[captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org >> a very good morning, i am heidi in sydney. >> shane: i am shery ahn. "bloomberg to daybreak: asia." >> our top stories this monday, pacific markets off to a mixed start after confidence was shaken after the biggest slide in quits in six months. it is considering a range of policies, include wag it calls

a worst-case scenario. and saudi arabia vows to retaliate. >> let's get you started with a quick check of markets. they closed the friday session here in the u.s., stocks rising most in six months, tech driving most of the strength across markets. nasdaq seeing its best day since march. tech and consumer discretionary leading the games on the s&p 500. but it wasn't just that. we had easing of trade tensions as well, and corporate earnings. we saw mostly positive results. the dow was up, gaining more than 1%, and treasury yield rose for the first time in three days. let's see how all of this will play out in asia. here is ilyasova why. >> there is a cautious tone being truck this monday after a stream of weekend warnings from global finance ministers.

u.s. futures are lower. asian stocks could be looking at a mixed start to the week after the rough week last week. friday's rebound may be short-lived. gaining, bonds are and the aussie dollar under pressure. up side looks limited under ants payton that china g.d.p. growth will have slowed. they warned a heighten trade war risk for the australian economy. we also have the bank decision on tap for thursday. the data docket today, we have japanese finals output for august and trade data from indonesia and india. also on the radar we are seeing oil prices tick up. w.g.ism back up $72 a barrel, this amid rising u.s./saudi tensions. >> let's get you to first news in new york.

>> thank you and good morning. the people's bank of china has told bloomberg it is evaluating a range of threats to its current policy, including a worst says scenario. the governor says u.n. volatility is normal and the currency at a reasonable level. he spoke as the treasury prepares a report that may name china a currency manipulator. >> the risk from trade tension significant. in the past few days, i.m.f. presented their model and predicted what would be the losses for the trade tension for the major trade countries and also for the global economy. i think i pretty much agree with the nix prediction. >> the bank of japan governor has told bloomberg that when the bank is ready to retreat from stimulus, the shift will

be seen in its target rate. kuroda said when 2% inflation is close, policy makers will be able to change focus, but inflation remains around 1%, so there is no likelihood of imminent change. wages ally i think .ould be the main sustainable rates are accelerating in recent months. whether this continues or not would be very critical. >> sterling fell as much as halftime a percent against the you're after negotiations with the e.u. dominic robb traveled to bluffles, but talks were then put on hold. that indicates another diplomatic disaster for teresa

may with key meetings postponed. a potential ally of angelo merkel has lost its majority in bavaria that could have implications at the national level. the christian social union is on course to take 37% of the vote. that is down from more than 47% of five years ago. that would be the c.s.u.'s worst performance in a state it has dominated since 1950. a south korean newspaper says north korea is in such dire economic straight that it can't afford to renege on making hanges to the nuclear program. jean-claude juncker says he understands. global news 24 hours a day on air on on tick to be on

twitter. powered by 2600 journalist from 120 countries. >> the question for u.s. stock markets this week is whether the sharp sell-off is over or friday was just a pause. the fresh round of earnings, and potentially weak housing data are all set to weigh on this week. the key question is this something? >> that is a key question. the tech rebound certainly snapped the six-day losing streak. can it continue. let's look at the market snapshot. we did have the dollar stronger. the 10-year yield holding above 3% on friday's close. the nasdaq really where the strength was, up almost 3%, and the vix falling. will the volatility come back? let's take a look at some of the earnings ahead. we had the banks kick off

earnings on friday with mixed results. back of america, goldman sachs, morgan stanley will clearly grab investors' attention. all of those stocks except for morgan stanley rallied on the strength of some of the bank earnings. netflicks will always be out. a lot of focus on that because their evaluation is a big issue. let's look at some of the other stocks that will get a lot of attention. we talk of the increasing tension between the u.s. and saudi. that could have direct impact on lock read and raid on. they have very big too deals with the saudis. there is a question whether trump will interrupt billions of dollars of arms deals. trump said on friday he would not do that. he is concerned that the sales would go to the russians and chinese, which he doesn't want. if we go to the bloomberg, earnings trend is a question. any have often said that big

wall street analysts that when you take out the trait tensions and focus on fundamentals, the strength of the earnings are likely to continue. that is moss tiff. the strong earnings this week could bring stability to stocks. >> you mentioned evaluations as well. what about i.p. offerman's and the latest economic data? >> there is a concern that many of the na:'s -- i.p.o.'s may be pulled or delayed this week. let's take a look at tencent. this is an example of the huge sell-off you saw and then the rebound friday. tencent music is one of the i.p.o.'s being delayed. let's take a look at some of the evaluation questions that have to do with things. the hedge funds were among the heavy sellers, reducing their

exposures on the short side and the long side. in terms of economic construction, the sale of existing homes in the spotlight this week. economists are forecasting the weakest sales in two years. then we will have the fed minutes. of interesting to note that kudlow saying the fed would not have them aulter policy. >> the big sell-off seems to come just as traders were talking about $100 oil. >> oil dipped. biggest weekly loss in may. now that you have the u.s./saudi tensions, that could change. futures dropped about 4% in the last week. that had a lot to did with the

supply gaining here in the u.s. again, that could be eclipsed by some of the headlines this week. quickly to gold. the gold bug has had a reversal of fortune. a lot of hedge funds boosted their net short position just before you saw this big uptick in gold because of the concern the sell off and of stock. what happens with gold very significant. >> proceeding with caution on that one. saudi arabia is running out of time to explain to the trump administration what happened to the journalist and critic in turkey. president trump is said to be weighing a range of actions that could include a diplomatic downgrade. roz, just before we get to the latest, we heard from trump's top economic advisor, and he is essentially warning that the president is talking tough and

