We're half an hour away from the open in
Hong Kong and Shenzhen and Shanghai are watching the China show.
I'm Yvonne Man. Our top stories this morning.
The renminbi in focus as a paper says it will move to prevent the exchange rate
from overshooting Asian stocks. Rangebound in early trade after a Wall
Street's longest losing streak since January.
President Biden steps up his campaign rhetoric against China, threatening
higher steel and aluminum tariffs and calling the country xenophobic.
And investors are waiting tsmc's earnings and its CapEx outlook.
Key to potentially extending a 30 to $40 billion stock surge. A quick look at the market action.
Looks like we steer clear maybe away from these Powell comments for now at
least, Treasuries market certainly did overnight, and that's why we did see a
bit of a rally and yields dropping across the curve here this morning.
Interesting enough, that didn't really quite help the tech sector in the US.
We saw quite a bit of a hit when it comes to the Nasdaq.
And we just talked about the S&P as well and the longest losing streak we've seen
since earlier this part of the year at least.
Nasdaq futures are talking a little bit positive now in the Asia session.
Asia's looking a little bit mixed here today with Japan down.
Korea, though. There you go.
You're seeing that sort of a rebound in that market.
Taiwan coming back online here. And we're still down about 6/10 of 1% at
the get go. But we're watching three the 3% drop
when it comes to oil markets. That certainly is one concern.
Obviously, the disappointment in rather industrial numbers out of China.
Also, U.S. inventories continue to swell.
So that certainly did lead to a drop. We're seeing that and watching very
closely what goes on with some of these China futures here today as well.
Dorian is 155, the new 152 for any sort of intervention risk here today.
We'll talk about what the lines are. We heard from the PBOC in just the last
couple of minutes and we're watching the chip sectors.
We talked about the TSMC earnings, but what we heard overnight was the ASML
results, Right. Orders basically took a dive here.
It seems like some of their customers, like TSMC, might be still working
through some of their inventory before actually going through some new orders.
So that certainly is roiling parts of the chip sector here today.
We saw the Philly semiconductor index falls with 3% overnight.
It's a mixed picture across Asia, chip makers here today as well.
But Dorsey as Heidi, just slightly declining.
Aventis is still doing quite well here today.
China futures are like this. So we're slightly on the back foot after
that rebound that we saw across Greater China stocks yesterday, 724 for China.
So the moves that we're seeing is interesting.
So obviously we talk about the PBOC with the fix and how they try to at least
dictate where the market goes. But these lines coming through are quite
rare from the central bank on WeChat talking about to prevent unilateral
consensus on the renminbi, also talking about not wanting the exchange rate to
overshoot. So potentially you could say it's a bit
of jawboning from the PBOC here today. They really don't want this trade to be
a one way bet, especially when you have a U.S.
dollar that seems to be on a rampage right now, or at least so holding on to
the gains. But we did see a bit of a drop there
overnight as well. Just what to watch, of course, those
tariffs that we just talked about. What happens to President Biden
considering, you know, anything on aluminum as well as steel, also this
probe on the shipbuilding industry. So we're watching some of these ship
makers, some of the miners here today as well.
Also, we're watching very closely that just below that 50 day moving average,
there's a safe press briefing happening, I believe, in this hour and some numbers
to tell you about. You know, whether it's a jobless rate or
the FDI data out of China. So certainly it's a bit of a quiet day
overall. But let's get to, of course, what we've
been hearing overnight with President Biden was at the U.S.
steel headquarters in Pittsburgh and he had some strong words on China.
They've got a population that is more people in retirement than working.
They're not they're not importing any. They're not bringing their.
They're xenophobic. No, nobody coming else coming in.
They've got real problems. I want to bring in my anchor buddy now,
our chief political correspondent, Stephen Engle joining me for the next 2
hours again today. And it seems like, you know, the
campaign rhetoric is on you speaking in these swing states that, you know,
supporting are still is very important, but the consideration of sort of tariffs
on Chinese steel, aluminum. How big of an impact do you think that's
going to have? Well, the analysts that we've spoken to
say it's going to be minimal impact, actually, because it's about $1.7
billion worth of U.S. exports from China.
China exports to the United States, a small sliver of the overall market.
So the economic impact will be minimal. But this is a political statement,
according to one analyst that we talked to.
And again, there's a lot to unpack with this Biden stump through Pennsylvania.
Because of the U.S. steel potential acquisition by Nippon
Steel, the Japanese. Biden saying it's not going to happen.
But again, he's kind of competing with Donald Trump on who's going to be
tougher on China. So a 25% tariff on steel from China.
Okay. Yes, that's that's a good headline
number. But is it going to be really have a
tangible impact? There's so many other things here as
well. As far as their probe into ship making.
China has come out and blasted that as well, saying that statement from Biden
was full of false accusations and based on the need of political domestic
purposes. So a lot to unpack and a lot to kind of
take with a grain of salt as well. Yeah, especially with the shipbuilding
probe as well. You know, the analysis from Barbie says
that, you know, it doesn't really stop that much from, you know, other you can
go through Japanese ships or other vessels to come to the U.S.
versus getting a fee with a Chinese ship.
So doesn't really actually help the U.S. ship building industry either.
So as you mentioned, it's more symbolism than anything.
Yeah. And keeping jobs in the United States.
That also does tie in to this Micron story as well, tied to the Chips and
Science Act. They're trying to, of course, keep
manufacturing or lure manufacturing back into the United States.
TSMC, of course, building factories in Arizona.
Micron has plans for four in New York as well as one in its home state of Idaho.
They are throwing $6 billion. We're going to talk about that more in
detail later. But again, he's on the political stump
right now in November is coming quickly. Yeah, okay.
Certainly that's got to be something that's a big focus for investors as well
as bring in our guest, Helen Joo, now managing director and CEO of Trinity.
It's good to see you, Helen. How are you looking at this U.S.
election and how this is going to play out across markets throughout the year?
Well, I think the election is definitely top of mind, and certainly most people
think that Trump is likely to win. So I would say that in terms of U.S.
assets, people are looking more short term.
They think that basically a lot of the pro-growth policies that Trump might
bring in, like extension of some of the household tax breaks that were
implemented in his prior administration, those are probably going to be more
positive for consumption services, etc., over the medium to longer term.
There might be some negatives in terms of geopolitics, tariffs, and certainly a
lot of uncertainties. Risk premium might go up globally, but
people are not thinking necessarily that far at the moment.
It's really just focusing on some of the fiscal benefits between the tax
extensions and maybe a little bit incrementally higher spending on things
like defense. Now, is the Biden administration picking
the right fights with China in your estimation?
I mean, there's overcapacity issues. What Janet Yellen came we're going to
get more rhetoric coming next week with Anthony Blinken is heading to China.
Now we have Biden essentially calling China xenophobic and also, you know,
raising the tariffs on steel. It's not as high, of course, is what
Trump is proposing of tariffs of up to 60%.
I mean, is this all noise to you who look at the numbers or is it does it
have a significance? Well, unlike the impact on the U.S.
market, where people are looking at the positives in the short term and kind of
just, you know, fading out the longer term potential uncertainties, I think,
for the rest of the world where they might actually be negatively impacted,
like China, for example. China assets are certainly reacting
negatively to a lot of these campaign slogans early on.
In terms of valuations, if not necessarily in terms of actual earnings
forecasts or GDP revisions already, I would say that it's something that's
very difficult to ignore for the time being because it is so frequently in the
news and it's going to be top of mind for the next 6 to 9 months.
So I wouldn't write it off, but a lot of it, like you said earlier, Steve, I
think is really symbolism, right? So, for example, not only is the steel
export tariff applying to a very tiny, tiny percentage of steel production in
China, but a lot of the earlier talk about EV tariffs into the U.S., I mean,
China barely exports any EVs into the U.S.
at all. So, you know, you can talk about it and
it's probably good for campaigning, but the actual fundamental impact is not
that big. Well, is.
They're overcapacity. You and I talked about it briefly.
I mean, we we talk about capacity utilization at factories overall is
about 73.6%, according to latest numbers, down from 75.9.
Does that indicate to you that there is overcapacity while there has been
overcapacity in the world and in China for quite some time?
So I think that's nothing new. And cyclically, if you actually look at
PMI's manufacturing industries, etc., over the last couple of years, whereas
consumption in services has been on a tear upward, you know, the rest of the
world in terms of manufacturing and PMI has been on a down cycle, right?
So utilization is naturally coming off. But as you mentioned, it's not falling
off a cliff. It's not going down by a huge number.
There is probably still too much investment globally and there's probably
going to be capacity utilization problems across the board in some
sectors in particular. But it's not something that can be
addressed or rectified, you know, within a short period of time anywhere.
