Fed Rate-Hike Bets Ease on Tame CPI; Tech Shares Rally — The Asia Trade 8/13/2026

[00:00:00] Speaker 1: This is Asia Trade. I'm Sherryan in Tokyo. The top stories this hour. Asian stocks set for gains as a tame U.S. inflation report eases concerns of a Fed hike, an auction of 10-year treasuries drawing the highest yield since the 2007 financial crisis. Tech earnings in focus with Cisco's quarterly revenue and profit beat failing to meet investors' high expectations and Cerebra's tumbling as hardware sales decline. Plus, Tencent ADR's plunge with markets skeptical that its big boost in AI spending will see it catch up with rivals. I'm Heidi Stroud, Watson, Sydney. Take a [00:00:53] Speaker 2: look at the setup for trading across Asia today as we see something of a sigh of relief when it comes to that hotly anticipated U.S. inflation print. The core inflation coming in subdued that takes some of the pressure, as Sherry mentioned, off the Fed. So the July reading really kind of likely easing pressure on this pressure to raise interest rates by the Federal Reserve. So if you take a look at those numbers, it certainly suggests that the impact of the price shock from energy on account of the Iran war. Continue to see that fade despite, of course, as we continue to see uncertainty over where this next potential ceasefire and the reopening of the Strait of Hormuz might take us. But take a look at the implications, of course, because we've been watching the other side of this, which of course has been the dollar-yen trade. Yen trading at that 160 level. We're still at around the points where we're sort of looking for intervention, but that 159.38 is where we're at. So a little bit of a breather for the yen. We'll have to wait to see how much these differentials will be able to be sustained. But let's get some more on this inflation prune. Christopher Condon, who leads our Fed coverage, joins us now. So Chris, if you take a look at the CPI data, the core numbers, what are the implications for at least the September meeting and going into the rest of the year? [00:02:04] Christopher Condon: Well, I think you're right, Heidi, in first of all, pointing out that this is not bad news. Some investors were worried about a slighter, hotter report. I think investors' outlook was slightly more negative than what economists had been anticipating. So then you saw the reaction in markets. Fed fund futures dipped a little bit in terms of their expectations for September. But the Fed is not out of the woods. I would not say that this changes the math meaningfully in terms of assuming where the Fed is going in September. There's still a lot of pressure on the Fed. There are multiple policymakers, three of which were voters and were ready to hike rates in July. We've heard from other policymakers saying they were quite close to agreeing with them in that meeting. This this CPI report, when you look at the core, obviously, that number is not going to grow as a result of this report. But it's not going to appeal any of the policy, the hawkish policymakers back across the line to the dovish side. And we've got plenty of time before the September meeting. We're going to see PCE come out on the 26th. In fact, well, before that, we'll see producer price index tomorrow. And then before the September meeting, we'll also get CPI for August. So I think it's a little bit early to think about this as a determinative report. A lot of data yet to come. And we'll see. [00:03:43] Speaker 1: Not to mention that before September, you also have Jackson Hole in August. How important will it be for the Fed chairman to sort of fine tune his message here, whether it's inflation or the labor market? [00:03:57] Christopher Condon: Well, I think this is a massively important platform for Kevin Walsh. You'll remember, of course, that he caused a big stir in the press conference following the July meeting, not because the Fed declined to high grades, but because he declined to offer an explanation, which was ready, readily available for why they did not hike rates. And he also made no effort to signal that if things worsened on the inflation front, that he would be prepared to even consider an interest rate hike. Now, he didn't really offer much in the way of his analysis of the economy. So I'm not saying that he came on and said he would not consider ever raising rates. He just would not provide a signal. This upset investors, a lot of Fed watchers. And I think Jackson Hole will be his opportunity to right the ship and to provide what economists refer to as the reaction function. In other words, give some insight into how he sees the economy and how monetary policy should react under different scenarios without offering guidance specifically on where rates are necessarily going. But that's what the market is really craving for Kevin Walsh. That's what he's not been giving them. And it's beginning to feel to many Fed watchers that he's failing to provide leadership of that committee. But there is plenty of time for him to right that ship. And I'm assuming that he will address that opportunity when he gets to Jackson Hole. [00:05:47] Speaker 1: Christopher Condon, who leads our Fed coverage, of course, with his views on, of course, the latest CPI data. And, of course, we're trying to really figure out how that's going to play into the markets and how investors will be digesting these numbers. Let's bring in Bloomberg MLive strategist Mark Cranfield. Mark, we saw the CPI numbers perhaps being good enough to sort of cut those rate hike expectations from the Fed in September, but not necessarily completely eliminate them. How is that going to sit with investors across Asia today? [00:06:20] Speaker 4: Well, certainly from the equity market point of view, you can see people are very relieved with a decent finish for U.S. markets overnight. That's probably going to feed through into Asia today. You saw the Philadelphia Sox index had a good day. That probably means that we will see the chip makers in Asia have another decent session as well. So from that point of view, everything is looking pretty rosy. There will be concerns about Tencent. They got slammed overnight, so that may weigh on the Hong Kong market. But in the bigger picture, we'll probably see Asia do okay. But the bigger concerns really are to do with the long end of the Treasury curve. We do have a 30-year U.S. Treasury auction today. It's extremely important, especially in the context of the U.S. federal deficit last night was announced. The budget deficit was announced. It was 25% worse than expected, over 400 billion deficit for July. That's a huge number. So they had a 10-year auction last night. They had to produce the highest yield since 2007 to get the bonds cleared. That is not a good omen for the 30-year bonds coming today. And we saw that even though we had a benign CPI number, actually 30 years dipped and then they went straight back up again. So there was no improvement in the long end of the Treasury market, despite the CPI numbers coming in line. So you can see investors are very wary about the mismatch between how much the U.S. government is spending and where they need to raise those funds in the future. That's going to weigh on the long end of Asian bonds as well today. You'll probably see it play out in Japanese bonds and Australian market as well today. So that is a little bit more off the radar, but it is something that as the day progresses, investors will probably be talking more and more about the fear that we have a weak auction tonight in the U.S. That disrupts the U.S. equity market. But at least to start with, we're probably going to see some green when Asian markets get going today. [00:08:13] Speaker 2: Mark, I do wonder how much longevity do you expect when it comes to the pressure being taken off the yen a bit? [00:08:22] Speaker 4: Not too much. If you look at the rebound for dollar yen, it looks as though what we saw, the initial rounds of intervention were effective, knocked dollar yen down quite a long way. But you're gradually seeing it tick up. Positioning got wiped out. You can see that in the CFTC data. There were huge short positions by traders, aggressive traders in the yen. Those are they were slashed. Biggest change in those four on record, actually. So those numbers were brought back to a neutral position. Traders use that dip in dollar yen. They're gradually rebuilding. We're heading back towards the 160 area. Of course, people are wary that there could be more intervention from the U.S. and the Japan, even though the IMF ruling says that they've used up their ammunition for this year. But they may ignore that. They may choose to do so if the United States is on board with them. But really, the far more important thing is what's the Bank of Japan going to do? And we've heard nothing from Bank of Japan officials over the past couple of weeks. We have three Bank of Japan speakers due to come before the September meeting for the central bank. That will be an ideal opportunity if they really want to get the market to feel that the yen is going to change direction, that they're going to backstop the yen that you've seen the worst for the currency this year. They would need to suggest they're not only going to hike in September, but follow it with October as well. Back to back rate hikes is probably the minimum that will jolt the market out of this idea that the yen is a carry trade forever. So if they really want the market to get on their side, if they want traders to get behind buying the yen, it's really down to the Bank of Japan. Intervention in itself, we've seen, is effective in very short bursts. It is not going to change the overall picture for the currency unless monetary policy and intervention are aligned together. And by now, monetary policy is by far the biggest factor for the yen. [00:10:20] Speaker 1: And I'm really interested to see how Washington will view the comprehensive policy here in Japan, because, as you mentioned, they have helped with the intervention and supporting of the yen. At the same time, we have a government here, the Takaichi administration, who wants more easy policy. We're talking about potential consumption tax cuts when it comes to food and beverage. We're talking also about not wanting the BOJ to continue hiking rates. I wonder if this will cause friction between the two economies and what that means also if Japan continues to intervene in the markets, which could also pressure treasuries and sells yields higher. [00:10:59] Speaker 4: Well, this is probably a discussion which is going on in the background. I'm sure the people in the United States, like Scott Besson, are well aware that Sane Takiichi came into power with everybody knowing that she will prefer the Bank of Japan to keep easy policy as long as possible. That suits her domestic agenda. She wants to reflate the Japanese economy. She wants to boost it back to the kind of levels we haven't seen for 30 years in Japan. The U.S. will know about that. They're probably using back channels to try and persuade her that it's time to change that. Whether they're successful or not, we'll only find out when the Bank of Japan makes their decisions at the next two policy