>> a very good morning. australian markets have just opened for trade. shery: good evening from new york. welcome to "daybreak: asia." >> asia-pacific markets look set

to follow wall asia-pacific mart to follow wall street. offsetting worries asia-pacifict to follow wall street. offsetting worries about global growth. netflix is a winner in late trade. 7 million new subscribers signed up last quarter. in sydney, bhp is one to watch. copper took a hit by issues at home and in chile. here in new york, we saw equity bulls getting a good day as the s&p 500 when asked the 200 moving day average. the dow gaining more than 2%. we had solid earnings. pushing those health care stocks higher. the nasdaq up 2.9%. a good day for small caps, which have outperformed the market. gaining the2000 most since the presidential election. we had data showing u.s. factory production beat estimates and expanded in september. up's see how this will shape

in asia. haidi: we are tentatively positive. we have a strong lead. we are watching tech stocks. we are getting underway slowly in sydney. 1%, adding tor of those modest gains. it mightvoices saying be time to get back in, given that we were trading at decade highs. comments that the weaker dollar, down 12%, has been good for the economy. thank you very much to the fed for that. the kiwi dollar was the outperform or of the night as a barometer for risk appetite. volatility has been falling as well. higher.cks trading .ertainly and outperform or

let's get you to first word news with jessica summers. meet on wednesday, demanding concrete proposals for bridging the brexit divide. addresss are needed to issuesks, including the without the u.k. being in the room. need facs goodwill, we ts. i'm going to ask prime minister may whether she has concrete proposals on how to break the impasse. only such proposals can determine if it is possible. >> there would be "a violent reaction" if italy pushes ahead with its spending plan.

it would push the deficit to 2.4% next year, breaking eu's rules. china may haveys a hidden timebomb of $6 trillion of government debt. global ratings say it not haveissues that do the backing of authorities. this comes as s&p says it is titanican iceberg with credit risks. leader mitchty mcconnell told bloomberg there is not time on the calendar. the possibility of a cross party fight if the democrats when the house next month. did confirm the vote will be on top of the agenda in 2019. >> the process we have to go

through does not allow that to come up before the end of the year. day onal news 24 hours a air and at tictoc on twitter 27 hundred journalists and analysts in 120 countries. i am jessica summers. this is bloomberg. you.ank diving back into the u.s. market close, the latest on the rebound and the extended hours trading where we are seeing ibm falling as revenue missed marks. su keenan is here. overall it was a broad-based recovery rally. ,u: the earnings were strong almost across the board, with the exception of one company. let's take a look at the snapshot. the dollar was lower for a second day. yields holding steady, below the 3.2%. almost 3%.100 up

small cap domestic companies, the nasdaq have the heaviest concentration of tech, which was on fire. let's take a look at some of the earnings stories, goldman was strong. you also see united health, boosting the health care sector. a 20%blew it out, increase in revenue in 2019. the stock almost up 10%. johnson & johnson, also boosting the medical device sector. let's go to the bloomberg. sorry, first of these tech stocks. is where the strength was. look at the size of the gains. advanced micro has been beaten

up as of late. microsoft, amazon, all of the faang stocks reporting strength. inflix really blowing it out terms of subscriber growth, beating expectations. that will have a big impact on the wednesday chart. ibm disappointing. in the chip stocks, the philadelphia index, notice the moving averages cross each other, the selloff. it happened right before this recent selloff. the question for the broader market, is the selloff done? this chart might suggested there is more selling in the chip sector. these are high momentum stocks. 174% year to date and it is only september. at turningooking

away from the geopolitics. what is going on with that? big inventory data out. that will be the short-term driver for oil. take a look at the five-day chart. oil came off the big runoff we had recently. you can see it came back toward the end of the session as the api, the private report on inventories, showed a surprise drop. analysts had forecasted an increase. the hurricane is expected also to have created a skew there. let's look at gold. this is the most popularly traded gold etf. it has been up every day. have been of gold boosted. there are many gold bugs. >> investors had a lot to

digest. president jump criticizing the fed. we had china's treasury holdings falling. that could be related to trump. su: what we saw with the data from the fed is china owns 1.2 in their bonds. that is actually down from 1.7 million in july. the reduction of peers to be in response to the trade war. you might remember the chinese ambassador said they may cut back. since then, he has levied half of all chinese goods imported to the u.s. purchases have reached a record. that was before this recent dispute taking place. in terms of trump saying he believes the fed should not be raising rates, many on wall say you never have a

president make these comments. that would suggest, g tv is where you can find the charts, this is one of the many ways he is distracting from some of the negatives in his administration. one of which is a bigger deficit . we announced a budget deficit. there might be a bigger one ahead approaching one trillion. >> su keenan, thank you. president trump making comments on the disappearance of jamal khashoggi. he criticized a rush to arabia.saudi with more is our washington reporter, greg sullivan. we have another report linking one of the suspects and that disappearance with the prince. what do we know so far? >> we know a few things.

one is that president trump said he spoke with the crown prince who denied knowledge of this affair. mike pompeo is in saudi arabia today, traveling to turkey, said he had candid meetings with the king and crown prince. in each of those meetings, the leadership denied knowledge of this affair. a have this report that suspect could be linked to the crown prince and some lawmakers say that is not true. it is clearly not a rogue, but a rogue prince. that is where we are right now. president trump making cautious comments, saying we have to find the facts. it was guilty before proven innocent at this juncture. calling theraham prince toxic and he has to go. what action can congress take?

