>> good morning. i'm haidi stroud-watts in sydney. >> good evening from bloomberg's global headquarters in new york area i'm shery ahn. >> and i'm sophie kamaruddin in hong kong. welcome to "daybreak: asia." >> our top stories this wednesday, asia-pacific stocks set for a mixed start after a volatile session in new york. saluting america's extraordinary economy, saying low unemployment

should not start a rising inflation. and tesla shares headed south. >> let's get a quick check of how markets closed this tuesday session. it was a mixed session in the u.s. we saw the dow hit a record high, but the s&p 500 lagged. we had sales reports. the dow just grows higher because of those trade sensitive stocks like boeing and caterpillar. still there was divergence between these multinationals and small caps. we saw the russell 2000 fall. let's see how all this is shaping up in asia. here is sophie. >> asian futures looking mixed. [indiscernible] nikkei pmi's expected for japan and singapore. the nikkei could be set for the first drop in four days.

looking at a third day of losses potentially. checking in on some currencies, we have the yen retreating to the 114 handle and the aussie dollar hovering around 72 after the rba stood pat on rates. slipping below 15,000 for the first time in 20 years. keep an eye on the pound. we do have some markets remaining closed. china has that golden week holiday. south korea off-line. we do have india reopening today. heidi? >> thank you so much for that. setting up the asian trading day in hong kong. let's get you the first word news. jessica summers in new york. >> the new york tax department is reviewing claims that much of president trump's wealth came from his father through what the paper alleges were suspect tax schemes.

a trump lawyer has denied that ofmp received the equivalent $413 million from his father's real estate empire. that goes against the president claimed that he only got a $1 million loan. amazon has found to political pressure and the tightening jobs market and will raise the minimum wage in the u.s. and u.k. the company will offer $15 an hour to more than a quarter million employees along with 100,000 seasonal workers. in u.k., the hourly wage in the london area will rise to the equivalent of $13.60. september was a tough month for ford. sales of the f series pickup tumbled, leaving the company outsold by fiat chrysler. analysts say ford is struggling with aging suv's, collapsing car sales, and looking of the road f series suddenly finding itself

the oldest pick up on the market. ford hopes next year's escape and explore will help turn things around. tesla slumped despite beating production and delivery estimates in the third quarter. it sent out 83,500 vehicles through september. tesla says trade tensions between washington and beijing have been a drag, but the numbers may indicate that it may be on track for profit. it is accelerating building of a production plant in shanghai. global news, 24 hours a day, on-air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. >> thanks for that. let's get more on the u.s. market session. stocks ended that up-and-down day mainly lower. trade tensions continuing to ease while gold finally sees a surge on the back of italian

budget concerns. a speech from the fed chair jay powell shrugging off inflation concerns, calling the economy extraordinary and putting pressure on stocks. su keenan easier to wrap it up. it was a busy session and it felt like investors didn't know which way to take it. >> very much a search for direction. let's look at the scorecard. over the optimism u.s.-mexico-canada agreement, but we still don't have the details. a lot of focus on fed chair jay powell. 2000 and the domestic small-cap stocks taking a hit here. this is an index that rose during all the concerns about tariffs. the s&p 500 index for bank stocks also lower on the day. let's look at some of the big movers. the minimum wage, also announcing it is going to

hire holiday workers. that has put pressure on retail stocks. devices, intel's gain was its pain. down in a very big way on a mixed report that disappointed investors. that in combination with the amazon news sent the index down to its biggest loss in about two years. intraday as one of the services downgraded credit. it is now just three levels above junk. the incoming ceo many view as a savior boosted the stock yesterday. now another concern. can't save the company from a ratings downgrade. let's go to the bloomberg gtp. this one highlighting how the small-cap index in the white

here crossing over the s&p 500, now below the s&p, and shows you that it is under pressure as these trade concerns ease. >> let's look at some commodities. safe havens on gold and silver. oil under a little bit of pressure. >> let's talk about gold and silver. gold and silver up in the first 10 minutes of trading. brexit and trade concerns did not push investors to save havens, but the italian concerns, possible debt crisis, did. big increases all across the board. copper down in extended trading. let's take a look at new york traded oil. it was down just a little bit. it is gaining a bit in extended hours. we have the big weekly inventory report out on wednesday which is showing a bit of a decrease.

propping up oil is concern about supply given the iran sanctions. brent crude, heaving of a respite. there is a call for $100 oil. ubs saying they are not ruling it out. the concern, opec might not be able to fill in the gap. that keenan, thank you for roundup of the markets. fed chair jay powell has praised what he calls an extraordinary u.s. economy where wages are rising, but not quickly enough to spur a faster pace of rate hikes. the bond market rally on italian debt concerns. kathleen hays is here with more. let's start with chair powell's speech. he welcomed wage growth, but he wasn't concerned about inflation. >> know, but he wants to guard against it. he says these are extraordinary times. he said this economy is almost

too good to be true. you've got very low unemployment. inflation has gradually risen, but it is not getting out of hand, if i may paraphrase what he said. he definitely things a muted inflation risk is consistent with a gradual rate hike. here's one of the things he said today. >> the rise in wages is broadly consistent with observed rates and therefore does not point to an overheating labor market. may notage growth alone be inflationary. >> let's jump into our bloomberg library chart and look at what jay powell is looking at. average hourly earnings, they have risen. they really haven't broken out of this broad range between 2.5% to 3%. pce core inflation up to 2%. i think the point of this chart is ok. you've got these higher wages, but you are not pushing

inflation a lot. i think the takeaway for traders was the economy is doing better but inflation is not rising that much and the fed is not feeling the need to hike rates more aggressively. >> good news for the white house and president trump, who are now agreeing on a couple things. >> finally, president trump can agree with jay powell. larry kudlow has long been a proponent of strong dollar, tax cuts helping the economy, and what he said today is he sees enormous confidence in the u.s. because of president trump's policies. is a greatt trump guy and he has launched a boon. i think trade reform is part of that and will pan out much better than critics seem to think. >> we can imagine if president

