Bloomberg Crack of dawn: Asia 01/22/2024

This is DAYBREAK.Asia. We're counting down to Asia's majormarket opens, and the sentiment very much for the start of the trading weekis one that's quite positive. We had US stocks inching higher in the10th to Friday closed and the bat really coming home.Investors say that the Fed is going to be forced to start cutting even thoughwe continue to get that push back from policymakers.Yeah, a real disconnect between what the market thinks is going to happen andwhat the Fed says is going to happen. Most recently, we heard from Mary Dalytalking about cuts being premature.

But to your point on markets, they justkeep on pushing higher. We've got the Nikkei now closing in on arecord that we haven't seen for a very long time.Yeah, really going back to the days of the economic bust of that bubble in theearly nineties. But the open here for Japan, as you say,really the focus as well for markets coming into this week is what we getfrom the BOJ because that policy decision is due on Tuesday.No change is expected in terms of negative rates or why.Stacey. But the attention very much going to beon how the government is assessing.

Progress that's being made to achievingsustainable inflation. That's what's really needed to endnegative rates in Japan. So all of the BOJ watch is in our poll.That's 51 different economists expecting the bank to keep its short term policyrate at -0.1% and also to leave the program of yield curve control intact.The Japanese yen ahead of that decision, continuing to hover around a seven weeklow against the greenback. But stocks wise, that's one of the majorbeneficiaries. A weak again has been boosting theexporters and you're seeing the Nikkei, they're up 0.8 of a per cent.Let's change on because in Korea today.

We've also got that focus coming down totrade data. And we saw exports for the first 20 daysof January actually falling 1% on the year.Interestingly, though, to note, we did get the chip exports and they rosenearly 20% on the year, something that is more positive for the outlook forsemiconductors, given that we're starting to see those the signs of anunevenness coming through into the market.Memory sales are stronger, but system chips are continuing to slide theirimports as well. They were down more than 18% on theyear.

So Korea, a key economic bellwether, oneof the first to report trading numbers. So seen as a leading economic indicator.We do see the causeway there, the continuing to push higher.So be interesting to track how those chip names are faring given, as I said,the Nasdaq 100 are reaching an all time high on Friday forits information technology stocks that are performing best here in Australia aswell. The ASX got a modest risk on feel to itat the moment, better by 4/10 of 1%, we only see energy stocks, one of the fewareas in the red at the moment losing a little bit of ground.Brent crude has just started trading.

That's going well, seeing a little bitof softness there as well. 7833 a barrel there at the moment.Not a lot of change to the Aussie sitting just below that $0.66 level.But if we take a look at yields here in Australia, they have been creeping upand we've seen yields creeping up for US treasuries as well.We've got the ten year just started to trade in Japan at the moment and we'reseeing the yield moving up just a tad there.4.13 22 And we did discuss a moment ago those expectations around Fed easing.We got the markets now pricing in roughly a 5050 chance of a cut in March.And some more pushback, though, today.

From Mary Daly, San Francisco Fedpresident, who incidentally, is a voting member of the committee this timearound. She says the cuts are going to bepremature. Any talk of cuts getting a little bitahead of the curve there. ANNABELYeah. PAUL And that that rate of ratio betweenthe Fed, the BOJ has been one of the more interesting to note as well for theoutlook for the Japanese yen, also the outlook for Japanese equities, becauseit's one of the key reasons that's been cited for those pushing higher.So let's bring in our next guest who's.

Positive on Japan for the changinginterest rate environment against a background of underlying structuralreform. With us now is Kieran Calder, head ofequity research for Asia at BP. So Kieran, that BOJ rate decision istomorrow, no change expected and we've had sort of it being pushed back aswell. These estimates we would see some sortof policy pivot. How does that factor into your thinkingfor Japanese equities and their performance over the first quarter?Yeah. Good morning.So, you know, we also think that we're.

Unlikely to get any changes at themeeting this week. And of course, the bias has been to keepthe short term policy rate negative. You know, we've seen a little bit softerprint on on inflation, and that takes a little bit of the pressure offto change that in the short term. So, you know, as you mentioned, theinterest rate differential between Japan and the USremains unchanged in that sort of scenario.And definitely, you know, the weaker yen has been a factor in terms of not onlyearnings for Japanese corporates, but maybe more importantly for thecorrelation between the market and.

