overseas investment thinks in the worst start for chinese equities in a decade. trade talks get testy and there's more liquidity pumped into the market. equity investors take cover. risk off spreads, volatility picks off, italy take center stage as brussels and rome battle it out. in brazil's right-wing wave. the country's far right candidate catapults to a largely after the first round. this year, the anti-establishment vote. >> welcome to "bloomberg daybreak." the big story was bank season. the $1.4 million picture getting shredded. >> and if you had been for that, what were you thinking? my investment is worth more now? or are you crying? david: i wonder how big a secret it was. idea orr they had no

they knew and participated which also hurts their credibility. clearly, that is what we will be talking about. it is risk off. the bond market is closed. nevertheless, it is not stopping the risk off. seven, are down by about euro-dollar, it is a risk off for an italian budget story as words of war are being thrown between brussels and rome. 16 is how we print for the vix, crude is up 1.5%. nevertheless, it is definitely risk off. david: we will certainly talk about that. for right now, let's get to the morning brief. world central bankers are gathering, thursday we get u.s. inflation numbers from consumer price index numbers. on friday we start bank earnings seasons for the third quarter.

right now, it is time for our first take. guests.oined by our i want to put back up this chart, a dramatic chart about what's going on with the chinese stock accommodation. it selloff after this week off. >> this is about confidence at this point. there is not a lot of confidence that anything will be sold, just in terms of the way the chinese government is trying to shore up the economy. it is not happening, and that is why you are seeing the selloff. alix: you are nodding. >> the idea that china could withstand a trade war inevitably and forever i think is being tested this week. you have cash reserves, they are stimulating their economy, and all this geopolitical tension going on. they just arrested the former head of interpol on corruption

charges. pompeo is a north korea, trying to get them to play ball, but he will need china's help. on to beijingoing and they are exchanging not very pleasant words. poorly, looks like he may not get on with xi. >> but one of the interesting it got below that 6.92 level and when you look at the options market all the demand is within striking distance of 7.15. totally changing the conversation of that line in the sand. good point. that is all adding to the risk off we are seeing in the markets. the second top story shows the flows. you are going to buy again, that is the trade. today, howou come in do you blame this risk off attitude?

do you feel like this is a geopolitical trade tension issue? what is really behind something like this? >> it is also valuation. we've had the better part of two years in which valuations in the u.s. market have been very stretched. interest rates were low, it was hard for investors to find other places. in you have had a month which you had treasury sellouts and yields have been rising. you need a bigger risk premium to justify not going into debt. >> that's a good point. think about where we have been over the last week. we came into this month on a high note, but everything in the u.s. is down. nine stocks in the nasdaq 100 are up, but even around the world you talk about the risk premium. it doesn't matter whether it is developed or developing, no one wants to be in this right now. >> if you look inside the looking at- we are

the two month versus one-month spread, but it means that the month by month volatility is going up. >> i think this is a little bit dangerous because the market for a long time was pricing in a lot of that risk and you have to ask yourself what has changed where they are no more concerned about what's happening in the moment? before it was all, this won't materialize. but the sentiment has changed. david: brazil had a big election, and the right-wing former army captain came in with 46%, something of a surprise. he really blew out the number two. there will be a runoff. but they're market -- >> he is more than right of center. alix: even outfielder.

he almost didn't need to have a runoff. david: have brazilian generals done in the past? >> exactly. but last time we were talking we have seen and this now, globally, in country after country and this is the long arm of the financial crisis. in brazil, it is a long-standing corruption. alix: how do you handle that? regardless of who wins, the fundamental issues of brazil remain. >> they do the markets are rallying, too. is confidence that whatever they bring to the table it is going to be better than what brazilians have gotten from the previous administration. the issue with populism is one to watch. >> that's always a good theory. latvia, they went more

pro-western. thank you very much. a reminder, you can find all the charts we just used on g tv . you can save the charts through the next couple hours. coming up, more on china's selloff. we will break it down with the head of fx strategy, is that line in the sand still there? this is bloomberg. ♪

♪ daybreak.""bloomberg

--will reportedly designate to be the next ceo. the company's they will meet today to make it official. he has been position as the heir apparent for tom and this, who announced he would be leaving in 2019. in the u.k., investment manager schroeder confirms it is in talks about collaborating in the wealth management sector. they are near deal with a joint venture, but it is unclear if they will pay the price of the investment management contract. blackrock is said to still be in the running for that. kkr has offered to buy an australian business management software maker in a deal that values the company at 1.6 lien dollars. it represents a premium on the closing price, they earlier bought an 18% stake in the company. david: thanks so much.

chinese markets have the week off last week. they came back on monday with the war, down 4.3%. that's a combined two stock markets. curran,us now is enda our chief asia economics correspondent. first of all, thank you for being with us. second, what is causing this? pent-up demand of a week of bad news? >> well, there is that affect. broadly, it does feel as though we have had a slew of negative news on china's economy over the past week and there's no sign of a near time circuit breaker. you have the domestic slowdown, you have the broad trade dispute with the u.s. that shows no sign of using, and you have these deepening political tensions over everything from taiwan to the south china sea. you take it all together, and we see the stock market going south, the yuan heading toward

that key psychological level. it feels like it has become darker heading into the year. >david: we had an exchange today that i thought was remarkable. they were not entirely diplomatic. oh" we have damaged our mutual trust,:" "a fundamental disagreement." it was very direct language and i think it speaks to the tensions we are starting to see and feel in this part of the world. they refuse u.s. docking in hong had tod the recently we meet vice president mike pence over that trade story so it is

all happening at a fairly rapid clip. whether or not that can be patched up in the near term it appears unlikely although there is the issue that president xi and trump could meet at the g20. i think that's probably a benchmark a lot of people will be looking for. david: we had the pboc and central-bank intervene, like that shore up the markets? think it's not enough. what the central bank did was put about 100 billion accident in the system, making it easier for banks to lend but they have to pull over to avoid surplus cash. it shows you that they are nervous, they are cautious, they are shifting into progrowth mode and there's a feeling that they will continue to take more steps

