Standing declines. Airbus orders takeoff leaving boeing by 30 billion to zero. The ceo. Kathleen lets take a quick look at how the u. S. Stocks ended the session. Modest gains. Modest gains better than none at all as trade wars tensions swirl. Across the board for the dow jones industrial, s p 500 up fractionally. 22 points on the dow. Three points on the s p 500. It was the nasdaq that had the best performance, up 6 10 of 1 . It was based largely on the faang stocks. In particular, facebook saying it is getting ready to unveil a cryptocurrency. Investors like that. The s p futures are indicating positive ground to be taken. However not as much as i was an hour ago. As for treasuries, interesting Economic News showing more signs that a trade war is have an impact. Treasuries ended at 2. 09 on the 10 year. Close to the 2 yield. One from the National Association of homebuilders saying it looks like tariffs are weighing on the prices of building materials. We also saw a Manufacturing Index from the new york fed. The empire state Manufacturing Index, the biggest onemonth drop on record. People are looking at trade war or tensions, and tariffs. Lets look at how things are shaping up for asian markets. Sophie futures are pointing to a muted start in asia after a mixed monday session. Kiwi stocks crawling back monday declines adding 4 10 of 1 . Following that advance on wall street, looking for a turnaround in tech shares after a fourth straight day of losses for the tech check tech sector. Growing morning worries plagued the group. It one of the worst performing groups of asia in that time. Analysts become more cautious on ships in particular. On the echo agenda, home prices from australia and china and the rba Meeting Minutes and aussie shorter data bonds nudging lower. Alltimeill in at lows. They are betting there is more life in the bond rally and expects three year yields to fall by 50 basis points if the rba delivers a second rate cut this year. Paul thank you very much, sophie. Lets check in on first word news with jessica summers. Thanks, paul. Satellite images have been released showing two oil tankers that were attacked in the gulf of oman last week. The pictures were taken on monday. Tankersw both the paired the Defense Department has released more photos of the tankers showing the bam the damage from what the administration claims was an attack carried out by iran. Breach thet will nuclear deal on stockpiles within days unless europe helps ease the pressure of your resting u. S. Sanctions. It is threatening to raise it beyond the level intended to prevent the making of weapons grade material. Europe is urging iran to stick with he agreed it deal this despite u. S. Pressure. Meanwhile, a Federal Reserve gauge in new york state fell last month by the most on record. That adds to signs that President Trumps tariffs are hurting manufacturers in the wider economy. The survey fell more than 26 points to minus eight. 6. The lowest level since october 2016. It indicates that Business Conditions are worsening. Opec and its allies still cannot set a date for the next production meeting. It is leaving the oil market uncertain but the output wrist restriction is set to expire. Iran says it is willing to meet on july 10 or 12th year that is native later than the due after othereek nations. Opec plus is struggling to lift oil prices amid falling global demand. Just to make sure we continue to Work Together closely. All of our members of the opec plus coalition. And then the good work we have done over the last 2. 5 years oftinues in the second half 2019. Jessica global news, 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. Im jessica summers. This is bloomberg. Paul thank you. Osaka mays g20 in still see a sidelines meeting between president s trump and xi. Wilbur ross has told bloomberg that the summit is not the appropriate form for the u. S. And china to resolve their trade differences. I think eventually, we will have a deal with china. But i do not think it will come directly excuse me, out of the g20. I think the main thing that could come out would be in an agreement on principles for how to move forward. That is the most that could come. More, lets cross to beijing and our china correspondent, selina wang. Does this put a damper on expectations . Elina there was never an expectation that the two sides would be able to negotiate through thousands of pages of documents at the sidelines at the g20. We still do not know if they will meet for sure. Statementss certainly tempers those expectations. Even an agreement between trump andxi to restart stocks would be a big deal since these talks did break down since early may. Bloomberg is reporting here a slight shift in town from trump. We reported he personally stepped in to ask pence to delay the delivery of a speech on june 4 that would have criticized chinas human rights record. It is clear he does not want to jeopardize the chances of getting a meeting with xi and is recognizing the economic and political costs ahead of his 2020 elections if you cannot cut a deal with china. This week we are also watching this a days long hearing in which hundreds of companies and stakeholders are going to be criticizing the tariffs saying it is bad for their business, bad for the economy and bad for america. Kathleen Something Else that is catching a lot of attention, at least in the last few hours of trading in the u. S. On monday, a fall in chinas holdings of treasuries. We know they go a been down by they are at a twoyear low when the chinese have made their displeasure wellknown with how the u. S. Has been handling things in these trade negotiations. Is this an accident . Is this possibly a subtle message from the chinese that we can sell treasuries and we are willing to do it even if it ends up hurting us a little bit . Is certainlyiming interesting as well as the size. It declined by 7. 5 billion in march to 1. 