Asia Follows US Rebound Amid Lackluster Tech Earnings | Bloomberg: The Asia Trade 2/6/25

This is the Asia tray that I'm sure. Brianna in Tokyo, Heidi Strand, what's in Sydney where the market has just opened? The top stories this hour. Asian stocks are set to extend Wall Street gains despite underwhelming earnings from some of the tech heavyweights. A weak reading on US services sending Treasury yields to 2025 lows, holdings tumbling after the bell as a muted forecast adds to concerns Ford warning of a $2 billion profit slide on tariffs and threats. Investors are also bracing for fresh geopolitical shocks as China seeks US trade talks at the WTO. And President Trump prepares to reveal his plan for peace in Ukraine just ahead of all of that. We do have some breaking data when it

comes to South Korea's economy. This is a current account balance as well as a balance of trade numbers. We are getting the current account surplus widening to $12.368 billion in the December goods trade surplus widening to 10.434 billion USD. And this is of course coming and it's a

whole lot of trade uncertainty. Policymakers in Korea certainly very concerned about both domestic growth prospects, a weakening there with political turmoil, but of course also President Trump's ongoing tariff campaign. Given that we do expect that impact on South Korea being such a externally vulnerable and trade vulnerable economy.

So we are getting that widening of that surplus number there for December Sherry. Yeah, we'll watch that market as they open in about an hour. But within that market is really the tech sector as well because the government there has announced plans for a $23 billion fund to support battery and biotech stocks, but is really about really the tech stocks that could move in the Asian session as well. Of course, we do have talk election earnings today, but we've also heard from sources that the SoftBank group is in advanced talks to acquire AMPERE computing. And you can see the Japanese yen right now strengthening a little bit at that 152 level, the strongest since December.

We have seen that surge in yields here in Japan as well. Given the strong wage growth data that we got this week. We're watching that offshore yuan as well.

We had a little bit of pressure, not surprising given the US-China trade tensions. But what we're watching is the over night session on Wall Street as well, not to mention the last hour session as well. You mentioned some of those stocks like ALM falling in the after hours session. Well, Qualcomm is also rising on a bullish sale forecast that we're seeing right now. The Nasdaq 100 futures holding steady while the S&P 500 futures also not doing much. We actually saw stocks rising gains in most major industries overnight but the likes of alphabet had its borstein over a year. And with yields falling, as you

mentioned, the dollar also at the lowest level in more than a week. Crude prices holding steady. Of course, we have plenty of commentary coming from the Trump administration when it comes to the Middle East tensions. Let's get some more on the top stories

that we're watching today. Bloomberg's political news director, Jodi Schneider, joins us out of Washington. Our chief North Asia correspondent, Stephen Engle is in Hong Kong for us. And Governor Reynolds, who leads our markets live Asia coverage here in Sydney. Jodi, let me start off with you.

So we had, of course, the pretty brisk global reaction to the Gaza plan that was delivered by President Trump at the conference, a press conference with Netanyahu yesterday. We're now expecting to hear details of a plan to end Russia's war with Ukraine. This is expected to happen at the Munich Security Conference next week. What do we know about the positioning here and what he could say? Right. Yeah. This after as you're noting, we had kind of that surprise, the surprise remarks about this Gaza plan, which were kind of roundly criticized in the Middle East today, except for Israel, which supported them. The president at the end, this is

according to people familiar with the matter. It has not been announced, but that the president will send Keith Kellogg, his negotiator on Ukraine, to the Middle East, to the Munich Security Conference next week to lay out a plan to end the Ukraine Russia conflict. What we know of the plan and its sketches thus far would be to basically try to pause fighting that they temporarily that Russia temporarily has some of the plans that it has gotten in the in the conflict that this would end before that this pause, at least in fighting, would end before the three year mark of the Ukraine Russia conflict and that both sides would go to the negotiating table. The US would be involved in those talks. That's what we know at this point. More will be coming out, but this is something that President Trump has talked a great deal about, talked a lot about on the campaign trail, saying, in his words, he never that war would have never started under his presidency. And under his presidency, he well ended lots of conjecture at this point whether Ukraine would accept this, especially if they would be losing land, that they are territory that Russia had taken over in this. And what kinds of requirements would

they have, would they need to have before they went to the negotiating table? And we haven't heard from Russia yet on this either. We did hear the only thing we heard from Ukraine on this today was that they have no comment at this time. Again, this is according to people familiar with the matter.

And we expect to hear many more details about this in coming days. And Jodi, of course, as Heidi mentioned, we had also reactions from President Trump's comments on Gaza, both in the United States and really quickly from Saudi Arabia as well. Yeah, Saudi Arabia, along with most other Middle Eastern countries, now criticized this idea, which at this point it's not really a plan. It's more an idea to displace or to temporarily displace Palestinians from the Gaza Strip. There's almost 2 million people there to set and send them to other countries while the Gaza Strip was redeveloped. This is something the Palestinians, the

Palestinian Authority came out and criticized today. And Saudi Arabia said it would basically be tantamount to a forced evacuation of people from their what Saudi Arabia calls their legitimate lands. So this is something that is not flying well with leaders in the Middle East. Today. The press secretary in the White House briefing said that there would be no troops on the ground, no American troops to require this and that American money would not be spent, U.S.

dollars would not be spent. But she did say that. She did say that the president does mean for there to be a temporary displacement of the people who now live there. And, of course, that sounds like that would be a nonstarter with a lot of these other countries. We also did not hear from any Middle East countries that they would want to take the Palestinians here, that they would take them on a temporary basis. Right now, they seem to be saying this

is a nonstarter as far as they're concerned with any forcible removal of people from the Gaza Strip. Transition either there. Joining us from Washington, Bloomberg's political news director. As we continue to watch the Middle East, we're also watching China increasing its objection to President Trump's 10% tariff on filing a complaint at the WTO that calls for talks with the US. Our chief North Asia correspondent Stephen Engle joins us now from Hong Kong.

