Bloomberg Morning time: Australia 05/17/2024

Welcome to DAYBREAK, Australia.How do you start? What's in Sydney?We're counting down to Asia's major market opens.I met about rulers in Hong Kong and the top stories this hour.Asia's set for a lower open after Wall Street fades at the close.The Dow Jones retreating from the 40,000 level as more Fed officials warn ofhigher for longer rates. Jamie Dimon also sounding an alarm whenit comes to lingering inflationary forces, telling us the chances of a hardlanding are higher than markets think. Plus, a busy Friday in China with highlevel talks on the property sector.

A first sale of special bonds and Aprileconomic data that may show a modest improvement.Speaking of data, though, we do have South Korea jobs just crossing theBloomberg. Now, we are seeing that unemploymentrate seasonally adjusted for the month of April, just a sticking to 2.8%.The expectations from economists were 2.8%, and it's unchanged from theprevious month of 2.8% there as well. We were expecting potentially a littlebit more of a softness in that. Bloomberg Economics blog, for one wasseeing an edging up to 2.9%. We did see labor force participationpotentially increasing in that month as.

Well.But still, to be fair, these jobless rate levels around 2.8, 2.9% are stillbelow that post-pandemic average of 3.3%.So Bloomberg Economics considering that to be the natural rate of unemployment,so neither pushing up or down inflation, so that tighter job market potentiallygiving the Bank of Korea a bit more leeway to take its time before cuttingrates. Their labor force participation was oneto watch here, and particularly when it comes to employment growth acrossmanufacturers and a bit of softness in services being seen as well.So pretty muted in terms of the reaction.

That we'll expect to see when it comesto these jobs numbers. But as Bill said, a softer start totrading this Friday session as we head into the end of the week.Take a look at how Aussie futures are setting up here.We're seeing softness of about 6/10 of 1%.They're mostly headed for early declines across the region to tempering thatoptimism linked to the US inflation reading that we had mid-week.So this reassessment of the path forward for the Fed is really at play here withthe Chicago Nikkei futures looking pretty muted at the moment and watchingChina as well after that early.

Exuberance when it comes topotentially that report that we would see further action on the propertysector. We are hearing that Chinese regulatorswill be talking about property aid when they meet with banks later on todayBill. Yes, they said a very busy day ahead forChina, not least because we've got that activity data as well due out in thenext few hours. But let's take a look at how US futuresare coming online this morning. It is fairly steady right now, but inthe context of the day's trading session where there are a couple of differentnotable factors, we had some twists and.

Turns, but it was the Dow Jones thatreally stood out because we rose above or briefly touched that 40,000 mark.We closed just slightly below it in futures here.You can see again trading around that level.The question, of course, is where the markets are now in overvalued territoryand we can put that to our guests. But across assets as well, we sawTreasury yields just a little bit higher, a bit of a bounce back in thedollar as well after a drop to a one month low.But concerns, as you say, Heidi, really building around inflation.We're about to hear from JPMorgan's.

Jamie Dimon on that.And then there's also Fed officials as well that you were speaking about whosay that the central bank should be keeping borrowing costs higher forlonger. One of those as well was the ClevelandFed president, Loretta mister. Take a listen.Incoming economic information indicates that it's going to take longer to gainthat confidence. So holding our restrictive stance forlonger is prudent at this point as we gain clarity about the path ofinflation. I think the surprise would be higherrates because inflation didn't go down.

Than inflation has been stubborn, maybeeven bounces up next year. I think inflation next year may be inthe cards, may have nothing to do with what you're seeing today.So I'm I that to me is the surprise. Let's bring in our first guest.Bowens McKinney is a senior portfolio manager at an FHA investment group.Burns, always great to have you with us. So you know that market exuberance, thereaction to the US CPI data, which if you strip out from the headline numbers,still questionable in terms of inflationary pressures in that corecore. Is it unsurprising that we're now seeinga reassessment of, I guess, a reality.

Check now?It's not it's not terribly surprising when we've been in this mode for thelast couple of years where, you know, the equity markets are continuouslytrading based on what the inflation data is, because of the fact that that's whatmight determine, you know, Fed interest rate policy going forward.And yeah, the CPI print that we got this week in the US, it does seem to to somedegree deflate the the notion or the narrative that that maybe we might havea reacceleration of inflation. That said, you know, we still feel likewe're in a pretty good shape place there with respect to Jay Powell and the Fedhas basically said that they're probably.

