This is DAYBREAK, Asia.We're counting down to Asia's major market opens.And Heidi, at the start of the day here, which is really quite closely trackingwhat's happening with the Japanese yen, because we are just seeing it moving offthe back of the summary of opinions from the April meeting.And certainly it does seem like perhaps there's a need to to discuss furtherrate hikes to come. Yeah, and it's interesting, they'retalking about specifically the impact of the yen, right.Saying that potentially these moves in the yen, the impact on the trend mayspeed up the process of normalization.
But on the other hand, that weakness, ofcourse, the consumer spending side, domestic households, as we say, thatweakness of the yen is really one of the key points when it comes to how quicklythey move as well in Bell. To that point, we also had some perhapsconcerning weakness still when it comes to wage gains.Yeah, that's right. So we saw real wages down 2.5% from ayear earlier in March, and that was actually the steepest drop or thedeepest drop that we've seen in four months in it, the running streak ofdeclines now in 24 months. So certainly that has been the realquestion for Japanese government.
Officials.Would they start to see inflation being driven by the demand side or would itstill be from the supply side instead? But this is certainly perhaps a numbersthat the BOJ would not want to see at this point in time.But as we said, that focus as well off the back of those wage numbers coming into those BOJ, a summary of opinions and and lots of different lines dropping outof this. But as we said, this this need perhapsto raise rates appropriately at the right time and also the need to deepentalks on rate hike timing. So just some of the headlines that aredropping from that.
Also they're saying it's vital to cutbond buying by looking at demand and also supply dynamics.But here you've got that market reaction so far, just a slight bit of strengthcoming back into the Japanese yen here off the back of it.Nikkei 2 to 5. Again, we're online this morning.A little bit of upside, but fairly rangebound in the session as well.And one of the key commentaries that we're really getting from Wall Streettrading in particular is that just given that the Fed not really doing anythinguntil September at the earliest, we've got earnings.A lot of those are in the rearview.
Mirror at this point in time.It's really that search for the next catalyst for market direction.Let's shift on now and take a look at the outlook for Korea, because as well,Korean equities just starting to trade here again, a little bit to thedownside, but very much rangebound as well.What where else? Well, tracking is that eco data herethis morning and that focus on the current account numbers.We saw the surplus widening to $6.93 billion over the March period.So something as well that can have an impact on the Korean currency Heidi.Yeah.
Take a look at how we're opening here inSydney as we get sort of that staggered session coming online that we did seeAustralia stocks in the previous session posting that five day winning streakwould be sort of extend that into a six straight session of advancers.This is the longest winning streak since late January.We have seen kind of that rally in recent days over optimism over the bankshare buybacks and the outlook for RBA policy when it comes to the banks.We had a similar picture coming from CBA, but of course when it comes to thetrading update, we haven't heard that similar return to shareholder value sortof story, but that doesn't mean that's.
Sort of entirely ruled out for CBAeither. So that's a stock to watch as we getinto the start of trading. Interestingly, Citi is saying now is thetime to sell Australian bank shares and to buy miners on the dips.According to that usual mail to October slump that we see in mining stocks, Citisees that as an opportunity to rotate into the sector and away from the strongperforming banks. So that's one to watch in this daysession. We're also watching in terms of a themesAustralia backing a $47 billion gas sector transition role.So watching for some of those nat gas.
Names, potentially seeing a reactiontoday as well. Aussie dollar sitting at 6574 that wehad. Of course, so much focus when it comesto the yen, but that dollar focus has really been a little bit higher giventhe string of Fed speech that we've had this week as well.Taking a look at how bonds are trading, we're seeing Asian bonds falling earlyon Thursday, really echoing the selling pressure that we saw across Treasuriesin the prior session, supporting the dollar there, of course.And you're starting to see is you still seeing that picture across trading andtreasuries at the moment, Bill and yen,.
Heidi, perhaps difficult to get a senseof where we go from here until we get the US inflation print numbers next weekas well. And that's certainly going to play intothe dynamics for the Japanese yen, as we're saying that strengthening a littlebit, following the summary of opinions and also something that hasramifications for Japanese stocks that have been sliding of late.But let's bring in our next guest who suggests buying Japanese equities on thedip. With us now is Julia Wong, executivedirector and global market strategist at J.P.Morgan Private Bank.
And and Julia, again, we had thatimpressive run up in Japanese equities. It pulled back slightly.Is this an opportunity, do you think, to get in?Yeah, definitely. Thanks for having me on the show.So yeah, if we take a step back, we had a really good Q1 and I think that sincemid-March we saw Japanese equity starting to contract due to two factors.One is the global pullback in air and semi related named after a very strongrun. And secondly, as you mentioned, somevolatility causing investor concern around the yen.Now, we do think that if you take a step.
