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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 Dog Christner. Crude

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Speaker 2: oil prices are rallying at this hour after the US

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Speaker 2: launched more strikes against Iran at five pm Eastern Time

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Speaker 2: Sunday evening. Now. The aim, according to US officials, was

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Speaker 2: to degrade Iran's ability to attack ships in the Straight

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Speaker 2: of horm moves. Now, there have been conflicting declarations over

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Speaker 2: whether the strait remains open to shipping. Here is Bloomberg's

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Speaker 2: John Herskowitz.

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Speaker 3: We have Iran saying that they've shut the straight, the

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Speaker 3: usaying that the strait is open. But the basics really

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Speaker 3: haven't changed. Iran wants shipping to go near its coast.

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Speaker 3: It doesn't like to see shipping going near Oman, which

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Speaker 3: sometimes gets the assistance of the US. So for Iran,

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Speaker 3: the long term considerations keeping control of Hormuz, keep shipping

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Speaker 3: close to itself. It can better, it has better access

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Speaker 3: to it. When it gets closer to a mine, it's

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Speaker 3: more difficult for it to do so. That hasn't changed.

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Speaker 2: That is Bloomberg's John Herskowitz. There will be a lot

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Speaker 2: for markets to consider in the week ahead. Among the

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Speaker 2: highlights the report on US consumer prices and two days

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Speaker 2: of congressional testimony from Fed share Kevin Walsh. Earlier, Bloomberg

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Speaker 2: cherry On spoke about the week ahead with Fred Newman.

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Speaker 2: He is the chief Asia economist at HSBC.

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Speaker 4: Look, we're probably going to get inflation numbers this week

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Speaker 4: out of the US that show a bit of a

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Speaker 4: pullback in inflation. Was gas prices were down, But of

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Speaker 4: course it's a bit of a yesterday's story because oil

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Speaker 4: has started to track up again. If that sustained, then

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Speaker 4: that means maybe the June CPI dip is just that,

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Speaker 4: just to dip, and so we might see price pressures

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Speaker 4: come back. But really watching mister Walsh, what mister Walsh

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Speaker 4: has to say in front of Congress this week, because

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Speaker 4: he might give away a little bit of how worried

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Speaker 4: he really is about underlying inflation, because it's not just

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Speaker 4: a gas price. This is about core services have started

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Speaker 4: to increase, and that's maybe a more persistent price pressure

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Speaker 4: coming through in the US.

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Speaker 1: So we've heard a little bit from him, We're expecting

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Speaker 1: to hear more from him in Congress. What are some

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Speaker 1: of the signals that we're getting from him, especially at

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Speaker 1: a time where we may not be getting a lot

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Speaker 1: of signals from this FED at least.

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Speaker 4: Well, yeah, he said he wants to reduce the signal

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Speaker 4: or the noise at least, So yeah, we have less

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Speaker 4: to go on preps with this FED chair than with

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Speaker 4: previous FED chairs potentially. But remember when he came in

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Speaker 4: the first meeting, he came out with the press confidence

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Speaker 4: said look, I'm really going to focus on inflation, and

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Speaker 4: the market took this as being hawkish, and so now

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Speaker 4: we have another opportunity to get a bit more nuance

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Speaker 4: and how he thinks about monetary policy, but not just

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Speaker 4: monetary policy, even financial stability issues, which remember we have

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Speaker 4: a very frothy kind of acid environment in the US,

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Speaker 4: and is the FED starting to be concerned about accid

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Speaker 4: valuations for example. That plays into the conversation as well as.

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Speaker 1: What are you seeing in terms of what the systemic

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Speaker 1: risk could be from the financial sector, because now perhaps

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Speaker 1: we're seeing this text sell off sell sort of deep

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Speaker 1: buying it. There's a lot of momentum and volatility right now.

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Speaker 4: There's a lot of volatility, of course, and that's always

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Speaker 4: a bit worrying because you think, but while invest is

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Speaker 4: reassessing things fundamentally. The big question though from financial stability

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Speaker 4: perspective is how much leverage is there? And there are

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Speaker 4: signs I think that leverage is coming back in if

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Speaker 4: we look at how much boring that goes into the

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Speaker 4: AI hardware sector, for example, the hyperscaler is starting to borrow.

