Bloomberg Daybreak: Asia 04/02/2024

Summary

The transcript discusses the potential for intervention in the yen's value, with Japan's finance ministers expressing concern over excessive currency moves. It also covers the RBA's stance on future interest rate changes, emphasizing uncertainty and a focus on inflation targets. Additionally, the script highlights Tesla's Q1 delivery results, expected to show the first sales decline in four years due to a slowdown in the EV market and competitive pressures in China. The discussion also touches on the semiconductor industry, with Japan committing more funds to catch up in manufacturing capabilities.

Takeaways

• 📉 Asian markets are counting down to major market opens with a focus on central bank reactions to incoming data and the ongoing divergence between the Fed and the BOJ.
• 💡 The Bank of Japan faces challenges due to the stronger yen following stronger than expected US factory data, impacting the bank's policies.
• 🗣️ RBA's Chris Kent emphasizes uncertainty regarding future moves on interest rates in Australia, highlighting the unpredictable path of inflation and monetary policy.
• 📈 Despite profit-taking from outperformers, the Nikkei opens higher with attention on chip stocks following news of potential government investment.
• 🇯🇵 The Japanese government's further $3.9 billion investment in domestic chip manufacturing aims to uplift the industry and compete globally.
• 🇰🇷 Korean stocks, especially tech-related chip names, may react to the yen's movements and potential intervention measures.
• 💬 Market strategists discuss the potential execution of yen intervention, questioning the effectiveness and the timing of such actions.
• 📊 US Treasury yields rise across the curve following stronger ISM factory data, impacting expectations for Fed rate cuts.
• 🇦🇺 Australian markets see modest gains with Treasury Wine Estate performing well after China's trade decision, and iron ore prices recovering.
• 🚗 Tesla's Q1 delivery results may show the first sales decline in four years due to a slowdown in the EV market and impact of high interest rates.

Q & A

What is the main focus of the discussion in the transcript?

The main focus of the discussion is the economic outlook for Asia, particularly in relation to central bank reactions, market movements, and the potential for intervention in currency markets, with a specific emphasis on the Japanese yen and its impact on equities and semiconductor industries.

What central bank reactions are being anticipated in the Asian markets?

Market participants are looking ahead to central bank reactions, especially those of the Federal Reserve and the Bank of Japan, due to the divergence in their policies and the potential impact on currency values and market stability.

How is the Bank of Japan's policy affecting the yen?

The Bank of Japan's policy divergence from the Federal Reserve is causing the yen to fluctuate, with the currency moving higher after stronger than expected factory gate data from the United States, leading to potential intervention by the Japanese authorities.

What is the current stance of the RBA on future interest rate moves?

The Reserve Bank of Australia's Assistant Governor, Chris Kent, has not ruled out any future changes to the cash rate, emphasizing that the path is uncertain and dependent on economic conditions and data developments.

What is the significance of the Japanese government's investment in semiconductor manufacturing?

The Japanese government's investment of $3.9 billion in semiconductor manufacturing, particularly in the venture capital firm Rapidus, signifies a strategic move to enhance Japan's competitiveness and catch up in the global semiconductor market, focusing on advanced technology and AI applications.

What is the potential impact of the yen's fluctuation on Japanese equities?

The fluctuation of the yen can significantly affect Japanese equities, especially export-oriented companies, as a weaker yen makes Japanese goods more competitive internationally, while a stronger yen can impact profitability and exports.

What are the key factors influencing the semiconductor industry's performance in Asia?

The semiconductor industry's performance in Asia is influenced by a combination of factors, including government investment, technological advancements, supply chain dynamics, and the competitive landscape, with a particular focus on the rise of hyperscalers and the adoption of semiconductors across various industries.

How is the situation in China's economy affecting global markets?

China's economic situation, including its property sector challenges and growth targets, has implications for global markets, as it is a major export market for many countries, and changes in demand for commodities like iron ore can impact economies that are heavily reliant on such exports.

What is the current state of the US-China relations as it relates to trade?

The US-China relations in terms of trade have seen some recent improvements, as evidenced by China removing its remaining trade strikes on Australian wine, which allows for a more favorable trading environment and investor reactions to such policy changes.

What are the expectations for Tesla's first quarter deliveries?

Analysts are expecting Tesla's first quarter deliveries to show a decline for the first time in four years due to a slowdown in the EV market, the impact of elevated interest rates, and increased competition from local carmakers in China.

Outlines

00:00

🌐 Market Updates and Central Bank Reactions

The script begins with a focus on the Asian markets, particularly as they prepare for opening in light of new data releases. The discussion emphasizes the importance of central bank reactions, especially those of the Federal Reserve (Fed) and the Bank of Japan (BOJ), and their impact on market trends. There's mention of the yen's movement in relation to stronger-than-expected factory data from the United States and the ongoing divergence between the Fed and BOJ policies. The conversation also includes potential interventions at the 152 level for the yen, the highest level seen this year since mid-February. The Nikkei's performance is noted, along with investor profit-taking and a focus on chip stocks. The script also highlights the potential for government investment in domestic chip making, which could significantly uplift tech-related names.

05:01

📉 Yen Intervention and Market Strategies

This paragraph delves into the specifics of potential yen intervention, with questions about execution, levels, and impact. The discussion involves strategist Mike Bradford, who shares insights on Japanese authorities' tactics, suggesting they may allow the dollar-yen rate to rise further before intervening. The conversation also covers the possibility of successive intervention rounds and the market's anticipation of such moves. There's an analysis of the effectiveness of intervention, considering the cyclical nature of the currency problem and the challenges posed by a potentially less aggressive US interest rate cut outlook. The discussion concludes with a look at Korean stocks and the broader implications of yen intervention on equity markets.

10:01

📈 Market Expectations and Opportunities in APAC

The focus shifts to broader market expectations, with Hartmut Esau from UBS Wealth Management providing his views on the yen and the potential for modest weakening. Esau discusses the impact of interventions and the outlook for Japanese equities, particularly exporters, and suggests a shift towards domestic stocks and financials. The conversation also touches on opportunities in China, with a focus on capital measures, dividends, buybacks, and traditional sectors. The discussion highlights the importance of alpha in China's market and the potential for increased investment in semiconductors and software. Esau also addresses risks related to supply chains and the adoption of new technologies across industries.

