Good morning and welcome to the Iraqi
jam Shery Ahn. We're counting down to Asia's major
market opens so markets are set to give their verdict
on the DPP's victory in Taiwan's presidential vote, with analysts saying
it removes key uncertainties. The election on the US friendly like
Qingdao, being seen as a setback for Xi Jinping strategy despite the tightest
results in decades. Plus, money manager is going long on
higher prices for Brent crude as Houthi rebels report new US led strikes in
Yemen. Yeah, we share geopolitics as one of the
key focus points for investors as we kick off yet another trading week here
in Asia. But adding to that as well, there's a
couple of different factors we're going to be eyeing quite closely.
There's expectations for the Fed where the money markets have got it right in
swaps, markets telling us that we're going to see around 170 basis points of
cuts ahead. Maybe that's a little bit too aggressive
by it, by some estimates, earnings as well.
That season kicking into gear. We had the bank earnings coming out.
We've had airlines. We've had luxury as well, and a little
bit more downbeat news seeming to come out from a lot of companies CEOs.
Plus you add China's economic health into the mix.
And we had loan data at the end of close of markets on Friday telling us
consumers, corporates, households, they're really still not looking for
cash. These are all sort of some of the
factors we're going to be watching quite closely how that plays out over the
trading dynamic in this week ahead. But so far in the session, you can see
here the ASX 200 holding fairly steady. It still is the holiday season, a
holiday period in Aussie markets. So liquidity has been pretty thin, but
you can see here fairly rangebound. Let's switch on.
Take a look at what else is happening so far in the session today.
Again, it's a little bit mixed, a little bit to the downside perhaps to a degree.
You've got Kiwi stocks likewise trading and then you've also got the Japanese
yen continuing to hold close to that 145 luxury and bell.
Of course, we are in a long weekend here in the US as a holiday on Monday with
the Martin Luther King Jr holiday but we are seeing US futures to the downside of
about a 10th of 1%. This after a slight gain on the s&p 500.
Last week, of course, we had microsoft overtaking apple to become the world's
most valuable company. And we have the US earnings season being
kicked off by banks with some results missing estimates and their outlook for
net interest income. Not great given of course, what is
projected to be the Fed rate trajectory. The Treasury rally took another big leg
up with a two year yield dropping for a sixth consecutive session to the lowest
level since May. We have surprisingly weak CPI numbers
and the declining producer prices, reinforcing those bets on Fed rate cuts.
And this coming after a hotter than expected CPI reading.
So we know that the path for the Fed might be a bumpy one.
The dollar also fell, reversing that weekly gain that we saw.
Given that yields were under pressure, we're seeing the dollar index down 102
level. We're following up prices for oil very
closely as WTI is under a little bit of pressure early in the Asian session
after we saw prices gaining ground with the US and allies launching airstrikes
against the rebels in Yemen. But of course, investors in Asia will be
very much watching the Taiwanese market and their asset to give the verdict on
the election. I'm liking DAH as Taiwan's president.
When the Asian markets open in the coming hours.
The DPP's victory is also being seen as a blow to Chinese President Xi Jinping's
strategy for the island. Even won't.
We are telling the international community that between democracy and
authoritarianism, sometimes we will stand on the side of democracy.
He. Now from Taipei is Bloomberg Markets
co-anchor, Yvonne Man Yvonne. So what is the message that Taiwan's
ruling party is trying to send to the international community?
Yeah. Good morning, Sheri.
I think, for one thing, is that democracy won this weekend here in
Taiwan. And in some ways that, you know, despite
China's threats, that they're saying that this election was a matter of peace
and war. Taiwanese voters defied those concerns
and elected the DPP for a third straight term here, which we've never seen before
in the history of Taiwan. You mentioned about, you know, the what
we're seeing here in terms of results. So, yes, it was a historic win.
Yes, it was by a wider than expected margin, but then again, only receiving
40% of the votes for liking to, which goes to show that, you know, how we have
seen this coalition party between the KMT and DPP.
We will be talking about a much different result here right now.
And the DPP lost its majority in the legislature.
So no clear mandate here. I think that certainly is not lost when
it comes to the DPP and how they're going to move forward and all this
because with a divided Government now she's going to have to negotiate with
other parties on budgets, on legislation to get anything from this agenda through
here right now. So that certainly is a DPP that is
emerging out of this election a little bit on the weaker side.
But then again, this is also a sign that, you know, a bit of soul searching
for the KMT and Beijing as well. You talk about how this is a missed
opportunity for Beijing. This is a Taiwan, as we see that is
becoming more Taiwanese. In fact, people self-identify themselves
as that, more so than China. Yeah.
So what's been the response from Beijing so far?
I would say pretty low key, right? Because, you know, we've already seen
before leading up to this election that lighting up was labeled an instigator of
war, a separatist by Beijing. We're not quite hearing that sort of
language here in the statement that we got from the Taiwan Affairs office
yesterday, His name was not mentioned. Of course, they reiterated China's
stance on they still want reunification with Taiwan.
And they said that that 40% mandate received by Allied, quote, could not
represent the mainstream public opinion of the island.
So it is softer language compared to what we saw four years ago.
Keep in mind when you remember when President Tsai Ing Wen won that second
term by a landslide, China's state media was labeling her as selfish, greedy,
evil. On the military side, it's been quite
muted response as well. The Defense Ministry here said that
they've seen four Chinese naval vessels and one weather balloon around Taiwan
yesterday. No PLL.
Planes have been seen in the air defense zone here in Taiwan.
So we're not seeing those scores of jets or that military force being displayed
here. You know, nothing like what we saw when
Nancy Pelosi visited Taiwan last year. So you are seeing at least some
compromise right now from from all three sides, even the U.S..
Right. So we heard from Lee during his victory
speech, still reiterating that the Taiwan is going to still seek
cooperation with the U.S.. I don't think we can go as far as saying
that they were there to have dialogue, because the sticking point is still that
1992 consensus which says that Taiwan is part of China.
The DPP still rejects that and that is a red line for Beijing.
But we also heard from President Biden as well shortly after this election
results saying the U.S. does not support Taiwan independence.
So there's still some olive branches, as you can call it, being seen here right
now. Some reassuring words after this
election. Gerry and Yvonne, when it comes to the
Taiwanese economy, its chips industry is so important.
Our very own Stephen Engle asked about the security of the industry to a liking
during his first post-election press conference.
Take a listen. First,
how do you help mitigate the risk that increasing tensions with China
essentially could weaken that strategic advantage, that strategic importance and
legitimacy? For most of
the day, as long as there's equality and
compatibility between the two sides of the Straits.
Taiwan is willing to engage with China for exchanges and cooperation.
We will vigorously assist the semiconductor industry in material and
equipment R&D. I see.
Designed to manufacturing and packaging, to testing to form a more complete
industrial chain. Given this, I've talked about how the
election outcome doesn't necessarily change the global trend of de-risking
and that we are going to see more movement away from China, away from
Taipei as well. How has Taiwan's industry been doing
given that? Of course we have talked about the
ongoing slump in the semiconductor industry as well.
Right. And we take a look at those U.S.
export controls on China as well. I mean, that has no doubt impacted
Taiwanese chipmakers and the tech supply chains here in the island.
And so you got to wonder if a deep win, does that mean that will see more
scrutiny from from U.S. companies on chip makers like TSMC here
and how they're procuring their chips? And where is it from, China?
I think what the analysts are telling us is that, you know, maybe there is a
status quo, a status quo, right. That it's not going to be some big
change in terms of sentiment here. But you know how these Taiwanese
companies navigate these two superpowers.
The U.S. and China is going to be quite key here.
You know, some are saying, you know, the fact that it's a DPP win does in some
way secure Taiwan's position as an independent location to fabricate chips
for air servers and the like. And maybe that means, you know, with the
DPP having a better relationship with the U.S., that they will have better
access to chipmaking equipment with the West as well.
So that could be something that could be beneficial.
But as you say, right, this whole global trend of derisking is not going to
change with this election result. You are seeing itself with the likes of
TSMC. They're expanding in Japan, they're
expanding and building capacity in Arizona and the U.S.
as well. So I think the decoupling is something
that's still something that might stay. I think the pace of which that happens
might slow down, right, If it is a DPP win.
Who's to say, though, right now, Sherry? But certainly, at least for now, markets
wise, as you say, I think people are taking it in stride.
You know, we'll be waiting for the market opens in Taiwan.
Bloomberg Markets co-anchor Yvonne Man there, joining us live from Taipei.
And two other geopolitical headlines that we're tracking.
Houthi rebels in Yemen say U.S. and U.K.
fighter jets have hit targets in the Red Sea province of data in fresh air
strikes on Sunday evening. Almost Era TV, which is operated by the
Iran backed military group, reported the attacks.
The U.S. and its allies have been bracing for
response after dozens of airstrikes on Houthi targets in Yemen since Friday.