Still your rates may be a little bithigher for longer, but at the same time, they're more likely to cut rates at somepoint this year than to raise them and know really they've kind of are in thatsweet spot where they have time to be patient, despite the fact that theinterest rate policy, you know, it works with a lag.But they started hiking rates two years ago.And despite that, the unemployment in the US has been at or below 4% monthafter month after month for over two years.It's been it's been 50 years since we've seen unemployment stay this low for thislong.

And so that does buy them the time to bepatient without having to worry about breaking something.It's sort of like if you're on a road trip and you're getting a little bettermileage than you expected to get, well, maybe that means that you can go alittle bit longer without it, without stopping for gas.And so that does put the Fed in a pretty good position.And do you do you go for the next two, three, whatever months until we finallyget a rate cut? Leaning into those growth stocks and themega caps or do you start rotating now? That is something that, you know, wewould we would really advise investors.

Start kind of layering into a portfolionow. And despite the fact that, you know, thelower rates actually in the near term could benefit some of the tech highflyers, we actually believe that right now is a really good time for investorsto lean into value equities. They've been out of favor for a reallylong time. And so as a result, you do havevaluations on your side. You've had the last year, the US valueindex trailed the growth index by 30 percentage points and historically whenit's trailed by that a margin, it's outperformed about three quarters of thetime over the next 12 to 18 months.

And as a result of that lag, the valuebenchmark trades at almost a 50% discount to the growth index.And you know, if we're looking for a catalyst, we say, okay, well, one couldmaybe kick off that reversion to the mean.It may be that whereas the Fed may start lowering rates later this year, but thelong into the curve may actually stay a little bit higher for longer, whichbodes well for shorter duration things that, you know, the type of companiesfor which you're getting cash flow and earnings today rather than necessarilydown the road, that could be the catalyst to maybe get investors backinto value stocks.

They've been out of favor for over adecade now. And, you know, maybe they get their due.Are there any particular names that stand out to you?But yeah, exactly the same thing. Scenario One thing that jumps out to usright now is the fact that the investors, you know, going back a yearago, investors were terrified that, you know, we had a recession, was going tobe a sure thing. And then toward the end of 2023, the thesoft landing narrative really started to take shape.And so investors had a bit of a flight to risk and they started dumping a lotof the defensive areas, places like.

Utilities, when you know, when when thesun shining, people aren't looking for umbrellas.As you can play defense with a lot of utilities that are, you know, trading ata pretty steep discount to the market. A great example of that would be NextEraEnergy. It's one of the largest utilities.You know, right now. It trades at a discount to the S&P 500for the first time in six years. Over that timeframe, it's only about 5%of the time. Is it been this cheap and a 3% dividendyield that they pay? It's not necessarily the highest yieldof the utilities, but it's one of the.

Best growing.They've tripled that payout over the last decade.And in addition to getting the largest regulated utility in Florida right now,typically you pay a premium for that. That extra freebie that you're gettingnow that they're the US leader in clean and renewable energy, because there's nothere's no. What about opportunities that areoutside of the US? Are there any specific areas that you'relooking into in emerging markets, for instance?Overall we would argue that the emerging market space definitely holds promiseright now.

Again, you know, they've been also outof favor. They've trailed the U.S.for a really long time on a do you look at price to bookratios? The emerging the MSCI Emerging MarketsIndex is trading at such a discount to the S&P 500.It hasn't been this relatively cheap since 1996.So you're talking of going back 28 years.And yeah, if there's really one thing that could drive a little bit of acomeback for emerging markets equities, it may be that if the Fed does finallyget the the freedom to lower interest.

Rates later this year, that might weakenthe dollar a little bit, which could actually potentially spur a bit of acomeback in the emerging markets. And one of the incentives could be abetter performance out of China. We've seen stocks come off the bottom.Clearly, valuations are still attractive and we're hearing noises that maybe morepolicy action will be taken when it comes to the property sector.Does all of this add to what looks like a fundamental rerating when it comes toChinese equities? Would this be a good entry point,though, in the near term?It's always going to be volatile in the.

Near term, but for investors that have athree, four, five year time horizon, then right now actually might be a timeto start chipping away at exposure to China.And it's starting to get a little bit of that momentum.You've seen a really major policy errors over the last several years wherewhereby you've had, you know, stringent COVID lockdowns that lasted probably alittle bit too long. You had a regulatory onslaught against alot of the tech technology companies in China.And a lot of those headwinds are starting to turn into tailwinds.Yeah, they've reopened the economy.