15:01

📊 Economic Indicators and Policymakers' Challenges

This section discusses recent economic indicators, such as PMI numbers, and their implications for China's economy. The conversation includes insights from the Reserve Bank of Australia Assistant Governor Christopher Kent on monetary policy and the challenges posed by uncertainties in the global and domestic economic landscape. The discussion touches on the potential for interest rate changes, the impact of China's slowdown, and the importance of consumer confidence. The script also mentions the government's efforts to tackle debt issues and the need for structural reforms to boost consumption.

20:05

🚗 Tesla's Market Performance and EV Industry Trends

The conversation turns to Tesla, with expectations of a potential decline in sales for the first time in four years. The slowdown is attributed to a broader trend in the electric vehicle (EV) market and the impact of elevated interest rates. The discussion includes insights on price cuts by competitors, the competitive landscape in China, and the challenges faced by Tesla due to aggressive discounting by local carmakers. The script also notes Tesla's production adjustments in Shanghai and recent price increases in the Chinese market.

25:07

🥇 Kweichow Moutai's Financial Outlook and Market Strategy

The focus is on Kweichow Moutai's financial performance and market strategy. The company is expected to report robust sales and profit growth despite a challenging consumer sentiment environment. The discussion highlights the company's high gross and operating margins, its efforts to expand its consumer base, and its focus on direct-to-consumer sales. The script also mentions the company's product and channel development efforts, including collaborations with artists and the introduction of new products, as well as its use of apps and digital platforms to engage younger consumers.

Keywords

💡Asia's major market opens

The term refers to the commencement of trading sessions in major Asian financial markets. It is significant as it sets the tone for the day's trading activities and can influence global market trends. In the context of the video, it is a pivotal event that market participants are eagerly anticipating, especially in light of new economic data and central bank decisions.

💡Central bank reaction

This phrase refers to the response from central banks, such as the Federal Reserve (Fed) and the Bank of Japan (BOJ), to changing economic conditions. These reactions can include adjustments to interest rates or monetary policies, which significantly impact financial markets. The video discusses expectations around these reactions, particularly in the context of diverging monetary policies between the Fed and the BOJ.

💡Yen

The yen is the official currency of Japan. In the context of the video, the value of the yen and its movement against other currencies, particularly the US dollar, is a key focus. Currency movements can affect trade balances, investment flows, and the overall health of an economy.

💡Monetary policy settings

Monetary policy settings refer to the strategies and interest rate decisions made by a country's central bank to control the money supply, inflation, and economic growth. These settings have significant implications for borrowers, savers, investors, and overall economic health.

💡Chip stocks

Chip stocks refer to the shares of companies involved in the production and supply of semiconductor chips, which are critical components in electronic devices. The performance of chip stocks can reflect the health of the technology sector and broader market trends.

💡Currency intervention

Currency intervention occurs when a country's government or central bank takes action to influence the value of its currency in foreign exchange markets. This can involve buying or selling large amounts of currency to prevent excessive fluctuations that could harm the economy.

💡Fiscal year

A fiscal year is a 12-month period used by governments for accounting and budgeting purposes. It varies by country and can differ from the calendar year. In the context of the video, the start of Japan's fiscal year is noted, which can impact economic activities and market behaviors.

💡Equity rally

An equity rally refers to a period of sustained increases in the prices of stocks or shares traded on a stock exchange. It typically indicates a positive market sentiment and can be driven by various factors, including strong economic data, corporate earnings, or central bank policies.

💡Semiconductor upturn

A semiconductor upturn indicates a period of growth or recovery in the semiconductor industry, which is crucial for the production of electronics and advanced technologies. This can be influenced by factors such as increased demand for electronic devices, advancements in technology, or government investments in the sector.

💡Supply chains

Supply chains refer to the networks of organizations, people, activities, information, and resources involved in the production and delivery of a product or service. The efficiency and stability of supply chains are critical for businesses and can be affected by various factors, including geopolitical issues, natural disasters, or economic policies.

Highlights

Asia's major market opens are anticipated with focus on central bank reactions to new data.

The divergence between the Fed and the BOJ continues to impact the Bank of Japan.

The yen's value increased following stronger than expected factory gate data from the United States.

Chris Kent from the RBA mentions uncertainty regarding the future move of rates in Australia.

The Nikkei opens stronger, with particular interest in chip stocks following news of potential government investment.

Japanese authorities may intervene if the yen reaches the 152 level against the dollar.

Korean stocks, especially tech-related chip names, may react to the yen's performance.

Mike Bradford discusses the execution of yen intervention and its potential effectiveness.

Hartmut Esau from UBS Wealth Management shares his views on the yen and Japanese equities.

Esau highlights the importance of US interventions and the potential for broader dollar weakness.

Discussion on the impact of yen movements on Japanese exporters and the potential shift in focus to domestic stocks.

China's focus on capital measures and dividends buybacks presents interesting opportunities.

The semiconductor industry's cyclical nature is discussed, with a potential shift towards software investments.

Risks to the AC story are considered, particularly around supply chains and the adoption of semiconductors by various industries.

Chinese PMI numbers show some positive signs, suggesting that bad news may be priced in.

The ASX experiences modest gains with some stocks trading ex-dividend.

Treasury Wine performs well following China's removal of trade strikes on Australian wine.

Iron ore prices recover modestly, supporting the materials sector.

Energy sector performs well due to Brent crude prices finding support and rising tensions in the Middle East.

The RBA's Chris Kent speaks on Australia's monetary policy framework and the importance of responding to imbalances within the system.

Japanese chip makers are in focus as the government announces further subsidies for semiconductor ventures.

Tesla's first-quarter delivery results are anticipated, with some analysts expecting a sales decline.

Transcripts

This is DAYBREAK. Asia.

We're counting down to Asia's major market opens.

