Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's
Speaker 2: a mixed picture for equities in the Asia Pacific markets
Speaker 2: are bracing for two key events this week. On Wednesday
Speaker 2: in the States, we'll have earnings from Nvidia after the bell.
Speaker 2: Then on Friday, FED shair Kevin Walsh will address the
Speaker 2: fed's annual Symposium in Jackson Hall, Wyoming. And it's there
Speaker 2: that Warsh is expected to clarify his views on how
Speaker 2: the FED should react to stubborn inflation. And that will
Speaker 2: coincide with attempts by the US Treasury to bring longer
Speaker 2: term yields lower through buybacks of long dated government bonds.
Speaker 2: And that's where we began our conversation with Dylan wu.
Speaker 2: Dylan is research strategist at Pepperstone. She spoke with Bloomberg
Speaker 2: TV host Heidi Stroud, Watts and Paul Allen.
Speaker 3: Dylan, I do want to start on what we're seeing
Speaker 3: in theory space at the moment. I mean, we've got
Speaker 3: yields climbing again. That bounce that we saw last week
Speaker 3: was very very short lived. We're also expecting to hear
Speaker 3: from the Trump administration. This week, I'm veiling a range
Speaker 3: of fiscal initiatives to address the problem at the core
Speaker 3: of this. What do you think is needed here?
Speaker 4: Well, I think the bob market is obviously head of
Speaker 4: the fat right now. That gap is the whole story.
Speaker 4: I think the third year at five point three percent
Speaker 4: ish is a nineteen year high fine. But what actually
Speaker 4: matters is this is't announced. He more than double the
Speaker 4: buy back program and the yields barely flinched, And that
Speaker 4: tells us is actually a term a term premium problem
Speaker 4: and is quite structural. And you've got inflation that won't
Speaker 4: come down to the target, a physical deficit that just
Speaker 4: printed is worth monthly member since twenty twenty one, and
Speaker 4: a trillion dollar a I corporate bonds issue and save
Speaker 4: competing with government paper for the same kind of buyers.
Speaker 4: So those three things don't go away because the Treasury
Speaker 4: buys back some bonds and bond set off I think
Speaker 4: would likely to continue to genuine physical discipline or demond destruction,
Speaker 4: but neither imminent, I think. And in a new term
Speaker 4: the long end treasury you will likely stay elevated.
Speaker 3: I think, Well, this is arguably making fed chick Kevin
Speaker 3: WASH's job somewhat more challenging, and we will be hearing
Speaker 3: from him at the end of the week at Jackson Hall.
Speaker 3: What do markets need to hear from the FED chair
Speaker 3: in terms of inflation targeting, communication about the Fed's next
Speaker 3: move and what kind of market reaction do you expect
Speaker 3: if it doesn't get it.
Speaker 4: Well. I think it would be obviously a really challenging
Speaker 4: speech work for Kevin Wash, and he has no good options,
Speaker 4: to be honest, wired and youths keep running, financial conditions
Speaker 4: tightened without a single rate hike, which is almost you know,
Speaker 4: like poetic is dysfunction, and also signal that he's okay
Speaker 4: with higher loan and yields, which some people think is
Speaker 4: actually his his bias or he stands and you you
Speaker 4: basically had the bond base exactly what they need and
Speaker 4: push that doubbishly, and you had the inflation hug a
Speaker 4: credibility argument. So actually, I think it would be a
Speaker 4: really challenging or we're hard task for Kevin Wash to
Speaker 4: balance the market expectations of a potential hike, and also
Speaker 4: you know, he need to consider about a sluggish labor
Speaker 4: market and also a sluggish retail self data back to July.
Speaker 5: Dylan.
Speaker 1: A lot at play here when it comes to the
Speaker 1: gains across the AI space has been due to the
Speaker 1: relentlessness of the momentum factor. Right as this begins to fade,
Speaker 1: it's certainly been challenged over the last couple of rounds
Speaker 1: of sell offs. Do you see more of a difficult certainly,
Speaker 1: more of a difficult environment for retail investors, but perhaps
Speaker 1: more opportunity if you're looking to be a little bit
Speaker 1: more picky and perhaps value oriented.
