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Speaker 1: Let's get to our guest. Fred Newman is with us.

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Speaker 1: He is the chief Asia economist at HSBC. He's in

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Speaker 1: our studio in Hong Kong. Fred, thanks for being with us.

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Speaker 1: We're focused very much not only on the inflation story,

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Speaker 1: but the response of the FED, and I think many

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Speaker 1: in the market believe now that the FED is so

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Speaker 1: far behind the curve it has no choice but to

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Speaker 1: become aggressive. What could the collateral damage be of an

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Speaker 1: aggressive fit? Take session off the table here in the US,

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Speaker 1: talk to me about fallout in in the Apack region

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Speaker 1: where you are well. We still see the dollar really strengthening,

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Speaker 1: and it it really kind of re accelerate in the

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Speaker 1: last few weeks, partly in expectations that the FED may

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Speaker 1: have to become a bit more aggressive in the short term.

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Speaker 1: And of course a stronger dollar puts downward pressure on

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Speaker 1: emerging market assets, currencies, local local risk assets. All of that,

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Speaker 1: of course suffers in an environment where the dollar is

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Speaker 1: still strengthening so rapidly, and inflation numbers overnight don't really

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Speaker 1: help because of course that reinforce expectations set to FED

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Speaker 1: will have even have to pick up a bit of speed. Here,

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Speaker 1: we had a warning also this week from the i

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Speaker 1: m F chief Crystallina George Eva. As rates rise, debt

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Speaker 1: servicing for vulnerable nations is going to rise with it.

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Speaker 1: Are there any debt burden economies in the Asia Pacific

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Speaker 1: that are looking vulnerable to you? Perhaps another Sri Lanka

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Speaker 1: in the making. Generally, actually, Asia looks pretty robust on

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Speaker 1: that front. Now we've seen, of course debt levels rise

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Speaker 1: quite quickly during the pandemic, but if you look at

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Speaker 1: the overall debt level, it's still manageable. We are fairly

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Speaker 1: comfortable effects reserve. So Asia does not stand out as

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Speaker 1: a region where you do find vulnerable sovereign names. In fact,

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Speaker 1: you know, there's some headlines even suggests how the currency

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Speaker 1: depreciation is reminiscent of the Asian financial crisis, but far

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Speaker 1: from it. We are fundamentally in pretty robust shape. The

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Speaker 1: problem for Asia's growth, it's not not financial stress. So

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Speaker 1: if we do get a recession here in the US

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Speaker 1: and the consumer kind of uh contracts a little bit,

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Speaker 1: and you're not going to get the demand for overseas

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Speaker 1: goods at a level that maybe you would otherwise have. Um,

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Speaker 1: what does that mean for for Asia? Uh? Really? To

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Speaker 1: words trade recession. UH and given to how dependent Asia

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Speaker 1: is on exports, that's where the growth problem essentially comes from.

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Speaker 1: Is that we've seen roaring shipments into the US in

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Speaker 1: particularly the last two years. It helped US actually through

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Speaker 1: the pandemic, and we may see recovering domestic demand. But

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Speaker 1: if exports now falter, of course that's still in that basis,

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Speaker 1: will mean slower growth for Asia. Key question though, is

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Speaker 1: will China pick up the slack. China is a bigger

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Speaker 1: export market than the US for some markets in Asia,

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Speaker 1: and if China comes back then obviously there'll be a

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Speaker 1: big offset, but of course that looks challenging as well

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Speaker 1: at the moment. And Fred, we've been talking about the

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Speaker 1: data we've head out of the US, but some important

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Speaker 1: numbers coming out of China as well. Among the GDP

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Speaker 1: numbers at the end of the week, anticipating a sharp

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Speaker 1: slow down. The difficult one for policy makers, isn't it.

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Speaker 1: You can have COVID zero or you can have growth,

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Speaker 1: but you can't have both. There's certainly tensions between the two.

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Speaker 1: UM and I think for the GDP numbers, it's it's

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Speaker 1: probably likely. Is it's very likely that the economy contracted.

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Speaker 1: But the bigger focus will be actually on the high

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Speaker 1: frequency data suggesting or telling us whether in June we

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Speaker 1: saw a bit of a bounce back. That's really what

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Speaker 1: we're looking for. And we know April May was you know,

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Speaker 1: a big, big, sharp correction at Chinese economy. Are we recovering?

