WEBVTT - Iran Sanctions, China Credit 0:00:00.120 --> 0:00:10.480 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APAC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.120 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:26.760 --> 0:00:29.040 We wanted to take a closer look at the conflict 0:00:29.080 --> 0:00:33.760 between Israel and Iran, and we're joined by Kirsten Fontenrose, 0:00:33.840 --> 0:00:38.440 now president at Red six International. Well, it doesn't appear 0:00:38.520 --> 0:00:41.800 at the moment, Kirsten, that Israel will respond in the 0:00:42.240 --> 0:00:46.640 short term to the Iranian attacks this past weekend, Israel 0:00:46.680 --> 0:00:50.760 has reopened schools and Iran has opened its airspace. But 0:00:50.800 --> 0:00:53.840 we do have these other complications Jenny Yellen, for instance, 0:00:53.880 --> 0:00:57.200 saying that the US will apply new sanctions or more 0:00:57.240 --> 0:01:00.160 sanctions on Iran. What are some of those options that 0:01:00.240 --> 0:01:02.200 the US holds at the moment on sanctions. 0:01:03.800 --> 0:01:07.640 The US already has a host of sanctions on Iran, 0:01:07.720 --> 0:01:11.800 mostly based on counter terrorism laws in our domestic law books, 0:01:11.840 --> 0:01:18.040 but law authorizes US to sanction Uran's energy sector, financial sector, 0:01:18.080 --> 0:01:24.280 including its central bank, shipping, construction, mining, textiles, automotive manufacturing industries, 0:01:24.680 --> 0:01:27.800 it's arms trade, as well as components of their government, 0:01:27.840 --> 0:01:31.119 including the Supreme Leader and the Islamic Revolutionary Guard Corp 0:01:31.240 --> 0:01:35.959 or the IRGC, plus any entities that conduct transactions with 0:01:36.200 --> 0:01:38.039 these or otherwise support them. 0:01:38.040 --> 0:01:39.840 So it's a really broad writ. 0:01:40.240 --> 0:01:43.319 We expect that any new sanctions will be focused on 0:01:43.560 --> 0:01:48.400 export of petroleum and petroleum products or import of components 0:01:48.400 --> 0:01:51.200 for their drone or missile programs. A lot of those 0:01:51.200 --> 0:01:53.920 components are commercial and off the shelf, and the Islamic 0:01:53.960 --> 0:01:57.800 Revolutionary Guard Corps often sets up cover or front companies 0:01:58.120 --> 0:02:02.480 that will import from UNWA actors who provide parts to 0:02:02.520 --> 0:02:05.720 the commercial sector. So sometimes it's a whack a mole 0:02:05.840 --> 0:02:08.760 game of the US contacting these companies and saying, we 0:02:08.800 --> 0:02:10.480 know you didn't mean to do this, but you're going to. 0:02:10.520 --> 0:02:11.480 Have to stop doing it. 0:02:13.160 --> 0:02:15.400 One of the criticisms of the Biden administration has been 0:02:15.400 --> 0:02:17.440 that the sanctions that have been in place have not 0:02:17.520 --> 0:02:20.280 been enforced, so we'll probably see a lot more than 0:02:20.280 --> 0:02:23.920 wave of enforcement as well. In fact, the Congress the 0:02:24.000 --> 0:02:28.080 US House of Representatives passed four new bills yesterday, two 0:02:28.080 --> 0:02:30.040 of which really are intended to kind of hold the 0:02:30.040 --> 0:02:34.800 Biden administration to enforcement, and two others that focus on, 0:02:34.880 --> 0:02:41.120 for instance, secondary sanctions and the humanitary exemptions piece in 0:02:41.240 --> 0:02:43.919 the existing sanctions. I'm happy to go into a little 0:02:43.919 --> 0:02:45.320 more on those sanctions if you like. 0:02:45.560 --> 0:02:48.000 I'd like to get your sense on to what extent 0:02:48.160 --> 0:02:51.840 Iran is reliant on Russia for some of these weapons 0:02:51.919 --> 0:02:52.959 that we're talking about. 0:02:55.320 --> 0:02:57.920 The trade is actually in the other directions, so Russia 0:02:57.960 --> 0:03:00.880 tends to stick by Iran, and a lot of this 0:03:00.960 --> 0:03:04.360 is because Russia is relying on Iran for much of 0:03:04.400 --> 0:03:06.760 the weaponry it is using in its war on Ukraine. 