Uncertainty in Israeli Election; Bolsonaro Flees Brazil

0:02 Bloomberg Audio Studios.

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0:06 News.

0:10 Good morning. I'm Nathan Hager.

0:11 And I'm Karen Moscow. Here are the stories we're following today.

0:15 Karen, it is still too close to call the Israeli elections, but the latest results show Prime Minister Benjamin Netanyahu edging past opposition leader Gadi Eisenkot in the country's first election since the Hamas attacks three years ago. We get more from Bloomberg Middle East managing editor, Oner Ant.

0:33 The latest results from Israeli election authorities with just over a half of the ballots counted show that Netanyahu's bloc was projected to win about 30%. 55 seats against Eisenkot's bloc, winning 49 seats. So there's a bit of a lead that's emerging there in Netanyahu's favor. Now, that said, it's still early to call the election. And with half the votes, half the ballots still waiting to be counted, the overall picture can change again.

1:03 Bloomberg's owner on says neither side has a clear path to forming a government. Israel's two Arab parties have emerged as potential kingmakers. Their forecast to win 16 seats. Still, hundreds of thousands of votes from army bases, hospitals, and diplomatic outposts won't be tallied for another day or two.

1:21 Nathan, we have new developments this morning in the Middle East. The Wall Street Journal is reporting the U.S. has warned several Gulf countries to be prepared for a short, intense military campaign after the midterm elections. Bloomberg's Stuart Livingston Wallace explains the risk of escalation.

1:37 Trump has repeatedly and publicly been very clear about what his two options are. And the rhetoric has very much been on the side of restarting hostilities. At the same time, you've seen the U.S. move in substantial amounts of hardware into the region. So a third strike carrier group and there are other troops coming in as well as batteries and so on and so forth. And then I think when you see the reaction from the regional actors in terms of the visit to Tehran, China now coming in and others getting involved, it's all pointing in the same direction.

2:04 Bloomberg's Stuart Livingston Wallace, a return to airstrikes would mean a pivot from the White House's economic pressure campaign.

2:11 Now to the U.S. midterm election, Karen. The vote is just six days away. And President Trump held two rallies in Texas in a final push for Republican Senate candidate Ken Paxton.

2:22 We have some big races going on. This race, that race, we have a lot of big ones. And I think you're going to be pleasantly surprised on Tuesday.

2:34 And during that rally last night in Lubbock, Texas, President Trump announced a plan he says will help lower energy prices that have been driven higher by the wars in Iran and Ukraine.

2:42 Tonight, I'm officially terminating Biden's expensive and unnecessary methane regulations to save consumers and energy producers. Forty five billion dollars.

2:53 In costs unlock vast quantities of.

2:57 And earlier at a rally in Corpus Christi, Texas, President Trump defended his decision to attack Iran as one of the greatest things he ever did, and he called higher gasoline prices a short-term pain for long-term gain.

3:10 Nathan Ken Paxton's Democratic opponent James Tallarico held his own rally in Lubbock, Texas last night.

3:16 We are going to do something historic.

3:18 We're going to shock the nation, shock the.

3:20 World when we beat the billionaires and take back Texas.

3:24 Then a Democrat rallied his supporters just three miles from President Trump's rally. The latest RealClearPolitics polling average shows Tallarico leading Paxton by just 1.8%. Texas hasn't elected a Democrat to the Senate since 1988.

3:40 And following the Texas rallies, Karen, President Trump said a meeting will be arranged soon between Russian President Vladimir Putin and Ukraine's President Vladimir Zelensky to try to end their nearly five years of war.

3:51 I think with Russia, we're making....

4:05 President Trump spoke to reporters outside Air Force One as he returned to Washington this morning. Secretary of State Marco Rubio and Special Envoy Steve Witkoff were with the president in Texas. He says they discussed both Russia and the Iran war.

4:18 Well, there is a new legal development in the lead up to the midterms, Nathan. A federal judge in Los Angeles is casting doubt on the Trump administration's attempt to block California from counting 20,000 mail-in ballots that it claims were sent to non-citizens.

4:33 U.S.

4:33 District Judge David Carter held a more than three-hour hearing yesterday on the Justice Department's lawsuit against California for refusing to verify the citizenship status of people on its list of suspected non-citizens. The judge says he'll issue a ruling on the government's request today, and he bluntly warned against any threats of criminal prosecution for election workers for counting the disputed ballots.

4:56 Early voting is underway in most of the country, Karen, and in this cycle, black voters in the South are casting early ballots at a pace well ahead of previous midterms. Bloomberg's Amy Morris has more on that from Washington.

5:07 Voting rights advocates say a backlash against Republican attempts to gerrymander black voters into new districts is helping to drive the surge in early and absentee voting. In two states that track race as part of voter registration records, ballots cast by Black voters in North Carolina are up 63 percent from the same point in 2022. In Georgia, they're up 15 percent. If the trends hold, Black voters could fuel a Democratic turnout advantage in the South. In Washington, Amy Morris, Bloomberg Radio.

