>> a very good morning. australian markets have just opened for trade. >> i'm in hong kong. "daybreak: asia." >> our top stories, markets look mixed after a late rally. the benchmark is near bear territory. a fed official comes out in favor of continuing great tykes. -- rate hikes.

saudi arabia faces outrage over the death of jamal khashoggi. >> let's get started with a check on the markets. all major averages under pressure. the s&p 500 finishing just above the 2700 level. falling as prices continue to fall. the nasdaq, 8% below the august tie. all of the year's gains. and thend really low markets tried to claw back those earlier losses. at one point the dow fell 548 points and then it closed lower by only 120 points. we could see some of that momentum carry into asia.

let's see how things are looking over there. >> like a mixed start for asian stocks after a three-day decline. opening flat. over 9%light, sliding this morning after it provided guidance for its label revenue outlook at the lower end of its range. in wellington, a fourth day of declines. futures are nudging higher. itcost be is not fair -- has lost 19%. japanese stocks, wipeout has been about half $1 trillion over the course of this year. short bets have climbed to a record high. earnings will be key to changing this sentiment. notablehe likes of names reporting results across the region.

, we havehery guidance for caterpillar, texas weighingts, 3m, likely on sentiments. even one of china's biggest asset managers is joining in this pessimistic talent, telling bloomberg there are 20-30 companies preparing to exit as global valuations have peaked. shery: in the u.s., a fed official says continual rate hikes are needed to keep the economy from overheating and creating imbalances that could lead to recession. kathleen hays is here. statement toore seal the deal? kathleen: i think so. he will have an official vote. 12 out of 16 in the last meeting

where they arranged it are looking for it. i think it is a done deal. not everyone around the world is on board. in terms of needing more rate hikes, he said unless the data talk me out of it, a gradual removal of accommodations until we get to a neutral rate. said we are still a few rate hikes away from that neutral rate. keep in mind on friday we are expecting a healthy third-quarter gdp report in the u.s., down from 4.2%. the tax cuts still at work. is that why he is warning about overheating? let's listen to another remark he made. we should guard these high-pressure periods that inflation,y costs,

not good for a lot of people. he is wellst is rob, respected. see wages rising. there is no runaway inflation. view,s what supports his we are to move carefully and gradually. indonesia holding fire. some announced said not doubling down is a mistake. kathleen: absolutely. clean -- basically i did everything they could to say they are not going to have to drop their important forward guidance. they said policy was frontloaded. they took that out of the statement. 150 basis points since may. with a large deficit, with trade

war still raging, and the federal reserve on talk toward more rate hikes, they are going to have to hike 50 basis points by the end of the year. , we are watching the bond market. the central bank watchlist. kathleen: china is someone you have to watch closely. they have made this announcement, taking steps via the credit market to help companies that are going to have a hard time making their loan payments. they are basically trying to backstop these companies and talking about deleveraging. that is a big issue. not having so much debt. one more challenge is the trade war, the story bloomberg news out today talking to several heads of big companies who are not going to wait to see the impact of tariffs.

they are looking at adjusting their supply chains around the world. if there is less production in , that is not good for the chinese economy either. it will be interesting if the pvoc feels like they have to do more. we've got to keep an eye on the andet battle between the eu italy. that is something everyone is waiting to see if it explodes into something bigger. they don't have a plan b. thank you for that, kathleen hays in new york. italy says there is no plan b after the european union demanded changes to bring its budget into line. the prime minister told bloomberg's government has no intention of leaving the euro

and will not gamble with the nation's future. he said some aspects of the budget could be changed, but the spending plan will remain. we will not leave italy out of europe. we feel very comfortable. will be our euro currency. the currency of my grandchildren. reports say theresa may has lost control of her cabinet. figures are fighting against her brexit plan. seven top ministers spoke out against her proposal to keep the u.k. inside the eu indefinitely. may reacted angrily. other minister said the u.k. eu unless out of the she is able to compromise.

more companies say they are ready to relocate supply chains if the cost becomes prohibitive in the trade war. washington imposes a 10% tariff on $200 billion of chinese imports and is threatening to raise the duty to 25% in january. there is the possibility all $530 billion of chinese goods may be hit. john bolton says president trump and putin will talk at the world in paris.emoration he says it will be a normal meeting. the talks come at a time of rising tension between the u.s. and russia. abandon a nuclear missile treaty. reports from taipei say the driver of the train across -- that crashed over the weekend had disabled the system.

he told the court he turned it off after because of a fault. the train came off the line at 140 kilometers per hour, at almost twice the speed limit. global news 24 hours a day on air and at tick tack on twitter powered by more than 2700 journalists. i am jessica summers. this is bloomberg. saudi crown prince was is smiles at a summit even thinking kingdom faces international outrage over the death of khashoggi. as the initiative got underway, the turkish president erdogan said the murder was premeditated. drama in a story with many twists and turns, the , ader of jamal khashoggi

highly anticipated speech. there wouldion was be a bombshell revelation. what he did portray was a story differed from the saudi version. the turkish version is this was a killing that was planned in advance. they are calling for an investigation. ,n initiative is underway there was still strong representation from asia and the middle east. $50 billion worth of deals, some of the headlines include siemens postponing their deal. when it comes to the market action, resilient, saudi stocks closing lower for the day. chinese and u.s. officials grow pessimistic about a trade set even with trump and xi

to meet at the g20 summit. next, what financial advisor say about how it is a good time for long-term investors to focus on rebalancing. this is bloomberg. ♪