It was never going to go just a straightline smoothly. I always say that if you get your legout of a cast, you have to walk before you can run.And baby sees the regulatory pressures on the tech names.And with respect to bank reserve requirements, they've lowered those tolevels that you haven't seen in about 15 years.So they really are providing stimulus and you're starting to see the fruits ofthat. We've seen, you know, GDP, the economyin China grew by a faster rate last quarter than the prior quarter and atalmost double the rate of what it was.

Doing a year earlier.And despite that, you know, beginning of a comeback of the economy, you do havevery favorable valuations. I know China's had a little bit of a runsince January, but yeah, you've got a market there that's still trading atabout a 30% discount to its long term averages, whereby US stocks are tradingat about 30% premium to their averages. And so for long term investors, there'sdefinitely opportunities in China for the types of companies that mightbenefit from a growing middle class. You have a lot of companies that aresitting on tons of cash on the balance sheet.So looking for China, maybe dividend.

Payers with China is actually a bit ofan unexploited area to look at. Fern, thanks so much for your time.That was the Nephew investment group, senior portfolio manager Burns McKinneythere. And coming up later in the China show,we speak exclusively with Philippine central Bank Governor La rama Luna as hesignals rate cuts are on the way. That big interview coming up just after9 a.m. in Hong Kong, 11 a.m.in Sydney, exclusive as well tonight. And you can get a roundup of the storiesyou need to know to get your day going. In today's edition of DAYBREAK, Terminalsubscribers go to day go.

It's also available on mobile in aBloomberg Anywhere app. You can customize your settings so youonly get news in the industry and assets that you care about.This is Bloomberg. China's government is said to beplanning a meeting Friday morning with banks and regulators to discuss theproperty market. Sources say the agenda includes aproposal to clear excess housing inventory.For more, we're joined by our China correspondent, Ben Lowe.And we've already seen property stocksrising in anticipation of this, but what.

Do we know exactly about the meeting?Yeah, it is a huge meeting. I think the breadth of invitees at thismeeting really showcase how important it is.We're looking at senior officials from the housing ministry, from state banks,local government are all attending via video conference to discuss thisproposal to potentially buyback millions of homes across the country with thehelp of state owned enterprises using loans from state banks.Now, of course, a lot of details are yet to be sketched out.We'll be watching for that. The big question is how big of a scaleis this going to be and how are they.

Going to finance this?Because if you recall, in early 2023, the government did roll out somethingsimilar on a smaller scale. They had extended about ¥100 billion ofcredit through a specialized lending facility.The plan then was to get eight stories on a trial basis to buy back excesshousing. But as of March, only ¥2 billion hadbeen extended through that program, which shows the reluctance of banks andlocal governments to get on board and banks.Their balance sheets have been squeezed by non-performing loans, and the factthat they're being asked to extend.

Credit cheaply to developers.So these are all questions we don't have answers to.The State Council is going to hold a press briefing later this afternoon.PBS's those videos, he's going to be attending along with Relevantministries. So we'll be watching out for detailsfrom that press briefing. Big day for China watchers.We're getting the data done from the National Bureau of Statistics.In a couple of hours. The domestic recovery is expected tolook a little bit patchy. What are we looking out for when itcomes to property investment?.

Yeah, property is still one of thebiggest drags on the economy. We are expecting property investments toextend declines again. But that said, the government and thegovernment let investments could help counter that.And already we are seeing this steady drumbeat of pro-growth policies comingout in the last few weeks with a rollback of home buying curbs in cityafter city, and then now possibly a new announcement on this buyback of excesshousing inventory. But of course, we're not going to seethe effects of that on the April reading just yet.We will, though, however, feel the.

Effects of last year's trillion yuanbond issuance that's being dispatched into infrastructure investment.We did see PMI reading for construction activity hitting a new high in April.So that's going to help fixed asset investment stay resilient this April.Of course, it is a big day to them as we get other things as well.Industrial production, retail sales, what's that going to tell us perhapsabout the overall recovery we're seeing? Yeah, economists expectations is that wewill see the economy coming out of a lull as we head into the second quarter.If you recall, we had disappointing numbers coming out in March after astronger than expected growth in the.

First quarter.The consensus is we'll see industrial production there on your screen leadinga touch, increasing by one percentage point from March.That's on the back of stronger exports in April.Retail sales, that's a number that we want to look very closely at because thebig question now is will we see a balance recovery or this persistenttrend of a two track recovery with production and investments racing aheadof consumption? And if you look at the media holidaydata, huge appetite for travel, but per capita spending still not breaking abovepre-pandemic levels.