5:38 All right, Amy, thank you for full midterm election coverage. Stay with Bloomberg on Tuesday, November 3rd. We bring you America Decides. Bloomberg's David Gurra starts us off at 6 p.m. Wall Street time. He's followed up by a special edition of Bloomberg Balance of Power with Joe Matthew and Kayleigh Lyons.

5:54 They take you through the numbers and give you the context that matters. Live coverage starts at 6 p.m. on Bloomberg Radio, Bloomberg Television, and the Bloomberg Business app.

6:02 Karen, there's more fallout from last Sunday's presidential election in Brazil. The conservative Flavio Bolsonaro is in Miami following his loss to President Luis Inácio Lula da Silva. Bloomberg Sao Paulo Bureau Chief Felipe Pacheco says Bolsonaro was ordered to surrender his passports to Brazilian federal police but failed to do so amid concerns he posed a flight risk.

6:26 And then what we heard in D.C. from our team, from our reporters there, is that the U.S. was actually willing to grant Flavio and his family a visa. What type of visa, we don't know. What exactly are the details, we don't know. And there have been reports in the Brazilian media saying that Eduardo, the brother who lives in the U.S., was actually the one arranging all of this.

6:49 Bloomberg's Felipe Pacheco says Flavio Bolsonaro faces multiple criminal investigations in Brazil. President Trump is an ally of Bolsonaro and says... He would have approved of him coming to the U.S., and he reiterated assertions of fraud in the Brazilian election.

7:04 We now turn to the markets, Nathan. S & P futures, they've been drifting a bit. They're up less than a tenth of a percent ahead of today's Fed policy decision. Most economists are expecting Kevin Warsh and company to leave rates unchanged. We get more from Bloomberg's Michael McKee.

7:19 Inflation is rising, growth is picking up, and unemployment is low, which means the big question for Fed Chairman Kevin Warsh is why the central bank would hold off on raising rates. Investors priced only a tiny chance of a rate increase today after two of the most senior members of the Open Market Committee suggested a pause was likely. Warsh declined to walk back that assumption. The chairman has rejected offering guidance about future Fed moves, leaving him another tricky question to answer. If not now, when? Members of the committee suggested in September they would be raising rates at least one more time this year. They'll have another chance in December.

7:57 Michael McKee, Bloomberg Radio.

7:58 All right, Michael, thank you. And please join Mike and the rest of the surveillance team for special coverage of the Fed decision and Kevin Warsh's news conference. It all begins at 1.30 p.m. Wall Street time on Bloomberg Radio, television, and the Bloomberg Business app.

8:11 And following that Fed decision, Karen, investors will get a look at how the artificial intelligence trade is impacting big tech. After the closing bell, Microsoft and Google Parent Alphabet report earnings. as Wall Street looks for signs that massive data center spending is paying off.

8:27 Well, Nathan, the AI trade getting a boost this morning from SK Hynix, with those shares jumping. The world's second biggest memory chip maker unveiling plans to return about $ 45 billion more to shareholders after profits surged a stronger than expected sevenfold. The company expects shortages of memory chip components to persist through at least 2030 and will invest heavily in expanding capacity. Meanwhile, Nathan, the race to be the world leader in artificial intelligence may be going to China.

8:55 Bloomberg's John Tucker joins us with the latest. John, good morning.

8:58 Yeah, and Karen, this is a new Bloomberg intelligence report. It concludes that China is well-placed to lead the world by 2030 in the large language models, which are at the core of AI. The study also predicts that in other categories that are critical to the AI race, producing the hardware needed to run it from chips to optical networking components, Chinese firms are mostly behind now but will be competitive in less than four years. Still, the report says none of this is going to rescue China's economy from a slowdown. Chinese AI firms like Peers Elsewhere are struggling to figure out how to make money out of their innovations. I'm John Tucker, Bloomberg Radio.

9:39 Time now for our Bloomberg Sports Update, and for that, we bring in John Staschauer.

9:43 Thanks, Karen. Game four of the World Series at Tampa Bay. Milwaukee looking for the sweep and a first-ever championship. And when Cooper Pratt homered in the 12th inning, the Brewers had a 3-2 lead. But the Rays had four straight singles, bottom of the 12th, scored twice, and stayed alive. with a 4-3 victory. They'll play game five tonight. The Indianapolis Colts have waved the flag on their season. They're 2-5.

10:07 They traded their eight-time Pro Bowl guard Quentin Nelson to Seattle and three-time Pro Bowl defensive lineman DeForest Buckner to the Niners. That's your Bloomberg Sports Update.

10:18 Stay with us. More from Bloomberg Daybreak coming up after this.

10:26 Coast to coast on Bloomberg Radio, nationwide on Sirius XM, and around the world on Bloomberg.com and the Bloomberg Business App. This is Bloomberg Daybreak.

10:36 Good morning.

10:37 I'm Nathan Hager, and it is the morning after one of the most consequential elections for Israel in decades, the first since the Hamas attacks three years ago. This morning, both Prime Minister Benjamin Netanyahu and his main rival, Gadi Eisenkot, are sounding victorious.

