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Speaker 1: Good morning. It's Monday, the fifth of February here in London.

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Speaker 1: This is the Bloomberg Daybreak you at podcast. I'm Caroline

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Speaker 1: Hepke and.

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Speaker 2: I'm Stephen Carroll. Coming up today, the US strikes back

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Speaker 2: at Iranian proxies as the risks of a wider Middle

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Speaker 2: East war grow.

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Speaker 1: Jerome Powell palls even more cold water on the prospect

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Speaker 1: of a March interest rate cut.

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Speaker 2: Plus Trump has China in his sights again. The likely

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Speaker 2: Republican presidential nominee suggests a sixty percent import tariff.

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Speaker 1: Let's start with a roundup of our top stories.

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Speaker 2: The United States has vowed to launch more strikes against

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Speaker 2: Iran's forces and its proxies in the Middle East after

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Speaker 2: three straight days of military action. American officials say the

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Speaker 2: strikes are a necessary and inevitable response to the killing

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Speaker 2: of three US soldiers and a drone strike in Jordan

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Speaker 2: last weekend, but White House National Security Advisor Jake Sullivan

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Speaker 2: insists the country won't be pulled into a prolonged regional conflict.

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Speaker 3: We will respond, and we will respond forcefully, and we

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Speaker 3: will respond in a sustained way. I would not describe

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Speaker 3: it as some open ended military campaign. We have a

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Speaker 3: concept of how we intend to respond. I'm not going

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Speaker 3: to telegraph it on this show, but we will execute

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Speaker 3: that concept with the kind of professionalism that only the

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Speaker 3: US military can bring.

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Speaker 2: Kabir in a separate interview at CNN, Sullivan also declined

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Speaker 2: to rule out taking action inside Iran. Friday strikes hit

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Speaker 2: eighty five targets in Iraq and Syria linked to Iranian

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Speaker 2: forces and militias. An Iranian Foreign Ministry spokesman called the

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Speaker 2: action a strategic mistake.

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Speaker 1: The growing risk of direct conflict between the US and

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Speaker 1: Iran comes as American and British forces continued to strike

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Speaker 1: Iranian backed who the these in Yemen, including this morning,

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Speaker 1: as part of an effort to end the militant group's

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Speaker 1: attacks on commercial ships in the Red Sea. Speaking ahead

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Speaker 1: of this latest round of strikes, the US Defense Secretary

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Speaker 1: Lloyd Austin spelled out the escalating challenge in the region.

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Speaker 4: In the aftermath of the Viral Hamas terrorists assault on

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Speaker 4: Israel on October seventh, terrorist groups backed by Iran and

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Speaker 4: funded by Iran have tried to create even more turmoil,

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Speaker 4: including the Huthis attacking commercial shipping in the Red Sea.

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Speaker 4: So this is a dangerous moment in the Middle East.

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Speaker 1: Lloyd Austin, speaking as America's top diplomat, Anthony Blinken, embarks

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Speaker 1: on a fifth trip to the Middle East since the

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Speaker 1: October seventh Hamas attacks on southern Israel, which touched off

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Speaker 1: a war in the Gaza Strip.

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Speaker 2: Jerome powals as Americans may have to wait a while

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Speaker 2: longer for interest rate cuts. The Federal Reserve chair told

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Speaker 2: CBS's Sixty Minutes program that officials need more positive inflation

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Speaker 2: data and emphasize the risks of moving too soon. He added,

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Speaker 2: the potential conflict poses the biggest challenge to global economic recovery.

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Speaker 5: I think in the near term. I would point to

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Speaker 5: the geopolitical risks. The global economy is broadly healing from

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Speaker 5: the pandemic now all over the world you're seeing inflation

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Speaker 5: come down, but there's a war going on in Ukraine,

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Speaker 5: there's a war going on in the Middle East, and

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Speaker 5: potential trouble in Asia, and so all of those things

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Speaker 5: represent risks.

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Speaker 2: Powell also notes that the Federal Open Market Committee is

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Speaker 2: unlikely to cut rates at the next meeting, echoing comments

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Speaker 2: made during a press conference last Wednesday. The Fed chair

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Speaker 2: set policymakers generally agree on the next course of action.

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Speaker 5: I think it's not likely that this committee will reach

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Speaker 5: that level of confidence in time for the March meeting,

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Speaker 5: which is in seven weeks.

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Speaker 4: How would you characterize the consensus around this table for

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Speaker 4: rape cuts? Is everyone on board?

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Speaker 6: Almost all?

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Speaker 5: Almost all of the nineteen participants who sit around this

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Speaker 5: table believe that it will be appropriate in their most

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Speaker 5: likely case for US to cut the federal funds rate.

