♪ >> 7:00 a.m. in hong kong. welcomes the daybreak: asia. central bankers signal tightening is coming has janet yellen says inflation will accelerate. the governor has praise and a china issaying changing, but corporate debt is a worry. >> i am kathleen hays in new york. upbeat aboutn australia, good times on the way. oil on the rise amid tension in iraq. kurdish officials say back is sending in the army.

have been at the imf meeting in washington, topped off sunday morning bright and early. ,anet yellen, governor kuroda and others on a panel. nobody's position has changed. inflation doesn't rise in the u.s., but janet yellen says it is going to. away we go. seemed like prices were looking to stretch. your hearing bankers saying we have too much complacency in the markets now. let's look at asia. risks as welitical get closer to a new coalition government in new zealand. the index down and a choppy

kiwi. a big week for china. the party congress kicking off in two days. inflation and gdp of ahead of that. i little downside here. some dollar strength filtering through after the inflation upset am a but short-lived drop in the dollar. equities pretty, up 10 points of the open in sydney. well, reports of iragi troops advancing on the kurdish region. decade highs for the nikkei two to five, governor kuroda saying he does not think market valuations are stretched. 130 points up for the open in tokyo with the dollar-yen closer to 112.

morning,ead to monday let's get first word news with paul allen from sydney. south korea and the u.s. have launched exercises amid signs the north is preparing another rocket launch. north korean state media , callingd the wargames it that the reckless act of maniacs. leaders in catalonia have until monday morning to tell spain if they would declare independence. supporters could then face the possibility of madrid imposing direct rule under article 155 of the constitution. have agreed not to recognize catalonia if it declares independence. china's broader new credit exceeded projections, signaling funding

caps remain open. new yuan loans ahead of estimates, money supply jumped to 9.2%. opec expects demand for oil to grow over the next five years as renewables show the fastest expansion. the secretary-general gave a preview of the cartels global outlook, forecasting demand will climb 1.2 million barrels a day through 2022 before sliding back. it's world oil outlook will be released in november. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am paul allen. janet yellen leading other central bankers, saying

she expects inflation will speed up. her best guess is prices will accelerate after softness and that her colleagues generally agree. to guest is that these soft readings will not persist and with the strengthening of labor markets, i expect inflation higher next year, and most of my colleagues agree. 2% stabilitythe target is still a long way off and the boj will persistently pursue aggressive monetary achievingh a view to the price stability target at the earliest possible time. kathleen: let's bring in a professor of economics in singapore and has worked for the imf, ocd, and world bank. governort yellen and

kuroda and mario draghi spoke, they are sticking to the conclusion, the ecb and fed removing stimulus. willnor kuroda says we succeed, but for now don't think about removing stimulus. is this a correct stands for these central-bank heads? >> they are doing what they supposed to do. we are seeing something not about 2017. it is about what has happened since 2008. they have been saying the same thing for the last 10 years. their statements today makes sense. particularlyconomy in the u.s. is getting stronger, so you would expect inflation to pick up, but from an economic

point of view, central banks have been making statements about inflation and have been wrong and undershooting the right inflation target. kathleen: are you saying they are doing the right thing because you agree there will pick up, or do you see a rescue? up,nflation does not pick do they send the wrong signal? to achieve harder higher inflation because you reduce expectations, or central banks say we need to hike rates because we don't want financial instability? where do you stand? >> i disagree with those who think financial stability should play a big role in central bank decisions. they should be concerned about ,nflation back to target because this is what they have missed for so many years.

do i agree with the statement that inflation will go up? that is reasonable for the u.s.. i am more doubtful in europe and japan. i don't want central banks to lose sight of the fact that they have been wrong for many years, so they will send a message they will be aggressive and bring inflation back to 2%. can do not much they given how much they have missed their forecasts. yvonne: some speakers in washington, d.c. urging patience from central bankers, ben bernanke suggesting the fed should try temporary price level targeting, a revolutionary, innovative idea. does the fed need a pre-think of strategy like this? what ben bernanke did was a clever and smart idea from an

academic point of view. how feasible to implement in practice is not obvious to me. presentation is clear to an academic, but not to most people in the market or general public because targeting the price easilyit's a concept not to understood and explain to others and central banks are having trouble setting expectations, so i am not sure how that system would work in practice about setting expectations for a price level. yvonne: in terms of the bond market, they are still perplexed about where inflation will go. this chart shows the spread between the five-year and 30 , the flattests since 2007, 90 basis points now. can we get even flatter? is not normal times.

2017not talking about remaining low. expectations of real interest rate remained low. when i look at that, i don't worry about 2017. i worry about a crisis. how much room will the federal react with the juncker close to zero? one of the names on the short list for the next fed is gary cohn. he focused on the extent to ,hich regulators, central banks

have to be wary of the next source of crisis is going to be. those fiveok at names on the short list, who is your pick and why? biased, to renew janet yellen. that would provide continuity. that would be consistent with previous decisions. i think you would make sense to appoint her. i've personally think she has done a great job. some of the candidates are not far from what janet yellen might too. some are really far, and some are unpredictable. i don't think that's with the economy needs today. continuity would be positive to maintain the positive outlook in terms of growth. yvonne: stay with us and we will talk about the fed chair this hour.

also, at take on china's latest investorsng, what should watch for as xi jinping cements his place at the top of the communist party for the next five years. this is bloomberg. ♪

♪ i am kathleen hays in new york. atomi economicor back still with us. and tenure, the potential fed chair in the next couple of weeks according to treasury secretary mnuchin. you mentioned how the president should go for continuity as opposed to an unpredictable candidate who could spook the market. u.s.,rowth at 3% in the asset prices still look good,

record rallies in global equities, the president should not rock the boat? there is no clear alternative to the monetary policy the fed has followed. it has been controversial because there were measures new from a historical perspective, but if you ask experts in monetary policy they would say that is what needs to be done and there is no other model. i would be worried about a candidate who said the federal reserve is wrong and we will go in a different direction. there is a crisis, we will not do the same. i think that would be very damaging. go ahead. are we overestimating how hawkish they could be?

