WEBVTT - Tokyo Inflation Beats Forecast, Keeping BOJ on Rate Hike Path

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's

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<v Speaker 2>the final trading day in November, and earlier we got

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<v Speaker 2>several key data points for the Japanese economy. First, there

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<v Speaker 2>was Tokyo CPI. Core inflation in the Japanese capital was

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<v Speaker 2>up in the month of November at an annual rate

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<v Speaker 2>of two point eight percent. Now, core excludes fresh food,

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<v Speaker 2>but the forecast was only for an increase of two

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<v Speaker 2>point seven percent, So a bit hotter than expected in

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<v Speaker 2>that regard, and this obviously would support a potential rate

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<v Speaker 2>hike from the Bank of Japan. For a closer look

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<v Speaker 2>now at markets in the Asia Pacific, I'm joined by

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<v Speaker 2>Bloomberg's Paul Dobson. Paul is Executive editor for Asia Markets.

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<v Speaker 2>He joins from our studios in Singapore. So what do

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<v Speaker 2>you think is this enough, this reading on core CPI

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<v Speaker 2>for Tokyo enough to move the needle when we were

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<v Speaker 2>considering a boj raid hike in December.

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<v Speaker 3>It still feels to me a little bit, Doug, like

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<v Speaker 3>it's too early for the Bank of Japan. You know,

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<v Speaker 3>they've backed down, they've been reticent they've taken their time

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<v Speaker 3>so far. Yes, there's plenty of evidence that there's an

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<v Speaker 3>opportunity here to raise interest rates, but the market expectation

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<v Speaker 3>really isn't there, and they tend not to move when

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<v Speaker 3>that isn't priced in. And I think that there's a

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<v Speaker 3>couple of reasons. One, they don't want to get away,

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<v Speaker 3>get in the way of the politics and let Takaichi

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<v Speaker 3>kind of set out her plan and her course before

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<v Speaker 3>they make their next move. They don't want to slow

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<v Speaker 3>the economy too much while she's still bedding in, as

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<v Speaker 3>it were. And I think that the other reason is

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<v Speaker 3>that their longer term outlook for inflation is that it's

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<v Speaker 3>going to slow and come back towards target as well,

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<v Speaker 3>so they want to be a little bit careful on

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<v Speaker 3>that too. Now. You know, that's despite the evidence that actually,

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<v Speaker 3>you know, the inflation is still quite high in the

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<v Speaker 3>cost of living is rising, and food price inflation, which

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<v Speaker 3>isn't included in the core number, is also high at

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<v Speaker 3>the moment. And one of the things that Takaichi actually

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<v Speaker 3>wants to do is to put in place measures to

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<v Speaker 3>kind of counter that on the fiscal side rather than

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<v Speaker 3>on the munetar site. So My view is, and I

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<v Speaker 3>guess the market view is that the Bank of Japan

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<v Speaker 3>isn't getting ready to move in December, but probably at

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<v Speaker 3>the start of next year would be a more realistic

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<v Speaker 3>kind of a timeline. And you can see that by

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<v Speaker 3>the way in the yen in particular, which remains kind

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<v Speaker 3>of weakened under pressure rather than starting to appreciate again.

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<v Speaker 2>From what I understand, Governor Uda will be speaking next

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<v Speaker 2>week and we'll see whether or not he endorses the

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<v Speaker 2>notion of a rate hike. I found it interesting that

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<v Speaker 2>some of the other data points for Japan were far

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<v Speaker 2>above forecast. Industrial output at a gain of one point

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<v Speaker 2>four percent the street was looking for contraction, and the

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<v Speaker 2>retail sales number, with an annual increase of one point

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<v Speaker 2>seven percent, was almost double forecast. So there is a

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<v Speaker 2>lot to be said about the health of the Japanese

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<v Speaker 2>economy despite this situation with tariffs that have been imposed

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<v Speaker 2>by the US.

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<v Speaker 3>And that week, that yin that I was talking about

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<v Speaker 3>suddenly helps that as well, kind of gives the exporterers

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<v Speaker 3>in particular a little bit more of a boost. It's

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<v Speaker 3>an interesting situation in the economy at the moment sort

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<v Speaker 3>of half looks good half doesn't look quite so good,

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<v Speaker 3>and you know, kind of a little bit like we

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<v Speaker 3>see in the US with that case shaped economy. You know,

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<v Speaker 3>there's there's pockets where where things are looking better than

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<v Speaker 3>in other places there. So you know, we've seen in

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<v Speaker 3>the stock market pretty decent signs of strength as well,

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<v Speaker 3>but there's lots of tensions playing out under the surface,

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<v Speaker 3>particularly in the currency market and also of course in

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<v Speaker 3>the Japanese government bond space. Really importantly, this week we

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<v Speaker 3>heard some more about the extra spending plans from the government,

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<v Speaker 3>what it plans to do, how it plans to finance it.