Yeah, I want to get to the discussion of which is basically on the Fed and the
sort of the comments that we're heard from from Jay Powell over delaying rate
cuts from the central bank. I mean, it's basically pummel risk
assets here. Do you think that this is quite
problematic or do you think the market's just overreacting at this point?
I think the market's, you know, gotten very jittery.
And year to date, we've seen their rates moves being much more volatile than we
would have anticipated at the beginning of the year.
I think the Fed has made it very clear that the rate cut path is going to be
more dependent on inflation rather than purely on growth rate.
That's the more important of their dual mandates at the moment that they have to
focus on. In terms of the inflation number that
scared everybody and sent yields pretty massively over the last week is really
the transportation segment that beat in March.
And that breaks down to more auto insurance, which you know, is so obscure
and idiosyncratic and jumps so much during the month.
That is really very difficult to predict whether that sustains over the rest of
the year or not. If you recall, in January, the owners
equivalent rent had a big pop as well, but then that faded out very quickly
thereafter. So the market's getting very excited and
very concerned over one or two prints plus this geopolitical, you know,
intensification over the past few days. But really oil prices so high that I
don't think that there is going to be much further pressure from those because
once you hit 100, there's going to be demand destruction.
So maybe the market's overreacting a little bit.
And I actually think that the market now pricing in, you know, less than even 40
basis points of rate cuts this year maybe has overshot a bit to the opposite
side. Okay.
Okay. Do you think then how many I mean, how
many is it more realistic then? Could we still see rate cuts in the
second half and how many? Well, I mean, the Fed, you know, applied
at the end of March, is basically looking for still a little bit more than
that. Right.
Probably three cuts this year. And we've called at the beginning of the
year, people were looking for 160 basis points of rate cuts this year, far, far
more versus what the Fed was expecting. And now people have swung opposite to
the other side, saying that the Fed is totally wrong and there is not going to
be any rate cuts, all because of, you know, a couple of little data points on
the inflation side, some of which could be reporting or other type of
reconciliation anomalies. So I think it's a little bit too early
to jump to that conclusion. And the dollar has overshot as well on
the back of this and put significant pressure on emerging market Asian and
you know, basically all non dollar currency.
So I think probably over the next couple of months we have a little bit of a
normalization of expectations back closer to where the dot plot looked.
Does that put the whole U.S. exceptionalism case still intact then
for 2024? Well, I think personally, I believe that
the dollar is probably nearing the peak again in this mini cycle.
And I do think that will have a bit of a pull back.
I think the growth is still quite strong.
But if you actually look at the rest of the world that relies more on
manufacturing. PMI's You know, actually we start to see
an inflection in that since a couple of months ago, whether it's China, whether
it's U.K., Europe, excluding Germany, I think is creeping up a little bit.
So if the rest of the world starts to have better fundamental growth and
narrows the gap against the U.S., I think that might, you know, even things
out a little bit. And if the Fed path is not quite as
hawkish as what the market is forecasting today, I think that even
things out a little bit as well. So I think now is actually a pretty good
time to diversify your exposures away from just the U.S.
as the only game in town. Hmm.
All right, Helen, hold that thought. We have more from Helen and the first
half hour of the show here, managing director and CEO and of Trinity.
Of course, we're coming down the open of trade in Shanghai, Shenzhen and Hong
Kong. Futures looking like this here this
morning. It looks like we're watching very close
to that fix. Of course, on the back of those comments
from the PBOC. See, this is the China show. All right.
That fix just came through here and we're talking about something that is
steady this morning. So seven, ten, 20 or a third day.
We have seen it at that 710 level. And so, again, after easing the grip on
the renminbi earlier and we're not seeing a whole lot of movement when it
comes to China here this morning, At least the dollar has stabilized a bit as
well. We saw a bit of a drop overnight, too.
That certainly is having previously breathed some air this morning.
Let's get to our scoop now. Bloomberg has learned that U.S.
memory chip maker Micron is set to get more than $6 billion in grants from the
Commerce Department. Let's bring in Bloomberg's Mackenzie
Hawkins who broke this story for us. Mackenzie, great scoop.
First, tell us a little bit more about what you learned.
So Micron next week is going to become the seventh company to receive an award
from the CHIPS Act, which is Washington and the Biden administration, massive
program to bring semiconductor manufacturing back to the states.
Micron, the largest U.S. producer of computer memory chips, is
set to receive $6.1 billion in federal grants, as well as some loans also from
the CHIPS Act to support projects that it's building in New York and in Idaho.
So what does this mean necessarily for their other endeavors?
I know they still have ambitions in China and elsewhere, but for plants in
New York, one in Idaho is essentially this grant money in addition to maybe
some other in loans and loan guarantees from the Chips and Science Act.
Will that be specifically just for those U.S.
plants? Yes.
So all of the funding from the federal government for all of the CHIPS Act
awards is tied to specific projects. In Micron's case, this is actually going
to mean that of the four factories they're building in New York, there are
two. They're going to be starting production
in 2029 two, not until 2041. We are hearing that it's very likely
that their award is only going to fund the first two because the Commerce
Department wants to prioritize projects that are going to be up and running by
the end of the decade. And the firm, of course, has significant
international ambitions as well. That's a big part of the conversation
for Micron and its competitors, as governments around the globe are racing
to build out their semiconductor capacity.
And so a lot of the pressure on the Biden administration has been to get the
money out the door faster because Japan is doing this, the EU is doing this,
South Korea is doing this, the Middle East is getting into the game.
And so we've seen a real spate of major Chips ACT awards over the past month.
Micron will be the fourth award above $6 billion announced has been one a week.
We've been on a pretty quick cadence recently,
but keeping us really busy. All right.
Maybe we'll see you next week. Mackenzie, thanks so much for bringing
us the right to us. Katie Hawkins there, US industrial
policy reporter, joining us out of San Francisco with her scoop, focusing on
the chip sector as well. TSMC has been front and center expected
to report a rebound in earnings growth later on today after demand for air
chips helped propel its bottom line. Let's bring in our senior analyst for
Bloomberg Intelligence, Robert Li. He's with us now.
What are you sweating on at TSMC today? Okay.
As you're aware, Taiwanese companies report monthly sales.
So we've already seen the sales numbers for January, March, hang on, get my
dates right for every month. So the Q1 sales came just above the
midrange and. Okay.
So that's that's an initial good sign, isn't it.
Clearly driven by a I, although we like the detail at the moment.
So I think the expectations going into the numbers which will be reported after
the market closes today are quite high. However, you know, we've seen the
weakness, incremental weakness coming through from Apple, TSMC have never
disclosed exactly what percentage of sales come from Apple.
But on our best estimates, it's roughly 20 to 25% of revenue.
So it's quite a big portion of revenue. Sorry, comes from Apple.
So that's one question mark. Second question mark is you may have
seen the overnight news on ASML, saw ASML, EUV orders came in below
expectations. So whilst that would have no impact
whatsoever on TSMC coming quarters, is that a sign of, you know, incremental
caution coming in in future quarters? Well, is that a big issue?
Obviously, I mean, the EUV equipment from ASML doesn't go into China anyway,
right? There's the extreme ultraviolet
machinery. But how does it basically reflect that,
you know, Taiwan chip makers, they're working off their inventories?
Yes, I think it really has no bearing on either TSMC or the industry for this
year, given how full their order books are at the moment.
But it is a forward looking indicator and may have some implication as to
what's going on, you know, into 2025. But as we know, the whole the story's
being driven by you know, I mentioned a couple of cautious things there on
Apple, etc.. But clearly in video and AI is what's
driving the story. So I think overall the numbers, you
know, should be fairly decent, but also the expectations are very high.
So I think if the outlook and the guidance for the company doesn't quite
meet or beat, more importantly, these very high expectations given the stock
is trading at quite an interesting technical level.
Then given a backdrop of weakness we saw in the markets in recent days and
overnight, then, you know, we may not get another leg up.
We'll have to wait and see. All right.
We'll bring intelligence, Robert Lee, on everything when it comes to chips and,
of course, TSMC, what to expect later on this afternoon.
Still with us is Helen Zhou, managing director and CEO of NF Trinity.
You know, obviously, as we're still that big crazy story, but the tech cycle
seems to be bottoming out in Asia as well.
I'm just wondering, you know, context will be a big leader in markets this
year. I think the tech has been really driven
by the Hey I story. And last year originally we looked at
really just the Nvidia's the pure play is performing well and then later on in
the year as those really took off, then a lot of the peripheral names that are
maybe just, you know, minorly exposed to Acer to catch up in a pretty significant
way. And now I think those have gone up quite
a lot as well. And expectations, earnings forecasts,
etc. have all been revised up pretty
tremendously. So I think you're going to have a lot
more dispersion. Yeah, In terms of return, it's not like
everybody in the entire space is going up together and to their historical peak
multiples. The other thing I think people have to
watch is, you know, if a company is really only 10% or 20% exposed to AI,
does that eight part continue to beat expectations?