Well, we are really looking ahead to central bank reaction as we get more

data pull to percolate through. But also that divergence between the Fed

and the BOJ continuing to be a pain for the Bank of Japan.

They are definitely I mean, we saw the yen move higher after that, stronger

than expected factory gate data from the United States.

We'll be hearing from Chris Kent here as well from the RBA.

He's not ruling anything in or out when it comes to the future move of rates

here in Australia either. Yeah, he was asked to give one word to

describe monetary policy settings on the outlook and he said uncertain when he

was speaking upstairs a little bit earlier at Bloomberg offices here in

Sydney. But of course, uncertainty is also what

we're looking ahead to in terms of how the yen continues to play out and

whether intervention comes at that 152 level.

We are still under that point, but looking pretty close with the dollar at

its highest, pretty much its highest level that we've seen so far this year,

at least since about the middle of February.

The Nikkei 2 to 5 out of the gate stronger by about a quarter of 1%.

We did have the day, the first day of the fiscal year for Japan.

We are seeing investors, at least at the start of this week, doing a little bit

of profit taking up, particularly when it comes to the big outperformers,

including some of the industrial and autos names.

But we are seeing broad upside as the Nikkei comes online, watching in

particular some of those chip stocks. We had news of potential further

investment from the government for rapid assistance.

The homegrown chip maker looking to make those two nanometer chips and that would

be a significant uplift when it comes to some of those chip and I and tech

related names. The top picks also moderately higher at

this point. Dollar yen trading, as I said that one

5158 level 152 is potentially where we see actual intervention but of course

New year same old issues when it comes to that battle between a dollar yen,

Right. The same old currency problem

confronting both traders and the government.

And there will be some big questions as to how that intervention will play out

and how long it potentially can last for, given that we know that currency

intervention does not tend to be very long lasting, even if it is heavy

handed, But potentially this is another risk when it comes to Japanese equity

rally. Take a look at Korean stocks and this is

the set up here. We could potentially also see some of

those tech related chip related names in Korea reacting as well.

The cost is a little bit softer, but the Kodak index is at least just just in

positive territory. Let's get some more from MLive

strategist Mike Bradford, who joins us now.

So, Mark, lots of questions as to how this yen intervention will be executed.

Is 150 to the level? What will it look like?

And I guess most importantly, how much bang for their buck do they get in terms

of how impactful any move would be? Well, the Japanese authorities have been

quite adept in the past letting the market get into a position where they're

very long of the US dollar and then intervening afterwards.

So that would suggest that they will let dollar yen rise through 152, if that's

the path it's going to go ahead for. And then they will wait until they feel

the market is really overstretched and then they will do their intervention.

That's been their tactics in the past and that's been much more effective.

So they'll be looking for dollar and to actually rise a bit further before they

show their hand. And there may be more than one round

there. It's quite possible that they will use

successive rounds of intervention to actually come in and support the yen.

It was unlikely to be just one hit and that's the way that they've done it in

the past. So from the market's point of view, they

won't necessarily be looking for exactly 152.

They'll be thinking that it could even be closer to 153 or even higher.

But certainly the Ministry of Finance, the Bank of Japan approved before.

They're very good at taking the market off guard.

Yeah, Mark said the good at administering the medicine.

But how enduring is the medicine likely to be, especially if we keep getting

data out of the US that gives us upside surprises.

It certainly makes it a lot more difficult for Japan because of, as you

say, now that people are increasingly looking for fewer interest rate cuts in

the United States. They may only be that two interest rate

cuts get priced into the market for the rest of this year, which is obviously

positive for the US dollar, and it doesn't help the Japanese yen at all.

But the Japanese authorities have shown they can be coming in very big size,

they can be very persuasive. So they will be thinking they can move

dollar yen by at least 500 pips if it's 150, to knock it down to something like

147 or somewhere in that kind of zone. So they won't be looking for a small

move. They'll be looking for something

significant where they can really persuade the market they're on top of

the situation. But the timing of it will be crucial and

they'll be prepared to do it outside of Asia.

Now, as they don't mind intervening in New York or in London.

All right. Bloomberg Live strategist Mark Cranfield

there. And our next guest expects dollar yen to

weaken modestly this year. So let's bring in Hartmut Esau, the head

of APAC equities and credit at UBS Wealth Management.

So let's start with your views on the yen.

First off, can you define modest for us? And do you have a number in mind that

the Finance Ministry will be looking to defend?

On the former, certainly, let's say, towards here and maybe a bit beyond,

let's say, you know, at 144 level or thereabouts.

But we critically look really, as we just also heard, I would agree with

that. It really matters what happens in the

US, think in terms of interventions. We heard it a few times already in the

recent past and whether it can be really that effective is and it certainly helps

at the end on the margin if they do, but I think that's remains to be seen

whether we can have that effect. So yes, that the key is that we see

broader sort of sort of dollar weakness happening and only then we think

actually the end can sort of outperform a bit some of the other currencies.

And if and when it happens, what sort of impact do you expect to see on Japanese

equities, which have really had a tremendous run over the past few months?

Now, I would first and foremost expect some effect on the on the exporters

actually. So therefore it probably good if you

look at the exposure in Japan where we have sort of a neutral position to focus

a bit more on either value or in particular domestic stocks, financial

stocks in particular, I would mention I think these are the these are the

promising ones within Japan on the margin, probably export is a bit less

so. When you take a look at China, you say

that you're focusing on the alpha. What does that sort of translate to when

it comes to sifting through what does look like perhaps an emergence of

opportunities now? Now, what we're seeing in China is

quite, quite interesting. We see a couple of capital measures and

over the last couple of years that has actually sort of intensified.

Right. Also, I guess in the absence of a growth

like we used to see it. So that could be interesting

opportunities, dividends, buybacks. And we think also some of the more

traditional, especially in the short term, also some of the more traditional

sectors, they're interesting, including actually financials.

So this is probably an element where we

think the market will focus on when these companies do more of the capital

management. And

when you take a look at the broader sort of AI and chip related rally that we see

across the board, and we actually just had, you know, potential reporting of

more investment from the Japanese government into rapid US in in Japan.

How much further is there to go for this?