ready to act as well. >> he certainly did say that, eidi on a couple of tv shows today. it was interesting that yesterday president trump was asked at an event in the oval office what would you do? you have said you don't want to cut the arms sales that saudi arabia has made. he kind of punted the question to one of the senators there, and he didn't really have a good answer either. it is really unclear what the u.s. wants to do. i think both the u.s. and saudi would like to take action against one another. first the u.s. and the saudis if they have to respond without hurting their own interests. for the u.s., they may think that not selling arms is not a great idea, as sue said in the earlier segment. it hurts u.s. companies. but the other side of the coin is saudi could say we are going to cancel the deals. we don't know what the penalties would be for

canceling and taking that action, but not to be totally ruled out, i guess. saudi arabia could also cut its oil production to kind of put the squeeze on the u.s. by pushing up oil prices. some analysts in the middle east have suggested that is a possibility. that would also hurt saudi interests at home. it is kind of a delicate dance that each is doing. some of the less damaging acts that the u.s. could take and maybe saudi could take in response would be diplomatic, closing embassies, possibly expelling some diplomats on a short-term basis, or moving on student visas or things like that, a little bit less extreme than pushing up oil prices or cutting arms deals. >> roz, what would be the risks that are being weighed out by both sides at the moment? >> well, pretty much as said

there. these are two countries that have a very good relationship during the trump administration. saudi was president trump's first trip abroad. he has met saudi leadership in the oval office many times. at a time when trump has contention relationships with china, even canada, with the european union, his relationship with saudi arabia has been on the up. also i think the trump administration is looking for saudi backing to push through a middle east peace deal through jared kushner. at is one of the big risks involved. >> the administration has also had contention relations with turkey. could we see u.s. sanctions lessen now that pastor brunson is back? >> shery, i think we could,

did gh president trump not say that specifically yesterday. it is something we are probably looking for to develop over the next few weeks. now the white house has said that the sanctions against turkey were not specifically -- or were not only driven by the brunson situation. they are also part of president trump's overall national security and economic package. look out on tuesday for president trump to have lunch mike cretary of state pompey oh. >> we are now hearing that a key member of president trump's administration could be leaving, although we have heard that speculation before, general matusz. >> that came up in an interview that president trump gave to minute maid park -- to 60 minutes, that is probably running as we speak. he liked the former marine with buzz cut, but he actually

called him sort of a democrat, which is not exactly a compliment from president trump. he said i don't know if he is leaving, but he may leave and kind of lamented in a bit of a sad way that in washington peel always leave. president trump certainly likes to hire people who are loyal to him to the death like his family. so general matusz may be the next one to go. >> the turn over seems to continue. thank you, ros. ahead we are going to get more highlights from policy makers in bali. the bank of indonesia governor joins us and weighs in on the fed raising rates. coming up, we will take a look at slowing growth in china and ask if the escalating trade war is starting to hurt. this is bloomberg. oomberg. ♪

>> this is day break asia.

i am heidi in sydney. >> and i am shery ahn? new york. china will unveil its first g.d.p. report this week after the trade war erupted in july. things ts see further happening. great to have you with us. thank you for your time. we have seen the chinese authorities pump stimulus into the markets once again. are we going to see the effects on this tweak's data? >> yes, i think this week we are going to see this g.d.p. data in the subculture. we do expect some moderation of this gross data. we are looking for 6.5% year on year for g.d.p. data. i think the main reason is ill the things coming from

the domestic policy like the money aging, and the tightening. we still have the trade war uncertainties, but i would like data, they have something growth data. >> we don't see in the trade data like exports. when are we going to see the trade tensions start to be felt? >> if you look at the total export of china, it still holds up very well. the reason is many exporters, they started to take measures to offset this negative impact from this trade dispute with the uses. they accelerate exporting, and they lower their price to maintain their exports. they have done a lot of things like this. that is why so far we have not seen that the trade war issues

having a very significant impact on chinese exports. but if this goes a lot longer, i expect this kind of negative impact will reflect on this export data many in the coming months. at want to bring up a look liquidity conditions and policy conditions we are seeing in china. over the last couple of weeks, we have had the fourth triple cut for certain lenders. this is the china library. the principal has domestic conditions when it comes to setting monetary policy, so not necessarily adring the potential impact of the trade war. what we are seeing is more expectations on market in terms of what the pbrc could potentially do. is there a chance we could see more broad-based easing from the central bank? >> now the central bankers,

they want to deliver the message that the mandatory policy is museum. w the gross load is on domestic factors. i expect they are going to do more on the easing side. i do expect they will cut r and r in both cultures another time. also they have facilities to inject liquidity into the banking sector like medium term to long term things. and they have a lot of the policy tools to do that one. i do think they are going to do more on this side. now if you look at the chinese economy, i like to say they are facing things from trade war issues and also domestic ightening. if they maintain the economy at

a decent level, they are going to do more on the stimulus side. they can do more on the fiscal tied. they could cap the tax rate. they are going to push forward the structure. overall, the policies of the chinese government will achieve progress more than before. >> are they going to do more in rms of supporting the equity market? we saw levels below 2600, and we didn't see that in 2015-2016, and yet the state didn't come in to shore of support. are we going to see the sell-off in china continue to play out? >> i think this is a true trend. now it seems the government is

more reluctant to intervene in the equities market. there were internal shocks. china and other countries, they have very significant corrections in the equity markets. i think for the moment, you can see the state is not in a hurry to intervene. ut if these things continue, this moment in the stock market could could have a further negative impact on the economy, if they see that, i think they will do something. >> thank you so much for joining us. our hong kong chief asia joining us. plenty more to come on daybreak asia. this is bloomberg. ♪

>> u.s. banks kicked off earnings season on friday.

jpmorgan closed down more than 1%, the lowest in three months. but citi and wells fargo both rose as much as 2%. mainy has the reasons behind the moves. >> the numbers are there, but interestingly, investors just aren't getting that stoked about what is happening as evidenced by the numbers you saw in terms of the share price. let me walk you through earnings. we actually for the two beats and one miss, but the miss was actually described as something decent. j.p. morgan beat, 2.34 versus 2.26. that is actually plus 25%. city bank was plus 22%, and wells fargo, even though it was miss, it was plus 392%. j.p. morgan was 5%.

that was actually the first time revenue rose this year. that was the biggest beat in terms of share prices. but still it had been higher earlier in the day. how did these banks' loan growth do? >> jpmorgan came in at $13.9 billion in terms of net interest margin. that is unexpected. go to the bloomberg terminal. here we are for the financials. up 2.4%. we have four out of 67 banks reporting. we are of course are expecting more this week, and that includes bank of america and merrill lynch coming in on october 15, as well as morgan stanley and goldman sachs on october 16. the themes to watch are rising interest rates as well as loan growth and global macro risks, affirm k.a. the u.s./china trade war. >> thank you so much for that. plenty more to come on daybreak asia. this is bloomberg.

