Tech Rally Lifts Asian Stocks | Bloomberg: The China Show 8/19/2024
Half an hour away from the opens in Hong Kong, Shenzhen and Shanghai. You're watching the China show. I'm Yvonne Man with david inglés. Good monday morning. Let's get to it, shall we?
Our top stories today, stocks across the region edging higher as investors look ahead to key central bank decisions and this week's gathering of policymakers at Jackson Hole. Now, Kamala Harris kicks off a battleground state bus tour on the way to the Democratic convention. While Donald Trump plans a blitz of rallies and a border visit.
And as the election campaign heats up, we take a deep dive into the state of US-China relations and where it's headed under a new administration. A quick look at the action here right now. And yeah, we're seeing a bit of caution in these markets.
Of course, they have the Key Tower speech at Jackson Hole. Is he going to guide towards some 25 basis point cut for the Fed or remained tight lipped on the timing? That certainly is on the minds of many traders here this morning. And the debate really has shifted from will they or won't they? You know, how big are these cuts going to be? Is it could be 25 or 50. Needless to say, those stocks are actually pretty much trading sideways here this morning. You take a look at how Taiwan is opening up. It's pretty flat right now.
But keep in mind, we take a look at the Nasdaq 100. The Nikkei, the Cosby have basically all erased the losses from that August 5th turmoil here. Stocks also had one of the best weeks of the year. So certainly equities are still seeing a bit of refresh optimism here right now. The Bloomberg dollar index also nearing that five month low. That should bode well for equities here
today, but not quite today. Dorian, though, we're still trading at 147 levels. We're still seeing that weakness there continue for the Japanese currency. Of course, a way to speaking on Friday
is going to be quite interesting as well. We're watching, Brent. Markets seem to have stabilized a bit right now. We're still below that $80 mark when it comes to Brent crude, but iron ore continues to tumble, of course, on that China story. A little bit of recovery here today, but we're still talking about 93 bucks out in Singapore.
We're seeing some upside about 2% right now. Last week was all about the tech earnings when we had Alibaba, JD $0.10 certainly helped spur a little bit more positivity towards the tech sector.
But then again, you're starting to see that weakness in the consumer sector really weigh on some of those stocks, though. But there was enough for some dip buying, at least in the US session on Friday. Gold Dragon did this and then this is the approach, the open here right now. So we talked about the CSI 300 snapped out of that for week three weeks get I should say Hang Seng was up for two straight weeks as well. So we're pretty much flat for futures here this morning, too. 18 for your Chinese ten year yield.
You got to wonder, Dave, are we back to comfortable levels for the PBOC after the extreme measures they've done to stop this bond rally from going 715 for the currency as well? Yeah, well, we are until we aren't right and of course I think we have loan prime rates this week coming off the MLF of course last week as far as the China data goes and you know, the rally that everyone was just talking about here in Hong Kong, we have been more specific on where we are seeing some of the upward price action. So I think one other indicator that risk is starting to really come back here in Hong Kong at least, is the Hang Seng Vol index, the Hang Seng China vol index as well. Here we're nearing two and a half year lows. And that you know, the VIX, of course,
on Friday following the rally also fell back to, I guess, encouraging levels now as far as changes to the index. So the quarterly review on Friday, no change to the HS I we did get some changes though on the Hang Seng China index. We were looking at two specific stocks today G anti Global express and New Oriental added to the HCI in favor of Sensetime and JD Logistics, which were taken out of the index effective of course September nine. Watch for reaction there.
We talked about gold spot gold record high on Friday. This losing streak we're seeing in convertible bonds underneath the hoods. I think we're down about six or seven straight days going back to August eight, which is the longest, by the way, since January were price gains, which tracks that. And also, of course, the pressure we're still seeing across the metals place like iron ore. And of course, a big talking point last week on the back of weak macro out of China is where you are and there's overcapacity in steel and rebar futures is a good example too, of that. Right.
So lots of watch out for as far as China today. This week, all roads lead to Jackson Hole to Evans Point. How big will they cut? And not so much will they want day Friday of course also to be AJ and of course throughout the week is the DNC over in Chicago. So yeah everything from politics to
markets and everything in between. Yeah. Let's bring in our executive editor for Asia markets, Paul Dobson, joining us out of Singapore here this morning to kick off the week. Paul, there's a lot of adverse obviously we were just highlighting there.
What do you think is priced in and what are the risks really? Yeah. Good morning, Yvonne. Wouldn't it be typical that the biggest news of the week happens after we've all gone to bed on a Friday? But lots to look forward to all the same. People are really going to be getting ready for the Jackson Hole all the way through this week as well. I think what the market is expecting right now is for the Fed to indicate or for people to indicate the cuts could start as soon as September. What people will be paying attention to is whether he sort of stresses a gradual pace of declines from here, any sort of language or nuance around there. Now, typically, he's quite tight lipped on that kind of thing.
So he might try not to give too much away. But I think that, you know, the least that we can conclude is that he will give quite a strong signal that the cutting cycle is about to begin in the US. Now, the market is priced in for about 25 basis points of cuts, maybe a little bit more in September. Seems entirely reasonable given what we saw in the inflation data, which was cooling and gives the Fed some scope to cut.
Relative to what we've seen in, for example, retail sales data, which has still been relatively strong. So no need to hit the panic button and go for anything more. No need to start with a 50 basis point cut is the market view at the moment. Yet we're still priced for 100 basis points of cuts through the entirety of the rest of the year with only threat three Fed meetings, which means that in theory the market thinks there could be a 50 basis point cut at some point. So will Fed talk this week start to ease those expectations a little bit? It could push up short term interest rates just a little bit, if that's what we see. And what's what's the read through, Paul, for four markets in Asia Pacific implications or takeaways if indeed that's what Jay Powell signals and doesn't push back against.