They're a little bit a little bitdifferent. We think that where the interest rateenvironment is at the moment and we've got the sort of widening spread betweentends and and the shorter term rates, that widening spread, although it'ssmall, I mean it's still Japan. We're talking about less than one 1%.It's good for bank earnings. And so we'll be pretty focused on bankearnings in the upcoming results season, which isthe fiscal third quarter for for Japan. And so when you have that sort ofbackdrop of of a dovish BOJ, a weaker yen, is that more important for Japaneseequities or are you more focused on what.

We're seeing in terms of corporategovernance reform? Well, I think we're we're focused onboth. So, you know, the changing interest rateenvironment is an economic reality that is that is happening.The corporate restructuring, corporate reform themethere was it got a bit more juice when it wasyou know, we had the last year encourage companies to get serious about it.We think that's a nice backdrop and we hope it's for real this time.Of course, we had the first list, monthly list from from thepublished last on Monday, a week ago,.

Which, you know, showed certainlyamongst the large corporates and the prime market, a lot of well, 50% ofcompanies have been defined as disclosing their plansto to improve corporate corporate value, which means rising share prices.But when you get into the, you know, down into the standard market, theresponse is much, much less impressive.So there's certainly room to run in terms of that to that theme.Well, we've got the Nikkei right now about 500 points shy of a record, but asmonetary policy on both sides of the Pacific gets ready to shift.Is there any temptation to take some.

Profit here?So for us, I think you know, it's our preferred non US market.We're not looking to you know, we're not looking to take profit yet.We think it's a great a great start to the year obviously.But we do want to be selective in terms of sectors that we're interested in.So I mentioned earlier, financials is one area which we think, you know,underlying earnings growth is going to be strong against the backdrop of thechanging interest rate environment. We also like tech in Japan, so we likesome of the semiconductor names there and also the, you know, the platformnames like Nintendo and Sony.

And then we also think that with withthe cycle bottoming in terms of factory automation orders, we think there'sobviously some, you know, highest quality, best in class names in Japanthat we also think are, you know, areas that we're interested in as well.So so to be selective rather than, you know, taking profits off the table.Okay. Well, you're quite constructive aboutJapan, but I know you're a lot more bearish when it comes to China, but atwhat point does China just get so cheap that you can't ignore it anymore?Yeah, that's been the question for quite a quite a while.So, look, I think, um, you know, a lot.

Of the problems in China areself-inflicted. So, you know, the crack down on tech,the real estate, even the, you know, although it's, youknow, a year ago, the response to it, I think all of these are still dragging onthe market. And for us, ultimately, we think to getmore constructive on China, you need to have a resolution to the to the propertysector. And it needs to be comprehensive and itprobably needs to pull in pulling, you know, the state owned banks, etc..So, you know, valuation on its own is never a catalyst.I think, you know, clearly I headline.

Valuation is cheap in China, but there'sso many reasons that for that. And we think the you know, the mostobvious catalyst for us is going to be a final resolution of the of the propertysector. If that was easy, it would be donealready. And, you know, we think it's probablynot something for the first first quarter.Yeah. How long actually are you expecting?Of course, first quarter is incredibly optimistic.A lot of people are saying the economy is going to be in the doldrums over thefirst few quarters of this year at.

Least.So when would you sort of start to price for any sort of meaningful pick up inthe performance of equities? So if you're referring to Chinaequities, I mean, I think, you know, it could be first quarter next year thatthey've really you know, as I said, it's a it's a large problem.It's difficult to tackle. They need to bring in, you know, it'snot can't just be done by the real estate companies themselves.Obviously, we're way past that sort of self-help stage.And I think there needs to be a comprehensive resolution, includingprobably the banks, which is one of the.

Reasons that they trade so cheaply.You know, maybe by summer. I think that's probably also optimistic.It's entirely on the timetable of of the government in China, which is notso predictable. All right.Karen Calder, head of equity Research Asia at DVP.Thanks so much for joining us. Still to come, we will have a preview ofthis week's Bank of Japan decision with Moody's Analytics.Hear why they think the central bank could have a hard time raising ratesbeyond zero. But first, a major shakeup in theRepublican presidential race.

Ron DeSantis dropping out ahead of theNew Hampshire primary. We'll have details of that story next.This is Bloomberg. I am today suspending my campaign.I'm proud to have delivered on 100% of my promises, and I will not stop now.It's clear to me that a majority of Republican primary voters want to giveDonald Trump another chance. I signed a pledge to support theRepublican nominee, and I will honor that pledge.He has my endorsement because we can't go back to the old Republican Guard ofyesteryear. That was Ron DeSantis announcing hiswithdrawal from the 2024 US presidential.

