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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner,

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Speaker 2: and today we begin in the oil markets, where prices

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Speaker 2: are soaring. This escalating tension in the Middle East has

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Speaker 2: prompted the US State Department to reportedly order American workers

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Speaker 2: at the US diplomatic mission in Saudi Arabia to leave.

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Speaker 2: The New York Times reports it's an indication that senior

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Speaker 2: US diplomats are bracing for a possible surge in violence

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Speaker 2: in the war with Iran. Now, major producers like the

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Speaker 2: UAE and Kuwait have reached storage capacity and so as

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Speaker 2: a result, they're now reducing production, joining Iraq, which has

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Speaker 2: already cut output down to about sixty percent. And at

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Speaker 2: the same time, the most important waterway for global energy markets,

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Speaker 2: the Strait of Horn Moves, is essentially closed. Joining US now.

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Speaker 2: As Bloomberg's Paul Dobson, he is executed an editor for

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Speaker 2: Asia Markets. Paul joins from our studios in Singapore. Thank

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Speaker 2: you so much for being here. This surge in oil

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Speaker 2: prices has sparked some heavy selling and Asian equity markets,

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Speaker 2: and the losses are quite dramatic. Aren't they.

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Speaker 3: Well.

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Speaker 4: I think that the situation has definitely become more tense

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Speaker 4: over the weekend as far as market watches are concerned.

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Speaker 4: We have Eran appointing Camini Junior as the new leader,

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Speaker 4: which doesn't suggest any sort of a pivot away from

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Speaker 4: a kind of hardline policy. We have signs of more

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Speaker 4: production getting shut in in the Middle East region because

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Speaker 4: it can't get out of the strait of Hormes as well,

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Speaker 4: and so that's leading to those sort of knee jerk

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Speaker 4: fears of scarcity of oil supplies in some parts of

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Speaker 4: the world, at least blockages in the refinery output, which

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Speaker 4: is also pushing up the likes of jet fuel diesel prices,

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Speaker 4: and the fear that that creates is twofold. On the

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Speaker 4: one hand, the inflationary fear because our higher oil prices

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Speaker 4: will push up costs right the way through the economy,

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Speaker 4: and secondary the fact that that will slow down growth

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Speaker 4: as well. So it's not just inflation but stagflation that

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Speaker 4: people are worried about, especially after the nonfarm payrolls number

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Speaker 4: that we had at the ends of last week, which

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Speaker 4: was deeply negative and troubling, when people had been assuming

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Speaker 4: that the US economy was still holding up relatively well.

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Speaker 2: So last week when we saw that massive sell off

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Speaker 2: in the COSPI, I think at one point we were

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Speaker 2: down twelve percent. A lot of the thinking was that

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Speaker 2: this was the result of forced liquidation because margin calls

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Speaker 2: had gone into effect and rather than pay into those

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Speaker 2: accounts to bring that level of equity up to the

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Speaker 2: required level, you just were forced to liquidate a position.

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Speaker 2: Is that playing out again, do you think today?

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Speaker 4: I'm sure that there will be the risk of that again. Yes.

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Speaker 4: The Korean traders love leverage, they love risk, and they

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Speaker 4: don't stop. They suddenly bought the dip in decent numbers

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Speaker 4: after that set off that we saw last week, and

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Speaker 4: say the fact that there's another down date may again

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Speaker 4: lead to some trader's hitting margin limits and being forced

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Speaker 4: to either put up more collateral or cut their positions.

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Speaker 4: And I think that it's probably the same across Asia

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Speaker 4: today because levels have implied volatility are likely to rise.

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Speaker 4: With the big moves that we're seeing in all markets.

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Speaker 4: That's going to lead to more demands for collateral across

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Speaker 4: the whole investment complex, which will again cause people to

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Speaker 4: seek to liquid ate. Not just the sort of holdings

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Speaker 4: that have done well already, but also the most liquid ones,

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Speaker 4: so that may be adding to the downward momentum on

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Speaker 4: things like bonds, for example.

