Bloomberg First mild: Asia 04/03/2024

This is DAYBREAK.Asia. We're counting down to Asia's majormarket opens. And it is that rhetoric that perhapsgood news is bad news again for this Goldilocks rally poem.We see the kind of pull back in sentiment.Right. And a lot of warnings, including fromthe likes of Morgan Stanley's wealth management arm, saying that it shouldstay away from the overbought S&P 500. What does that mean for these mega techbig caps in the US if this Goldilocks scenario is starting to fade on thesefading Sidecut expectations?.

Well, we did hear from Laura Lauretta.Mr. O's fund had the same Mary Daly today aswell. That's still holding together with thiscase. Yeah, we're going to have three ratecuts this year, not just yet, but I think the market's already starting toreprice that July. Now the next possible option, there's nomeeting in August, so running out of time if this is going to happen.Yep. Some of that good news when it comes toChina, data not really playing through when it comes to the yuan either.Some weakness being sustained.

Let's get you straight to the open.We're seeing a bit of optimism there. The Nikkei 2 to 5 switching prettyrapidly into the red, 8/10 of 1% lower there, despite, of course, the benefitof that weakness in the yen continue to benefit exporters.Some of that broad based risk aversion is starting to play through for thismarket that has seen such a significant rally dollar yen holding just under that152 level. We are seeing expectations ofintervention, actual intervention at about that 152 level the likes of bearfacing dollar yen headed towards 160 if the Fed really meaningfully delays thosecuts on watching of course how trading.

And JGBs is faring as well is thatdivergence play that continues to have the biggest impact when it comes totrading in Japanese asset switching at the borders there, how we're headed intothe open when it comes to Korean equities that we had in terms of thegeopolitical aspect, those conversations between President Biden and presidency,talking about security, talking a little bit about tick tock, apparently as well.So we'll see whether that plays out when it comes to some of the tech names.The names will be in focus after that big miss from Tesla overnight.On the other end of the spectrum, very, very good numbers or solid numbers, Ishould say, out of a number of the.

Chinese EV makers, including the likesof Bhiwadi. We're also seeing that play from me andeven Rivian actually on the US side doing quite well as well.The cost we are also seeing similar weakness that we have been mirroringacross the board. The only spot ofsort of upside energy that we see is actually across the oil and energyrelated names poll. Given that we see crude still holding upand commodities too. Yeah, that's being very much reflectedhere in Australia as well. We've been trading for just over an hournow and it is a risk off day for the.

ASX.We're off by about two thirds of 1% at the moment.But as you say, the bright spot, that's energy, that sector's better by morethan 8/10 of 1% right now. And you see they were just starting tosee trade and Brent crude continuing to show some strength.8920 at the moment, of course, there's tensions in the Middle East helping tosupport the price there. And we'll have an opec+ meeting todaywhere we're expected to see their policy on output curbs get reaffirmed.Let's take a look at what's going on in the Treasury space as well.US debt just starting to trade in Japan.

Also, we've seen some of the yields onlonger dated notes are starting to climb, that trend continuing as well atthe moment. Also 4.35 on the US, ten year at themoment and Jp morgan had a client survey out on this in fact sees short positionsin US treasuries rising now the most since the start of the year as marketsjust continue to reprice that Fed action.And to that end, let's have a little bit of a lesson about what the Fed saying.Here's Mary Daly. I think that is a very reasonablebaseline. But I would like to say here that thisis a projection, right?.

Three rate cuts is a projection and aprojection is not a promise. On the central bank policy action lastweek has bought shares of Marcus positive sentiment.How long will that last? It may not be a straight line asset.Let's bring investment in. Who is the managing director ofInvestment Strategy at ICBC? Investor.We saw that fight pretty quickly abroad and short of being a straight linetrajectory, do you see perhaps more of the risk of a descent from in particularthe valuation levels that whereas. Well, I wouldn't be surprised.I mean, the markets may pull back.

That's to be expected after such astrong run. But does that change the narrative interms of, you know, what the outlook for the markets are going to be for the restof 2024 and perhaps even 2025? I don't think so, because, you know, forwhat the Fed has said in its March FOMC meeting, it looks like, you know,they'll be rate cuts this year, if not three, maybe two, even one.But I think you've got to take a longer term picture, a longer term view,rather. And it will not just be rate cuts in2024, but also 2025 and 2026. And historically, when the Fedundertakes a series of multiyear rate.

Cuts, that tends to be quite positivefor equity markets and bond markets. But as I said, you know, it is not goingto be a straight line ascent, especially after the market has done so well in thelast few months. I think taking a breather is normal.And, you know, what we're seeing now is the markets taking a breather aboutwhether they'll fall off a cliff. I very much doubt because there's a hugeamount of liquidity on the sidelines that's ready to jump back into themarkets if we see a significant pullback.Obviously. Does that mean you see betteropportunities outside of the US?.