Back and think about our broader thesisfor Japanese equities, it's really predicated on structural changeshappening in Japan's market. The first one is that if you believethat air is arriving and it's going to transform the global economy and resultin greater demand for semiconductors, for example, then Japanese companies areindispensable on the semiconductor supply chain.They're going to be the leading position to benefit.And of course, at top of that, the global supply chain shift.So that is really the core thesis. And I think that's why you're seeingthat Japan's economic recovery is really.
The corporate sector, corporateinvestment that's driving the recovery at this point in time.I've got a question on the rally as well, because we're just tracking sharesof SoftBank, for instance, this morning, a heavily exposed ARM holdings and andovernight we had that big drop in aam after it gave pretty weak guidance.So there are those concerns that are building around spending on AI inparticular. Do you see that sort of also becoming abit of a theme though and potentially negatively impacting Japanese equitiesif they're very exposed to this trend? Well, we think that, you know, obviouslythe the leading beneficiaries, the first.
You know, the most innovative companies,there's been a lot of very high expectations going into the earnings.So we don't think necessarily the earnings season as a whole indicate anyreal weakening in the demand for it's a structural thing.But having said that, market has already, I think, been quite optimisticfor many of these companies going into going into the earnings season.So that's why I think we had those pullback in the US market as well as theJapanese market. But our broader thesis is really that ifyou look at the global economy, the next four or five years, many of yourequipments, many of your daily.
Appliances will have a bigger aircomponent to it. And it's really the broadening out ofthe air application that, you know, refers to things like your smartphonesand your tablets. And this is where Japan's industries arevery well positioned because they are virtual monopolies in many of theseequipments or materials. So that's very hard to replace.So we talk about, you know, Japanese yen being possibly a tailwind, a boost, buteven without a further weakening of the yen, these companies are already verycompetitive and it's hard to replace them.So I think that that is the thesis of.
Why we like to paint on the structuralside. And of course, there's a reflationstory. And I think that investors do have to beaware Japan was in deflation for 30 years, so consumers have a propensity tonot spend. But as we're starting to see, cumulativewage gains really are changing expectations for Japanese households.And these drop in all Japanese sort of expectation surveys.So what that means is that and you know, we know that corporate profits has beenhitting all time highs for the last couple of years.So there is a foundation for sustained.
Wage growth going forward.So the reflation story we think is still in play.It's just not you know, it's going to take a bit more time, I think, becauseof of how much the for how long Japan's economy was in deflation.Oh, and of course, there's corporate reform, the prospect of greatershareholder return and value creation. So these are structural things that welike, are the reasons why we like Japanese market, and that's why we thinkthat the reason they are the correction is actually a great opportunity forinvestors to re-engage with this market. And Japan has obviously benefited fromsome of those initial flows away from.
China, for example.Do you think this is the right time to re-engage with China?Do you think this is the real deal when it comes to the rebound that we've seen?So I think that the China market rebound a recovery over the last two months orwe're driven by several factors. First factor is the diversification awayfrom US and Japan to some degree, after a very strong run in the first quarter,all it's rebalancing flow. Look for places to go.Then look at the China market and what we have seen at the same time as theeconomy continue to hold up, even as we debate about, you know, the underlyingchallenges and how sustainable they are,.
The fact is that the economy held up.So and, you know, it looks like policymakers can stay the course.And lastly, valuation was very undemanding in the China market after asell off in January. So all of these three factors, we thinkin combination mean that investor may have reassess a little bit, just, youknow, how much we allocate to China and Hong Kong.And that's why we had a recovery in these two markets.But if you think about on the other hand.And finish your thought. Yeah, of course.So, yeah.
So as we think about the underlyingeconomy and the policy outlook, this haven't really changed.So we do think that, you know, the market rally has been very strong,nearly 20 over 20%. And by going ahead, going forward, we dohave uncertainties on the horizon as well, being geopolitical policyconstraints, the housing market. So these are the reasons why I thinktactically would prefer to take some profit at this point.Yeah. Julia, I was going to ask you.What's your strategy across credit right now?So we are still quite up in quality.
Overall in credit.I think that obviously Ohio market has had great returns this year, but wecontinue to think that the overall macro backdrop for the global economy is oneof slowing. And also we're seeing contradictory datahere and there. But a rise are restrictive.We are seeing the service sector slowing both in the U.S.as well as the Eurozone to some degree. So I do think that global demand isslowing. And I think in against against thatbackdrop, we do think that the credit cycle will start to to have more stress.So we prefer to line up in quality still.