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Speaker 2: Very difficult to find a haven in today's session. I

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Speaker 2: mean US treasuries, which are normally considered to be a haven,

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Speaker 2: not the case today. To go back to the point

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Speaker 2: that you just made about rising inflation that's being reflected

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Speaker 2: in US bond yields, we have the precious metals that

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Speaker 2: are showing weakness. I think spot gold is down around

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Speaker 2: two and a half percent we speak silver more so.

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Speaker 2: The only thing that seems to be positive at the

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Speaker 2: moment is the dollar. Can you help me make sense

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Speaker 2: of that.

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Speaker 4: The dollar has been performing well as that haven of

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Speaker 4: choice during the term or that we've seen over the

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Speaker 4: last week or ten days, partly because of its deep liquidity,

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Speaker 4: partly because of its relatively high interest rates in the

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Speaker 4: idea that the FED isn't going to be cutting anytime soon,

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Speaker 4: and partly because as a net exporder of both oil

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Speaker 4: and natural gas, the US is not in a completely

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Speaker 4: disfavorable position right now, and relative to the rest of

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Speaker 4: the world, maybe looks a little bit better off in

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Speaker 4: some respects and so people are going to that as

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Speaker 4: a kind of place where they would prefer to have

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Speaker 4: their money right now. Partly, you know, it's that cleanest

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Speaker 4: dirty shirt kind of a thing that we've heard before,

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Speaker 4: where if you look at the rest of the world,

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Speaker 4: do you think, well, you know, where's to write at

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Speaker 4: this moment in time, And so that's where the cash

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Speaker 4: will tend to flow. And it's not, as you said,

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Speaker 4: it's not the government bond market, but it's you know,

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Speaker 4: the money markets where the cash is basically sloshing around

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Speaker 4: are kind of unallocated.

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Speaker 2: Basically, I'm curious as to whether or not anyone is

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Speaker 2: talking about private credit today in the APEC because last

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Speaker 2: Friday here in the US, we had chairs in Blackrock

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Speaker 2: down nearly eight percent after the firm curbed some withdrawals

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Speaker 2: from one of the private credit funds that Blackrock operates.

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Speaker 2: You and I have spoken about this in the past,

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Speaker 2: and I'm wondering whether or not it's even part of

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Speaker 2: the conversation today or whether it's being obscured by everything

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Speaker 2: that's happening in the oil market.

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Speaker 4: It has really come across my radar particularly, But I

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Speaker 4: think that the reasons for that are two For one. Yes,

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Speaker 4: obviously the noise from the rise in crude oil prices

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Speaker 4: is kind of canceling everything else out at the moment.

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Speaker 4: But also in Asia, private credit not quite such a

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Speaker 4: big deal as the rest of the world, and so therefore,

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Speaker 4: you know, as we move into the usday, maybe those

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Speaker 4: concerns come up again as well. But what I will

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Speaker 4: say is it certainly doesn't help the bigger macro picture.

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Speaker 4: When we have that, plus the AI disruption worries that

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Speaker 4: have been weighing on traders minds in recent days and weeks,

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Speaker 4: along with the backdrop of the crisis in the Middle

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Speaker 4: East that we're seeing right now, creates a toxic cocktail

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Speaker 4: for global markets.

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Speaker 2: No doubt about that. And I think one of the

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Speaker 2: key questions at this point that's so far been unanswered

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Speaker 2: is you know, what could the duration of this conflict be?

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Speaker 2: Are people talking about worst case scenarios on calls today

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Speaker 2: that you've maybe have been privy to.

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Speaker 4: I think what we learned over the weekend is Iran

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Speaker 4: seems to be doubling down when you look at the

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Speaker 4: appointment of the leader, when you look at where the

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Speaker 4: missiles have been going. For all that, we heard a

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Speaker 4: bit of an apology, it doesn't seem to have changed anything.