Race and endorsing Donald Trump, who'snow going to be facing off with Nikki Haley in Tuesday's New Hampshireprimary. For more, we're joined by seniorWashington or Washington senior editor Wendy Benjamin's son, who's in NewHampshire for us. So, Wendy, it's an incredible turn offortunes really for Ron DeSantis, who was once considered the most formidablechallenger to Donald Trump. So what exactly happened?Well, it was almost like until a U.S. Republican primary voters got to knowhim. He was the most formidable.There was this sense that he had a lot.

Of the same attitudes as Donald Trump interms of culture warrior, in terms of the border, in terms of, you know, whatthey call woke, you know, diversity efforts and things like that.And then he launched his campaign with this Twitter space that was an absolutedisaster on all sorts of technical issues.He has this sort of he's a little awkward in his presentation to people.They thought they didn't have to talk to national media, only Florida media atthe beginning. It was a badly run campaign.And so it was like until he actually got into the race, it looked like he couldwin.

And then he started talking andcampaigning and things just sort of went downhill from there.But Wendy, it would seem that the natural home for DeSantis supporterswould be the Trump camp. Are we now in a situation where thenomination is Donald Trump's to lose, or is there a path to victory for NikkiHaley? There's a very, very slim path tovictory for Nikki Haley, but it's so slim that I think it is Donald Trump'sto lose. And that's what our reporting shows.If she wins Tuesday night in New Hampshire, then she would be catapultedto the next primary, which is in her.

Home state.Although Donald Trump is much more popular than she is in South Carolina.So if she loses that even after a New Hampshire win, that would really slowher momentum or stall and the path just isn't there.After that, she is going to do very well in New Hampshire because she has thesupport of Democrats and independents who are trying to stop Trump byregistering as Republicans and voting for her.But that isn't going to happen in the states that follow.And so we really think right now it is Donald Trump's to lose, as you say.So much of the focus has been on age in.

This contest so far, but really has beendirected to Biden's age in particular. Donald Trump as well is someone whowould be into his eighties if he were elected again.We have seen Nikki Haley stepping up her her criticism and attacks on him, whichis something that we also have seen a lot of Republican candidates beingreluctant to do so far. How much do you think the attention willnow shift to attacking Trump based on age and and concerns that come withthat? Well, I it's definitely a talking pointthat people are going to bring up. And he didn't help himself.I should say he is 77 years old now.

He didn't help himself the other daywhen he seemed to confuse Nikki Haley with former U.S.House Speaker Nancy Pelosi. He has this sort of line he has abouthow she during the January six insurrection at the Capitol, how shedidn't call security quickly enough. But he told it the other night usingNikki Haley's name. And so he seemed to confuse the twowomen that is being attributed like just as when Biden, President Joe Biden seemsto forget things, it's being attributed to age and perhaps he's too old to bepresident. And, you know, we'll just have to see.Trump does seem more physically agile.

Than Biden does right now, but if hestarts slipping up, you know, confusing things, that that argument won't last.All right. Bloomberg's Washington senior editor,Wendy Benjamin in New Hampshire. Well, Israeli Prime Minister BenjaminNetanyahu has rejected what he says are unacceptable terms presented by Hamas torelease its remaining hostages. Let's get more on this story fromBloomberg's Michael Heath. So, Michael, no appetite really fromBenjamin Netanyahu to establish peace or even a cease fire.What's the role of the domestic Israeli political audience?Yeah, it's a it's an interesting one,.

Paul.There's been a build up of protest from the families of some of the of thehostages. I mean, they've been held for more than100 days now. The last cease fire was at the end ofNovember. So, again, we're putting towards anothereight weeks that nothing nothing's really been heard from them.So there were protests on the weekend outside his private residence and thensort of sitting up outside his official residence.And then he's come out and said that Hamas's demands are that Israel, youknow, cease fighting and withdraw from.

Gaza.So almost like a sort of a return to status quo before the attacks, which hesays is totally unacceptable. You know, from Israel's perceptionperspective, that's totally reasonable. Butit's hard to say that it's that black and white, that that's what anynegotiation would actually involve. There is talk, though, that sorry, theWashington sorry The Wall Street Journal was reporting that Egypt, Qatar and theUS are undertaking a another effort at trying to step in with a a phased outlook, a phased diplomatic proposal whereby the hostages would be released,Palestinian prisoners would be released,.