>> this is "daybreak: asia." oil fell to its lowest level since august after saudi arabia pledged to meet any shortfall from sanctions, as tumbling sanctions we can sentiment. the oil minister said opec is in a produce as much as you can mode right now. regular volatility, but saudi arabia is trying to smooth over some of the supply-side concerns. surprise they are

going to pump as much as they can. depressive on prices. take a look at the 90 day chart. we were at four year highs of the beginning of the month. we have come down. recentop the most session. take a look at the five day move and you will see what some traders call a cautionary holding pattern. that is ahead of the wednesday inventory data where there are expecting to see a buildup in supply. that could really be a buckle your seat belt day for oil. palladium, we talked about it yesterday. it has soared to a record. already tight supply, the tightest in decades. you have president raising concerns about dropping out of the nuclear agreement, which is

a user of palladium. to the issue of increased cost for major u.s. companies. to that session we had in the equities market, it was about the impact on earnings, tariffs, future growth. we saw that through caterpillar and 3m. seeing it after hours. you have to remember we began lower for the s&p, and many said that was a by call. we saw stocks claw their way back. the rally did not happen. the broadest measure was also lower. almost negative at this point. gold printing lower in extending hours. earnings, which really weighed on the market.

caterpillar and 3m sending the message the market was warned about. the tariffs are having an effect. caterpillar guided lower for the first time. it did not boost guidances 2016. 3m also disappointed. harley davidson cited the cost of tariffs impacting its bottom line. and tesla decided to move its earnings up to wednesday. investors saying that is possibly a positive sign. earnings, positive verizon, mcdonald's, citing an increase in australian and british customers. you have the automotive retailer really blowing it out in terms of numbers. whirlpool reporting on wednesday are are surprised investors betting the stock higher. quickly to the bloomberg. the 200 day moving average. we have broken below it, triggering the buying earlier.

it doesn't help we got texas instruments after hours, also falling, rival chipmakers lower as well. su: they are the largest maker. they have the largest area of product. look at how it dropped. not likely carries over into wednesday. if you look at year to date, the stock has been under pressure. >> su keenan, thank you. let's discuss all of this with michael. great to have you. we know october is usually seasonally weak. is there an opportunity for some portfolio rebalancing? michael: we find that as an opportunity. this year what we have to think about is the potential capital gain distributions as we see a into passive management. we focus on avoiding those

distributions. you need to think about markets outside of the u.s. that have a negative performance. harvesting losses is going to be more important. the overall theme, rebalancing is something you cannot ignore. we had major divergence between markets in the u.s. we have seen positive rates of return. some sectors are barely higher than others. that major divergence is between the u.s. and foreign markets. >> talking about the u.s., earnings have beat estimates the last five years. now we are seeing earnings being discounted in some way. coming in at the lowest since 2016. this line in blue. could we expect a rebound? michael: it is similar to what we experienced where we had a sharp move at the beginning of january. that is similar to what we saw

for the third quarter where we accelerated quickly. the starting valuations were even lower at the end of september in comparison to earlier on the year. we are not as quick to save the find, it -- what you could be an opportunity. our messaging is, let's not focus on double-digit rates of return continuing in the same city we have seen -- the same capacity we have seen. the market right now, everybody knows earnings are going to be strong. the second derivative is slowing at the margin. we have seen that discounted. to focus onant fixed income as well and not abandon that. that is our messaging. it is on the equity's side. don't ignore fixed income.

it plays a role in the portfolio, which we can see. we have seen volatility in the equity markets. >> michael, do you stay fully invested at this stage? fully invested to us would be a diversified portfolio. we are never going to be 100% equities. that is the purpose of having an allocation. we think about long-term assumptions. we think about, how do you position a portfolio? you can't control market returns. what we have been doing, insulating a portfolio in fixed income. right now we think longer-term we have room to go on the equity markets. overseas we have not even begun ,o see any significant returns especially demonstrated with the emerging markets story. we are outside of 2017. we have seen negative or terms. we are trying to be more

.efensive, less credit risk if we look at the returns so far, we have seen equity market like volatility. that is an element where we are more defensive, shorter on the yield curve and differentiated a little bit more. on the equity side, this is an environment where conceptually it might be more aggressive to be rebalancing out of u.s. equities to emerging markets. when you think about where valuations are in comparison to where they have been in the is parthat you pay for of the overall risk framework. yes, valuations right now are you long gated. longated. would you be remiss in not getting in at the moment even though there might be a further leg down in terms of valuations being so cheap compared to the u.s.? there is a sense some of these

arends, demographic stories strong. these are markets that are being headlined punished as a group. michael: we agree you would be remiss to ignore the story. decisionlouding the has been fiscal stimulus. we have seen a flow into u.s. equities as a result of earnings growth that are focused on. if you look three years down the , you are not going to see that same elevated level from developed markets we have seen. we will see a moderate level of growth in the u.s. if you look across the broader markets, you are not accelerating the same degree. we are growing above potential while china and other markets are growing below. how much harder is it to diversify your folio when you have stocks and bonds moving

together? michael: correlation between yields and equities, in a rising rate environment, outside of today we did not see a benefit. lower levels of volatility. that inflection point is in the 4.5% to 5% range. there is the potential rising happen inates can conjunction with equity prices. what is challenging in the instances this year, we have seen a move higher in the u.s. 10-year. that has been two short bursts higher. we had a range bound environment from 270 to 320. it did not move dramatically. it was 305 to 312. more recently until it moderated , we saw another significant move higher.

it is really the rate of change the market struggles with. not necessarily the levels. michael, thank you for coming into the studio. michael hans. plenty more to come on "daybreak: asia." this is bloomberg. ♪

>> texas instruments slumped in late trade on a week outlook for the fourth quarter. chairs fell as much as 7% with a revenue forecast up to $3.9 billion. mcdonald's surged the most in four years after total same-store sales rose 4%. u.s. performance slightly missed growth forecasts. >> there is more on earnings just ahead. we look at the impact of tariff

s. other companies looking to shift supply chains out of china. a lot of these companies are looking increasingly to their plan b's if this trade war is here to stay. this is bloomberg. ♪