10:54 We must establish a strong right-wing national government. This is what needs to be done.

11:01 We made history.

11:02 I stand here today excited.

11:04 Benjamin Netanyahu and Gadi Eisenhower both spoke there through interpreters, but with the votes still being counted, it's too soon to declare a winner just yet. And joining us from Tel Aviv is Bloomberg News Israel Bureau Chief Ethan Bronner. So, Ethan, where do things stand this morning?

11:20 Good morning.

11:21 Good morning, Nathan. They stand in a very different place than they appeared to stand last night, just hours ago, when exit polls showed the opposition leader, Eisenkot, with a clear lead over the prime minister. And that's when Eisenkot spoke and said, This guy's going home. Well, that's not what the vote counting is showing. We're about two-thirds of the way through the counting of votes, and the prime minister's block is significantly ahead of the opposition. It's now standing at 54 seats. You need more than 60. You need 61. To Eisenkot's, 47.

11:58 That's the blocks.

11:59 And the Arab party's at 19. Now, that can shift again. But it looks increasingly like Prime Minister Netanyahu could be given the first shot at forming a government next week by the president.

12:12 All right.

12:13 So if that were to be the case with the Arab parties showing that kind of standing with you added all together, it sounds like either block could get those extra votes to go their way. Could this mean that we see yet another term for Prime Minister Netanyahu?

12:35 It could mean that i mean the difficulty here uh... is that prime minister nathaniel will not says he will not rule with arab parties uh... and probably be taken seriously on that so that means if he if he sticks in the mid fifties he needs to come up with another six or seven votes the question is can he peel off parts of the opposition. And it's a possibility to bring them over to his side, or that the two groups decide to form some kind of right-wing center coalition and jettison the ultra-Orthodox or jettison the far right.

13:10 It's hard to see any of those things happening in all of those circumstances. The other remaining possibility is that the opposition gets the arabs on board and they all decide to go up against the prime minister block but there are problems with very serious problems with each one of those possibilities with everyone having sworn not to do what i just said was going to happen so the other option is that they'll be another election in a few months but that from the opposition's point of view is not a good not a good outcome because they had tens of thousands of supporters come in to vote for them this time that's not going to happen in a few months The Arabs may lose a sense of mojo about going up against the prime minister. So it's

13:51 looking like a pretty big mess right now, I must say.

13:54 Wow.

13:55 Well, in terms of the votes that still have yet to be counted, where are they and which way could they swing?

14:04 Right. So the remaining kind of 25% of the votes that were cast at polling stations around the country, we're going to know the tally of that in the next couple of hours. But then there are some 600,000 votes on army bases, hospitals, and diplomatic missions abroad that have to be counted in the next two days. And in the past, those have trended to the right. Now, that's because young people in the Army tend to be fairly militant.

14:37 This year, some of those, many of those, may be reservists who don't feel that way. So it's really, you know, I think we need to be very careful before we predict where it's going.

14:48 Okay.

14:49 Well, if the current prime minister pulls ahead, in the past, of course, his current coalition relied pretty heavily on far-right parties. Would that be enough for him to form a coalition this time around?

15:05 It doesn't look like it at the moment, but he's closer than the other guys. So if he gets up to 55 or 56 and he says he's going to form some kind of, you know, he's going to bring over some members of the other side, we'll see. But it really, you know, he has no option with Arab parties. It doesn't seem so. Um, and, uh, the other guys also, you know, have no option unless they bring on the Arab parties that they have said they would not do.

15:32 So it it's, as I say, it's very hard to see how we move forward. On the other hand, one thing to know is while all this is going on and prime minister Netanyahu stays in charge and he and president Trump have vowed to go back to war in Iran if necessary. I mean, it could be rhetoric aimed at pushing the negotiations in a certain way, or it may not be. But what we can see is that for some weeks now, Prime Minister Netanyahu remains in charge of this country.

16:01 In terms of the exit polls, you mentioned earlier that they seem to show that Eisencott would possibly pull ahead. Is it too soon to say that the exit polls were just wrong this time around?

16:12 No, it's not too soon to say. The exit polls, well, if things turn surprisingly in that direction over the next two days, no, then we will have to say you guys got it right. But It doesn't look like they got it right. It looks like this was a failure of the pollsters at this point, except for, by the way, that of Channel 14, which is the pretty far right pollster that people have dismissed as politicized. And Netanyahu's supporters have said, no, the other side is politicized. And right this minute, Netanyahu's supporters look like they have more on their side than the others do.

16:48 Okay, so in our last 30 seconds here, Ethan, what should we be watching for in the next couple of days here as we continue to watch these votes being tabulated?

16:57 So clearly where this heads, that is to say, you know, will Netanyahu go from 54 to 58 or down to 50? And then who's going to be granted by President Herzog next week the first crack at forming a government? And what will the Arab Party say their role is going to be? I think those are the big questions and they're quite unanswerable right now.

17:21 This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond.

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18:07 And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.