meetings, especially the one in September. But clearly, the external pressure on the Japanese leadership is probably greater now than it has been at any time since Sane Takiichi took power. But it doesn't mean to say that it's going to be successful. We've seen it before where the Japanese leadership, they plough their own course. They have an agenda, which quite rightly, they have a domestic agenda. They want to reflate the economy and our external voices, they may just choose to ignore it. [00:12:11] Speaker 2: Bloomberg M Live strategist Mark Cranfield there. We'll have more analysis on that U.S. inflation reading, the implications for bond and FX markets later on the show with TD Securities. Much more ahead here on the Asia Trade. This is Bloomberg. [00:12:24] Speaker 1: Tencent ADRs fell 5% after quarterly earnings that met analysts' estimates. China's biggest company more than doubled spending on AI projects and computing last quarter, reflecting intensifying efforts to catch up with rivals. China correspondent Mimin Lo joins us now from Hong Kong. Mimin, it looks like China's big tech AI race. It's sort of moving just from development of AI models, development of the whole process, into actually this high capital intensive phase of the trends when it comes to AI. [00:13:18] Speaker 5: That's right. That has been the key trend, especially for Tencent, which if you look at its CapEx, it's been lagging behind in late 2025 or since late 2025. But this year is starting to ramp up CapEx, we're talking about 170 over percent increase year on year in CapEx spending in the second quarter. And there you go, exceeding even the estimates for Alibaba's spending. Now, Alibaba had pledged about $50 billion of investments over three years. Tencent, however, has not given us any multi-year guideline. It simply said that there are doubling investments in AI products this year. And any additional future investment is going to be tied to returns on those investments. But let's talk about the earnings picture, right? The bar is very high. You saw the ADRs fall. That's even though the revenue grew by double digit, 11 percent gains on year in the second quarter. That was better than estimates, although net income barely budged. It was just under a one percent increase, partly because of a one off accounting loss on an unnamed investee. But yes. So let's talk about some of the growth factors that is mainly driven by its bread and butter business, which is the gaming revenue, as well as its marketing and ad sales. Right. So gaming was up 17 percent. Marketing was up 22 percent. And it's thanks to AI, the company says, that it that allowed clients to better target users there. [00:14:48] Speaker 1: So I mean, Bloomberg Intelligence doesn't think that AI investments in Tencent will actually translate into earnings, at least for this year. Have you seen any signs that investments could start paying off at some point? [00:15:02] Speaker 5: Well, the investments are huge and there are long term projects. Right. So let's talk about some of the different AI products that Tencent has invested into WorkBuddy, which is a desktop AI agent that has been very successful just a few months after its launch. Since March, it's already zoomed to the top of the most used list. So outperforming some of its rivals. This creates a very positive feedback loop because it's powered by Tencent's own Hun Yuan foundational model. But speaking of that foundational model, Tencent is still seen as a laggard when it comes to its AI models. Right. Hun Yuan, which is now rebranded as Hi3, is a very, very small model, just a fraction of the size of Kimmy K3 or Alibaba's Quinn. And so the company says it's aiming to build a state of the art AI model. By the end of this year, the Hi4 will be launched. And when it comes to AI infrastructure investment, here's a very controversial statement by one of the company executives who said that they are not too worried about spending more and kept on AI infrastructure because any excess capacity can be rented out to clients. Now, our own Bloomberg intelligence analysts are saying that this doesn't sound like a very confident statement from the company. But depending on how you look at it, it could be seen as a statement of reassurance to investors that that increase in CapEx is going to come with a very limited downside. [00:16:26] Speaker 2: Bloomberg's China correspondent Min Min Lo there. Let's get you caught up with some of the corporate headlines that we're following in. Deepseek has launched an official social media account, set up a dedicated team and begun hiring to develop AI agents capable of taking on services like Anthropix Claude Code. The Chinese startup also says it's upgraded its flagship V4 Pro model with enhanced agent capabilities. The push comes as competition intensifies in the race to build AI systems that can automate professional work. Honghai's second quarter profit beat estimates reflecting the surge in AI infrastructure spending. July revenue jumped 54% and the company says it remains on track to begin mass production of NVIDIA's next-generation Vera Rubin platform this quarter. The main assembler of Apple iPhones is also getting a boost from robust demand from consumer electronics. We'll be taking a closer look at China's tech sector in the next hour with Lotus Asset Management's managing partner and CIO Hao Hong as investors look for signs that earnings can keep that AI-driven rally in China going. That conversation happening at the Times on your screen. In the meantime, let's take a look at some of the stocks that we're watching when trade opens in Australia in the next hour. Watching some of these earnings-related names, of course, the boss operator ASX just reporting full-year net income that missed average analyst estimates. We're also watching the energy space with Origen reporting of profit beat full-year results and lowered its CapEx forecast for the next year is winding down its battery development program. We are also watching the financials, of course, after we saw CBA results out earlier this week. We're now watching ANZ higher profits on consumer deposits offsetting a drop in mortgage applications as we see that continued slowdown of the property sector since that made budget a 15% drop there. Treasury Wine also on watch. They reported a beat on sales. We'll be awaiting updates to their plans to tackle the excess US supply situation that was a big catalyst for shares moving earlier. And that'll be one of the part of the conversations we'll be having with Treasury Wine CEO Sam Fisher, who will be joining us exclusively later today to talk about those earnings. The global industry outlook that's coming up on Insight with Hazlinda Armin at the Times on your screen. More ahead on the Asia trade. This is Bloomberg. We've got oil holding the bulk of what's now five session gain. We're still waiting for signs of progress towards the reopening of the Strait of Hormuz. We've also got the latest outlook report from the International Energy Agency looking at the global oil market facing a 1.8 million barrel a day shortfall this quarter. But we did see US crude stockpiles topping an additional 17.4 million barrels last week. So this is the biggest increase since January 2023. But the IEA report really citing these Iran war disruptions deepening the global oil squeeze and being responsible for that supply shortfall. That 1.8 million barrels, I should say, is more than double previous forecasts. Let's get the latest in terms of where these talks are at when Berks Washington Deputy Bureau Chief Laura Davison is with us. So, Laura, have we seen sort of any movement on each side? [00:19:46] Speaker 6: We really haven't. You know, there have been sort of positive signs that we've heard from Pakistan mediators that, you know, a deal could be coming together, that there was, you know, they've used some vague language, you know, some sort of arrangement could be coming to the fore. But both of the Iranian side and the US side really seem to be digging in from the Iranian side. We've heard that they are, you know, planning sort of a to change their military dig in, you know, to prepare for a longer term, more offensive military engagement on the US side. Almost the exact opposite of you, you know, have heard Trump say that he wants to, quote, low key it, really focus more on economic economic sanctions and other economic pressures to rather than a military campaign. This is partially because of some shortages of US weaponry missiles and other things on the US side. But it does not seem like there is any deal coming to any sort of conclusion anytime soon. [00:20:41] Speaker 2: And it does seem like we see the administration, President Trump, shifting to this maximum pressure campaign, right? He's talked about, you know, the economic pressures, further sanctions, the naval blockade, of course, at a time when clearly it's become untenable, increasingly untenable for the US to continue these military operations. Is this likely seen as being effective, given that we know the Iranian regime is pretty well entrenched in being able to handle pressure like this? [00:21:11] Speaker 6: It's not clear that this will be effective or certainly not effective on the timeline that Trump wants. The other risk that he runs here, too, is by just dialing up the economic pressure and sort of letting things sit and boil and wait, is that there is also collateral damage potentially in the region, you know, from some US allies or at least, you know, US frenemies, you know, that being China, India, as well as Gulf allies are also affected, you know, as Iran, you know, continues to face some of these consequences. So this is not a victimless, you know, sort of, you know, strategy here. And there's a lot, you know, of riding on this, you know, of course, you know, Trump really faces this, you know, roughly three month clock until the US midterms. That could really be a telling point for how he might change his strategy here when the political pressure is off to make sure that, you know, oil prices, you know, don't fluctuate too much. We could, you know, a significant strategy shift, you know, here come this later this fall. [00:22:14] Speaker 1: Bloomberg's Washington Deputy Bureau Chief Laura Davison there with the latest on the Iran. Other global headlines that we're following at the moment, the Trump administration has launched a new program to fast track AI related trade with allies. The State Department says it's investing $50 million in an AI powered platform in Panama to help track and process shipments of semiconductors and critical minerals more efficiently. This marks the latest U.S. move to strengthen its critical mineral supply chains and reduced reliance on China. White House Press Secretary Caroline Levitt will step aside from the role later this month. President Trump posted on social media that Levitt would now be would now be one of his top outside advisers. In her own post, the press secretary said she was grateful to serve in her role, but that it was taking a toll on her family. The move deprives Trump of his top spokesperson less than three months before the U.S. midterm elections. Former Chinese Premier Zhu Rongji has