This is DAYBREAK, Asia.We're counting down to Asia's major market opens.And Heidi, it's all about that market reaction we've got coming through thismorning to the US inflation print. Watching the Japanese yen in particular,touching 153 in the prior session and a bit of a pushback coming through fromJapanese government officials. But the question, of course, is a tradeis really going to be paying attention. And also, does that push back mean thatwe are getting directions to the Bank of Japan for intervention?Maybe it's sort of more befitting that they just sit back for a couple of moresessions and see whether it sort of.
Starts to fade.Right, rather than acting in the immediacy of the moment.But certainly those comments from Masako are very firm.They're not ruling anything out. So we're waiting to see what's nextafter 153. Yeah, that's right.Just recapping some of those lines coming through from Japan's top currencyofficially saying that authorities will be considering all options for themarket and that they're ready to respond to any event coming through that isreally being the big, big driver. One of the big market moves to note.Of course, overnight we had that big.
Spike in Treasurys, making it to theopen of those in just a minute, but certainly putting dollar strength intothe story and putting pressure on a lot of Asian currencies.And the Japanese yen the true standout there equities wise we have seen thatweaker yen really helping some of Japan's exporters of late today thoughthat story is not translating across. You're seeing that move again thatfollows through from the Wall Street session.Weakness in the S&P 500 closing down more than 1%.The the Nasdaq dropping in turn. And you do see that reflected so far inthis session.
Let's change on it, because we've alsogot the open here for Korean equities today.And we did see in futures and again, you can see that with the open here, a dropat the open. It's not just the story of the USinflation print that, as we said, came in hotter than expected.But also we've got South Korea's president that suffered a big loss inthe parliamentary vote and that is also playing into that a dynamic given we sawthe opposition gaining slots. So the president looking to be in aweaker position for the last three years of his term.Also to note, we've just had some trade.
Data coming out.So this is the first ten days of April we saw exports actually rising here,more than 20%, so up nearly 22% actually on the year.And imports as well, making some gains, up 5.8%.But certainly that strength we're seeing in the export story, it is more of apositive sector or sentiment given as well, Heidi.Of course, Korea is very much seen as a sort of leading indicator here.Also to note, just that big move you're seeing there for the Korean one,weakening more than 1% against the greenback closed currency.Of course, they do typically see some.
Bigger moves at this point in time.But also to note that Japanese ten year yield, we've actually got it risingabove 0.8%. That is the highest level we have seensince November. So certainly, as we said, it's that bigrepricing we're seeing coming through, Heidi.Take a look at. Of course, the repressing story isreally what we see from the Fed for the rest of the year right now.And that is really the major theme that's really pricing through the restof these Asian markets. Take a look at Australian stocks weredown by in terms of trading on the ASX,.
Where just a couple of minutes into thatstart of the cash trading session off by just about a 10th of 1%.We did have a pretty decent day in the previous session extending that winningstreak and Australian equities are still pretty close to that record high thereas well. We are seeing those correlated moveswhen it comes to Australian New Zealand bonds, Aussie and Kiwi bonds hit by thathot US inflation print as we saw them really falling from the open, right.Just tracking those declines we saw in treasuries.We've also seen the Aussie and Kiwi dollars holding really the bulk of thatovernight plunge after one gauge of the.
Greenback saw its best rise in a year,again being fuelled by this Fed repricing narrative.Brent crude there still elevated over $90 a barrel.This is of course a big component in terms of feeding through to thestructural uncertainty of that stickiness and inflation.Geopolitics at play here, oil just holding on to that advance.US intelligence saying a possible Iranian strike or Iranian proxy strikeon Israel according to the latest intelligence.So these concerns over escalated hostilities in the Middle East, helpingsupport the crude and taking a look at.
Where we're at when it comes to UStreasuries after the big reaction that we saw, of course, from the CPI print,we're seeing a little bit more of a mixed picture now.But certainly more broadly, investors are really signaling that the Fed willcut rates just twice this year beginning in September, that fresh round of, what,a third consecutive month of hotter than expected new inflation, really sendingyields at one point to those 2024 highs. Again, let's bring in Kelvin Tay forsome analysis. He's the regional CEO at GBS, a globalwealth management. So, Kelvin, I'll get it out of the way.What do you expect the Fed to do this.
Year?Well, we haven't change our, our estimates for the Fed to actually cutthree times starting with the June. But I think after last night's data wecertainly will have to actually review what we actually have on the table atthis point in time, because core inflation has actually turned out to bea lot more stickier than than had been thought.But what's going on, Will, comforting is the fact that there was actually theheadline inflation was actually moving up quite sharply last night.And it's actually based on the fact that energy prices have actually moved up inthe last three months of last year.