trump agrees, he's happy to see jay powell calling this an extraordinary economy. on september 26, he said he wasn't happy about it. he didn't think rate hikes were a good idea. from an extraordinary economy according to jay powell to something more problematic. looks like the markets are looking at italy this week. we know these are longer-term problems. budget issues, resistance against regulations in the eurozone, we've had all these themes ever since the new populist government was elected. why are these concerns bubbling more? >> certainly one of the reasons we saw, the 10 year italian bond highest since after 2014, has a lot to do with what the head of the lower house budget committee said when he noted that the euro was not

sufficient to solve italy's fiscal woes and pushed back against e.u. budget limitations ever since. this seems to have spurred a selloff. i'm going to bring us up to this other chart. , we are now in october of 2018. anyway, what we've got now is a chart that is showing you -- here's back in december. look how close the spreads were between italy, spain, and portugal. look at how those italian yields spiked. who are they approaching? greece. even jpmorgan is saying they are concerned about some contagion force building here. when you look at this chart, what you see is that spain and portugal are not showing this

contagion risk. later, a eurosceptic, the head of that budget committee, saying that he's not trying to say italy have any plans to leave the euro area, just trying to make a point about their fiscal concerns a lot of people are wondering if those contagion concerns are getting closer than they thought. >> thank you so much for that. going to continue to watch that italian story. amazon bowing to pressure and hiking wages for workers. u.s. earnings growth reaching a peak. find out what is on the buy list, next. this is bloomberg. ♪

>> this is "daybreak: asia."

i'm haidi stroud-watts. >> and i'm shery ahn. wealth managers are telling their clients to buy emerging-market stocks. they cite the s&p 500 outperformance for the first three quarters of the year. but not so fast says mohamed el-erian. take a listen. >> higher oil prices, stronger dollar, slowing growth, and tightening financial conditions are not a great cocktail for most emerging markets. in the short term, be careful. this is not yet the time for anti-divergence trade. mohammed el-erian on bloomberg tv earlier today. or avoid emerging markets, luca paolini's chief strategist for pictet asset management. he is here with me in new york. say, beu go and

cautious, too risky, or are the cheap valuations tempting? >> i think the valuation is very tempting. i agree with the fed that the dollar is important, but i with the u.s. economy in a place where it is very -- i think valuation the trade for emerging markets, the trade for the dollar, we think the dollar is safe, so it is the right time now to invest in e.m., stocks, and bonds as well. >> what happens when you see global tightening? this chart showing how much liquidity the major banks have pumped into the markets. qe to we go from global global qt, what happens to these emerging markets? also the bull market here in the u.s.? >> this transition has already

happened in. emerging markets have been suffering from that. the question is in terms of surprise. do we see acceleration? i don't think so. in the u.s., the rate is pretty much at zero. i think that as long as global growth remains relatively strong , the valuation gives emerging markets enough to buy stocks and bonds as well. >> i want to get back to your forecast when it comes to the u.s. dollar. it is essential to what happens to you. -- two e.m. looking at the correlation between emerging-market stocks and the greenback, it went negative," an all-time extreme. is there a chance that we see another dip lower towards that if this trade war worsens, if trump doubles down on tariffs on china? is basically

driven by the u.s. economic growth. thee is no question that u.s. economy is doing exceptionally well. the question is, can it surprise on the upside? i look at a number of indicators. i suspect the u.s. economy will be weaker than expected. this has always been very positive for yen. even more now with the positive valuation we have. asian look across emerging markets and there's so many opportunities when it comes to positive demographic stories and not all of them have the idiosyncratic issues with the e.m. contagion. if you want to balance the opportunity, but also lower risk, which emerging markets would you be looking at? stocksuld say chinese seem attractive to us.

if we look in the long term, india and indonesia probably are the best place. it depends on the investment. china looks like a very interesting market right now. >> when you are seeing all these trade concerns, is it time to get into gold? we have seen this huge surge in gold and silver today. >> we are positive on gold. we expect the dollar to be weaker in the next few years. we don't think interest rates will go much higher. with political tension being relatively high, gold is the obvious kind of hedge. could be a good entry point. it is more like a long-term story for us. >> what about oil? we see this continuing uptrend. how big of a theme will it be

going forward? >> i think it is important. we are in a situation where there are inflationary pressures. consumers can spend less. it is going to be for some markets. indicationre's an that we are pretty much in an advanced stage of the cycle. it is more like a warning signal than anything else. >> we had the nikkei hitting that 27 year high this week. do japanese equities continue to rally? cyclical global growth. there is no political risk in japan. the central bank is printing money, not as much as a year ago , and that is very important. the japanese corporate is massively under leveraged. that is obviously positive. we have a very bullish view of

japan. >> thank you so much for joining us. luca paolini, chief strategist at pictet asset management. jeff bezos blinks in the face of political pressure and raises the minimum wage at amazon. we look at the implications next. this is bloomberg. ♪

>> this is "daybreak: asia." i'm shery ahn in new york. >> tranzyme haidi stroud-watts in sydney. amazon is raising the minimum wage for workers in the u k and u.s. says that a rise will take effect on november 1. joining us from san francisco is bloomberg intelligence senior affect -- how does this amazon's bottom line? >> there's going to be an increase in cost, but if you see

what sort of expectations are for next year, there are other offsets the company has, like advertising and higher margins. and of course cloud services. they can digest these costs, but there will be something showing up in the guidance for sure. there's a near-term risk of estimates being at risk because of this increase. >> line now? is it because of political pressure or the structural nature of wage inflation at the moment? >> it is partly all of them. if you think about amazon's business, for them to keep up with this high growth rate, they have to scale logistics. they have to track and keep talent and it needs to grow. it needs to be there to support that topline. at the same time, on a margins side of rings, you know they are looking more towards leveraging advertising and things like that

for squeezing the margins. supporting the top line is the priority here and making sure you have enough to make that happen is critical. >> especially given that the holiday season is coming and they need to get those temporary workers during that time. tell us what the situation is like right now. >> a good reference point is what happened in 2015. the demand was so strong for their program and all of amazon in general that they were not able to deliver enough packages and demand and that had an impact on earnings. then we saw the stock reacts after that. they want to make sure the capacity is there to support the robust quota that they have. given what you see with the prime day record, they are bound to cross that record, so they

are making sure the capacity is there. >> in terms of cost being raised for amazon, will it help? you won't see as much turnover as you have so far. >> that is a long-term advantage. very good point. the offset that we talked about, advertising, cloud, the competition doesn't have those offsets. if they have to match rate hikes and things like that, they have to take a margin hit. thank you so much for that. that was bloomberg intelligence's senior analyst. coming up next, tesla hitting its delivery target, but investors aren't impressed. france and sullivan weighs in on the company's results and tells us how the new north american trade deal could affect asian automakers. this is bloomberg.

