WEBVTT - Markets Brace for Nvidia, Jackson Hole, China on Iran Talks

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's

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<v Speaker 2>a mixed picture for equities in the Asia Pacific markets

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<v Speaker 2>are bracing for two key events this week. On Wednesday

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<v Speaker 2>in the States, we'll have earnings from Nvidia after the bell.

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<v Speaker 2>Then on Friday, FED shair Kevin Walsh will address the

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<v Speaker 2>fed's annual Symposium in Jackson Hall, Wyoming. And it's there

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<v Speaker 2>that Warsh is expected to clarify his views on how

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<v Speaker 2>the FED should react to stubborn inflation. And that will

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<v Speaker 2>coincide with attempts by the US Treasury to bring longer

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<v Speaker 2>term yields lower through buybacks of long dated government bonds.

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<v Speaker 2>And that's where we began our conversation with Dylan wu.

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<v Speaker 2>Dylan is research strategist at Pepperstone. She spoke with Bloomberg

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<v Speaker 2>TV host Heidi Stroud, Watts and Paul Allen.

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<v Speaker 3>Dylan, I do want to start on what we're seeing

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<v Speaker 3>in theory space at the moment. I mean, we've got

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<v Speaker 3>yields climbing again. That bounce that we saw last week

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<v Speaker 3>was very very short lived. We're also expecting to hear

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<v Speaker 3>from the Trump administration. This week, I'm veiling a range

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<v Speaker 3>of fiscal initiatives to address the problem at the core

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<v Speaker 3>of this. What do you think is needed here?

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<v Speaker 4>Well, I think the bob market is obviously head of

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<v Speaker 4>the fat right now. That gap is the whole story.

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<v Speaker 4>I think the third year at five point three percent

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<v Speaker 4>ish is a nineteen year high fine. But what actually

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<v Speaker 4>matters is this is't announced. He more than double the

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<v Speaker 4>buy back program and the yields barely flinched, And that

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<v Speaker 4>tells us is actually a term a term premium problem

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<v Speaker 4>and is quite structural. And you've got inflation that won't

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<v Speaker 4>come down to the target, a physical deficit that just

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<v Speaker 4>printed is worth monthly member since twenty twenty one, and

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<v Speaker 4>a trillion dollar a I corporate bonds issue and save

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<v Speaker 4>competing with government paper for the same kind of buyers.

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<v Speaker 4>So those three things don't go away because the Treasury

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<v Speaker 4>buys back some bonds and bond set off I think

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<v Speaker 4>would likely to continue to genuine physical discipline or demond destruction,

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<v Speaker 4>but neither imminent, I think. And in a new term

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<v Speaker 4>the long end treasury you will likely stay elevated.

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<v Speaker 3>I think, Well, this is arguably making fed chick Kevin

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<v Speaker 3>WASH's job somewhat more challenging, and we will be hearing

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<v Speaker 3>from him at the end of the week at Jackson Hall.

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<v Speaker 3>What do markets need to hear from the FED chair

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<v Speaker 3>in terms of inflation targeting, communication about the Fed's next

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<v Speaker 3>move and what kind of market reaction do you expect

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<v Speaker 3>if it doesn't get it.

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<v Speaker 4>Well. I think it would be obviously a really challenging

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<v Speaker 4>speech work for Kevin Wash, and he has no good options,

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<v Speaker 4>to be honest, wired and youths keep running, financial conditions

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<v Speaker 4>tightened without a single rate hike, which is almost you know,

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<v Speaker 4>like poetic is dysfunction, and also signal that he's okay

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<v Speaker 4>with higher loan and yields, which some people think is

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<v Speaker 4>actually his his bias or he stands and you you

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<v Speaker 4>basically had the bond base exactly what they need and

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<v Speaker 4>push that doubbishly, and you had the inflation hug a

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<v Speaker 4>credibility argument. So actually, I think it would be a

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<v Speaker 4>really challenging or we're hard task for Kevin Wash to

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<v Speaker 4>balance the market expectations of a potential hike, and also

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<v Speaker 4>you know, he need to consider about a sluggish labor

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<v Speaker 4>market and also a sluggish retail self data back to July.

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<v Speaker 5>Dylan.