heading further into this deepening trade war and the broader political battle with the u.s.. alix: thank you very much, enda curran. joining us from london, james foley. hsbce phone from dubai, security global equities strategist. i want to start with you. you come in today after the selloff for the s&p had its worst week in two months -- what do you do? having ak we are policy induced growth scare. this be this concerning people more than the level but i think you need to be reasonably defensive. is,e longer duration sector equity volatility has been too low, putting pressure on cyclicals. these defenses, we are beginning to see earnings, and that is the

place i would be looking. it looks good in the u.s. as significantty , a pretty bigg multiple progression. get another 20% earnings season and a lot of ,ownsides report from buybacks u.s. equities being very domestically focused. alix: if you take a look at the trigger for this morning, it seems to come from china, right? you take a look at dollar-yuan, this has been the line in the sand and we are not going to get is thatwhat we saw -- still the story, and how do we recalibrate to a world where the yuan could get a lot weaker? >> indeed, it could. we want to bear in mind that if we measure the dollar since the is aboutfebruary, it

the slowest currency in the world. you have a situation that is progressively tightening interest rates and a situation where china is loosening policy, something which could carry on. you have this situation with plenty of economic data, a situation with a central bank that reacted to that where the economy is slowing partly in response to the tightening of credit conditions. it is natural that the currency would flip, particularly against the u.s. dollar. david: you say the u.s. dollar has been firm. what has not been firm is a lot of other em current use. is that likely to keep currencies down? so, although i think

this is a broader story of risk aversion, and this has been something that has been obvious at the beginning of the year. warhave china and the trade , many expected as to come to a brief conclusion and yet there is no real sign that there's going to be some sort of compromise just yet. you have the chinese growth story, many emerging market economies, the story of u.s. growth being strong, and that is something that is baffling to the u.s. dollar. emerging markets -- you have to look at individual cases. there are individual stories base,on in em, but as a as the unit, e.m. looks good. david: you said it was time to get more defensive but you are

also overweight emerging markets. how does that fit with the changes? >> we are -- the u.s. is on the defensive and but i do see some opportunities on the riskier side. we have investor allocations underweight, you have valuations at a 10 year relative low and you have china beginning to start its flexibility. , you get ave for em moderate reflation out of china and high oil prices that are generally good for em i think you need to be selective, but china, brazil, russia, these are the things you should be looking at. both of you are staying with us. coming up, the dollar is rallying. more on that surge and other

safe treats, coming up next. this is bloomberg. ♪

♪ >> italian markets can pull. 3.5% for theeaking first time since 2014, banks getting hit, the overall indices heading the lowest level in about a year stop still with us, the hsbc securities analyst. this is all at a budget standoff between italy and the eu. have you look at that? is there more room to sell? do you need to buy? >> we are underweight european. vulnerable,pe is valuations that i think are following you adjust it in the earnings are not coming through.

it's just that elevated level of economic policy uncertainty. catalonia, all this is depressing the and earnings story. i wonder if there's a larger term issue here. the deputy prime minister over the weekend said there would be such an earthquake in all countries against the austerity that the rules would change the day after the election. if he is right, what does that do to europe? are they moving away from austerity, opening the floodgates for debt? >> i don't think it will get to that. the base case is you get some accommodation. just the level of uncertainty which holds corporate back, keeps multiples relatively low. risk, do itto take in em where you are paid to take it. alix: at what point would you

find the valuations attractive? just how bad can it get? at what point would you be looking to get compensated? >> we had european valuations less and 10% to the u.s. when you adjust out of the u.s. i don't think you get close to being paid for the level of risk you are running in europe right now. they are just not coming back and if they don't you can't justify those types of valuations. david: what's the problem? is it lack of sufficient growth? what would you need to justify hirin higher rates? >> i don't know the exact number is, but it is meaningfully different from what we are looking at right now. the narrative in europe is that growth is slowing.

we generated single-digit earnings this year into expect more than that in this environment with trade concerns globally i think is unrealistic. david: growth is the underlying problem. is there a chance that the italians are right? they are saying we need to run fiscal deficits up. it has worked in the united states, and some of the growth we can attribute to fiscal stimulus. think the problem in europe has been the lack of structural reform in productivity growth, which means that the trend growth number is significantly lower than it should be. the way to do that, i don't think, is to breach the budget rules. if it's a positive payoff further down the line, you lose it right now with what's going theo the bond market and compression on valuation

multiples in the shorter term. alix: hsbc has one of the more conservative cases on wages and rate hikes, only three more in this cycle and then it cut at 2020. how does this set us up? are we and a central-bank convergence world to the downside, where we want to be constricting monetary policy? >> well, right now, there is just a huge divergence. the rest of the world's stock into kids get off it. the fed is delivering. i think the u.s. is going to .8%,we think in 2020, 1 that you may begin to see the fed looking to ease policy. so, itt 18 months or will be a continued divergence rather than con virgins. alix: when you say you want to get a sense of it -- the communication sectors are overweight by amazon, for example. what meets that sentence? >> we are overweight on the

telecom sector, overweight utilities, consumer staples. those are the things i think you need to look at. , andy we have as a hedge the flipside is you want to be cautious on things like consumer discretionary, which get squeezed with relatively low wage growth. alix: really appreciate your insight, thank you very much. coming up, the strong man is closing in on brazil's presidency after the first round of the country's election this weekend. we will discuss with our international economic senior fellow. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." if you are a bond investor, you are still sleeping. lucky you. pointsures off by six

after u.s. equities have their worst week in about a month. european and italian banks are the hardest hit as the war of words between the eu and italy continues to heat up. brussels and rome throwing barbs . in other asset classes, it started in on friday and if you take a look at what's happening, euro-dollar is down, .4% with 10 year yields in italy jumping up 16 basis points. the fix continues to also pick and it is really short-term volatility getting priced into the market and part of that will be the risk off but it will also be a better market move story of mohammad bin salman saying we are making up for any loss. david: barrel for barrel. alix: a little bit of geopolitical risk.

