be expect Energy Prices to show up in headline inflation when we get the september cpi print . Stuart one thing we need to keep in mind is it is the rate of change of prices that will matter the most for inflation, not the levels themselves. So while gasoline prices are basically decade highs on a seasonably adjusted basis, the price level has not changed that much month over month. The average gasoline price in august was not that different from the average price in september. It is the seasonal adjustment factor that makes all the difference. We are expecting to see about five basis points of tailwinds being contributed by gasoline prices in the september cpi print. That pales in comparison to the august print, which was about 40 basis points if you include not just gasoline but diesel as well. Shery so the oec, we had them come out with Global Growth prospects and they are telling Central Banks that they should remain restrictive. So what can we expect went at the same time we continue to see perhaps Global Growth taking a hit because of higher rates . Stuart so, it sounds as though there are mixed messages coming from the oecd. On the one hand they are saying growth is started to crack up a little bit and higher Energy Prices play into that. Lower Energy Prices supported real spending on other things. High Energy Prices are going to start taking away from consumers ability to spend on real goods and services. We see growth headed in one direction, risks are skewed. At the same time, we have higher prices, particularly Energy Prices, and to suppressed demand overall. And to continue weighing on inflation, the oec recommends to central bankers they keep their foot on the brakes and keep Monetary Policy type. Tight. Haidi on the impact of higher Energy Prices. In addition to the fed we are also looking ahead to the bank of japan, where we are expecting governor ueda to sound hawkish to rein in the moves we have seen in the end. We are hearing from japans currency chief speaking about the prospect of intervention, saying that the excessive yen moves are not desirable, that they are keeping in contact with overseas authorities, especially when it comes to u. S. Treasury. These comments coming as janet yellen said any intervention by japan to prop up the currency would be understandable if it was aimed at smoothing out volatility and not affecting the level of the exchange rate. Were hearing from japan that they are not ruling out any options and will take appropriate steps on fx. And they are watching the situation with a high level of urgency. Say they are communicating with their u. S. Counterparts every day and the two countries share views. So that statement from janet yellen, according to our colleagues, imply the secretary will not stand in the way of any kind of japanese intervention in the yen. So we are on alert. But heading into that boj decision, Bloomberg Economics certainly expects that suddenly hawkish tone to reign in the yen depreciation that has made it harder to sustain the current settings that the boj has in place. Getting to another one of our top market stories, instacart has racked up a 12 trading debut gain after one of the years biggest ipos, taking the value of the company to over 11 billion. Katie roof joins us now. So how would you assess this debut . Katie sure. It popped at first. It had a pretty big pop of maybe 40 and closed the day just over 10 . A lot more muted of a pop, but it priced at the top of the range of 30 a share after they had raised the range. In other words, it went better than what they were initially hoping several days ago. But its lower than the valuation they had in 2021, a lot lower than that. But around the 13 billion where they were valued last year. They had a 13 billion internal valuation. Shery we are seeing more ipo activity recently, right . Whether it is arm or clay video, which just priced its ipo. Katie they are another tech ipo based out of boston that will be debuting when the market opens. Arm is a really highprofile one that went public last week. All of these are profitable. There has been a perception that public tech and vectors investors care more about profitability than before. Previously they were more focused on the rate of growth. These tech stocks went down a lot. And so the companies coming to market right now have different finances and also they have a lot of anchor investors. So they are taking a different approach this time to try and open the window. Shery katie roof there. Heidi. Haidi take a look at all of this playing into the set up when it comes to the start of trading in asia. We saw u. S. Markets struggling as we get into this fed decision. Of course that extra volatility element of what Energy Prices staying at this level, even climbing further into 100 a barrel, what that will do to headline inflation and feedthrough to perhaps the higher risks of more moves, more timing from the fed, and rates staying higher for longer. That is the risk we are dealing with an australian, even as we see don we still see the potential for some gains when it comes to those energy majors, the Oil Producers listed in sydney. Some of those heavyweights would likely benefit from this continue to climb in crude prices. New zealand seeing downside of about. 2 . When it comes to the broader economy, maybe some good news when it comes to the gdp numbers. Looking to increase by about. 