And can you actually see that the 20% becomes 50% or 80% if it doesn't happen
or a particular company is not gaining that much share?
Or maybe the take up is slightly slower versus already lofty expectations after
a whole year of upward revisions, then we might actually start to see some
misses and profit taking. You know, more on D rating and valuation
hit than anything else. All right.
Helena moore for Helena, you're there. And as the Trinity managing director and
CEO, futures are pointing slightly negative here this morning when it comes
to China, we're down about a quarter of 1%.
We're watching very closely some of those lines from the PBOC as well.
Seems to be doing its job right now and try to at least stem some of the clients
and the currency, too. We've got plenty more ahead.
This is Bloomberg. All right.
It's a pretty slow start when it comes to the free market.
Hong Kong were flat on that benchmark. Just take a slightly on offer here
today. So are eight shares at 724 for your
dollar China trade this morning. In terms of analyst actions to tell you
about there's a bit of a calls here when it comes to Lenovo that's raised to a by
a DBS bank with a price target of $10. Guotai Junan securities are focusing on
some of these brokerages as well. Just give us some of the news flow
Asia's raised to buy also at DBS. And we're watching the luxury sector as
well as Prada raised to it add at alpha value better as well.
So that's one to watch here. In terms of stocks this morning, we're
focusing on the one, the chips, as we talked about.
So when it comes to the CapEx outlook, when it comes to some of the sales and
all that we're watching very closely, TSMC, it seems like right now we're
still seeing a pretty mixed picture across some of these Chinese chip makers
as well as a mix. Doing okay is empty though, is slightly
lower by also watching what goes on after those disappointing results from
ASML as well. Steel aluminum producer is certainly one
we're watching as well, just given just what we've been hearing on potential
tariffs that the U.S. is considering here as well, not a whole
lot movement, but Chalco, there you go. As well as Hangzhou are down about more
than 1% this morning. And we're watching some of these casino
operators in particular when it comes to Sands, China.
We did get some disappointing results when it comes to Las Vegas sands.
Overnight. They did talk about maybe there might be
a slow recovery in Macau. Of course, they've been dealing with a
lot of renovations and the like there, but not much room in the stock here this
morning as well. So certainly there's it's pretty quiet
overall, if you could say. So you can take a look at the renminbi.
That certainly is still going to be the big focus here.
So a third straight day that we actually have seen that fixing above 710.
So the PBA is certainly sending those messages in the last few minutes about,
you know, they don't want the currency to overshoot.
They're watching that. There's not just a consensus sort of way
of looking at the currency. So certainly that's helped stabilize
China dollar. China at 724 this morning.
The open is next. This is Bloomberg. While the macro watching the China show
working down the opens of markets in Greater China.
And we continue to see a pretty slow going day on this Thursday morning.
Futures are slightly in the back foot here, but we're flat when it comes to
the housing market and China still to be very much in focus.
Looks like we're taking a bit of a breather here today amidst what we've
been talking about. The dollar also taking this rally, also
hit the pause button overnight as well, just given the fact that we've moved
away a little bit from some of the Jay Powell comments and concerns about
higher for longer the like here. So Treasury markets are slightly bit up
here this morning. That certainly helped link some of those
other bond markets here this morning as well.
Tech very much in focus, though, because despite yields ticking lower across the
board, tech did have a massive sell off in the U.S.
overnight. It doesn't seem like we're seeing that
quite follow through here in the Asia session.
If you take a look at some of these markets, like the costly, they're still
doing quite well, rebounding here today as well.
So here's your open right now and we're slightly seeing some declines when it
comes to the onshore market. The CSI 300, we're seeing declines about
4/10 of 1%. Hang Seng is is pretty much flat.
It just tech is on offer. We talked about TSMC.
That's certainly going to be the key sort of next big thing to watch among
the chips here today and watching still very closely those small cap stocks.
So we saw a surge yesterday on the back of some of these comment on the CCRC.
It looks like we're back seeing some just some declines here this morning.
We're talking about 226, four year Chinese ten year yield some
stabilization. The currency, Shanghai crude.
There you go. That's where we're seeing that drop of
close to 3%, mirroring what we saw when it comes to Brent and WTI overnight.
Obviously, the concerns and some disappointment on some of the data out
of China on March activity numbers, also excess inventories in the U.S.
So that certainly didn't leave the markets ago or at least oil markets to
go down this morning. Iron ore, though, still catching a
slight bid as well when it comes to dollar futures.
And what you're seeing on the bottom of your screen is some of those job numbers
out of Australia. We'll get to that in a minute.
And take a look at the chip makers, though, just given what we talked about
with TSMC earnings coming up. Then you got ASML News as well.
There you go. You see broad declines for the most part
here. Steady optical tech that's down some 2%
this morning. Yahoo!
Semi also down close to 1%. And we've talked about, you know, these
tariffs that President Biden is proposing when it comes to Chinese steel
and aluminum is probe into Chinese shipbuilding as well.
While we're seeing a mixed picture across some of these shipbuilders as
well. But aluminum producers like Calico, for
example, CSC Holdings is down by about 1 to 2% here right now.
All right. That Aussie job number coming through at
the bottom of your screen there. So you're basically seeing a slightly
improving numbers from the jobless rate. So at least 3.8%, which is a better than
expected there of a 3.9% was the survey. And we're also watching when it comes to
the job gains. So basically a job actually actually
fell, Job gains actually fell, I should say, to that number on your screen
there. So we're seeing a little bit of drop on
the Aussie here this morning. Not a huge movement when it comes to the
Australia stocks, though. Still with us is Helen Joo, managing
director and CEO and of Trinity. We haven't talked too much about China.
The currency certainly is very much in focus.
Are we talking about, you know, a higher trading range now for dollar China just
given the moves we've seen in the dollar?
Well, I think whether it's China or Korea or Japan or Taiwan, a lot of the
moves recently, year to date have been driven more by the dollar than about the
local currency in terms of local economy, local central bank decisions,
etc.. And actually, if you look at the R&B
year to date, you know, it's depreciated, but we're talking about a
couple of percentage points versus a lot of these other Asian currencies are down
high single digit. So the PBOC has been working pretty hard
to stabilize the two way expectation already as it is and like it is for
China, like it is for a lot of these other countries, it's going to be more
about the dollar for the near term. What do you think of the acceptable pace
of depreciation against the dollar is? Because of course a weaker currency
could help with the recovery, but at the same time, they don't want to have
market volatility. They definitely don't want outflows.
Yeah, I think at this point when the dollar has popped so sharply and
abruptly within a short period of time that you do see more intervention coming
from the PBOC. See just like we're suspecting some
intervention probably from the BOJ as well, I think they are willing to let it
depreciate a little bit more, but they don't want to do it in a defensive
manner. They don't want to do it in a very
surprised and very jerky manner. So some measured and calculated
depreciation is acceptable given that the R&B hasn't depreciated so much.
But just don't let it be too, you know, on the defense.
Not a one off like 2015, definitely not. That would not be what we need right now
in terms of confidence and predictability.
What about when it comes to CVS? I mean, we talk about that record gap
between the US and China here right now. Is there more room for for yields to
head lower than there were there they are now?
Yeah. I mean, historically, you know, CDB
yields used to be higher than the U.S. for many years.
Right? And now the gap has widened by more than
a hundred basis points. Year to date.
The KDB has gone from 2.6 to like 2.2 handle.
So it's been a very abrupt move just beginning of the year until now.
I think that I. Surely there is some room for the KGB
deal to recover, largely because if you look at the data, right, the cyclical
aspect has somewhat obtained a landing. Manufacturing, FAA, infrastructure, FAA
are holding in. Okay.
Property is still, you know, down but not down as much as last year.
Exports still somewhat intact, etc.. And you actually see a lot of major
houses revising up their China GDP forecast for this year, maybe by 2030
basis points to closer to 5%. So if that cyclical landing does happen,
then we think that we could, you know, stage a mild recovery to like mid twos
and that will actually take off some of the depreciation pressure as well and
could really benefit some of the financial sectors that have performed
very poorly this year because of that. Well, that leads to where is the best
place to find yield in China as an investor right now?
Because the GDP read was hotter than expected at 5.3%.
But much of that growth was coming in the first two months of the year.
Those March numbers you mentioned, given they started coming down and retail
sales, industrial production. So it's not clear whether that is
sustainable. Where do where's the best yield right
now in China? Well, I think there is definitely some
degree of, you know, restocking, destocking, short term cycles going on.
I think if this global Cami pick up that we talked about earlier does happen,
that's going to be very positive for exporters as a whole.
So that includes, you know, the likes of China, Japan, Korea, with Asia as an
example. We think that in terms of where to
position sector wise within China, we still like a lot of the eight or 9%
dividend yielding very stable macro and sensitive sectors like the telecom
sector that has already performed quite well.