>> we've heard from lawmakers they do anticipate some action. , mitch brought corker mcconnell, the top republican saying if what happened is true, the senate would likely act. a couple of things, they could curtail arms sales. diane feinstein said she would vote against approving arms sales over this. freezingption would be diplomatic relations, expelling certain diplomats, sanctioning saudi individuals. .ther sanctions a lot of options at hand for the congress. hire a newe white house counsel. >> his name is pat cipollone.

he was a former justice department official. president trump said he thought he was a great guy. he said he is still considering a number of candidates. he is a partner in a washington firm. he will replace the outgoing white house counsel. dan mcgann faced criticism over certain things, his handling of security clearances at the white house. now it looks like president trump has made a decision. sullivan, our washington reporter there. making cryptocurrencies more sustainability. hp joins us to discuss solutions in ways the company is using technology to tackle issues like world hunger. providing aings are

distraction for investors against the backdrop of trade tensions and global growth concerns. we will dig into that with the jo daviess. this is bloomberg. ♪

." this is "daybreak: asia data, more strong eco underscoring signs of strength in the labor market. plus u.s. factory output increasing, let's dig in now with vanguard's chief economist joe davis. we are seeing the u.s. labor market very tight. low.obless rate could this be a risk if we see a policy mistake by the fed? >> we could eventually.

i do not think that is a story for the next 6-12 months. we are starting to think about the fed potentially being too aggressive later in the 2019. it is unlikely we will see a shift down in the labor market. that was one of our themes of the labor market that would tighten this year. it is in thek six-month horizon. they may go farther than we are anticipating. >> oil prices are rising, tariffs potentially increasing prices. showing the uptrend we saw in the 10-year yield. when we see this environment, could this force the fed to act more quickly? >> i don't not think the oil price will lead the fed to be more aggressive. they would treat further rises

more as a mix lecture because you would have depression on growth. you would have some paths through inflation. the labor market and the likely had we will continue to see upward pressure in wage growth, which is good for the economy. the federal reserve thinks higher wages will lead to higher inflation. they could be too heavy-handed in 2019. that is not our baseline. that is the risk in our mind as we look a year out. >> how are you modeling expectations around the impact of tariffs? does the fed react to that with policy or is it going to be so staggered it will not need to be? >> i think they will be muted. the current proposals do not have a material impact as many

have said in the past on the economy unless it would be financial to the markets, which we have not seen. the federal reserve will react to trade tensions in the same way they would to a further spike in oil prices. it is a mixed picture. the wildcard would be if they are trying to contain collateral damage from the financial market. i don't think the trade tensions will be the primary force that will lead to market differentials and what the fed does versus the labor market that will lead to surprises. whenere is the old adage china sneezes, the world catches a cold. aware of howare that could impact them. is that something the u.s. economy should be worried about as it in flicks part of the heard on china? >> we should worry about it.

the u.s. drives global activity more than anyone region of the world. china is a distant second. it matters. weakness in other parts of the emerging market world, parts of asia. it is something that will have some negative ramifications. right now that is being offset by strong domestic activity, 80% of the economy. i am not complacent about the underperformance of china. indicators show further weakness ahead. china will bend and not break given some of the policy initiatives. if it would lead to growth that was weaker than expected, you would see some modest downgrades. that is not our baseline assumption. >> given the outperformance of the u.s. economy against the

world has reached extreme levels, is a re-coupling inevitable? >> yes, inevitable. it could go another 6-12 months. this is not the only time we have seen it. we are toward the upper limits in terms of our deviation relative to the west of the world. global. has led activity. it could go further. we are anticipating a modest retrenchment as we look a year out. not just the fiscal stimulus. some supply constraints will start to bite on the economy. i would also anticipate some modest firming in europe and japan given our assumption china does not completely rollover, which is unlikely. i see some convergence. and some monetary policy convergence you have some positive next year of the federal reserve.

that should put downward pressure on the dollar given its strong performance. mention fiscal stimulus, the effects of the tax cuts are starting to fade off. taking a look at the midterm elections, do you have different scenarios depending on what happens and whether democrats take over the house? >> we do. we will look at those. it is close calls on both. the oneensus view is party takes the house, the other the senate. it is not leading to a material outcome in terms of how we handicap the economy. much more prominent are things such as the trade tensions between the u.s. and china and oil prices and finally the federal reserve, which is tied at the hip with the labor market. we do look at those scenarios.

given what we think in terms of the legislative outcomes, it is not something that is the top three of our risk factors. >> one of the head scratchers, situationl bank, the of wage inflation and broader inflation. have you found there are reasons why traditional economic models are not playing out the way we expect them to? >> yes. we have looked at the past 20 years. there is a shift going on right now in the labor market in terms of the task you and do day to day. more time solving problems. that helps explain the rise in income inequalities and why we have headlines of automation.

we have labor shortages across the economy. what that means going forward is we do not think it will be inflationary. you will see wage pressure continued to broaden. that is good for growth. inflationcomponent is is going to be less and less driven by wages and other factors because the fed has been successful in anchoring all of 2% as acepting reasonable expectation. at credibility can be lost. inis tough to generate 3% today's digital world. it is possible. it is unlikely. we would need to see the unemployment rate fall further and the federal reserve not to react to become much more concerned about inflation longer-term. >> joe, thank you for your time. joining us.

don't forget to take a look at our interactive tv function. you can watch it live, catch up on past conversations and dive into any of the securities with the bloomberg functions we talk about. you can send us instant messages during our shows. this is for bloomberg subscribers only. this is bloomberg. ♪

a quick check on the latest headlines. a stronger-than-expected rise in profit as investment in higher-margin digital services and automation paid off. the company reported a net income of $558 million as revenue climbed 17%. sinopec says net income could have jumped by as much as 57%

thanks to higher oil prices and improvement in operations. over $3are up just billion compared to last year. $73t crude average about during that time. this is bloomberg. ♪

haidi: 10:30 in sydney, where markets have been trading for about 30 minutes now. getting underway, the benchmark at the moment trading up 1%, extending gains from yesterday. we are seeing a pretty positive picture broadly speaking across asia. the markets are looking positive after a strong lead from wall street, u.s. stocks up the most in six months, a strong, tech-led recovery, so watching asian tech stocks today. shery: equity bulls had a good day on wall street. s&p 500 back about 2800, and safely above the closely watched 200 day moving average.

