haidi: australian markets have just opened for trade. >> from bloomberg's global headquarters in new york, i am shery ahn. sophie: and i am sophie kamaruddin in hong kong. welcome to "daybreak asia." haidi: china cutting the reserve ratio a fourth time this year to support the economy amid a worsening trade work. returning from the golden week break. a spat between asia and beijing. brazil votes in a divisive election. the right-winger is the first round favorite, but no outright victory is seen.

>> let's get started with a check of the markets. on the friday session, u.s. treasury's continued to fall and yields continue to search higher , the 10 year yield popping 33.2% at the highest level since 2011. that puts pressure on equity markets. , thew the dow falling .7% s&p 500, every sector but utilities in the red as well. the nasdaq falling to the lowest level since august. of course, we had some jobs and data out as well, and there was speculation the fed will continue to hike rates. let's see how this translates in asian markets. sophie: japanese markets are

off-line for another long weekend and treasury markets will be closed for the columbus day holiday in the u.s. korean futures handing out losses after a five-day decline for the kospi and sydni trading kicking off early with the changing of the clocks. the asx 200 off by .2%. we are waiting on job ads and forex reserve data later today. aussie bond yields continuing to climb, 10 year yield by four basis points while the aussie dollar is trading near two year lows. keeping an eye on this bank, off by nearly 1% this morning after two day rise after the lender flagged an after-tax hit to earnings on the rising cost to clean up and structure the business. results are due on october 31. forellington, shares headed a six day of losses, the longest since november. kiwi dollar looking steady after capping its worst week since last october.

chinese markets are reopening monday, with the yuan weakening fast 691, the offshore rate. toare watching for reactions last week's south pmi data. with the brazilian election in lookinglight, traders to trade a position for the mexican peso. investors could look to singapore is relatively liquid structures. we do have the mexican peso trading below 19 against the dollar. haidi: thank you for that. brazil votes in an election that has divided the nation. the right-wing candidate is leading in the first round of votes with 48% of the ballot. let's bring our sao paulo bureau chief. aswe have a bit more clarity to whether we will be going to the october a runoff?

julia: right now it looks like we are, 80% of the presidential votes counted. , soeeds one vote over 50% we are heading into the final 15% for now, runoff on october candidates, who got 27% of the vote so far. haidi: bolsonaro is more market friendly as a candidate despite not having a great deal of detail about his economic policies. julia: that's right. markets have chosen their favorite and it is bolsonaro. we saw a massive rally last week when bolsonaro started gaining in polls. he had been steady and there was discussion whether he had hit a ceiling because he is such a polarizing figure. i believe in the last fall he had about 35% and markets love that. shery: in recent elections, the winner of the first round ended up winning the second round as well.

could this be the case, or is this a more unique collection? julia: this has been for everybody a very difficult election to call. a month ago had 4% of voter intentions, he is coming in at 27% because he is backed by the former president. at the same time, the opposition to the workers party and the former president is strong. people don't want the workers party back. bolsonaro represents the opposite of that. it has been hard to call. both candidates have rejection rates over 40%. it has been a lot of, who are you voting against instead of for. foreign media has been focusing mostly on the presidential election, but the house is up for reelection, two thirds of the senate. what does this mean for presidential elections and also

the outlook for the brazilian economy, if you get a more fragmented congress? julia: brazilian congress is difficult. they have over 30 parties represented. so far, we have seen a little more market friendly names or people that the markets prefer. former president dilma rousseff running for senate and way ahead in polls and it looks like she is not going to get elected, coming in forest for now. we might have more of a market friendly congress to pass the agenda that investors want so much. shery: especially the pension reform system. julia, thank you so much. you can also turn to your bloomberg for more on the election results. go to get commentary and analysis from bloomberg's expert editors. let's get the first word news with haslinda amin. saysnda: president trump

he hopes to meet kim jong-un soon after secretary of state mike pompeo reported progress in pyongyang. he flew back to seoul, saying kim bama agreed to hold a second summit as soon as possible and the u.s. and north korea had to formal negotiating groups to set a timetable for denuclearization. pompeo told president moon all sides have taken a step forward. the republican party had stored next month's midterm elections, convinced that the confirmation of brett kavanaugh will bolster their effort. the partisan battle in the senate ended with a 50-48 vote in kavanaugh's favorite, the nara's margin in 130 years, and the outcome will shape u.s. law for decades. the supreme court is more conservative than at any time since -- saudi arabia says it fulfilled a pledge to offset oil losses due to u.s. sanctions on iran.

crown prince mohammed tells bloomberg the kingdom will produce more crude to offset shortages when washington's measures go into effect next month. however, president trump continues to attack opec for high oil prices and has demanded action to bring the cost down. in number of people killed the earthquake has risen to 1763 with more than 5000 still unaccounted for. aid continues to arrive as the government says it is considering creating mass graves because of the number of victims. the force liquefied the soil in many areas, swallowing villages and making it unsafe for heavy diggers. 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 haslinda amin. this is bloomberg. china has cut back

reserve requirements for the fourth time this year as policymakers try to shore up a faltering economy weighed down by a trade war. our china correspondent tom mackenzie joining us from beijing with the details. not really a surprise, but it does underscore the pressure the economy is now under. tom: absolutely, there are domestic and external pressures in the form of the shadow that looms over this economy in terms of the trade war between beijing and washington. domestically, you have seen a number of factors that have raised the concern of policy makers terms of slowing retail sales, drop in fixed asset investment, take up on bond defaults. last week, new export orders slowed, disappointing manufacturing data. it is in that context that we on this 1% cut taking place october 15, expected to free up

about $175 billion liquidity. a third of that will go to paying down debt and the rest will be pumped into the system. ubs says this is a positive. overall it will lift sentiment, she expects, and send a stronger easing signal. that is the line from ubs. it is within this context of this gradual slowdown in the chinese economy and increased concerns about the impact of the trade war. we are watching the offshore u.n. very keenly. the pboc saying this is not something you should interpret as indicative of further depreciation in the currency. yes, it is interesting, pboc saying they are sticking to a prudent and neutral policy, other economists saying they are seeing signs they are moving more toward easing. the pboc also saying it is not going to lead to devaluation of