Ukrainian President Volodymyr Zelensky is said to be planning to meet with
JPMorgan CEO Jamie Dimon at the World Economic Forum in Davos.
Zelensky seeking to replenish the country's coffers for its fight against
Russia, with calls for help now being eclipsed by the Israel-Hamas conflict.
Jp morgan has been advising Zelensky on attracting private capital for
reconstruction projects. Zelensky is also set to make a public
address at Davos. Coming up, our exclusive interview with
Panasonic Energy's chief technology officer, Shoichi Watanabe.
We discussed their plan to EV battery upgrades later this hour.
But first, a deep dive into China's economy with Oxford Economics.
Hear why they think upcoming data could show stimulus driven growth continuing
to pick up. This is Bloomberg. We've got cost pressures coming in.
I suspect we will see inflation at the CPI level get stuck at 3% and then the
Fed is going to have to make a difficult decision, either tolerate it for longer
or try to reduce it to 2% too quickly and risk the real economy.
Opinion Column. Vincent University of Cambridge Queen's
College President Mohamed El-Erian there.
Let's take a look at the week ahead. In a couple of hours, the PBOC will
announce its decision on the medium term lending facility rate.
The central bank has signaled it may deploy monetary policy and liquidity
tools to boost economic growth. Later this week, we'll also be getting a
snapshot of China's economic performance in 2023 with fourth quarter GDP data
due, as well as other key indicators for December.
On Wednesday, Bank Indonesia will unveil their latest rate decision.
Bloomberg Economics expects the bank to stand pat as its hikes this cycle have
been aimed at rupiah stability instead of cooling price pressures.
On Friday, Japan inflation data might show consumer price gains slowing will
also watch for CPI prints from the Eurozone and the U.K..
Other data to note are GDP figures from Germany, numbers from Japan, Australian
jobs data and TSMC earnings. Bloomberg will also be on the ground in
Davos for this year's annual meeting of the World Economic Forum.
Top world and business leaders, as well as central bank heads, will gather at
the Swiss Mountain Resort resort to discuss the overarching theme of
rebuilding trust. This, of course, amid a backdrop of
geopolitical tensions. And that's your week ahead.
Our next guest says the incoming Chinese data will likely show stimulus driven
growth continuing to pick up, but less so for consumers.
Lewis, though, is a lead economist and author for the economics and joins us
now. Lewis, great to have you with us.
Let's talk a little bit first about what sort of data we're expecting out of
China, because, of course, we'll get the complete 2023 picture as well.
Are we going to get that about 5% growth?
Yes. Hi.
Hi. Good morning.
Absolutely. So I think this is where things get a
little bit more interesting. You know, the big question is really has
all the stimulus announcements that we've heard at the end of last year, has
that really translated and filter through to the economy?
And I think this week the data will show, as you said, we do have the
complete set of data, not just the GDP data, but we also have data on some of
the more high frequency data like retail sales for investments, industrial
production. We also have some data on household
spending and expenditure and consumption data as well.
So all of that data will probably show that some of that stimulus has worked,
but perhaps not as effectively as authorities wanted.
I do think that that 5% growth target last year is going to be well within
range. In fact, we think that they would exceed
that by a little bit, coming in at 5.2% despite the rebound that we're seeing in
the Chinese economy. When it comes to today's MLS, the medium
term lending facility, the consensus is that we might see the PBOC cutting
again. Why do that?
On the monetary side of things, when we have seen that perhaps is not as
effective as a fiscal push. I think it's more signal, right, that
you're right. It's not going to be that much more
effective, especially if expectations is, you know, a further ten bit
decrease. I do think that the start at the start
of the year, the kind of host of data that we saw, especially the PMI data and
the CPI data that we saw last week. It does suggest that the economy,
despite the on pretty weak footing and I think they will be quite sensitive to
that. And if they had decided to hold a policy
again today, I think that will probably send a signal that that might not be
very confidence boosting. So.
So I do think that that ten bit cut today would come and it will probably
serve to kind of reinforce the the policy easing bias that the government
has. But I think in general, the heavy
lifting of stimulus will probably fall on the fiscal side rather than the
monetary side. So tell us a little bit more about the
Chinese consumer, because the rebound has not been so for the Chinese public,
Right? We saw how the economy is still in this
longest deflationary track since in 14 years or so.
When can we expect that demand to rebound?
I think I think I think the authorities would like to think that, you know, if
you support the supply side of the economy, if you support production, then
eventually the demand would come. That obviously is not how the rest of
the of the other major economies operate.
And for that reason, I think authorities have been quite, quite reluctant on some
of the more obvious demand side stimulus.
You know, for instance, cash handouts or maybe more broad consumption support.
And that's really the reason why, you know, even though we've seen some
spikes, some temporary spikes in consumer spending in the last year, that
hasn't really persisted. And I think that the reason behind that
is is really the fact that confidence is so low.
Right. I mean, it's not really an ability to
spend. Households in China do have around 3.6
trillion renminbi and excessive. So they do have the money to spend.
But it's just that confidence is so low. Just because what's happening on the
property side, what's happening on all these negative headlines that's coming
out on a on an almost weekly basis on the economic fronts.
So the question here is, how do we raise confidence?
And I think, you know, if if we're not willing to extend direct consumption
support to to to consumers, then it does seem that it's going to be quite a tall
order this year, too, to achieve meaningful consumer spending growth.
It's a little bit of a quiet week, at least here in the US.
We're on a holiday. What will you be watching when it comes
to the Asian Echo docket? Because we also have some trade figures,
I believe a rate decision from Bank Indonesia as well.
What will be important to you? I think that the trade data across, you
know, Indonesia, Singapore and Malaysia, that will probably show a kind of give a
glimpse the fact that, you know, the external demand outlook continues to be
on a very slow recovery trend. So that will be somewhat encouraging, at
least for for some of the more export oriented economies in Asia.
Banking Tunisia will be one to watch. Of course, they meet every month.
So so that the policy guidance there is quite well signaled.
We think that to focus on rupiah stability, the fact that the rupiah has
been quite stable as well over the last month, which suggests that they will
pause. I think that the the Japanese CPI data,
that would be something to watch as well towards the end of the end of the week.
That should suggest that inflation, this inflation strength is slowly coming to
debate the picture this year. Well, it's good to have you with us with
that preview of data coming out of Asia, lead economists and Oxford Economics.
And of course, we'll bring you the latest when it comes to China's MLS
later today as well. You can get a roundup of the stories
that you need to know to get your day going.
In today's edition of DAYBREAK, Terminal subscribers go to the Abbey, Go.
Also available on Mobile and the Bloomberg Anywhere app.
You can customize your settings so you only get the news on the industries and
the assets that you care about. This is Bloomberg. You're watching DAYBREAK Asia.
Economic, financial and business leaders are gathering in Switzerland for this
week's World Economic Forum. The theme this time is Rebuilding Trust.
Here's a look at the main issues set to dominate discussions.
White Alpine mountains, billionaires and the global elite.
It can only be Davos, the tiny ski resort in Switzerland, home to the
annual meeting of the World Economic Forum.
Here are three key topics high on the agenda.
Number one, a dovish pivot. Despite all the talk of higher for
longer stick inflation and robust labor markets, investors are now pricing in
aggressive rate cuts by key central banks this year, following the cost of
living crisis and the unprecedented cycle of global monetary tightening.
Reduced borrowing costs cannot come soon enough for debt strapped companies and
governments. And the next crucial question is whether
policy makers can make the pivot to avoid a hard economic landing.
To rising geopolitical pressure. World leaders were already grappling
with the Russian invasion of Ukraine launched by Putin's forces nearly two
years ago. The much anticipated counteroffensive by
Keefe hasn't quite gone to plan, and foreign support and military aid is not
flowing as freely. There's now also a second conflict on
the global stage between Israel and Hamas.
The humanitarian cost has been immense and the war has a potential to spark
wider tensions across the Middle East with ramifications for global trade.
And three. Just two letters.
II investors are obsessed with its potential to disrupt chunks of the
economy, and it drove some of the biggest stock market gains last year.
Pressure is now mounting on tech companies to deliver on some of the
earnings hope. And in the hallways of power.
Security and ethical concerns remain. The EU struck a landmark agreement to
regulate artificial intelligence, and it could set the tone for similar rules by
governments across the globe. Of course, Davos draws a lot of
criticism as being exclusive and out of touch with reality.
But politicians and industry titans continue to go in droves, and as long as
they do, the buzz will remain along with the potential for meaningful change.
One post Francine Lacqua there. Take a look now at how equity markets
were. I mean, currency markets are trading at
the moment. Take a look at how the Bloomberg dollar
index is doing. Not much after falling in the last
session, of course, pressured by those Treasury yields.
The Japanese yen also seeing a little bit of weakness against the US dollar.
145 is your level after two weeks of losses already.
