We're just half an hour away from the
open of Hong Kong, Shenzhen and Shanghai.
You're watching the China show. I'm Yvonne Man.
Our top stories this morning. Asian stocks are trading as traders
reassess the path forward for interest rates with more Fed officials and Jamie
Dimon warning lending costs will stay higher for longer.
Chinese officials set to meet with State Bank shortly to discuss aid for the
property sector, including proposals to clear inventory country garden.
Meanwhile, beginning a major legal battle against liquidation.
And we are counting down to China's April activity.
Data expected to show modest signs of recovery as policymakers ramp up
support. Happy Friday.
We made it, but it is going to be a busy end of the week.
I tell you that right now. You take a look at how stocks are doing.
We're still set for that weekly drop when it comes to Asia.
If in fact, you look at what happened overnight on Wall Street, when you hit
us, as well as even the Europeans, all of these indices came off some of those
record highs here as we tried to assess what these rate cuts mean.
When you're hearing this more Fed speak, that you're higher for longer and might
be here to stay. And you're still talking about a dollar,
though. The dollar index set for a first monthly
fall in 2024. That should bode well still for the
month, I guess, for when it comes to risk assets.
But you are seeing a bit of a downdraft here when it comes to equities in Japan,
Korea, Australia. Keep in mind, though, I think it's the
S&P, the NASDAQ and Hang Seng still set for four weeks of gains this week as
well. CSI 300, though we might be snapping out
of that for the first time in a while. Taiwan is coming online.
Looks like we're seeing a slight bit here, are watching this, the tech
earnings and the like here today after what we saw, the Golden Dragon index.
There you go. You saw basically earnings from Baidu
and Datacom in some ways actually surprisingly beat when it comes to
earnings. The revenue side might have slowed down
a bit for Biden. We'll talk about that a little bit later
on as well. But the approach, the open is looking
like this. So in China, you got a lot of things
going on. So we have the activity data.
We talked about property prices coming through.
You have a state council meeting which we'll talk about in a bit.
And then there's a 30 year ultra long bond special bond sale that's happening
today as well. So all of that encapsulating what we're
seeing. We're set up for a higher open here
today as well. We're watching that 30 year very closely
as well. At 258, it looks like there's a bit of a
solid demand according to some of the the financial news and local media
saying about how much demand could we see from this bond auction here today in
seven 2248 for the currencies as well. So here's what the agenda is in store.
I talked a little bit about this. Right.
So it's going to be busy property support.
So anything that we hear from the state council meeting, China activity, home
prices, special bond sale. You have Putin in China as well.
There's an HCI review and then we have to look at the rest of the tech earnings
that came through when it came to Baidu as well as JD.com.
I want to bring in my anchor buddy this next 2 hours or even with Asia
correspondent Stephen Engle. You know, there's a lot going on.
It's a busy Friday, the day to day yet. Min Menlow is going to be joining us,
too, with the data dump for April from China.
But again, the the special sovereign bond sale, very interesting.
Only the fourth time in 26 years. I mean, back in 98, I've been around
since then. I remember they had to recapitalize the
big state banks. Then they basically fed into the
sovereign wealth fund in 2007. Then in 2020, they issued again these
ultra long term sovereign bonds for COVID measures and relief.
And now this is the fourth time. So property is probably the end benefit
there. Yeah, we'll have to see.
We'll dig into that with all of it. Well, many of our guests, including
Julie, read with her, especially if people are calculating, crunching the
numbers of how much it's going to cost to really absorb all this excess
inventory in the housing market. More pressure on the state banks,
non-performing loans, more pressure at the local government level.
Their debt crisis is still there and their their fiscal crisis is still
there. So there's lots of things to figure out
who's going to be shouldering the burden and who's going to be at the State
Council meeting later on today. If you look at the guest list or at
least the invitees, financial officials, housing ministry, local governments,
state banks, what does that tell you? Is a big it's a big group of people.
It'll be an interesting video conference, actually.
They're bringing everybody in by video by Zoom.
Okay. And who's going to get the loudest voice
and who's going to be taking most of the pain?
Actually, Yeah. And it seems like they're they're really
putting this as a priority now when it comes to this property market and really
kind of emphasizing this new phase that we're seeing when it comes to the
stimulus measures to that downturn that we're seeing in housing.
Let's talk about more of the data dump. Usually that's our top story and still
is what we're expecting out of the April numbers here.
Analysts are expecting a slight increase compared to March, but are we still
going to see this sort of two speed economy?
Let's bring in our China correspondent now, Min Lo.
She joins us, her debut on the China show.
Welcome. Thank you.
What should we be watching out for? Well, the economy is looking set to come
out of a lull as we head into the second quarter after those disappointing
numbers in March. Industrial production is likely to take
the lead. If you take a look on your screens,
let's pull up the analyst estimates they're industrial production economists
are looking at a one percentage point increase from March on the back of
stronger exports and retail sales. There's a number that we want to look
closely at because, as you said, are we going to see finally a balanced recovery
or that two track recovery with industrial production and fixed asset
investments racing ahead of consumption? And if you look at the May Day holidays,
data, data, we're still seeing huge appetite for travel, but per capita
spending is still not breaking above pre-pandemic levels.
So people still. Keeping a tight grip on their wallets.
And if you look at the data as well for purchases of automobiles, housing,
appliances. Demand still sluggish despite that
government rollout of the trade in program, trying to encourage businesses
and households to upgrade their equipments.
Lots so mixed results there. Meaning you're basically alluding to the
fact that domestic demand consumption is still weak and these trade in cash for
clunkers for the cars hasn't really lifted yet the car sales.
But right now the growth and the momentum that we're seeing in China is
really coming from a top down priority on manufacturing and investment.
What's going to take what what are we seeing, though, on some of the
consumption side that could potentially lift that side of the equation?
Yeah. So consumption, as you said, especially
property, that's a big drag on the economy.
Now, if you look at April sales down 45% still despite the roll of, you know, a
series of pro-growth signals with city of the City saying that they are
removing home buying curbs, and yet sentiment remains pessimistic.
But we saw that a scoop today that possibly we are looking at this big
meeting of the government, looking at buying back potentially millions of
homes across the country. And that's not going to you know, we're
not going to see the effects of that yet in the April data, though, but we will
see. However, fixed asset investments staying
still, seeing a resilient number there with the trickle down effect from last
year's issuance of that trillion yuan bond, sovereign bond that is likely to
go into investments, infrastructure investments right now.
All right. Thank you, my man lo there on China
correspondent joining us here with a preview of that activity data still
ahead. Good to have both.
A security is sharing their latest China's stock strategies and whether
investors should chase this rally or sell the bounce.
But first, we have the BSP Governor Ali Malomo saying that the Philippine
central bank may cut its key interest rate by 50 basis points or so this year.
He joins us exclusively after their policy decision yesterday.
And we're counting down to the open of trade in Shanghai, Shenzhen and Hong
Kong. This is the shot of show.
Happy Friday. Well, the Philippine central bank kept
its key rate unchanged at a 17 year high, but says it may pivot to cutting
rates as early as August as price risks moderate.
For more, joining us exclusively here is the governor himself, L.A.
Ramon Loma. Governor, thank you so much for joining
us. And you certainly have laid out the path
of these rate cuts quite clearly here yesterday on this press conference.
25 basis points potentially in August and maybe 50 to end this year.
It seems like you've struck a pretty less hawkish tone now.
How do you think that's going to be impacting the peso and the currency
moving forward? Oh, that's right.
Still hawkish, but less so than before. It may put pressure on the peso, but so
far it hasn't. The peso opened at
5753 this morning. That's only seven centavos weaker than
than last night. So, so far, it hasn't really affected
the peso. Okay.
It seems like right now, 5758 seems to be that magic number of people kind of
bring up about whether the BSP would intervene.
How far would you go in defending the currency?
Well, yesterday we didn't intervene at all.
We were happy with the with the movement of the peso.
But if they're stress, then we might come in.
Stress means a large oversight is high volatility, and then we might intervene.
Have you. You didn't intervene yesterday, but have
you been intervening recently? We have.
We're in small amounts, not not to really affect the value of the pass on
more to a to keep markets orderly. But not yesterday.
Okay. How are how are your foreign reserves?
I mean, do you have enough in your coffers right now in case things get
volatile throughout the year, especially if you're saying that you can't actually
cut rates ahead of the Fed? We have ample reserves.
So we're we're comfortable with the amount of reserves we have.
Well, Governor Stephen Engle here, is it a wait and see kind of approach right
now as well on the possible intervention when we're seeing that maybe the Fed,
though, will not cut until December at the earliest, according to some of the
expectations. Is this a strong dollar story right now
that you're battling against with the puzzle?
Yes. Yes.
It's been a strong dollar all along. Broadly strong dollar for the past
several weeks. So we we don't feel obliged to
intervene, but we we want to keep the market
orderly. Governor.
Also, we heard some comments from you saying that perhaps some of these
maritime incidents off the Philippines in the South China Sea with China have
had an impact on on the pier. So what are you seeing the direct
correlation there? Well, any any incident seems to affect
the vessel a bit. So far, so far, not so sharply, but
recently none. None at all.