Well, you know, I think both in the U.S.and outside the U.S., in the U.S., the Magnificent Seven or the tech stockshave done extremely well. We still like the sector.We still think that it's a multiyear story, is really at thecusp of a long term trend that's probably going to spend the next 5 to 10years. But, of course, again, it's going to bea bumpy ride. But, you know, one has to be positionedin that sector. But beyond that, you're starting to seealso, you know, the gains in the U.S. stock market filter across to a broadersegment of the market.

So there are going to be opportunitiesat the U.S. market.Tech has taken the lead, but non-tech stocks could still play catch up.Beyond that, we are definitely excited about what's happening outside the U.S.And one market that we like is Japan. We've got over to Japan and we also seeopportunities in parts of Asia and we neutral on Europe.So we encourage our clients to take a more diversified approach to investingbecause we think it doesn't make sense to take concentrated bets at thisjuncture when, you know, they hit into the markets even as we remain positiveon the medium term outlook.

So you talk about the Fed playing a longgame and you talk about some of these longer term plays like in AI.But we are seeing very, very high valuations here for some of thosestocks. We're seeing high valuations now for theNikkei as well. Do you still look at this and think,yeah, that's an entry point? Well, you know, the valuations are notas attractive as they were, you know, maybe six months ago, one year ago, nodoubt. But for stocks, you know, such stocks dotrade at high valuations. You know, when it kicks in, the earningsboost, that can be quite significant and.

Valuations can come down because theseare high growth stocks. In the case of Japan, you know, yes,valuations have gone up, but they're not excessive at this juncture.We think that, you know, the the story behind Japan is more than just aboutvaluations or short term earnings. It's more structural in nature.You see corporate governance reforms taking place to ban share buybacks,dividend payouts, you know, lots of changes as far as corporate governanceis concerned. And Japanese hotels are cash rich.And the Japanese government has tweaked the visa program, which allowshouseholds to pour money, more money.

Into the Japanese stock market.So there are various drivers and the Japanese stock market is relativelyunder own in terms of foreign participation.So longer term, we think the swap site for Japan and despite, you know, whatmay seem like a relatively high valuation of the short term.Also on the theme of getting long. When you look at China and howundervalued some of the assets are there.Does that look appealing to you? What sort of what sort of opportunitiesare you looking at in China? Well, you know, with China, one has tobe a bit more.

Got it.We're not negative. We have a positive watch on China.We are hoping to see more positive stimulus coming out of the Chinesegovernment that will excite investors to get back into the market.The Chinese stock market has rebounded since early January.MSCI China is up, you know, close to 12, 13% since the middle of January.And but still, you know, the markets are down more than 50% from the peak in2021. So the valuations are very low singledigit PE ratios. And where we see opportunities in Chinawould be the infrastructure space.

Government is clearly going to boostinfrastructure spending. They want to develop the digital economyand also boost domestic consumption and reduce reliance on the outside world,you know, on our exports. And so I think, you know, companies thatare positioned in that space, especially companies in the Asia market, which arequite leveraged into some of these sectors, couldbe quite positive for the long term. All right, Varsity Men of O.C., BC,thanks, as always for joining us. Just want to get you across an alert onthe Bloomberg. At the moment, we're getting word of anearthquake near Taiwan.

It's quite a big one, magnitude 7.4.We don't have any more detail on its location or its depth at the moment, butthere is an earthquake and tsunami warning.We do have Japan now warning that the earthquake depth was very shallow.That's according to Jamie. But the magnitude of that quake, 7.4.Heidi. Coming up, we'll get some more analysiswhen it comes to Tesla's first quarter deliveries that that miss.We'll be getting some commentary from Wedbush Securities and hear why they'recalling those results a, quote, unmitigated disaster.But first, we get the details on that.

Biden's phone call with Beijing stayingsilent on Washington's claim that they did discuss.Tick tock. This is Bloomberg. The teams have been working a lot sinceNovember on fentanyl, precursors, on climate change, on economic practices.So there's been honest artificial intelligence.There's been a lot of staff level work. And both presidents thought that now, afew months later, this was a good time to kind of check in with one another tosee how that's going. Discuss the future.National Security Council spokesperson.

John Kirby there speaking about thephone call that took place between Presidents Joe Biden and Xi Jinping.Let's get some more details with our news desk editor Joe De, who joins us inHong Kong. So, Jill, what sort of jumped out to youfrom these talks other than the fact that, of course, it's encouraging thatthey happened that all. Yeah.Look, Heidi, I think that this is pretty par for the course in terms of whatBiden and she had promised when they last met up in California in November.They said they were going to establish a more regular line of communication, aswe all know last year, especially in the.