the yuan. believe that is hard to , particularly in the context of the rate hikes in the fed. they expect potentially to see an increase in outflows. it was interesting to see the fx reserves over the weekend came down. september dropped by about $23 billion, relatively modest, but a note put out by an economist saying you could be in an inflection point where you see a take-up and capital outflows. the minister of foreign exchange saying this is more about a change in valuation of some foreign exchange holdings, rather than a tick up in capital outflows. they do have controls in place, but that is something that is keenly watched as to what extent pressure will be on those outflows going forward. we are looking to markets today. shenzhen opening up after the weeklong holiday to see how traders take in all of this, and

the fixing as well, at 9:15 local time, for the currency. lots of catching up to do, tom mackenzie back from golden week in beijing. we are going to talk more about these efforts by beijing and the pboc to throw money at the problem, the slowdown in the economy, the worsening trade situation. we will talk more about the rrr cut as well as key numbers due out this week, including liquidity and loans. money supply data, a pretty good indicator of domestic conditions. shery: that conversation will be interesting. with another trump-kim summit, we will look at north korea with the author brian myers. this is bloomberg. ♪

shery: this is "daybreak asia."

i am shery ahn in new york. haidi: and i am haidi stroud-watts in sydney. top story from asia, the pboc lowering the required reserve from banks to shore up the economy by releasing liquidity. let's discuss that with alicia garcia herrero. this is the fourth time this year and the second time in three months the pboc has done this. do we sense a greater urgency, given the nature of the slowdown worsening of the trade relationship? >> absolutely. it is urgent and the pboc started back in march this year, so they have been aware of the importance of their actions, for two reasons. first, finance. the fiscal stimulus that is also going on. we are very aware that tax cuts are all over the place in china, $1.1 trillion u.s., bigger than the corporate tax reform in the u.s.

they also have infrastructure plans for local government that monetary policy can only ease finance. by the way, they also need to restructure the banks, i.e. the forx, which as you remember the one before last cutting requirements was one of the conditions for banks to use that liquidity. the pboc wants banks to lend, wants banks to clean their balance sheets so they can lead more. very important for china. all those issues that you talk of, largely structural, large-scale reform we are talking about, was going to be challenging even before we had the trade war. can they still do it well managing this gradual soft landing? >> they need to do it, because banks are still today the most

effective mechanism for china to conduct policies. the fiscal policies in 2008 by bank lending to local governments. lendneed these banks to and they need to bring down requirements for that purpose. the trade war only pushes that further. if you think about chinese banks aoking for financing abroad, very obvious place to be in 2017 , 2016 even more. the economy is so much more extensive today, so they need to go back to the mainland. we are seeing increasing onshore borrowing, bond issuance, as opposed to hong kong or other offshore centers. they need liquidity more than ever, because it is not only the trade war, it is also the fed. pressure yields, basically

pushing up the funding for corporate even further. shery: the pboc says this latest rrr cut will not lead to more yuan depreciation. but this gtv chart on the bloomberg showing that we have seen a bit of weakening in the offshore yuan, not so much the onshore, golden week holidays halting trading. what is your call for the yuan? if this trade were continues, will china lose incentive to keep the yuan supported? >> i don't think the pboc will want to use the remember the -- the remimbi. i just don't think that is the way to go because there is more to lose than to win. what china can lose is its own savings. reserves goingn all the way out of the country. the offshore market is

increasingly led because it is so hard. we even heard the pboc will be issuing notes to make sure the offshore market does not show where the market wants to head. that is where the market thinks the remedy should go -- where the renminbi think the market should go. i think it will stay broadly stable, so much better for china and the pboc will do its utmost to keep it that way. we will see some fluctuations. you are seeing the market reaction to what they thought was coming, which is more stimulus. shery: far from stability, the indian rupee. we got a surprise decision with the r.b.i. not acting, just letting the stock markets and rupee fall. can we expect there to be no end insight when it comes to the rupees decline? >> it was kind of a weird move, i agree.

think about the philippine central bank, indonesian central bank. everybody in those circumstances , if not better for me -- philippines has a much better fiscal account situation then india today. reacting is the big question. i think somehow they are playing with fire. they should remember where they were in 2013, and it is better to act swiftly than wait until the market forces you. they were very close to that, so they can end up again with a massive rupee devaluation. i feel like red run rajan has his views on that. the pressure on the rupee is also being exacerbated when you look at the impact of oil prices. i want to take you to this gtv

chart, taking a look at the strong crude. now you have the weaker repeal adding to fuel prices. that is going to have an impact when it comes to inflation, even though the rbis suggested that was being contained for now. what happens when we have another leg of a stronger dollar. is that what you assume, the combination of oil and dollar will play out, not just for the rupee, but emerging-market currencies generally? >> what's going to happen is probably what happened in 2013, a much weaker rupee and the r.b.i. will react in the following direction. r.b.i. will hike rates, late but shortly. then we will see import tariffs. we have already seen some of those on steel. we could see them on gold again. they just need to cut the current account deficit. i agree that is not as large as it was in 2013, but frankly we have a very strong dollar and a very difficult global situation

for the yen. i think they are going to restrict imports soon, probably announce a mini budget to reduce the fiscal deficit. more both fiscal and monetary restraint down the road. shery: we are expecting a new global financial outlook from the imf when imf and world bank meet this week. we have heard from christine lagarde saying trade tensions and shrinking the quiddity globally is going to have an impact on darkening the global outlook. when will we see that play out in asia, given it is such a hub in the world vulnerable to trade and liquidity outflows? >> it is a good question, because if you look at pmi in asia, they have been very good lately. it seems if asia had not been shielded on the financial side, stock markets and currencies have reacted aggressively to the much worse and financial and

trade environment. but not really the economy. how long can it last? thatnk frankly we forget asia is much more insulated than 2013 to the globe's economy. that is very important. domestic demand is increasingly important for this country. i would argue we could be possibly surprised, given that china -- will help many of these economies. maybe i would argue that christine lagarde may revise for the world, but asia will be more shielded. things with china similar. -- domestic demand playing a big role. they are not falling behind the curve, a question mark, for india, but the rest may no longer lose capital and attract more because of the difference between domestic demand and other em economies, such as