died at 97. A key architect of China's economic rise, Zhu pushed through landmark state sector reforms and helped pave the way for the country's entry into the World Trade Organization. Known for his tough reform-minded approach, he played a major role in shaping modern China's economy. State media says that Zhu died in Beijing on Wednesday following an illness. We have more ahead. This is Bloomberg. [00:23:41] Speaker ?: We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. This is Bloomberg. We have more ahead. [00:24:01] Speaker 7: Today's CPI print puts the bar for a Fed hike much higher than the bar for a hold. [00:24:12] Speaker 6: I don't think this really resolves a lot. You know, I think our lean is still that the Fed remains on hold in September. [00:24:18] Speaker 8: It was comforting just that it was flat. But I think the most important issue out there is that the service sector inflation bounced back a bit. [00:24:26] Speaker 9: We've essentially got Teflon inflation in America. It won't stick and it won't stick because you've got this. You can't get a price wage spiral going if the wages won't react. [00:24:35] Speaker 2: Some of our guests, they're reacting to the latest U.S. inflation data that had been hotly anticipated, how it potentially impacts Fed policy going forward. And it's interesting. We're having this conversation, Sherry, earlier about how the Fed's not necessarily out of the woods just yet, even when it comes to that September decision, right? But it certainly gives a bit more ability for those that want to remain patient to be able to argue that case when it comes to that underlying inflation reading matching the slowest pace since March 2021. That's going to help sort of that narrative there as well. But of course, even as we see that energy shock continued to play out as a fade, we still don't know what's going on when it comes to the U.S. and Iran and the reopening of the Shreddorf Hormuz and whether the global energy shock is going to continue playing into the domestic numbers either. Still, it is a reasonable setup. We're seeing the Nikkei 225 futures up by one and a quarter of one percent. We saw a rally in the chip stocks. Nasdaq 100 hitting that one month high as well. But Sherry, it'll be interesting whether the Cisco Cerebus narrative is going to drag broader tech lower in the Asian session or whether we see that continued uplift after the semiconductors did rally overnight. [00:25:41] Speaker 1: Yeah, it was really interesting because we saw the chip maker, the Philadelphia Semiconductor Index, gaining about two percent or so in the overnight session. That coupled with CPI matching expectations leading to that potential risk-gone sentiment around Wall Street. But we have to go into the CPI numbers, right? It was broadly disinflationary, which was good. But at the same time, there were parts of that inflation data that we should keep an eye on, like core inflation breadth, for example, worsening, not to mention consumer tech is an inflation outlier as well. Not surprising given that we continue to talk about the AI trade, about the memory chip shortage. So, September hike odds for the Federal Reserve tumbling to roughly 40% from around 50% pre-data, but not necessarily completely eliminating the possibility of that tightening. Joining us now is Molly Brooks, U.S. rate strategist at TD Securities. Molly, first of all, give us your reaction to the CPI numbers and how much relief this can actually bring the Federal Reserve. [00:26:41] Speaker 10: Thanks so much for having me. It definitely does bring some relief in terms of does the Fed need to provide more restrictive policy at this point? But as you saw in the market reaction, we just priced out a bit in September, kind of a bit out of the cycle. I don't think we're out of the woods by any means at this point. The bar for the Fed to deliver a hike at some point has certainly lowered. However, this report has been supportive of a Fed hold, at least in the near term. I think that goes along with the payrolls report that we saw last week. So we keep seeing this data come in and markets are kind of on their toes here at each incoming data point at this point, just to see if anything will come in that will be enough to tip the Fed towards hiking. [00:27:37] Speaker 1: At least when it comes to the combination with the weak labor numbers that we got recently, does that help in sort of positioning the market towards a hold from the Fed? And at the same time, what does that tell us about the long end of the Treasury curve? Because at the same time, there are concerns about supply, about the fiscal landscape as well. [00:27:58] Speaker 10: Right, definitely. I think that the combination of payrolls and inflation right now puts the Fed in a good spot to continue waiting. As long as we are further out from a Fed meeting, you are going to see some amount of odds of a Fed hike priced in, especially if we are having less forward guidance coming out of the Fed in terms of their reaction function. So we will still be seeing some amount of hikes priced in, which has pushed up, as you said, the long end of the curve. We did get the Treasury refunding last week as well. And there were hints that we might actually see the supply in the long end actually decrease. We don't think it will happen anytime soon, but there were hints that we may see supply on the long end actually decrease rather than increase going forward. So that should help to support the long end to some extent. [00:28:58] Speaker 1: How closely are you watching the 30-year sale on Thursday, especially given that we're coming off the 10-year auction as well? [00:29:06] Speaker 10: Yep, the 30-year will definitely be important tomorrow in figuring out demand for the long end. We will get PPIs well before that, and that will be key in terms of determining on what is the pass-through of the July CPI and PPI prints in the core PCE. So I think it will depend on kind of what we're seeing going into the auction tomorrow, but we'll see how markets decide to take this down. At current levels, they seem pretty attractive given how high they are, but some investors seem to not want to take the risk just with concerns around how do geopolitical shocks play out in the near term, as well as the fiscal story. [00:29:50] Speaker 1: We do also have July retail sales to contend with. What is this telling us about the health of the consumer in the US and the potential implications also about how markets will really reframe this? [00:30:08] Speaker 10: Yep. So on Friday, we're actually expecting a relatively lower print. We're expecting a negative number here. So that should kind of play along with what we've seen in terms of the CPI and the payrolls print at this point, supporting kind of a Fed hold at this point. And we should see some amount of hikes priced out on Friday when we do get that retail sales print. [00:30:34] Speaker 1: What was interesting about the CPI number this time around, too, was trying to figure out what the memory shortage is doing when it comes to those inflationary pressures. Is that anything that you're watching that could potentially give us a trajectory of where prices go from here? [00:30:53] Speaker 10: Yeah, the the AI story, I would say, is definitely a key one that the Fed is watching and seeing how that plays out in the data. Some of the some of the impacts of AI in terms of the Fed mandates does seem longer out like on the labor market. But we are seeing some of this kind of pass through in terms of inflation. And that is certainly something that the Fed officials are watching going forward. If we see any, you know, contributing strength that's coming from from that part of inflation, that also keeps the Fed on their toes. And that's one of the concerns that's leading a lot of Fed officials towards this hawkish shift where they're kind of ready to potentially hike in September three. We're ready to hike in July. So it doesn't take that much in order to shift enough over the edge in order to actually deliver a hike in the near term. [00:31:49] Speaker 1: Molly Brooks, really good to have you with us. U.S. rate strategist at TD Securities. And of course, we've been following the U.S. dollar and his reaction to the U.S. CPI numbers on the other side of that trade. We've seen the weakness of the Japanese yen as well. It's been really interesting because the dollar has strengthened despite softer inflation. Of course, we have Fed repricing. But at the same time, the dollar holding up, that's pushed down the Japanese yen as well, which is down about a percent or so this month already. The gains from that U.S.-Japan intervention cut by half, around half at this point. We're still pricing in a 60 percent chance of a September Bank of Japan hike that could potentially help the Japanese yen gain some support, Heidi. [00:32:33] Speaker 2: It is really the question as to whether these fundamental differentials have really changed very much between the BOJ and the Fed, right? Even this sort of slight pressure that we're seeing being taken off than yet at the moment. We haven't seen such bouts sharing in the past being particularly sustainable as that fade from the intervention, the joint intervention continues to play out. Everyone's really calling for the need for more action from the Bank of Japan. The other thing we're obviously watching is that fiscal situation as well between the U.S. and Japan and whether that's going to play into that as well. The Wall Street veteran, Ed Yardini, says markets at the moment broadly being driven by what he describes as FIMO. This is short for fabulous earnings momentum. He told us why about his bullish on U.S. stocks after raising his year-end target for the S&P 500 to 8400. [00:33:27] Speaker 11: I think the market's going higher and I think it's going higher on earnings. As a matter of fact, I felt the need to coin a new acronym, which is FIMO, fabulous earnings momentum. We all know about FOMO, which is kind of it's nice while it works. FOMO is fear of missing out. We saw that in the 1999 melt-up situation is don't bother me with earnings. I just have to be in this internet concept. And this time around, the valuation multiples kind of stuck around 20. That's not low, but it's not terribly high as long as the economy is growing. But it's earnings that have really been phenomenal. And some of that has been mark-to-market capital gains on SpaceX for Alphabet and Amazon. But take that out and you basically have 25% increase in earnings in the second quarter and about the same in the third and fourth quarters. So, yeah, I've been bullish on earnings, but not bullish enough. That seems to me. You said, I'm not really the bull on Wall Street. It's all these analysts who talk to companies and the companies are bullish. [00:34:36] Speaker 7: So the companies are the big bulls on Wall Street, not Ed Yardeni. I am curious, though, about what we have seen with performance of the equal weight versus the market cap weight. And that has been a shift this year versus previous years where the outperformance has come from the broader market. We were talking before about how the market seemed to be outperforming the economy for a number of