The incidents have not affected the vessel.
Okay. Governor, is there a concern in any way
of the pass through of a weaker peso to inflation dynamics now?
Is that of concern to you in any way? The pass through has been very small for
me because the movements of the peso have been small.
But that's not to say that if the past weakens sharply in the past year may be
significant, but so far it's it's been it's been small.
It's been it's been there, but small. What do you think you need to see to
warrant that that cut in August? Governor, what are the inflation
dynamics? Do you think inflation will still remain
in target of that 2 to 4%? Also, domestic demand cannot continue to
soften or their upside risks to both of those scenarios.
There are there are upside risks to to both scenarios.
But so far, the peso, I mean, the inflation rate has been that's been
looking good. It's been trending down
and output growth has remained intact.
So those are those are pieces of good news for us, which makes us more
confident about possibly easing in the second half of this year.
You also mention about that triple R cut.
Governor, maybe tell us a bit more about the thinking about that.
You can actually start discussing this triple R cut.
Once you do start easing it, is this going to be something that's in tandem
to the rate cuts or something that might have to have to happen subsequently or
after? I think.
My sense is it won't be on the same meeting,
but we would like to reduce the reserve requirement by quite a bit because I
think it's distorting financial intermediation.
But the timing is important. We don't want to do it while we're still
hawkish. Okay.
You said it needs to come down substantially.
Can you give us a bit more on how much more it could actually be be cut?
Well, I have only one vote, but I would I would say we can
we can reduce it to 5%. Right now, it's 9.5%.
But wow. Okay.
That's still one of the highest in the region.
Yes. Governor, you also mentioned about the
BSP saying the second half GDP growth would likely slow
due to the previous rate hikes. Are we still seeing the effects of this
tightening cycle on the economy? And what do you think that actually
starts to fade a bit? Yes, we are.
We our transmission mechanism has long lags.
It turns out the effect peaks at about one year after the after the rate
change. So we're still seeing the effects of the
October rate hike. We're sitting still seeing it today.
So we're that's why we we feel we're still hawkish.
Well, Governor, in addition to those headwinds coming from those rate hikes,
what else do you see as a pressing dampener potentially in the second half
on GDP growth in the Philippines? Well, inflation is also affecting
growth. It's reducing demand, especially for for
food, which is also the source of a major source of inflation.
So the rate hike in October is still having
an effect. We're beginning to see
we're beginning to see negative a negative output gap.
That means it's possible that we're beginning to to
be tighter than necessary for, uh, for taming inflation.
But these numbers are all imprecise, so we have to use some judgment in deciding
whether to ease or not. Well, that's that's the big question.
Obviously, if inflation is still running a little bit higher than trend is,
that's going to be the main deciding factor then whether you do cut in
August. Well, inflation, of course, is the main
factor. But you also look at output growth.
We don't want to we don't we don't want to unnecessarily reduce output just to
just to tame inflation. So we're we're it's a balancing act, as
you know, for most central banks, that's that's the case.
Also, when it comes to the peso, I'm just going back to the currency here.
Do you have an outlook of of where Dollar Peso is going to end up this
year? And how much weakness are you likely to
tolerate before the BSP has to step in? We don't have a number.
We don't have a target for the pressure. We were more or less letting the vessel
float. But we worry about stress.
And it hasn't it hasn't happened yet in the last few months.
Governor Rebello, we have leave it there.
But thank you so much, Eliot Cuomo there at the governor of the BSP joining us
and telling a little bit more about the need for more triple R cuts.
And yes, not too concerned about that weaker peso as they embark on this
easing cycle later on this year. Our thanks to the governor.
We have some breaking lines crossing here when it comes to Japan.
So they basically have left the bond buying amounts unchanged from the last
operation. So last time we saw that things were
smaller in terms of the amount of bonds purchased, this time they're keeping it
at those levels. So you're still seeing a little bit of
these yields taking up higher. It's particularly in the long end of the
curve. It's still at 205 of your 30 year yield.
I believe those are still those decade highs, that Japanese ten year yield,
though we're still hovering around those November highs as we speak here today.
And we're watching, of course, what happens with the fix to that coming
through here. No change there.
Seven 1045 this morning ahead of, of course, that activity data we have, home
prices are coming through at the bottom of this hour as well.
There you go. A little bit of weakness there on the
currency. Seven 2275 This is what the approach to
the open is looking like here today. Your premarket, it looks like looks to
be pretty good in the Hang Seng. We are seeing 302 points to the upside.
I believe here today. The futures are still pointing higher
and yes, to 33 for your ten year. You're watching the long end of the
Curve very closely ahead of that auction today.
This is Bloomberg. All right.
Here are some of the big stories we're tracking for you today.
The IMF has criticized the Biden administration's move to aggressively
raise tariffs on some Chinese goods, including EVs.
The fund says the U.S. economy would benefit more from open
trade. The IMF has been stepping up criticism
of its biggest and most influential shareholder over surging debt levels,
trade restrictions and even the currency impact of Fed policy.
Amid the latest tensions, Beijing sold a record amount of Treasury and U.S.
agency bonds in the first quarter, totaling an estimated $53.3 billion.
Beijing's investments in the U.S. are garnering renewed investor attention
amid signs that tensions between the world's largest economies may worsen.
Two senior U.S. lawmakers have blasted a Washington
based foundation for secretly accepting money from Huawei.
They say the move flies in the face of efforts to keep foreign adversaries from
from compromising U.S. research.
And it follows Bloomberg News reporting that reveals how Huawei, which is
blacklisted by the U.S., secretly funded a research competition through the
Optica Foundation. Bloomberg has also learned that top HSBC
hold are paying off and is weighing options to reduce its 8% stake.
Sources tell options include us for further on market share sales or
divesting to a sovereign wealth fund in the Middle East.
We're told Ping on board members are currently visiting the Gulf, but it's
unclear whether formal talks have started.
All right. Here is your money market here.
It looks like we are ending this Hang Seng on a positive note here, a fourth
week of gains for that benchmark and we're well above that 19,500 level here
right now. It just catching a bit here.
We'll track what goes on with Baiji, what goes on with Rt.com after they did
so in some ways surprised to the upside here when it comes to those earnings as
well. Shares are also up about 9/10 of 1%.
The currency a little bit on the weaker side here today.
Take a look at this, this golden cross. We've been talking about golden crosses
on a lot of these China benchmarks here. But the MSCI is the latest one that
we've seen forming that Golden cross. And you take a look at how many times
this has happened. Only seven times at this Golden Cross
has seen on the MSCI China over the past ten years.
If you take a look at that, what happens afterwards?
The index does rise about 3% or more on average.
One month after that Golden Cross happens.
So looks like the technicals are there to see if whether we can see more
upside. And some of these Chinese equities in
terms of analyst actions here today, there's plenty on tap here given the
tech story, given the property story as well.
Macquarie coming through here with some new movement here when it comes to buy,
Do those shares cut to neutral at the firm with a price target of 111 JD.com
also from Macquarie, those raised to outperform with a price target of 159.
Interesting note from Morgan Stanley here this morning.
So they're looking at the likes of long for group.
Also poly developments in particular here today.
So still downgrading this sector on weak fundamentals.
So they say when it comes to those fundamentals remain highly uncertain in
the second half of this year, even though we've seen this massive rally in
property stocks, I believe we've recovered about half of the losses since
April already. But yes, regulars have turned more
dovish. But we think the impact on property
sales and home prices remains still highly uncertain.
Stephen, I'm going bring you in now. It seems like that's the case, right?
You're seeing more positive stimulus, but what does this do to actually home
prices and actually the supply? I think a lot of times a lot of people
will be watching any kind of lines coming out of this meeting that's going
to be held in Beijing today between state banks, the housing ministry,
finance officials, state owned banks and local government officials about how
much this inventory clearing initiative that we have been reporting on that we
have not got the details. How much is that going to really help
sentiment or is it going to disappoint Morgan Stanley in their report saying it
might disappoint? Yeah, I mean, especially they're saying
that the scale of funding is in question.
Right. We'll talk a little bit more about that
stuff. So watch your today by Datacom will
watch Watching just overall big tech cap, big tech, I should say.
Here they are, Baidu up some 3%, JD up 1%.
The open is next. Welcome back.
You're watching the China show recount on the open of markets, the open of
activity data for April. Also this.
Home prices are coming through any second now here.
So it looks to be quite busy on the agenda here today.
In particular, we're watching these bond markets as well, just given that the
first got a batch of ultra long special bonds are going to be coming to the
market here on this Friday morning. But equities are still catching a quite
a bit here this morning. And the Hang Seng were up about 7/10 of
1% in the pre-market. The tech side of things seems to be
driving that this whole week, whether it's Alibaba, whether it's Tencent, this
time it's Baidu as well as Jet.com, which in some ways actually surprise the
upside with their earnings. Both were upbeat when it comes to net
income side of things. We'll talk about the revenue side a
little bit later when it comes to Baidu, which did come out a little bit more on
the weaker side. But you take a look at what we're
looking at here today. It looks like we're still set for a
fourth week of gains when it comes to Hong Kong.
CSI 300, though, I think we're still set to snap out.
I don't see why the first weekly declines in some time.