7:30 p.m. here in new york. n.m shery ah haidi: i am haidi stroud-watts in sydney. you are watching "daybreak asia." let's get you first word news, with jessica summers. shery: turkey says investigators found evidence in the killing of two mocon -- jamal k hashogghi. president trump said crown prince mohammed assured him he knew nothing about his fate, and said it would be bad if the prince or king salman was involved. stocks were volatile again as mike pompeo arrived in reality to seek answers to the mystery. closed 1% up after punching 4% at the open. president trump says the rush to blame riyadh is another example of being held guilty until proven innocent.

chinese holdings of u.s. treasuries fall for a third consecutive month in august, as it struggles with a weakening yuan. beijing's ownership of bonds, bills and notes was $1.16 trillion, down from 1.1 7 trillion -- $1.17 trillion in july. tokyo decreased holdings fractionally in august from a month earlier. japan has seen a fall in tourism numbers, for the first time in at least five years. arrivals fell last month as an earthquake and raging storms brought a temporary halt to travel in some of the country's top destinations. numbers fell 5.2% from a year ago, the first year on year drop since january 2013. visitors from china dropped 4%, and those from south korea dropped 14%. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.

i'm jessica summers. this is bloomberg. haidi: thank you. let's check on markets trading in australia and new zealand, as we look ahead to trading across the rest of asia. the futures are looking pretty positive, and we are seeing healthy gains when it comes to trading in aussie stocks, up 1%. whichin the kiwi dollar, was the out performer in the g10 space overnight. the bloomberg dollar index aussie dollart the starting to reserve. the deputy governor of the reserve bank said the weaker aussie thanks to fed divergence has been helping the economy somewhat. australia, pretty much every sector other than materials in the green at the moment, and notably we see a gain over 3% when it comes to information technology, so certainly seeing that lead coming through from

the rebound in tech stocks on the nasdaq overnight. we continue watching that as trading gets underway elsewhere. shery: looking pretty positive so far. let's turn to bank earnings in the u.s. morgan stanley and goldman sachs rounded out bank reports in the u.s.. morgan stanley rally the most in nearly two years. goldman jumped the most in six weeks. remy inocencio has the numbers. let's start with morgan stanley. pretty positive when it came to the main businesses. ramy: beats across the board, getting kudos from wall street. a beat on revenue, earnings-per-share, on investment banking, i can so," but oneso, al notable thing was in terms of revenue, on your screen. taking a look at trading on the left-hand side, investment banking on the right-hand side. morgan stanley is in purple. and you can see it is the only bank among its peers that saw a double jump in both divisions.

j.p.of america, citigroup, morgan all either went one way or the other. now, analysts had a field day, in a positive way, looking at what happened. 278 basishey saw a point jump in terms of positive operating leverage year on year. you can see analyst recommendations on your screen. 20 buys 11 holds, zero sells. barclays pointed out that expenses were controlled, and bernstein said that morgan stanley checks all the boxes bulls could have hoped for, and also they get a positive bump from low expectations. some analysts pointed out they had been in oversold territory, also below the 50, 100, 20 0-day moving average. the share price up the most in nearly two years. haidi: and when it comes to goldman, a more mixed bag? ramy: it was. in terms of goldman, while

revenue jumped 4% year on year, if you look at sequential, quarterly basis, it actually fell 8% looking at it through that lens. better, but advisory fees were worse, anm barclaysd -- and barclays pointed out fixed-income trading was "light." kbw said sustainability looking ahead is an open question. on whether or not rising interest rates will weigh on things like loans. bernstein was the most positive, saying it is an outperform with a price target of $300. it closed at $221 and change. analyst ratings have it at 15 buys, 13 holds, one sell. so a little bit of hesitance looking at a higher number of holds there. now that we are finished with

third-quarter bank earnings, let me walk you through takeaways. fed hikes helped boost net interest margins pretty much across the board. a record for jpmorgan and wells fargo, and positive equities trading. but on the downside, fixed income trading generally falling. citigroup was the outlier, with a surprise gain. and costs, even though the rate hikes went up, costs for bad loans falling. usually, when interest rates rise, people tend to default on their loans, but surprisingly, for the banks, that did not happen at least for now. haidi: ramy inocencio in new york. speaking of earnings, netflix jumping after hours, getting a boost from strong third-quarter results, showing they are on game after some disappointment. the company added nearly 7 million users around the world, about 2 million more than

forecast. a closer look with chris palmeri , los angeles bureau chief. what was prompting this huge jump in's sovereign -- in subscriber growth? chris: growth all around the world, huge internationally, but also here at home as well. and they are projecting numbers for the fourth quarter that are almost double what they saw in the second quarter. so a huge investment in content, and a lot more people wanting to watch. it looks like a cinderella story for netflix. ahead, how long can they continue with this? hastings, ceo, reed was asked on the call, would you think about diversifying into another business besides video streaming? he said, we have growth ahead of us for five, 10 years. in the past when we saw a market decline, like with the original dvd business, they got out of it.

he says that's not the case. a few more takeaways, talking about growth in india, a big topic for them. they will move beyond english language into other local languages. getting outox for of the entertainment business, and focusing on sports and news. he said that will be a model for a lot of traditional tv networks that will not be able to compete with netflix in the future. shery: what did they say about programming spending? it is the original content that given a boost, isn't it? chris: yeah. one of the big issues here in l.a., they are producing 700 tv shows, a billion dollars of spending on content, and creative types want to know, is my stuff going to get seen? you aren't always putting things in theaters. are people going to miss it? they spent a lot of time in the earnings letter and on the call, talking about how they are able

to create stars, original programs like "stranger things," the stars of that getting huge numbers on social media. their point was, people are getting seen on netflix as a global platform unlike any other. shery: so what is next for netflix, with these very strong numbers? told we expect it continue doing so well, or are other rivals catching up? chris: there will be a surge of spending from rivals, most deadly disney, which plans to launch its own streaming service last year with the marvel, pixar, star wars content on it. similar moves from time warner, and obviously amazon, youtube, all these other folks. reed hastings is not shy. he said, youtube is on fire right now, but the market is growing so dramatically, he's not taking business from other streaming services, but traditional tv watching.

shery: that is true. i just registered with netflix as well. [laughter] thank you so much for your time. los angeles bureau chief, chris palmeri. cut itsp, php -- bhp globalsupply, putting supply under pressure. this is bloomberg. ♪

haidi: this is "daybreak asia." inm haidi stroud-watts sydney. cut therefore your forecast for copper output. bloomberg's asia metals and mining reporter has insight into the numbers. david, what's going on at bhp? david: that's right. bhp cut their full-year forecast for copper production by about 3%. that will certainly be a disappointment for the company,

because what it saw was a rise in production from escondido in chile, the world's biggest copper mine. really good performance there, but those were offset by issues at other operations. there was a fire at a second mine in chile that cut production, also an outage at a mine in australia, and the overall effect, production will be lower this year. that's important in the wider context, because it adds to pressure on copper supply this year, supportive for those who forecast the copper market to be in deficit in 2018. shery: why is copper so important for bhp's growth? guess we most commonly associate iron ore and steelmaking with bhp. that is still what makes the most profit, the big generator of earnings. but for the future, the company is really focusing on copper and conventional oil. it sees copper as something with