0:03:06.840 --> 0:03:09.480 It has a couple of its own really capable drones, 0:03:09.480 --> 0:03:11.440 but the drone it's been having the best luck with 0:03:11.600 --> 0:03:13.800 is the shot HAD one thirty six, which is an 0:03:13.840 --> 0:03:17.560 Iranian model, and Iran agreed to a technology transfer that 0:03:17.600 --> 0:03:20.800 is allowing Russia to build these domestically. Now they expect 0:03:20.840 --> 0:03:22.960 to have four factories up and coming years, and some 0:03:23.080 --> 0:03:26.360 are already being produced. We don't know how much is disinformation, 0:03:26.480 --> 0:03:28.720 how much is sort of a military deception campaign, or 0:03:28.720 --> 0:03:31.760 how much is really being produced of those drones domestically yet, 0:03:32.160 --> 0:03:34.880 but The reason this relationship is meaningful for Iran is 0:03:34.920 --> 0:03:38.960 not only the income from those arms transfers, but also 0:03:38.960 --> 0:03:42.040 because of Russia's veto in the UN Security Council that 0:03:42.120 --> 0:03:44.160 has been used and will probably continue to be used 0:03:44.160 --> 0:03:49.640 to protect Iran, to defeat attempts to mitigate its import 0:03:49.640 --> 0:03:52.720 of a lot of these weapons components, to block arms 0:03:52.720 --> 0:03:55.400 and bargoes, to hold it responsible for certain kinds of 0:03:55.640 --> 0:03:58.680 support to proxy militias around the rest of the Middle East. 0:03:58.880 --> 0:04:02.480 Russia has been a very use full aid to Iran 0:04:02.600 --> 0:04:07.119 in the Security Council with that VITO, So a lot 0:04:07.160 --> 0:04:09.040 of the technology is actually going the other way, but 0:04:09.080 --> 0:04:10.240 the political support is. 0:04:10.240 --> 0:04:10.839 Coming this way. 0:04:11.200 --> 0:04:15.640 And the sanctions on Russia haven't led to China, for instance, 0:04:15.720 --> 0:04:19.800 not buying oil from Russia or getting gas. So you 0:04:19.880 --> 0:04:23.279 wonder if some new sanctions are applied by the United 0:04:23.320 --> 0:04:26.200 States and even the EU, because the EU could could 0:04:26.240 --> 0:04:29.039 well join in with some new sanctions. But if the 0:04:29.080 --> 0:04:32.279 sanctions aren't enforced, and we're seeing that, you know in 0:04:32.360 --> 0:04:35.480 day to day life, you know, you wonder whether or 0:04:35.520 --> 0:04:38.560 not really a pledge to crack down more is more 0:04:38.600 --> 0:04:40.000 important than new. 0:04:39.839 --> 0:04:43.240 Sanctions exactly, And that is part of what the House 0:04:43.279 --> 0:04:47.440 of Representatives is thinking. So, for instance, we're seeing one 0:04:47.480 --> 0:04:50.440 of these bills that was just passed is called the 0:04:50.480 --> 0:04:53.560 Iran China Energy Sanctions Act of twenty twenty three. So 0:04:53.600 --> 0:04:55.479 it's been in process, but there's been a sense of 0:04:55.560 --> 0:04:59.080 urgency obviously this week. And it expands the secondary sanctions 0:04:59.120 --> 0:05:04.120 regime evolving Iran to include all transactions between Chinese financial 0:05:04.120 --> 0:05:07.080 institutions and the banks in Iran, which of course are 0:05:07.160 --> 0:05:11.120 already sanctioned that handle any sort of petroleum product trade. 0:05:11.400 --> 0:05:14.240 So you're seeing China wrapped in there, and you know 0:05:14.279 --> 0:05:18.240 these additional secondary sanctions coming on. Congress is also saying, okay, 0:05:18.400 --> 0:05:22.800 administration in Washington, we want you to prohibit the Treasury 0:05:22.839 --> 0:05:26.080 from issuing any licenses to a US financial institution to 0:05:26.160 --> 0:05:30.360 engage in trade with Iran other than humanitarian aid, and 0:05:30.480 --> 0:05:33.520 we want you to oppose IMF assistance to Iran. And 0:05:33.560 --> 0:05:35.520 in order to make that happen, we're going to make 0:05:35.560 --> 0:05:38.560 it law. So they've passed the No US Financing for 0:05:38.600 --> 0:05:41.240 Iran Act Act of twenty twenty three. Of course, these 0:05:41.279 --> 0:05:43.120 are just coming out of the House. You know, they're 0:05:43.200 --> 0:05:47.080 not complete yet. There's also the around sanctions accountability Act 0:05:47.120 --> 0:05:49.200 of twenty twenty three. All these names sound the same, 0:05:49.200 --> 0:05:52.240 but this one requires the president to issue regulations that 0:05:52.400 --> 0:05:56.360 ensure those humanitarian exemptions to US sanctions don't actually go 0:05:56.480 --> 0:06:00.159 toward facilitating terrorism internationally or trading. 