Brazil Election Heads to Runoff, Bessent Downplays Concerns on Yields, AI

This is the Asia Trade. I'm Shery Ahn in Tokyo. Asian stocks set for opening gains after a slowdown in the U.S. jobs market. These traders cut bets on an October Fed hike. Saudi-backed Yemeni forces begin an operation to retake territory from rebels. Brazil's presidential race looking likely to head toward a runoff, with Bolsonaro leaving Lula da Silva in the early count. One of AI's biggest global backers, SoftBank founder Masayoshi Son, issues a rare warning on risks around the technology. Paul:

I'm Paul Allen in Sydney. Let's take a look at the setup for trading across Asia. We have Nikkei futures right now looking somewhat flat, a little bit to the upside. The yen pretty weak, despite a little bit of softness that we saw in the U.S. dollar after those jobs numbers. The U.S. dollar had its worst day in a month following that report. We will get a little bit more on that in a moment. In Australia, meanwhile, the ASX up 0.3% at the open, and that is right, up and running, trading in Australia. We had daylight saving over the weekend. One stock we are watching, CSL, is up 0.75% to the upside. The pharmaceutical company agreeing to pay as much as $1.6 billion to — a drug deal. Let's take a look at oil prices. This is something Jim Chalmers has been commenting on over the weekend. He called the war an economic disaster from a cost-of-living point of view, and we have crude prices above $102 per barrel. There are developments in the Middle East, not the least of which Yemen taking on the rebels, and we will bring you more on that story in a moment as well. Take a look at the yield from the 10-year, pulling back from highs we saw earlier in the middle of last week. Pretty elevated, 5.27%.

Bond traders are scaling back expectations for further Federal Reserve tightening after September. The U.S. payroll growth came in well below forecast. That fueled expectations that policymakers will leave rates unchanged this month, even as inflation concerns linger. Bloomberg's MLIV strategist, Mark Cranfield, joins us now with more. So bets on tightening in October perhaps getting put to one side, but what can we say about December and the first few months of 2027? Mark:

Certainly, December is very much on the table for an interest rate hike, both in the U.S. and in other markets as well. Japan, Europe, all looking at potential rate hikes. We have very strong inflation data from Europe as well, but you have an inflationary pull next week. U.S. CPI is the biggest piece of data that will come, and it would need to be extraordinarily high to persuade the Federal Reserve they need to do anything in October. Pretty much, that is done and dusted now. This week, however, is huge for bond traders. We have 10-year and 30-year auctions in the U.S. and Japan. That is a rare time where they come together. The 30-year has been the most difficult part of the yield curve across the world. We are seeing even in the U.K., yields hitting 6% already in the 30-year sector. The U.S. is very much under pressure, and everybody else is as well. This vicious cycle between Treasuries, JGBs, and the European markets as well — France, Italy, Spain, all coming under pressure. Those need to go smoothly. Otherwise, bond investors will be very angsty. By the end of the week, all we will be hearing about is what bond vigilantes can do.

He is pretty relaxed about it. He is downplaying concerns, saying this is not idiosyncratic. Yields rising globally. How persuasive is this argument? Mark:

I think bond investors will see that as being a bit disingenuous. After all, it was Treasuries that kicked off the problems in the other markets, so it was rising Treasury yields that spread across to Japan, spread across to Europe, and now feeding back into Treasuries as well. Although he may be feeling relaxed and say it is a global problem, when it was Treasuries that started it in the first place, so they need to see some stability in the American markets to help everybody else. In the very short term, there were issues in France that may have become even more anxious for traders than they were in the Treasury market — the political problems in France related to their budget. We had French and German yields spreading out. That was starting to affect Italy and Spain as well. It's a vicious cycle, and Treasuries are really caught up in the middle of the whole issue. It needs a lot of stability in Europe as well for everyone to calm down and take a breath, and maybe this is the week when it all happens. People are very edgy. You can see cracks appearing in the credit markets as well. People are talking a lot about last week's Paramount bond issue. You already had a deluge of issuance from people to fund the AI programs and the build-out with the data centers, so markets are very edgy in the bond space, and that is not a healthy situation for anybody. It is amazing the equity markets can seem so serene when there's all these things going on in the debt world.

