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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 Doug Krisner. Crude

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Speaker 2: oil prices are plummeting after the US and Iran extended

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Speaker 2: a pause in their war. Axios was reporting earlier the

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Speaker 2: top US military commander in the Middle East. This is

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Speaker 2: Admiral Brad Cooper. He recommended stopping the bombing campaign around

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Speaker 2: the Strait of Hormuz because it's reached the limit of

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Speaker 2: its effectiveness. And at the same time, The New York

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Speaker 2: Times reports President Trump's advisors are concerned about shrinking inventory

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Speaker 2: of Patriot interceptors and other air defenses, although today in

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Speaker 2: an interview with The Wall Street Journal, President Trump did

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Speaker 2: push back on that notion. Over the weekend, incidentally, the

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Speaker 2: Islamic Republic signaled it was refraining from any retaliatory attacks.

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Speaker 2: Certainly will be a busy week for interest rate decisions

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Speaker 2: from a few of the key central banks in the world.

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Speaker 2: It will begin on Wednesday with the FED. No change

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Speaker 2: in policy is expected, even though the FED is confronting

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Speaker 2: a resurgence in price pressures.

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Speaker 3: Well.

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Speaker 2: Also here this week from the Bank of Japan and

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Speaker 2: the Bank of England, and for a closer look, we

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Speaker 2: caught up with Diana Mussina. Diana is deputy chief economist

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Speaker 2: at AMP and she spoke with Bloomberg TV host Heidi

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Speaker 2: Stroud Watts.

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Speaker 1: Of course, the issue that pertains to the FED, but

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Speaker 1: also pertains to broader central banks globally. This question as

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Speaker 1: to whether you know depending on what happens with the

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Speaker 1: war we see oil price is now down again for

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Speaker 1: the last session or so, is it likely that this

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Speaker 1: inflation proves to be I guess transitory or does the

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Speaker 1: FED need to guard against potential stickiness here.

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Speaker 4: Morning, Heidi.

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Speaker 3: Look, I think for now the Fed can stand on hold,

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Speaker 3: and it seems to be quite comfortable with interest rates

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Speaker 3: where they are at the moment. I mean, there is

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Speaker 3: a bit of a range in what Fed participants expect

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Speaker 3: will happen to interest rates, and even the market pricing

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Speaker 3: for the.

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Speaker 4: FED is a little bit up and down.

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Speaker 3: On the one hand, you've got pretty good labor market

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Speaker 3: outcomes at the moment, which suggests potentially upside inflationary pressures.

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Speaker 3: But then on the other hand, that labor market data

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Speaker 3: has also been a bit mixed. In the past six months,

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Speaker 3: We've had some periods where it's been a little bit

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Speaker 3: a week, so I don't really think that the FED

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Speaker 3: is in a.

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Speaker 4: Rush to raise interest rates.

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Speaker 3: Inflation is certainly not out of control, particularly when we

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Speaker 3: look at the Fed's preferred inflation indicator, which is the

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Speaker 3: personal consumption deflator, which has been running at a bit

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Speaker 3: of a softer rate compared to the headline consumer.

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Speaker 4: Price index data. So I think for.

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Speaker 3: Now the FEDS looks like it's pretty comfortably on hold.

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Speaker 3: Potentially a rate rise later this year, though, if oil

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Speaker 3: prices continue to rise, and if the US economy continues

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Speaker 3: to track as strong as it has been in the

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Speaker 3: past two or three months.

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Speaker 1: We have heard some voices of descent, So then I guess,

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Speaker 1: given the more recent backdrop and the resurgence in oil prices,

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Speaker 1: are we leaning more towards hawkish commentary at least?

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Speaker 4: Yeah, I'd probably say that that's my bias right now.

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Speaker 3: We've also seen more years around additional tariffs that the

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Speaker 3: Trump administration wants to impose, moving away from the tariffs

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Speaker 3: which expired last week to new measures, plus potentially even

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Speaker 3: additional rates that are added on. It's really hard to

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Speaker 3: actually keep on top of all the different tariffs announcements

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Speaker 3: that are out there and all the carve outs that

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Speaker 3: are being discussed for different industries as well. So the

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Speaker 3: risks to inflation is certainly to the upside. Definitely don't

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Speaker 3: want to downplay that. But at the same time, I

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Speaker 3: think the FED is sort of trying to finally balance

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Speaker 3: US growth not slowing too much if they do raise rates,

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Speaker 3: because it's highly like US economic growth is incredibly strong.