>> you are looking at live pictures of japan right now. nikkei futures up 1%. breaking numbers out of tokyo with the nikkei japan pmi manufacturing data to come out any time. machine tool orders year on year gained ground, 2.9%. let's get to the first word news with jessica summers first. jessica: saudi arabia opened its investment forum in riyadh with smiles and applies, that despite the outrage of the killing of jamal khashoggi. the kingdom tried to restrict the widening fallout. turkish president erdogan has publicly rejected the shifting

saudi narrative, saying the murder was premeditated with links to the highest level. one of the up was hearst -- their cover-up was one of the worst in history's of coverups. somebody really must up. they had the worstsd cover-up it should have stopped where they thought about it. whoever thought of that idea is in big trouble, or they should be ended,. >> reports from london say theresa may has lost control of her. senior leaders are openly fighting against her brexit plan. seven top ministers spoke against her proposal to keep the u.k. inside the eu customs union indefinitely. we are told may reacted angrily. president trump has conceded

there is no evidence for his claim that arab terrorists are among the thousands of migrants walking from latin america to the u.s. border. he tweeted monday the caravan of people included "unknown middle easterners." questioned repeatedly, he agreed there is no proof, yet still insisted terrorists could still be there. the company best known for that ro -- for vacuum cleaners, dyson, set to build a fa manufacturing company in singapore, part of a $2.6 billion effort to expand into automobiles. the city has a free-trade agreement with china. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. >> let's check in on the

australian markets. sophie: swings for aussie stocks. 1/10 of 1%. bramble gaining 2.6%. the company expecting underlying profit to improve on pricing growth. the credit has improved to equal weight at morgan stanley. pressure falling 5%. tracking the drop in oil prices. wti overnight fell nearly 5%. taking a look at other laggers in australia, worleyparsons falling to an 18 month low after the country raised 1.8 billion aussie dollars for a chemical resources unit. asx 200declines on the

today, this as the company faces condition from tougher rivals. >> earnings in japan as well, 200 companies announcing this week. >> when it comes to names reporting today, linecorp -- bloomberg intelligence expects line's third-quarter numbers will demonstrate the struggle for operating profit as investment picks up. buys, seven holds, one sell calls on the stock. switching the board to check on sectors like machine makers. more pain could likely be ahead for chipmakers after texas instruments warned demand is slowing. optical fiber makers with

quarterly results failed to impress. u.s.t's head back to the to get details on the earnings season there. the theme playing out as a result from caterpillar and g.m. thesegetting tough for big industrials. caterpillar was one bellwether we were looking out for. ramy: the question hanging over investor's mind is whether we hit peak earnings or not. the sentiment is that is a yes. with caterpillar for example, those steel and aluminum tariffs donald trump put in, that is leading to more expenses when it comes to caterpillar making those machines it is known for, those bulldozers, those trucks. caterpillar saying tariff related costs could come in at $100 million.

compare that with 3m, expecting something similar to that degree. caterpillar also saying they are going to raise prices as much as 4% next year. they are not going to eat those costs, they are going to pass them on to businesses and consumers. hop into the bloomberg terminal, because i want to show you how the share price has been performing. in the white line this is on ever to be the worst month since 2009, righ duringt the financial crisis. investors are worried the trump trade war with china is making things worse. growth, china slowing also possibly exacerbated by what is happening with the u.s. and china, falling to 6.5% growth. 6% possibly into 2019 as we have been discussing with analysts. demand for product falling,

things like facemasks. and air with china pollution, that is one of the big things. some slippage. >> we are hearing president trump and president xi jinping will meet at the g20 in buenos aires next month, but no one expects a breakthrough on trade. what are the plans if trade tensions continue? ramy: plan b seems to be the common same. plan b is to get out of china, get supply chains out of china. ofsee who said what in terms pain. it gets longer and longer. heatlennox, which makes ventilation and air-conditioning, the price falling in september. its ceo is saying they are

proactively taking action. they really don't think these tariffs are going to be short-term. they think they are going to be long-term, and they look to avoid them by moving to the south. dutchps, which is a health care and lighting company. prices just barely above the flatline. in terms of trade tensions, stock really plummeting in the past month or so. its ceo says there are levers to pull to mitigate the impact. one, guess what? rearranging our supply chain. they say one third is across europe and asia, and they can move it out of china. with skechers, the shoe company. 29%.is down by nearly ever since the start of this year, 50% of its revenue comes outside north america. they are looking moving capacity

outside of china. they say they think they will be ok moving that processing capacity. but with that stock fall, a lot of investors clearly are worried. that is just some of the many and growing list of companies out there. >> let's stick with china. the country is responding to stock slump fight once again adding stimulus to markets. this time it is more of a drip feed than an opening of the floodgates. our chief correspondent joining us from hong kong. these measures are very different from what happened back in 2015. is it going to be enough to turn sentiment around? >> good morning, shery. georgian by the markets -- judging the markets yesterday, there is a long way to go. policymakers want to make it easier for privately owned

companies to get cheaper finance. that is a part of the economy that has been hit hard by the broader push by china's government to slow down the overall amount of debt in the country. they are trying to take these debts to stabilize the market. we are nowhere near a wholesale stimulus like we have seen in previous downturns. we have not seen the outright intervention from the government like we have seen in previous periods of market volatility. where china has achieved remarkable stability is currency. even though the stock market has come off, the yuan has remained perfectly stable. there is a view policymakers are getting ahead of the curve in china. they know there is pain coming down the track due to the trade war. they are taking precautionary steps to cushion the blow from existing and future tariffs on

chinese goods. >> do they have the firepower to support these existing companies? we saw in 2015 across the board interventions, they were more toward state owned enterprises. right now it seems to be the problem is in the private sector these companies that have share pledges and are forced to sell. even if they increase the firepower, will this help? with so-called stimulus measures in recent days is it is difficult to quantify the dollar value of the measures they are taking. estimates of economic growth are somewhat vague at the moment. on your point, there is a feeling some of the measures are quite targeted, quite nuanced. they are taking steps to offer tax refunds for exporters.

