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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 Risner. So

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Speaker 2: the US and Taiwan have a trade deal. It lowers

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Speaker 2: tariffs to fifteen percent from the previous twenty percent, and

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Speaker 2: that means that US tariffs on goods from Taiwan are

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Speaker 2: now on par with those for Japan and South Korea.

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Speaker 2: As a part of the trade deal with Taiwan, semiconductor

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Speaker 2: companies will be making at least direct investments of around

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Speaker 2: two hundred and fifty billion dollars toward American energy and

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Speaker 2: artificial intelligence operations. Here is Bloomberg's Michael Sheppard.

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Speaker 1: It's been a top priority for officials there in Taipei,

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Speaker 1: but also here in Washington, because Taiwan is such a

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Speaker 1: crucial source of the chips that go into artificial intelligence

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Speaker 1: and AI data centers across the US and around the world,

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Speaker 1: and they wanted to make sure they get this locked

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Speaker 1: into place and that they can in you know, have

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Speaker 1: some assurance that supply lines to the island are really

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Speaker 1: in a good place.

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Speaker 2: That is Bloomberg's Michael Sheppard. Now this trade deal comes

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Speaker 2: as TSMC, the world's top maker of those AI Chips

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Speaker 2: released earnings, and at the same time, Taiwan Semi earmarked

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Speaker 2: a hefty increase in capex spending for twenty twenty six.

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Speaker 2: Here is Bloomberg analyst Matthew Bloxham.

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Speaker 3: Talking about fifty two to fifty six billion dollars of

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Speaker 3: capital spending in this coming year. That's about six to

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Speaker 3: ten billion dollars or fifteen to twenty percent higher than

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Speaker 3: the market was expecting. A big step up year on year,

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Speaker 3: over ten billion up Here on year, that.

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Speaker 2: Is Matthew Bloxham from Bloomberg Intelligence. By the way, US

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Speaker 2: listed shares in TSMC picked up nearly four and a

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Speaker 2: half percent. In the overall equity market today, we had

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Speaker 2: small caps continuing to outperform. The Russell two thousand gained

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Speaker 2: more than eight tens of one percent and beat the

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Speaker 2: S and P five hundred for a tenth straight session.

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Speaker 2: The S and P was up just two tents of

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Speaker 2: one percent today. For a look at market action, I'm

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Speaker 2: joined by Rob Hayworth. The is senior investment strategy director

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Speaker 2: at US Bank Asset Management Group. Rob is on the

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Speaker 2: line from Seattle. Thank you for being here. I'd like

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Speaker 2: to begin by getting your take on this rotation that

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Speaker 2: we've been seeing into small cap stocks.

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Speaker 4: Yeah, we really saw this even as we finished out

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Speaker 4: twenty twenty five. Over the last month month and a

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Speaker 4: half was we were starting to see the market look

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Speaker 4: towards rotation. And I think that's one the impact of

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Speaker 4: lower FED interest rate costs, right the Fed having already

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Speaker 4: lower rates by three quarters a point is giving some

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Speaker 4: room for small caps to run. And then two, we're

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Speaker 4: seeing the beneficiaries of artificial intelligence really start to broaden out,

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Speaker 4: first with healthcare that's helping this rotation strategy. And then three,

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Speaker 4: earnings expectations are picking up across the spectrum, both large

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Speaker 4: and small. And part of that is probably the look

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Speaker 4: ahead to tax season when consumers will start to benefit

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Speaker 4: from some of the tax cuts that are part of

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Speaker 4: the One Big, Beautiful Bill Act. So that's really starting

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Speaker 4: to drive I think a broader economic cycle here than

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Speaker 4: what we saw over the last six months of the year,

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Speaker 4: which was mostly artificial intelligence driven.