Now we're flat when it comes to the Shanghai markets here at this morning.
We'll see how this plays out there. But the small caps are pretty much flat
as well. Some of the big caps watching like
Seattle mean you see ping onshore is catching a slight bit here this morning.
A merchants Bank as well. We're watching, of course, very closely
the property stocks and whether this rally can continue for another day.
But you are seeing, though, commodities are catching a massive bid here.
Iron ore is up some 1% in Dalian. Shanghai.
Crude also seeing that this commodity story still remains quite strong.
Watching, of course, along in of those curves, the curves here this morning.
So we're up about one or two basis points for the ten year, 30 year as
well. Yet we're expecting to hear, according
to financial news, that those bond yields likely could yield about two and
a half to 3%, which is kind of where those those levels are right now.
So could be some solid demand out there for this bond auction here today.
You took over how the Hong Kong Open is looking like as well.
We talked about, you know, basically it's a tech story.
It's these property stocks. Morgan Stanley, we just talked about
that call about, you know, the fundamentals of this property market are
still quite weak. And they you know, when it comes to some
of these policies on on on real estate, you know, investors might end up being
disappointed by some of them, whether it's the scale of the funding or whether
this whole kind of replenish of of new homes and the like is actually going to
affect the secondary supply of the market as well.
There you go, though. You're still seeing Hang Seng up about
three quarters of 1% as tech is driving that here.
MSCI China. Talk about that Golden Cross.
We're still seeing gains of 1% here this morning.
And some of these big cap names still are doing quite well.
HSBC, that's the one to watch. We're down some 2%.
So ping on they're talking about at is considering what to do with that stake
that they have with the bank. So that was a scoop that came out
yesterday and did also affect the shares in London overnight.
You take a look at how these tech shares are doing.
So JD.com slightly down the downside here, despite it seems like they were
able to at least generate some profits and earnings here amidst the sort of
consumer downgrade or so Baidu, though. There you go.
That's the one where you're seeing a bit more surprise to the upside.
3.6% revenue was still the slowest in a year, I believe.
So it seems like the slowing economy did also overshadow some of the sort of
earnings in the like here. So that's still, though, but we're still
seeing at least able to eke out some profit gains here.
Take a look at how the property shares are.
You go we're seeing another field day like so Syfy Holdings are up some 10%
sign of ocean, also up close to 16%. Country Garden also having that hearing
happening, I believe right now. There you go.
You have your new home prices coming through.
So we're seeing a decline of 0.58%. That is a deeper sort of contraction
that we saw from the previous month use home prices also were down 0.94%.
Steve, what do you make of this, that these drops are fast, what we're seeing?
Yeah, because in March it was a decline of 0.34 in house prices and they've now
fallen for 11 straight months. 27 out of the past 32 months, they have
fallen. That's not surprising.
I'm not that's not a news flash. We know that has been weak.
But again, what is it going to take to turn this sentiment around for buyers?
Perhaps? We'll get some details coming out of
Beijing with the key authorities meeting to discuss this potential inventory
clearing plan for new home prices. That nearly 1% drop month on month is
the worst fall we've seen since 2014. So certainly that does go to show things
maybe are slowing down once again. Let's talk a bit more about equity
markets and this rally, whether you can chase it or not or do you need to sell
on this balance? Just bring in Wendy Wu, chief equity
strategist of B of A securities. So, you know, obviously, we've seen 20,
30% gains already. What do you think has changed the most?
Hmm. I think the first leg of the rally in
late April was more driven by global macro.
What's happening to. What's happening in US macro, what's
happening to the Japanese yen. So it was more US long position of flow
buying into the China equity market. But in the past 2 to 3 weeks there are
more hopes of China policies, especially around properties around the dividend
yield, dividend yield, tax cut. So that's continue to fuel the rally.
By now, the p e valuation of MSCI China is at 10.6 times compared to post a
reopening high in January last year it was 11.7.
So back to the post reopening high, we got 10%, right.
But I think to get that 10%, it depends a lot on the fundamentals.
Right. So what the macro data this this morning
is going to tell us, what's the property measures?
Are they going to be really effective or is that a case of buy on the hope and
sell on the fact? So I think you go back to the post
reopening high 10%. We might see some pullback correction,
but hopefully, you know, this time what is the floor with a fundamental it means
that the worst of the market in terms of T rating in terms of fund outflow is
behind us. Well, I'm going to get you as well.
We need to kind of answer the top line question from your latest report.
Do you chase this rally or sell the bounce?
So our recommendation is to do the rotation so far as a quarter of the
year, even 4 to 4 months. The best the strategy for China market
was the high yield. So, yes, by now, especially some of the
Asia high yield. So is there yield that has already
fallen to below 6% because the share prices were up anywhere between 20 to
40% year to date. So we say use the rally to rotate the
some of these so used with falling yield.
But in any pullback or correction, we do to add quality data, especially in some
of the Internet sector. You recently had a conference in
Shenzhen where you mentioned that investor sentiment has clearly turned a
little bit more positive. I mean, what are the lonely funds
telling you right now? Are they are they participating in this
rally in any way? And as I mentioned, that you as long are
probably the first batch of people who drove up the rally.
Hong Kong time along long are a bit more reluctant, partly because they are close
to the market. So they are more have more skepticism in
terms of, you know, the policy effectiveness when they talk to the
corporate majority of the message is things are stabilizing or marginally
improving, but it's not snapping back. So they have more concerns about
questions. And also, you know, with the speed of
the market movement or, you know, a market that's up like 20% in less than a
month, it's very hard for many lonely to chase.
So I would say in terms of the long lead participation, it's a still quite early
stage. Investor sentiment clearly has picked up
when the market is up. What, the CSI 300 index up 13% since
February 1st. That's good.
Again, the question still remained around fundamentals.
But property, you mentioned it in the beginning when we're seeing the the the
fundamentals there are not improving. What would you want to hear from any
potential meeting that is happening in Beijing right now about property rescue
measures and how much that's going to potentially cost the local governments
as well as the central government in the banks?
Yeah, So I think fundamentally, you know, there are supply and demand side
of the issue for the demand side. The key is to make property desirable
again, right? Because for the past few years, you
know, is this property is for living, for speculation, home prices being
falling and people are not going to buy a depreciating asset.
Right. Right.
So the key is to change its location to make people have the confidence property
price that is going to stabilize or even have room for long term appreciation.
Now, you know, that probably need a strong momentum in terms of a package of
policies. In the past two or three years, we've
seen a lot of piecemeal easing, which is not helping, which didn't help.
Right. So this time, hopefully we can create
enough momentum to make people want to buy property again.
And then on the supply side, you know that these measures I think is great
initiative. But really, like you said, come down to
how much funding, who's going to pay for that right now If we're hearing that
commercial banks providing loans, that's fine.
But who's borrowing? Is that some central entity or is a
local government lgv Because if it's local government Lgv, then I worry that
to the scale, the speed of execution will still be constrained because we all
know the physical strength constraint and the debt that issues of some local
governments. And so when it comes to how you look at
stocks, I mean, is it still you or you look at it all in one consumption sort
of downgrade, or can you actually find in divorce the property story with the
rest of the consumption story? Yeah.
So a few weeks ago we did a publish a report on the smart consumer story.
So, you know, it's true that property prices going down, which has some
negative effect on the home, but on the consumer confidence.
Right. So people have.
Become more selective in terms of what they are paying, where they are spending
the money. There is the consumption downgrade
trend, but we also highlight that household overall balance sheet remained
quite solid. Right.
So people have the ability and willingness to pay for products or
services that can make them feel good or provide functional value.
So you need to have a value proposition, either emotional value, make them feel
good health care, beauty products, you know, alcohol, alcohol, you know, snow,
snow. Sports was super popular last year and
that's not a cheap sport. Or you provide the functional value,
Right? You know, so all that education, it's
people still want to pay, you know, sugary drinks, right?
Healthy drinks. Otherwise, you provide value for money.
That's the consumption winning. I'd love to talk the rest of the
interview about alcohol and see value.
Yeah, I want to go back to property really quick because again, you asked
the kind of overarching rhetorical question, who's going to pay for it?
Who's going to take the hit rate? Right?
So we also have this auction for this new long term special bond.
What trillion yuan? Essentially, it's a 186 billion U.S.
dollars. Do you see the bulk of that going into
their property rescue measures to take take the pressure off the legal
fees that you talked about, the local government financing vehicles, which
are, you know, absolutely indebted to fiscal strength?
Yeah, We certainly hope some of the fund that can be used to help with local
government, but we don't know, Right, because this 1 trillion was announced in
March. And if you look at the scale, it's
within the scope. You know, last year, net issuance of
government Treasury bond was for 12 year.
So even though that's the first time we are issuing out a long term, but the 1
trillion in terms of size is actually not particularly big.
So is that going to be used to help with the property market?
Hopefully, but we don't know. Yeah.
All right. Well, it is great to have you.
Have a great weekend. What do you do there?
China equity strategist at B of a Securities.
Let's talk a bit more about the property side of things and talk about country
garden Now the defaulted Chinese developer beginning a major legal battle
today and it's really squaring off in a Hong Kong court against a creditor
seeking the company's liquidation for more or less bringing our bond and loan.
