Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. In
Speaker 2: the US, the Treasury is deepening its result to get
Speaker 2: government bond yields lower. On Thursday, the Department said its
Speaker 2: expanding efforts to buy back longer term government debt. In
Speaker 2: an interview with CNBC, Treasury Secretary Besson said buybacks could
Speaker 2: be more than four billion dollars per operation. You may
Speaker 2: recall on Wednesday, the Treasury Department surprised markets in saying
Speaker 2: it would increase by at least double the size of
Speaker 2: buybacks for longer dated securities. Now, that announcement, to be
Speaker 2: fair did send long term yields lower, but the move
Speaker 2: proved to be short lived. For a closer look, I'm
Speaker 2: joined by Bloomberg's David Finnerty. He is our FX and
Speaker 2: rate strategist, joining from our studios in Singapore. David, thank
Speaker 2: you for being here. So we ended the New York
Speaker 2: session on Thursday at four point seven zero percent, But
Speaker 2: if you look at where we were Wednesday, the impact
Speaker 2: of that move by the Treasury Department was like a
Speaker 2: flash in the pan. What's your sense of what's happening?
Speaker 3: Here.
Speaker 4: Yeah, I think look, at the end of the day,
Speaker 4: you had to put everything in perspective. He's certainly sick,
Speaker 4: he being the Scott Vesson is certainly signaling intentions, but
Speaker 4: in reality do those intentions come to fruition. And one
Speaker 4: of the catches is literally for him, is the size
Speaker 4: of the bond market. I mean, we had headlines out,
Speaker 4: we had been Bloomberg had headlines out this week saying
Speaker 4: that the public deads is forty trillion now and obviously increasing.
Speaker 4: So you had to think, Okay, that's a BIG's bonds
Speaker 4: of alterations and everything, but that's a huge pulse. So
Speaker 4: if you're talking about a few billion, which is you
Speaker 4: say large, but in the scale of forty trillion, you go,
Speaker 4: that's jump change really, And I think this is one
Speaker 4: of the problems that Besson has in the end of day.
Speaker 4: It's like any intervention he tries to do, depending on
Speaker 4: the gale of it, will have a limited impact. And
Speaker 4: even as we've seen the intervention with Japan, it doesn't
Speaker 4: change have a largely impact. It doesn't change the fundamentals.
Speaker 4: Now Scott person said, well, the markets is missing the fundamentals.
Speaker 4: The market will quickly go no we're not. Oil is
Speaker 4: rising again, flacerym pressures are building, inflation is still above
Speaker 4: the target. You're running ever, us being is running ever
Speaker 4: and ever growing larger public deficits. So at the end
Speaker 4: of the day, the treasury market goes, look what you're
Speaker 4: borrowing from us. We're the lender. We sort of set
Speaker 4: the rate, and it's based on what we perceive. So
Speaker 4: you can say we're wrong, but we are the lender
Speaker 4: and we will say what the price is. So at
Speaker 4: the end of the day, I think he's he said
Speaker 4: last year, Look he wants to ten year yields. Are
Speaker 4: He's and the Trump's administration focus. Therefore, obviously he can't
Speaker 4: be happy with the direction they're going. But if you're
Speaker 4: the treasury market and the lenders, you're going, well, I'm
Speaker 4: raising the price because in reality good reason too.
Speaker 2: Racerprise, Well, you touched on two key things, one being
Speaker 2: the level of inflation here in the US well above
Speaker 2: the Fed's target. One of the reasons that there may
Speaker 2: have been a little upward pressure on the bond market
Speaker 2: or on the long term end of the treasury curve,
Speaker 2: particularly at a time when I think the market's struggling
Speaker 2: to figure out where the FED is in the conversation
Speaker 2: around inflation. We know what we have heard from Chair
Speaker 2: Walsh saying that he is adamant about getting inflation under control.
Speaker 2: I think the bond market may be a little confused though,
Speaker 2: with some of the messaging that's attached to that. Then
Speaker 2: there is the fiscal deficit story, which you touched upon.
Speaker 2: I'm wondering too when you look at the flood of
Speaker 2: AI related debt that's coming to market, new corporate supply
Speaker 2: and the level of competition that that introduces for US treasuries,
Speaker 2: whether that has become a major factor as well.