Financials, I think has been really compressed because of the CDP yield
collapse year to date insurance in particular.
Any kind of inflection there I think could be a high beta recovery
beneficiary. And I think some elements of Internet as
well, companies that used to have growth trading at higher multiples now kind of
degraded to mid-single digit PE or maybe mid to high single digit PE because
people expect no growth or maybe even declines, any kind of incremental
acceleration on that front as the economy lands, I think could help on the
rerating front as well. The next catalyst seems to be everyone
talked about the third Plenum. What are you expecting out of that?
Are we likely to see any more sort of policy in terms of stimulus or any sort
of maybe even market reforms, which seems to be a big topic these days as
well? I think the expectation towards the
third plenum is minimal. Nobody's really talking about nobody.
Nobody knows what to expect and therefore it's definitely not priced in,
but it has to happen sometime within this year.
The thing to look for is really structural reforms and not just cyclical
measures by cyclical measures have been coming for quite some time.
But to the extent that there are any structural reforms that kind of address
the things that people are most worried about, you know, LGM fees and leverage
and property sector and demographics, any kind of surprises on that front or
capital markets reforms, for example, I think could be very positive towards a
structural rerating story. So last year China was all about
deflation, about de-risking, about deleveraging and therefore valuations.
The rating pretty painfully this year. If there is some reform, some reflation,
then I think that will help. In terms of the overall medium term
rerating story, where's the reflation going to come?
Because again, property market has been decimated so much and they also on the
flip side of that, don't want to exacerbate the fiscal problems while we
look at and assuming that prices, you know, stay where they are at the moment
by the middle of this year, that people will already start to turn positive year
on year just because of base effects. And CPI, I think has some room to
improve in the second half of this year as well.
And last year for the CPI, a lot of it was really coming from very low pork and
hog prices and agricultural things that had their own mini cycle that are
somewhat unrelated. So I think just getting rid of some of
that already helps quite a lot. In terms of the headline numbers,
actually, if you look at volumes and core, it hasn't been so deflationary is
just the headline which, you know, weighs on sentiment a lot more and is
attracting a lot more attention. That has looked a lot worse in terms of
deflationary pressures. Yeah, there's a lot of talk about these
market reforms, whether it's about, you know, taking out some of these zombie
companies and really more, you know, tighter supervision of this market.
Does that only really benefit the large caps, do you think, or including
certainly a big sell off in some of the small caps?
Hopefully it can benefit the small caps as well, but I think it varies a great
deal. Which sector, right.
Clearly in an economic down cycle when things are not doing so well, a lot of
small caps with weaker balance sheets, lower market share, maybe less
investment in R&D over the medium to longer term, you know, they could suffer
a lot more. So that's part of the reason why they
fundamentally have not been performing as well.
But I think the government also wants a group, a new group, a group, a new group
of small caps and mid-caps and up and coming entrepreneurs.
Potentially a new sector is that weren't necessarily, you know, listed five or
ten or 15 years ago. So I think there definitely a lot of
innovation, a lot of new promise to watch out for as well.
All right, Helen, great to have you here this hour.
Helen Zhu, managing director and CIO at Ninth and Trinity.
Coming up, we'll have more on U.S. and European complaints about China's
production capacity as President Xi pushes back.
We're talking more about the overcapacity concerns.
Is there really overcapacity? Zhang Gong from the University of
International Business at. Economics professor joining us next.
This is Bloomberg. Well, Digital asset platform Grayscale
says it's looking to ride the recent rally in crypto markets as the US spot
Bitcoin ideas attract more attention. CEO Michael Sonenshine spoke to us
exclusively, where the company's plans to expand its product offerings.
Bob Bitcoin ETFs in the US were only introduced at the very, very beginning
of the year. And so in the crypto world, you know,
what is about three and a half months is in the real world about a full year of
time. So it feels like they've been around for
quite some time, but it's actually still a very new market.
When we think about who is involved in Bitcoin ETF today, it's still a
relatively small audience. And so I think we're just at the end of
that first phase of adoption before we start to see Bitcoin ETFs being adopted
into model portfolios, making their way onto wealth management platforms and
ultimately being made available to a wider audience of investors
and to reach that audience. What are you offering to compete with
your rivals? When do you expect your fees to come
down? Because if I'm right that some of the
highest yeah, well so the grayscale Bitcoin
Trust ticker Gbtc is the world's largest Bitcoin ETF and we've been around since
2013. When I look at how the product has
matured over time for many investors, it's been a fantastic investment.
It's returned over 49,000% since inception, making it the best performing
publicly traded investment product. But our focus of grayscale isn't just
stopping with Gbtc, it's about continuing to expand our product family.
We recently filed for the introduction of another spot Bitcoin ETF, the
grayscale Bitcoin Trust. So pending regulatory approvals, we'll
be able to have multiple products and markets to allow really investors to
meet them where they are in their crypto journey and ultimately have different
products for different investors with different strategies.
And that was the grayscale CEO, Michael Sonenshine, speaking to Bloomberg's
Lizzie Verdin. Let's get back to our top story now.
President Biden saying the U.S. may impose tariffs on Chinese steel and
aluminum. And he was speaking on the campaign
trail in Pennsylvania. Look, right now, my U.S.
trade representative is investigating trade practices by the Chinese
government regarding steel and aluminum. If that investment confirms these
anti-competitive trade practices, then I'm calling on her to consider tripling
the tariff rates for both steel and aluminum for some time. President Xi Jinping is pushing back
against that claim. So media reports that she is saying to
the visit the visiting German chancellor this week that China's export of EVs,
lithium batteries and solar products have enriched supplies to the global
market and eased inflation pressure as well as made a great contribution for
global efforts to tackle climate change and green transition.
Joining us now from Beijing is John Gall.
He's a professor at the University of International Business and Economics.
John, it's always great to have you back on the program.
Yeah, when it comes to this whole overcapacity issue in China, how big a
problem do you think it is? Is there?
Where are we seeing that overcapacity, John?
Well, I think it's a more nuanced picture at that level as you look at the
total capacity utilization. China's utilization level is actually on
the far western United States and as well as the European Union, about
between 70 to 80% overall manufacturing sector.
But I think there are some old industries, we call it in a
sort of like a sun setting, which is like steel, aluminum, cement, for
example. These are images through display
capacity, you know, very much due to the slowdown of the real estate sector.
But in these sunrise industries, especially, you know, in the in the
alternative energy industry, it's related to the climate agenda is
absolutely no actual capacity at all. Let me give you an example.
There's a new company here in China entering the auto market that show me if
I go to forget about it. It's a big company in a handset
business. They build their new car as you seven
about two or three weeks ago. And the car was you know, they sold
about 80,000 new cars within one hour in that in that debut ceremony.
I mean, 80,000 cars within an hour, an hour and a half.
I mean, that's not excess capacity to me.
Yeah. You have a picture that I have you
seven. That's the that's the car talking about
an 80,000 cost deal I want to have. You know, I just don't think that this
is crazy at all. Another example also mentioned in Janet
Yellen's visit to China. That is the solar panel industry.
Know, I think this is also a great industry that I don't believe this
really excess capacity. I mean,
and I think President Xi mentioned, you know, the contribution to that to the
climate agenda. This is actually true.
You know, the price of solar panels when it was invented in 1975 was just under
$100 per watt. Right now, $0.40 per watt.
Right. I mean, this relentless price decline
created a lot of opportunities for people, you know, in Africa, in the
media these days on silent, who never have access to electricity.
I think, you know, it's it's a more nuanced picture.
And we have to look at it being a captive way on a case by case basis.
Dr. Gong Stephen Engle here, I think what
you're talking about, that demand equation versus excess capacity in these
new industries that Xi Jinping has really been pushing the new three EVs
batteries and solar panels. I think what factory utilization rates
is much higher than what we saw in the first quarter.
Overall, that was 73.6%. I think we're upwards in the 90 plus for
those new, as you said, sunrise industries.
But I think when Janet Yellen came here and talked about overcapacity, the side
argument is that there's unfair subsidies being given to these priority
industries. Is that the case from your vantage
point, that they're getting too much subsidies, unfair subsidies from the
government? Well, we have to be very careful about
what subsidies we're talking about. There are subsidies related to
development of industry, and it was in India in the product development stage.
And on this stage, these kind of subsidies are offered by many countries.
I mean, United States, the same thing. Know, state governments provide
incentives to attract companies to be located in their regions.
This kind of a subsidy is actually not against the law at the WTO.
What the WTO Treaty on Anti-Dumping and Countervailing Treaties is about is is
so export specific subsidies. The other ones we ask this question, if,
you know, electric cars sold in European Union's market business are here in
China, is that a big cost? Is that a price difference?