What do we know at this point about this action? Well, China is simply following through on its pledge that it would file a complaint at the World Trade Organization. And in that filing, they said those 10% tariffs that you mentioned, Sherri, were, quote, imposed on the basis of unfounded and false allegations. The measures at issue not only violate WTO rules, but are discriminatory and protectionist in nature. And it is seeking talks with the United States through the WTO mechanisms. But it's yet to be seen, given the Trump Trump administration's more unilateral approach to executive orders justifying these tariffs. It would be an interesting development

if the two sides would come together under the WTO, still waiting for a potential phone call that the White House has said a couple of days ago could have happened within 24 hours or a couple of days. But yesterday, of course, Donald Trump sort of poured cold water on that, saying I'm in no rush to speak with Xi Jinping and also said classified China's response so far as that's that's fine. And it has been a fairly muted response from Beijing so far after the enactment of those 10% tariffs.

It leaves Beijing with some room perhaps to either negotiate or also roll out further measures down the road. Keep in mind its retaliatory measures that included some tariffs as well as export controls. And a couple of American companies added to the Blacklist entities list that takes effect February 10th. That's next Monday. So there is room there perhaps for negotiation.

But keep in mind, Beijing kept the big guns to itself for now. Agricultural products like soybeans could have been tariffs like it was in the first retaliatory trade war action back in 2018. And then in that first term of the Trump administration, keep in mind, the soybean exports from the United States to China dropped 80% in the first couple of years, costing us farmers about $11 billion.

So China hasn't done that yet. On on the United States, I'm not saying they will. They have diversified their supply chain as far as sourcing from countries like Brazil. So they are building resilience into their sourcing. But again, agriculture on the sidelines right now. Also, keep in mind, remember, they announced yesterday Beijing did that they were launching an investigation into Google, which is sort of a muted point because Google has been out of the China market for 15 years.

But now we're hearing that they could be launching kind of the framework for investigating Apple's policies about the fees that it charges developers. The sources are telling us that Chinese regulators believe Apple may be charging local developers in China unreasonably high prices and that barring a third party app store and payment method also hinders competition and hurts local consumers. So watch this space for Apple in China as a potential lever of negotiation for China or a lever for retaliation from China against those 10% tariffs. So we've always had this whiplash reversal from the US piece as well.

Wrote the Postal Service for refusing Chinese and Hong Kong parcels and then turning around saying that they. I guess I've worked out a mechanism to collect those taxes. Yeah, well, you know, there was about 12 hours of extreme confusion about this because I saw the statement on the US Postal Service website. It basically was one line saying they

will for now temporarily suspending the receiving of all packages from China and Hong Kong. And keep in mind, you know, this this sudden move by the Trump administration to remove this loophole of this $800 de minimis exemption for small packages, less than $800 into the United States direct shipment that didn't require duties or inspection, really kind of threw the USPS into a panic mode to figure out how they're going to enforce that. There were 1.4 billion de minimis shipments into the United States last year.

It's about 4 million a day. So I think they really kind of panicked and said, how are we going to comply with these new rules? But it sent, obviously online e-commerce providers into panic mode as well. And also, what about all those shipments that are currently going across the Pacific or elsewhere from around the world? So, again, the the USPS is saying as of now, they are accepting all packages and mail from China and Hong Kong. But watch this space. Huawei's chief North Asia correspondent Stephen Engle there. Asian equities are set to advance after we saw both stocks and bonds rising on Wall street in week has been marred by tariffs, lackluster tech earnings and even US aeco data Springfield Reynolds who leads our markets live Asia coverage and gave a period of extreme uncertainty as Dave characterized it as I guess that's going to be the next four years.

But I guess we can see in this example with us is how quickly the outlook can change for, you know, certain segments in companies like e-commerce in China, for example. Well, yeah, and you're sort of left waiting for the for the next shock that might come, including shocks that, you know, end up being extreme geopolitical or political shocks where there isn't any obvious market move that it's that that's attached to it. So it's a very fluid situation, you know, out there. And I think there's going to be an air of caution even as Asian equities rise now, because you don't know what might come next. Yeah. Here in Asia, of course.

And given the uncertainty, what we're watching is just training by headlines, at least when it comes to the Chinese still. And what sort of reaction do we see after the open, given that? Also we saw a lot of consumption during the Lunar New Year holidays? Well, we did, although, you know, there was some disappointments, I thought it was very noticeable that, you know, the services PMI that came out yesterday fell and missed expectations that it would hold up precisely because of Lunar New Year, Lunar New Year holiday spending. So there's a and that was the first time since quite early 2003 that all four of the PMI readings for China fell. They also all just about all the missed

expectations. Your best case was they came in about the same as expectations. So that's a pretty grim picture. And it was focused on the services PMI, those were the worst ones. So amid that, there is an ongoing concern about China's potential to spur consumer demand. We'll probably see, I suppose, a recovery in some of those e-commerce shares that fell yesterday in China on the US News. But really what China needs as far as

the broad equity market investors are concerned is, you know, concrete stimulus measures they need. They're looking for some combination of rate cuts or reserve ratio cuts, concrete, large targeted spending moves to boost consumer demand, to make it clear that they are seriously interested in doing that. And so far, the market is still waiting for that. The main pockets of buoyancy that were apparent in the Chinese equity market yesterday were those companies that were tied to deep seek and, you know, the China tech sector that was seen as potentially benefiting from China's apparent success in coping so well with the restrictions that have been imposed on what chips that could use.

