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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Let's get to our guest, Joe Doe, Bloomberg Metals and

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Speaker 2: Mining reporter, to discuss this a little bit further. This

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Speaker 2: is just yet another obstacle along the way, isn't it.

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Speaker 3: Joe, Yeah, it really is. I think the market has

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Speaker 3: been so focused on the scipious review of the review

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Speaker 3: by the inter government agency that determines whether or not

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Speaker 3: a foreign company is okay to buy a domestic company.

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Speaker 3: But our sources today telling us that the administration is

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Speaker 3: looking at the exposure that Nimpon had to China, specifically

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Speaker 3: these nine facilities that they have in China and the

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Speaker 3: three point six million tons of capacity that they have

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Speaker 3: the ability to produce there. So I think that has

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Speaker 3: come up as another thing that investors maybe are probably

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Speaker 3: going to be looking a little bit closer at Joe.

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Speaker 1: Is this basic steel production when you talk about the

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Speaker 1: facilities in China, is it, you know, kind of the

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Speaker 1: old school you melt down the iron or you add

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Speaker 1: the coal and the limestone, or is it something that

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Speaker 1: is more contemporary when I'm thinking of recycled steel and

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Speaker 1: metal being put through an electric furnace, is it the

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Speaker 1: old school approach that's being used in China.

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Speaker 4: So it's actually neither, and it's good that you're nailing

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Speaker 4: down into this. It's these downstream products, right, It's like

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Speaker 4: bar and hype and tube.

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Speaker 3: These are things that that end users buy and they

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Speaker 3: put into you know, things like oil, you know, oil

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Speaker 3: pipelines or to roads for like the wire rod. So

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Speaker 3: it's not like traditional raw steel making as you think

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Speaker 3: of it. And I think that's another reason that it

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Speaker 3: may raise some eyebrows for folks, right, It's it's not

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Speaker 3: the kind that a New Core or US Steel or

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Speaker 3: Cleveland Cliffs has traditionally complained about in the past with

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Speaker 3: trade tariffs, you know, of dumping. But you know, listen,

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Speaker 3: we know how the political climate has been specifically around

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Speaker 3: China for many years now. And for steel, I mean

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Speaker 3: it goes back for the past twenty years, right. I

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Speaker 3: mean that's one of the things that we pointed out

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Speaker 3: in our store. There's long history intertwined here.

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Speaker 2: It gets really complicated because we don't know all that

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Speaker 2: much about these nine sites that Nippon has there in China,

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Speaker 2: although with just what was put in a note to

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Speaker 2: shareholders that these are part of its global output, you know, plans.

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Speaker 2: But it also raises a very tricky question of if

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Speaker 2: it is it Nippon steel, then is it Chinese produced

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Speaker 2: to steel? You know, is the iPhone that selled elsewhere elsewhere?

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Speaker 2: Is that a China product or is it an Apple product?

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Speaker 2: And you know, how do we put all this stuff together?

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Speaker 4: Right?

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Speaker 3: I mean, Nippon did get back to us, and they

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Speaker 3: did give us a statement which I should point out

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Speaker 3: that they said, you know, our operations in China, including

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Speaker 3: any joint ventures they have with Chinese partners, have no

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Speaker 3: control over their operations or business decisions made outside of China.

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Speaker 4: Including in the US.

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Speaker 3: So you know, I think I think that's an interesting point.

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Speaker 3: I think another interesting point is it's three point six

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Speaker 3: million tons of capacity in out of the sixty six

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Speaker 3: million tons of capacity that that Nipon has globally right,

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Speaker 3: So it's a it's a thin percentage of it.

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Speaker 4: So I think just just.

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Speaker 3: Just looking at the numbers, it's not immediately obvious that

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Speaker 3: this is necessarily some sort of threat. But I guess

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Speaker 3: this is why the administration is looking at it, right.

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Speaker 3: They're wanting to look further into it to see if

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Speaker 3: maybe it does post some sort of threat or is

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Speaker 3: some sort of issue that they should address.

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Speaker 2: Well.

