Tech Selloff, Chipmaker Weakness Drags Asian Stocks | Bloomberg: The Asia Trade 10/16/24
This is the Asia trade. I'm Paul Allen in Sydney where the markets just opened. I'm. How do you start? Well, it's here at the city, Australia and New Zealand Investment Conference. The top stories this hour.
Asian stocks are set to follow a U.S. sell off as worries about the outlook for chips hits the industry that have been powering the bull run. But Wall Street banks notching a surprise trading halt from volatile markets. Donald Trump tells Bloomberg that tariff is his favorite word, defending his economic agenda three weeks out from Election Day and central bank decisions are on the way from Indonesia, Thailand and the Philippines. Plus, coming up next, we speak live with
the RBA assistant governor Sarah Hunter. All right. We've got some breaking news right out of the gate. It is unemployment numbers from South Korea for the month of September coming in a little bit better than expected. The jobless rate two and a half percent.
The expectation was for 2.6%, although that is a rise from what we saw back in August. The 2.4% we got there, though, was a record low. Still, unemployment much, much stronger than the long term average that Bloomberg intelligence considers to be neutral for creation for us and for inflation. A big your pardon job creation has been primarily coming from services there where wages tend to be lower. So not a lot of impact on inflation either. So that unemployment rate in South Korea
better than expected. Two and a half percent adjusted the expectation, 2.6%. Let's take a look at how we're doing on markets at the moment. Just opened, of course, for trade in most of the major markets around the region. Here in Australia, kind of flat right now.
We're off to just a handful of points at the moment. A couple of stocks will be watching. Rio Tinto was out with production numbers a short time ago. They met estimates despite the slowdown in China. Rio warning that it's cautious on cost
inflation as well. The oil and gas producer Woodside going to be in focus. Also a record third quarter production there. Also Woodside announcing plans to delist in London. But taking a look at NIKKEI futures
poised for a little bit of movement for the upside. And we've got a very, very weak yuan at the moment, also a very weak yen at one 4926. Let's take a look also at US futures. We did, of course, see US stocks down led by big tech. Couple of things going on here. Concerns over tighter restrictions on chip sales was also not a great set of numbers from the Dutch chip maker ASML.
Any booking, half the orders that analysts were expecting, that was down 60% in Europe, the most in 26 years. However, we do have futures pointing a little bit to the upside. Crude prices hovering around $71. Well, Garfield Reynolds, of course, leads our Markets live. Asia coverage joins us now with a little bit more guff. We did see a bit of a pullback for US markets today, but considering Fed easing the path of least resistance, I guess still higher from here. Yep, very much so. As long as I mean, earnings season is
going pretty well. You know, banks surprising to the upside that that provides some, you know, some solid grounds for optimism. And you know, the things that have gone on have kind of been other than bad economy at the margins. SNL was a shock to everybody, not this US company.
But, you know, it's in the same businesses, invidious to some extent, but that's you know more about some specifics to do with ASML and its biggest customer Intel not so much to do with it. You know what the Nvidia CEO is talking about insane demand for its Blackwell chips. So all of that's kind of still in place. Yeah you're going to get some pullbacks. There wasn't anything that came out overnight that would argue against the market thesis that a soft landing is likely now we know the Fed itself said sticking a soft landing is a really, really tough job to pull off, but it's certainly at least still in play.
And as long as that's in play, equities are going to march higher. There's a lot for investors to be contending with. You know, as has been the theme over the past few months.
Right. There's central bank decisions, there's questions over the Fed. There's also, you know, with three weeks out from the U.S. election. Right. And of course, the the issue of what this means for trade has been revived, too. Do you think investors are paying attention to that? They're definitely paying attention. When you look at some of the action
overnight in both the Chinese yuan and the Mexican peso, both of them weakened. As for President Donald Trump doubled down on your tariffs, his favorite word, and as he himself put it. And, you know, they they showed some weakness as he was speaking overnight. The interesting thing is the way that that weakness, you know, wasn't it wasn't a major move. The moves are fairly contained. The takeaway from that isn't that investors haven't been paying attention. It's that they have they've already
priced in a lot of the potential downsides on that front, at least initially from of of from a Trump presidency. You know, we also saw in general some emerging market effects, weakness. Certainly, Asian assets will have be a lot more to have. They'll be a lot more nervous in many ways going into the election than even U.S. assets will, because, you know, while in the U.S., a lot of investors don't see a huge difference here, There are pluses and minuses for each of the candidates. They're also quite focused on, you know,
whether either party sweeps for assets in Asia, the question of whether or not we get more Trump tariffs. That's the major one. Garfield Reynolds who leads our markets live Asia coverage there from Sydney. Well, of course, with the revival of all this tariff talk, Republican presidential nominee Donald Trump has told Bloomberg that he loves that word, the word tariff, as he denied his protectionist policies could feel inflation and spark the national debt. Trump spoke with our editor in chief John Micklethwait about his economic agenda. Now, just three weeks out from his election showdown with Democratic nominee Kamala Harris. Because we're about growth, she's got no
growth whatsoever and we're all about growth. We're going to bring companies back to our country. You look at even today, as I was driving over, I see these empty, old beautiful like steel mills and factories that are empty and falling down. Some have been converted to senior citizens homes, but that's not going to do the trick. And we're going to bring the companies back. We're going to lower taxes still further for companies that are going to make their product in the USA.
We're going to protect those companies with strong tariffs. Because I'm a believer in tariffs. I'm not sure that you are. I don't think you are, but I congratulate you and your career. But to me, the most beautiful word in the dictionary is tariff, and it's my favorite word. It needs a public relations firm.