now let's find out what's going on outside the business word. here's emma chandra with the first word news. good morning. >> good morning. mike pompeo has what was described as a testy exchange with china's foreign minister today. he cited fundamental disagreements between the countries. china accused the u.s. of escalating trade disputes, interfering in taiwan, and meddling in domestic affairs. will be on the supreme court bench when he hears his first argument, but the newest justice will still be at the center of attention. the senate ended one of the most contentious confirmation battles over the weekend, narrowly voting to elevate kavanaugh. now he has to win the trust of his eight colleagues. two americans have been awarded the nobel prize in economics. helene brought house was honored for integrating climate change and to macroeconomic analysis, another for his work on the role

of innovation and economic growth. stay with "daybreak," as we will get reaction from him live. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. david: thanks so much. on brazil'sg in presidency after dominating the first round of voting. he wound up with 46% of the joke, just short of the majority. joining us now from sao paulo, welcome. this was a really strong showing . we expected him to do well. are people surprise he did this well? >> they definitely are. the last few polls we had were saturday evening and they showed him below 40%. 46%, and that is the first

number that came out, having enough 49, it was much stronger had axpected -- his son and also aote count, lot of the candidates for governor and lawmakers that he backed did really well. david: does that give us a precursor for the runoff as a practical matter? what are the odds against him? they were at 60 for him to win the runoff and they are now it defies. we have been hearing from analyst that it is his to lose. he would need to make a really big mistake in the second part of the campaign. david: and yet do we have a good sense of what he would need for the markets? he hasn't been too explicit on his plans. >> he hasn't, and what goes against him is that the plans

his advisor put forward are very different from what you voted for in his 30 years as a congressman. he has never voted to back privatization or reforms. the markets are a little uncertain about how these plans will go but they would really prefer him. david: thank you so very much. alix: joining us from washington, the peterson institute for economics senior fellow. monica, your reaction? >> well, the same. it was quite an astounding when. it was one that had been previewed in the last few months with him standing in the polls. margin thaty large he has over his opponent. not only that, the other big story coming out of brazil last

night was the shift in the congress. there was a lot of congressional renovation, not necessarily good renovation from some perspectives, but now the congress has become much more conservative and hard right than the outgoing one. for markets to continue to feel optimistic about brazil, what kind of economic policies do we need to see delivered? >> well, we will need to see first of all what he intends to do. as your bureau chief was saying, and very rightly so, we don't really know. he has been espousing completely different views through his entire time as a congressperson from his economic advisor. his economic advisor is a pro but he hasaliberal,

always been a nationalist, pro state interventionism. we have to see really what he says in the next room weeks about his economic intention. one of the most important things in brazil is getting pension reform approved. here is where we have to know, what are his plans, what are his details for his proposed pension reform? and what else does he intend to do to get the country out of this quagmire of terrible fiscal outcomes and low growth? david: let's talk about what would need to be done to reinforce the resiliently all -- the brazilian rail. white line is the budget deficit as a percentage of gdp, which remains at an elevated level. what steps would he have his government have towhat steps wos

government have to take to really strengthen it? >> it really is all about reform and we have been hearing a lot about what he would do. i think what's quite interesting is this fear that may be we are not going to see it so much in brazil. there had been a fair amount of optimism, that this candidate would push through reform. even though we have the election results, we haven't seen currency dropped to recent lows. think this is linked with skepticism in the market that we will see the reforms. alix: so monica, if you are running a brazilian company, and exposure to domestic market, what do you do on a day like today? what will be your game plan going forward? >> i think the game plan over the next three weeks until we

get to the runoff is going to have to be extremely cautious and looking for signs that there is the intent to implement the reform that needs to be done. i've say right now it is still a wait and see situation and then beyond the runoff, unless we get into the actual term of office of this president which will start on january 1, it is to see how he positions himself and how urgently he sees these reforms in the fiscal adjustment that needs to be done. how urgently does he see the need for that? we have no idea at this stage. is there a chance that if he does have a resounding victory, that you might think he has the political capital to move to the center? we saw something like that in mexico. >> the is are entirely different

political figures. we have already seen that record and when he did so it, it buries the expectation that he will do the same once he is in power. unknown, hemplete has never held executive office, he has been in the brazilian legislature and has voted against every single reform plan, including the plan that brought down hyperinflation to civilized levels. we just don't know what he stands for, in his base at the moment is as far right extremist base. i do not see him moving to the center at all, and in fact, given the new composition of the congress, it is not a composition that favors centrism.

alix: you saw the rally? >> i think that's the best case ,cenario -- you see the rally the president pushing through with reforms which require a 3/5 majority in congress with no guarantee they will he pushed through. --orms are deeply unpopular we are talking about a significant amount of pension and that will be very unpopular with the huge amount of people. i say it's probably go best to go in with a healthy amount of skepticism. david: if you are going to advise the new president, whoever it is, what is the number one thing you would say? >> get the fiscal deficit down and put on the table of pension chance oft has some

bringing debt to gdp down over the medium-term. alix: chain, when it comes to the rail,, there are a lot of questions -- it hasn't been able to top -- to fall above for. what would be a line in the sand for you? seen atigh that we have the end of august was around 4.2, so we saw it briefly, and i think that will be the psychological level. strength and gold if that continues that will make it a little bit easier to get back up to those levels. david: jane foley, thank you for being with us. coming up, a royal life. he may have bought a stake in tesla but mohammad bin salman

isn't rushing to drive his car. more on that, coming up next. this is bloomberg. ♪