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Speaker 3: Productivity is definitely solid, but other parts of the economy

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Speaker 3: are a little bit more mixed, and consumers spending could

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Speaker 3: take a hit as well from higher gasoline prices down

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Speaker 3: the track, so they would want to balance that quite Finally,

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Speaker 3: I'd say.

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Speaker 1: There's a growing number of hawkish Bake of Japan yeh

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Speaker 1: wages as well. Right given how much pressure we're seeing

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Speaker 1: on the end, there's a growing cluster of voices that

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Speaker 1: say that Governor Wader should be doing something dramatic.

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Speaker 4: Do you think that's likely?

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Speaker 1: And I suppose the extension of that question is are

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Speaker 1: they missing an opportunity here for shock and or.

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Speaker 3: Yeah, it's some difficult for the Bank of Japan.

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Speaker 4: I mean, I think that they really want to see

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Speaker 4: that there's more.

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Speaker 3: Sustainable increases to wages growth which they haven't really had.

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Speaker 3: We've definitely seen a bit of a pickup in wage outcomes,

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Speaker 3: but given that there's been years and decades really of

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Speaker 3: persistent low wages growth, I think that they just want

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Speaker 3: a bit more evidence that actually wages are going to

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Speaker 3: be sustainably higher over the next year. And again, inflation

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Speaker 3: is not particularly high in Japan that it concerns the.

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Speaker 4: Bank of Japan.

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Speaker 3: It's definitely increased, but it's not at levels where they

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Speaker 3: need to act quickly. Plus they've already raised interest rates,

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Speaker 3: so I think the Bank of Japan is likely to

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Speaker 3: be on hold for the next few months until we

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Speaker 3: get more signs that inflation and wages is breaking out higher.

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Speaker 1: When it comes to Australia, there's no central banking decision,

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Speaker 1: but we do get a key inflation data for June.

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Speaker 1: What are your expectations there, particularly given the broader economic

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Speaker 1: backshop isn't looking that great at the moment, and certainly

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Speaker 1: the property market continues to decline.

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Speaker 3: It's putting the Reserve Bank in a difficult position because

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Speaker 3: GDP growth is soft in Australia, it's likely to weaken

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Speaker 3: over the next few quarters, but inflation is still too high.

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Speaker 4: And that's a big problem.

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Speaker 3: I think deserve banks going to raise rates again, and

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Speaker 3: with this week's inflation data, I mean this is critical.

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Speaker 3: The key measure that you need to look at is

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Speaker 3: the trimmed Demean Indicator, which is the core measure of

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Speaker 3: inflation in Australia.

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Speaker 4: We think it's going to rise yo point nine percent

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Speaker 4: over the quarter.

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Speaker 3: I mean, that's pretty high when you annualize that, it's

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Speaker 3: like three point six percent. But year on year, we

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Speaker 3: think the trim means going to be at three point

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Speaker 3: eight percent, So that's way above the two and a

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Speaker 3: half percent that the Reserve Bank is targeting. And that

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Speaker 3: ultimately is what's driving out of you that we need

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Speaker 3: to see another rate rise from the Reserve Bank, and

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Speaker 3: we think that we're going to get one in August

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Speaker 3: and then a follow up again in November. Despite the

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Speaker 3: fact that we do have low GDP growth right now,

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Speaker 3: it hasn't stopped the.

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Speaker 4: Fact that inflation is too high.

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Speaker 3: So we think that more rate rises are unfortunately needed,

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Speaker 3: otherwise we could see a problem where inflation continues to get.

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Speaker 4: Out of hand.

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Speaker 1: Just to finish off with the BOE is perhaps not

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Speaker 1: time to go yet. But are we expecting a hawkish

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Speaker 1: hole there as well.

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Speaker 3: Well, it's been good to see the inflation data soften

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Speaker 3: a bit in the UK. I think that there's just

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Speaker 3: so many political challenges right now that the bay Away

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Speaker 3: probably just wants to stand pat.

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Speaker 4: There is no real needs to raise rates again.