0:06:00.120 --> 0:06:02.920 Weapons of mass destruction. Well, and there was a final one. 0:06:03.600 --> 0:06:05.760 I'm sorry to interrupt. I was just going to get 0:06:05.800 --> 0:06:08.880 your take on what we know of what's happening at 0:06:08.920 --> 0:06:11.799 the war cabinet in Israel and the extent to which 0:06:12.640 --> 0:06:16.240 the conversation is going on between Washington and the war cabinet, 0:06:16.400 --> 0:06:18.880 to the extent that the US has any influence over 0:06:18.920 --> 0:06:19.760 what happens next. 0:06:20.680 --> 0:06:24.039 It's an ongoing conversation between Washington and this war cabinet. 0:06:24.279 --> 0:06:27.360 And then Europe is weighing in. Arab governments are weighing in. 0:06:28.040 --> 0:06:30.440 A lot of folks are out from outside, are trying 0:06:30.480 --> 0:06:35.120 to encourage restraint, saying, you run a couple of risks here. One, 0:06:35.200 --> 0:06:39.120 you start a retaliatory cycle. Two, the world is giving 0:06:39.160 --> 0:06:41.839 you a little bit of goodwill because you shot down 0:06:41.920 --> 0:06:44.720 with all of our help ninety nine percent of this 0:06:44.800 --> 0:06:47.599 barrage of weaponry that came at you. And this is 0:06:47.720 --> 0:06:52.280 reinstated belief in the fact that Israel has impenetrable air defenses. 0:06:52.480 --> 0:06:54.760 You know, after October seventh, they lost a little bit 0:06:54.760 --> 0:06:58.160 of that belief in their strength of defense because of 0:06:58.200 --> 0:07:01.440 the intelligence failures on October seven. But now with the 0:07:01.480 --> 0:07:05.480 defeat of this deluge in the sky, they have restored 0:07:05.480 --> 0:07:07.760 some of that and it's probably going to be really 0:07:07.760 --> 0:07:11.360 good for their defense industry, their domestic defense industry, and 0:07:11.440 --> 0:07:14.520 it's good for their relationships in the region. People want 0:07:14.560 --> 0:07:18.560 this kind of partner and it required this coalition of 0:07:18.720 --> 0:07:21.600 Arab partners with Israel that sent COOM. 0:07:21.720 --> 0:07:24.120 The US Central Command has been building for years to 0:07:24.160 --> 0:07:27.680 create this umbrella of Aaron missile defense. But all of 0:07:27.680 --> 0:07:28.800 these partners are saying. 0:07:28.600 --> 0:07:31.280 Please don't start a cycle of escalation, and please don't 0:07:31.280 --> 0:07:33.760 make it hard for us with our publics, because they 0:07:33.760 --> 0:07:36.120 are not particularly fond of the idea that we are 0:07:36.160 --> 0:07:41.240 defending quote unquote Israeli sovereignty right now. They are instead 0:07:41.280 --> 0:07:43.360 messaging that this is truly an issue of their own 0:07:43.400 --> 0:07:46.240 sovereignty and that no matter where a drone or missile 0:07:46.280 --> 0:07:48.520 comes from, they will knock it out of their airspace. 0:07:48.720 --> 0:07:51.920 They've all been Jordan, UAE, Saudi, even Egypt have been 0:07:51.960 --> 0:07:54.760 really clear that This is not an issue of defending 0:07:54.800 --> 0:07:56.960 one country over the other. This is an issue of 0:07:57.040 --> 0:07:59.600 national sovereignty and the desire not to see these things 0:07:59.640 --> 0:08:01.560 fall out of the sky onto their own citizens. 