WEBVTT - China Economic Data, Japan Chips Aid 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.640 --> 0:00:12.840 This is the Bloomberg Daybreak Aisier podcast. I'm Doug Krisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:27.360 Bloomberg Business app well. 0:00:27.440 --> 0:00:30.400 Joining us now on the program is Michelle Lamb, Greater 0:00:30.600 --> 0:00:34.480 China economist for Associated General, to take a closer look 0:00:34.520 --> 0:00:38.760 at the Chinese economy. After yesterday we got some PMI 0:00:38.880 --> 0:00:42.720 numbers from both Taishin and from the government the official 0:00:42.720 --> 0:00:47.280 PMI that were better than expected and well above fifty. Michelle, 0:00:47.320 --> 0:00:50.200 thanks very much for joining us here for some discussion 0:00:50.600 --> 0:00:54.160 on the economy. So you had exports that were pretty positive, 0:00:54.280 --> 0:00:59.280 manufacturing looking better, not great, but better, but consumer spending 0:00:59.360 --> 0:01:01.680 still a little bit week. Where are we in this 0:01:01.760 --> 0:01:05.280 process of resuming strength in the economy. 0:01:08.200 --> 0:01:11.319 I think for the Chinese economy this year, it would 0:01:11.360 --> 0:01:14.320 be fair to say that on a cylical basis it 0:01:14.360 --> 0:01:18.080 should be better compared to twenty twenty three. After all, 0:01:18.440 --> 0:01:22.040 we've had the government issuing one trillion special cgbs to 0:01:22.080 --> 0:01:26.679 support more infrastructure investments, which should be coming food in 0:01:26.720 --> 0:01:29.520 the first quarter second quarter this year. And at the 0:01:29.560 --> 0:01:31.880 same time, as for example, you look at the US 0:01:32.000 --> 0:01:37.240 manufacturing PII number yesterday, it seems that the external demand 0:01:37.319 --> 0:01:41.040 is also on a better on a better path for 0:01:41.160 --> 0:01:43.560 this year. So I think that would also be stilled 0:01:43.560 --> 0:01:47.920 back to the China's manufacturing sector. But the only thing 0:01:48.080 --> 0:01:51.720 is that for the consumer demand, it is still pretty weak. 0:01:51.840 --> 0:01:54.120 And there's really to do with the fact that the 0:01:54.160 --> 0:01:56.440 property sector is still in a very bad shape in 0:01:56.520 --> 0:01:57.120 China right now. 0:01:57.200 --> 0:02:00.559 Yeah, no doubt about that. Deflationary pressures do and strong 0:02:01.160 --> 0:02:07.320 credit expansion has been very very weak. So the question is, 0:02:07.520 --> 0:02:11.200 if you're the authorities in China, what do you do 0:02:11.280 --> 0:02:15.120 to try to rekindle the animal spirit so to speak? 0:02:15.160 --> 0:02:17.560 I mean, is there a policy that you can imagine, 0:02:17.720 --> 0:02:21.120 maybe it's more fiscal than monetary, but is there a 0:02:21.160 --> 0:02:25.600 prescription here that can resuscitate the economy in a more 0:02:25.720 --> 0:02:27.120 durable way. 0:02:28.280 --> 0:02:34.000 I think there's a prescription, but right now I think 0:02:34.240 --> 0:02:37.520 there's still pretty strong hesitation for the government to use it, 0:02:37.560 --> 0:02:43.840 which is to issue some consumption coupons to encourage the 0:02:43.880 --> 0:02:48.920 people to spend, or to actually cut some payments on 0:02:48.960 --> 0:02:54.000 the national contributions for example, or cutting some taxes to 0:02:54.200 --> 0:02:56.880 encourage to support a household income which would feed through 0:02:56.919 --> 0:03:01.799 to household consumption even though timeburary. But I think that's 0:03:01.840 --> 0:03:03.720 too strong hesitation for the government. 0:03:03.400 --> 0:03:08.320 To really use this in looking at the pmis generally 0:03:08.320 --> 0:03:11.200 around Asia. We had some improvement in Taiwan and Japan. 