latin america or even the middle east. i am not so negative on ema's. on the contrary, i think we could see a positive reaction in the market. that region is more insulated than the rest of the world to what is happening on the matter of trade, because trade so far is for asia itself and chinese themselves, to a large extent. haidi: we are going to leave things on that uplifting note. alicia garcia herrero, chief asian pacific economist joining us in hong kong. you can get a roundup of the stories you need to know to get your week going in today's edition of "daybreak." pboc cuts. bloomberg subscribers can go to dayb on your terminals. also available in the bloomberg anywhere app. you can customize your settings so you get news you care about. this is bloomberg. ♪

haidi: let's get a quick check of the latest business flash headlines. kkr has offered to buy an australian business management software company for $1.6 billion u.s. the firm offered three aussie dollar's and $.70 a share for the rest of myob, a 24% premium from the closing price on friday. kkr previously bought 18% of the company from bain capital. saudi arabia is raising its that that softbank will continue to pick the -- of the future. the public investment fund will make a second $45 billion payment into masayoshi son's second vision fund. is seeking ways of deploying a $170 billion windfall for his stake incel fake and the anticipated aramco ipo. haidi: after the golden week

holiday, we take a look at what chinese traders and investors will be bracing themselves for. the pboc rrr cut. this is bloomberg. ♪

haidi: it is 10:30 a.m. in sydney where markets have been trading very much to the downside. the asx down .1%. the biggest losses over 1.5% in materials and financials sectors, taking the lead from washington -- from wall street. asia-pacific stocks fell every single day last week. shery: u.s. stocks capping their worst week in a month. 7:30 in regard area markets closed -- in new york. markets closed down. futures unchanged. we sawtek and communication stocks -- we saw tech and communications eating the

charge. haidi: you are watching daybreak asia. news.get to first word wing candidate of personal it -- in brazil's election is leading with more than half the votes counted. not seen gaining any outright victory and will face a runoff election in three weeks. investors ignored his authoritarian streak and that on influences. -- bet on his market influences. the fourth time this year. the bank lowered the ratio for lenders by one percentage point at will release a total of $175 billion into the financial system. fellgn currency holdings after the steel capital outflows

and for the yuan depreciation. chinese investment into australia's slump -- australia slumped 40%. onre was a tougher stance property. monday will show chinese commercial investment peaked in 2016 at $14.9 billion australian before falling to $9 billion last year. are doing theces least hiring in 25 years. confidence plummets ahead of brexit. said thervived percentage of firms trying to recruit staff is at its lowest level since the early 1990's, and even those looking to hire are finding it hard. export sales and orders are at the lowest level since 2016. famous fish market has

closed after eight decades and shop owners and workers questioning the safety of its replacement. site willillion reopen the market. the move was delayed because of concerns of contamination. there are 500 wholesalers employing several thousand staff. 40,000 visited each day. 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. amin.aslinda this is bloomberg. thank you very let's check in on how australian markets are setting up for the rest of the week. great start given it is a holiday. australia not relate flying much of a flag for gainers today. aussie shares set to

step the advance of mining stocks area you have the likes of aluminum and south32 on the back after norse hydrus said it is ready to reset the biggest refinery at 50% capacity. anz bank under pressure after flagging $292 million after earnings -- after-tax earnings hit the annual earnings. we have a look at the leaderboards. let's take a look at myob, surging the most since it listed . milk gaming 1.5%. the ceo said the company is welcoming a new commerce regulation in china. that is a look at the movers in sydney so far. shery: we are welcoming china back to the fray, but given how hong kong has done, should the mainland markets be bracing for pain? sophie: hong kong saw their

worst week since february. many chinese investors think they are still on holiday. treasury yields, more pain is anticipated for the yuan and chinese bonds which haven't treated since said to 28. the 10 year bonds have shrunk to the narrowest since 2011 which could mean the debt even less appealing and putting more pressure on the currency. stocks are of secondary concern -- bigger fishst to fry. shery: let's look at u.s. stock markets. they ended last week on a bearish note. we also saw bond yields rise to the highest level in seven years on speculation the strong friday jobs report clears the way for more rate hikes. a fresh round of earnings could play a big role in more stocks. su keenan is here with the latest. in jobs right at the lowest

48 years, not relate surprising how the markets reacted. su: it looks like the fed has every reason to continue to raise rates. friday, we saw stocks and bonds selling off in concert. we haven't seen the since february with the selloff. abovee are at 3.23, february. the russell 2000, the broadest measure of the market, small-cap , the biggestanies increase last week. let's go into the gtv. you can find our library of charts. this is about the bond how speculate is our net short treasuries and at record levels. you see the yields and this red area is the shorts. there are many who have benefited from this trend. the concern many followed has monitors -- has monitors have --

let's go into the stocks that are likely to move in the coming session monday when it opens. we go to the board, errands out with a report on how the gold mining stocks could be a once-in-a-lifetime opportunity to buy in. that is expected to move. once a noble already moving, up 5% on speculation there is interest, buying interest whether private or strategic. could make a difference between eight dollars a share take it or something higher to $12. disney at 21st century fox both expected to move higher as the movie then am -- the movie venom breaks the box office. they are focusing on comic book characters. we have got september consumer confidence report out and imf events. that will be watched by investors. haidi: we have seen -- shery: we have seen surging

yields benefit the banks. what are we expecting? be withkickoff will wells fargo, citigroup and j.p. morgan chase. you can see they were down with the market, but clearly the rise in interest rates has been benefiting banks. they are leading the run-up's in prior sessions. in terms of what analysts are looking for, loan growth, trading revenue among key things. you should note the ceo jamie dimon said banks could be entering the golden age. there is a lot of debate whether this raises an issue of profitability and concern by investors. could it be as good as it gets? look at the other stocks. there has been a lot of volatility in stock performance. credit suisse says this quarter should be fine, will be more about the look forward.