We had heard from sources that the Bank of Japan officials are likely to discuss
cutting their forecasts for inflation and economic growth last week.
And take a look at the Aussie, which is rather steady after two sessions of
losses. We'll be watching Aussie Drops this week
and we're seeing the Chinese yuan holding a touch below 720.
We'll be talking oil next. This is Bloomberg. Take a look at how U.S.
futures are trading today. We're seeing a little bit of downside
pressure, of course, as a long weekend, with markets closed on Monday for the
Martin Luther King Jr holiday. But we had seen those gains when it came
to the S&P 500 on a weekly basis, although the S&P 500 was pressure on
Friday. We have seen those, of course, those big
tech moves with Microsoft overtaking Apple to become the world's most
valuable company. But also the US earnings season kicking
off. We had some bank results as well.
A few misses here and there. And what we're really following closely
was the Treasury space, because the two year yield dropped to the lowest level
since May. It was really on that broad expectation
that the Fed will need to cut rates sooner rather than later.
And this, of course, coming as we got that echo data, the surprise decline in
U.S. producer prices, reinforcing bets on Fed
rate cuts despite the fact that we got a hotter than estimated CPI.
Reading Bloomberg opinion columnist Mohamed El-Erian expecting U.S.
inflation to stick at 3% due to fresh cost push pressures.
He also told us why he sees growth risks ahead for the US and other major
economies. My major concern is that if you look at
the three systemically important regions in the world, economically, the
eurozone, the U.S. and China, all three are having issues
growing in a robust manner. The U.S.
is the exception there. But even the U.S.
now is facing lower household savings, higher debt.
China needs to fundamentally change its economic models.
And we know that without a healthy Germany, York is going to struggle.
So if you actually look at who is a locomotive of growth, it's very hard to
point to one locomotive. It's hard to believe that the U.S.
will be able to maintain what was very impressive growth rates.
Now, what on top of that, the geopolitical concerns.
And that's why this recency bias where people simply extrapolate what was a
surprisingly good year from last year is something that we have to guard against.
So you're questioning the Brazilian growth story, but you also questioning
the disinflationary trends, Mohammed, that are starting to develop over the
last 12 months? Yeah, I smiled when I heard the
conversation before I came on that, you know, it's disinflation ahead.
It's not we're going to see and we already are seeing cost push pressures
in the pipeline as to in particular, what's happened to Navy navigation in
the Red Sea is directly and indirectly increasing inflationary pressures
directly by hiking input prices indirectly by causing shortages that
then influence other prices. And then we have the labor market issue.
We have higher labor costs coming through the pipeline.
So you've got cost pressures coming in. I suspect we will see inflation at the
CPI level get stuck at 3% and then the Fed is going to have to make a difficult
decision, either tolerate it for longer. And I was encouraged by John Williams
use of the word will a longer term inflation target is 2% or try to reduce
it to 2% too quickly and risk the real economy.
But this notion that immaculate disinflation is going to continue is
something that I find very hard to reconcile with actual data.
Let's finish on Fed policy expectations. They go in March.
What's your gauge of what the threshold is to begin to reduce interest rates and
how close do you think we are to it? There's no reason they should go in
March. I think the market is over optimistic,
both in terms of timing and in terms of the amount of cuts we're going to get.
I think the market should listen to the Fed when it says signals around 325
basis point cuts and starting later than March.
I think it'll be the summer when they start
believing. Opinion columnist and University of
Cambridge, Queens College President Mohamed El-Erian speaking to Bloomberg's
Jonathan Ferro. Anabel, of course, another central bank
that we're watching today, the Bank of the People's Bank of China.
We are expecting that one year MLF to be cut.
What are we seeing? Yeah, that's right.
Okay. Maybe the Fed isn't likely to to to
reduce in March that we would have hearing that there from Mohamed
El-Erian. But still the PBOC would actually be
first up here. So we've got the decision that's due on
one year policy loans. That's the line here in one.
And you can see it's at 2.5% right now. It's been that way since August of last
year, but we could see a ten basis point reduction.
That's what a lot of economists are guiding for, to 2.4%.
There is a lot of pressure, of course, and we can get the economic weakness in
China in a moment. But there's also just the seasonality
factor of. The timing that plays into it as well,
because many people that we've spoken to are saying that the PBOC is likely to
front load any sort of reductions here. Given where approaching that nationals
people, People's Congress, the annual legislative legislative meeting in
March, and that's when the growth targets are announced as well.
So that's why we're seeing the PBOC guiding its interest rates lower.
But also, let's get to the economic reason for this to happen, because one
of the latest things, if you change on now that's played into this is the
credit data. So we saw new yuan loans aggregate
financing. This came out on Friday following the
market close both of those missing estimates here.
But new loans that issuance, that's the weakest that we've seen on record that
that increase there and also missing on the aggregate level were in double digit
gains versus what we use of previously see, which was at
rather single digit now versus double digit previously.
Let's change on something else are watching within that credit data is just
what's coming through from corporate and household lending.
You can see here a household in yellow. Corporates in pink, a huge drop off as
well. So it just tells us, Sherry, consumers,
they're wary perhaps about the property sector.
They're not wanting to get loans. Corporates as well concerned around the
health of the property market that drop off in demand.
It's all playing into that dynamic, which tells us that weakness in China's
economy to persist and of course as well, that really plays into the demand
dynamics for oil that we're continuing to track.
Yeah, it's really interesting what we're seeing in the markets because despite
the fact that we saw those attacks by the US and the UK and the Houthi rebels
in Yemen, we are seeing oil right now losing ground and not sustaining those
gains that we saw last week. Traders still keeping a close eye on
whether Iran will be drawn into the conflict, but perhaps as well mentioned
is the demand picture. That's not looking great as well either.
Right. Let's bring in our next guest who says
the oil supply demand outlook remains bearish.
With us now is Vandana Hari, founder of energy market intelligence provider
Vanda Insights. Vandana, always great to have you with
us. So what are your expectations for oil
prices this year, given that any rally that we're seeing in oil prices don't
seem to be sustained at this point? Good morning, Sheri.
So indeed, the picture that is emerging looking out into 2024 is one of
overwhelming downward pressure from a view of plenty of supply and sluggish
demand growth. You've been talking about the U.S.,
China and the general economic outlook earlier in your program, and that's
pretty much what is framing the the views of the oil market as well.
And within the broader context, of course, we have the geopolitical
tensions, but they do not seem to be creating causing much of a risk premium
simply because we have the the view of a plentiful supplies, plentiful of spare
capacity within Opec+ as well, you know, anywhere above 5 million barrels per day
easily. So that sort of cushioning any fear that
the market feels. And at this point, really I think this
is the other major factor. The market is not really assigning a
major risk of a wider regional conflagration, disrupting supplies in
any sizable way from the Middle East. It's interesting that you talk about
those geopolitical tensions in the Middle East.
What about geopolitical tensions within Opec+?
Because we saw those tensions really come to the forefront last year.
Is that also not leading to confidence that we might see sustained cuts from
the group? So indeed, that is adding another
bearish pressure. So hypothetically, Cheri, I could say
that had opec+, let's say last November returns to its convention of a target
for the entire group and then parceled out amongst all the members and
everybody joining the cards instead of it being sort of piecemeal and the sort
of voluntary cuts, which, let's face it, the market doesn't it hasn't really
understood what that strategy or ideal ideology is.
So had OPEC's done that, opec+ done that, perhaps we would have seen prices
have got a little bit higher. At this point.
The market has really turned quite skeptical.
Does Opec+ have a game plan beyond Q1 because they have announced cuts, just
voluntary cuts by nine members just for Q1.
What what's going to happen beyond that? The opaque plus is seems to be just in a
disconnect with the market. They're not communicating if they do
have a different strategy, you know, the market is not quite grasping it.
So indeed, that is another headwind for oil prices.
How big of a role is U.S. shale play?
Here. I mean, for the longest time, we didn't
even address the production coming from the US.
But how significant is it now? A major one.
Sherry So last year, of course, the U.S.
production surprised to the upside with 1.1 million barrels per day growth to a
new high, 12.9 million barrels per day. So growth is expected to become much
more moderate this year, but yet are projected to reach another new high of
13.2 million barrels per day. So that is indeed weighing on market
sentiment because, you know, you have a major 1.1 million barrels per day,
substantial growth in the U.S. and not just the U.S.
We've seen Brazil and Guyana reach all time highs.
Canadian growth is growing. And if you look a little bit eastward,
Kazakhstan growth is growing, Norwegian output is growing.
So again, the story is plenty of growth outside Opec+, whereas perhaps a bit of
skepticism over Opec+ ability to continue cutting more, especially if
they want to put a floor under price, is not true.
Last year we had the sort of the received wisdom in the market was that
Opec+ would try and put an $80 floor under Brent.
The market has certainly discarded that and it's becoming increasingly clear
that through 2024 they'll have to cut much deeper.