0:08:02.240 --> 0:08:05.200 Kirsen, are we learning that sanctions just don't really work 0:08:05.240 --> 0:08:09.440 as well as perhaps administrations believe they would, because we 0:08:09.520 --> 0:08:12.280 mentioned the Russian sanctions and now we have all these 0:08:12.560 --> 0:08:16.400 sanctions already on Iran. And you know, by the way, 0:08:16.920 --> 0:08:19.320 if the EU were to join in, would that make 0:08:19.360 --> 0:08:19.920 a difference. 0:08:21.840 --> 0:08:24.120 It makes a difference on the messaging, and it makes 0:08:24.120 --> 0:08:26.480 a difference whether we can get other parts of the 0:08:26.520 --> 0:08:29.400 world to also join these sanctions, places where the US 0:08:29.440 --> 0:08:32.000 doesn't have as much leverage. Perhaps we get countries in Africa, 0:08:32.080 --> 0:08:36.240 Latin America, places used as transit places, used for cover companies. 0:08:36.400 --> 0:08:39.280 But it really all comes down to enforcement. 0:08:38.960 --> 0:08:42.520 And evasion, and those two things impact how successful any 0:08:42.559 --> 0:08:45.880 sanction is going to be. So the Biden administration, while 0:08:45.920 --> 0:08:50.400 in talks about a renewed nuclear agreement, let off the 0:08:50.400 --> 0:08:53.920 pedal on the sanctions enforcement, hoping that this would be 0:08:53.960 --> 0:08:56.240 a signal of goodwill to the Iranian regime and they 0:08:56.280 --> 0:08:59.280 would then be willing to negotiate in greater faith that 0:08:59.320 --> 0:09:01.760 didn't happen. And again, as I mentioned, you're now seeing 0:09:01.800 --> 0:09:05.200 Congress kind of tie their hands on potentially tyler hands 0:09:05.200 --> 0:09:08.040 through the house. We'll see the Senate says on enforcement. 0:09:08.280 --> 0:09:11.240 And then Iran has been really active in trying to 0:09:11.520 --> 0:09:15.360 devise ways of evading sanctions. Some of this is operating 0:09:15.440 --> 0:09:21.080 outside the US and Western financial systems. So but their 0:09:21.160 --> 0:09:24.360 clients for this kind of activity happen to include the 0:09:24.440 --> 0:09:26.800 largest purchaser of energy in the world, which is China. 0:09:27.000 --> 0:09:30.559 Kirsten Fonton Rose, president at Red six International. 0:09:37.080 --> 0:09:41.400 We're joined now by Bloomberg opinion columnist Chuli Wren talking 0:09:41.440 --> 0:09:44.800 about her column on China Von Kah and the company 0:09:44.880 --> 0:09:49.520 denying that it's running into difficulty. Wonka is a China's 0:09:49.559 --> 0:09:54.440 second largest property builder bry Sales, and I think Shuly 0:09:54.559 --> 0:09:58.040 feels as this says a lot maybe everything about what's 0:09:58.080 --> 0:10:00.920 happening right now in the China property market. Surely it's 0:10:00.920 --> 0:10:04.120 always a pleasure expand on that. How is von Kau 0:10:04.640 --> 0:10:07.560 kind of giving us a window into everything that's going 0:10:07.559 --> 0:10:09.160 on with the property market in China. 0:10:11.559 --> 0:10:15.640 It can be surprising how fast China's a property developers 0:10:15.880 --> 0:10:19.640 run out their cash one by the way, It's nothing 0:10:19.720 --> 0:10:23.160 like a China Evergrand or Country Garden. It is one 0:10:23.200 --> 0:10:26.480 of the best run and the well managed companies in China. 0:10:26.760 --> 0:10:29.920 But what we are seeing is that the cash level 0:10:30.080 --> 0:10:35.120 is drinkling really fast, even though it's achieving operating positive 0:10:35.200 --> 0:10:38.959 operating cash flow. In other words, that the company's call 0:10:39.040 --> 0:10:42.880 business can be still profitable and lucrative, but in the 0:10:43.040 --> 0:10:45.240 end it's running into cash troubles. 0:10:45.960 --> 0:10:49.040 Well, yeah, it's cash is not sufficient to cover the 0:10:49.040 --> 0:10:52.160 bonds maturing this year, so I mean it needs extra funding. 0:10:52.559 --> 0:10:55.480 It needs that extra capital. I think it would be 0:10:55.520 --> 0:10:59.360 difficult to sell shares right now or even dead. So 0:10:59.400 --> 0:11:02.960 I suppose that means, you know, going to the banks, 0:11:03.080 --> 0:11:05.920 and we saw yesterday they set aside seventeen to eighteen 0:11:05.920 --> 0:11:09.480 billion dollars were of assets to service collateral. But the 0:11:09.559 --> 0:11:13.760 question must be how stable are those assets given that 0:11:13.800 --> 0:11:15.280 they are tied to property. 