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Speaker 4: Is there private credit element that's feeding into this, So

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Speaker 4: we could see potentially the FED starting to say, well,

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Speaker 4: look guys at the margin. You know, we're starting to

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Speaker 4: see an increase in leverage. We need to monitor this.

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Speaker 4: And that's why these remarks as will be interesting.

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Speaker 1: A lot of the hardware, of course, is coming from

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Speaker 1: Northeast Asia. Right now, let's talk a little bit about

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Speaker 1: Japan because a lot of people like the Japanese markets play,

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Speaker 1: especially equities that perhaps are broader than South Korea. Let's

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Speaker 1: not get into the market so far with an economist,

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Speaker 1: but when it comes to the Japanese economy, what is

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Speaker 1: happening right now? Because we're seeing this big upside in

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Speaker 1: investor sentiment positivity, and yet the yen continues to weaken.

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Speaker 4: Yeah, the end is weaker, and that you know, has

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Speaker 4: something to do with high energy price that has to

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Speaker 4: do with the fact that interest rates here possibly a

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Speaker 4: little bit too low relative toward the economy.

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Speaker 1: You think the bog is behind the curve a little bit.

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Speaker 4: Yeah, they just hiked interest rates, of course, and they

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Speaker 4: probably have to nudge rates higher as well. But look,

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Speaker 4: the economy is actually doing quite well, and prices are

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Speaker 4: going up, and we know consumers are telling us they're

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Speaker 4: worried about inflation, and even businesses are worried about inflation,

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Speaker 4: and so all of that suggests rising as the prices

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Speaker 4: not just equity but real estate as well. Economy is

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Speaker 4: doing well. Inflation that's slightly you know, underlying inflation which

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Speaker 4: is quite high. Well, that's the environment for the central

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Speaker 4: bank to raise rates, and until they do, the end

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Speaker 4: will stay under pressure.

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Speaker 1: A lot of debate right now whether or not that

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Speaker 1: is political, with the Takaish administration really wanting to see

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Speaker 1: a looser policy. But finally we're getting some indications that

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Speaker 1: perhaps the government are not necessarily going to target the

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Speaker 1: weakness into the end just through intervention finance. Minster Katayama

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Speaker 1: talking about pension funds should invest or just investment funds

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Speaker 1: should invest in Japan? Will that have implications for the

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Speaker 1: global debt markets? For all of those assets that are

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Speaker 1: outside of the country. This repatriation trade that a lot

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Speaker 1: of people have feared.

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Speaker 4: That's right, the repatriation trade. At some point it will

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Speaker 4: come and it will be a big story in global

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Speaker 4: markets because Japanese have been lenders to the world, have

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Speaker 4: kept interest rates low, and if they bring money back,

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Speaker 4: that means high interest rates elsewhere and money will just

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Speaker 4: come back and strengthen again. But when will this happen

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Speaker 4: is a big question. Just announcing the pension fund will

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Speaker 4: do that might not be enough to trigger that. We

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Speaker 4: the private sectors start to move funds, and they're probably

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Speaker 4: only do that when interest rates are higher. They're still

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Speaker 4: waiting for higher returns on money. So not just yet,

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Speaker 4: not just yet for that big repetuation.

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Speaker 1: Well, we might get higher interest rates in South Korea.

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Speaker 4: This week does makes sense, yeah, because we are seeing

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Speaker 4: some economy is doing quite well, so Japan's hiking interest rates.

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Speaker 4: We just saw the RB and Z in New Zealand

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Speaker 4: raise interest rates and be okay. This week is clearly

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Speaker 4: on the docket as well. Why because the entire economy

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Speaker 4: is being lifted up by the AI hardware boom. Semiconductor

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Speaker 4: prices are up exports are shooting up, and then you

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Speaker 4: get this big fiscal windfall which at some point that

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Speaker 4: will turn around and spend as well, and so and

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Speaker 4: you get high equity prices. So that is all a recipe.

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Speaker 1: For ultimately one.