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Speaker 3: In the NISM give that inflation has come down, but

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Speaker 3: certainly there is that risk, so hawkish hold, I think,

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Speaker 3: as you said, is probably the most likely outcome.

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Speaker 2: That was Diana Mussina, Deputy Chief Economist at AMP, speaking

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Speaker 2: with Bloomberg TV host Heidi Stroud Watts, bringing you their

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Speaker 2: conversation here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm Deuk Krisner. In China, the

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Speaker 2: excitement over the IPO in memory chip maker CXMT is

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Speaker 2: setting outsized expectations. This company is formerly known as Chunkshin

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Speaker 2: Memory Technologies Corp. And it's set to become the biggest

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Speaker 2: China listed firm on its very first day of trading

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Speaker 2: after raising some nine point eight billion dollars. That's where

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Speaker 2: we begin our conversation with Ralph bulk Rolf is head

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Speaker 2: of Semiconductors and Infrastructure at Future Equities. He spoke with

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Speaker 2: Bloomberg TV host Heidi Stroud.

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Speaker 1: Watts tell us about the implications, and I guess the

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Speaker 1: pressure for this debut to be a success given how

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Speaker 1: much it could potentially momentum for other listings in this space.

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Speaker 5: Yes, Aid, thank you for having me. Well, you know,

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Speaker 5: CXMP is really listing at a very opportunistic moment. The

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Speaker 5: AI cycle is booming, and memory is key in this

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Speaker 5: Prices for memory chips are up several folds over the

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Speaker 5: last year, and for CXMT, which does not directly play

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Speaker 5: into the sector. Most of the chips go into smartphones, PCs,

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Speaker 5: consumer goods, but they benefit from this from this increase

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Speaker 5: in pricing, and that has allowed them to grow their

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Speaker 5: revenues more than seven hundred percent year on year. You know,

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Speaker 5: they're on track to do sixteen billion of revenue in

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Speaker 5: the first half of this year, potentially up to fifty

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Speaker 5: billion in the second half or in the full twenty

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Speaker 5: twenty sixth year. And that context, an IPO with evaluation

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Speaker 5: of around eighty six billion is not that expensive, right,

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Speaker 5: So it is a very attractive moment and I would

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Speaker 5: expect that the IPO will be will be well received.

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Speaker 1: You've also made the important point of how much local

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Speaker 1: governments have been early backers and even posts up here.

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Speaker 1: They're going to hold what around thirty percent post listing

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Speaker 1: stake in CXMT. This in addition to the fact that

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Speaker 1: we've seen obviously the national team come in and support

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Speaker 1: some of the companies in this space in the broader

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Speaker 1: public markets, this is really going to kind of give

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Speaker 1: that flaw, right, because it'll be very hard for companies

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Speaker 1: like this to fail with that element of official backing.

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Speaker 5: Yes, it's absolutely an element of CXMT strategy. This is

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Speaker 5: a national champion and CXMT, while they might not be

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Speaker 5: on the entity list, they are still severely constrained in

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Speaker 5: the tools that they can procure from Western and quip

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Speaker 5: making companies like Applied Materials, LAMB Research, and Tokyo Electron

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Speaker 5: And as such, CXMT is very much relying on China

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Speaker 5: building out its domestic semiconductor value chain, including all of

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Speaker 5: the tools that are required to manufacture those DRAM chips.

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Speaker 5: So the art pivotal in this ecosystem, but also heavily

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Speaker 5: reliant on it.

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Speaker 1: It's interesting you talk about the constraints right because we're

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Speaker 1: also following the reporting about deep sik suspending the second

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Speaker 1: fundraising round. There are some controversy and frustration from its

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Speaker 1: founder about these online reports about comments that he made

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Speaker 1: about where China sits in AI competition versus the uars.

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Speaker 1: You talk about the self sufficiency drive, How far along

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Speaker 1: do you think is China realistically?