Wake of that big spy balloon incident inFebruary 2023. Talks are really on ice for the betterpart of a year. So the fact that, yes, they're even inregular communication is really important to me.You know, I'm not seeing a ton that's moving the needle on the fentanyldiscussions. Obviously, those are continuing to go tobe ongoing military talks. What really stood out to me was some ofthe lines on Tick Tock that Washington says they discussed.So, you know, there's this investment ban that's been working its way throughCongress passed the U.S.

House of Representatives, still has avery murky fate in the Senate, but Biden has said he would sign a bill sayingthat tick tock has to divest itself from its Chinese owners if it lands on hisdesk. And so the fact that came up in theseconversations, I think was quite interesting kind of indicates thatthere's still that line of tension on data security, data privacy that theU.S. has on China.So, Joe, we've got Janet Yellen heading back to China this week.Is that going to move the needle on any of the issues?Yeah, well, see, Paul, I think what.

Janet Yellen is really concerned aboutis industrial overcapacity in China. So this idea that by providing subsidiesto its companies, the Chinese government is contributing to an unfair economicadvantage that a lot of Chinese companies have the world over.Janet Yellen has made appearances at companies in the US who believe a solarpanel company in Georgia that actually had to shut down because imports fromChina were so cheap. So I imagine that's really going to beher major point of contention as she heads to China this week.I think that will be pretty interesting. I mean, she's obviously made a previousvisit to China.

I'm not sure how much that will actuallymove the needle on some of those discussions.But just the fact that that's kind of ramping up as another point ofcontention that the US has on China. This issue of industrial overcapacity, Ithink will be an interesting one to follow.Our news desk editor, Joe Day says they're taking a look at some of theother stories that we're tracking when it comes to these two major economies.A new poll shows that China has dethroned the U.S.to become the top alignment choice for Southeast Asians.The survey of just under 2000 people by.

Singapore's IAC Yusof Ishak Institutesaw China's popularity climbing to just over 50%.The report says waning confidence in the U.S.could be attributed in part to anxiety about Washington's strategic andpolitical influence. The US is said to be asking South Koreato adopt restrictions on chip technology exports to China in line withWashington's controls. Sources say officials want Seoul totighten the flow of technology used for making high end logic and memory chipsto China. The US reportedly discussed the topic indepth with Korea's president in March,.

But Seoul is still debating the requestas China is a key trading partner. All right, let's take a look at some ofthe movers in the Asia Pacific at the moment.What you're seeing here is a few tech stocks.Some of these are going to be influenced by what's going on with Tesla as well.Of course, we had some pretty low expectations for Tesla's deliveries forthe first three months. 386,810 vehicles got delivered and thatmanaged to sink even below those low expectations.So some of the stocks that are particularly exposed to Tesla, amongthem, LG Electronics, are suffering a.

Bit in the early going at the moment.Tokyo Electric Power, though, is doing pretty well right now.Better by 1.3%. Let's talk a bit more about Tesla'sfirst quarter delivery. Ms..From our Asia Transport reporter, Linda Lewis.So, Linda, analysts had already slashed projections, but as I mentioned, Teslaeven managed to sink below that pretty generous by what happened.Yeah. Going into the first quarter, analystsalready painted quite a low expectation, but Tesla managed to even miss that.So the picture is quite ugly.

Tesla basically missed analystsestimates by the largest margin in the seven years and this past seven yearsand actually managed to decrease sales compared to last year.Now that's going to take a hit to the narrative that Tesla is a growthcompany. Essentially, Tesla has been warning themarket that with high interest rate, the demand for vehicle purchases are goingto be impacted and the production in Berlin has been affected by all of thedisruptions and the Red Sea as well as China.The second largest market, is going through this fierce competition whereTesla's market share is also falling.

So all these factors are painting a verybleak picture for Tesla right now. And it is kind of just Tesla at thispoint, right? Because as you've mentioned, we've seena lot of action from Chinese EV makers, Bhiwadi.The numbers are actually pretty strong, right?Yes. Interestingly, for by they've managed togrow their sales by a lot in the first quarter.Just in March, they've reported sales growth of over 40%.So that's a very healthy, healthy outlook.But the thing is to know Tesla, which.

Only makes EVs so, you know, delivered386,000 vehicles. Now that compares to buy these 300,000EVs. So why they kind of lost the crown againof the world's largest producer back to Tesla.But overall, including plug in hybrids buy.They shipped more than 600,000 vehicles in the first quarter.Okay. So it was a pretty horrible firstquarter for deliveries for Tesla. But we have seen this before and theyhave recovered. How does the outlook for the rest of theyear look?.