0:11:16.960 --> 0:11:19.920 Right, So that was a news report, and then the 0:11:20.000 --> 0:11:24.400 company did not come from or deny it, which to 0:11:24.480 --> 0:11:28.000 me is a reference to be honest, exactly like what 0:11:28.080 --> 0:11:30.360 you said, Brian, A lot of They do have a 0:11:30.400 --> 0:11:32.760 lot of investment assets. They own a lot of shopping 0:11:32.800 --> 0:11:35.920 malls across China, but The question is how much are 0:11:36.000 --> 0:11:38.520 these assets work? And that, by the way, are these 0:11:38.559 --> 0:11:41.360 assets being pledged away already? I mean, what we are 0:11:41.400 --> 0:11:44.840 seeing in China is that the remaining real estate developers 0:11:44.840 --> 0:11:48.839 they're trying to puzzle out their assets and flow them 0:11:48.920 --> 0:11:51.319 as some form of reds right, and then like a 0:11:51.400 --> 0:11:54.320 stay owned enterprises can say, Okay, I don't want to 0:11:54.559 --> 0:11:57.439 they are a real estate developer, but I can buy 0:11:57.720 --> 0:12:03.280 a publicly traded ate. Question is how much are these 0:12:03.320 --> 0:12:07.400 assets worth? And that's yes, that's a big question marketing 0:12:07.400 --> 0:12:08.559 in China rants is. 0:12:08.480 --> 0:12:12.920 That the only solution that the regulators, the leadership in 0:12:13.000 --> 0:12:15.040 China is able to come up with, I mean to 0:12:15.160 --> 0:12:17.680 kind of go the route that you just described, carve 0:12:17.720 --> 0:12:21.040 them up into reads and let kind of the investment 0:12:21.080 --> 0:12:25.200 dollars from kind of the domestic pension industry to be 0:12:25.840 --> 0:12:27.120 invested in these companies. 0:12:28.920 --> 0:12:32.200 Well, so far, the Chinese government wants to is still 0:12:32.240 --> 0:12:35.679 talking about so called the market oriented solutions. Basically, they 0:12:35.679 --> 0:12:38.280 don't want to do anything else, and they're hoping that 0:12:38.360 --> 0:12:40.800 the financial markets will take up the reads just like 0:12:40.800 --> 0:12:43.360 what you said, pension and insurance companies will do that. 0:12:43.600 --> 0:12:47.040 But it's really hard to do because I mean, the 0:12:47.400 --> 0:12:50.520 whole economy is in the deflation right, and which means 0:12:50.559 --> 0:12:53.559 that its asset prices should also be in a downward 0:12:53.720 --> 0:12:56.200 spiral trend, and we just don't know how to value 0:12:56.240 --> 0:12:58.840 these opaque commercial assets. 0:13:00.760 --> 0:13:03.480 It could one of the options I didn't mention was 0:13:03.520 --> 0:13:07.120 it could go to its largest shareholder, Shenjan Metro, But 0:13:07.160 --> 0:13:12.600 it seems that that company is not that willing. What 0:13:12.679 --> 0:13:15.760 are the difficulties in that relationship at the. 0:13:15.679 --> 0:13:21.200 Moment, Well, Shinjin Metro only owns twenty seven percent, so yes, 0:13:21.320 --> 0:13:23.640 it is the largest shareholder, but it can say I'm 0:13:23.640 --> 0:13:26.640 not the majority shareholder. And the one CU has been 0:13:26.920 --> 0:13:30.920 listed since nineteen ninety one, so basically, all the mom 0:13:31.000 --> 0:13:35.160 and pops and minority shareholders, we are actually majority LEA 0:13:35.240 --> 0:13:37.800 shareholders and we are not going to take a responsibility. 0:13:38.320 --> 0:13:40.440 How are one Could's financial triples? 0:13:40.679 --> 0:13:40.760 Ye? 0:13:41.120 --> 0:13:45.560 So how are the difficulties at one coh impacting entrepreneurship? 0:13:45.679 --> 0:13:48.160 More broadly? You make that point, and I'm curious about that. 0:13:50.000 --> 0:13:50.959 I think One. 0:13:50.800 --> 0:13:54.640 Could is a very interesting case study because it's so 0:13:54.840 --> 0:13:59.040 famous and it went public before Danshakin came to Shanjan. 