But nonetheless, coal has actually beenpretty strong and we need coal inflation to moderate further before we canactually say for certain that the Federal Reserve will cut in June.So how does that inform your position intreasuries? Have you got short positions?Where do you think yields are going to head from here?Yeah. Well we've got a long position on the onthe US bonds market actually. And in fact we actually prefer bondsover equities largely because of the fact that we think that the FederalReserve will cut in June.
But of course, all of that has actuallynot come to a lot of scrutiny because of the fact that, you know, if the Treasuryis continued to actually move up that way, then obviously that's going to putpressure not just on the bonds market, but also on the equities market as well.So we don't think the US treasuries will move a lot higher from here.We do think that they are likely to actually stabilize at the current levelsbefore eventually heading towards the 4% level when the when the Federal Reserveembarks on its first cut for the year. And so how does that thinking theninform your strategy for the Asian credit space as well?Yeah, well, what we've noticed recently.
Is that where the Asian credits and evenwhere the investment grade issues in the US are concerned, the unions haveactually not moved very much, despite the fact that the US Treasury is on aten year basis have actually moved towards the 4.5 4.5% level.That basically means that the spread widening is not because of theinvestment grade or the Asian credits moving, it's largely because of theTreasury use moving on its own. So I think the market is actuallyyou know, the market is actually thinking that perhaps the Fed will haveto cut and therefore take into consideration that we should notactually be too late where positioning.
Is concerned with regards to theinvestment grade or Asian credit, but with the tremendous amount of issuescoming through on a short term basis with regards to the new issuance oftreasuries by the US government, that in turn could actually put some upwardpressure on the US Treasuries on its own.But given the fact that you're, you know, if the market is still expectingtwo or three rate cuts this year, then I think there is a certain level ofstability with regards to the Asian credit or the investment grade issues.I'm curious because in this sort of market environment, maybe some shorterterm volatility, shorter term market.
Risks, but still we've got reallyelevated levels in commodities. Oil, of course, that we're trackingBitcoin, you've got some equity benchmarks as well that multi-year highsare around that point. How do you also trade in this sort ofenvironment? Yeah, it's a very tough environment toactually trade in because of the fact that, you know, you've got your bonusincreasingly moving and, you know, the trajectory of the business and theequity markets have been quite different this year compared to the last twoyears, where, you know, whenever your produce go up, your equity marketsactually fall.
But this year, the trajectory hasactually been quite different. If the earnings results in the next inthe next couple of weeks coming in weaker than expected, then obviouslythat's going to put a lot more pressure on the equities market at this point intime. I mean, it's quite interesting to notethat in the month of April, energy stocks actually outperformed tech stockswhere the S&P is concerned. And we do see the energy stocks actuallycontinue to do well, given the fact that your energy prices have actually beenquite steady over the last few months at an elevated level, and we don't see thatcoming off dramatically.
In fact, we do think that oil prices anda Brent basis will likely remain at about to where they are.And that in turn basically puts pressure on the Bank of Japan, because if youhave a very weak in and high energy prices, that in turn basically meansthat the Ministry of Finance will probably have to intervene in the marketat some point. And obviously, we're all looking at theyen right now because of the fact that it is actually very, very close to onefor three against the US dollar. Kelvin, before we let you go, how areyou playing China? At the moment?We're neutral in China.
We do think that where the valuationsare concerned, obviously it's very, very attractive and it's cheap, right.For for very good reason as well. But we do see a turn around India in thepiece in the basic part of the economy, like, for example, in industrialproduction and in exports of the of industrial automation, that in turn isbasically about 20% of the GDP. But of course it's basically 50% of thegrowth. So if that stabilizes and it continuesto trend upwards, then I think the sentiment towards investing in Chinacould perhaps actually change. But of course, we have a very, very bigeven towards the end of the year, which.
Is the US elections.And that means that the rhetoric, the saber rattling will come out in the nextcouple of months and that in turn is going to dampen investor sentimenttowards investing more in China. But I think in the last couple of monthswe've actually seen international investors actually increasingly reducingtheir underweight on China, and they're probably moving towards a closer to aneutral position on China at the moment. I was Kelvin Tay, regional CIO at UBSGlobal Wealth Management, and we just taking a look at some of the movers sofar, we're just on a 10 minutes into the session so far for today, Tokyo and alsoSeoul trading here.