Yes.Hopefully for the rest of the year, Tesla can kind of pick up theirproduction again and hoping that demand will also resume depending on how theinterest rate movement will go. A lot really depends on the globaldemand for EVs, which is actually slowing.So that's not just for Tesla or for other EV players, but I'd say all ofthese players from China, they're also going to face similar challenges.So a big question is how well is the mine going to stack up for the rest ofthe year? Now Asia transport reporter Linda Lu,though with the latest on Tesla and some.

Of those Chinese competitors, we'll begetting more insights when it comes to those first quarter deliveries.The big miss from Tesla Wedbush Securities will be joining us later thishour. Who are they keeping an outperformrating on the app despite those results? More to come here on DAYBREAK.Asia. This is Bloomberg. Or I just want to bring you an update onthe earthquake near Taiwan. Seven and a half, 7.5 magnitudeearthquake. It happened at 21 kilometres southsoutheast of Hualien City in Taiwan.

This is according to the US GeologicalSurvey. Very strong shaking at a magnitude ofthat strength that was felt widely in the Taiwanese capital, Taipei.Now, a tsunami warning has also been issued for a number of those smallJapanese islands that you see there just to the northeast of Taiwan.Also, a tsunami warning for Japan's Okinawa prefecture.Local residents told to evacuate and tsunami waves as high as three metersbeing potentially forecast. So the sounds like quite a seriousmagnitude 7.5 quake and tsunami warning for those southern Japanese islandsHeidi.

We'll be keeping a close watch on that.But in the meantime, so new political developments and President Biden sayingIsrael is not doing enough to protect civilians in Gaza.That's after the Israeli military killed seven aid workers, including an Americanin airstrikes. For more, let's bring in Bloomberg'sMichael Hayden. We've seen reaction from Australia'sgovernment as well in terms of its aid workers being partof that death toll, this statement. Does it mark an escalation of tone fromthe U.S.? Yeah, I think that's exactly right,Heidi.

And you have almost a feeling of aninflection point here. There's just been there's been so manycivilian deaths. And Australia's foreign minister pointedout this morning that the number of aid workers who've been killed in this is areally high as well. It's 196 since the conflict began onOctober the seventh. So it's just sort of the language that,you know, the outrage that both the US, UK and Australia haveexpressed on this, all of whom lost citizens in this in this accident.I mean, it was a strike, but it was obviously accidental.But it's just that it almost feels like.

There's a sense of recklessness abouthow Israel is now conducting the war. So, yeah, it does feel like we have hita point. And I guess, you know, it's sad to say,but sometimes it takes Western citizens to die in these things for people toactually really, really snap toll on just what's going on therebecause it's dire in Gaza. We're talking famine out there.Israel's been resolute, though, in its stated determination to wipe out Hamas.Get this. Notwithstanding the heightened rhetoricnotwithstanding. Why would they walk away from that goalnow?.

Yeah, well, that's the that's the point.And the it's almost like on the political front that Israel or Netanyahutakes away sort of some benefit from from staring down the US on this aswell. So it's a fine line because theyobviously get a lot of money and a lot of weapons from the US, but they also healso generate some political support, particularly from the right, thenationalists who are part of his coalition in doing this.But, you know, I mean, it's it's it's across Israel.The general feeling is they do have to prosecute this war to the end.It's just how they prosecute it.

So I don't think this is so much a splitbetween the US and Israel. It's more the Netanyahu administration,so to speak, there. But yes, I suspect Israel will keeppushing on just the numbers in terms of the economic destruction as well.Right. 18 and a half billion dollars.Is the assessment in the destruction of infrastructure equal to about a year'sworth of economic output? And we know the assessment of over30,000 Palestinians being killed, according to the Hamas run healthministry. But, you know, I think to pause point aswe see this, a rising tide of.

International condemnation fromAustralia, from the US, from the UK, there seems to be consensus that what'shappening now is not acceptable. Do we see any way that changes for thisnext part of the conflict? It's difficult, isn't it?Because I mean, these are three very close friends of Israel that we'retalking about, the US staunchest ally. So that pressure is building and it justdepends. I mean, the next step is do they cutaid? You know, does the US say, look, we'renot going to supply your weapons if you keep it or if you don't change your wayshere?.

These are the sort of next areas we'd belooking at. But we definitely have a step up inrhetoric here, no doubt about that. One at a time.Michael Hayter Let's take a look at how European futures are shaping up at themoment. It is a prettymuted session as we see across Asia at the moment.We're seeing not a lot of moves when it comes to the euro.Stoxx 50 pretty flat at the moment. In fact, the German DAX futures off byabout a 10th of 1% there. We did see that previous session seeinga slide as well.