4 for the three months through june. So emerging from that recession, but still a second recession is being forecast by the rbnz as we get into the start of the third quarter. So, in terms of japan, we just went through some of the remarks from the currency chief. So on intervention watch following on the back of what we heard from janet yellen overnight. Nikkei futures looking pretty weak at this point. China futures, we saw that fall when it came to u. S. To chinese stocks overnight. We are seeing quite a bit of depressive sentiment there still prevailing. We are also watching the chinese banks looking to publicly lower that rate on the one year opr after resolve the divergence between what the pbocs rate was, as well is what the chinese backs were doing. That is likely to be a catch up move in that fixing later on today. In terms of that broader theme though, really is waiting for the fed, and really looking at this implication of higher Energy Prices. Shery high Energy Prices. A very tight labor market as well. Which is really leading to these stoppages in work when it comes to those strikes we continue to see, whether it is in the auto sector or writers and actors as well. But of course this is as we continue to see a very challenging global market. We will discuss with Gilbert Houngbo who joins us later this hour. First, stonex says a soft landing scenario remains challenging for the fed, with inflation set to remain sticky. Their chief Market Strategist joins us next. This is bloomberg. Europe is slowing down. We are at the beginning of the biggest ever recalibration of the economy that we have had in history. And an unprecedented rate of speed. The increase is for sure. That is why there is such an attraction around private debt. For private debt, the levels of the fault will be very low. Unless your assumption is that we go through a very three severe recession, there is not its a reasonable expectation for europe over the next year to have pretty muted performance. The fact we have seen a few reactions compared to two years ago is plausible. With this recalibration we talked about, you expect people to pause a bit. I do not think we will see record level transactions again in a few quarters time or exceeding that. There is no doubt inflation is impacting our portfolio. Recession is coming. The question is when and what magnitude. Haidi some of the executives we spoke to at the private equity conference in paris. Our next guest says week could easily see a reseller ration of inflation. Joining us now is Kathryn Rooney vera, chief Market Strategist at stonex. Great to have you with us. The energy piece really kind of throws a spunner in the works. Should we be assuming the possibility of a soft landing or a no landing whilst achieving the fed goal is looking more challenged . Kathryn it certainly is, with the resurgence we have seen in the price of oil. I think you can also see that expectation being unwound of the fed cutting pretty aggressively and soft landing, and kind of this whole wonderful, beautiful, rosy picture all panning out for 2024. You can see that in the appreciation of the dollar, none of which of course is good for the emerging market space. Going forward to 2024 to get inflation back to the 2 target, the fed will have to pause for an extended period rather than cut, which means the dollar probably has a bit more broadside. Returning to the e. M. Space, which i think is what you focus on in your show, is the worst scenario for the emerging markets is with a high fed rate, a strong dollar, and potentially the u. S. Sliding into recession. So 2024 i think will bring a lot of difficulty, and investors would be wise to engage in what i call countercyclical portfolio policy at this juncture. Haidi how are you positioning then at this point . Kathryn for people that have not had defensive equity positions, i like them. Staples, health care, energy have been my topix this year. Been my top picks this year. Utilities as well. I like cash. In the shortterm, tips are attractive. I think the market is buying into this idea wholesale for some period of time for a no landing scenario. Which, reality bites. If you look at historical probabilities, the probability of landing this no landing or soft landing scenario is historically low. So i think that it would behoove investors to buy protection on their technology holdings, when volatility is very low, hold some cash and gold, get into the defensive sectors, and look at the tip option. Because the fact is if you look at real yields versus nominal, the markets continue to price this noninflation scenario going into 2025. Shery we saw also this year Consumer Discretionary stocks returned the broader s p. Does this mean we should be turning away from consumer facing stocks . Kathryn yes, if you get a downdraft in consumer demand and you get this story play out, which i think has a higher than discounted probability, which is that the fed stays on hold for a much longer period of time than is currently discounted. That will be bad for the consumer, especially if you are get what we are already seeing, a rollover in the labor market. What keeps Consumer Confidence high . People have jobs, and they are earning wages that finally, finally in a couple recent data points, are above inflation. Wage is positive, 401 k s are looking good, people have jobs. Once those things change, you get a drop in Consumer Confidence. And i think those Interest Rate sensitive sectors such as Consumer Discretionary, such as tech, could see a retracing going into next year. Shery we continue to see nasdaq futures attracting bearish flows. What about the ipo market . Could we see more activity after the healthy debut of arm . Today we had instacart also jumping 12 . Kathryn yeah, i mean, right now everything is still looking pretty rosy. I think going into next year though, the tables will turn. I think there is going to be a lot more risk aversion, as i say the fed holds for an extended period of time. So if we get 5. 50 in terms of the terminal rate and a soft landing, that means the fed is probably going to have to increase rates rather than decrease rates. Because my view is that going into the next 24 months, the fed is going to have to face a decision between 2 or breaking something, specifically consumption. Shery are you concerned that factoring in a potential Government Shutdown later this year . Kathryn that is certainly going to play into risk off appetite. I think the other thing that very few are talking about is of course the fiscal situation. An election is coming up next year with fiscal deficit at about 8 of gdp. That in and of itself is inflationary. When you combine that with the prospects of the markets retracing its more bullish view with the prospect of fed hikes, the impending Government Shutdown, which i think is going to happen. But i do think it makes sense to protect those long risk positions and make your portfolio more defensively positioned. Shery Kathryn Rooney vera, great to have you with us, chief Market Strategist at stonex. You can get a roundup of the stories you need to know in todays edition of daybreak. Terminal subscribers go to dayb , also availa