economy, but they tamped down expectations for loan growth, which is what analysts and investors are focused on, and particularly what the focus to be for the banks in terms of their outlook. question markss over what oil does from here. look at data from hedge funds, they have pulled back on their bold positions that brent goes brentl positions that goes higher. what is behind that change? away. has been up, up and before we get to brent, this is the new york treated oil and it was at the highest of the year going into late last week. it fell off of those levels. trump has been warning and wanting lower oil prices, calling the king of saudi arabia. there has been a push back on that front. another is a view -- now there

is a view that opec would not be able to take oil off the market because the iran sanctions was over thought. for $100also called oil has given many pause. there is a forecast of that perhaps you will see brent thenach small back and approach $85 at the end of the year. but is much different from the $100. president trump will be dealing with a lot of nations in terms of how they are going to be handling his attempt to sanction iran. we will have more indications on how this will impact direction going forward. views on will get his high oil prices as well. su keenan with a look at the action on wall street. we look at the latest on north korea. mike pompeo reports progress in pyongyang. the makeup of the possible deal

with a professor. this is bloomberg. ♪

shery: we are counting down to the first major market open. looking at the kospi futures which are down .4%. not surprising given we have seen u.s. stocks had the worst week in a month. asian stocks also fell every single day the past week. every time the kospi came back from a holiday, they took a dive. they have been falling five sessions. i am shery ahn in new york. haidi: i am haidi stroud-watts. japanese investors are taking it off for sports and health day. maybe take a walk instead of looking at these bearish asian markets. a second trump-kim summit is in

the works after mike pompeo completed his fourth visit to pyongyang. stephen engle is following this. the meeting was more fruitful. stephen: mike pompeo has made four visits now. the last time was in july. he spent one night in pyongyang, and he left the next day without much. a little more animosity following the hugs of the singapore summit. north korean media, the day after he left, they called the white house tactics gangster style, so there was ill will. this time it seems more jovial. both sides issuing statements saying the talks were fruitful. this is what donald trump tweeted this weekend, saying mike pompeo had a good meeting with chairman kim. progress was made on the singapore summit agreement. i look forward to seeing

chairman kim in the near future. officials behind the scenes telling us they are trying to accelerate working level talks to make a second summit possible. kim also put out a statement saying they were productive and wonderful talks, and he expressed his gratitude to donald trump for the sincere efforts made by donald trump. both sides since july have bickered about the pace and steps needed towards denuclearization. the big question now is what a second summit achieve what the united states actually wants, which they didn't get in the first summit, and that is complete verifiable, irreversible denuclearization. shery: we are hearing from a newspaper, a headline crossing the bloomberg now saying north korea, kim jong-un has offered to scrap the icbm's in return

korean war.o the not sure if it means a peace treaty or a statement ending the war. either way china will play a key role in anything that happens in the korean peninsula. mike pompeo is going to beijing. i was surprised to hear given relations between the u.s. and china have been rocky. stephen: this is the most critical stop on this asian tour . he has met with shinzo abe, moon jae-in of south korea and kim jong-un, but now he will be going to beijing. given the trade tensions and ill will between china and the united states, the rising military tensions, the pledged show of force by the united china'savy as well as movements in the south china sea, there is going to be a lot

at stake in the talks with mike pompeo in beijing. will beijing show less willingness to help on the north korea issue? there is a lot at stake obviously. risk comehaps higher flitting of trade and geopolitical insecurity issues, in one basket. stephen: i think china is looking at ways to retaliate. now, the other side seems willing to have face-to-face negotiations. that is on the trade front. but on the military, there has been an icing as well. thank you so much. our chief north asia correspondent there with us in hong kong. lots on the agenda in terms of trade as well as geopolitical insecurity issues.

lots at stake given this continuation of the trade war and these concerns of a military more of a showdown, type of military confrontation between china and the u.s. lots more to come on daybreak asia. this is bloomberg. ♪ ♪

asia. this is daybreak i'm shery ahn. haidi: i am haidi's -- haidi stroud-watts. a conversation on north korea, this visit from mike pompeo to pyongyang seeming to yield more results than previous business -- visits. a professor who specializes on north korea, he joins us from pusan. -- busan. we have a timeline being thrown out, the president says he

doesn't want to be limited to a deadline. are we making progress since the highly hyped singapore summit? >> we are not really. this meeting didn't bring much either. the invitation of american inspectors to check out the dismantled test site was hardly a significant confession. what you referred to, this relaxation of urgency in regard a bad sign.e is that was confirmed by pompeo saying we should get ready for a long haul. the same trump administration that came to power promising a end is now-- no great urgency. americans believe sanctions will force north koreans to comply, but i think they are wrong. the sanctions are being significantly undermined, not only by russia and china but america's allies in south korea.

haidi: this is a regime that has coped with sanctions for so long. it has been about a year since we had donald trump in his first speech to the u.n. general assembly. taunting him calling him little regular men -- rocket man. is the approach working? brian: the character approach isn't working and the sticks cannot work either as long as our ally is working as hard as to solidify ties with north korea. pyongyang a few weeks ago, the south korean leader publicly congratulated north korea for preserving the korean people's pride and making great economic progress even under sanctions. this went right over the trump administration's head, but our ally was congratulating our adversary for standing up and

getting around our sanctions. the koreas are talking of forming a league or confederation in the near future and many and south korea are saying this is already underway. the americans are going to lose leverage on the peninsula with every passing month. i don't think the trump administration is aware of that. shery: we are hearing from a south korean newspaper kim jong-un has offered scrapping icbm's in return for an end of the korean war declaration. is this somewhere where negotiators should be more focused? there hasn't been any progress denuclearization. should they move on to other conventional issues, conventional missiles or bringing down tensions in the korean peninsula? brian: both koreas want the united states to sign the end of hostile relations agreement. the north koreans are promising

the americans the world if they only do that. it would be a big mistake am a but the americans seem to be coming around to the idea that such an agreement could be reversed if the north koreans don't fulfill their side of the bargain. this would be a big mistake on the americans' part. you cannot formally resume hostile relations in peacetime without public opinion around the world thinking of war is about to take place. once the americans sign on the dotted line, i think we will have to deal with north korea as a nuclear power for generations. shery: you mentioned president trump doesn't want to play the time game. is there anyway there can be progress without a fixed timeline? brian: i don't see how there could be because the north koreans and south koreans are working hard to create a fait

accompli, that the americans will have to go along with what the south koreans want, and that is to reward north korea for every single phase of denuclearization. that will take us right back to where we were in the george w. bush administration. i am wondering with the trade war between washington and beijing and ratcheting up when it comes to geopolitical tensions as well thanks to the south china sea and the posturing there, how damaging is it to being able to find a solution to the north korea problem washington might not have beijing on? brian: it is damaging because china is north korea's main economic lifeline. if you are in a trade war with the chinese you cannot scold them for undermining sanctions.

