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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm deg Chrisner. The

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Speaker 2: global economy is grappling with dramatically higher oil prices after

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Speaker 2: the US and Israel began attacking Iran back on February

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Speaker 2: twenty eighth. Well, now the Trump administration is taking part

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Speaker 2: in a move to bring those prices down. Energy Secretary

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Speaker 2: Chris Wright has announced one hundred seventy two million barrels

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Speaker 2: of crude will be released from the US Strategic Petroleum Reserve.

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Speaker 2: This is part of a plan announced earlier by the

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Speaker 2: International Energy Agency. Nations from around the world will be

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Speaker 2: releasing a total of four hundred million barrels from their reserves.

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Speaker 2: But despite these moves, the essential problem remains. The closure

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Speaker 2: of the Strait of Horn Moves the choke point for

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Speaker 2: about twenty percent of the world's seaborn oil. It's also

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Speaker 2: a critical passage for liquefied natural gas. Now. On Wednesday,

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Speaker 2: three vessels in the Strait were hit by suspected projectiles,

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Speaker 2: and according to two US intelligence sources, Iran began laying

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Speaker 2: mines in the strait using small watercraft each carrying two

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Speaker 2: to three mines and now we are learning Iraq's oil

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Speaker 2: ports have completely stopped operations. For a look at how

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Speaker 2: this is impacting market action, I'm joined by Bloomberg strategist

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Speaker 2: Mark Cranfield. He joins us from our studios in Singapore.

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Speaker 2: Thank you for being here, particularly on a day like today.

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Speaker 2: I'm going to take a step back. Mark, give me

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Speaker 2: your sense of the bigger picture here.

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Speaker 3: Well, it's really all about this, the fear that investors

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Speaker 3: have the long term supplies are going to be hit.

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Speaker 3: They don't really see an end to it. As you're

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Speaker 3: talking about. The key point, obviously is the strait of Homus,

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Speaker 3: and until traders are really happy to see oil flying

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Speaker 3: through that on a regular basis, they're going to be

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Speaker 3: extremely cautious about pricing what's going to happen. And we've

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Speaker 3: already seen a big premium, a so called war premium

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Speaker 3: is being priced into oil. If you look at where

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Speaker 3: the prices are in the market, and you look at

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Speaker 3: where global demand was before the Iron conflict began, prices

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Speaker 3: are substantially higher, maybe as much as thirty dollars is

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Speaker 3: into the price which people are taking as a risk

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Speaker 3: element related to the conflict in the Middle East. Now

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Speaker 3: even if the hostilities were to end this week, even

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Speaker 3: if the strait of horr moves was fully open initially,

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Speaker 3: people would still want a premium, fearing that it could

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Speaker 3: restart at any time. That doesn't go away us. What

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Speaker 3: we learned from previous conflict is that the premium will

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Speaker 3: stay in place. It might get a little bit smaller,

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Speaker 3: but there will be a premium embedded in oil prices,

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Speaker 3: particularly for quite a long time. And so because of that,

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Speaker 3: it feeds through to bond prices, it feeds through to

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Speaker 3: equity prices, even currencies are all dependent on what they

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Speaker 3: see going into oil. Everybody has to become an oil trader,

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Speaker 3: even when they don't want to, and that is a

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Speaker 3: very uncomfortable position for asset managers who usually like to

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Speaker 3: see oil as being something which is quietly in the background,

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Speaker 3: not right in their face.

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Speaker 2: Or you touched on the inflationary implications. Obviously that will

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Speaker 2: bring about in most cases, higher sovereign yields. There seems

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Speaker 2: to be a dull or positive story, does it not.

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Speaker 3: Things have changed dramatically because the United States no longer

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Speaker 3: needs to import oil as once did. In fact, it's

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Speaker 3: a net exporter of oil. So if you remember backsay,

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Speaker 3: for example, to two thousand and eight, when oil prices

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Speaker 3: were at record highs. I think WTI got to about

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Speaker 3: one hundred and fifty dollars a barrel. At the same time,

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Speaker 3: the US dollar was plunging because at that time the

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Speaker 3: United States still needed to import. The conditions have changed dramatically,

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Speaker 3: so rather than being a negative for the US dollar,

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Speaker 3: it's a slight positive for the US dollar this time around,

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Speaker 3: because everybody else the rest of the world needs to

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Speaker 3: buy the US dollars too, because everything is priced in

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Speaker 3: that currency, So the US is more immune to the

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Speaker 3: conflict from that point of view.