♪

10:30 in sydney. markets have been trading for 30 minutes now. we see a bleak picture, health care seeing gains, but everything else not. seeing the biggest losses across energy and materials. oil prices had a volatile week. you take a look at the rebound in the u.s., u.s. stocks rising the most in six months, but futures looking like that bounce could be temporary. shery: 7:30 in new york, markets closed up. the s&p 500 rising the most in six months and halting the longest losing streak in two years.

i don't want to be a debbie downer but if you put it in context, the s&p 500 seeing the worst week since march. i am shery ahn in new york. haidi: never a derry -- debbie downer. we are just realistic. .ou are watching daybreak asia let's get you to first word news. ramy: the saudi stock exchange tumbled as the kingdom threatened to retaliate against potential sanctions over the disappearance of a critical writer. president trump warned if severe punishment -- that severe punishment would come if riyadh was involved. the man entered the building october 2, and turkey said he was killed by saudi agents. the treasury secretary steve mnuchin wants a currency clause preventing competitive evaluation to be included in any free trade talks with japan. tokyo agreed to open negotiations on tariffs after

threats of sanctions on the profitable auto sector. washington wants more concessions on trade even before the first round of talks is set to begin. in the light malaysian politics after a victory in a district election opened the way to him becoming prime minister. he leads the largest party in the ruling coalition and will be inaugurated monday, having taken 71% of the vote in port dickson, set to succeed now as by minister in the next year or two. the leaders of italy's populist coalition have attacked the finance minister for questioning their plan to bail out all italiana. they say they must respect the government's agenda. the comment three and similar statement from the fellow deputy prime minister. he was speaking at the imf world bank meeting in bali. he says he is in charge of any decision to invest in all

italiana. -- alitalia. in $105 million. the surprise hit briefs life plans for a superhero universe. a star is born came second with 48 billion dollars while the neil armstrong biopic first man fell short of opening expectations with $25 million worldwide. 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 am ramy inocencio. shery: despite the tailwinds from wall street, these markets are under pressure in australia. .ophie: shares are off .9% materials, utilities and financials among the biggest

drags. while pharma and other shares are in bright spots. 172 stocks sliding. we have 27 gaining ground in sydney. some movers of note, line is extending an advanced after the review continues. a 20 week low fighting with other media related companies like domain holdings and others. overall we are looking at a down day for aussie stocks trading near a session low. friday stock rebound, might be looking dead cat like. sophie: we are finding a few whiskers short perhaps. we look at the futures aboard, we see contracts pointing lower for tokyo and korea and also futures signaling caution for the u.s..

imfend warnings from go chiefs, cautioning market volatility ahead, and the yen trading at 112, looking steady after capping its best week since february. we do have the fed meeting due on wednesday that will likely play into sentiment keenly. shery: thank you so much. the imf managing director christine lagarde has warned there is more target volatility to come and choppy waters in the global economy. at the conclusion of the world policyeting, she said should continue building monetary and fiscal buffers, but in tenacious central bank governor had a more upbeat view. -- indonesia's central bank governor had a more upbeat view. ,> many markets are facing there is volatility in the

capital flows. there is unprecedented volatility in the [indiscernible] then there is a tendency moving maybe fundamental. this is what we are seeing in indonesia. i do believe what you are seeing [indiscernible] it is different, but i think it is already misaligned from the rupiah. here it is undervalued. if you use the fundamental measure. reporter: how much undervalued? >> of course this is we can a number offrom .ndicators, number of approach you know you can approach it

from the exchange rate. you can put number of it. from thelso measure it adding, if youal approach from that, you can clearly see the rupiah has been under rated. the presidentad saying with this coming to the global economy -- you are more upbeat area -- upbeat. >> i see it is more positive. seeing thee normalization process of monetary policy especially from the usa that will be gradual. anddirection will be there,

the fed will also continue communicate clearly what is the cost of the normalization process. coming from the communique is that, number will be promoting free, fair and moderately an official trade for supporting global economic growth. hopefully coming from this annual meeting will be giving more positive, nuanced positive. resolution the progress of these trade tensions. having said that, despite the progress, many people agree volatility will remain. is there enough ammunition on the part of bank indonesia to navigate the challenges?

>> [indiscernible] economic fundamental is ok. shery: that was the indonesian central bank ever speaking to haslinda amin at the imf world bank meeting in bali. the australian bank manager has urged the u.s. to refrain from another escalation in the trade war with china. speaking on the sidelines, he said it would be time for cooler heads to prevail. australia is trade exposed great we are a capital importing country, the fifth most traded -- currency in the world traded currency in the world and we have a interest in a rules-based trading system very i had a great conversation with the u.s. treasury secretary. he knows how trade exposed australia is. he knows china is our number one partner and the u.s. our number

one investor. i made it clear i have done privately and publicly in all the meetings i have had we need prevail.ol heads we don't want to see an escalation of the trade tension between the united states and china, and we want to see the wto, the preeminent forum for resolving trade disputes. reporter: as soon as the trump team launched its complaint at the wto over intellectual property, japan and the e.u. jumped right in, so clearly it is not just a u.s. complaint. where does australia stand on that? how crucial is that? >> wto reform is one or the g20 can play a constructive role. we are talking to counterparts here at the meeting. at the end of the day free trade means more jobs, investment and it means higher economic growth.