Reporter Loretta Chen. Are we expecting fireworks today?
What's going to happen? Well, unfortunately, I think there won't
be any surprises in terms of this hearing possibly getting delayed,
adjourned for another date, because we know that the winding up case was filed
by a single company which is listed in Hong Kong board, about a $200 million
loan. That seems like a single creditor claim
that at this point the company can refute by saying it doesn't represent
the overall interests of its other creditors, which involves a lot of state
owned banks, institutional investors. Country Garden is advancing these
restructuring talks. So I think if the company can prove to
show the court that it has made progress in those talks, then you know, this here
is probably going to be delayed or even if it has a good enough case, you know,
even get dismissed. We've seen more pressure mount, though,
on Country Guard. Yes, they defaulted in October, but also
they barely missed a default just within the last few days.
Right. So there's going to be pressure to for
them to be a viable entity. Yeah.
Yeah, absolutely. But I think at the same time, if you
look at the policy measures onshore, then that's good news for companies like
Country Garden. With such a big scale, they're
benefiting from these measures. You know, if some of these second tier,
third tier cities where country garden has projects, if it's got a waitlisted
project, if it's got funding help directly from the local government, that
can be a case that you can make in the Hong Kong court to say, you know, here
we have some cases for recovery for our investors.
They just have to be patient enough. All right, Loretta, Thank you.
Loretta And there we'll see you and bring you any updates of what we hear
from this hearing, whether it does get adjourned or not.
Lora Chen, Are Bond and Lone reporter or take a look when it comes to these
markets and we are still seeing a decent rally, it looks like the onshore market
is now also catching up. You take a look at the CSI 300.
We're still seeing gains now above water here of about a 10th of 1%.
Hong Kong is coming off a little bit, but we're still seeing gains of about a
1% or so. Asia's tech continues to be what's
driving driving that here today. And we're watching very closely those
property stocks. So they're still gaining quite a bit.
There's a lot of anticipation of the state council meeting.
But even, you know, the fundamentals, we say still weak, right, that those new
home prices and used home prices did drop faster than we saw in March as
well. That's not really changing this rally in
any way so far. Plenty more ahead.
This is Bloomberg. China and Russia agreed that a political
solution to the Ukraine crisis is the right direction.
China's stance on this is consistent and clear.
Chinese President Xi Jinping there on what he calls the crisis in Ukraine is
speaking after talks with Russia's Vladimir Putin in Beijing.
The two leaders also pledged to intensify cooperation against what they
describe as Washington's containment policies.
Let's get more now on all of this with our Bloomberg Greater China senior
executive editor John Liu, joining us out of Beijing.
John, it seems like we're seeing new signs of cooperation.
What really came out of this meeting, you think?
I would say this was an affirmation of the relationship that we already know
exists between President Xi and President Putin and between these two
countries. As you mentioned, both Moscow and
Beijing are chafing under American pressure on various fronts.
For China. We just have these new tariffs put in
place by the Biden administration. And so lots of reasons for the two to
work together. They fit together economically.
Russia produces energy commodities, China produces manufactured goods.
But they they primarily are working together right now.
I think the biggest motivation is American pressure.
Hey, John Stephen Engle here. Obviously, it's something that has been
in the you know, the crosshairs of Washington has been the potential of
state banks or Chinese banks helping facilitate the trade of dual use
products that potentially could end up on the battlefield in Ukraine that could
elicit further secondary sanctions. What are these two gentlemen, Xi and
Putin, potentially doing to avert or to avoid that scenario?
So we've heard very clearly from Washington, Secretary Blinken, when he
visited, talked about how Chinese supplies of machine tools and other
equipment was a big reason why Russia has been able to keep its war effort
going. You know, obviously, Washington and
Europe taking many objections to that. President Putin would like to see this
relationship continue, would like to see China ramp up its supplies of goods to
the Russian economy. President Xi is trying to balance two
things. One, he wants to keep Russia onside.
He wants to maintain that relationship. At the same time, as you talked about
risking sanctions on Chinese banks, on Chinese enterprises.
That is not going to help his effort to try and get growth economically back on
track in China. John, thank you.
John Lu, there are Greater China. Senior executive editor joining us out
of Beijing. We also heard from JPMorgan's CEO, Jamie
Dimon, saying that the U.S. has to stay engaged with China.
Speaking to us at the bank's global markets conference in Paris, Dimon says
Washington and Beijing have common interests and are not natural enemies.
Obviously, the geopolitical situation is very tense to do more because the
Ukraine and Russia, Iran, the terrorist activities in Israel, North Korea,
nuclear blackmail, we've never had nuclear blackmail before.
And this is, of course, affecting our relationship with China.
And, you know, it's very hard to have a great relation to China.
The Ukraine war is on record on different sides of that and could put
Taiwan aside. Having said that, I think it's the right
thing for America to fully and deeply engage with China, you know,
competitively. You know, every nation is going to do
what's in their own interest, national security.
So should America. We should define that fairly and
properly. It is unfair trade.
You know, negotiate that or do whatever you need to do.
But engagement is the right thing to do. China is not a natural enemy.
The United States. They have a lot of their own problems.
So, you know, to me, we we can work together as best we can.
And then we have common interests, climate, antinuclear, perforation, anti
terrorism. What does that mean for a bank working
in China, actually, given all of this volatility?
Of course, yes. I mean, you know, China you look at
China from a risk of war basis, used to be very good.
It's not so good anymore because all these things can go wrong.
And remember, we bank I mean, I've got the number, but 1500 multinationals in
China, they're not leaving China to ensure their clients there.
We're just much more cognizant the risk is higher.
I might put Hong Kong in that bucket, too.
I know we look at China. Hong Kong is one at this point.
From a risk standpoint, what does the Trump administration mean for the US
economy? I don't know.
You know, they're the why Because it's unpredictable or because we're too soon
to actually try and trying to figure out the policies that we put in place.
So if you look at history, who is elected president may not necessarily
affect the next year, but it's kind of like we're a big tanker and that's going
to happen. I think the much more important thing is
what we do in a geopolitical situation. You know, I've always been quite clear
that American leadership is provided to keep the world free and safe for
democracy. And that means economic alliances, which
include trade. By the way, I think we should spend more
time in trade. It means NAITO.
It means that Russia should not win in Ukraine because if they do, I think it
could terrorists under this Western world.
I know you've ruled out being Treasury secretary.
Why? What would it take to get you into
politics? I don't think I'm suited for the ticket.
I love my job, you know, And so I'm not sure I want to do something like that.
And I can hope even if you got the call, you would it be hard to say no?
I don't know. It probably yes.
I love my job and I have no one should leave it doing anything at all.
So. And that was the JPMorgan CEO, Jamie
Dimon, speaking to Bloomberg's Francine Lacqua.
We've got plenty more ahead. Equity markets continuing this rally
here this morning. There you go.
HCI up 7/10 of 1%. H.S tech.
We're close to 2% gains here right now. Developers are still catching a bit here
this morning. This is bloomberg. All right.
Check the markets here today. We're just about 7 minutes away from
that activity data, so things could look pretty different.
We'll see if things stay the same or not.
But take a look at where things are when it comes to Hang Seng.
It looks like we are continuing another day of gains here to wrap up this week
of gains. I think the longest winning streak we've
seen for four weeks now since 20, I believe, 16, if I can remember that
right now. My producer is going to correct me if
I'm wrong, but it just goes up 1.8%. We'll go through some of those tech
earnings in just a little bit as well. But basically every gauge is up.
Yeah, Right now what's not up is basically the job market.
In just a few hours, we're going to hear more about this bond auction for the 30
year ultra long bonds here as well. Expect it to have some solid demand, but
we'll see yields ticking a bit higher here this morning ahead of that bond
auction. But, yes, it comes to this, which is
going to be our top story any minute now.
Really. What are we expecting, Steve, and what
are you to be looking out for the most? Look, it's better than the previous
month, obviously. Yes.
So April's better than March. Again, industrial production, if you
look at the manufacturing, PMI really showed output climbing to the strongest
level in more than a year. New export orders rose in back to back
months for the first time since March 2023.
This is the investment and manufacturing led recovery in the Chinese economy
right now. But retail sales is what I'm going to be
watching the consumer. Are they back?
Not yet. That's at the top of the next hour.
We're going to follow, of course, those numbers and commentary from our expert
editors Here live. Go is open.
We're going to break those numbers coming up next.
This is the China show. Welcome back to the China show.
Here's a look at the CSI 300 this hour, Just a half hour into the session here,
we're seeing some modest gains, but really catching up finally here in the
last couple of minutes to what we're seeing offshore.
There you go. MSCI China continues to see gains of 1%.
We talk about the Hang Seng. Basically, we're set for another fourth
week of gains here. It looks like things are looking still
pretty strong in this Hong Kong rally. You take a look what's driving it?
It's the tech space. And of course, any second now, there you
see the countdown clock. That activity data for April is due.
So what are we going to see in terms of industrial output, fixed asset
investment, retail sales? We just got those new home prices and
all used home prices both dropping faster than the previous month here.
So at least the property side of things, Steve, still looking quite weak.
