Oil Rises as Trump Resumes Hormuz Blockade — The Asia Trade 7/14/2026

[00:00:00] Sherian: This is The Asia Trade. I'm Sherian in Tokyo. The tough stories this hour. [00:00:20] Speaker 2: We're attacking them tonight. We're taking out all of their capability for anything having to do with the straight, with the harmless straight. And I think in the end, we will end up just controlling the whole thing. [00:00:35] Sherian: Oil prices jump as the U.S. strikes Iran for a third straight night. President Trump reinstating the Hormuz blockade and demanding a 20 percent toll from shipping through the waterway. Asian stocks set for losses as higher energy prices revive inflation and rate hike concerns. Chipmakers taking another beating on the U.S. session, including SK Hynix. And slowing business growth set to be a risk for Shein's valuation as it moves towards a Hong Kong IPO. [00:01:06] April Hong: I'm April Hong in Singapore. Here's the setup for trading across Asia. And now it's really about energy prices as well. As we see Brent back above the 80 handle at around 83. WTI not far behind. And given that, along with the hawkish commentary that's come in from Fed Speaker, right, Christopher Waller, these bets that the Fed will hide soon, as soon as this month, rose to nearly 50 percent. We had that pressure coming in for Treasuries in cash trading overnight with the two year year rising to 428. Treasury futures also are coming under pressure in the Asia session. The CPI numbers, along with WASH's testimony, should be really, really interesting. The dollar also catching a bid. Goal is at the 4K handle for the board. All this is very unhelpful for the Japanese currency. And in terms of stocks, take a look at how Korean volatility, that really seems to be something for the U.S. market. Because don't forget, it was that brutal Monday. SK Hynix career shares dropping by a record 15 percent. Then the ADR slumped. Overall, it's underscoring the concern that the boom is overextended. We had also overnight the memory, the storage names dropping in the U.S. This is what futures are pointing to. Looks like another challenging day for Asia. Now, earlier today, our Washington and White House correspondent, Jeff Mason, asked President Trump how long he expects the current U.S. offensive to take. [00:02:32] Speaker 2: Well, I think it's going very fast. We've demolished their military. We're hitting them very hard. And we had a deal yesterday or the day before yesterday. It was all done. And then they broke up that deal immediately because they found out there was something in the deal they didn't like. And they're wired differently. And we're not going to put up with it. [00:02:52] April Hong: Jeff joins us now from the White House. So, Jeff, you got that question in. Walk us through what we heard from the U.S. president. [00:03:00] Jeff Mason: Well, the president essentially laid out the fact that the war is now on and going to go on for a little while. He declined to engage really about a specific timeline. And this is a little unusual for him. He's never really committed to a timeline. But he has, at least before the MOU was signed and when there was a ceasefire agreed, the president was really emphasizing language along the lines of this is over. This war is over. That has all changed. And he's using the word war, which is something Republicans in the very beginning of this conflict did not want to use. He even went to Congress to identify that to them and to say that they expect to have 60 days now without requiring permission from Congress to do these military activities. So, in general, he also repeated his view as we sort of pressed him about the timeline that this is that other wars have lasted much longer. And he referenced Vietnam. That's something he's done before when when reporters have pressed him about the timeline. And the reason we're pressing him about this is, number one, of course, the war affects everyone. Number two, there's a political aspect to this. The president, of course, wants his party to win or to maintain control of Congress at the midterm elections come this November. If the country is at war and gas prices go back up again, that could potentially hurt him and his fellow Republicans. [00:04:22] Sherian: So, does the president, Jeff, have a diplomatic off-ramp at this point, especially given the governance of the Strait of Hormuz is at issue now? [00:04:33] Jeff Mason: It certainly is at issue. And there's a lot of open questions about that in terms of how he plans to get this 20 percent tariff or fine or refund for administering the strait. And Iran, of course, is not accepting that the U.S. is administering the strait. Your question about an off-ramp is a good one. That's one that we asked multiple times in the early months of this war. Right now, it doesn't look like he's looking for an off-ramp. He's emphasizing exactly the opposite. He's emphasizing that the U.S. is at war and is back into this conflict. And the MOU or the Memorandum of Understanding has essentially been ripped up. So, TBD on what that off-ramp is and whether or not he even wants one at this point. [00:05:18] April Hong: The issue of those 20 percent fees, Jeff, I mean, it seems very similar to the way he negotiates, treats, things like that, like a deal. Should we really be expecting something like this when some of the Bloomberg calculations or the people familiar with the matter tell us that if you look at per tanker, it could be $30 million of an extra fee for cargoes going through versus roughly $2 million, which is what Iran seems to be charging? [00:05:47] Jeff Mason: Yeah, and it was interesting. The Iranians pushed back a little bit on that thing, too, and said that 20 percent would be too high. And they have also flirted with charging something. So, that was an interesting kind of political tit for tat there. But to your broader question, I don't know the answer. The president and the White House from the U.S. have not laid out how he plans to make this happen. It does not appear to be consistent with international law. That's also something that they haven't addressed. So, lots of open questions about how he intends to do that, whether or not companies, tankers, et cetera, would pay, and what the consequences would be if they don't from the U.S. side. And, again, lots, as many questions as there are answers with regard to that and with regard to the conflict writ large. [00:06:33] Sherian: Member Washington and White House correspondent Jeff Mason there with the latest when it comes to the Iran-U.S. war. And, of course, we have watched higher oil prices repricing the Fed rate hike risks. We're seeing inflation concerns back on the table, coupled that with this tech sell-off that we continue to see. Let's bring in Bloomberg Markets correspondent Nora Melinda in New York. Nora, walk us through today's market action because it seems that the AI trade, the tech sell-off, is now colliding with the action in oil. [00:07:04] Speaker 5: Absolutely. We saw a lot of red on our screen in the New York session. Of course, we do know broader indexes remains lower, tech really being the hardest hit. The Nasdaq 100 was down nearly 2%. But, as you mentioned, semiconductor stocks remain in focus. We saw the Philadelphia Semiconductor Index down about 4.8%. There's a lot of questions as to whether or not these lofty valuations we're seeing in the market, particularly when we take a look at tech, are sustainable. And so you did see a risk-off mood, risk-off sentiment in the market. As many investors started ditching some of these tech companies and all the money that they have poured into them. But separate to that, we also have the geopolitical angst in the background. We have Trump saying he's going to reinstate a blockade against Iran. So we did see oil prices also sharply higher. If you take a look at Brent crude, it was up about 10%, hovering near $83 a barrel. So there's a lot of uncertainties in the market. And next, we're going to have investors looking toward inflation data tomorrow, as well as bank earnings, to kind of get a read on how corporate earnings are looking in the health of the economy more broadly. [00:08:11] April Hong: Nora, as you highlighted there, when it comes to tech, it's really about SK Hynix's story. What does this tell us about the broader AI trade? [00:08:20] Speaker 5: Well, certainly what we saw from SK Hynix, of course, we did see shares in Seoul plunging and that really ricocheting into the U.S. 80 yards that we saw for the company. The stock ending lower in the trading day. There were a lot of concerns, of course, due to this report that we got out of Korea Investment and Securities. They were essentially saying that they could potentially see quarterly operating profit missing expectations by 8%. So that just goes back to those underlying fears that we're seeing from investors as to whether or not we've seen tech going too far too fast and whether or not some of these companies need to come back down to earth. But you're starting to see a lot of investors on Wall Street really cherry-picking specific companies in terms of who they think are actually the winners in this market. [00:09:05] Sherian: We're at the start of earnings season now. We have big banks reporting. Any expectations of how they will do this quarter? I mean, we've seen a lot of volatility in the markets. [00:09:14] Speaker 5: We have. So far, we're hearing that banks should report pretty strong earnings tomorrow. Of course, this is going to be the kickoff to earnings season. And so investors will be closely watching the health of the bank industry and, of course, the companies to follow. But when we look at some of the expectations for banks, we have about five of the U.S. major banks reporting earnings before the market opened in the United States. And they're expected to generate nearly $39 billion in second quarter trading revenue. If you take a look at Goldman Sachs, we do know that equity traders are also set for another record quarter. So expectations are high heading into these reports, but we'll have to see how everything shakes out. [00:09:54] April Hong: Nora, thank you. Bloomberg Markets correspondent Nora Melinda in New York. Still to come, more on the re-escalation of the U.S.-Iran war and the fight for control over the Strait of Hormuz with former U.S.-Middle East official Mara Rudman. This is Bloomberg. [00:10:08] Speaker 6: So we're just going to hit him very hard and we're going to we're going to keep the Strait and we'll probably run it. We'll become the guardian of the Strait. Maybe we'll call it the guardian angel of the Strait and we should be reimbursed for that. When we do that, we're going to be reimbursed because the other nations are very wealthy. They're on our side and we can't be expected to do that for nothing. [00:10:47] Sherian: President Trump on his plan to take control of the Strait of Hormuz and charge that fee for all cargo shipped through the waterway. Joining us now is Mara Rudman, practitioner senior fellow at the University of Virginia's Miller Center. She previously served as a security advisor in the Clinton and Obama administrations and in the office of the U.S. Special Envoy for Middle East Peace. Mara, always good to have you with us at a time when we have this potential 20 percent charge. Of course, also Iran is trying to charge passage through the Strait of Hormuz. How difficult will it be to sort of keep that middle ground where you don't have a full escalation of the war, but you're still applying pressure? [00:11:27] Speaker 7: So, Sharon, good to be with you guys. I think that unfortunately it's not just about trying to strike a middle ground, which, as you note, is difficult. It's about what the United States end goals are and how they can be achieved, and there's very little indication that increased military action alone is going to have Iran back off their behaviors in terms of the Strait. And I have to say that the United States violating customary, well-respected, understood international law in terms of freedom of navigation by charging tolls, which is precisely what we are saying Iran should not be doing, is not only no solution, but it just shows how much, sadly, this president does not understand that law matters. It appears, I have to say, his secretary of state and his vice president in this case do. They have made contradictory statements on this issue earlier, but the president just today, again, very concerning, the clip you played. [00:12:36] Sherian: How does the U.S. get out of this situation, especially since, as you said, he could be facing international pressure as well? [00:12:44] Speaker 7: Sure. Well, I would expect that our friends and allies around the world are not thrilled with how President Trump has positioned the United States at this point, nor with what he says he expects from them in terms of paying for United States services. In terms of how we de-escalate and set Iran back to allow the kinds of shipping that's needed in the Strait of Hormuz and then deal with the still serious nuclear issues and challenges. I think it needs to be a combination of economic sanctions and some sort of potential ability, willingness to do the military strikes from the air that we have been doing, but perhaps not at the same level. But it absolutely needs to be in connection with strong economic sanctions. And for those to work, you have to have friends and allies who are in it with you together. And again, this administration has not been good about maximizing the diplomatic strategies and approaches that would allow something like economic sanctions to proceed. [00:13:57] April Hong: Mara, what about support from within the U.S.? I mean, Congress is set to return next week. To what extent are you going to see, you know, more votes that are not in favor of the war at the time where the longer this war drags on for, you know, Trump and his administration are asking for more funding? [00:14:19] Speaker 7: Yeah, absolutely. You note, Avril, a number of tensions that are competing at the same time. And this war, this conflict is not popular in the United States at all. It is certainly not popular among Democrats, among independents, and among a number of people in President Trump's party, in part because he has done such a poor job of laying out the case for why this might be necessary for the United States. And what he is trying to do now is essentially a procedural maneuver in terms of Congress to say that he has 60 days. This is a new war. This is not a continuation of the conflict that started several months ago. It is a new war. And therefore, he does not need congressional authorization. He does not require and should not have any action from Congress in the next 60 days. Democrats will, I am sure, work to contest that. I think for Republicans, they want to do everything possible to avoid a vote, to have to be put to a vote on this. And right now, leading up to our November election, Republicans control the floor in the House and in the Senate. And so the likelihood of getting to a vote, more ability for procedural maneuvers with Democrats in the Senate than in the House. But it's going to be a very difficult and rocky next few months in Congress in the United States for a host of reasons. This is one of them. [00:15:46] April Hong: Mara, you know, in our past discussions, it's always come up that it's very difficult to decipher the thinking behind the U.S. president's actions. But talk to us about, would it be fair to say that in this case, we've reached a stage where maybe Trump might not even be able to de-escalate, even if he wanted to? [00:16:11] Speaker 7: I still think there are routes to de-escalation in terms of what I have seen in prior administrations, again, Democratic and Republican administrations. And so I do think that that route, again, it's not just de-escalation, it's being able to get to the behavioral changes that we're looking for in the adversary, in the Iranian regime. And that is going to require a combination of economic measures along with military measures. I know President Trump likes to talk about tactically how significant U.S. military actions have been against the Iranian regime. And he's accurate in terms of the percentages of things that the United States military has destroyed, maybe not exactly the numbers he quotes. But it's very clear the regime is fighting for its existence, again, not fighting for the Iranian people, but for the continued existence of the regime, and are very determined to resist, to use whatever they can to continue to resist the United States if military action is going to continue to be along the lines of naval and air only and not ground troops. [00:17:26] Sherian: Has one of the methods of trying to do that also regionalizing the conflict, I mean, we continue to see these Houthi attacks on Saudi Arabia, Iran also targeting U.S. bases in Gulf states, Qatar, Kuwait, Jordan, Bahrain, Oman. What's the point of doing this and how difficult will it be for Gulf states to try to keep this balancing act? [00:17:48] Speaker 7: So the Gulf states have been in a challenging position, as you note, for some time now. And that's clearly very much part of Iran's strategy, is to make them feel the pain of this action from the United States. And I think there has been some level of discomfort in what had been a very strong relationship between a number of the Gulf actors and the Trump administration. I think it's largely been kept quiet, but there is discomfort there. And so I'm sure, again, they're among the actors not happy with the language of today and with the increased intensity of strikes. And I think particularly unhappy with President Trump's very clear language that he intended for those very actors to be paying the United States for returning essentially to what was the status quo ante before this action started in terms of ships being able to go through the Strait of Hormuz without charge. [00:18:49] April Hong: Mara, always great to have you on our programs. Thanks so much for taking the time. Mara Rudman is Practitioner Senior Fellow at the University of Virginia's Miller Center. We have more head on the Asia trade. This is Bloomberg. The battle to replace the late U.S. Senator Lindsey Graham is taking shape in South Carolina. Republicans are jockeying for a seat that's been held by just two men over the past 70 years with an August primary set to determine who carries the party's banner into November. Washington News Editor Gabriela Borte joins us now with more. So, Gabriela, talk to us about Graham's sister. She's been appointed interim senator. What do we know about her as a political novice of sorts? [00:19:50] Speaker 8: Absolutely. So, Graham's sister, Darlene Nordeaux, has been appointed by the governor of South Carolina as the interim senator. She will be filling Graham's seat for the remainder of his term, so until January of 2027. And she really is a political novice. She has not been in public service. And she comes to the Hill with very little political experience, except for the fact that she was very close with her brother, the late senator. So, we are curious to see how that goes for her. But she is in this position for a short term. There will be an election to decide who the new Republican nominee for Senate in South Carolina will be. That will be next month, that election. [00:20:40] April Hong: So, with that in mind, talk to us about the leading candidates who could run. What happens next from here? [00:20:50] Speaker 8: Right. So, August 11th will be the special primary to decide the Republican nominee. Again, there are a few contenders already. The official filing period does not begin until next week. So, that's when these people can actually file their paperwork to run for the office. But we are expecting Representative Ralph Norman of South Carolina to throw his hat in the ring. We have reporting that he has already sought President Trump's endorsement for the position. Perhaps Darlene Nordeaux, Graham's sister, might decide to run for a full term. There's also the strong possibility that Lieutenant Governor Pamela Evitt of South Carolina throws her hat in the ring as well. She actually received Trump's endorsement in the Republican primary for governor of South Carolina, but she did not advance past the runoff. So, she is a very prominent political figure in South Carolina right now. Russell Frye is another South Carolina congressman who seems likely to be heading towards a run for the Senate seat. And there are a couple other names that we might see come to the forefront. But, again, that official filing period does not begin until next week. [00:22:07] April Hong: Trump has also thrown his support behind Graham's Russia sanctions bill. What is the significance of this? [00:22:16] Speaker 8: Yeah, so the Russian sanctions bill was a priority for Senator Lindsey Graham. There have been several versions of this bill since 2025. And just last week, Senator Graham announced that the bipartisan group of lawmakers that was trying to advance this bill had reached an agreement with the White House on a new version of the bill. We haven't seen the newest version of the bill that, apparently, Trump has signed off on. But any version of this bill is likely to be very significant in the context of Russia's war in Ukraine. We have seen some versions of this bill that would impose up to 500 percent secondary sanctions on countries that purchase Russian energy. And, I mean, any sanctions close to that magnitude would really put the wind in the sails for Ukraine as they continue to fight Russia in a war that has now gone on for years. It's expected that the bill would be a really big hit to Russia and a very big boon to Ukraine. [00:23:21] April Hong: Gabriela, thank you for talking us through these nuances. Gabriela Bota in Washington, our Bloomberg Breaking News editor. Now, let's take a look at how the spike in oil prices is affecting bond futures in the Asia session, given how we already saw that selling in treasuries overnight. Dollar was catching a bit, though, flat in Asia. Back foot. That's what we're seeing on the S&P 500 futures for now. We have more ahead on the Asia trade. This is Bloomberg. [00:24:07] Sherian: We're about half an hour away from the market opens for trading when it comes to Brent crude. Of course, we have seen it, Averill, surpassed at $80 or barrel level already. WTI headed towards that level as well. We continue to see the escalation of tensions between Iran and the U.S. And really to do with what's happening in Hormuz, right? President Trump now saying that he's renewing the blockade against Iranian shipping. But on top of that, he's now saying that he's going to charge 20 percent reimbursement on all commercial cargo. This could have detrimental effects globally. We're talking about the International Maritime Organization saying that charging transit fees really conflict with established maritime principles. We're talking about the freedom of navigation. So this is a big deal, how this ends up, given that Iran wants to do the same thing. And at the same time, we have really no idea where the rest of the negotiation points are going, whether it's nuclear conversations about nuclear weapons, what happens with Iranian frozen assets. In the meantime, we continue to see this escalation, regionalization of the conflict with Houthi attacks on Saudi Arabia being renewed as well. [00:25:16] April Hong: Yeah, as you say, at this stage, it really looks like things have escalated. And that's what's playing out when you look at energy prices. We were talking about this yesterday, right? How Brent was struggling to break above 80 in a way. And there we are today. We're at around 83. WTI also not far behind. That has been a very challenging backdrop for assets across the board. You take a look at how stocks were really under pressure just a day ago. It was against the backdrop of that steep, steep slum we saw in SK Hynix, which kind of, you know, went over to the U.S. And we saw that on the ADRs as well. And then, of course, the bond sell-off, especially that repricing that seems to be coming for the front end. We're still seeing bond futures pointing to quite a tricky session and add to all this what we heard from Fed official Christopher Waller. Take a listen. [00:26:11] Speaker 9: If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term. As always, we need to avoid making the mistake of fighting the last war and reacting too soon to tighten inflation. [00:26:30] April Hong: Let's get more on the markets and bring in Bloomberg MIX strategist Mark Cranfield. So, Mark, we are watching out for washes, but in the meantime, we've heard from Waller. Do you think positioning across the curve is appropriate? [00:26:44] Speaker 10: Yes. I mean, if you look at the way that things are developing, the inflation, the base case for inflation seems to be going up all the time. And, of course, the renewed action in Hormuz pushing up oil prices is only going to make the situation worse. So, even when we get the U.S. inflation data this week, it won't reflect some of the recent moves in crude oil prices anyway. So, whatever people see in terms of the core data, they'll probably want to add a little bit extra for the fact that oil prices may not stay higher for longer as well. So, all in all, it's pushing towards a scenario where the Fed is putting themselves in a position they were lowering interest rates last year. And now you've got Chairman Walsh comes in and he's probably looking at that and saying, well, that may well look like a mistake now. And I may need to reverse some of those moves from last year. So, certainly more Fed speakers are moving into the position where they sound as though they're ready to support a hike, whether it comes in July or whether it's slightly later. But definitely the moves are going that way. We may hear Walsh push back a bit at the Senate hearings when he speaks this week, but certainly more and more people come into the conclusion that they could have made a mistake last year by lowering interest rates. [00:27:53] April Hong: This is coming at the tricky time for stocks. We seem to be seeing momentum unwinding. I mean, what's it going to look like in Asia today? [00:28:01] Speaker 10: The it's gone from beyond the momentum trade to a value at risk situation. So when you see something like the cost be dropping 9%, the leveraged ETF that's been trading in Hong Kong, which has been part of the problem for the Korean market, dropped 33% yesterday on massive volumes. That is a complete wipeout of profit and losses across the board for retail people and institutional as well. So you've had a dramatic risk reassessment, which means that a lot of people now are going to be sidelined. A lot of traders will not be able to participate anymore this month. They've just been wiped out of their P&L situations. Their risk managers are tapping him on the shoulder and say, take a holiday, go to the beach. You're no longer trading this month. That is going to create a problem for the market in terms of liquidity will dry up. We're going to get more erratic swings because we're not going to have the usual people around to support the market in that way. Trading between now and the end of July is going to be extremely difficult across Asia. Probably, in fact, it's having a global impact. You can see the Nasdaq market as well trading very badly as well. So it has become an issue for risk management as much as for day to day trading. And that is not a healthy situation at all. [00:29:10] April Hong: Given how it's an issue for the Nasdaq, do you think, given how AI is macro, that could also put pressure on the dollar, all things considered? [00:29:18] Speaker 10: The dollar's role is a little bit safer because people tend to flow to the U.S. dollar as a haven when there's huge dislocations in financial markets. Typically, people migrate to the U.S. dollar. Helping to support that is the fact that short term yields are very high relative to the rest of the G10, especially even to the rest of the world. So you've got a situation where if you don't know what to do, you can buy the U.S. dollar, keep it in cash. And you're not really losing out at all because you're getting 4% every day anyway, which at the moment doesn't look too bad when the cost rate is going down 9%. So people are in a situation where they're paid to be defensive almost. And the U.S. dollar looks as though it will be the place to go. There is a longer term risk, of course, that if U.S. markets really pick up on the downside, they're not showing signs of it yet. But if U.S. equities really crumble aggressively, then it's very bad for the U.S. dollar because a lot of foreign money has got into those markets. That is not yet the case. For now, the U.S. dollar is holding up as something of a haven. [00:30:19] April Hong: It does look like regardless, it's a challenging time for JGBs and the yen, though. [00:30:25] Speaker 10: Well, we've had a complete flip flop on the idea about the Japanese pension funds. It's confusing investors. And as we've said before, confusion breeds contempt. It is not a good day for the 20 year auction today. It couldn't come at a worse possible time. It's not a very popular duration anyway. It comes between the 10 and the 30, which are more popular. Yields in treasuries have risen more in the past month than even JGB yields. That again is a reason to stay away from it. And then you've got this situation where one moment it looks as though the Japanese finance minister was pushing GPIF and the pension funds to bring more money home. Then they've been backtracking on those comments. Traders are going, what on earth is going on here? I don't understand the situation for the yen and the JGBs. And that typically means investors just stay away. They will not put their money in. [00:31:08] April Hong: Right. All the more to your point about the need for risk management. Mark, thank you. Bloomberg and life strategist Mark Cranfield. Sherry. [00:31:17] Sherian: And some of the reasons that you listed there with Mark, why we're seeing such weakness in the Japanese yen near those 40-year lows against the greenback. Now prompting investors to question whether it could eventually curb the foreign inflows that have helped drive Japanese stocks to record highs. Bloomberg senior equities reporter Hida Yukisano joins us more with more on this. And really, how is this affecting foreign investor sentiment towards Japanese equities? [00:31:44] Speaker 11: The yen's weakness has been one of the biggest hurdles for foreign investors looking into Japanese stocks. Now, if you look at the chart of Topics Index, you see a nice sort of steady climb in yen's term. But in dollars' term, actually peaked in late February and it hasn't regained that high ever since. So that's the reality for foreign investors who bought Japanese stocks. And in fact, the Topics has underperformed the MSCI, All Country World Index, by about eight percentage points since the end of February. So the yen's weakness is really a big concern for many foreign investors, especially long-only type of investors who typically don't hedge currency exposures. [00:32:37] Sherian: What does this mean, then, for the long-term appeal of Japanese equities? Because we continue still to hear that corporate reforms, governance reforms are still attractive in this country, not to mention the broader dimension of the AI trade in Japan as well. [00:32:51] Speaker 11: Right, right. I mean, broadly speaking, there seems to be still very positive views on Japanese stocks. That said, if you look at the capital flows data, the foreign investors buying peaks around late May. Since then, they have been on the selling side most of the time. And that coincided with the timing when the yen sort of started to fall below 160 per dollar. And this is related to the bond market reality because these days bond yields and the yen move in the same direction quite often. And that reflects concerns about Prime Minister Takai Chi's macroeconomic policy. And initially, stock investors liked her policy, but bond market investors have been far more skeptical about her policy. And to them, her message comes across as something like, you know, we have an inflation problem, but let's spend more and let's keep interest as low as possible. And so bond market players are really worried that her policy might be just to let inflation solve all the problems. [00:34:05] Sherian: Well, they're talking about different options. I mean, we've, of course, seen the reiterated verbal sort of, you know, jabbing on the FX market in order to support the yen. But now, just as Mark was talking with Averill, we're also seeing these references to perhaps more domestic investments coming from pension funds. Would that have a meaningful impact when it comes to equities if it were to happen in the long-term trajectory of where Japan is going? [00:34:32] Speaker 11: Well, it's hard to say at this point. At the moment, I do see more skepticism coming into the market after the sort of initial excitement of Minister Katayama's comments. And her comments, first of all, she's not in charge of GPF and many other pension funds. But because she made such comments in public space, people gathered that there may be some, you know, planning before her comments. But recent news reports since that comment seems to suggest that that may not be the case. We need to see what she's going to say in today's press conference as well as Labour minister's comments this morning. [00:35:20] Sherian: Yeah, we heard from the chief cabinet secretary also walking back, Kiara-san, talking about how they routinely review their allocations. Yeah, I mean, it seems that the government is trying every option that they can to put out in the markets. But when it comes to action, we'll continue to watch what happens. Senior equities reporter at Bloomberg here, Hideyuki-san, with the latest on the yen. Now, Mitsubishi YFJ Financial Group has become the most valuable company in Japan. The first time a bank has held that position. Shares hitting a record high on Monday with a market cap of $259 billion, topping Toyota's $252 billion. Of course, we have been talking with Hidey as well that we continue to see these JGB yields climbing because of these fiscal concerns, but also because of the Bank of Japan ending its negative interest rate policy back in 2024, really letting these banks charge more. So we are now seeing the Topics Bank's index also at the highest level since 1996. This is Bloomberg. Bloomberg. Bloomberg has learned that Chinese fast fashion retailer Shein is seeking to list in Hong Kong as soon as August. After securing approval from China's securities regulator, the firm is seeking to raise about $2 to $3 billion in the IPO. Let's bring in our China correspondent, Bimbin Lo, Bimbin Shein, now becoming sort of a global name these days, given its popularity overseas as well. But it's taken a long journey to get to this point, how's really the listing looking for Shein in terms of valuations and other terms? [00:37:23] Speaker 12: Yeah, it's been a very long journey because this company had tried to list twice before in New York and London. Both times its attempts were derailed and finally it's gotten the approval from the Chinese regulators to list in Hong Kong. Its valuation, though, has been under pressure. It's been under pressure to cut it to about $30 billion, which is about just a third of what it was at its peak. And yes, as you said, this is a company that at this point is already a household name, right? At one point it was the most downloaded app in the U.S. It did very well, especially during the pandemic. But when it came time for the listing in New York several years ago, it faced a lot of scrutiny, particularly around its sourcing of cordon, whether they came from Xinjiang, as well as the working conditions of some of its workers, especially factory workers, of some of its suppliers as well. There were also concerns around the environmental impact of fast fashion as well. So the political pushback from New York really put a halt to that listing. And then it later sought to list in London and also again faced legal pushback from an NGO that was fighting on behalf of the Uyghurs in Xinjiang. Again, it didn't get approval from the Chinese regulators at the time. And finally, after years of downplaying its Chinese roots and shifting its headquarters to Singapore, it finally is going to list in Hong Kong in August. [00:38:46] Sherian: What about the earnings picture for the company? [00:38:51] Speaker 12: So the earnings picture is not looking too positive right now, but this is largely because of the macro backdrop, because you look at the app downloads for Xi and it's been pretty flat. But if you look at its rivals like PDD and Amazon, they aren't doing so well either. You look at the global web traffic that's been tumbling down as well this year and partly because, again, you have the inflation backdrop, fewer prices pushing retail costs up. So that's put a dampener on consumer appetite. You look at its sales growth in the U.S. It's been pretty weak as well. Double digits declined. So it's been seeing a pretty challenged outlook. And you add to that some of the regulatory challenges that you had weathered through over the past year or so. The closure of the de minimis loophole that had initially provided some tax incentives for the company that had disappeared. So it really destroyed that high frequency, small parcel sort of business model. And the company had to invest in warehouses in the U.S. and look at larger consignment sizes. So all of that has pushed up business costs. But again, this is a company that has proven itself to be resilient and battled through many of these challenges over the years. It has expanded beyond fast fashion to be a more well-rounded e-commerce player, selling everything from toys to household products as well. So we'll see. The margins have been compressed, but it's still a profitable company. [00:40:18] April Hong: Min Min, thank you so much. Our Bloomberg China correspondent, Min Min Lo. Now on to more from the corporate front. Bloomberg has learned that a group of U.S. states is poised to sue to block Paramount Skydance's $110 billion acquisition of Warner Brothers Discovery. That's despite the deal already securing approval from the Justice Department. Proponents argue the merger would reduce competition in Hollywood by combining major film studios and streaming platforms. TSMC has reported a 36% jump in quarterly sales, meeting elevated expectations. According to Bloomberg calculations, revenue for the June quarter came in at $39.6 billion, matching the average analyst's estimate. The results are a sign of momentum and global demand for AI at a time when investors are worried about lofty stock valuations. And let's take a look at how the stocks that we're going to be focused on in South Korea are faring today. Following on that 15% plunge on SK Hynix just a day ago, that was a record for the sole stocks. You are seeing that pressure still coming through for SK Hynix. So it looks like it's going to be another really, really challenging day. Indeed, the resolve of the AI trade is being tested in Korea with KOSPI momentum at its weakest in more than a year. That sentiment has spilled over into the U.S. markets on Monday. And SK Hynix's ADR has fell 9%, underscoring growing investor concern that the boom is overextended. Our Asia Equities reporter Winnie Su joins us now. So, Winnie, what are we watching today? [00:41:57] Speaker 13: Yeah, as you just mentioned, Avril, it seems like Korean stocks, especially SK Hynix, is still going to be seeing some more pressure today. Now, as you just mentioned, that is coming after how ADRs have slumped about 9% following a record slump in Seoul, down by 15% for SK Hynix. So today, most likely, we will see a bit further deleveraging when it comes to the retail investors. Now, the momentum for retail investors have definitely weakened. We did see the buying, in fact, yesterday into the slump. However, some concerns are also rising, given how the retail deposit has fallen or has fallen already so much. And now they actually have to kind of start to clear some of these positions. So, a bit more volatility to be expected. We already had that seventh circuit breaker yesterday, and that's the seventh this year, out of 20 that we have since the 2000s. So, you can see how volatility has really spiked up and that we are seeing investors turning a bit more cautious. [00:43:05] April Hong: Given the volatility, given the heavy, heavy selling we've been seeing, are there investors out there who still see these plungers as buy-the-dip opportunities? [00:43:17] Speaker 13: For sure, there are a lot of investors watching out for that opportunity, especially after how far stocks have fallen. And for some of these foreign investors who have that 10% cap on the individual stock, actually, that has created more room for them to buy more. However, when you look at the technical side of things, SK Hynix, after having fallen some 40% from its peak, hasn't even reached that oversold territory. And right now, we are eyeing that 100-day moving average as a support. So, it can fall a bit more until investors actually step in for that buying opportunity. Because fundamentals, in fact, still remain quite strong. You have valuations trading at the cheapest value on record and also earnings momentum and earnings upside still looking strongest among these global peers. Now, adding to that, in fact, we are also seeing investors potentially turning more positive after earnings actually come through next week. Because when you look at the slump yesterday, a lot is driven by the concerns when it comes to earnings, potentially missing estimate by 8% or so. So, once that's actually cleared next week, we can potentially see that as a window for investors to step in further. [00:44:39] April Hong: Winnie, thank you. Our Asia Equities reporter, Winnie Su. We'll have more ahead on the Asia trade. This is Bloomberg. [00:45:00] Sherian: This is how we're setting up for the market opens in Japan, South Korea and Australia as well. As we're very much focused on what's happening with oil prices, we continue to see the gains on WTI. We are going to see the Brent open, Brent already at past that $80 a barrel level. All to do with the escalation of the conflict between Iran and the U.S. And, of course, back into repricing inflation, back into perhaps thinking that the Fed could hike rates in July. So, you're seeing that downside. And given that, of course, we're also very much exposed to the AI trade here across Asia, when you have the Philadelphia Semiconductor Index losing more than 5% overnight. SK Hynix ADR is also down 9%. So, really clawing back some of that 13% jump on its trading debut. So, Averill, really lots of different narratives right now ongoing in the Asian session, given that we also are in earnings season. But right now, the sentiment seems to be to the downside. [00:45:59] April Hong: Yeah, many different drivers, to your point. And as our colleague Mark Cranfield was highlighting earlier, it's this element of risk management where you're not sure how the U.S.-Iran conflict is going to de-escalate. The time where the memory trade is facing these challenges. Take a look at when it comes to the pullback and risk. Even gold is getting hit now below with a 4K handle. We're seeing futures in Sydney pointing to some downs. It'll be interesting to see if energy counters maintain that sort of offset for stock benchmark in the country on a day where we're seeing WTI creeping towards the AT handle. We'll check in on how those markets open next in Sydney, Seoul and Tokyo. This is Bloomberg. [00:46:49] Sherian: This is the Asia Trade. We're counting down to Asia's major market opens after a down day on Wall Street. We had the downside pressure coming from the fears around artificial intelligence. So again, Averill, another day of a tech sell-off. Not to mention that you are combining this with the inflation risks back in focus, Fed rate hike back in focus, given the Iran-U.S. war. [00:47:38] April Hong: Yeah, given how we saw pricing, right, for a hike as soon as this month go up from roughly 40% to as much as nearly 50%. So there's recalibration as we watch as well for comments to come this week from Kevin Wash. [00:47:55] Sherian: Yeah, I mean, that congressional testimony will be watching it very closely. As you said, that July rate hike back in play. What does that mean when it comes to the strength of the U.S. dollar and the pressure on Asian currencies? Well, take a look at the Japanese yen. We're seeing it at that mid-162 level. Yesterday, it was really right across the board. We're talking about the Nikkei under pressure, JGBs under pressure, the Japanese yen under pressure. A lot to do with the fact that media is starting to focus on the fact that the government doesn't necessarily have a plan when it comes to bringing back domestic investments through those pension funds. So with authorities now sort of walking back on those comments that we had earlier in the week, the concern right now is what happens with fiscal risk in this country. What happens with a continuing to weaken Japanese yen at that 40-year low against the U.S. dollar? And you're seeing the Nikkei now fall about half a percent. But as I was saying, it was also about the AI trade, right? And where can we see that better than in the South Korean market? We had seen already SK Hynix losing a record 17 percent yesterday, leading to the KOSPI falling 9 percent, triggering a circuit breaker, a trading halt. What's interesting is now the structural volatility in this market, in the KOSPI. I mean, this year alone, we had the circuit breaker holds seven times. Since the year 2000, overall, we've only had them 13 times. So with these leveraged ETFs on single stocks like SK Hynix, Samsung, we are seeing more volatility in the markets, a little bit of recouping some of those losses for today's session, though, April. [00:49:30] April Hong: Yeah, it's interesting as we watch the AI boom and these concerns around maybe it's gone too far. Take a look at Singapore GDP numbers as well. This is for the second quarter on the advance estimate. And we are seeing on the on-year figure that it has grown 5.7 percent for the second quarter. So this is a slower pace. It's an easing from the 6.3 percent we saw in the previous quarter. On-quarter, seasonally adjusted basis, the economy expanded 1.1 percent. This is an extension of growth from the first quarter. What's interesting to me when you look under the hood is how we are seeing that decline on quarter, seasonally adjusted basis on construction. But, of course, the key one we've been watching is manufacturing because that also informs what we've been seeing as far as AI is concerned. That seemed to be what supported the Singapore economy to a large extent as well in the early goings this year. Let's take a look at how all this is playing out, right? The U.S.-Iran tensions, the re-escalation of this conflict. Do we have an off-rem here? And how that's played out in Brent and how that sat, right, above the AT handle. You take a look at how in the Asia session you're adding almost a dollar now to 84 per barrel. That's going to be really tricky for U.S. Treasuries after we already saw 428 overnight on the U.S. two-year yield. You're seeing a bit of easing off in the Asia session. Australia's benchmark still coming under pressure. For more, let's bring in our executive editor of Asia Markets, Paul Dobson. So, Paul, how bad are things looking out there? [00:51:06] Speaker 14: Good morning, April. I think, you know, in the context of this year as a whole, we're having something of a setback, but we're still, you know, putting in a very strong performance. I think it depends what you're looking at, really. I would say that the market that's looking most wobbly kind of overall is actually the U.S. Treasuries market and government bonds. You know, we have oil prices coming back. We have, as you were saying, the risk of a rate hike back on the table. We heard some pretty hawkish comments from the Fed's wallet overnight. We get testimony from the new chairman, Walsh, over the next couple of days at the same time as we get the CPI and PPI inflation data and all of those bank earnings as well. So there's a lot of things coming up in the U.S. all at once. But we have those Treasury yields at the highest in over a year. You know, the market leaning into the idea that the Fed hikes. And if it does, then, you know, can the equity market withstand higher U.S. interest rates? That's going to be the sort of trigger level, I think, to watch out for. I think in terms of the A.I. trade, obviously, Korea was a humongously big setback yesterday. The market, as you and Sherry were saying, has been just extremely volatile and difficult to track in recent days, weeks, months. And so even though it's an extraordinarily big number in the context of what we've seen recently, you know, it's a little bit like we're normalized to such big price swings in some ways. [00:52:29] April Hong: So where do we go from here on the memory trade and as far as chip stocks are concerned, is there a chance for, I mean, further outperformance of Taiwan versus South Korea? [00:52:38] Speaker 14: So Taiwan recently has held up pretty well in the face of all of that Korean volatility and the big correction. It's a little bit like the anchor. Yes, it's also had a tremendous sort of gain over the course of this year. But relative to what we've seen in South Korea, it's been slower and steadier in terms of those gains. It does also have a strong retail element, which is causing a lot of those fluctuations, but not the kind of power that the South Korean answers, you know, they're referred to have and not the same sort of leveraged ETF structures that have caused so much volatility in the market. I think, you know, South Korea would have seen an awful lot of the speculative accounts wiped out facing margin calls, that sort of thing, which would have forced a lot of the selling over recent sessions. There's some statistics out on that showing that cumulatively it's become very punishing, but at some point, you know, that gets cleared out and then there's a sort of fresher slate. And if the market does find a little bit of stability again or tries to level out, people will look again at the valuations for the companies, look at their earnings prospects, and they'll see that, you know, they're priced incredibly cheap relative to where analysts think that the earnings outlook is at this moment in time. [00:53:54] April Hong: This is coming at the expense, right? These sell downs are coming at the expense or rather, you know, it's hit the chip stocks. Where are investors rotating into? Because it looks like we could be in the early innings of value taking over, right? [00:54:07] Speaker 14: Could be. I think, well, there's a few things that have been doing relatively better or hanging in there, apart from Taiwan, as we talked about. The China tech stack relative to the rest of Asia tech stack has been outperforming recently. Hong Kong even has seen a little bit more strength recently in its markets. India as well. I think, you know, if you're looking for strong and stable kind of growth, the Singapore Straits Times Index has just overtaken. I think the MSCI Asia Pacific Index year to date showing more measured steady gains, much lower volatility. But the bank stocks are having a great time. Banks everywhere are having a great time. If you look at the earnings forecast for those U.S. banks, the amount of money they brought in through equities, ECM activity, through DCM activity this year is really phenomenal. And so financials in general are having a very good time of it as well. [00:54:59] April Hong: Yeah. To your point about the bank stocks doing well in Singapore as well, we're looking at the STI at a record. Thanks very much, Paul. Our executive editor for Asia Markets, Paul Dobson. Sherry. [00:55:11] Sherian: Because all of these market moving news, Bank of Singapore is also hosting its first CIO summit in Hong Kong, bringing together investors as well as economists. Joining us now is Jian Chi, our global CIO at the Bank of Singapore. And, Jean, really good to have you with us. I mean, as Paul was just talking about, oil is rising. Treasury yields continue to gain ground. And, of course, we are seeing the sell-off in the AI trade as well. What's most important to you right now? [00:55:40] Speaker 15: I think the confluence of factors just goes back to reminding us of the vulnerabilities of the market. We're still very committed to the AI trade. But the question is, how do you express it? And our view is really that not just across the supply chain, but also in various parts of the ecosystem, that's very important. When you mentioned Korea, I think, of course, we do still go back to fundamentals. And these are important parts of drivers of the AI ecosystem. But what has gone on is the technicals have actually gone against us. I think if you look at the ETFs, the leveraged ETFs, I think the gamma hedging of these ETFs actually are now in play. And that happens on the upside just as it happens on the downside. So the volatility and the up and down cycles, we fairly pronounced, and we have to be prepared for that. Let's not forget that two stocks in Korea now account for over 60% of MSCI Korea, which already highlights the massive concentration risk. So instead, I think for investors, it's really a question of casting your net wider to look at various parts of the supply chain, but also diversification into infrastructure, renewable energy, and all the parts of the equation that really power the AI capex cycle, which we're still going to expect $5.5 trillion of investments over the next five years. So here at the summit, we are looking at long-term trends. And while we are being buffeted by short-term noise, yeah. [00:57:13] Sherian: Would you be diversifying away from South Korea, or can you find some of those other plays that you talk about within the AI ecosystem? [00:57:24] Speaker 15: So obviously, in the U.S., we see a lot of tech exposure. But at the same time, we also think that AI exposure can now be had across the board, whether it's in equities, even in fixed income. Many of the hyperscalers have become issuers, and we also see infrastructure as one of the data centers as also the beneficiaries. But at the same time, we also want to highlight the risks of overexposure to the AI trade, because now it's harder to siphon off where it actually exists, because it's all across the board, both in equities, fixed income, and also in the private markets. So one of the themes that we have highlighted today is really the whole portfolio approach and how our investors need to now look through not just the obvious, right, my country exposure, my sector exposure, but actually look through to the underlying drivers of return for each of these asset classes and each of these investments. And I think the work is going to be a lot deeper, but also more balanced in terms of where exposures are. And so the Korean and Taiwanese and Japanese and Chinese ecosystem is still very much a part of your portfolio, but it's a question of calibrating that risk. [00:58:40] Sherian: Do you calibrate more towards markets like Japan, where we have a broader composition of different types of industries, and how much risk does continuing to weaken Japanese yen and perhaps normalization of VOJ policy also pose? [00:59:00] Speaker 15: Yeah, so I think there's twofold. There is the country exposure and then there's the sector and then company level exposure. Obviously, in Japan, we get exposure to a broader ecosystem, including capital equipment, and that perhaps has a longer sort of order book, and we can see a bit more visibility there. However, as you mentioned, I think the risk now, of course, is also on the inflation front, and the VOJ has signaled very clearly in terms of their commitment to fight inflation. But so we don't see it as a country decision. It's really going down also to the single securities and the actual exposures all across Asia, including China, which is a market that we remain very positive on, even considering the fact that it's underperformed this year. But we do think that there's a lot of drivers underlying in terms