Speaker 4: Yes, I do think, you know, like everything goes up
Speaker 4: together is basically yesterday, and we really need to potentially
Speaker 4: find some selective opportunity in the AI trade. I mean,
Speaker 4: because the fundamental of the demand in AIS do quite intact.
Speaker 4: AI demod is quite strong Hyperscaler's capax commitment approaching seven
Speaker 4: billion dollars for twenty many six. It is real and
Speaker 4: a structural supply constraints through the middle of the of
Speaker 4: the decade. But the market is drawing a hardline between
Speaker 4: companies spending on AI and also companies earning from it.
Speaker 4: Alphabet delivered on monetization in the past Quota. Microsoft past
Speaker 4: was with flying Colors, but Meta was punished because you
Speaker 4: know their lack of AI spending discipline, so that divergence
Speaker 4: widened from here, I think in a new future, and
Speaker 4: so I think it's a selective story rather than everything
Speaker 4: goes up together recently. And we obviously need to look
Speaker 4: into Nvidia's report to be released on after market close
Speaker 4: on thirty twenty six of August. So if we are
Speaker 4: seeing solid chife a month and potentially more supply from
Speaker 4: the NVDA side, that it could be a potential boost
Speaker 4: to the AI trade.
Speaker 1: Dylan, that's just sposed focusing closely enough for looking at
Speaker 1: the repercussions enough of the feedba what we're seeing from
Speaker 1: what the bond markets are doing and the relentless pace
Speaker 1: of fundraising by hyperscalers and other AI players, Does this
Speaker 1: at some point come to be a confluence because you
Speaker 1: would imagine this ultimate early results in even more expensive
Speaker 1: levels when it comes to the AI build out.
Speaker 4: Yeah, I think that's a fair point, and I think
Speaker 4: the interaction effect between the bond market and AI capax
Speaker 4: is obviously something we need to monitor as well. And
Speaker 4: behavior scalers are claiming to issue roughly four hundred billion
Speaker 4: dollars in investment great bonds e twenty May seven to
Speaker 4: fund is AI infrastructure built out and well, the issue
Speaker 4: has to be a sword by the same bond market
Speaker 4: that's already under structural pressure from physical deficit and persistent inflation.
Speaker 4: And if the thirty year you'll say above say five percent,
Speaker 4: because of that, debt financing rises materially and it changes
Speaker 4: the return math when AI infrastructure in the investment in
Speaker 4: ways that they aren't yet reflected in tech valuations. So
Speaker 4: if we are still seeing the lack of physical discipline
Speaker 4: from the law and from the AI from the US
Speaker 4: debt market, then it would be a potential challenge to
Speaker 4: the mead to long term development in the AI trade.
Speaker 4: But in a new term, I think what can bring
Speaker 4: markets more volatility as to a VDS report.
Speaker 5: Dan.
Speaker 3: Just finally, copper miners are being performing very well in
Speaker 3: the story. Australia is home to a lot of copper
Speaker 3: miners and copper also occurs in similar are bodies to
Speaker 3: gold as well, which is also performing well thanks to
Speaker 3: the debasement trade. With that in mind, how did you
Speaker 3: like the earning story from miners and how do you
Speaker 3: play the Australian story at the moment.
Speaker 4: Well, I think the Australian outlook is genuinely missed, mixed
Speaker 4: and is suggested by the earning season and the motor
Speaker 4: speed economy theme I think is due playing out quite
Speaker 4: well in Australia. Resources, as we just mentioned are carrying
Speaker 4: the lord BAHP delivered impated of thirty percent when record
Speaker 4: corporate price is our biggest dividend in four years and
Speaker 4: real tinterer but are up twenty eight percent. Quality Australian
Speaker 4: names with global commodity exposures specifically are navigating this environment
Speaker 4: just fine. And the problem is basically everywhere else, non
Speaker 4: resources earnings are tracking around two point six percent growth
Speaker 4: against underlying inflation of a roughly three point six percent,
Speaker 4: and that's real contraction in purchasing power terms and banks
Speaker 4: are solid but not that's you know, the tackular we
Speaker 4: can incredit quality as well as concerns about a potential
Speaker 4: economic slowdown kept calling up across different reports, so that
Speaker 4: tells you the consumer is under some real pressure. And
Speaker 4: I think, you know it's basically we're looking into a
Speaker 4: multi speed. We're multi speed growth model in Australia. I
Speaker 4: think we are still looking a potential upside of all
Speaker 4: the energy and including corpor these kind of names, but
Speaker 4: we need to be more cautious about all the now
Speaker 4: energy and retail sectors.