Let's talk a little bit more about that serenity. Despite all the gloom, the Nasdaq hit a high on Friday. At what point do yields need to reach before you start to see cracks appear in equities? Mark:

That really depends on the earnings situation. We are entering the earnings season, and we have already seen Micron Technology have extraordinary results, which is helping to support — this is one of the reasons why the Nasdaq is so high, and we are expecting very good numbers from the other big American companies as they start to report, and of course from Korea and Taiwan as well. So if the earnings can continue to justify valuations which are in markets, then people look past what is happening in the bond market. If we see a very rapid sell-off in the debt market, that is a completely different story, and all bets are off. But if yields are gradually going up and the Federal Reserve is taking an approach where they don't raise interest rates again until December and then maybe once more later next year, that is the kind of thing equity markets can absorb. They can handle the forward pricing in that respect. What they cannot handle is a disorderly bond market. Providing the big American companies come through with strong earnings, then people will be reassured that the tech space is almost immune to what is going on in the rest of the world.

Mark Cranfield there. We are also seeing fiscal credibility tested in Brazil. The presidential election looks likely to head toward a runoff, with right-wing senator Bolsonaro surging to a surprise lead over Lula da Silva in early counting. We do have the latest numbers when it comes to 85% of the vote counted in Brazil, with Bolsonaro at 48.5%, ahead of Lula's 43.5%. This is quite surprising given some polls that put him ahead.

Investors came into this thinking that a lead of more than four percentage points for Lula would reinforce his status as a frontrunner in a potential runoff, and that in turn would weigh on assets. So far, we are seeing Bolsonaro have a strong showing, which would be positive for assets tomorrow — the candidate most likely to commit to fiscal adjustment. If Flavio holds his lead, we are expecting them to react well tomorrow morning as well, as equities and swap rates should also fall.

But you said it, right? It's likely we might see fiscal consolidation from Bolsonaro's side of things, but we have not necessarily seen detailed economic plans. So what are markets right now factoring in?

That is about right. We have not seen either of the candidates present details of the fiscal plan. So if Flavio advances in a strong position, we expect to see a honeymoon period with markets, with assets rallying. But of course, investors will be looking for any details on how actually he intends to bring debt levels down. I think that is really what is key for markets. At this point, it's pretty much a binary scenario. A strong showing for Flavio — a Flavio win is positive for assets. But as we move forward, investors will be looking for any details on what his plan actually entails.

We have, of course, seen President Trump's influence in Latin America, especially his interest in Brazil and his relationship with the Bolsonaro family. What can we expect from the elections?

Well, if Flavio Bolsonaro does become the president, then we can expect Washington to have closer ties to Brazil. And we have seen a shift to the right in Latin America. We saw that in Colombia, Peru, and Argentina. Jair Bolsonaro has been seen as an ally to Trump. We should expect closer ties to Washington. However, Lula, on the other hand, has been closer to China. He has defended sovereignty. A lot of his campaign has been around the topic of sovereignty and tariffs. So it's kind of a binary scenario in that sense, too. But we still have a long way until the second round to be able to make a call on that.

And we have seen, leading up to this election, domestic issues plaguing Brazil, including that major bank fraud case that now has been tied to the Supreme Court as well. How has this influenced some of the Brazilian people's sentiment towards the vote?

Yes. The Supreme Court crisis has played a big part. We saw a lot of support for Flavio increase, both in terms of polls and the prediction markets, because a lot of Brazilians associate that situation — that crisis — with Lula. Some saw the crisis as beneficial to Flavio in the polls. But of course, it's going to be a brutal campaign until the last minute. Everyone was expecting the race to be deadlocked, so we still have quite some road to get there.

Bloomberg emerging markets reporter Giovanna there. Coming up, Indonesia's new finance minister tells us exclusively how sovereign wealth fund Danantara fits into the growth strategy and the commitment to fiscal responsibility. A rare note of caution on AI safety. We examine how those concerns square with SoftBank's big investment in OpenAI. You are watching Bloomberg.

It's dovish, and the market is reacting that way. When I take a step back and put the bigger picture together on the labor market, nothing has changed. That's a pretty solid report. The unemployment rate picked up, but some of that is rising participation. We are still really just on one more bad inflation number away from them pulling the trigger on a hike. The other big issue is just the calendar setup and the optics of hiking right in front of the midterms. I think they want to probably try to avoid that. We have an election, but the Fed is independent, and it's making decisions based on the data. Elections have nothing to do with it.