not just over all consensus from the fed they want a gradual path and tightening come you have to prepare for potential reforms from the white house as well. growth,e upside in monetary policy needs to come in and try to mitigate this long-term trajectory in the economy, so can the fed chair overturned this gradual path? you would say the fed chair is just one person. you have a committee, lots of people working on predictions, so you might not say one person makes much difference, but the history of recent federal reserve chairs or presidents of the european central bank, you see how relevant the personality of that person is, how relevant the words they use when they do a press conference, so i'm not worried so much whether the models are changed, but i'm worried about statements that

could create uncertainty in markets and move markets. we have seen that before and .ith people who are reasonable i do not want to have someone who could become a trump of central bankers good i think that would be dangerous for markets. kathleen: the trump of central i don't see kevin or john heading in that direction, but i would like to get your opinion on the party congress, too high debt that is and does need to be brought down. if you look at corporate debt and factor in the local government creating financing vehicles they can use to finance their activities come it ends up being corporate -- anyway, because the corporate debt is not quite as high, but the imf, the world, others are.

what is your view of their debt and what needs to be done now to bring it down? fast growth in an economy, you put the economy in a path of risk and typically it finishes with a crisis. evidencehat historical says. china's debt looks concerning and that is why the imf is raising a red flag. the difference between china and recent experiences is that china is still growing fairly fast. toing debt and growing at 6% 7% versus having a lot of debt and 1% to 2% makes a big difference. out, growth.ay as long as growth continues, the likelihood of a crisis will remain small. i think the fact that everyone is more worried to date makes a

lot of sense. i would not be panicking either, although the crisis could unravel any time. kathleen: how do they get out of this situation where debt is being taken on to keep growth high, then you need the growth to finance the debt. it seems like a cycle that would somehow have to break. how do they step away from this? >> you have to be willing to accept at times slower growth. the chinese government has been for many reasons concerned and upset with an economy that grows at a very high rate. occasionally an economy does not grow at the same rate should not be a concern for the government and need to adapt to new growth rates. it has been difficult for them to go for 10% to 6%, which is where they are today. the more they except that reality, they more they will

except credit growth should be reduced, even if it has a minor impact on growth. kathleen: thank you so much. north korea tensions on the rise. why the secretary of state is saying diplomacy will last until the first bomb drops. this is bloomberg. ♪

♪ this is daybreak: asia. i am kathleen hays. yvonne: a quick check of the business flash headlines. kobe steel says customers affected by the scandal has doubled to 500. the company says nine to carry outfailed controls or lied about results. 500 clients may have received substandard materials. investigation has been

promised into the scandal within two weeks. we had nearly completed the investigation at the aluminum section, but are checking other departments. our priority is to determine the cause and confirm the safety of our products. i am responsible for this task. qualcomm taking action in china to ban the production and sale of iphones. anfiled suits in intellectual property court claiming patent infringement. biggest shot so far at apple over licensing fees. qualcomm's claim has no merit and will fail. two bidders for the chicago stock exchange have withdrawn. a decision has been put on hold

despite initial approval and august. president trump spoke against the idea of a chinese firm owning an exchange during the campaign last year. kathleen: rex tillerson says the u.s. wants to continue diplomacy with korea until tell "the first bomb drops." bloomberg is watching all of this from washington. it strikes me that there are two bank dramas. one is the u.s. and exercises with south korea. then waiting to see how north korea responds. has been this back-and-forth between rex tillerson and president trump. did he really call him a mor on? threads are connected. i'm not sure i understand were

tillerson and trump stand. the tween therama u.s. and within the trump administration. tillerson was asked specifically today on television did he call president trump a moron, and he dodged the question. maybe we will never know? it does call into question as to whether the two men are on the same page in terms of north korea. one thing tillerson did say is that he has been told by trump to continue with his diplomatic efforts, which you would think he had been pulled off that gig, but he has been told to continue with diplomacy until the first bomb drops. he did not say whether that would be the u.s. or north korea. justnded to think it was an advised turn of phrase given

the tension going on. these wargames this week, the u.s. is showing the full might of its military. they have a nuclear. submarine and an aircraft , all kindsthe region of expensive and impressive hardware. claims will be flying around. 12 northn the past korea has not taken these games as direct provocation because they are held on a regular basis , but there is so attention now that you never know. yvonne: i want to switch to iran as well. another story of risk. for trumpteps decertification of this iran deal, heading to congress now. how is congress likely to react? and we have seen some reaction from iran as well.

>> that's right. we have heard from some hawkish republican lawmakers, lindsey outam, who has come strongly in favor of what the president is doing. supports bob corker and tom cotton and tom cotton in what they expect to be the creation .f some snap back sanctions if iran does not comply not just with the letter of the law in terms of the nuclear deal, but of not other elements interfering with its neighbors and doing other things to destabilize the middle east that the u.s. could reimpose economic sanctions. it remains to be seen how that will play out in congress. if thes a sense that senate is unable to push through that it wouldraq send a signal to north korea.

it is interesting how intertwined us to conflicts are. yvonne: thank you so much. next, more on u.s. bank earnings. this is bloomberg. ♪

♪ yvonne: 7:30 monday morning. this day we had over the weekend, unexpected that we saw sunday. it was uneventful, the tycoon, but all of that lowered this morning. kathleen: very moody and away. 7:30 p.m. in new york. it is cloudy here as well, but the evening is still kind of warm and sparkly. i am kathleen hays in the big apple. yvonne: i am yvonne man in hong kong thing. -- hong kong. let's go to paul allen.