That's the floor they are aiming for. And at this point the market is really
doubtful that Opec+ is capable or even willing to do that.
And I know we were talking about the weakness in Chinese demand, but what
about perhaps some other economies like the US, where we're seeing a stronger
than expected economic data here and there, potentially surprising to the
upside, How much more demand could that add to the supply demand picture in
2024? Yes, I think going forward, Cheri,
you'll see a continuing disconnect, as it were, between sentiment and the
broader financial markets and perhaps what you see reflected in the benchmark
indices, stock markets in the U.S. and even globally.
A continuing tussle between what investors are are betting on in terms of
Fed rate cuts and what the Fed is saying and all of that.
But for quite some time now, the oil complex has been decoupled from that,
and I expect that to continue. What do you want market is contemplating
when it looks at the U.S. is really not just the U.S., but the
U.S. as well as Eurozone or OECD.
Europe, for that matter, are both. These regions are seeing
either plateauing in a best case scenario, plateauing of oil demand or
perhaps even a weakening demand. And if you just want to look at 2019,
you know, for a comparison of pre-COVID, just the U.S.
and Eurozone together, or OECD, Europe, rather together are still 1.6 million
barrels per day below what they were consuming in 2019.
So I think it's pretty clear the writing is on the wall that both these regions
and major consumers. Right.
Are really well beyond their historical demand peak.
And on top of that now, you if you see that if you say you agree that the
economies in these regions are going to continue slowing, then you're probably
going to see a downward pressure further on their oil demand.
And then you have China, of course, continuing to grow, but nowhere near
making up for this decline that we are seeing in the U.S.
and all OECD Europe combined combined in a hurry.
Great to get your insights. Founder of Vanda Insights with her views
of where the oil price is going on for as we continue to see the downside
pressure with WTI at that level 7229. So ahead, we actually have a little bit
more when it comes to the broader energy sector.
We speak exclusively with Panasonic Energy's chief technology officer,
Shoichi Watanabe, about the company's EV battery upgrades.
This is Bloomberg. It's time for Japan to hand on DAYBREAK
Asia and to end and three money stock for December due in the next few
minutes. And three stock rose 1.7% year on year
in the prior month. Machine tool orders for December is also
due this afternoon. In November, the numbers fell a revised
13.6% from a year earlier. Plus, we'll be watching shares of
Rosenberg and GSR when market opens. Rest next.
CEO Hirohito. Takahashi says they're considering ways
to play an active role in Jason's future.
And Japanese markets, of course, will open at the top of the next hour.
Take a look at how futures are trading at the moment.
We're seeing downside of a 10th of 1% alongside the broader market because we
are seeing US futures also under pressure.
The Japanese yen weakening past at 145 level against the U.S.
dollar. Of course, last week we've been watching
sources tell Bloomberg that Virginia officials are likely to discuss cutting
their forecasts for inflation and economic growth this week in Japan.
We'll be watching those CPI numbers and of course, we will be watching
government bond futures. Given that the auction of 30 year jobs
last week saw weaker than expected demand.
We'll be also watching geopolitics or at least domestic politics when it comes to
Japan, because a Kyodo News survey has found that over 86% of respondents
backing tougher political funds control laws in the country.
That's after a slush fund scandal engulfed the ruling party.
Japanese Prime Minister Fumio Kishida has vowed to fully cooperate with the
investigation. O East Asia Government editor Jon
Herskovitz joins us now from Tokyo. John, so what does full cooperation from
the Kishi the government look like at this point to address the scandal?
Well, it looks like the they will be available for questioning from
prosecutors. Some members of his ruling, LDP, have
already gone to prosecutors to address questions and friction of what he's
really trying to do is try to head off this problem and change public opinion.
And the public has soured on his government.
This has made things even worse. Last week, pushing to set up a panel to
look at the inner workings, the financing of the LDP.
But the opinions show that the public skeptical about this and also the idea
of having the having the ruling party police itself.
It's a difficult sell to the general public that this will actually affect
change, the type of change that they are looking for.
Of course, we have already seen public support for Kishi now himself, not to
mention some cabinet members also leaving his government because of it.
Tell us a little bit about how the government is really addressing these
issues and how that's affected their their performance, how they can actually
do their jobs taking the helm of the government.
Well, right now, the focus of the government is on the the earthquake that
hit the Ishikawa region. Getting aid to people there for the
parliament session. We have the budget that's coming up.
Probably see that enacted at the end of March as typical for the schedule.
And this is really drawing attention away from what the government wants to
see as its priorities. For Kishida, it may speed up the time
that he actually departs as leader. He's on until September.
There's a leadership election in the LDP, so we may see March as a key period
for him when he has the budget. And he's also supposed to take a state
visit to Washington ahead of the budget vote.
So after these two major issues are settled, we may see a little bit of a
shift in the dynamics of the inner workings of the kitchen, the government.
Bloomberg's East Asia government editor Jon Herskovitz there a say in Japan
because Panasonic says it's planning to roll out the newest version of its EV
battery cells as early as this year. Panasonic Energy CTO Shoichi Watanabe
spoke exclusively with Bloomberg about those upgrades, as well as their plans
to expand capacity. Panasonic.
Panasonic has long been a world leader in energy density.
I believe that North America is very receptive to batteries with long range
and that our technology and safety are highly regarded.
We have been focusing on Nevada to see how many cutting edge batteries we can
mass produce over there. We have learned a great deal in Nevada,
and we would like to strategically improve our operations too, and further
develop the new plant. You've set a goal of increasing output
in Nevada by 10% in fiscal year 2025. How will you get there
wherever you are at? You said you not only know we have been
increasing productivity since 2017 and have exceeded our own expectations.
Between now and 2025, we will further increase battery capacity and
manufacturing efficiency by 5%, which amounts to a 10% increase in overall
production. We are promoting improvements in
development and productivity. What's your 2024 outlook on the supply
chain for EV batteries? Are you having any trouble sourcing
locally for raw materials in North America?
Gigafactory two One of the major purpose of EVs is to eliminate carbon emissions,
so it's ideal to develop resources and seldom locally.
In reality, most of the products are exported from Asia and manufactured in
North America. But we're working in partnership with
various companies to recycle in North America and use materials produced there
for the future. This is the focus of our current
efforts. With the US-China tensions, what's the
impact on sourcing from China? Have you been hurt by the export
restrictions on those critical EV materials at all?
Did you build in studio? Lithium ion batteries were pioneered in
Japan and have grown in Asia there. So we have a lot of respect for the
various supply chain manufacturers in this region.
However, since our operations are centered in North America, we understand
that local production for local consumption is inevitable there.
So therefore it's not a simple binary. There are various important factors and
we want to select suppliers who can realize these factors.
You're ramping up production of your newest cells, a 4680 type battery.
How does that compare to the older 2170 and why do you think a lot of carmakers
will want to go to that 4680? What's the merit
of all models this year? And since the size of the battery is
five times larger? From the car manufacturers point of
view. The number of batteries is reduced to
one fifth, and the number of connecting parts and the number of welding
processes can be reduced to one fifth. I understand that this is a big
advantage for them. How is the timeline looking for the
production of the 4680? Are you on track?
I know it. We are preparing for production in
Wakayama, Japan. We have already completed the building
and are now installing the production facilities.
Since we are basically on time with both development and production preparations,
we think it's possible to start production in the first half of fiscal
2024. What's the one thing Japan needs most to
stay ahead in the world? I know I quoted this and I believe this
is a great time to make a big change in the energy sector.
From the decarbonization point of view, at least when it comes to batteries.
Japan has been very proactive. So I think it's very important for Japan
to have confidence and to take on challenges.
The CTO of Panasonic Energy, speaking exclusively with Bloomberg's Kurumi
Mori. You can catch Japan ahead every week,
Monday at 8:40 a.m. if you're watching in Tokyo 7:40 p.m.
Sunday here in New York, and subscribers can watch us live on the terminal using
the TV go function. Of course, this is Bloomberg. Bloomberg is live from the World
Economic Forum in Davos this week, will be speaking to leaders from BlackRock,
Bundesbank and others. The market opens in Tokyo and Seoul are
next. This is Bloomberg. This is DAYBREAK.
Asia. We're counting down to Asia's major
market opens. And of course, we're kicking off trading
shares, of course, major markets this Asia Monday and a lot of geopolitical
focus, right. Digesting those results when it comes to
the election in Taiwan over the weekend and a lot more focus in terms of what
else we're going to see in terms of some of these geopolitical headlines this
week. Yeah, I mean, take a look at oil prices
because they are now under pressure again, despite the fact that Middle East
tensions centered higher last week. So Bell will be really watching the
market opens as we're also trying to digest what happens to the Treasury
space where we saw another renewed rally last week.
Yeah, that's right, though, to note as well as well, of course, that treasuries
will be shut today for Martin Luther King Day in the US.