To tell us to miss the most beautiful word in the tariffs. Tariffs? Do you think that will bring in the revenues to use another bipartisan group? Peterson Institute. They say it'll only bring in $200 billion. That is only that's barely the cost of
two of your promises. Yeah, but that's like four for what company you're talking about. Okay. Look, I brought in with tariffs, and I was just getting started. Then Covid came and we had a watch, you know, because I tell you what, I did a very good job in Covid. Nobody knew what the hell it was.
I call it the China virus because I like being a little more accurate. But when that came. But we we got hundreds of billions of dollars just from China alone, and I hadn't even started yet. But tariffs are two to things if you look at it. Number one is for protection of the companies that we have here and the new companies that will move in because we're going to have thousands of companies coming into this country. We're going to grow it like it's never
grown before, and we're going to protect them when they come in because we're not going to have somebody undercut them. That's Donald Trump there speaking with Bloomberg's at John Micklethwait at the Economic Club of Chicago. And staying with former President Trump, Bloomberg has learned that the EU is preparing a list of US goods it may target with tariffs if Donald Trump wins the election and follows through on his threats to hit the bloc with new trade measures. Sources say the levees are not a base case and would only be used to retaliate. We're told the EU would prefer to seek agreements with Trump on areas of common interest, such as China coming up on the Asia trade.
RBA assistant Governor Sarah Hunter joins us in a moment with the central bank's latest views on inflation and interest rates. We get a progress report on Asia's energy transition with Jan zero CEO plus HSBC Global Private Wealth tells us why they're staying neutral on Chinese stocks despite Beijing's stimulus plans. Much more ahead. This is Bloomberg. Take a look at how we're setting up this morning here in Australia. We are expected to see some gains really proceed when it comes to financials being the leaders here, when it comes to the ASX, some of the strong bank names in the US will give that leadership with really a hugely volatile quarter. But still we saw the profiting from Wall Street financials overnight.
That's likely to carry through to the Aussie session as we get underway. We are seeing a little bit of downside there when it comes to trading in the Aussie dollar. We had the dollar, the US dollar, I should say rising and bonds are really are tracking treasuries higher as well. Well, Australia's central bank says it's keeping watch on inflation expectations in the current period of really elevated and sticky prices there.
Hunter is the assistant governor at the Reserve Bank of Australia and joins me now. Sarah, so great to have you with us. This despite having they say it's really a pleasure and we appreciate your time. How vigilant are you feeling when it comes to inflation pressures? We're just about a couple of weeks out from the third quarter numbers.
You feeling comfortable? It's a good question. We're clearly watching the data very, very closely. We're very conscious in terms of actual inflation outcomes that headline what was aside. We've seen some persistence in our
underlying inflation metric over the last year or so. So we're really watching to see if that continues to disincentive a slower pace of inflation. And then we'll be evaluating that and looking at as we go into the November board meeting. And that's sort when we publish our next set of forecasts. One of the biggest changes has been the tax cuts and the energy rebates. Do we have an indication yet as to what households are doing with that? That's a good question. That's a key risk that we're monitoring.
We find it in back in our org assessment and we're certainly going to be looking at it very carefully over the next year. While we've got some information, we've had some of the retail sales data for July and August has come through and we've also we make use of some of the card spending data that now gets published. That's that's very useful. And also look at what they tell us about what's flowing through people's bank accounts just based on that, it's not only data that we have, we can see that the tax cuts have come through as expected. People have got more flowing into their bank accounts. But the spending position, we're still waiting to get a real read on. And of course, we won't get the official sort of data until we get the national accounts at the start of December. So we're monitoring it very closely,
looking at all of those high frequency indicators. But we've got to wait as everyone has a little bit longer until we get the official data about the implications of too much fiscal spending. Certainly the likes of the IMF have expressed their concern over what local and federal governments are doing. Is that something that you're being very watchful of? And at what point does the RBA kind of need to talk about that as well? So we consider government spending as it's obviously one part of total spending through the economy and it's an important part. So we take those government spending decisions that budget decisions as given.
So we did a sort of fairly big updates after the May S&P and going into all this because that's when we got the federal budget and a number of the state budgets as well. We take those as given, we feed them in. But for us, really it's the aggregate picture of what's happening across the economy that really matters. So we're considering what's happening in the public sector, but also what's happening across the private sector. It's not just households that are in a very important part because part of demand or so businesses, what's happening with residential construction and with trade. So we're taking the whole picture together and looking at what that means for the labour market and for inflationary pressures. So it's the how the whole thing comes
together is really the focus for us. Does the China stimulus story, the potential rebound path change that I forget at all? What do you factoring in with your calculus there? Yeah, it's it's obviously very recent news. It's in the news that we've had since August.
So we are factoring it into our forecasts going into November. And we do pay, as you might expect. So a lot of attention to China, given how important it is to the economy here. So we'll be looking at that and what we think that might mean in terms of growth, not just for for this year. Obviously, most of this year is now done, but really what it means for 2025.
So we're working that through at the moment, but it's still very new news for everybody. So we haven't got a definitive forecast long term just yet. Do you think during the period of China weakness, the Australian economy has in a way sort of, you know, necessarily not decoupled but certainly diversified from that relies? Is this still a pretty big chunk of what happens? It's oh, it's an interesting question because it really sort of there's two parts to it. There's what's happens to demand in
China. So that's determined over there, but also how producers here respond. Businesses here has fallen, so particularly in the mining sector, but also what we might see in terms of tourism flows or international student flows and that sort of thing. We have seen in that there has been strong growth in other markets, but that's not necessarily a China story. That's more what's happening there and
that's come through, particularly on the student side, a little bit on the tourism side as well. But having said all of that, China is still by far and away Australia's largest export partner. We still have very strong linkages there.