Absolutely. The reality is the prices keep on
sinking, but the speculation is that the measures will be coming.
We have the numbers out. You're going to break them.
I'll break. Okay.
Industrial production much better than expected.
The survey was for five and a half percent.
We're getting 6.7%. Obviously, there's some stoking of the
factory side of the equation in Chinese economy, industrial production year over
year in April, much better than the expectations as well as the previous
month of four and a half percent fixed asset, urban investment, disappointing a
little bit coming in at 4.2%. We were expecting 4.6 in March, it was
4.5%. And this is the other side of the coin.
Retail sales. Wow.
Really disappointing. 3.7% was the estimate.
We got 2.3%. That tells you the demand side of the
equation is not keeping up its end of the bargain.
Yeah, so 2.3%, that's quite a sizable miss.
And in fact, we're seeing this is the lowest number we've seen for retail
sales since December of 2022. So we're talking about close to these
two year lows. When it comes to the consumption side of
things, property investment still remains a negative story.
We're down 9.8%. They're also missing estimates.
That jobless rate, though, is improving a little bit, though, at 5% from that
5.2% print as well. So overall, it seems like industrial
production was a big beat, but we're seeing a miss when it comes to retail
sales and fixed asset investment. Let's bring in our guest, Morgan
Stanley, chief China economist, rummaging for more analysis.
Your take on these numbers so far, Robin?
Well, growth is a stabilizing. That's a good news, but it's very
unbalanced. It's largely due to the strength in
exports and the manufacturing. So production side is strong, but the
domestic consumption side is very weak. As you mentioned, the property and the
retail sales, they both missed expectations.
So I think a growth is a stabilizing but at a very unbalanced pace.
So what happens when new export orders start to weaken as the geopolitical
situation intensifies? And what happens when the government
also takes its efforts to rein in some of those overcapacity, as they have done
in lithium batteries? What, when, when will the consumer have
to come in and prop up It's end of the bargain, I think, Steve, whether you
mention the exactly the debate right now, how sustainable the export driven
growth could be with all these the trade barriers.
But it's also interesting when we heard more and more trade barriers tariff,
China is addressing this domestic demand issue of firstly cash for clunkers for
cars. Secondly, digesting the how human three
we saw all these new the from your news outlet on the you know state council
meeting today addressing some of these things, ensuring completion also
potentially using some government help to purchase these unsold units.
I think are you to take a long time and here they can come out with a national
plan, but in short term may be more and more local government will start to
launch these smaller scale pilot programs of purchasing some also the
units. So basically the more external pressures
like trade barriers, the more likely that China will try to address domestic
demand issue. And they have been making a few
incremental positive policies. That's good news.
Well, I want to pick up on this potential inventory plan that they're
going to be discussing most likely in Beijing.
So if they're going to be coming in with the aid of state owned enterprises and
getting loans from the banks and also have the local governments as well who
are fiscally strained right now come in and buy up all this excess inventory,
which is a lot there's a lot of it right there that doesn't really play into the
reflation story because they're going to be buying them on the cheap and then
turning it into affordable housing. Well, in some sense, it's also helping
the developers, right? If you can purchase these are also the
units that's going to give the liquidity pressure for developers.
And the if the restore their confidence consumer is home, buyers will be willing
to buy from these developers. That could be mitigated if it done with
a spiral because we are worried about a developer going forward.
You don't want to buy the unit from them.
So I do think a government initiative would be helpful.
But back to the essential problem, it's a huge funding demand right now.
Are you calculating now the human three for primary market right now is about 20
months in normal year before pandemic. Even today, it should be around 212
month. So if China want to reduce the inventory
level to 12 months, they need AI and be 3 to 4 trillion to purchase these
unfilled units. So I think it will take a long, some
long way and they can figure out a national plan.
But they are making a few positive development by encouraging local
government to start the pilot programs. I think these are policy positive that
will probably reduce the downside risk. So comparing to the beginning of this
year right now, what the way I think if China is a stabilizing if a still on
balanced, but they are making some incremental policy to reduce the
downside risk. So is stabilizing at and on balance
subdued the level. But to the downside the risk is much
smaller than a few months ago. So you say 3 to ¥4 trillion to buy up
all this excess inventory. That's what, half 1,000,000,000,000 USD,
about 500 billion USD. And the big question we've been talking
to with guests today is who's going to shoulder that?
I mean, you're going to have this extra special ultra long bond sale that begins
today and the pricing. But again, local government finances are
extremely constrained. The state banks have NPLs rising, so
that's more shouldering that burden. State owned enterprises probably don't
want to do this, do they? Exactly.
There are still a lot of talking points. It's a process they are debating.
There is a lot of a reluctance, a reluctance because of the so-called
moral hazard debate, who is paying which a unit for which a developer you should
try to purchase these units. But essentially, as you said, they can
do on the fiscal side, issuing more government bond widening, augmenting the
deficit, or they can use a code, i.e. fiscal measures, making the public these
real ending or PSA program to help these banks to be incentivized to provide the
cheap loan for purchasing also the units.
So essentially, if a central government or central bank, I think it will take
some time. And the track record of politburo has
been, even if that they are starting some proposals from starting that
proposal to coming out with a plan for execution, it usually took 6 to 12
months. Yeah.
And given how how they're so complex, it may take 12 months, the upper end of
that, the time lag. So maybe by sometime next year we will
see further stabilization of the housing market with the help from central
government. Yeah.
Is there a sense that you have these sort of in programs for for homes, a
full removal of these home purchase requirements?
Does does that have any sort of impact on the secondary market?
I mean, could we just see a wave of supply coming through and adding more
pressure on prices potentially? I see primary and the secondary as a
coherent market. Basically, you have to stabilize
confidence. Then you will see this be over one
secondary market, a transaction and price stabilized.
It will be easier for developers to sell primary home for the same thing.
And the right now is still quite weak confidence level.
That's why the government initiative would be very important here.
But having said that, comparing to a few months ago, we do see them making more
policy productivities, and that's helping to limit to the downside risk
for the China the data deflation problem.
What do you think? I know you're an economist, not you're
not a stock analyst, but what has the uptick in the stock market helped with?
Obviously, the outlook for profitability and the outlook for confidence in
spending in the corporate China? And does it have legs, do you think?
I mean, on stock market, I think and one fundamental question is, okay, China is
stabilizing, but how sustainable are you?
The stabilization? And even if stabilizing nominal GDP
growth is nothing for flatter, the recovery, we are talking about four and
a half percent nominal GDP growth because CPI, API, GDP deflator, these
price indicators are still in negative territory.
So I guess for everyone, it's like with four and a half percent subpar nominal
GDP growth. How much upside for China, the corporate
earnings growth? That's the job you know our sector and
are doing every day. But I think that's the question.
Like right now, China is a stabilizing, but nominal GDP growth is still at some
level. But to macro economy, I think the good
news is backing November, December last year, everyone is concerned that China
will be falling off the cliff with the entrenched.
Pollution problem. Local government.
How then? So they will end up like deflation for a
very long time. Now stabilising at the four and a half
percent that you've actually. Much better than what the what people
feared four or five months ago. What about for the monetary side of
things? It's there seems to be some speculation
that the BBC could cut rates when maybe the ECB starts cutting in the summer.
Could they do so? Is that the right timing or do you think
they still have to wait for the Fed maybe later on this year?
Well, we do see room for publicly to cut both the reserve requirement ratio and
the MLF policy rate. But I think the key here is to steer can
they widen the government deficit, use the fiscal policy to stimulate domestic
consumption and how they that's more important than just the monetary easing.
Robin, great to have you as always. Robin Shane there, Morgan Stanley, chief
China economist, joining us here on the back of that data as well here as well.
You take a look at how markets are doing.
You know, it continues to be an up arrow story.
I believe we're watching if there's any sort of market reaction to this sort of
data that we got where we did see, of course, when it comes to the industrial
side of things to look at the strong consumption side still looking weak.
The Hang Seng paring off gains already, we're just up about half of 1%.
Tech, though, also paring some of the gains.
Shanghai Composite, we're now flat. Now t live go is open up if you want
more. Plenty of analysis from our expert
editors and our team breaking down the data for you.
You can check that out. A t live go. You're looking at live pictures from
Beijing. China's economic officials holding a
briefing on the back of those April activity numbers here as well.
They're just breaking it down in terms of other sort of segments in the
economy. One thing that we watched as well was
January to April, residential property sales was down 31%, was just goes to
show the weakness in the property market.
Really, we haven't seen any signs that turnaround.
Perhaps it adds more urgency to the State council meeting that's happening
later on today and why they're bringing together, you know, the financial sector
leaders as well as government officials together in this big meeting to discuss
how to reinvigorate this market, as well as what are they going to do about the
inventory side of things as well. So right now, we're also hearing on some
breaking news what comes to country garden.
So as expected, as our Loretta Cheng had mentioned before this hearing started,
that it now has been adjourned to June 11th.
So we have to wait another few weeks for that one.
Stage two too many issues to to resolve in one meeting, obviously.
And Loretta said it right. It wouldn't surprise her that this would
be adjourned to a later date as it is. Yeah.