the greater issue is the south , and they arelies undermining sanctions, importing north korean coal. every time a delegation goes up to pyongyang, north koreans are rewarded very generously for generously for expenses. so far donald trump has said nothing critical about this between the two. it makes it difficult for the americans to get angry at russia or china. haidi: bring to have you on, professor brian myers joining us from pusan. let's get you into the brazilian election. the race is going to an october 28 run off according to brazilian media sources. looks like 95% of votes have been counted. not much has changed over the course of a couple hours. ,hery: but the level of support

47% with 95% counted, really much higher than the expectation was. to the man talking from citigroup, he said it was interesting what could happen in a runoff october 28 because the right-wing candidate has a high support rate but we could see other leftist parties joining the second best candidate. we will keep an eye on the elections. let's take a check of what is happening in asia's markets. sophie: we are focusing on australian markets. aussie stocks are not taking off on a cheerful note. you have financials and energy among the biggest decliners when it comes to the moves among sectors. very marginal gains so far this morning. the asx 200 set to snap a three-day advance. you look at the market -- the movers generating, take a look at the mining stocks, aluminum

in south32 slumping the most several months. they will reset the biggest aluminum refinery at 80% capacity. the aussie dollar is looking steadier. steadier.

heidi: good morning. y: from our headquarters in new york, i'm shery ahn. sophie: welcome to daybreak: asia. ♪ haidi: the yuan following after the pboc called the rrr again.

shery: the right-wing candidate leads the first round a result, although a runoff is seen. stocks are expected to rise. it might be a different story for asian stock markets. we see a bit of pressure coming from the u.s. stock markets caps off the worst week in a month. desk cap -- capped off the worst week in a month. sophie: asian markets are setting up for a miserable monday. the kospi is off .4%. the asx is also under pressure. the enzi x50 -- the nzx 50 could be seeing its worst drop.

we have the u.s. holiday in the u.s. this month, so treasury markets are closed. we have yet another long weekend japan. currency markets, the aussie lot -- aussie dollar looking steady. the kiwi dollar also under pressure after capping a terrible week. the korean won on the radar as we assess the visit to jan yang -- the jan yang -- to py eongyang. we will see whether the pboc will allow for depreciation to continue, whether it will move to curb some of the bruising that could be seen from the markets monday, especially after we saw the slump for hong kong stocks over the last couple of weeks, the worst week for the

hang seng. you have the aussie 10-year yield continuing to rise. treasuries up about four basis points this money. brent also on the radar, sliding to $84 a barrel. the u.s. may consider the possibility of allowing some iranian exports. keeping an eye on the mexican peso, getting closer to 18.77 against the dollar. proxy for as a rough what is happening with the brazilian elections. the votes have been counted. result will go to a runoff election on october 28. the far right candidate leading with 46% of the vote. let's bring in our sao paulo bureau chief. we were expecting him to be leading in the polls.

should we be surprised at the level of support though? >> this is higher than what the polls have shown. last night showed him at thirtysomething percent. it is a pretty high level of voting. the first numbers we got, he was 49%, so very close to not actually having a runoff. but as the full count went on, we are almost at fully counted 46.6% or ended up with 46.7% so far,. a little bit because we start in the southeast, where he is a bit stronger. sharyeah, a pretty strong -- showing. if you go to a runoff, what about getting the backing of the leftist and centrist candidates? >> the other question is what does this mean for the election? in the last cycle, the support did not translate into much of a vote count for a lot of the candidates in the runoff.

ofneed to seek -- and a lot candidates, like a former slept -- former leftist was now a centrist, doing poorly at the polls. she had 20% at some point. we have to see what impact this has. haidi: what are the biggest economic policies confronting the maindate, whoever candidate turns out to be? >> budget reform. we have been talking about it for a couple of years. the previous president had been try to pass a couple of times and was unsuccessful. and it is spending a lot of. capital on that -- political capital on that. and the pension reform also got lost in that. he has different views on whether this needs to happen or how it will go about. that is something investors are keeping an eye on. haidi: thank you so much for your time.

let's get some reaction. sachso ramos from goldman . it does look like the brazilian media reporting that we will get into the presidential election runoff at the end of october. have the results surprised you? have you been surprised by the commanding turnout when it comes to those voting? >> indeed. the result suggest that he had strong momentum in the last week of campaigning. went to thening ballot box. there expecting second-place candidate by about 15 points. it looks like 18 points. so very strong momentum. he just needs to convert a fraction of the vote that went

to others, the other center-right candidates. -- i: >> there is a clear preference. disbanding the fiscal adjustment, that we need conventional policies, not going back to the policies that traded imbalances and large fiscal accounts. it feels that come even though he is a polarizing figure, he is being advised by perhaps one of the most liberal mines in brazil -- liberal minds in brazil. the issue will be imaging. but the the thing about the elections tonight is not only

but politicales, parties will get more presentation and that will increase the conditions for able tomorrow -- a bolsonaro administration. shery: more than 6%, gtb -- gtv fewt, you can see the last quarters have been positive but not a great. growth,pens to economic to social security and tax reform if you end up getting a fragmented congress? >> a number of things. we most recently went through a

devastating recession that was needed to overcome the economic imbalances generated by the populist policy experiment that preceded it. -- wed physical response need fiscal reforms to balance the dynamics. we need reforms to make the economy more efficient, more productive, and what is still a growth between 2% to 3%. those reforms will open the economy to trade, turn the economy more fox of all. basic -- more flexible. isically, what result needs reforms that lead to a capital investment deeply driving the economy into capital stock and then aspire to a much higher wage that brazil will be will to deliver. things thatof the

need to go right seem to be out of brazil's control. x -- half of exports were raw materials. what's your forecast for the brazilian economy? >> brazil is a big commodity exporter. buy it is not a big exporter. it is just 10% share of gdp. but brazil is one of the largest economies to trade in the planet. important whate happens to the domestic investment. what is our forecast? about 1.3% this year, going to about 2% for next year but with a huge degree of uncertainty. as you can imagine, there are clear concerns about policy direction irrespective of who wins the runoff in about two weeks, in the capacity to deliver the corrective measures, particularly on the fiscal side that was on -- that brazil means.