that is australia's story. that is the story of the world. trade volumes are up, and we see new partnerships and agreements like the transpacific partnership. threat tohow big of a australia's economy is this if cooler heads don't prevail, and this continues and escalates? seen a large macroeconomic impact of the trade tensions. it has been confined to 2% of world trade. clearly it is in no one's interests for that to expand. the australian economy is growing strongly, has good fundamentals and good momentum. we are growing 3.4% through the year, and that is higher than any adjacent country or the average. aaa credit rating from

all three rating agencies, and we pitch and s&p, , thehe lowest deficit lowest since six years. the australian economy will continue to be strong. the global economy is strong. 3.7% from the imf, a good number. we cannot do that at risk with increasing trade tensions. haidi: that was australia's treasurer speaking in bali at the imf world bank meeting. we are counting down to the open of trading in japan and korea. let's look at how the start of tokyo trading my go. futures trading in chicago looking muted. the nikkei 225, we saw it rebound with the rest of asia. 2017 low, from the but it does look like mixed futures as well as downside trading in sydney.

there might have been a cut. u.s. stocks rebounding in the friday session, rising the most 112.x months. dollar-yen industrial production coming out for japan. that is later on today. big data point for the rest of asia will be the flurry of chinese domestic activities, investment, retail sales, industrial production and the headline gdp. this is bloomberg. ♪

shery: this is daybreak asia. i am shery ahn. haidi: i am haidi stroud-watts. we have been talking about rising interest rates and the implication for economies around the world were on the agenda at

the imf world bank meeting. but higher rates are likely to cause liquidity rates across emerging markets. joining us is the s&p global .atings had -- head great to have you with us. you are back after attending the joint imf meetings in bali. what is your concern over trade and tight liquidity conditions as the fed continues to do its thing? >> thank you for doing -- having me. we spend a lot of time hearing a world trade,ns on interest rates, and concern of how all this together is going to evolve. what is the capacity to emerging markets, particularly american markets to go through this and -- emerging markets and go out

at the end when things normalize in a stable way? we think there is a lot of strength behind the fundamentals of emerging markets, but the situation continues to be fluid. haidi: as we have been saying amidst the emerging markets selloff, not all em are created equal. do you think some emerging markets that have strong demographics and more robust debt profiles are being unfairly penalized? >> we have seen, if you think which are the emerging markets that have felt the biggest hit right now, argentina and turkey, negativehave had reactions in the last few months, those are credit that if fundamentals,eir they are more exposed than others. the market is distinguishing between those and different credit within this category that

we have seen over the last had as, number one have wonderful diversification of the economy area they have grown tremendously, increase their wealth, but they have all reduced the original sin. the need for external liquidity. there is a big difference. you look at emerging markets today, they are highly rated. in asia we have several of those. you have malaysia, indonesia, india. feeling aem have been tightening of conditions, but -- enoughat ammunition to go through a fairly stable way. shery: you mentioned turkey. we saw the return of pastor brunson. there are falling geopolitical tensions between turkey and the u.s., but if you look at the

charts on the library, you see although the turkish lira has strengthened a bit from those extremes, still there is a 25% runaway inflation hurting the financial conditions there. i wonder how much of these economies whether it is turkey, argentina or others like russia will be an issue of geopolitics, and how much will it be about economic fundamentals? >> absolutely. in the case of turkey there is geopolitical issues but the fundamentals are week. that is what is reflected on these numbers you are referring to. whereas may be the resolution of these issues vis-a-vis the united states take away the threat of further sanctions, they don't improve the underlying structural issues that were behind rising

inflation and high exposure to foreign exchange needs. that is what the market is showing. the same is true in other parts of the world. russia, very strong fundamentals, but you have lingering the issue of sanctions that are discussed at the u.s. congress, and what would that do to the government's capacity to finance themselves, corporate or banks, to refinancing lending? this adds to the noise coming from the other issues like the trade wars and also the rise in interest rates. that is what you see and what i was referring to within the fact , the market is looking at those things and making a difference between those type of credits that are exposed to such situations and those that are not. in south east asia, where do you see pockets of strength

and vulnerability? we have seen a clear delineation between the deficits, being the ones that are most pained in the most recent selloff? >> in asia if you look at the overall group of emerging markets, one thing you see is growth rates continue to be pretty robust in most economies. cannot be underestimated. the power of gdp growth to help you go through processes of instability, which you don't see in other em's. if you look at latin america where you have heavy hitters in emerging markets like brazil and colombia or even mexico, you look at growth ratios, they are lower. if you look at the view of asia, we have in general a pretty stable view. most of the ratings are a stable

outlook with the exception of the philippines where we see upside potential. in general, this growth dynamic i think give you a fair amount of space. especially in all of these em's, because of positive demographics like a young population without much savings, is that a real problem? >> yeah. those of the examples you see in latin america. as you look at the savings rates in asia, latin america, there is a big difference that is reflecting itself on the fundamentals. i think it is going to be very interesting and challenging for those economies more than in asia. that is not to say we are expecting volatility to have an impact. cases like indonesia over india, where we have seen heat on the

market, that is a reflection of may be a wider exposure to the interest rate dynamic in those economies. the structural changes that those companies have undergone in the last few decades, it puts you in a better position than before and will give you maybe in the case of some of those to be behind the stable outcomes we have. shery: thank you so much for your time. the head of research from s&p. looking at stories on the bloomberg universe. terminal subscribers are reading about j.p. morgan's prediction of vulnerabilities as yields advance. webapup of imf talks on the , tremors rattling the world economy. tictoc dollars looking at the developments of the dissing journalist in saudi arabia. those stories are trending online or on the terminal.

this is bloomberg. ♪ ♪

asia. this is daybreak i am shery ahn. haidi: i am haidi stroud-watts. let's get you a check of business headlines. athenahealth is attracting interest from five potential bidders with an auction for a record technology company. baincapital, hellman in freeman and others considering bids. elliott management owns 5% of athenahealth and also weighing in. two companies agreed to merge and create the sixth-largest defense contractor in the u.s.. this would focus on communications and electronics ofh a current market value $33.5 billion. the deal has been approved i both boards and will result in

people receiving 1.3 shares of harris, stocks. -- harris common stocks. amazon offer $400 million for a minority stake in a grocery retail chain spencers retail. be in thegreed to final stages but held up by valuation concerns. both companies declined to comment. the paper reported earlier alibaba was also in talks to apply a minority stake. shery: coming up next, we are speaking with blackrock's chief multi-asset strategist. she tells us the range of potential economic outcomes is widening given the strong u.s. economy and selective risks among em . we will ask her about different outcomes. the market open is next. this is bloomberg. ♪