But for a broader market rally, you're going to need more than that. You're going to need, you know, the authorities in Beijing to come to the party in a way that so far they've been reluctant to do. Kevin Reynolds, who leads America's live Asia coverage there. Well, coming up on the Asia trade, we take a deeper look at how the US-China trade war will impact oil prices. Vector's Energy Partners will be with us, and Statuary joins us to discuss positioning for market volatility.

Plus, we'll take a look at what's next for Asian chipmakers with the FT Trim group. This is Bloomberg. We're seeing mixed moves for tech stocks in late trade after Qualcomm and ARM give divergent outlooks in earnings right now. We had Qualcomm gaining ground at first, but we're seeing the downside pressure right now as ARM Holdings, of course, fell, given a disappointing outlook as well. Let's bring in a reporter, Annabelle Jewelers for more. And Bell to start with Qualcomm, because you given Rose your outlook and we had that after we're trading higher but it seems that he's playing catch down with ARM as well. Yeah, that's right it's been pretty interesting moves in after hours and it just tells you maybe investors are continuing to digest these results coming through and maybe starting to zero in on some things or hone in on some things that are causing a lot more concern.

But at the headline level, actually, the numbers were pretty good and we did see shares moving higher, as you say. So earnings per share, they were up 23% coming in at 3.41. That was well above the consensus from Wall Street of 2.96 revenue as well, that that was up on an adjusted basis, but still up around 18% on the year. So coming in at $11.6 billion, the estimate had been for 10.93. And as well in terms of what they're

saying for for the quarter ahead. Still, you know, at the upper end of the scale, it's still coming in better than Wall Street analysts had been tipping. But what is driving a bit of concern in late trade is this concern around the the licensing business where the licensing portion of the business and this is going to be generating, they say the company between 1.25 to $1.45 billion for the period the average analyst projection had been for 1.4 billion. And so that is sort of causing a bit of concern also because of what it signals. This is based on a projection of of the

number of phones that are sold. And so it is causing some to say maybe the outlook for smartphone growth isn't looking so strong. What else stood out to you when it comes to that release? Well, we had Qualcomm, of course, and it's sort of coming in a flux of a different number of earnings across the week because ARM was another one as well. And and this one we've seen, of course, is dropping in light trade. But essentially they gave a pretty

cautious outlook for for the current period. And that, of course, follows what we heard from AMD that also gave a bit of a lackluster projection. So in aggregate, again, it's not painting such a great picture, but revenue is going to be 1.18 to $1.28 billion in the fiscal fourth quarter that ends in March. That is in line with some prior forecasts. But some analysts, again, have been tipping it to go even higher.

There's a lot of expectations that are on these companies as well. So again, we've seen those shares dropping in late trade, but it is that concern around the outlook from the company four months ago. And though we're also hearing that Arm's majority owner SoftBank is in acquisition talks from Pier, what do we know? Yeah, that's right. So actually SoftBank still owns 90% of ARM. But but we have been reporting in Bloomberg that there were these talks or discussions in place between SoftBank and AMPERE for an acquisition. This has been something that's been going on for quite a period here. But the latest that we've got is that

they could be discussing a deal that would value Empire at $6.5 billion or thereabouts, and that would include debt, a transaction we're hearing as well. It could be announced in the coming weeks. We had been reporting on this expression

of interest last month, but even going back a couple of years ago as well, in 2021, there were talks at this point as well. And and what's interesting is the valuation that had been tipped at that point, which was around $8 billion. So coming down to what could be $6.5 billion now, also just tells us how much increased competition there is in this space. Tech reporter Annabelle Joel is there

with the latest. Let's get you caught up when it comes to some of the other corporate headlines that we're following this hour. And Tesla sales in Germany fell 59% last month with less than 1300 new cars registered for its lowest total since July 2021. That was when in a market that we saw that EV sales overall jumped 54%. The company's struggles may be connected to Elon Musk's political activities. A YouGov poll taken in mid-January suggested many Germans viewed the CEO unfavorably. A group of Morgan Stanley led banks have

sold five and a half billion dollars worth of debt tied to Elon Musk's social media platform X, offloading around half the exposure they've been holding since the 2022 purchase of what was then called Twitter. Sources say the loan sold at $0.97 on the dollar. The bank still has $6 billion of X related debt on their balance sheets.

Google has told staff it will no longer formally seek to improve the diversity of its workforce through aspirational goals. It's just the latest tech giant to retreat from such initiatives since President Trump's election win. A note to employees says that as a federal contractor, Google is also evaluating recent court decisions and executive orders on the topic. More ahead on the Asia trade. This is Bloomberg. We're watching Treasury's training. Of course, we heard that Treasury yields

declining in the Wall Street session, a weak reading on U.S. services, pushing the ten year yield down support on the other side by stronger than expected ADP private payrolls. But of course, there's also the Fed narrative with the Fed's Austan Goolsbee warning the persistent tariffs could renew supply chain disruptions and drive up inflation. We'll discuss all of this and the macro economic picture globally. Coming up tomorrow, today on Bloomberg

TV. Well, tomorrow on Bloomberg TV, we'll hear exclusively from Bank of Korea, Governor Yutong Yong about Trump's tariffs, inflationary pressures on the Korean economy and the chances of a rate cut later this month. More ahead on the asia trains. This is bloomberg.