And what I guess is the next wave of opportunity when it comes to I

would think we're seeing currently probably still for for maybe short

number of months the semiconductor space very, very strong.

However, we need to remember that this is still a cyclical industry even now.

So we do expect and we're already starting or have started since since end

of last year, the upturn. So we're in an upturn arguably on the

semiconductor side. So what we think in terms of

where we could go next in Asia is that maybe towards the middle of the year or

certainly in the second half of the year, we already began to switch a bit

of the exposure. We still have a lot of semiconductor

exposure, but piece by piece sort of shifting it a little bit more into

slightly more late cyclical, I should say, exposure and especially also into

software. I think that is the prudent move for

now. Do you see any risks to the AC story,

particularly around supply chains? I would say it's only risk.

What we what we're currently witnessing is that the big investment, also the

demand for semiconductors, for that matter, comes mostly from what people

call the hyperscalers. So the important thing is that this this

broadens so that other industries are. Now, we just heard but governments as

well that they really also step in and then, you know, when the sort of the

appetite of the of the hyperscalers maybe flattens a little bit that we also

get other industries really significantly adopting.

I'm pretty sure that that will happen, but that there's maybe a risk if they

maybe time it differently, if they if they're first a bit hesitant to do it or

take the time with it, then that could be that could be a risk.

Have you views on opportunities in China changed at all recently?

Because we had some pretty good PMI numbers over the past couple of days.

Do you think all the bad news is in now and we're seeing some signs of a

turnaround? Yeah, certainly a lot of bad news.

I mean, if he is in the prison, if you look at the vet, what evaluation stands,

it's is about half the multiple that people

were willing to pay still four years ago.

You know, has that much changed? Is is that not a little bit too much so

you could see a bottoming here? And yeah, within it, certainly as I

mentioned in the short term, probably some of the more sort of traditional

sectors are, especially when when you see stabilization in the economy and the

PMIs do suggest that then then this is the place to invest.

All right happen to so head of APAC equities and credit at UBS Wealth

Management. Thanks so much for joining us.

Now let's just take a look at we're tracking the US Treasury space.

We did see yields rising across the curve on the back of that stronger than

expected ISM factory gate data out of the US.

We're still seeing some not not a great deal of movement.

A lot of that seems to have been priced in.

But also what was priced in was a rethink on what's going to happen next

with the Fed rate cut. Odds for June, well, they're now below

50%. So the expectation around what we're

going to see easing from the Fed that just keeps getting pushed on out for at

a deep dive into China's economy with society generale, the greater China

economists going to discuss risks to growth and why they see an uneven

recovery across sectors. Up next, though, our interview with the

Reserve Bank of Australia Assistant Governor Christopher Kent on the

nation's future framework for monetary policy.

This is Bloomberg.

Well, I was seeing some very modest gains for the ASX today.

Got a lot of stocks trading ex-dividend. So that might explain why it's kind of a

muted session. But there are a few standouts.

Treasury wine performing pretty well. And this is, of course, after China

removed its remaining trade strikes on Australian wine.

So this is the first opportunity that investors have had to react to that

news. Materials sector also performing pretty

well as we've seen a modest recovery in iron ore prices as well after some

reasonable data out of China. Energy, the other sector that's doing

pretty well in Australia right now, that's better by 7/10 of 1% if we take a

look at the Brent crude price there, that's finding a bit of support as well.

Oil's holding near a five month high. There's a few reasons for that.

We've got what appears to be an Israeli airstrike on Iran's embassy compound in

Syria. Israel's not claiming responsibility for

that, but that's threatening to ratchet up tensions in

the Middle East in that conflict around Gaza.

And we've also got the Opec+ meeting this week as well, where we're expecting

the cartel to carry on with some of its production curbs.

So we're seeing the yield on the ten year.

Meanwhile in Australia, that's not moving a great deal.

The Aussie dollar also not moving a great deal either.

We did hear from the RBA's Chris Kent right here in the studio a little bit

earlier on, not really holding the line that the RBA is having a Borbidge wave

when it comes to what to do next with rates in Australia.

And we'll have the RBA minutes coming up in a little while as well Heidi.

What to do next when it comes to the levels of the yen is one that's

compounding the same old currency problem, confounding Japanese

policymakers despite the start of a new fiscal year.

Right, Paul, We are hearing from the Japanese finance minister, Shinichi

Suzuki, speaking in Tokyo, saying that the refraining from providing specific

views when it comes to future effects moves that saying they're not determined

only by monetary policy, of course, referring to that divergence between the

BOJ and the Fed and therefore the yen and the dollar effect moves are

determined by various factors talking about that, it is important that those

moves are stable and reflect the fundamentals.

Excessive moves are undesirable. We have had heard this before, but the

authorities are watching the forex moves with a high sense of urgency and they're

not ruling out any options against affects moves that are deemed to be

excessive. There will be an appropriate response

taken, according to Finance Minister Suzuki speaking in Tokyo.

Now the refrained from providing specific view on future effects moves.

We also heard from the export chief how he Coca-Cola saying that the recent yen

weakness he sees is being excessive as well.

So we are an intervention watch. 152 to the yen is where markets see that

potentially kicking in. You can get a roundup of those stories

and more to get your day going. In today's edition of DAYBREAK.

Bloomberg subscribers can get that at JP go in the terminals.

It's also on the mobile in the Bloomberg Anywhere app.

You can play around with those settings too for the news on the industries and

asset classes that matter most to you. This is Bloomberg.

Take a look at some of the movies that we're watching in just about 20 minutes

or so of trading in Japan and over in Korea.

Nippon Steel is one to watch. Was they upset about two and a half

percent Nippon Steel making what it calls a formal commitment to spending

and jobs to the United Steelworkers Union, backing up a pledge that it made

earlier as it looks to build support for that.

Some $14 billion acquisition of United States are still quotes have pledged no

layoffs before 2026 as part of this US steel bid.

So they've said that document formalizing those promises there.

We're also watching Rakuten. They've offered one and a quarter

billion dollars and a junk bond in return to you.

