Bloomberg Daybreak: Europe 04/08/2024

Summary

The transcript from Bloomberg Daybreak Europe highlights a variety of economic and geopolitical updates. It begins with Asian stocks experiencing gains and European futures trading flatly, awaiting US inflation data. The report discusses Israel's military movements in Gaza, oil prices, and US Treasury Secretary Janet Yellen's efforts to strengthen US-China relations. There's also an in-depth look at the Indian economy's potential to become a global growth leader, with trade deals and infrastructure development as key factors. Additionally, the transcript covers Zimbabwe's introduction of a new currency backed by foreign currencies and gold, aiming to stabilize its economy. The discussion also touches on the oil market's reaction to geopolitical tensions and the anticipation of the US jobs report's impact on financial markets.

Takeaways

• 📈 Asian stocks start the week with gains, while European futures trade broadly flat as traders await Wednesday's US inflation data.
• 🛡️ Israel announces the withdrawal of some troops from southern Gaza ahead of a planned offensive in Rafah, impacting oil markets.
• 💼 US Treasury Secretary Janet Yellen meets with the PBOC governor in China, aiming to strengthen US-China relations.
• 📊 Positive US jobs report on Friday influences Asian equities, despite mixed sentiment in mainland and Hong Kong markets.
• 🇭🇰 Hong Kong and mainland China focus on defaulting Chinese developers and the demand for liquidation, affecting market sentiment.
• 🥇 China and India emerge as significant buyers of gold, contributing to its price rally and highlighting their central banks' strategies.
• 💰 The PBOC's currency fixing and the yuan's trading band are closely monitored by traders for signs of policy maker intervention.
• 🤝 US-China relations are discussed, with Yellen's visit to China yielding some diplomatic progress despite criticisms over Chinese overcapacity.
• 🌍 Geopolitical tensions and economic data, such as the US CPI, play a crucial role in influencing global market trends and central bank decisions.
• 🔄 The impact of global economic shifts, such as the potential for India to become a growth engine similar to China, on investment flows and trade deals.

Q & A

What was the overall sentiment in Asian stock markets at the beginning of the week according to the transcript?

Asian stock markets started the week with gains, showing a positive sentiment.

What major economic data release are traders waiting for in the week mentioned in the transcript?

Traders are waiting for the US inflation data on Wednesday.

What development was reported regarding Israel and Gaza in the transcript?

Israel announced it was pulling some troops from southern Gaza ahead of a planned offensive in Rafah.

How did US Treasury Secretary Janet Yellen describe the state of US-China relations at the end of her visit to China?

Janet Yellen described the relations between Washington and Beijing as having reached a more stable footing.

What was the reported action of the People's Bank of China (PBOC) regarding the yuan?

The PBOC fixed the yuan at a level sub 7.1, which has been maintained for several weeks and months.

What was the reported change in the US Treasury yields after the strong jobs report?

After the strong jobs report, US Treasury yields ticked lower, with the two-year yield going higher.

What was the reported impact of geopolitical tensions on oil prices?

Oil prices took a breather, indicating a temporary pause in the rally, influenced by geopolitical tensions and Israel's announcement regarding troops in Gaza.

What did the transcript reveal about the Hong Kong and mainland China stock market sentiment?

While Asian stocks started the week with gains, the sentiment in mainland China and Hong Kong shares was reported to be a bit more poor.

What development was highlighted regarding the Chinese real estate sector?

There was news of a defaulted Chinese developer facing demands to liquidate, with winding up petitions starting to pile on, affecting the stock market.

What was the reported strategy of the central banks of China and India regarding gold?

China and India have been reported as big buyers of gold, contributing to a record rally in gold prices, with China having bought gold for about 17 months straight.

What was the reported expectation for the Eurozone's inflation rate in the near future?

The expectation was for a modest slowdown in core inflation, even if headline inflation stays around 3% towards the end of the year.

Outlines

00:00

🌞 Morning Market Updates and Geopolitical Overview

The segment begins with a recap of the previous week's market performance and an outlook on the current day's agenda. It highlights Asian stocks' positive start to the week and the anticipation for US inflation data. The host discusses Israel's military movements in Gaza and the impact on oil prices. The segment also covers US Treasury Secretary Janet Yellen's efforts to strengthen US-China relations during her visit to China, and the potential implications for global markets and geopolitics.

05:01

🤝 Analyzing US-China Diplomatic Relations

This paragraph delves into the nuances of US-China relations, with insights from Bloomberg's Jill De. It discusses Treasury Secretary Janet Yellen's diplomatic efforts during her visit, the Chinese response to her critiques on overcapacity, and the potential for future cooperation between the two economic powerhouses. The conversation also touches on the importance of managing complex global challenges through responsible leadership.

10:05

📉 Market Reactions to Economic Data and Central Bank Policies

The focus shifts to the market's reaction to economic data, particularly the strong US jobs report and its implications for the Federal Reserve's policy direction. The discussion includes the potential impact of the US CPI data on interest rates and the divergence in monetary policy between the US and the European Central Bank. The segment also explores the significance of the Bank of England's upcoming review of forecasting methods.

15:06

🇿🇼 Zimbabwe's Currency Overhaul

This segment discusses Zimbabwe's decision to replace its struggling currency with a new unit backed by foreign currencies and gold. The move is aimed at stabilizing the economy and controlling inflation. The host interviews Derek Ganga for a deeper understanding of the central bank's strategy, the impact on the Zimbabwean dollar, and the expected economic outcomes.

20:14

📈 TowerJazz's Market Position and Expansion Plans

The CEO of TowerJazz, a Japanese firm dominating the chip-making process, shares insights on the company's market position and future expansion plans. The discussion covers the company's unique technology, market share, and strategies to maintain its competitive edge. The CEO also talks about potential investments and mergers, emphasizing the importance of win-win situations.