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Speaker 2: What about the distribution of the economic impact. Obviously Europe

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Speaker 2: is a heavy oil importer, there's a lot of risk there.

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Speaker 2: But I was struck by a report on Bloomberg earlier

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Speaker 2: that since the war with Iran began, shipping data show

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Speaker 2: that Iran sent more than eleven million barrels through the

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Speaker 2: straight bound for China. Do you think the Chinese economy

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Speaker 2: is in the same situation, let's say, as the Japanese

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Speaker 2: economy or the South Korean economy, both of which happened

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Speaker 2: to be heavy oil importers.

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Speaker 3: According to some stories, we have on Bloomberg. China is

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Speaker 3: far less dependent on oil than it will, say, ten

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Speaker 3: years ago. It's even less dependent and relative terms than

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Speaker 3: the United States. Definitely less dependent in Japan and Korea.

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Speaker 3: China has done a lot to It's got nuclear energy,

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Speaker 3: it's got various other Coal is still a big factor

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Speaker 3: of energy in China as well. It has a much

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Speaker 3: better protection in that sense. It's not totally immune, but

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Speaker 3: it is much more insulated than other Asian economiess.

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Speaker 2: So, do you think the bigger question mark right now

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Speaker 2: is whether the Trump administration at some point begins to

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Speaker 2: dial back on its aggressiveness. The risk is that President

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Speaker 2: Trump continues with this move to kind of reorder the

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Speaker 2: Iranian political leadership and the economy as well. But I'm

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Speaker 2: wondering whether or not at some point there's a breaking

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Speaker 2: point potentially for the president. We use the term taco

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Speaker 2: sometimes as it related to movement in the equity market

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Speaker 2: around the issue of trade and tariffs. Do you think

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Speaker 2: the same thing could happen again in the oil patch?

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Speaker 3: Investors would certainly be happy if they saw a dialing

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Speaker 3: down of the military action in the Middle East. There's

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Speaker 3: no doubt about that. As we were speaking about earlier.

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Speaker 3: The bottom line is the Strait of Hormus. Oil needs

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Speaker 3: to flow freely through that area, particularly to get to Asia.

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Speaker 3: Asia is so dependent on what not just for oil,

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Speaker 3: but for LNG as well, so that strait needs to

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Speaker 3: be Everyone needs to be safe and secure that it

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Speaker 3: can open operate as normal. Insurance costs can come down,

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Speaker 3: Tankers don't need to fear pay extra premiums for going

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Speaker 3: through there. That's the bottom line for everybody, even more

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Speaker 3: so than suddenly military action stopping. Because even if the

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Speaker 3: United States says there's no more military action, who knows

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Speaker 3: what they're on from their point of view, what they're

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Speaker 3: up to. So investors are very cautious from that side

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Speaker 3: of things, and they will continue to price a premium

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Speaker 3: for oil based on that.

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Speaker 2: So, as we mentioned earlier, bond markets globally have been

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Speaker 2: forced to reprice inflation risk. Where does that leave actual bankers? Though,

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Speaker 2: at the end of the.

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Speaker 3: Day, between a rock and a hard places very very

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Speaker 3: difficult job. We've got I think eight central bank meetings

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Speaker 3: coming up next week. The timing could hardly be worse

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Speaker 3: from that point of view. As you were suggesting, it's

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Speaker 3: going to be some very cautious language from the central banks.