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Speaker 1: How much is consumer spending really coming back? And so

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Speaker 1: these are some of the trends that really will follow

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Speaker 1: very very closely. And there is, you know, some suggestion

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Speaker 1: that there's some improven but it's not quite as steep

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Speaker 1: as we saw on previous cycles. There still some work

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Speaker 1: to be done, and that's where you see them come

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Speaker 1: out with stimulus announcements and and very supportive words again

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Speaker 1: the premier out overnight suggesting that really the labor market

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Speaker 1: needs to be supported. Perfect transition to this next story,

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Speaker 1: which right now is on the Bloomberg terminal. The team

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Speaker 1: at Bloomberg News has crunched a lot of the official

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Speaker 1: announcements from Beijing, and the figure that they have arrived

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Speaker 1: at is one point one trillion dollars of funds that

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Speaker 1: would be available for infrastructure spending in China. It seems

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Speaker 1: like we've been here before. Is that the best recipe

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Speaker 1: for what the Chinese economy needs right now. It's the

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Speaker 1: fastest way to get money into the economy. And and uh,

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Speaker 1: China has a massive construction sector. Part of that, though,

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Speaker 1: is still ailing, and that's the housing construction sector. So

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Speaker 1: you want to then at least try to put a

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Speaker 1: floor under construction by helping the infrastructure side. And that's

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Speaker 1: what you see this focus on the infrastructure side, uh

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Speaker 1: really coming through here. It's a fast way to do this.

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Speaker 1: It helps to stem the broader decline in housing construction

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Speaker 1: to some extent. But you're right, I think because some

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Speaker 1: of the weakness was actually in services and consumer spending,

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Speaker 1: into what degree infrastructure focus translates into those sectors, I

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Speaker 1: think that's still a bit of a question mark. Yeah.

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Speaker 1: In terms of real estate, I mean that is still

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Speaker 1: a troubled sake that We also had a story on

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Speaker 1: the Bloomberg terminal today about mortgage holders and dozens of

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Speaker 1: Chinese cities now refusing to pay up because of issues

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Speaker 1: with their apartment buildings. Is this a sector that's still

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Speaker 1: got significant troubles ahead of it, still significant headwinds for sure.

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Speaker 1: Whether these stories or sort of isolated hard to say

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Speaker 1: whether there's more or less compared to last year, so

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Speaker 1: we don't have really good data certainly, and like totally

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Speaker 1: in some markets the market is still under pressure. Um

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Speaker 1: they're trying to relax some of the restrictions, trying to

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Speaker 1: accelerate housing sales, but confidence is very weak, so it

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Speaker 1: will take time to to stabilize that sector. So you

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Speaker 1: need a stopgap measure. And it looks like they decided

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Speaker 1: that the infrastructure side will kind of have to step

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Speaker 1: in before housing construction and starts to pick up again.

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Speaker 1: And of course it's a question of how quickly things move.

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Speaker 1: Is housing construction going to linger faster more before infrastructure

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Speaker 1: picks up, or is the infrastructure side going to accelerate

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Speaker 1: quite quickly. And so as we have to see, we

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Speaker 1: do think we're going to get better numbers out in

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Speaker 1: the second half of the year, but it's not not

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Speaker 1: going to go back to pre pandemic speed very quickly. Here, Fred,

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Speaker 1: I know you're an economist, but i'd like nonetheless you're

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Speaker 1: taking what you're seeing in the energy market and how

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Speaker 1: that may impact the global economy. Well, it's it's easy

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Speaker 1: to point to oil price and say all prices are

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Speaker 1: falling and Uh, certainly from the highest early in the year,

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Speaker 1: and that that provides relief to the global economy. That's

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Speaker 1: certainly correct. But I remember that the energy sector is

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Speaker 1: broader and we still see big disclocations in the gas

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Speaker 1: market for example. Uh, certainly that matters a loup for Europe,

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Speaker 1: it matters for Northeast Asia actually as well. Japan comes

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Speaker 1: to mind here, Korean China itself, and we have coal

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Speaker 1: prices which is still very elevate in places like India

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Speaker 1: for example, huge demand for in parded call as well.

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Speaker 1: So if you look at energy prices more broadly, the

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Speaker 1: relief is not quite as large as declining oil prices

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Speaker 1: would suggest. But of course oil trading around a hundred

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Speaker 1: is a huge relief visa visa v one twenty all right,

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Speaker 1: and yeah, the oil price right now nineties fifty two.

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Speaker 1: But o pick. Of course, I'll warning this week that

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Speaker 1: don't expect any relief coming in twenty three. Fred Newman,

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Speaker 1: Chief Asian Economists at HSBC's thanks so much for joining

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Speaker 1: us on the show to day with your insights