they are taking steps to put tariffs on imports of industrial goods. of course they are talking about personal tax cuts, taking these steps to promote bond issuance for private companies. there is no doubt while the private sector has been hard-hit by slowdown and the deleveraging campaign and the trade war, it is that part of the economy policymakers seem to be targeting most. it is a nuanced approach by china. not quite broad-based stimulus, but confidence taking measures they hope will be enough to stabilize sentiment for the near-term. haidi: we are looking ahead to trump-ump-xo meeting -- xi meeting taking place in buenos aires. enda: you saw those comments from larry kudlow overnight, they will meet for a bit --that

doesn't signal long bilateral talks. when you consider the u.s. political cycle, when you consider broad u.s. sentiment towards china, and from china's side, the fact that they are not willing to roll over either, no one's expects a solution in the near term. perhaps there will be easing of tensions, china offering to buy more goods. disputethe view is this goes well beyond the deficit. it is about china's economic trajectory and the role of the state in supporting that. the u.s. wants to put the brakes on china's industrial model now while they can. >> always appreciate your time, our chief asian economics correspondent in hong kong.

much more to come. this is bloomberg. ♪

haidi: this is "daybreak: asia." as the s&p 500 tried to come off losses following a mixed bag of earnings. our next guest says the dollar still has more upside. for emergingstion markets as to when this next leg of dollar strength will come. avoidingave to do with worsening when it comes to the trade war and fed story? >> the fed story is still with us. they don't seem to be retreating from any gradual rate hikes. we are on track for another three. >> president trump mentioning jay powell looks happy raising rates.

>> [laughter] i think he is happy in the current circumstances. the move is dictating where the markets has been going, it has been the trade war story the past six months. no signs that is going to pull back anytime soon. i know we have a meeting between trump and the chinese president soon, but already that is being touted as a nonevent. we are looking for the next leg higher for the dollar, lower for --.s and more currency nick: i think what we are seeing between the u.s. and china seems to be escalating. i think there is a policy the city of further measures of one country against the other. we are starting to see china fight back a bit harder. that will lead to downside for

the yuan. china will be happy to keep that gradual retreat rather than a full-scale move to the top side. seven, then weto might see some aggressive action from the pboc. shery: we're seeing this chart on t he gtv bloomberg library. we are seeing it weakening against a trade weighted basket. when we saw these moves last time, policymakers implementing new policy tools when it came to the chinese yuan move. will this be a turning point? how important is it when you are not just measuring the yuan against the dollar, but also the cft us? nick: we are at an important stage against the yuan and the basket. notre seeing chinese moves, just the move in the yuan, but

to slow the impact tariffs have had on the u.s. economy. i don't think it is going to be a short-term solution. probablyext three to six months, we will see the yuan to appreciate. because we have seen the diversification of economies in the southeast sector, that will mean a lot for the yuan. it is very interesting you bring up the basket. i think the more experienced longer-term players will be keeping a closer eye on yhe yuan against the basket rather than just the dollar. we may see that change in the longer term. toward thelso headed year end. currenciesean e.m.

in the next few months -- it will be challenging for them to bounce back. nick: i think so. it is all adding up to further downside for the e.m. currencies. we have seen strong moves in the dollar against them. the bloomberg dollar index is a good indicator. i think we have further downside. if they can ride out the next few months into year end, there may be a turning point in the new year. if we do see a slowing in the u.s. economy, that could slow down the fed impetus, and obviously that interest rate differential. it will certainly be interesting next three to six months. >> interesting next six months when it comes to the pound as well. euro questions of what happens to italy. pound traders don't know what to do in this environment.

[laughter] various headlines. nick: it is a headline a day. 50 or 60 points for the euro. it will come down to how well brexit shakes out. night'se -- last headlines work more positive -- if we see a deal done, then i think sterling has a good argument to rally to the top side. if we see further political machinations and don't see a deal or a very hard brexit, it looks bad for sterling, particularly the dollar against the euro. i think it is going to be a hard deal. i think it is a nightmare for politicians on both sides. you almost want politicians to step out of the way and let business solve the issue.

the vote has been done, essentially. if they can get that deal done, from a currency perspective, we will see sterling rally, but eu ro rally to an extent as well. shery: when it comes to global stock market, we have seen asia rally, but not really carry into the u.s. today it was hard to get into the green. earlier losses were still in the red. who is leading global markets right now? a very good question. we are seeing a big disconnect between the global stock markets. it goes from one session to the next. we are used to seeing trends from one session, usually the u.s. into asia. because the markets are moving very swiftly on the back of these global trade concerns, on

the back of geopolitical concerns, every new headline has -- givena difference us a different incentive for the investor. stocks have been strong until the last month, of course. it feels like we have been in this news driven trading environment, which does not make trading easy. once we get clarity across various geopolitical concerns, and on trade deals more specifically between u.s. and we havend brexit, and some confidence with the nafta agreement -- once we get confidence and certainty, it will open the way for more trading. i don't think they are open at the moment. shery: let's take a look at some of the stories trending across the bloomberg universe. front page of bloomberg.com, news trump is deferring to

congress of the khashoggi killing. he called the story one of the worst coverups in history. users are reading about the widening rift between wall street and main street, while institutional hedge fund remain net sellers. what would you do if you want a lottery? that $1.6 tracking billion mega millions jackpot. track those stories on bloomberg or the terminal. this is bloomberg. ♪

shery: this is "daybreak: asia." haidi: let's get you a quick check of the latest business flash headlines. a chinese company preparing to sell out of 20 ipo companies out of worries valuations have peaked.

the ceo says global markets including the u.s. have peaked, and investors should prepare for the next round of financial crises and turmoil. since 2015 the most after the government's plans to crack down on alcohol use. alcohol stocks have already been under pressure on speculation of a possible tax rise. moutai is down 20% since june. haidi: central-bank of indonesia says alipay wants to draw in more chinese tourists. authorities say the joint should be allowed to operate in -- giant to be allowed to operate with big banks. shery: coming up in the next

hour of "daybreak: asia," head of emerging-market debt at bearings says he sees a favorable fundamental backdrop for e.m. debt. the market open is next. this is bloomberg. ♪

haidi: good morning. in sydney, asia's major markets have just opened for trade. shery: good evening from bloomberg's global headquarters in new york. sophie: welcome to "daybreak: asia." our top stories wednesday -- markets looking mixed at best after a rally failed on wall street. the asian market close to bear territory. saudi arabia's pledge to cover any shortfall from iran. shery: the kingdom faces white

outrage from the death of jamaal khashoggi. washington says it has identified some of the suspects. we saw wall street trying to rally in this tuesday session, but still finishing in the red. we are seeing asia in early trading. a bit more momentum. sophie kamaruddin with the latest. sophie: these prices are reflecting the closing of japanese and korean markets. we are seeing gains for the kospi and nikkei 225. the kospi not looking to enter bear market territory just yet. january earnings very much in focus. all the shares are stepping -- aussie shares are snapping a three-day decline. some stocks iin on want to keep on the radar. watching for machine makers.