.hery: a very good morning asian markets have just opened for trade. shery: good evening. >> and i am sophie. welcome to daybreak asia. shery: our top stories this monday -- asia-pacific markets toed -- facing a mixed start the week after confidence was shaken. volatility has been

impacted by a range of policies. >> brexit talks on hold. intensive negotiations stumbled. monday's key eu meeting has been canceled. we saw japanese and korean stocks rebound in the last session sending the asia-pacific index out of its lowest level since may, 2017. let us see how markets are shaking up. >> -- shaping up. , we haveday's rebound of the talks along with rising u.s.-saudi tensions. asia stocks remain under pressure after three straight weeks of losses. the yen is holding steady. the nikkei 225 losing 0.8%. kofi is off by 0.3%.

sydney shares are trading near session lows. the aussie dollar is on the back foot. did warn about heightened trade wars threatening the australian economy. kiwi shares have eased. the kiwi dollar is slipping just a bit. let us get you the first word news. exchangeudi stock tumbled as the kingdom threatened to retaliate against any potential sanctions over the disappearance of critical writer, jamal khashoggi. president trump warned of severe punishment if riyadh was involved in the reported murder.

he entered the building on october 2 and turkey said he was killed by saudi agents. the people's bank of china has told bloomberg it is evaluating a range of threats to its current policy including a "worst-case scenario." the governor says of volatility is normal. he spoke as the u.s. treasury prepares a report that may name china a currency manipulator. >> the downside risks from the trade tension are significant. days, the imfw presented their model and they predicted what would be losses for the trade tension. trade countries as well as for the global economy. i think i pretty much agree with the imf predictions. governornk of japan

has told bloomberg that when the bank is ready to retreat from stimulus, the shift will be seen in its target rate. said .2% inflation is close, policymakers will be able to change focus. he noted that right -- that inflation remains around 1% so there is no likelihood of any imminent change. it wouldlly, i think be the main sustainable factor of inflation. we have seen accelerating in recent months. whether that continues or not will be very critical. >> sterling fell by 0.5% against the euro. britain's brexit secretary dominic rob unexpectedly traveled to brussels as speculation about a deal group.

the pause indicates another diplomatic disaster for theresa of with a key monday meeting eu governments postponed. 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 am ramy inocencio and this is bloomberg. shery: the weekend brought plenty of headlines but asian investors and traders will need to start working out whether the rally was much more. bar --dmore is in singh mark cudmore is in singapore. higher and then erased all of their gains. about an hour or so before they -- before the close, they bounced back. what do you make of the rally? i think that was a reassuring technical signal for the close into the weekend. as you mentioned, there are a lot of themes for traders to

focus on and most are leaning slightly negative. another week of turmoil. u.s.-saudi tensions. german political disaster therefore angela merkel. we have the italian budget submission. and brexit negotiations not going well. there are a number of things that could be catalysts for negativity this morning. asia could start on a back foot. though i do think the broader market has -- bull been derailed. much noise. how do we digest and sift through all of this data out of china on top of everything. how are we processing all of this? isk: what is most important there are two different stages. which are the short-term and which are the long-term catalysts. the german election is an important story that less likely to be a short-term impact on

trade. italy as well is a long-term evolving process though there are some near deadlines this weekend those are important. that. is more similar to the saudi-u.s. situation will blow over soon or it will escalate and then that becomes an oil story. first you have to work out the timeline and then work at what is most relevant. that is what we are debating here. which one should traders focus on this morning. most volatility. everyone though it so bored about the brexit negotiations. >> [laughter] the week could be though i know people have been saying that for quite some time. though the summit is key. mark cudmore from singapore, thank you so much. you can get a market rundown in one click. and that ongoing commentary and analysis from bloomberg's expert editors. a look now at what

to expect this week. joining us out of hong kong is black rocks at list, -- black rocks analyst, isabelle mateos y lago. what is concerned -- what is concerning is what is next for the brexit. there is some concert -- off -- there is uncertainty. isabelle: we will be watching the earnings season. for us, the market is in an equilibrium. there is constructive growth as a box drop. backdrop. the imf expects that to continue for the next couple of years. above trend level. there is a lot of noise and uncertainty in the background are nearly related to trade tensions. we are going to watch for confirmation that the growth story is on track because

without that, it is difficult to have any positive market performance. also, we are keeping an eye on the geopolitical risks and any signal that the trade tensions are not the escalating. -- are not deescalating. and the fed. against the backdrop of the recent market correction. days of&p has had three dropping so far this year. the last time we have had this market turmoil was in february where there was a clear catalysts. bond markets. this time, there has not in anything that has meaningfully changed. --ing a look at this chart looking at the superlatives we were applying to u.s. markets last week. the 200 moving day average. the 100 day moving average. they were all levels broken were all levels

broken last week. is this resembling a dead cat? actually, our analysis is a little different. if anything, we see the most recent correction as milder as -- then earlier ones this year. money is not switching position to much. it looks more like an unwinding. that gives us confidence that the real money investors have not given up on the constructive outlook. there isously, because a much uncertainty in the market, people are less eager than they were say last year. we remain constructive but clearly there is a lot of potential triggers and in that environment, you would want to focus on resilience in your portfolio.