Some of our guests reacting to the latest U.S. payrolls report, which saw 29,000 jobs added in September, and that was well below estimates. Joining us now is the chief U.S. economist at Vanguard. Thank you so much for joining us today. In the wake of that jobs report, we have seen markets repricing the chances of an October rate hike. The chances now diminishing. Is that your view, and are we still on track for an increase in December?

Thanks for having me today. Well, I mean, I think when you look at that, we have been expecting the next interest rate hike in December. I do think that the weaker labor market report actually reduced the urgency of the hike in the near term, but it doesn't really reduce the need to hike interest rates, right? If you are looking across the world, the common theme is that growth is much more resilient than expected, and then there is renewed inflation risk. So it does show that we should be living in a world with interest rates that are higher rather than lower.

There was another key piece of data before the December meeting, not the least of which is U.S. CPI numbers next week. So when you look ahead to that, I mean, how much do you judge the CPI and inflation globally? It's due to elevated energy costs, rising fertilizer costs, all inspired by the U.S.-Iran war. How much is due to the AI build-out? If the war was to end soon, would that alter your inflation predictions?

We are expecting inflation to reach around 3% of core PCE by the end of this year, and then we are — actually — declining by the end of 2027. When you look at the inflation right now, obviously, a large part, especially, is due to the higher energy prices. And then there's, at this moment, I would say, a limit to the pass-through of the core inflation. Maybe you see some higher transportation costs, higher food costs. The pass-through so far has been limited. On the other hand, AI capex is pushing the goods prices up. AI is really a demand shock in the near term and potentially could be a supply shock in the long term. But at this moment, we are definitely seeing both the higher energy prices and also AI capex are actually keeping inflation pretty aggravated at this moment.

Also conspiring to keep yields elevated as well. But we heard from the U.S. Treasury Secretary, Scott Bessent, earlier. He is downplaying rising yields. He says it's not idiosyncratic. It's up globally. Are you similarly relaxed about what is happening in the yield environment, or do you see them moving higher?

Well, I mean, when you look at the yields higher across the world, I think fundamentally, there is actually — we've flattened our global competition for capital. There's less saving. That means less supply for capital. That kind of competition is across the government, across the world. You do see that there is a fiscal sustainability concern in the U.S., Europe, and many developing countries, but there's also competition for capital from the private sector, right? Because of the AI investment. So to that extent, I think this kind of higher yield reflects its higher-for-longer neutral rate. We do see a neutral rate that actually is rising towards 3.5% in the U.S. and potentially, you know, even higher. So when you see that kind of higher neutral rate, plus term premium is also rising because of the concern and also uncertainty about fiscal sustainability and to a certain extent, some uncertainty about monetary policy, right? Then I think we should actually expect this kind of yield to stay elevated and higher for longer, right, in the near term and also in the medium term.

Higher-for-longer rates as well. Another big central bank meeting this week — the Reserve Bank of India. There's a wide expectation that a 25 basis point increase is a lock. Is there any reason to think that isn't?

I think when we look at it, RBI has been holding back for a while. At this moment — RBI has been holding back for a while. Also, inflation is likely to breach 5% in September and even moving towards 6%, right, in the fourth quarter of this year. I think there is a lot of reason for, you know, RBI to actually hike. To a certain extent, they would emphasize this is an insurance hike to prevent that second-round inflation effect instead of the start of an aggressive tightening cycle. We do expect them to hike this week and potentially again in December. And also, I think the tighter global financial conditions and the pressure will also add additional push for RBI to hike interest rates.

A little pressure coming off of the rupee after the jobs report on Friday out of the U.S. And we did see the U.S. dollar soften, and it had a pretty bad day, relatively speaking, on Friday. It's not really translated particularly evenly across the forex space. If you take a look at the yen, still very weak. What is your outlook here?