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>>, 9:30 a.m. in sydney 30 minutes away from asia's first major market open. looking pretty mixed into the start of trading. session, mostw u.s. equities actually closed lower. >> 7:30 p.m. in new york. as haidi mentioned, markets closed lower. s&p 500 was pretty flat. dow reached a record high, but the s&p 500 flat. nasdaq also falling. multinationals gains with small caps leading declines for another day. haidi: you are watching

daybreak: asia. let's get you to first word news with jessica summers. jessica: fed chairman jay powell says he welcomes increases and is confident low unemployment will not soak inflation. he said wage rises were broadly in line with the fed vision, and don't point to the market overheating. pwell expects with the fed to stick with gradual interest rate hikes while monitoring a preordained set of risks. >> is historically rare pairing of low inflation and steady employment is a testament to the fact we remain in extraordinary times. our ongoing interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times. so as to extend the current expansion while maintaining maximum employment and stable inflation. >> italy's populist government confirms it is sticking with a

2.4% budget deficit target, despite warnings from the eu on fiscal spending. fears that italy is publicly unsustainable. italian bond yields touched a four-year high. argentina's prospects soured last month with a shakeup at the central bank. a weaker peso and a credit line of imf. policymakers say the economy will shrink 2.5% this year, and 50% next year. half a percent growth in 2019. the government says argentina is headed for a two-year recession. warningboss jack ma is the escalating trade rules will be severe and long-lived. speaking at the wto, he said president trump's policy will

destroy not only u.s.-china business, but a range of firms. he expected the fallout last 20 years. the president threatened to pull america out the wto unless it reforms in a way that is more beneficial to the u.s. mcgowanix year old edinburgha record at at auction. one of 12 bottles of scotch whiskey, estimates of $1.2 million, tops the current record of $1.1 million, set by a bottle of the same vintage. the label was designed by an italian artist. global news 24 hours a day and on tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: we are counting down to

some of the major markets opening across the asia-pacific. sophie kamaruddin is joining us with a look. it seems asian equities could be stuck in the doldrums, if the u.s. lead is anything to go by. setie: kiwi stocks already for a third day of losses with soft data today. asian's best hope to lea this reboundd. we could see some losses as the 114g retreats from the handle. aussie futures climbing higher. we are seeing the aussie dollar holding losses after the rba raised rates, widening the gaps with the u.s. the rupiah is under siege. let's look at this picture. the keep focus will be indonesia as officials speak of continued

intervention to stabilize the currency. the rupiah breaking the 15,000 level against the dollar for the first time in 20 years. when it comes to intervention, we could see a tax cut for the bond investors to attract more inflows, as foreigners have been dumping holdings. that set the asian 10 year yield by nearly 180 basis points, as you can see by the blue line on this chart. we could see a very heavy focus on indonesia today. >> tesla also hit the mark when it came to production numbers. investors were not really impressed. what our analysts saying? >> over at bernstein, they noticed the absence of production levels and demand and reservation trend. a supply chain analysis function on the terminal -- you can see panasonic is one of 69 suppliers to tesla, tracked by bloomberg.

it is also the only battery supplier for the model 3. ,t could be part of the reason according to jeffries. we have pressure on the stock. down about 60% in that time. -- 16% in that time. jeffries keeping face as manufacturing on the model 3 steadily improving, saying the battery business is turning favorable for panasonic when it comes to tesla. : the other companies to keep an i on, -- pulling up other companies to keep an eye on, monster with its first offering -- madza with its first offering for 2020. nissan revamping in light of the nasa deal. nissan saw a drop of 12%, much better than the 20% slump.

we saw hond with steeper declines. shery: let's dig deeper on those u.s. auto sales. most u.s. automakers posted lower sales in september. it was a particularly tough month for ford. analysts say ford is going with aging suvs, counseled by f -- outsold by fiat chrysler. bmw sales rose 1.3% with its suv. bmw saying it is coming under increased pressure from tesla's production, with its five series sedans on target for the electric carmaker. haidi: bmw saying it is fiercely

competitive in that space, that tesla has been ramping up. they are pleased to say they are in that segment. isaking of tesla elon musk issuing somewhat of a warcry to staff. that may have helped the company deliver vehicles in september. tesla shares actually fell in response. analysts saying the numbers were not in expectations. tesla says trade tensions between washington and beijing have been a drag, but numbers indicate they may be on track for the elusive profit. it is accelerating production of a plant in shanghai. that is under the question marks. they are doubling down on auction facilities in shanghai, yet there is a pretty big storm cloud of uncertainty as to the implications for how that business will go, given the trade war and impact on auto

exports, and trade between the nations as well. analysts were making note of this absence, you hit the production mark, but what happens in the next corner? what happens to future model three production levels? they did not give out anything specific in terms of demand or reservation trends. analysts a little bit skeptical when it comes to this company, that it will take a bit of time to repair credibility. some say it would help if elon musk just stayed away from twitter for a while. isdi: part of the issue tesla had to fight so hard to meet these production numbers. while it is reassuring we are looking at the company's ability to ramp up production, despite what elon musk is tweeting,

there is a lot of uncertainty whether they can accelerate and repeat this. they were cagey when it came to the question of profitability. we will have to wait until november when they report third-quarter results. certainly trade top of mind for every automaker. wereakers this week expressing relief on the trade agreement reached by the u.s., mexico, and canada. >> it will give stability to the relationship between the three countries for many years to come. now we know exactly the rules to invest. now knowing what are the roles, we will optimize our plan for the united states, canada, or mexico. >> we can definitely quantify the trade impact. millionhy of 300 negative impact in 2018. so this is a half-year impact

. haidi: let's take a look at the challenges facing automakers. great to have you with us. we saw some automakers disappointing, namely toyota, ford. was there a fundamental issue, lori was this -- or was this just a blip? >> as we see the market demand is stagnating, it is difficult for automakers to find customers. as the year is coming to an end, there are budgets and discounts, trade promotions are quite limited. q4 is likely to be flat. >> what can we make out of this nasa 2.0? new audit requirements.