years. Is that shifting where now we're going to see the economy, the rest of the economy, outperform the market? [00:35:00] Speaker 11: Well, there's sort of a view that the stock market is not the economy. But it is because it's PE times E and E is earnings and earnings are driven by the economy. And so I think the resilience of the economy, the strength of the economy has been demonstrated in the earnings and the earnings are driving the stock market higher. So with regards to your point on I call them the impressive 493, you know, you have the magnificent seven that did very well for quite some time. And now they've actually so far this year significantly outperformed the impressive 493. And I think it's because people have AI fatigue. It's like, oh, God, I can't really figure this out anymore. You know, these stocks go up 20 bucks, down 20 bucks. And so I think people are just kind of taking an index approach to AI, not knowing exactly which stock to buy. [00:35:56] Speaker 1: Yardani Research founder and President Ed Yardani speaking to Bloomberg Surveillance. We have more. This is Bloomberg. [00:36:16] Speaker ?: This is Bloomberg. Facebook. It's a big takeaway. It's a big takeaway. That's right. [00:36:21] Speaker 2: Well, fears of job losses from the uptake of artificial intelligence is largely focused on office staff, creatives, programmers and teachers. But that technology is coming for blue collar workers too. Shoemakers, welders, tailors are among those being recruited by AI firms to train the robots that may soon replace it. Let's get some more on Bloomberg's big take today. Our executive editor for global technology, Peter Alström. And Peter, really indicating that this is across the entire spectrum of skills. Right. Even these these robots that are, you know, learning and modeling how a human uses their hands, for example. [00:36:59] Speaker 12: Yeah, what we've seen in AI, this AI boom has been incredible, of course, but it's been stuck in the digital world where you can get your AI services, chatbots. You can even get agents to do work for you. But all of that has to be online. It has to be digital. And so what we're seeing is this booming companies that are trying to figure out how to bring AI into the real world that will probably be through robots of some sort. Humanoid robots are supposed to be headed for this big boom. But these humanoid robots need some sort of training. And so one of the big areas where we've seen this development is in India, where a lot of workers do many, many different things with their hands. So you're exactly right. They're going after some of these blue collar jobs that you never thought were really going to be part of the AI boom. So they're taking videos of welding, putting the soles on shoes, assembling furniture, even going out into this scrappy to pick up pieces of plastic. They want to collect this this video. It's called egocentric video because it's first person video of people doing these tasks. And then they want to use that video to be able to train AI models. And the boom for these kinds of videos is really incredible right now. They pay workers a little bit of extra money to be able to record what they're doing. And then they can sell that. They sell the video for $7 an hour if it's unannotated. But if you add annotations, it can go up to $30 an hour. And you're seeing robotics companies scooping this stuff up because they need to be able to train their models. Just remember when OpenAI and Anthropic were building their models, they had tons of information to choose from. They went out onto the Internet. They used all the data on the Internet. They used a lot of data from media companies also, which is a bit controversial. But this kind of data for robots for doing physical things in the real world doesn't exist. Nobody ever needed it before until now. So now they're collecting that data and they're trying to use it to train these AI services for robots of the future. [00:38:56] Speaker 2: Peter, we've been talking a lot about how when it comes to frontier AI research, China has been closing the gap, right? But when it comes to the sheer amount of data that you need, according to this story, for embodied AI progress, we actually see markets like India and China have an advantage here. [00:39:15] Speaker 12: Well, they do have an advantage in a number of different ways. There are still a lot of workers in India and in China who are doing these physical tasks that perhaps in the U.S. economy, for example, they stopped doing a while ago. And also it's much cheaper to be able to get these workers to film themselves making shoes, for example, assembling furniture, going out and doing all sorts of other tasks, even even just packaging boxes. So there's this enormous data collection effort going on in India in particular, which is where this where this story focuses. It's also happening in China at this point. China's government is a bit more sensitive to sharing this data. So much of that data is not going outside the country, but India is less sensitive to that. And it's been the training ground for many of these AI services where they're trying to collect this data to be able to share with companies like Tesla, for example. Tesla wants to jump into the robotics field. They want to be able to train these robots and they need this kind of egocentric footage. So you never thought that this kind of information would be of value and then would play into the AI boom. But it is at this point. There are concerns about exploitation. A lot of these workers are literally training machines that are supposed to take their jobs. So there is a risk for them. They are getting paid a little bit more money. One of the lead anecdotes that we've got is this woman, Sunitha Rathour, who's a mother of four, and she's making some extra money from this to be able to help send her kids to school. [00:40:43] Speaker 1: Thank you. Peter Elstrom, Bloomberg's executive editor for global technology there. Take a look at how emerging assets are trading at the moment. We had seen, of course, a lot of volatility in the dollar as well. We ended the session a little bit higher on Wall Street against the US, a little bit higher in the US session, despite the fact that we got softer inflation prices in the emerging markets universe. We're seeing a little bit of a rebound given the precious metal prices. The South African Rand is up. We do have a little bit more support for other currencies that have been battered, although among the weakest performers have been such as the South Korean one and Indonesian rupiah, for example. Right. Take a look at the latest PPI numbers out of Japan. We're seeing for the month of July PPI coming in on growth of month to month 0.1 percent. When it comes to the year on year number, 7.2 percent. When it comes to the year on year figure, we're seeing it accelerating from the previous month, but coming in below economists expectations. Of course, we have been bracing for stronger acceleration when it comes to factory pricing. Given the yen's weakness in June, for example, it was already the fastest since 2023. The yen weakness is becoming a major driver of price pressures. And of course, it's also eroding the spending power of Japanese people. This is why the Bank of New York Mellon strategist, Jeff Yu, Heidi, actually came up with what's called the Katsu Curry Index. And if you've been in Japan or around the world, you probably have had the Koko Ichibanya Curry, the pork cutler curry, which is very good. He's comparing the prices across countries and measuring the yen's purchasing power, implying that 62 yen per dollar would make prices comparable globally versus the actual 159 yen per dollar, which means that the yen is very, very much undervalued. [00:42:47] Speaker 2: Yeah, that's not sort of the argument that, you know, is controversial, right, in terms of just the encouragement for policy change. Both indexes are calling for a lower yen. The Katsu index seeing the yen at 62 spot 18 versus the dollar. The Big Mac index seeing the yen at 80.30. So obviously this requires an enormous amount of policy change. We've been seeing that call for a more activist BOJ from a number of different voices, including even internally. Right. But this remains a fixation for the global FX market, even with the most dramatic intervention that we've seen from Japan and the US in 15 years. We've now surrendered half of those intervention driven gains. So this is still very, very good news. If you're a tourist or someone who wants to head to Japan to partake in the Katsu curry, amongst other things. Right. In the meantime, Asia stock traders seeing strong leads from a muted US CPI print to the latest big tech earnings to, of course, in the fray. Let's get some more when it comes to the setup for the Thursday session. Our markets reporter, Anthony Stevens. So let's start off with Korea. Are we seeing this rally really return? [00:44:00] Speaker 13: Yeah, pretty strong session yesterday. And we have some very strong leads today, 3% higher. And one of the reasons for that is a combination of events overnight. So first we had three separate LLM's launch on the frontier side. We had Grok. We had Quinn. And then we have another update from DeepSeq. All of these models are on the frontier end of things and they're quite cheap. And they will need a lot of memory because they have so many parameters. They're all in the two trillion kind of parameter range. So that's the demand side. Now on the liquidity and positioning side, the pictures improve for Korea significantly. We continue to see very muted volatility in the US. The VIX is under 15. And we've seen the VKOSP also fall off quite sharply. Now it's on a 50 handle. That is a much safer playing ground for the Korean rally to kind of reassess. And we did see the analyst community come out to support the Koreans, both domestic and foreign analysts sticking with the call for very high memory demand and pretty sticky prices from those long-term agreements. So in terms of the fundamentals, they get a chance to reassert themselves since the kind of volatility and liquidity pressure on the market has reduced somewhat. Bear in mind, foreigners are still sellers in Korea. So that really needs to turn. [00:45:17] Speaker 1: I mean, we still have Nvidia earnings to go. But what are some of the catalysts that you're watching for the Asian tech rally next? [00:45:27] Speaker 13: You've got to continue to see this kind of conviction on CapEx, right? So it was very important for markets like Korea and Taiwan to see Tencent adding to that conviction. So the Chinese ecosystem continues to spend as well, even though Tencent shareholders are not very happy about it. They seem to want to stay the course. You've heard the same from the from the U.S. Neoclouds, Kobe, Vannebius, they want to stay the course. So it'll be interesting to see as this result season winds to a close, how much conviction there is. And it seems pretty unanimous that there is conviction that demand for AI is going to continue. [00:46:03] Speaker 1: Well, more markets reporter Anthony Stevens there as we look ahead to the market opens in Sydney, Seoul and Tokyo next. This is