In credit.Julia, always great to have you with us. Julia, one global market strategist atJ.P. Morgan Private Bank.Let's take a look at SoftBank and some of these other adjacent chip stocksafter really the disappointment when it comes to aam we saw on shares fallingafter the company gave a pretty tepid annual forecast said they're down about8% in extended trading. They gave that full year forecast that'sreally been seen as mixed relative consensus particularly in light ofpretty high expectations there and Bloomberg intelligence saying that itwas a beat on fiscal for fourth quarter.
First quarter of outlook.But all of that is kind of getting overshadowed by the narrower miss on2025 sales guidance and some of that enthusiasm being curbed there.You're seeing the downside reduction in SoftBank, of course, as well as thelikes of Tokyo Electronics, saying honey is probably the best performing, if youwill, out of that cohort there. Morgan Stanley saying that they actuallyexpect to continue outperforming expectations through next year, given abroad range of drivers, though. And he's still ahead.President Biden threatening to hold back further arms shipments to Israel as USunease grows over civilian casualties in.
Gaza.We'll have an update next. This is Bloomberg. President Biden says he will haltadditional shipments of offensive weapons to Israel if it goes ahead witha ground invasion of Rafah. He told CNN that the potential loss ofcivilian life is, quote, just wrong. I made it clear that if they go intoRafah, they haven't gone in Rafah yet. They go into Rafah.I'm not supplying the weapons that have been used historically to deal withRafah, deal with the cities to deal with that problem.We're going to continue to make sure.
Israel is secure in terms of Iron Domeand their ability to respond to attacks. I came out of theMiddle East recently. Like editor Michael Hayes joins us nowfor more. So were you surprised, I guess, by thisthis this line that's been drawn? Yeah, I was a bit, Heidi.I mean, it's a shot across the bow to Israel, but it's sort of a decision thatwill please no one, because I think in a way that the people who are who areprotesting, who want this war to end, and I think Israel has been totally overthe top. You know, there's been accusations evenof genocide stopping of three and a half.
Thousand bombs isn't going to do that.And this is from a from a past outlier. It doesn't relate to what was justpassed, legislated recently passed by Congress to go to Israel.So it's not going to do a heck of a lot. But it is.It is. I guess it's Biden is a long termsupporter from Israel. And as he said, you know, he'll makesure that their defense is fired, etc.. But they've been saying this to Israelfor weeks, if not months, that that, you know, they've got to have a plan to dealwith the civilians there. And the US assessment is that they'rejust it's not going to be possible to do.
That.So they've got they've got to at least signal intent.But it's just the repercussions that it has.I mean, if you have a do you sign a deal now when when the world's superpowerbasically is telling Israel, we're not going to back you in going in here,that, you know, Hamas can live to fight another day.If you're Iran, are you emboldened or Hezbollah you emboldened that perhapsthe US is stepping back, even though it's probably not.That would be their assessment, too. So in a sense, it was a surprisingdecision.
But I think they just feel like withNetanyahu, with this very right wing government, that words are enough.They've got a they've got to actually take some some sort of action.But everybody I think everybody suspects that Biden's never going to leave Israelin the lurch. If push comes to shove, they'll supportthem as they need it. And Mike, we've already seen othersupplies like Italy, like Spain, like Canada holding sales.But this is, of course, a lot more significant given that 70% of Israelimilitary aid comes or imports come from the US.Is there a way for them to be able to.
Plug this gap elsewhere?Yeah, there's a good story. It's a good point, Annabelle, and it's agood story. And Bloomberg as well, just looking atthis exact issue that the Israelis are very keen to do that now, since the timeof Prime Minister Rabin, Israel has basically decided to buy all those sortof ubiquitous munitions off the shelf. It concentrate has a very good high techindustry. It concentrates on on building the sortof it's that you can't get anywhere. So the plan is say that they do want tomanufacture their own weapons again, here to do that.And I'm sure that, you know, they have.
The technological skill to be able to dothat, but it's not going to be a short term fix.We're talking a couple of years away. And the issue, I guess, then just comesdown to what sort of stockpiles do they have.You suspect that Israel's going to be able to if they do really want to gointo Rafah, they'll find the way to do it.But the US just has to join those other countries.It feels like it's got to take some sort of stand here.But I think that Israel having Israel just has the means that that if it doeswant to take Rafah, it'll find the.
Weapons, the munitions that it needs.We've got another really interesting story talking about how Beijing and alsoRussia, too, to an extent, are trying to take advantage of the global discontent.The increasing criticism. Is this sort of an effort to try andcriticize the US and I guess cleave some support from the so-called Global Southpartners and countries? Yeah, it's a good story.It's a free hit for China in a way, isn't it?Because you turn on your television, you see these scenes of suffering, andparticularly in the global South, where there's probably a lot of resentment,the US dating back to the Cold War as.