To a certain extent, you know, I think the BOJ is quite an exception. Yes, we do expect the BOJ to hike, but for most of the global central banks, we are talking about recalibration hikes or insurance hikes. But I think for the BOJ, the thing is that they are really lagging behind the curve for quite a while, right? So at this moment, we talk about the oil shock, higher energy prices — it was really just actually just increasing the pressure for the BOJ to act in a timely manner and a faster pace. The BOJ — look at Japan — inflation has been much more sustainable at 2%, and the August Tokyo CPI report was showing underlying inflation almost approaching 3%. To that extent, we definitely feel the BOJ needs to hike interest rates. You know, we do expect one in December and then two more in the first half of next year. Again, depreciation pressure — that is something they need to consider.

Chief economist at Vanguard, thank you for your analysis today. We have more ahead on the Asia Trade. This is Bloomberg.

We decided to release strategic stocks of diesel and crude oil under the coordination of the International Energy Agency. They will meet in the coming hours and days to organize this, so as to be able to release up to 100 million barrels of diesel and crude oil over the next four months.

We, of course, had seen the U.S. trying to pressure Europe when it comes to releasing those diesel stocks, especially with the potential that the U.S. could ban exports of diesel themselves. Take a look at how diesel has been trading in the European diesel session. We actually saw the price rise and rally more than 8% at one point after the announcement of that G7 release. And a little bit of a mixed picture when it comes to the oil side of things. We have a little bit of pressure in the previous session. We continue to see the Saudi flows from the East-West pipeline. We are talking about that running at around 80% capacity. That has led to a little bit of downside in prices, although the fact that we are seeing some relief doesn't necessarily mean that supplies are coming back in full force. So you are seeing Brent, for example, in the early Asian session seeing gains. Also that escalation we are seeing in the Middle East. Take a look at the headlines we are following, because Yemen's Saudi-backed military has launched a full-scale operation to recapture all areas under the control of Iran-backed Houthi forces. Fighting has escalated since early last month. The Houthis captured strategic areas on the west coast, and that bolstered the group's control over the chokepoint that Saudi Arabia had been using to export oil and bypass the Strait of Hormuz. Iraq has arranged a supertanker to move two million barrels of crude oil through the Strait of Hormuz. The transit marks a shift in how Iran markets its crude, reaching refiners reluctant to go through the waterway. They are seeking funding for more tankers and alternative export routes through Turkey and Syria. The Pentagon has removed U.S. bombers from the U.K. base at the center of last week's expected attempted terrorist attack. An official says all American bombers deployed at RAF have returned to the U.S. The New York Times reports that the withdrawal was urgent after new threats emerged of a plot linked to Iran. We will have plenty more coming up on the Asia Trade — more details about the oil markets and the escalation in the Middle East, not to mention, of course, the market opens across Asia in about half an hour. This is Bloomberg.

Paul, we continue to follow the Brazilian elections. The president is actually trailing at around 44% of the vote. That is a little bit of a surprise because coming into the election, some polls put President Lula ahead of Bolsonaro. Flavio, of course, is the son of former president Jair Bolsonaro. The risk right now, fiscal credibility for this country. The markets still prefer Flavio Bolsonaro. Investors associating him with state asset sales and perhaps stronger fiscal adjustments. Bloomberg Economics, for example, says Bolsonaro winning could actually lower 10-year yields by 70 basis points and strengthen the Brazilian real almost 3%. We will continue to follow the story because investors are thinking, OK, markets prefer Bolsonaro's presidency. But at the same time, they are not seeing a lot of economic details when it comes to his plans on the fiscal side of things.

Let's take a look at how we are shaping up for trade here in Asia. I mean, futures looking pretty muted at the moment, Shery. We are seeing some modest upside for Nikkei futures. You were talking a moment ago about how Yemen plans to crack down on the Houthi rebels in that country. This could put further pressure on the oil price, and we are at elevated levels. OPEC Plus has agreed to keep quotas unchanged, but G7 partners are planning to release 100 million barrels of emergency diesel. Elevated diesel prices are really starting to bite in economies around the world, not the least of which the U.S. The Nikkei futures started off the day flat, ticking to the upside by 1.7%. Indonesia's new finance minister says the country is counting on sovereign wealth fund Danantara to help drive its growth ambitions. Speaking exclusively to Bloomberg, how the fund is improving state-owned enterprises.

Right now, we are committed to the 3% fiscal rule and maximum 60% of the debt-to-GDP ratio, and that is signaling the confidence of the market that we can continue.

