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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. These days,

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Speaker 2: for financial markets, it's really all about crude oil driving

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Speaker 2: the price action In New York. On Thursday, prices jumped

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Speaker 2: after Iran launched a fresh wave of missile and drone

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Speaker 2: strikes across the Gulf. WTI was up eight and a

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Speaker 2: half percent to eighty one dollars. That's the highest level

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Speaker 2: we've seen since January twenty twenty five. Then late in

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Speaker 2: the day, a retreat during the electronics session that came

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Speaker 2: on a report of potential US Treasury action in the

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Speaker 2: oil futures market. Reuter's reported an announcement could come soon,

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Speaker 2: And now we are learning the US will allow some

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Speaker 2: Russian oil sales to India. The Treasury Department is issuing

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Speaker 2: a temporary waiver to Indian refiners, Treasury Secretary Besen saying

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Speaker 2: it will not provide significant financial benefit to the Russian government.

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Speaker 2: And at the same time, the Chinese government has told

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Speaker 2: top refiners to suspend exports of diesel and gasoline. For

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Speaker 2: a closer look at how the oil story is impacting

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Speaker 2: other markets, I'm joined by Winnie Wu Winnie is head

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Speaker 2: of APAC Equity Strategy at Bank of America Global Research.

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Speaker 2: She joins us from Hong Kong. Thank you for being here, Winnie.

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Speaker 2: As you look at what's happening with oil, where do

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Speaker 2: you focus next?

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Speaker 3: Apparently oil energy prices will have a broad impact on

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Speaker 3: global economy and markets, and I think for Asia in particular,

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Speaker 3: many Asias are net oil importers, and their economies and

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Speaker 3: market will be impacted through the disruptions of oil and

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Speaker 3: trade channels. Although what matters will be the magnitude and

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Speaker 3: the duration of the oil shop, which clearly market is

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Speaker 3: watching very closely. For different Asian economies, the impact will diverge.

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Speaker 3: Relatively speaking, You know, China is actually one of the

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Speaker 3: relatively less impacted compared to either markets or economies like

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Speaker 3: Career Japan, because China over the past decades has been

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Speaker 3: trying to diversify its energy sources, developing renewable energies wind, solar, nuclear.

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Speaker 3: China domestically also have a relatively large code supply. Also

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Speaker 3: in terms of oil dependence from the Middle East. Based

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Speaker 3: on our housevield, we show that you know, countries like

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Speaker 3: Japan's over ninety percent oil supply from the Middle East,

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Speaker 3: whereas in China the reliance is probably like more like

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Speaker 3: forty to fifty percent. So clearly, you know energy oil

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Speaker 3: price will lead to broad inflation concerns and that will

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Speaker 3: drag down the Markey performance. But actually in a relative

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Speaker 3: perspective China, which PPI is still in the negative territory,

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Speaker 3: the damage of energy price increase is probably less a

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Speaker 3: concern for China. Also for China market this year, market

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Speaker 3: actually didn't expect or didn't price significant rate cuts, right,

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Speaker 3: so that even if you know, with the higher energy prices,

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Speaker 3: deflation become narrow and turning into some reflation. I think

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Speaker 3: the impact on China's monetary policy will also be relatively limited.

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Speaker 2: So we just had the National People's Congress in China

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Speaker 2: and officials softened the growth target for GDP this year.

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Speaker 2: I think they cut it to a range of between

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Speaker 2: four and a half to five percent, which is the

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Speaker 2: first reduction we have seen since twenty twenty three. Give

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Speaker 2: me your sense on what we can expect in terms

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Speaker 2: of the growth story for China and what may be

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Speaker 2: underneath the hood, so to speak, what may drive this

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Speaker 2: growth story on the mainland.

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Speaker 3: With China's growing base of the overall GDP, it's just

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Speaker 3: harder and harder to maintaining a super high growth rate, right.

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Speaker 3: And also I think, you know, there has been market

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Speaker 3: concerns about what's the marginal cost of driving the growth, Right,

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Speaker 3: is that increasing a lot of the leverage in the

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Speaker 3: corporate sector, in the government, is that that polluting the environment,

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Speaker 3: is building too much over capacity and lead to the

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Speaker 3: capital misallocation. So I actually think, you know, a gradual

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Speaker 3: slowdown is almost inevitable over the long term as the

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Speaker 3: economy becomes bigger and richer. And also that in light

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Speaker 3: of the current environment we're trying to still have these

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Speaker 3: structural challenges of you know, over capacity, inflation, Allowing some

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Speaker 3: level of slowdown is actually healthier. China's bigger problem is

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Speaker 3: not so much about should we drive six percent of

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Speaker 3: five percent GDP growth, but it's really too you know,

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Speaker 3: it's really about bringing the welfare of the people right,

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Speaker 3: the society and addressing its strategic concerns in terms of

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Speaker 3: the issues in you know, reducing overcapacity, addressing the deflationary issue,

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Speaker 3: rebuild consumer confidence, and to some extent, the external issues

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Speaker 3: in terms of mitigating the trade tensions, stabilizing the geopolitical environment,

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Speaker 3: so I actually don't think market should take it nectively.