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<v Speaker 3>They haven't yet told us exactly how they plan to

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<v Speaker 3>allocate the extra cash that they need to raise, and

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<v Speaker 3>that will include some extra sales of government bonds. The

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<v Speaker 3>market is asking them to put that in the short

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<v Speaker 3>end of the year yield curve and to actually slow

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<v Speaker 3>the issue and so of the back end of the

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<v Speaker 3>yeal curve where there really isn't that demand. And you've

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<v Speaker 3>seen that in the very big increase in longer term

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<v Speaker 3>interest rates, which is bad news for Japan because it

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<v Speaker 3>raises that over the overall cost of financing on the

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<v Speaker 3>long term tea.

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<v Speaker 2>What about tension between Japan and China, particularly after Prime

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<v Speaker 2>Minister taka ICHI's comments on Taiwan.

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<v Speaker 3>It's been a fascinating thing to watch, hasn't it. I

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<v Speaker 3>think from a market perspective, it's hard to read too

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<v Speaker 3>much into it just yet, but certainly this idea that

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<v Speaker 3>China had that call with Trump and then Trump had

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<v Speaker 3>the call with Takaichi and apparently asked her to just

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<v Speaker 3>call things a little bit does talk a lot to

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<v Speaker 3>policy between US and China relations, how important it is

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<v Speaker 3>for Trump to sell these agricultural products into China, and

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<v Speaker 3>also what it means for the long term future viability

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<v Speaker 3>prospects and so on in Taiwan itself. And so we

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<v Speaker 3>heard this week Taiwan talking some more about their own

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<v Speaker 3>spending plans for defense and how you know there's going

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<v Speaker 3>to be lots of long term investment going in to

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<v Speaker 3>try to protect the island, but it probably is feeling

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<v Speaker 3>a little bit more vulnerable at the moment. So I

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<v Speaker 3>was watching, actually the implied volatility on the Taiwan dollars

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<v Speaker 3>see if there's any pickup in stresses in financial markets there.

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<v Speaker 3>So far hasn't really registered too much, but I do

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<v Speaker 3>think that it's worth monitoring, particularly if you look at

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<v Speaker 3>what the contours of the deal for peace in Russia

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<v Speaker 3>and Ukraine might look like and what that might mean

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<v Speaker 3>as well for how safe and secure Taiwan feels from

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<v Speaker 3>investor's point of view and from a policymakers point of

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<v Speaker 3>view as well.

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<v Speaker 2>So as long as we're talking about China, Paul I

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<v Speaker 2>think we have to tease out what's been happening in

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<v Speaker 2>the real estate sector. Guess it suffered another blow recently

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<v Speaker 2>after China Von Kah proposed delaying repayment on a local bond.

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<v Speaker 2>Is this just kind of reinvigorating the anxiety that existed

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<v Speaker 2>or has existed for years now when it comes to

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<v Speaker 2>the property market.

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<v Speaker 3>It is, but it's prising, I think on three fronts.

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<v Speaker 3>Maybe one Thanka itself was one of the biggest property

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<v Speaker 3>developers in China, and it was seen as a bit

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<v Speaker 3>of a bell weather as one of the last kind

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<v Speaker 3>of companies standing without having defaulted for the market's potential recovery.

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<v Speaker 3>Not only that it has sort of semi or quasi

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<v Speaker 3>state links because of some of its shareholders being state

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<v Speaker 3>owned companies as well. And yet you know the idea

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<v Speaker 3>that it also is struggling to repay local debts, wants

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<v Speaker 3>to extends some bond payments. Maybe heading into a more

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<v Speaker 3>of a crunch for the bond market is a sign that,

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<v Speaker 3>you know that really the real estate market has not

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<v Speaker 3>been sorted yet, is still in a great deal of pain,

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<v Speaker 3>and it's bad news for bond holders in that company

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<v Speaker 3>and in any other company which has yet to default.

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<v Speaker 3>It sort of tells you that repayment risks are still

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<v Speaker 3>out there and is bad, you know, in terms of

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<v Speaker 3>consumer confidence in the wealth effect, because what would really

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<v Speaker 3>help reinvict right the consumer in China would be a

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<v Speaker 3>little bit more confidence in property given that so much

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<v Speaker 3>of the household wealth is tied up in real estate

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<v Speaker 3>investments and house ownership. So that sort of wigs as

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<v Speaker 3>a cloud on the economy. I think that there's one

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<v Speaker 3>other thing that you can look at, though, which is

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<v Speaker 3>this idea that actually that might not be such a

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<v Speaker 3>terrible thing for the stock market. And it goes like

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<v Speaker 3>this one for years and years, the first thing that

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<v Speaker 3>Chinese people would look to invest in would be the

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<v Speaker 3>real estate market because they saw the chance for continuing

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<v Speaker 3>capital appreciation, and that's not been there for several years now.