In their return, I should say, to the US market, $1.8 billion of notes were sold

in the US last January and they have been tapping markets to pay down debt.

The tech firm returning to that higher bond market with that one and a quarter

billion offering after what has been a strong rally in debt that it sold

earlier this year. Some of the other names that we're

watching there are Samsung Electronics. We've also seen Tokyo Electric Power in

Focus there as well. Japan's approved almost $4 billion in

subsidies to chip venture capitalists as it commits more money to playing catch

up in semiconductor manufacturing. For more on this, let's bring in our

executive editor for Asia Technology, Peter Ahlstrom in Tokyo.

Peter, you sure can't doubt that Japan's Japanese government's commitment to

this, but is 3.9 billion going to be enough to help make them a force in

advanced semiconductor manufacturing? Yeah, Japan is making some very

aggressive bets in the semiconductor industry.

It really comes in the wake of the COVID pandemic and some of the supply chain

shocks that we saw at the time. The country became quite determined to

rebuild some of the semiconductor capabilities it had domestically in the

past. And so there are a few different

ventures. There also are backing out fab here in

Japan from TSMC, the leading maker of sending doctors right now.

But this investment in rapid US is a bit more unusual.

Robby This is a very young company. It's less than two years old.

It's run by a group of local executives led by a former top executive at Tokyo

Electron, and it's really a long shot bid to be able to create another

foundry. So a company that will make custom made

chips for customers kind of the way that TSMC and Samsung do right now for

customers like Apple or in video for that matter.

So Robby does has not done this before. It's a very competitive market.

It will be competing against TSMC and they're trying to build a fab up in the

northern island of Hokkaido. So this $4 billion is going to go for

that construction effort. They're going to buy the equipment and

they're going to try to move towards being able to create a foundry that will

compete with some of the global leaders in this space.

And there's also subsidies at play for the likes of TSMC as well.

What is the government, given everything is trying to do, given that it's asked

for extra budget for this, What are they hoping to get for this investment?

Well, the investments that they're making in other places like with TSMC

and also with Micron are Kyushu is one of the local players too.

Those are a bit more older generations of chips.

So those are important for the automotive industry, which of course is

a cornerstone of the Japanese economy. That's quite important.

Rugby test is really more cutting edge. They want rugby just to be able to

create advanced semiconductors that could for for a variety of customers,

including some local customers that could help them compete in some of the

more cutting edge areas of technology, like artificial intelligence, like some

of these quantum computing, some of these areas where Japan has not been

able to produce chips in the past. And really, there are only a handful of

companies that can make chips that are so advanced.

TSMC in Taiwan is one of them. Samsung is really another one, but the

list is very, very short. So the fact that rapid as a company that

again is only about 18 months old could sort of leapfrog into that competition

and be a viable competitor is considered quite a long shot.

Executive editor for Asia Technology, Peter Ahlstrom there in Tokyo.

Will Bloomberg, opinion columnist and former New York Fed President Bill

Dudley says bank regulation should focus on preventing sudden and rapid

withdrawals rather than simply raising capital requirements.

He told us the era of social media and 24 hour banking mean deposit runs will

be much faster. Outflow rates much higher.

The regulators have been focusing on increasing capital and the biggest

banks. They have not been focusing on how to

deal with that contagion problem. We need to really build up the Fed's

lender of last resort function so it's credible to uninsured depositors so they

don't run. And one way to do that is to require

banks to pledge collateral to the window, to the discount window of the

Fed equal to all their running liabilities.

So if unrestricted voters know that's the case, they don't really have a

reason to run. It's the contagion issue that I think

was which was so striking and powerful that we need to address.

That was evident last March. A built you think the keys to answering

that question, they were at the Fed or they have sweat?

I'm thinking more about deposit insurance.

Is that something we need to change and maybe change quickly?

Well, you could raise deposit insurance, but that's first of all, I would require

congressional legislation. The other problem with deposit insurance

raising it is it basically increases what's called what's called moral

hazard. People are going to be less careful.

You know, we saw during the ethanol crisis that banks with lots of insured

deposits goes out and takes lots of lots of crazy risks.

So I think the addressing contagion through the window by reserve funds I

think is a better way to go to guard against that kind of risk taking.

We're talking about bank crises, and I'm just seeing equity markets at all time

highs and credit spreads of multi tides. How do you think this FOMC is thinking

about what's happening with financial conditions beyond just what they look

at, looking at equity markets, looking at high yield spreads?

Because when you hear the chairman talk about financial conditions, he says

they're tight. When you hear market participants talk

about them, though, they say something else.

I was surprised by his answer at the press conference.

The question about financial conditions, he didn't he really didn't really want

to talk about financial conditions where in the past he's talked about financial

patients a lot. And he actually implied that the

financial options were still tight. I don't see that stock market's up very

dramatically. Credit spreads are narrow, bond yields

are down, mortgage rates are down. Since the end of October, we've had a

dramatic easing of financial conditions. So right now, there's a bit of a battle

going on the long legs of monetary policy versus the easing of financial

conditions. And, you know, if you're trying to

figure out what the impulse of monetary policy right now is, you have to figure

out what the balance between those two things.

My personal opinion is monetary policy is not really exerting that much

restraint on the economy. And that's why the Fed has been on this

path of having to stay higher for longer.

And I think another aspect of it is that, you know, so-called are starting

to neutral monetary policy rates, probably higher than what the Fed Fed

officials are assuming. It's very interesting to me is the Fed

thinks that the federal funds rates can go all the way back to 2.6%.

That's an immediate projection in the long run.

But if you look at the market, expectations or interest rates are going

to go, they have them coming down about 3.6%.

So the 100 basis point gap between where the market thinks that the Fed is

heading, where the Fed thinks it's setting, and in this case, the Fed is

actually more optimistic about the scope for rate cuts over the next few years.

Michael Bloomberg, opinion columnist and former

New York Fed President Bill Dudley there speaking to Bloomberg's Jonathan Ferro.