Bloomberg. [00:46:12] Speaker ?: Transcription by CastingWords [00:46:43] Speaker 1: This is the Asia Trade Board counting down to Asia's major market opens after we saw Wall Street approaching record highs in Nasdaq 100 at a one-month high already. Heidi, we're really pricing in that AI tech trade with chipmakers rallying, but also July U.S. inflation matching expectations, sort of easing concerns about a Fed hike. [00:47:04] Speaker 2: Yeah, it is that easing of the concerns, right? At least giving those Fed members that are willing to be patient a little bit more to work with going into that September decision. The question for Japan is, though, how sustainable is the sort of lack of pressure on the yen going to be? Because we really still don't see much of a meaningful difference when it comes to these differentials that are driving that weakness in the yen. [00:47:25] Speaker 1: Especially when you have the U.S. dollar higher, given that we actually were down and then we gained ground despite the fact that we did get that softer than expected inflation numbers from the U.S. So the Japanese yen at the moment holding at that 159 level against the U.S. dollar, as you mentioned, Heidi, it will be about rate differentials right now. Markets pricing in a 60 percent chance of a September rate hike by the Bank of Japan. But of course, there are other issues at play in this market. Take a look at the Nikkei right now, gaining for a second consecutive session. We're watching those tech stocks, anything related to semiconductors, the AI trade. But the issues around the fiscal landscape is big in this country. So we have the five-year yield here in JGBs at a record high. The two-year yield at the highest level since the 1990s and that continued pressure on JGBs that are selling off at the moment will be on watch. Especially since we have a very crucial 30-year sale in treasuries on Thursday, what the implications are for the JGB play will also be huge. Take a look at how South Korea is opening because it's, again, the tech trade semiconductors as well. We have seen volatility fall a little bit for the KOSPI, for the Korean stock markets. We can see that gain of 3 percent extending that rally that we saw in the previous session. Samsung SK Hynix higher in today's session as well. The Korean one sitting at that 14-15 level. It's been interesting because the Korean one, the FX pressures continue. We do have really concerns around higher oil prices, not to mention the foreign selling in this economy continues, Heidi. [00:49:02] Speaker 2: Yeah, on the Treasury's front, it's been quite interesting. We had a pretty steady reaction to the inflation meeting expectations there. We did have the 10-year debt being sold at the highest yield since the financial crisis. We have a pretty interesting 30-year debt coming up as well. Well, we're also noting at the moment when it comes to trading in Korea, the KOSPI rising now 20 percent from that July 30th low. So really just showing how much that volatility has continued to play out. The highs and lows when it comes to this Korea AI-driven rally, we're now seeing that 20 percent rise from that July 30th low. So we'll continue to watch on that to see whether we can hold that until the close of trading, of course, is going to be key. We've talked about Treasuries a bit. Take a look at oil. We're now holding those Brent crude off by about seven-tenths of one percent there. We had previously been kind of holding on to gains for about five days. A little bit of a pullback there. Still not a great deal of development when it comes to the reopening of the Strait of Hormuz to go by. Still waiting for more signs of progress. In the meantime, we have the global market report from the International Energy Agency saying that there's a shortfall, a daily shortfall of 1.8 million barrels. So we may see some of that demand supply dynamic being played out there. Crude stockpiles in the U.S. are swelling 17.4 million barrels last week. That was the biggest bump up since January 2023. We are also watching, of course, gold. Pretty steady trading after the tame U.S. inflation print as well, pulling back on those rate hype bets. And we're watching trading here in Australia, heavy on the earnings front. And we'll go through some of those big movers today in just a moment. But we're seeing pretty muted trading at the minute. Let's bring Aaron Tsai, who's the senior multi-asset strategist at Pictet Asset Management. Aaron, really great to have you with us. Let's start off with these sort of AI-heavy markets. We're seeing that recovery in the Korean markets again. What do you make of the volatility and where do you see the opportunities in these AI-heavy spaces like Korea, by extension also a bit in Japan, Taiwan, for example? [00:51:07] Speaker 14: Yeah, I mean, the good thing is that we have managed to digest a historical unwind in the momentum trade. And part of the reason why equities are back at an all-time high, despite that, is there is an element of a rotation within the AI space. If you look at the AI trade, we think we are already in the third phase of the trade. The first phase was the rising tide lifted all AI boats. Anything with an AI in the ticker went up. The more capex, the better. That then transitioned into a phase where we saw rotations between hyperscalers and capex beneficiaries. And that has played out for pretty much the last year. Where we are today, we think, is going to be a more nuanced phase where single stock differentiation and dispersion matters. We think if you take the hyperscalers, for instance, they're going to tread a very fine balance between keeping capex up. But still, because they are now relying on the market for additional capex spending, they would have to continue to provide evidence for monetization. So it's a fine balance. And we don't think all companies can pull that off equally well. So that's why we are kind of seeing the dispersion between names at a single stock level. And we think that would continue. But overall, by and large, we still think that we are in the early innings of the capex build out. We are going to have cycles around it. But of course, we have digested a fair bit of uncertainty in the AI ecosystem, and we are reasonably constructive now, but it's important to be selective. [00:52:47] Speaker 2: Does the broader monetary policy backdrop, particularly if we have inflation staying benign, as this most recent reading seems to suggest, does that paint a longer runway when it comes to how much more we could see from the AI rally? [00:53:03] Speaker 14: Absolutely. [00:53:04] Speaker ?: Absolutely. [00:53:04] Speaker 14: So in a way, we had the perfect print on yesterday. It was in a way a dull print, but sometimes boring is good because what that lets you do is then focus on the on the micro, on the fundamentals of the AI ecosystem. So we are still in the middle of the first genuine earnings up cycle since the commodity super cycle, we are in a phase where demand is high, when supply is constrained and companies are earning what we can call super normal profitability. So what you don't need is for the macro picture to muddle that story too much, which is why it's important that the U.S. long end bond deals remain contained. So we were getting a little worried about the Fed kind of withdrawing forward guidance on the bond market, not digesting that very well, but given that we've had a couple of soft prints, as you say, that kind of definitely is a sigh of relief for the market, and that lets the focus go back to the micro fundamentals. [00:54:13] Speaker 2: We spoke a little bit about, you know, obviously not not all companies are going to thrive in this new era of more scrutiny on AI spending. Where do you prefer to place your bets then? Is it still overweight when it comes to the U.S.? Are you looking more at a diversification in China, for example, because that's obviously where that major threat is also coming from? [00:54:38] Speaker 14: Yeah, so we still are relatively constructive. In the U.S., we think the earnings upswing is quite strong. We expect about 30 percent earnings growth this this year. That's that's quite a powerful tailwind. But the real differentiator for performance within equity markets would be along sector lines, we think, not so much between regions, because if you think of a team, if you if you're constructive memory, you would probably consider Micron and SK Hynix. But if you're constructive broadening out of the AI team into data centers and spending of data centers, if you're looking for cap goods names, we wouldn't differentiate too much between a Schneider in Europe or a or a Caterpillar in the U.S., for instance. For us, it's not really regional diversification, but more about being in the right sector. So we still selectively constructive tech. We think that the AI ecosystem broadens out from here. But we're also constructive banks, banks both across emerging markets and the U.S. And finally, we like areas of industry as well. [00:55:49] Speaker 2: I wanted to also ask about what we're seeing with Treasury markets. We've got that 30 year auction coming up soon. Where do you see yields are? You've talked about the potential for becoming unanchored from here. [00:56:02] Speaker 14: Right. So thankfully, we've got a couple of soft prints. We had a soft labor market print and we had a pretty benign CPI print. So that kind of takes the heat of what was the central debate in the bond market, which was the sudden withdrawal of forward guidance essentially means that bond managers now have to continue doing their job with one less tool in their toolkit, something they relied on for pricing for pricing bonds. And especially if you think of the long duration, they are demanding and I think rightfully so an additional uncertainty premium, given that it's not obvious what the new framework is going to be or even what the new right data series is going to be in terms of inflation for them to look at. So I think in a way we were it's a sigh of relief that we had a couple of soft prints because the conversation moves away from what is happening in the long end in terms of the term premium and the data is letting some of these hikes which were previously priced in unwind. So that's giving some relief to the bond market. So we would be a bit more uncomfortable if the data picks up again and then it's back to how the WASH Fed decides to to to signal their framework going forward. [00:57:28] Speaker 2: You've talked about outdated notions of sector and styles. How does that play into how you're investing at the moment? Can you give us an example? [00:57:39] Speaker 14: Right. So coming back to the hyperscalers, I mean, if you think of the the traditional definition of how benchmarks like MSCI look at it to you, you have Amazon, for instance, in consumer discretionary, you have meta and communication services, you have Microsoft in software and information technology. So if you if you're following a strictly top down approach of selecting asset allocation first and then regions and then sectors, what you often do or you're going into buckets which don't very well capture the opportunity set. So if you want to be constructive hyperscalers and