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<v Speaker 3>So that kind of confidence has gone to trusting corporate bonds,

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<v Speaker 3>and the bond market in general, where yields are very low,

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<v Speaker 3>is not so good at the moment. So three, what's

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<v Speaker 3>the viable alternative. Maybe it's the equities market, which has

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<v Speaker 3>had a really strong year this year, starting to look

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<v Speaker 3>a little bit more appealing for people that are trying

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<v Speaker 3>to find somewhere safe to put their cash get some

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<v Speaker 3>capital appreciation where they can't go in the real estate

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<v Speaker 3>and can't go in the bond markets.

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<v Speaker 2>Paul, when we continue the conversation in a moment, I'd

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<v Speaker 2>like to focus a little bit on the FED cutting

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<v Speaker 2>interest rates faster than the market previously thought, and maybe

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<v Speaker 2>we can talk a bit about Bitcoin above ninety one

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<v Speaker 2>thousand for the first time in a week. Speaking here

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<v Speaker 2>with Paul Dobson, Executive editor for Asia Markets, on the

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<v Speaker 2>Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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<v Speaker 2>I'm Doug Prisner speaking with Paul Dobson, Executive editor for

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<v Speaker 2>Asia Markets, joining from our studios in Singapore. So much

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<v Speaker 2>of what we have seen stateside, Paul, in terms of

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<v Speaker 2>this recovery or stability in the US equity market has

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<v Speaker 2>been tied to kind of further betting on the FED

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<v Speaker 2>cutting interest rates at the December meeting. I think the

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<v Speaker 2>probability right now if you look at money markets about

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<v Speaker 2>eighty percent. How does that filter into what you're seeing

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<v Speaker 2>in the price section in Asia.

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<v Speaker 3>Asia's markets have also been buoyed by this. What we

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<v Speaker 3>have is a week a dollar as a result of

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<v Speaker 3>the prospects of LOFE US interest rates, and so that's

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<v Speaker 3>been boosting currencies in the region, and you have that

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<v Speaker 3>sort of knock on effect from the recovery in US

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<v Speaker 3>equity markets also feeding into Asia. I think in particular,

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<v Speaker 3>obviously the tech market, which has had more of a

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<v Speaker 3>wobble than most, starting to find a bit more stability

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<v Speaker 3>in because Asia's tech heavy gauges, particularly South Korea, Taiwan

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<v Speaker 3>and Japan, are so dependent on those global supply chains

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<v Speaker 3>and the prospects for AI development in the US and

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<v Speaker 3>globally that the recovery stateside has definitely had a beneficial

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<v Speaker 3>impact on Asia's markets as well. So interesting, you know,

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<v Speaker 3>it's been such a wobbly month, and yet getting towards

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<v Speaker 3>the end of it, I think on a global gauge,

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<v Speaker 3>we're only point five percent or thereabouts away from erasing

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<v Speaker 3>all of the losses for November, So turning it into

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<v Speaker 3>a positive month after all of the question marks that

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<v Speaker 3>we've had would definitely be, you know, kind of an interesting.

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<v Speaker 2>Development, particularly when you look at how highly correlated the

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<v Speaker 2>AI trade here is in the US, with let's say,

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<v Speaker 2>the South Korean equity market and names like sk Heinix

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<v Speaker 2>and Samsung and also Taiwan and TSMC.

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<v Speaker 3>Absolutely absolutely this kind of integral kind of part of

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<v Speaker 3>the supply chain. I do think there's one interesting sort

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<v Speaker 3>of additional thing that we saw over the past week

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<v Speaker 3>or so, which is just a little bit of a

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<v Speaker 3>fragmentation in terms of how people are viewing a future

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<v Speaker 3>of AI, more concerns and doubts about one stack and

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<v Speaker 3>more favorable for the other. The Google emergence, the strength

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<v Speaker 3>of its new AI programs and the prospect of its

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<v Speaker 3>selling some of its chips it's TPUs rather than NA

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<v Speaker 3>video chips, has quite of caused a little bit of

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<v Speaker 3>a consternation I think among investors who are thinking, hang

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<v Speaker 3>on a second, you know, this looks like maybe there's

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<v Speaker 3>some viable alternatives to the video and that supply chain

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<v Speaker 3>and to open AI and that supply chain, and so

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<v Speaker 3>you're starting to see just people thinking about, you know,

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<v Speaker 3>where's the best opportunity within tech rather than just trading.

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<v Speaker 3>Tech has one big unanimous blot.

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<v Speaker 2>When we look for signs of kind of the risk

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<v Speaker 2>appetite returning, you don't have to look any farther than bitcoin.