And we'd end up with a ceasefire.Now, whether that goes ahead is unclear. Israel is prepared to accept.So the reporting shows a two week break in fighting, whereas the Hamasleadership wants a lot more than that. They felt they didn't get enough,apparently at the last at the last ceasefire.And then there's there's the actions in the Red Sea.And we've heard the UAE as well warning that time is running out now before thisdevelops into a wider Middle Eastern crisis or maybe maybe Mideast crisis.Where is that Flashpoint most likely to be?What's going on in Gaza or what's going.

On in the Red Sea that we have?Yeah, it's a good question, Annabel. And I mean, we've seen in the past weekthat, you know, the conflict has spread.Earlier, we had the situation of Iran bombing a an area in in Kurdistan inIraq that it says was an Israeli intelligence base.Then following that, we had Iran launch a missile strike on militants inPakistan. Pakistan responding.You know, it gets very scary. Then Pakistan's obviously nuclear armedIran is a threshold nuclear power. Fortunately, both sides seem to signalthat they don't want it to go any.

Further.But there's been additional attacks on US forces in Iraq and in Syria by byIranian proxies and all of this sort of it brings Iran more into the fray.Now, Iran's always been keen to sort of avoid a direct conflict with the US.It's a real cat and mouse shadowboxing between the two there.But this this issue with the maritime corridor, it's very difficult toresolve. I mean, the US and the UK can keeptargeting these missiles, but it's very difficult.They've interdicted one ship from Iran, but it's difficult to interdict thesupplies regularly to stop the he's.

Being armed and there's no ground forcesin there. So again, cat and mouse, the Houthismove their missiles or put them underground, these sort of issues.So it's a very difficult time now in the Red Sea.It's hard to see how to be resolved soon.All right. Bloomberg's Michael, he's just got somebreaking news across the Bloomberg at the moment relating to Macy's.Macy's confirming that it has received an unsolicited, non-binding proposalfrom an in-house management and brigade capital to acquire all outstandingshares of the company, $21 per share.

However, Macy's says this isn'tactionable. They're not going to enternon-disclosure agreements or or anything of the sort.Across, meanwhile, threatens to take this offer for Macy's to shareholders ifMacy's doesn't step up negotiations. So that's the latest on that brigade'sand accuses a $5.8 billion, $21 a share that was made to the company last month.All right. Plenty more to come on DAYBREAK.This is Bloomberg. You're watching DAYBREAK Asia.Russia says Ukrainian shelling has killed at least 25 people near theRussian controlled city of Donetsk.

A local Moscow backed official says theattack hit a busy market and a shopping area on the city's outskirts.Russia wants the UN Security Council to discuss the incident later on Monday,calling it a treacherous attack on civilians.The European Commission says Western allies must focus their efforts onstopping Russia's invasion of Ukraine. All Moscow will continue trying toexpand beyond its borders. Speaking to Bloomberg in Davos, VicePresident Valdis Dombrovskis warned that geopolitical tensions are posing freshrisks to trade. I thinkit's clear that 2024 is going to be a.

Challenging year as we see that all thegeopolitical conflicts are continuing. Russia's aggression against Ukraine now,conflict in the Middle East. So all this suddenly has potential fordisruption of trade and supply chains. Even so, that the forecast for thegrowth of global trade for this year, according to the World DevelopmentSession, is is quite positive for this forecast of 3.3% growth in trade.But certainly the number of risks which we need to follow.I know one of the biggest worries actually is the commitment to Ukraineaid. I don't know how much the commission isprepared to go to make sure that also.

Hungary signs off on this €50 billionpackage. Well, we are working very intensively onthis. And on the 1st of February, we are goingto have a EU summit where hopefully this agreement is going to be reachedbecause, well, we are already overdue. European Commission came with thisproposal of €50 billion Ukraine facility already in June last year.We are already approaching February. And Ukraine actually needs thisfinancing. So we need actually to take somedecisions and provide this financing. And it's also more critical that we alsosee delays on US sides that are also.

Still discussing the financial supportpackage. Executive Vice President When you lookat some of the risks out there and I know there's a lot of conflict, wouldyou worry about the most or what's more likely?Is it, you know, Donald Trump in the in the presidency, in the White House?Is it far right? Of course, you know, outcomes in theEuropean elections or is it a full on trade war with China?Well, I would say my biggest worry is a continued Russian aggression againstUkraine. And if we are not containing thisaggression, if we are not stopping.

