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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisoner.

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Speaker 2: Let's update our top story. Israel has launched a preemptive

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Speaker 2: strike against Iran. Now Israeli Prime Minister Benjamin Agnia who

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Speaker 2: says that these strikes are focused on Iran's nuclear program

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Speaker 2: and ballistic missiles, and the strikes will last until that

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Speaker 2: threat is removed. Israel's Defense minister has declared a state

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Speaker 2: of emergency, saying the country is anticipating retaliatory action in Iran.

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Speaker 2: State run Newer News is reporting successive explosions have been

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Speaker 2: heard in the capital city of Tehran. Meantime, US Secretary

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Speaker 2: of State Marco Rubio said the US is not involved

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Speaker 2: in these strikes against Iran. Here is Bloomberg's Michael Heath.

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Speaker 3: It was sort of interesting in that we had we

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Speaker 3: had President Trump saying, you know, saying that he didn't

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Speaker 3: want Israel to do this, and obviously there's supposed to

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Speaker 3: be talks in Oman on Sunday, a sixth round of

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Speaker 3: these nuclear negotiations, and yet off the record, there was

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Speaker 3: reporting was beginning to happen that that an Israeli a

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Speaker 3: tack could happen within six to twelve hours, and then

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Speaker 3: you know, within half an hour of that, suddenly we're

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Speaker 3: getting this news that.

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Speaker 2: Is Bloomberg's Michael Heath. Now the price of crude, not surprisingly,

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Speaker 2: is rallying at this hour. Let's take a look now

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Speaker 2: at some of the other issues that markets in Asia

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Speaker 2: are grappling with this morning, not the least of which

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Speaker 2: the tariff story. The dollar weakened to the lowest level

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Speaker 2: in about three years in the New York session, not

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Speaker 2: only concern about how tariffs are impacting the US, but

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Speaker 2: the global economy as well. For more, I am joined

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Speaker 2: by Bloomberg m Live strategist Mary Nicola, who joins us

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Speaker 2: from our studios in Singapore. Let's put aside the oil

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Speaker 2: story for a moment, Mary, there is a lot that

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Speaker 2: we still don't know. But talk to me a little

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Speaker 2: bit about what you're observing in the currency market and

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Speaker 2: the fluctuation. More importantly, the weakness that we have seen

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Speaker 2: in the dollar.

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Speaker 4: Pretty evident that what we're seeing in the currency market

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Speaker 4: is that the dollar has become the punching bag. So

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Speaker 4: any sort of headlines around tariff uncertainty or any concerns

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Speaker 4: about tariff just undermines the dollar, and we've seen it

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Speaker 4: consistently talks about expectations of more auto tariffs. The other

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Speaker 4: day when Trump spoke about potential unilateral tariffs, it was

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Speaker 4: the dollar that was first hit. And a lot of

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Speaker 4: it has to do with the fact that the combination

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Speaker 4: of policy uncertainty, the concerns about what the impact of

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Speaker 4: US growth can potentially be, and then of course precipitating

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Speaker 4: the dollar decline has been what we've been seeing in yields.

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Speaker 4: So we've seen a more benign environment for inflation, and

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Speaker 4: we had really good auctions actually the past two this

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Speaker 4: past week, so whether it was a ten year or

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Speaker 4: the thirty year where a lot of investors came in

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Speaker 4: with a lot of angst, especially on the thirty year ball,

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Speaker 4: but they've actually done well. So we've seen that the

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Speaker 4: declining yields has actually added to the momentum, the downside

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Speaker 4: dollar momentum.

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Speaker 2: So with dollar weakness, give me a sense of the

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Speaker 2: currencies in Asia that are benefiting. Is it really a

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Speaker 2: story of a stronger yen.

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Speaker 4: I think it's a story of a lot of across

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Speaker 4: the board strength. So whether you're looking at the end

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Speaker 4: the Korean wand especially those two because they're quite in

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Speaker 4: the spotlight, especially with trade negotiations. The Korean officials have

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Speaker 4: spoken about the currency being on the table. Taiwan dollar.