25:17

🌐 Global Economic Outlook and Central Bank Dynamics

This segment provides an overview of the global economic landscape, with a focus on central bank policies and their impact on markets. It discusses the upcoming US CPI data, the ECB's rate decision, and the potential for a shift in the Bank of England's forecasting approach. The segment also touches on the challenges and opportunities for India as it aims to become a global growth engine.

30:17

💼 Economic Insights from Former U.S. Treasury Secretary Larry Summers

The segment features an interview with former U.S. Treasury Secretary Larry Summers, who discusses the implications of the recent US jobs report. He critiques the Federal Reserve's understanding of the neutral rate and argues that the evidence suggests a higher rate than the Fed estimates. Summers also explores the impact of immigration on the labor market and the broader economic implications.

Keywords

💡Asian stocks

Asian stocks refer to the shares or equities of companies that are listed and traded on stock exchanges in Asia. In the context of the video, Asian stocks are experiencing gains at the start of the week, indicating a positive trend in the financial markets in Asia. This is significant as it sets the tone for global market sentiment and can influence trading strategies.

💡US inflation data

US inflation data refers to the statistics released by the United States government that track and measure the rate at which the general price level of goods and services is increasing over time. This economic indicator is crucial as it influences the Federal Reserve's monetary policy decisions, including interest rate adjustments. In the video, anticipation of the US inflation data is causing traders to stand by, as it could impact the direction of financial markets.

💡Geopolitical risks

Geopolitical risks are the potential threats or uncertainties that arise from political events, government actions, or conflicts between or within countries that can affect global financial markets, trade, and investment. In the context of the video, geopolitical risks are mentioned in relation to the Middle East, specifically with Israel's military actions and tensions with Hamas, as well as the potential for retaliation from Iran or Hezbollah.

💡US-China relations

US-China relations refer to the diplomatic, economic, and political ties between the United States and China, the world's two largest economies. The state of these relations can have significant implications for global trade, investment flows, and geopolitical stability. In the video, US Treasury Secretary Janet Yellen's visit to China and her meetings with the PBOC governor are highlighted as efforts to strengthen these relations.

💡Central banks

Central banks are the institutions responsible for managing a country's monetary policy and financial stability. They play a critical role in controlling inflation, setting interest rates, and maintaining the value of a nation's currency. In the context of the video, central banks are discussed in relation to their upcoming decisions on interest rates and their impact on financial markets.

💡Currency fluctuations

Currency fluctuations refer to the changes in the exchange rates between different currencies. These fluctuations can be caused by various factors, including economic indicators, political events, and market sentiment. In the video, currency fluctuations are discussed in the context of the impact on global trade and investment, as well as the potential for central banks to intervene to stabilize their currencies.

💡Commodities

Commodities are raw materials or primary products that are traded on commodities markets. They include agricultural products, metals, and energy resources. The prices of commodities are influenced by supply and demand dynamics, global economic conditions, and geopolitical events. In the video, commodities are discussed as a significant factor in the global economy, with specific mention of oil, gold, and iron ore.

💡Corporate America

Corporate America refers to the collective group of large corporations based in the United States. These corporations often play a significant role in the global economy and can influence economic trends, employment, and innovation. In the video, the phrase 'powering corporate America' suggests that the strong US economy is expected to support and drive the growth of American businesses.

💡Market sentiment

Market sentiment refers to the overall attitude or mood of investors towards a particular security, market, or economic condition. It is influenced by factors such as economic indicators, corporate earnings reports, and geopolitical events, and can impact trading decisions and market movements. In the video, market sentiment is discussed in relation to the reaction of investors to economic data and geopolitical developments.

💡Interest rate cuts

Interest rate cuts refer to the reduction in the interest rates set by a country's central bank. Central banks use interest rate adjustments as a tool to control inflation, stimulate economic growth, or manage other macroeconomic objectives. In the video, the discussion around interest rate cuts pertains to the potential actions of central banks in response to changing economic conditions.

Highlights

Asian stocks start the week with gains, while European futures trade broadly flat as traders stand by for Wednesday's data on US inflation.

Israel says it's pulling some troops from southern Gaza ahead of a planned offensive in Rafah.

US Treasury Secretary Janet Yellen meets the PBOC governor on her final day in China, aiming to put relations with Beijing on a firmer footing.

The oil rally takes a breather following Israel's announcement of troop withdrawal from Gaza.

Bitcoin is back below the 70k mark after breaking through it over the weekend.

Tanya Chen reports on Asian markets, noting that mainland China and Hong Kong shares are not as exuberant as other regional stocks due to news from the property developer space.

China and India are big buyers of gold, fueling an all-time record rally and China has been buying gold for about 17 months straight.

The PBOC fixes the yuan sub 7.1, a level that has been maintained for several weeks and months, indicating careful management of the currency's value.

U.S. Treasury Secretary Janet Yellen's visit to China is seen as an effort to smooth over ties between the two largest economies.

Israel's troop withdrawal from southern Gaza is likely a tactical decision in anticipation of potential attacks from Hezbollah or Iran.

The US CPI number, set to release on Wednesday, will be a crucial piece of the data puzzle for the Fed and is expected to show a modest slowdown in core inflation.

The ECB's June rate cut seems almost certain, with the focus now on clues as to the path beyond that, highlighting the divergence from the Fed's rate cutting trajectory.

Former Fed Chair Ben Bernanke's review of forecasting is expected to influence the Bank of England's communications rather than its policy-making process.

Zimbabwe replaces its battered dollar with a new currency unit called ZWL, backed by a basket of foreign currencies and gold in an attempt to stabilize its economy.

Brent crude is trading just shy of $90 a barrel, with supply side issues being the biggest driver for oil prices.

Iron ore rebounds above $100 a tonne on speculation of increased demand from China, the world's largest steel maker.

TowerJazz, a Japanese firm controlling an essential part of the chip-making process, experiences a 400% share surge due to high demand for high bandwidth memory.

HSBC CEO Noel Quinn discusses the bank's efforts to strengthen its wealth management capabilities in China and India, aiming to match the strength of its home market.

Transcripts

Good morning. This is Bloomberg Daybreak Europe.