You talk about how the 3% is a guardrail and you're committed to 3%, yet more and more of your projects are being funded off-budget by the likes of Danantara and state-owned enterprises. How do you view the risk to your fiscal standing?

Danantara is a sovereign entity. It is sovereign. Danantara has been tasked by our president, who is very keen to see that Danantara handles all of our state-owned enterprises. There is so much efficiency that we can get from Danantara. And we believe that with all those efforts that Danantara has been doing — almost two years since they came into effect, and in the last year or so, they started to clean up their state-owned enterprises. They cleaned up the books. They are making sure they can operate in a more efficient way. They have room. They have room for improvement, room for investment. This is something that they have to work on. And right now, we are in very close communication with Danantara. Me, myself, as the Minister of Finance, with the CEO of Danantara, the COO of Danantara. We started talking from day one to understand each other's position, understand each other's situation. And then we work together for the betterment of this country. Another perspective here. Imagine that the state of Indonesia, and the head of state, the president, has two arms. One arm is the state budget. The other arm is Danantara. Danantara is the consolidation of the state assets. They work for the improvement of this country. So big vision, big perspective, big ideas can be channeled through the work of the state budget and also can be channeled through the work of Danantara. Of course, each one of us must understand the corridor on how we can talk.

I'm sure you have made targets for yourself. What can be expected by the international community at the end of your first year and at the end of your second year?

I intend to manage the state budget and as credibly as possible. My tagline is always [speaking Indonesian]. Let me translate that because it's international. The budget grows the economy. The budget that protects the people. The budget that is credible for our sustainability. In order to do that, because that is an intention, I will work very closely with every institution in Indonesia. The two arms, obviously, by nature, we are working together with our Financial Sector Stability Forum. That is also very important. And then we are managing Indonesia, of course, not only from the central government but also talking to a lot of local governments.

Investors can expect policy continuity from your predecessor?

From time to time, we always reconsider our position, and that reconsideration might end up in a new policy. But Indonesia has already shown in the 20 years how fiscal credibility and how fiscal sustainability has been maintained. Our Indonesian business sector, global communities can expect that we will continue that kind of credibility.

That is the Indonesian finance minister speaking exclusively with Insight anchor Haslinda. Let's get to some other global headlines that we are following. Pakistan's foreign ministry is calling for an investigation after accusing India's border security force of killing two unarmed civilians. Islamabad says the two Pakistani civilians were killed on Friday along the border between the two countries. India has rejected the allegations, linking the incident to drug traffickers operating from Pakistan. Taiwan's envoy to the U.S. says there has been no change in Washington's policy towards the island. President Trump's recent summit with Xi Jinping had sparked uncertainty about the U.S.'s commitment to Taiwan, raising the stakes for a planned $14 billion arms sale.

We are getting what we have. Obviously, the speed could be a little faster, but we hope that the United States understands very well the threat that we are under, and I am very sure that they will be providing us with the necessary equipment.

More ahead on the Asia Trade. This is Bloomberg.

Take a look at how we are setting up for the market opens in 20 minutes from now. We have China and South Korea on holidays, but when it comes to the Japanese market, we are seeing the yen firm a little bit against the U.S. dollar, down towards the 157 level. We had hotter-than-expected Tokyo inflation last week, and also couple that with weaker U.S. payrolls that we got last week as well, and comments coming from the prime minister that President Trump directly raised a weak yen — from the prime minister that President Trump directly raised a weak yen. Nikkei futures pointing to some upside, 1.7% at the moment. Keep an eye on JGBs. The two-year yield close to the 2% level. The 10-year yield trading at the 3% level, sort of the highest level since the mid-1990s. But today, what we will be watching, the prime minister set to deliver a policy speech as parliament reconvenes, outlining her government's economic agenda. That includes a contentious proposal to temporarily cut the consumption tax on food. The senior editor for Northeast Asia economics and government, Brian Fowler, joins me with more on this. She will probably want to see — one big one is the consumption tax cut.

