Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Energy
Speaker 2: markets are still a critical concern. After the close in
Speaker 2: New York Trading, President Trump warned Iran against charging tolls
Speaker 2: on vessels moving through the Strait of Horn Moves.
Speaker 3: Now.
Speaker 2: Trump went on to say that Iran is doing a
Speaker 2: very poor job of allowing oil to flow through. At
Speaker 2: the moment, I think it's fair to say that the
Speaker 2: strait remains largely blocked. Yes, there have been a handful
Speaker 2: of Iran linked ships passing through, and we know of
Speaker 2: three Chinese oil tankers at least with Saudi and Iraqi
Speaker 2: crew that have sailed to Horn Moves. Iran, meantime, as
Speaker 2: we know, has said that any vessel transitting the strait
Speaker 2: will need army approval. And just to point out before
Speaker 2: we get into our conversation, today, in Japan, the government
Speaker 2: said it will release oil reserves equivalent to twenty days
Speaker 2: of consumption from inventories in the month of May. For
Speaker 2: a closer look at markets, particularly on how oil is
Speaker 2: impacting the story, I'm joined by Bloomberg's Leontin Iwo. She
Speaker 2: is managing editor for Asia Equities. Leonting joined from our
Speaker 2: studios in Singapore. Thank you for being with us. One
Speaker 2: of the things that's really surprising to me is how
Speaker 2: well stock markets in the Asia Pacific are performing in
Speaker 2: the face of elevated crude prices. I think the MSCI
Speaker 2: Asia Pacific Index is on track for its first weekly
Speaker 2: gain since the war began.
Speaker 3: Yeah, it's actually on track for its best weekly gain
Speaker 3: since twenty twenty four, that's when the PBOC wrote out
Speaker 3: the stimulus of stimulus blitz. I don't know if you remember,
Speaker 3: so yeah, I would say global stocks are actually already
Speaker 3: sort of looking past the war. I know, you know,
Speaker 3: there's still a lot of uncertainty. The street of homos
Speaker 3: hasn't really been opened. But market by its nature is
Speaker 3: very optimistic, right. Stock market people are looking at the
Speaker 3: direction of travel, which has been positive. The escalation has
Speaker 3: been the direction. In the last week or so, people
Speaker 3: already talking about how to position for the end of
Speaker 3: this war. So, you know, stuff like renewable energy is
Speaker 3: really being mentioned, just because the war reminded all the
Speaker 3: governments that they need to diversify their sources of energy
Speaker 3: away from the likes of oil and gas. So you know,
Speaker 3: people are looking at energy storage stocks, renewable like solar
Speaker 3: and wind and also ev This is all being sort
Speaker 3: of bought or being accumulated by fund managers right now.
Speaker 2: What about the story in China as it relates to coal.
Speaker 2: You're talking about how the energy crisis is impacting the
Speaker 2: need for power. We know that many of the countries
Speaker 2: in the Asia Pacific are heavy oil and lerg importers.
Speaker 2: Is there much conversation around doing more with coal?
Speaker 3: Yeah, I think coal in terms of STOCKMA performance, coal
Speaker 3: stocks are also being bought just because you know, with
Speaker 3: oil being sort of limited in terms of supply, investors
Speaker 3: just looking at all sorts of energy sources to get
Speaker 3: their hands on. But I think in the longer term,
Speaker 3: China is still very much determined to phase out heavy
Speaker 3: dirty coal usage and encourage power plants to use more renewable,
Speaker 3: clean energy generated electricity. So in that sense, I think,
Speaker 3: you know, the likes of Cattle, which has the biggest
Speaker 3: business in energy storage, and even byd which has a
Speaker 3: very sizable business in energy storage, and all these kind
Speaker 3: of companies I would say are better positioned in terms
Speaker 3: of benefiting from a future sort of government.
Speaker 2: Incentives speaking of the government in China. I was reading
Speaker 2: a piece on the Bloomberg Terminal indicating that the government
Speaker 2: is considering financial relief for some of the Chinese state
Speaker 2: run airlines. Obviously, the war has created much higher jet
Speaker 2: fuel prices. Give me a sense of what's happening with
Speaker 2: the airline industry in China right now as it relates
Speaker 2: to higher jet fuel.
Speaker 3: Yeah, it's I would say they're in quite a dire
Speaker 3: situation just because state owned airlines in China typically don't hedge,
Speaker 3: so they are directly hit by any increase in jet
Speaker 3: fuel prices. And also domestically, consumption still hasn't been very strong,
Speaker 3: so they cannot easily pass on the increase in jet
Speaker 3: fuel to consumers. Therefore, they're really taking a hit on
Speaker 3: their margins. So this time the government is just you know,
Speaker 3: spending billions of yuan to support this industry, very much
Speaker 3: similar to the support that we saw during COVID. So
Speaker 3: I would say, yes, the margins are really coming under pressure,
Speaker 3: and these stocks I would say, sold off the most
Speaker 3: among global airlines during this war.
Speaker 2: So we have the official data on inflation for China,
Speaker 2: both CPI and PPI. When you look at the wholesale
Speaker 2: inflation number PPI was up behalf of one percent. That
Speaker 2: was slightly above the forecast consumer prices, however a bit
Speaker 2: below the one point one percent that the market has
Speaker 2: been expecting. Is this mostly a reflection of higher energy
Speaker 2: cost yeah, I.
Speaker 3: Would say so. I would say it's a relief, right.
Speaker 3: We haven't seen the kind of one percent jump in
Speaker 3: CPI for quite a while. And of course, lots of
Speaker 3: people are talking about referation trade and there is a
Speaker 3: lot of argument about how this cost to driven inflation
Speaker 3: is not necessarily healthy. But we've also seen economists coming
Speaker 3: out to say, you know, inflation in China still a
Speaker 3: good even though it may be ugly inflation or not
Speaker 3: the most healthy form of inflation. And anecdotally we're seeing
Speaker 3: some companies who are able to lift prices. Was a
Speaker 3: quato amount High, which is China's premium liquor maker. They
Speaker 3: were able to just really pass on some of the
Speaker 3: prices to consumers. So I would say generally it's taken
Speaker 3: as a positive. And whether this is going to spread
Speaker 3: to bigger cohort of companies in a sense that they're
Speaker 3: able to lift prices is yet to be seen. But
Speaker 3: at least we're seeing some examples so far.
Speaker 2: We know that the inflation story in South Korea has
Speaker 2: been critical. The government was considering maybe a supplementary budget
Speaker 2: to deal with the result of rising inflation, and now
Speaker 2: we've got the Bank of Korea keeping its policy rate
Speaker 2: unchanged today. Give me a sense of what's happening in
Speaker 2: the bokse thinking as it relates to inflation right now.
Speaker 3: Yeah, it's a tough decision, right, They need to balance
Speaker 3: the kind of immediate energy cost surging higher, but also
Speaker 3: the potential slowdown in its growth. I would say this.
Speaker 3: Of course, the move is widely expected, and this is
Speaker 3: also the last policy meeting for the outgoing governor, and
Speaker 3: obviously he doesn't really want to jot the situation for
Speaker 3: the incoming governor. So this is sort of all well
Speaker 3: expected by market participants. And the inflationary situation in Korea,
Speaker 3: it does not look good. Korea, I would say, is
Speaker 3: probably the most vulnerable among Asia economies to any energy
Speaker 3: shocks because it does import so much energy from the
Speaker 3: Middle East, which has to go through the strait of
Speaker 3: horror moves. So Carea's economy is in a bit of
Speaker 3: a dire situation. Right now, but it is also compensated
Speaker 3: by the continued high export from the chip sector. I
Speaker 3: think the latest export number we saw again showed that
Speaker 3: chip exports were really robust and really dominating these numbers.
Speaker 3: So you know, it's just a investors need to go
Speaker 3: to look through the economic damage from the higher energy cost,
Speaker 3: but also the still robust memory hip demand.
Speaker 2: Speaking of central banks in Asia and how they're responding
Speaker 2: to this higher inflation story, some of the PPI data
Speaker 2: for Japan I think was above forecast. Is there the
Speaker 2: sense that the boj is behind the curve now and
Speaker 2: trying to get inflation under control?
Speaker 3: Yeah, I think there is a sense of that. As
Speaker 3: you mentioned, japan story is also quite similar to Korea.
Speaker 3: Right what matters to investors is still very much focused
Speaker 3: on these industries in Japan that have a competitive edge
Speaker 3: and right now and today's market reaction again reminds us
Speaker 3: that Japan is really strong in again chip related export,
Speaker 3: but also some consumer names fast retailing. Today, I think
Speaker 3: shares searched quite a bit more than six percent is
Speaker 3: last night I saw because of the stronger guidance. So
Speaker 3: Japan does have a few national champions that are continuing
Speaker 3: to be popular with foreign investors.
Speaker 2: So how was the market feeling about the AI trade
Speaker 2: these days? I think I saw a note from our
Speaker 2: colleague David and Glay saying that the market in Taiwan
Speaker 2: could be the first major equity market in the APEC
Speaker 2: region to recover all losses since the war broke out
Speaker 2: at the end of February.