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Speaker 4: Well, that is very technical because of course, if equity

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Speaker 4: prices rise and foreigners have to sell because they have

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Speaker 4: too much, well, they have too much of equity hold

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Speaker 4: too much of equity prices rise, the need to sell them,

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Speaker 4: and so that depresses the end the Korean one. Fundamentally,

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Speaker 4: it's a currency that should be appreciating if you look

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Speaker 4: just at the trade or plus and so forth. But

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Speaker 4: of course the dynamics are on equity flows. It's so

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Speaker 4: distorative right now that it's very hard to call the end,

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Speaker 4: to call it Korean one in the near future.

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Speaker 1: Risk is a situation that so much depends in that

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Speaker 1: economy on the semiconductor trade right now.

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Speaker 4: A lot of it it is semiconductors. And it's not

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Speaker 4: just that the exports are going up, but it's also

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Speaker 4: that the equity market is going up because of that,

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Speaker 4: and that provides wealth to the economy as a wealth effect.

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Speaker 4: But it's also important fiscally because the tax revenues from

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Speaker 4: the surging and semiconduct sales is huge.

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Speaker 1: Can they build a buffer enough though, if you see

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Speaker 1: this boom and bus cycle that we've seen before in

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Speaker 1: the semiconductor world, that that could actually help in the future.

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Speaker 4: Ideally, Yes, you want to build a buffer. You want

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Speaker 4: to build a buffer. Is there a temptation to spend

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Speaker 4: it as quickly as you can? There always is, that's

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Speaker 4: human nature. But build a buffer. Yes, that would help

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Speaker 4: in times when it's less sunshiny and more rainy.

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Speaker 2: That was Fred Newman, Chief Asia Economist at HSBC, speaking

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Speaker 2: with Bloomberg sherry On here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 2: In the US, last Friday, markets seemed to look through

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Speaker 2: geopolitics and toward corporate earnings. This Tuesday, we'll hear from

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Speaker 2: five of the big US banks, Bank of America, JP, Morgan, Wells, Fargo, Goldman, Sachs,

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Speaker 2: and City all on the same day, and then later

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Speaker 2: in the week we'll hear from ASML and TSMC. And Thursday,

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Speaker 2: the numbers from Netflix US listed chairs and sk Heinez

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Speaker 2: debuted last Friday with a gain of more than twelve percent. However,

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Speaker 2: today in Seoul shares are down as much as seven

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Speaker 2: point two percent. We got the view on markets from

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Speaker 2: Bloomberg strategist Mark Cranfield. He spoke with Bloomberg TV host

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Speaker 2: Averril Honk and their conversation started with a question from

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Speaker 2: April on the market's reaction to these fresh attacks in

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Speaker 2: the war between the US and Iran.

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Speaker 5: Is very big for this inflation. You can see it

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Speaker 5: in the reaction of the treasury futures and the way

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Speaker 5: that treasury yields have been gradually climbing over the past

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Speaker 5: few weeks. Is that bond markets especially seem to be

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Speaker 5: the most sensitive to the changes in the oil prices.

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Speaker 5: Plus they're almost taking on the life of their own

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Speaker 5: because they are expecting the Federal Reserve to raise interest

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Speaker 5: rates before the end of the year. So you've got

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Speaker 5: a couple of themes running there. And of course the

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Speaker 5: flip side is the US dollar. It's getting stronger as

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Speaker 5: well as now. The good morning so far for the currency.

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Speaker 5: So in terms of the oil prices, as was being mentioned,

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Speaker 5: the oil futures print in particular around the eighty dollars

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Speaker 5: mark that seems to be the threshold at which the

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Speaker 5: markets will really take notice. It's failed a couple of

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Speaker 5: times in recent weeks. It's gone up there, come back

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Speaker 5: down again. Where a couple of dollars away this morning,

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Speaker 5: So it really depends on and if you look at

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Speaker 5: positioning in the market, it's relatively light at the moment,

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Speaker 5: so push through that eighty dollars line if we get

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Speaker 5: continued attacks here and uncertainty about where the whole moves

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Speaker 5: is going. So that's really what all asset markets will

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Speaker 5: be watching that very closely. If we get a close

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Speaker 5: this week above eighty dollars, it could be very negative

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Speaker 5: right across the board for markets.