anticipate there will be policy paralysis facing whoever that person is, given how fractured congress is in brazil? >> it is possible. there will probably be. limited renewal in congress. ofs not for the lack committed policymakers. election back to the of president dilma, there was supposed to be a great fiscal adjustment. then it came a new economic team. than mr. morales, very committed and talented policymakers. it was not because they were not counted are committed to do so, but because they faced political and institutional constraints, mostly in congress, that prevented them from delivering more on the fiscal side. it is possible that, whoever gets to be elected, will face .ignificant constraints

in the end up -- in the end, you will end up with only a fraction of what is needed. very gradual fiscal adjustments. brazil will probably be living dangerously for a while. it will be a wake-up call for us. : we appreciate your time and standing by for us today. mediastic brazilian reported we will be headed to a presidential election runoff on the 20th of october with 95% of votes counted. naro gaining 47% of those ballots. to get more from those who are following the brazilian election. reports from seoul say

kim jong-un is offering to scrap its icbm arsenal in return for a declaration ending the korean war. international teams could inspect recently shut down test facilities and the pyongyang nuclear plant. mike pompeo has reported progress. the people's bank of china cut the amount of cash a bank must hold as reserve for the fourth time this year. the bank lowered the ratio for some lenders by one percentage point, which will relieve $125 billion into the financial system. china's foreign currency holdings fell less month as trade tensions fueled further yuan depreciation. a missingays president has resigned.

meng was detained upon his arrival in china and his wife grace has been placed under french police protection. executive of the committee that runs interpol but the agency is run day-to-day by journal stock. saudi arabia says it has fulfilled they pledged to offset any order losses due to u.s. sanctions and iran. the kingdom will produce more crude to offset any shortages when washington's measures go into effect next month. however, president continues to attack opec for higher oil prices and has demanded action to bring the cost down. global news 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm haslinda amin. this is bloomberg. ♪ haidi -- shery: still ahead, china returns from the holiday.

valuations look good. arei: in a moment, investors seeing inflation? this is bloomberg. ♪

shery: this is daybreak asia. 10-year yields rose 17 basis is, the most since february last week. we will see if that continues. paul, one of your calls is warning that the markets are not pricing and more inflation to come. we spoke with james bullard. he says you don't see that much inflation materializing. is this a lag effect? do you have the structural relationships that lead to

inflation working down somewhat? >> it is definitely a lag. we have higher wage inflation coming through. it has been suppressed for a long time. you have trade tariffs and higher oil prices. import prices will rise as well. the cost -- the combination of that pushes inflation above what the market thinks. we are not about a. large increase, but higher than the markets are comfortable with. the fed response that will be to , probablyrest rates higher than the market believes. haidi: do you believe the inflationary impact of tariffs in the u.s. is significant that enough that lsu makers will have thatact rather than a -- policymakers will have to react rather than do it gradually? >> it is a combination of higher wages, the higher cost coming

through from tariffs. it is not something that on its own will cause a reaction. some of the domestic substitutes for imports will come at a higher price. we do have full employment in the u.s.. you see already what companies are doing with their pickup in living wages. shery: how net short treasuries are at record levels. the 10-year yield continuing to rise. given what we saw happen in february, we see the at these

reaction. do you see a lid on yields given what is happening in equities? >> the riskier assets are more vulnerable to higher short-term rates than the treasury market, given how many shorts there are. this is a trend, a bear market, it trending higher yields. assets also repricing, perhaps containing the rise in yields. yields will trend higher. they either rise in yields stocks but then resume again when growth is still strong and the fed reserve keeps raising rates. : to talk about inflation pressures rising. if you see the carnage we have seen in the long end of the yield curve, that is pretty dramatic. but if you go further into the

forward space, it seems inflation its -- efficient expectations are not really rising. how much of this is because of price rises? and how much of it is because of the strength of the u.s. economy? >> the moment the attention is really on the strength of the economy. but a combination of fed raising rates, more supply coming from the treasury because of the increased deficit, and generally this pickup in inflation, albeit fairly modest. that leads to high-yield eventually. inflation expectations will breakeven. they are not particularly high at the moment. that's the big it's all is perhaps the market has not gotten used to the idea that wage inflation could stay above three% and import prices could be -- 3% and import prices could be 5% in the next months.

haidi: will the debt auctions be a litmus test for what happened in the market last week? >> what happened last week perhaps suggests -- and your chart showing how sure people are -- perhaps a made enough room for this new supply to be absorbed. this won't be the last option. this will be -- last auction. this will be one of bigger sizes going forward. we will have to keep repricing to the clearing level, which pushes yields higher, until we see a slowdown in economic expectations, which probably won't come until the middle of next year. to get to your contrary and call on brexit. you are saying, at the end of the day, brexit will not be much in the -- much of an event for

the markets? >> because of the bit of uncertainty surrounding brexit, we find it difficult to plan and companies find it difficult what to do in the future -- the foreseeable future. are not looking at four -- we are not looking for it to be an easy solution. but it will take several years to work through. if we get more clarity, maybe we can plan and invest in the u.k. -- and the u.k. economy can start to plan for the future. there is a lot of fear and uncertainty. that, in itself, is causing have a problem. haidi: your paper compared it to y2k. we will have to leave it there. great to have you. bloomberg has the chartson gtv -- the

on gtv . this is bloomberg. ♪

shery: this is daybreak asia. haidi: a quick check of the latest business flash headlines. myob jumped the most on record after kkr offer to buy the shares it does not own for $1.6 billion. 24% premium from the closing price on friday. danske bank facing more facing newh the u.s.

claims. about a decade, some $235 billion flowed through its tiniest unit, much of it now deemed softbank. arabia is betting on softbank continuing to call the future. the pif is seeking ways to deploy a windfall from a sale in anticipated the aramco ipo. shery: chinese markets return after a golden week. valuations are attractive, but expect some pullback in a-shares. index seeing its worst week since february.