Speaker 4: Look, it certainly has. I think you go to basic
Speaker 4: equalost one oh one prices determined by a supply and demand,
Speaker 4: and demand for longer term bonds we view it that
Speaker 4: way rather than just treasuries is affected by supply. So
Speaker 4: you're you know, if I'm buying treasuries, I'm looking more
Speaker 4: what else could I buy? So, yes, there's different risk
Speaker 4: parameters certainly within that context. But in the day it's
Speaker 4: you know, a long bond to long bond and you're
Speaker 4: going to pick what you want. This whole supply will
Speaker 4: impact that sort of pricing, So I think That is
Speaker 4: another factor again that has to be borne into this,
Speaker 4: and you have to think that with the deficit. Obviously
Speaker 4: we don't know what public deficits this year, but last
Speaker 4: year was over five percent. The years before that it's
Speaker 4: been over five percent, being over six percent. You know,
Speaker 4: this is the catch for the US is at the
Speaker 4: end of the day, it continues to run a public
Speaker 4: deficit no matter who is in charge. It could be democrat,
Speaker 4: it could be Republican. Over the last twenty or so years,
Speaker 4: it doesn't matter who is in charge, the deficit gets
Speaker 4: larger and larger and larger because they keep running percent deficit.
Speaker 4: Evenf you do its percentage GDP, which is a fair barometer,
Speaker 4: it's still five to six percent or higher during COVID times.
Speaker 4: And that is the catch. It's just ever growing. So
Speaker 4: the supplies coming in from the treasury is coming on
Speaker 4: from corporates, and at the end of the day, with
Speaker 4: the present exists the inflation pressures, the market is going, look,
Speaker 4: this is what we deem to be a fair price. Now,
Speaker 4: circumstances could change, and they say the price will change.
Speaker 4: In theory, the market has all the information and therefore
Speaker 4: it makes an outcurate price and goes that's the fair price.
Speaker 4: So while, as said Scott Bessett may say it's missing
Speaker 4: some fundamental data or whatever, the market goes, no, I'm not.
Speaker 4: And I think what becomes really interesting now is we'll
Speaker 4: have Scott Persant talk maybe today, maybe early next week.
Speaker 4: But then very quickly we go to Governor wash and
Speaker 4: there's Jackson the whole speech, and it's going to be
Speaker 4: very interesting to see what he says given this backdrop,
Speaker 4: and given a backdrop that he doesn't like communicating forward guidance.
Speaker 4: What at the end of the day, if you don't
Speaker 4: give the market something next week, the market's going, Okay,
Speaker 4: I'm just gonna do what I want to do.
Speaker 2: Let's talk a little bit about what's going on in
Speaker 2: Japan because we have the print on CPI for the
Speaker 2: month of July, so retail inflation in Japan accelerated for
Speaker 2: a second straight month. Overall CPI up at an annual
Speaker 2: rate of one point nine percent. Do you think that's
Speaker 2: going to keep pressure on the boj to really tighten
Speaker 2: again in the near term, maybe as soon as September.
Speaker 4: But be honest, whatever that data was, and this it
Speaker 4: came in way, way, way on the estimate, which obviously didn't.
Speaker 4: Then I think the boj is at the moment for
Speaker 4: vehetoric is I'm hiking in September of not definitely October.
Speaker 4: And basically now the market's going, we're pricing that in.
Speaker 4: So you sort of have to unforcing your hand. Now
Speaker 4: the signals are that you're going to do it. I'm
Speaker 4: they go taking you at your word. If you do
Speaker 4: not do it, therefore, the gen will come to pressure
Speaker 4: very very quickly. So really in the day, you know,
Speaker 4: you could go, oh, September two over. You know, it's
Speaker 4: a month between pick which one you want Septembers that
Speaker 4: can it's certainly a good chance one in September. I
Speaker 4: think the question becomes now again even at the next meeting,
Speaker 4: is if they hike or not hike. If they don't hike,
Speaker 4: they go, okay, October's basically the market's going, you've got
Speaker 4: to do it in October. Now, then the question becomes
Speaker 4: how many more hikes are we going that? So you're
Speaker 4: looking not just when the hike is, it's how many
Speaker 4: more hikes? Where is that terminal rate? And how quickly
Speaker 4: are we getting there? The indications are a quicker process
Speaker 4: so rather than being once every six months, maybe once
Speaker 4: a quarter, you know, something like that. So but the
Speaker 4: market literally cares about that, how quick, how high where
Speaker 4: we going? We've priced in something? Are we accurate or
Speaker 4: not accurate? And if we're not accurate, we will just
Speaker 4: upwards or downwards accordingly.