Well, let's take a look at how we're tracking on some of the foreign exchange

markets that we follow. The Aussie dollar not a huge deal of

movement. The one that's really in focus today,

though, is the yen. Also, not a lot of movement, but at one

5166, it is hovering around 34 year lows and we're closely watching for

intervention. We've heard some more strong words from

the finance ministers, from the finance ministries, Suzuki, talking about how

they are watching these movements very, very closely Heidi.

And the yen weakened further off the back of that, stronger than expected

factory data out of the US. Paul, We have seen kind of markets

mostly trading range bound in this Tuesday session here in Asia.

Let's take a look at how futures in Europe are settling up at the moment.

We are seeing your stoxx 50 futures looking pretty flat.

German dax futures more or less the same.

Not a great deal of conviction there. We are seeing the potential upside when

it comes to european cyclicals, autos and banks potentially seeing more room

to outperform as we see this equity rally really becoming a little bit

broader. There has been increased optimism about

the macro scenario and the earnings backdrop in Europe there.

Much more to come here on day DAYBREAK. Asia.

This is Bloomberg.

We are getting some RBA minutes out there from the March meeting minutes and

the RBA saying it didn't consider the case for a rate rise in March, according

to those minutes, reiterating they will do what's necessary to hit that

inflation target. And interestingly, look, since then we

have had soft ish kind of CPI coming through from the February at least for

the headline number. There are some sort of seasonal factors

showing pretty solid outcomes there consistent with the expectation that

will continue to see broad disinflation as a trend.

But the minutes also indicating that the CPI is high but gradually returning to

target and it's not possible to rule in or out future changes to the cash rate.

Also talking about significant uncertainties, but that the risks remain

broadly balance that those minutes also referring to returning inflation to

target remaining the highest priority. And interestingly, the theme of

uncertainty, the inability to be able to rule in or out any measures in this

final leg of this monetary policy cycle is really key to what we heard from the

assistant governor, Christopher Kent, when he spoke earlier to us in Sydney.

The RBA, in the meantime, is also set to switch to a new framework for the

implementation of monetary policy. The Assistant Governor for financial

markets, Chris Kent, did outline those changes in a speech at Bloomberg's

Sydney offices and asked afterwards We asked him how those moves will help the

central bank streamline its operations. What we've announced today is a new

system for implementing monetary policy. What we'll be transitioning to in the

future. But I wanted to emphasize that really is

about the plumbing, the nuts and bolts of moving money around, about us

achieving our cash rate close to the cash rate target.

But it's not what that target is. What that target is, is it's monetary

policy. This isn't about monetary policy.

It's just how we achieve the target at any given time.

But it's also about responding to perhaps some of the imbalances within

the system structurally coming from the last few years.

Well, it's about responding to the running down of the very large level of

reserves. We call that excess reserves that are in

the system because we and other central banks pursued unconventional monetary

policy. So they put a lot of money in the bank

accounts. Those are gradually unwinding as that

bonds mature as the TFF gets repaid. So it's about looking to the future and

thinking about how what we need to do to survive.

What system we need to transition to when it comes to the moderation of that

balance sheet. Obviously, a lot of it will depend on

underlying demand. But do you have sort of an idea of scale

of timing of how that framework will play out?

No, we don't. And indeed, that's partly why we picked

the system we've picked. So what we've chosen is what we call a

full allotment allocation system at Omos.

That means the banks come to us and for a fixed price they can borrow reserves,

pledge collateral for 28 days at the moment, and they can take what they want

as long as they have sufficient collateral.

So what that's about what that means is the supply of reserves is going to

depend on the banks demand. The banks have their own estimates.

We could come up with some rough ones, but until we get there, we won't know.

But the it should transition fairly seamlessly from one of excess to ample,

and we'll know we're there when banks start showing up in larger numbers and

larger quantities at our operations on a weekly basis.

I think until we get there, we won't know.

Probably is a good phrase to describe a lot of aspects of what we're out at the

moment in terms of monetary policy. Upstairs, you asked, you know, a little

bit cheekily to give one word to describe monetary policy settings and

trajectory. I'm going to give you a few more words

if you want. Can you elaborate?

Yeah, I think the starting point is just to say that the board's made it clear

thinks the interest rate path that will best bring inflation down in a timely

manner is uncertain. And so they have not wanted to rule

anything in or out with regards to interest rate changes

where we're in a better place than we had been.

Inflation has come down a long way. It does look to be moderating, but the

path in, according to our forecasts, is a gradual moderation from here.

Labour market pressures, they're easing, they're still tight, but they're easing

and that's because growth slowing. And so that brings demand into a better

balance with supply. So all those things are in place.

Our central forecasts are sort of predicated on sort of further good

things happening, including productivity growth.

But there's a lot of uncertainties around that.

And I think the key point is those are reasonably well balanced as best we can

tell. And because of that, the path is

uncertain. The next rate change, I don't know if

it's higher, don't know if it's going to be a lower interest rate.

When you talk about the not being the inability to rule out shocks.

Right. How much of those risks do you worry

about that might be external, that might be geopolitical, You know, that might

be, you know, election driven the policies of other countries and how much

of it are sort of domestic, maybe structural macroeconomic aspects that

perhaps we haven't seen in the data sets yet?

I think it could be both. We just don't know.

But I mean, as a small open economy, we're always subject to developments

offshore. We've talked at length about what's

happening in China. China is a major export market for us,

and there are concerns they have about their property sector and the problems

that they're trying to deal with there. So that can have an impact on things

like the demand for commodities like iron ore and that can move our economy

around. But equally domestically, things can be

moved by what people here in the Australian economy are doing,

particularly households at the moment. How are they going to behave in the

future? That will sort of be a key,

key point for where the economy goes. Christopher Kent, the assistant governor

at the RBI, is speaking to us a little bit earlier.

Well, the assistant governor also spoke about the uncertainties coming from

China's slowdown. And there is a little bit of good news,

at least in the data. The factory activity number beating

expectations in March, boosting optimism about hitting that ambitious growth of

around 5% this year. Growth target, I should say.

Despite that pick up, though, in most subindex indexes in those PMI surveys,

economists are cautioning that it remains to be seen how sustainable the

rebound will be. Joining us now is Michelle Lam, who

who's a greater China economist at Societe Generale.