Speaker 3: Yeah, the AI trade. Just because there is the escalation
Speaker 3: in around tension, people are able to refocus some of
Speaker 3: their attention to the themes that markets were focused on
Speaker 3: before the war. So AI again is being talked about
Speaker 3: as a hot topic in terms of AI some arguments right.
Speaker 3: We see, on the one hand, people are talking about
Speaker 3: software disruption and how Asia hardware names are still very
Speaker 3: much positioned favorably, that the AI spend is still very strong,
Speaker 3: so you know, TSMC and the two chip names in
Speaker 3: Korea again are now being talked about as you know,
Speaker 3: stocks to own by some of the buyers. But at
Speaker 3: the same time, we saw Jefferies that came out this
Speaker 3: morning talking about how they're expecting an AI capax peak
Speaker 3: this year. Part of the reason is because energy costs
Speaker 3: will stay high even if the war ends. It's not
Speaker 3: gonna the whole oil shipping. Oil flow is not going
Speaker 3: to be resolved anytime soon, so we may see a
Speaker 3: structural change in energy costs and that does not bode
Speaker 3: well for AI data center running and all the related costs.
Speaker 3: So that is a negative argument, which means, uh, the
Speaker 3: kind of price search that we have you know, priced
Speaker 3: into these chip names maybe you know won't last very long.
Speaker 2: Beyon Tan, thank you so very much for sharing your
Speaker 2: perspectives and insights. I hope you have a great weekend.
Speaker 2: Bloomberg's Leontink two, Managing editor for Asia Equities, joining from
Speaker 2: Singapore here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Doug Krisner. The US and
Speaker 2: Iran are preparing for peace talks this weekend in Islamabad, Pakistan.
Speaker 2: Heading into the weekend, there are a lot of questions
Speaker 2: as to whether the ceasefire will hold. Israeli strikes on
Speaker 2: Lebanon are certainly going to be a major issue in
Speaker 2: these talks, so too will be Iran's grip on the
Speaker 2: Strait of Horne Moves now. President Trump has already warned
Speaker 2: Iran against charging tolls on vessels moving through the Strait,
Speaker 2: and that's where we begin our conversation with Jonathan Pannicoff.
Speaker 2: Jonathan is the director of the Scrokoff Middle East Security
Speaker 2: Initiative at the Atlantic Council's Middle East Program. Jonathan spoke
Speaker 2: with Bloomberg TV host Sherry On and Heidi Stroud Watts.
Speaker 4: They seems to be fundamental misunderstand gaps in what the
Speaker 4: ceasefire or what these talks would even cover going into
Speaker 4: the talks in Islambad this weekend with jd Vance. When
Speaker 4: it comes to the issue of ranium proxies, was that
Speaker 4: pretty clear from the outset that there was going to
Speaker 4: be disagreement?
Speaker 5: There look to be worth he as always, I don't
Speaker 5: think that it was clear at least it wasn't clear
Speaker 5: to all sides. This agreement as a whole has become
Speaker 5: a little bit of a Rorshach test. In other words,
Speaker 5: everybody's interpreting it as they want and seeing what they
Speaker 5: wanted to be.
Speaker 6: I think, look.
Speaker 7: If you ask the Iranians, if you ask even the
Speaker 7: Pakistanis also no, it was very clear that all proxies
Speaker 7: including Hesbala Lebanon.
Speaker 6: They were not They were also off limits.
Speaker 7: Phrase really strikes this wasn't just about US, was really
Speaker 7: strikes on Iran. I think you've seen some reporting that
Speaker 7: the US is trying to get Disula to make me
Speaker 7: pull back to ensure that the talks this week.
Speaker 6: And still go ahead.
Speaker 7: President Trump also talked about frustration this evening on True
Speaker 7: Social about how frustrated it is that the street doesn't open.
Speaker 6: But right now there's.
Speaker 7: Clearity that everybody does seem to want an offering, and
Speaker 7: so that points to the fact that talks probably will
Speaker 7: happen this weekend, But the context of them and whether
Speaker 7: or not they're going to really be able to dress
Speaker 7: all these issues is still very much up in the air.
Speaker 4: Jonathan, to your point of seeing what you want to
Speaker 4: see in the issues that are going to be discussed
Speaker 4: over the weekend. The various versions floating around of the
Speaker 4: ten point plan, if you were to believe some of them,
Speaker 4: they really do include points that I would assume are
Speaker 4: absolutely off limits for the US right, things like removing
Speaker 4: military bases from the region, things like paying war reparations,
Speaker 4: and the exclusion of around's proxies. How do you think
Speaker 4: there gets to be a point of compromise on this.