0:03:11.760 --> 0:03:14.000 We had a little bit of weakness in South Korea 0:03:14.000 --> 0:03:18.680 and Vietnam. So mixed, I suppose, But in one sense, 0:03:18.680 --> 0:03:22.800 the policy makers seem to be reasonably patient. So if 0:03:22.800 --> 0:03:27.920 I could draw comparison between the FED, which is showing 0:03:28.200 --> 0:03:31.200 or asking for patients on dealing with inflation, it's willing 0:03:31.240 --> 0:03:34.480 to see some slow progress in getting to the goal, 0:03:34.960 --> 0:03:37.720 and it seems like Chinese policymakers are urging a bit 0:03:37.720 --> 0:03:41.040 of patients. Is that wrong? Should they look for more 0:03:41.080 --> 0:03:43.760 acute action in the near term? 0:03:44.520 --> 0:03:48.440 I think in some sense they're trying to make a 0:03:48.480 --> 0:03:52.680 policy room for the worst. So if you listen to 0:03:52.840 --> 0:03:55.520 some of the speeches by the top policy makers, they 0:03:55.600 --> 0:03:59.880 always advertise on this bottom line mentality, which is their books. 0:04:00.000 --> 0:04:02.920 Sample. The US election at the end of the year 0:04:03.000 --> 0:04:03.800 could be at risk. 0:04:04.200 --> 0:04:08.240 We don't know whether trouble in the presidency or if 0:04:08.320 --> 0:04:11.640 he does, if he's if he's going to impose any 0:04:11.640 --> 0:04:14.920 more parists on Chinese goods. So I think that in 0:04:14.960 --> 0:04:18.680 some sense the postimakers also try to make some room 0:04:19.040 --> 0:04:21.720 for further party stimulus, and at the same time they 0:04:21.760 --> 0:04:26.960 also understand that if they keep stimulating the investment or 0:04:27.000 --> 0:04:30.080 the supply side of the economy, it's not going to 0:04:30.120 --> 0:04:35.800 be sustainable. They want to emphasize on sustainability, So that's 0:04:35.839 --> 0:04:39.599 why they're also being pretty careful and cautious in not 0:04:39.720 --> 0:04:43.400 to do the big bat stimulus that some people expecting, 0:04:43.520 --> 0:04:45.760 like what they did in two thousand and a or 0:04:45.760 --> 0:04:46.719 twenty fifteen. 0:04:46.800 --> 0:04:50.320 So in some sense, I think this is a reasonable 0:04:52.240 --> 0:04:52.840 fair approach. 0:04:53.160 --> 0:04:55.560 Brian and I were talking a short while ago about 0:04:55.560 --> 0:04:59.600 this speech given by President she resurfaced, and it kind 0:04:59.600 --> 0:05:03.400 of suggestion just that maybe there's room for the PBOC 0:05:03.560 --> 0:05:06.880 to begin trading government bonds to regulate liquidity. I mean, 0:05:06.880 --> 0:05:08.880 it seems a little bit like what the FED has 0:05:08.920 --> 0:05:12.760 done in terms of quantitative easing on a number of occasions, 0:05:12.800 --> 0:05:17.480 once during the US financial crisis and more recently at 0:05:17.520 --> 0:05:21.120 the onset of the pandemic. In your view, is this 0:05:21.200 --> 0:05:25.440 something that's conceivable where the PBOC could adopt something similar 0:05:25.520 --> 0:05:28.960 to quantitative easing as a result or way of getting 0:05:29.000 --> 0:05:30.760 more risk into the market. 0:05:32.880 --> 0:05:37.760 So in some sense, I think for China they have 0:05:38.200 --> 0:05:42.039 always been. There are also other ways to support the 0:05:44.000 --> 0:05:46.719 put it this way, So if you talk about the 0:05:46.920 --> 0:05:49.800 PBOC buying the government bonds, it could be some kind 0:05:49.839 --> 0:05:54.040 of open market operations that to smooth the to smooth 0:05:54.040 --> 0:05:57.800 the liquidity, to avoid the volaticity in liquidity that we 0:05:57.880 --> 0:05:59.920 are seeing in China right now due to text pay 0:06:00.360 --> 0:06:04.440 for example, and we could see the more less much 0:06:04.480 --> 0:06:07.520 less volatile path in the short in the interbank bates 0:06:07.520 --> 0:06:08.039 for example. 0:06:08.080 --> 0:06:10.160 And I think that's one way to do it. 0:06:10.200 --> 0:06:13.280 And the other way that people discussing about that which 0:06:13.320 --> 0:06:17.240 is is China hoping to do monetary financing. 0:06:17.680 --> 0:06:19.440 And on this I think I'm. 0:06:19.279 --> 0:06:21.880 A bit skeptical on this because actually there are many 0:06:21.920 --> 0:06:26.400 ways that China can always finance the physical deficits. For example, 0:06:26.480 --> 0:06:29.560 the p BOC has this tool called the PSL which 0:06:29.600 --> 0:06:33.200 is in some way for the PBOC to lend to 0:06:33.279 --> 0:06:36.159 the policy banks, which in turn the policy banks can 0:06:36.240 --> 0:06:39.560 actually channel the credit to the economy, So I think 0:06:39.640 --> 0:06:43.640 actually there's already an existing framework for the for the 0:06:43.680 --> 0:06:46.840 government actually to do a so called court scie fiscal 0:06:46.880 --> 0:06:49.440 financing if they wish to so in some sense, I 0:06:49.480 --> 0:06:52.679 would be skeptical of why the government need to purchase 0:06:53.360 --> 0:06:55.200 the government bonds to do. 0:06:55.200 --> 0:06:57.800 This now, and well, they'd like to get consumer spending 0:06:57.880 --> 0:06:59.800 and housing could be a key part of that time. 0:06:59.880 --> 0:07:02.560 In a few moments ago in our media review that 0:07:02.600 --> 0:07:04.599 in Hong Kong we've seen a pick up in the 0:07:04.640 --> 0:07:08.279 purchase of homes, so they spent a lot more transactions, 0:07:08.279 --> 0:07:11.840 the most we've seen in eleven years or so. They 0:07:11.880 --> 0:07:14.720 removed a lot of the restrictions on buying. To what 0:07:14.840 --> 0:07:18.640 extent have the authorities remove those restrictions in China? And 0:07:18.760 --> 0:07:21.680 is there any hope to you know, come up with 0:07:22.000 --> 0:07:24.120 something that repeats the story we're seeing in Hong Kong. 0:07:26.600 --> 0:07:28.920 First of all, I think the situation for Hong Kong, 0:07:29.080 --> 0:07:33.040 there's some improvement in the new transactions, which I think 0:07:34.280 --> 0:07:36.480 I would still be skeptical to see if it is sustainable, 0:07:36.520 --> 0:07:40.400 because of course, when the policies relaxed, of course it's 0:07:40.440 --> 0:07:43.240 reasonable for those who have been wanting to purchase that 0:07:43.360 --> 0:07:47.160 there is a short term improvement, but afterwards we need 0:07:47.240 --> 0:07:52.360 to see the microeconomic situation like where the house, the income, 0:07:52.440 --> 0:07:55.240 the confidence are improvement, which I think is really the 0:07:55.280 --> 0:07:58.360 situation for China right now because the job and income 0:07:58.400 --> 0:08:02.800 expectations are still pretty pretty poor and the prices are 0:08:02.840 --> 0:08:06.960 still correcting. So I would think that even though some 0:08:07.120 --> 0:08:09.360 of the top tier cities they could be removing the 0:08:09.560 --> 0:08:14.160 relaxation restriction, yeah, the pressures restrictions, we could see some 0:08:14.200 --> 0:08:17.680 short term rebound that maybe at the same afterwards, we 0:08:17.720 --> 0:08:20.320 really need to focus back on the fundamentals and see 0:08:20.320 --> 0:08:23.720 if this is sustainable, and I think I'm still skeptical 0:08:23.800 --> 0:08:26.000 of whether it is. It is going to work, and 0:08:26.080 --> 0:08:28.440 I think there's still going to be some downward pressure 0:08:28.480 --> 0:08:31.120 for the prices to correct and the top city system 0:08:31.160 --> 0:08:32.600 that they're still pretty over valued. 0:08:32.840 --> 0:08:35.560 So very quickly and Michelle about twenty seconds, what's the 0:08:35.600 --> 0:08:37.800 next move on the part of the PBOC. 0:08:40.000 --> 0:08:40.640 For April. 0:08:40.679 --> 0:08:43.280 I don't expect them to do much because we've seen 0:08:43.360 --> 0:08:45.520 some improvement in the marsh pm I and I think 0:08:45.559 --> 0:08:47.880 for the first quarter GDP is going to be the 0:08:48.240 --> 0:08:51.800 pretty pretty decent as well. The next move going to 0:08:51.840 --> 0:08:54.880 be just wash the PSL if they are ramping up 0:08:54.880 --> 0:08:56.920 that to support the urban ridge the b development. 0:08:58.120 --> 0:09:01.920 Yeah, okay, well thanks for how much for joining us, Michelle, 0:09:02.080 --> 0:09:05.240 Very good stuff there, Michelle Lamb, Greater China economist at 0:09:05.320 --> 0:09:06.800 Associate General. 0:09:13.400 --> 0:09:16.680 Well, the Japanese government has approved up to three point 0:09:16.800 --> 0:09:21.439 nine billion dollars in subsidies to the Chip Venture Rapidness Corporation. 0:09:22.000 --> 0:09:24.800 This is a nineteen month old startup. It's amy to 0:09:24.880 --> 0:09:29.600 compete with companies like TSMC and Samsung in the market 0:09:29.679 --> 0:09:32.960 for contact chip making. Let's take a closer look now 0:09:33.000 --> 0:09:37.199 with Bloomberg's Peter Elstrom. He is our executive editor for 0:09:37.360 --> 0:09:41.199 Asia Technology and he joins us from Tokyo. Peters, it's 0:09:41.200 --> 0:09:45.040 always a pleasure. Can you help me understand what's going 0:09:45.080 --> 0:09:45.439 on here? 0:09:45.520 --> 0:09:45.679 Now? 0:09:45.679 --> 0:09:49.520 We've been talking about trying to lessen the reliance on 0:09:49.720 --> 0:09:52.719 chip manufacturing and Taiwan. I get that. And it's kind 0:09:52.720 --> 0:09:56.240 of curious because quite a number of years ago Japan 0:09:56.760 --> 0:09:59.439 did quite a bit when it came to the manufacturing 0:09:59.440 --> 0:10:00.600 of sem conductors. 0:10:00.600 --> 0:10:03.440 What's going on right, right, it was not that long 0:10:03.480 --> 0:10:06.520 ago that the US was very concerned about the rising 0:10:06.600 --> 0:10:09.600 power of Japan and semiconductors. We've come a long way 0:10:09.640 --> 0:10:14.920 since then. Right now we have advanced semiconductor manufacturing concentrated 0:10:14.920 --> 0:10:17.640 in just a couple of locations. Taiwan is by far 0:10:17.720 --> 0:10:20.880 the most important. South Korea is also very very important 0:10:22.040 --> 0:10:25.760 because of the COVID pandemic disruptions to the supply chain, 0:10:25.960 --> 0:10:30.240 because of some concerns over China's claims to Taiwan, We've 0:10:30.280 --> 0:10:33.240 now seen many countries push ahead with trying to build 0:10:33.320 --> 0:10:37.319 up their domestic capabilities in the semiconductor industry. The US, 0:10:37.360 --> 0:10:39.439 of course, is doing that. They've got the chipsack where 0:10:39.440 --> 0:10:42.160 they're allocating tens of billions of dollars to chip companies, 0:10:42.360 --> 0:10:44.720 and here in Japan they've been very very aggressive too. 0:10:45.080 --> 0:10:48.120 They do have that foundation from a few decades ago 0:10:48.200 --> 0:10:51.680 where they were one of the most advanced countries in 0:10:51.720 --> 0:10:54.160 terms of chip making, and they're trying to rebuild some 0:10:54.200 --> 0:10:57.800 of those capabilities in a number of different areas. They 0:10:57.880 --> 0:11:02.080 are giving money to TSM, see the Taiwanese chip company 0:11:02.080 --> 0:11:04.640 that leads the way in what are known as logic 0:11:04.720 --> 0:11:07.640 chips in this case with rapidest. This is as you mentioned, 0:11:07.720 --> 0:11:11.520 it's a brand new venture. It's a domestic company that's 0:11:11.559 --> 0:11:14.040 backed by the government, and their goal is to build 0:11:14.080 --> 0:11:18.880 an advanced semiconductor fabrication facility up on the northern island 0:11:18.880 --> 0:11:24.040 of Hokkaido to produce custom made chips contract. It's contract manufacturing, 0:11:24.040 --> 0:11:28.720 so you specifically devise chips for customers to their designs. 