40% of a vehicle needs to be made with workers making $16 an hour. what does this mean to operators in mexico wanting to sell to the u.s. and canada? >> it looks like a very small provision, but it will have a very big impact on the global supply chain. there.ary was not mexico could easily leverage low-cost and export to the u.s. now that they have put in this particular class, it puts -- particular clause, it puts u.s. and mexico on the same footing. production in nato longer be viable. that means -- in mexico may no longer be viable. they will increase production norms. of confidences

will have to be produced in the u.s. that has a big impact in a global supply chain. we would see some kind of investment coming back in the u.s., but we need to understand the prices of cars are likely to inch up. shery: we were just talking about tesla's big investment in accelerating its production facility in shanghai. all the trade uncertainties weigh on that, caused a bit of uncertainty of what the asian supply chain for this industry is going to look like. is, rightll happen now the supply chains are well aligned. this barrier the u.s. is likely to put up will isolate itself. future growth is going to come from asia. u.s. is not going to be the base for automakers to export from

the u.s. biggest market being china, followed by other markets like india. all of these would make sure there is a barrier between the supply chain. it will take a few years for most of the automakers to realign it. haidi: i want to get your thoughts on the tesla production numbers. it is a good news story. one of our guests referred to the unforced errors elon musk has been committing with his tweets. take a look at this chart in terms of tesla cars produced each quarter. this is in our gtv library. warcry from elon musk. they have been able to hit this target. investors don't seem convinced. are there longer-term problems for this company? this current level of

operation, they are almost operating at peak level. that does not get a couple feeling to investors. what they look for is quarter on quarter growth, beating estimates. unless they expand their factory in shanghai, as well as more production capacity enhancements in the u.s., they are operating at a level where it is quite close to their full capacity. that is probably giving the investors a bit of an comfortable feeling. w have to understande there was quite a big runup in the past three months. that is why it is probably correcting. it is hard to pin it down directly to the production level. operating at current levels, they have to convince investors that is attainable. >> much of production was driven

by one off promotions. are they over invested when it comes to delivery infrastructure? avek: they don't follow typical model of mass production, therefore production tends to be in batches, which is a different technology. that is why the production numbers may vary. what happens in most automakers, they have mass production planned three months in advance. suppliers know what they are supplying. the numbers are very predicted. that is why there is a bit of a cloud how much they will produce every corner. that is why this number becomes very important. >> vivek, thank you very much, joining us from singapore. next, tencent aims to hit the right note with a music ipo in new york. we look at the prospects next. this is bloomberg.

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shery: this is "daybreak: asia." i'm shery on in new york. haidi: and another big name to the surge of chinese company listing in the united states. tencent music filed for a $1 billion new york ipo. chief correspondent stephen engle is following this latest addition. raisen: they will seek to up to one billion u.s. dollars, another tencent spin off, this in the music business. the music business has seen a bit of a turnaround with the likes of spotify. tencent music is a profitable company. it has three main businesses, one similar to spotify, a karaoke feature, i think called " we sing," a livestreaming of performances. a three-pronged approach to the

music business. investors into the music business in new york, which has long been plagued by piracy. it mirrors the efforts of those like spotify, which is a competitor. -- as welled spotify as tencent music helped music sales growth at the fastest pace since 1990's. warner music, sony music entertainment among the big first initial investors in tencent music. it again shows more optimism from chinese companies listing in the united states. the rush continues. we have seen chinese companies raising $7.4 billion on u.s. exchanges this year alone. almost double the amount last year. >> we saw tencent>>

re-announcing -- announcing a reorganization. stephen: it dovetails with what tencent is doing. it is under pressure on operating margins. we are seeing the worst quarterly stock performance since listing in 2004. there has been some pressure. they are doing this reorganization, which they launched on monday. they are trying to tap into new revenue streams, investing more heavily in the cloud. users, 872 million monthly active users for tencent music. it fits into the wechat ecosystem, with more than one billion users. 199t quarter profit, million u.s. dollars. if they are trying to tap into more revenue, this is an issue where they can diversify away

from pressured areas like gaining, which is under -- areas like gaming, which is under regulatory pressure. they will have to boost that a little bit, but it dovetails into the wechat ecosystem. if they are buying music, they are buying others on the platform. >> we have some breaking news out of the white house, the white house now saying the irs signed off on president trump's deal decades ago, that the comments on the story about president trump's wealth or misleading. we have the new york times story that president trump received at least $413 million from his father's real estate empire, and this money came from dubious tax schemes he participated in

during the 1990's, including instances of outright fraud. the white house is responding to the new york times article, saying when it comes to president trump's wealth, that the story is misleading, that the irs signed off on those deals decades ago. that is the latest we have on president trump and his wealth. the white house responding to those allegations on the new york times story. plenty more coming up. this is bloomberg. ♪

shery: this is "daybreak: asia." haidi: a quick check of your latest is this flash headlines. pricing hurting its airline business. more expensive jet fuel is negative for cathay pacific.

its marine services division will only benefit if the oil price stays at a high level for a sustained period. shery: foreign exchanges over around in -- exchanges overwhelmed in iran. dealers in tehran offering 135,000 riyals to the dollar. the riyal has suffered since president trump withdrew from the nuclear deal and threatened to impose new sanctions. not clear if the rally can be sustained. haidi: fc barcelona claims it is the first club in the world to pass $1 billion in revenue. eight straight year it closed with a profit. clubs a big year, the saying one reason for the increase was the new cycle of

payments. mark zuckerberg has won the support of facebook's leading board members. toing he is the right person lead the company after trust issues and privacy lapses. hyperloop transportation echnologies in spain to unveil a high-speed system claiming two top speeds of 1200 kilometers per hour, meaning a trip from madrid to barcelona would take about 25 minutes. the hyperloop is a system that propels levitating pods powered by electricity and magnetism through low friction pipes. the market open in japan and australia is almost upon us.