live from new york and sydney and hong kong, this is bloomberg. ♪

haidi: it is just an hour away from the open in hong kong. mainland investors return to the open of trade here in asia. we had five days of declines in asian stocks last week. goldenad been offer the week national day of holiday less rate. we have the pboc reserve ratio requirements soften. shery: you are watching daybreak asia. let's get you the first word news. brazilian media are calling a runoff in the presidential election after bo

lsonaro failed to get an outright victory. investorsise, and ignore his authoritarian streak and focus on his pro-market stance. heads tolican party next month's midterm elections convinced that the confirmation of brett kavanaugh will bolster their effort to stop the democrats. the partisan battle in the senate ended with a 50-48 vote in kavanaugh's favor, the narrowest margin in 130 years. is now morecourt conservative than at any time since [indiscernible] slumped.nvestment a new public data base to be

released on monday will show chinese commercial investments peaked in 2016 at 14.9 billion aussie dollars before falling to about 9 billion last year. the number of people killed in the time he had earthquake has -- 1763.7063 and continues to arrive as the government considers making mass graves because of so many deaths. fish market has closed after a two decades with shop owners and workers questioning the safety of its replacement. site at a gason plant will house the new fish

market. about 40,000 people visited each day. global news 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm haslinda amin. this is bloomberg. ♪ shery: asian stocks falling for a six executive session in her sixth consecutive session. sophie: futures looking a little changed. when you look at losses, sydney bearing the brunt, by nearly 1%. the -- the asx with financials and mining stocks leading that drag for the asx 200. in seoul, schol -- shares are losing ground. to the one bright spot, earlier rising as much as 5.2%.

this is when chairman shin don't been was released from jail. london is sinking in after northcott wrote said it is ready to restart the world's biggest alumina refinery. aluminum in sydney sliding the most in five months. elsewhere in the commodities, brent slipping below $84 a barrel after saudi said it could tap its apple capacity immediately. we have the ousted dollar -- the aussie dollar bottoming at around .70. the kiwi dollar at a two-year low. the offshore yuan is not too far from a seven-week low. haidi: thank you so much for that. china cutting its bank reserve

requirements for the fourth time this year. policymakers in beijing trying economy weighed down by this escalating trade war. surprise,'t come as a given that it is the second rrr cut in a month. in underscores the pressure and perhaps a bit more urgency in beijing. >> it does. you look at some saying this signals the economy here is very bad. other economists are echoing those lines. retail sales, fixed asset investment, the bond deep has come up and the overshadow of the u.s.-china trade war, again, it does underscore the need emma theany fear, for policy -- need, as many fear, for policymakers to take this step. let's look at why this was urgently needed. >> they need liquidity more than ever. it is not only the trade war. it is also the fed.

it is an increase in treasury yields, which is pushing the cost of funding for it china's coffers even further. >> we have a terminal chart shows with the impact will be and what this means in terms of the context of the rrr cart. this is the fourth when this year. this chart shows the previous three. the fourth one will kick in october 15. it is not reflected in this chart. but you see the most recent cut was down to 50.5%. we will get that down -- 15.5%. we will get that down to 14.5%. in liquidity will be expected at $175 billion usd. ubs, sayingo from this is likely to improve sentiment as well. we are looking, as we have been discussing, they markets

opening, to see how investors are digesting this information. shery: you said it will not lead to more you one depreciation -- yuan depreciation. what are you expecting? >> it's hard to swallow, particularly in light of what we are seeing from the fed in the u.s. in terms of the interest-rate moves. bloomberg economics don't expect a rapid depreciation in the yuan. depreciation,dual longer time, remains a policy tool, an option for policymakers here. it is interesting to see, over the weekend, one gauge of the impact, the pressure on the currency for capital outflows is the fx reserves file. it is still comfortably above the 3 trillion level, the edging down for the month of september by about $23 billion usd. the policy makers in beijing say

that is due to valuation changes of their foreign currency within those reserves. but other suggest that it points to a potential tick up in capital outflows going forward. that is one data point that is more firmly in focus. we are not at levels that we sign 2015. but it is a potential tool for china to use, should the pressure continue on the yuan to shore up the currency. of course there is also additional measure, not just the but most recently the finance minister has been talking about supporting the economy. we will be monitoring the impact of that and the data out of china. shery: thank you so much for that. let's discuss everything that times is told us with can walk -- with ken wong. great to have you with us. continue, to tom's point,

he was talking about fx reserves have fallen modestly, but not that much that would spark concern. chart showing a drop by $23 billion, still above the three chile dollars mark. -- $3 trillion mark. is this the inflection point where you will see the tick up in capital outflows? what are your expectations? >> the chinese government has a lot of restrictions in terms of the amount of capital outflows that you would expect. we believe this is probably not going to have a large impact, especially on fx reserves. the marquee aspect is that, yes, the chinese government -- the more remarkable aspect is that, yes, the chinese government recognizes the need for rrr. one of the contrary and trays we

look at is chinese banks. it does help on earnings potential with any rrr cuts. shery: not only banks. if you see a more accommodative monetary policy from the pboc, how will this boost the chinese stocks, especially the msci china which is trading below the historical pe average? >> it is. when you look at msci china trading around that 10.5 times earnings, and also the way you look at the msci 300, now with the markets opening and potentially seeing more profit taking in the beginning, you could see earnings going down further. so there are expectations right now. bute markets are a bit weak with my citations a low valuation, that does lead to some opportunities in various pockets within the chinese equity markets at this moment. lengthwe've talked at

about valuations and how attractive they are. a heavily it is retail, domestic driven market, what keeps it from rebounding? there is sentiment-driven, something going on in china. noise., at this moment, we have a lot of noise. whether it is news articles about what is happening with china, trade wars and so forth, there is a lot of noise impacting the short-term visiting a portfolios. will you look at overall earnings, when we spoke to a lot of companies as a report in the first-half earnings, expectations were too bad. to longerk at them term, as on is we see the sustainability of earnings, we can see solid earnings growth, optimistican picture, especially in the meat into short-term. it will create more volatility

in the asian markets. haidi: is the negativity around tech also noise? the direction of tencent was well documented on saturday. due to reports that china had conducted a hardware attack and infiltrated a number of u.s. tech companies. will that be a thing that continues to play out as long as this trade war or as long as the tensions between washington and beijing continue? >> that could be. again, that leads to opportunity as well, especially when you look at various tech sectors. when you look at some of the hardware, there is a lot of asia hardware that are trading around 10 to 15 times earnings, which is way below their historical averages. those are attractive. are -- they not only