Michelle, great to have you with us. And we know that data in the first

couple of months of the year tends to be pretty patchy at the best of times, even

with new methodology. Are you confident that the corner has

turned for China's economy? I think judging from the March PMI data

and also the January February data, I think there is some signs of the economy

at least stabilizing or picking up. But I would say that they're there to do

so because of concerns, because, for example, if we look at the January

February data, it's true that industrial production,

the fixed asset investments, surprising to the upside.

But we if we look at the retail sales, I would say that the momentum is still

pretty sluggish, especially on this front.

And going back to the March PMI data, for example, if you look at

manufacturing new orders, it seems that the majority of the pickup was driven by

the new export orders. But for a domestic demand, I think

especially for consumption demand, it remains to be seen if it is really

starting to recover, more notably, especially if we consider what's

happening to the housing sector, which is still

decelerating at a stage. You talk about the sluggishness.

And I think the thing that I'm always watching is is confidence, Right?

Sentiment, the concern about the sort of the stagflation aspect of how households

might be feeling at the moment. Do you see any signs of that staging a

turn around? I think if you'd.

Unfortunately for economist there actually not a lot of data to really

gauge the consumer confidence. But I think some indicators that we look

at, for example, the house prices, they are still falling.

If you look at the ABS data and some other private sources, for example, if

you look at the stock market, I would say that perhaps things are starting to

stabilising. But but that's actually a big correction

that we've seen around the turn of the year.

So it really remains to be seen if we are really starting to view the

stabilisation of the economy impact and then to the household confidence.

And in terms of the wage growth, I think for the quarterly data, we only have the

fourth quarter data last year, which we do notice that the growth momentum has

still been pretty sluggish, especially for the urban citizens, competitive

rural citizens. And I would say that if we look at some

of the private data sources in terms of the rate gains,

such as the job recruitment data agency, it seems that the wage momentum is still

not very strong. The buyers to really see a big supports

to improvement in the consumption right now.

Michelle, do you think policy makers in China can claim vindication now for not

using that bazooka stimulus that we'd all become accustomed to?

So I think it depends on what you mean by the bazooka, for example, for the

monetary policy expectations. We do expect some of the policy rate

cuts that dribble out for the rest of the year.

Well, given the most obvious surprise, it could be the case that we could be

seeing this kind of stimulus coming at a later stage.

What it in the early stage, I think, for the property easing.

They've already sent some signals that there could be more demand easing coming

through. A couple of weeks ago.

So I think we could continue to be seeing some local government relaxing

the purchase restrictions even in the top tier cities and even a

mortgage interest rate cuts. But there's also a question of whether

we could see this translate into into a recovery in the housing sector.

I think for now, but a big bazooka, for example, like

a further insurance in the special CGP is I think the chances are much less

likely given the positive momentum we've seen for the first quarter.

We had a warning from Ray Dalio this week that if China doesn't get on top of

its debt, it's facing the risk of a lost decade.

Do you have any thoughts on that? I think it's true.

But I think at the same time, the government is sending some signal that

it is tackling that issue, for example. But a central government at APEC, they

decide it is Mogadishu issuance of special SGB, who tried to open a new

door to support the financing of the key strategic project.

So I think it also allows some room for the local governments and the local

government financing vehicles to cut back the doubts.

But I think more importantly, to try to do some structural reforms to really

unleash the demand of the consumption. And I think even if we talk about

financing more infrastructure projects, that's not going to really increase the

share of consumption in the overall economy.

So I think that's what the policymakers we need to focus about, which is to try

to make some reforms to this acute national security systems, maybe reduce

some of the payments even temporarily to in to improve their consumer confidence.

And I think that's really most important, vital for us to product

consumption demand right now. All right, Michelle Lam, Greater China

economist at Society. General, thanks so much for joining us.

Still to come, we're going to have a preview of Tesla's first quarter

deliveries and hear why some analysts are expecting a first sales decline in

four years. This is Bloomberg.

The board's made it clear he thinks the interest rate path

that will best bring inflation down in a timely manner is uncertain.

And so they have not wanted to rule anything in or out with regards to

interest rate changes. That is Christopher Cairns, assistant

governor at the RBA, speaking to us earlier.

Let's just check in on how markets are tracking at the moment.

Here in Australia they're kind of going sideways at the moment, just some very

modest gains. A lot of stocks trading ex-dividend

today which might be weighing on sentiment.

Just a little Treasury wines, low performing pretty strongly after, of

course, just before the long weekend, China lifted its trade strikes on

Australian wine. The Nikkei having another good day, but

that's going to be in sharp focus as well as we keep an eye on potential yen

intervention. The Ministry of Finance has been making

its usual noises about that today. The cost be at the moment looking kind

of flat. We're also watching Japanese chip makers

at the moment. We had a little bit more news from the

government today. It's going to give a further $3.9

billion in subsidies to its chip venture tests.

So committing more money to Japan's ambitions to catch up and semiconductor

manufacturing, you see that rising tide lifts all boats.

There are some of those semiconductor names in Japan performing a pretty well

at the moment. Well, let's talk about Tesla releasing

its first quarter delivery results this week.

Some analysts are expecting the first sales decline in four years as demand

for EVs and elevated interest rates takes a toll.

For more on this, let's bring in our global business editor, Peter Vercoe.

So, Peter, tell us some a little bit more about the reason for the slowdown

in Tesla sales. Yeah, hi, Paul.

Heidi. Well, what we're really seeing is that

Tesla is being caught up in a broader slowdown in the EV market

than being a pure evil manufacturer. It doesn't have other models to fall

back on, say, the way the likes of GM or the Toyota does.

Just in the last few weeks, we've seen Ford slash the prices of its Mustang

Mach-e. Rivian is also cutting prices of its

SUV. And even Apple has pulled out of its Ivy

project that it's more at stake there. So it looks like the heavy boom that we

saw in the last few years may have peaked just for now.