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Speaker 4: The fact that a desalination plant was hit in Bahrain

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Speaker 4: was seen as a negative thing if it means that

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Speaker 4: more civilian infrastructure may be targeted. Israel hit some of

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Speaker 4: Iran's crude oil infrastructure as well. And I think on

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Speaker 4: top of that, you know, we heard from Donald Trump

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Speaker 4: in a tweet saying one hundred dollars a barrel oil

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Speaker 4: for a short period of time is a reasonable price

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Speaker 4: to pay in order to you know, secure the goals

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Speaker 4: that the US has in Iran. So it also doesn't

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Speaker 4: seem like he's immediately panicked by that move. So the idea,

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Speaker 4: you know, the thing that people have in the back

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Speaker 4: of their mind, will the US president at some point

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Speaker 4: retreat having escalated, doesn't really sound like he's backing down

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Speaker 4: right at this moment in time at all. And so

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Speaker 4: that does make people concern that there will be a

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Speaker 4: much longer term war here. So I think that you

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Speaker 4: have that on the on the side of pointing to

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Speaker 4: longer conflict, I think on the flip side of that,

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Speaker 4: you could say, well, if you look at the crude

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Speaker 4: oil curve, it's still in very, very steep backwardation, which

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Speaker 4: means the prices for the back end of this year

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Speaker 4: are still down at about seventy dollars a barrel, suggesting

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Speaker 4: that people feel that once you know that this situation

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Speaker 4: is resolved, the price of oil could fall off again

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Speaker 4: quite rapidly.

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Speaker 2: So President Trump and Chinese President and Chi Jinping are

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Speaker 2: set to meet in the next couple of weeks. Do

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Speaker 2: you have a sense of what this conflict in Iran

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Speaker 2: may do to that meeting?

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Speaker 4: What I will say is that all the noise that

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Speaker 4: we're hearing out of China at least has been very

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Speaker 4: positive still in terms of the setup for this meeting,

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Speaker 4: talk about this being the start of a reset and

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Speaker 4: and a longer term kind of stabilization in relationships. So

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Speaker 4: it doesn't sound like China is going to raise this

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Speaker 4: as a particularly big issue or some reason that would

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Speaker 4: in some way holt those talks stop those talks from

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Speaker 4: taking place. Think that there are some initial meetings planned

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Speaker 4: had come up in the next couple of weeks as

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Speaker 4: well to lay the groundwork for that. So far, actually,

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Speaker 4: the signs there as something of a thoring of a relationship.

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Speaker 4: And I think that if you look at what China's

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Speaker 4: markets have been doing. They've been relatively well insulated actually

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Speaker 4: from what's happened so far in Iran and the oil

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Speaker 4: market and that tension. So the interesting if when you're

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Speaker 4: talking about haven's where the actually China emerges as another

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Speaker 4: place where people have relative confidence compared to some of

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Speaker 4: the more excessive news that we're seeing, for example in

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Speaker 4: career in Japan today.

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Speaker 2: What about the story in India? Last week, we had

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Speaker 2: reporting that indicated that Russia was going to be granted

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Speaker 2: some privileges to be able to sell crude oil to India.

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Speaker 2: Now that had been a line that President Trump had

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Speaker 2: drawn previously, pressuring Indian Prime Minister Modi not to buy

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Speaker 2: any more Russian crude. He seems to have reversed himself,

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Speaker 2: just perhaps temporarily, given the what's going on, the ructionans

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Speaker 2: happening in the oil market. Do we know anything more

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Speaker 2: about what's going on with India?

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Speaker 4: As he said, they were very quick to take advantage

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Speaker 4: of that and to lock in some purchases of the

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Speaker 4: Russian oil which has been floating around on chips not

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Speaker 4: too far away, so they're able to take some deliveries,

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Speaker 4: which is very good news because they need to get

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Speaker 4: those refineries running and to continue to have oil flowing

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Speaker 4: through the economy. I think across Asia there were signed

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Speaker 4: at the weekend of worries in various locations that there

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Speaker 4: may be fuel shortages, so not just the cost being

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Speaker 4: the concern, but actually the availability and so that at

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Speaker 4: least provides a little bit of a relief as far

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Speaker 4: as India is concerned at a quite important time of

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Speaker 4: year for the economy in terms of the crop rotations.

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Speaker 4: So that at least is one crumb of good news,

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Speaker 4: But it also speaks to just how kind of crazy

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Speaker 4: and mixed up this whole situation is right now, right Doug,

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Speaker 4: that you know you have to cut off your nose

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Speaker 4: to spite your face in a way by allowing some

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Speaker 4: step back from pollen see in one conflict in order

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Speaker 4: to see paper over the cracks that have been caused

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Speaker 4: by conflict somewhere else.