So people are still keeping a tight gripon their wallet. They're.China correspondent even though the Chinese president Xi Jinping and Russianleader Vladimir Putin have pledged to intensify cooperation against what theydescribe as Washington's containment policies, Bloomberg's greatest Chinasenior executive editor, John Neal, joins us now from Beijing.So this friendship without limits, what have we seen in terms of how far that'sprogressed with this meeting? Well, I think what we've seen throughoutthe the war in Ukraine is that that no limits friendship has has certainlimits.

The Chinese have, while providingrhetorical support in places like the United Nations and providing economicsupport. China, China's still buying Russian oil,buying Russian commodities, exporting consumer goods and electronics toRussia. At the same time, China has not providedthe weapons that Vladimir Putin, I'm sure, would love to see China supply toit. That has not reduced the tensions thatits relationship with Russia has brought.In terms of Beijing's relationship with Washington.We've seen Secretary Blinken raise on.

Several occasions the issue of dual usetechnologies that China supplies to Russia, things that can be used for bothmilitary and civilian purposes. And so it is something that we are weare still trying to figure out, but certainly some limits to thatrelationship so far. What about the limits when it comes toChina's financial system? Because we know Putin wants more accessto that for Russia. But there's always that risk, of course,of US sanctions. That's right.The US has made it very clear that any Chinese banks, any Chinese companiesthat provide provide assistance to.

Russia's war effort, provide materialsthat are used to to fight in Ukraine, will come under American sanctions.If you are a large Chinese financial institution, that is not what you wantat this moment to be cut off from the US dollar markets.So that has been taken very seriously here.It is another reason that you see Beijing and Moscow both sort of talkingabout the need to cooperate to fend off US containment.Beijing sees this as, you know, the long arm of American hegemony.If anything else they can see, that was Greater China senior executiveeditor John Liu there in Beijing.

And meanwhile, the InternationalMonetary Fund has criticized the Biden administration's moves to aggressivelyraise tariffs on some Chinese goods, including EVs.The fund says the US economy would benefit more from open trade.The IMF has been stepping up criticism of its biggest and most influentialshareholder over surging debt levels, trade restrictions and even the currencyimpact of tighter Fed policy. And we'll have more ahead on DAYBREAK,Australia. This is going to. Well, Heidi, we've actually got anupdate coming through this morning on.

What was a Bloomberg scoop that we hadlast week as well. It relates to this optical foundation, afoundation that's based in the US, and it has different research competitions.And and what we understand is that actually Optica from Bloomberg reportinghad accepted funding from Huawei, which hadn't been made public before,essentially optical. We, we understood, had chosen to concealthat. They said that that was a decision thatwould make sense for a variety of donors that would choose to stay private.But in this case, of course, being Huawei, a Chinese company that isblacklisted, it has really raised the.

Ire of and eyebrows of many lawmakers aswell. We're actually hearing from two seniorUS lawmakers that have now blasted optics for secretly accepting thosefunds. They're saying that it really flies inthe face of efforts to keep foreign adversaries from compromising USresearch. So again, that was an exclusiveBloomberg reporting. And now we're getting that responsecoming through from US lawmakers. And remember, when we spoke about thisstory last when it broke on on the Bloomberg scoop, it was trulyextraordinary.

Right?It was sort of one of the ways that perhaps had been unexpected in the waythat we could potentially still see Huawei influence and and funding play apretty significant role. Andthey were the sole funder when it comes to this optics competition.They said that they kept the role private to avoid appearing promotional.And now we are getting sort of some more details on that.We at the time had asked about what perhaps some of the researchers andacademics felt about this Right. Hearing from this broken, who's theoptical CEO saying there's nothing.

Unusual about this at all thatessentially trying to defend that. But we've also heard from the topRepublican and Democrat on the House of Representatives Committee on Science,Space and Technology rising to this broke and saying that this was, youknow, flies in the face of the increased risk, awareness and transparency thatthey're all working towards in research security and that entire space there.So they also said that that failure to disclose the involvement of Weiweishowed either deep ignorance of years of policymaking around research securityor, well, a willful strategy to launder funds from Huawei to bolster opticalreputation.