I'm Lizzy Burden in London. And these are the stories that set your

agenda. Asian stocks start the week with gains,

while European futures trade broadly flat as traders stand by for Wednesday's

data on US inflation. Israel says it's pulling some troops

from southern Gaza ahead of a planned offensive in Rafah.

The oil rally takes a breather. Plus, US Treasury Secretary Janet Yellen

meets the PBOC governor on her final day in China as she aims to put relations

with Beijing on a firmer footing. A very good morning.

Happy Monday. I hope you had a restful weekend.

We have got a lot of geopolitics to get through and a busy week ahead for

central banks. But let's just take you back to that

blowout US jobs report on Friday. Markets essentially concluding that the

US economy is going to power corporate America, even if it means that rates

stay higher for longer. Now, overall, last week might have been

the worst since January, but that strong Friday session has powered Asian

equities higher this morning, although you are looking at four Wall Street

futures pointing to a lower opening this morning.

Even if Europe is going to eke out some gains, it appears at the moment.

If we flip over to the cross asset picture, you can see the difference when

it comes to treasuries from that US jobs report in terms of Fed cut backs pared

back to about 65 basis points this year. Now Treasuries have off the back ticked

lower and the two year yield is currently higher a touch the dollar also

a stronger. As we look ahead to that US inflation

report on Wednesday. Oil has been lower off the back of

Israel, saying that it's going to pull some troops out of Gaza and Bitcoin is

back below that 70 k mark having broken through it over the weekend.

But let's zoom in on Asian markets now. Tanya Chen is waiting for us in Hong

Kong. Tanya, what's happening where you are?

Good morning, Lizzie. Yes, as you were just saying, Asian

stocks are starting the week a little bit on a bright spot After that, better

than expected US jobs report that we saw.

And as you aptly pointed out, it's not really so much the same sentiment in the

mainland. And the Hong Kong shares those.

The sentiment there just a little bit more poor, given that we've seen on the

sample. One of the defaulted Chinese developers

that we've been tracking facing a demand to liquidate.

These winding up petitions are really starting to pile on.

We've seen it also with Country Garden as well.

I also wanted to take you into the commodities space a little bit.

Iron ore rebounding a bit there after this long weekend that we had in China.

Also in gold, the gold is also extending gains there.

One thing to note is that China and India and central banks being big buyers

of gold, it's really been fueling this kind of scorching hot all time record

rally. And China has actually been buying gold

for about 17 months straight. And then also kind of the big story out

of China with the currency today has also been quite top of mind for traders.

Earlier today, we saw the PBOC fix the yuan, basically sub 7.1 a level.

They've been kind of leaving the fix for several weeks and months.

And what that's what we've been tracking basically is what the onshore rate is

doing around this 2% trading band, around this reference rate.

And we see right now that is about 20 pips away from kind of that weak end of

the trading band. And in previous episodes, we've seen

that the policy makers have really stepped in when you can feel the

depreciation pressure really building in the onshore rate at this point right

now. And analysts are saying that there is a

possibility if the dollar continues to persist, PBOC may have to loosen that

fixing to just let a little bit of breathing room into that onshore spot

rate. So no forceful measures yet, but we're

still tracking the yuan every day. Okay.

Tanya Chan in Hong Kong, thank you for that.

Interesting that you point out that the gold moves could be partly to do with

China, not all about the Fed story, but let's talk about US-China relations now.

U.S. Treasury Secretary Janet Yellen, of

course, still in China due to hold a news conference later this morning as

she wraps up that trip. Now, it's after talks that the U.S.

governor had with her. She says they helped relations between

Washington and Beijing reach a more stable footing.

As the world's two largest economies. We have a duty to our own countries and

to the world to responsibly manage our complex relationship and to cooperate

and show leadership on addressing pressing global challenges.

Well, for more on the trip, we've got bloomberg's Jill De.

Morning Joe. It looks like Yellen has had a

delightful weekend cruising down the Pearl River with the vice premier

directing that the conversations on board was delightful.

Yes. Well, Lizzie, it does seem like Janet

Yellen is really Washington's good cop in this entire situation in the US-China

relationship. And while she did spend her trip

criticizing China over some issues, particularly overcapacity, this idea of

importing cheap goods to the rest of the world, a lot of her worries about that.

Generally, it seems like it's been a pretty pleasant trip for her.

This is, of course, her second trip in nine months and also likely her last as

treasury secretary before the U.S. general elections later this year.

It's but it's generally has seemed like it's been pretty diplomatic.

We'll obviously get more details from Janet Yellen once we have that press

conference in just a couple of hours. But, yes, ultimately, I think she's

she's kind of served the purpose of, you know, smoothing over ties.

It seems like there's been something of a a decent response to from Beijing on

that front. Yeah.

Can you expand on what China's reaction has been because she's been trying it

chiding Chinese overcapacity. Surely they can't take that lightly.

No. Well, certainly in state media they

haven't. So it's I think where we've really seen

the biggest points of criticism so far. Xinhua, the official news agency for

China, was kind of blasting Yellen over some of those overcapacity comments.

I think also really criticizing the US and saying, well, what about US

subsidies for things like semiconductors and things like that.

So I think that's really where you're seeing the most pushback from a lot of

officials she's been meeting with. You're getting more of this idea that

the US and China really need to strengthen cooperation across different

things, but we haven't really seen yet that really big fulsome response.

I will cost me, though, Lizzie. Look, China is also just coming off of a

four day holiday period. So I think, you know, we'll get some

resumption of the Ministry of Foreign Affairs.

We'll see if there's a stronger reaction out of Beijing in the wake of this

extended weekend that they've just had as well.

Okay. Bring back Jill as we thank you for that

update on Yellen's visit. And we look ahead to the press

conference in the next couple of hours. But let's get to the Middle East now

where Israel is pulling some troops out of southern Gaza as the war with Hamas

passes the six month mark. US Senator Chris Coons says the move is

likely a tactical decision in case Hezbollah or Iran attack.