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Speaker 5: Well, they are making great strides China in some categories,

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Speaker 5: for instance, in model developments you name deep Zeek, Moonshot AI,

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Speaker 5: those companies are doing very well. However, at the end

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Speaker 5: of the day, this entire AI buildout depends on the

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Speaker 5: infrastructure that is put in the grounds, in the actual

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Speaker 5: data centers, and in the fab set that manufactured the

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Speaker 5: chips that go into those data centers, and there China

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Speaker 5: is making is making very good headway in some areas

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Speaker 5: like edge and deposition, which are two types of techniques

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Speaker 5: that you need to manufacture chips when and others like lithography,

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Speaker 5: they are still they are still nowhere to be found,

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Speaker 5: frankly and heavily reliant on imports from ASML, which is

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Speaker 5: a Dutch company. And this is really a key area

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Speaker 5: in which China continues to be dependent on Western sources

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Speaker 5: with very little alternative and this is something they need

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Speaker 5: to navigate over the coming years, and it's it's an

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Speaker 5: uncertainty that the entire Chinese ecosystem will continue to face.

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Speaker 1: The reliance on Nvidia. The sort of lag when it

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Speaker 1: comes to technological sophistication is at the core of these

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Speaker 1: comments that have been attributed to the deep seek founder.

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Speaker 5: Right.

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Speaker 1: We haven't managed to have them independently verified at this

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Speaker 1: point of course, But do you think this kind of

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Speaker 1: commentary makes it difficult for a company like deep seak

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Speaker 1: or particularly when we know that the state is such

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Speaker 1: a heavy involvement when it comes to supporting and building

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Speaker 1: out these broader AI ambitions.

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Speaker 5: It is a real challenge. Yes. Absolutely. At the end

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Speaker 5: of today, if your your Western competitors have access to

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Speaker 5: these to these latest chips which which run at a

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Speaker 5: few a few times higher performance, and the alternatives that

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Speaker 5: you as a Chinese company have access to, you're in

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Speaker 5: a very challenging situation. Set. The Chinese domestic market is

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Speaker 5: very large, and that market in its own I think

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Speaker 5: will prove to be a very profitable market for companies

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Speaker 5: such as deep Seek, But in the long term, if

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Speaker 5: they want to compete globally, they will need access to

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Speaker 5: chips that are comparable to in Nvidia, to an AMD

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Speaker 5: and so on. And in order to do that, if

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Speaker 5: they are restricted from buying the chips, they need to

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Speaker 5: manufacture them themselves, and that is where CXMT comes in,

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Speaker 5: and companies such as Smith are also very important.

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Speaker 4: When you talk.

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Speaker 1: About the sector outlook for China, how quickly does that

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Speaker 1: gap close, particularly when it comes to nan versus dram.

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Speaker 5: Yeah, so nand company called YMTC is well advanced in

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Speaker 5: nands and actually I would say that they are not

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Speaker 5: far behind the Samsung, SKHINEX and Micron. They produce chips

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Speaker 5: that are around three hundred layers in height, which is

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Speaker 5: comparable to what western Western incumbents manufacture. Now CXMT, they

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Speaker 5: are still around two to three generations behind. They can

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Speaker 5: still likely manufacture or design one more generation from where

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Speaker 5: they currently stand, but at that point they're run into

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Speaker 5: a bottleneck which is EUV. UV is a type of

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Speaker 5: lithography that you require for the most advanced DRAM chips,

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Speaker 5: and China cannot buy those EUV tools. They are their

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Speaker 5: banned from importing them, and that is a real bottleneck

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Speaker 5: that they need to that they need to navigate in

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Speaker 5: the coming years, and I think it will be challenging.

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Speaker 5: So likely CXMT will continue to lack its global peers.

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Speaker 5: But in a market that is so supply constraints like

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Speaker 5: memory is today, that does not matter that much. They

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Speaker 5: still do seventy percent operating margins. They still grow their

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Speaker 5: revenues a few folds year on year. So it is

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Speaker 5: only when the market dynamic turns, when we exit the

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Speaker 5: supply constraint markets. That's that competitive disadvantage which can become

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Speaker 5: a real issue, but that likely won't happen for not

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Speaker 5: a few years, given the tight memory market that we

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Speaker 5: see today, and that is why I invests this US

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Speaker 5: so excited about this IPO.

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Speaker 2: That was Ralph bulkhead of Semiconductors and Infrastructure at Futureum Equities,

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Speaker 2: speaking with Bloomberg TV host Heidie Stroud Watts, 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 prisoner, and this is Bloomberg