And just the open here that we're seeing for Treasury futures at this point in
time. But yeah, it was that direction last
week really holding about 4% across the curve.
What else is watching in the trading session so far today is still that focus
on Japanese equities because you've got the Nikkei here trading up again for
another session just fractionally. But still it has been a very solid start
to the year for Japanese stocks and certainly we're now perhaps looking to
close in an all time high that was reached before the economic bubble burst
in the early nineties. So some of the analysts we're speaking
to saying there's a strong possibility we actually extend above that.
A lot of investors choosing this market for reasons like easier policy settings,
corporate governance reform still coming through.
And there's the geopolitical side that's weighing into this as well.
A lot of investors saying they prefer Japan to other markets like Taiwan, even
with that election result signaling some market calm.
But it is that geopolitical tensions in focus.
That's Japan. Let's switch on.
Take a look at what's happening in Korea at the start of the day here, because
adding to all of this uncertainty is just what's happening between North and
South Korea. And we had North Korea on Sunday firing
its first ballistic missile of 2024. That was confirmed by South Korea in a
text message. But essentially the missile, we
understand, fired from an area near Pyongyang, the North Korean capital,
toward waters off the east coast. So we can just monitors and defense
stocks as they've they move in turn. But here we're fairly steady so far.
So perhaps as well, just a function of what's happening with that US market
closure on Monday, thinner liquidity, perhaps the track.
And we are just seeing Nasdaq futures, for instance, fractionally under
pressure that Cosby again, you can see they're just treading water.
Let's change on because we do also have the open of the ASX 201 hour into the
session so far. Some interesting moves coming through in
the energy complex because we actually are seeing those energy companies moving
higher. Even though Brent crude, as you said,
share is a little bit weaker so far that focus more on the demand picture that's
coming through. Part of that is concerns around the
weakness of China's economy. We have credit data, for instance, out
Friday after the market close told us that households, corporates, they're
still not picking up new loans. And so you can see material stocks as
well in the red there, Heidi. Yeah.
Well, so much for investors to contend with and more in just a couple of weeks
into the new year. Right.
But our next guest says a lot of the prevailing themes of 2023 will still be
relevant, including rotating gradually out of high flying large cap stocks into
smaller caps with higher growth potential.
With us now is Mike Smith Dairy. He's a founder and CEO of SJ AMC
Capital. So it's a combination of that which
makes sense, right, Given all of the sort of complaints over the lack of
breadth in in particular US markets last year.
But you're also saying when it comes to perhaps Asia and some of the thematics
to double down on any pullbacks. Correct.
So with respect to the large cap, definitely taking profits makes a lot of
sense also because if the breath does continue on in overall will remain
relatively constructive on US growth. That means that all of the laggards, all
of the names that haven't rallied as much as the mega caps and the large caps
are likely to do quite well. And if you look at the growth potential
as well as current valuations, obviously they offer definitely some upside
potential over there. Therefore, what we are looking at is a
rotation, obviously not getting out of the mega caps all entirely, but
definitely do look at having that rotation into the portfolio.
And with respect to Asia, as you correctly mentions, we do expect this
year is going to be quite volatile a little bit more Rangebound definitely.
Unfortunately not as positively as last year, even though we are constructive.
But we would be surprised if we see another year like last year in the
equity markets. But basically what this means is that
once we do see a correction materializing, then do look to double
down on the names that you like. And with respect to Asia, you were
mentioning India remains one of our top down one of our top picks.
Indonesia as well. And then overall, just look at the
themes that you like and upon again, a pullback do look to add.
Let's talk about two of those favorites. You've already mentioned India.
Could you give us an idea of what you see as being good value given how
expensive that market is? And also when it comes to Japan, rolling
it out to 2024, even as you look at technicals that are looking pretty
overbought with respect to Japan.
We remain on the sidelines. We believe that it will continue moving
higher because, of course, the Bank of Japan remains extremely accommodative as
of now. And with respect to technicals, if it
breaks up, it could keep going. But this big lingering danger of the
Bank of Japan normalizing their monetary stimulus is definitely a huge risk.
And once that, of course, once that materializes, there are going to be big
repercussions both on the equity and on the affects market with respect to the
yen appreciating and the Japanese assets on the equity side declining.
Therefore, we remain on the sidelines, even though we are cognizant of the fact
that in the short term this could keep going.
With respect to the other themes that we like in terms of valuations, we actually
like things that are expected to have very good growth opportunities in the
future, which remain secular themes going forward.
So do look at cybersecurity. That remains one of the focus areas for
us. Clearly, A.I.
we've been speaking a lot about A.I., but it's going to remain for us for
quite a bit of time. And look actually at some of the names
that have underperformed, for example, renewables and clean energy.
They're actually coming in quite cheap. And if we get in an environment where
interest rates are going to be gradually declining or basically staying lower,
then all of these names which require more capital in order to grow, are
likely to do quite well and you enter in a pretty good valuations.
When it comes to Treasuries, Do you think there are segments of the market
that are looking too bullish now? Where do you think a kind of fair value
on where yields will settle for the ten year?
We think that now is market is pricing in cuts to aggressively.
So the market is pricing in nearly six cuts this year.
We don't think that is going to be happening.
We continue viewing to the maximum three cuts from the Fed.
Six is definitely too much, which means that the tenure should gradually
stabilize a little bit higher than here. So we're about 4%, give or take.
I think it should be stabilizing around four and a quarter.
Of course, there's going to be fluctuations over there, but it should
gradually. China, but not much more than here.
Clearly, the hiking rates and hiking days are behind us.
We're going to be looking at cuts. Therefore, it's unlikely that it's going
to be moving materially higher than here, but it should stabilize a little
bit higher, which means that, yes, tactically one could look at shorting
rates, but it doesn't really make sense. It makes a lot more sense to look to
buying more into the fixed income space once interest rates increase a bit too
much. So you're going to be seeing moments and
opportunities when that happens because you will see eventually that one of the
data which is going to be moving into our side market and do take advantage of
that in order to keep adding to your fixed income exposure, look at the belly
of the curve. The 5 to 7 years is probably the area
which we like the most. Max, when it comes to China, the market
is still so skeptical and so avoidant in the large part.
Right. What kind of a catalyst would you need
potentially to find opportunities there? But we've been waiting for a catalyst
for quite some time now, unfortunately has not materialize yet.
And the problem is that the more that we are waiting for a catalyst, the more
powerful the catalyst needs to be in order to convince the market that China
has has turned a page. The only thing that is actually going to
be driving a meaningful and lasting basically move up in the Chinese
stocks is a move with respect to the political side, but with respect to the
business sense. So the international market needs to
have an understanding that the business rules are becoming more business
friendly within China. And a little bit of these geopolitical
tensions are going to be declining, but more or less is the vision.
With respect to what is the narrative within China, which is has to become
more pro-business, which has not been the case over the last 12 months.
And again, now China will need to do a lot more in order to convince all of
those international investors, which are not in China now, which have gotten out
of China and which are very skeptical into going back in, because they have
lost a lot of money over the last few years.
And therefore, they will need to do quite a lot.
But again, that catalyst needs to come and needs to come quickly.
Otherwise, you're going to be seeing, again, Chinese assets continuing,
drifting lower. Do you think investors are being
complacent at this point on geopolitical risks?
Well, geopolitical risks are always very binary, so unfortunately, it's hard to
foresee them. But if something happens and escalates
meaningfully, then it's going to be obviously big problems for everyone.
Clearly, from a marcus point of view, but even from a social point of view,
even more importantly. But if we focus on the Marcus side.
Yes, they are a little bit complacent, but to be honest, they've been
complacent. Also last year when a lot of those
headlines were out there and we have seen that it turned out that no major
escalations has materialized. Geopolitical risks remain the main risks
for markets going forward. There's quite a lot of them,
unfortunately, throughout the globe. We have seen quite a few conflicts
breaking out, which is extremely sad. Therefore, when you are looking at your
asset allocation, when you're looking at your investment rationales.
Global investors need to take these into consideration.
You need to have some black swan or worst case scenario, hedging in place.
But again, as of today, hopefully we're not going to be seeing a meaningful
escalation, which is again going to be leading on to, you know, strong
correction or even worse headlines for the world overall.
Max, always great to have you with us. Max von Dairy, founder and CEO of CMC
Capital. Let's get you back to Bo in Hong Kong
for a look at some of the early movers Bell.
Thanks, Heidi. So just tracking a couple of different
sectors in relation to earnings because they kicked off Friday in the US, the
latest season, fourth quarter numbers coming out and some disappointments
really here as well. We had Burberry, for instance, London
listed slashing its profit forecast as have what, nearly £100 million or about
120 million USD off the outlook. And as well, the CEO of the company
saying it's clear that demand for luxury goods is falling and particularly in
those key markets, the US and also in mainland China.
So you've got luxury stocks as well in Asia.
So far, a little bit under pressure here.
Is Shiseido one of the standouts, the downside of 2.2%.