We can now bring in Bloomberg's India news director, Rosalind Matthiessen, for

analysis. Rose, what's behind this move and does

it affect a potential offensive in Rafah?

Well, it's probably multiple things that are behind this move.

One is that they've been fighting now in Gaza for the better part of six months

and they need to rest and rotate some of their troops.

So there's probably some truth in that. There's also the reality they do

reinforce their troops in the north of Israel, because, of course, that's where

Hezbollah tends to attack from Lebanon. That's the other Iranian backed group

that's operating in the region and the aftermath of that airstrike on the

Iranian diplomatic compound in Syria. There's been repeated warnings from Iran

of some kind of retaliation, and that might likely come from one of their

proxies, particularly Hezbollah. Again, so there's a possibility of

stepped up activity in that area. So you need troops back there.

There's also pulling them back out of Khan Yunis because they want to be able

to move Palestinians into that area for an offensive in Rafah.

So none of this suggests that the desire to go in to have that offensive in Rafah

has dissipated. This is not withdrawal because of some

other reason. It's just purely tactical on the part of

Israel. It's not a withdrawal.

It's taking a break to come back for more.

So what might an Iranian retaliation look like for that strike on the

diplomatic compound? Well, quite possibly through those

proxies with really unusual, obviously, a really big escalation for them to

attack Israel directly, side of fired missiles directly to a major center in

Israel. That's really basically unprecedented.

So what you might see really is that kind of proxy activity, primarily

through Hezbollah from from Lebanon, possibly, again urging the Houthis on in

the Red Sea. Of course, they've been blocking

shipping in the Red Sea for months now, maybe some of that.

But really, you can see through the back channeling that's going on between the

U.S. and Iran.

They're actually talking about the fact they're actually talking to each other,

which again, is unusual, shows that really Iran and the US, despite all of

this, neither neither really want a direct conflict to happen.

So we're probably see something a little bit more asymmetric that Iran's known

for a new threat to muzzle Hamas. And we thank you.

Of course, we've also had more of the back channeling in the U.K.

as well. The U.K.

talking tough over the weekend when it comes to the situation in Gaza as well.

But let's get back to the economic data now, because, of course, you've got the

US CPI number coming out on Wednesday, a big focus for the Fed.

It arrives hot on the heels of Friday's surprisingly strong US jobs numbers, and

the data is projected to show a modest slowdown in underlying inflation from

all we can bring it down. MOSS From Bloomberg Opinion Don we had.

Chip room. Powell saying that strong hiring on its

own isn't going to be enough to delay policy easing.

But this was a blowout jobs report we got on Friday.

Do you think any Fed officials now will still be calling for three cuts this

year? The leadership.

I always say this. It's important to focus on what the

leadership is saying, not what Some of the backbenchers who might talk more

often are saying. That's what a decade in Washington

taught me. Now, Jay Powell has firmly anchored his

view that, look, there will be interest rate cuts this year.

More than likely it's a projection, not a promise.

It also means they don't have to rush. Now, there's been a lot of focus on this

re acceleration, for want of a better term that we're seeing in US economic

activity, the rapid hikes that have preoccupied us for the past couple of

years don't seem to have slowed growth down that much.

However, look, let's not forget where we've been with inflation pesky the

inflation measure that the Fed bases its 2% target on has come down dramatically

from where we were in 2022. At one point in 2022

was above 7%. It's now 2.5%.

So, you know, you're also probably going to hear a lot of talk about the last

mile being the hardest and so forth. But we just need to see a continuation

of numbers like this. They don't have to necessarily be

better. And remember, it's an average of 2% over

time. Okay.

So it seems clear at least that the US isn't in a rush to cut rates.

And yet for the ECB, a June cut looks pretty much nailed on to many at this

point. So with this divergence, what about the

weaker euro feeding into the European inflation story?

Yet what's transpiring at the ECB is much more clear cut and the

communication has been much less vague. You know, even the Austrians, who

typically like hard money, recognize that the economy is not in great shape

and that inflation has come down markedly.

You know, my Bloomberg opinion colleague Marcus Ashworth asked a pretty pertinent

question last week, which is if you're all talking about June and the press

conference, the Christine Lagarde games is going to be all about June.

Why not just do it now? It's a good question.

Economically, you're not going to see a lot of change between now and the June

meeting. You know, there is a case for just

getting ahead of the narrative and doing it, and you're doing it in mice.

Excuse me. That would be impressive, indeed.

Are they just are they just hiding behind those jobs

numbers? Why not just do it now?

Bloomberg's done more daring Christine Lagarde to go ahead this week.

We thank you for that analysis. Now, as I say, it's a busy week.

We have already just talked about US CPI that's coming on Wednesday.

Of course, it is a crucial piece of the data puzzle for the Fed, and economists

are expecting a modest slowdown in core inflation, even if headline inflation

stays around 3% towards the end of the year.

Super core inflation, of course, has been really sticky here.

We were just talking with Don about Thursday's ECB rate decision in

Frankfurt, a June seeming pretty much a done deal now.

So the focus very much on clues as to the path beyond that and therefore how

much divergence they'll be from the Fed's own rate cutting trajectory.

Then on Friday, we on from the Bank of England get former Fed Chair Ben

Bernanke's review of forecasting. And the expectation is that whatever the

recommendations are likely to move from firm charts to Riksbank style scenarios,

it's going to take a while to be implemented.

And even when they are, they're more likely to affect the Bank of England's

communications than how it makes policy. But we'll wait to hear the specifics

from Bernanke and Co on Friday, but you can get a roundup of the stories that

you need to know to get your day going by going to A, why B, go on the

terminal. That'll take you to today's edition of

the DAYBREAK newsletter. They're leading on China this morning

and also a story on Elon Musk for you to check out.

But coming up later in the program, Zimbabwe replaces its battered dollar

with a new currency backed by foreign currencies and gold.

We'll bring you that story next, as well as an interview with HSBC is looking to

bolster its wealth management business in China and India.

We'll hear more from that exclusive interview with CEO Noel Quinn at 6:30

a.m. London time.

So stay with us. This has been back.

Welcome back to Bloomberg Daybreak Europe.

It's 6:17 a.m. in London and we're going to head to

Africa now where Zimbabwe is replacing its battered dollar with a new unit

called Z IG, which will be backed by a basket of foreign currencies, gold and

other precious metals. The sweeping move is Zimbabwe's sixth

attempt to have a functional currency since 2008.

Joining me now for more is being worked on Derek Ganga.

Derek, just talk us about this transition to the new currency.

Lizzy, It has been a long time coming. Judging from the current state of the

Zimbabwean economy, inflation is high, the currency is battered, prices of

goods and services have skyrocketed. If we zoom in on their currency, the

Zimbabwean dollar. It has lost nearly 75% of its value to

the dollar this year alone. And that's why the central bank made

this decision that was awaited with bated breath.

Now we have a new currency, the SEC, that is backed by gold and other foreign

currencies. And the central bank says they have

reserves of up to $285 million. So what's happening currently is banks

and other financial institutions are recalibrating their systems and

replacing their current balances. And the central bank governor, who

assumed his role a month earlier than expected, says that a couple of changes

will be coming. And part of this changes is, one, to

ensure that the Zimbabwean currency does not die, but also to stabilize it so

that they can have some stability in the prices of goods and services.

And just talk us through some of the other key decisions the central bank's

been making and their expected impact on their.

Mm hmm. First of all, he has cut rates from a

high of 130% to 20%. This was the highest rate in the world,

but wasn't the highest in Zimbabwe. We've seen highs of 200%, which makes

lending extremely hard and makes it harder for the private sector to borrow,

invest and even grow. Other changes will also include all

businesses required to pay taxes by at least 50%, using the local currency to

inject some form of transaction ability into their currency.

Because if you look at the Zimbabwean dollar, which is being phased out right

now, it's only used for 20%, which is to pay utilities and smaller transactions.

Majority of the transactions are done using the US dollar.

And because of this changes, the central bank is anticipating that inflation

might ease to about 2 to 5% by the end of the year from a high of 55%.

The goal here is to inspire confidence in the market and in the people.

But that's an uphill task. And until they do that, this is just

another currency translation from Zimbabwe like they did with the gold

coins, the digital tokens, and slashing a couple of zeros from their previous

currencies. Okay.

Bloomberg's Indira Ganga, we thank you in Kigali.

With that outlook for Zimbabwe's new currency, the zinc.

Now, I also want to just take a check on commodities because it was a week for

commodities last week. We have had the confluence of

geopolitical risk, high demand and supply side issues affecting oil.

So Brent currently trading just shy of $90 a barrel.

I mean, Amrita Sen really emphasizing that it's the supply side that's the

biggest driver here. But in terms of geopolitical risk, of

course, you have had tensions between Israel and Iran fluctuating.

Just think that we were at a level of $72 a barrel in December.

90 is a level that Opec+ is likely to want to maintain around which the price

can fluctuate as it inevitably will, because if it heads back towards 00 a

barrel, as Goldman says it could, that would perhaps fuel inflation and hurt

demand. And so you might say ninety's the sweet

spot that powers and economic recovery and the question being can they maintain

it. So Brent just shy of $90 a barrel you've

got double duty WTI at 85.68 currently and gold at a new high despite the

equity rebound off the jobs report on Friday.

As Tanya Chen says you've got some tailwinds coming in from China as well.

Which brings me on finally to iron ore. It's rebounded back above 00 a tonne

on speculation that demand from China could pick up.

China, of course, the world's biggest steel maker.

And you've got trade is back after the long weekend giving a boost to the

commodity. We've got plenty more still ahead for

you, so stay with us. This is Bring back.

Now the AI driven boom in demand for high bandwidth memory has helped drive a

400% share surge for a Japanese firm that controls an essential part of the

chip making process. The CEO of Tower told us exclusively how

the company plans to further strengthen its position.

So this is in June taking too long. What's most important is that we have

technology now over companies do not have we are in charge of the chip

sealing process. There are two major methods of sealing

transfer and compression molding methods.

Transfer molding is a common method, but the compression method is required for

high end chips. And we developed the first model of this

technology in 2009. Even after six years, we see no

competitors in this technology. And I guess once you currently own this

market, you create about 60% of the world's chip sealing machines.

Do you have any plans to further that market share?

We develop products based on the concept of how much customers appreciate.

Unlike Tower, by specializing in high end products, we can naturally link this

to a large contribution to profits. I think this is the most important

point. We had a strong desire to have 100%

control of the molding process, but we see the emergence of many local Chinese

manufacturers that produce low priced products.

This leads to price competition, and this will greatly squeeze profits.

If we want to make money. We need to focus on the high end market

where there's no competition. We should specialize in this area and

expand these markets. We occupy more than 90% and we want to

maintain this top position globally. There's huge demand for chips globally

right now. What's your plan to increase output

going forward? Can you remember really what we have

been working towards a ten year vision of achieving ¥100 billion of sales by

2032. Currently, our production capacity is at

about 70 to ¥75 billion. We would like to start building a

structure in the next fiscal year to achieve our goal of ¥100 billion of

sales by 2032. Your shares are up for X over the past

year. Do you see this as a good opportunity to

capitalize on those stock gains, potentially maybe investing in boosting

production in our country? We are very grateful and happy about

this. A rise in the stock price equals a large

increase in market capitalization. We need to make a considerable

investment in order to achieve our next dream of ¥100 billion in sales.

I believe the stock price has made it easier for us to do so in many ways, and

I am truly grateful for that. How about M&A?

Which sectors and regions look attractive to you and how much would you

want to invest? If both parties do not achieve a win win

situation? It cannot be an M&A in the true sense.

In any opportunity in the future. We will always focus on this.

When you inked a deal with a major South Korean chipmaker.

Do you expect your Korea business to eventually be as big as your sales in

China are currently broken, especially in AI devices?

We expect SK, Hynix and Samsung to make a large investment in the future, and we

believe that the market will continue to grow.

But a Chinese market is still very large and I think it adds a different

dimension. China has its own way of doing things

and Korea's Samsung and SK Hynix have their own original ways of doing things.

So we're not thinking of them in the same way.

What is the one thing you think Japan needs most when it comes to staying

ahead in the world? I believe that the basis of a

manufacturing company is to develop products that are unrivaled by other

companies, products that will surprise other companies and products that will

please customers. We would like to expand our business

based on this concept.

Good morning. This is Bloomberg Daybreak here.

I'm Lizzie Boden in London. And these are the stories that set your

agenda. Asian stocks start the week with gains,

while European futures trade broadly flat as traders stand by for Wednesday's

data on US inflation. Meanwhile, Israel says it's pulling some

troops from southern Gaza ahead of a planned offensive in Rafah.

The oil rally takes a breather. Plus, U.S.

Treasury Secretary Janet Yellen meets the PBOC governor on her last day in

China as she aims to put relations with Beijing on a firmer footing.

Those are your headlines. A very good morning.

Welcome to a new week. And to explain what's happening markets,

I'm going to take you right back to Friday.

That blockbuster US jobs report really markets interpreting it as good news

this time. Good news on the strong economy that

could power corporate America even if the price is rates higher for longer.

You've got Treasury excuse me, stock futures pointing to a slightly lower

opening stateside this morning, but higher for the European futures.

And if we flip the board over to the cross asset picture, you can see the

impact of that jobs report on Treasury. So you had a bit of a repricing.

Now traders seeing about 65 basis points of rate cuts from the Fed towards the

end of the year. And then you've seen treasuries off the

back ticking lower. So currently the two year Treasury yield

higher, three basis points at 4.77%. The dollar is a touch stronger.

And if you look to oil that Brent trading at 89.76 a barrel, this is on

the GOP politics and Israel pulling out some of its troops from Gaza or saying

that it will just finally look to Bitcoin that lower than the 70 k mark

that it managed to pass over the weekend.

But we can now dig into what was happening in Asian markets.

We've got Tanya Chen in Hong Kong for us.

Tanya, what's happening where you are? Hey, good morning, Lizzie.

Yeah, so as you were just saying, the market kind of exuberant over the

possibility of this no landing scenario. So we're taking a look at kind of

benchmark equities across Japan, Australia, South Korea, all ticking

higher, starting the week off quite strong.

You also want to kind of turn to onshore mainland Chinese stocks and Hong Kong

there. They're not quite as exuberant as we're

seeing in the other kind of Asian regional stocks.

We were getting some news out of the property developer space today.

One of the default a developer somehow is facing a demand to liquidate.

These winding up petitions are really starting to pile on.

We've seen it with Country Garden as well.

So that's sort of kind of taking a hit on the stock side here.

Also on the board, we're looking at commodities, we're looking at gold.

As you had mentioned, gold is also kind of on a tear recently, obviously, around

these expectations, around these potential U.S.

interest rate cuts. We're also seeing these central banks

out of China and India buying quite a lot recently and kind of pushing up,

driving up that price. Chinese central bank has been buying for

17 months straight and also with the Chinese central bank today on the

currency front, you had mentioned the dollar a touch higher.

Yes, regional Asian currencies are definitely under pressure up, almost all

of them near their year to date lows on the on the UN in particular.

Traders have been eyeing this fixing level where the central bank officials

basically set where they onshore rate can trade in a 2% trading band.

And today they've kept it roughly just just below 7.1, which means that if you

look at the onshore right now, it's already kind of near to that weak end of

the trading band, implying that there's a lot of depreciation pressure that's

building. So we're basically wait and see for the

next few days what this means from the policymakers if they'll take more

forceful measures to defend the currency.

Okay. Tanya Chan in Hong Kong, we thank you.

And we're going to stay in Asia now because HSBC CEO Noel Quinn says he's

pushing to improve his bank's wealth management capabilities in China and

India, so that just as strong as in its home market.

He was speaking exclusively to Bloomberg's David English earlier as the

bank hosts its first global investment summit in Hong Kong.

In 2023, the performance of our wealth and personal banking business here in

Hong Kong, we saw significant customer acquisition growth, right?

We also saw around about a 50% growth in our insurance and wealth business.

In terms of the new business, they were rising last year.

So the fact I saw wealth management is continuing to develop and grow here in

Hong Kong. The liquidity base here in Hong Kong

today is higher than pre-COVID levels. So I still see Hong Kong as a vibrant

financial centre. Capital markets are subdued at the

moment, but that's a function of still coming out of Covid economies waiting to

recover what when inflation and interest rates do.

Right. But we've seen some early signs of the

debt capital market starting to pick up as well.

So the facts, I think, support the fact that Hong Kong still is a vibrant

financial market right now. The I know you're set to report your

first quarter earnings in a couple of weeks.

You can get the details as well. But we just wrapped up, of course, the

calendar quarter. If you could also indulge us, how do you

think the quarter went for you guys? Well, 2023 went extremely well.

Over $30 billion in profit record recorded a record profit.

And that's a culmination of the hard work of our colleagues over the past

four and a half years and also the loyalty of our customers.

They've been very supportive of HSBC as we went through COVID and transition.

Our return, our returns were the best for over ten years, and our dividend at

$0.61 was the best dividend for 15 years.

So I was really pleased with the performance.

We never complacent. We're making sure that we're well

positioned for the future and we're continuing to invest in the business.

We're investing in wealth management here in Asia.

We've done a number of acquisitions to do that.

All right. The most recent one that we announced

was the acquisition of the Citibank Wealth Management business in mainland

China. We bought an insurance business of AXA

in Singapore and we bought an asset management business in India.

And again, just to put it into context, every region performed well last year

and every business loan in India, we made over one and a half billion dollars

profit. If you put BOQ and our own shareholding

of our own bank in China, we made over three and a half billion dollar profit,

so well distributed profit across the world and all parts of the bank doing

extremely well. We've done some reporting on your plans

around your assets in Germany. I was wondering if you could comment on

what your plans are for this year. We remain absolutely committed to being

an international wholesale bank across all of Europe, including in Germany.

So there's no change to that. Okay.

So those are not for sale. Those are not for sale.

We have some business lines in Germany that are non-essential to intra

international wholesale basis, and we're considering options for those.

And that's what the rumor and the speculation was.

Right. But but that is not about our

international wholesale banking proposition or corporate banking

proposition in Germany. Thank you for clarifying.

Assets in Russia. I know the bank has also been looking at

that. If you could give us an update on

whether those are actually up for sale and when you want those.

Well, we have a price tag for. We have regulatory approval to sell that

business. We're going through the final stages of

trying to close that transaction. But it is our intention to sell the

business. We have regulatory approval on it and

we're in the close. We're in the process of trying to close

that transaction. HSBC CEO Noel Quinn, speaking to us

exclusively at the bank's global investment summit in Hong Kong.

Now to central banks. The week shaping up to be another busy

one for traders with the pivotal US CPI data looming.

And then less than 24 hours later, a rate decision from the ECB in Frankfurt.

Joining me now to take us through all of that is Bloomberg's Ruth Carson.

Ruth, how are investors trading the dollar with risk events like this

looming? Yeah, absolutely.

It's been rough for currency traders, especially if you come into 2024 as a

dollar bear, which, by the way, was the prevailing position at the end of last

year. Instead, investors who bought the dollar

have done incredibly well, be it against the euro, the Swiss franc, the Aussie,

the yen. And with us data continuing to surprise

on the upside, it will take a very brave person to go all in on shorting the

dollar, even though it is expensive by historical standards.

Now, US CPI, as you rightly mentioned, could be another clinch of strength

on Wednesday. So if we get another blockbuster number,

we could see the dollar getting a very strong bid and the traditional risk

proxies, the Aussie, the Yuan, the Kiwi all taking a hit.

Now the yen, which is at a 34 year low near a 34 year low, could also be so on

the whole rate differential story, if the Fed is expected to keep rates higher

for longer. I'm going to be brave now, Ruth, and say

it seems inevitable now that the ECB is going to come before the Fed.

How much could that knock the euro and then feed back into inflation?

Absolutely. So traders could be eyeing a double

whammy there as well for four for the year.

I see you CPI then in less than 24 hours, you've got the ECB.

And yes, there is, you know, a chorus of doves out there.

And when you look at where currency markets are at the moment, the euro is

down about 2% versus the dollar so far this year.

It is still the second best performer, though.

So the question then is this If traders are already worried about higher for

longer rates in the U.S., what will happen to the euro if indeed the ECB

does cut more than expected or cut first?

And so a decoupling of the ECB and the Fed's rate path could mean a weaker

euro. And the Bank of America, for example,

has already come out to say that it could weaken to parity against the

dollar should the Fed stand pat on rates.

Okay. So that's the impact of the Fed lagging

perhaps here in Europe. But then, as you say, we've got CPI

coming this week, on Wednesday is 4.5%. The next big test for bond traders

looking for opportunity. They certainly didn't get any rest of

you there. This macro trade is 4.5%.

And we have to remember that markets absolutely love the big, bold numbers.

Is it a next line in the sand? Certainly looks at where U.S.

CPI could be the next catalysts to see whether yields will stabilize, drop or

shoot higher at around 4.4% currently. And, you know, it could test 4.5 if the

numbers do come out stronger than expected.

Now, if we look at B Y FC, which is the bond yield forecast function on the

terminal and bond yields are expected at the ten year mark to fall to under 3.9%

by year end as the Fed cuts rate. So if that's the case, investors may be

looking at these levels as a good time to get in.

But 4.5, certainly a big number to watch out for.

All right. Bloomberg's Ruth Carson, we thank you

for that. Look ahead to a busy week on the macro

front and just staying on the story of central banks, of course, on Friday.

It's a big day right here in the UK for the Bank of England because we're going

to get the conclusion to Ben Bernanke, the Fed chair.

The report on Bowie forecasting. We've had to wait a while for it, but

it's really likely to be an interesting one.

The governor of the Bank of England, Andrew Bailey's, already hinted that

it's going to involve retiring the Bowie's fan charts that are currently

used to show the range of possible economic outcomes on different

variables. Of course, here in the UK we don't have

a dot plot unlike the Fed, though I don't know what you call all this talk

of mountains recently seems like a plot to me.

Nonetheless, it seems like the fun charts are going to be replaced with

scenario models. So like the Riksbank uses, this is the

sort of situation where you have if the economy does ex rate would do why but

whatever they do, it's going to take a while to implement them.

We're waiting for the new deputy governor at Claire Lombard Delhi to take

her seat on the Monetary Policy Committee.

She's expected to take charge of implementing these changes and she

doesn't change the MPC until later on this year.

But another big question for the report is whether the Bank of England is going

to continue to use the market path for interest rates as the conditioning

assumption for its forecast. You remember back in November 2022, it

created really quite a lot of confusion for saying that there'll be a recession.

But that recession was conditioned on rates following the market path, which

the bank didn't endorse. Very confusing, managed even to confuse

the UK newspapers. So perhaps Ben Bernanke clearing up the

Bank of England's forecasting and communications this week.

So we await that report on Friday. But coming up in the program, we'll go

to India. India vying to take China's global

growth engine crown as foreign investment flowed into the country.

I saw a big take and it's coming up next.

This has been back.

Welcome back to Bloomberg Daybreak. Europe to India now where the Nifty50 is

higher, half of a percent this morning. If we just take a look at why, look,

this is already an overvalued market, but it's summertime in India and the

heat has been powering shares of air makers power generators.

But that he also is bringing risk for the market, that you've got water

shortages and crop damage, potentially keeping food prices elevated and pushing

back the Reserve Bank of India's rate cut.