Gulf Coast refiners actually run a lot of the heavy grades that come from Venezuela. If you see sanctions on Canadian tariffs on Canadian or Mexican oil, that makes sense from that oil to other countries. And so the Venezuelan oil could be even more important. So it's it's things like that AS how would this work through the system that we really try to help, you know, the policymakers understand. Chevron chairman and CEO Mike White on the potential impact of U.S. tariffs on oil market. Take a look at what we've seen when it

comes to some of the moves across crude markets over the last two days. Of course, so much of the geopolitical and trade tensions have played into the moves. And we've now seen that that terror threat has even encouraged kind of such a rethink, those limits on oil pipelines. So that's a potential factor there as well. But oil has fallen to that lowest settlement price of 2025 as traders exit the market. After all of these Trump policies, the positions on the war in the Middle East, the tariffs on energy, all of this really weighing on sentiment.

Let's get some more perspective now on oil markets. Joining us now is Tamar Esta principal of Victor's energy partners. Tamar, we've seen a $17 billion net outflow from crude and fuel markets globally. Do you expect this exodus to continue?

Yeah, I think that the uncertainty from Trump's announcements and policies and really the the lack of understanding what his clear motivations are will lead investors to be uncertain and find oil increasingly on investible for the foreseeable future. And so that's that's a big overhang on the market. Even if Trump ends up backing down on some of the tariff threats, as we've seen with Canada and Mexico, just the overall market of uncertainty is not good when it comes to the outlook for demand, particularly in an outlook in an environment where Chinese demand sort of the linchpin of the demand growth story is already under question. It's clear that the direction of travel going for the next few months is going to be lower news. So political and geopolitical developments are going to be more important than fundamentals.

What role then, do you see as being played by Opec+ and allies? Well, I mean, over time we know that OPEC's has significant spare capacity, anywhere 5 to 6 million barrels, depending on how you calculate that. And ultimately, we know that they want to bring those those barrels to market. They've been fairly disciplined so far in sort of adhering to their deals with with some exceptions. Obviously, Trump has called upon OPEC to

add more barrels and they've sort of pushed back on that. Ultimately, we think that there could be some sort of deal, I say in air quotes, where Trump can declare victory by OPEC, saying that they'll add back barrels in April, which is sort of in line with what they are initially planning to do. Obviously, it will sort of depend on where prices are at the time. Over time, though, I mean, it really is it's a difficult situation for OPEC because without the pressure from Trump, there really isn't much need for those OPEC barrels this year. The way we see balances, because in an outlook where demand is uncertain and supply growth is is robust in and of itself, there really isn't room for the OPEC barrels. They may just take the out from Trump

and add those barrels, start adding a small amount of those barrels back anyway. But it's a difficult position for them. And ultimately it's sort of a threat to the OPEC's cohesion unwinding over time. Hmm. What does that mean for Americans?

For example, at a time when we're thinking of potential tariffs on Canadian oil imports, I know that those are on hold for the next month, but what happens afterwards? Well, I mean, we'll have to see, obviously, particularly when it comes to Canadian tariffs. Ultimately, we think that those remain carved out, even if other tariffs on Canadian products and up and up coming online, we expect that somehow or another there will be an agreement to keep Canadian oil exempted because there just really is no alternative for the 4 million barrels a day that the U.S. imports from from Canada. And and if those tariffs did come into effect, it would be tremendously disruptive for the the U.S. energy system and for consumer prices. So our from just our conversations in the industry, we expect that there ultimately will be carve outs for that. The main uncertainty right now is what impact this all has on the demand outlook from all of the economic uncertainty that this is creating, especially economies like China that have already been it's been already been stuttering.

But at the same time, we're seeing perhaps a little bit of a revival of consumption coming after the Lunar New Year holidays. How are you seeing demand from China coming in the next few months? It's really such a grey area because any data coming from China you really have to take with a grain of salt. It's just so uncertain. We expect that there will be a lot of noise around it.

Obviously, the lower oil prices go, the more China starts buying for their strategic and commercial inventories. So we expect demand will look a little better amid lower oil prices. Of course, we won't get that data until several months delay. And obviously, you know, the looser that they are with their refinery export quotas, they basically just end up exporting a lot of refined product back onto the market.

So, I mean, over time, the clear picture direction of travel, as you said earlier, is is for lower Chinese demand. And the demand growth at least is going down. Their whole policy is based on the system of being more power dependent, so coal and renewables to fuel electric vehicles. And so

oil is going to be less and less a part of that story. But amid that long term trajectory, there will be a lot of noise an up and down with the Chinese demand data. And that could be that could be a source of support for the market this year. We saw a lot of support also for energy stocks in the past year or so, given the expectations of how much compute power it would take to really bring in the new era of artificial intelligence. But now you have China sort of deep sea that can do all of this at a low cost and more efficiently. Those that change your calculations at all on these names, I mean, maybe by degree it changes in terms of just how much the demand expectations will be for for more power, but ultimately demand power as demand for power is going up. I mean, clearly with electric vehicles,

increased digitalisation, data centers, even if Deep six model ends up proving more scalable, demand is is going to be higher for power. And so I think that that's a long term source of demand of support for natural gas stocks, particularly visa, the oil stocks. So the problem right now is oil, as we said earlier, has kind of become under under-invested and sort of on investible because investors just don't see long term demand for oil. They're really concerned about that, you know, terminal value issue with the whole power demand story coming from A.I. and digitization and electric vehicles, you've sort of created a long term thesis for natural gas stocks vis a vis oil. And so we think that that's a source of

outperformance for those stocks. Camera. Asner, always good to have you with us. Principal advocate is energy partners. We're not just watching oil. We're also watching the metals space because, of course, there are threats of tariffs on the likes of steel, aluminum, copper as well. We're also watching gold because it's hit fresh record highs. There's haven demand given all of the tariff news. Also, gold in the Bank of England

trading at a discount to the wider market because of these fears of potential tariffs coming from the Trump administration. In the meantime, Arabica coffee again. Prices have doubled over the past year. We continue to see supply concerns, especially when it comes to Brazil, Vietnam and global stockpiles now falling to a 25 year low. Well, Cheri Richmond said President Tom Barkin has joined other Fed officials in calling for more time to see where the U.S.