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Speaker 6: So that could also affect the memory trait even after

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Speaker 6: sq Heinex's dem.

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Speaker 5: Well, the interesting thing there, if you think back to March,

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Speaker 5: when the US around war first started, tech was seen

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Speaker 5: as being almost as like a hedge against what's going

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Speaker 5: on in the rest of the asset world because people

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Speaker 5: are seeing that slightly higher interest rates, slightly higher oil

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Speaker 5: is not that material to what's happening in terms of

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Speaker 5: earnings for the tech picture, that the AI story is

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Speaker 5: somehow removed from that. So again, the Heinex could be

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Speaker 5: coming at just the right time. From that point of view,

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Speaker 5: they're listing their or a dr there's renewed interest in

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Speaker 5: tech stocks in Asia and the memory story building these

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Speaker 5: storage facilities. That's all coming back at the time where

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Speaker 5: maybe we're going to see disconnect in other asset classes,

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Speaker 5: but people reverting back to the stories which they enjoyed

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Speaker 5: so much in the March April period, and they may

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Speaker 5: well end up being a good thing for Enix.

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Speaker 6: What about this week when we're watching for what Kevin

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Speaker 6: wash says on the Hill. I mean, there's been so

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Speaker 6: much repricing going on around the comments he's given as well.

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Speaker 5: He's trying not to give things away. We know very

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Speaker 5: well that he doesn't like forward guidance. He's going to

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Speaker 5: have trouble keeping to that path. The Senate is usually

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Speaker 5: pretty diligent. They want the answers to their questions and

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Speaker 5: they will be badgering him. Where do you see inflation going?

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Speaker 5: How long until you raise interest rates? All of those

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Speaker 5: things will be thrown at him and he will probably

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Speaker 5: find it pretty tough not to answer those questions. So

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Speaker 5: we are likely to understand a lot more about his

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Speaker 5: thinking this week than we have previously. So yes, a

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Speaker 5: very very important session in terms of US markets, particularly

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Speaker 5: for people that expect a Federal Reserve interest rate hike

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Speaker 5: this year. We may well get more details about when

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Speaker 5: the timing could be for such a move.

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Speaker 6: So what does this mean for the yen? On Friday,

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Speaker 6: we did see a bit of a rally of mini

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Speaker 6: one right following Kadayama's comments.

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Speaker 5: It really tells you how significant this whole story around

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Speaker 5: the pension funds in Japan is. It's almost their last

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Speaker 5: roll of the dice if they actually are serious about

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Speaker 5: wanting to change the direction of the yen. It's clear

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Speaker 5: Bank of Japan policy is not helping them. All the

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Speaker 5: times that they intervene with various comments about the being weak,

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Speaker 5: that's not helping either. But if they can persuade the

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Speaker 5: Japanese the major pension fund to change its assets coming

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Speaker 5: back to Japan, that would in turn probably trigger similar

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Speaker 5: moves in other pension funds. We're talking about a couple

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Speaker 5: of trillion dollars worth of assets which are held outside Japan.

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Speaker 5: If we start to see that flow back into the

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Speaker 5: country on a regular basis, you have a sustained buying

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Speaker 5: of yen FX traders who so far being fairly immune

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Speaker 5: to it. They will stand up and notice when you

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Speaker 5: tell them there's a consistent bid for the currency from

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Speaker 5: a major source, that will start to change their behavior.

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Speaker 5: It shows just how important that is. Without it, the

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Speaker 5: yendsday's a very weak currency.

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Speaker 2: That's Bloomberg strategist Mark Cranfield speaking earlier with Bloomberg TV

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Speaker 2: host Avril Hong, bringing you their conversation here on the

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Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of

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Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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Speaker 2: at the story shaping markets, finance, and geopolitics in the

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Speaker 2: Asia Pacific. You can find us on Apple, Spotify, the

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Speaker 2: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

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Speaker 2: us again tomorrow for insight on the market moves from

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Speaker 2: Hong Kong to Singapore and Australia. I'm Doug Chrisner, and

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Speaker 2: this is Bloomberg