♪ daybreak.""bloomberg i'm emma chandra. the vice, bill casey, chair of transaction advisory services. this is bloomberg. ♪ >> now to your bloomberg business flash. u.s. prosecutors reportedly may take a rest after targeting individuals in a sanctions of violations case. according to "the financial times," they told standard chartered they are preparing to

bring criminal charges against former employees over a latched sanction violations. the british bank also may face $1.5 billion in fines. .organ stanley is remodeling you'll overhaul about 1.2 million square feet of office space to make it more tech friendly. the goal is to put experts closer to brokers, bankers, and traders. they say it needs to be designed around a more dynamic, millennial kind of workforce. in the parent of mercedes-benz has announced the first high-level departure since getting a new ceo. the daimler ceo says he will not extend his contract to the end of 2019. they were slated to take over as ceo. and that your bloomberg business flash. alix: on wall street three, we cover three things. first up, james bond comes to ubs. the bank is accused of helping clients with

tactics worthy of double 07. prince saysi crown he took a ride in the tesla in a recent trip. -- the artists work goes up for auction is shredded right away. now, argueing us guest -- let's start with ubs. i thought we were done with this. switzerland going into france, they feel so guilty about it, they used encrypted computers. 007t does feel like a movie, allegedly switching hotels regularly, but this is an ongoing saga with multiple banks, that has changed the flow of money. the crackdown by countries like france over the moving of taxable money offshore was

something that a lot of the and itere known for, changed the competition landscape in terms of hong kong, miami resident best places to go. david: several years ago this was the u.s. crackdown on swiss banks, and i thought this was bank said they wouldn't do it anymore. alix: they just got craftier. like it hasso seems taken years for them to come to resolution with these cases. from the story today, it sounds like they got essential that -- a settlement and that fell apart. david: a 1.1 billion euro. >> there is debates over how much it could cost. have french citizens may stash 9.8 billion euros in offshore funds under ubs. david: i don't think the french are known for paying their taxes, are they? >> i don't have an effect on

that. -- any facts on that. alix: we had an exclusive interview with mohammad bin salman last week. says tesla'snce are nice but i will not buy one. >> exactly. the order of the interview seemed to match up with the saudi reaction to his tweets, overselling the enthusiasm that saudi arabia has for tesla. he said it was great and i had a nice ride but i'm in no hurry to actually drive the car. interesting as well, he said that he is expecting tesla showrooms to open up in saudi arabia. alix: what's interesting is that it shows the investment in tesla is ahead, not necessarily we will invest a zillion dollars to take you private, but it is ahead for peak oil demand. david: what i found interesting was that the king got to drive.

taking drove and mohammad bin salman did not. how can you ride in the tesla and not want to drive it? you're the guy who goes 60 miles per hour in one second. >> he doesn't drive often. david: does he have a drivers license? [laughter] alix: i would think that kind of tesla in the high-end market, where you are looking at $300,000, that might be something they are interested. we knew this technology sooner or later would be stuck in traffic. alix: let's talk about other expensive things. banksy's "girl with a balloon" went to $1.4 billion, and it was immediately shredded. alix: this is fascinating. apparently, he built in a

shredder years ago, in the event that it was sold at auction. it was remote control shredded in front of the audience, which was obviously very surprised. it is pretty incredible. good pointraises a he had to be in on that, had they not notice? one of the other is bad. david: there's a video of where he's putting the shredder into the back of the frame. it's pretty elaborate. you'd think they would check what was in the frame. it will also be interesting to see whether the buyer keeps it, and apparently it is worth more now because it has shredded lines fraternity. paying,e person who is

did they know? do they have someone to did for them? david: but also, there must be insurance to cover these things. somebody must have insurance, right? alix: are we surprised he made a prank? if you are going to -- david: that's the whole point. >> i thought it was beautiful, don't shred it. alix: that's definitely the story of the weekend. david: maybe it is worth more now. >> it could be. david: many thanks. coming up, brett kavanaugh has been sworn in as the 114th supreme court justice. how that could affect the midterm races. alix: and check out tv . watch us online, interact with us directly. also, you can send us a question or reach us on twitter. this is bloomberg. ♪

♪ david: this is what i was watching over the weekend, the nomination of brett kavanaugh. if you saw his motorcade went into the supreme court within minutes after it was voted on. one of the questions is now, what does this do to the midterm elections? this was a map it up i "the washington post," of political report which indicates that what people think will happen is this will help the republicans in the senate. there were some who thought maybe the democrats could take it, but in the house it has gone the other way. there are a lot of women, particularly suburban women, who will vote the other way, because they are quite angry.

now 2:1 suburban women against republicans. alix: that also raises the question of how can you get anything done if it is more polarized? this was the most contentious nomination -- david: fair to say it is not going to get better anytime soon. mitch mcconnell over the weekend came out -- they stalled on merrick garland and wouldn't confirm, so if president trump nominate somebody in the last year, how will you handle it? this is what he said. >> everybody knows i energize the democrat side is. they are for whole different reasons. our energy and enthusiasm was riding behind there's until this, and i think this gave us the motivation and the opportunity to have the kind of turnout that would help us hold the senate. david: that's the part where he said he would get a benefit, and in the same interview he said we will vote on it nonetheless.

it's only unique to poor merrick garland. alix: and if the democrats take control of the senate, it will be the flip. what i find interesting going forward is the passion that we see in the voting public, either way, will voter turnout improve, and in what states? david: absolutely. alix: we always say that, voter turnout, but it never happens. david: less than a month away. alix: coming up, -- of wells fargo will be joining us. why give these trade issues resolving. this is bloomberg. ♪

♪ alix: foreign money flees china

overseas investors dump 1.4 billion. trade gets testy, and there's more liquidity in the market. equity investors take cover, risk off spreads from china and the u.s. as brussels and rome fight each other. in brazil's right-wing wave. the country's former presidential candidate catapults to a large lead after the first round. david: welcome to "bloomberg daybreak." i'm david westin. it feels like a geopolitics policy sort of day. china, brazil, italy. alix: and with brazil, it is so idiosyncratic, this particular you say that? we will see how that plays out. --id: we keep saying that right-wing populism -- alix: 100% right.

you had the risk off last week with the biggest drop in two months, then it spread to china and europe with s&p futures down by about five points. italy's budget is front and noter, brussels and rome really helping the market. jumping to almost that 1%level, crude off by over with some geopolitical issues, perhaps the iran sanctions won't be as bad. david: time now for the morning brief. today, central bankers gathered for the imf world bank meeting. thursday we get u.s. inflation numbers. friday we start bank earnings season when they all report for third quarter is.