Yeah, I think that there's there's different elements. Obviously our our region being so diverse over in Australia and New Zealand, the bond yields are pretty closely tied to the treasuries. So whatever happens there, we should expect to see em read through. I think one thing that we've seen emerging in recent weeks, which is kind of interesting, is the weakness of the dollar is being borne out in particular in Southeast Asia, where we've seen currencies really putting on a tear in recent days and weeks. The Malaysian ringgit particularly
leading the pack there. But a lot of the rest of them are coming along behind it as well. The rupiah has been strong in recent sessions, too. So that's interesting. And then, of course, Japan, where we also get to talking to parliament on Friday, could be very interesting what happens with that dollar yen exchange rate, what happens to the carry trade? Will people want to put carry trades back on funded in yen or are they a little bit more cautious after the blow up we saw a couple of weeks ago? Paul, thank you so much. Paul Dobson there, our executive editor for Asian markets in Singapore for us, joining us here on set to talk us through the read through as it pertains to Greater China. Eva Lee, head of Greater China Equities at UBS Global Wealth Management. Chief Investment Officer happy Monday.
Good morning. Good morning. How do you think Hong Kong stocks will trend when the Fed starts cutting rates? Is that a good or a bad thing? Okay. Pure Hong Kong stocks listed, stocks in Hong Kong listed stocks that you can right now, ones that Hong Kong based have operations in overseas. You know, these Hong Kong conglomerates.
So they will do well because they will benefit from the because they were that the money was tied to the Hong dollar US dollar back. So US rates coming down, we expect a 1% cut actually for the rest of this year. So it's quite a lot and Hong Kong rates likely to follow.
So that will benefit Hong Kong property. Hong Kong, what I saw Hong Kong buying smart home of property and overall Hong Kong consumption bought Chinese listed stocks. I saw Chinese companies listed in Hong Kong. They will benefit but less so because their business is still mainly in China. So a different story. Yeah. Yeah. I mean it seems like right now these markets are just on a downtrend when unsure especially, I mean, are we likely to be just continue to be dominated by the weakness in the economy being in a pretty low gear right now? You have to say yes. I mean, the fact is, if you look at the
resources and so far the consumption related companies like the leading sportswear companies revised down their guidance for this year, even though we only have a few months left. But they still feel not the confidence level coming down. Second, it's if you look at most of the Internet companies, they actually some of actually disappoint on top line, but a do better on the bottom line. So what I'm saying is they are in general very cautious of the outlook and this is reflected on the reports further down the road. It's I think housing market is still very important. We discussed earlier that I mean, housing market affects the investments are the sentiments of local people consumptions and is a big part of the economy, even though the role or the importance is coming down.
But the you can say the second derivative is still having an impact on the overall economy. So as a result, of course, affect the stock market. I mean, it might be asking the obvious, but what is is there a direct relationship between the housing market and the stock market? When we run the statistical relationship between the MSCI China Index versus housing volumes and housing prices, both are showing statistically high correlation, roughly 70%. So that's even though like we know that I mean, back in those days, we understand why. But now, even after the downturn, I think we have not yet seen the detachment between housing and the rest of the economy. Yeah.
So so do we have to see the bottoming first before we can see this downturn in stocks reverse that stabilization? This is what we need, right? I mean, price downtrend, it's you know, I mean, local people, 70 or 80% of the wealth is in housing market. You see prices continue to come down or even businessmen. I mean, they would have a second thought whether they want to invest or consume more in some of the parts of the market that have done well. I think energy banks recently, health care said, well, in the last month or so, do we stick with the winners? What's the advice we can do? Like the use stocks, the dividend yield, the energy, the financial, the utilities and the telco? These are the ones and in fact the only ones they actually need to pay dividend not only to us but also to the Ministry of Finance. So you need the money. And plus you look at even domestic market, it's the same government you we only talk about is two ish dividend yield.
You're talking about even local onshore companies, they're paying roughly four, four ish. So that is a big gap. Obviously, the onshore investors, they can also invest into Hong Kong through connect. They will also, you know, tap on to this six or 7% dividend yield of Hong Kong stocks. Okay. That's a defensive side of things.
How do I balance it? I mean, I know you look at growth a little bit, too. Yeah. Internet stocks, home appliances, because we noted that the new training program should benefit home appliances. But Internet stocks, so far the result has been confirming our view that they are able to control the costs, but they expect that margins very active in capital management like buyback, paying dividend and at tech tool which is the new tool for them to. Generate more advertising revenue. Also, you know, sort of reflected in the
latest earnings results. The I know you cover primarily equities, but I'm wondering, do you get queries from clients on non China equity related things like gold, for example, have done well you mentioned KGB's. Has that taken some money away from the stock market? US Air has been a big popular topic, of course, this year.
Yes, I think in given the geopolitical tensions, we're just going to elevate to further elections and what happens in Ukraine and all that. Right. So gold will continue. We consider this as a structural story to support gold. Price is not just like, okay, yeah, you position some into gold. The world is scary by gold. It's not that. And I know that it's high in terms of
price, but every resource should have roughly 5% of the portfolio in gold. Regarding I we still particular positive on semi semiconductor. I know that it has recovered a lot of the lost ground. So I is no longer very attractive evaluations like a few weeks ago.
But we think that there still they are still an enabler. I think that's very important. And of course some of the software that we like to air will benefit. All right, Eva, thank you. Eva Later, we'll have more from her head of Greater China Equities at UBS Global Wealth Management Chief Investment Office. Coming up, Kamala Harris and Donald Trump ramping up their pitches to voters with the Democratic convention about to get underway in Chicago.