It's cost, but they are much, much cheaper.
I don't see that at all. Actually, it's the opposite is true
right now when it comes to electric cars in the United States.
I really believe this is a lot to do with presidential election politics.
There's no electric offspring, sorry, not coming from China or from Chinese
companies manufacture these cars in Mexico at all.
I really don't see, you know, the Chinese cars made in Mexico crossing the
Rio Grande at all. So but there are batteries.
I think there are batteries coming through Mexico, at least five.
That I agree that this might be the case, but for the most part, I really
think Secretary Raimondo and Yellen were all talking about autoworkers in
Michigan. And we all understand how important the
state of Michigan is in this presidential election.
So we're seeing these two sides basically a different arguments.
However, where you kind of look at it, what how does this all unfold that,
John, I'm just wondering, does this just strengthen the case for for more
de-risking and globalization in the global economy?
You know, how do you see this all sort of playing out?
I don't know. The way I see it is that, you know, the
automobile industry is really very important to the European Union, to the
American market, because the auto industry is Monica is an economic
problem. It's a political issue.
It involves too many companies involved, too many too much in employment.
And I think, you know, the issue really is about making a balance not to
destroy, say, American jobs, to weaken jobs.
So that's why I think this is an issue that can really be negotiated by the two
sides. As a matter of fact, China's secretary
of commerce, I mean, what we can. Yeah, we've got Minister of commerce
went to the European Union a few days ago to negotiate with the European Union
Authority in this regard and talking about Chinese companies establishing
manufacturing in Europe. And I think that's probably the right
solution. The auto industry, the entire auto
industry in the world is undergoing a big transformation in that
transformation. You know, there are going to be losers
and Windows and some companies will be gone.
And the tire, you know, the manufacturing model would be changed to
an electric car. All right.
So at this point, I think several Chinese companies are standing at the
forefront and they are trying to make investments.
And I think the issue is, you know, how do you actually make that happen?
Chinese companies establishing manufacturing
in Europe is an example. I would hope that the one Chinese
companies plans changed from establishing a factory in Hungary to
slag. And I think there's a firm reason behind
this because the Renault and Volkswagen has extensive manufacturing operations
in Spain and the Spanish the Spanish government has a concern about jobs in
Spain. And now there's a Chinese company going
to Spain to to create these jobs. John, we're going to leave it there.
But thank you so much, John Gong there, professor at University of International
Business and Economics joining us. We got plenty more ahead.
This is Bloomberg. All right.
Check out some of the movers here this morning.
When it comes to the home side, we actually are seeing for the most part,
mostly up 45 off, 34 down here this morning.
And so it's a pretty kind of split picture here on what's really driving
this market. But overall, it's been pretty quiet.
We're watching some, of course, these aluminum makers, these steel makers,
these shipbuilders in China. Hangzhou is going to be the one that is
actually selling off here today. On the back of that, news of potential
tariffs from the U.S. are down to a three and a half percent
or more. Petro China really down following that
oil price and that steep drop that we saw when it comes to not just oil
futures in China, but also WTI and Brent, as well as more than a 3% drop,
which we're holding on to those losses here this morning.
The tech players are also on offer, sort of following what we saw in the US as
well. JD Icahn may want or seem to be kind of
the losers here on the board and we're watching very closely what's been going
on and driving the gains here. You know, the likes of some of these
insurers are doing okay. I should note International Group is the
clear outperformer. They were up about three and a half
percent. And of your global macro movers here
today, it's not a clear sort of sign, but at least you're seeing a little bit
of recovery when it comes to these equity markets here today.
So you look at Singapore, Korea, you look at the you know, they have a pickup
as well, are seeing gains of more than 1% taiex.
So we're slightly on the downside here. We're still waiting those TSMC earnings
coming out here as well. And Asia affects relatively speaking,
we're doing a little bit better. So the one's recovering a bit for
another day. Peso is still holding near that 57 level
Thai baht, though. That's what we want to focus here as
well. Slightly still seeing that weakening
here today. And sovereign bonds, for the most part,
are catching a bear with the exception of Indonesia.
But you take a look at when it comes to what the Aussie ten year yield, we're
down some six basis points, are really continuing this trend that we've been
seeing across treasuries here this morning.
Coming out of the next hour, we're going to talk Asian economies with Nomura's
voters in India prepare to head to the polls.
And with Prime Minister Narendra modi looking for a third term in power,
putting more. Welcome back to The Shadow show.
Here's a look at the CSI 300 here this morning.
We're seeing some broad, I guess, moderate declines across the board here,
down about a fifth of 1%. But overall, it's a mixed picture.
Hong Kong doing a little bit better than the onshore market here this morning
with the Hang Seng is seeing gains about just half of 1%, where we talk about how
quiet it is out there here today. But at least we stepped away from some
of the Fed narrative and really focusing a bit more on earnings and the like
here. So TSMC certainly is front and center
here. A little bit later on, US futures are
punching a little bit higher, so at least maybe that bodes well for the US
session a little bit later on. And we're seeing a bit of recovery in
tech, heavy benchmarks like the Cosby here today as well.
We're seeing gains about 1% in Seoul, ASX 200 also catching a slight bit.
Brent, markets are certainly in focus. We're still extending those or at least
recovering a bit after that steep drop yesterday.
Brent crude now 87 bucks as well. We're certainly seeing that across the
China futures here. Iron ore is flat this morning and yields
are overall just slightly on the downside here today.
So we're holding on to some of the gains that we saw when it comes to treasuries.
That new two year yield is now at 4.91%. That U.S.
ten year yield just holding around that four and a half percent level.
So you got to wonder how we reach the peak for at least a dollar as well as
yields for the year. That certainly is what held you from
above 20 seems to have suggested here as well.
But then again, we're still seeing some recovery in yen, but we're still talking
about 154 territory for dollar yen. We've also heard from some pushback or
at least jawboning from the PBOC this morning as well, talking about they
don't want to overshoot when it comes to exchange rate.
They don't want this to be a one way bet as well.
So that's helping at least some stabilize the currency a bit.
But we did see a third straight day of that PBOC fixing above that 710 level.
So we're trading around just below that seven 2035 head this morning as well.
But we talked about the recovery in the wine, even the rupiah just opening up
here as well. So a little bit of strength coming
through and a recovery today in terms of movers, It's the oil plays just given
that drop in oil overnight. So you're watching the likes of Sinopec
Clean up, which are some of the bigger losers on the board here in Hong Kong
today, China, Hong Kong also watching some of these aluminum producers as
well, just given the threat of tariffs on the US as well from President Biden
while he as he continues on the campaign trail, we're down some 4% for home
channel here today. That is the biggest loser here in Hong
Kong. And some of these banks and financials
are still doing quite well as you see the light up some 1% here this morning.
We're tracking treasuries as well. We talked about how, you know, it seems
like we stepped off at 5% level in the two year.
So at 491 here right now and yields overall here in Asia also following what
we're seeing that move in treasuries here.
So it seems like right now we're focusing a little bit more on earnings,
earnings, earnings, maybe more on the fundamentals than what we're really
hearing from the Fed of late here. We're also talking about Tick-Tock.
So it seems like, you know, obviously this whole concern about being divested
and the like, what we're hearing a little bit more from the company now
saying that this bill, which basically is going to go through in the next few
days or so, along with this aid package to Ukraine and the like, it looks like
it could actually pass through. So that's how we're hearing from the
company potentially here, saying that this bill could trample free speech
rights of Americans. And that was these comments here on that
proposed U.S. House bill.
We're hearing the company talk on ABC's This Morning.
Steve Yeah, that's right. And it looks as though, you know, this
could be fast tracked through Congress. Mike Johnson, this House speaker plans
to include tick tock divestiture legislation already passed by the House
in a fast moving aid package for Ukraine and Israel, and that the chamber is set
to be clear by Saturday. And President Biden speaking Wednesday,
also said he would sign it immediately. So this could be happening really
quickly. Yeah, certainly that could be very
interesting here as we are seeing a little bit more movement when it comes
to that law as well. We're also watching very closely what
goes on. I mean, are we still talking about the
currency here today? I mean, what do you think is still top
of mind to you today? Steve?
Yeah, I think obviously with the a little bit of jawboning coming from the
BBC, they're wary of the weakness in the in the renminbi overshooting.
And again, that could help. Obviously a weaker yuan could help the
recovery in. We're going to be watching that.
It was a great conversation just now with with Jon Gong about overcapacity.
He's where is the overcapacity? Maybe you're seeing it in these old
traditional sectors like steel. And that is something that we talked
about a lot at the National People's Congress with the finance minister and
the National Development and Reform Commission talking about there's going
to be overall fiscal belt tightening across the ministries and the
departments in China and in the central government as a whole.
But those key industries, those sunrise industries that John, Professor Gong
talked about, we're talking EVs, batteries, solar and the like.