That negativity really tracking thesharp drop that we've seen on wall Street.Traders globally just reassessing the path of interest rates there.We're seeing the footsie 100 after some recent closing records, paring back someof that enthusiasm. But still, compared to most otherEuropean markets, that is still the outperformer there.We will expect to see that further strength across energy, though, becausewe did see even in the previous session the likes of Shell BP.Outperforming. And those gains are still being held inthe crude price today.

And we're seeing Asian crude in theenergy names as well as miners outperforming the broader weakness inthe market. Well, still to come, we're alsowatching, of course, some of those Tesla suppliers in this session.Wedbush Securities holding an outperform rating on Tesla, despite what they calla train wreck first quarter for deliveries.We'll be asking managing director Dan Ives why they're still optimistic onthat stock. This is Bloomberg. Saying that risk of sentiment reallytaking hold in the Asian session with.

Just about half an hour into the startof trading across Japan and in Korean markets as well.Downside there for the Nikkei, 2 to 5 off by just about 1%.Even that weakness being sustained in the yen at pass at 151 level, nothelping out too much despite the benefit to some of those export related andtrade related names. Of course, BE is also down by over 1%there we are watching the impact when it comes to some of those Tesla suppliersin particular. Will we get getting more on that storyin just a moment. But certainly the EV names will be kindof is trying to weigh up the big.

Differences that we see in those Teslanumbers and the numbers that we got, which were much brighter for a lot ofthe Chinese EV makers and Rivian as well in that mix there as well.But taking a look at what was watching in Australia and New Zealand broughtdownside. But in Australia we are seeing some ofthose commodities names outperforming. Some commodities have been rallying onthe expectation that perhaps we'll be seeing elevated rates for longer, moreglobally, but particularly for the Fed and potentially for the RBA as well.We're also seeing oil outperforming for another day, so that is being seenexpressed through some of those oil.

Majors, utilities names, also some ofthe few gainers that we see in the Sydney session.We're also getting to some data crossing the Bloomberg as well.The March composite PMI coming through at 51.7 services at 54.1.Paul Well, there's that phrase a rising tide lifts all boats.We're seeing the opposite here when it comes to Tesla.Related stocks, very disappointing deliveries for the first three months.You see some of those Tesla related names there.The company itself was off by almost 7%. At one stage, about 6.7%.Shares were down settling lower by 4.9%,.

But it dragged other EV stocks lowernow, dragging Asian Tesla suppliers lower as well.Just those numbers for you, 386,810 deliveries.The market was expecting between 400 and 420,000 and even that was a reducedestimates. So Tesla massively undershootingexpectations there that sales missed the biggest ever.Well, our next guest says while he remains bullish on Tesla's long termstory, this was, quote, a train wreck into a brick wall quarter.Let's bring in Dan Ives, the senior equity analyst at Wedbush Securities.Dan, tell us what you really think.

What's what's the strategy for Teslagoing forward now? I mean, is raising prices in China whileits competitors are cutting, How is this going to pan out?And look, I think that's been the problem.I mean, it's been an epic disaster, not just in terms of delivery number, butthe strategy. Are you going to cut prices or margins?And investors right now are feeling blindfolded, almost like playing dartsblindfolded. And these were what no one was expectinga good quarter. But this was pick your heart as ofFriday the 13th, Nightmare on Elm.

Street.That's what this quarter was. Okay.So Elon Musk did warn us that this was probably going to happen.He was talking up supply challenges and said previously that, look, Tesla's inbetween two major growth waves. So how long do you see this trough beingbetween the two waves and and what is the next wave?Is it the low cost model two, the Tesla is working on?And the problem is it's a little dog eat the homework.I mean, the supply is not the issue here.It's really demand soft.

And now I think for Tesla.This is a fork in the road period in terms of what they're going to do fromprice perspective, new models over the next few years, advertising competitionsincreasing demand, softening not just in China, but globally.This is this is probably one of the more challenging periods I think, that we'veseen for Musk and Tesla in the last four or five years.Now you need to be a pilot on the plane. Navigate Tesla you were at right now aCategory five storm. Dad, are you still constructive then,when it comes to the stock? Yeah, look, we're bullish for the longterm.

On the other side of this, obviously,I've been your bubble for many years. But you got a call like you see it.They need to get through this period to see that growth is see the margin to seethe potential. Otherwise there could be some dark daysahead. And that's why this is you know, I viewthis as really a key chapter for Musk in terms of which way he navigates.Patience is wearing thin. This was probably one of the morefrustrating period you've seen for investors in years.Do they in losing momentum in China, particularly at a time when competitionis fierce and discounting is so.