And China matters obviously for the global economy more. Broadly, and that matters for global economic conditions and as a small open economy that generally matters for us. So China's are very important and we still put a lot of our time and attention into thinking through what's happening there and what it means for the economy here. Cost of living pressures are still obviously top of mind. And it was interesting speaking to the city Australia CEO yesterday and he was saying even having rates just on hold and this idea that, you know, at least will stay here has done enormous things when it comes to corporate sentiment.
Do you think that's enough to boost household sentiment? How much do you worry about what households and consumers are feeling right now? We're certainly looking at households very, very closely. They're clearly the largest part of the the economy in terms of demand. And there's definitely uncertainty about how households are going to respond to everything that's sort of happening at the moment. The cost of living pressures obviously
been trying for quite some time. We're very aware of how tough it is for people right across the spectrum and not just the mortgage holders, but if you've got paying rent, that's a real squeeze there and and other price pressures as well. So we're very conscious of that squeeze. It's been there for an extended period of time now with China, as we spoke earlier, with the way through, what the tax cuts and rebates and other things might mean for household spending. And consumer sentiment is one of the things that we're tracking. And the latest data has lifted a bit, But we'll have to just wait and see how that plays through for actual spending numbers. It is a key source of uncertainty,
though, and it's something we're certainly focused on at the moment in the housing market. Obviously not a key remit when it comes to the RBA, but you must be feeling a bit discouraged to see prices still continuing to rise in this environment. How much does that some comfort complicate the scenario? It's it's certainly an interesting outcome and somewhat unexpected from economists in general. The way we are looking at it and the way we really think about it is through two channels. One, what it means in terms of dwelling investments and residential construction, and that we know that there's a number of challenges in that sector around construction costs, around availability of labor, getting projects off the ground. And so the supply there is growing pretty slowly.
Over the last few years, in fact, it's been declining most recently. Equally, the other channel that we look at very closely is the wealth effect for households and for higher house prices. It's a little bit of a boost if you own your own home, if you're in that position. And we think about how that might be through into consumer spending, although we do know there's many other factors for consumer spending, as we just talked about, and that generally consumer spending has been very weak in the last period. So we're monitoring it more for what it means in terms of the macro economy. And then we also obviously have a lens to what it means around financial stability.
So there's a number of different channels for housing. We do spend quite a lot of time on the housing sector. It's been interesting to see how it's played out through the last couple of years. It's clearly got further to go in terms of both the supply and and how that starts to come through, but also thinking about what might happen to prices going forward, which is watching our interview with the former President Trump. And, you know, he's talking about how tariff remains one of his favourite words. And I do wonder, how would you assign in
terms of the level of risk for Australia, should we get another Trump presidency, both directly with trade and as a proxy of China? Well, we really politics to the politicians and I say this, this is overseas as well, but in the context of any sort of political change, you know, potential change of government or continuation of government change in policy, we're thinking really about what the actual policy is and what gets enacted and how that might flow through. So if we did see some change to the tariff settings and any country, we'd be thinking about that in the context of how that impacts those economies directly and then how that might flow through the global economy. This particular example is no exception, but we'll wait and see what happens and then we'll make our views after that. So really great to have you with us. Sarah Hunter is assistant governor at the Reserve Bank of Australia. And Paul, many conversations to come here from the city Australia, New Zealand conference. All right.
Thanks, Heidi. Let's take a look at what's moving on Australian markets at the moment. A couple of stocks to watch. One of them, Rio Tinto, particularly exposed to China, noted in its third quarter production report the uneven economic recovery there.
Production numbers pretty good for Rio Tinto, but that stock off about one and a half per cent right now. Also heard from a couple of the big energy giants here today, Origin having its annual general meeting reaffirming its full year forecast, although the stock there down about 1.3%. Woodside Petroleum, meanwhile, gaining 1.2%, Woodside announcing record third quarter production, but narrowing its production forecast for the full year.
Plenty more to come on the Asia trade. This is Bloomberg. While we are not yet where we want to be, the impact of the changes we're making is clearly evident in our momentum and our improving performance. Turning to the macro, where growth is not slower than last year. Global economic performance continues to be surprisingly resilient.
Whatever you want to call the US landing, the sentiment around it is more optimistic. That's Citigroup CEO Jane Fraser speaking on the firm's third quarter earnings call. And Citigroup is among some of the big U.S.
banks that reported on Tuesday alongside Goldman Sachs and Bank of America. All three lenders posted equities and fixed income trading halls that surpassed estimates for the quarter. Let's take a look at how they did there. A little bit of softness there for Goldman, but Bank of America better buy it half of 1%. Citigroup reversing away despite that
beat. But for more on this, let's get to Bloomberg Intelligence is global investment bank senior analyst Allison Williams. So, Alison, it was a very volatile quarter and I guess volatility means pretty good profits. So it's the volatility and also the asset prices.