The latest from the campaign trail next. And we're going on the open of trade in Shanghai, Shenzhen and Hong Kong. This is the China show. Happy Monday morning. It is wet out there.
Futures are flat. This is Bloomberg. Right. Good morning. Welcome back to shows. The reference rate, the seven 1415.
The backdrop is really a softer U.S. dollar going into this Monday morning, dropping against most, if not all of its peers. Big drop against the one and some of this m m complex.
So something to watch, of course, ahead of ahead of Jackson Hole this week. Yep. And we got the DNC as well as Vice President Kamala Harris. And Donald Trump will be battling for momentum this week as the race for the White House heats up.
Trump is planning rallies in several swing states and a visit to the US-Mexico border, while Harris heads to Chicago for the Democratic National Convention. Why? Let's bring in Bloomberg's Vonnie Quinn. She joins us live from D.C. this evening. Ronnie, as always, good to see you.
Obviously, we've seen the Harris and Waltz campaign, a bit of a honeymoon period. Can they kind of build on that this week in Chicago? Definitely going to try, Yvonne? That's going to be one of the goals for this week and there's certainly a stellar lineup. You mentioned the president's Joe Biden is going to be speaking Monday night. He'll be giving the keynote address and
it builds all week. Barack Obama and Michelle Obama and the second gentleman, Doug Emhoff Tuesday. And then Wednesday, Tim Walz will be speaking with the DNC. And it all builds up to Kamala Harris's keynote speech Thursday. You mentioned former President Donald Trump trying to vie for the national spotlight with all of those campaign stops, interviews, basically a blitz of events between now and Thursday.
But the Harris campaign does have the momentum on its side. It will be looking to introduce Harris to a wider audience to continue that momentum, or, as The Economist calls it, Kamala mentum, and also to continue directionally what the polls are showing, which is that she really has made up the deficit, the Biden deficit. So the latest polling Sunday from Washington Post Ipsos of ABC News shows that in a head to head among registered voters, she would lead 49% to 45%. Now, it's not artistically significant
if you take in, you know, all of the errors that might happen and it is registered voters. But essentially, directionally, this is exactly what the Democrats want to see. And of course, we know that since 2000 after dances, there is a polling bump for Democrats positively by more than two percentage points typically. Vonnie, what more do we know then about the swap? What is it? Camilla. Camilla mentum. I hope. I hope that stops soon.
What do we know about her economic plan and the agenda? We know a lot more since Friday. David So we knew that she was going to talk about an opportunity economy. That's what she did. But she has basically laid out some proposals, some promises, indeed, particularly for low income families, parents, and crucially, people who want to own homes. So there is federal subsidies and tax credits, one of them being a $25,000 tax credit for first time homeowners.
And that, as you might well imagine, would appeal very much to those who are renting right now or to those millennials, Joneses, younger people who haven't been able to get on the housing ladder. Not only that, but we know that renters are more difficult to persuade to votes. They don't have as much motivation as homeowners and for renters. We also know that it's one of their top three issues going into this election in seven key swing states, according to a Bloomberg News poll conducted in July.
For homeowners, that's only one in five. So only one in five see it as an important issue. But the National Association of Realtors points out that since 2019, the median cost of a home in the United States has jumped almost 50%. So you could see why that would be a very popular kind of proposal from the Harris campaign.
Not only that, though, on housing, she's also promising to stop landlords gouging, essentially to sell private equity, buying a bulk homes. And she has also promised to deliver a 3 million new homes, new builds in order for the middle class to be able to afford to rent. Vonnie Quinn. They're in Washington for us, giving us a preview of really a very material week as far as the US election conversation goes. Still with us here on set, Emily, head of Greater China Equities at UBS Global Wealth Management Chief Investment Office. What's the how do I look at this from a China equity complex? We know it's a risk, but how do I quantify that and mould it into strategy? Well, I think Tom have been quite vocal about the tariff.
That's the key. I think that would affect China. I mean, obviously we know that they already pay in tariff too, too that for the US export. But having said that, Thomas would hand us 60% and also it depends on to what extent are they really putting point on JOTS U.S. so China produced products or Chinese companies that produced in other area which is a nation that is a dividend. Yeah. Or that will be totally different in terms of the impact. So we noted that the consumer
electronics, which actually is not a Chinese company, but it's a US companies that produce manufactured in China export to us. They have actually a high share. We're talking about 25 to 30% share of Chinese production export to us. Of course, some of the hardware as well. But the usual suspect car is not actually because of what Biden administration. They already you can see why people drive car from because the cost doesn't make sense for exporting to us. There's a lot of Chinese companies also that have have expanded overseas kind of to avoid this sort of overhang when it comes to tariffs and the like.
Is that going to be something that cushions at least some of these stocks as well? I mean, that that was a popular trade a few months ago. True to, in fact, what we noted, it's if you compare 2018 to the first round of Trump, the reliance of Chinese exports to us has already come down. Now it's the number two, but still we're talking about 19% of total exports going to us.
So I cannot say there is no impact. And again, it's all depends on the implementation and executions. But Harris looks like she's going to continue the Biden administration's. So I we can sort of predict the sort of the policy directions. And it looks like to be slightly more positive if you compared to Trump, at least what we heard so far. All right, Eva, we got to go. Eva Lee, thank you so much.