balance get a look outside the business world with emma chandra. >> banks, david. the far right strongman stormed to a huge lead in the first round of presidential elections. he took 46% of the vote, just short of the majority he needed to avoid a runoff. u.s., brett kavanaugh will be at the end of the supreme court tomorrow when he years as first argument, but the newest justice will still be the center of attention. the senate ended one of the most contentious confirmation battles over the weekend, narrowly voting to elevate him to the high court. now he will have to define himself and win the trust of his new employees. and they laid chinese markets opened after a week on break and $1.4 billion of shares to exchange with hong kong, just

set of a record set eight months ago. one analyst says this is a sign of growing concern over the relationship between the u.s. and china. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: thank you. china reverberating throughout global equities, stocks flying across europe, pointing to a lower open. the lowest level so far this year. joining us from st. louis, misery, welcome. york, rlin new reporter. you come in today, risk off everywhere you look, what do you do? >> probably not a lot. a lot of what is going on is chinese markets are catching up, s&p futures are down but nothing we would write home about. if you look, the pmi data out of

china was better than expected, and it cut reserve requirement ratios. if you look past this there's an opportunity for emerging markets. alix: where? >> we would start with the bigger names. taiwan, south korea, china, the more developed nations. then you have was going on in brazil as a huge positive. some of those weaker links might start to clean up their palms. david: there's the huge positive in brazil but not a market reaction to the latest round. what makes it a huge positive? >> brazil is the fifth-largest weight in emerging markets that has been dead money for years, so you have this large country with a huge population trading at a very cheap valuation, which is a catalyst. you don't need a whole lot to go positive, you just needed to be not as negative as it has been in the past. alix: i should point out that brazilian futures jumped and are

starting to trade. we will get to that in a moment that i want to focus more on china. when you take a look at the you when, seven has been the line in the sand. now the question is do we have to recalibrate to a world of a persistently weaker u.n.? >> i think the market is pricing that. what you soften the pboc is that they will try to defend that line to some extent, much more than what people thought. but when you see the pricing in the options market you have a market that doesn't think the pboc is capable. we've gone from whether they are willing to draw the line in the sand to whether they have the capacity to defend the line. alix: take us through what we've seen in terms of the risk off. where are people going for safety? what's happening in volatility? >> volatility spiked. you mentioned brazil. when you look at the implied volatility on the brazilian

real, the vix is obviously a lot higher than the average we have been used to over the last couple years but it is still well below the long-term average. volatility into the currency market and i don't think that's panic, that's just folks who don't have certainty about the direction of these markets and you will see that until we get more consensus. david: are we seeing -- in terms of u.s.-china trade relations, for the longest time we thought it was temporary, the means of getting the chinese to resolve. increasingly it is looking like it could go on. does that require the markets to reassess where they are? >> it probably does, and honestly, a kind of have. emerging markets at the start of the year were trading at almost 17 times, now at about 12 times. could there be more? absolutely. markets are notorious for

overshooting. so could there be more pain? it is possible. wants value investors, we to say that there is starting to be value in these markets while you have long-term geopolitical issues to work through there could be short-term agreements on things like trade that kick the can down the road and could provide spectacular rallies. bond markets are closed and we are seeing that continue, but if you come inside my bloomberg, this shows what happened to the different sectors over the last five days. utility was the second-best performer, tech was the one that fell out of bed. that's a good point. if you go back to even a couple weeks toward the end of september, this is it. the only sectors that are up -- dow jones utility, major energy

indexes, and that's about it, then we had that rally. but even that was relatively tepid and you will see that come down as people are positioning to the downside. no one's really buying anything right now, not treasuries, not equities, not currencies. there is the sideline mentality that has been going on and until we get a real catalyst i don't think we will see any movement. david: he said you are willing to stay in emerging markets. what about the u.s.? do you go defense, utilities? do you come out of the cyclicals? >> no, we don't. you talked about strange bedfellows -- you just don't have utilities moving up at the same time and eventually the higher interest rates will catch up and they don't look cheap. we would focus more on the cyclicals, consumer discretionary, financials have

done better recently, health care from a technical standpoint has been one of the real winners and that could continue. last would be industrials. if the trade issues get resolved sales should also do well. david: thanks so much for being here. and there's breaking news right apollo is paying $1 billion portfolio, ge's more of the dismantling of general electric. alix: it seems to be mostly 20ated to energy, investments in renewable energy, fire generation and midstream infrastructure assets in the u.s.. that is clearly something hot to be weighing in on. i don't know what the valuation would have been six months ago, but in terms of being a seller's market you could argue it's a good time.

david: right now it looks like investors think it's a good move, it's up almost 3%. alix: win-win. david: this must have been in the pipeline but the new ceo no doubt got a chance to pass. alix: interesting development, apollo buying the equity portfolio from ge. up, a strong man could be the president of brazil, closing in on the presidency after the first round of the election this weekend. we will discuss how investors view the result. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." on emma chandra with your bloomberg business flash. u.s. prosecutors may take the worst out of targeting individuals in a sanction violations case. according to "the financial times," standard chartered is preparing to bring criminal charges against former employees over alleged sanction breaches. that the has reported british bank that also face $1.5 billion in fines. kkr has offered to buy an astralian is this manager in deal that values the company at $1.6 billion, representing a 24% premium to their closing price on friday. kkr had earlier bought an 18% stake in the company. and morgan stanley is remodeling. the bank will overhaul about 1.2 million square feet of office space to make it more tech friendly.