They're going to be forcing not forcing, but encouraging the provinces and those
makers of those Sunrise industries to invest more while other, more
traditional industries that are seeing overcapacity are going to see some belt
tightening. So he was talking about EVs in
particular does not have overcapacity. There's more demand than the factories
can pump out right now. Yeah, certainly.
It's interesting when you talk about subsidies, though, right?
He says that might be a different way of looking at things.
Absolutely. And getting a few more lines crossing
here, obviously, with what we heard from Biden about this whole merger between
U.S. Steel and Nippon Steel and how he's
still kind of reiterating that he wants this to be owned by a U.S.
company. We're hearing more from the company here
this morning from Nippon Steel, and they're saying they're trying to at
least clarify a little bit, saying that U.S.
Steel's name to be unchanged after this deal.
So it will stay as U.S. Steel.
There'll be no plant closures and jobs to stay in the U.S.
So at least allaying some of those concerns among those swing states like
Pennsylvania, like Ohio, which, you know, are looking very closely at this
deal and hoping that those jobs stay in America.
The union is against it completely, keep in mind.
And that's why Biden was there. So more maybe a bit more clarification
from Nippon this morning. All right.
We'll talk a little more about that. And geopolitics still have the Chinese
show look ahead to TSMC earnings due later on today with analysts expecting a
rebound in growth and investors paying close attention to his CapEx plans as
well. This is Bloomberg. All right.
Some of your North Asia is doing this here this morning, seeing some, broadly
speaking, a bit of a rally here, at least in saying, as was the cost.
We are standing out here today onshore, though we're pretty much flat in
Shanghai, The CSI 300 for more or less bring in Garfield Reynolds who leads Our
mark is live Asia coverage for us. And Garfield we're still talking about,
you know, the volatility that we're seeing across markets, at least for a
bit of a breather here today. But what where are those dollar bears
now at the moment? The Dollar Bears.
I think they're probably in hibernation or at the very least, you know, licking
their wounds. And to some extent they might have some
reasons to feel a bit aggrieved by what's going on with the Fed.
The Fed coming out with that guidance at the end of last year for three rate cuts
sticking to it, even in the face of the early going as as markets were were
starting to signal that maybe three might not be doable.
And so then finally, we had Powell capitulating this week to the idea that
they might have to delay rate cuts further.
He didn't specifically say they wouldn't cut three times, but he certainly
endorsed the moves that were going on in fixed income markets to say that, you
know, we'll be lucky to get two, we'll probably get one.
And that kind of a backdrop and what is driving it, which is the extreme
resilience of the US economy and of the inflationary impulse there, That's
that's driven the dollar higher against every currency.
Even when you had the PBOC trying to hold back the declines in the yuan.
You have concerns in Japan and Korea about their currencies.
It's still hard to see the dollar turning downwards in a sustained way
from here. So Garfield Stephen Engle here obviously
is central banks in this part of the world are trying to do what they can if
they can do anything with that dollar strength as it relates to their
currencies. Finance Ministry hasn't jumped in yet in
Japan, but we did see PBOC sort of jawboning a little bit and saying
they're not going to necessary. Are they're concerned by the
overshooting weakness in the yuan. What do you think there will be more a
concerted effort by central banks in this part of the world given that that
timeline of dollar strength seems to be extended even further?
Yeah, it's very difficult for them because the fundamentals are operating
so strongly against them. And I think that's why we haven't seen
the Ministry of Finance come in in Japan.
They might be looking for an opportunity at some stage.
If we do get a win back in the drivers of dollar strength, the more likely
outcome is actually that we're going to get a harsher rates
situation in Asia. There's a lot of expectations.
The Bank of Indonesia will hike next week.
There's a lot less anticipation that places like
Australia and New Zealand will move towards rate cuts, even when in New
Zealand's case they've got a double dip recession and there's going to be an
enormous amount of focus all next week on what could come out of the Bank of
Japan meeting after the March meeting when White House said, Yeah, we've
gotten rid of negative rates but don't expect us to move towards rapid hikes.
A lot of people have thought, okay, we can wait until June to worry about what
the BOJ is doing, but now next week's meeting is seen as being live.
So that's going to extend that volatility potential for currencies
across Asia in this situation. Garfield.
Thank you. Garfield Reynolds there who leads our
Markets live Asia coverage as well. And as we step back away from the dark
side of things and look at earnings, TSMC is certainly going be front and
center, expected to report a rebound in earnings growth after demand for A.I.
chips helped propel its bottom line. Let's go to Jane Leahy.
She's our Asia technology reporter. She's with us here this morning.
Jane, you know, obviously with TSMC earnings, I mean, after what we heard
from ASML and the disappointment there about new orders and that surprising
drop that we saw. Is that likely to be bad news for TSMC?
Well, that's what investors are going to be looking out for.
I mean, ASML, they make EUV. These are the high end, you know, very,
very expensive. Well over $300 million giant machines
that make the most advanced chips. TSMC, of course, is one of the few very
important customers for this machine. And so the question is, does this mean
that Tsmc's outlook for the chip market, especially on the advanced nodes, is not
going to be as good as we expected? And so that's one of the key things
we'll be watching for yesterday at Smell's earnings.
When we looked at their sales and the booking numbers, Taiwan only made up
four 6%, which was a big drop from previous quarters.
So that will be front and center, I think, today during their earnings.
Jane, how closely are we going to be looking at CapEx, any kind of visibility
on going forward, the spending? And that will give us clues as well as
how long this chip cycle is going to last.
Yeah, that's right. And we're going to be looking for, you
know, how what kind of other demand are we going to see?
And I is the cake are going to change for the growth outlook for that market.
I don't think it will, but investors are going to be watching that.
You know, TSMC 25% of its sales last year still came from the iPhone.
So how is that going to balance out considering Apple had the quite
weak numbers coming out of its China sales, not Apple itself, but various
other sort of data that that we've seen? And so the question is going to be, is
the market strong enough to drive the earnings going forward when iPhone
sales look not so great? JAY Thank you, John.
Luckily, they're joining us from our Taipei bureau.
You can also turn to your blueberry for more on this.
Go to t live. Go to get commentary analysis from our
expert editors. Once we do hear from TSMC and those
results of that call that goes on there on today.
We're staying on tech now so long. China's goals is of course within the
chip sector is self-sufficiency. We've heard from the Chinese government
they're trying to push to foster more high tech and innovation as well.
There's been a pretty interesting report from the economics of over intelligence
that say that those high tech hopes do raise some trade blowback.
So let's bring in our chief Asia economist, Chang.
She joins us now. You've been crunching the numbers for
us. Is Beijing's high tech strategy working?
It appears to be working out some kind of early results.
Seems to be suggesting that we know the government wants to push their high tech
advances for very important strategic purposes.
We just talk about on the day supply chain independence.
China certainly wants to improve that and the property market is now doing
great. And and certainly government wants to
navigate the economy away from the property driven and purposes growth.
We what we see is that the growth in the high tech sector has been very rapid
since 2017. The growth averaged 12 12% each year and
that's outpacing the overall growth of the economy at this point.
The the high tech sector is accounting for around 15% of GDP.
That's quite considerable improvement compared to only a few years ago from
below 10%. And going forward, we can see the figure
going even higher, the share going up even higher.
The focus would be 19% by 2026 or thereabouts.
I believe so. But with success comes greater pressure.
And obviously in industries like EVs, where China is obviously selling at a
lower cost and also the innovation has been quite good, there's going to be
blowback. The more successful China is in tech,
there's going to be blowback from established tech powers like the United
States and Europe. Look, Europe is about to potentially put
those tariffs on imports into the European Union.
So how does China navigate those political blowback?
Yeah, certainly it's going to be very challenging.
And you you highlighted the extent, though, such a constraints as a way and
a blowback in trade and also the US and its allies quite targeted measures
towards China's high tech sector. Those are going to kind of slow down the
progress, I'm pretty sure. But going forward, I think the
government essentially at this point is really to pour the money in, as it were.
And one important aspect is really to stimulate the private sector's demand or
enthusiasm in investing in high tech sector.
China can definitely and it is throwing lots of money at it.
I mean, Xi Jinping has talked about tens of billions of dollars, but how
successful can they be long term if they do not have access to those advanced
chips, the quantum computing, the advanced lithography equipment from the
likes of ASML? Yeah, certainly it's a great constraint,
bearing in mind those aspects are a not kind of massive share in terms of the
high tech sector. If you look at the high tech sector,
there are many aspects. You know, you have the advanced
shipments and in terms of the sort of lower end to sort of meet into kind of a
lower sort of chip industry, China is actually gaining.
So so in that respect, it is constraining it, but.
It's not going to kill off the high growth, high tech sector growth.
But what I see important is the private sector involvement.
All right. I think you check through there.