0:11:28.800 --> 0:11:31.840 This is what TMC now does for customers like Apple 0:11:32.160 --> 0:11:35.120 and Nvidia and rapid ESC's case, they'd like some of 0:11:35.160 --> 0:11:40.120 those contracts also in say artificial intelligence. They also want 0:11:40.160 --> 0:11:43.360 to make sure that they're able to make those kinds 0:11:43.400 --> 0:11:46.440 of advanced chips for domestic companies like Toyota and the 0:11:46.440 --> 0:11:49.200 rest of the automotive industry, which is a real foundation 0:11:49.280 --> 0:11:50.120 of the economy here. 0:11:50.480 --> 0:11:52.480 Yeah, you sort of phased into what was going to 0:11:52.480 --> 0:11:54.640 be my first question about whether or not this was 0:11:54.679 --> 0:11:58.880 more support for RAPIDUS or actually just in establishing japan 0:11:59.720 --> 0:12:03.000 com on that because they've offered billions to TSMC and 0:12:03.040 --> 0:12:06.520 I think Micron as well. Right, so let's talk a 0:12:06.559 --> 0:12:09.920 little bit about this specific company young as it is. 0:12:10.200 --> 0:12:15.880 It's teaming up with researchers at IBM on exactly what right. 0:12:16.040 --> 0:12:19.400 Yeah, so they are using some technology from IBM. They've 0:12:19.400 --> 0:12:22.240 also had engineers go out to the state of New 0:12:22.320 --> 0:12:25.000 York to do training with IBM to try to be 0:12:25.080 --> 0:12:32.480 able to build advanced semiconductors that will be two to 0:12:32.559 --> 0:12:36.320 three nanometers at the cutting edge of chip making today, 0:12:36.960 --> 0:12:40.360 probably won't quite be at the cutting edge when they 0:12:40.400 --> 0:12:42.920 plan to come online. They've got a long ways to 0:12:43.000 --> 0:12:45.800 go here. Just to lay out some of the enormous 0:12:45.880 --> 0:12:49.800 challenges ahead for the company right now, TSMC leads this 0:12:49.920 --> 0:12:53.200 market and being able to make three nanometer chips for 0:12:53.280 --> 0:12:57.200 things like the iPhone, and Samsung has been trying to 0:12:57.240 --> 0:13:01.360 compete in that business with TSM, and it has been struggling. Frankly, 0:13:01.400 --> 0:13:03.320 they haven't been able to get customers at the kind 0:13:03.360 --> 0:13:05.760 of rate that they expected. They haven't been able to 0:13:05.760 --> 0:13:09.440 build up their foundry business very successfully. So Rapidess, again, 0:13:09.440 --> 0:13:11.360 a company that only was formed a couple of years 0:13:11.400 --> 0:13:13.439 ago and does not have that track record of being 0:13:13.440 --> 0:13:19.040 able to manufacture chips successfully, is targeting and advanced advanced 0:13:19.400 --> 0:13:23.079 technologies to be able to build cutting edge chips, and 0:13:23.120 --> 0:13:24.439 it's not at all clear that they're going to be 0:13:24.480 --> 0:13:28.080 able to fine tune the manufacturing processes to be able 0:13:28.120 --> 0:13:29.920 to compete with leaders like DSMC. 0:13:30.160 --> 0:13:37.600 Well, they rely on equipment manufactured by ASML, it's a. 0:13:37.600 --> 0:13:41.520 Very good question. The reason that Rapidess has gained so 0:13:41.640 --> 0:13:45.600 much support internally here in Japan is because they have 0:13:45.679 --> 0:13:50.640 a lot of domestic expertise within the country and within 0:13:50.679 --> 0:13:55.119 the staff. They're being led by an executive from Tokyo Electron, 0:13:55.240 --> 0:13:58.679 which makes chip making equipment, and Japan is actually very 0:13:58.800 --> 0:14:02.720 very critical at and phases of the semiconductor supply chain, 0:14:03.400 --> 0:14:06.000 including in what's known as photo resists many of the 0:14:06.040 --> 0:14:11.400 chemicals and materials that go into the chip making supply chain. ASML, 0:14:11.520 --> 0:14:15.080 of course makes the most advanced chip making equipment out there. 0:14:15.200 --> 0:14:19.600 It makes its highest m machines are EUV machines, which 0:14:19.640 --> 0:14:24.680 help make three nanometer in the future two nanimeter technology 0:14:24.720 --> 0:14:30.840 for customers like Nvidia and Apple in Tokyo Electronics a 0:14:30.840 --> 0:14:34.000 little bit behind that, but Rapidus plans on leaning on 0:14:34.120 --> 0:14:36.480 all of those customers to be able to make these 0:14:37.040 --> 0:14:37.880 advanced chips. 0:14:38.960 --> 0:14:42.040 So I guess going back to the original question about 0:14:42.600 --> 0:14:46.360 Japan doing this not just to support Rapidness, but to 0:14:46.440 --> 0:14:49.560 try to establish its own credentials as a place to 0:14:49.640 --> 0:14:56.200 make fabs and to advance and move forward in semiconductor manufacturing. 