1 1 trillion according to Treasury Department data. It is very difficult to read much into these numbers given they were collected before the latest escalation in trade talks and before these talks really broke down. Despite the fact that there has been much speculation that china could use their Treasury Holdings as retaliation against the u. S. , the consensus is that it is improbable. It would be very hard for china to find another place to park its cash in a place that would be as safe and as liquid. Treasuries, dump of it would cause the prices to fall, chinas holdings of use it could mark the dollar to rally the costs outweigh the benefit. Kathleen thank you so much for putting that in perfect perspective for us. Making is understand how it is something to watch but maybe not such a bad sign. Airbus races ahead of boeing locking 13 billion in sales. Here why the airbus ceo says they have the advantage in china. , bank of America Merrill lynch ahead of u. S. Equity strategies, and someone joins us what sectors and stocks she is watching. This is bloomberg. Kathleen wall street kicked off the week with the faang stocks back at the front of the pack. The nasdaq is much higher. We saw the dollar weakened on the latest factory data. Su keenan joins us with more. A lot of threads to weave. Faang stocks looking good. The banks are worried about the news and su keenan bakes it into one cake. Su modest gains across the board. A market on hold ahead of the fed meeting. Thes take a look at bloomberg that we have. Becauseit is a question this suggests that the s p 500 may find a new record high before potentially dropping big. In other words, the other shoe to drop may be out there waiting to drop. Lets go to the snapshot. What you will notice is that the nasdaq 100, the tech heavy index in the green, getting a rebound as a kathleen mentioned. It did have a weaker dollar because not only weaker than expected housing data but the factory data, which indicates that the fed may not need to cut rates at this point. Lets take a look at some of the big movers on the day. Faang stocks rebounding. Facebook, one of the biggest gainers. If you look at the second pail of stocks in the spotlight, target. Kathleen mentioned Deutsche Bank which was in the park in the spotlight. Target is also an error in which their cash registers went on the blink for a couple hours. Could cost the company 50 million. We will see in their latest number report. And a boeing in a competition with airbus over the latest round of jet allotments. The stock is doing well as was tesla on this latest round. Oil, we also have got falling further into a bear market on weaker than expected Economic Data. What are traders saying . Su the traders are saying that concern to get the opec plus meeting in place and the latest supply glut is weighing heavily on oil as you can see there. Weaker than expected Economic Data that goes to the demand. We are down significantly from the april high. Entering into a bear market because of the trade rift and concerns that supply outweighs demand. Kathleen a lot of pushing forces pushing the market. Su keenan, thank you. We want to move on to something we just mentioned. The next stage of the overhaul is taking shape. The ceo is zeroing in on another round of deep trading cuts that could result in a complete exit from its u. S. Equities business. We want to bring in our reporter. Though reconstruction has been going on for a while. Clearly this time, it made investors it is making them nervous. What are they doing now that they did not do a year ago . Year ago, there were some cuts. 25 . Now they are saying lets get rid of equities entirely. This is not a sure thing. This is something they are considering and it is not so clearcut because i getting rid of it, do you spoil some of your interactivity with the global clients that need a footprint on the ground . Equity is about half as much in revenue as the fixed income business. It is a smaller business. There is nothing to say it cannot be a fixed income powerhouse potentially. Around ratesas that may get cut in a deeper way than last year. Paul how are investors reacting to this so far . Sonali we are seeing a lot of analysts saying that this may not be deep enough to really turn the bank around. The question here is ok, you are making cuts, but how do you return the bank to profitability . Is it something that can compete and where will it compete . It is not something that is very clear in terms of how it is communicated to investors. There are doubts about whether it is enough. Paul thank you for joining us there. The latest on the Deutsche Bank story. You can get more on Deutsche Banks restructuring on the days addition of daybreak. Bloomberg subscribers, go to dayb and their terminals. This is available on mobile in the bloomberg anywhere app. This is bloomberg. Are said to buy their time on tuesday ahead of this weeks fed decision. Here inubramanian is new york. Today, she is joining us from hong kong. Thank you for joining us today. I terms of fed expectations, want to jump into the bloomberg and show you this chart we have here. It shows the fed policy rates getting close to zero again. The lowest compared with any expansion since the 1950s. I guess the question is, is the fed starting to run out of ammo if things turn south again . Savita indeed. I think the real question here is, is a fed rate cut a good signal for the market or is it actually a signal that things are not as good as we thought they were . Heres the thing, i think the fed, we think the fed is not likely to cut rates in june. We think it is pushed out. There is a low probability of a cut this coming wednesday. What i do think may happen is the fed may start to talk more about being patient which could potentially roil the market. I think they will walk out that next cut date a little bit more. I do think the fed is more likely to cut rates than hike. We have i think our economists are cut calling for two fed rate cuts this year later on in the year. Is that theresting market has actually absorbed all of this news relatively well. I worry a little bit though because every time we have seen policy response diving in to save risk assets, the response from risk assets has been a little bit lesser than