economy and inflation are going under President Trump's policies. Buck and spoke exclusively with Bloomberg about the Fed's patient approach to rates. The case for wait and see is, in fact, that you want to wait and see. I mean, I. I start with the baseline economy. That's the date has been pretty favorable. I mean, we had a pretty good growth in

the fourth quarter. Consumer spending was healthy. Inflation, especially the last two months, has come down and I expect the 12 month numbers to come down nicely over the next couple of months as we lap last year's elevated first quarter numbers. Job market seems to have stabilized. So I start with a baseline that's pretty favorable for what we're trying to do. And then you have uncertainty and that

could take us up. It could take us down. We'll just have to see. Do you still see the Fed cutting at some point this year? I mean, that's certainly the the lean. But we'll see what happens. Could the Fed can potentially see anything that could cause you to contemplate hiking rates? Well, I never take anything off the table.

And so if you never take anything off the table, you can't take anything off the table. So I'm not going to do that. But you'd have to see an economy overheating. And I don't see any signs of an economy overheating. I see inflation coming down, not going up. I see the job stabilizing. But we got the jolt steady yesterday

that seemed to come down a little bit. It doesn't feel like we're overheating. And I think you'd have to imagine you're seeing an economy overheating. Let me go back to the base case idea. At this point, do you think that interest rates are suitable for this economy? For a while the Fed was saying we need to cut because we're still tight. But if you can't, is that okay? Are you looking for data that will tell you to cut or are you looking for data that will tell you to hold? Well, so I supported the recalibration we did obviously in the fall. And that's because with inflation in the twos and unemployment weakening at the time, the one number that seemed out of range was having the Fed funds rate at 5.3. So we brought down 100 basis points.

It's at 4.3. I still think that's moderately restrictive, but we'll learn as we go. And if what happens is the economy comes back strong, you have to ask yourself questions about how restrictive you really are. If the economy weakens further, you can adjust appropriately. If inflation continues to come down, you

could say, Yep, I'm having the impact I want to have. If it doesn't, you know, you ask yourself those questions. And so I think we've recalibrated to a place that is more sensible given where the economy sits right now. And I think it leaves us well positioned

on whatever happens. That was freshman Fed President Tom Buck and speaking exclusively with our colleagues Michael McKee and Lisa Abramowicz. It's more ahead on the Asia trade. This is bloomberg. 100 Nissan appeared to be on the verge of abandoning plans to merge into one of the world's biggest carmakers. A collapse in discussions would spell trouble for Nissan in particular, which was counting on its peer for a lifeline, a global business. Senior editor Chester Dawson joins us

now from Detroit. So what do we know in terms of the diminishing prospects of this deal coming through? Well, it still seems like the negotiations are a little halting at best, and it's still somewhat unclear as to whether they're going to come to terms and become the world's third largest automaker or whether this is all going to fall apart in a great ash heap. It seems like, for one thing, that the restructuring that Nissan has done to prepare itself to streamline maybe hasn't been quite sufficient enough to win over Honda. But it's very unclear whether, you know, these two companies are going to be able to come to terms or maybe they're going to need some outside catalyst to to come in and stir things up. The idea was that if we got this alliance and this combination, that we could see potentially them rivaling Toyota. Right.

How is Toyota doing right now? We got their earnings. It is doing fine. I mean, it just keeps humming along. I mean, you know, the latest quarter was fine. It wasn't didn't blow the lights out. But their full year forecast for the

fiscal year that through the end of March was was good but didn't quite meet some analysts expectations. But Toyota's always very conservative with these things. If you look at their exchange rate, for example, and they're still recovering from a certification scandal or quasi scandal earlier this year. So they're in great shape. They've got the hybrids doing well and their vehicles. They're still the world's largest automaker.

Our senior editor, Chester Adelson there, joining us from Detroit. And it's a busy week of earnings here in Japan because we also have chipmaking equipment supplier Tokyo Electron expected to report its highest quarterly operating profit in two years thanks to the boom in artificial intelligence. For more. Let's bring in Bloomberg Intelligence

senior tech analyst Masahiro Tanaka Tsuji Masa, of course, we know that the results now look pretty positive, but always with Tokyo Electric, it seems to be about what happens in the future, especially if you have these tariffs against China as well, not to mention deep sea. And I haven't even gone that far, but more low cost efficient AI. Mm hmm. Yeah, probably in this time market forecast will be I gained revenue from China. So in the case of Tokyo Electron, they are revenue exposure to mainland China was quite high. And the market may think that the one of the biggest big reason why Tokyo Electron is not reporting good numbers but the market to maybe a bit concerned about the future demand reduction potentially from mainland China. So the market forecast could be

something around that China aggregate demand. So that situation might be a bit defined from Japanese suppliers and US suppliers. So that could be one of the forecasts. How well are they doing then in diversifying away from China and adding to that, how much of an impact is for the semiconductor equipment supplier when we're thinking now that we could get cheaper air models? So probably in the case of a Tokyo electron, they are having a bit more demand from the kind of probing equipment or apart from that, their existing main product is a quarter different bio etching machine. So they are kind of having more broad based products going forward. So maybe related with a or a related process side.