supplied to samsung and apple, but to a lot of domestic players as well. those could be interesting players that investors should focus on asked him progresses. shery: you continue to see trade tensions build up. how much of a buying opportunity is us to get into the chinese markets at this point? >> it's a great opportunity right now. as investors continue to be somewhat negatively motivated by all this negative news out there right now, that does lead to a lot of opportunities in the marketplace. for investors, they should look for not necessarily the high growth momentum top of stocks right now, because does have large swings in both ways. we look at those attended be a bit less volatile, trading will both -- well below their intrinsic value. those could be good stock opportunities. you can see good earnings growth

and free cash flow generation and a good dividend yield as well. know you don't make currency calls, but what does it yuanfor assets if the loses its attractiveness? >> historically, over the past two years commit any weakening years, any weakening of the renminbi has an impact on growth. we see a weakening of her nimby. you expect -- the renminbi, you should expect weakness in the sectors. most were expecting the renminbi to go below seven. then we saw the renminbi appreciate quite a bit, back to 6.3, 6.4. markets have expectations. of course, they behave a little different, especially on the currency side. investors should take this with a grain of salt and not have this day, negative sentiment towards the renminbi, where everybody expects it to go to

7.5, especially when you see these contrary and trades out there. haidi: if you look at domestic policy -- i don't want to say threats, but maybe uncertainties -- you see the relationship between what beijing does and, for example, what the biotech sector does. you saw that in tech in particular. what would you be watchful for sector wise? >> and a given sector can be exposed to any certain policy restrictions, which does hamper earnings growth. it is harder to predict because we don't know which sector the chinese government might want directly. but currently, the noise out there and weakness in the overall chinese economy, we expect to see that -- a bit lessening amid regulations and more things to help stimulate the economy. so potentially seeing more tax

cuts, may some of the administrative cost cutting. and at the same time, more free trade agreements with some of these other countries, which are being discussed right now. right now, the chinese government trying to stimulate the economy and not try to restrict it. i: looking at the consumption trades, domestic demand-related trades, thank you. come, -- more to come on daybreak asia. this is bloomberg. ♪

haidi: this is daybreak asia . trump-kimecond meeting might be in the works. stephen engle is following the developments. how fruitful was this meeting? stephen: we haven't gotten

actual confirmation of pledges sides. the two perhaps mr. pompeii wants to get back to washington, d.c., and brief mr. donald trump before it becomes public. we do get reports out of seoul quoting unnamed officials as saying there were a number of concrete measures put forward, including kim jong-un offering to open up several different inspectors. also offering that he would exchange --bm in there is always something he wants -- and that would be a formal peace declaration between the interested parties, the united states and south korea and north korea.

but again, these talks were a little bit more fruitful, at least a bit more jovial. you can see the two men walking down the highway smiling. the last time mike pompeo want to jan yang in july, kim jong-un went toeven -- in july, kim jong-un did not even meet him. it got off on a rough start on sunday when mike pompeo arrived in pyongyang. at the airport by a senior north korean official who immediately put some demands on the u.s. entourage, saying only three officials could go into the meeting's room with mike pompeo -- meetings room with mike pompeo. he could not have his preferred translator and mike pompeo could not take his sidearm with him. they kind of shrugged it off and had pleasantries afterwards.

that mikealso know pompeo met with president moon of south korea. he will be going to beijing, which would be the more crucial one. stephen: even more critical than mike pompeo's fourth visit to pyongyang yesterday. to get to beijing to fully back the u.s. efforts to get north , that isdenuclearize what the united states wants, complete and viable denuclearization. the north koreans have not necessarily taken the steps that united states want. beijing will play a key role. but there's trade wars, military tensions with the united states military promising a show a four -- a show of force in the east china sea. this will be a critical meeting.

shery: thank you so much. reserves federal resident james bullard feels good about the level of inflation in the u.s. today. we asked him what happens when rates get to that neutral level. >> we are close to neutral today. when i look at inflation expectations from the tips market, it looks like they are about 2% on our personal consumption expenditures on inflation basis or somewhat below 2% even over the next five years, over the next 10 years. as of right now, the market doesn't think we will hit our inflation market in the preferred measure over that time horizon. that suggests to me that we have about the right level of rates today and we should react to incoming data, see if it surprises to the upside or the

downside. we had a long run in 2017 and 2018, pretty good use on the u.s. economy. it may not always be that way. one day, we may get some bad news and have to adjust to the other way. i think we have to be prepared that the news won't always be good. help fomcd news members to be more in line when it comes to their dots expectations. this year, they consensus seems to be for it hikes this year. but the problem is what happens to 2019 and dots go on the bloomberg show how divided member seem to be. what are your expectations? is --s my main point because i am the low dots in this picture here -- my main point is we are at a good level of rates today for our in berman today. we don't have to be projecting

plant rate hikes at this point. we can react to data as it comes in. we can feel our way and see where we want to go. but i don't think it is a situation where we need to get a lot higher with a policy rate in order to contain inflation. there just isn't that much inflation pressure in the u.s. economy. haidi: that was james bullard speaking earlier on daybreak australia. interactive tvr function, tv , to catch us live and deep dive into all the securities and bloomberg functions we talk about. you can join the conversation, sending us messages. check it out. it is on tv . this is bloomberg. ♪

haidi: you are watching daybreak asia. the brazilian presidential elections have been happening over the weekend. that they will be going to a presidential runoff toward the end of the month. it has been quite surprising, the turnout and the number of people that voted for bolsonaro, also suggesting it was more

compelling than expected. about 46.5%, with about 95% of votes being counted. he came out and said that he doubts the reliability of the elections system. that if successful, he will be reducing the size of the state, and tells reporters to stay mobilized as we go into the next election runoff. a lot ofere were concerns about his democratic credentials. he offended many minority and women groups. now we hear he wants to reduce the size of the state. we have the china open next. this is bloomberg. ♪

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to china markets open. stocks under pressure after the golden week you break. david: the reserve ratio requirements cut once again. yvonne: brazil heads for a sonaro fails an outright win. how stocks are expected to rise.