Our Asia economics lead there, talking a little bit more
about China's high tech strategies and really the growth potential there.
We're take a look at what the terms of the moves in the yen this morning.
So we are hearing once more from the sun and talking about how they are.
They've been having some joint calls with not just Korea, but also Janet
Yellen overnight and a little bit more coming through in a statement now that
the G-7 does confirm that there has been excessive ethics moves that is harming
the economy. And so Yellen did acknowledge, of
course, these worries over not just the yen, but also the one overnight as well.
So that's why you are seeing a little bit of strength come through when it
comes to the yen on the back of some of these comments.
But it's quite marginal. We're still holding around that 157
territory here this morning. We got plenty more ahead.
This is Bloomberg. We got some breaking news when it comes
to Pakistan. The finance minister is speaking with
Bloomberg here this morning and talking a little bit more about the government
expecting to avoid a rupee devaluation for that IMF program.
So that's certainly something that they're looking at.
They don't anticipate a currency devaluation as part of its negotiations
with the IMF to unlock billions of dollars in lending to try to at least
bolster the reform agenda there. So that's what we're hearing.
Well, massive devaluations have accompany some of these previous IMF
loans with Pakistan. They're saying that there's nothing
comparable should be necessary this time around.
All right. We're checking also when it comes to oil
markets as well, just given that steep drop when it comes to Brent overnight
and you are seeing a bit of a recovery, but we're still around 87 bucks here.
We were close to 90 basically, or at 90 just yesterday.
So certainly it's a bit of a drop. Shanghai crude is feeling it here this
morning as well. We did hear from Goldman Sachs as head
of oil research saying that crude prices have already baked in significant
geopolitical risks, dogs driven things. Crude prices could slide more without
fresh tensions. To explain the two to 2 to 3% sell off,
I think you want to point to two other factors.
The fact that in an environment where the geopolitical risk premium is high 5
to $10 per barrel, if you don't get headlines with a materialization of
geopolitical risk, I think the path of least resistance for that premium is to
drift drift lower. Second, as you reported earlier today,
there were some headlines that some of the marginal refiners in Asia are
reducing their demand for crude because their margins have been eroded as a
result of the rise in crude prices, sort of a self stabilizing mechanism.
And then I think those three catalysts were were amplified by algorithmic
selling. And I think big picture, I think we're
learning that in our central case of no geopolitical hits to supply $90 a barrel
should be a ceiling on Brent prices this year.
Are we underestimating that risk, though?
So the headlines across the top of the hour was that according to the US,
Venezuelan oil and gas transactions must wind down now by May 31st.
So they issue a new German license on Venezuelan oil and gas sanctions that
was lifted for six months to see if Maduro could kind of free up elections a
little bit. And it looks like we're going to
re-implement some form of that at the same time, where those would be pressure
on the administration to do something about Iran, which is producing, what,
three and a half million barrels of oil per day before.
So, I mean, do we need to price this, though, Back in a little bit more?
I do think that the current level of of oil prices does seem corporate, a
significant down at risk to supply, especially in countries in the Middle
East and sanctions economies such as such as Iran.
I think one interesting observation is that over the last two years, supply in
both Iran and Venezuela has increased a lot.
You're up roughly 20% over the past two years in in Iran, of course, the
geopolitical escalation in the Middle East and potentially also a change in US
federal policies. I think security risks to Iran, supply
to the downside. And our view is that the market is is
pricing in the downside risk to. Well, that's what I'm curious about
because right now, I mean you have Congress considering additional
sanctions on Iran oil. And I'm wondering if that's even going
to matter. I mean, if we know that the net effect
of what the US tried to do, particularly after the Russian invasion, kind of I
mean, to a certain extent backfired, if you will, what does additional sanctions
do with it? Anything?
Mm hmm. Yeah, I think you would have to see a
very significant change in sanctions policy to see a large drop in Iran
supply. It has happened before.
In 2018, we saw a pretty big drop in in supply in Iran.
At this point, 80 to 90% of Iranian exports are going to China.
To the Chinese teapot refiners. How much does the well on that side, and
particularly on the demand side coming out of China, how much does the health
of their economy matter to that forecast?
So China continues to be the largest contributor to global oil demand growth
in our forecast, roughly one third of the solids, one and a half million
barrels per day, 24 oil demand growth that we forecast is coming from China.
That is fast, but much less fast than last year.
The reopening boost to gasoline demand is behind us, but the demand from from
China for petrochemical products, as they are ramping up their capacity to
produce plastics continues to rise. All right.
Goldman Sachs is head of Oil Research Done Australia and then talking about,
yeah, oil prices might be capped around 90 for some time, but we're certainly
feeling that drop here today among some of these energy players.
Petro China's seen a 33% here this morning.
China oilfield services also down close to 2%.
So obviously, you know, we're waiting for any sort of spill response when it
comes to Israel, when it comes to that Iran attack over the weekend, which is
leaving us a little bit more on tenterhooks, but really focusing a
little more the fundamentals that despite.
Quite a number coming out of China yesterday, too, in March.
This is Bloomberg. Our colleague Dan kind of set it up
pretty well on all that. You know, central banks are really at
the mercy of the Fed right now. And, you know, apart from just burning
through their reserves, what options do you think central banks here in the
region have? Well, I mean, you know, we sort of call
it an eclectic approach. So the first line of defense is the
ethics intervention. But some of the reserves, but also
allowing a bit of a fix, some flexibility.
But this obviously is a stopgap measure. And if the pressures buzzes, then we
think central banks will go to the second round of defense, which basically
means activating some of the macroprudential tools as well as capital
account measures. So these could be measures on trade for
exporters or importers. Central banks also have many other tools
in terms of hedging ratios, etc.. So there are these lines of defense that
are available to Asian central banks in the worst case scenario, of course.
We're talking about tools like using interest rate hikes as a defense to
manage the currency pressures. We still think we are in the very early
stages and therefore it's really the first line of defense that has been
activated. You know, fundamentals in Asia are much,
much stronger today compared to 1997. So, you know, I think Asian Central Bank
should be able to manage the pressures that are coming through.
Okay. I wonder, though, I mean, this strike
wasn't supposed to happen this year, so at all.
The fact that, you know, the G-7 has come through with this statement, a
joint statement, is really joint intervention likely.
And how effective do you think it could be?
I think, as you pointed out, I mean, it's a bit more tricky, but from a
signaling standpoint, it is quite important.
It does suggest that this is becoming a bigger issue and we could see
intervention come through at the end of the day, though.
You know, if you look at the country specific, so for instance, in the case
of Japan, the question is whether DOJ is going to actually move faster than
expected in terms of its next rate hike. Nomura's baseline currently is for the
next hike to actually come through in October, and we are expecting the Fed to
actually start easing in July. So if we are right in terms of those
forecasts, then it's possible pressures ease off.
But I think at the end of the day intervention can just buy us some time.
We will need to see some moves on monetary policy or activation of the
second round of defense across Asian countries.
So so how do you expect the central banks to respond and what could be sort
of the policy risk now that you cut before the Fed, your currency comes down
and you see money flows back into the US markets, you have this issue of
importing inflation again or is a bigger risk pushing back those cuts and risking
gross. So at this stage, we think it's more
likely that we will see the rate easing cycle get delayed and the extent of cuts
Asian central banks deliver might end up being less.
And of course, activating the first and the second line of defense.
We do think it's important to differentiate between Asian economies,
though. You know, not everyone is in the same
boat. So when we think of Indonesia, where it
is the top policy priority, if we do see a sharp idea appreciation, then it's
possible be our response with the hike, although this is not our base case.
But for the likes of Thailand, where the growth inflation dynamics are quite weak
and Thailand does have more than sufficient fixed reserves to actually
tackle currency issues, we do think there can be some decoupling of monetary
policy. So at the margin, the space is less for
Asian central banks. But some countries in Asia, we would say
Thailand, India and to an extent South Korea actually could decouple later this
year. So now this is Stephen Engle.
I want to switch gears completely and look at the India election, which you're
looking at. What how consequential is this and what
are you looking at, especially when Modi is looking for that super majority.
But he, the BJP, has that weakness down in the south, which is where the tech
hubs are. It's where manufacturing is.
Where per capita incomes are higher than the north.
How significant is the is it for the BJP to get
make ground in the south? And how important is this from an
economic standpoint? Right.
As you said, from a political standpoint, we are watching, you know,
18 million new voters who have come in. Women voter participation actually was
higher than male participation in 2019. There's been a lot of focus on women
voters in this election. So that's something we think will
continue. And as you said, BJP, you know, the
northern part of India is BJP's stronghold.
South is not where we're expecting them to perform that well.
But even despite that, most polls have been pretty steady in predicting that
BJP on its own will cross the halfway mark, with more recent polls suggesting
the coalition is going to get a two thirds majority.