0:14:56.560 --> 0:15:00.200 Where is it on that along that road in that process. 0:15:00.720 --> 0:15:04.440 Yeah, it's a very good question, and it's an interesting 0:15:04.560 --> 0:15:09.760 time where we have governments becoming much more active industrial planning. 0:15:10.600 --> 0:15:13.480 In past years, of course, the United States and Japan 0:15:13.600 --> 0:15:16.280 sort of the government entities backed out of the market 0:15:16.360 --> 0:15:19.400 and let private corporations really lead the way. That's in 0:15:19.480 --> 0:15:22.840 contrast to say, Taiwan and South Korea in particular, where 0:15:22.880 --> 0:15:26.440 the governments have been quite successful and helping to support 0:15:26.440 --> 0:15:31.040 some of these local providers. In Japan, they of course 0:15:31.080 --> 0:15:34.320 had a long history of a very active government hand 0:15:34.480 --> 0:15:37.800 in all sorts of sectors, including semiconductors. At this point, 0:15:37.880 --> 0:15:40.440 they are trying to rebuild some of the capabilities that 0:15:40.480 --> 0:15:42.880 they had in the past. Right now, they don't have 0:15:42.920 --> 0:15:47.480 a leading edge logic chip manufacturer like a TSMC, for example, 0:15:47.560 --> 0:15:50.480 or an Intel in the US. Even they do have 0:15:51.400 --> 0:15:56.120 players in the memory chip market, notably Kyoshow, which competes 0:15:56.160 --> 0:15:59.120 with Samsung in memory chips and heinis and memory chips, 0:15:59.280 --> 0:16:01.720 but they're not at the cutting edge anymore. So they 0:16:01.760 --> 0:16:03.960 have quite a bit of ground to make up. As 0:16:04.000 --> 0:16:07.960 you alluded to earlier, they are helping to subsidize Micron, 0:16:08.600 --> 0:16:11.520 another memory chip maker, an American memory chip maker that 0:16:11.760 --> 0:16:14.960 is building out a fab here, but they have some 0:16:15.040 --> 0:16:17.520 ground to make up, both on the memory chip side 0:16:17.560 --> 0:16:19.480 and on the logic chip side of the industry. 0:16:19.760 --> 0:16:23.880 Fascinating stuff, good conversation. Thank you so much, Peter. Peter Elstrom, 0:16:23.880 --> 0:16:28.120 Bloomberg Executive Editor for Asia Technology, helping us understand the 0:16:28.160 --> 0:16:32.240 investment being made by the Japanese government in the way 0:16:32.280 --> 0:16:42.600 of subsidies for this new chip venture Rapidness Corporation. David 0:16:42.640 --> 0:16:46.080 Finnerdy is with us. David is Bloomberg FX and rate 0:16:46.160 --> 0:16:49.680 Strategisty joins us from our studios in Singapore. A lot 0:16:49.680 --> 0:16:52.040 of ground to cover here, David. Let's begin with this 0:16:52.160 --> 0:16:54.400 HM number that we had for the US. In terms 0:16:54.400 --> 0:16:58.520 of the PMI data, we're seeing expansion on the manufacturing 0:16:58.560 --> 0:17:01.440 side for the first time since twenty twenty two. And 0:17:01.480 --> 0:17:04.040 the report, maybe a little concerning to the FED, is 0:17:04.040 --> 0:17:07.640 that the cost of materials and other outputs increased a bit. 0:17:07.840 --> 0:17:10.359 Do you think it's enough to really change the calculus 0:17:10.359 --> 0:17:13.399 when we talk about the FED cutting interest rates? Should 0:17:13.400 --> 0:17:16.720 we be looking at not three, but maybe two or 0:17:16.720 --> 0:17:17.520 maybe even one? 0:17:18.480 --> 0:17:21.520 I think definitely, well, certainly I think this step by step. 0:17:21.520 --> 0:17:24.160 I think two is definitely a possibility. I think there's 0:17:24.160 --> 0:17:26.960 no question about that. You know, how it plays up 0:17:26.960 --> 0:17:28.920 between two and three I think obviously depends how data 0:17:28.920 --> 0:17:31.600 comes out. I think arguably more certainly the is and 0:17:31.640 --> 0:17:34.399 manufacturing is important, but really it's the services economy. So 0:17:34.720 --> 0:17:36.680 I think the services data