>> to your point, as this chart u.s. earnings have performed in the past and against the s&p 500 and how we have seen a pause in the s&p 500 surging in the first quarter. during the earnings season. we know the s&p 500 earnings have come above expectations for more than five years now. when you have the strong earnings but as you mentioned this macro uncertainty, how do you design your portfolio? isabelle: we focus on the companies with strong quality earnings and least volatility in those earnings. a strategys been that has paid off so far. i think what we observe in this phase in the cycle is the market has little tolerance for bad news. reacts to good news and

beats. and companies that disappoint get very large stock corrections. for us, quality is the focus for earnings as well as balance sheets. in this environment of tightening global financial conditions, you want to have limited exposure to the more leveraged actors be they actors -- corporate's or sovereigns. >> would you find that sort of quality and value in emerging markets? isabelle: emerging markets at greateste have the discounts since 2011. that is clearly a value story. even then, you do not want to go there with their -- with your eyes closed. you have to be selective. and focus on those countries that are least vulnerable to

potentially a higher dollar, g10 trade tensions. growth buts on clearly at current valuations, e.m. is looking attractive to us. >> when you have so much to virgins -- when you have so much how challenging is it to gauge the range of different economic outcomes? dispersion inmore outcomes there is, the better it is an environment for active management. the scale matters. lookannot -- you have to much more carefully at what you are getting exposure to. that is an environment that is very favorable. >> we do want to get more of your thoughts so do stick around.

lago fromateos y blackrock will stick around. and still ahead, how the chinese economy is really performing. professoro business li wei. yuan is moving closer to the key level of seven. isabelle mateos y lago will be back with us and we will also be joined by mizuho banks can chum. what comes next for the chinese currency? this is bloomberg. ♪

>> this is daybreak asia. the chinese yuan is inching closer to the psychologically important level of seven to the dollar. hec governor told bloomberg thinks the currency is at a reasonable and equilibrium level but he is still preparing for

the worse. for more on this, we are joined by ken cheung in hong kong. also still with us is isabelle mateos y lago from blackrock investment. let me start with you. we have seen the chinese yuan move largely in line with u.s. differentials. we have this chart showing the differential in blue and the dollar-yuan rate in white. this is mostly in line. and you take a look at the direction of the yuan, how much of the weakness that we see now --we continuetion to see trade tensions? course, we see the renminbi in the picture because of the differences between the pboc and the fed. on the other hand, the triggering tensions is imposing

uncertainty on the chinese outlook. expresssaw the pboc interest in the exchange rate. it looks like the renminbi is level of seven. on the other hand, the pboc just said the renminbi is at a level an -- is level and at equilibrium level. goes, wille yuan also be dependent on where the dollar goes. given the fed's monetary policy right now and the rising trade tensions, what is your call for the dollar? isabelle: the dollar has already appreciated very significantly since the start of the year. to our mine, it is not obvious that it should keep appreciating much more from them. from a fundamental standpoint, if anything it is a little bit expensive. and the monetary policy differential between the fed and

other central box -- central banks looks mostly priced in. whenever there is an uncertainty , there is a tendency for the dollar to benefit. not always. you cannot rule that out. we do not see the stronger appreciation momentum of the dollar continuing into your end and in fact that is part of why we are reasonably constructive about e.m. in general. it is because we see a much stronger dollar much more as a risk and as a tail risk as our baseline scenario right now. because a big curious we have seen a pause when it comes to dollar appreciation broadly. we have also seen the macro dollar -- macro data coming out of china by and large pretty resilient. this could change as trade war pressures come trickling in. but in light of all that, has it

been surprising to see so much weakness in the renminbi? renminbiink that the has reacted to trade uncertainties as well as to u.s. monetary policy. there are differences between the chinese and the american sides. the renminbi to break seven this year. see all think the pboc risk off from the renminbi hitting seven. -- right now, we think the market, the renminbi has faced uncertainty and the

, and it take it further will weaken further. if we seell happen the line in the sand being breached? now, the pboc is listening to the fx market. it is contradictory. there could be liquidity in the renminbi market. hand, i think it will be very costly if they allow the renminbi to get to seven. it looks like the market is not prepared for the renminbi to get to that seven level. if it really is the case that gets to seven, we will see the pboc take a stronger stand to the defense of the renminbi. we do not rule out any

intervention. when we look at chinese data, we have seen foreign-currency results dropping on trade tensions but still staying above that $3 trillion mark. the you expect more capital outflows from china? isabelle: i think it very much will depend on the evolution of the trade tensions and the trade discussions although the broader discussions with the united states. but as long as the growth outlook for china is viewed as steady, we would not expect massive capital outflows. a normalid that, it is reaction in any economy subject to trade shock and higher uncertainty for their currency to depreciate. look at what happened to the pound after the brexit referendum. it excelled by 30%.

compared to that, what we are seeing with the renminbi is very marginal especially if you look at the value of the renminbi against the broader basket of its partners. the dollar.inst this is largely a dollar strength story of against all currencies. against the basket of partners. the renminbi is only marginally weaker. that it has been wrongfooted when it comes to china and emerging markets so far this year, there seems to be room for recovery. dynamicious how this plays into that because it has been a little bit surprising how the domestic sentiment has been among the investors. isabelle: that is true. don'twould say -- look, i think we can time the rebound in the market and we would not try but what is clear is that right now the chinese market has

underperformed so much but a lot of value has been created and china is a discount to even the broad diverting market -- market equities. we do see a lot of opportunities but you want to be careful and focus on the sectors that do not appear overvalued. paradoxically, the traditional sectors are not good but more things like industrials or technicals. we have to make sure that the returns will be there tomorrow. we think there is enough value there that we are comfortable taking exposure. you so much, isabelle mateos y lago from blackrock as well as kenjon, senior analyst at mizuho bank. 20 more to come on daybreak asia. this is bloomberg. ♪

let us get a quick check of the business headlines. goldman sachs purchased shares in china's company. as aan bought stabilization manager --. down almost 10 hong kong dollars. the world's biggest iron ore reporting its second straight quarter. there is less of an appetite. probably produced 102 million metric tons in the third quarter. benefiting from growing premiums for higher great ore largely driven by china. coming up next, we will turn to europe. exit talks have been put on

hold. take a look at the outlook when it comes to the pound as well. this is bloomberg. ♪