we are going to take you now to another "make america great mississippi,n president trump just coming out to the crowd. this is bloomberg. ♪

haidi: asia's major markets have just opened for trade. shery: good morning from bloomberg's global headquarters in new york. to "daybreak:e asia." haidi: our top stories this wednesday -- asian markets have little cause for optimism. oil remains high, yen remains weak. trade tensions rattled on. jay powell salutes the american strong economy, and says the

employment should not surprise inflation. toyota says the new north american trade deal soothes the road ahead. haidi: let's get a check of the markets. we saw usmca deal trade boosting optimism. stocks gained ground. small caps led losses. automakers filling the drag out of auto sales numbers in september, a little bit disappointing. sophie: with that backdrop, asian stocks are facing an uphill battle, even japan succumbing to the doldrums. 2/10th of 255 off by 1%. in new zealand, stocks set for a third day of losses. soft data putting pressure on the kiwi dollar. pointing to softer employment

growth, slowing to an 11 month low. in sydney, we are seeing a bit of gain after a two-day decline. aussie dollar trading near a two-week low. indonesia will be in focus today. we will be keeping an eye on its attempts to rein in the rupiah meltdown. looking study after surging -- steady after surging tuesday. let's look at how asian notes have fared. 10-year gilts prompting indonesia to attract inflows. policy and kiwi bonds getting a boost from italian budget concerns, worried they may trigger a euro crisis. elsewhere you have oil prices holding near four-year highs. iron irore in singapore hitting

69. china hits peak steel this year. south korean markets closed today for national foundation day. china remaining on holiday for the golden week. holiday thatis a continues, doesn't it? let's get you to first word news with jessica summers. jessica: the white house says claims about president trump's wealth in a new york times investigation are misleading. the new york tax department is reviewing papers cleaning much of trump -- claiming much of trump's wealth came from his father, receiving the equivalent of at least 413 dollars from his father's real estate empire. alibaba boss jack ma warning the escalating trade war will be long-lived. speaking at the wto, he said

president trump's policy would destroy not only u.s.-china business, but a range of small firms. he expected the fallout to last 20 years. the president trend to pull america out of -- threatened to toll america out of the w unless it is more beneficial to the u.s. ford outsold by fiat chrysler for the first time in a decade. analysts say ford is struggling with aging suvs, collapsing car sales, and king of the road f series finding itself the oldest pick up on the market. ford hopes next year's updated estate and exploiter will turn things around. tesla slumped, despite beating delivery estimates in the third quarter. 383,500 models in november. tesla says trade tensions

between washington and beijing have been a drag, but numbers indicate they may be on track for an elusive profit. they have production plans in shanghai. global news 24 hours a day on air and on tictoc on twitter, powered by 2700 journalists and analysts in 120 countries. i'm jessica summers. this is bloomberg. haidi: let's get more on how markets are shaping up in asia. our lives strategist here in sydney. not much for markets to get excited about. hong kong had a shocker yesterday. can japan get things going? >> is pretty concerning because the yen overnight suddenly got strong. it looks very much like it was a haven play with italy, as you were mentioning before. the timing is rather poor, because japan had that great

bounce around the time abe got back in. there was the revival of abenomics optimism. way,t smacked this everything is messy with china being out for the holidays. there are a lot of of nasty issues. theerday concerning to see nikkei. i was looking at the asia-pacific. we have a chart to show you. in january,eaked then it bounced around for a while. the hope was it would break back up to the top side, the same way u.s. shares were doing. it dropped off, now we are bouncing again. we had a late september rally that took us to where we may have cracked to the upside, and

japan did, but everything else is still stuck in its box. with that momentum fading, if we see further declines, we could be facing a situation where we dropped down into another lower range. this becomes a baked in gradual step by step slide down the mountainside. shery: of course we also saw indonesia's rupiah pass the 50,000 mark. they lost, what, 10% this year? any hope they can stop the slide there? garfield: they are battling hard. took a an story, i pause. it is hard to tell whether this is exhaustion, a slump, or whether the government is going

to do very much. negative feedback loop every time you think emerging markets are going to take a break. argentina, turkey settle down. assets does to risk hurts emerging markets, indonesia itself. i think the bank of indonesia missed a trick last week, where it was not hard-core enough about raising rates, which for example is part of what halted the argentinian peso's decline on a couple of occasions, although the jury is still out on that. it is something we will be watching for the next couple weeks. is this the end, or are we going to get a further series of spikes in the ustr rate? shery: you can find his commentary on m live . haidi: fed chief jay powell

saluting what he called an extraordinary u.s. economy that justifies continued gradual rate hikes. but for emerging markets, steady factor inning is one the cocktail that puts their markets into reverse. when it came to chair powell being optimistic about the u.s. economy, not surprising. inflation still subdued. goldilocks scenario. >> 1990's all over again when you can have stronger growth, low unemployment. it doesn't show a lot of signs of accelerating. even though wages are starting to rise, which jay powell says is a very good thing. that is why he says it is an extraordinary economy. you are still normalizing it. you have to stay on a gradual rate hike path. they will push up inflation quickly.

let's listen to one of the things he said when he gave his speech earlier today. chair powell: our course is clear, conduct policy symmetric with our 2% inflation objective, and stand ready to act with authority if expectations materially drift up or down. kathleen: even though jay powell said you have to have these gradual rate hikes to balance growing --n economy let's not forget those tax cuts earlier this year. i want to go to a chart that puts this in perspective. you can see average hourly earnings, that gauge of wages. 2.9%, but it is not breaking out of this range. and you have the court pce deflator coming back a little bit. that is maybe why jay powell is celebrating what he sees, but not signaling any aggressive

rate hikes. powelland the rate hikes says the u.s. economy can with strength -- can withstand being a risk to emerging markets. one of the reasons you should be careful when it comes to getting back into e.m. kathleen: the cheaper they get, people say hey, time to buy emerging markets. me time -- mohammed is trying to say there are too many risks. >> high oil prices, stronger dollar, slowing growth, and tightening financial conditions are not a great cocktail for most emerging markets. in the short-term, be careful. this is not yet time for the anti-divergence rate. it will come, but not here.