the time before. Meant call, tarp was met with a resounding rally from risky assets. Then we got qe after qe, and ltro, and each time we got policy response, the market responded a little less to that. We might be now at the point where risk assets do not respond at all. I think that is what we need to watch out for. On the other hand, i think it is hard to be bearish on u. S. Equities in this market because we remember the adage do not bite the fed. If the fed is ready and willing and accommodative, then it is a tough market to be short in this type of environment. Paul we have been discussing over the past few days the possibility that maybe the market has gotten ahead of itself in pricing and rate cuts from the fed. You have the s p at 2900 by the end of the year. What is your rationale behind that . Savita 2900 which is basically where we are now. Kind of neutral on stocks. I think what is interesting is underneath the surface, there could be a major sector rotation. Point that is key driving a lot of the differentiation in the market today is trade and tariff risks. Interestingthink is is there are a lot of opportunities from an equity standpoint by trading within sectors. Within the discriminator the Consumer Discretionary sector, we would avoid Luxury Retail stocks. The reason is simple. China consumers have dropped and we have heard from six or seven retailers that are on the higher end of that they have started to see a slowdown in sales specifically from a cut in tourism and tourist traffic waning. I think that is an area where you can play within the sector and look for opportunities. With intact, i think there is still opportunities within tech. Exposureskew our towards software and security companies, and avoid semiconductors for now given the supply chain issues at huawei. I think really, where you go from here from a market perspective is not necessarily just buy or sell equities, but a look for opportunities from an internal level because i think there is a lot of interesting things going on. One of my favorite sectors, and this may sound counterintuitive given the feds accommodative stance, but i think financials is a place to hide in this trade war. The reason i say that is financials is actually a very high quality sector today. I feel like im going to be struck down for saying this because i lived through the financial crisis but financials have cleaned up their balance sheets. In the u. S. , they are regulated to the point where they have not participated in the credit expansion cycle. It could be a good place to hide. Kathleen i want to ask you about semiconductors. You just said stay away from them, i think with good reason. If we look at the bloomberg at exports, they are down sharply. Not the only one that has been hit. Some of the big indexes around the world have shown that there was a rebound. Suggesting it is not just the trade war that we have gone through a global cycle come it has peaked and is on its way down. Does that mean you do not avoid adding to chips, you stay away from them and get out of them if you are holding them . Savita i think it is neutral to an underweight. Here is the idea. I think you are absolutely right. It is not just traded, it is also a slowdown in the economic metrics. Here is what i worry the most about trade, not the specific tariffs and specific local supply chain disruption, but they idea that u. S. Corporations are actually starting to meaningfully slowdown spending. What they have spent the most on is tech. I think that is a risk to some of the more unit volume sales played within the tech sector. This is something in this trade uncertainty that is causing corporate guidance on capex to plummet. We just noted that from the beginning of may 2 now, companies are guiding down almost twice as much on planned then they are guiding up whereas prior to may, companies were very optimistic and they were guiding quite aggressively higher on capex spend. Today, the spend is lower. To your point, big multinationals that have been spending a lot on tech are slowing down that cycle. Lots of issues. Kathleen we have a chart up showing faang stocks jumping. And if the big stories, facebook talking about coming out with a cryptocurrency. How do you feel about the faang stocks . It was not long ago that they were so overbought. How do they look now . Savita faang still looks overbought. The average u. S. Fund manager is about 50 overweight. Now thathe bigger risk is not priced in to these stocks is regulatory. We are hearing about this from all different angles. We are hearing about this from data privacy, from antimonopolistic legislators starting to rear its head. I do not think it is an accident that Mark Zuckerberg testified in front of congress a year ago and 10 years earlier, it was all the financial ceos. I think this is a sector that you need to watch for potential multiple compression on regulatory risk. I do not think that is priced into the sector at this point. I do not think that it has become a lighter weight in the average fund. Above the benchmark is a pretty big bet on these companies. Abouti just want to talk your worstCase Scenario which is stagflation and the thing that i am curious about there is where is the inflation part of that going to come from . Savita it is a great point. I think the inflation comes from this artificial protectionist policy. Think about it, if we have closed borders, that could potentially temporarily hike prices within the u. S. It could be positive for labor inflation, it could be positive for Price Inflation if companies decide to pass through higher input costs to their consumers. We have looked back at the markets reaction to previous tariffs and generally, you have seen a little bit of inflation,. At least in the short term i think. We longerterm risk is that see a closing of borders and that could potentially compress margins. Littleknown fact, 50 of the Margin Expansion that the s p 500 has enjoyed over the last 20 years has come from globalization. I think the idea that that reverses is negative for u. S. Margins. I think the worst Cas