You've got the US or the White Househosting a state dinner right now for Japan's Prime Minister Kishida.You can see those live pictures there from the from Washington as that eventcontinues underway. But some of the names that we'retracking, in particular off the back of this visit from Japan's leader is thethe tech names in particular, because we've actually seen an announcement thatAmazon and Nvidia are going to be funding a new joint AI research programfor the two nations. One of the sort of big takeaway so faris that focus on emerging technology from both of the countries here.So they're going to be providing Nvidia,.
Amazon, Microsoft, along with a group ofJapanese companies, $110 million for AI research partnerships between twouniversities in the US and also Japan autos that are taking place, even thoughwe do see chip stocks so far under pressure.But up next, something else that's really been in the spotlight with thisvisit Nippon Steel's takeover bid for US Steel.That's as we said, Japanese Prime Minister Fumio Kishida is getting thatstate dinner at the White House. You can see those live pictures of thatevent taking place right now. This is Bloomberg.
All right.As we hear that the US Department of Justice has launched an antitrustinvestigation into the Nippon Steel takeover, this is a picture for thesetwo stocks trading. Nippon Steel is down by just about threequarters of a percent at the moment. As we continue to monitor what wasclearly a key issue that was has been hanging over this visit by the JapanesePrime Minister, Fumio Kishida, to Washington.Of course, we're seeing them in the middle of the formal state dinner.Let's bring in our Tokyo bureau chief Isabel Reynolds and Manila bureau chiefanalysts are up here.
Our chief North Asia correspondent DavidAngle also joins us out of Hong Kong. So, Isabel, let's start off with you.So this is obviously an issue that I don't know if it's an elephant in theroom, if that's really been properly addressed throughout this entire trip.But clearly, it's been kind of an overhang.How does this impact the visit? Well, I mean, the Japanese stance hasalways been that they just want to be treated fairly on this.This is a this is a commercial deal between two companies.And they want it they want things to go ahead according to the normal rules ofcommerce.
But to have this news come out, I thinkat this moment, while Kato is on this official visit to the US, he's juststarting this state dinner with Biden and they're trying to sort of show theirties. This is stronger than ever before, showthat there's no daylight between them. And to have this new sort of piece ofnegative news on this deal at this point certainly does not look good in thatrespect. Israel, of course, has been somepositives, though, coming out of the meeting so far and a lot of differentagreements that have been announced, particularly with regard to emergingtechnology, it seems.
Yes, we have seen these deals on AIresearch, for example. And we're also seeing a deal on offshorewind, which which could be very positive for Japan, which has sort of lagged onits renewable energy pledges and partly because of its inability to use itsnuclear plants to a large extent. But I think the overarching theme reallyhas been this kind of concerns about China.They've issued this joint statement with very strong language about China and itsactions in the East China Sea and in the South China Sea, calling them dangerousand escalatory. And of course, this set up for thistrilateral summit with the Philippines.
Later on.And in that respect, they've also sort of stepped up their defense cooperation.And they're talking about the military is working more closely together.So that's been the sort of sort of top takeaway from the summit so far.And Manila, as this well just mentioned, Biden and Kishida headed into thistrilateral meeting with Philippine President Marcus next.So what are the expectations from this? I think the tensions with China isexpected to be the center of this trilateral summit between thePhilippines, U.S. and Japan, and the three leadersexpected to discuss ways to cooperate.
More closely in the area of maritimesecurity. Given the growing tensions in the SouthChina Sea, particularly between the Philippines and China.President Marcos, before he flew out of Manila yesterday, said that he expectsthat there would be an agreement between the three leaders in terms ofboosting cooperation on maritime security and keeping the maritimefreedom of navigation in the South China Sea.He says this because there have been frequent clashes between Philippines and20 ships in the disputed waters, including recent instances of of Chineseships using water cannons on Philippine.
Boats.So is this something that's going to be shifting the darling of the Philippinesassertiveness in the South China Sea and especially over the back as we werehearing that the Philippine president is learning of a sort of agreement betweenhis predecessor and China. I think it strengthens the Philippinesbid to bolster its partnerships with like minded countries and including itslong term like the US, in terms of its posture in the South China Sea.I think President Marcos's comments yesterday that he was horrified to learnof this gentlemen's agreement between the previous government and with Chinain terms of.
The Philippines supposedly not beingrestricted to send construction materials to repair its military outpostand in the initial in the South China Sea, speaks tohis continuing assertion that the Philippines should the Philippinesovereignty should be recognized in terms of its territorial claims indisputed waters. To expect any other areas of cooperationby the three nations. Obviously, maritime security is themajor one, but what else could we expect to be spoken about?I think there should be also discussions in theareas of cooperation on critical.