>> it is 8:30 a.m. in hong kong one hour away from the open of trading there. number ofing the markets trading across the region stumbling in this early part of the monday morning session. taking a look, it does look like a beautiful day there in hong kong. if thewaiting to see hong kong market and china can be part of the rebound. signs ofeing some reluctance or caution here on monday. asia. watching daybreak let us get the first word news. here is remy inocencio. >> president trump has indicated

he is considering more tariffs determinedink he is to force china to trade its ways on trade. alreadynistration has hinted at putting duties on all imports. donald trump sold -- told cbs that he wants a level playing field but says he is not trying to push the chinese economy over the edge. the prospect of a deepening housing market downturn is the top risk to australian credit markets over the next year. aussie house prices have fallen for 12 straight months and 82% of respondents see them declining a further 10%. the poll covered fund managers with a collective half $1 billion of aussie assets. steve mnuchin wants a currency clause preventing competitive devaluation to be included in any free-trade talks with japan. tokyo finally agreed last month to open negotiations on

terrorists after the threat of sanctions on the profitable auto sector. washington wants more concessions on trade even before setfirst round of talks is to begin. the south korean president has told the figaro newspaper that north korea is in such dire economic straits that i cannot afford to renege on a promise to wind down its nuclear program. moon says years of sanctions has ultimately brought the north to its knees. the country will not be able to provide if the leader does not deliver on his pledges following the south korean summit. 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 am remy inocencio. this is bloomberg. haidi: thank you. let us take a look at how the markets are shaping up this early part of the monday morning session. showing that the recovery rally is increasingly unconvincing. >> friday's heightened trade

related risks playing out on investor sentiment. donald is hinting at more chinese tariffs which is likely not helping. a report expected out on friday is expected to show a slowdown. the aussie dollar, the proxy for trade in the region, is up by nearly 0.8%. losses for the nikkei 225, down 1.4%. soft bank is among the biggest -- softbank is among the biggest drag. the kospi has resumed its decline less than 24 hours away from hitting a fresh low. and in sydney, financials are leading the drag. outlier.ve the one let us check in on bonds. areie 10 year notes

catching a hit amid the safe haven demands. are slipping. sideways trading expected. we do not have a government option or boj predicted operation this week. commodities. at all prices are gaining ground amidst rising tensions between the u.s. and saudi arabia. central bank is considering a range of policies. the pboc governor spoke exclusively to bloomberg on the sidelines of the world bank meeting in bali. joins us now from beijing. it sounds like the pboc is doing some disaster preparation for what is to come. tom: some stress test. he said they were preparing for all scenarios including the

worst case scenario. and pointing out that people in china are increasingly of the mind that this set of trade tensions between washington and beijing will be prolonged. that echoesder -- what i've heard from business leaders last week. he also said that in terms of the imf forecast that he concurs with those views. take a look at what he had to say on a panel discussion at the bali summit among the imf leaders. >> the downside risks from the trade tensions are significant. , the imfst few days presented their model and they predicted what would be the fores for the trade tension the major trade countries and also for the global economy. i think i pretty much agree with the imf predictions.

pboc governor pointing out the downside risks from the trade tensions but he was quite pitchne about the growth that he is looking at looks like they are at a reasonable level. we should get more inflation data tomorrow which will give us a clearer idea. and third-quarter gdp numbers will come out on friday. they anticipate six wi-fi percent. wasespite the losses, he actually pretty sanguine about the levels we are seeing at the moment. tom: absolutely. we are looking and much of the trade is at the seven level. he said that as far as he is concerned, the volatility we have seen in the yuan is normal and there has been reasonable trading levels. up or down hasd

been reasonable. he expects that to continue through the end of the year. in his view that the renminbi has performed pretty well versus developed country currencies. despite the fact that it is down about 9% in the last six month against the dollar. >> the chinese ambassador to the u.s. has also been talking. i remember when i spoke to him earlier this year, his message was clear -- china will not back down. what are you seeing this time around? yes, from a chinese perspective the message from their side has always been clear. that stance with fox news saying that china was not looking to pick a trade fight with the u.s. but it would have to defend itself and it would have to take reasonable measures to protect its own interests. to you. what he said interesting that he spoke to fox

news. in terms of clarity, he says he has no idea who has got the lead in terms of trade policy with china in washington. also pushed back against those comments from the vice president, mike pence, who would meddling in with u.s. elections. he says there are no grounds for that accusation and the trump administration yet to present any proof. he did say the relationship between donald trump and the chinese president was still a good one. looking ahead to potential meetings between the two leaders at the g20 summit in one of saudis -- in buenos aires. london and brussels spent the weekend in intensive talks.

it all fell apart. the negotiations were put on of theus a key meeting eu government scheduled for monday was canceled. we discuss the latest headlines with jodi schneider in hong kong. what went wrong? i: the talks they had hoped would allow them to have some kind of deal to take to the belgian capital and the ok andsters on wednesday -- the u.k. ministers on wednesday fell apart. in the meantime, there is no new talks scheduled and it looks like the u.k. will be going to the belgian capital on wednesday with no deal. they had hoped to have this so they could have an actual framework for mid-november. and then the 21 month transition period clock could start ticking. but right now, there is a real

breakdown and they will not resulted this week. >> does that mean that on wednesday when they do talk, they really are not expecting that much? jodi: we are not discussing much. we expect a discussion about trying to continue to talk. and it may well be that theresa may needs to have a showdown moment in the parliament where people do not think there is any other option for this to go through. we have seen that in this whole process. she had a big diplomatic bungle in september at those eu meetings and she used those to her advantage. it may have to be that this is all there is and there is no alternative for the parliament and some of the opposition people to go ahead and vote the way she needs but right now, no deal. she again turned around

another breakdown in negotiations and use that to her own political advantage? four are we at the end of the line? that is what some analysts are saying. because you have this clock ticking, it really will take a showdown moment and again, she will need opposition votes for this to get through a very divided parliament. -- on the issue with ireland whether to avoid the need for the customs, the heart customs break between north ireland and the republic of ireland, the talk is about having an extension of effectively all the customs, the current customs rules. but the probe brexit ministers in his mas government really want there to be a very firm and -- but so they do not

the pro brexit ministers in theresa may's government really wants there to be a very firm end. what happened to jamal khashoggi -- that story is increasingly untenable. what do we know and what are the expectations of what that might do this week? jodi: the white house was late to this. they were studying this. they said they were not going to make any changes in the relationship with saudi arabia but now, there is increasingly pressure from other governments and within the u.s. to really seriously look at this and really take a firm stance on this which the u.s. has not yet done. we will see in the coming days the pressure keep up and president trump will have to make some decisions on how to move forward on this. schneider for us.