And you think the markets here right now, you are seeing a bit of a reaction
to this data. So, yes, when it comes to industrial
production, the light that was still a standout here.
But as rubbishing for Morgan Stanley just mentioned, it's a two speed economy
and it looks like it's diverging further given that retail sales of 2.3%.
And so that's why you're seeing the signs paring off gains.
You're watching the currency here. We're seeing a spike higher when it
comes to China. Asia's tech, though, still looks pretty
strong, but we're already negative when it comes to CSI 300.
Shanghai basically has been flat. And there you go.
We're only up about 91 points now. On the upside, shares are also up, but
we are paring some of those gains here as well.
We talked about tech, though the eye still remains quite strong.
You take a look at what's been going on with BYD.
Alibaba was up some 7% earlier. We're still seeing gains about six and a
half percent. JD That was an interesting one because
it seems like they defied a little bit of some of the economic concerns of a
consumption slowdown and actually doing a little bit better than Alibaba in some
ways this week when it comes to those results.
But still seeing some downside in the stock.
Baidu, though, that one, people were thinking that this was going to be a
weak print, but they were still able to eke out some earnings here.
But still, revenue was, I think, the slowest in a year or so.
But yes, four, 4% pop of those shares. Yeah.
I think one of the issues with their revenues that they haven't necessarily
even though they were a first mover advantage in AI in China with Ernie but
they haven't necessarily been able to capitalize on any revenue growth.
And Bytedance has come in with their own AI generative AI offering called
Dogpile. So again, this is a competitive market
that's not necessarily providing a lot of revenue.
Sharp gains yet. But again, Baidu did beat the first
quarter estimates. Yeah, cost cutting helping there.
Yeah. So I think it was low expectations and
while you're seeing upside surprise on the stock here this morning, let's talk
a bit more about what else we're seeing when it comes to this equity market in
China. Really, is it having some spillover
effects in other sorts of markets? And you're sort of seeing that in Japan.
So it's giving a fresh impetus to just a host of stocks in Japan that are perhaps
exposed to the mainland. And those are also rising here, along
with their counterparts amid a rebound in the MSCI china index.
Let's bring in our Wendy Wu, Asia equities reporter, joining us from tokyo
with more. Winning this rally in chinese stocks
seems to be spreading now to other parts of Asia.
How is it looking in Japan? Yeah.
So we're actually recently seeing a reversal in the earlier trends to buy
Japan and sell China. And that's that's happening of this, you
know, Chinese equities rallying on the back of more policy support and cheap
valuation and that's helping some of the stocks in Japan specifically the ones
that have a lot of China exposure, including cosmetics sectors such as
Shiseido, that actually had some negative impacts from the blip on the
the Fukushima water release and also the industrial sector such as the U.S.
coal, electric and the teens. So we really are seeing these sectors
and companies are rising along with some of the rising along with the broader
Chinese market. And that's also shown in some of the
earnings presentations that we're looking at, saying that there is some
improvement in China, the demand from China and also the inventory.
And we also heard analysts saying that basically the worst for these stocks
have already been priced in. But the key point here is that as we saw
in the in the data just now, the industrial seems to be quite strong.
However, the retail is still weak. So the level of recovery from here is
something that a lot of analysts will want to watch.
Hey, we're only Stephen Engle here. You know, Shiseido is an interesting
company in the example that you emit because it should be playing into that
overall theme of weaker domestic consumption in China.
They get about a quarter of their revenue from China, yet after they've
reported their latest earnings, the stock's been up about 7% since.
So it's kind of going against the trend. How do you the second part of the
question is how do you see the overall trend in the Japanese market doing right
now with companies like this that have that exposure to China?
Right. So overall, the Japanese market right
now is kind of like Rangebound, But most that the biggest reason is because it's
really weighed on by these macro factors, whether it's the war going on
in the Middle East or the or the more hawkish tone of the Fed when it comes to
cutting rates. So when you look at the fundamentals of
Japanese stocks, it still remains very strong.
That's cited by, you know, big, big banks from Morgan Stanley, Jp morgan to
also BlackRock is still quite positive when it comes to earnings growth, when
it comes to wage growth or just the corporate governance reform that's going
on in Japanese companies. However, I would say one key risk that's
still on top of the mind of global investors is the volatility of the
currency. Right now it's at around 156 yet against
the dollar. And BlackRock did mention that global
investors will have to see that yen to strengthen to about 150 against a dollar
and stabilize around that level for Japanese
equities to look attractive to them when it comes to dollar terms returns.
What do you think when issue there are Asia equities.
Reporter joining us out of tokyo. We've got plenty more ahead.
This is bloomberg. More from our interview with the
JPMorgan CEO, Jamie Dimon. Now he says he's more worried about
inflation than markets appear to be. Speaking to us at the bank's global
markets conference in Paris. Diamond says significant price pressures
are still influencing the U.S. economy, supporting the case for rates
to stay higher for longer. I wouldn't call it turbulence, and we've
got we've had good, healthy markets for quite a while.
You know, they kind of predicting a soft landing.
And you see that in both stock prices, which are kind of high credit spreads,
which are kind of low. Markets are just kind of wide open.
That's all good. It doesn't tell you the future is going
to be negative point. A lot of times in history where that was
true and the next year wasn't true. And so, you know, we'll see.
I don't pay as much attention to monthly numbers as most people do.
I know. So what do you think the future is for
inflation? And I'm a little more worried about it.
I mean, we've had very big fiscal deficits.
And, you know, I think the underlying inflation may not go away the way people
expect it to. And I look at the future like a lot of
things. We look at a kind of inflation or in a
green economy, the militarization of the world, the infrastructure requirements,
the restructuring of trade, fiscal deficits.
So I think there are a lot of inflationary forces in front of us that,
you know, may keep a little bit higher than people expect.
So the surprise would be rates are higher, inflation a little bit higher,
and maybe they'll slow growth. And obviously geo politics is a whole
different issue that that can that could be determinative in what our economy
does next year. And we just said we're just not going to
know. But does that mean you think it's 5050
whether the Fed cuts or hikes A, you know, next time around?
I really don't pay that much attention. The Fed will have to follow the data.
And I don't know what the data is going to say, but they I think, you know, they
are doing the right to be patient right now to see what's going to happen.
They may not know for a couple of months, but no big correction.
I mean, if you don't pay that much attention to it, it means you're not
worried about it. No, I'm worried.
I just said stocks are very high. The chance of inflation staying higher,
rates going up are higher than people think.
So I think that my view is whatever the world is pricing in for a soft landing,
I think is probably half that. I think the chance of going wrong is
higher than people think in the US, but globally
in the US. But also that could affect global.
Yeah. And so that what does that mean for
markets maybe down and credit spreads you've got gap out too.
Why is the market not pricing that in you know.
Not a happy talk. Where does that happy talk come from?
Low rates, central banks in the news, reduced rates.
You know, maybe the geopolitical things disseminated don't cause problems.
And so, you know, the future isn't predictable like that.
So, you know, I'm a student of history. I watched all the inflection points.
You can go back and my dad was a stockbroker.
I go back to the booming market 72 and the collapse of 74, the healthy markets
of 80, the collapse of 82, you know, the 1987 market crash, the 1990 real estate
crash. And almost all of them were not
predicted the year before. So I look at the factors that drive
these things. They're not always known as a company
would prepare for all of this. We can serve all our clients right
regardless. But what do you see as the main stress
right now? Because if it's geopolitics, we talk
about it, it's just not really priced in.
Where does where does is it distress? Is it something actually going under
that you worry about or just a multiple factors coming in at the same time?
I think what geopolitics could create, the main stress that we're worried about
in terms of oil and gas prices or trade alliances,
but I think the surprise would be higher raised because inflation didn't go down
than inflation has been stubborn, maybe even bounces up next year.
I think inflation next year may be in the cards, may have nothing to do with
what you're seeing today. So I'm I that to me is the surprise if
you're at higher rates and God forbid stagflation.
Yeah you'll see stress in real estate and leveraged companies and some private
credit and things like that. Jamie Dimon, the Jp morgan CEO, speaking
to Bloomberg's Francine Lacqua talked about what comes to markets.
It seems like that sort of mixed data out of China is really kind of dragging
things right now, particularly when it comes to effects.
So we're seeing weakness in the currency in all our yeah, we're at 1.55 also.
So it's also a yen story here. After the Bank of Japan left those bond
purchase amounts unchanged. Aussie also is lower here this morning.
This is Bloomberg. All right.
Just recapping the big data dump that we just got at the top of the hour.
So it continues to be a lopsided economy, as some have described it here.
Take a look at the beat that we saw when it comes to industrial output of 6.7%.
But you pair that with fixed asset investment down to about 4.2% gains
there. Retail sales also missed 2.3%.
That's the lowest we've seen since 2022. It just goes to show and the questions
of how sustainable this sort of two track economy can really be.
Do Yeah, this these numbers don't surprise me one bit.
I mean, we already know the consumption trends are quite weak.
Nobody wants to catch a falling knife in property.
Also even in cars and other things, you know, retail sales
are just the the the bad side of the coin is economy right now.
And those new home prices are actually getting worse in terms of the
contractions that we've seen in April. So I think that's what's dragging the
markets. But property has been up because on
speculation that what they're talking about in Beijing perhaps could come up
with some sort of silver bullet or bullets.