Infrastructure and critical minerals,semiconductors and renewable energy. I think President Marcos is alsoexpected to have a bilateral summit with Brazil meeting withBiden on the fringes of the summit. And Steve, of the back of that and sortof unrelated, of course, but we've had China's President Xi meeting Taiwan'sformer leader. It's a pretty interesting development.Yeah, that's right. I mean, look, this is more weighted onthe symbolic side than the actual ushering in of change across the TaiwanStrait. It is an effort by Xi Jinping to reachacross the street and embrace a former.
Taiwanese leader who kind of shares thevision of, you know, latching on to the common culture and the common identityof the greater Chinese nation. And that's what my angel has reallyadvocated since he left office in 2016. But keep in mind, the former rulingparty, now the opposition Guomindang Binh Jo, was the last president who waselected for that party, and they have lost three consecutive presidentialelections. Now he's he's been a powerbroker withinthe KMT, but he failed to get the two opposition candidates in the lastelection in January to join forces that could have potentially beaten the DPPcandidate who's now president later or.
Will be president in May.Lighting Does it look the opposition to candidates got 60% of the vote, lightingthey got 40 if they have combined their efforts, as my NGO tried to do, theypotentially could have won that election.So I think Xi Jinping in Beijing is kind of seeing an opportunity that people inTaiwan don't want war. They don't want conflict.They're still leaning towards the DPP, but there's a bit of a crack, an openingfor soft power to work. And I think that's what Xi Jinping istrying to leverage. Is this also as much as appealing to theChinese, to the Taiwanese people, but.
Also an outward projection given thetiming of this meeting, as we see the US-Japan meeting at the moment?Absolutely. Have him again, Xi Jinping in thosecomments in the great Hall of the People as he shook hands with my angel,essentially said, and I'll quote him. Exactly.External interference cannot stop the historical trend of nationalreunification, external interference. So there was a not so veiled jab at theUnited States again. So this is against the backdrop of ofincreasing tension, if you will, over the whole Taiwan issue.And in the past or in the past year or.
Two years since really Nancy Pelosivisited in the summer of a year and a half ago, there's been ramped up effortsby Beijing, either militarily, economically, as well as diplomaticallyto further isolate Taiwan because of the rising bifurcation, if you want to callit, between east and West China. U.S.relations over that time frame. So, look, Xi Jinping has been able sincemy angel left office in 2016, he's been able to court ten nations thatpreviously recognized Taiwan to Beijing. And that is significance, furtherisolation of Taiwan diplomatically and the economic efforts that have beenongoing.
And then militarily so far since theelection of launching the in January, there have not been any war games in theTaiwan Strait. But again, May 20th is thatinauguration. There's still time for that.But he's using soft power with courting, buying Joe to kind of get a pulse checkon what the people of Taiwan really want after that election.All right, Steve, that was our Tokyo bureau chief, Isabel Reynolds, Manilabureau chief, Manila Sara Po, and of course, our chief North Asiacorrespondent, Stephen Engle. And you can get a roundup of the storiesyou need to know to get your day going.
In today's edition of DAYBREAK,Bloomberg subscribers go to de B, go on their terminals.It's also available on mobile in the Bloomberg Anywhere app.You can customize your settings so you only get news on the industries and theassets that you care about. This is Bloomberg. The US inflation data from the US isrefusing to call as concerns grow that the Fed will likely delay rate cuts.In an exclusive interview with Bloomberg Citadel's head of Economic researchAngel Angel Zubeidi says the central bank is still waiting for the effects ofits hawkish policy to play out in.
Markets.No, I don't think so. I mean, the Fed, as we know, has astrategy of high for longer or high for longer or high for very long.One of those. Right.And we are in that process. Let's remember, they hike rates lasttime, last July. So it is going to be almost a year.It's a question of waiting for the effect of those rate hikes to percolatethrough the economy and inflation. How do you think about those laggedeffects? How do you see those playing out?So the lags are there.
You know, it's a sequence, right?It had an impact on the housing market. Housing activity really came down.It had an impact on some of the durable goods consumption.It has not had an impact on that sense or price, for example, on fiscal policy,on public investment, because fiscal policy has been sort of offsetting someof the tightening effect coming from monetary policy.So we're in a new world. This is a new world where there are alot of policies that are happening that are playing at the same time and so islong and variable lacks. Let's not forget that.And we are, yes, experiencing that.
You wrote in a Financial Times opinionpiece here on May 2nd that there is still a narrow path to a soft economiclanding. Do you still believe that?That was almost a year ago. It was after the SBP crisis and allthat. And yes, I mean, I subscribe to that.We were one of the few places where we didn't call for a recession last year.And it's because we want to see a lot of resilience in the US economy, right?Consumers have very sound balance sheets.Companies have also done a lot of liability management.Banks are well capitalized.
The housing market is under bailout, ifanything. Right.So a lot of the elements that could have driven to a recession were not there.And I think we are seeing that. How do you feel about the direction ofinflation from here? If you think about the maelstrom of datathat we are seeing, do you believe that there is a path downward or does it stayhigher for longer, maybe higher forever? If you think about our star, we had wehad two big shocks in series, right? One was, you know, the reopening thatwas really abrupt. That led to the bottlenecks.And then we had the commodities spike.
And that generated a ripple effect.Think about the tsunami. Right.And so what we are seeing now is basically still the aftermath of that.So goods inflation went up. It has come down.So inflation is next. It went up.It's coming down and it's coming down more slowly because services inflationby nature is stickier. And then you have wage inflation.Right. Which surprisingly hasn't been as strongas some people might expect. But it's now you have real wagescatching up a little bit, and that's.
Going to extend a little bit.The persistence of core services, inflation, I think it's happeningaccording to plan. It was never going to be a steady, butwe are seeing bumps and the bumps are just part of the game.That was Citadel's Andrew Angel Rubin, speaking as part of our Bloomberg Investseries. Inflation is getting just becoming avery stubborn situation for the Fed. This is too much for the Fed.Inflation's not doing what they wanted on average, and this is a problem forthem. The sound that you heard there was thedoor slamming on a June rate cut.
It's that's gone.I do think it shuts door on a June rate cut.The Fed is not, in our opinion, is not going to be making any moves any timesoon. They're more likely to hold status quo.Pretty good reason for them to remain on hold to see how things go.A rate cut in June, it seems to me, would be a dangerous and egregious errorat the moment. I think they'd probably set up forSeptember December. Two rate cuts this year.There's a real risk of no rate cuts. Know that's going to come into thenarrative, and I think that's near.
There, you know, creating a problem forthemselves in terms of the promises of rate cuts, the inability to actuallyexecute on them. That was some of our guests reacting tothe latest hot inflation data from the US.And really the market reaction to that is very clear what we're seeing so farin trading. We've got Japan, Korea, Australia, 30minutes into trade, but the big action you can see so far coming through in thebond space, we've seen the Japan ten year yield rising 2.8 of a per cent forthe first time in several months, but also big jump that you've got in in Kiwiyields, Korean ones as well.
Australia at that front end of thecurve. So it's that story you're seeing oftraders really rethinking when we're going to see any sort of Fed rate cuts.As we just heard that from Jp morgan, the doors shut for mid-year and trade isreally pushing out those bits. That's led to dollar strength off theback. And again, the reaction in effect so farvery clear this morning. You've got the Korean one underpressure. The Japanese yen actually a little bitfirmer here, but still trading very close to that 130 mark.And we've already heard from Japanese.
Government officials pushing back andsaying they're prepared to react to any sort of scenario that they're facing forthe local currency equities wise.Again, you've got that push or move under pressure here this morning.Pretty much every single sector, if you took a look at the impact function, isin the red today. The one that is standing out in thegreen so far is energy stocks. And let's just take a look at some ofthose movers here. We are seeing the likes of Inpex s oilas well and Seoul climbing somewhat, but that's more of a geopolitical storyplaying into it as well, given we have.
Seen thatrisk of a spill over really being heightened once again in the MiddleEast. Let's change on.Take a look at what we're expecting, of course, something that could shift theneedle or move the dial a little bit for commodity markets is what comes out inthe inflation data later today. So the expectation and people reallywant to note here because we're on track perhaps for an 18th straight month ofdeclines, CPI as well, we're expecting it to pull back from that holidayseason. Really something that has played intothe dynamic has been the move that we.
Saw in iron ore prices over the courseof March, concerns around the property sector as well really playing into that.But as I said, that CPI retreat from a much from the holiday driven bounce inFebruary, certainly underscoring some of the deflationary pressures that remain akey economic threat. And as we said, those producer priceswell expected to extend their declines to an 18 month.Joining us now is Wei Yao, head of research and chief APAC economist atSociete Generale. And and Wei, I'm interested for yourviews here because you're kind of pretty much in line, I think, with what theaverage economist is saying for this.
One.Yeah, totally. So what we are seeing is CPI normalisingback down to 0.3% and people stay very negative.So the picture, the inflationary environment in China is one of noinflation. This is very opposite from the rest ofthe world. Indeed, that's because they do stillface this structural challenge of, you know, lack of demand, too much supply.That really hasn't changed much at all. And against that sort of backdrop, andwe've already had or we've been sort of resistant to see any sort of furtherpolicy cuts.
But is that's what is that what isneeded at this point in time? Well, I would think generally speaking,they just resistance to do any demand driven policy.Right. You look at the message from the NPC orever is that they very much focusing on the manufacturing sector, moving up thevalue chain, which is supply, which is a good thing to have, but it is a demandproblem they have right now. We're keen to get your thoughts on theseaccusations of overcapacity. We've heard at length from the likes ofthe US, from the EU. What's your view of the situationdomestically?.
And when you take a look at some of thefactors that do give China the sort of advantage, be they fair ornot? How long can they have that advantagefor? Well, I thinkwhat as you know, it's a basically a national strategy that they want to movethe move up the value chain, which means, you know, in terms of the policy,the channel, a lot of support to these sectors.You know, to be very fair, China is not the only one providing support to tothings like green transition. Right.However, you know, given China's skill,.
If you have China now and, you know,second biggest economy in the world, they are running a manufacturing surplusof 10% of GDP. This is bound to cause tensionsglobally. I think this is something that Chinaneeds to be more aware of. If you have state double down theirstrategy, you know, they cannot not expect the others to complain.Really. I think the problem is really more of,you know, they should do more about push pushing of demand.Yeah. And to your point, it is not just China.We are expecting an announcement from.
Australia today for its own InflationReduction Act. Right.The Prime Minister saying is willingness now to make economic interventions onthe basis of national interest and national sovereignty.So it's a very interesting space to be in.I do wonder, though, do you think the manufacturing push, the capacity push isable to address the deeper structural, longer term issues with the economy?Well, in a way, you could say this will help to help the productivity growth.Yes. But to our mind, you know, the othervery important problem and they need to.
Address is they need to resolve theirdebt issue to clean up the debts, to make to to improve the allocation ofcriteria, to improve the efficiency of credit allocation.And they need to do more to support the household income, the consumption.They're really not doing much at all. So in a way, it is a very partial answerto the long term issue. They really miss the other parts toomuch. Is there any thing that sort of makesyou more optimistic, though, on on the outlook?Well, I think cyclically speaking, we can see that China actually, the growthwise, is actually bottoming out.
We're not too worried about themachieving 5% or close to 5%. That's not a concern here.I guess, you know, the what we care more about is, is the progress of arestructuring of developer debt is how they're going to do about it.If that there is a bit of willingness to do something about it, to clean it up.But not enough yet, I guess, you know, with regards to this this oversupplyissue, if you want to call it, it's I think at some point probably you'regoing to see a situation that the exports are going to hit a wall then,which probably will push them to adjust their strategy, but not yet.Well, has a head of research and chief.
Economist for APIC, Societe Generale.We're watching current assets as well. We are seeing that broad based declineacross stocks as well as a current one. In light of the political developments,we saw the ruling party suffering a significant loss in the parliamentaryelections. Is the same really as a blow to aconservative capital market agenda we're seeing in banking stocks in particular,including K, B Financial Group, other companies seen as the key beneficiariesof the corporate value up program, declining investors clearly concernedthat this major election defeat would slow down reform initiatives for inparticular, the value up propositions,.
Which has, of course driven valuationshigher and more enthusiasm from foreign investors.inter-Korean equity is a corporate value up program seeking to reduce what itsees as a discount in Korean stocks with tax initiatives and the like, and thatis now being seen potentially in jeopardy.We are also seeing weakness in the Korean one there as well, alongside thedeclines that we see in the cost. Me.Let's bring up Korea economy and government reporter Su Keenan Choi, whojoins us now from Seoul. Also, help us break down the resultsthat we have from exit polls, the.
Implications for the president.Clearly, we're seeing some concern from investors in terms of what they see thismeeting for the reform agenda. High said this was indeed a crushingdefeat for President Eunice Hong. We are still waiting for the final votecount to come in, but it seems pretty clear at this point that the opposition,led by the Progressive Democratic Party, will gain at least 70 seats in the 300seat parliament, while June's conservative people per party will getsomewhere between 100 to 210 seats. So while this was a parliamentary vote,it was widely viewed as a referendum on President Yoon.And what these results are telling us is.
That voters think that there is aproblem and the president needs to change his approach to it.It's sort of hard to isolate on a day like this, given the US inflation printthat's also weighing on equities today, but still given some of the movers havegot so far in the session, it does signal that there is some concern aboutthis major election defeat and the impact that it's going to have on someof the reform initiatives. Right.The vote took place at a time when inflation is still high in South Korea,with the economy slowing down. U.N.has been pushing for a number of.
Pro-business policies, such as cuttingcorporate taxes and taking a hard line on labor unions to tackle these issues.But with without the parliamentary backing, it will be definitely moredifficult for you to press ahead with these policies.The stocks and the one have already been retreating over concern that a leftleaning opposition will score will score a major victory at this election overJune's party. And the benchmark KOSPI index fell asmuch as 1.6% this morning. You know, we're hearing about apotential trilateral summit between China and Japan and South Korea at theend of May.
This would be the first gathering forthe three powers in almost five years. How does it change South Korea'sposition on the global stage and the ability, I guess, to push forwardforeign policy, the global implications here?You know, one thing to watch for was North Korea.But North Korea stayed relatively quiet over the election this year.But regardless of the vote results, Yunis likely to maintain his hardlinepolicy on Pyongyang and continue stepped up cooperation with Japan and the UnitedStates. What he will have to face, though, isincreasing concern from his overseas.
Partners over policy continuity, becauseSouth Korean presidents serve a single five year term that cannot be extended.Korea Economy and government report. So he on top of that with the latest onthat election results coming up, we take a look at the Asian Development Bankslatest report forecasting resilient growth for emerging Asia.The principal economist joins us next. This is Bloomberg. Well, the Asian Development Bank saysmuch of developing Asia outside of China is poised for expansion in the next twoyears as consumer demand remains strong and inflation eases.The region's economy is set to grow at.
4.9% this year and in 2025, andinflation is seen easing slightly down to 3% next year.Joining us now is John BURNETT is a principal economist at the ADB and hejoins us now from Sydney. John, great to have you with us.It's nice to get a little bit of good news.Is there a sense that when we've seen this kind of Goldilocks scenario playout for a lot of major developed economies, that parts of Asia inparticular are still playing catch up? Well, I think that from the domesticdemand side, the growth outlook is very positive.But that's only one side of the story.
I think at the end of last year and2023, we saw some signs that external demand was bottoming out.And we as a result of that project, that external demand will continue to performwell in some key sectors, including semiconductors, for example, and thiswill have positive spillovers on the external side for other economies in theregion as well. You don't seem so much of a drag forAsia, which traditionally has been such an anchor anchor, particularly foremerging and frontier markets. Well, I think there will be externalrisks, of course, related to this outlook.So a lot of the external demand outlook.
Will, of course, be dependent upon whathappens in other parts of the world, notably in advanced economies.There will be some slowdown in advanced economies in 2024 as the effects ofmonetary policy tightening from previous years kick in.However, we we see that developing Asia as a whole will beresilient to weather this storm and gradually improve its externaldemand going into 2024 and 2025. One of the things,John, when you take a look at the impact of the Fed and global monetary policy,how does that play through for you in Asia, particularly as we see really anew wave of currency weakness across the.
Region?Well, of course, what happens at the Federal Reserve has clear implicationsfor other emerging markets, and particularly in terms of how interestrates are projected to evolve over time. Now, we we still expect that there willbe some easing taking place in the US this year.However, there is a risk that rates will remain a higher for longer.And one of the scenarios we look at in the report is to look at how a higher alonger scenario would impact developing Asian economies.And of course, this would have some implications via interest rate thegrandchildren.
It could lead to some inflation due tothe exchange rate depreciation implications that this would have.On the other hand, it would have some implications on the growth outlook aswell, which will be positive. So I think once you know, the overalleffects in terms of magnitude will be quite small.It's still something that needs to be taken into account as a risk factor forboth the growth and inflation outlook. I'm curious as well, just in terms ofthe risk that you're monitoring in particular, what are you watching whenit comes to commodity prices and the odds that we see elevated oil pricesinto year end?.
I mean, they've been calls, forinstance, for for crude to hit $100 a barrel.That's right. I think, you know, heightenedgeopolitical tensions and disruptions to supply chains related to this can, ofcourse, amplify oil prices can lead to economic uncertainty more broadly.One of the other analytical pieces in the report looks at the impact ofescalated geopolitical tensions and the implications that this would have oninflation in the region, particularly looking at the the Red Sea crisis andhow it has affected the shipping routes from Asia to Europe.And the implications of this with.
Hyperinflation.So, you know, there are implications that would be important to consider fromthe perspective of heightened geopolitical tensions.And this could indeed also affect oil prices.Oil prices have been largely stable around the $80 a barrel level, excludingthe more recent periods where they increased to $90 a barrel.But I think that, you know, if a shock to geopolitical tensions wouldescalate, this could have broader repercussions on oil prices and thiscould essentially spill over to domestic inflation in the region as well.And against that sort of backdrop, as.
Well as how closely watching the movesin in India and can it continue to be sort of a big driver for for this regionas well. India is a strong growth performer inthe region. 7% over 7% are around 7% this year andnext year. I think, you know, services exportsremain a strong contributor to growth in India.Also, strong consumption and investment is a key underpinning of growth inIndia. India'scontribution to growth in the region has continued to increase in the past numberof years.
I think that we can expect this tocontinue assuming policies would be adopted to address some of the issuesaround productivity, for example, around maximizing labour force participationand, you know, really maximizing the demographic dividend thatIndia has in place. John, we appreciate your time with us.John Burn, principal economist at the ADB with their latest report.Let's get you across the latest in geopolitics now.Brent, crude prices as well mentioned spiking with the US and its allies saidto believe that major strikes by Iran or Iranian proxies against Israel couldhappen within days.
Sources familiar with the intelligencesay a potential attack could use high precision missiles against Israelimilitary or government targets. Iran has threatened retaliation for astrike on its diplomatic compound in Damascus that killed senior militaryofficials. President Biden says he's watching theIsraeli prime minister's response to what he calls a blunt message onimproving civilian conditions in Gaza. Speaking at the White House, Biden alsourged the adoption of a six week ceasefire in exchange for Hamasreleasing hostages and for Israel to open an additional crossing for aid intoGaza.
I have been very blunt andstraightforward with the prime minister, as well as his war cabinet, as well asthe Cabinet. And the fact of the matter is thatBibi and I had a long discussion and he agreed to do several things that relatedto, number one, getting more aid, both food and medicine, into Gaza andreducing significantly the attempts, the civilian casualties in any action takenin the region. More ahead on DAYBREAK.Asia. This is Bloomberg. A rate cut in June, it seems to me wouldbe a dangerous and egregious error.
Comparable to the errors the Fed wasmaking in the summer of 2021, when it just didn't get the thread on inflation.That was the former Treasury secretary Larry Summers there.Really just reiterating what a lot of people are saying in the market rightnow. Any sort of expectation we're going tosee a fake cut by the midpoint of the year is perhaps unfounded, you couldsay. But certainly we've seen a lot of tradeis really pushing back the expectations. And that has been that big repricingwe've seen across the Treasurys curve overnight, particularly led by the frontend.
Of course, we saw the ten year yieldjumping near 5%, the for the ten year yield as well, topping 4.5%.So this is what we're seeing today. So far in the antibodies in particular,you're seeing that big spikes of the Japanese ten year yield notice wellabove that 0.8% for the first time in several months.Certainly, speaking of Japan, we have seen a big move as well in the dollarand that has led to further yen weakness or it did at least in the overnightsession, touching that 153 mark today. We have seen it again, just verymarginally firmer, but that's against the backdrop as well of some jawboningcoming through from Japanese government.
Officials.Suzuki is the latest one speaking in the last few minutes.He's the finance minister from Tokyo saying that they're watching theseethics moves with a high sense of urgency.They're not going to be ruling out any options as well, and they will takeappropriate responses. So certainly echoing what we heard fromKanda earlier. Yeah.And of course, we had earlier heard from a Sato a condo already, the top currencydiplomat. But again, a similar messaging here.Appropriate measures will be taken in.
Response.If these excessive moves continue, they won't rule out any options against theseexcessive moves. That's from Shinichi Suzuki, the financeminister there. But certainly if you take a look at themodel, the kind of index that we've created here at Bloomberg reallysuggesting that yen volatility at these levels, perhaps insufficient for thefinance ministry to step into the market to try and arrest weakness.And in fact, there is some expectation that perhapsother than just verbal jawboning, that we continue to see, perhaps they willwait it out for a couple of days, a.
Couple more session to see what happensafter the response from the US CPI prints coming in hotter than expectedwashes out a little bit, of course, again surging to that one 5324 level.But we're still seeing perhaps historically lower levels of volatility.When you take a look at that model there, take a look at how US futures aresetting up at the moment after what was, of course, a pretty difficult sessionwith that CPI print of futures looking still pretty meek.They're down by just about a 10th of 1% there.We're also watching ahead to, of course, what we see for dollar China, given themoves that we've seen in the yuan, have.
Really flowed on to demand for dollaryen as well. That is it for DAYBREAK Asia.The shadow show is next.