the goal is to put technology experts closer to brokers, bankers, and traders. they said it needs to be designed around a more dynamic, millennial kind of workforce. and that's your bloomberg business flash. alix: i feel i get some point every company will be a tech company. david: they are now, they just may not know what. alix: i was talking to someone at asset management said they have all the same technologies that small startups to but no one knows it because they just think it's a big bank. david: the question is culture, not computers. a strongl in brazil, man is one step closer to the presidency after dominating the first round of voting. he got 46% of the vote, just short of the majority to win. he will face the workers party candidate in a runoff on october 29. theing us on the phone,

capital management co. chief investment officer, and wells fargo institute investment is still with us, who is bullish on brazil. let making your take. if we get his government what do you do with investment in brazil? >> while there is a lot of concern about this election and we are seeing a relief rally scott i think at current prices the rally is likely to continue although there is a lot of uncertainty in terms of what it represents but i think compared to the searches you regarding a the wing elected government market is much happier taking the risk. david: so explain one thing to me. he has an advisor, is science minister, with whom he has some disagreements. in argentina we were very thoseaged -- does he have advisors and will he listen to

them? >> that's a critical component. in termsnown quantity of how he would govern and it is hard to know. everyone is expecting great things in 2002 but it didn't turn out much better. i think in general it pays to be optimistic but it's one of those things where you have to keep a close eye in terms of his first actions and how he plans to run the government. i think that will be one of the uncertainties, given his nature as an outsider. alix: we heard in the previous segment that you were bullish on brazil, but how? futures are down by 3.5%, petra bus bonds rising the most in a year, equity futures rising, what is the easiest way to play this out? >> for us, it is part of our

emerging markets call. we went focus on brazil by itself, it is so tied to commodity prices. we would take on the emerging markets, and we believe at this point in the cycle it's a great time for investors to look toward those actively managed products, where they are doing the homework and looking at individual companies that will benefit from things like this and outperform the indices. alix: we had a private equity investor last week who said there is a macro picture and micro picture of brazil. the micro picture, the consumer is, would you agree with that? one thing we like is the banking sector because we getk that obviously you can the macro so if things turn around big banks is where you could see the biggest pop. david: as a practical matter, take me through it -- if you want to make it active

investment, how do you do that? do you buy equities of the exchange? >> we prefer the fixed income side. bonds oro into buying some sort of super limited debt. when you are taking a look at broad basket portfolios, you still have idiosyncratic factors. we were talking earlier about indonesia, argentina, turkey -- how do you hedge against that and maintain exposure to emerging markets? >> you really don't. the best thing you can do is diversify and also make sure that you have plenty of u.s. assets. the best way to hedge against those things -- we talked about it before, by the time you move away from every geopolitical with a well

diversified portfolio or one that just sits in cash. david: thank you so much for being with us. coming up, job cuts at ford. the automakers plan to reverse its fading fortunes coming up next,. this is bloomberg. ♪ s bloomberg. ♪

♪ david: time now for a three company stories we are watching. i am watching ford motor company, who has said they have to reenter -- they will redo everything. they have to layoff a lot of salaried employees. hackett, and he said fitness which means cuts but he hasn't been specific. there is a report in "the new york times," about a strategic alliance. were saying earlier,

how can ford maintained being a public company on its own? david: it has a lot of challenges. they were downgraded and have to make a huge investment in autonomous and electric vehicles. the question is do they have the wherewithal to do it. alix: but volkswagen? what is their expertise? david: they would give them distribution, they have some engineering capability and they might have to team up. jim hacker would know better than i do whether ford would have to take a partner. and they were in so much earlier and now they have this x is -- where will they get it? alix: oil services merger, offshore. buy row and 42 $.4 billion. wasar ago you wanted to be

in oil services company in the now all you want to be is exposure to offshore drilling anywhere but the u.s. david: is that is because the oil prices have gone up? alix: yes and no, because you have capacity issues in the permian with a slowdown of production in the other is that costs have fallen so much and they could follow little bit more which is good for activity so breakevens have lowered quite significantly. david: and the technology? dropped the prices like shale? alix: i to argue probably a lot of technology but it doesn't hurt that it is cheaper to rent a rigged. you want to be that international offshore driller. david: the third company, illy. we are joined by our opinion columnist. complicated story, but you

always bring of complicated stories. alix: apparently david drew but diagram. [laughter] nice little caffeine jolt for your monday morning. they do not want to sell themselves, and they are not prepared to do an ipo. given the consolidating landscape, they are instead striking a deal where they were license an espresso machine. this is interesting because nestle once the patent for the machine, and you've seen a flood of different companies come into the space and introduce these self-serve pots. that's one of the fastest-growing places in the coffee market. nestle struck a deal with starbucks and this is a continuation of that consolidation. david: nestle is the biggest and coffee, right? they already have a deal with starbucks. yes, and that's another

strategic alliance where it is more commercial related as opposed to transaction. david: and now they will be selling illy. >> may have fingers in all different parts of the coffee supply chain. they own curate, they own pizza coffee, nejra bread. they have of the footprint to push out these coffee products. david: and now coca-cola has gotten in the game. they will have coffee shops all around. alix: that was something that didn't make a lot of sense to me. cheap, and it was also not an area where coca-cola has expertise. there a lot of geographical footprint and logistical operations involved in buying. coca-cola just got done reconfiguring its bottling operations and pushing them back out to take them off that logistics burden from the company. it's interesting to see them feeling pressured to jump back

in and take that footprint in be competitive. david: it is british, and the ceo of coca-cola is british. >> i was asking my british colleagues, it's a much bigger deal over there. up,: coffee prices are that's what i can tell you. >> you don't want to export what is strong. alix: thank you so much. coming up, speak with one of the winners of the 2018 nobel prize for economics. you will be joining us from nyu. and base metals getting hit, particularly aluminum. more on the line. this is bloomberg. ♪

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it was the worst week for u.s. equities in two months. banks in europe getting hit hard. italian banks off 1.5%. european banks at the lowest levels we have seen this year. brussels and rome continue to lop words at each other as the budget deficit battle continues. you can see it reflected across asset classes. market asin the bond italy continues, 3.6, jumping about the 315%. the highest level for yields in italy since 2014. u.s.,x jumping in the short-term volatility picking up across asset classes. brent off by 1.5%. a little bit drained out of the market. >> you know something is going on when the only green on your market board is the vix. >> it is something. >> it is time for an update on

what is making headlines outside of the business world. emma chandra is here. >> u.s. secretary of state mike pompeo had a testy exchange with china's foreign minister in beijing. pompeo had a fundamental disagreement between the two countries. accusing the u.n. of escalating a trade dispute and meddling in china's domestic affairs. in the u.s. it is the deadliest accident since 2009. federal safety officials are investigating an limousine crash in upstate new york that killed 20 people. the limousine was speeding .ownhill when it lost control all 18 people in the limo were killed along with two pedestrians. two americans have been awarded the nobel prize in economics. william north house of yale was honored for integrating climate change into macroeconomic analysis. cited for his work on the role of innovation and economic growth. global news 24 hours a day on air and on tictoc on

twitterberry held by more than -- on twitter. this is bloomberg. copper, aluminum, nickel, zinc all lower. copper able to eke out a flat existence. trade war tensions slowing growth in china plus a stronger dollar, a backdrop for -- anyone who is anyone is there. copper ceos remain constructive and positive on the metal. >> the outlook for copper is positive. on the demand side emerging markets continue to drive physical demand. chinese demand for copper is inspected to grow this year up 4%. in other parts of the world, like the u.s. and europe, physical demand is quite strong. grow in copper, it is a attractive market.