So actually it's peer at Tokyo, same meter reported quite good numbers. So maybe that implied that the Tokyo refining will be doing quite good for the other products, including probably machines. And maybe if we talk about air molders, we basically think that, you know, cheap or maybe cost efficient air models will promote more adoption going forward. So that will eventually create more demand for the semiconductors. And also the semiconductor equipment revenue should be pretty linked with adoption going forward. What are we watching for when it comes

to China cells? Is that sort of give the possibility of upside or downside either way and some of those risks already priced in the. I think that mostly the market understand the situation. So in the case of Japanese makers, mainland China, revenue exposure is around to maybe 40, 45% range. And the in the case of us make cars that should be around the 30 35% mark in our revenue export revenue exposure range.

So that should be the forecast. So if that number is a bit too high market, maybe a bit too concerned, a market may be concerned about a potential revenue decrease from mainland China next year. So I think the market should be looking at, you know, what percent of revenue coming from China in December quarter for Tokyo Electron.

Bloomberg Intelligence Technologies senior analyst Masahiro Tsuji here with what to expect from Tokyo Electron as we get the earnings. We have more results coming out of Japan. The more profit already being reported as rising more than expected in the quarter ending December. Net income of Japan's biggest brokerage doubled from a year earlier to over $660 million.

The more I reap the benefits from robust trading in its investment banking business and made progress on cost cuts, revenue and the more of the massive wealth management division also grew 13% from the eighth. For the eighth straight quarter forward, shares fell in the lead in late trading after the automaker warned its profit this year may fall by around $2 billion. The initial warning pegged the possible weakness to falling vehicle prices. At the same time, Universe through expensive new model launches. CEO Jim Farley told us that President Trump's threatened tariffs could also cost the auto industry billions. I think longer term is the bigger concern. These kind of tariffs, especially in

these two countries, are very significant. And if they persist beyond months, you know, we could see billions of billions of dollars of pressure on the industry, lost jobs, lots of impacts to communities in our ecosystem, in the industry. And that's what we're talking to the administration about and congressional leaders. Disney CFO Hugh Johnson says that the Trump administration's tariff blitz is immaterial to the company.

He also told Bloomberg while he's expecting continued growth at Disney's streaming business that saw a 31% gain in first quarter earnings. The streaming business is is doing extremely well. This is the business we were in. We invested pretty heavily in a couple

of years ago. And what you're seeing now is the benefit of those investments. Our expectation is, well, we'll continue to grow subs will will improve margins. We should make more than $1,000,000,000 in that business this year and next year we're looking at double digit margins in that business. So certainly a ton of positive momentum. Now, you getting into the question of why a lot of it is the great content that's coming from the studio side of the house, both on the TV and the movie side of of our entertainment business. One or two inside, out to Deadpool, all terrific hits. And on the TV side, the combination of

Abbott Elementary show gone and high potential causing viewership to to grow. We're seeing higher engagement. We're seeing churn ultimately coming down over the course of this year. So we feel like the streaming business is going to be one of the big drivers for our company going forward. You know how much I love shotgun and laser? I can say love and I wanted to as well. So the content side is looking pretty

good so far. I did want to talk about the cost issue, though, and clearly not an issue for you. So I appreciate the explanation conversation we've had over the last few days or so is if we get tariffs, can companies pass on the costs? I'd like to know from your perspective and for the company, the additional tariffs that have gone into China, how that could impact your business. How are you thinking about things? Yeah, right, right now, based on what's been proposed and obviously this is a rapidly evolving environment. So we're going to react as as we learn things. The impact would be immaterial to us. So from from that perspective, really,

the Walt Disney Company will be fine based on what's on the table right now. Disney CFO Hugh Johnston, speaking with Bloomberg's Jonathan Ferro. We have more ahead on the Asia trade. This is Bloomberg.

The latest political stories from around the world. Now. In French, Prime Minister Francois Bayrou has survived to no confidence motions in parliament, assuring the passage of a 2025 budget following months of political turmoil.

France is now on its third government since President Emmanuel Macron called snap elections last year that fractured the National Assembly. French bonds rallied this week, although Bayrou describes the budget bill as imperfect, so detached, he has become the first Philippine vice president to be impeached by the House of Representatives. The move heightens political risks amid a public feud between her family and that of President Ferdinand Marcos. Junior de Toto will face a trial before

the Senate, which could result in her removal and disqualification from holding office Sherry. Take a look at the broader markets right now. Trading across Asia. The ASX 200 index staggered open, saw the gains of 9/10 of 1% early in the session. NIKKEI futures setting up for a higher open the 4/10 of 1% as well. We had a little bit of a mixed picture when it came to U.S. tech earnings that we saw Qualcomm had a

bullish sale forecast. AAM though tepid outlook both of them though falling in the after hour session. So we're looking at those tech stocks in the Asia session especially as we get Tokyo elections results today expected to report its highest quarterly operating profit in two years. U.S. futures not doing much as I said, it was a little bit of a mixed picture, but we actually did see U.S. stocks rising in the overnight session with most major industries higher, the dollar falling to the lowest level in more than a week. A little bit of a different economic picture, a weak reading on U.S. services, a stronger than expected ADP

private payrolls. So we'll be watching U.S. Treasuries trading at the same time. Also, the Japanese yen at the highest level since December against the U.S. dollar and market opens in Seoul and Tokyo are next. This is Bloomberg. This is the Asia trade we're counting down to.

Asia's major market opens as we keep an eye on those textiles. Of course, we had a mixed picture coming from tech earnings in the US, Heidi. We do have Tokyo Electron also earnings out today.

But what we're also watching is really commentary coming from the Trump administration on the Middle East and the Ukraine war. Yeah, and of course, we continue to see the reaction to his plan for the US to take over Gaza reverberating around the world. There's been so much sort of ridicule and scorn and outrage over that plan, even as his own aides try to walk that back. So be very interesting to see what sort of plan materializes when it comes to the future of Ukraine. And at the same time, we continue to see just a lot of uncertainty, for example, that US news wrap being walk back as well so we could see some upside when it comes to some of those e-commerce stocks in China. Yeah, we'll be watching that open after

Chinese stocks took a tumble after coming back from the lunar New Year holiday is really setting a different tone for the markets. But right now we're seeing Japan coming online, gaining ground, 4/10 of 1% for the Nikkei. As we're waiting now, Tokyo electronic earnings, not to mention we already are reacting to earnings that have come out in the past week, including Nomura, Toyota as well. Not to mention that we're watching that potential tie up between Nissan and Honda that could be facing a little bit of trouble at the moment. The Japanese yen strengthened in the overnight session. Look at that. It's at that 152 level, the highest

level since December. We had the dollar falling on the other side of that trade because we had some conflicting numbers also out of the U.S. economy, especially when it comes to that services data disappointment. But the ten year yield, high levels at the highest, I think since 2011 or so. So do watch out for that because we are seeing those expectations for the BOJ tightening continuing to rise. So we're seeing yields rising and the yen strengthening as well. Take a look at how the cost base coming

online because we've been watching, of course mean conductors are chip makers like Samsung and SK Hynix, the Cosby gaining ground at the open, the Korean one still a little bit weaker against the US dollar. We heard from the South Korean government that they're expanding this huge fund. They're going to set up a new fund in order to be able to support those biotech names, those tech names as well. Heidi. Take a look at what we're seeing when it comes to the trading situation here in Australia.

We just about an hour into the session for the ASX. We say upside of about 9/10 of 1%. If you want to take a look at a bit of a break down, most of that rise being left by the financials, the banks, property stocks as well. In New Zealand, we're seeing that session closed today for a public holiday. We're also watching the picture when it comes to treasuries as well as sovereign bonds. Right. In Australia, we saw that new bond attracting $83 billion worth of bid.

This is a record breaking sale due to the central bank policy easing, moderating inflation levels, trade tensions as well. So we're seeing Australian bonds joining the likes of Spain, France, the UK in getting those record orders this year. At the same time, we're watching Treasury yields very closely, right. That slide to the year's lows so far

after with the drop that we saw in the services index, with most of those yields across the ten Friday falling around at least ten basis points after the service sector activity gauge weakened more than anticipated. So really kind of firming up the view that the Fed interest rate levels will stay restrictive, perhaps turns into the case for strength for cuts to come later this year. But certainly that sense of wait and see is still very much intact there. Let's bring in Stephanie Lew, who's a chief investment officer at Digital Wealth Manager.

Stash away. So, Stephanie, it's been a pretty chaotic week so far. Pretty chaotic year so far as well. How are you navigating all of the uncertainty and the possibility that the news flow can kind of just be in such a whiplash sense of changing the narrative? Yes, I mean, indeed, everything about how long Trump has been in office, it was just two and a half weeks, but it felt like I was there. Yes, I think but I think it's important to remember a few things. The first time is that there is going to be a lot of noise. And this is this was the Trump

administration that we saw. It was 16. And this continues to be the new Trump administration that we see right now is important to think about, like what are noise and also separate noise from actually real data. Indeed, if we look at real data, for example, when we look at the PMI data that just came out, I mean global kind of industrial cycle has been improving and indeed it's been improving in the US. And particularly if you look at some of

the I guess the smaller cap companies and mid-cap companies, they are reporting improvement in sentiment and that gets actually reflected into better performance this year versus the broader S&P index. So for example, if you look at the equal weight S&P or the midcap S&P, those have actually been outperforming the overall market. And I think you've seen a bit of rotation here out of the popular stocks and popular sectors from last year into the broader market, which is something that we would like to see. So in the year and the beginning of the year we put out our outlook piece is called Fat is the New Normal Fat. And the reason why we call it fat is because, of course we all like kind of a bit of more substance, especially around the Chinese New Year.

But also fat represents fiscal policy and Trump. And I think these three pillars are going to be kind of what we should pay attention to as investors in this year and perhaps next few years. I'm curious, I sort of I guess, outside of that other domestic stories that you think might be less impacted and also make for compelling investment thesis? Yes. And I mean, indeed, I mean, we are

overweight India and Japan and our global asset allocation portfolio because of the fact that these are much more domestic stories and. For example, if you look at India today, I mean, it has suffered a kind of a a correction in the last few months, but that is partly because of profit taking. I mean, India was, of course, trading at a much more expensive level in terms of price to earnings. But also, I mean, it has been one of the best performing markets in the past few years. However, today, with valuations actually back to a more normalized level, we think it's actually pretty interesting, particularly when I think if you look at some of the things that are going on domestically, the RBI is slow to cut in the next meeting. They just came out with a fiscal budget

that is quite expansionary. They have I think, the they have much more political stability. Also in terms of the the BJP winning in New Delhi election. So I think a lot of these things are

quite supportive for the Indian domestic growth. And of course, I mean, given the correction we've had, I mean, now you're getting India equity at a much more attractive prices. Perhaps also that they're a little bit more away from potential direct tariffs coming from the Trump administration. Same thing for Japan. Yeah.

I think, of course, like the the terror story and also kind of the global cyclical cycle is much more relevant for Japan. But also I think if you look at Japan from a longer term perspective are things like corporate reforms, things like our coming out from deflation. And these are kind of multi year trends that have not change or were not change even with the Trump tariff. And then one thing that is important to remember, I think, is that when we look at the Trump set of policies, actually we rank tariff at a much lower risk than I think what the market perceives, and that is because of a few things.