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<v Speaker 1>A lot at play here when it comes to the

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<v Speaker 1>gains across the AI space has been due to the

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<v Speaker 1>relentlessness of the momentum factor. Right as this begins to fade,

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<v Speaker 1>it's certainly been challenged over the last couple of rounds

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<v Speaker 1>of sell offs. Do you see more of a difficult certainly,

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<v Speaker 1>more of a difficult environment for retail investors, but perhaps

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<v Speaker 1>more opportunity if you're looking to be a little bit

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<v Speaker 1>more picky and perhaps value oriented.

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<v Speaker 4>Yes, I do think, you know, like everything goes up

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<v Speaker 4>together is basically yesterday, and we really need to potentially

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<v Speaker 4>find some selective opportunity in the AI trade. I mean,

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<v Speaker 4>because the fundamental of the demand in AIS do quite intact.

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<v Speaker 4>AI demod is quite strong Hyperscaler's capax commitment approaching seven

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<v Speaker 4>billion dollars for twenty many six. It is real and

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<v Speaker 4>a structural supply constraints through the middle of the of

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<v Speaker 4>the decade. But the market is drawing a hardline between

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<v Speaker 4>companies spending on AI and also companies earning from it.

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<v Speaker 4>Alphabet delivered on monetization in the past Quota. Microsoft past

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<v Speaker 4>was with flying Colors, but Meta was punished because you

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<v Speaker 4>know their lack of AI spending discipline, so that divergence

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<v Speaker 4>widened from here, I think in a new future, and

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<v Speaker 4>so I think it's a selective story rather than everything

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<v Speaker 4>goes up together recently. And we obviously need to look

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<v Speaker 4>into Nvidia's report to be released on after market close

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<v Speaker 4>on thirty twenty six of August. So if we are

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<v Speaker 4>seeing solid chife a month and potentially more supply from

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<v Speaker 4>the NVDA side, that it could be a potential boost

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<v Speaker 4>to the AI trade.

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<v Speaker 1>Dylan, that's just sposed focusing closely enough for looking at

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<v Speaker 1>the repercussions enough of the feedba what we're seeing from

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<v Speaker 1>what the bond markets are doing and the relentless pace

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<v Speaker 1>of fundraising by hyperscalers and other AI players, Does this

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<v Speaker 1>at some point come to be a confluence because you

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<v Speaker 1>would imagine this ultimate early results in even more expensive

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<v Speaker 1>levels when it comes to the AI build out.

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<v Speaker 4>Yeah, I think that's a fair point, and I think

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<v Speaker 4>the interaction effect between the bond market and AI capax

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<v Speaker 4>is obviously something we need to monitor as well. And

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<v Speaker 4>behavior scalers are claiming to issue roughly four hundred billion

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<v Speaker 4>dollars in investment great bonds e twenty May seven to

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<v Speaker 4>fund is AI infrastructure built out and well, the issue

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<v Speaker 4>has to be a sword by the same bond market

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<v Speaker 4>that's already under structural pressure from physical deficit and persistent inflation.

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<v Speaker 4>And if the thirty year you'll say above say five percent,

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<v Speaker 4>because of that, debt financing rises materially and it changes

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<v Speaker 4>the return math when AI infrastructure in the investment in

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<v Speaker 4>ways that they aren't yet reflected in tech valuations. So

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<v Speaker 4>if we are still seeing the lack of physical discipline

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<v Speaker 4>from the law and from the AI from the US

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<v Speaker 4>debt market, then it would be a potential challenge to

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<v Speaker 4>the mead to long term development in the AI trade.

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<v Speaker 4>But in a new term, I think what can bring

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<v Speaker 4>markets more volatility as to a VDS report.

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<v Speaker 5>Dan.

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<v Speaker 3>Just finally, copper miners are being performing very well in

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<v Speaker 3>the story. Australia is home to a lot of copper

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<v Speaker 3>miners and copper also occurs in similar are bodies to

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<v Speaker 3>gold as well, which is also performing well thanks to

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<v Speaker 3>the debasement trade. With that in mind, how did you

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<v Speaker 3>like the earning story from miners and how do you

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<v Speaker 3>play the Australian story at the moment.