You know, the world's market capitalization, at least for stocks, reached a record high exiting the quarter. And so, you know, the strength in equities really showed up in equities trading. We heard from the banks. Strength in derivative strength, the cash strength and prime and of note a strong end to the quarter especially in Asia. So the U.S. environment helpful throughout the quarter but Asia especially at quarter end so we saw in the equities trading fixed income trading about in line but still a little bit better and also doing better on the investment banking side. A lot of bright spots there when it comes to, you know, deals and the volumes that we're seeing and returns. But are there concerns on the regulatory
front? What were some of the risks that were highlighted by these various earnings announcements? Sure. And I think, you know, it's perhaps not directly in the earnings, but for Citigroup in particular, which is working through some regulatory issues, I think that there are some jitters around the potential for a risk related to an asset cap. So Wells Fargo was the first bank to receive such a measure. It was unprecedented. And then late last week at TD was sort of the second bank that this has happened year. Now. Granted, that was only for their U.S.
subsidiaries. This morning there was an article citing some internal analysis at Citi, which, again, we didn't necessarily think there was any sort of thing surprising in the article. It talked about, you know, potentially some of the shortcomings with regard to compliance and training and the like. You know, I don't think that's surprising, but I think there is a general feeling that regulators are getting frustrated with lack of progress. There's other signs that Elliot Stein,
who's our litigation analyst, and Nathan Dean, his our regulatory analyst, have sort of pointed to. So I think that's why you saw Citi really trading down today. A Bloomberg intelligence senior analyst, Allison Williams there with those U.S. bank earnings, that's likely to trickle through when it comes to outperformance in financials today in Asia. But take a look at how we're tracking when it comes to Kiwi assets At the moment. We are seeing a bit of downside there.
That inflation number, the slowest rate since early 2021, really reigniting expectations of further RBA NZ cuts. And continued progress towards our goals is not guaranteed. So we must stay vigilant and intentional. What does that look like? Well, it means continually assessing the economy and balancing both of our mandated objectives. And we have to be really focused on fully delivering on 2% inflation while ensuring that the labour market remains in line with full employment.
Let's take a look at what we're watching. And that, of course, was the San Francisco Fed president, Mary Daly there on the U.S. economic risk outlook. But take a look at how we're setting up and going into this trading day. We are seeing the Kiwi dollar on the back foot after inflation slowing to the lowest rate since early 2021. Back inside that 1 to 3% target band for the BNZ. We saw that decline there. When it comes to Kiwi greenback as well as Kiwi trading against the Aussie dollar. Dollar again is holding fairly steady at
just over that 149 level and dollar China. We are seeing a further weakness when it comes to the yuan and certainly some of this sort of lack of conviction over where we go next with this stimulus package. We are looking ahead to Thursday briefly now when it comes to the housing minister meeting with the central bank. Let's get now for more from our interview with the Republican presidential nominee, Donald Trump. Just three weeks before the U.S. heads to the polls, he told our editor in chief, John Micklethwait why he thinks tariffs on Chinese steel imports, of course, in his first term have proved to be effective. If you want the companies to come in,
the tariff has to be a lot higher than 10% because 10% is not enough. They're not going to do it for ten. But you make a 50% tariff. They're going to come in. Let me tell you the other thing about tariffs. That's great. Our steel companies, as you know, three or four years ago, they were all gone. When I was in office, I saw a man from a big steel company and he was devastated.
I knew him for a long time. And it's been a tough business. It was a great business many years ago, and I would not let us steel be sold to Japanese, by the way. I just took it just psychologically, I think it was the Nippon Steel this year, you know? Yeah, I would. Yeah, I wouldn't let it be so but I
would if this I would stop it if it hasn't been completed by the time I'm president because I think it sets a horrible tone. But I had a lot to do with steel. We're going to lose all our steel companies because China, as you remember, was dumping steel at levels that nobody's ever seen before. And I put a 50% tax on that and tariffs on that all dumped steel. And it was also bad. It was what they called dirty steel was a good steel, which is a bad thing for structural components of buildings and planes and things like that. They were dumping crap into our country and I put a 50% tariff.
I started at 25 to 50 because the 25 didn't quite do it. I raised it to 50 and that did it. They stopped dumping steel and I saved our steel mills by having that. We saved it. We saved our steel. Now what was left because we've lost so much. But there are certain companies you have to have, there are certain things you have to have steel, You have to have if you go to war, you know, there's a possibility you go to war.
I kept us out of war. I was the only president in 82 years that kept you out of a war. Except I defeated Dice's, but I inherited that way. That's Donald Trump.
They're speaking with Bloomberg's editor in chief, John Micklethwait. And there's more on the election race. And today's a Bloomberg big take, which looks at how dozens of lawsuits playing into the campaign subscribers can read that story in full on the terminal and on our website Bloomberg and dot com. Let's take a look at some of those big tech names in the US because they certainly weighed on sentiment today. Let's start with Apple. The exception to that rule, Apple shares actually hit a record high on optimism around AI. We've been hearing a lot about how A.I. is going to play into the iPhone 16. Well, on Tuesday, Apple also announced a
new iPad mini, which will have similar features. So the market liking that news. Apart from that, it was not a day to remember. For big tech, we did have video weaker by almost 5%. This is on the news that the Biden administration is discussing capping sales of advanced A.I.
chips from a video on a country specific basis. You can fill in the blanks. There wasn't a great day for ASML either. That's Europe's biggest chip maker, the Dutch company booking only half the orders that analysts were expecting. ASML really suffering down 16% and regular trade that was the most in 26 years. Take a look at Qualcomm as well after Qualcomm saying that it's likely to wait until after the US presidential election in November before deciding what to do about its offer to buy Intel Corp..
So let's get a little bit more on Qualcomm and what sources are telling us about that possible move on Intel. A tech reporter, Anabel Dumas, joins us now. So Anabel, a bit more clarity on what happens after November. What's the story here? Yeah, I mean, it's sort of unsurprising in a way.