you don't have to jump in quickly. you can wait to see if a trend continues. sophie and garfield laid out the rupiah's woes. the rand and turkish lira also getting beat up as well. when we get closer to the imf thank world meetings, a lot of these emerging markets concerns will be discussed in various ways, panels, interviews, etc. fact thatdismiss the bond yields, etc are waiting on emerging markets. shery: these budget woes did hit e.m.s. certainly bad for emerging markets. is this kind of a proxy threat

we are seeing? kathleen: it reminds people we have had a few episodes of crises within the eurozone that have not just hit within eurozone countries, they also spilled more broadly into global markets. italian bond yields hit the post 2014 high. goldman sachs thinks there is a risk of contagion from italy is pretty quickly. an italian budget official from the lower house said the euro is not sufficient to solve italy's budget woes. let's take another look at a chart -- let me go back to this one. there we go. we've got so many great charts in a bloomberg library. greece is what we are looking at. we want to head up in time to today. boom -- you are where you want to be. look how italy's bond yields are rising.

portugal is the blue line. the yellow line is spain. they are not moving much yet. jim o'neill, the man who burned that whole. he created the term bricks -- a few months ago was saying italy may not be emerging-market, but saying they look like a risky country, why should they be part of the g7?, etc. if they are not going to accept migrants, what that will mean for the future of the zone. shery: still ahead, credit suisse sees reason to be bullish after our conversation, even if there we have these -- even after we have these headwinds. we will see if the recovery can be sustained. haidi: the bears are on the prowl in hong kong. we look at trade tensions amid

rising u.s. rates. this is bloomberg. ♪

shery: this is "daybreak: asia." says: our next guest underway to the hun sen index, joining us now from hong kong. in a week that is absent mainland markets because of the national holiday, you saw a horrible day for hong kong markets yesterday. do you see this as being a sustained phenomenon? >> regrettably i do. this is operating in the opposite direction, given that hong kong is experiencing outflows. it indeed means asset prices come under pressure.

in hong kong at the moment, real interest rates are moving up. that tends to be difficult for a very asset driven equity market like hong kong. in contrast, the chinese are going to keep interest rates close to negative over the next 12 to 18 months. policy will have to be very loose. china marketthe may do better than its partner in hong kong. shery: relatively better, or significantly better? i am curious what has been a hindrance to a meaningful rebound in mainland market. >> that is a really good question. in a lot of ways, there was a huge policy reversal by the pboc after what was a credit crunch in may and june this year. they seem to have created the architecture they had back in

2016, which was a reasonably steep yield curve, doing a significant amount of reserve ratio cuts. i think the biggest difficulty has been sentiment. there seems to be quite a large margin financing that was impacted by the collapse of the p2p platforms. equally that collateral issue undermines sentiment. in reality, a lot of the shares are cheap. you can move away from the developers, which are asset driven. some cases.ows in that means those stocks will be reasonably supported. shery: we have more analysts calling for a weaker yuan, saying beijing will lean on a yuan weakness.

what will that mean for the attractiveness of chinese assets? sean: we have also been in the ways, the in a lot of authorities in china would have to let the exchange rate move through 7% cyclically. that could be a lot of relief for investors. is really that the policy setting has to be entirely right in china. not necessarily due to the trade war, but you have to keep rates close to zero or negative, again keeping the exchange rate relatively weak. bear in mind other countries, particularly japan, have been happy to see a relatively strong yuan. once we break through that psychological 7% level, there should not be too many obstacles for equity investors to put money into the a-shares. keep in mind the petrochemicals

and steels, their revenues are generated in dollars, so they look attractive at this point. --di: two point on bloombergart showing sentiment could be dampened. weakening for a third straight quarter in a decade. are we reaching a peak in optimism in japan, given there is uncertainty when it comes to trade? the: post the elections, only real issue in the headlights is the trade negotiations with the u.s. please have revolved around the auto sector.

i don't think it will be any different for japan. the key thing for us is a great deal of japan's exports go to d.m. what we have seen with e.m. in the last couple months does not have as big of an impact on japan as many think. sentiment surveys tend to be a very much day-to-day occurrence. if you look at utilization rates and asset turnover in japan, they have been picking up alongside pricing power. what has injured japan has been the deflationary environment. corporate profits has been reasonably good, even what has been a sluggish 2018. haidi: no wonder we saw the nikkei touch twenty-year highs. you can get a roundup of the stories you need to know to get your day going in today's

edition of daybreak. bloomberg subscribers go to dayb on your terminal. you can choose the asset classes you want to follow, the stories you want to see on your left column. you can get a brief summary of the things you want to follow. dayb on the terminal. this is bloomberg. ♪

shery: this is "daybreak: asia." i'm sheyr ahn in new york. haidi: president trump continuing his campaign ahead of the key midterms. he is at a "make america great again" rally. has had a lot to say when it comes to the kavanaugh investigation. his hearing expected to take place pretty soon. trump calling the democrats the party of crime. he is talking about them trying

to destroy kavanaugh since his nomination. trump says he has always heard kavanaugh is "a near perfect person, and that really evil people are trying to destroy him." president trump has been on the campaign trail for quite a while. his third in four days. southaven, mississippi, talking about everything from his supreme court nominee kavanaugh to the economy. he is saying the election is a referendum on himself, that really evil people are trying to destroy his supreme court nominee. as you mentioned, the fbi carrying out that investigation before a vote on his supreme court nominee. shery: let's get a quick check of the latest business flash headlines. tencent's music streaming arm has filed for an ipo in new york, seeking to raise at least

$1 billion. tencent music preparing to sell shares after its parent reported first-quarter drop in a decade. that followed new game approval resurgence imposed by beijing. literature spin off holdings has fallen off in hong kong this year. haidi: foreign-exchange boosts in iran, as the riyadh -- offering hundred 35,000 riyals to the dollar, where only a day before the price was as high as 190,000. the currency suffered since president trump withdrew from the nuclear deal and threatened to impose new sanctions. unclear whether this rally can be sustained. shery: next, asian automakers hit bumps in the u.s., but could the new trade deal with mexico and canada lead to better

roads ahead? we have the details next. this is bloomberg. ♪

shery: 8:30 in hong kong, an hour away from the open of trading. it was a horror show if you were a hong kong bull. hong kong dollar coming under pressure. the fed tightening, as well as what we have seen in terms of liquidity conditions, doing no favors for peers of the shop sellers. watching very keenly in terms of whether we will see a rebound today. so far we have asian-pacific stocks trading to the downside, 1/10th of 1%. shery: you are watching