Aggressive?Does that risk the long term outlook in a major market?Look, China is the hearts and lungs of the Tesla story, and what was aCinderella ride has now turned into a horror show relative to growth thatcould be reversed. Clearly, we're starting to see nowprices increase, maybe the worse in the rearview mirror.They had a good call last quarter, you know.You know, if you go back to your call to queue, but for Tesla, this is going tobe a defining period. I believe they could reverse the growthtrend they're seeing.

But it comes down to Musk.You need an adult in the room. I think the board's going to have toactually take some action here because this is something you can't just brushit under the bed and say that is a supply issue.Hmm. In terms of the board taking action, Imean, how effective do you think that would be?Could you see Elon Musk is quite a powerful personality?You can can you see a potential battle shaping up here?Look, I think most needs to commit to being CEO next 3 to 5 years.You know, I think in terms of artificial.

Intelligence and FSD, making sure thatstays under Tesla and and it's really coming out with the strategy, showingthe road map, showing what full self-driving, showing the modernizationstrategy investors can just believe they need to execute.This has been a phenomenal story for the last decade.But this is going to be you know, we're going to look back years from nowand the future of Tesla will be ultimately how they've navigated thisperiod. I'm optimistic, but for Musk needs to bean adult in the room going into this conference call coming up in a fewweeks.

The question of Islamist leadership, howdifficult is it to be able to trust that as an investor?Do you think he's distracted by his various other projects in space?X You know, he's got so much sort of on the go, not to mention X andexpectations that he'll be a lot more involved as they head into the NovemberUS election as well. Look, I mean, the minute he boughtTwitter X that know this was almost our worst fear.That's now starting to come true. Almost like watching a slow moving carcrash. You know, in terms of distractions.Obviously, you know, some of the.

Political variables alienating somepotential customers, it's having an impact.And I think for most. He needs to choose which way this isultimately going to head, because you can't really.No know, almost. Just look at excuses and blame it.There are some Tesla issues here that I think are Musk created.Dan, always great to chat with you. Dan ISE of Wedbush Securities.Well, meanwhile, claims of Chinese overcapacity when it comes to EVs andbatteries are a key gripe for Western nations.Janet Yellen, Treasury secretary for the.

US, headed to China this week, accusingBeijing of distorting global markets. We've heard, though, similar concernsfrom the EU as well. But those claims, are they backed up bythe data. Let's bring our China economy editorJaime Slager. And James, we're talking about autos andEVs. And we know China's exports of carssurged last year and actually overtook Japan in terms of the top globalexporter. But you take a look at this story, andit wasn't because Chinese cars are cheaper.Well it depends.

I've got it.Cos you're talking about if you're talking about EVs, that's definitely thecase. Chinese EVs sell for about twice theprice in Europe than they do in China. The same model of car and also a lot ofthose Chinese Teslas or BMW X3. So and there doesn't seem to be really alot of overcapacity in the EV market, partly because the Chinese market isgrowing very, very rapidly. So companies are trying to ramp upproduction as quickly as they can. And partly because, you know, there'swhat little what little excess capacity there is that's not being solddomestically is being exported, but it's.

Not being exported cheaply in ininternal combustion engine cars, diesel and petrol cars.It's a very, very different story. You you are seeing a lot of overcapacityas all the plants as the as the as the car market here very rapidly shifts toEVs. You're seeing a lot of overcapacity inall the plants. That's it.Companies like SAIC, Great Wall. Some of the JVs that the foreigncompanies have with Chinese companies. And so there is massive overcapacity inthose kind of cars and those are being exported.But a lot of those exports are going to.

Russia.And the reason they're going to Russia is because all of the other foreign carcompanies have left Russia since the invasion of Ukraine.So there is some overcapacity and some of it is being exported.But it isn't really the the you know, the massive wall of EVs that's that'scoming for the western car market that is being, you know, that so many peopleare concerned about. James, Some of these other areas ofovercapacity are sort of very low tech sectors as well.And to what degree are they linked to what's been going on in China's propertymarket?.

I mean, there are there is definitelyovercapacity. And you're definitely seeing that thecement sector I mean, obviously, if you don't have a you know, if you're if yourhousing sector is shrinking by a half or a third, depending on stocks or orconstruction, which we'll look at, obviously, the demand for cement andiron ore and rebar and windowpanes and all these things is going to is going toslump. There isn't a lot of exporting ofcement, though. Cement is not an exportable.Good. You know, you can't even ship it morethan a couple of hundred kilometers.

Before it becomes uneconomic.So there's massive overcapacity in those kind of sectors.And you're seeing that flow through to the industrial production, sort ofindustrial profit data you're seeing. So we profit data and so we profits andrevenue in the first couple of months of this year were the lowest they've been,you know, for at least for about ten years, except for the brief period of2020 when there was the initial COVID outbreak.So there's been a massive profit and revenue slump of Chinese companies.And, you know, in some sectors you are seeing overcapacity.I think the biggest sector where you.