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Speaker 1: At the same time, I think we have to recognize

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Speaker 1: it is in an election year. Donald Trump is already

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Speaker 1: weighed in on this deal, saying that he would scrap it,

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Speaker 1: and I'm sure that the Biden administration or the Biden

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Speaker 1: campaign would very much like the endorsement from the United

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Speaker 1: steel Workers.

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Speaker 4: Right exactly.

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Speaker 3: This boils down to one very big political issue, which

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Speaker 3: is blue collar workers. The United steel Workers have made

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Speaker 3: it clear that they do not support nipon Steel in

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Speaker 3: this deal. The United steel Workers themselves aren't It's not

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Speaker 3: like they're the big voting block, right that's going to

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Speaker 3: get one or the other over the finish line, but

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Speaker 3: they represent a very important type of voter in the

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Speaker 3: United States, the blue collar industrial worker. They are also

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Speaker 3: in a battleground state, right Pennsylvania is the headquarters of

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Speaker 3: US Steel. This is a massive state that helped get

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Speaker 3: Biden over the line in twenty twenty, and the steel

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Speaker 3: workers and many people like them got Trump over the

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Speaker 3: line in twenty sixteen. Both of these guys know what's

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Speaker 3: at stake here, and that's obviously why US Steel being

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Speaker 3: bought by a Japanese company has been thrust into the

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Speaker 3: center of this political dialogue.

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Speaker 2: You mentioned that the Nippon steel out in China from

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Speaker 2: these nine plants is reasonably small three point six million tons,

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Speaker 2: I think you said, compared to you know, a massive

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Speaker 2: total globally.

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Speaker 5: So is that the.

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Speaker 2: Type of of of kind of profile where Nippon Steel

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Speaker 2: would either sell them or dispose of them in some

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Speaker 2: other way in order to get this deal through?

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Speaker 4: Unclear?

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Speaker 3: I mean Nippon hasn't said anything about that specifically. I mean,

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Speaker 3: if you dig deep into the weeds of all the

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Speaker 3: different documents that have been put out since the deals announced,

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Speaker 3: you know it does mention that, you know, the company

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Speaker 3: will do what it takes to get this deal closed.

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Speaker 3: I don't know if they'll be willing to sell assets.

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Speaker 3: I mean that that's a that's a question that we

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Speaker 3: really should find out from them and that they maybe

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Speaker 3: should announce.

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Speaker 4: To two shareholders. But at this point it's unclear.

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Speaker 3: And you know, listen, Nippon gave us the statement that

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Speaker 3: they gave us, but it's also not even clear if

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Speaker 3: they've had a conversation with the.

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Speaker 4: White House abouts stuff like this.

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Speaker 3: So there's a lot still going on behind the scenes

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Speaker 3: that I just I think we just don't know.

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Speaker 1: Yeah, I'm wondering about you know, when you mentioned national security.

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Speaker 1: Let's just hypothetically say that there is a scenario where

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Speaker 1: India's Tata Steel were to make a bid for US Steel.

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Speaker 1: Do you think it would get the same level of scrutiny.

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Speaker 4: I don't know. I think it's US Steel. This is

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Speaker 4: the way I look at it. It's United States Steel Corporation.

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Speaker 3: And the idea that a company that is not American,

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Speaker 3: or any company for that matter, buying United States Steel.

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Speaker 4: I think Harry is a certain symbolic weight with it.

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Speaker 3: And if you tell a bunch of guys who are

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Speaker 3: living just outside of Pittsburgh that the buyer of a

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Speaker 3: company that they've worked at, their fathers worked at, their

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Speaker 3: grandfathers worked at, and more, it's going to be snapped

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Speaker 3: up by a Japanese company. You know, their reaction probably

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Speaker 3: is like whoa, okay, wow, how did we get here?

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Speaker 4: Right? And so I think even if you said it

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Speaker 4: was a you know.

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Speaker 3: A European company which we've seen, you know, arceler Mittel

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Speaker 3: bought a lot of American steel mills, I just think

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Speaker 3: it comes with a feeling, right, And a feeling isn't

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Speaker 3: something that we can capture in numbers or something that

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Speaker 3: we can capture in data in the Bloomberg terminal. It

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Speaker 3: is something that we have to capture through stories and

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Speaker 3: telling the voice of those people.