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Speaker 3: Reserve Bank of Australia probably is going to be one

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Speaker 3: of the first to respond with higher interest rates. Others

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Speaker 3: will certainly be thinking about it. How quickly they pulled

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Speaker 3: the trigger will vary, but certainly everybody will have to

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Speaker 3: give warnings that they see inflation ticking up and in

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Speaker 3: some cases they suspect it's going to go above the

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Speaker 3: thresholds that will make them very uncomfortable. So the common

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Speaker 3: thread will be warning signals everywhere from central bankers that

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Speaker 3: inflation is going in the wrong direction. Some of them

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Speaker 3: will respond quickly, some of them more slowly. But it's

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Speaker 3: a complete sea change, because, of course it's only a

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Speaker 3: few weeks ago that we're hoping US Federal Reserve is

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Speaker 3: going to lower interest so rate. It's more most other

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Speaker 3: people will at least be on hold, not really thinking

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Speaker 3: about raising interest rates. The conditions have changed completely. That's

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Speaker 3: why bond yields around the world are going up so much.

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Speaker 2: So is it a case of stagflation? Potentially? Is that

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Speaker 2: really what we're describing here?

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Speaker 3: I think a little bit early to be calling that.

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Speaker 3: If you look at what's going on, it doesn't appear

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Speaker 3: that economies are grinding to a halt by any means

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Speaker 3: in six months time, if we're in the same situation,

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Speaker 3: if the Middle East is still locked down in six months, yes,

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Speaker 3: people will be taking stackflation very seriously. But it's a

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Speaker 3: little bit early to be discussing that.

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Speaker 2: What are the other things that you're most concerned about

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Speaker 2: when you look at some of the price action here.

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Speaker 2: I was wondering about the level of leverage. A couple

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Speaker 2: of weeks ago, you and I were speaking about the

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Speaker 2: meltdown in South Korean stocks, and it seemed like a

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Speaker 2: lot of that moved to the downside was catalyzed by

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Speaker 2: forced liquidation as the result of maybe excessive leverage. Has

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Speaker 2: most of that leverage exited the system, would you say,

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Speaker 2: or is there still maybe a few things that need

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Speaker 2: to be shaken out further.

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Speaker 3: The resilience of the Korean stocks this week especially suggests

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Speaker 3: that a lot of that leverage has been taken out.

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Speaker 3: The immediate concern for everybody's private credit. Just in the

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Speaker 3: past twenty four hours, JP Morgan has said they're going

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Speaker 3: to write down some levels Morgan Stanley today saying they're

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Speaker 3: restricting access. This is a huge factor for markets partly

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Speaker 3: because it's so a lot of people don't understand what's there.

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Speaker 3: They can't see the data behind. They know it's a

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Speaker 3: big aspect in financial markets, but as the name suggests,

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Speaker 3: there's not much public information on private credits, so people

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Speaker 3: a little bit in the dark. But when they hear

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Speaker 3: that two of America's largest financial institutions are very concerned

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Speaker 3: about what's going on, suddenly everybody is on edge because

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Speaker 3: if they're worried about it, then we should be worried

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Speaker 3: about it too, So we could be at the beginning

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Speaker 3: of what is a very unpleasant story in the private

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Speaker 3: credit space that would impact across equities. Everybody will be

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Speaker 3: subject to the fallout from that. So people now scrambling

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Speaker 3: to try and find out is it really a very

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Speaker 3: serious situation, how bad is it and how quickly is

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Speaker 3: it going to unfold.

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Speaker 2: I'm wondering whether some of the redemptions that we're seeing

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Speaker 2: in the space, though, may be tied to weakness and

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Speaker 2: other as said classes, which is to say that you

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Speaker 2: have to raise funds to take care of the business

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Speaker 2: elsewhere that may not be working so well. Is that

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Speaker 2: a possibility.

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Speaker 3: If it is, then it's a very dangerous situation because

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Speaker 3: once these things start to spiral, if you need to

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Speaker 3: sell in one asset class to make up for losses

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Speaker 3: in another, then yeah, it can turn into a very

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Speaker 3: nasty position. And we're hearing that hedge funds having a

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Speaker 3: very bad time at the moment because of the commodity losses.

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Speaker 3: So I think Gold and Sachs had a report this

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Speaker 3: morning saying that it's the worst period for hedge funds

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Speaker 3: since the Liberation Day sell off in April last year.