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<v Speaker 4>Well, I think the Australian outlook is genuinely missed, mixed

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<v Speaker 4>and is suggested by the earning season and the motor

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<v Speaker 4>speed economy theme I think is due playing out quite

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<v Speaker 4>well in Australia. Resources, as we just mentioned are carrying

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<v Speaker 4>the lord BAHP delivered impated of thirty percent when record

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<v Speaker 4>corporate price is our biggest dividend in four years and

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<v Speaker 4>real tinterer but are up twenty eight percent. Quality Australian

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<v Speaker 4>names with global commodity exposures specifically are navigating this environment

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<v Speaker 4>just fine. And the problem is basically everywhere else, non

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<v Speaker 4>resources earnings are tracking around two point six percent growth

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<v Speaker 4>against underlying inflation of a roughly three point six percent,

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<v Speaker 4>and that's real contraction in purchasing power terms and banks

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<v Speaker 4>are solid but not that's you know, the tackular we

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<v Speaker 4>can incredit quality as well as concerns about a potential

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<v Speaker 4>economic slowdown kept calling up across different reports, so that

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<v Speaker 4>tells you the consumer is under some real pressure. And

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<v Speaker 4>I think, you know it's basically we're looking into a

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<v Speaker 4>multi speed. We're multi speed growth model in Australia. I

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<v Speaker 4>think we are still looking a potential upside of all

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<v Speaker 4>the energy and including corpor these kind of names, but

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<v Speaker 4>we need to be more cautious about all the now

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<v Speaker 4>energy and retail sectors.

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<v Speaker 2>That was Dylan Wu, Research Strategistic Pepperstone speaking with Bloomberg

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<v Speaker 2>TV host Heidi Stroud Watts and Paul Allen, bringing you

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<v Speaker 2>their conversation here on the Daybreak Asia Podcast. Welcome back

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<v Speaker 2>to the Daybreak Asia podcas I'm Doug Prisner. On Monday,

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<v Speaker 2>in the US, Treasury Secretary Scott Besant is set to

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<v Speaker 2>hold a media briefing on details of planned sanctions against

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<v Speaker 2>Iran and its trading partners. Now. This move will put

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<v Speaker 2>China in the spotlight since it is the largest purchaser

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<v Speaker 2>of Iranian crude oil.

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<v Speaker 5>Now.

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<v Speaker 2>For its part, Beijing has said it continues to support

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<v Speaker 2>a diplomatic end to the US Iran war. And that's

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<v Speaker 2>where we begin our conversation with Christopher Smart. He is

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<v Speaker 2>managing partner at our Breath Group. Chris spoke with Bloomberg

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<v Speaker 2>TV host Heidi Stroudwatts and Paul Allen.

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<v Speaker 1>Christopher, always a pleasure to have you with us, And

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<v Speaker 1>as you asked, what are we going to talk about?

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<v Speaker 1>Because we haven't heard a great deal of progress in

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<v Speaker 1>terms of what's going on with this what feels like

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<v Speaker 1>an increasingly intractable stalemate, this economic isolation plan that we're

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<v Speaker 1>waiting for details on. What are you expecting given that, well,

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<v Speaker 1>Iran is and has been for a long time economically isolated.

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<v Speaker 6>Well, I think a lot of us are going to

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<v Speaker 6>be interested to see what Secretary of Vesson has to

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<v Speaker 6>say tomorrow.

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<v Speaker 5>I think he wrote a piece over.

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<v Speaker 6>The weekend that announces or describes what he's about to

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<v Speaker 6>announces an economic d day of the beginning of a

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<v Speaker 6>final assault on the Iranian economy. But it feels like,

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<v Speaker 6>as you say, this is something we've been working on

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<v Speaker 6>for more than a decade or maybe several decades now

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<v Speaker 6>in terms of isolating and sanctioning the Iranian economy. I

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<v Speaker 6>think a couple of things spring to mind right away

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<v Speaker 6>is we really have very little sense of how bad

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<v Speaker 6>things are within the Iranian economy right now. We know

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<v Speaker 6>it's bad, but we're not really sure exactly where the

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<v Speaker 6>pressure points are. And then secondly, this is a regime

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<v Speaker 6>that is not popularly elected, not facing any midterms anytime soon,

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<v Speaker 6>So even if the pain gets worse for the people

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<v Speaker 6>of Iran, it's not clear how that's going to change

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<v Speaker 6>their behavior or any of their negotiating positions.

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<v Speaker 1>Does a great impact potentially come down to what Beijing

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<v Speaker 1>and what Russia can be persuaded to do. And we

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<v Speaker 1>do know that presides year is expected to head to

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<v Speaker 1>Washington in September. Is there any leverage there for President Trump?