if you want to diversify basket, you you need the ability to to invest across a few different sectors. So the world has moved on markets have moved on in terms of these definitions, these labels not really being fit for purpose anymore, but we are still catching up in terms of how the nomenclature works. So that's why it's important not to be straight jacketed by some of these definitions and as another kind of point there is the importance of value versus growth, we think is overestimated today. And in the past, this used to be the single different single biggest differentiator of performance within equities. We think that will be no longer the case if you think of AI, if you think of electrification, these are broad mega themes which have winners on both the value side and the growth side of the market. So it's no longer about just picking one style definition or sticking strictly to sector definitions, but having the ability to be flexible and nimble and not be straight jacketed by by outdated labels. [00:59:31] Speaker 2: Aaron, always great to chat with you, Aaron Sire, who's a senior multi asset strategist at Pictet Asset Management. Let's take a look at some of the movers that we're watching in the first 10 minutes or so of trade. We do have the boss operator ASX, full year net income missing estimates there. We're seeing upside though of over almost 8% there. ANZ, we're continuing to watch after the CBA numbers previously, the profit rising on the back of deposits, mortgage applications, so dropping roughly 15% since the May budget. So we're watching that part of the business closely but some upside there. Origin Energy also trading quite well today with the underlying profit beating estimates and the disposal of the battery unit there as well in focus. Treasury Wine is one we'll be talking a little bit. That is bucking the broader trend, 1.6% lower there. Earnings dropping at 36% on the global alcohol downturn. We're also looking at their plans for the capacity issues in the US market as well. Treasury One CEO Sam Fisher joining us exclusively later today to talk earnings and the global industry outlook that's coming up on Insight. The time's on your screen. More ahead on the Asia trade. [01:00:41] Speaker 1: This is Bloomberg. Take a look at how gold is trading steady at the moment after an initial rally when we saw that U.S. inflation trend coming in line with estimates, sort of easing concerns about a Fed rate hike. And you can see that upside still continuing in the Asian session. We have seen it trade above that $4,000 for a few weeks now because of investor appetite for precious metals, including coming from central bank purchases such as China's. Take a look at oil prices under a little bit of pressure after six sessions of gains. We're talking about 12 percent plus gains. The IEA now saying that the global oil market faces a shortfall. of around 1.8 million barrels a day this quarter, more than double earlier projections. So we'll continue to watch the developments around the Iran war. Now that Tehran is signaling a more aggressive military posture as efforts to end the U.S.-led war remain deadlocked. A general in the Islamic Revolutionary Guard Corps has told State TV its forces are being reorganized to take the fight into what he calls enemy territory. East Asia government editor John Herskovitz joins me here in the studio with the latest. What is Tehran trying to achieve? [01:02:12] Speaker 15: Yeah, I think that what we're seeing is that Iran is preparing for a much longer period of confrontation. The diplomatic diplomacy is still on track. They're looking at that. But by taking the fight to the enemy, they've seen that the levers of power extend for them by going after other states in the Gulf that host U.S. military bases. So this is one of the things they're doing. They're also looking at producing more ballistic missiles. I think Iran is betting that it can produce more missile. It can produce missiles faster than the U.S. can produce interceptors. So we have missiles. We have drones. And we have this going on with the change in the security apparatus for Iran. So we're seeing a shift. It's beyond defending the homeland to taking the fight to the enemy. And also at the key, one of the keys is keeping control of the Strait of Hormuz along the lines that Iran wants it to be controlled. So long term, short term, all going on, this is strategic thinking for Iran. [01:03:12] Speaker 1: Does this mean that Washington will also be more patient? [01:03:15] Speaker 15: Yeah, we had Trump saying that he's low-keying it now. I think that we're in a law of U.S. military strikes. Trump is going back to the idea that economic pressure can change Iran. But, you know, Iran is one of the most sanctioned countries in the world. Trump, since 2018, has applied, I think, something like more than 2,000 different sanctioned measures on Iran. It really doesn't change behavior. The Iran government is a repressive government. We've seen it shoot protesters, jail protesters. The concerns of the people are not at the top of the minds of the leaders of Iran. They're about keeping power. So economic pressure is there. But sanctioned nations, Iran, North Korea as well, one of the most sanctioned nations in the world, it doesn't change the leadership and they find workarounds. [01:04:09] Speaker 1: And they really want, of course, in order to relieve that economic pressure, perhaps on tolls or fees coming from the Strait of Hormuz, where shipping has faded to a trickle at this point. Are there any sort of adjustments there in order to keep the oil flowing? [01:04:23] Speaker 15: Yeah, it's a really good point. And we're seeing the neighboring states looking at alternatives, pipeline development, storage facilities and ways to get oil out of the region that don't depend on the Strait of Hormuz. The thing is, the Strait of Hormuz is still going to be an active waterway as the years go on. It's just it's too convenient, too efficient to bypass. But there are contingencies that have to be planned for. As Saudi Arabia, Kuwait, UAE are looking at pipelines, looking at other alternatives to get oil away from the Strait of Hormuz to the Red Sea or other places, Mediterranean as well, so they can de-risk the confrontation with Iran. [01:05:06] Speaker 1: John Herskovitz, Bloomberg East Asia, government editor here with the latest on the ongoing war in Iran. As we continue to follow another geopolitical front as well, Israel now is heading toward elections in October. And the Palestinian Authority saying that a change in leadership won't be enough to deliver peace. The foreign minister for the West Bank-based Authority told us the key question is whether any new government is willing to rethink its policies in the occupied territories and its stance on Palestinian statehood. [01:05:36] Speaker 16: You can change the faces as much as you want. If the policy remains the same, then the issues remain the same. They might be beautified a bit. A new government might be doing the same, but in a different manner. What we want to see is a change, of course. We want to see a government that is a partner for peace. [01:06:01] Speaker 2: In the meantime, the IEA says Iran war disruptions are deepening the global oil squeeze, with a supply shortfall of 1.8 million barrels a day now expected this quarter. That's more than double previous forecasts. Let's get more from our oil reporter, Nicholas Waugh. So, Nicholas, what are we seeing? Because even as within the U.S. we see sort of that energy price pressure fade in the inflation basket, there's still plenty to be concerned about for supply crunch issues elsewhere. [01:06:32] Speaker 17: You're totally right, Heidi. I think one thing to flag also is how demand destruction, while that's gone up with higher fuel prices, that hasn't gone up to the level where supply and demand imbalance, right? So, again, that 1.8 million barrels, that's a shortfall that's still exceeded. And so, as I read out, I think we're going to see inventories continue to draw. Like, look, let's say in some places the pressure is less real. Like, for instance, the U.S. data released overnight showed that the U.S. saw a record, a really big increase in crude supply, right? But that's still the exception. If we look at overall global balances, we're still tight and getting tighter. [01:07:11] Speaker 2: You talked about the demand destruction, which is quite interesting. And it's been very fascinating to see how China has really cut its oil imports. Is that something that is a structural change or that continue to keep a lid on prices? [01:07:28] Speaker 17: You're totally right to bring up, Heidi, the China factor. And I think that's been a big moderator in why the impact of the war hasn't been as great as it has been so far. Again, China's priority is always going to be energy security, right? We've seen how it's been able – in fact, the whole pull away from oil is to reduce its structural dependence on imports from parts of the world where supply may not always be guaranteed. And that proved to be a very effective gamble, whereas countries like India, which didn't have quite the same pull away, continue to bear the effects of that. So I would say that with the arrival of, like, Chinese – in a way, it all depends on how fast Chinese demand recovers. At the moment, that still looks relatively lackluster. The refiners are raising their rates somewhat, but again, not to the levels where we're seeing a big shock to the oil market. [01:08:15] Speaker 2: Bloomberg's oil reporter Nicolas Soir there. More ahead here on the Asia trade. This is Bloomberg. [01:08:22] Speaker ?: Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. Bloomberg. [01:08:34] Speaker 8: Bloomberg. Bloomberg. [01:08:36] Speaker ?: Bloomberg. Bloomberg. [01:08:39] Speaker 2: Take a look at what we're hearing in terms of the RBA's commentary on these broader tax changes in particular. The Assistant Governor, they're speaking in Sydney. The financial conditions at the moment somewhat restrictive is what he's saying at the moment. When it comes to these tax changes, he says they'll be looking to be contributing to the housing downturn. That much is quite obvious, particularly if you take a look, for example, at ANZ's numbers at the moment. That 15% fall in mortgage numbers really suggesting that we have seen that big impact in some parts of Australia, particularly when it comes to capital cities. We've seen some pretty steep falls in that property price after changes to the tax code following the budget there as well. So this is what we're watching when it comes to trading in Australia. Broad downside of 3/10 of 1%. We are seeing some sizable movers when it comes to those good earnings stories that may be happening at the moment. Watching Aussie bonds looking to edge a little bit higher as we get the details of that RBA speech as well. The Aussie dollar trading at just over 70 US cents. We're watching that Aussie yen pair as that expected weakness is really seen to continue in the Japanese currency as well, Sherry. [01:09:51] Speaker 1: Yeah, take a look at how Japan is trading at the moment or how South Korea. First of all, let's turn to South Korea because