Will see you are seeing overcapacity inChina and that will have an effect on the trade route is going to be inbatteries and it's going to be in solar panels.China is has has huge overcapacity in solar panel production and seems to havehuge overcapacity in battery construction,manufacturing, whether that's for cars or if it's for, you know, electricalpower companies, for storage batteries. And there there is there is some concernthat that is going to be exported. But, you know, at this point, Chinaproduces almost 90% of the world's solar panels.So, you know, there isn't really a lot.

Of competition that they're driving outof business at this point. They already drove all of thecompetition on the solar panels out of business over the last ten years.So even if there is overcapacity in solar panels, all that's doing now isdriving down prices for for for consumers overseas.And also it's it's destroying the revenue of Chinese solar companies.So there is overcapacity. But really the biggest loser from thatis going to be companies that are making solar panels at a loss in China.All right, China economy editor James Major there in Beijing.Still to come, the latest moves in oil.

Markets after US crude pierced $85 forthe first time since October. We'll have more on the outlook next.This is Bloomberg. The yuan is a whisker away from theweekend of its onshore trading band, as recent upbeat economic data fails tobolster the Chinese currency. For more on this, let's bring in theethics and rights strategist David Finnerty.David, how much of a concern is this for policymakers in China and can theyreally realistically do anything to prop up the yuan?I think it's certainly concern. I mean, I never see you on trading nearone end of the band.

And obviously that's happening rightnow. We'll see what the fixing is today,which will indicate how much leeway they are giving you and to weaken.But certainly it's not something that overall they'll be happy with becauseobviously, if it's still went into the band, that may force them to interveneto prop it up. Now, whether it be direct interventionor just make it very hard to short the yuan via say they're looking at forwardpoints for that or high ball, they could check that up.So how does it it just means this is half work for the central bank.So the markets will be very interested.

To see if other currencies are weakeningversus the dollar. Does the process okay, let's that oneweaken with the other currencies or just decide to stand its ground?Is this The same questions could be asked when it comes to Japanesepolicymakers? And the yen, right.Is still hovering at that 151 kind of level.Certainly heard plenty of jawboning as to expectation of intervention and howimpactful that would be. I think at the moment with Sonny inIntervention range, there's been a lot of rhetoric out recently said even justyesterday Finance Minister Suzuki was.

Talking about excessive moves.Now, you remember over the last week or so, the one civilians hardly moved out.She's been stuck in this 151 to 152 range is certainly they're being verypre-emptive. The market has really got its eyes gluedon this 152 level because if it hits that for a couple of reasons, one of thehits that it's back to its lowest since 1990.But even more important, if it hits 152 in the auction world, a lot of risk,reverse knockout virus get triggered. And what that basically means is someauction players will find themselves suddenly short dollar end and they needto cover those positions.

So they may see a rush of buying tocover the positions because those knock out babies are quite large, apparently.So that gives you see dollar and jump higher, which ironically could then spurthe intervention. So everyone's focused on the 152 becauseeveryone knows about these option barriers and they know that they couldactually be a trigger for the end finally to be intervened, even if itjust crosses across that 152 barrier. All right.Ethics and right. Strategist David Finnerty there.Well, you're watching DAYBREAK Asia. Let's take a look at some of the latestgeopolitical developments that we're.

Watching.President Biden says Israel has not done enough to protect civilians in Gazaafter airstrikes killed seven aid workers.Among the dead, British, Australian, Polish and Canadian American volunteerswith the World Central Kitchen charity. Israeli Prime Minister BenjaminNetanyahu admitted what he called an unintended strike on innocent people.Now it's prompted several charities to suspend food deliveries to Palestinianswho the UN and the EU say are on the brink of starvation.Iran's supreme leader has promised to take revenge on Israel after a deadlyairstrike on its embassy in Syria.

State media quoted Ayatollah AliKhamenei as saying Israel is going to regret its crime.Israel has not confirmed that it was behind the strike in Damascus, whichTehran says destroyed its consulate building and killed at least 13 people,including seven Iranian military personnel.Night I was said to be proposing a fund of allied contributions for Ukraineworth $100 billion over five years. Sources say as part of a packagealliance that the leaders would need to sign off on when they gather inWashington in July. Proposal could also see NAITO takecharge of weapons deliveries to Ukraine.

Amid European concern that a secondTrump presidency could change U.S. policy.Take a look at how we're trading across the energy patch at the moment, reallythe extension of that oil rally after we saw an industry report pointing to thatdrawdown in U.S. crude inventories.This comes, of course, ahead of an OPEC+ meeting.That group expected to firm the current level of supply cuts that were risingpretty rapidly towards $90 a barrel. When it comes to benchmark, Brent, atthe moment, $89 is where we're at. New York crude trading at just over $85there as well.