Still, it's not all doom and gloom. Bloomberg Any EV forecasts that EV sales

globally will still rise 22% this year. In fact, that's down from the 30% growth

that we saw last year. So a bit of a slowdown and a lot of that

growth is coming from China, which is a much more competitive landscape than,

say, the US, where Tesla does a lot of its business.

It's a huge market for Tesla, but as you say, they've increased prices there at a

time when there's aggressive discounting more than ever, in fact, from local

carmakers. Yeah, and we're particularly seeing that

with Bhiwadi. Bhiwadi has gone on an aggressive price

cutting round already this year. Its popular SIEGEL Hatch is now less

than the equivalent of 10,000 USD in the China market.

And just overnight, Bhiwadi reported that its March sales are up 46% year on

year. So it's really just going from strength

to strength. So that's making it hard not just for

Tesla but for other Ivy players in China.

Then you've got new competitors coming into the Chinese market as well.

We saw Jeremy last week come in with its new SUV and it's selling for starting

around 30,000 USD. The Model Y in China starts at 50,000

USD. So again, that's a huge gap for Tesla to

make up. And so interesting, what we've also seen

in China in the last couple of weeks is Tesla trimming production at its

Shanghai factory. Doesn't often happen by making workers

work a shorter week. And then really interestingly, in the

last weeks of March, it flagged a price increase that took effect yesterday.

And that does really seem to be an attempt to try and pump up sales in the

dying days of the first quarter. Global business in Asia.

Ed, are the other corporate stories that we're tracking this hour and Bloomberg

is that Tesla boosted head count by 86% last year in Austin, Texas.

The firm now has over 22,700 employees in the region, where Tesla churns out

its model. Y's and Cybertruck's sufficiently makes

Elon Musk Austin's largest private employer.

Texas is home to multiple Musk firms, including a Tesla Gigafactory and the

launch site for Space X. Citigroup is said to have implemented a

fresh round of job cuts in the US investment bank last week.

Sources say technology, media and telecom were among the coverage areas

hit the hardest, with senior bankers and junior roles affected.

The cuts come as Citigroup says it has concluded the major actions around its

reorganization plan. McKinsey is offering nine months pay and

career coaching services to some UK staff who would like to leave.

The move comes after the firm earlier warned some US consultants that they

were running out of time to win promotions.

McKinsey and its peers have trimmed headcount and slowed the.

Pace of hiring over the past year as demands from clients decline.

Nippon Steel has made a formal commitment to spending and jobs to the

United Steelworkers Union. The agreement includes an extra $1.4

billion in capital spending, as well as a promise of no layoffs before 2026.

Nippon Steel's new president has pledged to press ahead with the takeover.

That is despite opposition led by President Biden, who says U.S.

Steel should be American owned. Be sure to tune into Bloomberg Radio to

hear more from the day's big newsmakers and get in-depth analysis there from the

day break. A team broadcasting live from our studio

in Hong Kong. You can listen in via the app.

That's Radio Plus on Bloomberg Radio.com.

More ahead. This is Bloomberg.

We're counting down to the market opens in mainland China and Hong Kong on the

earnings front. Gojo motors 2023 numbers are due out on

Tuesday. Bloomberg Intelligence is the company

posting 70% profit and revenue growth year on year.

Let's get more from our senior analyst as Ali and the multi is always

interesting, right in terms of being a commercial consumer bellwether.

And given the weakness that we've seen in consumer sentiment, what are we

expecting? Absolutely.

So we are expecting 17% growth in his sales, which will drive the sales to

about ¥150 billion this year. This is actually ahead of a management

target of 15% growth this year. And then what boils down to then is a

17% growth in earnings this year as well.

And this is actually a very robust set of results that we're expecting, given

that the consumer sentiment is actually quite depressed at the moment.

So I'd never mind the consumer sentiment being depressed.

Analysts still really like the stock. I think it's something like 51 buys.

So where's the enthusiasm coming from? I think is the fact that the company

managed to develop consensus to deliver a consistent result in terms of its

sales as well as earnings. So if you look at its gross margin, it

is at industry high of 92%. I really don't think you can see any

other companies with that type of gross margin.

Its operating margin is also very healthy and with the opportunity to

further expand going forward, what we are looking for in the set of result in

particular is actually is direct to consumer sales contribution because that

is one of the key driver for gross margin going forward.

You talked about expansion and certainly in terms of product market and the

demographic expansion, Multa has been working a lot on that, particularly when

it comes to enticing younger consumers, right?

How much of that effort is paying off? We've seen a lot of collaborations.

Know chocolate lines. There's even a showroom here in Sydney.

Yes. So they have been very, very busy over

the past year in terms of both product and channel development on product side,

like you have mentioned. They have got some chocolate.

They have alcoholic lathi recently in March, they're also announced some

sparkling wine and blueberry sparkling wine.

And then end of last year, they announced a collaboration with one of

the most popular artists in Asia, Jay Chao, in collaboration to develop some

mosquito product. So on product side, they are really

trying to tap into the younger market as well as what I would normally call the

XI economy, which is the ladies for the sparkling wine, as well as some of the

cocktail mixes on the channel side. Is there development in terms of direct

to consumer sales that I've previously mentioned?

And this includes the apps such as I Maotai, which is actually growing

substantially since since its launch, as well as other products such as WeChat,

mini apps, as well as they even have a metaverse to be honest.

So they are trying in every aspect to rejuvenate their brand and to make it

more younger and trendier for the younger population.

All right. Bloomberg Intelligence senior analyst A2

Lee there on those that kweichow moutai earnings, which we'll get later today.

Time to check some of the stocks to watch when markets open in hong kong and

mainland china. So keep an eye on chinese EV stocks.

This is after NIO announced a boost in its deliveries for March.

Meanwhile, its peers BYD, Geely Auto and Great Wall Motor all reported a rise in

their March vehicle sales. And Asian Tesla supplies are going to be

back in focus. Analysts are rapidly lowering their

projections for this week's deliveries report from Tesla.

Some expect to see a first decline since the early days of the pandemic.

Well, that is it from DAYBREAK. Asia markets coverage does continue as

we look ahead to the start of trade in Hong Kong, Shanghai and Shenzhen, China,

show up next. This is Bloomberg.