really good growth for renewable energy, electric vehicles, but also more common purposes, metal piping, electronics. it sees a very strong demand outlook. even yesterday we saw bhp invest in a smaller brisbane-based company with a big project in ecuador. they are looking to ramp up production from existing assets and extent its growth pipeline. certainly reviving the production numbers will be something of a disappointment. haidi: what about u.s. shale assets? where are we at in terms of a sale? david: as we spoke about before, the sales were agreed, the majority to bp for about $11 billion. the company said that the sales are on track, and should be completed by the end of the month. that's important, because the company has pledged to return the net proceeds, the majority of the net proceeds, to

shareholders, so people are really looking for how and when that money will come back to investors. no hints on that today, but the company saying, be patient, the money is coming. haidi: david, thank you so much for that. david stringer, in melbourne. let's get a look at how trading is faring in asia. us. is with looking at this one survey overnight -- adam: the bank of america fund manager survey, a widely regarded survey. big institutional investors participate in this. the global economy is still one of the big worries for them, and that is sort of being lost in the overnight moves, because we had earnings that have been pretty decent. indeed, since the third quarter earnings season in the u.s. got have, earnings broadly

been pretty good. against the backdrop of people having downgraded numbers coming into the u.s. earnings season, with very lofty expectations. we saw 2%-plus moves in all three major indexes of u.s. stocks overnight. that chart is in the gtv library. for the next little while, it's thewing earnings to put more gloomy outlook for the global economy at least on the back burner for now, with asia taking that reasonably positively as we get into the start of trading for most major markets. haidi: so how are short volatility strategists faring now? adam: when equity sold off last week, some of the short volatility trades got hit hard. it was a tough week for equities, for people banking on volatility staying low in equity markets. that sudden spike would have cost them quite a lot of money.

but over the longer-term, and this chart in the gtv library shows it pretty well, people are still betting on a further low volatility environment for equities for the for seeable future. and that is a trade that has worked very well in recent years. we of course have had pockets of volatility spikes, like at the end of january, early february, and of course last week as well, but clearly the message from the markets, the technical indicators, is that people are expecting for the foreseeable future that there is enough in what's happening with central banks, we are moving away clearly from the stimulus environment we have enjoyed for many years, moving into this tighter environment for policy, but that's not enough to upset the low volatility regime, and indeed some short-vol trades are

still looking good for many people. shery: you can find adam's charts on the gt the library, g tv on the bloomberg terminal. and of course, you can get a round of of the stories you need is theb function on the bloomberg. you can also find all this on the mobile app, the bloomberg anywhere app. customize your settings to get all the news about the industry'ies and sectors that you care about. this is bloomberg. ♪

haidi: this is "daybreak asia." shery: i am shery on in new york. haidi: i am haidi stroud-watts in sydney. ibm slumped after hours, missing sales estimates in the last quarter. overall revenue fell over 2% through september. income from the cloud rose 10%, but that was just half of what we saw in the second quarter.

in line with data compiled by bloomberg. streakults end a sthort of gains. shery: netflix jumped in late trade, after smashing subscriber expectations. the number one streaming company attracted a fraction under 7 million new users in the three months through september, taking the global total about 137 million. international markets accounted for 84% of new customers. netflix also issued an upbeat assessment of the current quarter, rebounding from a slowdown in july. wei replaced apple as the number two smart phone maker, and they are salivating with a flagship device. the $1200 mate pro is pitched as a challenge to the iphone xs max note 9.galaxy it has an artificial

intelligence engine that can identify people in real-time or objects. shery: happening now, the bloomberg sustainable business summit, bringing together hundreds of c-suite leaders and investors to discuss how sustainability can drive business. ramy inocencio has been attending the summit and has our next guest. ramy: the chief sustainability officer at hewlett-packard enterprises, also known as hpe. the question at the summit is whether sustainability can drive business value, drive revenue, mitigate risk. what data points to you have for this? chris: great question. at hewlett-packard enterprises, our goal is to advance how people live and work. while it's important for us to be good global citizens, sustainability is really driving business value. in the first three quarters of fy '18, we believe approximately

$240 million worth of revenue can be attributed to our sustainability-related practices and it efficiency in related products. ramy: let's break that out more, if we can, in terms of detail. there are those revenues coming from? chris: it has been obviously a very difficult challenge to track exactly how the sustainability is really driving growth for companies. there's a number of stakeholder groups. investors, customers are key. ngo's have a great deal of focus on large businesses. what we have done, we have implemented some very careful practices, where we are measuring sustainability-related engagements with our customers and we are able to track sales that are directly coming from those engagements. chris: i know you guys just recently announced the tech 2030 initiative, with the world economic forum, to

solve hunger by 2030. i have to say, sounds a great goal, ambitious goal. talk to me about the details on this. chris: thank you. obviously there's a lot of promise around technology. a lot of it, we think, is hype. we wanted to convene the appropriate party, in this case the world economic forum, to bring together technologists, academics, governments, private parties, businesses, to solve some of the world's most pressing challenges from a social and environmental standpoint. the world economic forum's the convening party. we launched the first challenge, focused on agriculture. there are big challenges. by 2050, it is estimated there will be almost 10 billion people on the planet, requiring approximately 70% more food to be produced than we have currently today to be those folks. over 800 million people are currently malnourished. we believe technology, in particular industrial i.o.t. and edge lining computing could

solve those problems. chris: connect the dots for me. h.p. on one side, global hunger on another side. paint the details in between, so i can understand how hp actually really puts this into strategy? chris: sure. our first partnership is focused on agriculture. we have a partner, perdue university, one of the premier agricultural universities in the world. we are currently using our ribbon networking technology within their fields, our edge line technology to provide computing power for the data they are collecting from various data points, and they are able to use those insights, free up the agricultural experts from doing data collection to really focus on the data insight portion. ramy: and i understand that india is basically your biggest growth region in asia. what are you seeing there, in terms of strategy and opportunity? chris: india obviously is a really interesting place.