Let's change on because we also had Delta as well, the US airline walking
back its profit target in the latest numbers.
Are they now saying that adjusted earnings are likely to come in at 6 to
$7 a share this year? The company has had a long term profit
forecast in place of more than $7 a share for 2024.
So the carrier shares, they slumped off that down more than the most in 18
months. Rivals as well in that market space were
lower. And you are seeing mostly airline stocks
are moving to the downside with the exception of Korean Air there.
But certainly higher costs seem to be countering the gains from a rebound in
international travel. So it is that focus, Sherri, as well.
Don't want to lose sight of the earnings numbers that are coming out.
All right. Bell and coming up as well, we look
ahead to the market opens in Taiwan after voters pick their newest leader.
And we're a live report from Taipei's next.
We'll also be discussing the outlook for chip companies there with UBS as head of
Taiwan research. And that interview coming up shortly.
Is this Bloomberg? We are telling the international
community that between democracy and authoritarianism, so that we we will
stand on the side of democracy. Taiwanese president elect like Qingdao,
speaking to supporters after his victory on Saturday.
Let's discuss the significance and implications of the election results
this weekend. Joining us now from Taipei's Bloomberg
Markets co-anchor Yvonne Man and our Greater China senior executive editor
John Liu. Yvonne, let me start with you.
You're in Taipei. What message is Taiwan's ruling party
sending to the international community right now?
Yeah, you heard from managing done his victory speech there, saying that, you
know, this is an opportunity for Taiwanese voters to choose between
democracy and autocracy. And it seems like democracy had won
that, you know, Taiwanese are now, you know, see themselves as more Taiwanese
than Chinese itself. And that probably is what swayed a lot
of voters to vote for DPJ in this historic win over the weekend.
We have not seen a party when three terms in a row.
So this is certainly something that is quite of a milestone for the DPP.
Lighting does did also when comfortably here with a wider than expected margin.
But but there are caveats to this right because he only received 40% of the
vote. So had the KMT and TPP gone through with
this coalition, you know, we would have been talking about a much different
result here. Right now, that percentage of the vote
of 40% is the lowest that we've seen since 2000 when Chen Shui bian won.
And they also the DPP lost their overall majority in the parliament.
So this is a divided government that is going to have to govern now, which means
the DPP is going to have to reach across party lines and work with other parties
in the legislative yuan to get budgets legislative through here.
So that is certainly going to impact the agenda of the DPP.
John, what if we heard from Beijing so far?
We've had a few comments from the foreign minister.
I had the response of, I would say has been muted.
As you noted, the foreign Minister, Wang Yi, was in Cairo at a press conference
on Sunday. He did talk about the fact that no
matter what the outcome of the election was, it was indisputable that according
to Beijing, Taiwan is a part of China. And so that has been the ongoing theme.
We've also had a news from the foreign ministry in Beijing saying they've sent
stern representations to the United States that after the State Department
sent congratulations to Taiwan after following the election on Saturday.
I think if Xi Jinping had his way, he's got plenty of problems.
The war in the Middle East, the war in Europe, the economy.
He'd rather not see Taiwan blow up if he doesn't have to.
And Iran, of course, is very important to the Taiwanese economy are the chips
that they produce. Our very own Stephen Engle actually
asked like Qingdao about the importance of the security of this sector during
his first post-election press conference.
So let's take a listen first. How do you help mitigate the risk that
increasing tensions with China essentially could weaken?
That strategic advantage, that strategic importance and of the industry from us
on the whole thing. As long as there's equality and
compatibility between the two sides of the Straits, Taiwan is willing to engage
with China for exchanges and cooperation utterly.
We will vigorously assist the semiconductor industry in material and
equipment R&D. I see.
Designed to manufacturing and packaging, to testing to form a more complete
industrial chain. Yvonne, how challenging will it be for
Lai to be able to really keep the competitiveness of Taiwan in the
semiconductor industry when there are so many geopolitical challenges?
You're right. And it's interesting that you that sort
of that sound bite that he just said about know, reiterating that he is still
seeking some sort of cooperation with China.
I think that's seen as sort of a compromising sort of comments from
lighting in that victory speech. So potentially that's why, you know,
people are saying we might not see a huge reaction across these markets as
well. But as we've seen, I mean, U.S.
export controls to China has impacted Taiwan, semiconductors, as well as the
whole tech supply chain here in Taiwan, with many U.S.
firms asking suppliers here on how they're where they're procuring their
chips, whether it's from China or not. So the analysts that we talked to say,
look, if this TPP win might mean that at least Taiwan secures its position as an
independent location to fabricate chips and for air servers, and perhaps because
it has a better relationship with the U.S., that means that they have better
access to chipmaking equipment in the West as well.
So that's the good side of all things, the things here.
But certainly, you know, this whole global trend of derisking, decoupling,
whatever you call it, that's not going away despite this election outcome.
We've seen even TSMC really expanding in Japan and possibly building capacity in
the US and Arizona as well. So this will ensure anything that Janet
Yellen calls is something that's still here to stay, but the pace of which we
see that might might slow down under another four years with the DPP.
Yvonne, we've been reporting about this US delegation of four more officials set
to meet with Taiwan and these politicians potentially another test of
these tensions with Beijing. We're now hearing confirmation that the
Taiwan president will meet with that US delegation at 9:30 a.m.
on Monday. What do we know in terms of what's going
to be on the agenda, the purpose of these meetings?
What we know so far is that this is some sort of a congratulatory tour.
That's what we've heard from those that confirmed this trip.
It's us ex senior officials that we are hearing that are here on this trip as
well. And as you say, they're going to be
meeting with the president like lighting as well as the vice president elect
shall be Kim, who, as you know, is the former Taiwan of voyage to the U.S.
So it seems like we've seen these sort of delegations come through with the
U.S.. I think Japan also has has made that
here over the weekend, congratulating Taiwan here on a smooth democratic
process. This is going to be a test, though,
right, of what this means for the U.S. and China relationship, given how timely
this this trip is, right, just days after this election outcome.
But I think from as John mentioned, I think the U.S.
and China right now still want to maintain at least cooler heads right
now, just given what we saw in San Francisco, those meetings between a she
and Biden, that they still want to keep that sort of San Francisco sentiment
right now just days after this election. But we'll see how this this meeting
goes. And, John, I'll take it.
From tensions on the Taiwan Strait to tensions around the Red Sea as well as
we continue to see the U.S. and U.K.
attacks on Houthi rebels in Yemen. We haven't necessarily seen big action
coming from Beijing, despite the fact that, of course, their trade ships are
really being affected there, too. I don't think we will see any major
action from Beijing. It's not in Beijing's interest to get
involved in any conflict in the Middle East.
They do depend a great deal on oil imports.
They need those shipping lanes to remain open, not only to get imports of
commodities and energy into China, but to get goods shipped to Europe.
All the same, when the U.S. and the U.K.
and other allies, American allies, are out doing the attacks, there is there's
no reason for Xi Jinping and the Chinese government to get involved in that.
They can stand back. They can play the neutral party.
And when there is when it's time to come into peace talks, they'll be ready to be
part of that peace talk. I'm Bloomberg Markets, co-anchor of
Online in Taipei, upgraded China senior executive editor Geno they're in
Singapore with us. You can get a roundup of the stories you
need to know to get your day going. In today's edition of DAYBREAK, you can
find that on the terminal for Bloomberg subscribers at De Vigo.
It's also available on the mobile in the Bloomberg Anywhere app.
You can customize the settings as well as you just get the news on the
industries and assets that matter to you.
This is Bloomberg. You're watching DAYBREAK Asia.
The top courses that we're following. Bloomberg has learned that Apple is
shutting its 121 person team in San Diego, leaving many employees at risk of
dismissal. Sources say the group has until the end
of February to decide whether they want to relocate to Austin, where they would
merge with the Texas portion of the same team.
The unit is responsible for improving Apple Smart assistant Siri.
Major U.S. lenders rolled off more of their
commercial property loans as remote work and higher interest rates pummeled
valuations of office space. According to earnings releases.
Net charge offs. Bank of America and Wells Fargo rose
during the fourth quarter, partly due to office loans.
BlackRock has agreed to buy global infrastructure Partners for about 12 and
a half billion dollars. The move involves the world's biggest
money manager into the top ranks of investors that make long term bets on
energy, transportation and digital infrastructure.
BlackRock will pay $3 billion of cash and about 12 million shares.
The deal is expected to close in the fourth quarter.
Sure. Take a look at how futures are opening
up in Europe this morning. This as we have concerns about really
more downside when it comes to equity assets and stocks in particular, because
we do have this picture of potential erosion of profit forecasts across the
region. This is a picture we're watching, of
course, shippers in particular, shipping stocks surging globally as we see the
impact of the geopolitical tensions. The US UK strikes continuing to play out
on the markets. We say Euro Stoxx 50 futures up by just
about 2/10 of 1%. German DAX futures up modestly by about
the same amount there as well. And watching really how whether this
tepid start to the year potentially facing more upside for European stocks
with what is projected to be a tough earnings season.