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Speaker 2: This year, following Pal's interview with CBS's Scarpelly, treasuries fell

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Speaker 2: across all maturities at the Open in Asia.

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Speaker 1: Now Here in the UK, four out of five businesses

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Speaker 1: still plan on raising prices in the next two years.

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Speaker 1: APWC survey showed companies think that high energy bills will

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Speaker 1: force them into upping charges. James Wilcock has more.

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Speaker 7: The UK hit a green record last December when it

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Speaker 7: generated more wind power than ever before, enough to power

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Speaker 7: fifty six percent of the national grid. But wind is volatile,

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Speaker 7: Britain still relies on imported energy, and the market is expensive.

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Speaker 7: Futures for UK gas imports are twice as high as

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Speaker 7: before the invasion of Ukraine. Those steep rises have left

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Speaker 7: four in five companies planning to inflate UK prices in

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Speaker 7: the next two years in London James Wilcock Bloomberg Gradio.

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Speaker 2: Turning next to China, where the regulator for the stock

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Speaker 2: market says that it will intervene to stabilize the country

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Speaker 2: sinking my markets, but didn't say how. The China Securities

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Speaker 2: Regulatory Commission said it would prevent abnormal fluctuations after the

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Speaker 2: COSI three hundred tumbled by six point three percent in January.

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Speaker 2: It marks a six record six straight month of losses.

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Speaker 2: But Chrystal founder as She Shanda says the cheaper valuations

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Speaker 2: are unlikely to tempt investors back.

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Speaker 8: For the institutional investor, it's always difficult to take that

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Speaker 8: call because it's very, very difficult to pick the bottom.

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Speaker 8: But yes, there could be some offshore investors who may

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Speaker 8: look at just dipping their feet in, but I think

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Speaker 8: it's still catching a falling knife. A lot more is needed,

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Speaker 8: a lot more details, transparency is needed.

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Speaker 2: Chanda adds. Private wealth fund managers like himself see rival

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Speaker 2: growth opportunities outside China, try to say weak data, simmering

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Speaker 2: geopolitical tensions, a worsening property crisis, and an opaque crackdown

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Speaker 2: on the financial sector are driving down the country's markets.

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Speaker 1: Meanwhile, Chinese investors are concerned about another Trump presidency. According

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Speaker 1: to a note written by Goldman Sachs, its clients in

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Speaker 1: the region ask about the implications of an election victory

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Speaker 1: for the former president. Most frequently. The news comes as

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Speaker 1: Trump has speculated about fresh economic measures against China if

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Speaker 1: he were re elected. The twenty twenty four Republican hopeful

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Speaker 1: says that actions he took against the country were successful.

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Speaker 9: They did very well with it. As you know, we

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Speaker 9: took in hundreds of billions of dollars in taxes through

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Speaker 9: the tariffs, taxes.

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Speaker 4: And tariffs that week combinations.

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Speaker 9: We have to do it. I mean, look, the stock

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Speaker 9: market almost crashed when it was announced that I won

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Speaker 9: the Iowa primary in a record and then when I

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Speaker 9: won New Hampshire, this stock market went down like crazy.

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Speaker 9: So you know, obviously I'm not looking to her China.

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Speaker 9: I want to get along with China. I think it's great,

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Speaker 9: but they've really taken advantage of our country.

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Speaker 1: Donald Trump also shared that he might impose a tariff

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Speaker 1: on China of more than sixty percent if he reaches

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Speaker 1: the White House for a second time. The US has

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Speaker 1: been China's biggest export market for more than twenty years,

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Speaker 1: including five hundred and thirty six billion dollars in exports

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Speaker 1: in twenty twenty two. In a moment, we're going to

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Speaker 1: delve into the story on China. Of course, it was

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Speaker 1: an incredibly volatile trading day on Friday, and frankly today

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Speaker 1: looks set up for something similar. We saw deep declines

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Speaker 1: for stocks this morning in China, only to see then

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Speaker 1: a rebound in the afternoon session. So we're going to

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Speaker 1: try and unpack exactly what's been happening. There have been

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Speaker 1: a couple of statements now by Chinese authority, so we'll

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Speaker 1: dove onto that with Bloomberg's executive editor for Asia Markets,

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Speaker 1: Paul Dobson.

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Speaker 10: In just a moment.