just like in the cell phone space, they were able to leave toleapfrog land lines cell phones. we think the focus on sustainable cities. the region is 25% of revenue at hpe. over the first three quarters of the fy 18, we had consistent year on year growth over the previous year. we think that their focus on sustainable cities will present a huge opportunity to our business. ramy: chief sustainability officer at h.p. ceo will say, hp's also be joining the summit tomorrow. shery: we will be looking forward to that. thank you so much. ramy inocencio. great conversation. coming up on the next hour of "daybreak asia," we have a market strategist at i.g. asia, discussing the equity downside risks, and how they persist.

we will get her take on market moves. we also have a senior currency strategist at westpac, discussing the fx markets. the market open is next. this is bloomberg. ♪

haidi: good morning. i'm haidi stroud-watts in sydney. shery: good evening from new york. i am shery ahn. welcome to "daybreak asia." haidi: asia-pacific markets are set to follow wall street's lead, with strong earnings offsetting trade tensions and concerns about global growth. e.u. leaders will meet in brussels later, with calls for concrete proposals to bridge the brexit divide. shery: a it in danger in china -- hidden danger in china.

s&p says that regional debt is akin to an iceberg of the titanic. haidi: japanese stocks are gaining ground for the second straight session, rising more than 1% at the open. course, we have japanese shares boosting sentiment in asia in the last session as the msci asia-pacific also extends gains. the kospi also gaining over 1%. we thought it unchanged in the last session. the korean won strengthening in the previous session. right now, more positive signs. asx also gaining 1%. this of course comes after u.s. stocks jumped the most in more than six months on strong corporate earnings. we discuss all of this with our guest, in singapore. we have seen several big swings the last week or so. what are you expecting for today, and what should investors be watching for as we start trading? >> you know, i woke up this morning, and the first thing i wanted to find out was, how did

netflix do? given the fact it is the first n.g.'s report and they crushed estimates, it will clearly be a good day for stocks in asia. tech stocks that have not had a great year so far are likely to bounce back today. we have seen that with the nikkei rising quite a bit. japan stocks are up. the fact that tech stocks before today had lost about $300 billion in value in asia, today is a day they will bounce back. so i would expect going forward for today, barring anything crazy, it will be a good day for stock markets out here. shery: has volatility really settled down, or should we expect another swing today? divya: i would say, for today, you are going to see a big jump in stocks. you never really know was going been, but volatility has

definitely increased since the selloff that happened late last week. you know, we saw a 2% to 6% drop in benchmarks last week, and then it suddenly jumped back up, on friday. we have this back and forth since then. even yesterday, you know, stocks were up, and then they fell, and then they went back up again. earnings growth, it looked like it has been good out in the u.s., and today we will probably get a nice lift in asia. but you just really never know. haidi: you just never know. let's you the first word news now, with jessica summers. 4 thank -- jessica: thanks. e.u. leaders will meet for a crucial summit on wednesday, with brussels demanding theresa may offer concrete proposals for bridging the brexit divide. council president donald tusk says they need to resume talks

that were stalled. theresa may will discuss issues. will, we need -- tomorrow i will ask prime minister may how to break the impasse. we will determine if a breakthrough is possible. haidi: the president of the year --the president of the european commission said that there will be a violent reaction if italy continues with spending plans. jean-claude trichet are spoke as -- jean-claude uecker spoke as italy announced a spending plan that would break e.u. rules. a new report says china might have a hidden timebomb, of nearly $6 trillion of local government that. s&p global ratings say the off-balance sheet problem

concerns financing vehicles that don't always have the full backing of regional authorities. s&p says it is like a "debt iceberg," with titanic credit risk. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120. time jessica summers. this is bloomberg. haidi: thank you. ratings,ned, global s&p flagging a possible danger in china, that local governments may have a team that it almost $6 trillion of off-balance-sheet debt, and more defaults are in store. tom mackenzie joins us from beijing. these financing vehicles are back with a vengeance? after falling, out of favor during the deleveraging campaign. s&p using pretty colorful language to describe the risks around this, saying that the debt, the potential debt, is

like an iceberg with titanic credit risks. we are talking about local government financing vehicles for the most part, talking about this $5.8 trillion of hidden debt. that is because authorities have been going back to these vehicles as the economy slows and the trade war takes an impact to raise financing. they can issue bonds, local governments, but there is a quota set here in beijing, and that quota is often very easily eaten up, so they have to resort to these local government financing vehicles to raise additional funds, and that is what s&p says leads to this potential $5.8 trillion of hidden that. put that on top of what we know china,he debt to gdp in and it comes up with pretty frightening numbers. hopefully the central government should not be taken by too much of a surprise by the number, but it might add to investor

concerns. citigroup saying market concern about china's debt is justified, and the concerns this poses to the financial system. a sign, that in efforts to prioritize growth, policymakers are eventually -- essentially turning a blind eye to debt accumulation on the local level? tom: certainly we have seen this shift. whatds this move, policymakers would say is targeted stimulus, rather than broad-based stimulus, and certainly the local government financing vehicles are now back in favor. but s&p doesn't think policymakers will move away from china injecting discipline into local government financing. that is why they think it poses risk, because they don't think

that the local governments will be encouraged to be backstops for these financing vehicles. we are already seeing record defaults in china, and s&p says we are likely to see more, because they don't think local governments will come to the rescue. shery: we are still waiting to see if the u.s. would label china a currency manipulator. what are the practical implications, if that happens? tom: well, the practical implications for the currency may be relatively limited. what we would get, if this label is applied by the u.s. treasury, would be an additional 12 months of negotiation, effectively adding a new dimension, making it that much more complicated to restart trade talks. of course, we are already a long way from the prospect of those talks, it seems. it would add another wound to this relationship between beijing and washington. of course, bloomberg economics has outlined a scenario for that china is unlikely or

unwilling to take any steps to strengthen the currency even as they try to, bloomberg economics say, try to support the currency, with immense pressures from the slowing economy and the trade war. you have the likes of the imf saying the yuan is fairly valued, and you have the pboc governor telling bloomberg just a few days ago that he thinks the currency will remain in a pretty stable trading range for the rest of the year. certainly we have been reporting here at bloomberg, u.s. treasury officials have been telling stephen mnuchin that there is not enough evidence that china is, or deserves this label. the question is whether he listens to officials, or is pressured by president trump, who we know is keen to slap this label on china. linking to this story is the news the chinese have reduced for the third straight month their holdings of u.s. treasuries. we have a terminal chart showing the chinese and japanese holdings. china is still the largest at aroundu.s. debt,