paul: chancellor merkel goes into coalition talks this week in a more vulnerable position after the christian democrats union was beaten. three days after the vote, they had the worst result in the saxony region since 1959, losing control of the social democrats. -- to the social democrats. india's finance ministers said recent manufacturing data shows growth is returning to its normal course following the cash ban and usp rollout. washington is reassured by the world economic output for the next few years. he's at the most important priority for the indian government is to find jobs for the 12 million young people entering the workforce every year. the philippine government is planning to target more companies and crackdown on tax evasion. the tax reform bill should be approved by lawmakers by the

year end. the government is under pressure to raise money for infrastructure and maintain growth despite the weakening peso. the philippines is ready to sell debt to china. >> we are awaiting the final approval from authorities from china, and we should be ready to launch depending on market conditions sometime next year. paul: scott morrison has told bloomberg the aussie dollar and official interest rates are at appropriate levels for the current state of the economy. he has taken steps to cool the housing boom that took pressure off the reserve bank of australia. although rates are not a worry, exporters can observe the effect -- absorb the affect of the currency that has climbed this year. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. yvonne: thank you.

we are counting down to the market open in tokyo and seoul. let's go to sophie kamaruddin wrote quick. we have heard from all of the big central bankers in d.c.. seems like there is grease in the equity rally even though they could go through next year. sophie: market valuation, they are not looking stretched. it looked like market investors are willing to edge that envelope higher. we had first stops jumping on friday. equity levels are trading well. this is a key week. asian investors are looking at the much awaited chinese party congress. and the election u.s. data is appointed, but it did indicate the global growth is intact while keeping inflationary pressures in the u.s.. and to futures for the nikkei 225 and the kospi, those are higher. these could build on the 1996 level.

we have the yen back below the 112 level at the start of the election week. dollar bond swelling, but the yen might find support from geopolitics as south korea has warned pyongyang's ready for -- another key investor fact. rex tillerson's comments per a strong drop will weigh on the yen. and there is still an inflation gamble. sophie: on one hand you have concerns the fed insisted pushing for the december rate hike. that could pose a policy ever, but you do have expectations for the year end increase in place. that could cause the long and to hold. the highest for the futures since 2008. pulling up this chart on the terminal, 3273, we have two-year treasury yields, the highest since 2008. some money managers are

cautioning we may see an eventual inversion which good signal a recession. as you see on this chart, the japanese yield curve is steeper than the u.s. since 2015. that is a reason to be more optimistic about japan's economy. yvonne: you mentioned looking ahead to the sydney open, oil and bti getting closer to $52. it may not be about the iran issue, but iraq also. you have tensions. with whatu have stuck is going on with kurdistan, iraq forces. looking at the sydni share market, energy stocks are going up 0.9%. oil is rising on the back of the wti trading year two week high. and oil demand is said to grow at a healthy pace over the next five years. this could be stroking optimism

for oil. we saw the stocks rising for a fourth station -- session. materials also in that position over 1% this so -- this morning. yvonne: let's go to look at the u.s. markets. morgan stanley and goldman sachs leading the big banks. su keenan joins us now with expected highlights. su: let's start with last week. we had the banks kick it off, and bank of america one of the very strong ones. take a look. wells fargo, citigroup, bank of america, and j.p. morgan chase all out with their numbers. let's go into the bloomberg because j.p. morgan trading revenue versus equity, you can see this was another tough quarter for the bank in terms of fixed income revenue. yet they show once again thursday whether a downturn in

fixed income, they generated growth elsewhere. the imf lending margin, asset management, they help with this asset management -- it is steeper than the forecast from last month by ceo jamie dimon. let's look at trading revenue with citigroup. they beat fixed income -- trading revenue really is the story here. of the what many institutional investors are looking for as we look at goldman sachs and morgan stanley this coming week. let's take them one by one. they are big entities. goldman sachs, very big firm. pressure for a lot of ways. you can see they are flat year today. there is a lot of focus on what the big boys are doing. if we go to the year-to-date chart, we see goldman not much of a gain. there we go. year to date is a little bit

negative by about 3%. let's talk about what is expected. the expectation is that they are going to come in with weaj earnings -- weak earnings in terms of the revenue. and one of the things that is of interest is they could differential underline, drivers will be a focus after the top decline trailed. focus on trading again. equities results will be a focus also. there is a lot of focus on the u.s. banks, tax reform. interest rate impacts. there are some analysts predicting we could see the gain of 2% for eps. kathleen: we have morgan stanley reporting the same thing. the target ford the cost savings goal of 2017. do you think they will hit that? su: let's look at year to stock

performance. you see a better picture than from goldman. 12% on this chart. in terms of what is being expected, looking at the pretax margin goal and the wealth management unit, that is one of the areas of specialty. price gains should help boost. progress to the $1 billion cost saving goal is an issue, and there is expectations that the same day, they will see some gains. that is something a lot of the analysts are focused on and trading revenue is thought to be under pressure. they may stand up better than their peers. in terms of how they see outlook and tax reform impacting, that is a new area of focus for a lot of wall street as these banks report. yvonne: thank you, looking ahead to the bank earnings. talking about oil, the head of

opec sees demand growing at a healthy pace over the next five years. mohammed barkindo said it is due to rapidly improving market indicators and is despite the fact renewables, -- is despite the fact of renewables expanding. how significant were these comments from the opec secretary? i think the market is looking at it as a significant comment because when you look at renewables and expansion of ev technology, there have been a lot of reports, we are putting out solar panels, wind farms. maybe oil will be unnecessary as makes that expansion as well. tomments to wait -- from kuwai show that oil will still be a prominent player in the market going forward for energy.

when you look at the forecast, he thinks there will be 1.2 million barrels a day of oil added through 2022. that is a significant number. that puts more confident in the oil market. kathleen: we certainly saw that with the china trade numbers on friday. what role does -- role does china play in the demand story? china is huge. they are the second-biggest or the biggest rather consumer of energy in the world. when you look at their demand for oil, you saw the numbers over the weekend. september was the half second highest -- was the second-highest on record. to say, this will continue an extent. you see china is playing a large role globally in oil demand. if you see the numbers come out, your confidence in the oil market.

kathleen: the situation in iraq, iraqi forces have taken -- i feel like i am back in the cold war or something. it is explosive. this is a level of x -- escalation. were people expecting this? stephen: this is something that was playing out a little bit. in september you saw the kurdish government and the federal have back andiraq forth on who owns these kurdish .ands, these lands it is looking like the iraqi government really wants those fields. -- if you look at the energy field market, some analysts are saying it could push up prices to dollars to three dollars because oil in $3, region -- $2 to and this could have a short-term effect on the market.

if you look at the goal for the year, iraq is still important. people look at iran, but it is iraq that is the center of the trader's focus. yvonne: oil means a lot to the so this is an interesting situation. thank you for helping us understand it. a reporter in tokyo. up next, china is the latest country joining the soft inflation cloud. we will ask the top ranked forecasters white prices could rise significantly. this is bloomberg. ♪

♪ asia.: this is daybreak i am yvonne man in hong kong. kathleen: the pboc governor has awarded praise and a warning to china. he said eric meeting in washington corporate debt is a concern, but he is encouraged

about the economy. ramy inocencio has three charts you need to know. ramy: i want to go to the macro picture here. look at china's gdp growth, 3761. that is everything you see in green in the second quarter of this year. 6.9% is where we stood, but the pboc wrapped up this weekend and said they could continue that pace in the rest of this year. some analysts said they could see that just a little bit at 6.8% in the third quarter. that does drop october 18. take a look at the white line. this is for money supply and lee liquid money. it has been rising, now 14% of gdp. hold onto to that, because as i go to the next terminal chart, 347, that is 13% of gdp. look at the money supply with a one month on month growth.

only 2% for this past month of september. though it iscause big, it had a record low growth of 8.9% the month prior. the latest numbers for total financing, that is the white line and china's new u.n. loans in the blue line, that is coming for the entirew year here, around 11% and over 10% respectively. those are better than estimated, higher than estimated. the question is, where exactly does that growth go? people are seeing a getting into the rule areas. agriculture, but going by next terminal, is it growing into this section? not sure, but we will get those results october 18. china retail sales, 10.1% is where we stood before. mix assets 7.1%, and in blue

industry output at 6%. the white line and the blue line, that is retail sales and industry output, that is at the lowest right now for the whole entire year. as for fixed asset investments, that is at the lowest since 1999. looking forward to this october 18, this wednesday, that could lower.ower to -- flow we will talk more china, yvonne. yvonne: and we are expecting producer prices and predicting china. as prices have a similar slowdown in september. with data coming out later, we want to look ahead with the chief john economist -- china economist. he joins us live from beijing this morning. before we get to inflation, i want to focus on the data we got over the weekend when it came to aggregate financing, yuan loans.

we see the tabs remain open in china. can you call this deleveraging from the pboc as it looks ahead to the party congress? >> i think the managing has not -- managing has not changed. if we look at the data, we are still below 10%. even for the credit number, if we use the credit outstanding, also for that total financing, the close also this saturday just slightly. so i would say post credit growth and the money growth just at neutral manager policy. yvonne: what could you expect from this week in the party congress if we see this consolidation of power coming for our the president? -- from the president? will xi jinping take on these risks? suggest to focus

on three pictures. one is a long-term vision of xi jinping. another is the party constitution amendment. the third one is personnel reshuffled. i think on the first day of the makeess, president xi will a comprehensive report to the congress. i expect him to rally the party around a long-term vision of stronger china and national rejuvenation. he may reiterate the short-term objective to volunteer -- get gdp up by 2020, which by our estimate, a minimum of six points that -- 6.3% growth will be needed. and for the amendment of the party constitution, president xi's governance will likely be incorporated. that is a clear sign for further strengthening of his positions in the party.

we have seen a lot of reshuffling of the personnel. we will only know at the last minute, but no matter who enters a seat in the seven vendors standing committee -- members standing committee, we expect the policy to be more effective. kathleen: chemchina maintain growth north of 6% and bring down debt? we have a guest on earlier that said it was like $1.50 to create $1's worth of gdp. it seems if they want to create strong growth and keep that going, and they have not made the transition to a consumption economy, how can they reduce debt and deleverage? government in the target is to slow down the pace of -- i would say the government's is to slow down the pace of growth.

6% growth is needed to achieve the world society by 2020. that is credit growth may continue to be faster than normal gdp growth. debt to gdpthat ratio to increase, but at a slower pace. 6.3% target, that would be already lower than the growth in the past few years. kathleen: i was at a panel in washington, the why -- the imf meeting, and it was after the 19th ready congress, one of the panelists said -- it was what to look for after the 19th party congress. one of the panelists said look for party control. that gives them protection of piling up high debt and trying to change it, but they are less vulnerable to market forces or portions that might but the minute tighter spot. you agree with that? ding: i would say opening up the

capital account could only increase the risk that is already being shown in the outflow last year. and now it seems to me that the government wants to take more cautious approach and follow a more appropriate sequence in opening the capital account. the direction is clear, but the conditions around it, especially with overall balance of payments , is reasonable, they will push ahead with that account. also, they want to increase exchange rate flexibility first in order to open the account. go,ne: before we let you your outlook for inflation, we have seen this peak in pbi prices around 6.3%, 6.4%. what is the carry through for inflation? see: in september, we may

easing of cpi inflation, but a rise in cpi inflation. it has fallen to 4.4% mainly because of many facts. cpi -- it could increase further to 6.3%. in the due to a rally months. this is a representative of the inflation pattern during the year that is low cpi, high ppi. if we look at 2018, i expect cpi to moderate but ppi to increase quite significantly. that could become a major theme in 2018 due to normalization of the food price and inflation. and also inflation from rising costs of labor and pass through from the ppi inflation. yvonne: look out for the rebound

in cpi. the chief china economist joining us live from beijing. we have more ahead. this is bloomberg. ♪

♪ yvonne: this is daybreak asia. still thinking about the group of 30 meeting sunday morning. first, janet yellen, and it does if cpi is weaker, she is convinced inflation is moving higher. governor kuroda stimulus, going to keep going to hit that 2% inflation target. rally in the the nikkei 225, decade highs. it looks like we could continue those gains in the japan open. futures looking at a 130 point

pop for tokyo. dollar-yen feeling things. 112 for dollar-yen right now. the market open, coming up. this is bloomberg. ♪ is this a phone?

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♪ you will groom live from bloomberg's asia headquarters. welcome to daybreak asia. toa-pacific markets said rise after the latest u.s. data shows global growth steady. warning,r china and a the economy is changing, but debt is a worry. kathleen: i am kathleen hays in new york. kurdistan.troops to u.s. launches new poor games in south korea amid signs the north

may be preparing another missile. ♪ yvonne: a big weekend washington, d.c. and china, the party congress underway. action, washington as well, imf meetings, central bankers, divergence on market valuations. governor kuroda saying i think we are comfortable with these levels and markets. summers saying an important thing about fear is a lack of fear itself, paraphrasing fdr there. kathleen: let's remember there were so many people talking. jim bullard in washington. theaid when you take out

u.s. stocks, violations don't look so stretched. were just mentioning iran and naval exercises between the u.s. and south korea, the geopolitical element is so strong and coming from so many different parts of the world. straight to a look at the markets with sophie kamaruddin. investors taking their cues from global policy, shrugging off concerns around surging asset prices. indexes across the region higher. the asx 200 gaining .5%, the highest level since may 16. the french finance ministers saying it is optimistic in terms of global growth. we are seeing that in sentiment today. as nikkei 225 gaining .2% election week kicks off in

japan. the country goes to the polls on sunday. they election will likely be neutral for japanese stocks. the yen snapping a two day advance. dollar-yen lacks direction. shorts bracing for north korean risks and falling treasury yields. we are seeing a rebound when it comes to yields for now. check out the asian bonds space. picking up, aussie bonds continued to slide. the aussie stronger, weaker now. did have scott morrison saying the currency and interest rates are right on the money. the aussie did add 1.5% last week. ahead ofairly steady china ppi and cpi data this morning offering clues around the momentum around the

reflation 2.0 story. aussie stocks led higher i materials for a fourth day. likely tracking the gain in crude prices, while extending gains. new york crude just below $52 a barrel. yvonne: let's get to first word news with paul allen. iraqi state television says government forces have an oil haveas of without a fight. earlier reports said troops and militia had moved to take over oil fields in the city from kurdish forces. tensions have been rising since the referendum last month. west texas futures are higher in early asian trade. korea and the u.s. launched military exercises monday amid signs the north is preparing a rocket launch. test ag-un may

long-range missile in the run-up to china's communist party congress this week and president trump's trip to asia next month. north korean state media criticized the wargames, calling it the reckless act of maniacs. separatist leaders in catalonia have until monday morning to tell spain if they are going to declare independence. they could then face the possibility of madrid imposing direct rule on the region under article 155 of the constitution. agreed not tohave recognize catalonia if it declares independence. opec expects demand for oil to grow at a healthy pace over the next five years as renewable shows the fastest expansion of any energy. the secretary gave a preview of the cartels global outlook, forecasting demand will climb an average of 1.2 million barrels a day through 2022 before sliding back. opec's world oil outlook will be

released on november 7. the philippine government targeting companies in its crackdown on tax evasion. the finance secretary told bloomberg a tax reform bill should be approved by year end. the government is under pressure to raise money for infrastructure and maintain growth despite a weakening peso. the philippines is also ready to sell that in china. >> we are just awaiting the final approvals of authorities in china. we should be ready to launch the pending on markets sometime between november and december. paul: global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. yvonne: thank you. china's central bank governor warning corporate debt remains to high and wants reforms to constrained local government borrowing.

speaking at a g 30 seminar in washington sunday. let's bring in tom mackenzie from beijing. a big week for you and the party congress, but another intervention from the pboc governor. tom: another week and another set of comments, this time in washington. highlighting what he says is one of the biggest problems facing china, the corporate debt level. it comes after he yuan was pushing for greater reform around the and capital controls in a magazine article last week. take a listen to what he had to say. it is major problem is too high. the service ratio is still reasonable. tom: saying then needs to be a bigger push on this deleveraging campaign. saying overall debt levels have

come down moderately, but more work needs to be done, particularly on the corporate debt level. this chart shows the debt breakdown over the last decade. corporate, household, bank, and overall government debt to the standout his corporate debt forls, 160% to gdp corporate levels. actually there was a bit more of a balanced because there was some offset from local government financing. ,overnment debt is higher corporate debt lower, but still a major issue. he said there needs to be a focus on fiscal policy around the regional government. he also said there are some issues around the asset management industry here and online finance, so a number of issues brought up. yvonne: i thought he was speaking frankly. kathleen: he was explaining

about corporate debt and household debt. 70% if you do it differently. need to bringis down corporate debt, he was still optimistic about the growth outlook for china. tom: you're right. it was fairly frank comments from the central bank governor. he is seen as reformer and expected to step down this year. yes, interesting to hear from him. on the growth number, the standout number and comment, saying gdp could hit 7%. we will get the third quarter number expected out on thursday, october 19, so we will see how that lines up. he may can see that growth is coming up the cost of higher credit levels. another cage on the health of the economy later today around 9:30 beijing time with the ppi

numbers and cpi numbers as well. if ppi techs up, that helps with corporate levels and helps with profitability. it is expected to edge of marginally from august. -- notn: a great story so much extravagance, right? in beijing. everything focused on party congress. security ramped up, hotels, bars, restaurants, it is hard to have a good time in beijing these days, but maybe there will more of a celebratory mood at the end of the week. kathleen: tom mackenzie joining us from beijing. the pboc chief has offered praise about china and a warning that there is corporate debt,

but he is encouraged by the direction of the economy. we have three charts you need to know. growth looks remarkable. take a look at this chart. everything in green is the month on month, quarter on quarter gdp growth. could hit 7% that in the near future. bloomberg analysts think it might come down to 6.8%. take a look at the white line. this is the liquid in new liquid money supply. it is 14% of gdp. at its highest since the financial crisis.

it is interesting when we go into the next terminal. it is actually near a record low when you look at the month on month. that is the yellow line here, 9.2% for the most recent month of september. the record low was 8.9% the month prior. the white line in the blue line, the white line is total financing up by 11%, the highest for the year up through spring. there,ew loans up by 10% so it is interesting to see the juxtaposition, while at a low, also rebounding. where is it going? be companies? small companies? not sure. we will get another reading this week. the white line here, everything something lower.