we have a watching brief on copper. tinto ceo waiting on china trade tensions are affecting business. >> my concern for the chinese economy -- we have a beautiful entry point into china, we sell iron, aluminum, and copper. economy is down. that the chinese government has decided to put more stimulus into the system. if you look at the infrastructure of pipelines in china it is poor. are we concerned about china, absolutely not. on trade wars come other has a no impact whatsoever in our business. between canada and the u.s. and their integration of nafta.

trade wars, no impact whatsoever. >> what worries the boss of a big mining business? at the start of lme week? >> i have lots of worries. we have to make sure we improve push our and that we agenda to the next level i continue to grow technology. >> what is of a threat, is at the global trade war? >> at this point in time know. i think the real threat is to make sure we are very resilient. we acknowledge uncertainty in the marketplace. building a resilient business is about cost position, the right products, the right relationship with customers, and having a strong balance sheet. >> the rio tinto ceo. for the backup of the copper ceos they are saying, if you look at prices in china of some

of these metals like copper and sink and aluminum they are all up today. it is hard to blame a selloff in the commodity market on base metals on china. there are high premiums in china. the underlying fundamentals support demand holding up well even if the rhetoric is negative. the fundamental show it has not had an impact. that is what ceos are saying. oil also getting hit this morning. bloomberg had a interview with the saudi crown prince on the country's ability to talk oil. saying as much as we export to barrels -- two barrels per everyone barrel that disappeared from iran. if the saudi's can add 1.3 millions -- joining us from andi is bloomberg's mideast african executive editor. strong words from saudi arabia, are they true? that they can add 1.3 million

barrels? that's what he says. his point is basically that we have done our job and it came in the context of him praising donald trump. he said he loves working with donald trump. disagreements with donald trump are minor. on thatpushed them donald trump really wants to put more oil on the market to get prices down, as we head into the november elections, he would have none of it. he said we have done our part and more than replaced the 700,000 barrels of iranian oil very it doesn't look like they are going to budge. >> what was interesting is you said the disruptions we have are from we can't help libya, canada and venezuela. venezuela is a big one. he basically said, we cannot replace the oil that is lost from venezuela. what did you make of that? >> he was saying those were the

reasons for the price fluctuations for the increase of price. irans saying it is not because we have replaced them, it is these other issues. maybe he is also saying it is not necessarily our role to fix every problem there is in the oil market. they don't necessarily want to be in that position. they could. they have that capacity and they have the ability to add more oil. donald trump is pointing the finger at iran. it is not necessarily iran. there are lots of issues. >> the you get the sense that they are going to be ramping up capital investment to have more sustainable capacity? many analysts are skeptical they can get to that point much less go over it. saying that 1.3 million barrels without extra investment. he indicated they would be

willing to add additional investment. one of the things he was talking about was the negotiation with to wait regarding -- kuwait regarding the neutral zone. resumes kuwait to production in the neutral zone while they reach an agreement. kuwait is saying some faction wants a resolution before they agreed to resuming production. >> the neutral zone can account for $500, -- 500,000 barrels of oil a day. did you get a sense of timing for that? he said we are close to an agreement and we may see something soon. he indicated that not everyone in kuwait is in agreement that we should proceed before they have signed something. we are not sure. he just said soon. >> amazing interview, thank you.

what is weighing on the oil price today is the report from bloomberg at officials in the u.s. are looking to give waivers to some oil buyers for iranian crude like india and china. nothing official but if you offer waivers that will keep the price down. >> if that happens it is backing down. they initially said there weren't going to be any waivers. unlike prior sanctions were there will no waivers. >> an interesting dynamic to watch. .till with us when you look at oil are you looking at a world where we will see 85 or $90 oil or you factory world where we see 70 or 75? >> we help for the latter. we think there is a lot of oil out there. growth and demand is starting to tail law. if you look at growth and supply it is starting to increase. the second derivative is suggesting we may have seen a peak in oil prices for now.

we would be reducing our exposure to oil and energy companies. commoditieslike his as a whole. we think there will be a reversal. the first half of 18 was all about oil and everything else tailed off, base metals and precious metals. we think the second half is the opposite. we think base metals and precious metals lead the way. commodities will and higher but oil will lag. >> saying it is not about oil, you are killing me. on the bloomberg you can look at china manufacturing versus the lme copper price. they go lockstep. do you feel that base metals are significantly undervalued because they have been driven down by sentiment and we will see a snapback? what gives you confidence they are not a leading indicator. >> that is it. we think china is girding for a longer trade war. one thing they will do for to get ready for the second round of this, this has been the first round. they were caught offguard.

for the second round they will try to get their economy going so we can play on a level field and have more to push back. one thing working in the u.s.'s favor is how well the economy is doing here. >> what metal do you think is undervalued? >> we like copper a lot. when some negative sentiment last week disappeared we saw how quickly it bounced. that could be one of the areas we like most. precious metals also look very interesting to us. especially away from gold, silver, palladium, platinum is interesting. >> if the back half of the year won't be about oil, oil -- does there need to be some type of rewriting in the oil market in respect to what the underlying commodity does? >> oil equities have shown you that the price itself wasn't that big a driver except for in the first part of the year. there are better opportunities for investors to

make money than the energy sector. still looking at it with a lot of skepticism. >> thank you very much, great to get your perspective. >> breaking news out of starbucks. they will have a new cfo. he comes over from hyatt where he was cfo. before that he spent 14 years with yum! explain the appointment, the ceo of starbucks emphasized he had its variants in global companies and consumer centric companies. he was also in the resorts area. >> of course he was. starbucks has been plagued with and changepdate their product lineup to keep it fresh and keep willing buyers. buyers?g how do you do that in a place -- >> the founder of starbucks, a legend.

that is a top order of business. >> how to negotiate in china. growthly that is a huge market for them in china very now you have trade issues and how they deal with that, i wonder if he is experience with that. >> the new ceo is patrick grissom -- grismer from hyatt. we will talk with the vice chair of america's transaction area advisory services.

