Bloomberg Markets: Asia 03/12/2024

It is almost 11 a.m. in Singapore, in Shanghai.

Welcome to Bloomberg Markets asia. I'm Haslinda Amin.

Here are the top stories. Asian stocks follow cautious trading on

Wall Street as investors await U.S. inflation data, which could influence

the Fed's next move. Bank of Japan Governor Kazuo Data sees

the Japanese economy recovering slowly. A majority of BOJ watches expect a hike

to come in April. And we look ahead to India's largest

inflation print due later today. We'll hear from the Union Bank of India

very shortly. Well, in the markets it is trepidation

and investors sitting on the sidelines, sitting on their hands, waiting for that

crucial CPI print. Remember that Powell said he just needs

a little bit more convincing that CPI inflation is headed to, what, 2%?

Investors looking for more clues on whether or not that recent uptick in

U.S. consumer prices was a blip.

Nicola, where we are in terms of the MSCI Asia-Pac index down 3/10 of 1% and

in terms of the Nikkei 225, it is extending its slump on the back of a

stronger yen up for a six day expectations.

The BOJ may exit negative rates perhaps in March, especially on the back of what

it did not do yesterday. It did not intervene when the topic

slumped more than 2%. Traditionally, it's jumped in to prop up

the market at about 2%. CSI 300 index currently in negative

territory. It is down about 2/10 of 1%.

It is about China and that lackluster performance of a property banker front

and center are causing a lot of trepidation, as well as concerns in the

property market. Yet again, we have Moody's downgrading

it to junk in terms of the Chinese yuan trading at seven 1847 right now.

And the yen, of course, is the one we're tracking at this point in time.

It continues to rally. It's outdone every G10 currency this

month alone and some say the rally is at a measured pace.

Well, taking on the way we are in terms of U.S.

futures, as we count down to the CPI print in the US, a crucial data that

we're awaiting U.S. futures, treasuries, in fact, not doing

very much. Little change.

S&P futures are currently up by 3/10 of 1%.

Dow Jones futures also in the positive ever so slightly.

So that CPI print front and center and link to the economy.

Here's Jamie Dimon warning that the US recession is not yet off the table.

Now he says the world is pricing in itself lending at probably 70 to 80%, he

says. I think the chance of a soft landing in

the next year or two is half of that. The worst case would be stagflation.

Well, our next guest thinks the risk of a recession is higher than what's been

priced in. Let's bring in Omar Slim.

He joins us right now. Omar, I mean, why do you think the

recession is not off the table, especially when you consider that data

so far has been pretty resilient? I think the main issue is related to the

sequencing in terms of what the monetary policy will look like.

What I mean by that is I think that the Fed will probably err on the side of

caution before cutting. And the other thing is that those cuts

really they need to be framed as adjustment cuts.

That's not necessarily a start of a cutting cycle.

So if we stay for a prolonged period of time at higher rates, policy rates, even

if we're seeing some adjustments and if the Fed is probably delaying the cuts to

the second, I said then or so before, I think when the consensus was that the

cuts will start in the second quarter, that probably started in the second

half. So if the market keeps pushing that, I

think that's going to add to the stress of the economy.

And I think what's priced in now is this kind of this immaculate soft landing or

no landing, which the market will increasingly challenge or the narrative

might slightly change going forward. But why not a soft landing?

I mean, if you take a look at the data suggesting still US exceptionalism and

hence we've seen how the dollar has stayed pretty resilient.

Yeah, why not soft landing? It's really related to the fact that

there will be damage caused by the higher policy rates and we're starting

to see some softening in terms of the job market, which really was the main

driver of the economic strength. And the other reason is that the Fed

really needs to see a few prints, not really one or two prints, a few prints

where inflation is trending lower. And I think that will delay the cuts and

whether there will be some economic some economic damage.

I'm not saying that we're going to have an economic crisis, but what I'm saying

is that the chances of a recession, even if it's just a shallow recession, is

higher than what's priced in. So far from what you have seen, do you

expect the US exceptionalism to stay and what might that impact be on the

markets? Can the markets withstand a strong

dollar? I think that's there's a strong case

that the U.S. will continue to outperform.

Yes. And.

Continue to up to form against what or versus what.

I think that it will continue to perform highly likely when compared to Europe.

And also, quite frankly, compared to some of the emerging markets, the most

important of which is, of course, China. So that will

continue to we will continue to have a strong US dollar.

I think we might take a breather here and there, but really I don't see a

strong case for the for the US to weaken materially.

What I think that will do is it will cause some stresses in terms of some of

the particularly some of the more marginal sovereigns.

And we're starting to see some of that actually that start.

We saw some of that in certain emerging markets.

I think that there will be some talks about a broader sovereign pressure, even

from some of the developed markets because, you know, funding funding at 0%

or negative is different from funding a three or four or 5%.

But I think that's a more slow moving phenomenon.

I don't expect it to materialize this year.

Okay. So we had Powell saying he just needs a

little bit more convincing. The cut is coming this year.

It is a matter of when. CPI that's coming out in the US on

Tuesday becomes crucial. It is crucial and my view is that

there's more downside risks than upside risk and only with downside risk.

I think that the market really needs to see the CPI trend lower for that it for

the particularly Treasury yields to do rally.

I think that the what I think it's also again important to frame what Powell is

saying correctly. I think they will adjust the policy

rate. I don't think they will signal a the

start of a cutting phase. And I think that's I think the market

will shift its attention or its focus to what the neutral rate is.

And if the neutral rate is higher, I think that could cause the Treasury

market to wobble or at least to cease to rally.

And that has implications in terms of the funding across the world.

Use it. If the neutral rate is higher, the

neutral rate is likely to be higher. No, I mean, isn't that a fair

assumption? I think it's a fair assumption.

But even if you ask the Fed, the neutral rate is a bit of a, you know, an

academic exercise. They even say that they don't actually

know where it is. Now, if one asks the question, why is

the neutral rate higher? What happened over the past few years

for it to be higher? I think

on a very long term trajectory, I'm still a believer in the secular

stagnation, but in the kind of call it the medium term, I think a case can be

made that the neutral rate is higher because of the fact that the job market

is relatively resilient. We're seeing some cracks, some weakness

here and there. And I think the job market has been in

kind of like a low grade crisis, which was exacerbated by by the pandemic and

by COVID. But I think that there is a strong case

to be made that they're higher. So I would agree with their assessment,

particularly because of the tightness of the job market.

So given what you've just said, the assessment you have just made, what do

you make of Treasury valuations right now?

I don't see for now I don't I think they we would require a very

strong trend in terms of inflation going lower for the treasuries to continue to

go lower or the Treasury yields to continue to go lower more correctly.

So in a nutshell, to answer your question directly, I feel that there's

downside for Treasury prices or upside for Treasury yields from here.

Okay. Let's take a look at Japan.

It is about the yen. Are we looking at a definite yen

reversal? No, I don't think so.

At the risk of being slightly anti-climatic, I remember we were having

that conversation in the summer last year and I, I continue to think that the

the Bank of Japan will continue to be rather gradual.

You know, you hear Governor word mention the words slowly, gradual, progressive,

quite a few times. So I think they will do the near

minimum. Why?

For two reasons. One is and I think that's the most

important reason, is I don't think they actually believe that Japan has an

inflationary problem. So I think they're kind of calibrating

from an ultra accommodative monetary policy to one which is a bit more

sustainable but quite accommodative. And I think the other reason is I don't

think that they want to risk any financial instability.

So they're really kind of taking their time and they're hoping that, you know,

the global macro and the macroeconomic environment will give them some

breathing time. But my view is that it will be a very

dovish exit for the Bank of Japan from its current monetary policy.

So forget about the yen getting to one 3135.

They're about you going to take a look at the yen at one 4745.

What are you looking at? I'm I'm looking at 140 to 150.

Frankly, I think for it to go to one 3135 we need a surprise either from the

Fed or from the Bank of Japan. It's not my base case scenario.

Okay. We got to talk about China.

Just when you thought that things are getting better, we've seen the bottom.

Here comes. Bunker and the downgrading from Moody's.