10.1% retail sales month on month growth. 7.8% for fixed asset investment. industry growth, 6%. ,ooking at it from right here this is the lowest for retail sales and factory output this year. investment, the lowest since 1999. quickly if you are a ecocriber, you can go to and see when those numbers drop. those are your three bloomberg terminal charts and one special function for everyone to remember.

back to you. yvonne: thursday gdp numbers of big one there. we will talk more about china later in the show. we hear from the asian development bank on his outlook for the economy. kathleen: one of the biggest risk is a sudden appreciation in the u.s. dollar, how just ahead. this is bloomberg. ♪

♪ my best guess is the soft readings will not persist and with the strengthening of labor markets, i expect inflation to move higher next year, and most of my colleagues on the fomc agree. our latest projections, my colleagues and i project inflation to move higher next year and reached 2%. >> keeping the 2% stability

target is still a long way off and the bank of japan will persistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time. >> in the last couple of quarters we have seen it within target. the inflation is not going to go up. it will remain within target and the growth in the economy is subdued or has come down. topleen: what the world's central bankers and financial chiefs wrap up their conference in turn to the 19th party congress in china.

it is an interesting transition, isn't it? there were so many threats out of the imf world bank meeting. a centralike china is focus, even people who never think about china will be watching every day to see what is coming out. woody looking for? -- what are you looking for? >> china is concerned. there is discussion about credit and the situation in china at a time when we see some tightening measures across the world. tona is a big question as what will be the monetary policy of this economy. thesecond element are political reforms taking place, which are creating positive events in our view and we may moving upthe economy, away from a quantitative approach to a qualitative

approach to growth, and this is critical to the future of the chinese economy and is a factor of stability across the region. we also have the inflation, a big question. this is the ultimate big scare in the emerging world, but we think on the inflation front that this is good news at this stage. corporate's need to see prices rising to enhance earnings and margin, so at this stage of the cycle, we are still constructive on a show. is there an investment play in china you are waiting to see verified are contradicted coming out of the party congress? >> plenty actually. the first thing his were talking about leveraging in the corporate side and it is true it still needs to happen in china. it is on its way. we have seen households with low debt levels, starting to get

more consumption credit, and the saving level in china is still very high. while you may see some tightening of the corporates, you may see leveraging at the household level, and this is extremely positive for consumption. the numbers last week were not that bad. we think we will see further road.ration down the this was supported year and we were behind schedule. they have not created that much momentum. if we see a deceleration in the property market, you may see infrastructure spending rising, so there are different elements that play which in the in should create a 2018 that is relatively favorable for china. mention the credit growth as a concern, but what does it mean for the banks? we have seen the rattling on this targeted cut in 2018.

our markets right to pursue that when deleveraging is destabilizing? we've seen a response to tightening measures, so an offset taking place. for the banks, this is still relatively neutral. what is positive to the banks is the quality of the loans. they have been the guardian of the credit business, through the banks are outside the banks. state's controlling flow and liquidity, the assets of the bank should improving quality, maybe not quantity. ,hese banks have underperformed so why are they starting to do a bit better? that is because of the qualitative element. quality is getting there, and we should welcome it.

they are trading below book value. yvonne: asian markets in general, we heard from different opinions from the central bank thinkors saying we don't violations are stretched right now. then you have barclays saying the markets are as benign as in 2006. her we in overdrive. >> in asia, we are not. about lowking interest rates globally. if you look at the average in asia, corporate have been paying a relatively high cost of debt and capital. even if interest rates were to rise by 50 basis points or 75 basis points -- what concerns you more, asset prices are low volatility. not beenlatility has that low. it depends on the assets you are

considering. we still see compression across asia. growth next year will more even spread across asia. opportunities are , more opportunities to invest, then 2017. yvonne: there is so much to ask you about. i have one big question, quickly, the dollar. you say a sudden appreciation in the dollar is one of the biggest risks. why? what would cause that to happen? >> it is the big risk. will that happen? we don't think so at this stage. we believe the deficit in the u.s. will widen, so that should weaken further the dollar or at least he could low. for that reason, philippines are on a fast-track in terms of growth, credit growth, earnings growth, offer an interesting profile within the emerging

world. this is what investors have been looking for historically. in a balanced portfolio, it has make since it has a bit of philippians exposure right now. yvonne: thank you very much. one future we'd like to bring your attention to his or into tv function at tv. live and diveus into previous interviews, securities, charts, functions we talk about. instant messages during our shows. this is for bloomberg subscribers only. make sure and check it out at tv . this is bloomberg. ♪

♪ this is daybreak: asia. kathleen: i am kathleen hays. kobe steel says the number of customers affected by the 500.al has doubled to

the company says nine subsidiaries failed to carry up control or lied about results. clients may have received substandard materials. the ceo has promised a full investigation into the scandal within two weeks. qualcomm taking legal action in china to ban the production and sale of iphones there. it filed through intellectual property court and seeking injunctive relief. it is the chipmaker's biggest shot so far in a bitter fight. apple says qualcomm's claim has no merit and will fail. kathleen: two of three bidders for the chicago stock exchange have withdrawn from the bidding group. the sec has put a decision on hold. president trump spoke against the idea of a chinese group of

owning a u.s. exchange during the campaign last year. looking ahead, south korea on alert amid signs the north may be ready to flux military muscle, the latest on rising tensions, next. this is bloomberg. ♪