And I think it really it raises raisesmore questions than it answers. And we know that there are a lot beingposed to optics now around whether it accepted other grants, donations,whether it's come from different countries as well.It certainly has cast a really big shadow over that program as well,especially because a lot of the researchers we understood were alsounaware of where those funds were coming from.But we'll leave that there. As we said, that's the response we'regetting from U.S. lawmakers to a Bloomberg scoop.Quick check, though, on U.S.

Futures, how they're going so far in thesession and and broader. We're just seeing them fairly steady sofar. Lots of sort of twists and turns overthe prior session. Ultimately, we saw US equities closing alittle bit lower here. Dow Jones, of course, one to notebecause we tracked above 40,000 or touched it for the first time, you thinkwe were at 30,000 just back a couple of years ago.Question of the Day from I am live team as well on the blog.When are we going to reach 50,000 instead?So lots of things to be posing to what.

Our markets guess over the next fewhours. And we will have more ahead on DAYBREAKAustralia. This is Bloomberg. Turning to the latest in tech and JD dotcoms, US listed shares closed higher after better than anticipated 7% rise infirst quarter revenue. Sales rose to $36 billion.That was just above the average analyst estimate.JD slashed prices and ramped up shopping perks to boost sales amid weak consumersentiment in China. Baidu's ads edged higher after revenuegrew at the slowest pace in over a year.

Sales edged up just 1% for the lastquarter, with net income coming in stronger than projected thanks to costcutting. The results suggest Fido is stillstruggling to translate its advantage in generative AI into real revenue.Investors are warning that TSMC stock surge may hit a regulatory roadblock.Funds governed by restrictions on single stocks cannot add more TSMC equity andmay even have to sell after the U.S. has outsize gains, BNP Paribas says.European regulations, which capped single cap which cap single stockexposure to 10%, mean it's now looking at other names one or two generationsbehind Tsmc's technology.

Sources say software maker Snowflake isin talks to acquire startup Ricca AI for more than $1 billion.Ricoh makes large language models and the move would expand Snowflake'sefforts to offer generative AI capability.Tech giants have been rushing to partner or acquire startups that are working inthat field. Let's get more on the outlook for AI nowwith our next guest. Joining us from Tokyo is Crawford DelPret, president at tech industry specialist IDC.And Grover, thanks so much for joining us.And you're in Japan, of course, at this.

Point in time, so we can get to whatyou're seeing there in just a moment. But I wanted to start off more bigpicture at this point because we're really just seeing that global chipbattle intensifying and you've got billions of dollars that are beingpoured in from the US, Japan, even Korea is putting funding into it.They traditionally haven't done that. China, of course.Where do you see the leader really emerging in that competition for airsupremacy between the US Western powers and also what's happening in China?Yeah, absolutely. And thanks for having me.So when you look at the overall AI.

Semiconductor marketplace and what'sinteresting right now is the way to play AI has been semiconductors.And the reason for that is that we are seeing an infrastructure upgrade rightnow associated with the core infrastructure we have in the cloud andhow we need to process next generation workloads associated with AI.And those workloads right now are being dominated by US companies, which isprimarily around NVIDIA. And what's so interesting is peoplethink about it just as a GPU play with NVIDIA.As a company that may be a passing fad. The reality is that NVIDIA has developeda very, very significant moat, not only.

Around the GPU but around the softwareplatform that you need to to write applications for that, that GPUarchitecture, which is called CUDA. And so we believe that that is going tobe a substantial moat for the company going forward.Almost likened to what we saw in the client server era with Wintel, where youhad a software platform and a semiconductor platform that created anenvironment for innovation. And in a way, we're seeing that samesetup with NVIDIA and their GPU and and their CUDA software application, theirCUDA platform. So I think that on the from an overallstandpoint right now, the Western.

Architectures were primarily driven byNVIDIA. Definitely have the advantage and Ithink you're going to see that play out and continue to play out for a fairlysubstantial period of time. And want to keep talking about Nvidiabecause Nvidia is one of the key earnings that we're going to be trackingnext week through the 22nd. But we've had so much investorenthusiasm around this stock and such sky high expectations we've seen acrossbig tech reporting this season. Do you think that they can team cancontinue to have that market advantage or market edge?The second one says,.

Yeah, so look, the law of the law oflarge numbers is going to mean that the absolute growth rate of the company isis going to start to abate. But you're talking about a companythat's going to grow, you know, roughly around 80% year over year.And so I think you're going to see that there will be other companies.You're going to see AMD with very, very credible offerings in the marketplace.You're seeing Intel coming out with very credible offerings in the marketplace.And you're also going to and you're going to see that that is going to drivepricing and it's also going to drive more competition in the marketplace.But as I mentioned, you know, AMD and.