Russia, so the prospects of Russiaactually going further and starting new aggressive wars and they are very openlytalking about this. If you look now on this, Russia'sso-called presidential elections, Putin is campaigning on a slogan thatRussia's borders are ending north. And what kind of signal it's sending toto Europe, to neighboring countries. So Europe needs really to work veryseriously to strengthen its defense capacity and provide allnecessary support to Ukraine. That was the European Commission vicepresident speaking to Bloomberg's Francine Lacqua and just taking a lookat how markets are tracking here.

Euro stocks futures pointing to furthergains of the open euro weakness as well, stemming some of that recent slide. Disinformation or misinformation andelection interference is going to be a real challenge that we all have totackle. We are talking too much about DonaldTrump in Europe and we should prepare ourselves for a possible second termfor Donald Trump by fostering our European competitiveness.The best defense, if that's the way we want tolook at it, is is attack. And to attack properly, you need to bestrong at home.

So being strong means having a strong,deep market. Having a real single market.We've now got $2 trillion deficits with no end in sight.I don't know that the country, frankly, is prepared for four more years of thatbecause those things all poll very negatively.And I think it's going to be a bumpy year.But most more than anything else, we've got to be resilient.We've got to be prepared to react to news.I think the path is probably that inflation's passed.They're going to start lowering at some.

Point when they're ready.They're going to be prudent. They're going to be thoughtful when theyget three rate cuts in or more this year, as I expect it will expect veryprobably a rate cut this year. But the question of the season is apremature one. Some of the highlights from ourconversations at last week's World Economic Forum in Davos and a number ofcentral bank decisions are due this week.We're starting with the Bank of Japan. On Tuesday.Bloomberg Economics sees the BOJ likely to do nothing stand pat with governorbecause a way to maintaining a holding.

Pattern until clearer signals on thesize of the wage increases for 2024 start to emerge.Meanwhile, the ECB holds its first monetary policy meeting in 2024.On Thursday, President Christine Lagarde told us at Davos that the CentralEuropean Bank is likely to cut rates later on this year.Other right decisions we're watching will be from Canada, Sri Lanka andMalaysia. Other economic data to note as well.In a few hours, we're going to get China's loan prime rates and in the USwe'll be watching for data from the Fed's preferred inflation measure.That's on Friday, as well as fourth.

Quarter GDP figures.All right, Let's bring in Katrina now, senior economist at Moody's Analytics.Katrina, a lot on the docket this week, but I do want to start in Japan, wherewe have that all important central bank meeting.No change, of course, expected at this meeting, but there is a sense ofinevitability that we're going to see rates normalize.When do you see that happening? Oh, definitely.So our expectation is that we will see a move in April.But I think heading into that April move, the communication and thetransparency around the Bank of Japan's.

Decision making will be critical becauseI think, you know, they've had this ultra accommodative monetary policystance for quite some time. So now that we're talking about movingout of it to make sure it's an orderly transition, we really need to see thatthat clear communication. Realistically, how far above zero canthe Vijay go? I mean, our view is not not much, if atall, because at the end of the day, they they've committed almost to moving awayfrom this this ultra accommodative stance.But at the same time, the domestic demand environment is still so, sosluggish and it's not showing signs of a.

Revival.And at the same time, their external conditions as well are quite weak.We're seeing the export performance being sluggish as well.We're not expecting that to improve until the second half of this year.So we're not going to see a really aggressive move anytime soon.What is your outlook for growth in consumption in Japan?Yeah, that's a really good question. So overall GDP growth in Japan, we'relooking at just a 0.1% expansion this year so that that post-pandemic revivalhas really faded in Japan. As I said, you know, consumption is asoft private investment as well is soft.

There.And also that that weak external conditions.So not not a whole lot going on in Japan.So they will have to tread carefully when the central bank does eventuallymove. One area is what we've seen really.Consumers holding up, of course, has been the US strong consumption, lots ofdata as well this week, including the Fed's preferred inflation gauge.But what is going to be standing out to you most and also that good news, or ifwe do see any good news, is that going to be something that changes any sort ofexpectations around the Fed?.

Yeah.So it's really interesting in the US at the moment because what we've seen isthat the economy overall has just proved resilient on so many different fronts.And as you mentioned, that the consumer is one of those areas.It's been surprisingly resilient and I think one of the key drivers of thatresilience has really come down to the the strong labour market.We've got an unemployment rate sitting still below 4%.It's been below 4% for four two years now.So it's incredibly strong performance and so we'll be continuing to watch thelabour market continuing to watch that.