1.1 6 trillion u.s. dollars, but it did fall in the month of august by about 6 billion u.s. dollars. this has always been, in the minds of some economists, the potential nuclear option for for china in this trade war, to aggressively sell off treasury holdings. we are not seeing that, but it is a gradual decrease. some out there say that the trade war is making u.s. treasury holdings less appetizing for the chinese, said something to watch. china remains the largest holder of u.s. treasuries at the state. shery: and crucial for the u.s., as they keep having to finance their budget deficit. thank you so much. , confident -- tom mackenzie in beijing, our china correspondent. netflix has invested billions in original content, and now earnings are catching up and crushing estimates. we will chart the growth. haidi: but up next, we delve into the future of work. how advancements in tech will affect labor markets.

this is bloomberg. ♪

shery: this is "daybreak asia." i'm shery ahn in new york. haidi: i am haidi stroud-watts in sydney. a sea of green across u.s. markets and local markets. futures also looking pretty positive. we take a look with jingyi pan, i.g. asia markets strategy. is there a sense the washout from last week, you have more opportunities now? or do we have to brace for more volatility to come? haidi. good morning, from the situation we see in the market, what we have today is a little bit of an oversold rally, as you mentioned earlier this morning. seeing a bit of change, and of course counting on earnings,

against the wider drop from last week. that said, i think the outlook is still a little risk uncertainty. moving forward, after earnings season, i think there are still items, including the trade stillns, that is something to keep a watch on. haidi: the strong set of earnings we had overnight, the that giveflix, does you confidence the fundamental growth stories for corporate america remain intact? jingyi: certainly, haidi. i think what we have seen with the expectations, coming in 20% there is the s&p 500, still a slowdown from the previous two quarters, but that

is something the market had long anticipated. moving forward, i think that will be the next key. the earnings that came through overnight, something the market has been waiting to for the change sentiment, and thereby seeing that reaction. inertheless, this will be, the final quarter the sentiment remains to be seen. what we had last week in particular, a lot of the in thent-guided aspects growth forecast. that gave the market a reason to sell. there's just a lot of things to keep watch on. shery: you talk about the market uncertainty. does that mean you expect the fed two slowdown next year? jingyi: well, shery, good day to you. in terms of that situation, the the end ofk through

this year we have strong growth in america in economic indicators. that's likely going to keep the fed moving forward. but that said, in terms of 20 19, there is a little uncertainty. whether it's growth or other trade aspects, the likelihood seems to be two hikes. and for the markets certainly pricing a little more in. if you take a look at it historically, there's always a 15 year cycle, and some say we might be headed toward a decline. what is your call, when you are also weighing what the fed will

do next year? jingyi: based on the outlook right now, it's a lot driven by the fed, and the reaction we likewise see. towards the end of the year, the u.s. dollar retains a bullish sense, whether that's in terms of expectations to continue rising -- it may take a break at this point in time, but nevertheless, given the backdrop of the markets, the expectation is for it to continue. but over the long-term, my view in terms of how the u.s. dollar ,ould continue the trajectory reasons weact the have been talking about some time, whether the catch up by the rest of the banks or converging in growth momentum, that may eventually see the u.s.

dollar heading a little lower in 2019. haidi: does that mean you also foresee yen strength as being here to stay? jingyi: certainly, haidi. in terms of the dollar-yen story, another interesting one in the sense that right now we s ee quite a bit of cause for the yen having the safe haven status renewed through the last weeks as well. in terms of longer-term, dollar-yen itself, the yen remains the one to see downside, given the monetary policy a look of the bank of japan, may see the policy. based on the conversations of governor kuroda over the weekend and the imf itself. i think in longer-term, dollar-y

en downside, but it is still one of the safer options in light of the uncertainty we have. are undeniably cheap and attractive from that perspective, but do you think a rebound in emerging markets really depends on this trade situation showing a distinctive improvement from the stalemate we are at now? jingyi: i think, in terms of the e.m. situation, i want to zoom into asia, given the fact the trade tensions are causing sentiment-driven reaction. if you look at the indicators, a bit of a slowdown, chinese pmi dangerously close to the 50 mark. but nevertheless, still in expansion territory. that said, the markets actually turned a little, in

light of the trade tensions before the last round of tariffs, the exchange between the u.s. and china. but nevertheless, we see the situation worsening through asia-pacific markets. trend has beenwn renewed. a lot of sentiment-driven trade, regarding trade tensions between the u.s. and china seems to be the case, as there is a lot of depreciation in the yuan, helping to balance some of this. but nevertheless, into the end of the year we should get a hike goods,ffs of chinese when you will see more thr eatening. this is the key risk for emerging markets, particularly for asia. thank you so much

for joining us, as always. i.g. asia markets analyst in singapore. lots more to come on "daybreak asia." this is bloomberg.

shery: this is daybreak asia. i am haidi stroud-watts in sydney. shery: i am shery on in new york. the latest lines -- the president speaking to foxbusiness network, saying nobody is feeling bad from the chinese tariffs. saying that they should be tremendous enthusiasm on november 6. he thinks the gop and itself will do well in upcoming elections. at the same time, white house also releasing some numbers,

saying the trump administration has cut $23 billion in regulations in 2018, haidi, so a a lot of lines crossing from president trump, speaking to foxbusiness. haidi: we will continue to watch that story, shery. let's take a look at earnings overnight. netflix really impressed. largest paid online tv network smashed third-quarter estimates, raising faith in the company after disappointing results earlier this year. the company jumped as much as 12% after hours. emily chang has more from san francisco. emily: netflix reporting a stellar quarter, with strong growth in international and u.s. subscribers, off the back of a dismal quarter last quarter, so welcome news for investors. the company reporting 5.8 7 million international subscribers, beating estimates. 1.0 9 million u.s. subscribers, also beating estimates. and looking at the forecast for the current quarter, also strong for international and u.s.