0:13:59.280 --> 0:14:01.920 For the Southern who are in nineteen ninety two when 0:14:02.040 --> 0:14:07.120 the previous leader talked about the economic reforms and opening 0:14:07.160 --> 0:14:10.680 up China. And one is also based in Shanshan, and 0:14:10.840 --> 0:14:15.800 Chenchhan was the first city in mainland China that opened up. 0:14:15.880 --> 0:14:19.480 It's a property market and allow people to own homes. 0:14:19.560 --> 0:14:23.920 Right before that, we no Chinese own any homes. So 0:14:24.040 --> 0:14:27.560 if one Curt fails, I think it really is a 0:14:27.600 --> 0:14:30.280 best sentence unfortunately to Dan Shoppings edision. 0:14:30.920 --> 0:14:34.400 So it seems that the government is probably the final 0:14:34.560 --> 0:14:39.240 straw here that it can't let evergrand and country garden 0:14:39.400 --> 0:14:42.840 and one could go down because the municipalities and the 0:14:42.880 --> 0:14:46.600 provinces have to have somebody to sell their land to. Right, 0:14:47.080 --> 0:14:49.680 So is that the most likely outcome is a state 0:14:49.760 --> 0:14:50.520 backed bail out? 0:14:52.400 --> 0:14:55.360 I think so. I mean one cur is really one 0:14:55.400 --> 0:14:59.120 of the very few privately health developers left. I mean 0:14:59.120 --> 0:15:02.720 everyone else is day old, right, Like, it's basically still 0:15:02.800 --> 0:15:05.160 the state's money buying its own land. But I think 0:15:05.400 --> 0:15:08.760 right now the Chinese government it knows it's trouble, and 0:15:08.800 --> 0:15:12.960 then the trouble is just so big and daunting that 0:15:13.400 --> 0:15:16.920 it's just paralyzed. It just hopes for the best. I 0:15:16.920 --> 0:15:18.119 think at this point. 0:15:18.000 --> 0:15:20.000 Surely it's always a pleasure. Thanks for making time to 0:15:20.080 --> 0:15:23.720 chat with us. Bloomberg opinion columnist Truly Wren talking about 0:15:24.240 --> 0:15:28.440 the situation with property developer China Wonka. 0:15:34.200 --> 0:15:36.720 We look at markets all throughout the program here on 0:15:36.760 --> 0:15:40.160 Bloomberg Daybreak Asia. And joining us now for some closer 0:15:40.720 --> 0:15:44.280 analysis is Dominic Schneider, head of Global Commodities and four 0:15:44.320 --> 0:15:48.000 Exit UBS Global Wealth Management. Dominic, thanks very much for 0:15:48.040 --> 0:15:51.560 coming in. So if we take the big broad macro view, 0:15:52.040 --> 0:15:54.520 it's been a risk on environment here for most of 0:15:54.600 --> 0:15:56.920 the early part of this year. I just over the 0:15:56.960 --> 0:15:58.880 past month or so it's gotten a little bit more 0:15:59.200 --> 0:16:02.360 sticky with you inflation readings in the United States, and 0:16:02.600 --> 0:16:04.840 we've seen the S and P five hundred go from 0:16:04.840 --> 0:16:07.480 a gain of ten percent to only up about six 0:16:07.560 --> 0:16:11.240 percent year to date. And the commentary that we got 0:16:11.280 --> 0:16:14.320 from j. Powell today was a little bit of a change. 0:16:14.360 --> 0:16:18.200 He's really talking now about higher for longer, not being 0:16:18.240 --> 0:16:20.680 convinced that inflation is coming down to the extent that 0:16:20.720 --> 0:16:24.000 they would need it. And so one end result of 0:16:24.000 --> 0:16:27.120 that is a strong dollar. Is the strong dollar as 0:16:27.240 --> 0:16:32.200 likely as anything to disrupt the sort of positive feelings 0:16:32.200 --> 0:16:33.720 that we've had for most of this year, and is 0:16:33.760 --> 0:16:35.160 it about ready to get serious? 