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Speaker 2: Let's go first, though, to the Midleast, where the United

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Speaker 2: States has vowed more strikes after three days of attacks

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Speaker 2: against targets in Iraq, Syria, and Yemen. It follows the

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Speaker 2: killing of three US soldiers and a drone strike in

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Speaker 2: Jordan a week ago. US Secretary of State Anthony Blincoln

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Speaker 2: returns to the region today, joining US now for more

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Speaker 2: is Bloomberg's Head of Middle Eastern North Africa coverage, Stuart

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Speaker 2: Livingston Wallace, Stuart, good to have you with us. Can

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Speaker 2: you take us through the events of the weekend. What

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Speaker 2: actions has the US been taking up until now, including

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Speaker 2: the later strikes on targets and Yemen.

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Speaker 6: Yeah, good morning. So it's basically we had a third

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Speaker 6: day of US strikes and this is really finally in

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Speaker 6: response to what we saw in Jordan with the attack

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Speaker 6: and the death of three US service people. So it's

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Speaker 6: a it's a misured response. It's clearly one design to

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Speaker 6: send a message that they don't want to escalate the

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Speaker 6: conflict any further. But it's basically strikes on in effect

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Speaker 6: the Iranian proxies and Iranian assets outside of Iran, so

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Speaker 6: specifically in Iraq and in Syria, in Yemen, and then

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Speaker 6: offshore again, and it's all mixed up with what you're

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Speaker 6: seeing going on in the Red Sea and the Gulf

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Speaker 6: Vaden with the hooties attacking commercial shipping, so it's sort

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Speaker 6: of part of one big picture, but again very very

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Speaker 6: clearly designed I think to be enough of a response

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Speaker 6: to satisfy the domestic audience, but not enough of a

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Speaker 6: response to basically force Iran's hand escalating the conflict.

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Speaker 1: Okay, that's it's interesting in terms of bracing for counter attacks.

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Speaker 1: What's the perspective there, What has been the reaction in

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Speaker 1: the region.

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Speaker 6: I mean, I would say the whotis aren't going to stop.

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Speaker 6: I mean, that's pretty clear they've been. They've been bombing

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Speaker 6: Houti targets now for several weeks and there's no de

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Speaker 6: escalation in that conflict. In terms of the other bits

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Speaker 6: of the region, there's some interesting developments there. So we

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Speaker 6: did see there's one Irani impact militia in Iraq that

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Speaker 6: basically said we're not going to attack the US positions anymore.

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Speaker 6: Now we haven't been able to sort of say specifically

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Speaker 6: why that was so, but our assumption is that they

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Speaker 6: were told to back off by Iran. Again, Iran, I

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Speaker 6: think is as keen as the US in not escalating

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Speaker 6: things to the point where it's all out war. The

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Speaker 6: real question here is to what extent does Iran control

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Speaker 6: those proxies. So, yes, we know it funds them, Yes

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Speaker 6: we know it supplies them with weapons and probably intelligence. Yes,

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Speaker 6: we know that they have members of the IRGC that

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Speaker 6: has the Iranian Revolutionary Guard called Station in these places,

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Speaker 6: therefore directing things. But do they have absolute control over

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Speaker 6: those proxies. It's not entirely clear, and I would say,

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Speaker 6: particularly in the case of the Hooties, yes, they have

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Speaker 6: a very close relationship. But fundamentally, would the Hooties stop

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Speaker 6: doing all the things they're doing if Tehran said you've

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Speaker 6: got to stop, Well remains to be seen. But you know,

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Speaker 6: I'm not fully confident that would be the case.

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Speaker 2: That's one set of foreign policy challenges the US is facing,

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Speaker 2: and anti Blincoln will be discussing when he visits the region. Another,

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Speaker 2: of course, is the ongoing Israel Hamas war, the embombardment

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Speaker 2: continuing in Gaza. What do we know about the state

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Speaker 2: of negotiations to free hostages and potentially for a ceasefire.

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Speaker 6: I mean, they feel very far apart, is the short answer.

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Speaker 6: And I think, you know, we had those two relatively

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Speaker 6: brief cease fires some time ago, and I think that's

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Speaker 6: to some extent gave over an expectation that the thing

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Speaker 6: could keep going. But the reality is that Hamas wants

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Speaker 6: are full, you know, a permanent cease fire and these runs.