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Speaker 3: So everywhere you look, the certainly vulnerabilities in the system

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Speaker 3: here which investors will have to digest and they'll have

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Speaker 3: the price accordingly, which will make them much more defensive.

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Speaker 3: And we're coming towards the end of the first quarter

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Speaker 3: as well. Not great timing, really, not.

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Speaker 2: At all, Bark, Thank you so very much. It's always

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Speaker 2: a pleasure. Bloomberg Strategist Mark Cranfield joining from our studios

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Speaker 2: in Singapore here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Dog Krisner. Let's get

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Speaker 2: some more analysis on what we're seeing in oil markets

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Speaker 2: today with Dylan Wu, research strategist at Pepperstone. Dylan spoke

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Speaker 2: with Bloomberg TV host Heidi Stroud, Watts, and April Hong.

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Speaker 1: At this point, there's no sort of real opportunity or

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Speaker 1: site of an off ramp for either side. Clearly, releasing

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Speaker 1: more suppli in oil markets is not releasing that oil

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Speaker 1: premium from investors either. So how do you kind of

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Speaker 1: view this energy driven a shock? Is it a temporary hit?

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Speaker 1: Is the beginning of something more structural and problematic?

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Speaker 4: While I stay really cautious about calling it a sustainable

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Speaker 4: pullback in oil prices, I mean, some of the headlines

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Speaker 4: may have briefly lifted market sediment, but they are far

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Speaker 4: far away from enough to justify a lost in decline oil.

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Speaker 4: I mean, on the giubilical side, Donald Trump just suggested

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Speaker 4: the war could end soon, but Iran has hinted that

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Speaker 4: the reciprocal strikes could turn into continual strikes, and it's

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Speaker 4: also taking a very hard line on the reopening of

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Speaker 4: the Strait of Hormis. So at this stage we're really

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Speaker 4: not seeing any clear size or signals of this kind

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Speaker 4: of de escalation, and the geopolitical risk premiums do very

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Speaker 4: much alive. And then let's come to the strategic reserve story.

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Speaker 4: So the IEA members have a grade to release about

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Speaker 4: three hundred to four hundred million barrels, which sounds like

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Speaker 4: a big number, but when you read we run, the

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Speaker 4: mass is actually quite small compared with the potential distruction

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Speaker 4: from hormers. So roughly twenty million burros passed through the

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Speaker 4: strait of hormers every day. So even in a very

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Speaker 4: very coordinated scenario, those reserves would only cover about two

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Speaker 4: to three weeks of supply. And that assumes a perfect release,

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Speaker 4: I mean, which is quite unluckily from my perspective. So yes,

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Speaker 4: reserve releases can ease price pressure for a while, but

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Speaker 4: they can't really fully offset a large supply distruction. That's

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Speaker 4: why we only sort of brief pullbacking oil after the

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Speaker 4: headlines Dylan.

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Speaker 1: As we're speaking, we're also being reminded that trade still

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Speaker 1: remains a major uncertainty for investors in the markets as well.

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Speaker 1: Right to that end, the US Trade Representatives Office has

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Speaker 1: begun a Section three oh one investigation totally three hundred

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Speaker 1: and three oh one probes related to manufacturing sectors in

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Speaker 1: two countries including China, the EU, Singapore, Switzerland, Norway, Indonesia,

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Speaker 1: Malaysia and Cambodia. And Thailand also among them as well.

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Speaker 1: Hearing will be held on May fifth, but they've requested

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Speaker 1: consultations with the economies that are under investigation. This comes

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Speaker 1: as we're looking at a series of new trade probes

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Speaker 1: after of course Donald Trump's so called reciprocal duties were

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Speaker 1: struck down by the US Supreme Court. So this is

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Speaker 1: just another reminder that that tower of war, that the

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Speaker 1: trade uncertainties remain even as we are contending with war

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Speaker 1: and energy crisis as well. So with all of the uncertainties,

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Speaker 1: not to mention the implications on global growth and inflation,

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Speaker 1: are there markets or sectors where you see places that

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Speaker 1: investors could potentially find a respite or a place to

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Speaker 1: hide while all of this is playing out.