A soft economic backdrop and the consumer still a question mark there. This is DAYBREAK Asia.
I'm Annabel Jewelers with a check of markets.
We're 30 minutes into the session for Japan and Korea.
So far, 90 minutes in trading as well for Aussie stocks.
But you can see the set up today. It's very, very steady going.
One of the factors that's really adding to that is we've got US treasuries that
is shot Monday for a public holiday. We'll also have equity markets not
trading later given Martin Luther King Day.
And so that's really playing in perhaps a little bit to the dynamic because
you're not really seeing much movement coming so far in the bond space currency
as well. Just a little bit under pressure for the
most part here. So some slight strength, but equities
very, very muted today. So far.
New Zealand really the only one that's got any significance, but down 6/10 of
1%. The Nikkei here, you can see just
fractionally higher. A lot of analysts as well to note, are
still optimistic on the outlook for Japanese stocks over the course of 2024.
Let's change, John, because I do just want to put a little bit more into
perspective, just the low volumes that we're seeing.
This is the the average value at time function.
You can see that dotted line in blue is the projection over the course of today.
This is what we see on a 20 day moving average basis.
So right now trading volume is about 20% lower than where they've been on a 20
day moving average basis, which is significant as well, Heidi.
When you think over the last 20 days, that's also been the the lunar rather
the Christmas New Year holiday break. So traders have already been away.
It's the thinness of what has already been a low volume trading anyway.
Yeah. We'll be watching, though.
How many stocks and futures which begin trading soon in terms of any kind of
reaction that we've seen from the result from the election over the weekend?
Analysts have told Bloomberg that the Democratic Progressive Party victory in
the presidential election should bode well for markets in general.
Let's get more from our Asia stocks. Reporters Amit Shah joins us now for
more on these election top events.
We also always kind of try to remember the markets.
Just one certainty. Right.
And and this does present, I guess, the most kind of certain outlook out of the
options that were were on the table over the weekend.
Well, Heidi, the DP's win for the presidency and it's a loss of the
majority in the parliament was priced in already in the markets.
And it was seen that the volatility was up in the Taiwan dollar and the stock
market two weeks ahead of the election. But we saw that we are not going to be
seeing too much of an impact. The impact is just not going to be that
huge, the analysts are telling us, because a lot of that has been priced in
already. We know that Taiex, the stock benchmark
of Taiwan, has gained about 27%, outperforming most of its Asia peers in
2023. And we're going to see that this is a
huge market that we'll have to be watching.
But again, with the market pricing, we're not going to be seeing a huge
impact there. We had analysts talking about the fact
that Beijing has remained relatively restricted, has restricted its response
when it comes to any confrontation with Taiwan before the elections.
But they were saying that perhaps in the next few weeks we could actually see
more provocations coming from China. How could that factor into market
confidence? That's right.
We have seen analysts are saying that the response to direct response from
Beijing was a little muted. And whereas we will be seeing the
results a little more soon after. Just like you said, in a few days or in
weeks or so, there definitely will be some more of the volatility that we'll
be seeing, especially given that there is high stakes on the on on the Taiwan
equities. It is.
It is doing well compared to other stocks.
But also we need to look at how the results panned out for the legislature.
So the DPP has lost a majority. And a bit of a surprise thing was that
the more China friendly party, the KMT, also losing the majority.
And so the balance of power is again, it lies with Taiwan's other People's Party,
which is the TPP. And so we'll be seeing a little bit of
that too, push ups and pushbacks from the opposition when it comes to Election
Day, pushing with some of the policies that he wants to. Mean, aside from politics, what's the
outlook when it comes to earnings for Italian stocks?
What we are hearing from the strategists and analysts that is 2023 is really
going to be the ear of South Korea and Taiwan.
We hear that a lot. It as we've already heard and we've
already seen that its stocks benchmark doing well in all thanks to the
artificial intelligence boom and the recovery in the semis.
And we're going to be see more of that coming back.
And also the exporters are going to be doing better in the year in 2024.
So there are some two sectors that are very that we are watching carefully.
And of course, if especially after the election, we're going to be see the
defense stocks that have already been outperforming here.
We'll be seeing more of the movements there as the DPJ spends more of the time
and on budget, perhaps on the defense. And we'll also be seeing some of the
force moves in tech sector when it comes to Chipmaking.
TSMC has more than 27% weighting on the highest index.
And so a lot of the tax tech companies will be moving around it.
And when it comes to access of the chipmaking, we will be seeing more of
perhaps some French warring with DPJ winning this election as they might have
more access to that through to providers, Western providers like ASML.
And we could be looking at some of the other stocks like tourism as well as
energy sector, where DPJ wants to move towards the more renewable energy
policy. Our bloomberg asia stocks reporter sung
me cha. Let's actually get a little bit more on
the reaction to taiwan's election results and get back to taipei and
Bloomberg Markets co-anchor Yvonne Man yvonne.
Joining me now is Jennifer Wells. She is, of course, Bloomberg Economics
and also the former U.S. National Security Council head of China
and Taiwan policy. She joins me here in Taipei.
You know how they were. When was this for DPP, you think?
Well, this is an unprecedented third term for any party in Taiwan since they
started opening holding open elections. And that's a major win for them.
At the same time, they didn't secure a majority in the Allies.
So I think for the next four years, they're going to have some challenges
advancing their agenda. But overall, I think what this
represents is Taiwan's democracy is maturing.
The voters have decided that no party should rule entirely on their own, and
they'll have to share and compromise in order to advance their agenda going
forward. How can we assess?
I mean, the Beijing response so far has been quite low key, muted right now.
What's going to dictate what the Beijing approach going to look like?
Not now, but maybe in the next few weeks or months.
I certainly expect in the next few weeks and months between now and the
inauguration in May that Beijing may take some additional steps to sort of
shape the incoming administration's approach, in particular the signal that
they might take additional measures towards Taiwanese exports.
They might continue military pressure around the island.
I would certainly expect them also to go after some of Taiwan's diplomatic
partners. But I think two factors are really going
to shape how far along that spectrum they go.
I think the first is going to be signals that they're receiving from Taipei and
in particular, they're going to be looking towards that inauguration speech
and which signals are getting about the incoming administration's cross-strait
policy. And the second are the signals that
they're getting from Washington and in particular, Washington has this
unofficial delegation out here in Taipei right now.
Right. They've been sending signals that they
want to maintain open lines of communication with Beijing during this
period. And all of those, I think, are going to
be important clues going forward for how Beijing sees this trilateral
relationship and the management of the administration as it comes into power.
Of course, we've seen like he's been labeled before by China as an instigator
of war, as a separatist. Can we expect him to really be the
continuity president and follow in the footsteps of what China one did or do
you think he's going to have to? Or he's going to want to pave his own
way? I think lighting to is definitely going
to stick to Taiwan's footsteps when it comes to the cross-strait policy.
I think she has set out a moderate cross-strait policy.
He has followed that during the campaign.
I expect him to follow going forward. I also think in terms of staffing, we're
likely to see him retain a lot of the key folks from her administration, in
particular his vice president elect. He can show is someone who serves as
Taiwan's representative to the United States, also very much in line with size
perspective on this more moderate approach to cross-strait relations.
And I expect to see that going forward. All that being said, yes, I think Lai
might try to put his own stamp on it. I think what Cy has done over the past
eight years is try and carve out what the DPP's approach to Beijing is.
The 1992 consensus that the Guomindang has pursued is not what the DPP believes
is the right approach, but what is the right approach?
And Cy has come up with some ideas. But I think Lai is going to continue
that process going forward. You mentioned about this divided
government and that the DPP is going to have to reach out to other parties.
What sort of collaborations are you foreseeing?
I mean, is the KMT and the TPP really going to join forces?
There's still a lot of bad blood. A lot of.
Yes. Yes.
I think the key point will be the selection of the legislative yuan
speaker, and that will tell us a lot about what kind of power the DPP is
coming into the ally with who it might be working with.
For example, if it was a parachain sharing arrangement, we might see that
sort of formalized in who is selected to be the speaker.
And then in terms of the pivot point, yeah, I think the Taiwan People's Party
Live and Q&A is really going to be a key, pivotal role and probably
exercising as much sort of influence and leverage with those eight seats as they
possibly can going forward. Could be a minority force to really kind
of dig our attention to here in the next four years or so.
Deborah Welch, thank you so much for joining us here in Taipei, our chief
geoeconomics analyst at Bloomberg Economics.
How do you. Yeah.
Sticking with that one lie also applies to further development Taiwan's chip
industry, which is dominated by TSMC. The Taiwanese president elect told
Bloomberg Stephen Engle how his administration will continue to support
the industry while balancing engagement with China.