I would expect she's going to deliver a pep talk to Japan. She may set her comments against the backdrop of her grand vision to boost the economy. I mean, touching on the yen, she had been asked about the weak yen recently, and she said basically that her hope is that a stronger economy will solve the yen problem by reviving faith in the yen. So that brings us to the sales tax cut, and I think cost of living is a huge issue that she wants to address, so she will talk about the sales tax cut. Big question is how it is going to be funded, and to date, she said she's going to be looking for cost savings elsewhere in the budget to help to boost — to pay for that. I don't know that she will be very specific this time. She will probably say something about wanting to maintain a proactive and yet responsible fiscal policy and pretty much leave it at that.

She kept saying no deficit financing bonds, given the pressure we have seen on JGBs. Interesting to see that rhetoric coming from this administration about how the prime minister is not a reflationist. Of course, we talked to the finance minister as well. But a lot of the market pricing right now is still for those fiscal concerns.

I think the market doesn't entirely believe this idea that she's not a reflationist. Everything we have seen from her points to trying to reflate the economy, much like her predecessor, Abe, did. She also wants to walk a fine line here because she, you know, needs the yen to be a little bit stronger. Trump, in his discussions, complained about the weak yen as driving the U.S. trade deficit. It's putting upward pressure on prices, and that is a big problem for Takaichi. So I think she will try to continue along that line. Don't worry, I am not a reflationist. I just want to be strong and responsible.

Brian Fowler, good to have you with us. Bloomberg's senior editor for Northeast Asia economics and government. As we are following the Japanese markets, a look ahead to summer earnings as well, because the earnings season is getting started here in Japan. We do have retail giants Fast Retailing and Seven & i kicking off this season later this week. The Uniqlo owner's annual profit is expected to surge, with a focus on whether strong overseas growth can offset softer sales in Japan. 7-Eleven's parent is also expected to return to quarterly sales growth, but customer traffic remains a key challenge as tailwinds from higher fuel selling prices begin to fade. Let's bring in our next guest, who says inflation remains the key factor shaping Japan's retail and consumer sector. Joining us now is Roy Lark, co-founder at consultancy Japan Consuming. We take this first of all from the consumer point of view. How are you seeing their attitudes and behavior changing now because of rising prices?

As you say, prices are currently top of mind for most households, so they are changing their shopping behavior accordingly. And it used to be that they would visit several supermarkets within a week. Now, people are consolidating the purchases down to one reliable supermarket that can offer them a good price-quality ratio, and then topping up at many supermarkets and then possibly at convenience stores.

I mean, let's talk a little bit about the retail side of things. He mentioned my basket, and I shop from there very often these days. I was also bummed out to see — had to close their doors after 58 years. Such an iconic landmark of Tokyo. What are you seeing in terms of how these retailers are responding to the times?

So we are going to see a lot more consolidation. Convenience stores, there's only three players. Electronics is very highly consolidated now. But we are going to see very rapid consolidation in drugstores, and really for the first time ever, we are going to see a lot of acquisition activity in supermarkets. It's a small supermarket trying to be acquired by Life. We will see a lot more of that because scale, the ability to offer larger and better ranges of private label to guarantee lower prices, and to make sure that consumers are choosing the single shopping location rather than multiple ones. It's your store that they choose. The other thing I would like to mention is that we are also seeing new performance. I think PPI's, Robinhood supermarket is really interesting. It's interesting. We are seeing changes in the way convenience stores are adjusting their formats, again to try and make sure that people choose their store rather than somebody else's.

When it comes to those new trends, how much has everything changed because of e-commerce as well? I mean, this economy to me is fascinating because you see lower credit card usage, more cash. You also see less digitization than a lot of other Asian economies, but at the same time, e-commerce seems to be really leaving its mark.

I think the idea that Japan is behind other Asian markets in terms of e-commerce, behind Western markets, is something of a misnomer. Stores are so easily accessible in Japan, and shopping is still a major leisure activity, even though people might not actually be spending. Most retailers have gone for the omni model from the get-go. Amazon, Rakuten, very successful in Japan, still growing very strongly. Most retailers, high street retailers, also have very strong e-commerce operations and are trying to integrate that into their store networks, if you like. Less so maybe in food. But food is still one of the largest e-commerce sectors just in terms of overall sales. ¥2 trillion in that. Omni — 3% to 4% of total food sales come from online. I don't expect that to change quickly because it is easy to shop in store. Everything is nearby, easily accessible, and also because stores are such a high cost for Japanese retailers that they don't have a real incentive to move everything online.