♪ yvonne: happy monday. 8:30 in singapore. i am yvonne man in hong kong. kathleen: i am kathleen hays in new york. to first word news with paul allen. merkel headslor into talks this week in a vulnerable position after her christian democratic union was beaten in a state election. this cd you saw its worst results and lower saxony since 1959, losing control of the social democrats. monthderal election last

was the worst performance since world war ii. recent manufacturing data shows growth is returning to its normal course following the cash ban and gst rollout in india. the central bank governors said he is reassured by the world economic outlook for the next two years. he says the most important priority for the ending government is to find jobs for the 12 million young people entering the workforce every year. china's new gauge of broad credit exceeded projections, even as the government curbs excessive borrowing. aggregate financing stood at $276 billion. new yuan loans came in ahead of estimates, money supply jumped 9.2%. scott morrison told bloomberg the aussie dollar and interest rate are appropriate levels for the current state of the economy. said steps to cool

the housing boom have taken pressure off the rba. not a lower rates are worry and exporters can absorb the affects of a currency that has climbed 9% this year. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am paul allen. yvonne: thank you. time to see how the asian markets are shaping up. the regional benchmark, .4%. the latest from sophie kamaruddin. the wind picking up given the optimism. asian stocks set for a seventh straight day of gains. ,ussie shares leading the pack holding onto that 5800 level. back to new highs, steel miners among the best performers. samsung electronics also rising,

resuming gains for a fifth a of sixth. strongern won sixth session. south korea's record trade balance helping feel that appetite. weaker, bondslar climbing ahead of chinese people you data. watch chinese 10 year bond yields today. the highest level since 2015 and set to keep rising. take a look at the yen, sliding under pressure, the dollar little change following friday's drop. the nikkei 225 rising for a 10th consecutive session. energy in pole

position on the nikkei 225, mostly higher when you look at the sector breakdown, but consumer discretionary on the back foot. drop asel extending its the scandal expands to 500 clients worldwide. the stock fell 3.9% earlier to a five-year low, but now easing those losses, adding to the drop on friday. kathleen: thank you very much. big story, south korea and u.s. launch military exercises amid signs the north is preparing a rocket launch. jodie snyder is watching this. what kind of reaction can we expect from pyongyang as these wargames get underway? like one of the biggest geopolitical stories that markets around the world are riveted on. >> south korean officials said they are prepared for another

launch from north korea. they are seeing signs of that. north korea has had a dozen this year. they have had the strongest test on september 3. the thinking is north korea wants to show its military might and its nuclear capabilities to the world perhaps as the party congress in china meets this week. before president trump makes a visit to china in the next few weeks. key, and thisvery is what the south korean officials are anticipating. this week's party an opportunitybe for more provocation from north korea. in the past, north korea has stayed away from trying to embarrass china during key meetings like this.

this is a very big meeting in china. month, the tests came as chinese officials were having some sessions, so the thinking is that north korea again once to show off its nuclear capabilities to the world, including making that clear to china and the u.s. yvonne: the iran development on friday from trump, decertification. what does washington want from its allies right now? >> president trump it is not enough to meet the technical terms of the iran nuclear agreement. he was not certifying it even though other allies had. they had so that iran was meeting the terms of the agreement and they were standing by them, but the u.s. is saying in the view of secretary of state tillerson and

president trump had acted in other ways, supporting state terrorism in their words, and also having arms sales and things like that, that they would not certifying 10 are asking congress to impose tougher sanctions. yvonne: thank you. .et's bring in richard fanning he joins us now from singapore. get us up to speed on the latest developments out of iraq. thei forces have captured area without a fight according to state tv, but clashes are erupting south according to some reports of troops heading back into that border area. how big of a risk is this for markets? oil rallying already on this here at -- this. >> this will have an impact on

markets if there is fighting properly. it may turn out to be something of a skirmish. it has always been the prize for the kurdish region. it is recognized as an integral part of curtis stand. the baghdad government regards it with similar intensity. if we do see full-scale fighting wearing for the integrity of iraq and makes it difficult for some kind of accommodation between the dad and her beale possible. government had a referendum in which overwhelmingly the people who voted in that referendum voted for full independence from iraq. kirkuk has always been the thorn

in the side in this difficult relationship. you have given us a lot of context for this. so much of this is from history. when you mentioned the independence vote, with this the another trump in the road, or this could be a big deal. ? what would make this a big deal that would create instability and a part of the world that already has a lot of things that are destabilizing? sits at the southern end of the kurdish enclave. >> it is extremely rich with the biggest fields in iraq, so it is meaningful in terms of iraq's overall output. are clauses in the iragi

constitution to do with the .ngoing status of kirkuk nothing is new in these disputes. this is an issue that has been argued over, people have been to war over, in the past right into the era of saddam hussein, so neither side will back away. this is not some minor border skirmish. this hasn't been known to be coming for some time. kirkuk always have this unresolved status. war against the islamic state have occupied a wider area of what previously they had in part of iraq and they will not give it up lightly. the customer forces have been in the vanguard fighting against -- peshmerga forces have been in the vanguard fighting against islamic state. the kurds have a different interpretation of the

constitution, so this is a big deal. given the impact it could have to potentially become almost a ,imple or in that part of iraq and its mineral wealth, this is significant news. seene: quite rarely do we these moves this early in oil markets. i want to talk about north korea. rex tillerson mentioned diplomatic efforts and how he has spoken to the president withg they will continue that the diplomacy strategy until the first bomb drops. has anything changed recently? is this a change of heart from the trump administration? >> no, it is what we have seen previously. we have seen harsher words from the president, then softer words from the secretary of state. that will be a double act that will continue. whether it is intentional, who knows?