thank you. the veracity trust ,f chinese macro data, li wei and economic professor, tells us about an alternative way to getting gauged on how chinese economy is doing amidst the trade war. this is bloomberg. ♪

>> this is daybreak asia. china has experienced huge growth in recent years. independent data sources to measure the strength of the economy. our next guest set out to find a solution. li wei is from the cheung kong graduate school of business. professor, good to have you with us. tell us about what indicators or

information sources your gauge tracks and does it reflect what the official numbers are telling us? data is collected from students. most of them are private business owners and operators. covers the insight highest growth sectors of the chinese economy. it would look more at sentiment. does that reflect what you are seeing from the official data? betterne it is a indicator of how people are feeling about the trade war. are three reason -- recent trends we are seeing in the data. number one, we saw a sharp decline in the sales and

profitabilities of the chinese private sector. but that seems to be caused mostly by deteriorating finance conditions in the chinese economy. particularly with respect to private businesses. this is quite a sharp decline. usually, we see this -- they are like the pmi's -- they hover around 40 or 50. we see a huge drop to the roughly, mid 20's. that is suggesting that the vast majority of our sample responding to us by saying their financing conditions are deteriorating sharply. is, werd one obviously notice that in general in a situation like this, costs of business should be going down. a risingeing still

cost of doing business in china. those are the three things combined making it a pretty view for now at least for the chinese private sector. interesting that the labor and overall cost forecast continue to rise. what are the implications for the chinese economy when you had this dynamic plus negative business sentiment? right, it is an interesting combination of factors. one is you look at the general business conditions. deteriorationterm in economic activities. at the same time, and you are asking what the structural things going on in china. arestructural things primarily reflected in the rising costs. we see this historically. we have not seen much attention to it and now a are starting to

i and that is something that think the policymakers should address in the long run to restore growth in china. makers,ng about policy they are implementing more stimulus measures. we are also hearing about potential tax cuts as well. if they go into play, when will they be reflected in your index? li: the policymakers are addressing currently a significant problem which is the deteriorating of the finance conditions. theperhaps, slowing down deleveraging going on since the middle of this year and actually i would say since the spring of this year. so that is a welcoming change. and i think as the financing conditions deteriorate, the private sector, which usually

finds it difficult to raise financing and this is a particularly tough environment. other typical financing vehicles that they have access to are now in a bit of trouble because the financial market and stock market are going down, the valuations of many businesses are going down. they are unable to perhaps their more money and as collaterals are being lowered. but i think the chinese policymakers were to realize that. professor, you see a transition when it comes to the smaller and private companies in terms of them being impacted by loosening monetary conditions. li: right. largelyors are

unaffected by this. it has more to do with the bank financing. private sectors usually have to pick up the scraps and what is left over. and when the deleveraging is going on particularly in the shadow banking sectors -- they are being crushed by policymakers. and so you see these deteriorating financial conditions that the private sector is experiencing. that is what we see in the data. >> professor, thank you so much. we will have to leave it there. repressor li wei -- professor li wei from cheung kong graduate school a business. if you missed this interview, the bloomberg function. you can see us live as well as see the charts. if you have a question for our guests, lower left "ask of the

guest a question" is right there. this is bloomberg. ♪

>> this is daybreak asia. us get a quick check of the latest business flash headlines.

are crunched in wellington. after the takeover proposal. fletcher says after five weeks of talks, he does not support the proposal of one q we -- of one kiwi dollar per share. another four weeks for an independent valuation are needed for the bid. attractingealth is interest from at least five bidders. includeequity payers cpg. they are considering the massachusetts-based company. it is said to be weighing a bit as well. amazon has offered more than $400 million for a minority stake in a grocery store chain. the deal is believed to be in the final stages but is being held up by valuation concerns. toh companies declined

comment. alibaba was also in talks to acquire a minority stake according to another source. let us take a look at what is coming up in the next few hours here on bloomberg tv. david ingles is in hong kong. happy monday. >> a fresh trading week ahead. a lot to talk about. the imf comment on the yuan. the comments from the central bank governor. pboc.so the to put this all together, we will be joined by the global head of fundamental equities and a portfolio manager for em for rebecca oh. when you look at the chinese market, she does not think we will see a recovery there very soon. a lot will depend on the midterms. over the likes of australia or hong kong and all of this comes against the black drop -- the backdrop of

the survey we did which at least shows at this point that those who favor emerging markets have now know numbered -- have now at --.ered those looking the tradet expect spat between the u.s. and china to as calais to where it is right now. that is coming up. >> a lot coming up and we are looking forward to that. head over to bloomberg markets: asia, let us look at how markets are setting up -- china and hong kong joining the fray. the nit -- the nikkei 225 down by 1.7%. in australia, we see the lowest level since april of this year. every sector there is in the red. pretty close to the session low. starting thesia

rebound. climbing from the lowest level since may 2017 but not a great deal of conviction. said there areds feline characteristics to the trading session. shery: that dead cat bounce. we are seeing a flight to safety. not helping the japanese market. are a look at what futures doing. singapore is still positive after gaining ground in the previous session but not looking good for taiwan or kuala lumpur. theres are down there after msci asia-pacific managed to climb from its lowest level since may 2017. 20 more coming up. this is bloomberg. -- a more coming up. this is bloomberg. ♪

yvonne: it is almost 9:00 in shanghai. rishaad: a rebound, perhaps a fleeting one. david: additional tariffs on china. trump denies tried to crash the economy. yvonne: sterling fell as brexit negotiation stumble.