Head of Greater China Equities at UBS Global Wealth Management. Chief Investment Officer The next hour, when we dig into the November election outcome and how is it going to shape really US-China ties, have the former U.S. secretary of commerce, ambassador to China, Gary Locke, joining us along with Food University's Shen Dang Li Primark in Hong Kong is opening up here right now. And we are taking a look at how things are looking at me. We still have some earnings, but not as much and jam packed as last week as well. But we're seeing a little bit of upside here of 8/10 of 1%. So extending those gains on this Monday
morning and of course, continue to watch that drop of the dollar here this morning, 715 for a dollar China, this is Bloomberg. Okay. Rise and shine, sweetie. That's what really when you look at that. Equity markets are poised to open higher, said to extend two weeks of gains already here in Hong Kong's Hang Seng index. Better by about 1.7%. There's a stocks to watch here this
morning. We are watching best mart 360. The stock here plunging after the ceo was arrested by Hong Kong's anti-graft watchdog. We'll have more on that story coming up. The open is next. Welcome back. And watching the China show. We're kind on the open of markets here in Hong Kong as well as in China.
It looks like we are continue to see this global equity rally. At least Hong Kong is chiming in for another day here after we saw the best weeks all of this year. When it comes to global stocks, we're counting down to Jackson Hole, counting down to the lips of central bank decisions as well this week. But right now, it seems like that
downturn of the dollar is something that's getting a little bit more pronounced here this morning, Dave. Yeah, giving us some tailwind across the equity markets. And let's see if Jay Powell gives us more room to sell the dollar even further, of course. And ironically enough, that comes effectively when Asia closes for the week. But certainly we're looking ahead to
that piece of data about other events. We have some central bank decisions as well to go through this week. Plus, we have a whole list of earnings which we'll talk about in a couple of minutes here.
As far as greater Chinese markets go, the open is flat at the benchmark. We are coming off, though, just keep in mind the best week for global equity markets for the year so far. We're looking at a mixed open here. Some of the movement, of course, we're still seeing some downside and things that iron ore, for example, a ten year yield to 18 is where we are as far as that goes right here in Hong Kong. A couple of different stories to tell you about. And, you know, we probably will bear with us because there are quite a few chapters here. So on the Hang Seng index, we're up two straight weeks.
No change after the quarterly review on Friday to the Hang Seng index are still at 82 stocks. Can you flip the page, please? Thank you. No change on constituents, although on the Hang Seng China index, we are getting two out and two coming in. So we'll tell you about that in a moment here. Tencent up 1% in the early goings. Also, Alibaba is getting quite a boost
right now, 2.3%. Wow. Okay. On the Hang Seng vol index, which should be on your screens, it's not okay. I'll just tell you about that. Right now we are nearing the lowest in two enough years also on hand in China index. So that is indicative of risk coming back here on the table. Okay. Has promised to stop being added as of September nine or effective September nine. Genting Global Express.
A new Oriental education will be added to the benchmark. JD Logistics is coming out and also Sensetime group. The other things that we're tracking today, we have probably heard about it. Gold prices hitting, record spot gold, surging mining Zhong Jing trading underway as well in China onshore and offshore.
There we go. And also Lenovo out with an announcement earlier on China Petroleum, which is Sinopec. Effectively, we're getting a downgrade. I think it was out of Morgan Stanley. As far as analyst actions go, I'll correct myself if I'm wrong, but I think I remember it to be Morgan Stanley. And of course, best market is the big news that's come out. Resumed trade today. The stock is down 30 was down 13% in your premarket.
You're about to see that on your screens very shortly. We're not only down 4%. This is on the back of this arrest. Yeah. We're getting a little bit more in the statement from A to the Hong Kong Stock Exchange. So this arrest to CEO, which she acquired is connected to an investigation into alleged offences to have been committed under bribery prevention ordinance. But no charges has been laid against Wei
so far. But yes, the stock is reacting to that news as well. But we got some earnings to talk about too today. Yep. A big developer poly P trying to resources beer, which is a big consumer play as well. Media groups more international. So this goes into the appliances and some of the consumer staples item.
So this is out at these these are the names coming out today and of course it goes into what is still not as busy as last week, but we still have some very some big names coming in the next few days or so. Yeah. On the earnings from you talk about tech, right? So we had Tencent, JD Mobile, the big ones last week. This week is more like the byju's the NetEase Shao me bilibili ping on of course and we are going to be talking more about the EV sector with exposed Geely also reporting. Let's go to our Asia transfer reporter Danny Lee, who joins us now for a preview of what to expect for these ev makers.
I mean it's going to be a busy earnings week. What's what's going to stand out to you, Danny? So I'm looking forward to shopping. And the old guard, as it were, in this Chinese EV space, given how much we've seen innovation grow so quickly. Now just in shopping, there's still going to be loss making and they've still never made a profit at this stage and they've still managed to at least their targets on sales. So for investors looking at how they're
performing, it's it's it's you know, it's meeting its estimates, but, you know, they've still struggled to ramp up production and and accelerate from being just an upstart to being a credible player. So that should help their earnings overall. We still are meeting on expectations that we've got Geely who have absolutely been on a tear when it comes to that, their sales and that kind of help them benefit by upgrading its guidance on annual sales just a couple of months ago. So they will benefit from higher
earnings. But again, it's still against the backdrop of this Chinese EV and autos price war, but they're still standing in good stead. The other name, which is you mentioned the old guard. The new guard is is as shall be, of course, new to the game here. What are we expecting there? So show me. They're still not necessarily going to
be delivering much in terms of earnings from the side of things that are being just a smartphone maker to being all things to all people, particularly on the EV front. But the fact that they would have delivered by now the low tens of thousands of of EVs will help start to feed into earnings. So we actually are expecting to see revenue jump 30% thanks to these much higher priced big ticket items such as EVs. And given they've still got a target of 120,000 in terms of deliveries that they expect to hit by the end of this year. This will all help feed into towards the end of this year as they look to become more ambitious and be a bigger player and actually be a bigger player and jump ahead from the likes of Xpeng who are still struggling. JD Thank you daily with helping us set out what to expect all these EV earnings here this week. In terms of analyst actions, we are
focusing little bit more on the consumer space here this morning. So after some of these market reactions are actually earnings, I should say leaning to a hold that CLSA, you're getting a slew of sort of calls here on the stock in particular Morgan Stanley also kind out price target by 30%. They basically said reflecting lower sales estimates on the back of rising macro risks and management's reduced guidance as well. Petro China A-shares that's been raised to overweight by Morgan Stanley. They've also the that for Sinopec I believe as well but they're double upgrades for that stock, an equal weight for Sinopec in particular. So they're citing sustainable high yield and gas structural growth for that sector. ZTE shares a call from upgrade there
from Jefferies as well. Raised to a hold. They said it's been all about aggressive cost control, decent dividend yield, and also raises its forecast for the company's operating a net profits by around 20% for the next three years, a price target about $15 and change there. Dave. Yeah, in fact, to your point here on Sinopec A-shares, Yeah, you are right. So equal weight on Morgan Stanley, but
the eight shares are being cut to equal weight. Also a similar level there at Morgan Stanley. I mean, it's extremely busy as far as analyst actions go because we are about to enter the thick of earnings. And so it's I think it's the first time
I've actually had to scroll up and down here my list of changes, analyst ratings. So you're getting a theme here, a high yield, right, that people are still thinking that this dividend play is still quite resilient. And you just mentioned earlier on. Yeah, especially the energy sector seems to be still remaining according to the likes of Morgan Stanley, but plenty more ahead. This is Bloomberg. Welcome back. You're watching the China show. China's coast guard says it took unspecified control measures against a Philippine Coast Guard belt early on Monday in disputed waters in the South China Sea. Earlier, Manila had defended the
presence of one of its vessels near a shell which Beijing claimed infringed on Chinese sovereignty. Let's bring in Manila. Top humanitarian be, of course, our bureau chief over in Manila to talk us through this development. Manny, you just get us up to speed. What happened? So basically, it started on Friday where the Chinese Foreign ministry spokesperson said that it's quite it's called in Manila to withdraw the vessel, a vessel, the Philippine Coast Guard vessel. This is on shore. It's on Ben Reef, which is also called Go to Seoul, has been a Seoul in the South China Sea. And for the Philippines to withdraw the vessel all at once because it's infringing on China's sovereignty. And then on Sunday, yesterday, the Philippine coast guard said it's operating legally because it's within the Philippine exclusive economic zone.
And that that ship that's been there since mid-April, because the Philippine saying that, you know, it's there in a near a lagoon and it's got a soul because the Philippines suspects that China is doing some reclamation activities. It's staying put. And then this morning, we're having we have a report from China saying that basically it took control measures against a Philippine Coast Guard vessel, a different one in the same shoal, and that it deliberately collided against a Chinese Coast Guard vessel. I think this shoal is becoming a new is emerging to be a new flashpoint for for for both nations which have competing claims in the South China Sea. And the last time we saw coalition was obviously during that time near another shoal second Thomas Shoal in on June 17. And then obviously that led to the Philippines and China again, trading barbs and again trading diplomatic protests.
And I guess we'll see the same thing here, although we haven't heard yet from the Philippines so far. Okay. Obviously, that we continue to do this kind of back and forth. And, you know, I'm just wondering what is going to be the next thing to watch here now? I guess the next step would be how the Philippines would characterize what happened today at 6 a.m..
Because China, it's a that's what happened June 17th. It was China first. If I remember correctly, it was China first who had a version of its of how events transpired.
And then the Philippine version came in and then and then the Philippines, a larger protest against the Philippines, China's actions during that time. And I guess we'll see the same thing here. So it's China who first said I was related. What happened here? What happened in Sabina Shoal and then complete with a video.
And then also, we should remember that this is happening like just a week, a week after where the Philippine the Philippines said that China, a Chinese People's Liberation Army aircraft are conducted dangerous maneuvers and and and shot flares while on the path of a Philippine air force aircraft while it was patrolling near another shoal, Scarborough Shoal. So I guess we are continuing to see this back and forth, this trading barbs within the Philippines and China, because no one is and no one is is backing down, I guess. And they will continue to to push those claims, especially the Philippines, who is convinced that these waters are within an exclusive economic zone? Manny, thank you so much. Manny Saravia there, our bureau chief in Manila, with the latest on what to watch moving, moving forward.
Now let's turn our attention now to the steel industry in China. And, you know, we've talked a lot about this last week and some of the warnings coming through from the big players. And, you know, one of the market, I guess, iterations of this is, you know, iron ore price is down by a third just from the peak just early this year. In fact, we've now taken out the low recently and it's just a Singapore contract trading at about in the low nineties. Now we're now at the lowest since 2022
and certainly this is the topic of today's big take. Yeah, let's get more on that right. Which looks into how Chinese steel overcapacity means in terms of trouble for the world or China.
Correspondent Benjamin Lowe is with us now. I mean, just give us the backdrop so far what we're seeing and what's really going on in the steel industry right now. Yeah, So China is the biggest producer and consumer of steel. They produce over 50% of the global steel, more than 1 billion tons a year.
But the problem is now it is not consuming as much as before. Demand is down 10% since 2020, partly because of that property downturn. And you have softness in government led investments as well into infrastructure. And so that's a big issue. And analysts are saying that China has already seen peak demand and is expected to only decline steadily from here. That's partly because of presidency. Trying to restructure the economy away
from this public property led economy to this economy that is driven by high tech, green tech. So we're no longer going to see the sort of huge rapid expansion in the property sector that we saw in the past. So the problem now with Chinese producers is that they are slashing prices. They're looking for demand overseas, and that's why we see export increasing on track to hit 100 million tonnes this year.
And that's a problem for global players. You have Chilean plants closing down because they cannot survive against this onslaught of Chinese steel. You have one of the biggest steelmaker in Germany is sells a guitar, also saying they are making losses in the first half of this year, citing overcapacity issues. And it's an election issue as well. The US, the Biden administration had increased tariffs to 25% for Chinese steel and it affects the swing states like Pennsylvania. It's a big steel producer and obviously, as you said earlier, it affects iron ore as well. That's a key ingredient for making
steel. It's one of the worst performing stocks, commodities this year. And what can economic planners do about the problem? Yeah. So in 2020, the Chinese government had set decarbonization targets, setting emission caps on this sector at or below the previous year's level.
So if you look at the chart showing the output levels in 2020, that peaked at 1.05 billion tonnes and since then it has declined slightly. Let's show the chart of the output there on the screen. It had declined slightly since 2020 but is still a state above the £1 billion level. So not making a huge dent. There you go. The last few bars coming down just a little bit, but not making a huge dent on output. But so far, though, Chinese producers are responding to the slowdown.
We're seeing a decline in output by by 9% in July, a slight decline in exports recently as well. But you have heard about steel saying that you have a long, harsh winter ahead. Another Chinese producer saying that we need to see 30% decline in the number of firms in the sector for this sector to turn around. How long can that take? Maybe 2 to 3 years. Would there be more government intervention? We don't know. But the last time we saw a huge top down
intervention was in 20 1516 during that big steel crisis where the government ordered huge closures of old plants and made it more difficult to open up new plants. Yeah, the supply side reform story back a couple of years ago. Gentlemen, thank you so much. M.e.n load our china correspondent. Let's get to some of your geopolitical stories, some of the top developments we're tracking at this point in time. Singapore's Prime Minister, Lawrence Wong, is warning of a regional fallout from raising raising tensions between rising tensions, rather, between U.S.
and China. Now addressing the country in a National Day rally speech on the weekend, Wong says that the bullying rivalry is Singapore's single biggest geopolitical concern. He also warned the country would likely be impacted given its reliance on external trade. Now the International Atomic Energy Agency is warning that safety at a Russian occupied nuclear power plant in southern Ukraine is worsening. That's after a drone strike hit the
South Pole Georgia plant over the weekend there. The IAEA warns it's seeing an escalation of nuclear safety and security dangers in the area. That's as Ukraine continues its incursion into Russia. Now, a challenger prime minister says her administration is scrutinizing almost $14 billion in cash handouts to its citizens. She says the country's key economic stimulus plan needs more study to ensure fiscal compliance. The cash handout was a flagship. Members of the toxin backed Pheu Thai
Party and the centerpiece, of course, of a push to grow the Thai economy. Later, we'll be discussing investment strategy with the Thai government pension fund, which manages the retirement savings for over a million employees. An exclusive interview is happening at 11 a.m. in Hong Kong today. If you're watching out of Bangkok by Morehead, this is Bloomberg. Welcome back. Here are some of the big corporate stories that we're tracking for you today.
Shares of New Zealand dairy company A2 Milk plunged in Wellington this morning after full year profit fell short of estimates. A2 says prospects are souring in China, particularly in the infant formula. Market Revenue was up 5.2% year on year. The company sees mid-single digit revenue growth for the coming fiscal year.
But yeah, the stock down some 18% right now as key telecoms chip unit say PYLON has signed a merger agreement with rival semiconductor startup rebellions. The company says the combined business will have an enterprise value of $740 million. Rebellion CEO Song Home Park will lead the combined company's management, while SK Telecom will support its expansion as a Strategic investor. Dimensional Fund, Advisors says it's launching three actively managed ETFs on Australia's main stock market. The funds include Value and Small-cap Strategies, which complement three other ETFs already listed on the bourse. Dimensional says it sees growing appetite from financial advisors looking to ETFs to build client portfolios.
Now for another check of these markets right now. So we're looking at this weakness coming through in the US dollars. The Bloomberg dollar index is seeing some weakness today. So in particular, really, you look at some of these specific crosses like the South Korean one is taking some of the brunt here. The dollar yen, not so much. That does make, of course, the bulk of
this specific benchmark, but it is a tailwind. Certainly when you look at risk assets, we'll see if equities lessen because so far they're not really listening, heeding this trading signal. Just speaking of trading signals here in Hong Kong, we've done very well, relatively speaking, of course, at the caveat that on the Hang Seng China index. So it's a big test ahead here for Hang Seng China as this rally from the start of the month.
In fact, this is one of the best performing benchmarks month to date now in the world. It's a bit in the top ten. So we're testing both simultaneously, almost 50 and the 100 day moving average watches very, very closely, of course, ahead of some very key tests of earnings this week. Very, very briefly, the state of markets right now, 22 minutes into the session here. Maybe you see on your screens already 83 points on Hang Seng, China. The rest of the market, Hang Seng index is better by 1%. MSCI China, 1.1%. CSI three is also seeing some upside,
some upside today. In case you missed the changes or lack of it on the Hang Seng benchmarks announced on Friday following the review of the index compiler. No change on the Hang Seng index. Two changes to Hang Seng, China, two out, two coming in effective September 9th. Yep. And of course, we're coming down to not just, you know, Jackson Hole.
We also have the Democratic National Convention happening in Chicago this week as well. It's starting to see, as we talked about, that, you know, Kamala Harris is getting that narrow lead in some of the key swing states over Trump as well. This is what the betting markets are starting to see now. You are seeing Kamala Harris basically surpassing Trump so far in the last, I guess you could say, little more than a month since, you know, really what we saw with President Joe Biden and Trump, which was basically neck and neck in that dead heat. So certainly the polls are suggesting that as well know whether they can continue to ride on this momentum this week is something that I think you're going to see how well Harris do and as well as the Republicans and Trump really trying to actually overshadow some of the spotlight that's happening this week with the DNC as well. Yeah, And certainly the part you know, one of the topics that we had earlier on was what her economic agenda would look like. Right.
And I think over the weekend, some Friday, we had a lot more we have a lot more information on her plans around to boost the housing market for first time homebuyers. That's certainly one to watch as well. And I think we're also getting some word that around this time tomorrow, President Biden, I believe, will be making a speech. So it's a it's a big week, certainly going into elections. And interesting you enough the timing on markets will be Friday is a big day on DNC Friday in Asia. Yeah. And then we move into Jackson Hole where, of course, we'll be hearing from His Excellency political leadership for markets there. And you got to know what's going to be the key driver of all this in terms of market are concerned because you still have a video earnings happening at the end of the month. Yeah.
Is that going to be more important than what we hear from Powell in some ways as well? Come over the next hour as well. We're going to talk a lot more about what this US election is going to mean when it comes to US-China relations. We have a great panel coming up here with the former U.S. ambassador to China, Gary Locke, joining us, and Fudan University Professor Dingli Shen joining us there as well. We have plenty more on the way the next hour.
You're watching the China show. Welcome back to the China show. Here's a look at the CSI 300 a half hour into the session. And we are punching close to those session highs already and extending the gains that we saw last week already if we're onshore. So we're up about 8/10 of 1%.
So set for a third straight day of gains. We've seen higher volumes across the board here. And I think it's really that dollar weakness story that is boosting equities overall. Yeah, In terms of the the sector groups
here to your point here, bonds. So some of the laggards from the recent weeks getting beat up maybe on the back of this floor in the US dollar mining stocks i.t. And energy specifically on a CSI 300 leading the sector gains. As far as that's concerned, the read across broader markets though, is less enthusiastic. Well, I'm telling to myself that because that's really what price is telling you when you look at asia x x china here. So I think we're looking at and by the way, right context is key here because we're coming off the best week for global equity markets in 2024. So far, the Nikkei 2 to 5,
unsurprisingly enough, has been the best performing market since the bottom of the market mania and to panic exactly two weeks back. In fact, I'm looking at my calendar here. So unsurprisingly. So it's led the way back up, not all the way just yet as far as the Nikkei goes, because you have to all go back a few more days the week before the market panic to the BOJ decision to actually draw the top on that specific index right to the point that everyone was making earlier on on the US dollar weakness coming through, as you can see, 2/10 of 1% and as you can see, dollar China, dollar $1 Korean dollar, Japan, they are leading these declines and weakness across the US dollar in particular. The one is not trading at the strongest
level since about March or April against against the US dollar ahead of some key central bank decisions this week. Yeah, so you talk about your Bank of Korea, Bank of Thailand. We were of course counting down to Jackson Hole, which is still going to be that big event. And what Jay Powell is going to signal in terms of, you know, not just when these rate cuts are going to be coming, but how big as well.
Don't forget, those are the LP's on Tuesday as well. So and bank Indonesia on Wednesday. But I think Jackson Hole is really going to dominate the headlines there. You know, debate has really shifted from will they or won't they? And they're really talking about, you know, how much guidance, what's going to be told from Jay Powell as well. I mean, he's been pretty tight lipped about the timing of these cuts.
Is is he going to use Wyoming as the stage to sort of set that emotion? And then, of course, you wait to speaking on that same day, as well as he's going to be testifying to parliament there about that BOJ rate hike just a few weeks ago. Remember that? Don't think so. The market forgot about it. Well, who could forget? That's me. I wasn't here. But yes, all the drama, of course, two weeks ago. And, you know, can they hike again. Right. And how do they communicate that with
the markets? Arguably, there was a piping issue there. Plumbing issue as far as guidance to to the market is concerned. Speaking of got it to the market price, as everyone is pointing out, Jay Powell and Mike, he stopped short of committing to a rate cut. Mark Cranfield is with us, joining us out of Singapore to talk us through this, our live strategist. Mark, I guess the question is can well, you know, while Jay Powell is probably not going to tell us a cut is guaranteed to come, can they afford, though, to push back against these rate cut expectations? I think Mr. Powell will realize that trying to push
back is rather too late for doing that. The the way the market expectations have moved so far ahead. It would actually be dangerous for the Federal Reserve at this late stage to try and persuade investors that they've got it wrong, that there isn't going to be a rate cut in September. So it would do more harm than good. And I think he's quite aware of that. I mean, the fact he was talking about two weeks ago, we had this market turbulence related to Japan. What he wouldn't want to risk a similar kind of turbulence in American markets if he says there's no way we're going to cut interest rates. So he's going to tread the needle very
carefully. And you've just heard Mary Daly over the weekend, she's another voice in the Fed that seems committed to the idea that it's time to start lowering interest rates. The tricky job that he has to persuade traders and investors is that they can go ahead with a modest rate cut in September, but without guaranteeing there will be a whole line of cuts. Following up the market at the moment. Is pricing interest rate cuts well into the middle of next year. That would make the Fed pretty uncomfortable.
There's no way they want to commit to a whole series of rate cuts when they know that CPI data, unemployment data could easily catch them out over the next few months. So he'll want to be careful to keep the market onside that yes, the time is right to begin lowering, but in a very measured way. And so somehow he's got to convey that message without causing huge disruptions, particularly in equity markets and equity markets.
You're still seeing that, you know, there's momentum building that. It seems like people are thinking the soft money scenario is still very much intact. But I take a look at, you know, bond markets, on the other hand, Mark, which are still pricing in some aggressive cuts from the FOMC, and then you've got vol right equity levels come down, ethics volatility still quite high. Oil markets have stabilized, but gold is at or near record highs. I mean, it seems like asset classes are still, you know, pricing in very different possibilities and scenarios right now. Yeah, but they are they are coalescing.
I mean, if you look at we're moving into that scenario where the interest rates are. Yes. As you say, that they're pricing in lower rates, but they seem to have stabilized. They are the dollar US currency is beginning to reflect more of that than it was even just a couple of weeks ago. So what we're seeing now is pretty broad US dollar weakness, which typically is in parallel to improvements in equity markets, especially outside the TI G10 universe. So we're probably going to enter a pretty good phase for Asian markets for the rest of emerging market equities where their currencies are helping to drive performance in equities.
So if you look across the board today, you'll see the Thai baht, Malaysia, Ringgit Korea and 1 SGD all having a very good run. They started it last week. It's continuing going this way and they're doing it off the back of stability in the yen, the yuan, and now the euro is taking up the reins for the moves in the global currencies. That's always a positive thing for equity markets, especially the ones that need to catch up. And there's plenty of those in the emerging market space. So that's where investors, they can see. They love it in a situation where they can see currency upside and the upside at the same time. And we're beginning to get that move
together. And if you also look across the commodities, you've got oil prices actually slightly in retreat. So this for the moment, you don't need to worry about a sudden spike in oil prices to derail things. Gold is also behaving well from it, particularly from an equity market point of view.
Everything is falling nicely into place. Mark, I'll likely ask you this same question this time next week in various reporting in two weeks. And, you know, Yvonne and I were joking earlier on in video, more important than this upcoming speech of Jay Jay Powell, to your point, the stars are aligning in the equity market. Do you think do you think positioning and risk appetite has improved enough from, you know, the earnings kerfuffle two or three weeks back where markets were reacting negatively to the big tech earnings? Have they recovered enough to push in video and the broader air space? Higher ones they report? Obviously depends.
But once we get decent earnings out of Internet and hopefully we do so in about two weeks, Mark, you can certainly say that the big moves in equities two weeks ago cleaned out a lot of positioning. So you would have you're bound to have had a situation where particularly in the tech space, the long position was getting pretty overcrowded. Well, a lot of that has been wiped away. People are in a much more neutral space,
seen a bit of a build up last week with people getting back into the tech stocks, but probably not to the degree that they were in July. So here we are where we got Jerome Powell to deal with next week. And as you see in video, we probably get through this week, no problem.
When we get into the early part of next week, people will be much more focused on NVIDIA because we've seen before how their earnings can make a huge impact across the market. They're a big enough company. They're one of the few, two or three companies in the world that can actually move the whole global landscape for equities, and they are that important, particularly as the story is so central to what's happening in markets. Now. If you look at the past two earnings results were in video. The stock improved a lot after those
went to new highs each time. Now, if we get anything like that next time, not to be great for the equity space. If we get a disappointing result from NVIDIA, no matter what has happened between now and then, we certainly could see a big pullback in equities, but we probably won't get people to focus on NVIDIA until the middle of next week. Mark. Thank you, Mark. Hill There are a lot of strategists setting up the week for us as well.
And coming up next, as a race for the White House heats up. A look at how the November U.S. presidential race could shape the outlook for US-China relations. We have former U.S. Ambassador to China, Gary Locke. And Fudan University is sending Lee joining us next. This is Bloomberg. Welcome back to the show Me. The Democratic National Convention
begins in Chicago later Monday. And of course, ahead of that, Kamala Harris is embarking on a campaign blitz in the swing state of Pennsylvania. Her Republican opponent, Donald Trump, is also ramping up his political events in a bid here to stall the momentum we're seeing on the Democratic side Stephen Engle. Our chief north asia correspondent is
here with us, Steve. Domestic issues obviously are taking up a lot of the mind space right now. And I'm wondering what the how is foreign policy then coming into this conference, particularly China. Domestic issues are going to definitely play front and center at the DNC as well as Donald Trump saying he's going to go down to the border at the same time that, of course, Kamala Harris gives her speech to try and steal some of the the dialogue away from what the Democrats hope to continue in. That is the unity campaign, obviously really bringing the Democrats together after Harris became the top of the ticket.
But again, you know, China also has not necessarily played so high yet. It could during the debates that we're going to get between Harris and Trump right now. Again, I think the Democrats don't want to lose the momentum that Harris and Waltz have by kind of bringing up some of the trade issues and give some fodder to the Trump campaign. Obviously, now we are in very simplistic terms, the Donald Trump campaign has talked about across the board upwards of 60% tariffs on all Chinese imports. Right. If you look at Harris, I guess the
assumption here is that she would be the continuity candidate. She would continue some of these trade policies that we've seen from the Biden administration, both I mean, both neither party, the Democrats or the Republicans have talked about rolling back any of those tariffs that we saw put in place during the first Trump administration. In fact, the Biden administration did roll back. They added to them. So it'll be interesting to see how China plays on the job front. But given the swing states that are so
important, whether it's in Michigan with the United Auto Workers and the like, it's going to play heavily. We've seen J.D. Vance, the Trump vice presidential candidate, talk about I don't like China. I don't like that China has stolen a lot of American jobs. It's a very simplistic narrative, obviously. But again, on the other side, how is this play that the tariffs played into inflation? And that's a huge issue in this campaign. Things are so expensive right now on a historical basis in the United States.
And in fact, Kamala Harris, in her economic policy speech more recently, she said he, meaning Donald Trump, wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries. She didn't mention China, but other countries, and that will devastate Americans. So it is going to be an interesting next few months a
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