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Speaker 6: He not interested in that at all, and all the

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Speaker 6: intelligence that we're getting from Israel and all the comments

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Speaker 6: both public and off the record that we're getting off

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Speaker 6: that Israel is gearing up for the war in Gaza

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Speaker 6: to last for many months to come. You know, they

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Speaker 6: have a very clear set of priorities, which is basically

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Speaker 6: to eliminate their mass leadership, and they can't do that

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Speaker 6: if they agree to a permanency's fine. Now, So whether

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Speaker 6: you can find some sort of compromise in there somewhere

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Speaker 6: where you have perhaps you know, a couple of weeks

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Speaker 6: of cease fire, you have some release of fostges, you

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Speaker 6: have some release of Palestinian prisoners, you know, then we'll see,

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Speaker 6: but it's not looking great at the moment. However, as

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Speaker 6: you said, Lincoln's back in the region where he will

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Speaker 6: be shortly and you know he I think his fifth

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Speaker 6: or six sixth tour now, and if he's coming, maybe

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Speaker 6: that gives us some ground for hopes that they can

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Speaker 6: reach some sort of compromise. But will it be a

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Speaker 6: permanency's fire. That feels incredibly unlikely right.

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Speaker 1: Now, absolutely shuttled plomacy. Stuart, thank you so much for

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Speaker 1: your time this morning. That is Blomberg's head of Middle

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Speaker 1: East and North Africa coverage Stuart Livingston Wallace.

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Speaker 2: Meanwhile, there've been more wild swings on Chinese equity markets today,

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Speaker 2: the markets having lost a trillion dollars in market cap

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Speaker 2: in thirteen days. Trading authorities in China vowed to stabilize markets.

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Speaker 2: With the details now, we're joined by our executive editor

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Speaker 2: for Asian Markets, Paul Dobson. So we Paul, We've had

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Speaker 2: a statement from the China Securities Regulary Commission on Sunday

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Speaker 2: and what turned out to be an extremely volatile session today.

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Speaker 10: Absolutely, it's been keeping us on our toes for sure.

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Speaker 10: So the market's initial reaction was one that was pretty

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Speaker 10: unimpressed to the statement that we had over the weekend.

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Speaker 10: We're in a situation where we're demanding action, not talk,

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Speaker 10: and so promises is not really enough to sustain goodwill

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Speaker 10: in the market, and so lo and behold. Everything sank

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Speaker 10: again at the open, led in particular by the small coups,

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Speaker 10: which came under an immense amount of pressure. One of

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Speaker 10: the gauges, the CSI one thousand gauge, which is one

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Speaker 10: of the sheen markers in particular, was down with nine

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Speaker 10: hundred and ninety of the one thousand constituents or thereabouts

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Speaker 10: all in the red at one point, so pretty much

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Speaker 10: right across the board. Some selling then, you know, as

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Speaker 10: we got towards the lunchtime break, market started to pull

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Speaker 10: back a bit, and we had some more strong words

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Speaker 10: from the regulator which sounded a light They might have

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Speaker 10: a little bit more teeth behind them, and perhaps, you know,

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Speaker 10: most of the selling had already been done in the

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Speaker 10: morning session and it ran out of gas a little

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Speaker 10: bit and allowed us to sort of pair some of

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Speaker 10: the losses and then bounce back a little bit into

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Speaker 10: the afternoon as well.

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Speaker 1: Okay, so a couple of statements from the authorities, but look,

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Speaker 1: overall there has been a huge loss of confidence. Why

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Speaker 1: and can that be turned around?

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Speaker 10: Yeah, well there's a big picture reason and a smaller

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Speaker 10: reason within that. I think, you know, the the equities

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Speaker 10: have been under pressure for most of the past year.

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Speaker 10: We had a big rebound this time last year on

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Speaker 10: the recovery trade, but that didn't really see huge follow

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Speaker 10: through in terms of economic traction. The market wanted more stimulus,

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Speaker 10: wasn't getting it. The authorities were happy with the kind

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Speaker 10: of five percent is growth pace, but within that there

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Speaker 10: was this disinflationary impulse going on price wars among retailers,

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Speaker 10: and in the background the really bad nasty property crunch

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Speaker 10: as well, which really ground down consumer confidence and has

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Speaker 10: left has left market optimism kind of shattered in some ways.

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Speaker 10: Now a shorter term, the most immediate or the most

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Speaker 10: recent moves that we've seen has started to trigger some

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Speaker 10: stop loss or automatic losses in derivatives and also most

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Speaker 10: recently in shares that were pledged by our company owners

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Speaker 10: or directors, those kinds of things they would pledge them

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Speaker 10: in order to borrow more and invest in other areas

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Speaker 10: as well. Those have hit margin call areas and are

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Speaker 10: starting to be either liquidated or people are demargin more

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Speaker 10: collateral against the money that's been put up. So it's

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Speaker 10: causing a bit of an ugly mess. There's money flowing

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Speaker 10: out of mutual funds. There's a real broken confidence on

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Speaker 10: shore as well, and so it's all sort of snowboiling

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Speaker 10: worse and worse at the moment.

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