Number one, if you look at the broad bucket of where Trump policies could land, of course they are good. They are pro-growth policies like tax cuts or deregulations, but also on a negative side, potentially, there is the tightening of immigration and also tariffs. And if we compare tariffs versus immigration policies, we think that immigration policies is actually a much bigger risk to the US economy or to global economy than tariffs. Reason being, we think that if we look at the the median voter in the US, they actually care a lot more about immigration than tariffs. And actually if you look at the Trump

administration historically, he used tariff as a much, much more as a negotiation tactic than actually really bringing any kind of real blow to to either economy. So we think that actually this is part of the tactics, as we've seen in the past weekend. It is part of the deal. Sasha Wakil, Stephanie Long, they are

joining us with the latest market outlook. Thank you very much. As we're still watching training here in Japan and those Asia tech names moving at the moment, of course, we were watching SoftBank because ARM just disappointed and gave a tepid outlook, but also because we've learned that SoftBank is in advanced talks to acquire AMPERE computing. You can see a little bit of downside

right there. But what we're watching is also Tokyo Electric because we are expected to see their results. They're expected to report the highest quarterly operating profit in two years. Of course, they're really riding that boom. Their demand for chipmaking equipment continues to grow. Other chip makers renesas Samsung at the moment also gaining ground. Take a look at how Nomura is doing,

because we have seen over 60% of companies here in Japan having beaten earnings estimates, especially financials have delivered the biggest beats. And you can see Nomura gaining 5%, their profit rising more than it had been expected. They've benefited from robust training, investment banking business, as well as making some progress on cost cuts Heidi. You take a look at autos in particular in Japan. That's one sector that we're focusing on. And this is sort of some deals,

uncertainty affecting the likes of Honda and Nissan at the moment. Interestingly, we're seeing Nissan up by over 2%. Honda, though, taking a dip by 3.7% there. We're hearing that that deal to potentially merge would be now be called into doubt weeks after those talks began. They're discussing options, including withdrawing entirely after an agreement to consider combining was called into question. That's really been seen as a big setback for Nissan, which is of course struggled with its leadership and competitive products over the last half decade.

But interestingly, we are actually seeing Nissan stocks outperforming the broader auto sector at the moment. We're also seeing a bit of upside when it comes to Mitsubishi on account of the numbers, despite a profit expected to fall. But to keep that full year target for the third quarter. And we're also watching Toyota there as

well, up by just about a 10th of 1% or ahead on the Asia trade. This is Bloomberg. Take a look at what she when it comes to crude and energy markets. WTI at the moment is looking like this after oil steadied near its lowest this a year. The geopolitical positioning from

President Trump, the threats of tariffs really weighing on the broader outlook. And we have seen a pretty immense drawback when it comes to investors that have gotten out of crude and fuel markets altogether. Well, the Trump administration is expected to present a plan to end Russia's war with Ukraine at the Munich Security Conference next week. It comes as President Trump's proposal for a US takeover of Gaza faces condemnation in the Middle East and among European allies, as Bloomberg News editor Michael Hayden. So, you know, I'm wondering, given the surprise that we heard in what I think his aides have since described is just creatively talking up possibilities, what we could expect for Ukraine. You know, Ukraine sort of slightly different because his envoy seems to be President Trump's envoy seems to be taking more of a lead on that.

And the discussion there also seems a bit more logical as well. And they're talking about strength through peace. And the outlines that we've got looks reasonably straightforward. It's just that you'd freeze the conflict, that Ukraine would get a security guarantee to stop Russia from, you know, taking the pause and then rearming or having another go at Ukraine. And then once a cease fire is in place, Ukraine will hold elections. President Galitsky has said he's willing to sit down with them, with Vladimir Putin, and Russia is sort of indicating the same Russia.

Russia maintains that President Zelenskiy is an illegitimate president because Ukraine is under martial law and zelensky's terms actually expired. But under martial law, you can't hold elections as well, whereas Putin was re-elected with a landslide, you know, to a fifth term in elections that no one believes were free and fair. So it's a bit of a furphy that one. But nonetheless, although all that AM

point is that we are sort of making some progress and for Ukraine really given they're on the back foot, on the on the military side of things and you know, they are struggling in general. I think that whatever they can get in terms of a security guarantee, that means that they're not going to have Russia closely coming at them. That would be something they were willing to take on. Just the final thing, too, is if there

is an election and Szymanski did you did lose a fresh person in charge of Ukraine always makes it easier for sides to negotiate if there's more details to do as well there. So I think that's why the US is quite keen on that front as well. We've also seen a bit more reaction when it comes to the sort of maximum pressure campaign that we've seen Trump start to allude to when it comes to Iran. Yeah, and it's interesting, isn't it? It almost looks like him because he just before he started talking about that, he'd also be interested in doing a deal with Iran. He did sign into the into place those or, you know, look to impose those conditions really strict conditions on Iran that would squeeze its economy and that would, you know, sort of replay what he did in his first term. And and Iran's economy really did suffer then. But then he's come out and said that

he's actually interested in a deal with Iran, just as long as it guarantees that it's willing to you know, it's not willing to progress to a nuclear weapon. So it's like he's sort of he's sort of loaded the KENYON cannon or take it up the big stick. But now he's got out the the carrot as well there. Now, Iran's come back and said, well, you know, we've never said that we were going to do and create a nuclear weapon and and that this is a peaceful energy project that they've been working on.

No one no one among the International Energy Agency or the nations involved believes that. But nonetheless, it'

2025-02-07 10:18

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