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Speaker 2: You're absolutely right about that, Paul, Thank you so very much.

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Speaker 2: Paul Dobson, Executive Editor for Asia Markets, joining from our

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Speaker 2: studios in Singapore here on the Daybreak Asia Podcast. Welcome

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Speaker 2: back to the Daybreak Asia Podcast. I'm Doug Chrisner, and

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Speaker 2: now let's take a closer look at what those higher

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Speaker 2: oil prices mean for economies in the APEC. Chian Wang

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Speaker 2: is the chief Asia Pacific economist at the Vanguard Group,

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Speaker 2: and she spoke to Bloomberg TV host Heidi Stroud Watts

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Speaker 2: and Avril Hong.

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Speaker 5: So, I wonder what is your take first, at one

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Speaker 5: hundred and ten dollars a barrel of oil, which we

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Speaker 5: are now within reach of, what's that going to mean

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Speaker 5: in terms of the scenarios for Asian economies both on

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Speaker 5: growth and inflation?

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Speaker 3: Good morning, Thanks for having me here today. I think,

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Speaker 3: you know, in terms of the macrow impact, I mean,

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Speaker 3: there is no doubt the higher oil price is actually

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Speaker 3: a saculationary shop, you know, to most of the economies.

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Speaker 3: You know, it's negative for economic growth and it's going

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Speaker 3: to lift the inflation higher. But I would say in

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Speaker 3: terms of the actual magnitude of the impact, it also

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Speaker 3: depends on how long the oil price will stay at

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Speaker 3: the current level, right, So that duration of the higher

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Speaker 3: oil prices actually matters as well. We estimate that, you know,

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Speaker 3: for Asian economies in general, because this region is prettily vulnerable,

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Speaker 3: because most of them are you know, like you rely

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Speaker 3: heavily if not entirely on inputed oil and also heavily

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Speaker 3: reliant on the supply from Middle East. We do estimate

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Speaker 3: that every ten percent of increasing oil prices will lead

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Speaker 3: to about to say, you know, ten to twenty base

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Speaker 3: points lower in GDP growth and twenty two forty based

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Speaker 3: point higher in headline inflation. So the had is in

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Speaker 3: there if the higher oil price is going to last.

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Speaker 3: But of course I would say every country is different.

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Speaker 5: On that note, perhaps also worth unpacking. I mean, we

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Speaker 5: know how consumer's fear of inflation can also tend to

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Speaker 5: drive these price pressures. We're hearing in parts of Asia

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Speaker 5: people are lining up at palms. What is that aspect

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Speaker 5: going to mean for the pressures we see in prices.

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Speaker 3: Yeah, I think you know, there's like direct and indirect impact, right,

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Speaker 3: And I think what you're describing is also this kind

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Speaker 3: of inflation expectation, you know that actually can push the

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Speaker 3: prices for the up. But you know, as I mentioned earlier,

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Speaker 3: every country is different, right, because I think on one,

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Speaker 3: it really depends on whether the country has strategic reserves

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Speaker 3: that can help to stabilize the domestic price. And two,

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Speaker 3: I think it also depends on the government whether they're

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Speaker 3: going to intervene, right, either through subsidy has cut or

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Speaker 3: you know, there's different kinds of pricing mechanism in different

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Speaker 3: economies that is going to limit the pass root from

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Speaker 3: crude oil prices to retail prices. And I think for

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Speaker 3: Asia the good news actually is that most of the

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Speaker 3: economy actually at this moment experience low inflation, right and

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Speaker 3: domestic demand is pretty weak. So on that front, I

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Speaker 3: think when central bank are looking at that, I don't think,

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Speaker 3: you know, high inflation is going to be their primary

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Speaker 3: concern this moment, So to that extent, I don't think

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Speaker 3: they are going to react to the higher inflation by

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Speaker 3: you know, aggressive tightening the money gary policy.

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Speaker 1: So to that point, do you think that it will

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Speaker 1: be some time before we see a reaction from central

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Speaker 1: banks in terms of how they tweak policy settings.