The Bloomberg property gauge has basically gone up 50% since the April
lows on just pure speculation. Right.
Of what's going to happen. The state council meeting between
government officials, financial sector leaders, regulators, housing's to be
lived in not speculated all well yeah, we'll see if we hear any of that sort of
language here. You take a look at how the CSI 300 is
doing though. We're back in negative territory here.
So that weaker data, I guess, when it comes to retail sales property, that's
really what's dragging things. We were seeing about 300 points, the
upside of the Hang Seng, we basically faded that.
Now we're just slightly up about a fifth of 1% right now.
But tech, I mean, it's still Brazilian, though.
We've pared off some of those gains here as well.
But certainly the standouts include Alibaba, Baidu here today that is
lifting that index in terms of the broader region, what we're seeing in
Asia. So I think we're still around those two
year highs. But you're taking what we've been
seeing, the records that were set in Europe, the S&P, the NASDAQ overnight,
that all also came off and we kind of didn't see that much more buying
activity as well. There's still that sort of higher for a
longer narrative that's still weighing on maybe risk assets here today.
So we're still a bit on the back foot, but HCI were still set for a fourth week
of gains. Mind you, U.S.
futures are unchanged. The dollar slightly catching a bit here.
Given just the weakness that we're seeing, the renminbi, the yen, gosh,
we're back to 156 levels now from I mean, we're getting closer, maybe 2 to 1
sixth and 150. Steve as well.
Yeah. The yen can't seem to get any momentum
as soon as it starts to appreciate there was some intervention and then it's
weakening again. Yeah.
So DOJ didn't do much when it comes to changing how many bonds are going to
buy. That's what the disappointment lies, I
guess. Let's talk about China now because
there's also it's been a busy day, but this is what's upcoming as well.
China's first issuance of special ultra long bonds on Friday is happening and
expected to see some solid demand. Let's bring in a Bloomberg Opinion
columnist, Julie Round. She says the impact of the sale will
depend on who buys them and what's the funding meant for.
Let's try to tackle those questions. Julie, she's here with us.
So how do you think these funds are going to be used?
Well, the Chinese government has been very vague about this.
These special funds, they're kind of like a wire cards.
They're not in the fiscal budget or deficit in this case, and you can use
them for anything. The last time it was an issue, it was
2020. It was clearly for COVID relief.
So this time people are speculating how that trillion yuan is going to be spread
around across industries. I mean, if you read the Chinese
government's readout, it looks like they use a lot about President Xi Jinping's a
new jargons such as new productive forces, high quality economic growth
that makes you think that he's going to pour money back into the industrial
sector. However, here's the catch.
This time they talked about demand. They they are worried about the still
weak domestic demand. And that perhaps is a catch phrase for
perhaps helping the housing sector. And that that's why the that the real
estate developer stocks have been jumping like crazy.
Right. People just expect that a big chunk of
the ¥1 trillion will be used for the government to buy unsold homes.
China doesn't need more industrial capacity, does it not?
Its biggest problem is property. You mentioned about 2020, the last time
they did this special ultra long bonds that was for COVID relief.
That was the biggest pressing issue the two times before in 1998 was
recapitalizing the state banks a pressing need ahead of their eventual
listings. Right.
And then 27, they topped up the sovereign wealth fund.
Yeah. So property, I would assume, for only
four times they've issued these bonds in 26 years.
Property is the biggest drag. Yes.
And Stephen, you are totally with the global investors thinking.
People do think that a big chunk of that money will be used for the government to
clear unsold excess inventory. And in fact, the Politburo meeting at
the end of April, they talked about that.
They talked about digesting unsold housing stock, and that was the first
time they used those access supply language since 2016, surely, I think,
actually run. Joining us here, Bloomberg opinion
columnist. And of course, this ultra long bond sale
happening here today. Let's bring in our next guest.
And it's a nib is Asia head of fixed income research at UB.
She's also joins us here in the studios. And it's it's always great to have you.
We're anticipating this this bond auction in China.
What are you anticipating in terms of demand?
I think the demand will be strong because overall they're still lacking of
like long dated bonds in China. And most of it's like, you know, short
dated, medium term. So that's why we reckon that the
domestic would be happy, you know, to go for the long end to lock in some of the
yield as well. How do you square these two narratives
that are going on? There seems to be a of sentiment which
could be bullish for the KGB's that there's going to be more fiscal stimulus
or monetary easing by the PBOC. But then you have these warnings from
the PBOC talking about buying up these bonds as well.
I think they're just, you know, trying to uphold the yield curve as well, such
that as we expect there could be more issuance going forward.
I think that's an important. Creating the curve as well.
It's you know, like creating a technically supportive environment as
well. But again, we reckon that, you know, the
demand for long data bond should be, you know, quite well received in China.
And then just overall for the Chinese credits, is there so theme still strong
in a way, I would say yes, because technically a lot of Chinese investors
are still, you know, trying to buy the strategically important.
So I think people are still looking at quality credits in general in China,
like China. So each on the tech names, but then
foreign investor participation maybe less than before, before it's sort of
like, you know, the property turmoil. But overall, China's bits are still very
keen in terms of supporting the credits. Looking broadly, you're saying, you
know, Asia still plays tough on Kerry right now.
Yeah, that's right. Okay.
Well, I mean, like first of all, I would look at what the fat path looks like on
what we think would be sticky. Inflation was still going forward.
But then one data on the core CPI seems to be lower, right?
But it doesn't really sort of change the trend yet.
I think that would be patient in terms of like, you know, looking forward.
So we reckon that there could be only one rate cut in December and therefore
at the moment we wouldn't, you know, like looking at the fixed income as
having capital gain, but rather I think, you know, you need that for your carry
in the portfolio. That's an interesting point.
If you think the rate cut is going to be pushed to December, that's really
pushing it towards the end of the year. The Fed, do you think it could go the
year without a cut potentially? I would say really data dependent
because at the moment we it's very difficult for us to look at the trend
inflation. You know it said one data lower but
doesn't mean to be the trend and non-farm payroll number last May.
Well it's weaker than expected but then you know it's again just one number.
So we need to see the trend potentially we think December would having one
record but potentially do inflation still remain sticky fat may not cut at
all in 2024. So it's still sort of like, you know,
having different scenario, but we reckon it's still December having the cut.
What does it mean for treasuries? And put it this way, 4 to 10 years at
the moment around 4.5, you know, come down from the 5%.
The main reason also because FOMC meeting after that, they mentioned about
the balance sheet reduction in terms of among it's you know reduce from 60 to 25
actually supportive to the treasuries itself, especially a ten years.
Now what we are looking at at the moment would be at around like 4.5.
It's like, you know, a level that could be support ten and into the summer.
We think it could stay around 4.3, five, four and five.
Around that you see 4.3 face also sort of like a strong resistance level for it
to go lower. So but next year we go back into ten
years. You know, you could back up because we
worried that that could be more issuance going forward.
So we still like short data on, you know, because of the inverted curve, we
would prefer the short end of the US treasuries.
We like to go around the world. It's the China show, but we can talk
about Japan as well. Obviously, the BOJ kind of revising down
its longer term CPI or inflation outlook.
But again, everyone's looking for the DOJ to potentially hike.
So what does that mean essentially for a hiking this year for the DOJ?
October maybe? Right.
Okay. At the moment, seems that DOJ are still
sort of optimistic. You know, they can manage inflation.
They lowered the forecast in 2025, 1.7 to 2.1.
An average long term will be around 1.5. So meaning still, you know, pretty
optimistic, positive. So we reckon like, you know, potentially
ten basis point cut in in October with still on the table.
But I think, you know, because the magnitude is so small, I just don't
particular think that I would imply or a hike so yeah yeah hi yes we always talk
about you know you should be higher.
Yeah. So overall we reckon that the impact
should be minimal because the magnitude would be, you know, no it's substantial
to a ten basis point hike is not going to do anything for Dorian.
No, no. Really.
So that's why we reckon that, you know, Japan still would intervene about the.
Movement on the gun. They don't want it to, you know, weaken
so quickly. But at the same time, I think
fundamentally, you know, it, again, you know, should be at this interesting
because they announced this week that they're going to buy less bonds.
We saw that certainly GDP yields move, but not dollar yet.
Are we going to see those two bids basically be divorced perhaps?
You know, it's in two different ways. The way at the moment, a lot of like
different factors affecting the yen. But, you know, could you be will be more
by what the central banks would like to do.
We just got this national statistic numbers coming after the data dump in
China. CPI expected to recover moderately from
low levels, but that doesn't necessarily mean that they're going to be hiking.
Obviously, anything from the PBOC is still easing to get this economy.
Yeah, we've been CPI is really muted. Exactly.
I think, you know, easing would be the way to go forward.
In particular, they are looking for like, you know, a DTP number of like,
you know, five or 5%. So I think easing definitely the path
they are going there could be cut in terms of like triple R, but I think they
would, you know, have a look at the different datas going forward for us.
What do you make of all this talk of property stimulus?
I mean, we've seen junk bonds basically rally to the highest we've seen in three
years. Yeah.