NVIDIA and Intel are going to be usingan open source software platform around their GPU architecture in video is usingtheir own CUDA architecture. And I think that that's going to stillgive in video an advantage on the infrastructure side probably going intonext year. So it really comes down to investorexpectations and that expectation for growth.But make no mistake, the the moat that NVIDIA has has developed is is a verydefensible moat over time. The other thing I would add is thatwe're now we're going to see the edge of the network start to become enabled byAI.

So we're going to see PCs, we're goingto see phones. As a matter of fact, by 2026, we believeabout 60% of PCs will have an AI processor on them.That is a part of the market where Intel and AMD will participate significantlyand will be able to become more of a part of the AI investment that we'reseeing in the overall market. So so we did want to get your views onChina, the competition, how close potentially it's getting to be able tomake a significant difference in closing the gap in R&D, but also your assessmentof how effective and I suppose the longevity of the chip holding thatBeijing has done as well.

Yeah.So when you when you look at China, you know how effective the chip was thatthat's going to be a near-term opportunity.What's what's got to happen long term is China has to develop an ecosystem.China has to develop an independent ecosystem for AI development.And that's going to be driven by their by by by semiconductor companies, youknow, primarily companies like Huawei AS and Hisilicon, as well as their start upinfrastructure, which is going to allow a lot of custom silicon to be developedby a lot of the hyperscale cloud providers that are out there.I think what you're going to see in.

China is you're going to see more of alumpy road. You're going to see situations wherethey've got to be able to develop leading edge technology for their ownusers internally. And I would say that we'll probably see,you know, some of the hoarding that happen, run out, and then you'll seecycles develop in China where we're sort of transitioning to their own inside ofChina, developed architectures, which again may mean for a lumpy environmentgoing forward. And how much more difficult do youexpect the environment to get? Of course, we're going into Novemberthis year, political posturing at play.

Here as well.Or do you think the suffocation, the competition in the strategic competitionin this is already pretty well set? I think I I think you're going to seethat the competition is fairly well set. I think you're going to see from a froma China standpoint, it's really going to turn into how quickly they caninternally within within China innovate. And I wouldn't I wouldn't underestimateI just think you're going to you're going to see a bit of a choppyenvironment, but I don't think you're going to see things get a lot worse interms of, you know, where we are today and how China's able to either accessthe technology they're able to access.

Today or act or be able to develop theirown technology going forward. But as I indicated, that's going to takesome time. And I think that's going to contributeto some of the to some of the lumpiness that I'm describing.Crawford. We've seen Japan really making bigefforts to attract international chip makers to its market.There also have very ambitious CHIP plans.You're in Tokyo right now. What are the sorts of conversationsyou're having, your tone, and are you seeing real progress on that front?Yeah, we are seeing progress.

I mean, when you look at the investmentthat you're seeing in Japan around semiconductorswrap, it is is investing heavily to be a leading supplier here in Japan.And they're not only looking to build a foundry capability, they are looking tobuild an ecosystem up in, you know, up in the northern part of the country.And I think that as well, you know, TSMC making an investment in Japan is goingto drive a significant amount of innovation and creation of a newecosystem. I think you really have to think aboutpeople, think about sort of the old way Japan thought about the semiconductorindustry, which was more of a captive.

Industry where Fujitsu made chips fortheir own uses and made chips for their own uses.Now we're moving into a new era where you've got companies like, for example,Toyota or Honda that are going to be making edge devices in the form ofdriverless vehicles. They have a motivation to be able towork with a local supplier here to have significant access to technology.And I think that what you're going to see over the next decade and even sooneris the investment that is happening in Japan around semiconductors will meanthat we'll see a new engineering ecosystem start to develop.That's going to include AI, but it's.

Also going to include leading edgefoundry capacity that will represent incremental ability to havesemiconductors available all across the world fromfrom Japan. And so I think it's really arebalancing, if you will, of where we can expect to see not onlysemiconductors made, but where the engineering around semiconductorshappens. And I think you're going to see thatshift in Japan. I'm definitely seeing the signs of itnow because this is kind of a I guess, abig, big picture, maybe a bit of a.