Options traders are increasingly lookingto protect against the prospect of a further increase in crude prices,particularly in light of escalating Middle East tensions as well.So let's get to some more analysis. Our trading reporter John Tension joinsus now. So what's the expectation in terms ofhow much further upside could we see in oil prices?Yeah, I hope so. I would say for oil, that's kind of twoaspects look, which I'm looking at right now.There is obviously on the fundamental side, things are looking supportive.You have, you know, expectations of Fed.

Rate cuts in China.Sure, the outlook is pretty downbeat. But you have you've had the latestmanufacturing data which showed an expansion in Europe as well.We have analysts, including, you know, Goldman Sachs flagging that actuallyactivity and the manufacturing is actually looking pretty solid.So you have all these broader economic factors which are more supportive andthen you have more, I guess, incidental things like an outage from Mexico's oilproducing Pemex.So that's going to tighten the market as well.So broadly speaking, you know, it's all.

We're looking very supportive with, youknow, looking out for Brent in 90 points.Next, as you were saying. But on the other hand, I would also flagthat on the more sort of speculative side.There are there there's a sense that the Al Gore's that push really pushedprices higher. They began to reach sort of the maxlength. And there's a bit of a sense that, youknow, the rally fizzled out for now. Maybe if we see Brent hitting $90,that's going to spur more, you know, algo buying and all that.But the the the basically what I'm.

Trying to say is it's bullish.But you know often that Brent in 90 will well, we'll see where the market goesfrom here. Well, we've got an opaque plus meeting,of course, later on today. They are expected to just rubber stampan extension of production curbs. Is there anything else that you'relistening for out of this meeting, though?Yes. As you were saying, the Opec+ meetinglater today is the Joint Ministerial committee meeting, which they are indeedexpecting to just, you know, rubberstamp that just continue the cuts.What's been interesting so far is we've.

Seen coverage on how some of thecountries have been slowly sort of stalling in terms ofagreed upon output cuts. So and we've had our, you know, our teamin London saying that Russian output of Russian exports actually is on the rise.So on the one hand, yes, you know, the group Opec+, they're keeping theiroutput production quota steady. But of course, it comes down to whetherthese member nations actually, you know, follow through on their cuts and how andwhat they actually do. So that's a compliance, especially theone thing that we are going to watch out for, and that's going to determine muchof how the market interprets the opec+.

Cuts.Oh, trading reporter Jung Chang chin. Let's get the update when it comes tothe monitoring of the earthquake. At the moment, we're seeing a live viewof the echo chamber in Okinawa, Japan, after a strong quake hit Type one.We're seeing that tsunami warning being issued for Japan's Okinawa after thatmagnitude 7.5 quake. We're also seeing that tsunami warningissued across what we're seeing in terms of the impacton Taiwan as well. The capital of Taiwan, Taipei, where wesee a tsunami warning being issued there.We've seen some of the fallout as well.

TSMC, for one, one of the companies thathas evacuated some of its staff from production lines, according to aspokeswoman there. That's a NAMI warning has been issuedafter we had reports of buildings being shaken in Taipei at about 7:58 a.m.local time this morning. Aftershocks have also been felt acrossTaiwan as well, as well as as yet unofficial reports of buildings havingcollapsed or been severely damaged. You can track all of that on theBloomberg without live blog that's keeping abreast of all the latestdevelopments. More ahead here on DAYBREAK Asia.This is Bloomberg.

All right.We are keeping an eye on this breaking story out of Taiwan and Japan as well.You're seeing there some pictures starting to come in of the intensity ofthe shaking. Now, this was a depending on who'smeasuring it. Let's go with the US Geological Surveyfor now. A 7.4 magnitude earthquake and this was23 kilometers north northeast of Thailand city in Taiwan.So strong shaking there and tsunami warnings as well, Heidi, for someJapanese islands. Yeah, we'll be watching that certainlyas the developments come to us.

But we've seen some reaction from thelikes of TSMC, for example, perhaps some disruption to businesses as we've seenthe evacuation of some staff from production lines at TSMC, according to acompany spokeswoman. We've also seen, of course, that tsunamiwarning being issued after we saw buildings really being shaken in Taipei,the capital of Taiwan, just before 8 a.m.local time this morning. Waves reaching between 1 to 3 metersabove the tide level possible along China and the coast of Taiwan.They are, according to the Pacific Tsunami Warning Center.And we will be continuing to watch.

In terms of what else we're seeing.The Taiwan quake is the strongest that we've seen in 25 years, according to theseismology official.

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