Speaker 2: That was Dylan Wu, Research Strategistic Pepperstone speaking with Bloomberg
Speaker 2: TV host Heidi Stroud Watts and Paul Allen, bringing you
Speaker 2: their conversation here on the Daybreak Asia Podcast. Welcome back
Speaker 2: to the Daybreak Asia podcas I'm Doug Prisner. On Monday,
Speaker 2: in the US, Treasury Secretary Scott Besant is set to
Speaker 2: hold a media briefing on details of planned sanctions against
Speaker 2: Iran and its trading partners. Now. This move will put
Speaker 2: China in the spotlight since it is the largest purchaser
Speaker 2: of Iranian crude oil.
Speaker 5: Now.
Speaker 2: For its part, Beijing has said it continues to support
Speaker 2: a diplomatic end to the US Iran war. And that's
Speaker 2: where we begin our conversation with Christopher Smart. He is
Speaker 2: managing partner at our Breath Group. Chris spoke with Bloomberg
Speaker 2: TV host Heidi Stroudwatts and Paul Allen.
Speaker 1: Christopher, always a pleasure to have you with us, And
Speaker 1: as you asked, what are we going to talk about?
Speaker 1: Because we haven't heard a great deal of progress in
Speaker 1: terms of what's going on with this what feels like
Speaker 1: an increasingly intractable stalemate, this economic isolation plan that we're
Speaker 1: waiting for details on. What are you expecting given that, well,
Speaker 1: Iran is and has been for a long time economically isolated.
Speaker 6: Well, I think a lot of us are going to
Speaker 6: be interested to see what Secretary of Vesson has to
Speaker 6: say tomorrow.
Speaker 5: I think he wrote a piece over.
Speaker 6: The weekend that announces or describes what he's about to
Speaker 6: announces an economic d day of the beginning of a
Speaker 6: final assault on the Iranian economy. But it feels like,
Speaker 6: as you say, this is something we've been working on
Speaker 6: for more than a decade or maybe several decades now
Speaker 6: in terms of isolating and sanctioning the Iranian economy. I
Speaker 6: think a couple of things spring to mind right away
Speaker 6: is we really have very little sense of how bad
Speaker 6: things are within the Iranian economy right now. We know
Speaker 6: it's bad, but we're not really sure exactly where the
Speaker 6: pressure points are. And then secondly, this is a regime
Speaker 6: that is not popularly elected, not facing any midterms anytime soon,
Speaker 6: So even if the pain gets worse for the people
Speaker 6: of Iran, it's not clear how that's going to change
Speaker 6: their behavior or any of their negotiating positions.
Speaker 1: Does a great impact potentially come down to what Beijing
Speaker 1: and what Russia can be persuaded to do. And we
Speaker 1: do know that presides year is expected to head to
Speaker 1: Washington in September. Is there any leverage there for President Trump?
Speaker 6: Well, I mean, as you say, the biggest trading partners
Speaker 6: are China, and that we have a whole lot of
Speaker 6: other business to do with China beyond Iran. So I'm
Speaker 6: not sure what kind of leverage the President expects he
Speaker 6: can exert other than maybe tariffs or sanctions. But we
Speaker 6: also know that the Chinese aren't just going to stand
Speaker 6: and take it if those sorts of threats are raised,
Speaker 6: and so they have played their cards before, responding with
Speaker 6: both sanctions as well as blocking critical mineral exports, and
Speaker 6: so I'm not sure that's a game that the President
Speaker 6: wants to start playing.
Speaker 5: At this stage. You know, the other key players in
Speaker 5: the region.
Speaker 6: Afghanistan is on one border, Turkey and Russia are on
Speaker 6: northern borders. Not clear we have any relationship with either
Speaker 6: Afghanistan or Russia. Turkey might be able to help out,
Speaker 6: but it's not clear. That that's at the top of
Speaker 6: their list. I think the one encouraging point that the
Speaker 6: President and the Secretary Treasury Secretary can look to is
Speaker 6: the announcement earlier this week that the United Emirates was
Speaker 6: going to stop all of its economic relationships with Iran.