That cooling inflation environment aswell, which is really setting up a really nice stage for these Fed ratecuts to actually come to pass. And at this stage our money's on that.That may rate cut as kind of the when the accommodative easing really startsto begin. Where we can also expect possibly to seesome sort of further easing. Is is China policymakers perhaps have alittle bit less room to wiggle in there given that their rates are a lot lower?But what sort of policy support you expecting this year?So so our view is that China is going to grow at 5% this year.But in order to actually get to that 5%.

Growth, a lot needs to go right.And we do need to see that ongoing policies support, particularly on thefiscal front. And I think in terms of policy priority,what we will see is that the property market continues to get support fromdevelopers as well as home buyers as well, because what we're seeing is thatthat a more deep correction in the property market is manifesting in somany different areas of the economy and really causing weakness in domesticdemand. So property market is going to remain afocus. But then on the other end as well, we'reseeing other issues that are continually.

Not being able to easily be resolved.And I think the clearest example would be the the high youth unemployment rate.So what we're going to see is that policymakers continue to to focus onareas like the the labour market in particular, weak spots like high youthunemployment because of the the structural issues that that causes aswell. Yeah, that's an important risk to note.Youth unemployment got reported again, this time with students stripped out,which is kind of understandable, says 14.9%.But does that sort of speak to perhaps a broader risk going on in China?You know, this idea that the social.

Compact with the government, yes, youcan roll undemocratically provided living standards, keep getting better.Well, things aren't looking too good at the moment.We also have a contracting population. What's the path out of this for theChinese? Go Yeah, it's a really good question andI think it's a really difficult one, but I think they need to continue to makesure that there are sufficient jobs for graduates and really improve thatenvironment because social cohesion is so important to, you know, asuccessfully growing economy over a sustained period, particularly whenyou've got the backdrop of an ageing.

Population and as you say, a contractingpopulation as well. So continuing to provide that, you know,sufficient support for graduates and you know, more broadly from an economicpoint of view, if we don't continue to bring in youth effectively and find jobsfor them on a long term basis, it does erode the productive capacity of theeconomy as well. All right.Katrina Ellis, senior economist at Moody's Analytics, thanks so much forjoining us. Still to come, skepticism over Chineseassets as well, spreading beyond stocks now.Investors expecting the yuan and.

Government bonds to also underperform.We look ahead to the Monday open up next.This is Bloomberg. All right.Let's take a look at how we're doing on markets in the Asia Pacific.The Nikkei about 500 points away from recapturing that high that we have notseen since 1990. So another positive day for the Nikkei,better by 1.4%. Of course, the yen is extremely weakright now, which is a bit of a tailwind for stocks.One 4811 at the moment against the US dollar here in Australia, we're inpositive territory as well.

By about 7/10 of 1%, the costs be justturning flat after a rather soft start and some gains for New Zealand as well.And of course this follows on from a positive session for US markets.All of the major indexes closing out on Friday, better by 1%and Chinese stock bulls will be hoping for a better week ahead when tradingstarts in the next hour. A gauge of mainland equities listed inHong Kong languished last week at the bottom of global index ratings for theyear so far, broadly the year only 20 days old.But for more on this, let's bring in Asia stocks managing editor Lee antingto so the ending has trading looking for.

This week.Yeah it doesn't look very bright if you look at the golden dragon performance onFriday when U.S. stocks ended day at record highs, Godand Dragon were still down slightly. That really is quite telling on investorsentiment, the kind of intense bearishness that we're seeing.And indeed, I think we've entered a period where bearishness is just sofierce or intense that investors are only focusing on negative news rightnow. We did have some positive news recently,such as a ¥1 trillion special bond, I should say, and ping an support list offallen developers.

The market didn't bounce at all.We haven't seen that type of lack of reaction for a very long time.It does seem like investors start to discount all the good news because noneseems to have shown up in the economic data so far.And we're seeing deflationary pressure intensifying and growing skepticism onthe GDP figure as well. So, yeah, I think we are looking at evenmore grim milestones for this week for the CIA to maybe hit the lowest since2005 and for the Hang Seng to hit the lowest since 2009.Yes, it's probably no surprise then that we're continuing to see bearishness inthe yuan government bonds and something.

That's likely to persist.Yeah, I think it's indeed spreading. The idea is for rates and effects inChina. Compare with other emerging markets.China has already cut rates and did a lot of easing last year.So China's monetary authority has much less room to cut again than its majorglobal peers. And that is really going to put somepressure on the yuan and to limit to the upside for Chinese bonds and for bondinvestors. They're also looking at the strength ofthe yen, if the yen. If the yuan weakens, I should say, andthen their overall return on Chinese.