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Speaker 2: So today's economic news, I think, by and large was

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Speaker 2: above expectations. Jobless claims unexpectedly down to the lowest level

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Speaker 2: since November, and then we had the manufacturing survey for

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Speaker 2: the New York Area activity expanded, and at the same time,

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Speaker 2: a gauge of prices dropped to a near one year low.

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Speaker 2: When you hear points like that, does it create a

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Speaker 2: little bit of uncertainty in terms of what the FED

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Speaker 2: may be doing this year?

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Speaker 4: Well, I think it certainly gives the FED room to

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Speaker 4: evaluate data as we press ahead. We know some Committee

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Speaker 4: members are very convicted that we need to have much

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Speaker 4: lower interest rates right now, but we've heard from other

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Speaker 4: speakers where they're taking a little more of a wait

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Speaker 4: and see attitude. And I think as long as the

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Speaker 4: economy is holding together and we've got a lot of

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Speaker 4: stimulus in this pipeline between one big beautiful Bill Act,

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Speaker 4: the World Cup is going to push up spending here

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Speaker 4: in the US. The two hundred and fiftieth anniversary celebration

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Speaker 4: is going to help spending here in the US. So

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Speaker 4: there's some stimulus coming through here that I think can

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Speaker 4: continue to drive the story and maybe give the FED

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Speaker 4: time to evaluate the incoming data, because certainly the jobs

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Speaker 4: data has been pretty solid. The inflation data is slowing,

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Speaker 4: but not quickly, and so the FED, having done three

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Speaker 4: quarters a point of cuts to finish the year, maybe

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Speaker 4: can take some time to evaluate the market, and our

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Speaker 4: base case is still we probably get two or three

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Speaker 4: cuts this year, but they don't have to happen right away.

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Speaker 2: I'm curious to get your take on what's been going

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Speaker 2: on in the bond market with this very low volatility

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Speaker 2: that we've been seeing. I think the ten year treasury

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Speaker 2: the yield right now is headed for a fifth straight

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Speaker 2: week of minimal change. And if you talk to folks

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Speaker 2: on the street, they seem to be a little anxious

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Speaker 2: here because in previous cases like this, where you've had

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Speaker 2: a constricted range of yield, it's been followed by selloffs.

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Speaker 2: How do you make sense of the low volatility in

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Speaker 2: the bond market.

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Speaker 4: Well, I think we just don't have enough data yet

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Speaker 4: to tell us the direction here. Right There's been concern

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Speaker 4: that we have elevated inflation, or perhaps we get rising

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Speaker 4: deficits that could really push rates higher. On the other hand,

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Speaker 4: if we were really getting a weaker labor market right,

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Speaker 4: that could easily push long term rates lower because of

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Speaker 4: a growth scare. For now, I think we're just we're

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Speaker 4: stuck waiting for that data to come in. We're still

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Speaker 4: not all caught up on data from the government shutdown

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Speaker 4: we don't yet have PPI through year end. We're not

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Speaker 4: going to get PCE through year end. We don't have

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Speaker 4: personal income data. We're not going to get fourth quarter

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Speaker 4: GDP growth by the end of the month. We're still

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Speaker 4: finishing up Q three data. So I think there's a

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Speaker 4: lot of data that bond investors would really like to

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Speaker 4: see to understand what where they should probably price fixed

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Speaker 4: income at this moment, and so I think we're really

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Speaker 4: waiting for that. Then there's the additional factor with the

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Speaker 4: President directing a Fanning and Freddy to start purchasing more

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Speaker 4: mortgage bonds. That's going to hold interest rates in there

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Speaker 4: as well. Right, You've got more liquidity being absorbed in

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Speaker 4: the market, So for those who were planning to buy

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Speaker 4: mortgage bonds, they may have to be buying longer term

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Speaker 4: treasuries at this point, which is also helping keep that

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Speaker 4: volatility low.

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Speaker 2: We've seen a lot of influence from geopolitics, particularly in

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Speaker 2: the crude oil market. President Trump yesterday signaling he may

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Speaker 2: hold off on attacking Iran for now. Interesting piece in

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Speaker 2: the Wall Street Journal indicating that Trump was told an

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Speaker 2: attack would not guarantee the collapse of the Iranian regime.

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Speaker 2: In fact, it may even sparkle wider conflict. So today

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Speaker 2: WTI broke down below sixty dollars a barrel. I think

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Speaker 2: we were off about four and a half percent in

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Speaker 2: New York trading. That's obviously a positive when you look

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Speaker 2: at the inflation story. But how are you evaluating the

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Speaker 2: impact of geopolitics on overall trading right now, particularly in

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Speaker 2: the commodity space.

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Speaker 4: Well, it's certainly been fairly muted. But I think that's

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Speaker 4: the muted aspect, whether it's in oil or equities. Really,

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Speaker 4: I think in our view reflects that we haven't seen

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Speaker 4: a lot of ongoing engagement in areas outside of Russia Ukraine,

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Speaker 4: which kind of continues, and the markets become somewhat numb

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Speaker 4: to at this point as long as we're not getting

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Speaker 4: boots on the ground, right we had no boots on

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Speaker 4: the ground stay in Venezuela. We didn't get an attack

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Speaker 4: and Iran. I think the market can adapt to that. Additionally,

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Speaker 4: when I start to think about the oil market, the

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Speaker 4: issue there is you have a very well supplied market

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Speaker 4: at this point, and unless we start taking more OPEC

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Speaker 4: barrels off, which OPEC's plan is to add barrels. It

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Speaker 4: seems like prices can stay in this relatively low zone

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Speaker 4: for some time as long as we're not changing that

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Speaker 4: supply equation.

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Speaker 2: It's been very interesting trading for the last couple of

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Speaker 2: days in the precious metals market. There was a four

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Speaker 2: day rally in seal that saw the price increase something

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Speaker 2: greater than twenty percent, but we had to pullback late

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Speaker 2: in the day Wednesday, US during the Asian session. Right now,

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Speaker 2: I'm looking at the spot price down roughly one and

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Speaker 2: a half percented around ninety dollars announced for silver. Talk

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Speaker 2: to me about what you believe to be the influences

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Speaker 2: on the precious metals market.

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Speaker 4: Well, I think we've seen a couple of things on

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Speaker 4: precious metals last year, Especially early in the year, it

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Speaker 4: seemed like global central bank buying was part was really

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Speaker 4: the key driver, and then speculators have taken over as

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Speaker 4: we've seen higher ETF flows in both gold and silver

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Speaker 4: and more demand across the market. We don't yet here

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Speaker 4: in New York have an update on the CFTC data.

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Speaker 4: We're still probably a week away from getting current on

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Speaker 4: what's going on in the futures market and how extended

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Speaker 4: speculators could be there, but in general we've seen rising

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Speaker 4: speculative demand as silver is caught up in terms of

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Speaker 4: its history oracle relationship to gold. And then you have

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Speaker 4: I think investors trying to anticipate where central banks may go,

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Speaker 4: given that we continue to see kind of geopolitical uncertainty

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Speaker 4: and risk, and so I think that's been a key

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Speaker 4: driver for prices and maybe has gotten them to a

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Speaker 4: bit of an excess speculative point at the moment. That

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Speaker 4: doesn't mean in our in our estimation that we won't

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Speaker 4: get further gains as we look through the ear but

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Speaker 4: it does seem like we're getting to a point where

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Speaker 4: the market probably needs to consolidate, given how stretched that

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Speaker 4: price action is in both gold and soul.

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Speaker 2: I want to get your take on the AI trade

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Speaker 2: vis A VI Taiwan semic Inductor. We learned today that

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Speaker 2: the company has earmarked as much as fifty six billion

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Speaker 2: dollars in capex for twenty twenty six. That seems to

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Speaker 2: suggest that company's got a lot of confidence in the

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Speaker 2: longevity of this AI boom. Do you share that enthusiasm.

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Speaker 4: We are very enthusiastic here, and I think in particular

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Speaker 4: the reason we point to that is not not because

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Speaker 4: of the investment cycle, but rather the use cycle. We're

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Speaker 4: starting to see those use cases get built out. Healthcare

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Speaker 4: has been the primary beneficiary we see that's starting to

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Speaker 4: really use AI and bring that into its system. But

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Speaker 4: that's a lot of what we hope to see as

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Speaker 4: we move through earning season, fourth quarter, and especially first

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Speaker 4: quarter this year is more of the profit and use

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Speaker 4: cases being built out and explained by companies for artificial intelligence.

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Speaker 4: So the investment cycle needs to continue, but the use

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Speaker 4: cases are starting to show up, and that tells us

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Speaker 4: that there's still legs to this rally as companies start

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Speaker 4: to really bring artificial intelligence into their businesses and create

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Speaker 4: efficiencies and create profits.

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Speaker 2: Are you seeing opportunity these days outside the US and

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Speaker 2: any offshore market?

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Speaker 4: Actually, yes, we do think global markets interestingly broadly have

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Speaker 4: significant opportunities. And interestingly, if we look at performance, if

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Speaker 4: we think about twenty twenty four, we saw very strong

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Speaker 4: performance for developed markets, for emerging markets, and US dollar weakness.

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Speaker 4: This year, they're actually leading the US again to start

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Speaker 4: the year, and yet we're seeing US dollar strength and

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Speaker 4: what we think is driving that is a couple of

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Speaker 4: things One, you're seeing higher earnings expectations, and part of

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Speaker 4: that is many foreign economies Japan would be the exception.

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Speaker 4: We're early in their rate cuts and that really is

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Speaker 4: helping to support their economies and to support their earning cycle.

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Speaker 4: And Two, we've seen the global economy really rebalance around

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Speaker 4: trade and that's starting to benefit companies outside the US

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Speaker 4: as well. So it looks like we're getting kind of

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Speaker 4: an earnings resurgence outside the US. And while we're not

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Speaker 4: kind of bearish on the US, we're bullish on the

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Speaker 4: global story. We think there's much more room for a

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Speaker 4: global story in investors' portfolios in the year ahead, much

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Speaker 4: like we saw in twenty twenty five.

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Speaker 2: All right, Rob, we'll leave it there, Thank you so

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Speaker 2: very much. Rob Hayworth is Senior Investment Strategy director at

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Speaker 2: US Bank Asset Management Group. Joining from Seattle here on

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Speaker 2: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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Speaker 2: I'm dek Krisner. Let's take a closer look now at TSMC.

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Speaker 2: The company reported strong results and an ambitious spending plan

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Speaker 2: that reverberated across equity markets in both Europe and the US.

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Speaker 2: We caught up with TSMC's chief financial officer, Wendel Huang.

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Speaker 2: He spoke with Bloomberg's Annabel Droolers in Taipei, and the

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Speaker 2: conversation started with a question about TSMC's spending plans in

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Speaker 2: the US.

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Speaker 5: It really depends on customer demand. In the US. A

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Speaker 5: lot of customer wants to go there, so we will

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Speaker 5: expand over there. But for the leading edge technologies, it

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Speaker 5: will be in Taiwan because it's a heavy cooperation between

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Speaker 5: the R and D people and operation people for practical reasons.

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Speaker 6: And leading edge will continue to be led by thai One.

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Speaker 6: You think over the US market and that no changes

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Speaker 6: to that at all, even with you adding a lot

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Speaker 6: more capacity in the States.

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Speaker 5: Yeah, that's for practical reasons.

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Speaker 6: Is it possible though, to speed up how quickly that

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Speaker 6: advanced tech can be shifted from Taiwan to the States.

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Speaker 5: Yeah, we can try to do that to shorten the gap.

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Speaker 6: What does that transfer gap look like then? If right

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Speaker 6: now it's several years Taiwan is ahead, what does that

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Speaker 6: actually look like in the future.

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Speaker 5: We don't have a specific timeline now, but we do

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Speaker 5: we can try to accelerate that. We think we can

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Speaker 5: try to accelerate.

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Speaker 6: Could it be shortened to months? Do you think it

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Speaker 6: will be difficult challenging? Okay, so it stays at least

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Speaker 6: one one year behind then Capex it's fifty two to

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Speaker 6: fifty six billion dollars, Yeah, for this year. So can

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Speaker 6: you tell us exactly how much of that is going

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Speaker 6: to the US, Given you've got such a big focus

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Speaker 6: on the capacity built out there.

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Speaker 5: We don't just break down those numbers. Do tell people

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Speaker 5: that in the next three years the total KPEX is

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Speaker 5: going to be significantly higher than the number in the

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Speaker 5: past three years. So that is the evidence of our

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Speaker 5: strong conviction in the AI megatren.

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Speaker 6: Our sources are saying, for instance, at least four additional

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Speaker 6: fabs could be added in the US in addition to

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Speaker 6: what's already been pledged.

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Speaker 7: Is that realistic?

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Speaker 5: It depends on customers demand. We are looking at very

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Speaker 5: strong customer demand.

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Speaker 7: Could you give us the number?

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Speaker 5: We don't have the number.

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Speaker 7: Do you want to ask about Intel as well?

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Speaker 6: I'm wondering whether you see any potential for collaboration with

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Speaker 6: the business, given they've got very strong expertise in advanced

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Speaker 6: packaging technology in particular, could that be an area for

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Speaker 6: you to work on giving you already outsourcing this to

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Speaker 6: third parties with your constraints.

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Speaker 5: It depends if it makes sense to the customers and

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Speaker 5: also if it makes sense to our wafer business. The

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Speaker 5: advanced packaging business to us is a strategic It enable

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Speaker 5: our wafer business. So if we are there are more

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Speaker 5: alternatives in the market which can enable our business, we

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Speaker 5: can consider that.

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Speaker 6: Would you weigh up investing in Intel, just like some

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Speaker 6: of your biggest customers have done.

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Speaker 5: No discussion at all. All I'm trying to say is

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Speaker 5: it can be.

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Speaker 7: Considered Taiwanese dollar.

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Speaker 6: In our survey of different FX strategists and analysts at Bloomberg,

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Speaker 6: they're actually saying it's going to end the year at

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Speaker 6: thirty point nine. So what is the impact to you

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Speaker 6: if you see that further sort of strengthening and what

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Speaker 6: sort of headwind does it represent?

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Speaker 5: For exchange rate between US dollar and t does affect

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Speaker 5: our profitability? In the past, for every percentage change in

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Speaker 5: for exchange way, it will affect our margins gross margins,

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Speaker 5: operating margin by forty point. Nowadays, when the margins are higher,

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Speaker 5: the impact become less sensitive. So nowadays it's about thirty

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Speaker 5: basis points either way.

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Speaker 7: And how are you looking at hedging strategies as well.

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Speaker 5: The easiest way is to sell US dollar into NT. However,

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Speaker 5: the market impact should be considered. If we're not able

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Speaker 5: to sell all these, then we will do the four

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Speaker 5: contract and if we still cannot accommodate all the positions,

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Speaker 5: then we will continue to do moving the US dollar

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Speaker 5: to the offshore entity which has US dollar as its

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Speaker 5: functional currency.

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Speaker 2: That was TSMC Chief Financial Officer Guendel Juang speaking with

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Speaker 2: Bloomberg's Annabel Drulers in Taipei and bringing it to you

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Speaker 2: here on the Daybreak Asia podcast. Thanks for listening to

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Speaker 2: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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

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

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

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

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 2: and this is Bloomberg