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Speaker 4: Of course, a few weeks ago we had a surge

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Speaker 4: and the Taiwan dollar, and a lot of it was

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Speaker 4: on speculation that they were allowing it to move in

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Speaker 4: light of trade negotiations. And it arguably if you look

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Speaker 4: at the yen, the Korean wand if you look at

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Speaker 4: it over a long term basis, in terms of valuations,

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Speaker 4: it is considered quite cheap, so there's plenty of scope

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Speaker 4: for it to appreciate. And then in terms of some

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Speaker 4: of the other currencies this year, and y is also

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Speaker 4: very very closely watched. That was already put on the

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Speaker 4: that was already on the Treasury monitoring list along with

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Speaker 4: the Japanese yen and the Korean wan, and largely the

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Speaker 4: concern of the Treasury was on the lack of transparency

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Speaker 4: on the yuan. So and we're seeing a drift, a

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Speaker 4: drift of hire in the c and y and that

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Speaker 4: is also another thing that is going to keep the

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Speaker 4: anchor for Asian currencies to continue to appreciate.

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Speaker 2: We have a very important central bank meeting in the

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Speaker 2: week ahead. The Bank of Japan will be confronted with

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Speaker 2: a decision on infrast rates. So, given everything that we've

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Speaker 2: been talking about, the concern on global trade, the flows

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Speaker 2: of assets moving in and out of different markets, the

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Speaker 2: fluctuations and currencies, do you think that there is just

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Speaker 2: too much noise right now and the boj is just

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Speaker 2: going to be a little averse to making any type

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Speaker 2: of adjustment to policy.

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Speaker 4: Absolutely, inflation is a problem in Japan, and we've seen

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Speaker 4: inflation prints come in higher, yet they're likely to stand

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Speaker 4: pat because of the uncertainty that you just mentioned. But

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Speaker 4: I think what the key focus will be for the

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Speaker 4: markets is just on how they adjust their tapering and

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Speaker 4: their quantitative and their balance sheet runoff, because as we know,

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Speaker 4: we've seen increased volatility in the Japanese bond markets over

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Speaker 4: the last few few weeks, and what that has done

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Speaker 4: is the fact that especially the longer dated we've seen

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Speaker 4: heightened volatility and weak demand in the auctions as well.

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Speaker 4: So the a lot of investors are focused on do

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Speaker 4: they change their tapering profile and do they sell less

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Speaker 4: of the back end and more of the front end

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Speaker 4: to just ease some of that pressure.

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Speaker 2: So away from Japan, what about China and what may

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Speaker 2: we learn in the days ahead.

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Speaker 4: So for China, we do have their usual monthly data

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Speaker 4: dump coming in on Monday and some money supply data. Obviously,

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Speaker 4: the key risk for China and its ongoing recovery is consumption.

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Speaker 4: And the fact is it's almost like the markets have

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Speaker 4: become resigned to weak consumption right now. And what really

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Speaker 4: was a setback for the markets was just where pmis

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Speaker 4: were the kaishin PMI that measures small and medium sized

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Speaker 4: businesses the health their health that really fell into contraction

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Speaker 4: in the last month, and that really upset markets. So

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Speaker 4: the retail sales is just going to be just yet

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Speaker 4: another drag. But we know that the focus for the

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Speaker 4: government in terms of spending has been mostly on manufacturing

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Speaker 4: an AI investment, so we they obviously and and the

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Speaker 4: and the pickup on the on the consumer spending with

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Speaker 4: some of the handouts has been actually quite limited. So

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Speaker 4: the focus will be on how manufacturing picks up more

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Speaker 4: so than consumption because there still is a massive drag

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Speaker 4: on the consumption side.