Speaker 6: I think that's right.
Speaker 7: Look the irrity though are all hands at this, This
Speaker 7: isn't you know? Theres go around here in these types
Speaker 7: of negotiations, and so as is typical in these types
Speaker 7: of international negotiations, it wouldn't be a surprise that there
Speaker 7: were things on the list that the Wereonians know they
Speaker 7: probably are not going to get, but it allows them
Speaker 7: to then sacrifice those as chits to say that they
Speaker 7: know have moved meaningfully away.
Speaker 6: And what you're left with ultimately is their core demands.
Speaker 7: And what I expect really to their core demands to
Speaker 7: be is a that they're not going to agree to
Speaker 7: stop production on ballistic missiles, that they see that as
Speaker 7: their fundamental long streak, long term strategic deterrence, that they're
Speaker 7: not going to give back the strait of hormots. And
Speaker 7: then the really hard one, I think is that Israel
Speaker 7: has to be guaranteed not to come and strike around
Speaker 7: again three six, twelve months from that. That's a hard
Speaker 7: one for the US to guarantee fundamentally. So the question
Speaker 7: is do you even have confirmation from all of the parties,
Speaker 7: because this goes beyond Israel, Lisabella and Iran, it includes
Speaker 7: the golf. There's a lot of actors here just besides
Speaker 7: the US and Iran. Are all of them going to
Speaker 7: agree to the terms if they're not represented at the table.
Speaker 1: Exactly? So, Jonathan, what are the low hanging fruits that
Speaker 1: can be achieved in this negotiation? And are we looking
Speaker 1: at a big deal that encompasses all of those actors
Speaker 1: that you talk about, or are we going to see
Speaker 1: a long drawn out war where we're seeing small, small
Speaker 1: details and small changes, and perhaps even the US, especially
Speaker 1: President Trump's losing interest in actually finding a sweeping resolution.
Speaker 7: My guess is what you're probably going to end up
Speaker 7: with is an overarching framework agreement without the details filled in.
Speaker 6: And now we've seen this happen before.
Speaker 7: It allows President Trump to be able to say we
Speaker 7: have a deal even though we really don't have brinkly
Speaker 7: the meaningful context all the details including it. But then
Speaker 7: the hope would be that I think the details follow
Speaker 7: on from that order to get there, It gets to
Speaker 7: your first point of what is the low heating fruit
Speaker 7: To even get there, I would expect that there will
Speaker 7: be some discussion, frankly, about the uron's nuclear program and
Speaker 7: about the four hundred and forty kilograms of highly enriched
Speaker 7: uranium still buried in Iran under four doh or at
Speaker 7: least some of it under four dough.
Speaker 6: There's rumors that some of it has been moved.
Speaker 7: I expect that you'll also have some discussion frankly, about
Speaker 7: what reprocessing looks like. You'll have some discussion as well,
Speaker 7: I would expect about the straits. But I think really
Speaker 7: it's going to be challenging to expect that the US
Speaker 7: is going to end up in a better position than
Speaker 7: when the war began, and that I think is what's
Speaker 7: frustrating a lot of people and what's scaring a lot
Speaker 7: of partners in the Gulf frankly that are watching as
Speaker 7: they started the war with the street completely free from navigation,
Speaker 7: and they may end with having to pay a toll.
Speaker 1: Yeah, that's the thing, right, I mean, freedom of navigation
Speaker 1: has been given for hundreds of years, and you're telling
Speaker 1: me that they're trying to put the systemic tolls in
Speaker 1: the straight of horror moves as a dangerous precedent to
Speaker 1: set What does this mean for the rest of the
Speaker 1: world and can other mediators like we're hearing that China
Speaker 1: perhaps played a big role. They've been credited by Iranian
Speaker 1: officials as trying to really achieve that ceasefire. What does
Speaker 1: it mean for third parties that also have a little
Speaker 1: bit more influence with a run.
Speaker 7: So if we go back a little bit right in
Speaker 7: terms of precedent, it's really important to look at that,
Speaker 7: especially effects obviously East Asia and South Asia. The UN
Speaker 7: resolution that was put out by the Baharin needs to
Speaker 7: try to ensure freedom of navigation and to try to ensure.
Speaker 6: The choke points in the streets.
Speaker 7: The reason that the Russians and Chinese at least in
Speaker 7: part vetoed it earlier this week was fundamentally because they're
Speaker 7: very very terrified about how that will be then used
Speaker 7: against them as precedent setting Visa VI Taiwan, visa VI
Speaker 7: other places in East Asia for the Russians the same thing.