"daybreak: asia." let's get the first word news. here is jessica summers. jessica: fed chairman jay powell says he welcomes recent pay increases and confident low unemployment will not stoke inflation. he said wage rises were broadly in line with the fed's vision, and don't point to the labor market overheating. powell expects the market to stick with gradual just rates hikes while monitoring a preordained set of risks. chair powell: this rare pairing is a testament to the fact we remain in extraordinary times. our ongoing policy of gradual interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times. so as to extend the current expansion while maintaining maximum employment and low and stable inflation. haidi: amazon bowed to political pressure and will raise the

minimum wage for staff in the u.s. and u.k.. the company will offer $15 an hour to more than a quarter of a million employees, along with about 100,000 seasonal workers. in the u.k., the hourly wage in the london area will rise to the $12.30ent of $13.60 and elsewhere. italy's government sticking with target,udget deficit despite warnings from the eu on spending. fears that italy is unsustainable "a serious concern." bond yields touched a four-year high. a rare six-year-old mcallen could set a record at auction, as wealthy buyers continue to favor limited edition software sees. one of 12 bottles, presale estimates of $1.2 million tops

the current record of $1.1 million, set by the same vintage in hong kong. global news 24 hours a day on air and on tictoc on twitter, powered by 2700 journalists and analysts in 120 more than countries. i'm jessica summers. this is bloomberg. haidi: it's time to take a look at how asian markets are shaping up this evening, or shaping down might be more accurate. asian: a midweek hump for stocks. there is a bright spot from ofney, with the asx 200 out declining -- even japan succumbing to declines. nikkei 225 set for the first drop in four days.

let's check in on how the yen is faring. a retreat from an 11 month low. in light of italian budget risk stoking fears of a eurozone crisis. that helps gold stay above $1200 an ounce. brent, some weakness coming through, but holding at four-year highs. let's check in on japanese automakers. they are sliding this morning after posting a drop in u.s. auto sales. toyota and honda disappointed after a steeper than anticipated drop. panasonic falling with other tesla suppliers in tokyo, this as the carmaker did not provide clues about model three production and demand trends. the lender saying it has yet to receive a penalty notice from policy lenders. the f will temporarilysa

restrict lending by the bank. daito trust with a rise, the first since march. this ahead of frontloading on the consumption tax hike. this after it was driven higher by increased prospects fo rising demandr for lithium. , statehere in new york authorities opened an investigation into the trump family fortune after allegations of fraud reported by the new york times. the white house responded, calling the story misleading. we are joined by our senior international editor. this story is huge. it is really long, first of all. there are lots of details about

how the trump family amassed their wealth. key, it seems, it claims president trump helped in dodging taxes for his parents. what are the implications? >> one of the implications you already mentioned, that state tax authorities in new york are looking into these allegations printed in the new york times. among them that the trump family , in building that real estate fortune, engaged in instances of outright fraud, evading potentially hundreds of millions of dollars in taxes. also -- president trump's deceased father, according to the newspaper's report, has lent him much more money than previously disclosed, and backstopped his businesses when they needed help. the white house is denying this.

president trump's statement saying what he calls the failing new york times has, out with a very misleading article. he says all of these transactions were approved by the irs. of course president trump has not disclosed his tax returns, ha repeatedly sayss he won't show his tax returns. this is a practice many presidents do, have in the past. shery: we are watching president trump at the moment as he is speaking to the crowds in mississippi at his latest "make america great again" campaign. he spoke about kavanaugh, essentially doubling down on his support as supreme court nominee as this fbi investigation could wrap up soon. jodi: he came out with a statement saying it is sad, a s cary day for men in the u.s.,

that they are guilty before proven innocent on such kinds of charges. the investigation continues, will continue this week. the senate is expected to have plymouth area votes. -- have preliminary votes. mitch mcconnell saying that, also that only senators will see the fbi report, and it should not take them long to read. two womenr the women, who have accused judge kavanaugh of sexual misconduct, say the investigation needs to be more thorough. we will continue to monitor as the president continues to speak at that rally in mississippi. let's take a look at the auto sector, because it was a rough september for automakers as

sales in the u.s. plummet. what was behind these results? clearly trade is front and center for all the auto business leaders at the moment. was partly down to a fluke in the timing. a year ago in september, it was the recovery from hurricane harvey and everyone was buying new vehicles. their previous vehicles had been flooded. trucks and suvs had been bought at that time. coming into this year, is a tough month to be compared against. analysts knew this already. pretty much everybody fell short of analyst estimates. toyota among them. it did benefit the most among automakers a year ago from the

, the sales post-harvey. there is obviously something else going on here too. for japanese carmakers in particular, they have a car heavy lineup. car sales are plummeting, so that is a big burden for the. shery: at least there could be hope given that auto tariffs will not be imposed on japanese carmakers while the trade war goes on. next? is and anyor carmakers business, what they hate is uncertainty. anything that gives them a bit of clarity where they can plan further in the future is good news. we have the new trade agreement

to replace nafta. years and years, i guess decades and decades of supply chains built up around the idea that goods can move freely across north american borders. 'syota makes all of its rav-4 in japan or canada. they will have a brand-new rav-4 model coming out this year. with that, really coming out strong as their hot seller, that is a big relief for toyota. >> bloomberg reporter kevin buckland joining us from tokyo. we are seeing the new trade agreement between u.s., mexico, and canada breathing new life into the auto sales. the recent trade spat with china having a limited impact on the industry. >> for us, it is a relief. the last and worst situation is uncertainty.

we don't like uncertainty. industry, wetive like to have stability. in a certain way, it is more important to have visibility than have no visibility at all. in this case, i think there have been a lot of risks around the future of nafta. the fact that the three countries agreed on something is very important for us. we are not going to get into who wins and who loses, this is the relevant. what is relevant is we have an agreement that will give visibility to the relations between the three countries for many years to come. >> you have two very big factories in the u.s., making up the 1.5 million cars sold there. do you think you will increase your production in the u.s. in this deal? >> we will.