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Speaker 2: In the old days, it could be political. The Democrats

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Speaker 2: would have supported it and the Republicans would have or

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Speaker 2: the Republicans would have supported it and the Democrats might

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Speaker 2: have rejected it because they're worried about jobs. It's all

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Speaker 2: different now, everything's completely different. Can we expect similar action

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Speaker 2: on aluminum coming soon?

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Speaker 6: Well?

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Speaker 4: Other companies buying aluminum companies?

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Speaker 5: Yeah, I mean I don't know.

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Speaker 3: You know, co Ha's got its own issues right now

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Speaker 3: in Western Australia on their box side minds and getting

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Speaker 3: approval and licenses for those that they had expect. I mean,

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Speaker 3: they didn't ever expect to have trouble with I haven't

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Speaker 3: heard talk of that, but listen, everything is up for

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Speaker 3: sale at all times, right, especially commies.

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Speaker 2: And everything's up in the air. And Joe, we appreciate

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Speaker 2: coming in and spending some time with us, even when

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Speaker 2: we don't know, you know, all of these questions and

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Speaker 2: exactly where they're going. Joe Doe there with us Bloomberg

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Speaker 2: Metal and Mining Report.

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Speaker 5: This is Bloombern.

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Speaker 2: Fred Newman joins us here in our studios in Hong Kong,

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Speaker 2: Chief Asia Economist and co head of Global Research for

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Speaker 2: Asia at HSBC. Fred, thanks very much for coming in.

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Speaker 2: You know, we cover macro conditions a lot on this program,

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Speaker 2: but on a daylight today and yesterday, the FED and

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Speaker 2: interest rates in China, geopolitics, all that sort of gets

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Speaker 2: pushed to the back burner. The earnings from Nvidia and

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Speaker 2: how it projects to other companies. How does that sit

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Speaker 2: in the overall environment for growth, Let's say, starting in

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Speaker 2: the US.

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Speaker 7: Well, that we still have booming sectors. It's not all

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Speaker 7: doom and gloom that you might sometimes think you have

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Speaker 7: clearly investment needs in the AI space, but we should

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Speaker 7: remember that's very narrowly focused. So we think about the

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Speaker 7: Asian tech supply chain, for example, it's very specific companies

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Speaker 7: in very specific segments that benefit. If you look at

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Speaker 7: the overall electronics sector, actually it hasn't really lifted just

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Speaker 7: as much. If you look, for example, at global new

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Speaker 7: orders for consumer electronics, there's still down the smartphone sector,

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Speaker 7: the laptop sector for example, not really coming up. It's

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Speaker 7: very specific that AI related investment and as of course,

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Speaker 7: and video benefits and other companies in supply chain. But

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Speaker 7: for broader growth in Asia, for Asian exports, one third

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Speaker 7: of which are electronics, to lift, we need more broader

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Speaker 7: demand to come through.

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Speaker 1: So I'm going to get a little philosophical here. Broadly speaking, Fred,

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Speaker 1: do you believe artificial intelligence has the potential to create disinflation?

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Speaker 7: It has potentially, yes, and that's not necessarily all positive.

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Speaker 7: So we know there's more investment coming in. We know

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Speaker 7: there's no servers being installed at the other side, and

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Speaker 7: we still need to see that. To what extent is

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Speaker 7: AI starting to slow down the hiring of workers that

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Speaker 7: would originally have been used in AI, for example, Right,

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Speaker 7: So that's an open question. I don't know the answer.

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Speaker 7: There's certainly productivity gains a long term technology is there,

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Speaker 7: you can't really prevent progress. But sometimes these introduction of

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Speaker 7: new technologies can be quite disruptive for the labor market,

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Speaker 7: and that obviously introduces uncertainties as well as opportunities, and

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Speaker 7: potentially then in the next few years might actually curb

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Speaker 7: job wage growth.

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Speaker 5: For example.

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Speaker 2: Yeah, some of the most dour people I know are economists, right,

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Speaker 2: and you're fitting that highlighting the negatives would not become economists,

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Speaker 2: it wasn't.