Speaker 2: So as I'm listening to you, I'm trying to understand
Speaker 2: what the market suspects the BOJ is up to, and
Speaker 2: if tightening were to become more aggressive, how the Japanese
Speaker 2: bond market and how the end might react.
Speaker 4: Certainly, if you're looking at dollar yen, I do think
Speaker 4: it's the dollar side of the equation that really kicks in.
Speaker 4: I think with the markets already looking for rate hikes
Speaker 4: for Japan, like you know, two or three already priced
Speaker 4: in over the next year. Yes, you could be more
Speaker 4: hawkish than that, but realistically is that going to happen? Unlikely,
Speaker 4: I would say. So therefore you go, okay, if it's
Speaker 4: back to the dollar side of the equation, which again
Speaker 4: I think comes back to whatever Scott Busset's trying to do.
Speaker 4: What does the governor war signal? What's the data coming
Speaker 4: in on? Because again, without signals, the markets go I
Speaker 4: need the data and be fair. The US data has
Speaker 4: been coming in quite solid. Inflation is above expectations, but
Speaker 4: you know, the growth is quite solid. We have PMI
Speaker 4: data out today. Market we look at that, so all
Speaker 4: all the markets still going. Look, I think you're doing
Speaker 4: the rate hike this year or certainly soon. You know,
Speaker 4: you'd really need that to be unwined and unwound pretty
Speaker 4: quickly for dolly en to really move lower on the
Speaker 4: On that side, I think when you're looking at Japanese
Speaker 4: yields as a catch there, generally, I think the catches
Speaker 4: not only what does the government do in terms of
Speaker 4: its deficits obviously that's a functioning what does but also
Speaker 4: what the global yels do. I mean, you have to
Speaker 4: remember they all get caught up in this global tide,
Speaker 4: and certainly where US goes, it tends to pull other
Speaker 4: yields with them. So even if I'm in Japan, even
Speaker 4: though I do policies to say, hey, look, you know,
Speaker 4: faces under control, blah blah blah, at the end of
Speaker 4: the day, if US yields, say, were to drift higher,
Speaker 4: just historically, you know, it pulls everything higher with it.
Speaker 4: It just does. So you know, the factors outside of
Speaker 4: Japan could even impact have a bit end up having
Speaker 4: a bigger impact on Japanese yels and even potentially domestic policy.
Speaker 2: Interesting. David, always a pleasure. Thank you so very much.
Speaker 2: David Finnerdy Bloomberg FX and Rate strategists joining from Singapore
Speaker 2: here on the Daybreak Asia podcast. Welcome back to the
Speaker 2: Daybreak Asia Podcast. I'm Doug Krisner. We moved next to
Speaker 2: the earnings from Ali Baba, China's e commerce leader, delivered
Speaker 2: nine percent revenue growth that was in line with expectations. However,
Speaker 2: net profit plunged seventy five percent after the company increased
Speaker 2: capital spending to nearly ten billion dollars. We got reaction
Speaker 2: from Sean Yang. Sean is senior research analyst at Arite Research.
Speaker 2: He spoke with Bloomberg TV host Heidi Stroud Watts and
Speaker 2: Paul Allen.
Speaker 1: Obviously, we're seeing so many of these companies caught up
Speaker 1: in the cycle of the AI investment spend at the moment.
Speaker 1: How do you place Alibaba within that?
Speaker 5: Yeah, I think Alibaba has a clear strategy.
Speaker 3: It's something they called a full stack as strategy, So
Speaker 3: basically they have tea haas which their own GPU. They
Speaker 3: have cloud illiness and which I think that invest a
Speaker 3: lot of resources to that.
Speaker 5: They also have quin models, so they also have large
Speaker 5: Numbrant models.
Speaker 3: So I think Barba sasays it that you know, we
Speaker 3: don't know probably just now that's not very clear that
Speaker 3: which layer would capture the most value. But since we
Speaker 3: have all layers, so no matter how like a developments
Speaker 3: like goals that Baba will capture the like the value
Speaker 3: of AI.
Speaker 1: In terms of amongst the competitors, right, how strong do
Speaker 1: you think is the lead in terms of how investors
Speaker 1: feel like it's a favorite. There is a bet that
Speaker 1: obviously it can beat the competitors when it comes to
Speaker 1: the AI race. Do you think it matters within this
Speaker 1: kind of ecosystem where there are more and more national
Speaker 1: champions being supported in China.