north america as a market is alive again through this agreement. we are very happy. we have large capacities in the united states. we have large capacities in mexico, serving not only the three countries, but exporting outside north america. marketolution of the will encourage us, now that we know exactly the rules to invest. es, weg what are the rul can have more diversity in the united states or mexico. >> does that mean an increase in investments there? carlos: i don't think it will be an increase in investors, but there was a period of not knowing the agreements, that we have a hold on some investments waiting on the rules. now that the rules have been decided by the three countries, investments will resume again, because we know exactly what will be the rules for the

convention. >> however the trade war with china remains. how are you impacted by the and ther with china, retaliation we are seeing against u.s. cars? carlos: we don't like trade friction in general. we don't think this is good for business. this is not good for global trade. this is not good for global companies in general. in this case of trade frictions between the united states and alliance, we an have very little impact. it doesn't mean we don't care. we care about free trade, we care about open borders, we care about minimized friction between the countries. that is our situation. >> that was renault eo speaking

to bloomberg at the paris motor show. coming up, italy rattles european markets. investors concerned about a proposal to increase budget deficits. we will take a look at the impact on italian assets and the euro next. this is bloomberg. ♪

shery: this is "daybreak: asia." i'm shery ahn in new york. haidi: we're told italian assets are under pressure amid concerns of the populist government. the dollar pushed hires while emerging markets slid. we looking at italy as becoming something of a proxy threat, particularly for emerging markets this point? >> italy's main problem for emerging markets is its impact on the europe.

it is emerging-market currencies versus the dollar tend to follow the direction the euro moves in versus the dollar. italy has hurt the euro, pushing it down to this mid-115 type of level. that has moved the dollar stronger versus emerging-market currencies. if italy has an issue and this italian war on the eu continues, and it suppresses the euro-dollar further, it will put upward pressure on the dollar versus other emerging-market currencies, including asian currencies. we would weaken further as the euro weakens against the dollar. haidi: what is your assumption if we see another leg of worsening for the trade war? do we assume the dollar still has room to strengthen? aspects thattwo are important. the first is starting at the top, what happens to the euro? thisouse view is a lot of

italian stress will pass, and that the european economy will progressively do a little bit better. not necessarily accelerate powerfully, but enough to get markets to believe the ecb could tighten policy slightly earlier rather than later in 2019. that should strengthen the euro progressively. not in the next three months, but the next six to nine months into 2021. it will help emerging-market currencies, including the yuan. the situation with the yuan versus the dollar is quite tricky. we like to hope there will be a trade deal. just overnight larry kudlow announced u.s. an chinese officialsd would be meeting in december at the g20 meetings. if there isn't a trade deal that

happens soon and we progress to a situation of 25% tariff on this new $200 billion list, taking it to a list of $250 billion in good, there will likely be upward pressure on dollar china into 2019. more as a scenario than anything else right now, but in that scenario the dollar china could go higher if the euro is not meaningfully stronger. shery: to your point on italy's problems passing, we are seeing this chart on the bloomberg library showing italian yields spiking after the election, now even getting close to the yield levels of greece, getting past portugal. if this is more about fiscal weakness within italy, is it reasonable to think this will pass?

how long will it take for the risks to fade? ray: markets are pricing, in large part, a further downgrade of the italian credit rating by the end of this month. there was some hope that would not happen if italy passed a budget that conformed to eu regulation, something closer to 2% of gdp and begin a conversion toward the balance. that is not what has come out. the government has chosen this confrontational approach with 2.4% of gdp deficit. that doesn't allow for convergence. it doesn't stop gdp from rising. markets are concerned that there will be a downgrade of italy, and that will take it to only one notch above investment-grade, create the risk italy could be downgraded to come in the future, a low investment-grade. as you noted, italy is priced

beyond portugal. the other risk is this confrontational approach with the eu ultimately rekindles this question of whether italy remains in the eu, whether it tries to exit the euro area. that is a very difficult, messy process markets would not like. -- we quickly if you can have seen a bit of a recovery in the yen. will this be sustained, or will have all the potential recovery boosts already peaked? ray: it is a good question. there is a chance e.m. could perform better over the next several months for a few reasons. the worst e.m. specific risks have been taken out of the market. turkey has done the right thing in terms of raising interest rates more than expected, coming up with a budget that looks to be credible.

anything, being taken care of by the imf. there are the elections in brazil that are of substance, but that risk has been priced. the mexico risk related to nafta has been taken out as well. against that background, we think global momentum in growth in the industrial sector is going to continue to accelerate through the rest of this year. that tends to be good for risk appetite, for equities, for emerging markets. there are a couple key risks that are a real threat. one is the whole euro question we just discussed related to italy. another is the oil price continues to grind higher. andasian, india, indonesia, the philippines, rising oil price is a major problem. finally there is the china question.

net-net, we would be more constructive about emerging markets in several months, but there are still some key risks that need to be monitored. shery: thank you so much for your time. plenty more ahead on "daybreak: asia." this is bloomberg. ♪

shery: this is "daybreak: asia."

we are continuing to listen out for president trump as he holds course in southaven mississippi at this "make america great again" rally. we are counting down to the elections. trump is doubling down on his support of brett kavanaugh as supreme court nominee, saying there are evil people trying to destroy him. he has now moved on to criticizing the european union. he says the eu project was set up to take advantage of the u.s. he does not think junker likes the u.s. very much. shery: interestingly, president trump on his third rally in the past four days. he has been on the campaign trail, talking about everything was the eu, saying the eu set up to take advantage of the u.s. eu trade talks ongoing right now. he talked about on tuesday about

china, saying the u.s. has a great relationship with china. of course a lot on the upcoming elections, saying it is a referendum on himself. midterms on november 6. let's take a look at the markets trading right now. the nikkei down 4/10th of 1%. the kospi under pressure. taking a look at asian futures, we are seeing pressure going into the hong kong open on the hong kong dollar. lowest since september 21. seeing more positivity when it comes to trading.

>> it is almost 9:00 a.m. in hong kong. >> markets across the asia-pacific slide for a third straight day and investors weigh mounting risks in italy and indonesia. disappointing sales for japanese automakers in the u.s.. honda and mazda are headed down. fedmerging markets say the rate hikes are a toxic cocktail. >> and tencent hopes to hit the right note and raise at least $1 billion.