I mean, this is really bad news at a time when foreign investors are just

beginning to dip their toes. I think it is it adds to the frankly,

the distress, the major stress that this the distress, frankly, of that that

segment. I think the the policy support in China,

particularly when it comes to the China property segment, will continue to be

very timid, very targeted, very selective, very tepid.

And what we're seeing is that that's the case even with some developers that have

government ownership in them, in this case local government.

But still it is significant. I don't think a major reversal will

happen, frankly, for the for that segment.

At best, we see an L-shaped kind of path.

It's not a policy priority. The NPC also kind of highlighted some of

the it was a continuing continuation in terms of what they're doing, in terms of

policy. So our base case scenario is that there

are downside economic risk for Chinese growth of the around 5% target.

And we think that certain segments will continue to be challenged.

Chief among them will be the China property sector and also the yuan.

I mean, we have perhaps the likelihood of a Biden and Trump election at the end

of the year. And we've seen how in 2018, at the

height of tensions between the US and China, we saw the yuan slump 13%.

I mean, do you foresee further weakness in the currency should Trump come back

to power? I think that's a very that's a very good

question, and I think it will be a topic of intense focus for the markets,

particularly as we get closer to the US elections, even though it seems that we

know what the what the what the two contentions are.

The short answer to your question is yes, I think there is downside risk for

the yuan, but I think the Chinese policymakers will intervene to smoothen

that out. But we don't see any upside for the yuan

at this point. Quite the contrary.

I'd be remiss to not asked you for how your portfolio is looking like.

Where should you be putting your money and how will you deploying your your

funds? Look, I think in the context of Asia, we

still like the Asian investment grade bonds, which frankly have been quite

tested over the past few years, and they have been quite resilient.

They outperformed some of the major asset class, similar asset classes

within Asia high yield. We think that there are some

idiosyncratic opportunities, but we're still kind of more cautious on the

market from a beta perspective. And we don't think that, you know, the

kind of certain rallies and some of the distressed names will continue and the

local currency market will continue to be rather cautious.

Again, part of the reason is the US dollar strength, which we continue to we

expect to continue to be the case. What's changed in the last 12 months for

you? What's been the biggest change in your

portfolio? I think what changed over the past few

months is one, is the duration positioning, the duration management.

I think the market, the call in the fourth quarter of last year, end of

October, more precisely, there was a bit of an inflection point in terms of the

market thinking that the monetary policy has has peaked.

And I think that has been a major change in terms of the of the market.

And I think we we traded the duration rather actively back then.

And I think now we're in the period of of of range trading.

So the positioning has has changed. The other bit is I think that the

expectations in terms of China have also become much more lucid.

We were relatively cautious, but I think the market kind of gravitated towards

that view over the past year or two years.

And I think the we still feel quite focused on the policy direction and we

don't see any major changes there. Good stuff.

Good insights. Omar Slim Pine Bridge investments.

It says no reversal in the yen. Well, plenty more ahead.

Keep it here with us. This is Bloomberg.

Welcome back. And China's NPC concluded with little to

cheer about in terms of concrete measures to lift the economy economy out

of its malaise. And that is impacting the commodities

space, iron ore in particular coming off a 7% slump, the deepest plunge since

2022. Disappointment after the NPC failed to

revive demand expectations. Also, inventories in China are piling up

at the highest level in about a year. Remember that China's construction is

pretty lackluster given the clampdown that was seen on the property sector.

Iron ore currently extending its losses by more than 3%.

We're seeing losses too, for we're seeing gains too for aluminium as well

as Shanghai Crude crude Company up by about 1.4%.

Oil generally steady ahead of the US CPI data, also OPEC's monthly report and

U.S. stockpiles.

All that may provide direction for prices in the coming days and weeks.

Let's delve deeper into commodities. Bloomberg, Steven Mnuchin, she joins us

now. Talk to us about the outlook in

particular for commodities. You know, it's a it's a different

picture, right? So when you look at iron ore, for

example, you had that graph just on the screen showing huge inventories in

China. We ended MPAC without any of the big

stimulus that that commodities have kind of depended on.

So when you do look at the iron ore picture, it is pretty bearish and

looking in the future, we have more supply coming on line, right?

So as more supply comes online, that's going to add more pressure not only to

prices but also to China's inventory buildup.

So how long does the Chinese government stick with this kind of strict policy on

on construction for for new buildings? And also, will they eventually pull in

some sort of stimulus that would increase the demand for iron ore and

steel and pull that through now with oil oils, a different kind of story because

unfortunately, the picture is even more muddled.

So I would say that oil has been sort of doing a whole lot of nothing over the

last few weeks. We've been in this around low $80 Brent

range, and that's because there are a few different kind of countervailing

forces. You have the Red Sea problems, you have

OPEC plus reducing their output, both things that are continuing their cuts,

both things that you would think would increase prices.

But at the same time, U.S. shale oil has been pretty strong demand

in China, not as strong as some had hoped.

So all these things together have kind of painted a

sort of neutral picture for for oil. And that's why it's been sort of

treading water. And it's expected to do so over the next

few weeks. When it comes to iron ore, no sign

abating in terms of the pressure on the commodity because we just had Volcker

being downgraded by Moody's, for instance, to junk.

I mean, how do the markets adjust to the current situation?

Well, the good thing is the markets have a lot of experience adjusting because

these markets work in cycles. And there was a cycle that was

supercharged by the COVID pandemic and then the energy crisis and commodity

crisis after Russia invaded Ukraine in 2022, that kind of dual shock of supply

glut to, you know, supply crunch for a lot of commodities, especially since

they couldn't get the commodities out of Russia had sent prices surging in 2022.

And so there was a large investment in new supply.

People were trying to adjust. There was demand destruction.

So the market is trying to adjust itself.

I think there is one thing that is certain, and when you look at

commodities and I've looked at commodities for about a decade now, when

you do have these low price environments or high price environments, the markets

tend to adjust on their own. You do see producers ramping back

production. You're seeing that in some metal metal

industry. Some some miners are reducing their

output to help kind of alleviate where we are in this situation.

The same thing is likely to happen for oil.

If oil prices were to fall, shale drillers will quickly come off, but

we're not seeing that quite at the moment.

So I think overall, you know, you could see a glut period over a few years, but

the market will be able to digest that and we'll get back to balance and likely

back to some sort of supply crunch, sending prices higher again.

Like you said, a lot of experience and some real pretty sightline right now.

I had that CPI print out of the US Bloomberg.

Stephen Kaczynski, we thank you so much for your insights.

Now China's economic weakness is being seen not only in broader demand for raw

materials and other commodities, but also among consumers.

The middle class are feeling the pinch in many areas, even in goods like

pianos. With domestic production plunging last

year to half of what it was just four years ago.

North Asia correspondent Stephen Angle has more.

The 2010 Chinese movie The Piano in a Factory depicts just how much a piano

was an aspirational goal of Chinese households in the early nineties as a

laid off steel worker builds one by hand to try and keep custody of his daughter

through a bitter divorce. Today, piano stores across China look

like this, devoid of customers. Once a status symbol to own domestic

piano production last year plunged to half what it was just four years ago.

The central government desperately wants households to spend more to fight

entrenched deflation, but it too is tightening its fiscal belt.

We will practice frugality and economy and reject extravagance.

Without question, the average Chinese middle class consumer can be a big

spender. But we also know that households are

feeling the pinch from a slowing economy, exacerbated by falling home

prices and a stock market rout. Now, after the Mao Zedong era social

safety net was dismantled. Chinese households also became big

savers. So right now, with the economy

suffering, they're sort of hitting the pause button on big ticket non-essential

purchases. The domestic economy is not in a good

position for consumers to splurge on. The government can certainly do a lot of

things, but they cannot force people to cheer up and spend.

As we saw with record travel and box office numbers through the February

Lunar New Year holiday, many of today's young adults, faced with diminishing job

prospects and slimming wallets, are choosing leisure over luxury.

During pandemic, people realize how close you can be leaving this one for

the Paradise. And then at that moment, it probably

doesn't matter that much how many materials you have, how many houses you

have, how many cars you have, but rather your experiences.

It's a new phenomenon, for sure. For newlyweds previously accustomed to

having at very least a new home by the time they marry, a year remains a major

hurdle in planning to get married. And getting married means we have to be

prepared for property and raising kids. We need to be more prudent.

Yes, I know we just got married and I'm very hopeful for the future married

life. I hope we can go through the hardship

together. It should be share.

Our happiness can be just hardship. Yes.

Enjoy our blessings together. After decades of runaway growth, there

is a palpable sense of unease in Beijing.

And while piano home and other big ticket items sales are slowing amid less

than reassuring policy, there's still the somewhat universal need just to be

heard. Stephen Engle Bloomberg News, Beijing.

All right. Plenty more ahead.

Keep it here with us. This is lumber.

It is a mixed picture for Asia Bank index as we await the CPI print out of

the U.S., which may dictate the Fed's monetary easing policy, the Hang Seng up

about 1.3%, reversing losses that we saw in the past few days.

Cosby in positive territory, up about half a percent right now.

Of course, we're keeping an eye on the CPI print to ascertain whether or not

the Fed might move earlier than anticipated.

In terms of some of the move hour, we're watching

Hong Kong in particular jumping as much as five and a half percent in Taipei

after local media Digitimes reported that Hewlett-Packard enterprises will

tend to Hon. Hai as a long term partner for a major

order of air service. Getting a lift as well as am I see right

now currently up by 2/10 of 1%. We're keeping an eye on show me as well

gaining after announcing its end eve launch.

I mean, currently trading almost up percent higher on the day.

And the broader market here is how it's looking.

Mixed picture CPI, front and center. Plenty more ahead.

Keep it here with us. This is Bloomberg.

Shanghai. Shanghai.

Welcome back. China market is just heading to launch

CSI 300 index in well, slightly in the negative, down about a 10th of 1%.

Lackluster, tepid, however you describe it, it is on renewed concerns of a vodka

vodka downgraded by Moody's to junk. Just when you thought that the worst

might be over for China's property sector, here we are again worrying about

its CSI 300 index flat. We have the yuan trading at seven 1778.

Bear in mind, the CSI 300 index is up about 13% since its February low.

Sentiment has recovered somewhat. In fact, foreign investors have begun to

dip their toes into the market, but not enough.

Today, it ain't happening. CSI 300 Index tilting in the negative

territory. No markets in Japan back from lunch.

Bloomberg's April Hong is in the Lion city with me.

What's up now? What's up?

The Nikkei, I have to say, because of those expectations, I mean, we saw trade

is paring some of the bets that we're going to see a move from the central

bank next week. And this was prompted by the governor

weigh those comments that he sees weakness in consumption and non durable

goods. But if you think about it, it's kind of

hard to fight this chorus of local media reports that the BOJ is really

considering very seriously a move this month, including the latest from GD and

how they see faster wage growth potentially prompting the BOJ to exit

negative rate policy. So the Nikkei is starting the afternoon

session still paring some of the declines of as much as 1.4% early on in

the session. This was, of course, after the comments

from Ueda. But still that strength in the Japanese

yen, I think is flowing through and putting that pressure on equities.

Let's split the board and take a look at what we're seeing across assets.

I think among JGBs, that's when you see the reticence that we are going to see

potentially that move from the BOJ as the yield on the ten year still hovering

at the highest level since November last year and across assets.

So we're seeing those losses, as I say, bleeding through in equities.

Remember, steep, steep losses on both the Nikkei and topics yesterday.

It was interesting to see how DOJ didn't step in with ETF.

Buying has to go through the biggest losers today.

Overall. Yeah, not many winners to speak of.

So let's take a look at what we're seeing among the decliners.

We've talked about Toyota so much amid the yen strength.

That is another drag on the topics today.

But it's really interesting to see how Japanese lenders are also losing ground.

You would think in theory, with profitability and rate hikes potentially

improving, their stocks should be on showing some upside.

But even the biggest lender is extending declines today.

The other theme that we're seeing coming through from commodities and steel

making related stocks, Mitsui, Marubeni, those are the ones that are dragging the

Nikkei. Today we saw how iron ore contracts in

Singapore perform yesterday's steepest decline since 2022.

It's really the China demand that's coming through.

But as I say, for assets in Japan, it's really very much about what we're going

to see from the BOJ next week. Right.

And the weaker yen not helping exporters at all.