Well.And to have China come in and make that criticism and I think the UN spokesmantalked about the US pouring weapons into a, you know, humanitarian tragedyelement of truth in that as well. So they're on a little bit of a winnerthere. And China does have a role.You know, it really can extend its influence because as we see with Hungarywhat's going on there, they can they can offer economic assistance to thesecountries or investment or that sort of stuff.With Russia, it's just pot shots. Russia's got nothing to offer anybodyoutside of Soviet dated weapons.
It's embroiled in its own invasion witha smaller country. I'm not sure that what what people wouldwould cleave towards Russia on. But with China, definitely.And China doesn't have a history of being involved in all this sort of stuffthat the US does from the 20th century. So is a free hit.Now the US pushes back and says China makes, you know, all this sort ofcriticism. What does it actually do in terms oftrying to secure peace? And that's a good point as well.It actually has Russia's ear. It could be a lot more influential overRussia in terms of Ukraine.
I mean, it's a massive trading partnerwith Russia now. It doesn't do anything there with theMiddle East. What does it do?There's very, very little action seen. So it's a lot of talk.But nonetheless, I think the gravitation of the global South, as it's oftencalled, towards China, it's something the US needs to be very wary about forsure. That was editor Michael Heath there.And we were, of course, seeing China building its influences in EasternEurope. And President Xi Jinping has actuallyarrived in Hungary for the last stop on.
His trip to the continent where he'sexpected to sign more than a dozen agreements with the Beijing friendlygovernment. Asia government and economycorrespondent Rebecca Chang Wilkins joins us this morning for more.And Rebecca. Yeah, we've seen it already in Serbia.That's another government that's also friendly toward Beijing.But what are we really expecting out of this, given that the relations betweenHungary and China are already fairly well established?Yes, I mean, in a way, this is the opportunity for China to showcase theadvantages of this sort of deep economic.
Relationship with China.But the other element here is the geopolitical commonality between Hungaryand China. Hungary is another country that hasoffered deep support to to Russia that is often very distrustful of the US, isa big proponent of that China Russia proposal of the so-called multipolarworld opposing the US. So there's a lot of sort of geopoliticalcommon ground here that both countries will be able to lift off.But the focus is going to be a lot on the economics.We I think at last count, 16, at least 16 agreements between the two countries,possibly we see more.
We also have this sort of quite fullthroated op ed from Xi Jinping in one of the Hungarian ruling party's mainnewspapers, sort of advocating for excellent ties, saying that this is anexample in some ways for the rest of China and Europe.And there are a couple of big projects that we know are already under the way.So we have that cattle factory, Seattle, that's expected to create about 9000jobs. And we also have the opening its firstfactory in Europe. It's going to be in Hungary.We know that was a project that, for example, France and Germany were alsovying for.
So this is also a way in whichpotentially China can try and ease some of those concerns that are being sort ofarticulated out of the EU over overcapacity by actually setting up andmoving onshore their factories, their productions when it comes to some ofthese areas of clean tech, creating local jobs, helping that local economy,perhaps as a way to actually sort of drive a wedge between EU as a whole andthe member nations that are benefiting in major ways from this sort of moredeeper engagement with China And Hungary is really important from a strategicpoint of view for China when it comes to the EU, because Hungary has this abilityto obstruct, delay or sort of be.
Influential in terms of direction oftravel for EU policy. And it also, of course, gives China oneroute into that single market. So, yeah, it's hard to overstate thesignificance for China when it comes to the role that it believes Hungary willplay in the EU. The issue of overcapacity.We knew that was going to be front and center underlying and made it very clearwhat certainly the European Union is expecting.Is there a quick fix here? Is the willingness is there a abilityfor Beijing to do anything at this point, given the structural fundamentalvulnerabilities of its own economy?.
The short answer is no.There is no quick fix really here, and partly because a lot of these issueshave been under way for, if not years, decades, actually overcapacity or somerisk of oversupply has sort of characterise the Chinese economy.If you look at property or other forms of sort of manufacturing capacity in oneway or another for a very long time. We did have, as you say, those commentsfrom us a lot of underlying saying the EU is prepared to deploy all the toolsavailable to defend its economies. But, you know, I think it's worthwaiting to see really whether or not this trip, whether or not the sort ofrelationship with Hungary and so on are.
Able to slow the momentum of that litanyof probes that we saw. It's not just one or two, but it's quitea few that are currently in the works. But as you say, no real quick fix here.It's really about Beijing, first and foremost, trying to slow the momentum alittle bit, trying to sort of get across this message that there is from thatpoint, if, you know, overcapacity problem when it comes to China at all,that they're helping, in fact, to ease inflation with these exports.And as you say, it's a central part of how Beijing is thinking about reshapingits economic model of growth going forward.These so-called new three drivers of.