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Speaker 2: Mary will leave it there, enjoy the weekend. It's always

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Speaker 2: a pleasure to chat with you. Mary Nicolo. There Bloomberg

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Speaker 2: Market Live strategists joining from Singapore here on the Daybreak

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Speaker 2: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm

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Speaker 2: Doug Krisner. So in the US. During the last session,

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Speaker 2: we got a second muted reading on inflation in as

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Speaker 2: many days. Headline PPI was up at a monthly rate

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Speaker 2: of one tenth of one percent, and then on top

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Speaker 2: of that, recurring applications for jobless benefits rose to the

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Speaker 2: highest level since the end of twenty twenty one. I

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Speaker 2: think it's fair to say these data points fueled hope

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Speaker 2: of a dubvish message from next week's FED meeting. We

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Speaker 2: had yields down across the curve today and at the

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Speaker 2: same time, the dollar hit a three year low. Now

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Speaker 2: that came after President Trump said he would set unilateral

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Speaker 2: tariffs on trading partners in about two weeks. For a

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Speaker 2: closer look, now at the macro, I'm joined by Natalia Gurushina.

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Speaker 2: She is the chief economist for Emerging Markets Fixed Income

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Speaker 2: Strategy at Vanek to Tealia, thank you so much for

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Speaker 2: being with us. I want to begin by asking to

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Speaker 2: get your sense of the degree of slower growth that

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Speaker 2: you're seeing well.

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Speaker 1: As you can probably hear, there is some noise in

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Speaker 1: the office from our neighbors. So I think that's probably

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Speaker 1: signed that the economy is not completely collapsing. But the

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Speaker 1: policy uncertainty is I think that's the key issue. That's

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Speaker 1: probably one of the biggest growth hadwinds, not just for

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Speaker 1: the yes, for emerging markets. I think that are definitely upsides,

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Speaker 1: and I think the upside one of the growth upsides

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Speaker 1: globally actually comes from Asia. The fact that China has

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Speaker 1: got policy space to provide additional sterilus and another I

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Speaker 1: think positive for global growth is that China isn't a

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Speaker 1: better shape fundamentally than it was during the first Trade

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Speaker 1: War and specific issues. You know, China definitely made a

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Speaker 1: very significant progress moving up technological value chain during the pandemic,

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Speaker 1: and China also eliminated some of the important the mess

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Speaker 1: well not necessarily eliminated, but lowered domestic negative tail risks

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Speaker 1: for example local governments, hidden debt, and also real estate.

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Speaker 1: So but you know, as regards as a price is

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Speaker 1: what is very important for us in emerging markets. It's

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Speaker 1: not just a weekly used dollar, but the fact that

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Speaker 1: China doesn't have to react policy wise, it can remain patient,

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Speaker 1: and specifically it keeps the REMIMBI stable. That's very important

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Speaker 1: anchor for em effacts. But you know, if you look

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Speaker 1: at stable Asian effects together with slow girls lower inflation,

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Speaker 1: that probably should continue pushing local rates lower. So I

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Speaker 1: think that's kind of one of the ways that markets

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Speaker 1: can make money in the situation when we have concerns

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Speaker 1: about the global girls out.

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Speaker 2: I want to get your take on the meeting that

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Speaker 2: occurred in London this week between the US and China.

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Speaker 2: There was an agreement on a trade framework. Now, from

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Speaker 2: the state's perspective, President Trump is hailing it as a

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Speaker 2: game changing breakthrough, But I think it's fair to say

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Speaker 2: that this is pretty much a reset from earlier terms, right,

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Speaker 2: even at some cost. I guess if you look at

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Speaker 2: the fact that the United States agreed to roll back

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Speaker 2: a promised crackdown on visus for Chinese students, the rare

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Speaker 2: earth shipments are set to return to levels that were

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Speaker 2: pre April. Second, give me your sense of what was

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Speaker 2: accomplished in this meeting, if anything, you.

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Speaker 1: Know, my sense is not really much, because first of all,

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Speaker 1: there is a great deal of uncertainty about the legal

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Speaker 1: process regarding the tarists in DS. So for example, you know,

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Speaker 1: there was a court decision to freeze the tariffs, which

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Speaker 1: has been you know, then reversed after the court of appeal.