Moonshot question.But what is next when it comes to There's been a lot of excitement overthe intersection of Quantum when we finally get there, particularly here inAustralia, huge amounts of government and private investment.Is that something that you're watching and can you give us an indication ofwhat that would look like? Right, Yeah.So so before we get to Quantum, let's let's spend a little bit time in termsof what's going to happen with AI. So the stage was sort of set for AI anumber of years ago with the emergence of the cloud and the emergence ofmobility and the emergence of of of high.

Speed networking.So now we're seeing that AI is pervading what we call horizontal use cases, andthat's what you're seeing with things like Google, Gemini and things thatyou're seeing with things like copilot from Microsoft and obviously chat.The next phase will be AI starting to pervade what we call industry use cases.So I will become embedded into software applications that are used in functionswithin the enterprise like soft, like sales or like client services or likeh.R. Then you'll see ai moving into verticalapplications where we see it used in health care, or we'll see it being usedin manufacturing, we'll see it being.

Used in financial services.So we'll see sort of wide AI being, you know, pervasively being used in allthese different kinds of applications. Quantum will come even beyond sort of wenow have AI assisting in jobs in all these differentvertical use cases, and that will happen over the next couple of years.Quantum We won't see widely used for for many, many years where where we'll startto see quantum processing, very, very complicated workloads, workloads thatare around things like simulation workloads that are that are that arearound areas like advanced security. And I think that, you know, for for forquite some time, we're going to be we're.

Not going to be you know, quantum is notgoing to be something that individuals or even large scale enterprises aretouching to a large degree. The big change that we'll see in AI isthat today over half of the investment in AI is happening at the semiconductorlevel. By 2027 it'll happen.It's about a third will happen. It services, a third will happen insoftware and a third will happen in infrastructure, includingsemiconductors. And that's going to be the big shift.More parts of each of the ecosystem will be participating in the AIindustry.

Crawford, really great insights.We appreciate your time with us. Crawford.Don't protect his president at ADC. Get more ahead on DAYBREAK Australia.This is Bloomberg. MP morgan CEO Jamie Dimon says the U.S.has to stay engaged with China. Speaking with us at the bank's globalmarkets conference in Paris, Dimon says Washington and Beijing have commoninterests and are not natural enemies. So the geopolitical situation is verytense to do more because the Ukraine and Russia, Iran, the terrorist activitiesin Israel, North Korea, nuclear blackmail, we've never had nuclearblackmail before.

And this is, of course, affecting ourrelationship with China and, you know, extremely hard of a great relation toChina. Ukraine war zone.We're kind of in different sides of that.And put put Taiwan aside. Having said that, I think it's the rightthing for America to fully and deeply engage with China.You know, competitively, you know, every nation is going to do what's in theirown interest, national security. So should America.We should define that fairly and properly.It is unfair trade.

You know, negotiate that or do whateveryou need to do. But engagement is the right thing to do.China is not a natural enemy. The United States.They have a lot of their own problems. So, you know, to me, we we can worktogether as best we can. And then we have common interests,climate, antinuclear, perforation, anti terrorism.What does it mean for a bank working in China actually, given all of thisvolatility and cautious? I mean, you know, China, if you look atChina from a risk of war basis, used to be very good, is not so good anymorebecause all these things can go wrong.

And remember, we bank I mean, I've gotthe number, but 1500 multinationals in China, they're not leaving China toensure their claims there. We're just much more cognizant the riskis higher. I might put Hong Kong in that bucket,too. I know we would look at China.Hong Kong is one at this point. From a risk standpoint, what does theTrump administration mean for the US economy?I don't know. You know, they're the why Because it'sunpredictable or because we're too soon to actually try and trying to figure outthe policies that he put in place.

So if you look at history, who waselected president may not necessarily affect the next year.It's kind of like we're a big tanker and that's going to happen.I think the much more important thing is what we do in a geopolitical situation.You know, I've always been quite clear that American leadership is provided tokeep the world free and safe for democracy.And that means economic alliances, which include trade.By the way, I think we should spend more time in trade.It means non-NATO. It means that Russia should not win inUkraine, because if they do, I think it.

Could terrorists under this Westernworld. I know you've ruled out being treasurysecretary. Why?What would it take to get you into politics?I don't think I'm suited for politics. I love my job, you know, And so I'm notsure I want to do something like that. And I can hope even if you got the call,you'd would it be hard to say no? I don't know.It probably yes. I love my job and I have no one shouldleave it doing anything at all. Sothat was the JPMorgan CEO, Jamie Dimon,.