that comes out I think 0:17:36.680 --> 0:17:39.919 it's on Wednesday will arguely more important, and obviously the 0:17:39.960 --> 0:17:42.760 payroll data as well, so let's see how those come out. 0:17:42.800 --> 0:17:45.080 But having said that, the predictions of that will come 0:17:45.080 --> 0:17:48.440 out quite solid. Payrolls about two hundred, the service and 0:17:48.480 --> 0:17:51.800 manufacturing about fifty two point eight, so certainly solid data 0:17:51.840 --> 0:17:54.840 which backs up this idea. As as fed Chepal said 0:17:54.880 --> 0:17:56.920 that we're in no hurry to cut, not that they 0:17:57.000 --> 0:17:59.679 won't cut, but there are no hurry to cut, and 0:18:00.119 --> 0:18:02.480 beg the question, if you keep getting this solid data, 0:18:02.800 --> 0:18:04.880 how many more cuts do you need this year? So 0:18:05.160 --> 0:18:08.760 the market has actually down its pricing to think sixty 0:18:08.760 --> 0:18:10.959 five basis points at the moment, and I think if 0:18:10.960 --> 0:18:13.000 the data stays strong, you could certainly make a good 0:18:13.040 --> 0:18:15.520 case say, look, actually only two rate cuts it's needed 0:18:15.520 --> 0:18:17.760 this year. If it continue strong, then it gets to 0:18:17.800 --> 0:18:20.320 your further point of is actually just one needed, and 0:18:20.359 --> 0:18:22.160 I don't think that could be written off at the moment, 0:18:22.480 --> 0:18:24.320 but certainly for the moment, I think we'll go for 0:18:24.400 --> 0:18:26.840 two to three is the most probable. 0:18:27.000 --> 0:18:29.639 In your view. Is the FAED kind of fudging the 0:18:29.680 --> 0:18:31.440 two percent target at the moment. 0:18:32.359 --> 0:18:35.439 I don't think so. Look it's saying it wants two percent. 0:18:35.560 --> 0:18:37.359 It says that it's going to go be forty percent, 0:18:37.440 --> 0:18:39.840 which makes sense. I mean, you want the trend going 0:18:39.880 --> 0:18:42.360 down there. And I think the fact that you could 0:18:42.359 --> 0:18:45.000 look at that dot plot it was very fifty to fifty. 0:18:45.000 --> 0:18:47.040 I mean you had I think ten people going for 0:18:47.040 --> 0:18:48.960 three or more cuts and you're nine going for two 0:18:49.040 --> 0:18:51.560 or less cut. So I think the FED saying, look, 0:18:51.640 --> 0:18:53.199 we'll do what we need to do to get it 0:18:53.240 --> 0:18:55.879 down there, and if we need to cut less to 0:18:56.040 --> 0:18:58.320 get that target done, we will. So I don't think 0:18:58.320 --> 0:18:59.960 it's it's fudging this at the moment. 0:19:00.200 --> 0:19:01.800 So we had a little bit of an upswing in 0:19:02.240 --> 0:19:05.160 China's economy at least if you look at the official 0:19:05.200 --> 0:19:07.840 PMI data for the month of March released over the weekend, 0:19:08.000 --> 0:19:11.120 the numbers coming in above estimates, What does it say 0:19:11.119 --> 0:19:12.880 to you about how well China is doing? 0:19:13.440 --> 0:19:16.480 I think look, it's certainly a positive I think you know, 0:19:16.480 --> 0:19:19.200 when you factory in you know, lunar year and all 0:19:19.200 --> 0:19:21.560 this sort of effects around that, you want, you know, 0:19:21.640 --> 0:19:23.959 one piece of data doesn't make a trend. Shall we say, well, 0:19:24.040 --> 0:19:26.360 suddenly it's positive. I think you obviously want a few 0:19:26.400 --> 0:19:29.199 more pieces of data to support that and corroborate that 0:19:29.400 --> 0:19:32.760 idea that it's rebounding the coast for China. So even 0:19:32.760 --> 0:19:36.040 if it's rebounding, it's slowing. It was just in you know, 0:19:36.160 --> 0:19:38.640 over fifty it wasn't like fifty three or fifty four 0:19:38.680 --> 0:19:43.399 where strong growth. So has it kind of potentially plateaued 0:19:43.560 --> 0:19:47.040 in terms of weakness? You go yes, But it doesn't 0:19:47.320 --> 0:19:49.639 all go well that it's like really, you know, churning 0:19:49.680 --> 0:19:51.760 a head on a very strong