Speaker 6: That is a part of the challenge here.
Speaker 7: I do think that the Chinese have played a meaningful
Speaker 7: role in that they're the only ones with enough influence
Speaker 7: over the Iranians to really serve as.
Speaker 6: A guaranteur for them. The Iranians need the Chinese.
Speaker 7: The Chinese are the only ones with sufficient capacity large
Speaker 7: enough to buy the oil to for Urn to start
Speaker 7: to generate some meaningful revenue again. But again there are
Speaker 7: huge challenges here and right now from a US perspective,
Speaker 7: it's a struggle to see out how the US comes
Speaker 7: out further ahead, whereas they're frankly winners of this may
Speaker 7: end up being Russia and China.
Speaker 4: Jonathan, I think we're having similar conversations in the last
Speaker 4: military operations halfway through last year, right, And I do
Speaker 4: wonder have the objectives the US and Israeli objectives been
Speaker 4: achieved in these operations and what are the risks that
Speaker 4: we're going to see just for the volatility flare up
Speaker 4: in the region as a result.
Speaker 7: I think, Look, I think some of the tactical and
Speaker 7: operational objectives have certainly been achieved.
Speaker 6: Right. It is true.
Speaker 7: Iran's military is significantly diminished, especially its naval assets.
Speaker 6: It is true that Aroun's.
Speaker 7: Ballistic missile capabilities are very much degraded from where we were.
Speaker 7: The problem is from a strategic perspective, even if Iran
Speaker 7: has tactically lost strategically, if it ends up if not
Speaker 7: controlling the Straits, fundamentally demonstrating ultimate leverage over the Straits
Speaker 7: and putting a toll in or having to ask even
Speaker 7: permission from the Iranians, every time a ship goes through.
Speaker 7: Then really it's created a situation where strategically Iran comes
Speaker 7: out ahead, and I think there's no way about that.
Speaker 7: And what that's going to mean long term is that
Speaker 7: the Iranians are going to have frankly greater leverage in
Speaker 7: the region and for their asks, and that is going
Speaker 7: to really be a challenge for Special League golf allies.
Speaker 6: We're going to walk away from this incredibly.
Speaker 1: Concerned, Jonathan. And before we let you go, where are
Speaker 1: the Uranium people in all of this? I mean, President
Speaker 1: Trump keeps oscillating from whether or not there has been
Speaker 1: a regime change in Iran, And at the beginning of
Speaker 1: this conflict, there was a lot of talk to potentially
Speaker 1: we could see a popular uprising as well, Why hasn't
Speaker 1: this happened, and could we expect it?
Speaker 7: I think it'd be very, very unlikely to expect it.
Speaker 7: Now that there's two problems. One, I think there's been
Speaker 7: a failure by the US administration to sufficiently distinguish between
Speaker 7: how the Iranian people view what is Iranian and what
Speaker 7: is the regime. When you start talking about knocking as
Speaker 7: civilization back to the stoneager to completely destroying it, whatever
Speaker 7: the exact wording of that true social posts was before
Speaker 7: the ceasefire, that really hit. I think a lot of
Speaker 7: Iranian people you heard this, that they took that personal
Speaker 7: lit They may load the regime, but bridges and infrastructure
Speaker 7: and power plans and desalinization plans, I think a lot of.
Speaker 6: Iranian's view as Iranian not regime.
Speaker 7: Any regime change is going to have to come from
Speaker 7: with in Iran, and it's still going to fundamentally require
Speaker 7: that at the end of the day, will somebody with
Speaker 7: guns switch asides or stands aside.
Speaker 6: That's what happened in the nineteen seventy nine revolution. We
Speaker 6: haven't seen that yet. There's sufficient regime cohesion, at least
Speaker 6: so far.
Speaker 3: Now.
Speaker 6: The economics of Iran are.
Speaker 7: Quite terrible, and governing is going to be a very
Speaker 7: very hard challenge for what is going to be a
Speaker 7: harder line, more conservative, frankly new regime leadership. So maybe
Speaker 7: you could get there eventually, but I think we've still
Speaker 7: got a ways to go before you see significant challenges
Speaker 7: in Iran.
Speaker 2: That was Jonathan Panakoff of the Atlantic Council speaking with
Speaker 2: Bloomberg TV host Heidi Stroud Watts and Cherry on bringing
Speaker 2: you their conversation here on the Daybreak Asia Podcast. Thanks
Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Prisner, and this is Bloomberg