How do you help mitigate the risk that increasing tensions with China
essentially could weaken that strategic advantage, that strategic importance?
And that should have been seen from last year.
And as long as there's equality and compatibility between the two sides of
the Straits. Taiwan is willing to engage with China
for exchanges and cooperation. We will vigorously assist the
semiconductor industry in material and equipment R&D.
I see designed to manufacturing and packaging, to testing to form a more
complete industrial chain. Let's bring in our next guest who says
the chip sector is turning the corner after a prolonged slowdown.
And for first names such as TSMC, media, tech and ACE Media.
With us now is around the Abrams head of Taiwan research on UBS.
Great to have you with us again, Rhonda. It's interesting that you're more
optimistic about 2024 in the chip sector, because usually this sector
closely correlates with a global macroeconomic picture, which still seems
a little bit fragile in 2024. So how do you see this rebound
happening? Yeah.
Great. Thanks for having me on.
It's a good point. I think this cycle, the tech sector
already went through a fairly deep recession.
Recall last two years, we had quite a bit of brakes on the sector, quite a
hangover on all the tech goods coming out of Covid huge pile up of inventory
that took really through the last 18 months to bring down and we had quite a
bit of inflationary pressure. So this year we do see some of those
headwinds easing the inventory in the supply chain is coming down, inflation
starting to moderate and we're starting to get another year away from that real
big boom in COVID driven demand. So for this year, I think what we see
driving it cloudy continues to try to catch up to demand at least through
first half stabilization on PC smartphone, General Server.
And we're starting to see in some a bit at CBS a move toward the AI on edge
device, which we expect to be marketed quite aggressively this year.
I think more of the contribution as we head into next year.
Again, we're balanced. We expect mild recovery fabs are not
for. So the end customers don't need to be in
a rush to build inventory. And we still have auto industrial, which
is later to correct. It's still going through adjustments.
But bottom line, I think we're still heading into a mild year after a pretty
tough 18 month downturn, which which really led the macro this time.
So who are you thinking will be the winners here in 2024, given the ongoing
still challenges, but also the optimism that you talk about, whether it's the
supply or the demand side of things? A few areas, advanced technology, and
when we get the outlook for advanced foundry, they have room to outgrow the
industry, largely with very high share of AI products as well.
We still continue to see the advanced products move to more advanced
technology nodes, which carries a higher price.
The other factor I think can win memory sector, which went through a tough
period we're actually seeing and our headline of a note earlier this month
was New Year Fireworks. Memory price is starting to see a surge
and expect that to do well. And I think relatively for equipment,
we're coming off a period of lower investment for where some of the
so you could say global players. But we're still seeing strong, strong
momentum both from China and we're seeing memory CapEx, which which came
down quite a bit the last year and a half, starting to come back really to
address things like high bandwidth memory which goes into AI servers run.
It was really interesting being a see us last week in Vegas because everything
had to do with artificial intelligence one way or the other.
And now you mentioned the demand for cloud A.I.
to continue this year, but what about is that going to be the main narrative in
2024 as well? Because when I was at CES, what I was
hearing from consumer electronics companies was that they would want to
use AI in everything from television sets.
So anything that you're using at home, like appliances.
Yeah, it's a shift. Last year, if we go back to Taiwan's
Computex show late May, early June, everything was about cloud AI and think
of that runs off the cloud.
So the big investment and the big winner off of that was the AI and the GPUs that
go into AI servers. This year we'll start to see broadening
out and see us started that. We expect the Galaxy launch next week to
be about. That is bringing AI to devices, AI to
the smartphone, to the PC, and also smarter industrial and smart home
products where if you put some of that generative AI processing on that device,
that helps create a faster latency. And you can also address a lot of the
personal things you have on the device where it's more secure, keeping it there
more private and it's more real time versus going up to the cloud.
There are synergies. We expect hybrid, some processing on
device, but also in the cloud. But that's a.
And I think the good thing for the tech sector is that a broader set of
companies benefit if we see a better replacement cycle in smartphones p C
where a lot of these home appliances. Again, I think this year it's like see
yes, a lot of marketing. Next year we could see more potential.
It really drives earnings for the sector.
Finally. ABRAMS Good to have you with us.
Head of Taiwan research at UBS. And of course, we'll be following those
semiconductor names at the opening in Taiwan.
But, Heidi, it will be really the reaction, the broader investor reaction
when it comes to the DPJ winning the presidential elections this weekend.
Yeah, that's right. And we were just speaking to I just Dr.
Paul really talking about this idea that some of that certainty has now already
well and truly been priced in when it comes to at least equity risk appetite.
Right. And potentially as we get past kind of
any kind of near-term market reaction is likely to absorb that aside pretty
quickly. In fact, Bloomberg Intelligence is
saying that within the next 1 to 2 quarters, judging by historical trends,
what we're likely to see is really that return to focus when it comes to the
fundamentals. We are see trading up by just about 9/10
of 1% when it comes to footsie. Taiwan index futures at the moment
seeing a pretty good rise after that deep win.
But of course, other ongoing areas of focus for investors in Taiwan, that tech
earnings rebound that's expected of up to 25% this year.
And as well, of course, the outlook when it comes to the Fed and other central
banks. We do have much more to come here on
DAYBREAK. Asia, this is Bloomberg. Over the next hour, the BBC will
announce its decision when it comes to the medium term lending facility rate.
The central bank has signalled that it may deploy monetary policy and liquidity
tools to boost economic growth. Let's bring in our China economy editor
Joe de CES, who joins us now from Hong Kong.
So this would be an incremental move. What are the expectations and
particularly in terms of expectations of actually making a meaningful impact on
confidence, which is kind of been the main issue here when it comes to
lending? Yes.
Well, I think that at this point, look, it's pretty widely priced in that there
is likely going to be a cut to that key policy rates, lowering the rates on that
medium term lending facility, those one year policy loans.
I think at this point, you're right that it's probably not going to make some
kind of meaningful impact in terms of the confidence issue that we're seeing.
But maybe it does help ease some of those debt financing pressures that
China is facing. At this point, I mean, the PBOC does
have to do something. I think that, you know, a policy rate
trim is one step in the right direction, especially when you look at some of the
data that we've had recently. Deflationary pressures are still
incredibly prevalent in China. We saw some pretty weak credit data come
out late Friday, especially in the realm of corporate financing was was
particularly weak there. So there's something that the central
bank has to do, but this is probably not going to be enough.
Maybe we'll also see some additional liquidity injected into the the
financial system, trying to ease some of those pressures a bit.
But other than that, I think there's mounting expectations that maybe it's
that the central bank has to take more advantage of other more targeted tools
to sort of aid growth, sort of ease some of these pressures maybe that involved
the reserve requirement ratio cuts, maybe that involves more targeted
lending, lending through other sectors. But yes, there's more that has to be
done here, clearly. Jill, we're also expecting plenty of
data out of China this week, including the 2023 GDP growth rate.
The expectation right now from economists is that we did see a big
rebound, especially in the fourth quarter.
So I wonder if that will make a difference to what policymakers want to
do this year as well. It probably won't make too much of a
difference, to be honest. I mean, look, that 2023 data, yes, it's
likely going to look pretty positive. I'm sure Beijing probably hit, if not
surpass, their official growth target of around 5% for the year.
But you have to remember that that fourth quarter data, when you're looking
at it on a year on year basis, it compares to an incredibly weak 2022.
I mean, December 2022, we saw some continued COVID restrictions, but more
importantly, we saw really massive outbreaks of COVID throughout the
country. That really was a put a damper on
activity. And so those numbers are sure to look a
bit rosier than, you know, maybe it's kind of seems on the surface.
I think you have to zero in on what some of the month on month data looks like.
The bottom line is that, again, we're still seeing some issues with
confidence, still seeing some issues with the housing sector, the housing
crisis unfolding. Deflationary data, I think is still a
concern. So all of that does indicate that, you
know, we're not out of the woods here. China is going to have to come up with
more policies on both the fiscal and monetary side to really sort of build
momentum into 2024. So regardless of what that data looks
like, I think that, you know, there's a lot more attention being paid to what
the first quarter of this year is going to look like and the economy and that
actually sees there. We do have more to come on DAYBREAK.
Asia. The first Bloomberg. Take a look at some of the stocks we'll
be watching when markets open in Tokyo. Of course, some of these may move given
the ruling deepest victory in Saturday's presidential election.
Analysts say that the win removes key uncertainties for local markets, noting
China's muted response and the prospect of major parties having to cooperate on
policy. You have a few semiconductor names that
we're watching very closely. Of course, the chip sector so important
for Taiwan and we have seen the Taiex seeing a little bit of volatility in the
two weeks ahead of the vote. And we're seeing upside in futures at
the open in Taiwan. That's it from DAYBREAK.
Asia. Our markets coverage continues.
Stand by for Bloomberg Markets china open.
This is Bloomberg.