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Speaker 2: We've heard from President Chichenpin in the past that he

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Speaker 2: has more focused on the quality of growth rather than

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Speaker 2: the quantity, and a lot of the focus coming out

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Speaker 2: of the administration has been on certain advanced technologies. It's

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Speaker 2: very interesting today in the US we learned that the

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Speaker 2: Trump administration is considering the use of US government permits

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Speaker 2: for virtually all exports of AI accelerators. We're being told

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Speaker 2: that these rules are in draft form, and they're not

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Speaker 2: really meant to function as an export band of advanced

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Speaker 2: chips outright. Rather, this regulation would set up the government

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Speaker 2: as kind of a gate keeper for the AI industry globally.

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Speaker 2: And I'm wondering whether or not when you hear that

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Speaker 2: that it represents some sort of threat to the growth

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Speaker 2: of the AI industry in China, or whether China is

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Speaker 2: now making strides on its own that would essentially buffer

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Speaker 2: it from any steps that the US may take to

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Speaker 2: try to control or restrict its advancement in artificial intelligence.

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Speaker 3: You know, to your point about the quality not necessary

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Speaker 3: the quantity of growth, I think that you know it's

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Speaker 3: perfectly aligned to what the government has has been doing,

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Speaker 3: and an important part of the quality is about building

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Speaker 3: up the self reliance, self sufficiency in critical areas like energy,

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Speaker 3: like food like technology and supply chain. So, you know,

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Speaker 3: the concern about technology hurdles, that export bands are not

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Speaker 3: something new, right, It started almost back in twenty eighteen

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Speaker 3: with you know, the first account of administration and in

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Speaker 3: October twenty twenty two when when the you know ban

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Speaker 3: on semiconductors advanced chips were announced and make it more

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Speaker 3: imminent threat. That's one market further deepen the concern about

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Speaker 3: China's growth future that if China can pussess enough access

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Speaker 3: to leading edge technology, equipment, software talent to advance in

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Speaker 3: the age of AI. Right, because semiconductor has been a

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Speaker 3: fairy global industry that no country was able to pull

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Speaker 3: it up on their own. But over the past few years,

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Speaker 3: I think China has demonstrated that it's able to make

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Speaker 3: progress despite all these kinds of trade bands and restrictions.

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Speaker 3: Right from last year's deep seak in terms of large

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Speaker 3: language model to the continued advancement in humanoid robot autonomous driving,

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Speaker 3: innovative drugs to the past six months, we see more

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Speaker 3: Chinese AI accelerated companies get coming to the market Chinese

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Speaker 3: and getting listed, and potentially there will be Chinese memory

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Speaker 3: companies getting listed. So I think, you know, China is

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Speaker 3: fully aware of the external challenges in terms of access

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Speaker 3: to leading edge technologies elsewhere, so that China has been

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Speaker 3: st strategically trying to emphasize reviewing its supply chain and

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Speaker 3: see the critical vulnerabilities around the supply chain and trying

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Speaker 3: to close the gap. So I think, you know, given

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Speaker 3: the reemergence of the global volatility, the geopolitical tensions, I

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Speaker 3: think that trend will probably remain to be here and

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Speaker 3: it might further deepen that countries will be reviewing their

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Speaker 3: critical technologies, Countries will be revealing their strategic vulnerabilities, and

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Speaker 3: even in the age of AI, we see more countries

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Speaker 3: right trying to build up their own sovereign AI and

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Speaker 3: reduce the dependence on the superpowers.

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Speaker 2: So we just had the NPC as I referred to

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Speaker 2: a moment ago, and I think the target now for

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Speaker 2: urban employment is around twelve million jobs. We know that

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Speaker 2: China has been facing a lot of difficulty when it

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Speaker 2: comes to inviting a little bit more domestic stick demand.

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Speaker 2: People just seem to lack a lot of confidence, and

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Speaker 2: sentiment on the consumer side has been weak. Do you

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Speaker 2: have a sense of what the government may do next

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Speaker 2: to help drive a little bit more of the domestic

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Speaker 2: demand story.