Growth, solar panels, batteries and EVs,are all part of getting that strategy underway.And if they do see sort of significant trade tensions, significant increases intariffs, the other kinds of friction that does have a potential tosignificantly impede that transformation.All right. That was our Asia government and economycorrespondent Rebecca Chung Wilkins there.And you can get a roundup of the stories you need to know to get your day going.In today's edition of DAYBREAK, Bloomberg subscribers go to de B, go ontheir terminals.
It's also available on mobile in theBloomberg Anywhere app. You can customize your settings so youonly get news on the industries and the assets that you care about.This is Bloomberg. How do youtake a look at how Commonwealth Bank shares are performing at the moment?We're just about 26 minutes into the start of trading.A little bit of downside, over 1% lower. That buyback, of course, was in focus.That didn't come through. But really we have seen this broadertrend of returning wealth to shareholders in this round of bankingnumbers.
This trading updatereally is saying that we've seen sort of a weakness, in fact, a secondconsecutive drop there. But still we're also seeing perhaps theimpact of Citi recommending that rotation from high flying banking sharesin Australia to miners. Yeah, that's right, Heidi.And also another stock we're tracking this morning is Mitsubishi Motors.Here you can see that drop of nearly 6%. The company says its U.S.unit has received a court order to pay more than $1,000,000,000 in damages.This in relation to a car accident that occurred in 2017 and Mitsubishi sayingit will appeal that ruling by.
Philadelphia court. Taking a look at some chip stocks orrelated stocks in trading so far this morning.You're seeing that drop in after hours. But SoftBank, of course, heavily exposedto that, declining 2% at this time. The chip stocks a little bit underpressure for the most part here this morning.And we're seeing the broader tech gauge as well.One of the drags for the Amex IP index at this point in time.Of course, we did see the chip designer giving a lukewarm revenue forecast forthe fiscal year.
But let's get more on that now and bringin our Bloomberg Intelligence senior semiconductor analyst Kunshan Sobhaniand Kunshan. So revenue could be at 3.8 to $4.1billion. Analysts had been predicting a total ofjust over $4 billion. We're seeing quite a big drop, though,in after hours trading. Yeah.I mean, look, the reported quarter in the guide were pretty solid and strong.We think the long term sort of story and the fundamental drivers remain intact.The driver for the missed light MIS in the fiscal year guidance was comingreally from two major areas.
One is networking and the other is theindustrial Iot, which most of the semiconductor companies exposed to thisare seeing weakness here. So that's not company specific is justthat end market is going through a cyclical bottom.There's higher inventories and the demand is weak.So that's what sort of caused the shortfall versus what consensus had.But the drop sort of you're seeing in the stock, the reaction is driven.We have seen that for a couple of other air exposed names.This earnings, one example would be AMD, where, you know, investors have thesereally lofty and ambitious expectations.
That these names sort of have to comeand beat and raise their total revenue and EPS growth numbers above.ST So which didn't end up happening, hence what you're seeing in the stockprice action. Yeah.QUESTION Because that's right. I mean, it was just a slight mishear onon the forecast, but it's it's quite a steep drop here, nearly 10% at thispoint in time. So is it the case?Yes. The expectations are just too high fromWall Street, or is it a real concern here that a spending spree could beslowing?.
I think is the first I mean look wedidn't see any data points for aam specific air revenue projections.In fact they actually gave an outlook for fiscal26 in fiscal 27 for growth above 20% the street averaged slightly below 20%there. So that was according to us a prettyrobust sign that they have strong visibility into almost two years outroad map which is mostly driven by their new design engagements coming from airand their higher V9 architecture and subsystems.So again, there was no sort of weakness in the air story per se, but overall,just the Wall Street and investors have.
Been just set up this expectation thatyou just have to come in every quarter and beat your own sort of high, alreadyhigh ambitious projections. Where else is in weakness when it comesto trading in Intel, right. That's about it.Almost a year low for trading in Intel's share price.The expectation that revenue will fall below that midpoint of 12 and a half to13 and a half billion dollars. How much of this is on?You know, again, the announcement of the revoking of licenses from China, theHuawei issues, the. Yeah, well, most of it is from thatwhile they restriction you know, they.
Issued a press release after the newsbroke out and but again, in a bigger picture look we expect this to be a fewhundred million dollars of impact which which will impact the next quarter quiteas they have said. But however, we think, you know, for therest of the year, this sort of what they could have shipped here could have beenpicked up with other other customers. So we do not see that as a significantimpact when we look at the fiscal year numbers and going forward.Other than Intel, you know, there was also talk about Qualcomm.Qualcomm, however, even before this restriction was the revenues thatthey're collecting from Huawei, which is.