There's a lot of chip companies out there that are really just waiting on the outcome of that vote. But for a company like Qualcomm, sources are telling us that they're thinking about two things in particular. First, you've got the antitrust landscape, rather. And second, it's how America's relationship changes with China as well.
What we. Hearing. As you said, Qualcomm wants to wait until actually after the inauguration in January to decide on the direction that they take with Intel. If you recall this possible M&A we reported on back in September. At that time, we were also hearing that Qualcomm had approached antitrust regulators or officials in China gauging their response or trying to gauge their response. And we're hearing again that they didn't
get any sort of reaction from Beijing because they're waiting to see if that bid is made official. But certainly, as we said, a possible takeover, one that's going to be watched very closely, given it would be one of the biggest M&A deals with ever seen. Would there be any other advantages as well for Qualcomm to wait until after the election? Well, I think the really obvious one is around earnings, because if you if you also recall the earnings we had for the second quarter, they were pretty bleak and we saw a huge share price reaction off the back.
We saw more job layoffs coming through. We saw questions around the outlook for four different parts of the business, for instance, the fab part of it. And so, again, if you wait and see those third quarter numbers where analysts are seeing perhaps a $1 billion loss, it of course, makes that deal a lot cheaper for Qualcomm. So it would make sense perhaps then again, to delay that Qualcomm deliberations that we do know that they're ongoing or that's what we're hearing from sources.
Of course, the the the certainty or that that lack of certainty is still there, whether they would actually pursue this deal with Intel. And we haven't actually had any sort of response really either from Qualcomm or Intel. Well, I mentioned a minute ago those terrible numbers for ASML, but we keep hearing about the overwhelming demand for chips or what went wrong. Here was the disconnect. Yeah, I guess it's sort of that sort of two speed recovery that we see in the chip space. Some particularly chips are doing really well, others that have more legacy ones that are used to things like consumer electronics, automotive, they're still kind of getting out of that slump.
But ASML, we know it's a Dutch company. It makes the world's most advanced chip making machines. And as you said, it had those third quarter figures coming out and they were not great. And we saw around half of the expected bookings coming through.
So we saw, for instance, at $2.8 billion in the third quarter. That's US dollars. The average analyst estimate had been for 5.9 billion. So that is a significant loss there.
And as you said, that share price reaction, I mean, off 16% in Amsterdam, that's the biggest loss we've seen going back to 1998. So you're talking about 26 years here. All right. And about drove is dead. And we do have plenty more on chips and tomorrow's show. We're going to be speaking exclusively with AMD's chief technology officer, Mark Papermaster, about their new AI products and also about the outlook for the sector in Asia.
Here's some other corporate stories that we're tracking. Data Center Developer Databank has raised $2 billion to build three facilities across the US. And the latest sign of superheated investor interest in the ARM pension fund, AustralianSuper led to the rise with one and a half billion dollars. It'll become a minority owned data
databank and appoint a director to the company's board. US listed shares of LVMH slumping after the luxury goods giant missed estimates. In its latest results. Sales fell for the first time since the COVID 19 pandemic, hampered by slumping Chinese demand.
Morgan Stanley says declines in third quarter organic sales for the LVMH Fashion and Leather Goods unit came in well below expectations. Boeing shares advancing after the plane maker took a step towards raising up to $25 billion in bond or share sales to help withstand a prolonged strike. It's also secured a $10 billion credit agreement with the US banks, and this added firepower could help Boeing improve its bargaining position with striking workers who are seeking higher wages and a reinstatement of pensions. Sheehan is said to be adding more banks to help arrange its potential listing in London. Sources say Barclays and UBS have been
picked as bookrunners for the online fashion retailer's IPO. We're told the listing could happen as soon as early next year, valuing the company at about $65 billion. Up next, we get a progress report on Asia's energy transition with the CEO of Singapore's Gen Zero, Fredrik Teoh.
This is Bloomberg. I can be part of the solution is a problem at the same time. So if I start with a problem data centers, they consume a lot of energy and they need a lot of water. So actually we're providing services to
the companies which are doing it, and it's a growing market. On the other side, I can benefit ecological transformation and saving water, saving energy, saving CO2 and so on. So first I can make a company like Veolia more efficient. That's Estelle Berkley, CEO of the world's largest environmental services company, Veolia, talking about the pros and cons of AI. Now, Gen Zero is an investment platform
founded by Singapore State Fund Temasek that focuses on investments aimed at accelerating decarbonisation. Fredrik Tia is the CEO. He joins us now from Singapore. Fredrik, thanks so much for joining us today. And it's two years, I believe, since Jun
zero was launched. I'm just wondering if you can give us a bit of an update on the state of play, how much you have deployed so far and where are you seeing the fastest progress in terms of decarbonization technology? Sure. Thanks, Paul. Thanks for having me, Jens. Everyone, as you say, was set up about two years ago.
We have made steady progress in our investments across our three investment focus areas, namely into nature solutions, technology solutions and copper market solutions. I think on nature we see a lot of interest in moving into sustainable forestry and sustainable agriculture types of areas which will help us to minimize the carbon emissions from agriculture and forestry, which is an important thing in technology. We are continuing to focus on hard to abate sectors like sustainable aviation as well as carbon capture, and then in the case of our carbon ecosystem enablers or carbon market solutions, we continue to believe in the importance of investing into creating a high integrity, transparent, effective carbon markets to assist our companies and countries to move along on the decarbonization journey. Yes, So obviously some companies, some countries are lagging behind in this journey, as you call it.
Where are the challenges that the greatest where is there more to do that as well? Energy transition is actually one of the most important issues when it comes to helping countries move along on their decarbonization and net zero journey. If you take our Asia Pacific, for example, there are about three or four major challenges that we face. Firstly, we are a very diverse region. There are countries that are advanced economies, but there are also countries that are struggling from their economic development. So therefore they are capacity to be able to pay for this transition and to move along with this decarbonization journey is very different. Secondly, we are also geographically very, very diverse. We have large countries like where you
are from in Australia, which is a continent unto itself and then blessed with renewable energy potential. But you also have very, very small city states like Singapore, where the land area would be insufficient for us to, even if we were to put solar panels across the entire country to meet our energy needs. Certainly we don't have a common approach towards carbon pricing or carbon or to price carbon or to reduce emissions in terms of target setting and policies. So in Singapore we have a carbon tax, we have a reasonably high carbon price.
But then there are many countries that have even started thinking about putting a carbon framework in place. And lastly, the Asia-Pacific has been blessed with a very high pace of economic development and growth in the past two or three decades. That basically means that we are the region that has also expanded our sources of energy most significantly during this period of time. And that means that much of our power plants, especially those that are coal fired, are very, very young. So the average age of coal fired power plants in our region is like less than 15 years. So to be able to shift some of these
things towards a much more a net zero clean energy, clean transition pathway is particularly challenging. You speak about the challenges and I think it's been quite discouraging for a lot of people to see the sort of emphasis really shift away from the energy transition. And, you know, a lot of investment still being made in traditional and fossil fuel energies. With that in context, what are you
expecting from COP21 in terms of the biggest wins that might be able to be secured? I think there are two or three aspects to this. I think firstly, we need to bed down and facilitate cross-border collaboration on this particular journey. Like I mentioned in Asia, right, there are countries that have been countries that don't when it comes to renewable energy potential.
If we are not able to facilitate the cooperation between these countries, then the countries that are perhaps disadvantaged from a renewable energy point of view will find it extremely difficult to get onto this net zero journey. Now there are practical steps that we can take, for example, infrastructure investments into facilitating these cross-border. Collaboration. Like, for example, in ASEAN, we are talking about a power grid that can interconnect all the different countries so that we are able to trade green electrons with each other. Another area in COP that I hope that we will progress on is about Article six. Now, Article six provides a framework for countries to actually treat it most of carbon credits in a way that can be useful for their carbon accounting when they are reporting for their nationally determined contributions. That will be an important milestone of progress to allow countries to collaborate with each other, and I think that that will be key.
We've seen some interesting sort of trends when it comes to private versus public markets and some of the data that Bloomberg New Energy Finance has climbed has really show that public markets are much more susceptible, if you will, when it comes to fossil fuel holdings. How key are private markets to you in this environment in terms of being able to make that further progress that we've been talking about? I think we do need to have a consensus within the finance industry, within capital markets, on understanding what is the proper role for transition and how we actually need to move out of fossil. I think increasingly over the past 5 to 10 years there is that consensus emerging that we do need to transition out of fossil. The question may be a difference around how fast we do it and exactly how we do it. But I think that directionally, I think that there is very little debate now on the fact that we need to move into a lower carbon economy.
So therefore, what we need to create really are the correct economic incentives, whether it is true policy or some of the government support in terms of lowering the cost of capital and improve the economic incentives for the capital markets to allocate a lot more capital towards low carbon solutions rather than continue to bet down on fossil fuels. Obviously, this is going to be complicated by near-term considerations around energy security, access and cost. But I think that if we are able to put our minds to it, we would be able to execute this transition. When it comes to looking ahead to 2025 and beyond, what technologies are front of mind for you in terms of what you're investing in and how much are you looking for to deploy? Well, in terms of technologies, we continue to focus on areas that are particularly hard to abate. I think that focusing on decarbonizing aviation is going to be a priority for us as we invest into technology companies that make sustainable aviation fuel or equipment manufacturers that support the scale out of SAF production.
That will be actually quite important in lowering the prices for airlines and for consumers. But beyond technology, it is also important for us to think about investing into nature, because in Southeast Asia, for example, we are home to some of the largest nature based carbon sinks in the world. That will be critical in allowing us to meet our net zero commitments and nature based solutions from a business point of view, allows us to have a much more cost effective way of mitigating carbon emissions. They are also, from a near-term
perspective, a lot more scalable. So I would say that just a singular focus on technology probably wouldn't be right. We need to think about investments built into nature and technology in order to achieve our net zero targets. Fredrick, really appreciate your time with us today, Frederick Taylor, who's a CEO at Gen zero.
More ahead here on the Asia trade. This is Bloomberg. Just getting some breaking news out of Japan is coal machine orders for the month of August. And quite a dramatic contraction here, which was unexpected, 1.9% contraction for the month of August.
The survey was for a modest 1/10 of 1% expansion. Only if that translates to a 3.4% contraction to core machine orders. So yeah, a big slowdown in that metric. We do have very weak yen, by the way,
still hovering around that 149 level. Stocks in Japan, meanwhile, in positive territory but that coal machine orders reading. Yeah a big, big downside surprise. Well let's take a look at what's going on in the commodities space as well. We've seen a lot of softness for some key commodities in the London Metals Exchange.
We saw copper prices come off. We saw nickel and zinc prices lower as well. If we take a look at iron ore that's still holding reasonably firm above $100 per tonne.
Not a lot of movement in the crude price. Of course, we did see a lot of movement in the crude price earlier this week, but seems to have found some stability around the $71 level. Well, Bloomberg has learned that China is considering allowing local authorities to issue as much as $853 billion in bonds through to 2027, mainly to refinance off balance sheet debt. Let's bring in our China correspondent Ben, Ben Lo and Hong Kong. So when China talking about this debt
swap to rescue local governments, what are the details of this? And is it going to do the job? Yeah, So this is not official yet. This is what we're hearing from sources. And I know it's going to sound a little bit confusing because Chinese financial media titan yesterday reported that the government was mulling issuing ¥6 trillion in ultra long special sovereign bonds over three years to tackle local government debt. But what Bloomberg has heard is that it is not going to be these hour long special sovereign bonds, but rather special local government bonds. And this is critical because if it is local government instead of central government that is issuing these bonds, that means that there will be no transference of the debt burden from local governments to the central government. Local governments will still have to
service their service, their debt, but perhaps they have a longer timeframe to repay at a lower annual interest rate as well. Now the estimate is that there are about 50 to ¥60 trillion worth of these off the books hidden debt that are usually taken on by other companies such as local government financing vehicles. So what this debt swap does is that local governments will then take on these hidden debt onto their balance sheets, and hopefully that would also free up resources for them to actually spend more money to revive the economy and pay off all of those delayed payments that are owed to contractors and civil servants. What are we expecting when it comes to
this Housing Department briefing that we're expecting in conjunction with the central bank? Do we see more support measures? I mean, there's been so much property restriction easing lately. Yes. So the housing ministry is going to hold a joint briefing with identified officials from the Ministry of Finance, from the PBOC and the National Financial Regulatory Administration. Now, what we think we can expect from that briefing is perhaps more details around the implementation of measures to stop the decline in the housing sector, because the Ministry of Finance on Saturday had said that local governments can use funds from local governments special bonds to buyback idle land as well as unsold homes. But they failed to give us the scale of
how much of these bonds can be issued, as well as the target in terms of how much of these homes they want to clear out from the existing inventory. There's also no timeline as well. So hopefully we will get a little bit more details on these implementation. And also, there has been no indication so far as to how the government will resolve the 48 million homes that are sold but not yet finished. This is a key barrier for homebuyers to
get back into the housing market as well. Women low their. This is the Asia trade war, counting down to Asia's major market opens. And Heidi, could be an interesting day for tech stocks. We saw somewhat of a tech sell off in the US there and some very disappointing numbers from ASML. Also some really weak call machine orders out of Japan a moment ago. That's the lowest figure we've seen
since May 2023. Yeah, we are likely to see that impact when it comes to related sectors and stocks here in Asia right before. We're also watching the potential political implications not just on tech, but global trade and that relationship between the U.S. and China as well. We heard in that conversation with the former President Trump how much he loves tariffs is his favorite word. And, you know, really kind of pushing back against any criticism of his economic agenda. We're just three weeks out from Election
Day. All right. But we do now have the market opens in Japan and South Korea. Let's take a look at how we're tracking in the early going some immediate declines there for the Nikkei off by about 1.4%. We do, of course, have a very weak yen as well. We take a look at the tropics, also reversing away down by about 1.2% at the
moment. I'm just waiting for some of those other names to start trading. In terms of the tech space in Japan. Take a look at the yield on the ten year as well, .963 at the moment.
So having a look at Korea, also some weakness for Korean stocks. The cost be off by 1.1% at the moment. And the tech heavy NASDAQ index perhaps unsurprising, off by about two thirds of 1%. Just in terms of those numbers that we had out of the Dutch company, ASML, it wasn't a great day for them. That stock was down about 16% in Europe.
That was the most in 26 years after booking barely half the orders analysts expected Heidi. Yeah, Take a look at all what she when it comes to this early stages of the first hour or so of trading when it comes to Australia and also over in New Zealand, it is a bit of a down side there. In fact, Aussie stocks are taking a bit of a breather from that record high level that we've really seen over the past few sessions. And we are seeing even some of the leadership expected from the financials is not carrying through to that broader gains. Iron ore miners in particular when we had Rio Tinto shares dropping as well, demand from China remaining soft and some of those concerns over the strength of the stimulus packages ability to sustain a recovery is still very much in play there.
Watching Australian bonds as they really followed treasuries higher. We had the a stock picture when it comes to the inflation print out of New Zealand there as well. So we're watching that as that inflation level in New Zealand slowing to the lowest since early 2021.
That's caused some repricing when it comes to just how much is going to be expected from the BNZ. We're also watching oil prices there as well. Middle-East tensions, of course, continue to play in, as does the China focus there as well.
We're seeing crude continuing to put on a bit of an advance in this session. But of course at the core of it all is also watching what the Fed does next. We spoke or heard from the San Francisco Fed president, Mary Daly, saying that officials still need to stay vigilant despite how good the recent sort of string of date has been to protect that growth.
Take a listen. And continued progress towards our goals is not guaranteed. So we must stay vigilant and intentional. What does that look like?
Well, it means continually assessing the economy and balancing both of our mandated objectives. And we have to be really focused on fully delivering on 2% inflation while ensuring that the labour market remains in line with full employment. Let's get to our next guest. Venture Guan is Asia CIO at HSBC Global Private Web Banking and Wealth fan.