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<v Speaker 6>Well, I mean, as you say, the biggest trading partners

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<v Speaker 6>are China, and that we have a whole lot of

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<v Speaker 6>other business to do with China beyond Iran. So I'm

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<v Speaker 6>not sure what kind of leverage the President expects he

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<v Speaker 6>can exert other than maybe tariffs or sanctions. But we

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<v Speaker 6>also know that the Chinese aren't just going to stand

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<v Speaker 6>and take it if those sorts of threats are raised,

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<v Speaker 6>and so they have played their cards before, responding with

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<v Speaker 6>both sanctions as well as blocking critical mineral exports, and

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<v Speaker 6>so I'm not sure that's a game that the President

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<v Speaker 6>wants to start playing.

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<v Speaker 5>At this stage. You know, the other key players in

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<v Speaker 5>the region.

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<v Speaker 6>Afghanistan is on one border, Turkey and Russia are on

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<v Speaker 6>northern borders. Not clear we have any relationship with either

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<v Speaker 6>Afghanistan or Russia. Turkey might be able to help out,

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<v Speaker 6>but it's not clear. That that's at the top of

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<v Speaker 6>their list. I think the one encouraging point that the

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<v Speaker 6>President and the Secretary Treasury Secretary can look to is

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<v Speaker 6>the announcement earlier this week that the United Emirates was

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<v Speaker 6>going to stop all of its economic relationships with Iran.

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<v Speaker 6>That's been a key conduit of a lot of money

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<v Speaker 6>in and out of the country. The question will be

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<v Speaker 6>does the government is the government able to crack down

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<v Speaker 6>on illicit and illegal flows back and forth.

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<v Speaker 3>Christopher, part of the whole rationale for this conflict in

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<v Speaker 3>the first place was to prevent Iran from getting a

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<v Speaker 3>nuclear weapon. But a couple of thoughts here, it does

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<v Speaker 3>this entire experience reinforce the Iranian desire for a nuclear

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<v Speaker 3>weapon sort of prove their point to a degree, and

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<v Speaker 3>in terms of economic isolation, exhibit a North Korea and

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<v Speaker 3>due decades of economic isolation, got on nuke.

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<v Speaker 6>Anyway, Yes, you know, you make excellent points all around.

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<v Speaker 5>I think others have pointed that out as well.

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<v Speaker 6>The attacks on Iran, as you say, reinforce the case

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<v Speaker 6>of the hardliners within Iran that this is something that

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<v Speaker 6>needs to be done now.

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<v Speaker 5>Obviously, the bombings.

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<v Speaker 6>Last year and then this year have done a lot

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<v Speaker 6>to set back that program. But I think expecting to

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<v Speaker 6>resume a course of negotiations that requires trust to be

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<v Speaker 6>built on both sides and requires inspections and transparency and

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<v Speaker 6>Iran to trust the fact that its security is not

0:14:39.360 --> 0:14:46.680
<v Speaker 6>threatened have been delivered a big setback right now. The question, though, remains,

0:14:46.720 --> 0:14:50.280
<v Speaker 6>I think what good does a nuclear weapon do for Iran?

0:14:51.640 --> 0:14:52.320
<v Speaker 5>Maybe it.

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<v Speaker 6>Helps it avoid another attack like this, But to be honest,

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<v Speaker 6>I think what we've demonstrated all from from what's happened

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<v Speaker 6>in the last six months is that attacks like this

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<v Speaker 6>don't really work.

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<v Speaker 5>They don't really change the behavior.

0:15:06.360 --> 0:15:07.800
<v Speaker 6>Of the regime and the way you want to change it,

0:15:07.800 --> 0:15:10.320
<v Speaker 6>and in fact has opened up these problems on the

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<v Speaker 6>street that we're all dealing with.

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<v Speaker 5>Well, the regime has.