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Speaker 5: Yeah, exactly.

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Speaker 2: Well, it's good to have a sober mind in our

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Speaker 2: midst because sometimes things run a little crazy. We talked

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Speaker 2: about the huge expansion and in videos market cap today

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Speaker 2: being one and a half times Intel. I still find

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Speaker 2: that very hard to get my head around. But on

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Speaker 2: the positive side, and I think that's what really the

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Speaker 2: market's responding to is some of those productivity gains. How

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Speaker 2: AI has the potential to change the way we do business,

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Speaker 2: and it's very hard to actually compute that at the moment.

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Speaker 7: That's right, we don't know it, but the potential is

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Speaker 7: there's absolutely breathtaking. And ultimately that's what gets even Dow

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Speaker 7: economists excited when you talk about productivity gains, and you

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Speaker 7: know they're Ultimately, human prosperity is driven by productivity, and

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Speaker 7: if we have new technology that drives that, that of

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Speaker 7: course raises uspective the next ten years we might see

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Speaker 7: niomous gains and economic growth driven.

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Speaker 5: By the application of AI. And there's other good stuff

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Speaker 5: happening in the world as well.

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Speaker 7: If you look at self driving cars, if you look

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Speaker 7: at buy technology, for example, We're not at a standstill.

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Speaker 7: This is not the end of global growth as we

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Speaker 7: know it, because we have these breakthroughs and technology. However,

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Speaker 7: it can be disruptive. One is being introduced, and I

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Speaker 7: think managing those social consequences, making sure that the technology

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Speaker 7: is safe is very important, and I think that's a

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Speaker 7: broader public interest. I think to make sure that we

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Speaker 7: developed these powerful technologies in the safest way possible.

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Speaker 1: I was looking at a story just now in the

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Speaker 1: Bloomberg terminal. A money manager at Fidelity International has sold

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Speaker 1: the vast maturity of his holdings in US treasuries from

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Speaker 1: the funds that he oversees because he believes that the

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Speaker 1: economy still has a lot of room to grow. I

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Speaker 1: think he's primarily thinking here of the US, But when

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Speaker 1: you think about where we're headed in the rates environment

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Speaker 1: right now. We had at least four FED officials today

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Speaker 1: urging patrons when you start to talk about rate cuts.

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Speaker 1: Where are you right now in terms of growth vis

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Speaker 1: a vis FED rate cuts?

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Speaker 7: Well, you know, we've said for quite some time it's

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Speaker 7: the FED may ease, but it may be a much

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Speaker 7: more shallow easing cycle than the market had expected even

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Speaker 7: a few weeks ago. And if you look at growth

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Speaker 7: in the US, it looks like it's going down perhaps

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Speaker 7: to trend. Still pretty strong growth overall. We were to

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Speaker 7: point out, for example, not only with a data over

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Speaker 7: not pretty strong initial claims down again for example, but

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Speaker 7: also US households are still sitting on very large wealth gains.

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Speaker 7: If you look at what's happening with Nvidia with a

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Speaker 7: stock market overall, that's a big tail when still for

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Speaker 7: US consumption, and so it's not entirely clear that really

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Speaker 7: heading to that heart landing and whether it's really the

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Speaker 7: all clear and inflation, I think we need to be

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Speaker 7: very careful in this. Fortunately, markets wound back its expectation.

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Speaker 7: We're now to June instead of March. I think that

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Speaker 7: sounds about right.

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Speaker 5: June, right, we are June as well?

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Speaker 7: Yeah, but look I mean some some, you know, when

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Speaker 7: we talk to clients, some people are now asking could

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Speaker 7: have had even high grades. Again, it's not entirely and conceivable, it's.

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Speaker 5: Not our base, Katy.

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Speaker 2: Slightly more likely is they just don't move this year.

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Speaker 2: What do you think of that probability.

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Speaker 5: That it could be as well?

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Speaker 7: I think the the right now the data flow suggests

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Speaker 7: less rather than more and so more we have one

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Speaker 7: more month of strong data, one more months of sticky

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Speaker 7: inflation coming in. Why would the Fed necessarily rush into

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Speaker 7: raycuts so far things are going well, then we have

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Speaker 7: the US election coming in as well, and they may

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Speaker 7: not want to move too closely before that as well.