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Speaker 1: And there are also some other provisions legal provisions that

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Speaker 1: are open to administration to impost taris. I'm specifically referring

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Speaker 1: to section three zero one and section three two two

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Speaker 1: three two, So you know it might provide you know,

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Speaker 1: as regards to market reaction, it provides definitely some threasure

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Speaker 1: fresh air, But fundamentally I'm on a skeptical site. I

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Speaker 1: don't think you know, a lot has been accomplished. As

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Speaker 1: I said, it's a welcome pose, and it's good that

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Speaker 1: emergency markets, you know, specifically Asian currencies can use this

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Speaker 1: post to advance. That's definitely one of the reasons why,

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Speaker 1: for example, IM local debt is performing so well, because

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Speaker 1: you know, emerging markets are used in this momentum. But

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Speaker 1: as I said, as regards eliminating this uncertainty, I'm on

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Speaker 1: a skeptical site simply because there is so much legal

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Speaker 1: uncertainty exactly how this process is going to develop in

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Speaker 1: the coming weeks and months.

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Speaker 2: I hear what you're saying in terms of what China

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Speaker 2: has at its disposal to keep the economic going. One

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Speaker 2: of the things that we're very sensitive to is the

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Speaker 2: labor market in China and the degree to which people

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Speaker 2: need to be employed. Do you think that is a

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Speaker 2: critical part of the story domestically right now?

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Speaker 1: You know, that's part of the story. I think one

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Speaker 1: of the biggest issues for me as economist when I

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Speaker 1: look at China is that each time when I look

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Speaker 1: at the China's consumer confidence index, it remains frozen at

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Speaker 1: a very low level. And unfortunately, the solutions are very

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Speaker 1: long term. So it's not just the labor market right now,

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Speaker 1: it's it's pensionaryform, it's uh, you know, it's it's social

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Speaker 1: social safety in net Chinese thinking about this, which I

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Speaker 1: think is a good, very good science. So it's where

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Speaker 1: it's got problems. But again, you cannot achieve a solution

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Speaker 1: in these very significant areas in the year or two.

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Speaker 1: I mean, one potential catalyst, which I think kind of

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Speaker 1: a reasonably short term catalyst, which might actually provide a

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Speaker 1: boost to consumer confidence is an announcement, uh, for example,

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Speaker 1: about using the Essential Governments Balance it to deal with

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Speaker 1: the with the problem of unfinished houses. But again there

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Speaker 1: are a lot of uncertainties there regarding the pricing and

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Speaker 1: the valiations. It's just the sharing number of the houses

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Speaker 1: unfinished houses is so great. So yes, I think I'm

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Speaker 1: looking at these issues. I'm looking for more announcements regarding

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Speaker 1: these kind of longer term structural issues. But I agree

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Speaker 1: with you, Yes, the labor market is that's that's an

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Speaker 1: important point. But as I said, I don't think, you know,

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Speaker 1: the solution to consumer confidence in China can be found

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Speaker 1: on a very short term and unfortunately, the market is

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Speaker 1: sometimes getting impatient, you know, looking for a big bazuko

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Speaker 1: or a big statement, whereas it's it's a longer term process,

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Speaker 1: process of reforms.

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Speaker 2: So how do you understand the risk If the deflation

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Speaker 2: story in China is clearly problematic, what are the risk

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Speaker 2: that you see associated with that? Maybe in the next

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Speaker 2: six months to a year from now.

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Speaker 1: You know, I'm a little bit less concerned about deflation

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Speaker 1: in China. I think what is important for me is

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Speaker 1: how the government is going to well. First of all,

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Speaker 1: China has got policy space, right, China has got policy

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Speaker 1: space on the fiscal side, and China has got policy

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Speaker 1: space on the mine trait side. So I think that's

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Speaker 1: very important because a lot of countries around the globe,

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Speaker 1: you know, the fiscal space is like and unfortunately, I

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Speaker 1: think what is also important kind of looking forward is

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Speaker 1: how the exchange rate is going to evolve. And it's

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Speaker 1: again it's not just for kind of shorter term portfolio considerations.