From an economic standpoint, if you know, the manifesto that is out from the
BJP does suggest policy continuity. So more focus on infrastructure
spending, supply chain manufacturing, focus on macro financial stability.
I think if the BJP does get a 2 to 2 two thirds majority, then the question will
be if they can focus on some of the fact the market reforms like land and labour,
it will become easier at the margin if they have a two thirds majority.
But I would say, you know, for some of these politically difficult reforms,
it's not just just about having the numbers.
You have to bring states into the fold. So more coordination between centre and
state will still be necessary even if the BJP gets to the two thirds mark
and India sort of position itself as sort of the counterbalance to China.
So I'm just wondering how much progress has been made on that front there.
I mean, do you see India overtaking China as a, you know, the largest growth
engine globally any time soon? In terms of the absolute growth rates.
Yes. So over the next five years, on average,
our prediction is industrial GDP growth will be 7% per annum.
Given the increase we are seeing in the investment cycle, the reforms which are
aimed at boosting productivity, and this contrasts with a view on China where
given the demographics as well as shifts in supply chain, my view is the long
term steady state growth in China this decade is going to be a shade under 4%.
So within the region, yes, we do see India as a growth outperformer size
wise. Of course, it's going to take a lot
longer. The economic climate that India is
trying to grow in is very different to when China joined the WTO.
And politically, of course, the structure is very different and in that
compared to China. So I think both growth models have their
own positives and negatives. In terms of the real growth, yes, India
should be one of the fastest Asian economies this decade.
So, no, look, I'll leave it there, but thank you so much.
Varma there. India and Asia Extra, chief economist at
Nomura joining us out of Singapore. He took a look.
When it comes to greater China, it looks like things are looking much better to
the Hang Seng, about one and a half percent here.
Right now, Asia's tech is catching a bit.
We're are seeing a lot more sort of traction gaining in some of these tech
plays here will define what we saw in the US overnight.
Shanghai also doing much better. We're seeing more momentum around that.
So Shanghai Composite is back above that 3000, close to 3100 level as well, and
we're close to 3600 for the CSI 300. Play.
More ahead. This is Bloomberg. Or UBS is said to be planning another
round of job cuts as the firm continues to trim headcount following its rescue
of Credit Suisse, says Berger. Bloomberg Intelligence senior industry
analyst Matt Ingram. He joins us now from Sydney, which is a
lenders for us. Do you first tell us a bit more about,
well, where are we in this integration between UBS and Credit Suisse now?
Yeah. Could I have one?
Thank you. Look, I'm Allison Williams, our analyst
in the US who covers these banks, thinks we're getting there.
We're definitely reaching peak investment.
But in terms of head count cuts, it seems there's a long way to go this.
To put this in context, the head count across the world is about 125,000.
We're cutting about 100 head count in this latest round.
Yes, they are higher earning than average in UBS, one would expect given
their investment bankers. But the overall target for the bank is
to cut about $6 billion from their $25 billion salaries bill.
This is a drop in the ocean for that. So there seems to be a long way to go.
But in terms of actual investment, they are actually getting their
arms Stephen Engle here. Obviously, there's this integration with
Credit Suisse and there's the rectifications there and the job cuts.
But how much of this is also tied to the other stories that we've been talking
about, especially yesterday, Morgan Stanley cutting some investment bankers
because of deal flows are really drying up between Hong Kong and China and the
like. Is there something to be played in this
story as well with UBS and. Hi, Steven.
Look, this seems to be more about duplication, and this was always going
to be the case when you bring together two businesses that that have obvious
crossover. The jewel in the crown for UBS when they
did this deal and when when they took this, this sort of legacy on board was
the wealth management, the private banking.
And they can scale those businesses. But when you have investment bankers,
traders, etc., sitting in duplicated roles across the globe, I think the real
thing here is this is just cleaning up that deal.
And we've said from the beginning, Alison said from the beginning that this
is going to be a long, drawn out process.
And it's only after a while when you see who the good earners are, who the good
earners aren't, that you can make a decision about making these cuts.
UBS is actually sitting pretty well in the league tables and their deal volumes
are pretty strong this year. So I think this is this is more about
cleaning up the deal and less about deal flow.
But but certainly UBS has to respond to the market in a certain sense.
They are sitting pretty well. I think
there'll be more there'll be more cuts to come across the trading.
And I think the investment banking, that's certainly Alison's raid.
So, yeah, I think expect to see more of this.
They're not immune to markets, but I think they're sitting pretty well.
Matt Ingram there at Bloomberg Intelligence, senior industry analyst,
joining us from Sydney here. Here are some of the stories that we're
tracking as well. We're talking about Jane Street and a
document seen by Bloomberg show that Jay-Z generated over $10 billion in net
trading revenue last year. That was among financial markers that
the firm disclosed to investors as part of a debt deal it's seeking.
It's a rare glimpse into the mechanics of a notoriously secretive firm which
has steadily expanded to make markets in areas including ETFs, stocks,
currencies, derivatives and bonds. Bloomberg has learned that China Wonka
is seeking to sell its entire stake in logistics firm G.
L.P., seeking to amass cash to stave off a debt crisis.
Sources say CA held discussions with parties, including state owned
investment company Guangdong Holdings and a Tianjin based state owned firm to
exit his investment. Wonka bought a 21.4% stake in GLP in
2018 for about two and a half billion dollars.
The boss of Europe's biggest copper company has accused his Chinese rivals
of operating on economically. Airbus CEO Roland Harrison says Chinese
smelters are taking concentrates in at unprofitable levels.
He told Bloomberg News tariffs may be the answer and says all they want is a
level playing field. All right.
We're talking not just when it comes to copper, but these equity markets, which
seems like they are taking center stage here.
Right now, the Shanghai Composite. We are rising to that six month high.
We'll see how things play out for the rest of the session, but we're very much
so closer back to that 3100 level. Plenty more ahead.
This is Bloomberg. Let's turn to today's Shine.
A brief now a look at stories making headlines at national news outlets.
And trending online. A front page opinion piece in the
Economic Daily is calling for coordinated measures to boost the
economic recovery, including fiscal and monetary policies along with employment
and industrial support. The piece also says the Chinese to cut
borrowing costs, taxes and fees to support those SMEs out there.
Meanwhile, Shanghai Securities News is saying that under new regulatory rules,
a number of listed companies have adjusted their performance forecasts and
it says over 30 firms have actually revised their guidance downward,
including three listed companies that turn from profit to loss.
China's top securities regulator released tighter delisting rules just
earlier this week as well, which did roil the markets in some ways.
Elsewhere, we're here for the Global Times as a cue as Washington are still
lacking sincerity in responding to China's request, including over the
issue of Taiwan. The article was published days after
Chinese Defense Minister Dungan held his first call with his US counterpart,
Lloyd Austin. It does point out, though, that while
relations have stabilized, Steve still remains to be seen if more progress can
be made. But it's good to know that at least
we're hearing that that phone calls are still being made.
The phone calls and also the personal visits are also being made.
Of course, Janet Yellen just come back from a trip to China where he did.
She did bring up some sticky issues that did strike a nerve with the Chinese, and
that was overcapacity. Whether it is warranted or not,
obviously, in these new industries that Xi Jinping is promoting.
But also keep in mind, we're hearing reports that Anthony Blinken, the US
secretary of state, will be heading to China as well next week.
More of a chance for trust building or basically putting up further walls.
We'll have to see. You're heading to Beijing next week to
see you. Got a lot going on there to Beijing on a
show the likes. So certainly it's going to be a busy
week with Blinken there in town as well, also.
And really, what are they going to say about all these headlines that we're
hearing, whether it's these, you know, tariffs and the like?
And certainly we've seen the pushback from the Chinese officials here so far.
And that's certainly is something we're watching very closely across these
markets here this morning. So in terms of what you're seeing is
it's a steel aluminum stocks that we have actually seen some declines here on
the back of that, you know, concerns of tariffs when it comes to Chinese steel
and aluminum. And you're seeing that when it comes to
some of the steel makers here today. In fact, actually they're turning
positive. Now, you talk about how the steel makers
like Bauer Steel are doing. We're up about one and a half percent.
Oil play certainly is still the one, though, after we are still tracking the
declines when it comes to crude markets overnight.
And so what we're seeing those declines, as Pedro China likes of seeing off as
well. China oil services is down close to
three and a half percent now as well. But overall speaking, though, you take a
look at Greater China. We are doing much better here today if
we're around those session highs. We talked about the Shanghai Composite
hitting a six month high. Hang Seng is up 230 points here as we
speak. That's probably what's lifting the
Asia-Pac region index here by more than 1%.
So we're at session highs here right now.
But it seems like overall there is a recovery across equities here in the
region the last hour or so. That's it for us here on the Today Show.
This is Bloomberg.