Speaker 6: That's been a key conduit of a lot of money
Speaker 6: in and out of the country. The question will be
Speaker 6: does the government is the government able to crack down
Speaker 6: on illicit and illegal flows back and forth.
Speaker 3: Christopher, part of the whole rationale for this conflict in
Speaker 3: the first place was to prevent Iran from getting a
Speaker 3: nuclear weapon. But a couple of thoughts here, it does
Speaker 3: this entire experience reinforce the Iranian desire for a nuclear
Speaker 3: weapon sort of prove their point to a degree, and
Speaker 3: in terms of economic isolation, exhibit a North Korea and
Speaker 3: due decades of economic isolation, got on nuke.
Speaker 6: Anyway, Yes, you know, you make excellent points all around.
Speaker 5: I think others have pointed that out as well.
Speaker 6: The attacks on Iran, as you say, reinforce the case
Speaker 6: of the hardliners within Iran that this is something that
Speaker 6: needs to be done now.
Speaker 5: Obviously, the bombings.
Speaker 6: Last year and then this year have done a lot
Speaker 6: to set back that program. But I think expecting to
Speaker 6: resume a course of negotiations that requires trust to be
Speaker 6: built on both sides and requires inspections and transparency and
Speaker 6: Iran to trust the fact that its security is not
Speaker 6: threatened have been delivered a big setback right now. The question, though, remains,
Speaker 6: I think what good does a nuclear weapon do for Iran?
Speaker 5: Maybe it.
Speaker 6: Helps it avoid another attack like this, But to be honest,
Speaker 6: I think what we've demonstrated all from from what's happened
Speaker 6: in the last six months is that attacks like this
Speaker 6: don't really work.
Speaker 5: They don't really change the behavior.
Speaker 6: Of the regime and the way you want to change it,
Speaker 6: and in fact has opened up these problems on the
Speaker 6: street that we're all dealing with.
Speaker 5: Well, the regime has.
Speaker 3: Been around since the nineteen eighties, President Trump, this term
Speaker 3: has been around for slightly under two years. You mentioned earlier,
Speaker 3: the Iranian regime doesn't have to face midterms, but the
Speaker 3: president does. Is that part of the play here to
Speaker 3: make things extremely uncomfortable for the US? Do you expect
Speaker 3: any retaliation from Iran in the hope that they might
Speaker 3: be dealing with a new regime a more sympathetic one
Speaker 3: in the United States a couple of years down the track.
Speaker 6: Well, two years is a long time for the difficulty
Speaker 6: of having lost their access to global oil markets.
Speaker 5: The street being closed is inflicting pain on them. I'm
Speaker 5: sure they would.
Speaker 6: Prefer not to have that blocked the way it is
Speaker 6: right now, and to expect that to go on another
Speaker 6: two years, I think is probably some they would love
Speaker 6: to avoid.
Speaker 5: But I think the real question is just the imbalance in.
Speaker 6: In uh In, I guess dead fastness for lack of
Speaker 6: a better word.
Speaker 5: I mean, Iran is defending its country. It's never going
Speaker 5: to give.
Speaker 6: Up on that, and the hope is that the US
Speaker 6: will either get distracted or realize that the costs of
Speaker 6: continuing this effort militarily as well as economically.
Speaker 5: Are are too high.
Speaker 6: And so it feels like we're still going to have
Speaker 6: to come to terms with some kind of agreement that
Speaker 6: neither side loves. But we're clearly not there yet, and
Speaker 6: we're going to have to see what the Secretary announces tomorrow.
Speaker 6: You know, I'll just say as an aside, he has
Speaker 6: had two big announcements in the last two weeks, with
Speaker 6: the Yen intervention and then with the buybacks of the
Speaker 6: US Treasury debt, you know, his credibility has been dented
Speaker 6: in the past couple of weeks, and so it's not
Speaker 6: clear that he's going to be, you know, restoring or
Speaker 6: reinforcing that reputation with whatever he's able to announce tomorrow,
Speaker 6: unless it's something completely surprising.
Speaker 2: That's Christopher Smart, managing partner at Our Birth Group, speaking
Speaker 2: with Bloomberg TV host Heidi Stroud Watts and Paul Allen
Speaker 2: bringing you their conversation here on the Daybreak Asia podcast.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg