Biden Tests Positive for Covid; Tech Selloff Deepens | Bloomberg: The Asia Trade 7/18/24
This is the age of three of them. Shery Ahn in Tokyo. And I'm Heidi Stroud. What's in Sydney? The top stories this hour. Asian markets are set to open under
pressure as big tech and chipmakers get hammered by concern about tighter US restrictions on sales to China. The dollar is tumbling to this weakest in almost two months, a move amplified by a sharp rally in the yen amid speculation of further Japanese intervention. And Republican vice presidential pick J.D. Vance set to speak at the convention. While President Biden tests positive for COVID. Let's get you straight to today's a big
time party when we bring you news when it comes to the political situation there as well, right, Cheri? Yeah, At a time when we've been really focusing on the health, both physical and mental, of President Biden and his recovery will be key here, Right. Especially after he said in an interview that he would only consider dropping out of this race if there was a medical condition. And we're now hearing from the White House that he has runny nose, that he has a cough, but that the symptoms are mild. We continue to watch the latest developments around his health, but of course, it will really make an impact when it comes to his political campaign because he kept veering towards the left and more progressive ideas, including erasing all of American medical debt, not to mention really capping those rent increases right now. Yeah, that's right. And a lot of the political risk, it's
interesting when you take a look at markets at the moment now starting to really flip towards the possibility of a Kamala Harris presidential campaign there. Of course, we need to wait for more details in terms of how this plays out, but it has been sort of one hit after another when it comes to the pressure on President Biden in his re-election campaign. Taking a look at one of the other aspects of how markets are reacting to geopolitical risk at the moment. And it's the drop that we saw in chip stocks. Interestingly, of course, this has been such a huge driver when it comes to the rally that we've seen across global markets, particularly in the US and in some of these North Asia, major markets there as well.
But Japanese equity futures are really falling, not just on the stronger yen, but these concerns over the chip fallout. We had the Nasdaq dropping almost 3%, the worst day since 2022, Nvidia, Advanced Micro Devices, Broadcom and etcetera, driving that closely watched semiconductor gauge down almost 7%. That was the biggest slide since 2020. We also saw some of the European names plunging there as well on the back of the sources saying that we're hearing that the Biden administration are considering these severe curbs if companies like Tokyo Electron ASML keep giving China access. Jerry, all the videos out here, take a look at how U.S. futures are coming online in the Asia session, because we're seeing a little bit of a rebound that what was interesting in the Wall Street session is that we saw this enormous pressure, as you said, on the tech side, the Nasdaq 100, the NASDAQ, the S&P 500 as well, given how they're dominated by the Magnificent Seven. But at the same time, we have the Dow continuing its rather gaining for sixth consecutive session at a record high. Again, we had a little bit of pressure
on the US dollar. We're talking about the weakest level since May, but that was really to do what's on the other side of the trade. Take a look at how Asian futures are setting up because it's been really, really volatile few days for the Japanese yen. Of course, we're talking about that potential intervention coming last week. More than $20 billion spent by Japanese authorities is a calculation according to data right now. But given that speculation of
potentially more intervention to come, the comments by former President Trump when it comes to flagging the weakness of the Japanese yen and perhaps a little bit of profit taking ahead of the BOJ policy decision later in the month, that really set the tone when it comes to the Japanese yen. Nikkei futures gaining 2/10 of 1% Heidi. Yeah, and of course, just recapping the news that we had over the past hour, which is President Biden testing positive for COVID 19. Let's get some more.
When it comes to the broader implications for his re-election campaign as we get down to what is a critical few months going into November. Bloomberg's political news director, Jodi Schneider is in Milwaukee for us. And, Jodi, this is sort of the latest blow when it comes to what has been a difficult few weeks for President Biden. What do we know and how does this potentially change the picture going into the election? Yeah, well, Heidi, we know that he has tested positive for COVID 19. We hear he has a mild case. He had to cancel a major speech to a
Latina advocacy group, Latino advocacy group in Las Vegas, a swing state, Nevada, somewhere. He may want it very much to be kind of in counter-programming to the Republican National Convention that's going on now. Tonight, we'll hear from J.D. Vance, the nominee for vice president. Tomorrow night, Donald Trump himself, the nominee for president for the Republicans and the current party. President Joe Biden wanted to be out there on the campaign trail showing he was fighting to he said he was going to stay in the race, as he has been saying consistently since that disastrous campaign, that disastrous debate performance several weeks ago.
But now this all plays into concerns about his health and vigor, even if it's a mild case, he's having to leave the campaign trail. And this comes also as he gave an interview to B.E.T. News in which he said what he was asked if he would leave if a doctor said he should. And he said, well, if a doctor if there was a doctor who gave me a particular reason to leave the campaign, I guess I would that he would consider that. So that left the door open a little bit more. We also heard today from a key Democrat, a senator I'm sorry, a representative in California, Adam Schiff, who is running for the Senate in California. And he said clearly that the president
should exit the race. Another big voice in the Democratic Party making that case. So while he claims he's going to stay in, all of this does not paint a good picture for President Biden and this election campaign at a time when he has really been trying to strategize to get his campaign going again. Right. I mean, we saw him and his strategies
and his campaigns also running a little bit more to the left to get those progressive votes. Yeah, that's we've been trying to do really to figure that he has a lot of, you know, the kind of center of what's but to try to go to the left to try to get some of these younger voters that he knows so badly need turnout is going to be a huge issue for the Biden campaign. The enthusiasm gap, it's called both for probably the Trump campaign as well. But certainly after that debate performance and a lot of Democrats saying they're just not feeling it in terms of the enthusiasm. But again, what's so concerning about this? You know, many elected officials and public figures have gotten COVID recently or in the past few years since it became such a since it wasn't such a major health concern. But this plays to these questions of his
his viability and his his ability to, you know, his health and age concerns. That is what is so concerning about even a diagnosis like this, even if it's a mild case. Jody, what are we likely to hear from the Republican side in terms of how they're maneuvering the situation and sort of the broader tide at the moment? And while. Well, tonight we're going to see we're really going to see the other side of you know, we've been talking about President Biden here tonight. We are going to see J.D. Vance, the vice president presidential nominee, was just named that by Donald Trump.
We're going to see him take to the stage and make what we think is going to be a very pointed speech about what needs to happen in this country, what what is going to be about what we think of forgotten Americans. Given his Hillbilly Elegy book and his comments he's made in the past that speak much more to populism. It is also the night that we are going to see discussion of foreign policy. And he has said that his comments about
Ukraine and Russia will be closely watched and that he's made in the past quite a few isolationist kind of comments that America should not necessarily go and help these countries to the same degree that we have. We should not be spending what we've spent on their defense. So that will be very, very closely watched. And it will also, in a sense, be introducing himself to the American people tonight. A lot of people don't know him or don't know him well. He's only been a senator for a short time. And again, he's only 39 years old.
He'll turn 40 soon. He is the next generation of the Republican Party and people will be watching to see what that generation is going to be about. Jodi Schneider, Bloomberg's political news director there, joining us from Milwaukee. Let's discuss how the US elections and of course, the tensions with China ongoing may impact the Fed's rate path. And joining us exclusively is Rob Kaplan, vice chairman of Goldman Sachs. He previously served as the Dallas Fed president. Rob, great to see you here in Tokyo.
Good to see you, Sherry. How comfortable are you? Because I feel that this is move the move, move a little bit. Okay. There you go. I mean, we are seeing this momentum for President Trump, right? Should we be getting ready for what he's dubbing Trump nomics, low interest rates as well as low taxes? And what would that mean for the Fed's path? So I think whatever happens, the Fed is planning and gearing up to cut rates in September. Won't move in July, but they'll move in September. I'll try to stay away from the politics of the two candidates other than to say there's still three or four months left between now and the election. And the only caution I would give is
that's an eternity. And at the moment, it may seem one way I think this is going to have fits and starts. And the the big topics, though, of debate us is an aging society and we've got to find ways to grow faster with lower costs. We're very highly leveraged and I think a lot of the debates are going to be about globalization versus globalization, energy transition, fiscal spending. And I still think those debates need to have to happen and get resolved.
What you just said right now, fiscal spending, it seems that doesn't matter who wins at this point. You would get more of it. I mean, you have President Biden leaning towards erasing medical debt. I mean, that will all have to come out of somewhere. So what would that mean if we get a more inflationary environment for the Fed? Is that something to be concerned about just next year? But this year the Fed stays put. So so I think if I'm at the Fed, I don't
want to prejudge these policies. The things I'll be watching, though, the number one is what's going to happen with immigration. One of the things that's helped the United States this year has been workforce growth due to immigration, which has allowed us to grow faster and still improve inflation. If that if there if that gets revised or
changed or you deport people, they're going to have to bore in and understand that tariffs is a very significant topic. But the fiscal spending, I think the jury's out as to as to how a new administration will handle that. We're running in the United States close to 7% of GDP, deficits at full employment, 2019, where 4% and you're starting to see the stresses in the US being able to sell the ten and 30 year Treasury. So I still think there's a lot of debate on those issues yet to come. Goldman Sachs is it making calculations right now on potential tariffs being upped, even if it was President Trump, even President Biden right now talking about those tech controls? So we have we have economists that are have written and doing scenarios on a whole bunch of policies. But on the tariffs is a good example.
All things being equal, tariffs would raise costs. However, things are almost never equal. There are adjustments made. Maybe people substitute other types of products for those where there are tariffs. Example would be lithium batteries. If there are tariffs on lithium batteries, maybe the next generation of batteries made in the United States will leapfrog lithium.
So I think the jury's out. I think people out there should just be prepared that there's a lot yet to clarify. The Fed, though it's past, I think for September is pretty clear.
I think there's a good chance they could do one more cut in December. But I do think as new policies, if new policies come out, it'll take some time for them to digest those and that may affect their next decisions. When you take a look at the previous Trump presidency, how much of what played out in the economy in the inflationary picture was the fact that we did have a pandemic and some of the policy responses to that and how much of it was sort of down to to fiscal management, do you think, and does that give us a gauge of what potentially one way could go post November? So initially, after Covid first hit, there were substantial supply disruptions, particularly for goods. I think as we look forward to today, those supply disruptions have pretty much been resolved. And in fact, we have goods, disinflation and China. Overcapacity has helped that
disinflation. I think I think that substantial fiscal policy, the CARES Act was 2020, the American Rescue Act was 2021, and spent over the following years Infrastructure Act, Inflation Reduction Act. That's $6 Trillion of legislation. The Covid gap, quote unquote, was about 2 trillion. And so I think it's clear to me that we've stimulated demand in the United States, probably overheated the workforce and the Fed rate increases, although maybe late. They've now done what they needed to do.
And I think it's starting to cool and rebalance the workforce. So initially it was supply. I think ultimately it was excess demand. And I think the Fed is worked hard to try to cool that excess demand.
We heard from Governor Christopher Wallace saying that while final destination hasn't been reached here, that they are getting closer. Do you feel confident that that dual mandate is now within reach? And do you think that sort of ultimate soft landing will be achieved? Is November a big threat to that? So getting down to 3% was going to be relatively doable. I think getting from 3 to 2 is going to be slower. I would I would think the folks at the
Fed think it may be slower. Having said that, we've made enough progress that I think they could do a rate cut in September. But I think people should be prepared. That doesn't mean we're going to kick off a rate cutting cycle, I think because fiscal policy and fiscal deficits are historically high and there's other cross-currents like the globalization and the expensive energy transition, I think the Fed would be wise to, after September, take it one meeting at a time, assess any new proposals, what a new administration, if there is one, would do. And I think they'll be more deliberate as opposed to what we've seen in the past. Once you start cutting, you usually have a cycle. This may not I wouldn't prejudge that.
This will be a cycle. I think it will be more one meeting at a time. And so consequential for all of the global central banks, especially the Bank of Japan with the yen weakness. It's such a great time to have you here because you ran Goldman Sachs in the nineties here in Tokyo. Are you what is the difference the biggest difference for you? I mean, the one to compare it to the 1990s, but just in the sense of are you getting that feeling that normalization will finally happen in this economy? So Goldman Sachs is celebrating our 50th anniversary of opening an office in Tokyo.
And and so we're very proud of the the Tokyo office. And I think it's been a model that Goldman Sachs for how do you build a office outside the United States. And and it's helped us learn a lot about how to globalize the firm. So when I look at Japan now versus the nineties, there have been a number of reforms on shareholder governance across holdings. The government has now been very encouraging of taking some 14 trillion of savings and turning some of it more to investment and really stimulating more capitalism that's caused. There's been some reflation here. And so we're very optimistic across all
of our businesses. There'll be great opportunities in Japan. I think Japan is a critical economy in the global economy, some of the great companies in the world.
And so I think we think there's great opportunities here. That's sort of a sense that I get when I speak to people coming from outside of Japan, that being here in Japan, there seems to be a lot of skepticism, especially that the BOJ, his policies are actually leading to reflation that might be sustained, that actually people might go out and spend. How does a body battle that deflationary mindset so with that with the BOJ has been battling is there's one headwind in Japan worth mentioning and that's demographics. Workforce is aging. It's actually shrinking. GDP growth is growth in the workforce, plus growth in productivity. And unfortunately, workforce growth here
is has been shrinking. And while there's been a good temporary worker program and more women in the workforce really hasn't, there hasn't been any policy to combat that. So I still think that's the big challenge. The central bank can do what it can to
try to ease that challenge, but ultimately you need other policies away from monetary policy to deal with this structural issue of a shrinking workforce. Robert Kaplan, good to have you with us. Vice chairman of Goldman Sachs and former Dallas Fed president joining me here in the Tokyo studio today. Thank you. Thank you. Coming up on the Asia trade, we'll talk market strategy with National Australia Bank and Lombardia over the years.
Geopolitical risks. How are the tech sector? Also, preview of TSMC'S earnings with Wedbush Securities. This is Bloomberg. Take a look at this really total showing, the big plunge that we saw in chip stocks. The biggest slice is 2022.
And in fact, that semiconductor gauge in the US down almost 7%, the biggest loss since 2020. We also saw that drop in Europe as well. And this, of course, all of this reaction considering some of the comments from the Biden administration to allies that we've heard that they're considering severe curbs if companies the likes of Tokyo Electron ism, ASML, I should say, keep giving China access to advanced chip technology. Interestingly, though, even after that sell off, we're still seeing some of these stocks trading at a premium to the index. Let's get some more on this, will bring out tech reporter animal jewelers in hong kong and bell. So we've seen such a big run up in chip stocks here before. Yeah, that's right. So it really some of these names like India, for instance, were pretty much priced to perfection at this point. So as you say, a report that we could
see even greater restrictions on some of these companies is going to cause a lot of concern, just as you said, for people that perhaps haven't been so familiar with this story. Yes, we could see greater restrictions on companies like Tokyo Electron, ASML in the Netherlands, Japan, who is seen as continuing to enable China's chip ambitions. The issue really comes down to how much they're continuing to service or maintain the machines that Chinese companies have already bought.
And that's a really big sticking point for the Biden administration. But broadly, yes, analysts are sort of saying that sort of risk of further curbs is a sort of black swan event for the sector, something that's quite unpredictable, unexpected, and something that can, of course, create a tradeable correction for stocks, even though the flip side of that, what you hear from people within the industry is just how much these tougher rules would be enforced. And we've already spoken with places or officials in in Japan, for instance, who are saying that they wouldn't actually push ahead with them. And the timing as well, because you're approaching that U.S. election.
And and given how Biden is faring so far in the polls, are you really going to be listening at this point in time? But looking broadly at the tech sector, as you said, that run up that we've had in names like Microsoft and Alphabet, the valuations are looking very stretched. But even with the sell off, as you said, I think we've got a chart here taking a look at how much chip stocks continue to trade at a premium to the index. Sherry Yeah, but really considering what Biden's the administration is trying to do at the moment, I mean, you sort of have to see whether that's justified given the numbers that we're getting from some of these companies like ASML. I mean, we just got their earnings and their sales to China continue to surge. Yes, they do continue. And even after we've seen further restrictions that ASML has followed to curb sales of its most advanced chipmaking equipment to China, it still has been its primary market. And going back to the Breguet issue here
is really how much ASML continues to service the the equipment that Chinese companies already own. But yes, the scoop actually really bad timing for ASML because it came out on the same day as its earnings and the stock actually plunged despite the better numbers. Ted Bridgewater and animal others there with the latest on semiconductors. We do have more ahead. This is Bloomberg. For investors who do want to get ahead. Maybe a little bit of that politics. We think thinking about where to avoid the risks in your portfolio is one way to think through that scenario and why some of the risk we see may include, for example, a potential steepening of the curve into the longer.
And I would say that there could be a near-term trade, the dollar could strengthen because, you know, you know, based on some of the proposals that that Trump has has been propagating. But at the same time, I think that the US dollar is very expensive. And with rate cuts coming, I think that we'll get to this year, perhaps more successive ones coming next year, that should weaken the dollar. And we also have the September FOMC meeting, which then between right now to the November election.
So I think right now there's no issue with the case of the Trump trade, but it's more to do with despite being quite premature right now, to have a say on how to play the increasing chances of a second Trump presidency in the US. And of course, we're seeing a lot more volatility around these election expectations. With the news that President Biden has tested positive for COVID, he says he feels good, but of course, lots more questions in terms of both the physical and mental wellness of President Biden and whether there's going to be more pressure potentially on his campaign. Taking a look at some of the currency
pairs we're watching, Dollar yen was really in the spotlight this morning. We are seeing one 5560 1:09 56 per dollar for the first time since June 12th. And that really kind of reduces some of that need for Japanese authorities to step into the market. We often see a bit of at least verbal jawboning to that effect at this point in the day. Let's bring in Rachel has a global head of strategy at National Australia Bank. Great, great to have you with us.
And, you know, how much is this kind of still the reverberation of Trump's view on currencies and what we could potentially see in a second Trump presidency? Or is this kind of the build up expectation that maybe Japan CPI is going to come in in the right direction, that we are going to see that green light for the Beijing? I think a bit of both is the answer. Certainly, I think that we've certainly seen US yields falling and we've seen a little bit of a reconnection in the last week or so between yield differentials between Japan and the US and how that's played for dollar yen. Either you have to say that in the last couple of months that relationship has really broken down. The yen is a lot weaker relative to what the yield differentials would have to be believe We are heading into that sort of end of month Pinochet meeting with a a core view that the Bank of Japan will not only agree to a reduction in the pace of its QE buying, but is going to be minded to raise rates. Obviously, the Japan inflation numbers
will need to be supportive of that. But we've already had for example, last week we had the cash earnings data for Japan. That's showing some pretty clear evidence that the impact of the Ringo and Shinto wage negotiations this year is producing a meaningful rise in in flight and wages, which is key to service sector inflation in particular. And then on top of that, I think there's there's no denying that Bloomberg's reporting of the after Trump commentary about the the weakness of the yen and the yuan clearly had a pretty meaningful impact, you know, during the offshore session last night. And I think that's, you know, it's pretty telling what we're sitting here, you know, six months away from an election where Donald Trump may or may not be president and he's causing more volatility than than anything else that's going on. And I think markets are going to be sort of ricocheting between, you know, knowing that potentially the next president has a staunch weak dollar policy, also has a public commitment to tariffs, which we know from the 20 1819 experience proved to be very US dollar positive.
So there's an inherent contradiction, if you like, between those two things. And I suspect that markets are going to be sort of, you know, caught between those two influences and having to weigh up the sort of the relative merits of both of those policies. And I think that makes for probably a more volatile currency environment than what we've had said in the first half of this year. On the Japan data front, as you point out, it's trending in the right direction. If the DOJ can sort of ride this momentum, how long do you think it will be for the yen to raise its losses of the year? That's our Question of the Day. Well, if I look at our forecasts, we've got we started the year around 140. Didn't wait till the end.
We've got the dollar end being not too far from 140 at the end of this year. So if I'm being asked to fill in, fill in your poll, I'm going to say something around the end of the year, very much dependent on the Fed policy easing cycle commencing in September and two or three rate cuts this year. What that does to the yields and and the Bank of Japan coming to the party with several increases in policy rate. So, you know, two or three 0.1% increases in the policy rate and JGBs, you know, trading, you know, north of 1%. I think in that environment you could expect that to happen. And it may be that, you know, as we get close to the election, you know, Japan may be more minded to be tolerant of the yen weakness if they think that ultimately that's going to be something that, you know, makes for better relationships, if you like, on the trade front. If it is to be the case that the Trump
will be the next president. Do you worry about currency wars at this point? I absolutely do. And I think it has to some extent it's played out with this sort of accessible nexus, as I call it, between the weakness of the Japanese yen. That the difficulty that that China has had in pursuing a stable currency policy in the face of Japan, in particular, continuing to steal a competitive march on other big export nations, basically in terms of their currency becoming ever more competitive.
And we have seen, you know, dollar CNY has gone from 722, seven, 25 up to seven 2728 before we had that reversal, you know, sparked by the BMJ intervention on dollar in a couple of weeks ago. So, you know, if the yen weakness isn't arrested through some means or another, that remains a risk that that other, you know, big exporting countries in the region are going to be minded to follow suit. So I don't think we're in a currency wars. But, you know, in the absence of a
reversal in yen weakness, I still think it's a realistic prospect. How passive can the BBC stay then in that environment? Well, if they prove to be you know, if you think about the beta, if you like, I look at the change in dollar yen and I look at the change in the US dollar against the yuan, the yuan is moving at about a 10th of the speed of dollar yen for example. So in that sense, you know, they've been pretty passive, if you like, and it's almost like a you know, it's a passive acceptance of of dollar strength or again, weakness that they've responded to. But I think the fact that that the one has moved as little as it has and that there has been a commitment by the fixings and intervention to hold it where it is, that does tell you that I think that, you know, China's preferred policy here is one of currency stability. And again, thinking about the elections and, you know, the threat of trade tariffs, you know, China being seen to be tolerating further yuan weakness at this stage is only going to inflame the sensibilities of potentially the next occupant of the White House. Europe is getting a little bit too comfortable going into the next couple of Fed meetings. Well, I think that there's certainly a
view that, you know, I think the base case for markets as far as the euro is and thinking about French politics is that however long it takes, we're going to go end up with a new parliament there where the extremes of the right and the left don't have policy, don't have the levers of policy effectively. And therefore the concerns that the markets have been trading with in terms of, you know, an already fairly dire French fiscal position getting very much worse at the moment. The market is trapped in the expectation that that that worst case scenario, a tail risk is not going to eventuate.
I think that's a that's a reasonable proposition to have. And if the dollar is weakening, then, you know, there's no doubt that the euro will will probably benefit just as much as any other currency. I don't think the ECB at this stage really comes into the equation, but on the basis that, you know, between now the end of the year, we're probably looking for far more from the Fed than we are from the ECB at the margin. I think that's helpful to the cause of of Euro dollar getting up to and through 110 during the second half of this year and maybe a bit more than marginal help for the Aussie if if the RBA is a bit more of a player but also of course in the divergence story as well as will obviously the near-term risk there is as part of this Aussie run up through the sort of 67 area which has been the the range top for much of this year until the last couple of weeks, has been driven by heightened expectations that the RBA may be minded to raise rates again. So if we come through, we've got labour market numbers today, we've got CPI next week.
If as a result of that, those expectations take a step back, which is in fact NAB's view, then the Aussie is a little bit vulnerable and obviously the, you know, concerns about a new trade tariff war, overblown or otherwise, and the experience again of 2018, 2019 to say that, you know, Aussie is vulnerable even though the price action alone has been pretty encouraging in recent weeks. Right. Always great to have you with us, Rachel Global head of strategy at National Australia Bank. And share, of course, at a time when we're seeing these very interesting moves in the yen, of course, and just broadly across so much volatility that we're watching out for, you know, political risk really affecting volatility across currencies in the Chinese yuan as well.
These are some of the other stories that we're following because on China, the World Trade Organisation has accused the country of lacking transparency on the industrial subsidies in its first review in three years of Beijing's policies. The report says Chinese notifications and subsidies don't provide enough information on spending in sectors including EVs, solar and chips. The US and EU have recently moved to impose new tariffs on Chinese imports amid claims of overcapacity. Chinese officials are reportedly testing AI companies large language models to ensure their systems embody core socialist values. The Financial Times says the review by China's Internet regulator includes Bytedance and Alibaba. The report says models are being tested on responses to questions, including many related to China's political sensitivities and President Xi Jinping.
Hong Kong plans to introduce a licensing regime for Stablecoin issuers whose tokens reference the price of the fiat currencies. The Hong Kong Monetary Authority and Financial Services Bureau say issuers will also need to publish monthly audits on reserve assets. The city is looking to fashion itself as a digital asset hub in a bid to attract investors. You can watch us live and see our past interviews on the interactive TV function. TV go there. You can also dive into any of the securities or Bloomberg functions that we talk about and become part of the conversation as well. Do send us instant messages.
This is Bloomberg. ASML fell overnight as the prospect of further U.S. export curbs on its business in China offset growth in the firm's order intake last quarter. Washington is targeting the chip maker
as it looks to stem Chinese chip advances. Bloomberg Intelligence Asia senior technology analyst Masahiro Tsuji joins me now. Hearing the Tokyo studio and Masahiro. I mean, if you were the Biden administration, you really can blame it for trying to curb these tech exports. When you look at asml's numbers and
really those those sales to China continue to exponentially grow. Yeah. So I actually mean, being on demand in China is a pretty strong because they are aggressively invested in, you know, legacy technology, technological material technology because, you know, advanced technology is restricted by the state of either set of a future self-sufficiency rate for semiconductors in China is still low. So I think that that China China is trying to expand the capacity for that, even for the mature and all the technology chips. So I think that's a major reason why, you know, revenue for the major equipment companies are rising. So even for the US, companies like, you know, Applied Materials or LAM Research, their revenue exposure to China is over 40% until recently. So I think that, you know, at this
point, China is mainly investing in the mature technology, not the advanced technology. But, you know, China can develop that advanced technology in chips by using that, you know, equipment which they imported, you know, some time ago. So I think that this is what's happening at this point. So if most of the business is in mature
technologies and not the advanced ones the U.S. is trying to target at this point, if we see more restrictions as they're threatening now, what would be the implications for companies like ASML? So probably, you know, as far as I read, you know, some kind of media report, probably there may be scope to be broadened or maybe done more in a severe up. You know, a restriction could be imposed. So there may be some revenue impact on a scenario, you know, Tokyo Electron. So we published a report saying that, you know, 10 to 15% of the revenue could be, you know, impacted going forward. But that that's really hypothetical. And what happened at this point is that
even after the introduction of the debt restriction, the revenue exposure to China is increasing, you know, maybe quarter over quarter, not only for a smaller but also, you know, lam research will upgrade the materials. So I think that the China may accelerate the material on chip investment, even though the, you know, more restrictions that would be imposed for the advanced technology. So that could be the, you know, the outcome. So but, you know, if we look at advanced technology, you know, that development pace could be slowing for China.
But the steel, you know, we they can say that the they they can develop very much other bonds like seven nanometer chips by using the older technology. Could the results today from TSMC lift sentiment? I have a different position regarding TSMC as a result of I guess that probably the results should be in no surprise because they already report among three revenue from April to June. But if you look at the guidance, it's, you know, we would like to see if TSMC maintains their 2024 revenue guidance and now they are expecting like up 2020 to mid 20% revenue increase. They are guidance.
So we would like to check whether they will maintain the revenue guidance and also TSMC is now expecting their CapEx for this year to be around, you know, between 28 to 32 billion USD. So I think that we would like to check if TSMC will stick with the current CapEx number or maybe narrowing what could be, you know, raising the number. Yeah, that was a subject that intelligence Asia-Pacific technology analyst Masahiro Mike, I think either in Tokyo you can also turn more to on these and when it comes to those TSMC results on your Bloomberg it's at 12 you go with that commentary and analysis from our team of expert editors, some of the other corporate headlines that we're following today. United Airlines says it expects third quarter profit to fall short of Wall Street's expectations as carriers slashed ticket prices to deal with domestic travelers.
United echoed Delta Air Lines and warning that price cuts by low cost rivals are weighing on the entire industry. Alaska Airlines is offering a similar outlook, forecasting third quarter and full year profits below analyst estimates. Johnson and Johnson reporting a second quarter profit beat thanks to strong pharmaceutical sales adjusted earnings for the quarter of $2.82 a share, topping the average estimate by $0.11. But JNJ also cut its full year forecast to a little over $10 a share to account for a spate of recent acquisitions Beyond Meat plunged in post-market trading after the Wall Street Journal reported it started talks on balance sheet restructuring, the report cites. Sources say the company has engaged with a group of convertible bondholders.
Shares are down about 20% this year on worries about weakening consumer demand for plant based alternatives. More hedge on the Asia trade. This is Bloomberg. The Japanese yen is steady at the moment after big fluctuations overnight and really over the past several days, of course, we were seeing speculation that authorities had intervened in the markets twice last week. And we saw that sharp rally in the yen because of more speculation on that side. The weakness of the yen has helped Japan's exports. Take a look at the trade figures coming in right now. Exports rising 5.4% year on year.
A little bit of a miss because the estimate was for growth of 7.2%. When it comes to the import, the figures we're talking about growth of 3.2%, which was also below what economists had expected. And it's also a slowdown from the previous month. That leaves a trade balance of ¥224 billion in surplus.
When it comes to more specifics of those numbers, exports to the EU contracted by more than 13% and to China rising 7%, exports to the US rising 11%. Just a little bit surprising that we're seeing these numbers come in below expectations. Exports growth of only 5.4% and a deceleration from that. The fastest pace of gains since late 2022 in the previous month. So we'll continue to watch the ramifications of the weak Japanese yen and potential fluctuations when it comes to those trade numbers. But let's turn to another big story, because we're just less than ten days to go before the Paris Olympics begins.
The city has transformed itself with 15 Olympic sites plus 39 others across France. Many existing venues are being used, but a new neighborhood is also emerging. Bloomberg's Colleen KERNAN reports. Tucked between highways and railways, the popular Chapelle neighborhood north of Paris has long been plagued by drugs and deprivation. But the Paris Olympics could be a game changer. The new Arena stadium will host badminton and gymnastics and remain for basketball after the games. We have decided to create both this arena and a new university campus where in 2025 we will have 8000 students expected to help us to win 10 to 20 years to accelerate the transformation of the city. A few steps away, the underprivileged
suburb of Santa Anita, already home to the Stade de France, has been chosen to build the Aquatics Centre and the Olympic Village. Most of the 15,000 athletes from around the world will sleep, eat and train here after the games. This futuristic place with low carbon infrastructure should become a new home for 6000 residents and an office for another 6000 employees. The legacy of Olympic infrastructures has not always been a success. The 2012 London Games did regenerate
some deprived areas of East London. It's a different story for Athens, Beijing or real. The Games left those hosting cities with abandoned infrastructure and a big pile of debt. Paris promises this won't happen to the City of Light, say Bloomberg's Caroline Connan there. And in preparation for the Olympics. When you think about Paris, of course
you think about the beautiful river. I can't say I think about it being associated with the ability to swim there, even though, of course, you see Parisians doing that in the summer all the time, right, with the beaches along the sand. But there has been a massive amount of investment and effort put into cleaning up the rivers. And in fact, we saw the Paris mayor and he'll dog go swimming in the sand on Wednesday this week seeking to really prove that the river is clean and ready for the Olympics and the Paralympic Games that kick off later this month.
That put it about one and a half billion dollars for the clean up of the river. There are lingering concerns, of course, that the overflows from Paris's sewage system a bring wastewater bacteria into the system, making it therefore unsuitable. So President Macron has also committed to taking a dip at some point. I don't know. I've never thought of that. I mean, I did get that beautiful boat ride on the sand, gorgeous in the evening, but I can't imagine just swimming there. And I really can't imagine swimming in
any big bodies of water very near to a big metropolitan city. I mean, you are in Sydney. I'm not sure if you guys dip into the river there, but of course, London faces the same problems, is always about that sewage system and what could spill over into the river.
Right. And it also has to do with the weather. I mean, you get lots of rain, you get all these overflows. So it's a no. Thank you all pass for me. Yeah, definitely. We see that with the waters around the Sydney Harbour is beautiful and iconic and scenic as it is.
I personally. There are some people that take a dip in there. But yeah, very, very interesting how we're going to see that, because there are these plans to have, of course, these triathletes jumping off a floating pontoon in Paris as well and taking a one and a half kilometer swim. Yeah, gorgeous, gorgeous. But I'm not sure about swimming there. Take a look. The markets are setting up now for, of course, the Australian Open. We also have the opens in Japan and Korea a little bit mixed.
US futures up 2/10 of 1%. But look at that. Nikkei futures down more than 2% at this point. I'm going to say probably something around semiconductors.
We saw Tokyo Electric really leading the losses on the Nikkei, of course. The Biden administration considering whether or not to really apply more restrictions on companies such as Tokyo Electron and ASML when it comes to their workings with China. We'll have more coming up on the open session next. This is Bloomberg. This is the Asia tray that we're counting down to. Asia's major market opens after Teck took a big hit overnight, Heidi.
Of course, we were talking about those Philadelphia semiconductor index because they saw the worst day since 2020 on news that the Biden administration may be considering more restrictions for companies such as ASML and Tokyo Electron. And geopolitics really weighing on effects as well. Right. We're seeing these very accelerated strength in the yen and the weakness in the dollar at play here as well. I guess some of this might be in the form former President Trump's world view on currencies, but also seeing potentially a bit more momentum with CPI from Japan and maybe the DOJ looking to take this chance. Yeah. A lot of profit taking could be a play here for the Japanese yen as well, because we're talking about some of those gains that we saw overnight. As Heidi mentioned, perhaps speculation that we are going to see more intervention from authorities on the weakness of the yen.
But right now we're seeing those gains towards 155 levels for the Japanese yen against the US dollar. And that momentum on the Trump train also fading a little bit. We had the Nikkei falling, the dollar index falling to the lowest level since May.
But take a look at the Nikkei is down more than a percent. And we saw Tokyo Electric leading the losses in the previous session on news about those potential curbs coming its way. The topics is also down 1%. We also got trade data earlier. We had seen pretty strong export numbers earlier in the year because of the weakness of the Japanese yen. But right now, really underperforming
expectations and growing only 5.4% year on year for those exports here in Japan. I'll take a look at the open in the cost because it cost me because we are also seeing the Korean stock market taking a hit on those potential tech jobs to come. We're talking about the cost be down more than a percent. The Korean one also strengthening is
been stuck at around the 1380 level for quite a while against the US dollar. We have that risk of sentiment coming from that so-called potential Trump trade. But at the same time, expectations of rate cuts have been giving it a boost. So, Heidi, really diverging forces are playing the markets right now. Yeah, we're seeing some risk off sentiment. Cherry When it comes to just the first
couple of minutes or so, this staggered start to trading here in Sydney, we're looking at futures indicate correctly maybe about downside of about half a percent. But keep in mind this is a market that closed at a record high in the Wednesday session. So perhaps a little bit of profit taking. Also potentially some of those losses being shielded compared to some of these other more tech heavy markets around the region. Australia, of course, with more financials contributing to those gains as we did see yesterday, all sectors climbing there. We're also watching the picture when it comes to the Aussie dollar as well.
6730 is where we're trading potentially with that divergence continue to play out with the RBA and the Fed. We could see, as we heard from NAB a little bit earlier, potential for further upside. They're watching treasuries at the moment.
That's a picture when it comes to a bit of divergence between the short end and the slightly longer, Then we had a pretty strong auction. They're showing some pretty strong demand for duration at least. But of course so much of this depends on the setup and expectations going into the next couple of meetings for the Fed. Cherry Yeah. Let's bring in our next guest who's neutral on overall equity allocation and is waiting for those major catalysts, including the Fed, as Heidi mentioned, for the second half of the year. With us now is John Woods, Asia CIO and Lombardo, the John, great to have you back. So we're waiting for the Fed.
We're waiting for U.S. elections as well. Would you hedge some of that uncertainty right now? What's the setup looking like right now? Well, the only conviction I have right now is that, as you suggest, uncertainty and and volatility is likely to remain elevated for the duration of this year. I mean, not only do we have the election, but then, of course, we have the post-election policy that we have to assess and and factor into our portfolio allocation. So right now, we feel heading into this this period that a nuanced strategic allocation relative to our benchmark is appropriate.
And so to that extent we are neutral equities but may be seeking some value opportunities within that. For example, the U.K. also neutral, as you suggest, at fixed income. But I'd be looking to explore the investment grade space positively once that election is behind us. And then, of course, we're also overweight. The US dollar. In the run up to the election, the dollar tends to do well in these periods of uncertainty. But once this interest rate cutting cycle gets underway, obviously something we need to look at more closely.
As you see, uncertainty seems to be certain at this point. But when it comes to geopolitics, even more so, we were worried about potentially more trade tariffs coming from the Trump White House. But at the same time, these tech restrictions coming from the Biden administration seem to suggest that no matter which way we go, we're still going to see more geopolitical tensions affecting business. Is there a way to invest around that? Well, it is a bit of a perfect storm, isn't it? And if we do get these tariffs from the Trump administration, the way I'd look at it is akin to an oil shock where higher prices diminishes economic activity, albeit temporarily and then subsequently, I suspect that we will see some deflation at work. So we might have a small. Three inflation shock subsequently disinflation taking place.
So it's a complex sequence that we need to account for and subsequently allocating our portfolios. And again, all eyes will be on bond yields to see whether we see a continued decline and or some volatility pushing yields a little higher until we get this uncertainty around the tariff story out of the way. And of course, some of this is going to come down to potential restrictions when it comes to cheap exports. Right. And John, I wanted to bring up the chart that we've been sort of looking at all morning, which is a big slide of about 7% that we saw for the Philadelphia Semiconductor index.
And that was the biggest drop in over four years. When you take a look at how richly priced these stocks and the sort of adjacent sectors are at the moment, though, they're still trading at a premium compared to the broader index. Do you see this as an entry point? Do you see this as a necessary sort of correction in the so priced to perfection that maybe it is time to take a pause on this trade? Well, I think a rotation actually into value is becoming a little more attractive. I mean, the very narrow breadth of the so-called Magnificent Seven have been concerning me for a while. And to the extent we see an interest rate cutting cycle taking place, gaining traction this year and into next year, it's my view that these value sectors are materials consumer discretionary are likely to outperform, are outperforming currently with some reasonable traction. And so those are the areas that I'm keen to explore. I wouldn't immediately abandon the
growth trade, the tech trade, but as you say, there are some concerns over valuations, but I think there are opportunities outside tech. And for example, we look at the small company and and capitalization outperforming larger. So there's a there's a tapestry of opportunity at work in the equity space and something that we do not want to ignore outside of the non sort of I suppose when it comes to the non US and non-U.S. complex that you talk about, a lot of
the international flows have gone into these darling markets like India, like Japan is where SRI is now. Do you see other opportunities or it will be kind of a rotation back into these international markets? Well, if you were an investor at the beginning of the year and invested in Taiwan, Japan and India, you'd be very pleased with yourself. I suggest at looking at gains of between ten and 20% in many instances. I actually don't think that's going to change for the duration of this year. And of course I am talking about local currency terms, but the momentum in these particular markets, at least over the medium term, I think remain in play. Obviously, you've got a bit of short term shock.
Take a shock from the the chip story last night. But I think actually that we will look through that and these markets will remain robust and there may be some recycling of further into next year, particularly if the US dollar were to weaken. If that were the case, we might start to see some inflows into some of these smaller markets, particularly in Southeast Asia, which enjoy a lower level of volatility and exposure to global trade. That will be an area I'll be looking at quite closely. But right now, I think it's a it's a it's a it's a North Asian story in the shape of Taiwan. And I think increasingly Korea, obviously Japan and this independent consumer driven, services oriented market in India, I think remains reasonably resilient and insulated as well. Yeah.
When you said the independent services oriented and consumer driven market. After you said China before you got to India was like, well, that does not sound like Japan is not going to be a problem for this market eventually, especially with the volatility in the Japanese yen. What's going on here? Well, look, I don't think yen is suddenly going to start strengthening meaningfully over the near term. I mean, I think over the medium term, we
are likely to see some gradual yen strength, particularly as monetary policy is tightened, which we anticipate this year and next year. And of course, as we expect dollar weakening to play through once the Fed start cutting. But right now, I think that there's a bit of a debate going on in Japan whether or not a weak yen disguises and cloaks and delays, some of the structural reforms that are really quite pressing and necessary in Japan, relating to corporate management, relating to labour market flexibility, etc.. I think we all know what they are. But right now the yen is a bit of a bandaid solution for these challenges and I think once the Government do address and grasp the nettle, then we might start to see a reversal in this relentless weakening of the currency. Yeah.
John Woods, always great to have you with us. Agency, our Lombard ODA. Coming up next on the Asia trade, President Biden forced to cancel a campaign appearance after testing positive for COVID. We live to Milwaukee, where Donald
Trump's running mate, J.D. Vance, is set to speak. This is Bloomberg. Well, President Biden has canceled a campaign speech to a major Latino advocacy group after testing positive for COVID. The diagnosis came after Biden said in an interview that only a medical condition would make him consider standing aside as a Democratic presidential nominee. For more, let's bring in Bloomberg's political news director, Jodi Schneider, who's in Milwaukee for the Republican Convention. And, of course, we're looking ahead to a key speech today. But before that, what's the latest that
we know about President Biden's COVID positive test and how it's affecting him and potentially the likelihood that we will see a change in the candidacy? He says he's feeling good. Yeah. He says he is feeling good, Heidi, and that he it is a mild case. But of course anything that calls attention to the president in terms of an illness raises these questions that we've all had since that debate several weeks ago about his fitness, about his age, about his vitality. So he was trying to do a little counter-programming to the Republican convention, which, of course, is all about, you know, trying to unify behind this ticket of Donald Trump and J.D. Vance.
And he was trying to go to a he was supposed to speak to a major Latino group, Latino advocacy group, about issues about that would concern these voters of voting bloc. He very much wants to try to win in this election in November. Instead, he's getting on the plane, Air Force One, back to Delaware to self-isolate with a case of COVID. And his physician put out a statement in which he said he had a runny nose and a little bit of a fever and general malaise. That statement has caused a lot of attention, including on social media. Given that the president what we have been wondering about, what the president's vitality has been a real issue since that debate in which he appeared confused, his voice was weak. They later said it was a cold and he was
suffering from exhaustion. But this raises this all raises questions. And it comes on a day when a major Democrat, Adam Schiff of California, a representative who is running for Senate there, said was reported by NBC News to have said that not only was he thinking that the president should drop out of the race, but he was concerned about what would happen in terms of winning back the Senate and trying to take back the House from the Democrats if the president did not accept. And that was a big voice to hear today on that.
Not to mention that the ABC News is now reporting that the Senate majority leader, Chuck Schumer, actually also told President Biden that it would be best for him to drop out of the race. We have seen his campaign really trying to strategize and move the conversation for especially trying to get more of those progressive votes. How much will that help? Yeah. So that we have seen this left word movement just in recent days, certainly the West last week, where the president has been trying to appeal to voters on left leaning issues, issues of economic prosperity, sharing that prosperity on issues of housing. Things that people complain about. Young people complain about that they have student loan debt that they can't afford to buy a house, that they feel ther
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