Thanks so much for joining us today. I just want to pick up off those remarks from Mary Daly there. I mean, it looks as if a soft landing is coming into view. Where do you see the odds of that happening? And what's the trajectory for the Fed in terms of rates from here? Yeah, I think the latest high frequency data reinforce the outlook of soft landing, including the strong labor market and consumer spending in the US remain solid and that these inflation trends continue to unfold. All those September CPI inflation
numbers has come in slightly higher than expected. But overall, the moderation of inflation is still expected. So we continue to expect the Fed will continue with the policy easing and we anticipate 25 basis point rate cuts at each of the next six policy meeting in the US. So this is reflecting a global synchronized policy easing cycle have already kick started. And this will bode well for the return outlook of this asset, in our opinion.
Yeah, we're seeing a little bit of softness in markets in the US and now in Asia, particularly those tech stocks. We've been talking about the story around that. But with the easing narrative really starting to gain momentum now. Is the US still your preferred market
here? And it is the path of least resistance to the upside. Now over dose, the US equity market are now trading near all time high, but we expect there would be further upside potential in a market, mainly driven by the broadening of earnings growth as we have seen from the second quarter corporate earnings. In fact, the growth momentum outside of Medifast in seven has been improving.
So going into the third quarter, we're now starting to see a more corporate earnings number reflecting this broadening trend is holding up. So this is going to provide the most important fundamental support for the US equity market performance. Currently, Market Consensus Project around 10% 2024 earnings growth and anticipate growth acceleration to reach 15% EPS growth for 2025. So these reflect the expansion in
corporate improvement and this will bring new investment opportunities going beyond just big tech. Do you see new opportunities now materializing in China, or are you still on the sort of wait and see side in terms of how much conviction there is over the stimulus measures and if the transmission effect is is going to be effective? Yeah. I think China's policy pivot since late September is definitely a positive step to provide more forceful policy support to sustain the recovery momentum. However, I think the more critical
fiscal stimulus plan was still need to take some time before the market can get full clarity regarding the scale and a timeline for delivery of the stimulus package. After the recent and the IOC and Ministry of Finance press conference. The market are still need to wait for more details regarding the fiscal expansion plan. That could be a multi-year fiscal year easing cycle. But currently my cat really needs to see more evidence that will show how the policy support can provide a new drive to improve the structural growth outlook of the Chinese economy. So in the near-term, we expect market
volatility to persist after the shop rally in the previous recent two week. So we maintain our our neutral technical asset allocation to China equity market, and we do find technical opportunities in selected sector that deliver enduring earnings growth. Yeah, and Internet leaders, state owned enterprises and resilient consumer stocks are among them. Yeah, I think our favorite place to position in the China equity rally are mainly a focus on the high quality stock. I would identify the Chinese internet leaders, especially for those who which are trading at substantial valuation discount to their U.S. industry peers.
And I also think that the quality so you paying high dividends are going to attract you seeking investor and given that their very stable cash flow and solid and the underlying earnings, this will also bode well for the rerating outlook and then for the receiving consumer leaders, they are well positioned to benefit from the expected roll out of more consumption boosting measures. Currently, we're still waiting for better clarity regarding details of Doe's new stimulus that will drive our faster recovery of consumption spending. But this is this has been highlighted at the last Politburo meeting and the latest policy statement.
So we do expect the resilient consumption leaders are going to benefit from the latest stimulus package. Right fan Chuck won the Asia CIO at HSBC Global Private Banking and Wealth. Thanks so much for joining us. Let's take a look at how stocks are moving in Asian markets.
In the early going, no surprises here. Look at some of those big chip makers and those big electronics names. Samsung Electronics off by 2.4%. SK Hynix by 4%. Renaissance in Tokyo is off by about four and a half percent. We don't have any trading it for Tokyo
Electron, but none of this particularly surprising. We had a bunch of somewhat poor tech news out of the US. We've got Biden administration officials discussing capping the sales of advanced A.I. chips from the NVIDIA on a country specific basis. We had some very weak numbers on the Dutch chipmaker ASML booking only about half the orders that analysts were expecting there. Qualcomm also announcing that it's not going to wait until after the US election to decide on its move on Intel also. So some of those big chip names showing
a fair bit of weakness in Asia at the moment and the broader indexes lower as well. More ahead on the Asia trade. This is Bloomberg. Well, Hong Kong chief executive Jon Lee is set to deliver his yearly policy address today with the financial hub struggling economy as a key focus. Chief North Asia correspondent Stephen Engle joins us now from outside the Hong Kong government headquarters. And Steve, you know, what are the expectations that are being set here? Well, it has to be about the economy and stimulating this global international financial hub because it's struggled, obviously. Tourist numbers are down, retail sales are down in August, six straight month down at double digits, down more than 10%. So shops and shop owners are suffering.
People's wages are suffering. The financial sector has been hit with job cuts as deal flows have dried up, IPOs have dried up. Yes, things have gotten better. Number of IPOs have increased. The stock market has has jumped a bit on that Chinese stimulus.
Also on speculation of further Fed rate cuts that could alleviate some of the pressures here obviously in Hong Kong. But again, the Hong Kong stock market, keep in mind, is still one of the worst major global performers since the end of 2020, even with the more recent rally. So there are lots of long term goals that John Li, the chief executive, will spell out.
But also, I think a lot of people are looking for those short term stimulus measures. But those long term ones is going to obviously be closer integration with mainland China. They have an augmented SIPA agreement, which is a free trade agreement, that closer economic partnership agreement with mainland China. They're going to implement more of that. They're going to talk about the northern metropolis, more integrated between Shenzhen, across the border of mainland China and here in Hong Kong. They also want to diversify the economy beyond beyond the core competencies of financial
2024-10-17 10:38