the big moves right now are in the Korean market. The tech rally that we saw in the overnight session being reflected in South Korea. You can see even the Korean won is strengthening against the US dollar. This really to do with the foreign selling that has pressured the South Korean won reversing course a little bit given that we're seeing the gains on the cost speed that are now more than 20% from their July 30 low. So in the cost speed, if you stay above 67.12 at the close today, you would be in a technical bull market again. We will be watching the price of oil, of course, that can really pressure the South Korean market, which is a net oil importer. Take a look at Japan. Also big gains when it comes to those tech stocks. We're talking Advantis. We're talking Kyoxia memory makers up about 6%. A lot to do with what's happening, as I mentioned, on the overnight trade, right? Take a look at how US futures are setting up because we had the big AI trade sending the NASA 100 to a one month high. So we're seeing AI hardware, infrastructure, all of those drivers of the equity space in the US helping and tracking those gains here in Asia. Not to mention softer CPI also giving the Fed time when it comes to those rate hikes, really making for a risk on day for not only Wall Street, but Asia as well. This is Bloomberg. [01:11:31] Speaker 2: Well, Tencent's ADRs fell 5% after quarterly earnings met analyst estimates. China's biggest company more than doubling spend, though, on AI projects and computing last quarter, reflecting intensifying efforts to catch up with rivals. China correspondent Min Min Lo joins us now from Hong Kong. So Min Min, take a look at, take us through, I should say, the key takeaways. And is this sort of investor concern really coming from the big AI spending? [01:12:04] Speaker 5: Yes, that big AI spending definitely a concern because they're spending so much so that they're seeing negative cash outflow for the first time since 2021 because they are spending more than they are taking in an operation income. Revenue actually came in pretty strong. We're talking about double digit gains, 11% gain on year, which was better than estimate, largely coming from their bread and butter business like their gaming business as well as their ad revenue. That was up by about 17 and 22% respectively. And AI really helped its clients to better target its users. So revenue has been pretty strong, but again, that AI investment huge ramp up, 170% increase on year in the second quarter. The company didn't give us a multi-year guidance in terms of their capex spending, unlike Alibaba, which has pledged $50 billion. The Tencent executives were saying that any additional investment is going to be tied to any returns from their investment, but they are saying that they will double spending into AI products so far. And again, it's really faces the test about profitability and whether that spending is going to be sustainable. [01:13:20] Speaker 2: Have we seen any sort of payoff, the fruits of what they might be reaping from all of this investment? [01:13:27] Speaker 5: We have seen some early successes from some of its products. So WorkBuddy is one of its desktop AI agents that just launched in March. But since then, just within a few months, has already zoomed to the top of being the most used list of AI agents out there or desktop AI agents outperforming some of its rivals. So this is a very positive development that have encouraged investors. It's also creating a positive feedback loop because it is powered by Tencent's own foundational AI model. But that foundational AI model known as Hun Yuan, it's now rebranded as Hi3. It's still a very, very small model compared to some of the frontier models in China, including Kimi K3 or Alibaba's Quinn. So the company is saying that they're going to develop a state of the art model that will be much larger, Hi4. It will launch later this year. That's something to keep an eye on. It's also investing heavily in compute, meaning it's buying more chips. It's investing in AI infrastructure. And the company says it is going to prioritize reserving some of that compute for its own long term product development instead of making a quick buck by renting it out to clients. So that is something worth watching as well. The Tencent executive saying that they're not too worried about the spending because any excess capacity can be rented out. But this is taken by some and it is like our own Bloomberg intelligence and it is as a sign of lack of confidence in its own growth. But look at it another way. It is also a form of reassurance that this huge spending is going to have limited downside risk for Tencent. [01:15:04] Speaker 1: Bloomberg's China correspondent Mimin Lo there. And when it comes to building the AI infrastructure, we're also watching Hon Hai, its second quarter profit beat estimates, reflecting the surge in AI infrastructure spending. The company says it remains on track to begin mass production of Nvidia's next generation Vera Rubin platform this quarter. The main assembler of Apple iPhones also getting a boost from robust demand for consumer electronics. Bloomberg Intelligence senior analyst Steven Tseng joins us now with more from Taipei. Steven, break down the results for us and whether or not you get any signals about underlying AI server demand at this point. [01:15:47] Speaker 18: Yes, I think the Q2 result was pretty solid. Revenue of 41 percent and earnings up 35 percent. And then obviously all the AI rack shipment has been strong. We're not just talking about the GPU based server. Increasingly we'll see the server featuring custom ASIC and also some the higher high speed networking switches. Also one of the driver. Hon Hai actually also report their July number previously. It was up 50 more than 50 percent. So it looks like the whole revenue momentum getting even stronger in the second half. [01:16:30] Speaker 1: Yeah, for that future growth. How much can Hon Hai depend on Nvidia's Vera Rubin? [01:16:35] Speaker 18: According to management as in there basically started manufacturing manufacturing of this Vera Rubin platform and the shipment should start in Q4. That's largely in line where they are planning and actually so that will become the growth driver for 2027. At the moment I think the black wire shipment still remain pretty solid. So we don't really spend any sort of air pocket during this model transition period. [01:17:09] Speaker 1: Did we get any insight into rising component costs? Of course, a memory shortage has really wreaked havoc among many of these big companies. [01:17:19] Speaker 18: Yes, that can be an increasing issue, but I think for all the suppliers like Hon Hai, the lower margin of AI servers is not really because of competition. It's sort of because of mathematics because if you see the they do get pretty sort of constant margin dollar per unit, which is actually much higher than conventional server. But because all the AI servers component are actually quite expensive and a lot of the component costs are basically passed through for them. So you have a constant margin dollar, but because the whole product price become much higher now. So the margin looks like it's squeezed. So that's the issue they have right now. But I think in Hon Hai's case in Q2, we only see the gross margin slightly down. So they actually manage that pressure well. And if you look at the OP margin, the OP profit actually was up like 68%. Meaning that the bigger sales scale actually offer them the operating leverage. So they actually got a better operating margin now. So which I think is a good thing for them. And the other things is that I think a lot of ODM maker are now shifting towards what they call consignment model, which means that some of the expensive component won't be part of the ODM prices, which means that they may have some impact on the revenue growth, but then the margin is going to be improved in terms of percentage. So I think there's a couple of ways for them to manage this margin issue. [01:19:03] Speaker 2: Bloomberg Intelligence senior technology analyst Stephen Zang there. Take a look at some of the corporate stories that we're tracking this hour. And Cisco shares fell in late trade despite earnings topping Wall Street estimates. It's forecast $7.5 billion in sales tied to the AI data center boom this fiscal year after amassing $9.3 billion over the past 12 months. Cisco says demand tied to AI data centers remains robust, though much of its business still comes from traditional networking products. Deep Seek has launched an official social media account setting up a dedicated team and begun hiring to develop AI agents capable of taking on services like Anthropix Claude Code. The Chinese startup also says it's upgraded its flagship of the 4 Pro model with enhanced agent capabilities. The push comes as competition intensifies in the race to build AI systems that can automate professional work. We're going to be taking a closer look at China's tech sector and this AI rally in just a few minutes It's with Lotus asset management's Haohong investors seeking signs that earnings can keep this AI trade going. Much more ahead here on the Asia trade. This is Bloomberg. [01:20:11] Speaker 1: Short interest in Chinese internet stocks has dropped in recent weeks. The retreat from bearish bets underscores expectations that the e-commerce results will beat subdued forecasts while AI breakthroughs cut internet platforms costs and improve their services. Let's bring in our next guest who thinks Chinese markets are resilient with AI related sectors doing well. Joining us now is Haohong. He's managing partner and CIO at Lotus asset management. How always good to have you with us. Would you say that we saw that July correction helping perhaps some of these valuations in Chinese tech as well? What's giving you some more optimism for these markets? Yeah, thanks for having me. [01:21:05] Speaker 19: I think after two months of correction many of the names are back down to earth and many of the names are trading at a more reasonable valuation. So I think part of the over valuation and also part of the extreme relative performance has been corrected. And so as a result, you know, many, many fund managers are taking another look at the names. And also I'm hearing that, you know, some of the foreigners, foreign investors are taking a second look at the Chinese AI names as well. [01:21:36] Speaker 1: Have their criteria of this taking a look at Chinese names, though, have changed. I mean, it was all about being just in the AI trade. How much has it become about really trying to reflect those investments by these companies into actual results? [01:21:54] Speaker 19: Yeah, I think, you know, the rally has entered a second phase, you know, basically quality now matters much more than the story itself and also the quantity. You know, many of the names in the Chinese airspace, you know, has a story, a very nice story to tell, but very, very little earnings to show. So I think as a result, you know, we're going into a divergence stage where, you know, the good quality names will perform well. While, you know, some of the names are, you know, just telling stories and then, you know, they would continue to underperform the entire sector. [01:22:31] Speaker 1: What metrics qualify really good quality? Are we talking about cash flow, monetization, capex returns? [01:22:42] Speaker 19: Yeah, I think, you know, some of the companies are still in the early, early stage of development, but many of them are showing very promising results. You know, for example, you know, the deep seek, the new pro flash model and also the Kimi K3. Many of them are showing, you know, relative capability relative to the US peers, but then at a substantial less cost. So I think as a result, you know, many of these names are coming to the market, you know, to raise money. And I think they will be well received. And also some of the existing names, you know, who are demonstrating progress, you know, in their model development and also your token consumption. They would continue to gather interest as well. But then, you know, some of the names, you know, they had a good quarter in the last quarter, you know, showing probably, you know, one thousand percent earnings increase. You know, but many of us are doubting that, you know, such strong earnings growth, you know, could be sustainable, you know, because you're still relying on, you know, overseas orders, you know, to fill up your capacity. I think the Chinese semiconductor names are now dominating the low to mid end range. So if you look at the most recent Chinese exports, semiconductor exports is still growing up, you know, very, very high double digit, you know, 50, 60 percent year on year. So I think, you know, you know, many of the names could continue to perform well. But I think given the valuation and also given, you know, the question of the sustainable sustainability of the earnings growth, then, you know, some of the lesser quality names would underperform. [01:24:22] Speaker 1: How where do tech giants like Tencent Baba Baidu, for example, where do they lie? Because for Tencent, we actually saw them beating revenue forecasts, but at the same time doubling AI and compute spending. So at what point are they how do we offset their AI exposure spending and also the fact that they have dependence on the domestic market in China, especially retail? [01:24:53] Speaker 19: Yeah, I think, you know, these companies are spending big on the AI and but most of the investors are still seeing them as a sort of an old economy companies and internet platform companies or gaming companies. So even though they spend big and some of them has achieved a certain level of results, you know, for example, Tencent's work buddy, you know, which is a very popular AI tool here in China is doing well. And also the Alibaba cloud business is showing very strong earnings growth already. But then, you know, we're still talking about, you know, this AI business is being relatively small contributor to the overall group results. So I think, you know, they're still, you know, on their way to transform themselves from a traditional internet companies into a new sort of AI cloud computing companies. There's still, you know, a very long way to go. So I think as a result, you know, recently we've seen stock price of these companies been rallying, but mostly it's a technical rebound. You know, for example, just now, you know, the news headlines showing that, you know, short interest in many of these names is actually reduced from its peak. But normally it's a contrarian indicator. You know, basically it is showing that the technical rebound has has has done much of the rally. And also, you know, the easiest money has been made in this rally. So I think going into the second phase, you know, we're going going to be looking for quality and also new earnings driver from these companies. [01:26:24] Speaker 1: I guess expanding this question into the broader Chinese economy, when we're talking about the exuberance around the artificial intelligence sectors, anything related to manufacturing and exports. But the other side, you have also the dwindling domestic demand. At what point is there a risk that the demand pressures that really subdued economy, subdued consumption will overwhelm the other more positive, brighter sides of the Chinese economy? [01:26:55] Speaker 19: Yeah, I think right now China is still coping well in the sense that, you know, the export sector is going from strength to strength. So we will still register during a very high double digit growth year and year and export sector and also the higher manufacturing sector has been, you know, the growth contributor for the time being. But already, you know, the you know, the urge to boost consumption probably is becoming more prominent in the sense that, you know, consumption growth, retail sales growth is is slowing down substantially. So 10 years ago we're talking about, you know, more than 10 percent high double digit year and year growth in the retail space. Now we're closer than one percent and sometimes zero percent. And so as a result, you know, the urgency to boost consumption, you know, is very loud and clear, you know, in a sense that you can't just rely on export sectors to drive your growth. You know, because right now, you know, the percentage of the Chinese exports in the global export sector has been at all time high. And basically many of the trading partners are finding it very difficult to compete with China. China. And I think China is registering trade surpluses in almost all sectors. So it's an absolute advantage that the Chinese manufacturers are enjoying. So I think as a result, you know, the trade friction is increasing, especially with the European counterparts. And, you know, recently we're hearing increasing increasingly loud criticism, you know, from the EU and also increasingly supporting evidence from the Academy showing that the Chinese exports are basically basically cutting the European lunches, European exporters lunches. So I think as a result, you know, we're about to see more trade friction, especially between China and EU. [01:28:44] Speaker 1: Before I let you go, how you've written in your notes about the aggressive active Korean traders coming into the Hong Kong market around the exuberance of artificial intelligence, of course, after all of that volatility in their whole market already. Does this meaningfully impact the structure of the Hong Kong market? Is there anything that we should be aware of? [01:29:08] Speaker 19: Not yet. I think, you know, the Korean traders are renowned for, you know, their risk taking behavior and also, you know, very high appetite, ferocious appetite for risk. So I think, you know, as you can see, that the rebound in Hong Kong in the recent two weeks has been, you know, quite phenomenal. You know, I think Hang Seng is up more than 15 percent from its bottom. You know, one has to say that new money has come in. And I'm hearing that, you know, much of or some of the money is actually rotating from the Korean market and going into the Hong Kong market looking for opportunities. You know, given the cheap valuation here and also, you know, many of the Chinese AI names waiting to be discovered. So I think it's a new force in the market. And I think Hong Kong welcome this new breed of of traders who who has the money and also has the appetite for risk. [01:29:56] Speaker 1: Interesting. Welcoming the ant traders of South Korea. How Hong, good to have you with us, managing partner and CIO at Lotus Asset Management. We keep an eye on the EM assets as well, given, of course, the U.S. inflation picture, which came in line with estimates for the July data sort of calming concerns that are the Federal Reserve hike. We have seen emerging markets gain ground on the back of those eased concerns. We will be keeping an eye on energy related commodity related economies and markets as well, given the continued rise of oil for the last six sessions. Stay tuned today for the latest episode of Bloomberg's emerging podcast series. Menaka Doshi explores one of the biggest challenges facing developing economies, finding enough power to fuel growth that's coming out on YouTube, Apple podcasts and Spotify. More ahead. This is Bloomberg. [01:31:10] Speaker 2: Well, the former Chinese premier Zhu Rongji has died at age 97. Zhu was a key architect of China's economic rise who pushed through landmark state sector reforms, helped pave the way for its entry into the World Trade Organization. For more perspective, let's bring our chief North Asia correspondent, David Engel, in Hong Kong. It's certainly not an overstatement to say that Zhu played a pivotal role in shaping what the modern Chinese economy now looks like. [01:31:38] Speaker 20: Oh, absolutely. I mean, look at the front page of the South China Morning Post. I'll just hold it up briefly. It's the entire front page of the Hong Kong main newspaper, English language newspaper here. He absolutely was the architect of today's modern, more market focused economy. Because if you take a look back at when he was the premier in the late 90s and early 2000s, China was still fairly poor country. I lived in China in the early 1990s and he was the architect of state owned enterprise reform. He was the big architect of recapitalizing the big banks ahead of their listings in the early 2000s. I mean, these banks were highly indebted. They were lending to unprofitable other state owned enterprises. He formed asset management companies to essentially buy the bad debts off the books of those banks, recapitalize the banks. Now look what they've become. Some of the biggest banks in the world. He had an outsized role in the development of the Chinese private sector as well that today sees the likes of Alibaba, Tencent, BYD and others. Now, of course, you know, he paved so many roads for the Chinese economy. It's hard to measure given that he only had one term as premier. But between him and the bigger boss, Jiang Zemin, they were a very colorful, pragmatic, charismatic duo that led China's rise to the ascension to the World Trade Organization in 2001. So we cannot underestimate the impact Zhu Rongji had on the reform of the Chinese economy and what it has become today. Eleven fold increase in GDP since the ascension to the WTO. [01:33:26] Speaker 2: He infamously said that he'd order 100 coffins, 99 for corrupt officials, one for himself. Obviously, that hatred of corruption and graph, something he shares with Xi Jinping. But are there other commonalities? [01:33:39] Speaker 20: Well, I think it's a very valid question to ask. How would Zhu Rongji fit in today's Chinese hierarchy and leadership? Because Zhu Rongji was known for cutting, you know, bureaucracy, attacking corruption, which is, of course, hallmarks as well of the leadership of Xi Jinping. But Zhu Rongji also believed that all cadres should speak up. And I think today's Xi Jinping led third term, if you will. It's more about loyalty and less about market reform, more on ideology. So it's debatable still whether he would have an outsized role the same way these days. [01:34:20] Speaker 2: Chief North Asia correspondent Stephen Angle there. That is it for the Asia trade. Our markets coverage continues. We look ahead to the start of trading in Hong Kong, Shanghai and Shenzhen. The China Show is next.