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Speaker 1: Ten seconds, last question. The big gains that we were

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Speaker 1: seeing in the equity market suggest that there is still

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Speaker 1: too much liquidity in the system.

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Speaker 7: Well, there is still liquidity in the system, but the

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Speaker 7: body is in the eye of the beholder. Quit is

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Speaker 7: a state of mind. I don't know whether you know

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Speaker 7: that's that's one of my professors said, it's a state

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Speaker 7: of mind.

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Speaker 5: If if and then the state of mind is bullish

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Speaker 5: right now. So there you go. You got liquidity.

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Speaker 2: But can I sleep well tonight?

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Speaker 5: You can sleep well? Yes, it's Friday night, okay for the.

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Speaker 2: Moment, yeah, eight, the weekend approaches, Frederick, thank you very

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Speaker 2: much for being with us, Frederick.

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Speaker 1: Human HSPC.

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Speaker 5: This is one broke.

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Speaker 6: Well.

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Speaker 2: A huge trove of documents has turned up at the

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Speaker 2: Global Security side Gethub, owned by Microsoft. The documents appear

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Speaker 2: to outline China's state sponsored cyber attacks on foreign governments.

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Speaker 2: Joining us now to discuss this in detail is Sarah

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Speaker 2: Jung Bloomberg, China Technology Reporter. So there are so many

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Speaker 2: interesting angles to this, Sarah, one of which is that

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Speaker 2: this vendor i Soon from which a lot of these

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Speaker 2: files emanated, is just one of many, many different vendors

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Speaker 2: that take part in this selected program exactly.

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Speaker 6: I think that exact point is why the global cybersecurity

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Speaker 6: community has been so excited about this kind of leak,

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Speaker 6: because it's the first major leak from this type of

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Speaker 6: Chinese cyber vendor, and it gives us a little bit

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Speaker 6: of a glimpse into this broader ecosystem of vendors in

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Speaker 6: China that work with government clients and procure this kind

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Speaker 6: of data potentially from foreign government targets, and provides that

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Speaker 6: for the Chinese government.

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Speaker 1: So from what I'm reading in the Bloomberg piece the

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Speaker 1: origin of the files are unclear, but experts do believe

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Speaker 1: they are authentic. Have we or has there been any

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Speaker 1: reaction from Beijing at this point?

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Speaker 6: So far, there hasn't been. We've had reporters asking the

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Speaker 6: Chinese warn Ministry at their regular briefings, and they claim

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Speaker 6: that they're not aware of this, and they say that

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Speaker 6: they oppose all types of cyber attacks. In the past,

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Speaker 6: we've seen the Chinese government be increasingly vocal about how

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Speaker 6: they are actually a victim of Western hacking and deny

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Speaker 6: all state sponsored hacking. But we are looking to see

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Speaker 6: as this gains more attention and traction among the named

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Speaker 6: governments and companies in this league, whether or not the

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Speaker 6: Chinese government will will come out with more of an

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Speaker 6: official reaction.

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Speaker 2: One of the other interesting aspects is the widely diverse targets,

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Speaker 2: the different types of targets that are brought up in

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Speaker 2: some of these files.

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Speaker 6: Yeah, exactly, so, a bunch of colleagues, you know, we

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Speaker 6: were going through hundreds of files, almost six hundred files,

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Speaker 6: I think if I recall, and there are a bunch

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Speaker 6: of different targets named. It's very diverse. A lot of

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Speaker 6: high profile government targets, including even the NATO Secretary General.

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Speaker 6: We saw the UK FOURG ministry named the Royal Taie Army,

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Speaker 6: a bunch of different governments and including companies as well.

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Speaker 1: So I'm wondering when you get away from the relation

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Speaker 1: with Washington, DC and you're involving other entities like NATO

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Speaker 1: or even the Thai Army, I mean, they're really in

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Speaker 1: terms of damage control, there's a lot to push back against, definitely.