0:16:35.760 --> 0:16:37.440 Well, if you look at the dollar in general, I 0:16:37.440 --> 0:16:39.040 would say we still have a little bit more to 0:16:39.080 --> 0:16:41.120 go on the strength side. I mean we can still 0:16:41.160 --> 0:16:43.680 price out all the cuts. There are still some cuts 0:16:43.720 --> 0:16:46.200 in there, so I think from that angle, dollar strength 0:16:46.240 --> 0:16:48.280 has a little bit room to runs. That means, for example, 0:16:48.320 --> 0:16:51.320 your dollar goes to one point h five from a 0:16:51.360 --> 0:16:55.000 temporarily below Do I think it needs completely to alter 0:16:55.360 --> 0:16:59.000 the macro landscape? Probably not. Just pricing out in itself 0:16:59.040 --> 0:17:01.880 would not derailed economy. Obviously, if we start to think 0:17:01.920 --> 0:17:05.160 about hiking rates, that will be a complete different game changer. 0:17:05.200 --> 0:17:08.440 But we're still the opinion that inflation dusty salerate, which 0:17:08.480 --> 0:17:11.560 growth comes down and earnings are maybe outside some of 0:17:11.600 --> 0:17:14.320 the tech names not as strong, So we don't need 0:17:14.359 --> 0:17:16.400 to make that drastic change. But it's pours a little 0:17:16.400 --> 0:17:18.359 bit cold water, as you said, over some of the 0:17:18.440 --> 0:17:20.720 risk one story, and maybe that's not so bad off 0:17:20.720 --> 0:17:23.760 the good rally a consolidation, that's good. Then we need 0:17:23.800 --> 0:17:26.000 to see if growth is better outside the US. If 0:17:26.000 --> 0:17:28.000 that comes through, the rally can continue. 0:17:28.080 --> 0:17:30.600 I'm wondering whether or not you feel the market is 0:17:30.800 --> 0:17:33.639 a little complacent, not a lot, but a little complacent 0:17:34.240 --> 0:17:37.400 on the level of geopolitical risk right now. I mean 0:17:37.400 --> 0:17:39.560 you could make the case yes, obviously a lot of 0:17:39.560 --> 0:17:43.639 the dollar strength is tied to this rate environment here 0:17:43.680 --> 0:17:45.440 that we're dealing with in the US, but there may 0:17:45.440 --> 0:17:49.560 have been some haven buying recently, particularly given this escalation 0:17:49.640 --> 0:17:51.760 that we've seen over the last couple of days in 0:17:51.840 --> 0:17:54.719 the Mid East. And then the second part of that 0:17:55.000 --> 0:17:59.399 is whether geopolitical risk has the potential to push commodity 0:17:59.440 --> 0:18:00.840 prices up just a little bit. 0:18:01.880 --> 0:18:03.560 Well, I must say, I mean, at the end of 0:18:03.600 --> 0:18:06.119 the day, the Middle Eastern crisis hinges or for the 0:18:06.160 --> 0:18:08.800 global market, it's all about what happened to oil, And 0:18:08.800 --> 0:18:12.160 I think the old market so far thinks, okay, nobody's 0:18:12.200 --> 0:18:16.120 really interested. Things are definitely escalating, but nobody wants any 0:18:16.160 --> 0:18:21.560 disruptions on oil supply for maybe also presidential reason. You know, 0:18:21.600 --> 0:18:23.359 when you go for an election, you don't want to 0:18:23.400 --> 0:18:26.800 have necessarily a higher oil price. And everybody else also 0:18:26.880 --> 0:18:29.119 here in the East. So I think everybody's mind is 0:18:29.359 --> 0:18:33.840 keep oil flowing, and I think that keeps the uncertainty constraint, 0:18:33.840 --> 0:18:37.000 at least for the broader market. We also could say 0:18:37.000 --> 0:18:39.120 that in case of oil, there's probably already a five 0:18:39.240 --> 0:18:41.919 dollars up to ten dollars risk premium there on the 0:18:41.960 --> 0:18:44.760 supply side. But clearly if something would happen and we 0:18:44.840 --> 0:18:47.080 get straight up for most something like blocked and or 0:18:47.080 --> 0:18:50.120 at least we lose one or two million barrels suddenly, 0:18:50.400 --> 0:18:52.520 I think then the prices will jump quite a fair bit. 0:18:52.600 --> 0:18:56.159 And in that context, I think oil is actually a steal. 0:18:56.720 --> 0:18:59.080 If you think about you get an insurance asset, normally 0:18:59.080 --> 0:19:01.480 you pay for it, and here you get actually probably 0:19:01.520 --> 0:19:03.960 paid with the forward curve being downward slopes. 