Purely on 4G products, would have, assuch fallen off after this year. So we do not see this really a materialimpact to either of these names. On the long term.But does it complicate, do you think, Intel's turnaround plan at all?Not really. Like I said, the product.Look, when you look at the amount of laptops or DEX jobs that Huawei wasusing Intel chips in and shipping. And when you think about it, it's lessthan low single digits in terms of the total market.So it really doesn't move the needle that much for Intel's turnaround plan.
Bloomberg Intelligence seniorsemiconductor analyst Ken John seven either sticking with tech and officialChinese data suggest Apple's iPhone sales there jumped about 12% in March.It is an early sign of success in efforts to turn around the decline afterApple and its retailers cut prices. The tech giant last week surprisedinvestors by reporting quarterly revenue from China that beat expectations.You get more on the latest when it comes to Apple.And today's big take, it's focusing on who might potentially succeed Tim Cook.As the Bloomberg Mark Gurman takes a look at some of the names that areemerging as potential successors and get.
That story on the terminal right now.It's also online at Bloomberg.com and Businessweekand some of the other corporate stories we're following this morning.And Shopify shares tumbled after the Canadian e-commerce company pledged tocontinue investing in marketing despite the pinch in profits.The firm sees gross margins in the current period, narrowing a forecastwhich overshadowed its strong first quarter performance.Its US traded shares saw their biggest intraday decline ever, reflectingconcerns about future profit margins. Airbnb is providing lackluster guidancefor a second consecutive quarter,.
Suggesting growth in travel spendingwill slow further before the summer peak.The peak summer season kicks in. It sees revenue for the current quarterbetween 2.6 to $2.7 billion. Airbnb is blaming the earlier timing ofthe 2024 Easter holiday as well as currency headwinds.Nomura has joined JPMorgan in limiting dealings with Asian hedge fund giants, aguarantee which is facing charges in Hong Kong of insider trading.Sources say Nomura won't add more leverage or new positions to itsdealings with to guarantee the fund. Its founder, Simon Saddler and a formerdealer says they will vigorously defend.
Themselves against the charges.Chinese developer Country Garden is said to be seeking help from a state backedprogram to pay interest due on Thursday. Sources say it's in talks with Chinabond insurance company over two notes with coupon payments worth more than $9million. It's the first major test of a programintroduced in 2022 to help developers facing liquidity crunches.And we'll have more ahead on DAYBREAK. Australia or Asia, rather, including onthat country, not in story. This is Bloomberg. China's April trade numbers are duetoday.
Bloomberg Intelligence expects exportsand imports to swing back to year on year increases.That's largely, though, due to last year's low base for comparison.Let's get a preview with Michelle Lim, Greater China economist at SocieteGenerale. So, Michelle, what are your expectationswhen it comes to this recovery? And as that chart kind of illustrated, alot of the upside could be because of a flattering comparison.Yes. So we have similar views.We do think that the export and import growth in April will stage a recoverycompared to March and probably slightly.
Not as strong a recovery for the exportsruns. But overall speaking, we still thinkthat the export trade should be on a modest recovery trend, given that we areseeing pretty resilient U.S. economic growth and we also expect theeuro area growth to be picking up after last year's poor performance.When it comes to, of course, front and centre at the moment, are these concernsover Chinese overcapacity? How is that expressed through the tradenumbers and what would you be watching out for?So I think if you look at the volume, so example for the new energy exports,actually they are doing pretty well, but.
In value terms they are not as strong.And I think that's really reflecting the fact that because of China's over excesscapacity problems, we are really seeing that that the price you have been havinga pretty significant drag and that also it has caused you to buy of China's thethe strategy of cutting prices are really exerting a lot of deflationarypressures food supply chain. And we are really seeing in the CPInumbers for China as well. And so as a result, we are not reallysurprised to see that there have been increasingly large number of countriescomplaining about China's excess capacity issues.So that's going to be a problem for the.
Exports over the medium term.But at least as far as this year is concerned, we still are looking for apretty solid export recovery trend for China.And part of that overcapacity complaint also ties back to demand within China aswell. What are you seeing among Chineseconsumers at this point in time? So I would say that the Chineseconsumers definitely had a very weak recovery in 2023.And right now, probably we are starting to see some small recovery.I think if you look at the the CNY, the holiday spending numbers, for example,and the latest that the National Labor.
Day holiday holiday spending, I thinkthe services are still doing really well.But at the same time, if you look at the other items like good spending and evenI think for the movies or Boiler Autos in general, you stillneed to see the policy support coming in for us to see continue recovery for thisfor the auto sectors. So I would say that probably we arelooking for some stronger recovery momentum in consumers compared to lastyear, but it will still be pretty soft pace.And are we not really looking for a recovery momentum by talking aboutretail sales up 8%?.
That's the pace that we've seen beforeto Covid the year before the Covid.And I think that's unlikely to us to see that any time soon.Michel, What I found really interesting in the travel data so far this year isthat from from the Lunar New Year, but also from Golden Week, is that you'reseeing more people that are taking trips.So that's obviously a good signal. But it's the average spending per tripthat is still weaker. But how much of this perhaps is just anew trend that's emerging within China? And is there even that expectation weshould go back to 2019 levels?.
I think it is pretty clear that therehas been a shift in consumer preference that they value to experience the value,the quality of the goods. And there's also some disinflation oreven deflation momentum going on. So if you look at the spending pervisitor numbers, you look at the golden Day week holiday numbers is still belowthe 2019 levels. So I think that would be telling youthat the consumers, the day they're really having just say the callback jobwith that is still a bit weaker. And the structural shift also means thatif you look at the value, the nominal numbers, they are still they're notgoing to be the recovery recovering very.
Strongly.So that's the and that's we have to understand both the physical structuralbackdrop to these numbers. Michele, we've seen that real turnaroundwhen it comes to sentiment, at least for equity investors.And some of that has been foreign investors, too, to sustain that.What do you think needs to happen from a policy perspective?So I think there are a lot of drivers that that had that been causing therecent rally. And in my catch, the first part is thatthere has been a severe correction since since the second half of last year.So it's not really surprising to see a.
Technical recovery.And there have also been some supportive news coming from the April politicalmeeting. Most prominently, the message on theproperty policy. We sense that this is probably thebeginning of a shift from the policy makers, from the emphasizing on on theview to the very important projects, that is to support the building ofmore rental housing or affordable housing to destocking, which I think isactually pretty positive because if we look at the China'seconomic slowdown right now, I think a lot of it is really driven by the houseprice decline and that is really.
Affecting the consumer's confidence andaffecting the wealth effect. And if we really manage to see a houseprice stabilization because some of that destocking as it's working to put afloor on the house prices, I think we could be looking for some house pricestabilization at some point. And that also means that the kind of thehouse the house price correction as severe as like Japan or even in HongKong for Hong Kong in 1997. So maybe that's unlikely to repeat inChina. And that also means that we may not beseeing the kind of a sustained deflationary momentum happening inChina.
So that's really about reducing thedownside risk for China's housing downturn.Yeah, Michel, to that point, some people have made the argument that perhapsChina could avoid that year property malaise like we saw in Japan, like wesaw in us following the subprime mortgage crisis.Do you see this this shift now to to destocking, achieving perhaps thatresult? Actually, I'm always of the view thatChina's housing problem is probably not as serious as what we have in Japan.And I think if you look at the housing structure, demand is now already if youlook at the level last year, it's.
Already been below the kind ofstructural estimate based on the deteriorating demographics, slowingurbanization and also the household debt for China.So there's still room. It's not leveraged up excessively.And the demographics is actually not changing as quickly as Japan.So I think for China, the starting point is actually not as bad as Japan.And then also, there are a lot of policy room for the from the Chinesepolicymakers to actually support the housing market.But I think even especially with this probably shift from the policymakersthinking, I think we could be talking.
About previously, we still think investthere could be some downside risk for the top tier cities to see a more houseprice correction, maybe for let's turn to 20%.But if we see we've seen relaxation of the purchase restrictions in the toptier cities and we also see a faster mortgage interest rate cost, we could betalking about this to reduce downside risk that maybe we could be looking fora stabilization for the house prices for next year.That was Michele Lane, the Greater China economist at Societe Generale.Thanks much for your insight this morning.And taking a look at how markets are.
Faring so far this morning and keeping aparticular watch on what's happening in the bond space actually today.Again, we are seeing that fall coming across here, really just echoing theselling pressure in treasuries in the prior session that supported the dollar.In turn, equities looking a little bit mixed.Pretty flat day on Wall Street, but we are just seeing that slight rise comingthrough in yields, measuring, mirroring. Again, when I said we had fourtreasuries, we did actually have a more than $40 billion sale of ten year bondsthat saw mild demand US notes as well. So far little changed at the outset oftrading for today.
But sticking with that bond, that creditspace, actually, Guggenheim Partners CIO Andy Walsh says having the Fed onextended pause is creating a positive environment for credit investments.She spoke with us from the Milken Institute Global Conference in BeverlyHills. When we sat here last year, there wererecessionary pressures in the system. Believe it or not, those recessionarypressures are still there. But there's been one big difference.And you talked about treasuries. And that's been the fiscal spending.It's really supported the economy in the U.S.even while the Fed has been tightening.
During the quantitative tighteningprocess. And what you've seen is globally othercentral banks tightening, but they didn't have the fiscal stimulus effectthat we had. So they slowed down, whereas we're stillslowing, but at a slower trajectory than we would have anticipated last year whenthe Fed was very active in quantitative tightening.How does that complicate what the Fed has to do?All right. Fiscal spending, great growth.Jay Powell says, hey, guys, we're growing, but yet some of that velocitycreates inflationary pressures.
Absolutely.And what we've seen is, is that in quantitative tightening in the U.S., thebalance sheet has been reduced from 9 trillion down to about 7.4 trillion.But when you think about the fact that deficit spending has been to the tune ofabout 2 trillion in that same time frame, it's really been almost perfectlyoffset by fiscal deficit spending at this point.And that is inflationary. And it makes the Fed's job harder toforces working against each other. And hasn't made your job easier, atleast in terms of finding opportunities to invest?Well, absolutely.
With a resilient economy and by the way,usually, you know, periods where the Fed is on pause, which they are, and we donot see a rate hike, we're not in that camp.That's a very good time for credit for for fixed income investments,particularly investment grade fixed income, and also for risk generally.I have to ask you, though, about the health of the market, particularly theTreasury market. Alisa Cook over at the Fed, she was justspeaking a little while ago, talking about she had some concerns aboutTreasury market liquidity. And this has been a conversation that'scome up before.
I guess for you, does it matter?And B, if there is a liquidity issue, how severe is it right now?Well, liquidity is a concern, but I really don't see it as a short termissue. Right now, there's plenty of liquidityin the system. If we think for perhaps more bigpicture, since quantitative tightening started globally, $5 trillion has comeout of the system. But when you think of that in context ofwhere we were free Covid and how much has come in since the Covid,you know, quantitative easing that occurred in the stimulus, that was $12trillion.
That means there's still an extra $7trillion out there. It still has room to move.We have a lot of flexibility. Guggenheim Partners, CIA, and Walsh.They're speaking with our colleagues, Carol Massar and Romaine Bostick.We have more ahead on DAYBREAK. Asia.This is Bloomberg. Well, Hong Kong is turning to oil richSaudi Arabia for new funds to help offset a growing list of challengesfacing its stock market. The Saudi Tadawul Group and HKT that areco-hosting a conference today for Saudi firms to meet Asian investors.Our China show co-anchor Yvonne Man is.
At the event and joins us now.And Evan, we've already seen, for instance, us issuing an ETF that tracksSaudi stocks. I mean, this is just yet another signalof this growing connection we're seeing between the Middle East and between HongKong and Greater China. That's right.And it's at the inaugural event of the Capital Markets Forum, as you mentioned,co-hosted by the Tadawul Group, as well as Hong Kong Exchange.And the theme is power and Connections. You've seen a very sort of warming ofclose ties between China and the Saudis of late here.Even the Hong Kong's chief executive,.
John Lee, has made multiple trips toSaudi Arabia to try to at least there are some investors or even that SaudiAramco second listing to this destination.So certainly there's a lot going on. The timing certainly is pretty opportuneas well, just given the fact that Hong Kong has been dealing with this prettydepressed IPO market for the past two years, they're going to need newlistings and they definitely want some big names as well.And the Saudis themselves, you know, are certainly businesses.And and the delegates that are here are looking for more of that foreignownership of Saudi assets as well.
So they're looking for the gate to gainmore exposure to an Asian investor base. So while this is all beneficial to HongKong, we're sort of being asked about the opportunities.The IPO pipeline body Chan, the new Hong Kong Exchange CEO will be joining us.And certainly we're talking a bit more about some of the measures that we heardfrom the Saatchi just last month to talk about encouraging firms to list here inthe city. What does exactly mean and how big of aboost can that give the city here? Ivan, how can Hong Kong investors gainexposure at the moment to Saudi assets? Yeah.So as Belle mentioned, right.
So there is one ETF right now.This is the SCC Stop Saudi ETF that was launched back in November.And you know that certainly is the first fund of its kind here in Asia where HongKong investors can gain exposure to Saudi assets and $1 billion in assetswas really what was was promoted back in the day with the backing of the SaudiArabia's sovereign wealth fund. Yes.So it was very promising. You take a look at how performance hasbeen, though. This is what we've seen.Volumes have come down. Bloomberg Intelligence is saying I thinkthey've only attracted about $20 million.
In funds so far.So we're asking the asset management themselves, Deng Chien, about what isstill needed to bring some more liquidity there.I tried to show Cohen Bowman there at the Capital Markets Forum in Hong Kong,getting underway today. Lots of great conversations, that is iffor daybreak Asia, though, the China show is next.