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Speaker 6: I mean, I think what is interesting is that no

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Speaker 6: one is particularly surprised that governments or state actors are

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Speaker 6: targeting other governments. I mean, I think that's something that's

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Speaker 6: generally understood, but in this case, we are seeing specific

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Speaker 6: details laid out about how these researchers are actually engaging

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Speaker 6: in the targeting, a little bit of information about how

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Speaker 6: much they're selling it for, and just laying out in

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Speaker 6: very clear terms that we are procuring this data and

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Speaker 6: providing it to the government, so something that we already

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Speaker 6: kind of would guess is happening and having it be

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Speaker 6: brought to the fore.

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Speaker 2: And what are some of the interesting comments that we're

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Speaker 2: hearing from cybersecurity experts who we've contacted to come in

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Speaker 2: on the story.

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Speaker 7: I think what's.

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Speaker 6: Interesting is that this is the first major leak of

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Speaker 6: this kind from a cyber vendor that does this kind

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Speaker 6: of attacking. So they are pointing out quite interesting things

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Speaker 6: about what this shows about the operations of this particular

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Speaker 6: vendor and maybe what it reveals about this broader market

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Speaker 6: just for this kind of data inside of China. And

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Speaker 6: there are also you know, a lot of speculation about

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Speaker 6: the origins of this, you know, what the person who

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Speaker 6: had leaked this data is intending to do, and then

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Speaker 6: potentially what this could mean for the Chinese government. Will

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Speaker 6: they have to answer for it, will other governments that

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Speaker 6: were named in this leak come out and pressure them

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Speaker 6: as well.

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Speaker 1: So you talked about visibility into pricing, how expensive or

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Speaker 1: how inexpensive is it for this type of behavior.

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Speaker 6: It's actually interesting because what experts are saying is that

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Speaker 6: it seems quite inexpensive, especially given the costs that governments

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Speaker 6: and companies, major companies would put into cybersecurity defenses. Some

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Speaker 6: of these massive databases of personal data were being hawked

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Speaker 6: online according to these documents for you know, just tens

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Speaker 6: of thousands of R and B, so a huge price differential.

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Speaker 2: There, So you referred to it as a leak. We

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Speaker 2: actually say in our headline purported leaks. And I said

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Speaker 2: earlier that you know, it was unclear that you know,

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Speaker 2: maybe this was uncovered by someone, but it seems like

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Speaker 2: it is a leak. And then it's really tricky getting

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Speaker 2: at the motivation, isn't it Definitely?

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Speaker 6: And I think that's a good caveat to mention. We

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Speaker 6: have gone through the documents, but we haven't personally been

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Speaker 6: able to verify all of the contents. But from what

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Speaker 6: cybersecurity experts are saying, they say that it aligns with

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Speaker 6: publicly reported information on these types of threat actors. And

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Speaker 6: we had Mandient, you know, a really big name in cybersecurity,

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Speaker 6: a unit of Google Cloud, coming out and saying that

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Speaker 6: they believe it to be authentic as well.

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Speaker 1: So the most surprising thing is seems to be how

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Speaker 1: inexpensive it is.

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Speaker 5: Not the fact that it's going on right, yes, that, and.

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Speaker 6: Then just the fact that you know, we're seeing it

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Speaker 6: spelled out in black and white, that they have these

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Speaker 6: specific targets and that we you know this this could

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Speaker 6: be sort of the tip of the iceberg for what

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Speaker 6: is actually going on in China and the broader you know,

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Speaker 6: cyber attack ecosystem.

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Speaker 2: Well, I suppose for you know, the Ministry of State Security,

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Speaker 2: you know, with with deep pockets, you know, two hundred

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Speaker 2: and seventy eight thousand dollars is not too much, But

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Speaker 2: that's one of the charges that we saw, at least

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Speaker 2: in one of the stories, Chinese customers getting a trove

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Speaker 2: of information behind social media accounts and platforms like Facebook

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Speaker 2: and Telegram for a quarter of a million dollars, which

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Speaker 2: seems expensive to us, but for governments maybe not so much.

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Speaker 5: Sarah, Thanks very much, Sarah Jane. This is Bloomberg.

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Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

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