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Speaker 3: The weakness of consumption is now not only in China, right,

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Speaker 3: It's actually become a little bit more global issue because

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Speaker 3: what we're facing more broadly in many markets, especially in

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Speaker 3: the more developed markets, is a combination of aging populations

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Speaker 3: plus the rapid AI development which is replacing displacing jobs,

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Speaker 3: especially now the jobs for young people and knowledge workers. Right,

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Speaker 3: So the challenges to consumer confidence again, it might be

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Speaker 3: not only China, and it might be not only a

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Speaker 3: short term thing. It might be a structural headwing. And

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Speaker 3: you you know, we see AI can create more jobs,

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Speaker 3: create eight income like, create more you know, sustainable job opportunities,

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Speaker 3: to build the rebuild the confidence of young people on

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Speaker 3: their you know, long term outlook of incomes, and rebuild

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Speaker 3: their long term confidence on income. So from China's perspective,

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Speaker 3: over the past couple of years, they've been doing some

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Speaker 3: of the consumption subsidies, including the trading programs, and I

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Speaker 3: think they will continue to do that. I think in

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Speaker 3: the NPC, there's nothing surprising in terms of bigger than

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Speaker 3: expected package and consumption stimulus. But you know, as government

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Speaker 3: discussed this before that they are open to launch and

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Speaker 3: conventional policies if necessary. So I think so far, you know,

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Speaker 3: the economy, the stock market, the currency are all pretty

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Speaker 3: much on track and developing well, so I don't think

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Speaker 3: government is endered too much pressure in terms of launching

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Speaker 3: the big similar policy. So in the NPC, the focus

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Speaker 3: is a bit more on the investment side because this

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Speaker 3: is the first year of the fifteen to five year plans,

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Speaker 3: so they tend to from load these big projects in

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Speaker 3: the early part of these five years. But I would

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Speaker 3: expect that if economy slow down more significantly, if you know,

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Speaker 3: we've seen bigger pressure or challenges for employment or consumer confidence,

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Speaker 3: government could launch further policies to support consumption.

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Speaker 2: So I take your point that generally speaking, there were

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Speaker 2: no surprises coming out of the NPC, But for me,

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Speaker 2: I was struck by the fact that Beijing is now

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Speaker 2: planning an increase in defense spending of seven percent, which

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Speaker 2: I think is the slowest that we have seen since

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Speaker 2: about twenty twenty two. Winnie, we will leave it there,

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Speaker 2: thank you. So very much. Winni Wu is head of

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Speaker 2: APAC Equity Strategy at Bank of America Global Research. Joining

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Speaker 2: from Hong Kong here on the Daybreakasia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Chrisner. So the

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Speaker 2: war in Iran and its impact on oil markets is

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Speaker 2: really forcing financial firms to make their forecast. Goldman Sachs

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Speaker 2: has raised its estimate on average Brent crude prices for

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Speaker 2: the second quarter by ten dollars to seventy six dollars.

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Speaker 2: And that's where we begin our conversation with Samantha Dart.

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Speaker 2: Samantha is Goldman Sachs co head of Global Commodities Research.

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Speaker 2: She spoke with Bloomberg TV host Heidi Stroud wattson April

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Speaker 2: Hong and the conversation begins with Samantha addressing Goldman's framework.

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Speaker 4: Yeah, I think because we have very little edge in

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Speaker 4: forecasting the duration of a conflict like this, we rely

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Speaker 4: on our framework. So what we try to do is

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Speaker 4: really to model, okay, for different lengths possible of the conflict.

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Speaker 4: What would this mean for the price case, as you mentioned,

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Speaker 4: is for Brent to average about seventy six dollars a barrow,

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Speaker 4: so up about ten dollars a barrow from our previous

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Speaker 4: forecast in Q two. But this assumes a base case

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Speaker 4: of very low flows through the Strait of hormones for

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Speaker 4: another five days or so and then a gradual months

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Speaker 4: long recovery flows, and that might not happen to your point, right,

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Speaker 4: So if instead of five days, you have let's say

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Speaker 4: another five weeks of very.

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Speaker 5: Low flows of oil through the.

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Speaker 4: Strait, it's very possible that we would see brand prices

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Speaker 4: crossing the one hundred dollars per barrel threshold, Samantha.

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Speaker 1: We've seen the US administration flagging various options with varying

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Speaker 1: degrees of detail on how they could help alleviate that pressure,

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Speaker 1: everything from insurance to military escorts, to the treasury trading

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Speaker 1: oil futures to release from the emergency reserves. Right, do

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Speaker 1: any of those press reassure you when it comes to

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Speaker 1: being able to make a difference.

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Speaker 4: It's really hard to say. I think of the proof

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Speaker 4: is in the pudding. So we'll have to see what

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Speaker 4: types of measures will actually increase flows through the strait.