Bonds will be reduced as well.And then how is that the right outlook for other countries also playing intothe attractiveness of China debt? Yeah, I think people, of course, arereally factoring in some kind of rate cuts in in the US maybe and not fivetimes the maybe three times. But still they may.The consensus expectation is for a slew of cuts coming through and also forother emerging markets like, for example, Indonesia and Brazil.Their rates are at relatively high levels and some investors are alreadysaying that they prefer those markets where rates have been elevated versuscountries like China, where a lot of.

Cuts have been done.So the upside is really more limited for for Chinese government bonds right now.Yeah, very interesting. That was our Asia Stokes managing editorlending to and of course the performance of of Asia and stocks.Pretty interesting to note last week excluding China of course but we did seesome big outflows. Given that investors and sort of beenrecalibrating once again their expectations around the Fed.But let's discuss that now. We've got Abhishek Bishnoi joining usfrom Singapore. He's our senior Asia equities reporter.So Abhishek, not a great performance, as.

I said, for Asia X China rather lastweek, but something you're saying perhaps could be a little bit more of ablip rather than a trend that's starting.Yeah, definitely. I mean, it doesn't look like a trend atall because this was the first out after, you know, ten weeks of inflowsand, you know, the outflow has been led by Taiwan and India.If you look a bit more granularly, I mean, Taiwan's outflow came right afterthe vote. About half of that got to trace as TSMCdelivered a solid outlook for growth and capital spending.So, you know, Taiwan's outflows are.

Already reducing.And then comes to that comes India, which has seen outflows on back of abellwether HDFC Bank survey results showing some sort of slowdown in loangrowth. But that is also dissipating theresources that have just started. And it started on a very positive notewith tech companies delivering better than expected numbers.So given the context of outflow coming for the first time in 11 weeks and thiswhole set up and optimism around earnings, it does look like a blip.If you look at MSCI Taiwan and MSCI India relative to MSCI Asia PacificIndex, you know, both the markets are.

Seeing significant upgrades, earningsupgrades this year. While for that for MSCI Asia is trendinglower, largely because of China. So, you know, earnings aredisappointing. So should inflowswe have seen the US dollar or the Bloomberg dollar spot index at leastappreciating pretty sharply so far in January.What sort of impact is this going to have on emerging Asia?Well, the dollar index obviously have a negative correlation with all sort ofrisky assets. So, you know, that is definitely in playand a broad set up for not just.

Equities, but risk assets across theworld is whether you is going to see a soft landing on the back of the muchtalked about aggressive rate cuts by Fed.So, you know, that narrative is at play. But, you know, if you look where the USmarket is in overnight, you know expectations of inflation, of, you know,once again dig in the some of the gauges to record highs and you look where MSCIChina is. I think there are more people, morebulls in the camp who are hopeful that the soft landing narrative would prevailsooner than later. So, yeah, keep a keep an eye on ondollar index.

But at this point in time, you know,from what we are getting from our reporting, from what you are seeing interms of market positioning positions, signaling it does look like that, youknow, it won't be a big threat, you know for risk assets including Asian emergingmarkets, yen something as well that we're reallyseeing playing out this morning that dynamic around the fed.That was that Bloomberg senior Asia equities reporter Abhishek Bishnoijoining us there from Singapore. We'll have more ahead on DAYBREAK.Asia, this is Bloomberg. We don't want to lose on policy tooquickly, only to find that inflation.

Gets stuck at way above target.That would be a miss. That would be a very scarring miss.And we don't want to try to get to two so quickly, like overnight.Just get that squeezed out that we end up having this big run up in theunemployment rate. That was the San Francisco Fedpresident, Mary Daly, continuing to push back on these market expectations forFed rate cuts early in this year. But the trading dynamic we're seeing sofar in treasuries this morning suggesting that there is conviction thatthe Fed is going to begin reducing its benchmark rate as soon as March.So certainly something to keep tracking.

We are seeing, as I said, those movesacross the curve here and continuing to hold above that 4% level.That dynamic of higher yields, the Fed is certainly saying that's been weighingon the Hong Kong property market given the Hong Kong Monetary Authority poll.Is that what the Fed does as well? But what else is really shaping thedynamic of the real estate scene here in the city is Chinese developers thatreally once expanded aggressively in the city, they've now retreated from HongKong instead with that unprecedented downturn in the mainland economy.So for more on that, let's bring in our asia investing and real estate.Reporter crystal clear, crystal.