this after caterpillar's guidance disappointed. chipmakers in focus. this after texas instruments warned after slumping demand. this afterrising 2%, profit iny eked out a the third quarter. positivenalysts heard on the stock. haidi: let's get you to first word news with jessica summers. jessica: president trump has preferred the congress on -- deferred to congress on the death of journalist jamal khashoggi, switching the narrative to one of the worst coverups in history. secretary of state mike pompeo says the u.s. has identified a number of suspects, and washington is already taking action against them.

the president says he wants answers soon. national security adviser john bolton says president trump and putin will speak on the sidelines at the world war i commemoration in paris next month. the talks come at a time of rising tensions between the u.s. and russia. trump repeated to abandon a missile treaty, citing violations from moscow. italy says there is no plan b after the european union demanded wide changes. the prime minister told bloomberg his government has no intention of leaving the euro, and will not gamble with the nations future. he says while some aspects of the budget could be changed, the fundamental spending plan will remain. we will not ensure compromise out of europe.

we feel comfortable with europe. we think the euro will ease our .urrency, will be our currency kids andncy of my currency of my grandchildren. jessica: reports from taipei say a train that crashed on the weekend had disabled its speed system. he told the court he turned it off after its load the train down because of a fault. the train came off the line at 140 kilometers per hour, almost twice the speed limit at a curve in the track. it is taiwan's worst rail crash in 27 years. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am jessica summers. this is bloomberg. shery: most markets in asia are

in the positive in this early trading. we are seeing the nikkei up four times o-- up 4/10th of 1%. asx 200 trying to turn positive now. let's turn to our bloomberg global editor in sydney. what is important for markets to sustain the gains? >> they will especially be looking at what happened in japan. japan had an awful day yesterday. they will be looking for the performance out of the nikkei and the topix index. there is heart to be taken that president trump and xi will at meeting,t at the g20 even though expectations will be low. at least there is a chance it might cool down the rhetoric with relation to the trade war. that is a slightly positive sign.

last night on wall street there was recovery toward the end. at least stocks did not end 2% lower, as they were trading at one time. the bears can only go on so far. a respite in the data. there is a chance we get a slightly better day today. you, adam,me turn to because we have seen market rallies in asia not being sustained after a day or two, wall street falls and asia follows. when can we expect a turn in sentiment that will be sustainable? adam: when you take a country like china, deep into a bear market, sentiment remains incredibly fragile. these strong words of support we have seen, very coordinated verbal intervention from the financial regulators, the

central bank -- as you say, that gave impetus to a short rally in the shanghai composite coming off four-year lows. a very poor session yesterday, which speaks to the idea that the longer-term outlook for the u.s. cash for the -- for the equity market remains fragile. the problems that existed a week ago still exist today. the way policymakers continue to respond to the situation in some way gives people fright in addition to comfort. the fact that they had to be so vocal in this last coordinated round shows they are clearly worried about what is happening. growth is slowing. a tough act to keep doing year after year. investor sentiment is fragile. haidi: we have been talking this

week about earnings. it is almost as if earnings beats are not enough. of s&p 500 companies reported positive earnings since 1998. that upward trajectory spiking in the last couple years. good news sense that -- the outlook has to be really good? adam: you have to look at how we went into third-quarter earnings season in the u.s. people were talking about a market priced for perfection, we were at record highs, even a big selloff in the bond market, the fact that the fed continues to eyes,n, in some people's quicker than some thought. we got the most recent some of. -- recent selloff. it shows expectations are quite

lofty. it hasn't been too bad. we are 100 companies or so on the s&p 500 so far. the vast 75% of those still beaten. the bar has been raised. farrpillar speaks to a bigger problem in that outlook. it is a number of factors coming together at the same time. haidi: president trump is speaking to his trade war. he does not think the fed is helping. he said to the wall street journal jay powell seems to be happy raising rates. he is, isn't he? >> the way the fed has been speaking makes it clear the fed is comfortable. they are confident inflation will rise to their target levels. they see strong growth in the united states, particularly employment. they can fully justified the

path of raising interest rates. december is a shoe-in for raising rates again. it would take a major setback for the fed to not raise rates in december. if you add on to the fact there between the sight trade war with the u.s. in china, it is looking pretty gloomy for investors. even american investors are beginning to realize the outlook for 2019 is really not that great. even though the imf has already lowered gdp forecast for next year, they maintained -- they may need to lower it again. haidi: an upbeat conversation with our strategists. more on one of the top stories, the widening fallout from the killing of saudi critic and journalist jamal khashoggi. turkey is closer to laying the

blame for his death on prince mohammed. he didn't mention the prince butding, but -- by name, flat-out rejected the saudi narrative. >> we have in our hands strong indications this merger was not the result of a sudden incident, but the result of a planned operation. haidi: joining us with the latest out of hong kong is our senior international editor jodi schneider. erdogan's testimony was highly anticipated. he didn't sidestep direct messaging on how he feels on the matter. jodi: he basically asked the king to take action against whomever was responsible for this. it was sort of a veiled reference to the crown prince, saying whoever was responsible, no matter their position. he is coming very close to

squarely lying the blame on the crown prince. that will be an interesting narrative to watch in the coming days. also interesting is to see president trump's continued reaction, the evolution of his reaction to what is coming out about what happened to mr. khashoggi, including his most recent statement that she is going to pass on to congress the responsibility to take action. he is getting tougher in his language about what happened, and had initially supported the discreditedtheir version of events, asking congress to take action. congress is not in session given that the midterms are less than two weeks away. why is president trump