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Speaker 4: There are questions that we hear from our clients regarding

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Speaker 4: the practicality of naval escorts to ships because of the

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Speaker 4: large number of tankers crossing. There are also questions related

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Speaker 4: to the nature of the attacks that we've seen. How

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Speaker 4: effective can you be against drawn attacks. So there are

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Speaker 4: still a lot of questions coming from our clients in

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Speaker 4: that respect, and I would say that there is not

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Speaker 4: a ton of confidence that this alone can resolve the situation.

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Speaker 5: Samantha, what my potential treasury intervention in oil markets actually

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Speaker 5: look like.

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Speaker 4: So usually when you have or at least the risk

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Speaker 4: of the physical shortage like this, you're blocking a certain

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Speaker 4: amount of energy, both oil and gas. What prices tend

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Speaker 4: to do, they have a function, right, They help the

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Speaker 4: market rebalance. It's when you have a price rise as

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Speaker 4: the result of a shock that you can potentially have

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Speaker 4: an adjustment on the demand side, especially on the natural

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Speaker 4: gas side. One of the reasons why European natural gas

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Speaker 4: prices have skyrocketed up sixty percent from last Friday is

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Speaker 4: because you are helping the market adjust and curtail demands

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Speaker 4: so that you can have enough natural gas in the

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Speaker 4: system ahead of the next winter. So the same thing

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Speaker 4: with oil. I think intervention in the market can maybe

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Speaker 4: disrupt this price signal that could be helpful in solving

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Speaker 4: the imbalance, So I'm not sure it's the best solution.

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Speaker 5: And this is coming along with all these risks for

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Speaker 5: the market. I mean, when it comes to how you

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Speaker 5: model things, is it more about the potential impact on

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Speaker 5: damage to infrastructure that you see as a bigger risk,

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Speaker 5: or is it still about the street and the traffic

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Speaker 5: being halted There.

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Speaker 4: Both risks matter. I think you touched on the two

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Speaker 4: key points. So you need not only the passage through

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Speaker 4: the strait to be restored, but you need those producing

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Speaker 4: assets to be operational. Otherwise, even though the conflict might

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Speaker 4: look to the escalate at some point, if you don't

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Speaker 4: have production, then you still have a supply disruption in place.

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Speaker 4: So both matter, and both have timing uncertainty related to them.

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Speaker 2: Unfortunately, how is all.

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Speaker 5: This also affecting stockpiling behavior?

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Speaker 4: That is an excellent question, because what we have noticed

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Speaker 4: is that because commodity supplies all fragmented. I mean, if

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Speaker 4: you look at, for example, refining of rare earths, more

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Speaker 4: than ninety percent of that happens in China. The refining

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Speaker 4: of a lot of other metals is all focused in China,

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Speaker 4: while the US holds a lot of energy. So as

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Speaker 4: a result, you're seeing efforts from both sides. For example,

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Speaker 4: in trying to become more self sufficient in those two areas,

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Speaker 4: you have China stockpiling more crude, you have China moving

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Speaker 4: more into evs. This is no coincidence. This is the

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Speaker 4: look for self sufficiency. Since COVID happened, we had such

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Speaker 4: a broad disruption of supply chains. So this is not

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Speaker 4: just commodities. This is I think a much broader concern,

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Speaker 4: and a disruption like this is just another reminder of

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Speaker 4: how important this can be. And this, I think just

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Speaker 4: illustrates how places like Europe, Japan and Korea that are

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Speaker 4: generally short a lot of these commodities are in a

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Speaker 4: tough spot right now.

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Speaker 1: Somata how much does USHAW come into this kind of

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Speaker 1: new normal scenario.

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Speaker 4: So what happens with SHOE is that it's well, first

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Speaker 4: of all, short cycle. If you compare with the old

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Speaker 4: days when we had to rely on those deep water

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Speaker 4: projects to go production. Short cycle. SHOE can respond within

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Speaker 4: one year, but that's still not fast enough to prevent

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Speaker 4: the drawdown in inventories that are likely to happen with

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Speaker 4: the disruption we're currently going through. So higher prices we

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Speaker 4: were talking about the importance of the price signal. Right,

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Speaker 4: higher prices are incentivizing US shale producers to crank up production. Unfortunately,

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Speaker 4: just it takes a few months to see it, so

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Speaker 4: you don't see that offset showing up overnight. But it

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Speaker 4: is an incentive that we think can be effective over time.

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Speaker 2: That was Samantha Dark Goldman Sachs, co head of Global

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Speaker 2: Commodities Research, speaking with Bloomberg TV host Heidi Stroud, Watts

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Speaker 2: and April bringing you their conversation here on the Daybreak

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Speaker 2: Asia podcast. Thanks for listening to today's episode of the

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

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

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

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Speaker 2: YouTube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Prisner, and this is

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Speaker 2: Bloomberg