Speaker 3: Well, I think this is very interesting question big us
Speaker 3: As we said that you know, bar basically has everything right,
Speaker 3: so which means that also UB has a lot of
Speaker 3: competitors and Barber needs to compete with for example, they
Speaker 3: need to compete with large leng model players like there
Speaker 3: are a couple of independence companies like deep c, Jipu
Speaker 3: and Minimax and Kimmy.
Speaker 5: They also need to compete with you know, ten Cent.
Speaker 3: Clouds, Buydown's Cloud, Volcano Cloud and you know, and also
Speaker 3: that they have a small business in GPU, so I
Speaker 3: wouldn't say that, you know, Badwei is a strong competitive Barber,
Speaker 3: But anyway, I think that's I think the key point
Speaker 3: is there about the model capability, because I think that
Speaker 3: Barber has the largest share market share in clouds, so
Speaker 3: they definitely have a clear advantage in cloud business.
Speaker 5: But the problem is about I think it's about.
Speaker 3: Like largely last length model that you see that you know,
Speaker 3: the Deeps and Kimmi. They all try to like promote
Speaker 3: publish their models like much more frequently, and this is
Speaker 3: a highly competitive market. So I think in terms of
Speaker 3: large lage model performance, I think Barba probably facing the
Speaker 3: most intensive right competition.
Speaker 6: Well, Ali Baba and as competitors have something in common.
Speaker 6: They all spend enormous amounts and borrow enormous amounts on
Speaker 6: developing their AI capabilities. I mean, we heard the CEO
Speaker 6: saying that, look, you see Ali Baba's recouping its overall
Speaker 6: AI investment in three years. Do you think that's a
Speaker 6: credible timeline? Do you have any concerns about the amount
Speaker 6: of spending.
Speaker 3: I think that's I think Baba's management is right at
Speaker 3: this stage because I think the compute is super like intensified.
Speaker 3: There's kind of like shortage in terms of like computes,
Speaker 3: so which means that the clients are customers enterprises are
Speaker 3: willing to pay more for the computes for the clouds.
Speaker 3: And if you see these large legal model companies like
Speaker 3: deep seek, people say that dip they only provide a
Speaker 3: football models. They also increase the prices. So I think
Speaker 3: at this stage this is right, and I think the
Speaker 3: like this, like supplying bottomneck, will continue for several several quarters,
Speaker 3: for several years. But I think there's some uncertainties in
Speaker 3: the future. For example, if Baba, when the Biba could
Speaker 3: continue to keep its large neck model at the frontier model,
Speaker 3: otherwise that Baba will become a company can only provide
Speaker 3: like you know, cloud service and computes that were full
Speaker 3: into competition, that's like price competition with other cloud service providers.
Speaker 3: The other thing is about you know, besides for example,
Speaker 3: besides the demand side, besides coding, what else the AI
Speaker 3: like industry could provides.
Speaker 5: Is there a large scenario. I think this is also
Speaker 5: a key question.
Speaker 3: So I think it's basically, you know, I still a
Speaker 3: demand like and versus like supply issues.
Speaker 5: The demand is.
Speaker 3: Very strong, everything is fine, so you know, my clos
Speaker 3: is they're right now.
Speaker 5: But I think that's we need to like waiting to see.
Speaker 6: Yeah, in terms of wait and see, we left with
Speaker 6: any other unanswered questions at the end of that earning
Speaker 6: school things that you really want to hear a bit
Speaker 6: more clarity on from Ali Baba.
Speaker 3: I think probably that's you know, about the more detailed
Speaker 3: breakdown of.
Speaker 5: What they determine as r C. You know, basically this
Speaker 5: SA is three years. You know, can't reach to break
Speaker 5: hiven points. That's one question.
Speaker 3: The other one is that everybody is focusing on the AI,
Speaker 3: but there are a lot of other moving parts, like
Speaker 3: the e commerce, like their losses in like for delivery.
Speaker 5: I mean, barber is.
Speaker 3: A whole group that you know, definitely people can't value
Speaker 3: only on AI. People also need to look at other
Speaker 3: things and the the and I think that's the model.
Speaker 5: Capability is also very important.
Speaker 3: I mean, I can't feel that a lot of als
Speaker 3: just to try to say they have very good like
Speaker 3: R and D resources and development capability, but whether that
Speaker 3: can transfer to like the like good models, results.
Speaker 5: Outcome or results, that is something highly upseertain.