>> this is bloomberg daybreak. i am emma chandra. coming up. the td securities head of global strategies. this is bloomberg.

now to your bloomberg business flash. it is the offshore drilling industry's second big deal in a month. they hope to close the deal in the first half of next year. last month transocean agreed to buy ocean rakes for $2.9 billion. higher oil prices are driving a recovery. a french newspaper says the company's board will meet to make it official. it has been positioned as the heir -- china is looking for ways to retaliate in the trade war with the u.s. and experts tell the new york times beijing may target corporate deals with american buyers. reviewing aare number of deals such as disney's

purchase of 21st century fox. the government could kill those transactions. that is your bloomberg business flash. ey on the subject of mna. does a review on ceo appetite for acquisitions. the vice chair of american transaction area advisory services. welcome, good to have you. >> thank you. >> we are going to put up the basic take away from your report. people, 51% of business executives say in the next 12 months of a plan to do something in the emerging acquisitions area. 67% expected bigger deal pipeline. 92% said they are interested in divesting. this is not just acquisition, it is sales. >> there are two sides of the coin but there is a lot of optimism. optimism in the deal market and

the economy. one of the drivers of the deal market is the focus on divestiture. we have seen this trend for some time. companies have institutionalized portfolio reviews and are shedding off the non-core assets. >> another point we covered briefly was a large number think there is a lot of dry powder for private equity. is that driving up valuations? >> no question about it. theyears we saw buildup of war chest of private equity. private equity got back into the market with pensions two years ago. there has been a big uptick in the amount of private equity deals. we are seeing a lot of corporate and strategic buyers competing heavily with private equity. more than 50% of us see private equity as their main competitor. look forward to bank earnings season which starts friday, one of the things we are writing about is what is the

investment banking business going to look like? in the third-quarter they completed m&a announced rather than come down some. is there something underlying that or is it a matter of timing? >> it is a matter of timing. most respondents are going to see an uptick in their m&a pipeline. we are talking about announced steals. there are a lot of deals -- announced deals. there are a lot of deals that are going on. in the deal market there will be some adjustments in valuation with respect to those companies attend be more cyclic. >> is in a buyers or sellers market? sellers very sellers have gotten sophisticated in terms of the number of participants in deals. there is a big uptick in deal activity because there are more buyers. private equity has moved in large family funds moved in, sellers have gotten quite sophisticated in terms of number of buyers are looking at deals

.hich is pushing >> we heard earlier that some transactions are going to be in doubt. what do you hear on that? >> there is nothing particularly new. there has been a law enacted so we do expect an uptick in the number of deals. the u.s. is not alone in this. other countries are looking at this. gil he and -- new regulations and law changes are going to be detrimental to the m&a market. >> before the statue was changed and administration was forcing more offhand. if the level of m&a remains the same does it become domestic as opposed to cross-border? the corporate

buyers are very focused on the americas. in terms of looking offshore, we are seeing -- when we talk to u.s. based buyers there looking first at canada than at latin america. the two sectors that will be impacted will primarily be hardware companies and certain software companies. >> what about inbound overall, not just china, do you see a trend inbound m&a? >> no. the u.s. continues to be the number one target for investments around the globe. >> how do you feel m&a will be financed? >> this is a great time for m&a. >> even though we have seen a rise in yields? going forward you feel like it will continue like that? >> right now the credit markets are favorable. anticipation that if there is a change in the

credit markets perhaps now is the time to get in and lock in more favorable rates. there is likely to be some impact going forward. >> when learned last week just outside the labor market is in the u.s.. the u.s. is in because of labor because you need to buy talent? to face athe ways problem of attracting employees is doing deals. more specifically there is a real shortage of folks at the higher rent. particularly in an economy where innovation is key. a wayility to use m&a as to attract talent is key. >> we got through this without talking about tax cuts or repatriation. has that affected m&a? >> cash was never the problem. cash and credit was available. , it respect to repatriation was a trigger in terms of an uptick. thererelates to tax cuts

has been a benefit of having more capital in the system. >> bill casey, thank you for catching up with us. a tally under pressure again as the government holds fast to its budget position ahead of the eu bed line -- deadline. this is bloomberg. ♪

>> i was going to be watching italy but now i'm watching goldman sachs. the company is going to reduce its market spending goal on credit caution and scale back their loan origination for 2019. this is a big initiative of lloyd blankfein's. he was really enthusiastic about this. they say there is some credit caution. this is a big priority. it is no: said that we're going to hear of their earnings on friday. >> david solomon has been a big

supporter of this as well. >> maybe this is not a strategic retrenchment. people ask a -- questions that how you are going to do this in a safeway because you don't have the retail bankers to assess credit of individual consumers. lloyd cap saying it is big numbers and large numbers. >> part of it is they are going to charge more. they are going to lend it to riskier areas. 4 billion they loaned in two years. we will be watching that. that is it for bloomberg daybreak americas. coming up, bloomberg markets americas open. ♪

>> from new york city i am jonathan arrow. 30 minutes until the start of trading. this is the countdown to the open.

the treasury market taking a break following last week's round ahead of a big week of supplies. chinese markets catching up with a global stock selloff. brazil's far right candidate stormy to a huge first round lead in the presidential elections. this is how it is set up. s&p 500 futures negative down around a third of 1%. the dollar strengthening with euro-dollar south of 115 at 11465. the treasury market shot. .54%. under equities very much pressure after the s&p 500 recorded its biggest weekend decline in a month. >> i think these markets are dealing with a number of crosscurrents. they did not factor in the second order of tax which are negative.

>>