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<v Speaker 2>And right now we're above ninety one thousand for the

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<v Speaker 2>first time in about a week in your neck of

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<v Speaker 2>the woods, and I'm speaking to you from Singapore. How

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<v Speaker 2>is the crypto market used as a leading indicator of

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<v Speaker 2>appetite for risk?

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<v Speaker 3>It's really interesting, isn't it. Just how much it feels

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<v Speaker 3>a bit like the tail wagging the dog or something

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<v Speaker 3>like that at the moment, But how much those movements

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<v Speaker 3>in crypto fast trigger movements give you that sort of

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<v Speaker 3>insight into which way the wind is blowing. And so

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<v Speaker 3>all of this draw down that we've seen has certainly

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<v Speaker 3>had more of an impact on mainstream markets than we

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<v Speaker 3>might have seen in previous crypto booms and busts. I

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<v Speaker 3>do think, you know, it's more of a sentiment driven

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<v Speaker 3>thing rather than a particular big wealth effect or anything

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<v Speaker 3>like that thing. But I do also think that more

0:11:54.440 --> 0:11:57.240
<v Speaker 3>of the real economy is invested in crypto now than

0:11:57.280 --> 0:12:01.280
<v Speaker 3>it was previously, so there is some more direct read

0:12:01.280 --> 0:12:03.760
<v Speaker 3>across and people have been paying attention to it. Crypto itself, though,

0:12:03.800 --> 0:12:06.880
<v Speaker 3>doesn't have that many fundamentals, so it is about sentiments.

0:12:06.880 --> 0:12:09.800
<v Speaker 3>So I suppose if you're looking to discern the feel

0:12:10.080 --> 0:12:12.960
<v Speaker 3>for the market, then that is a pretty true indicator.

0:12:13.240 --> 0:12:16.240
<v Speaker 2>So I mentioned the data points for Japan earlier Tokyo

0:12:16.320 --> 0:12:20.120
<v Speaker 2>CPI along with industrial production and retail sales. What are

0:12:20.200 --> 0:12:22.800
<v Speaker 2>the other important data points that you're going to be

0:12:22.840 --> 0:12:25.679
<v Speaker 2>looking for on this final trading day in November?

0:12:27.280 --> 0:12:30.360
<v Speaker 3>Oh, good question. We have ECB minutes. People are wondering

0:12:30.400 --> 0:12:32.480
<v Speaker 3>are they going to try and squeeze another cutout at

0:12:32.480 --> 0:12:35.440
<v Speaker 3>some point. We've seen so many policymakers being adamant that

0:12:35.480 --> 0:12:39.240
<v Speaker 3>they're done, and yet maybe some arguments might start to

0:12:39.240 --> 0:12:42.280
<v Speaker 3>come on to the horizon again pointing in that direction.

0:12:42.679 --> 0:12:44.600
<v Speaker 3>But otherwise I think you know, what's going to be

0:12:44.600 --> 0:12:46.480
<v Speaker 3>really interesting just is to see where we get to

0:12:46.679 --> 0:12:49.480
<v Speaker 3>a month end. Can markets close out in November in

0:12:49.600 --> 0:12:52.000
<v Speaker 3>positive or is it going to be the first down

0:12:52.040 --> 0:12:53.839
<v Speaker 3>month that we've had for several months, and what does

0:12:53.880 --> 0:12:56.520
<v Speaker 3>that tell us about the prospects for that Santa Ralli

0:12:56.600 --> 0:13:00.200
<v Speaker 3>that everybody who's bullish on equities is hoping for it.

0:13:00.240 --> 0:13:03.400
<v Speaker 2>There. It's always a pleasure. Thanks so very much. Paul Dobson,

0:13:03.440 --> 0:13:06.679
<v Speaker 2>a Bloomberg Executive editor for Asia Markets, joining from our

0:13:06.760 --> 0:13:12.280
<v Speaker 2>studios in Singapore here on the Daybreak Asia Podcast. Thanks

0:13:12.280 --> 0:13:15.920
<v Speaker 2>for listening to today's episode of the Bloomberg Daybreak Asia

0:13:16.080 --> 0:13:20.520
<v Speaker 2>Edition podcast. Each weekday, we look at the story shaping markets, finance,

0:13:20.880 --> 0:13:23.960
<v Speaker 2>and geopolitics in the Asia Pacific. You can find us

0:13:23.960 --> 0:13:28.160
<v Speaker 2>on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

0:13:28.200 --> 0:13:31.280
<v Speaker 2>else you listen. Join us again tomorrow for insight on

0:13:31.360 --> 0:13:35.480
<v Speaker 2>the market moves from Hong Kong to Singapore and Australia.

0:13:35.920 --> 0:13:38.400
<v Speaker 2>I'm Doug Chrisner, and this is Bloomberg