Roy, I just mentioned earlier how we are expecting Fast Retailing results. We are expecting them to do pretty well because of their sales to foreigners in Japan and also overseas sales. Are we seeing more of that drive by Japanese companies to try to target the overseas market just because of the inflationary concerns in this country, not to mention the broader long-term demographics issue?

I'm afraid you cut out in the middle of that, but I can talk a little bit with Fast Retailing. They recently just said that they had sales in September despite the fall down. And in the domestic market, it feeds into what we said earlier. People are looking for real price-quality value, and this is something that Uniqlo provides and is not really easy for others to provide. It is so far ahead in terms of their ubiquity in the market, the value of their basics. If you want to buy underwear, why would you go anywhere else? If you need to go for the really low-cost options to Don Quijote or something like this, it is much more fun to shop at Uniqlo if you can access it. It basically works. Overseas, they have really begun to refine the model of having large flagship stores that create good brand awareness, and around smaller stores which they can expand quickly and then have on the channel to support it. So Uniqlo is also doing very well now, supported by high results in Japan.

Really good to have your insights. You can catch Japan Ahead every Monday at 8:40 a.m. if you are watching in Tokyo. Subscribers can watch on the terminal using the TV <GO> function. This is Bloomberg.

The biggest global AI investor, Masayoshi Son, says he's worried about safety risks as machines quickly gain more ability. Speaking at a tech forum, he repeated his projection that AI will account for at least 20% of global GDP by 2040. He's calling for global cooperation on AI guardrails, saying the technology can be dangerous in the wrong hands.

Now, despite concerns about the safety of AI, the hardware ecosystem continues to build capacity. Toshiba is set to double its capacity on hard disk drives, according to the Nikkei. It could help Japanese suppliers extend a rally. For more, let's get to our markets reporter, Anthony Stephens. So Anthony, what is the broader implication of the Toshiba headline?

This speaks to the fact that despite the concerns around AI safety, you continue to have this build-out of AI infrastructure, whether we are talking about the frontier or the more sedate models people use for coding or whatnot, and that is driving a spate of risk appetite across the tech supply chain. Notably in Japan, where there are plenty of names for the year. Ironically, a lot of those names are actually in the hard disk drive space, in the passive components space, in the motors space. So that space will get some fundamental validation from this news. Also interestingly, it has put a line under Japan's macro risk. We are seeing volatility sharply lower compared to what has been happening in the FX world. We had these concerns around again. The tech trade really getting the kind of earnings momentum to power through any kind of macro issues, and that is pretty much what has been traded across the region, where we see tech outperform other sectors even though yields track higher. The Toshiba in focus means that is a fundamental — for the rally.

How about the rest of the region? What are we expecting to see?

We continue to see leadership from Taiwan. TSMC is the biggest stock in the region, and it is integrated quite strongly from overnight price action, Friday night price action. It's up to almost 3%. And that should underline tech risk-taking across the region. We have notable underperformance by the Chinese AI ecosystem, which has really struggled in recent weeks to keep up with the U.S. developments, and that market is indicating lower again. So that bifurcation will be very interesting to watch when we come into Asia live trading.

Anthony Stephens, thank you. Let's take a look at what to expect when trading does get underway at the top of the hour in Japan. Nikkei futures pointing higher by about 1.5%. In Australia, it's a public holiday across much of Australia today, but markets are still trading. Most sectors are in the green. We are taking a look at CSL as well, better by 0.9% after the pharmaceutical giant did an exclusive pact with — therapeutics. A market open in Tokyo, up next. This is Bloomberg.

This is the Asia Trade. We are counting down to Asia's major market opens, and of course we will be reacting to the latest when it comes to the emerging markets trade as well, with Brazil's elections now going to the runoff, October 25, it has been decided, with Flavio Bolsonaro leading incumbent President Lula. This will be a very interesting trade because we have seen the dollar now lose ground against emerging market currencies, reacting to weaker U.S. payrolls.

The weaker U.S. payrolls — we saw a bit of action on the bond front as well, so we will be closely watching the start of trade and U.S. debt in the Japan sessions. 10-year yields and two-year yields ease off the highs. Let's see how enduring that is, Shery.