subscribers. hugemeans netflix's investment in original content, the billions the company is spending, appeared to pay off. that said, looking at the profit forecast, that is not a strong. netflix had this note to investors about negative free cash flow. they said, we recognize we are making huge investment in content, and we want to ensure investors we have the same high confidence in underlying economics as investments in the past. we see these investments as very likely to help revenue and operating profit. the big question for netflix, can it continue to keep up this growth in so many different markets, with streaming competitors like disney, at&t, other over the top providers in international markets on their tail? certainly there is skepticism that netflix can continue to produce so much content in so many different languages, with different cultural sensibilities, at a pace that it

is currently producing content. so that would be the big challenge for netflix going forward. emily chang, bloomberg, san francisco. haidi: a quick check of the latest business flash headlines for you. ibm slumped after hours after missing sales estimates in the last quarter. overall, revenue fell more than 2% for september. income from the cloud rose 10%. that is just half of what we saw in the second quarter. is in line with data compiled by bloomberg. the short-lived streak of sales ended.as shery: china has slapped a $1.3 billion fine on the biotechnology company at the center of a recent vaccine scandal. they were fined for misinforming investors on plans and operations. chinese consumers were shocked earlier this year when revelations about two companies peddling ineffective vaccines.

haidi: huawei overtook apple as number two smartphone maker, and is celebrated with a flagship design. the $1200 mate 20 is pitched as a challenge to the iphone xs max and samsung galaxy note 9. three rear facing cameras and an artificial intelligence engine able to identify objects or people in real time. up next, the latest numbers when it comes to have the trade war might be impacting singapore. singapore's non-oil domestic export numbers will be coming out next. a hugely volatile series, looking at this stumble when it comes to electronics, going back to december of last year, is still apparent. and whether we get more evidence as to if the u.s.-china trade war is starting to weigh on

vulnerable trading partners across asia. this is bloomberg. ♪

haidi: you're looking at the morning getting underway in singapore. we have data coming out from singapore. domestic nonoil exports for september coming out of a decline of 4.3%. we are looking to a survey decline of 6.4% ms of they are doing slightly better than expected. this is a volatile data series in terms of pharmaceuticals being a big component and it really swings depending on where in the production cycle we happen to be. atctronic exports coming in an

-- at a decline. we have seen sustained weakness in chip production. not all domestic exports are seeing again. we looking deeper into the numbers in terms of breakdown by country. decline inrked exports in key markets like china and may banks. they say the impact of the trade war will become more apparent as we head into the final end of the year. a final note, the august to december timeframe is showing a high base so you will see disappointment going into the end of the year. that is what we have for you when it comes to data ahead of still ports trading today. markets are looking positive. let's get you caught up to date with jessica and the first word

news. jessica: the renegotiated north american trade deal will not come to a vote this year. mitch mcconnell says there is not time on the legislative calendar. there is a possibility of a cross party fight if democrats win the house next month. mcconnell says he has not discuss the matter with the white house but confirmed they vote will be at the top of the agenda in 2019. >> that will be in next year issue because the process we have to go through does not allow it to come up for the end of this year. jessica: turkey says investigators have found evidence proving the killing of the washington -- the journalist in is to bill. -- in istanbul. president trump said the crown prince assured him he knows nothing about it and it would be bad if king salman was involved.

mike pompeo has arrived in react, seeking answers to the mystery. saudi officials reject allegations that he was killed. trump says the rush to blame them is another example of being held guilty until proven innocent. treasury fell for a third consecutive month in august as it struggled with a weakening u.n.. japan is the largest foreign owner of u.s. treasuries after china. from decreased holdings the month earlier. japan has seen a fall in towards for the first time in five years. earthquakes brought a halt to travel. numbers fell 5.3% from a year ago.

that is the first year on year drop since 2013. visitors in china and south korea also fell. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. check let's get another at how the markets are trading in asia. it is a positive day for equity markets. the asia-pacific index has gained while the cosby and japanese nikkei are up as well. 1.5% and the up gained the most since 2017. let's discuss this with dbf in in singapore.evia

what stocks stick out for you? >> softbank. it is really coming up today and has a nice big rally after there was a wall street journal report that went out saying uber is getting proposals for an ipo from morgan stanley. softbank has a stake in them which is why they are rallying. big plungeafter the of softbank on monday which fell because of the u.s. saudi arabia tensions. i tuesday and today, ar erasing tuesday and today, they are you racing the drop. erasing the drop.

another one that is doing well in japan is nomura, they are up quite a bit today after they took $.5 billion to resolve a claim that they were misleading investors in a marketing campaign during the global financial crisis. looking at one stock that is down, bhp billiton after reporting a cut in copper production forecast, they are that announcement about production and copper. haidi: thank you so much. notified house has congress they will start trade negotiations with japan, the eu and u.k. before entering talks. jodi is in hong kong. it is part of the narrative that they are clearing the decks to progress some of the other

talks. the trade fight with china continues with no breakthrough insight. the trump administration is moving forward. what are we expecting? jodi: this is a procedural announcement they have to make. the trump administration said they will in three months start negotiations with japan, the eu, and the u.k. on trade agreements. it's interesting because it notes they want to move forward on other trade tasks, even as there are no talks scheduled with china on the trade dispute. so they said that robert lighthizer, the trade representative from the u.s. has said he wants to start talks with japan and the eu as soon as is practicable. with the u.k., it would come after the u.k. exit happens in

brexit,in march, the even though there would be a 21 month pause. so i can see this going ahead. the japan and eu were -- japan and the eu were initially reluctant to have the talks with the u.s., but now because of tariffs, it seems both are more willing to move ahead. big day in a brussels. what can we expect for prime minister may? jodi: a big day for her. she is leaving for brussels and it looks like the latest attempt to settle the irish border dispute is not going to pass parliament. it looks like the latest one will fail. it does not look like there will be much progress. the other diplomats are saying they are hopeful something can get done, but it looks like she

will be going there without an agreement and without much hope of settling this shortly. it looks like they will receive her and they want to try to work with her on trying to figure it it is really at an impasse and this will not be the summit they hoped it would be, with they could really settle things. shery: if that is the case, what is next? jodi: they may have another round of talks. it looks like some things are penciled in for our early november and they are hoping -- penciled in for early november and they are hoping something can get resolved. they need something the eu members can accept and can get through a very divided parliament. so theresa may has problems at home and with the eu in terms of trying to come up with a deal that will settle this dispute about what to do about a customs border with ireland. jodi schneider in hong

kong. the all the dollar is in focus today. -- aussie dollar is in focus today. inflationieved its objective. our next guest is sean carlow, backr strategist at west -- westpac banking corporation. move in the trade war the aussie benefit? >> the market has been bearish. they seem to mark down the aussie whenever trade tensions flare up. in the end, it is not australia's trade war with china. restrictionse new and i guess the positive side could come in to the extent that