Speaking to Bloomberg's Francine Lacqua.Quick check of markets now because we're just about 10 minutes out from the openfor Sydney, Seoul and Tokyo. And broadly, we're setting up for a bitof downside pressure today. Tracks again the US session overnight.We did have a few jitters coming through around the inflation outlook.We heard from Fed officials saying rates should stay higher for longer.Watching of course, the Nikkei futures there, that's the Singapore contract,but pointing to a drop of 7/10 of 1%. What's very interesting dynamic thatwe're seeing in Japan at the moment, because with all of the investorinterest and exuberance in Japanese.

Equities this year, we had seen othermarkets that have ETFs that track Japanese assets, including in China,really overheating here and trading above their net asset valuations.Now we're actually seeing the flip side scenario coming through in Japaneseequity instead, because the rally in Chinese stocks is giving a fresh impetusto a host of ones that are in Japan, those with exposure to China are risingalong with their counterparts and a rebound as well in the MSCI china index.Let's get more from our Asia equities reporter Winnie Xu joining us fromTokyo. And that rally that we're seeing fromChinese stocks, it really seems to be.

Spreading now to other parts of Asia.Yeah. So it seems like we're seeing some signsof some reversal of an earlier trend, too, by Japan and South China,especially as China. Chinese stocks are really rallying thesedays on cheap valuation, on policy support, and that's been supporting someof the Japanese stocks that have high exposure to the Chinese Chinese marketand Chinese economy, specifically in cosmetics, like she said.Oh, that was also impacted earlier by the boycott around the Fukushima waterrelease and also industrials that heavily rely on Chinese demand.So from their earnings presentation,.

We're hearing companies saying that thethe China demand or inventory are improving.And also, analysts are saying that pretty much the worst has been priced inand that's over. However, in terms of what level ofrecovery we're going to be, see if and when that recovering is going to come,that still remains uncertain. But definitely we are seeing the signsof things bottoming and these stocks are on the uptrend torebound. Overall for Japan.How are we doing? Because, of course, the redirection offlows from China was one of the big kind.

Of factors to begin with at the start ofthis rally. Are we seeing money now flowing back?To some extent. Some people say that it is kind of anear-term risk to watch. However, most people say that Japanesestocks are right now in Rangebound. That's mostly driven by more macrofactors, whether it's a geopolitical tension in the Middle East or the morehawkish tone from the Fed. However, that once that that macrofactor is over, the fundamentals of Japanese stocks still remain strong,although dollar based investors are still quite cautious when it comes tothe currency volatility as as we're.

Seeing, that dollar based return forJapanese stocks are actually lagging its peers, its global peers right now.So when we spoke to BlackRock, they also mentioned that we will have to see thecurrency to stabilize around the level of 150 against a dollar in order forglobal investors to feel more comfortable coming back into Japan.So that would be some of the factors that we're watching.Asia equities report only. So there.We have more ahead on DAYBREAK Australia.This is Bloomberg. For Elon Musk's satellite company,StarLink, is transforming communications.

Across the globe.Bloomberg Originals has been looking at how its dominance is sparking governmentscrutiny and encouraging deep pocketed rivals.The largest single constellation of satellites orbiting our planet is run bya mercurial individual who needs no introduction.It's this guy. It achieves this by maintaining a vastrelay network in low earth orbit. That's the area higher than a jetliner,but below a GPS satellite. Right now, StarLink has more than 5600satellites in orbit, and it accomplished all this in less time than it took JamesCameron to make a second Avatar movie.

At one point, SpaceX X envisionedlaunching up to 42,000 satellites. But this speed and relative success hasraised eyebrows, concerned ones in government and excited ones in theboardrooms of potential rivals. It's essentially a company trying todisrupt a somewhat complacent marketplace.And you can see that Bloomberg Originals documentary in full on their YouTubechannel. And for more inside stories ofinvestments beyond Earth, from satellite networks to moon landings, you can alsovisit bloomberg.com slash space. So that's the business of space.But let's also just check on the.

Business of currencies as well.And we're taking a look at the Japanese yen this morning.It is just a little bit weaker against the greenback here.We did see a bit of a rebound coming through for the dollar as well.But trading around that 155 mark here, we're hearing again from Japanesegovernment officials. Suzuki certainly saying that he'skeeping the risk of rising yields, weighing on the budget in mind.They're still committed to that fiscal consolidation goal as well.So just some of the headlines and one monitoring here is we also hear from aformer BOJ official saying that rate.

Hikes could be on the way.

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