You could also see a spike in energy demand exacerbating power shortages.

But as I say for the day, the Nifty 50 higher half of a percent.

But this is really the subject of today's big take on the terminal, a

broader look at the future of the Indian economy.

India really vying to take China's crown as the engine of global growth.

And it says foreign investment flows. The nation and its government lines up a

number of new trade deals. Well, we could get more on that big take

with Bloomberg's Donald Trump, who's in New Delhi for us.

Don, welcome to the program. What are the obstacles to India becoming

the world's driver of economic growth? So there are a number of obstacles for

India right now. Some of the biggest ones are.

India needs to develop its infrastructure.

It needs to urbanize its economy, and it needs to attract foreign investment.

And it's it's working on all of these things.

Narendra modi has made a priority of of investing huge sums of money in

infrastructure. Of course, foreign companies are

flocking to India, and every global company around the world right now has

an India strategy of some kind as they pivot away from China and look to

diversify their supply chains. But there are a lot of obstacles ahead

for India. I mean, you know, growth is really not

where it needs to be right now. You know, many economists say for India

to sort of really capture the growth crown from China, it needs to get

economic growth up to around 8%, even 9% or higher.

And these are levels that, of course, China enjoyed for much of its recent

history. And India is not quite there yet.

The government right now is targeting around 7% for growth.

If you sort of peel back the curtain there a little bit, you know, the

current growth rate is really around around 6% or so.

So India, of course, has a lot of promise.

A lot of investors are turning there. But, you know, still some obstacles that

need to be overcome. And if India does manage to overtake

China, what's the significance of that, apart from boosting Modi's ego?

Yeah, well, it's a it's a great question.

Of course, that is one that is one major outcome that you'll get from it.

Of course. And this is hugely important right now

as as a voting gets underway in India and just in just a couple of weeks.

But more significantly, and this was this was really the issue we tried to

explore in our story today is on what happens if India overtakes the growth

crowd. Now, you just have to look at China as

an example for what it mean. Now, China has for the last several

decades largely been the driver of global economic growth and the

incremental contributor to the bulk of the world's growth.

Now, what did that mean? It meant it meant that global investors

all flocked to China. It meant that China was the driver of

capital markets activity. It meant that China was the magnet for

foreign investors and foreign multinational companies looking for

growth, looking to participate in that market for a long time.

You know, China, we all sort of operated under this assumption that China was

going to continue to have that to carry that mantle.

And we now see, you know, since the end of the pandemic that China has really

struggled to produce that growth. And now another.

So there's many eyes on India to see if India can be that next driver for

growth. Okay.

Really exciting. The subject of our big take do give it a

read Bloomberg downstream if we thank you.

We've got plenty more ahead. Stay with us.

This is Bloomberg.

This was a hot report. Jobs above 300,000 upwards.

Revision strong household survey hours up, payrolls up at nearly a 10%

annualized rate. This was a hot report that suggested

that, if anything, the economy is really accelerating.

This is very different from what lots of people most people, I think, were

expecting and fits the thesis that the neutral rate is much higher than people

supposed and tight money is much less potent than people supposed.

So let's talk about the neutral rate. You've said before that the Fed should

have at least some idea the interest rate to know whether to stick to or not.

We heard from Chair Powell this week speaking at Stanford, where he said,

yes, we are restrictive in our policy, and yet he quite explicitly said he

doesn't need to worry about where the neutral rate is for policy going

forward. That is like saying saying we don't need

to know what the neutral rate is, is like saying you should drive your car on

field without looking at the speedometer.

It is just a mistake. You cannot know.

And look, I don't know what the chairman said in full context, and I want to be

fair, but there's no way to judge what policy is without knowing what would be

a neutral policy. My view is that the evidence is

overwhelming that the neutral rate is far higher than the two and a half

percent, 2.6% that the Fed talks about. That evidence comes from four places

first. We have high interest rates and we have

an economy that is, if anything, growing faster than its long run potential,

creating jobs as fast or faster than natural growth in the labor force, even

allowing for immigration. Second, we have an economy with

financial conditions that are extremely loose, that are actually looser than

they were before the Fed started the whole tightening process.

If you look at credit spreads, you look at the stock market suggesting that in

the fullness of it all financial conditions actually haven't been

tightened in an appreciable way. Third, if you look at the market's

estimate of the long run neutral rate, as formed by looking at longer term

forward interest rates, that neutral rate is comfortably above 4%.

Fourth, if you look at the fundamental determinants of the neutral rate, we

have big surges in budget deficits that, if anything, look to get worse given the

political process. We have big changes in resilience,

investment in green, investment in new investment in data centers, along with

globalization, which may limit capital inflows into our country.

So whether you look at the fundamentals, you look at market estimates, you look

at financial conditions, or you look at the current strength of the economy, it

seems to me the evidence is overwhelming that the neutral rate is far higher than

the Fed supposes. So that was former U.S.

Treasury Secretary Larry Summers speaking with David Westin following

that US jobs report, which we can dive in a little more deeply into now.

It brings us back to our conversation. Eagle eyed viewers will remember with

Morgan Stanley, chief U.S. economist Ellen Zentner.

On Friday, she was talking about immigration specifically and the impact

on the labor market. Now, the Fed chair, Jay Powell, has said

that because of immigration, you've got a bigger economy, not a tighter one.

And this was well illustrated in the jobs numbers.

Look at the white line. The number of foreign born workers

compared to the domestic born workers, the blue line here.

And that crocodile mouth opening out. The point being that immigration boosts

the break even rate, how fast payrolls can grow without tightening the labor

market and therefore stoking wage pressure.

So we very much saw this. If we flip the board, you can see the

impact on the stock market on Friday. The S&P taking this finally as good

economic news, good for the market as well.

A strong economy expected to power corporate America, even if it means

rates higher for longer. I'm sure they'll be discussing this up

next on markets today. You've got Anna Edwards and Guy Johnson

up next. This is bloomberg.