deferring to congress? jodi: he appeared to be deferring to congress because this is an awkward position for him. saudi arabia has been a key ally , really the cornerstone of president trump's middle east strategy. given he had initially supported their version of events, this is a tough spot he is in. that is perhaps one of the reasons why he is saying, congress, you take a look at this. it will be interesting, because congress has been critical of how he has approached this, and really have been pushing him to consider ending or at least halting arms sales to the saudi kingdom, which president trump has been reluctant to do. he reiterated on several

occasions it is important to do those arms sales. it produces hundreds of thousands of jobs, he says. it will be interesting to see what he expects -- he accepts as a consequence from congress. we have seen the state department saying they will rescind visas on 20 suspects of khashoggi's killing. shery: we have seen and behavior from turkey. they have been rolling out a carefully managed campaign to undermine saudi arabia's plan of events. what can we expect from president irwin? jodi: he gave a tough speech. had been anticipated he may actually lay blame on the crown a kind ofd have wrapping it up more.

they say they will continue to bring evidence out. there is supposedly audiotapes that the turks have of the killing. it will be interesting to see how those are made available. certainly president erdogan is taking a firm and leading stance against the kingdom, seems to be leaning more and more on pushing for the crown prince's removal. shery: senior international editor jodi schneider. where do you go to find pockets of value in global markets? spectrumus, a cross for emerging-market debt. bearings says now is the time to be selective. this is bloomberg. ♪

haidi: this is "daybreak: asia." shery: our next guest says the fed is likely to keep hiking rates. we will ask him about the implications of this for emerging markets. joining us from hong kong is ricardo adrogue, head of barings e.m. debt. fed continuing to hike rates mean for e.m. debt in the long-term? ricardo: the e.m. hiking rates, typically not a good environment for emerging markets. their economies will slow down as a consequence of the trade war. those weiking rates -- think are particularly in asia, countries like korea, potentially the philippines, a country that has seen their rates sell off quite a bit.

countries that should benefit from a slowdown in the global economy. shery: what do you think we will get asian credits bottoming out? is emerging truth economies in asia are strong from a credit perspective. to the extent that the spread has widened, those are entry opportunities for investors. you have to distinguish within emerging markets those where growth could have an invocation on their default rates. those are countries that borrow a lot in foreign currencies, u.s. dollars among others. we have seen financial crises in asia in the 1990's. this has helped to grow their domestic markets, countries like thailand, malaysia, philippines, they are much stronger than they

were. we are seeing them as opportunities. are greatus, opportunities. very solid emerging-market names . they are offering more interesting compensation for borrowing from us. haidi: what do you see is the potential trigger for a rally in the e.m. space? ricardo: it is the fed becoming more accommodating. they are signaling they are getting closer to neutral. for a while the market perceived that is an opportunity. we think the trade policies in the u.s., immigration policies, tax policies in the u.s., they are all pointing toward strong u.s. behavior and some increase in inflation, which the fed will consider as triggers to continue

hiking rates. the fed stopping or slowing in the face of hikes, we don't think is imminent. another is trade wars. we perceive the u.s. and china to be digging in their heels and not giving in. it is difficult to perceive that as being an imminent event. the environment is difficult, but not all emerging markets will be subject to the same type of problems. emerging markets are strong fundamentally, and they will weather just fine. haidi: there is a tendency to punish them all, isn't it? even if you can wrangle more problematic e.m. markets away from the other space. ricardo: for barings, those are great opportunities. it is when the market sells off in tandem that investors fear

opportunity arises. some of the spreads in indonesia have widened. i mentioned philippines on the local side, a similar case. a lot of investors are getting concerned about what is going on with their credit cycle, their economic cycle. those two are starting to be great opportunities. haidi: the fact that in latin america we have certainty over nafta 2.0. how does this affect the mexican debt market? ricardo: positive of nafta 2.0 i s somewhat being questioned by the market for the election of amlo. he has been making the right noises, but has been questioning the mexican city airport. we think that is a bad signal for the market. the referendum, which will not be legally binding in mexico on

the airport, which will take place in the next few days, october 28,o is a bad signal. we do not know how president amlo will deal with the negative outcome. haidi: ricardo, appreciate your time in joining us, barings head of emerging markets debt in hong kong. you can get a roundup of stories on bloomberg daybreak. it is a down day -- a bit of an understatement. fighting back in the u.s. session, did not come to fruition. available anywhere on the bloomberg app. you can customize settings so you only get news on the assets and companies you care about. this is bloomberg. ♪

shery: let's get a quick check of the latest business flash headlines. ford elevating its china operation to a standalone unit. at coorsiously worked automotive. said in july he was extremely 480satisfied after losing $ million in china in the second quarter. the carmaker is investing in electric vehicle production there. harley davidson posted one of its worst domestic sales results in years, and warned there is no quick fix. the steepest quarterly drop in more than eight years. u.s. demand has declined in 15 of the last 16 quarters. overwhelming tepid sales growth abroad has not been helped by president trump encouraging a boycott.

blackrock's interest in buying a minority stake in tesla has called after recent meetings failed to solve an impasse over price. arings talks this month following the recent decline of financial stocks in the broader italian market. let's get a quick check of the major markets trading in asia. the japan nikkei gaining ground 3/10th of 1%. that after a steep fall. the asx 200 falling. we had wall street in that red. throughout the session, u.s. stocks trying to push higher. we are seeing some of that momentum being felt in asia. plenty more to come on "daybreak: asia." this is bloomberg. ♪

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. haidi: 8:30 in hong kong. an hour away from the opening of trading. seeing a number of asian markets teetering on the edge of bear territory. there seems to be a sense we can't get momentum going again. shery: this will be a good test for asian markets. we have seen rallies in asia followed by declines on wall street. we will see what happens today. hong kong was really badly sold. chinese markets falling more than 2%. it would have to be a big rebound to take it higher. let's get the first word news.