Is this sort of a permanent shift thatwe're seeing here in in Chinese developers in the city?Or do you think it's something that's more shorter term or or even mid termwhile they wait for that sort of recovery in mainland China?I guess that really depends on how fast and how well mainland developers canrecover. So far we are seeing that even this gavea lot of government help. These developers are still struggling topay debt and consumer confidence is low. I mean, what is for sure, though, isthat the landscape has really shifted. In 2018.We are seeing mainland developers.

Actually telling Hong Kong developers,you know, get used to this land bidding prices.Right now we are seeing their presence in the inner city significantly fade.So what's this going to mean for Hong Kong's property market?Well, it could mean that the Hong Kong developers, they would have moremarkets, so they might be able to better control how the market is going to belike. I think one thing to caveat, though, isthat it doesn't mean that the picture is any rosier for Hong Kong developers.Residential sales are low commercial in the commercial scene.Developers are struggling to find.

Tenants.So it really depends on how they set prices and how they want to collaboratewith each other in JVs potentially to see how they want to navigate out ofthis prolonged market downturn. That prolonged market downturn, though,for Hong Kong. I mean, we're seeing it really evidencebecause rents continue to be low. We're seeing landlords as well thatcan't sell their properties. They're putting them back onto themarket again to lease, as you said, commercial properties.Yet we're looking at office blocks around us that don't have any majortenants as yet.

What's going to really shift thatdynamic and is the question really of oversupply in the city as well?Hmm. Well, in some sort of rental market, Ithink what's going to shift the dynamic is really the influx of mainland Chinesenationals. A lot of them have come on the varioustenant schemes that the government has put out so that that's one thing forrents, I guess, for the residential market.We have seen the Government introduce a series of measures to encourage buying,such as for those without permanent residency, you don't have to pay thestamp duty right now.

And right now we are still waiting andwe're seeing a wait and see attitude to see whether those measures will actuallyhave any impact. And for the commercial sector, I thinkit really depends on the performances of the businesses.You know, at the end of the day. Hong Kong is seen as a gateway tomainland China, and if the China slowdown continues, these companies,they might not be able to lease bigger and better offices eventually.All right. When it comes to the property market,though, for I said, oversupply really meant for the office market.I should clarify that.

But when it comes to the residentialside, do you think that there's going to be any sort of meaningful change ofexpectations from property owners as to the actual value of their property?Because sometimes it can be a case that people really cling to two prices thatwe saw. Yes, you said back in 2018, evenearlier. Well, certainly for property owners, theoutlook by most entities this is that residential prices will continue todrop. Nowadays, probably people, in fact, inHong Kong, instead of buying property they choose to rent.And that's not good for those who are.

Trying to sell their property.And of course, the bigger trend is, you know, as we have been reporting for thelast few years, people moving out of Hong Kong and that, again, decreases ofthe population for buying those properties.All right, asia investing in real estate.Reporter Krystal Chia there. Thanks for joining us.Let's take a look at some of the stocks to watch when the market open does getunderway in Hong Kong and mainland China, a little bit over 30 minutestime. Keep an eye on battery makers,specifically Seattle and be wide.

Following a new US rule that will banthe Pentagon from buying batteries produced by China's biggestmanufacturers. That ban would potentially begin in2027. Let's take a look at just how we aredoing on the markets here in the Asia Pacific.In a nutshell, very much a risk on day. And the Nikkei once again having a verystrong session, better by one and a half percent right now, helped along in nosmall part by an extremely weak yen one 4812 against the greenback at themoment. And another point to note for theNikkei, we are now just about 400 points.

Away from eclipsing a record we haven'tseen since back in 1990. COSBY Meanwhile, that's also in positiveterritory after a rather sluggish stop at about a 10th of 1% here in Australia.Meanwhile, Annabel, we are also in positive territory by 7/10 of 1%.Yeah, well, Paul, I think moving to the downside or in the other direction isreally been Chinese equities because we've seen more than $6 trillion ofvalue now being erased from the peak back a couple of years ago.So really a big focus for investors is whether we can start to see any sort ofsentiment shift. So far, the outlook is looking a littlebit rosier.

But as I said, you got to put it incontext because we did have a very dismal week, a gauge of mainland firmslisted in Hong Kong languishing at the bottom of global equity index rankingsfor this year so far. But still ahead, we'll speak withAllianz Global Investors to discuss the right policy outlook in Asia.Plus, we get an outlook on Chinese equities with Foundation AssetManagement. That's it from DAYBREAK Asia.Our coverage continues.

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