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<v Speaker 3>Been around since the nineteen eighties, President Trump, this term

0:15:18.640 --> 0:15:21.760
<v Speaker 3>has been around for slightly under two years. You mentioned earlier,

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<v Speaker 3>the Iranian regime doesn't have to face midterms, but the

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<v Speaker 3>president does. Is that part of the play here to

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<v Speaker 3>make things extremely uncomfortable for the US? Do you expect

0:15:30.560 --> 0:15:34.680
<v Speaker 3>any retaliation from Iran in the hope that they might

0:15:34.720 --> 0:15:37.280
<v Speaker 3>be dealing with a new regime a more sympathetic one

0:15:37.280 --> 0:15:39.560
<v Speaker 3>in the United States a couple of years down the track.

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<v Speaker 6>Well, two years is a long time for the difficulty

0:15:45.880 --> 0:15:49.080
<v Speaker 6>of having lost their access to global oil markets.

0:15:49.840 --> 0:15:52.120
<v Speaker 5>The street being closed is inflicting pain on them. I'm

0:15:52.120 --> 0:15:52.840
<v Speaker 5>sure they would.

0:15:52.680 --> 0:15:55.560
<v Speaker 6>Prefer not to have that blocked the way it is

0:15:55.640 --> 0:15:58.720
<v Speaker 6>right now, and to expect that to go on another

0:15:58.760 --> 0:16:00.680
<v Speaker 6>two years, I think is probably some they would love

0:16:00.760 --> 0:16:01.560
<v Speaker 6>to avoid.

0:16:02.000 --> 0:16:04.920
<v Speaker 5>But I think the real question is just the imbalance in.

0:16:06.440 --> 0:16:10.400
<v Speaker 6>In uh In, I guess dead fastness for lack of

0:16:10.440 --> 0:16:10.920
<v Speaker 6>a better word.

0:16:11.000 --> 0:16:13.720
<v Speaker 5>I mean, Iran is defending its country. It's never going

0:16:13.800 --> 0:16:14.800
<v Speaker 5>to give.

0:16:14.680 --> 0:16:17.000
<v Speaker 6>Up on that, and the hope is that the US

0:16:17.120 --> 0:16:21.320
<v Speaker 6>will either get distracted or realize that the costs of

0:16:21.360 --> 0:16:25.600
<v Speaker 6>continuing this effort militarily as well as economically.

0:16:25.080 --> 0:16:27.400
<v Speaker 5>Are are too high.

0:16:27.480 --> 0:16:30.600
<v Speaker 6>And so it feels like we're still going to have

0:16:30.640 --> 0:16:34.200
<v Speaker 6>to come to terms with some kind of agreement that

0:16:34.240 --> 0:16:38.000
<v Speaker 6>neither side loves. But we're clearly not there yet, and

0:16:38.040 --> 0:16:41.560
<v Speaker 6>we're going to have to see what the Secretary announces tomorrow.

0:16:41.600 --> 0:16:44.120
<v Speaker 6>You know, I'll just say as an aside, he has

0:16:44.160 --> 0:16:46.480
<v Speaker 6>had two big announcements in the last two weeks, with

0:16:46.560 --> 0:16:49.320
<v Speaker 6>the Yen intervention and then with the buybacks of the

0:16:49.440 --> 0:16:52.920
<v Speaker 6>US Treasury debt, you know, his credibility has been dented

0:16:53.560 --> 0:16:56.320
<v Speaker 6>in the past couple of weeks, and so it's not

0:16:56.520 --> 0:16:59.160
<v Speaker 6>clear that he's going to be, you know, restoring or

0:17:00.040 --> 0:17:04.760
<v Speaker 6>reinforcing that reputation with whatever he's able to announce tomorrow,

0:17:04.920 --> 0:17:06.560
<v Speaker 6>unless it's something completely surprising.

0:17:06.680 --> 0:17:10.119
<v Speaker 2>That's Christopher Smart, managing partner at Our Birth Group, speaking

0:17:10.160 --> 0:17:13.399
<v Speaker 2>with Bloomberg TV host Heidi Stroud Watts and Paul Allen

0:17:13.800 --> 0:17:17.040
<v Speaker 2>bringing you their conversation here on the Daybreak Asia podcast.

0:17:19.160 --> 0:17:22.560
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:17:22.720 --> 0:17:26.080
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:17:26.160 --> 0:17:30.480
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:17:30.520 --> 0:17:34.639
<v Speaker 2>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:17:34.760 --> 0:17:37.760
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:17:37.880 --> 0:17:41.399
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:17:41.800 --> 0:17:45.560
<v Speaker 2>and Australia. I'm Doug Chrisner, and this is Bloomberg