that is the kind of pattern. your correspondent a moment ago got this absolutely on the nail, this is about china and what is happening in china. we tend to focus on the relationship between kim jong-un and president trump. we tended to ignore the relationship or lack of relationship between president xi jinping and the north korean leader. does not takeng to twitter in order to express his views of the leader, you can be absolutely sure his feelings are similarly intense and negative towards north korea's leader. yvonne: in tangled in all this is the fact we have the u.s. and president of allowing congress to come up with the demands on iran now, which could be a big gamble for the president. what signal does that send it to pyongyang? >> i think the two things are somewhat disconnected.

it is tempting in this feast of geopolitical craziness in the world to link everything together. interpret what is happening in iran, the iranian say if we take a firmer ins up withth korea the deal and nuclear weapons, why on earth did we go down this route anyway? for iran, so much more is to be gained by keeping the iranian deal in place. we will have to see what congress does. the thing about iran is that it does not have many friends in the united states and faces a stern test from the israeli lobby and saudi lobby in congress. i don't think it will not the deal over at this stage, but it is worth remembering that for this iranthey look at deal, not just the president,

but look at this deal differently to the european and asian economies. kathleen: i just want to comment quickly prime minister netanyahu also seems to be on the side of donald trump here it the saudi -- president trump. nervousis have been about the deal. what is the likely outcome in your view? >> likely outcome is that this will get kicked down the road for a little longer. it will come back. a lot of this is how domestic u.s. politics is playing out. that is really hard. we try to puzzle out north korea, iran, kurdistan, and china, trying to understand all that are att issues play in the u.s. administration is actually equally complicated right now on whether at some

stage in the future it will seem in the president's best interest to turn the screw on iran, it is hard to predict, but that is where we have to be focusing our attention, domestically in washington, as much as iran and the wider middle east. -- as tehran and the wider middle east. kathleen: thank you very much. we talked about china's economy ahead of the party congress, why things a slowdown is set to continue. this is bloomberg. ♪

♪ this is daybreak: asia. kathleen: i am kathleen hays in new york. the asian development bank lifted china's growth forecast to 6.4%. that was based on strong consumption demand.

the aba president says the changes announced in beijing could move markets. >> of course there will be major changes to the personal reshuffle and so many what the leadership will be after this congress. they are following rather stable policies, and the growth rate was adjusted up this year. join the slowdown will continue workingof the population is becoming smaller and there are limits on moving issues ofd also thencial stability, so policy won't change too much. >> stability and the chinese

indicator for markets this year with the end of the china party congress, not to mention the federal reserve on a tightening path. how will this impact emerging markets? concernsrse there are about the changes in fed interest-rate policy, but it is already digested to some extent, and compared to the time ben ,ernanke announced qe tapering i think it is already digested in many countries. in the market there would not be a shock. growth is more based on the original demand these days, so i don't think it will have a major

impact in the emerging economies. >> should we expect more volatility after the end of the chinese are to congress? thinkdepends, but i don't it will change to magically. we are expecting some leadership reshuffle, but i don't think there will be a major impact on the economy or market. a with the federal reserve on tightening path, what will this mean for asian dullard that borrowers? asian dollar debt borrowers? worries and asome modest appreciation in india, but the currency of india this appreciated,rather

seeing we have a study the federal reserve interest , it is not impacting on those currencies so much as people worry and there is no clear negative impact on the countries. the adbthat was president speaking to shery ahn. let's bring in robin now. in the past beijing has tried to restrain the moves ahead of the political events, the party congress of big one, but have we seen evidence of that from and what happens after the party congress? >> every political event over the past few years we have seen currency moves choked. this time you see the first two weeks of september, the onshore yuan rose 2.5%, the following

three weeks, down 2.5%. of a stablet moves or choked currency. i suspect this time the whole impression is different. previously they have had situations where they have set our currency is stable and there is no reason for massive depreciation. however this time, i think they market,tell the domestic and international, that we are allowing more market moves in the currency. i suspect that is true. yvonne: we were talking about reports they were considering widening the trading band to be on 2%, possibly 3%, for the yuan . how should we read into that? >> there is nothing to report in

there arethat, conditions ripe for reforms in the foreign exchange market, so the market took that like many analysts took that as a signal of the possible for step would be a widening of the trading band after the congress, so i think he's trying to play that down. aren't think the conditions unsuitable either way. if they wanted to do a widening, they could. yvonne: quite a candid pboc governor. thank you. more ahead on daybreak asia. this is bloomberg. ♪

♪ yvonne: this is daybreak: asia. kathleen: i am kathleen hays in new york. we are keeping our eyes on iraq, sending forces to seize kurdish oil fields. is the story that has been going on for years. almost back in the gulf war. as one of our guests just told us, this is a significant development, even though there

is a lot of back-and-forth. there is a hornet's of potential turmoil and fighting that is eating stirred up and is affecting the oil price. is quite rare we see these moves early on, specially monday morning. .rude up .9% brent also seeing a jump of 1.24%. ,as futures heading lower here but we mentioned these escalating tensions. year with early this the independence referendum, so this will likely hang on markets for some time. time for a quick look at what is coming up on bloomberg markets. kurdistan and kirkuk in

focus. oil prices in focus. for the iranian sanctions, what happens next with that accord? that is all playing into the oil price. the people's congress, the 19th one, in china. also looking at that. also looking at cpi and where inflation is in china. look at not least, i the private jet market around the world. that is it from daybreak asia. this is bloomberg. ♪

♪ is 9:00 a.m. in hong kong and singapore. i am rishaad salamat. asia-pacific markets enjoying a strong start, evidence of steady global growth. oil on the up, new tensions, brent enjoying gains as iraq sends troops into kurdish territory. the tb oh governor sends praise and a warning to china. sends pboc governor praise and warning to china. this is bloomberg. ♪