here is jessica summers. jessica: saudi arabia opened an investment forum in riyadh with smiles and applies, that despite the outrage of the killing of journalist jamal khashoggi. turkish president erdogan ha publicly rejecteds the shifting saudi narrative, saying the murder was premeditated with links to the highest level. president trump: the cover up was one of the worst in history of cover-ups. it is very simple. they had a deal. it should have never been thought of. someone really messed up. and they had the worst cover up ever. and where it should have stopped is at the deal standpoint where they thought about it. atoever thought about th idea is in big trouble. jessica: expectations between a

meeting between president trump and his chinese counterpart in buenos aires already being lowered by both sides. larry kudlow said the leaders would meet "for a bit" on the g20 meeting, but may not agree on basic principles. investors preparing for a prolonged fight on trade. theresa may has lost control of her cabinet. senior leaders are fighting against her brexit plan. seven top ministers spoke against her puzzle to keep the eu customs union indefinitely. others weighed in, saying the u.k. will crash out of the eu almost she is able to compromise. vacuum cleaners and hairdryers, making a debut in singapore. it plans to build a factory in 2020 and roll out in the

following year. part of a $2.6 billion effort to expand into automobiles. dyson has a motor port planned in singapore, and it has a free-trade agreement with china. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. haidi: let's get a check of the markets, how we are faring this wednesday in asia. sophie: asian stocks are keeping the bear market. both benchmarks in seoul and tokyo fell. the asx 200 in sydney marginally higher after declines. onto overnights declines, as treasury yields edge closer. the yen holding steady. our colleague mark cranfield

could lower as yields have peaked this october. we want to check in on movers across the region. subaru sliding in tokyo after missing targets on quality related costs. chipmakers in the spotlight after texas instruments warned of slowing demand. over in sydney, billings australia falling 8%, this after forecasted australian revenue growth at the low end of the stated range. 2.1%.ul, posco up this after the company posted a jump in profit. kamaruddin in hong kong. china is responding to its stock with stimulus to its

markets. more of a drip feed. these measures are more like a trickle, not quite the cavalry has arrived. is it enough to send a strong message for a turnaround? >> i think they are trying to signal they want to get ahead of the curve. most importantly, people participate further pain for china's economy as the trade war deepens, and we are only in the early stages. the talk is of confidence in the private sector, financing more cheaply than they can at the moment, and taking measures to stabilize the markets themselves. we are nowhere near the stimulus levels we have seen in previous downturns, nowhere near a crisis stage per se. it is the officials in rhetoric and action trying to signal to

both china and the world they are aware of the risks and trying to get ahead of the curve. with market performance yesterday, it looks like they have a bit more work to do. haidi: do we expect it to continue, enda? enda: that will be the theme. when you consider president trump and president xi talks scheduled for the buenos aires suggests, evidence that will not lead to any major changes. an increase in tariffs in january. we are interested in the next round of tariffs on goods china exports to the u.s. you will see a material hit to growth in china. when you see what is happening domestically, and externally with the impacts of the trade war, policymakers have a fair bit of work to do to keep things

stable. they will keep on these measures they have been taking, perhaps even ratchet them up. shery: we're seeing this coordinated effort from chinese authorities, whether it is in fiscal policy trying to boost consumption, or whether it is monetary policy. they are not really strong enough, not what we saw in 2015. can we expect more of the same, more of these many, small efforts, or could we see them come back in full force in order to shore up confidence? enda: two things -- the chinese officials are deadly serious on tackling deleveraging. they don't want to stray too far from that. on the other hand, they are keen to find a breakthrough in the trade dispute. theyey were manage -- manage to ease tensions, that

would take pressure off the chinese economy in the near term. they will have to stray from their deleveraging campaign, because they have to promote growth. it does not look like there will be a breakthrough on the trade story, barring a twist in the coming months. these step-by-step micro measures will seem to continue. one issues economists know about the steps so far is there is no dollar value attached. it is hard to quantify the impact. it is argued cuts to the tax rate could have more of an impact on the economy. heavilyhey are a very taxed economy. from hong kong is portfolio manager and cohead of

j.p. morgan asset management. thank you for joining us. we are talking about these coordinated efforts from beijing, whether it is exchanges saying they will try to rein in jinpingr president xi offering unwavering support for nonstate firms, will these micro measures be enough to shore up confidence, or do we need something bigger and stronger coming out of patient? -- out of beijing? >> i agree with your colleague earlier on. we measures we have seen, will see more of that in the next few months. we are likely to see a big bang. i think that is healthy. we saw a big bang in 2011, which has led to a build up in debt. ,he chinese policymakers correctly so are still addressing that debt issue.

we don't see a big bang coming up, but it will be targeted. let's go back to the fundamentals. earnings growths is coming through positively in china. prices are falling now, below 2019 earnings on the offshore market. a shares are trading 19 times. some targeted measures will ease investor confidence vis-a-vis trade wars. i think we will bring back confidence in the market. earnings and valuations ultimately will drive stock prices. shery: it did bring back confidence for like, two days, didn't it? then wall street slumped again. if you look at the bigger picture, shanghai composite is down about 20% or so. how much of that is because of the deleveraging efforts in the

past? you have trade tensions in the background. how much is it of global concerns and fed tightening? ayaz: i think it is a combination of all three, really. on the a share market, i think the trade tension -- local slowdown and deleveraging will have more of an impact. we have seen this time and time again, earnings are still coming through with a whole host of companies. ultimately this is getting to near good entry levels. i think there are some great stocks to pick now. you have much larger choice in the health care sector, domestic consumption sector. big picture economy china, we are seeing the services sector contribute more to gdp than the healthy., which is

no don't in the short-term, trade tensions may lead to volatility, but we can't pick the actual bottom. haidi: you mentioned the consumer story, which has been a favorite of anyone who is bullish on chinese domestic equities, the strong domestic narrative that remains intact. you can see that in balancing toward retail sales, for example. when it comes to underperformance of consumer names -- is it poor timing in terms of domestic regulatory headlines? do you expect that to rebound? ayaz: there have been some policy headwinds, no doubt. ultimately we believe the earnings are going to come through, and investors will refocus on that. some of these policy measures have had an impact on these stock prices. i think investors should be