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Speaker 4: Yeah, I mean that's a really great question. And first

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Speaker 4: of all, I think, apart from the high will of

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Speaker 4: higher energy sector, I think the tech sector, including the

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Speaker 4: US tech equities, are quite resilient at the moment. I mean,

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Speaker 4: in the first place, people are putting many of their

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Speaker 4: capitals into the Asian tech sectors, including some of their

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Speaker 4: memory ships and the surge name. But at the moment,

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Speaker 4: because US is less reliance on this kind of energy

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Speaker 4: imput and Also, we're seeing great corporate earnings from the

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Speaker 4: previous queue for earning season, so I think we can

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Speaker 4: potentially looking into some of the buy the deep opportunities

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Speaker 4: in US equities. But that's sad. We really need to

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Speaker 4: looking into the potential development in the jeopilical site. If

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Speaker 4: we are seeing a sustained elevated oil price, then the

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Speaker 4: inflationary pressure can come into the US market and that

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Speaker 4: could potentially burden to the bullish sediment.

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Speaker 5: Dylan, does that mean that when it comes through the dollar,

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Speaker 5: some of these uh, you know, tailwinds from the US

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Speaker 5: being an exporter of energy are going to offset the

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Speaker 5: trade risks ultimately.

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Speaker 4: Well, I think that's a fair core. I do have

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Speaker 4: a cautious optimism about the dollars further testing to the upside.

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Speaker 4: I think three key factors are currently supporting the dollar performance.

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Speaker 4: Rising safe haven demand, higher inflation expectations alongside climbing treasure yields,

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Speaker 4: and also the possibility that the US could emerge as

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Speaker 4: an alternative energy supplier. I mean the third reason is

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Speaker 4: perhaps more interesting here. As the world's largest oil and

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Speaker 4: gas producer, the US may actually gain a relative advantage

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Speaker 4: when we're seeing some of the energy facilities in salt,

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Speaker 4: the Qatar or Israel phase disorptions and shipping through the

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Speaker 4: strait of war is becomes somehow constraints. Market are starting

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Speaker 4: to pricing in a new narrative, which is the US

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Speaker 4: could step in as a stronger alternative energy supplier. I

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Speaker 4: think as well as inflation expectations remain elevated and geopolitical

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Speaker 4: tensions posis, the downside for the dollar may remain quite limited.

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Speaker 5: Where does this leave Chinese assets? Did in what's been

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Speaker 5: interesting is China's been seen as a sort of haven

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Speaker 5: amid the war because of its energy reserves. Then we

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Speaker 5: are looking as well towards the end of the month

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Speaker 5: where Trump and Sea are set to meet, you have

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Speaker 5: these tariff developments. China is not part of. Chinese is

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Speaker 5: part of some of these investigations. What are you seeing

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Speaker 5: in terms of the trajectory for Chinese assets?

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Speaker 4: Well, I think I'm quite bullish on the Chinese asset.

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Speaker 4: Although from the NPC just concluded, Chinese revised down it's

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Speaker 4: twenty six GDB target and it was sad are from

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Speaker 4: a four point five percent to five percent. And you know,

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Speaker 4: some people are concerning about the economic outlook for China.

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Speaker 4: But I think it's basically the government saying we're okay

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Speaker 4: with moderate growth if it gives us more room to

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Speaker 4: push through structural reforms. So market shouldn't you know, to

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Speaker 4: to be overreacted to the headline Nomber. The focus is

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Speaker 4: still on the policy direction and the room it creates

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Speaker 4: for for longer term transformation. So at the moment, I

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Speaker 4: think China is pushing forward to you know, transform from

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Speaker 4: solely rely on export and like the infrastructures two more

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Speaker 4: on the high and tach and this kind of development.

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Speaker 4: So I think I'm quite bullish on China as long

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Speaker 4: as it can find another driven forces to boost their

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Speaker 4: domestic economy and consumption.

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Speaker 2: That is Dylan will Research Strategistic Pepperstone speaking with Bloomberg

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Speaker 2: TV hosts Heidi Stroud Watts and April Hong, bringing you

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Speaker 2: their conversation here on the Daybreak Asia Podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisner, and this is Bloomberg