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Speaker 1: It's you know, a more stable exchange rate, maybe slightly

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Speaker 1: appreciating exchange rate will allow China to explore some other

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Speaker 1: avenues like maybe you know, if you think about benig gpennification,

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Speaker 1: so to say, when back in the ages, Japan was

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Speaker 1: exporting FDIs to the rest of the world, So that's

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Speaker 1: kind of one of the potential avenues China math expos

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Speaker 1: I don't think that's you know, I don't want to

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Speaker 1: think about necessarily risks in this regard, but thinking about

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Speaker 1: kind of policy options, and that's I think one of

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Speaker 1: the policy options that are most stable or stronger currency

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Speaker 1: can give Chinese authorities.

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Speaker 2: What about the way in which China has been redirecting

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Speaker 2: some of its trade flows to compensate for the problems

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Speaker 2: with the United States, and is that being done in

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Speaker 2: an effective way to kind of mitigate the risk of

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Speaker 2: weaker export activity to the United States.

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Speaker 1: I think this is a very important point that you mentioned,

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Speaker 1: because you know, we talked about the elimination of some

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Speaker 1: domess decreasks, which I think gives China key advantage right now.

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Speaker 1: But also China the fact that Chinese is now less

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Speaker 1: reliant on the S in foreign trade also give it

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Speaker 1: more policy options, and specifically the fact that with this

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Speaker 1: in place, China can afford to be more patient and

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Speaker 1: not to react each time the years sneezes. Right, So

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Speaker 1: more countries, it's not just the trade kind of more

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Speaker 1: countries now trade, which than than with the yes. And also,

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Speaker 1: as you pointed out, China started to redirect a trade

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Speaker 1: and also some supply chains, which I think is even

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Speaker 1: more important towards emerging markets. Right. Of course, some of

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Speaker 1: this reflects China's attempts to circumvent the existing times and restrictions,

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Speaker 1: but it definitely does not explain one hundred percent one

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Speaker 1: hundred percent of the shift. So you know, in my opinion,

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Speaker 1: that's that might be evidence of regionalization, China kind of

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Speaker 1: trying to maybe find more opportunities link itself closely to

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Speaker 1: the global ceuce, which again will benefit imaging markets. And

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Speaker 1: again maybe it's uh. I don't know. Have you thought

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Speaker 1: about the fact that if China is expanding into global

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Speaker 1: cells into the rest of Asia, providing more FDI Uh. Again,

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Speaker 1: this scenario is associated with a stable, maybe slightly stronger currency,

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Speaker 1: maybe maybe exporting technology expertise. Maybe this can help some

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Speaker 1: of these countries to finally escape the middle income trap.

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Speaker 1: I mean that definitely would be a very positive scenario.

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Speaker 2: And maybe the US pays the price for that, which

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Speaker 2: then would only fuel this idea that we're seeing the

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Speaker 2: end of US exceptionalism.

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Speaker 1: Oh you know, we Atwanek are talking about the era

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Speaker 1: of em exceptionalism. And I think what is interesting about

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Speaker 1: this is that in Asia you have two big growth drivers.

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Speaker 1: One of them China is already an independent global gross driver,

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Speaker 1: but you also have India, right and India Actually, India's

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Speaker 1: growth has got I would say a second second brass

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Speaker 1: right now, and you know, gross momentums getting much needed

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Speaker 1: policy support. And I'm particularly encouraged by the fact that

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Speaker 1: India's fiscal effort is finally focusing on capital expenditure, which

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Speaker 1: is key for lifting India's growth long term growth trajectory.

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Speaker 1: But I don't and you will not dismiss the idea

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Speaker 1: of China's girls rebound yet. You know, as I said,

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Speaker 1: China has got Paulus room, and as one of my

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Speaker 1: colleagues in Vanak pointed out, China's innovation engine is running

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Speaker 1: at full speed. So I'm very happy about that.

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Speaker 2: Italia, We'll leave it there. Thank you so much. Natalia Gurushina.

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Speaker 2: She is the chief economist for Emerging Markets Fixed Income

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Speaker 2: Strategy at van Neck. Joining us here on the Daybreak

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Speaker 2: Asia podcast. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: Bloomberg