Be participating in any way in the junk well market in a way.
Okay. Yes.
Put it this way that's reason news about they are clearing the inventory you
know, in China. Right.
Like trying to buy some of the properties at discounted prices.
But I think the move definitely would have to look at, you know, the details
of the plan. What's the impact of that, You know, on
the other secondary prices in the property market?
We reckon for those who've been defaulted, they would still go for
restructuring. That's no doubt about it.
Liquidity is pretty tight still in the property market.
You see the April sales number. It's not good at all.
Yeah, but those who, you know, been surviving put it this way, I think that
would definitely help them with the liquidity.
But I think, you know, still a story that we need to monitor.
Okay. And it's I thank you so much and if
their agent had a fixed income research up joining us here and of course, you're
looking at those live pictures from Beijing as China's economic officials
hold that briefing when it comes to those numbers.
And certainly we talked about Ray CPI expected to recover moderately from low
levels, improving in services demand is what's helping to boost that CPI.
And I think of some of the economies that we've talked to, Steve, still think
about, maybe we could still see a positive trend on CPI maybe later on
this year. But we're still talking a low level.
We're talking low and low numbers right now for inflation.
This is not a primary concern right now. The BBC, yeah, they're still saying the
economic recovery faces challenges in the certainty of external environment,
also rising as well. We'll have more coming up through when
it comes to the launch of your statistics on the like here.
We'll leave it there. If you want to check in more on this
conference, go to live. Go.
You can watch from there. You also find the big diary entries and
big stories coming up later on this week and some of the events you may have
missed earlier as well. You can check out those out there.
Plenty more head. This is Bloomberg. While the Philippine central Bank
governor, Ali Ramalho, says that he wants to see looser liquidity with
current policy becoming tighter than necessary.
He spoke to us exclusively after the central bank held its key rate, but
signaled a readiness to pivot to cuts. So still hawkish, but less so than
before. It may put pressure on the pressure, but
so far it hasn't. The pressure opened at
two 5753 this morning, but that's only seven centavos weaker than last night.
So, so far it hasn't really affected the peso.
Okay. It seems like right now 5758 seems to be
that magic number of people kind of bring up about whether the BSP would
intervene. How far would you go in defending the
currency? Well, yesterday we didn't intervene at
all. We were happy with the with the movement
of the peso. But if they're stress, then we might
come in. Stress means a large over is high
volatility, and then we might intervene. Is it a wait and see kind of approach
right now as well on the possible intervention when we're seeing that
maybe the Fed, though, will not cut until December at the earliest,
according to some of the expectations. Is this a strong dollar story right now
that you're battling against with the puzzle?
Yes. Yes.
It's been a strong dollar all along. Broadly strong dollar for the past
several weeks. So we don't feel obliged to intervene,
but we we want to keep the market orderly.
Governor, also we heard some comments from you saying that perhaps some of
these maritime incidents off the Philippines in the South China Sea with
China have had an impact on on the pier. So what are you seeing the direct
correlation there? Well, any in any incident seems to
affect the peso a bit. So far, so far, not so sharply, but
recently. No, not none at all.
The incidents have not affected the peso.
Okay. Governor, is there a concern in any way
of the pass through of a weaker peso to inflation dynamics?
Now, is that of concern to you in any way?
The pass through has been very small for me because the movements of the peso
have been small. But that's not to say that if the
partial weakens sharply, the pass through may be significant.
But so far it's it's been it's been small.
It's been it's been there, but small. What do you think you need to see to
warrant that that cut in August? Governor, what are the inflation
demands? Do you think inflation will still remain
in target of that 2 to 4%? Also, domestic demand cannot continue to
soften or their upside risks to both of those scenarios.
There are there are upside risks to to both scenarios.
But so far, the peso, I mean, the inflation rate has been that's been
looking good. It's been trending down
and output growth has remained intact.
So those are those are pieces of good news for us, which makes us more
confident about possibly easing in the second half of this year.
That was the BSP Governor Eliot Ram along with are speaking exclusively to
us here on the China show. Take a look.
When it comes to these currencies, obviously, we've been talking about that
peso and we've seen a little bit of recovery in the currency.
Perhaps that's why the bank's he's breathing a little bit better here these
days and being a little bit less hawkish.
But there you go. We're still seeing some weakness across
the board, but really it is a weakness across Asia affects here today.
You talk about the dollar getting a bit of firmer dollar yen edging ever so
close to the 156 levels here right now. The BOJ not doing much and because of
those by operations here today, the Aussie and renminbi continuing to see
that weakness. The renminbi really is a double whammy
between the weaker yen, also weaker data or at least mixed data in terms of the
activity data out in April as well. We've got plenty more ahead.
This is Bloomberg. Here's a look at your China brief this
morning, a look at what's making headlines in national newspapers and
trending online. The Chinese state media remains focused
when it comes to Vladimir Putin, the Russian president.
A state visit with a story on the front page of all the major papers and show
why news agencies may report because China, Russia ties a fine example of
major country relations, saying it's not targeting any third party.
Now, Putin's visit comes as both sides prepare to mark the 75th anniversary of
diplomatic relations. She says those relations are good for
global peace and stability. And Steve, I feel like it's more about
an affirmation or reaffirmation of these ties more than maybe that that's
something that's a deeper cooperation. Certainly Russia wants that, but I think
China just kind of wants to keep the status quo at this point.
Yeah, they don't want to necessarily project any kind of weakness in there.
No limited partnership at this point, especially at a time when Washington is
adding sanctions, particularly on China and also, of course, Russia.
Let's continue with the geopolitical theme.
Yvonne. The Global Times is reporting how a
Philippine citizen convoy has been prevented by Chinese forces from sailing
to a disputed reef in the South China Sea.
The article quotes a source saying the convoy was stopped 50 nautical miles
from the Scarborough Shoal, known as Huang Yan Dao, to the Chinese.
But the group behind the mission told Philippine media that they did manage to
deliver food and fuel to fishermen on the reef, despite being shadowed by
Chinese vessels. Yeah, that issue also trending on Weibo
this morning. You take a look at what we've been
seeing, what users are commenting on. It seems like it's sort of the same sort
of tone. You know, some saying that it seems that
these tensions in the South China Sea are ramping up lately.
Some are saying the Philippines is provoking China again, but if you hit
them once, they will back off. Also, some saying bring some reporters
on to their vessels and come back with the story of being bullied by China.
That's the Philippines playbook. But yeah, you continue to see that the
South China Sea remains. So that very area hot spot of where
these geo political tensions lie. And where does the U.S.
fit into all this as well? Obviously, it's a big well, the Marcos
administration has been a little bit more friendly to the United States, and
it's created, obviously, some of this geopolitical tension with Beijing.
So, yeah, in terms of the financial papers, there's a lot of talk about what
what we're hearing when it comes to the sale of ultra long bonds.
Right. So this is the PBOC back financial news
is cited. Some analysts saying that, you know, the
reasonable range for these bonds is likely going to be two and a half to 3%.
That's just based on long term expectations for economic growth.
So basically signaling demand could be pretty solid here.
That's around those levels that we're seeing the 30 year right now.
Shanghai Securities News also saying that China's stock exchanges are
drafting detailed rules to tighten regulation on programmed trading.
Now, it says that they include monitoring of, quote, abnormal
transactions as well as oversight of trading activity through the northbound
leg. There's also a report from the
Securities Daily saying that more cities are supposed to buy unsold homes and
turn them into affordable housing. Now, it says experts see this practice
playing a crucial role in destocking. The real estate market is something that
we heard from Robin saying as well. You're hearing some of these cities or
at least some districts trying out these sort of programs first on a local level
before maybe we'll see something more upscale.
Again. The question is, how much of this unsold
inventory are they going to come in and possibly buy?
I mean, the bill is going to be big Robin.
She was talking about 3 to ¥4 trillion. That's half a trillion U.S.
dollars, what, 500 billion U.S. dollars?
And they're going to have to issue a lot more bonds than $1 trillion worth under
terms of these ultra long bonds that comes out here today as well.
It really is the story about, I think, all the things that we're tracking,
Steve, today. I think what's really been dragging is
is really the data, right? I mean, at the end of the day, if the
macro picture is still going to look pretty bad, you know, this market cannot
continue to rally in some ways. Right.
You know, you're focusing more on the fundamentals now.
And what you're seeing is that, yes, industrial production improve, but the
divergence between what you're seeing in the consumption side of things is just
getting wider. Yeah, and the national statistics still
going on. The press conference after the data
dump, they're saying the economy has continued to pick up and improve.
The strong economy could resolve the impact of external shocks.
That's to a question about the possibility of U.S.
tariffs. Okay.
So they're responding a little bit to that as well.
Of course, we're still waiting for any sort of response from Beijing on that
new home prices. This is where I think was the biggest,
maybe bigger disappointment in the data today.
So we basically saw prices fall for 11 straight months on a month on month
basis. But even the drop in April was actually
steeper than what we saw in the previous almost to be expected.
And that's the reality. The speculation is on what's going to
come out of that meeting in Beijing. Oh, lots of on bets on that as well.
We're taking a look at markets here on the back foot.
Now. This is Bloomberg.