Speaker 1: Sean I wanted to talk a bit about and of
Speaker 1: course and Financial at one point was really the crown
Speaker 1: jewel of this company, right and it's been very much
Speaker 1: under the radar for a few years since that appure stalled.
Speaker 1: What do you think of these sort of reasons overtures
Speaker 1: for fund raising? And obviously they're also expanding a lot
Speaker 1: more in terms of the AI investment.
Speaker 3: Yeah, I think and Financial is definitely bit more active
Speaker 3: in terms of your rights of fund raising. I think
Speaker 3: they're also launching some like AI like projects. That is
Speaker 3: something we see actually across the China Internet industry that
Speaker 3: seems like more Chinese intent companies trying to catch up
Speaker 3: with this AI wave.
Speaker 5: And you know, they definitely want to have more like projects.
Speaker 3: But does that mean that and Financial for example, some
Speaker 3: people say it's reconsidering no I PO or something. I'm
Speaker 3: not I don't have like specific information about that, but
Speaker 3: I think that's that you can say, that's that's correct.
Speaker 3: The I think the signal is very clear, that's no
Speaker 3: one wants to, you know, get behind in this recent
Speaker 3: AI do.
Speaker 1: Whether or not the i peo gets revived, that's obviously
Speaker 1: a regulatory issue. But the seeking of capital, for example,
Speaker 1: does that sort of sidestep the issue of the apio
Speaker 1: being being being stored. Do we see kind of fresh
Speaker 1: capital injections, is being able to make some of these
Speaker 1: units a little bit more compelling?
Speaker 3: Well, I think that's this is purely expectation, and I
Speaker 3: mean you probably, I think that's the what I can
Speaker 3: say that we see that a lot of new companies
Speaker 3: like IPO recently, for example, she is going to IPO,
Speaker 3: so which means that there's definitely more friendly market, uh
Speaker 3: and to this new like internet or new like high
Speaker 3: tech companies. But I think and financial I think the
Speaker 3: story their story is a little bit special. I think
Speaker 3: that you know, as you said, that's the regulation is
Speaker 3: still concerned and the other thing probably that's about their
Speaker 3: own like you know, development, because you know, I think
Speaker 3: their business is also highly a social associated with China macroeconomy.
Speaker 3: And I'm not very sure about their recent detailed operational
Speaker 3: numbers for example, like payment volume, all.
Speaker 5: These kind of things.
Speaker 3: But I assume that they're also facing like high winds
Speaker 3: in terms of growth.
Speaker 5: So I think that regulation is one thing.
Speaker 3: The other thing that's for example, let's say when they
Speaker 3: are ready to like face to the investors scrutiny, can
Speaker 3: they present a better story? And if yes, and but
Speaker 3: what is that Definitely that we said that they probably
Speaker 3: have like kind of like had winds in their coinisms,
Speaker 3: so well, yeah, be a news story for them. That's
Speaker 3: something that's definitely we need you up like wait and see.
Speaker 6: Yeah, Sean, we've got Ali Baba's Hong Kong listed shares
Speaker 6: up about nine percent over the past year. What's your
Speaker 6: outlook here? Do you have a price target for the
Speaker 6: sock going up?
Speaker 3: Yeah, we have a target price. I think it's something
Speaker 3: that runs like like one hundred eight or on hundred
Speaker 3: and nine or something. We we set the like tacket
Speaker 3: price very high. I think that's the main reason that
Speaker 3: we think that, you know, Ali Baba's strategy in air
Speaker 3: Cloud is something like definitely correct and they are definitely
Speaker 3: the player that we capture a lot of value in
Speaker 3: this AI boom. We recognize the weakness of ecumbers, but
Speaker 3: we think that you know, like insets, you know, this
Speaker 3: is this is something that's you know, bub is trying
Speaker 3: to have Baba has done a lot of things trying
Speaker 3: to you know, like a like face the like hadwinds
Speaker 3: and also the other driver in the post their losses
Speaker 3: in like your food delivery because they're trying to narrow
Speaker 3: the loss so which we think that's group providers put
Speaker 3: for the EPs croes.
Speaker 2: That was Sean Yang, senior research analyst at Arata Research,
Speaker 2: speaking with Bloomberg TV host Heidi Stroud Watts and Paul
Speaker 2: Allen bringing you their conversation here on the Daybreak Asia Podcast.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm doingtener and this is Bloomberg.
Speaker 1: M hmm