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Speaker 3: Well, I think, let's put this way, regardless of what

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Speaker 3: they plan to do, right, either they plan to hide

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Speaker 3: or cut, I think at this moment, you know, all

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Speaker 3: central banks are going to be more cautious with any

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Speaker 3: move in the near term because of the heightened uncertainty,

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Speaker 3: right gio political uncertainty, higher oil prices. I mean, obviously

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Speaker 3: stacuflation is show always going to put central bank in

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Speaker 3: a very difficult situation. But you know, given the uncertainty

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Speaker 3: at this moment, I think their best strategy is just

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Speaker 3: the wait a little bit, right, you know, wait for

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Speaker 3: the dust to settle. So I think you do see

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Speaker 3: last week, for example, you know, central bank in Malaysia

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Speaker 3: they actually turned you know, Modovis and then you know,

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Speaker 3: like Singapore, right, we think they are actually the more

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Speaker 3: hokish one in this region. I don't think they are

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Speaker 3: in the rush to titan. Central banking India and No

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Speaker 3: Korean probably will stay on an extended pause. UH and

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Speaker 3: central banking in Thailand and Philippines they plan to cut.

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Speaker 3: You know, we expect them to cut, but we also

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Speaker 3: think they probably also will take a little time to

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Speaker 3: observe what's going on before they you know, start the

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Speaker 3: next cut.

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Speaker 1: When it comes to the PBOC settings and the Chinese government,

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Speaker 1: we know that China has large exposure to Middle East energy,

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Speaker 1: but are there also strategies and buffers in place there

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Speaker 1: because we also know that they have pretty significant reserves.

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Speaker 3: Yes, I think you know, for China, we actually estimated

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Speaker 3: the impact you know on economic growths will be rather limited, right,

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Speaker 3: you know, we only estimate about like five base points

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Speaker 3: lower growth for every you know, ten percent of oil

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Speaker 3: price increase. I think part of that is because China, one,

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Speaker 3: as you mentioned, you know, a strategy reserve they have

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Speaker 3: been building over the past several years. And two, I

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Speaker 3: think China really diversify the you know, uh imports market

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Speaker 3: for oil. Right so when we talk about Middle East,

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Speaker 3: it's about forty percent of China's total you know, imported oil.

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Speaker 3: And the other thing is that in recent years, I

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Speaker 3: think China also you know, was moving very resent with

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Speaker 3: the green trans green transition, right, so those green energy

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Speaker 3: actually is now accounting for twenty percent of China's energy

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Speaker 3: consumption compares to you know, fifteen percent in twenty ninety.

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Speaker 3: So I think all of that actually helped to alleviate

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Speaker 3: some of the impact from higher oil prices. And I

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Speaker 3: also you know, would expect that yes, physcal policy will

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Speaker 3: actually you know, be ready right to limit and you

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Speaker 3: know the impact on oil price, crude oil prices, the

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Speaker 3: impact on households.

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Speaker 5: Aside from that energy security angle, talk to us also

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Speaker 5: about the trade angle, given how the streets traffics pretty

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Speaker 5: much hold Asia's economies, many of them are you know,

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Speaker 5: reliant on exports realized.

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Speaker 3: Yes. I think you know, at this moment, you know,

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Speaker 3: this kind of global supply shock, right is going to

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Speaker 3: a big you know, disruption to the potentially to the

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Speaker 3: global supply chain. Right. So what does that mean, you

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Speaker 3: know for the global trade further down the road, I

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Speaker 3: think remains you know, something that we need to watch

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Speaker 3: very closely. I think the whole at this moment for

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Speaker 3: a lot of people is that this conflict could be

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Speaker 3: rather short lived, may not last more than a few weeks.

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Speaker 3: Right then, in this case, I think the disruption to

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Speaker 3: the global economy global trade will be rather limited. But

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Speaker 3: I think if the conflicts and also you know, what

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Speaker 3: happens to the trait of hormus that actually sustained you know,

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Speaker 3: more than just a few weeks, then I think that

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Speaker 3: the disruption to global economy and trade could be quite significant.

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Speaker 2: That's Chian Wang, chief Asia Pacific economist at the Vanguard Group,

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Speaker 2: speaking to Bloomberg TV host Heidi Stroud wattson April Hong,

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Speaker 2: bringing you their conversation here on the Daybreak Asia podcast.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg