Welcome to DAYBREAK Australia.I'm Paul Allen in Sydney, where markets have just come online.I'm Annabel. Julia's in Hong Kong, where countingdown to Asia's major trading opens. And our top stories this hour.China to halt the lending of some shares for short selling in a bid to supportthe country's slumping stock markets. The earnings spotlight turning toJapan's big banks, whose trading income probably fell as traders await any BOJmove to end negative interest rates. Plus, Intel's boss calls the chipmaker'sworst stock selloff in three years overstated.We hear this out from CEO Pat gelsinger.
And taking a look at how oil is comingonline, of course, monday, the start of trading here we see brent crude wticoming online. At the same time, we are seeing thoseprices here just jumping fairly modestly because we're just over 1% for each ofthose contracts here. But still, the move really a reflectionof those events over the weekend. So we had three U.S.troops being killed by what's believed to be Iran backed militants.We have traders really recalculating their red see risks off the back of thatbecause we had the response from the US so far saying that they are vowing toretaliate, will be vowing to hold all of.
Those responsible to account at a timeand in a manner of our choosing. And they were the words of President JoeBiden in a statement. But that is the market reaction we'reseeing today so far. Brent crude WTI.Both of those moving here to the upside. Let's change on, though, because we'vegot U.S. contracts coming on line for futureshere and it is a big week ahead. We've got the Fed rate decision, ofcourse, on Wednesday. Our focus is when we can expect to startto see any sort of rate cuts, how they likely to be signaled to the market aswell.
So focus on what Jay Powell says in thatpress conference after. And a big, big week ahead for earnings,not just in Asia, of course, Paul, but we've got more M&G seven numbers on thedocket. Microsoft, Apple, Meta, Google, Amazon.So really big numbers ahead. Yeah, well, we're just getting goinghere in Australia, of course, returning to trade after the long weekend.Right now we've got a little bit of weakness on the ASX, but of course wehave the staggered open here, so let's wait and see what the morning brings.Meanwhile, not a great deal of change in the Treasury space in Australia.The ten year is still hovering around.
That 4.2 mark and the Aussie dollarstill just below $0.66 US. We will have Japan opening at the top ofthe hour as well. The next Dow, that is, we've got Nikkeifutures modestly in positive territory at the moment.The yen softening again as well, 148 against the greenback.And if we take a look at futures for China as well, also modestly in positiveterritory as well. And we did see Chinese equities closingout the week a little bit better than mine, whichthey began it. But some of that rally did seem to belosing a bit of its shine belt.
Yeah, certainly wanted to be trackinghow long it can last, but we are still getting further steps from officials inChina to support the slumping stock market.So now the latest is that they are halting the lending of certain sharesfor short selling. So let's get more on this now.Our chief North Asia correspondent, Stephen Engle joining us in Hong Kongthis morning. So just talk us through the headlinelevel. What do we know out of theseannouncements? Well, obviously, let me take a stepback.
We all know about what the Chinesemarkets have done so far this year. The MSCI China Index down about 60%since that February 2021 peak. And of course, there's been a number ofsteps. Last week was a fairly good one inretrospect and in it basically in comparison to the rest of this shortyear already, it was the first weekly gain for the MSCI China Index so farthis year. So they're trying to put a floor.Now, this latest step that you just mentioned, again, you know, Chineseregulators, as you know, they've they've never really been too keen towards shortselling anyway.
But right now, what we saw in October,essentially limits were put on the lending of shares that executives andother strategic investors or employees, I should say, get in what are calledstrategic placements and other curbs were put in place.Now, the CCRC, the securities regulator, essentially in their statement over theweekend, essentially said that these particular stocks that were led bystrategic investors, they've dropped about 40%, according to the CCRC.So now what China has done is they're essentially halting the lending of theseparticular certain shares for short selling.As of today, strategic investors won't.
Be allowed to lend out those shares aswell during this agreed upon lock up period.So again, it's just another step to try to put a floor on the falling stockmarket, restore confidence, and we'll have to see how well it works.As Paul alluded to it, you know, some of these steps seem to be petering outtowards the end of the week. You know, we had industrial profits forthe month of December out of China over the weekend.Of course, they've are still in contraction.But what are they telling us about the health of the economy in China?Well, we know that there's a.
Deflationary environment.We know that there's weak internal demand and weak external demand.We all know that those are the fundamentals.But if you look at the trends, the trends seem to be improving forindustrial profits, even though the numbers for the full year down 2.3%overall for the largest industrial giants in China, and that's a year overyear basis. But you saw a pickup in November inparticular with a 29% gain in industrial profits and in December.So there was a late year surge for industrial profits.I think what December was up six point.
No, 16.8%, November 29.5%.But overall for the year it was it was lower, down by 2.3%.The reason there again, base effects year over year in November and December,we had COVID spreading through China and 2020 to late 2022 factories were closed.So those numbers are going to be a bit skewed overall, the general trend sinceOctober, it's been an improving trend of industrial profits.We saw factory output expanding 6.8% in December, the the fastest pace since2021. So that's an encouraging sign.And year over year decline in producer price index also slowed from November inDecember.
But again, the overall background is adeflationary environment weak, external, weak internal demand.But industrial profits as they've they've they're starting to wind up thedestocking process at many of these big industrial giants.So that will start helping improve profitability.All right, Chief North Asia correspondent Stephen Engle there.Let's take another look at how the oil prices were following.We're seeing moves a greater than 1% upwards for both Brent and West Texas atthe moment. WTI and now are just above $79 a barrel.Brent at 84, 68.
And this is, of course, on the news ofthat drone strike near the Syrian border that killed three US troops.And President Biden has vowed retaliation after that attack.It was tied to Iran backed groups, three US troops killed, as I mentioned, 25others wounded. And this happened in Jordan near theSyrian border. So for more Bloomberg's Michael he joinsus. So Michael, retaliation is anticipated,but there's going to have to be some sort of discretion around the scale,right? Yeah, that's exactly right, Paul.I mean, we're going to be talking about.
Calibrated attacks.One of the advantages of having a President Joe Biden's age is he's seenthe the risks of becoming too heavily engaged in in foreign policy battles,struggle with wars, etc.. So whether they hit back at Iran, Imean, they will have to do something significant.This is the first US soldiers to die since the conflict and obviously 25wounded. It was a significant attack.Those troops are based there to fight Islamic State.So they weren't really part of this conflict at this stage.But you will have to see something from.
The US, the Republican.So obviously buying fairly hard. We had Lindsey Graham said of LindseyGraham talking about hitting Iran. Whether that happens.It seems unlikely. President Biden, remember, withdrew U.S.troops from Afghanistan under controversial circumstances.He's not big on getting engaged in getting bogged down in regionalconflicts. And that's been one of the hallmarks ofhis response to this targeted attacks, providing support and using diplomaticpressure, but but not having boots on the ground.And obviously, everyone in the U.S.
Would be mourning, would be a lot ofanger, a lot of desire for revenge. But Biden is likely to be very, verycareful in what he does here. Yeah, well, I guess it really comesagainst the backdrop as well as what the US is hoping that we see some sort ofhostage deal in place. That's right.And it's very interesting news coming out.So in Paris on Sunday, there was a meeting between the intelligence chiefsof of the US, of of Egypt, of Israel. We had Qatar's prime minister there.And the talk is that we're getting closer to a deal between Hamas andIsrael, that the length period discussed.
Is two months.And the idea of that is to bridge bridge this gap where two months is long enoughfor Hamas to sort of be able to claim that hostilities are at an end andIsrael, too, to be able to sell that. It hasn't stopped the fight, but itgives a protracted an extended period when these hostages could be could bepotentially brought out and more brought into a sort of a catastrophic civiliansituation there in Gaza. Now, both so both sides, there seems tobe a degree of optimism. Now, how long it takes is this talk ofdays? There's talk of a couple of weeks, butthere's still obviously 100 hostages.
That are being held in the enclave atthe moment. But this is this is the strongest newswe've seen that something could be afoot.Obviously, it's been November 30. The the last truce that lasted for abouta week ended. So we've had a long period there ofconflict and there was increasing worries.There's been a lot of pressure on the Israeli government to try to dosomething about these hostages. And this seems to be the closest thatwe've gotten to until we actually see a deal in place and fighting stop andhostages move.
You wouldn't want to trust it.But these are these are very, very positive signs we've seen.All right. Bloomberg editor Michael, here's someother geopolitical stories that we're watching around the world.The North Korea fired several cruise missiles on Sunday as leader Kim Jong unramps up his rhetoric about a potential conflict with South Korea and the US.South Korea's military says multiple projectiles were detected near the NorthKorean port city of Shinto. Kim has ignored US calls to return tolong stalled nuclear talks, which offered economic aid in exchange fordisarmament.
The US says top officials have discussedscheduling a call between Presidents Joe Biden and Xi Jinping sometime in thenext few months. It's the latest effort to maintain highlevel contacts that were revived after the presidents met in California inNovember. We're told US Secretary of State AntonyBlinken is also expected to visit China again this year.Well, well, still to come, that focus onChina's property sector as well, because Evergrande once again trying to fend offliquidation at a court hearing in Hong Kong.Certainly something we're tracking later.
This hour, this court proceedings.But first, Evergrande may well shares their outlook on US stocks as tradersawait more earnings from the Magnificent Seven.We'll have more on their market strategy next.This is Bloomberg. You're watching DAYBREAK, Australia.Here's a look at the week ahead. The feds will make its first ratedecision of the year. Bloomberg Economics says while the FOMCwill hold this week, the stage is set for a cut at the March meeting.Focus will also be on the US labor market with the jobs report and joltsprint both due here in Asia.
We are less than an hour away from thefirst decision by the monetary authority of Singapore since it switched toquarterly meetings and the departure of long time chief Ravi Min on othercentral bank decisions that we're watching this week out of the U.K.,Pakistan, Brazil and Chile. And on the data front, China's PM I'sare expected to paint a slightly less bleak picture ahead of the Lunar NewYear holiday. Annabel,a poll. This week's also the peak in Asiaearnings season with 162 firms on the MSCI Asia-Pacific Index reporting,including Japan's mega-banks Nomura,.
Sumitomo, Sumitomo, Mitsui and Mizuho.In the US Air investment Regulatory challenges waning demand in China.They're going to be the focus as five of the so-called Magnificent Seven postresults. That's Microsoft, Alphabet, Metta,Amazon and Apple. Meanwhile, Boeing is expected to snap afive quarter streak of losses, but the plane maker's executives are going to befacing more questions about how they plan to allay concerns over the qualityof their aircraft. And that is week ahead.Well, let's discuss that now with Brook May.She's managing partner at Evans May.
Wealth Broker.It's a really important week for us tech stocks in particular.It's already a very crowded trade, perhaps, but do you expect to see moreearnings growth perhaps as well out of these numbers?We do. We are still big fans of big tech andthink they'll continue to be leadership in the market.But we believe there's really a bifurcation going on right now where youcan't just buy the broad market. You have to be very selective in thenames you're picking. And big tech are some of the names thatwe think will do well.
Are there any specific names in big techas well? Because Microsoft, for instance, thestory last week, was it hitting $3 trillion?Yeah, we like Microsoft. We own Microsoft in our portfolio and wereally own all of the magnificent Seven companies and believe that they allshould have strong earnings going into to 2024.But we're also picking up on some companies that didn't necessarily do aswell last year. One is Taiwan Semiconductor.When you look at chip sales, they were down 9% in 2023 and we expect them to beup 13% this year.
Taiwan Semiconductor being one that wethink will be dominant. They're obviously very large and haveeconomies of scale that will benefit them.But they're also getting into generative A.I..And we feel like like most investors, that's the place to be.And so we're looking forward to seeing good results out of out of TaiwanSemiconductor in the months ahead. Are there any other names that you'rewatching, in particular in the chip space?Because, for instance, we had the results from S.K.Hynix as well, indicating the sort of.
Revenue that they were generating fromtheir own potential. We like in video, while I know theysurged and were one of the best performing companies in the S&P 500 lastyear. They're still our top pick and we haveour largest allocation to invest in our growth portfolio.We think that they're a dominant player and have quite a bit of an advantagewhen it comes to chips. And so there are there are top pick inthat space. Of course, one of the features of thisrally so far is it has been quite narrow,confined to a lot of those big tech.
Names, a lot of the air space.And we've seen small caps really underperforming.Do you see this rally broadening out? And are there any names in the small capspace that you'd consider adding? Right now, we think you have to becareful when you look at small caps. Obviously, they had an amazing reboundoff of the October lows, but they've given some of that back in the last fewweeks. And we think that with small caps, it'sgoing to be hit and miss in the near term.When you look at the Russell 2000 and you look at small cap companies, about30% of their debt is a variable rates.
And S&P 500 companies, only about 6% oftheir debt is at variable rates. So 40% of small cap companies are notprofitable and need that debt to operate.And that's going to be quite a hindrance on earnings and being able to grow as asmall company. So while 80% of or while there was an80% probability that the Fed was going to start cutting rates in March, nowthat's a 40% probability that impacts small cap companies.So we don't think it will be until the summer or maybe the second half of nextyear where we see rates start to come down and smaller companies benefit fromfrom a little bit of easing there.
Yeah.Let's talk a little bit more about that. Of course, the Fed decision this week.No one's expecting any movement for the key right then.And you just talked about expectations around March getting scaled back aswell. But in terms of the timing and also thenumber of cuts, have you changed your expectations?We've been in the camp that it's going to be lower or it's going to be higherfor longer. We would expect the first rate cut tocome in maybe May or June and maybe only three rate cuts this year.Again, you know, investors were.
Expecting rate cuts to start very earlyin the year and potentially six or seven cuts throughout the year.And we don't think that's going to be the case if the labor market remainsvery strong. We think that the Fed will be patient.The Fed was predicting 4.1% unemployment rate for 2024.And if we stay below that number, there isn't the urgency to come in and startcutting rates. They can be patient and they can waitfor clear signals that inflation is under control.It's tame and it's at that 2% level that they're looking at.The data is look pretty strong out of.
The US, our confidence.Would you be in saying that the recession risk is now all but gone?We think that it's a we we think a significant impact to the economy is offthe table at this point, assuming nothing unforeseen occurs.We think that it's more kind of a rolling recession where we've seenmanufacturing decline, we've seen housing decline and different pockets ofthe economy are being impacted at different times.We're starting to see the consumer take down their savings, but we believe thatthey're going to operate on credit. And as long as they have an employment,they're going to feel comfortable.
Spending.So that's going to keep the economy strong.We don't see that changing any time soon unless unemployment starts to tick up.So really, the economy's been driven by the consumer and we see that being thecase for the foreseeable future. All right, Brooke, maybe we'll have toleave it there, but thanks for joining us.Brooke May is managing partner at Evans May.Well, we have plenty more to come on DAYBREAK, Australia.This is Bloomberg. You're watching DAYBREAK, Australia.Sources say the US is aiming to announce.
Major chip grants by the end of Marchaimed at supercharging domestic production.The awards are slated to go to Intel and other US chip makers, as well as foreignfirms, including TSMC and Samsung, to help them build factories in the US.Money from a $39 billion bill that President Biden signed into law morethan a year ago has been slow to trickle out, with only two small grantsannounced so far. Intel CEO, meanwhile, is trying toreassure investors that the company is on track to make a comeback.First quarter sales and profit forecasts fell well short of Wall Streetestimates, and that sent shares tumbling.
The most in more than three years.But Pat Gelsinger told us that the market reaction went too far.First. We finished a great year.Q4 beat Top and Bottom Line, finishing a year that was comfortably ahead andshowing the transformation journey that we're on and we believe we're puttingpoints on the board for a long term transformation of this iconic company.In light of that, hey, the Q1 at the low end of seasonal, so we think the marketreaction is a bit overstated in that respect.We understand that. But our company, our employees are doingan incredible job at delivering our.
Process technology, restoring productleadership, defining new categories like the IPC.We're on a multiyear journey and we're not going to be judged on a 90 day shotclock. We are out to rebuild this company.We had a great 23, and I'm confident in a great 24 for this company.There were so many questions on the call about your foundry business and for ourglobal audience. That's the sort of contractmanufacturing business where you make chips for others.And and you seem to say that you didn't get as many committed dollars as youthought you might.
And I wonder what's standing in the wayof that customers committing to backing your foundry business.Yeah, and we're very comfortable with the progress.You know, we said that we'd have won on our leading edge node 18, as it'scalled, and we delivered four for the year.We also found that there was a lot of momentum in our packaging business wherewe now have five major customers on our advanced packaging technology.And we said, Hey, we went from 4 billion to over 10 billion of lifetime dealvalue. So good momentum, but most importantlyis the process technology itself.
Are we back to a leadership technology?And we're hitting all the milestones, this audacious five nodes and four yearplan and all of the milestones are on track to have us back to processleadership in 25. And as I say, a foundry company, theywant to know that if they design on us, they can build the best products andwe're gaining momentum in delivering on exactly that promise.And so proud of my teams for delivering on such an audacious plan.We're on track. What about track for AI accelerators,not just AI on the PC, but I put it bluntly, Pat, and really is run awaywith this.
When or can you regain any sort ofleadership in that space? Yeah, and clearly that's been an area ofstrength for them. We appreciate that.They've, as I say, focused on that for many years and the market has come theirway in a strong way. But our roadmap is gaining momentum.Gowdy, too. We said we're seeing a significantexpansion in the customer pipeline that we have.We're ramping up supply. So I'll say we're chasing to have enoughsupply to meet market and we're well underway on our next generation.GOUDIE three, as it's called, with four.
X, the compute two X, the network in thelab gaining, you know, really, really good early debug in bringing thatproduct to market later this year. So we feel like, hey, you know, yes, wehave a lot of work to do here, but the momentum is building, the market islooking for alternatives and our roadmap is strengthening as we go through theyear. But more importantly, Carolyn, is thisidea that last year was the year of high end training.This year it's about how do I use those models?And that's much more about the enterprise strength for Intel is at theedge in the PC and in the Enterprise.
Data center.So we see the market coming our way and I am 24 and 25.That was the Intel CEO, Pat Gelsinger, speaking to Tech, to Bloomberg Tech's EdLudlow and Caroline Hyde. Well, coming up, debt laden propertydeveloper China Evergrande is facing a renewed risk of liquidation in a courtin Hong Kong. We'll have that and more on China'sproperty crisis next. This is Bloomberg. You're watching DAYBREAK, Australiataking a look what we're seeing in the bond space so far.Futures on line and we're seeing them.
Climbing here across the board.So it does tell us perhaps there is a bit of move into two haven trades.We are as well seeing oil prices rising this morning.That is after the US said that Iranian backed militants killed three servicemembers near the Syrian border at the weekend.So just waiting and perhaps recalculating those Red Sea risks andwhat it means for those tensions in that part of the world.As I said, it is perhaps that sort of move.But the other part that's playing into it is what traders are thinking aroundtheir expectations for the Fed, because.
We're due to get another rate decisionlater this week. And Bloomberg opinion columnist MohamedEl-Erian says the US central bank's job isn't over yet.That's even as inflation begins to ease. We are in the sweet spot of theinflation reduction right now is going to get tougher going forward, and we'vealready seen from Europe that is not out of the question that not only doesinflation stabilize, but once in a while you get the weight going up and thatwould really impact perceptions. The White House is so excited to leaninto this, Mohamed. Soft, very soft landing expectation.The timeline may be on their side, but.
When you look out to November, where arethe vulnerabilities to that soft landing?So the vulnerability, there's three of them.One is what the external world is imposing on the U.S..It is getting harder to grow in this in this global environment.We have disruptions of supply chains. We have cost pressures in the pipeline.We have delays in shipments. All of that has a material impact to theconsumer is going to be under more pressure.You've talked about debt levels in the previous.Our savings have come down.
We no longer have the pandemic savingsbeing utilized to the extent it was before.So there's a real risk that growth slows to the 1 to 1 and a half percent levelwith downside that we may slip into a negative quarter.And then thirdly, inflation. We need inflation to keep on going down.Tomorrow, the market expects that it will do so in a much more orderly waythan I think will materialize, unfortunately.Deutsche Bank says we'll get a reality check later this year.They're looking for, say, 10% downside on the S&P 500.It's not particularly unusual you expect.
In that kind of reality check, Mohammed,any time soon for markets, given where stocks are at all time highs.Spreads global credit spreads incredibly tight.You know, Don, I'm not in the business of predicting when that happens and whenit happens and where people have been wrong in the past, including last year,is ignoring the technicals and the technicals right now are incrediblyfavorable. So the big question for me is whatbreaks favorable technically, By that I mean, there's still money in thesidelines that can be put to work. So dips will be viewed as buyingopportunities for a while longer.
And the thing I worry about most is thesense that growth is going to disappoint with a downward risk.The balance of risk on the downside. This comes against a universal romancewith the softness of all soft landing, and then secondly, a recognition thatthe Fed is not going to validate what's being priced in right now in terms ofcuts. When does that first rate cut come in,Mohammed? My my own gut feeling is that it willcome in the beginning of the summer. So call it June, maybe July, and it willbe 25 basis points. And not only do I think that that'swhat's going to happen, I think that.
That's what should happen.That's Bloomberg opinion columnist Mohamed El-Erian speaking there withBloomberg's Anne-Marie Jordan and Jonathan Ferro.Well, time for some morning calls ahead of the Asia trading day.One of last year's best wages and emerging market debt is getting a freshboost from bets. The Fed will finally begin cuttinginterest rates. US investment manager GMO says bonds arealready attractive with a rich dollar, cheap currency valuations and theongoing disinflation process, they say, hints at when the easing cycle is likelyto start could be a catalyst for an even.
Stronger performance.Meanwhile, Goldman Sachs and Jp morgan are recommending borrowing the euro tobuy riskier, higher yielding currencies, and that's on the back of bets that theECB will cut interest rates in April ahead of the Fed and the Bank ofEngland. They say the euro's emergence as apopular funding currency may have far reaching consequences, with tradersalready looking for alternatives to the yen as the funding currency of choice.All right, Let's take a look at how we're doing here in Australia.The air has been trading for 35 minutes now and we are up flat coming back fromthe long weekend.
We did, of course, have a public holidayhere on Friday. New Zealand stocks, meanwhile, inpositive territory by about 4/10 of 1%. We've got Nikkei futures looking prettygood as well. E-mini for the S&P have started trading.Also, they are off by about a quarter of 1%.We did see US markets ending a little flat, a little mixed at the end of thetrading week as well. Big moves in oil Day today, brent rightnow better up by more than 1% after, of course, that attack in the Middle East.Three US troops killed, 25 wounded on that drone strike near the Syrianborder.
So the oil price rising today.We're trying to Evergrande group will once again try to fend off liquidationat a court hearing that's happening later on Monday in Hong Kong.And this comes after a one of surprise reprieve in the long running lawsuitseight weeks ago. For more, let's bring in our Asiainvesting editor, Russell Ward. So, Russell, this hearing back on again,what can we expect today? Hi, Paul.Yeah, that's the big question whether this will finally be the hearing thatresults in order for a wind up of River Grand.This case, as you know, has been.
Dragging on for 18 months now.And the judge has really been losing patience with every grand on its lack ofprogress towards a restructuring plan. Remember, back in September, its mainplan collapsed and its chairman, who Callan was, was detained, he said he'sbeing questioned by authorities. And so since then, you know, the judgehas really been saying, look, every grand we need to have some concretedetails on this plan. And last month's hearing in December waswas supposed to be, you know, the final hearing.This is the one where it's sort of last chance saloon for a grand.And what happened was that the original.
Petitioner actually balked and decidedthat didn't want to pursue an immediate liquidation.So there was yet one more adjournment. So really now the question is like, willthis what's actually one of the questions is what is this petitionergoing to do, whether they will still sort of hold back or whether even someanother petitioner might step in? We are hearing that one of the majorcritic, two groups, an ad hoc group of bondholders, is considering sort ofswitching sides and being very pro restructuring.But it's also running out of patience, we believe we're hearing and may end upjoining the petition, which would be a.
Really bad sign for, you know, in a badsignal for convincing the judge that this restructuring plan will actually goahead and may persuade her to to, you know, pull the trigger on a winding uporder. Yeah, we know that the case is scheduledto be held in about 2 hours from now. But it's not just that hearing in focusbecause it's also a separate one that's being held later this afternoon.And this one's a regulating order. But what exactly does that mean?Exactly? Yeah, this sort of adds an extra layerof intrigue to today's proceedings. This is a so-called regular regulatingorder hearing, which is very rare,.
Hasn't been used very much with thesimilar proceedings involving Chinese developers in Hong Kong.And it gives the court the power to appoint a liquidator.And so really, this is just not a not a good sign ahead of this morning'shearing. It could sort of indicate that they'releaning towards, you know, the winding up.But, you know, it just adds an extra layer of questioning over what's goingto happen today and we'll be all over it.Russell Ward Yeah, certainly one we're going to be tracking very closely aftermany weeks and months of anticipation.
That was our Asia, a Asia investingeditor there from Tokyo. And taking you now to a live shot ofthat Hong Kong courthouse where this liquidation or rather that court hearingwill take place later this morning. So it's scheduled for 9:30 a.m.local time. That's just under 2 hours from now.And really watching if we start to see any sort of progress on therestructuring agreement that it's been trying to agree with creditors.But no word on that as yet either. Morehead, this is Bloomberg. It is time for Japan.Ahead on DAYBREAK, Asia.
And here are some of the stories that weare watching. Approval ratings for Japanese PrimeMinister Fumio Kishida as cabinet inched higher in polls conducted by Nikkei andmanage this as the Japanese leader continues to deal with the fallout froma funding scandal. Meanwhile, Nikkei reports that Japan isconsidering adding truck and cab drivers to the list of jobs available to foreignworkers to address the country's growing labor shortage.Plus, Nikkei also says the government is planning to list their stakes in subwayoperate it operator Tokyo Metro. That'll happen later this year and aboutit will pull.
We've also got Japanese markets comingonline at the top of the next hour. So about 20 minutes out from the startof trade here. So far, we are seeing futures pointingto some modest gains at the open here, perhaps being supported in part by thatJapanese yen because you're continuing to trade around the 148 mark.Broadly, though, the context for today's session is very much going to come downto Middle East intentions because you're seeing bond futures, for instance, thatare gaining there. We are seeing oil as well, moving morethan 1% in the early part of trade Brent crude and WTI after the US said Iranianbacked militants killed three service.
Members.So it is perhaps that move slightly into more of those safe havens.But Japanese equities really on a tear so far over the course of this year.Also really key to watch for their direction this week will be earningsbecause we've got Japan's top lenders due to report this week.That's after the BOJ governor Kenzo Awada left little doubt that an increaseof the world's largest negative interest rate is in the pipeline.Bloomberg's breaking news editor Gareth Allen joins us now from Tokyo.And Gareth, what can we expect to see this quarter from the bank's ownoperations, do you think?.
Yeah, that's right.We have two of the three megabanks reporting this week.That's Sumitomo Mitsui on Thursday and Mizuho on Friday.Looking at what analysts are estimating for them, it seems that the bank, thecorporations, the lending profit fee income has been relatively solid, butthey're looking to have a slightly lower net income this quarter as tradingoperations have been fairly difficult. We've also got Japan's biggestbrokerage, Nomura, reporting as well this week.How's their performance looking yet?Nomura looks like they're set to for.
This the full fiscal year to break outof the three years of declining profit that they've been mired in for the lastfew years. Net income set to grow by 59%, accordingto estimates for the full year. We'll be watching to see how they're atrenewed focus on investment management.Business helps them. They're looking to have that contribute¥100 billion by 2030. And they're also still constantlyrestructuring the wholesale business, looking to cut costs there.So we'll see how that's progressing. And, you know, the net income figurethis year should for this third quarter.
Should give us an indication of howthey're going to progress through to the end of the year.We've seen bank stocks really sort of whipsawed a little bit in Japan withthese changing expectations around what the Fed was going to be doing next.So how do you think that the BOJ policy impact will play into those numbers?Yeah, that's right. So last week the BOJ stood pat andnegative rates are still in place completely as expected.Given that the, you know, the incidents over the impact of the earthquake andstill the BOJ wants to get some more data around how wage increases aregoing.
Of course, the expectations now are thatcertainly in the first half of this year, a lot of economists are sayingprobably April is going to be the time that negative rates are lifted andthat's going to be a big, big boost for bank earnings as is finally we get outof this this negative interest rate rate world that has been so hard for banksand they'll be able to, you know, raise rates on on lending, which will givethem larger margins, which of course will be positive for bank profits goingforward. So as I have said, they're they'rebullish on banks at the moment. And as soon as the bad the BOJ doesstart to move, that's going to help.
Stock prices help earnings for Japanesebanks going forward. All right.Breaking news here. Gareth Allen in Tokyo there.Well, Morgan Stanley MUFG predicts the Bank of Japan will scrap the world'slast sub zero interest rate policy in March after more hawkish signs emergedfrom the BOJ's Outlook Report. And the group's chief Japan economistTakashi Yamaguchi joins us now from Tokyo.Thanks so much for joining us. I want to talk a little bit more aboutthat call. You're not alone, of course, in seeingthe BOJ ending negative rates in March,.
But it's one thing to get to zero.How far beyond zero do you see the BOJ potentially going, if at all?Yes. So we expect Georgia to get rid of thenegative interest rate policy in the ICC at the March monetary policy meeting.April is a risky scenario but impressions from governor with US pressconference and the outlook report is that the BOJ is increasingly confidentabout the sustainability of inflation and wage growth.And after getting rid of negative interest rate policy, we expect oneadditional rate hike in July by 25 basis point from 0 to 0 1 to 5%.And that's as far as we can go in the.
Forecast.Mm hmm. With inflation, though, we did see amiss from Tokyo's CPI last week. How sustainable do you see this 2%inflation target for the BOJ being And could you see a scenario where they endup having to ease again? I think Tokyo CPI is a bit misleading inthe sense that it was affected by a decline in energy prices, includinginflation, but also a sip. It was not sprayed at all, such as thevolatile hotel charges. So I think BGA, I think that tends toget rid of these temporary factors and they look at the underlying inflationtrend and especially that the service.
Component.If you look at the price, obviously these do remain high on the back of asolid wage growth. So we think, you know, underlyinginflation trend is through an incident and we don't we don't expectany additional rate cut or other, you know,easing measures in the near-term. Mm hmm.And you mentioned wage growth there. Of course, a critical piece to thispuzzle is the short spring wage negotiations.What are your expectations? Yeah.So the first results will be deeds By.
Mid-March, in which we expect around 4%headline wage increase versus, you know, 3.6 3.7% wage increase last year.So this is mainly about large companies, butwe had already made it clear that the BOJ will be able to make a decisionwithout waiting for the the whole results ofspinning wage negotiations, including smaller companies.So that's why we expect to be moved by the BOJ in the March monetary policymeeting. Yeah.Can you just give us more context on that?Because a lot of the majority of.
Economists that we hear from areactually expecting April following the outcome of those wage negotiations.So what is it about March that you think is the reason they should be liftingrates at that point in time? Mm hmm.Yeah. So before they publish its quarterlyoutlook report in April, a monetary policy meeting.So, yes, April is also a risky scenario, but we attach slightly higherprobability to the March meeting because the that that's being raised negotiationresults updates before the March meeting.Also BOJ can take, you know, aggregate.
Profits of smaller companies by theMinistry of Finance Cooperative Statistics, which will be leading themarch. Also I think with us now has a trackrecord of moving on the idea to market expectations.For example, last July DOJ adjusted like we had expected as well as thisadjustment. But I think at that time the consensuswas no, no change. Policy changedwith us and it again in October. So our impression you're talking aboutis ready to act already.So that's why we attach that slightly.
Higher probability to the match policymeeting. I'm curious what you think about aboutcasualties performance of given he's about nine minute mind nine monthsrather now into his term there. Do you think this communication stylehas changed at all? Yes, I think there's someuncertainty or, um, uh, some debate, you know, a debate among, you know,investors about the, the way with us and communicatesessentially is, you know, challenging comment, you know, last year.But I think he really, you know, laid out, you know, how U.S.normalized policy at the January.
Monetary policy meeting.So I think I think pretty soon there's no thinking, judging from the WhiteHouse press conference, also that Outlook report, I think Abuja is readyto act right now. Okay.I just want to quickly get your view on the yen as well.It's looking pretty weak again at one 4813,but this weekend has been pushing up the price of imports.Can you foresee the direction of the yen changing as monetary policy for Japanand the US begin to diverge? Yes.In a house, view of the terrain is 140.
At the end of this year that that'sforecast by our team. And I think, yes, we do expect the LGAto get rid of some negative interest rate policy in the spring, followed by25 basis point injury, hike, injury. So that that forecast seems in line withour logical. That was Takeshi Yamaguchi, chief Japaneconomist at Morgan Stanley, joining us there from Tokyo.And you can catch Japan ahead every week.That's on Monday at 8:48 a.m. if you're watching in Tokyo, 7:40 p.m.Sunday in New York at Bloomberg, subscribers can watch us live on theterminal using the TV go function.
This is Bloomberg. Well, we've got to talk about it.Annabel. The Aussie Open is all over and we'vegot a new champion Jannik sinner. And what a match it was.I know that you must have watched it coming back from those two sets down todefeat Daniil Medvedev. But you've really got a feel for poorold Daniil Medvedev there. He's been in six Grand Slam finals nowand he's lost five. Yeah, that's right.And actually it's his third time that he's been in the Australian Open wherehe hasn't managed to clinch any sort of.
Victory.But yes, Paul, to answer your question, I did watch every single set last nightover that really a very thrilling game because we came into it and and Medvedevreally convincingly took those first two sets.He was playing a lot better than he had in his prior performance against Zverev,his German counterpart. But last night it was that directionthat started to finally shift in the third set and thinner at taking that.And you just saw him come back into the four said a lot more convinced to hiscapabilities and and and he really just drove it home.It's been an incredible incredible start.
To the year for sinner who really cappedoff as well at the end of last year some really key victories and key defeatsagainst the likes of Djokovic for instance.A lot of people didn't realize that, yes, he defeated Djokovic at theAustralian Open, but actually the last three times he played, Djokovic hadalready beat him as well. Yeah.And that semi-final was, of course, critical in this victory.But he's got a long way to go, doesn't he, before he beats Djokovic, his recordat the Aussie Open. I think he's got to collect nine moretitles to equal Djokovic, his record of.
Ten, but could be maybe we're seeing achanging of the guard after a very long time in men's tennis Bill.Yeah, that's right. That's really what it seems like, a 22year old. He's got quite a lot of time left in thetank joining the likes of Alcatraz as well.Not his best start to the year, but still very, very interesting.Two weeks at the Australian Open. And coming up, though, in the next hour,more on markets because Lombard audio tells us why they think China's lateststimulus measures are not game changes. Klaus We discuss mounting stress in themainland banking and property sector.
With Jefferies.The market opens in Seoul, in Tokyo. And next, this is Bloomberg.