looking beyond that, especially with the corrections we have seen. if you focus on the high quality ones we see in a number of these consumer names, i think one would be paid off over a decent time. haidi: is this a more sophisticated market we were looking at than 2016 in the last massive selloff? ayaz: no doubt there has been negative sentiment. we have seen that with equity prices coming down. we have not seen any major panic. we have not seen, shall we say, policy flip-flop as we have in the past. if you look at the yuan for instance, we have seen an orderly decline. it has been a very well thought out policy, to be eased gradually. we have seen the yuan as a

result decline in an orderly fashion, which is different than 2016 and earlier. shery: you mentioned about consumption and growth surfaces becoming the engine of china. how much will these tax cuts, especially personal income tax cuts, help? ayaz: certainly personal income tax cuts will help. there will be more money in people's pockets. structurally we have been confident for a long time, and continue to be. the rise in health care spending as well. we don't think cuts will affect that significantly. you look in the countries that have a higher gdp per capita than today, there will be a higher percentage spent on health care, health insurance, and so on. it is not just the pure consumer

sector that is growing, but the whole structural story in personal consumption will continue to grow, such as health care and life insurance. does the breakthrough in emerging markets remain -- that we need to see a breakthrough on the trade war front? ayaz: if we look at how share prices have performed, china is trading -- depends on the index you look at -- let's say 9.7 times 2015. when you look at asian markets in general, price-to-book 1.5 times, which is getting at a very low level. .'s, it isk at p.e still roughly 10 times. yes we ultimately have

volatility because of trade wars. go?far down can valuations i think investors have brought in these trade issues. difficult to pick the bottom. i think for a medium to long-term investor, these are good opportunities today. thank you so much for joining us. coming up, big industrial bearing the brunt of trade tensions. we are here to look at the latest results from caterpillar and 3m next. this is bloomberg. ♪

shery: this is "daybreak: asia." haidi: let's get back to the u.s. and more details on the

latest in earnings. we had a couple major bellwethers -- caterpillar and 3m both fallen hard on tariffs and trade war concerns. it is getting tough on these big industrials. ramy: it does not seem like it is going to get better anytime soon. in terms of what is happening in the third-quarter, we are starting to see that bite in terms of profit, in terms of decreased revenue, and also in terms of passing on cost to consumers. with caterpillar, for example, they are saying tariff related costs for 2018 -- this in regard to the steel and aluminum tariffs donald trump put in -- $200g in at the low million range. caterpillar saying they will raise prices by as much as 4% next year. you these negative weights,

can see what is happening with the share price. hop into the bloomberg terminal. i am showing you the seasonality function for caterpillar. it is lit up with reds and greens, but focus on october. for the month, it is down 22%. you look for the next brightest red -- all the way here in 2009. that is when it fell by 30%. we are talking a fall that hasn't been seen since the financial crisis. this is similar to what is happening with 3m. they are seeing tariff related costs could also fall by a similar margin, $100 million there. steel and aluminum is affecting caterpillar, because that is what they need to make machinery. this is a regard to slowing gr owth. some analysts saying chinese growth could fall to 6%. is the end in sight?

it doesn't seem like it. bloomberg news has this long running tally of companies saying we are going to get hit, and that list continues to get longer. shery: what are companies saying about a potential plan b? ramy: plan b is to get out of china if this continues. lennox international saying they see a potential hit to profit moving ahead. they say they are proactively taking action. in the past month or so, a big slide. 4.7% down year-to-date. they say the chinese tariffs will not be just short, and they are thinking about moving to southeast asia as well as other low-cost countries. where one window opens, another window closes. for phillips, the dutch health care company, while up for the year, they are also looking at

"rearranging their supply chain," that via their ceo. skechers makes a lot of shoes. they get 50% of revenue outside of north america. their shares are getting slammed, down more than 29%. they say they are trying to put a face on this -- they say they will be ok because they are flexible. it with no end in sight, seems like this is going to continue. we will not just see the quantitative side of things, but the qualitative side, seeing what will happen in the fourth quarter into 2019. shery: still more ahead on "daybreak: asia." this is bloomberg. ♪

haidi: this is "daybreak: asia." shery: let's get a quick check of the latest business flash headlines. tesla shares soared after an investor now says he is going long. he made the decision after reviewing recent information that shows tesla dominating the categories in which it sells. back in march, it says it was long-term short on tesla, and warned supply and demand issues would lower shares to $100 by the end of the year. >> going short into this

quarter, knowing he just made earnings a week earlier, right on top of ford's earnings, knowing the company has finally hit stride of production with the model 3, short is just wrong. shery: mcdonald's surged the most in three-year. total same-store sales rose more than 4%, although u.s. performance slightly missed forecast. mcdonald's earns almost two thirds of its revenue overseas, and says comparable demand in australia and the u.k. rose 5%, while sales in china also beat expectations. worries plans to toughen on alcohol use. alcohol stocks have already been under pressure on speculation of a possible tax rise. moutai is down 20% since mid-june.

haidi: let's take a look at what is coming up in the next few hours on bloomberg tv. rish, what are you watching? number twofectively in the region here, talking about the impact of the trade war, what sort of deals they are making in 2018. one of the strongest years for asian banking since the financial crisis, up 10%, 11% this year. talking about how it affects corporate investment banking, what their clients are doing. we see this trade war perhaps get hotter and hotter in various aspects. that is a look at what is coming up. jan metzger joining us in five minutes or thereabouts. shery: before we hand it over to

rish, let's look at how markets are trading in the early session. the bulls fight back. asian markets tutoring on the edge of a bear market. nikkei 225 gains of 2.5%. gains in the seoul session as

rishaad: 9:00 a.m. in hong kong and shanghai. this is "bloomberg markets: china open." market search for direction after a late rally failed on wall street. the benchmark near bear territory. david: tesla one of the winners. a short seller saying the company is starting to dominate. g20,ad: top-level talks at but the white house warns there is little chance of anything meaningful. ♪ davi