chinese authorities are concerned about the impact on their export sector from the trade restrictions from the u.s. they are at indications they are willing to boost growth in other sectors, primarily infrastructure. there are signs that is getting underway. so the fiscal policy is a bit looser and australia could benefit in terms of demand for industrial commodities. haidi: so much of this goes down to what happened to the dollar and there is not a lot of consensus to where we go from here. if you look at high inflammation -- hi inflation returns, it supports that the attractiveness of the u.s. dollar will remain intact. if you look at the trade war continuing, will we continue to see the return to base effect for the dollar? >> it is our underlying view

there will be ongoing support for the dollar. the fed's determination to press on with rate hikes at a time where, if you look locally the only other banks raising rates are doing so to try to shore up their currencies, they are doing it for the wrong reasons. but the fed is raising it because it is reaching its mandate of very low unemployment and inflation right at 2%. so we can believe them when they say they will proceed with it. i think the recent equity turbulence is not shaken them. shery: what should fx investors do? fed and ato the essentially trust them when they say they are likely to deliver further rate hikes, at least over the next six to nine month. rate hike infor a

december. we expect another follow-up in march and then june. the market's leading that way but not fully priced. second half of next year, we are not as convinced they will continue to hike is the fiscal stimulus starts to fade. the for the next few months, i think it is a case of dips, especially across dollar-yen. it is certainly attractive to buy into that, it even that the yield story is more pronounced there. shery: i want to ask about the relationship between the dollar and the yuan. wonder how much of this is making the yuan a key center price of where the dollar goes broadly. structural long-term factor him of the increased allegations to the yuan --

allocations to the yuan. i think we need to say that the risks in the last -- in the next year are less skewed to the broader internationalization. needs to be more like the euro in terms of trading in a liquid market. --m the opening in sydney opening in sydney to the closing in new york. you can really only get that if there is further internationalization from china. at the moment, that does not seem to be a priority. the priority is more to stabilize the value to reduce capital outflows. shery: how close are you watching the fx treasury report? is it something investors should be worried about, or is a given that the u.s. will not label china a currency manipulator? >> it seems unlikely.

it is a report i have looked at for many years and for a lot of that time, no one else seemed to be interested. there is really good information and it. interventionfx from countries that do not produce much publicly, such as korea. fxthere will be a list of for her the u.s. is unhappy with and china will obviously be on the u.s. isf who unhappy with, and china will obviously be on the. in practical terms, it probably does not matter that much because in terms of the legislation for a country labeled a manipulator, the steps after that, the punitive steps, they have already had them. sean callow, thank you so much. a new flag wish device

taking aim at apple. this is bloomberg. ♪

shery: this is daybreak asia. hallway overtook apple as the number two smartphone maker in august and they are celebrating with a new flagship device that might take it to the top. read, cell phones have more and more features. how much does this new wally device have? >> on the back of the new phone there are three cameras. one more than apples cap and phone -- top and phone. they have come out with a phone

that has a lot of brand-new features it hopes will appear to a lot of high-end users. the other one is a fingerprint sensor on the screen and ai software that can detect people and objects in real-time as the phone works. so the bet is that it is a phone that will appeal to a lot of buyers for high-end phones from apple and samsung and try to get another notch up in the rankings. currently in terms of volume, they have overtaken apple. the only one bigger is samsung. phone help this new their lead over apple? could it challenge samsung? >> the key is the u.s. market. you have to remember that the only make up 1% of u.s. smartphones. it is not sold by some of the

largest u.s. wireless carriers. so the key is not as much the phone features itself, that if it can find a way to penetrate the u.s. market, which should at least put it on the path toward challenging samsung dominance unpopularity. you so much, reed stevenson in tokyo. toward what could be the most valuable public offering ever. they are set to be solidifying a plan for an ipo next year that could value it at $120 billion. lyft is also targeting a 2019 offering. eric newcomer has more. eric: uber is moving the ipo timeline forward to sometime early next year. it will be dual link with their

offering a, which is similar timeline. it could value at $120 billion, according to goldman sachs. the price is part marketing. time will tell whether it sticks. the banks are pitching uber on a vision of growing and adding on is already bigger than grubhub. it would all come together for the $120 billion vision. lyft has picked its bankers, jp morgan is leading and they will help the company target public

price, valuing the company at $25 billion. that is up about $10 billion from the 50 billion valuation -- $15 billion valuation. next year will be crazy for ridesharing in the u.s. as two of the largest companies battle it out for public market capital. newcomer for bloomberg in san francisco. shery: for a look at some of the stories trending, on the web, read about china cutting u.s. treasury holdings for a third month. on tictoc, everyone is tweeting about canada legalizing weed on october 17. pictures.the news about paul allen's

-- check outesult the stories trending on bloomberg online and on the terminal. this is bloomberg. ♪

let's get a quick check at the latest headlines.

uber's anticipated ipo could be a record setter. the wall street journal says they could be valued of up to $120 billion. at that valuation, they would only have to offer 21% of the shares to become the largest ipo of all time am a beating alibaba. beating alibaba. center tech says net income for the first nine months of the year could jump as much as 57 percent thanks to improvements in the upstream operations. profits are up $3 billion compared to last year. 38% higher averaging than one year ago.

investment in higher margin digital services and greater automation paid off. a netmpany reported income of $558 million in the september quarter as revenue climbed 17%. haidi: morgan stanley is a clear winner in the big bank race. they beat estimates and the stock is 6% higher. the ceo says the share prices are the ultimate report card. let's get a check at what is coming up in the next few hours. yvonne man joins us now. yvonne: we are still focusing on the controversy surrounding the missing journalist. we are waiting for that confirmation from the saudi's about what happened and we have

sayd that they are ready to that this may have been a botched interrogation. does that ease some of the tension between the u.s. and saudi arabia? guest from next international school of studies who says it is a face saving move from the saudi's. we will see how things go from there. shery: that is it from daybreak asia. ♪

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shanghai. welcome to "bloomberg markets china open." >> our top story, positive starts in asia leading markets higher. strong earnings offset trade tensions and concerns of her growth. yvonne: china cut holdings of u.s. treasuries in august for a third consecutive month, part of efforts to shore up the yuan. itshen: morgan stanley saw the sharese, but price is bewildering. ♪