footing, certainly not the 0:19:51.800 --> 0:19:53.959 same footing that the US economy appears to be on. 0:19:54.240 --> 0:19:57.119 Yeah, well we had good export data too, so the 0:19:57.160 --> 0:20:00.600 manufacturing and the export data kind of go together. But 0:20:00.640 --> 0:20:04.160 it suggests that the economy is a little bifurcated. Consumer 0:20:04.200 --> 0:20:07.560 activity is still not quite up to snuff. Whereas you know, 0:20:07.600 --> 0:20:10.720 you're getting this little bit of pickup on the industrial side. 0:20:11.560 --> 0:20:13.600 You have a lot of people calling for and the 0:20:13.640 --> 0:20:15.760 reason they say that consumers are not spending is because 0:20:15.800 --> 0:20:18.120 the housing market isn't fixed. So how do you fix 0:20:18.160 --> 0:20:21.000 the housing market without taking on more debt? Some people 0:20:21.040 --> 0:20:24.119 think debt isn't even bigger problem when you look at that. 0:20:24.119 --> 0:20:26.120 I mean, this is all sort of big picture stuff. 0:20:26.600 --> 0:20:28.760 How do you separate the big picture from you know, 0:20:28.800 --> 0:20:29.640 the short term. 0:20:30.160 --> 0:20:32.720 I think it is tricky. I mean, I mean it 0:20:32.760 --> 0:20:35.720 makes good points. I think because some parts economy performing 0:20:35.760 --> 0:20:37.800 better than the others, and you said the consumers saying 0:20:37.880 --> 0:20:41.000 lagging a bit compared to other parts. So it is 0:20:41.040 --> 0:20:44.120 tricky to eventuate the two, particularly because the market when 0:20:44.160 --> 0:20:46.320 he does look at a macro picture, and at the 0:20:46.400 --> 0:20:48.119 end of the day, it's you know, how's the big 0:20:48.119 --> 0:20:50.920 picture doing. You can't just focus on one specific bit 0:20:51.119 --> 0:20:53.200 because there's always going to be something that doesn't perform 0:20:53.480 --> 0:20:55.320 how as well as you like it too, So I 0:20:55.320 --> 0:20:57.000 think you have to look at the big picture. Having 0:20:57.040 --> 0:21:01.159 said that, the property is always something that's worrying. Trend 0:21:01.320 --> 0:21:05.880 and well, it seems to have improved over the last 0:21:05.880 --> 0:21:10.880 few months, should we say from the everground and other companies, Yeah, 0:21:10.880 --> 0:21:13.920 those obviously could resurface. I think they do reservice, particularly 0:21:13.920 --> 0:21:16.760 consumers being a bit sluggish. That wouldn't bode well for 0:21:16.840 --> 0:21:20.159 consumer sentiment. You'd have to guess which could see another 0:21:20.200 --> 0:21:22.360 downturn in the Chinese economy. So I think the market 0:21:22.400 --> 0:21:26.280 would definitely like the property sector to be improving more quickly, 0:21:26.280 --> 0:21:27.040 should we say. 0:21:26.920 --> 0:21:29.480 So if you look at a potential policy response. Brian 0:21:29.560 --> 0:21:32.679 was talking earlier about something he read where maybe you 0:21:32.760 --> 0:21:35.359 have the central bank using its balance sheet in a 0:21:35.400 --> 0:21:39.359 way that would resemble quantitative easing. I know when we've 0:21:39.400 --> 0:21:43.119 talked about this in the past that the people who 0:21:43.160 --> 0:21:46.199 are really close watchers of the Central Bank say no 0:21:46.280 --> 0:21:48.240 way that China would ever do that. But are we 0:21:48.280 --> 0:21:52.040 getting closer to some type of creative exercise here on 0:21:52.080 --> 0:21:53.080 the part of the PBOC. 0:21:53.680 --> 0:21:55.959 Well, I think the market always wants to interpret anything 0:21:56.480 --> 0:21:58.840 positively that it can if I'm on it, So you 0:21:58.920 --> 0:22:01.480 can't and unfortunately a bit of a black box and 0:22:01.480 --> 0:22:03.840 we don't know exactly for sure what it's going to do. 0:22:04.000 --> 0:22:08.720 So the recent wording has potentially been interpreted that way, 0:22:08.760 --> 0:22:11.359 and you could go look at one. They've had different 0:22:11.440 --> 0:22:14.080