0:19:04.040 --> 0:19:07.120 But one of the issues is the strong dollar. Obviously, 0:19:07.160 --> 0:19:10.000 I mean oil priced in dollars, so if the dollar 0:19:10.080 --> 0:19:12.600 is strong and it sort of mitigates perhaps the gain 0:19:12.640 --> 0:19:16.199 in the oil price. And I'm just wondering whether or not, 0:19:16.320 --> 0:19:19.119 you know, the lack of safe havens at the moment 0:19:19.600 --> 0:19:22.280 could be you know, changing mix a little bit. I mean, 0:19:22.520 --> 0:19:24.840 bonds are being sold off here and yields are running 0:19:24.840 --> 0:19:28.359 to the upside, so it's not exactly that investors are 0:19:28.359 --> 0:19:30.760 buying bonds as a safe haven. What is a safe 0:19:30.760 --> 0:19:33.359 haven at the moment besides gold and the dollar. 0:19:35.119 --> 0:19:37.720 You rightfully said there is not really much. I think 0:19:37.800 --> 0:19:40.919 still in that environment it would hold some commodities, to 0:19:40.960 --> 0:19:43.879 be honest, because I think in the context of the 0:19:43.920 --> 0:19:47.600 Middle Eastern crisis, holding oil makes a lot of sense. 0:19:47.640 --> 0:19:49.600 But in terms of obviously that comes with a fair 0:19:49.600 --> 0:19:53.160 bit of volatility close to thirty. There is not many 0:19:53.200 --> 0:19:55.800 safe haven you might want to think about. More towards 0:19:56.000 --> 0:19:58.119 Latin America. You're going to go for some of these 0:19:58.480 --> 0:20:02.600 higher yielding currencies. They're not safe haven, but they are 0:20:03.040 --> 0:20:05.960 closer to the US economy. They give you good yield. 0:20:06.080 --> 0:20:08.880 I mean that's something to maybe hide or look for 0:20:09.000 --> 0:20:13.240 a middle through pass, I would say. But beyond I 0:20:13.280 --> 0:20:16.639 would say dollar goal not much. You can look at 0:20:16.640 --> 0:20:18.879 the Swiss franc but story is a little bit broken 0:20:19.000 --> 0:20:21.280 given what we have seen with the SMB and the 0:20:21.320 --> 0:20:24.040 policy change here. But that could come back at some point. 0:20:24.280 --> 0:20:26.720 Talk about things that are broken in terms of haven's 0:20:26.800 --> 0:20:29.479 the Japanese currency. I mean, we're flirting here with one 0:20:29.640 --> 0:20:33.760 fifty five. We've got JP Morgan Private Banking saying along 0:20:33.800 --> 0:20:37.600 with Bank of America both saying one fifty or one sixty. 0:20:37.640 --> 0:20:39.639 I'm sorry, it could be the next milestone. What's your 0:20:39.640 --> 0:20:41.480 outlook for the end, I. 0:20:41.520 --> 0:20:44.399 Will be thinking that basically in the short term dolly 0:20:44.440 --> 0:20:47.000 into trade more towards the one hundred and fifty. Obviously 0:20:47.000 --> 0:20:50.080 that was under the regime of thinking there's still going 0:20:50.119 --> 0:20:52.679 to be three rate cuts. Now rates stay high, I 0:20:52.720 --> 0:20:55.639 mean one hundred and fifty five, we're higher, clearly possible. 0:20:55.680 --> 0:20:59.680 It's probably too early to position yourself in a long 0:20:59.720 --> 0:21:03.360 ym position, given where yield differentials are and how focused 0:21:03.359 --> 0:21:06.520 the market is at this point in time. So at 0:21:06.520 --> 0:21:10.320 this point in time would say yen clearly not to touch. However, 0:21:10.400 --> 0:21:12.480 I mean look at let's look at the longer term picture. 0:21:12.520 --> 0:21:15.240 I mean it's it is cheap, the economy does well, 0:21:15.280 --> 0:21:17.520 but we obviously really need to see the buch a 0:21:17.560 --> 0:21:19.200 little bit moving the needle here. 0:21:19.520 --> 0:21:21.800 Well, your pretty equity is conversing. So if we had 0:21:21.840 --> 0:21:24.480 more time, I'd ask you if the megacaps could be 0:21:24.520 --> 0:21:25.720 a safeye it well. 0:21:25.600 --> 0:21:26.720 Save that for next time. 0:21:27.880 --> 0:21:30.360 Was a pretty strong balance sheets, Dominic. Thank you so much, 0:21:30.400 --> 0:21:32.000 Dominic Schneider from UBS. 0:21:34.920 --> 0:21:37.879 This has been the Bloomberg Daybreak Asia podcast, bringing you 0:21:37.920 --> 0:21:41.040 the stories making news and moving markets in the Asia Pacific. 0:21:41.560 --> 0:21:44.680