of the industry shifts and also the fact that, you know, China now provides us exposure to not just the upstream, but also to physical AI and other aspects of the AI ecosystem. So I think it's really taking a broader approach that's going to stand us in terms of investment in the AI ecosystem. [01:00:15] Sherian: When it comes to China, aside from the AI trades, can you find some good calls in other sectors that are more exposed to the domestic demand picture in that country? Because for the longest time, we've been worried about the fundamental strength of that economy. [01:00:33] Speaker 15: Yeah, so I think China is really two aspects. There is the export market, which has been actually very strong year to date. The domestic economy, of course, we still will have to work off consumption in terms of domestic consumption. And there, the potential catalyst, perhaps not in the short run, but is the normalization of the property market. And as we find a flaw there, I think there will be some sort of reprieve, if you like, for the consumer. And therefore, with household wealth building up, I think that is another potential catalyst. Now, that may not happen in the short run, but that's not to say that, you know, it's already kind of evolving. In terms of technologies, I think there are a lot of new technologies and new innovations, not just in semiconductors or AI, but also in health care, in renewables. And I think if you look at the broader ecosystem for renewable energy, that's going to be also a very important driver of the CapEx cycle. And global CapEx in AI does benefit China to the extent that it is a producer of many sort of components as well as commodities that are involved in the AI sort of driven CapEx cycle. So I do think that we need to take a slightly longer approach, a longer-term approach, given that the AI CapEx cycle is going to take years and not quarters. And therefore, you know, that massive investments could be funded somewhere. The massive investment is going to benefit some exporters. And so that's really a longer-term view. [01:02:08] Sherian: Jin Chao, really good to get your insights. Thank you for your time. Global CIO at the Bank of Singapore. Here in Japan, we continue to watch one company. That's Mitsubishi UFJ Financial Group becoming the most valuable company here in the country. The first time a bank has held that position. Shares hit a record high on Monday with a market cap of $259 billion, topping Toyota's $252 billion. Japanese bank shares have climbed since the BOG ended its negative interest rate policy in March 2024, letting them charge more for loans. So we had the Topics Bank Index trading at around the 1996 high. We're talking about this index rounding more than 40 percent already this year. Not surprising, given that yields have been at multi-decade highs. In today's session, we're seeing a little bit of a rebound when it comes to JGB. So we're seeing a little bit of downside pressures, but continue to watch the financial sector in the country. This is Bloomberg. [01:03:27] Speaker 16: President Trump responding to a question from Bloomberg's Jeff Mason as the U.S. launches a third straight night of attacks on Iran. [01:03:56] Sherian: It also reimposes blockades on the Strait of Hormuz and threatening its own toll on shipping in the waterways. So really not surprising right now, breaking on the terminal, Brent crude prices topping that $85 a barrel level. Of course, we had seen these levels during the attacks on Iran when the war was ongoing. We had seen that war premium falling as we got that ceasefire, a decline of 30 percent in oil prices last quarter. We're seeing a little bit more upside these days, especially with the gains of, what, about 10 percent or so for Brent just in the previous session as well. But let's discuss the risks around the Iran war and bring in Bloomberg editor John Herskovitz, who has more on this. Because the Strait of Hormuz, we really still have no clarity. Both sides were saying Trump was saying it's open. Iran was saying it's closed. And now we're seeing this 20 percent fee. [01:04:53] Speaker 17: Yeah, it's a lot of confusion in the market. There's been two major escalations. One is the U.S. reimposed its naval blockade on Iran, which commits the U.S. Navy to a lot of patrols. It also opens the door for Iran to increase its attacks on shipping and regional partners. And then there's this 20 percent fee that Trump floated. This is a really and we had a Bloomberg economics saying that markets aren't taking this literally but seriously. And with Brent going above 85, that's a really good indication. Just as a marker, after the MOU was signed in June, Brent pretty much was below 80 and traded at about that. So now we're well above where we were before the MOU was signed. [01:05:37] Sherian: Because really that fee is a big deal in terms of setting precedent for what was supposed to be freedom of navigation before the war. [01:05:45] Speaker 17: Exactly. I mean, it's the U.S. policy is for freedom of navigation. International maritime law is for these choke points to go toll free. And also, if this actually does get imposed, it increases the fees on shippers. I think it's about 32 million for a fully loaded oil cargo. It's something that's going to increase prices for energy. It'll anger U.S. allies. It'll anger U.S. adversaries. And we have a little bit of trolling from Iran as well, saying that the foreign minister said that Iran is the guardian of the Strait of Hormuz and they would offer a better deal than what Trump is offering. [01:06:25] Sherian: When we had no fees whatsoever before the war, John Horskowitz, Bloomberg East Asia government editor with all of these risks around the Strait of Hormuz. Averill, of course, really not surprising that we continue to see oil fluctuations with now Brent above $85. [01:06:42] April Hong: Yeah, and this is already following on from a day ago, its biggest climb since May 2020 on the Brent contract. Let's bring in Stephen Stavshinsky, who leads our Asia energy coverage for more on this. So, Stephen, I mean, when I look at the surge that we've been seeing in the past day and how it was the most since May 2020, that seems to me like an oil market that was a bit complacent. I mean, what's your read on this? [01:07:07] Speaker 18: I mean, I think that's a good point. I think there was a big expectation that this peace deal would continue, that the Strait of Hormuz would be opening from here. Clearly, that's not the case. Now we have Iran continuously attacking ships. Last week attacked an LNG tanker in the last 24 hours, hit two UAE ships as well. So freedom of navigation through Hormuz is very much a conflict between the U.S. and Iran, U.S. reimposing their blockades. So it is becoming an issue. There are fears. But I think at the same time, over the last three months, we've noticed that the region has done a very good job at finding alternatives and getting oil out of the Persian Gulf in ways that maybe before this war began, even in February, we weren't sure if they would be able to do. You have the east-west pipeline for Saudi Arabia, so they can pump seven million barrels per day that way through the Red Sea, through the Bab al-Mandab Strait, and get it to Asian customers. At the same time, while there were two ships that were hit by the UAE, they have been very good at using a shuttling service to get some oil out as well. And at the same time, the market has been able to digest this shock. And you've seen Chinese oil demand, or at least imports, fall, depending more on their inventories. So we are in this sort of situation where, yeah, $85 Brent is higher than we were last week, but we're still not at the highs of March, where we're at over $110 per barrel. And I think the big question is, will we continue on that march to that level? And at the current situation, I think the big thing is, does this spiral into a wider conflict? Because if this remains just the Strait of Hormuz, there is a chance it can be unwound if Trump or Iran make a deal. Suddenly, everything goes away. You could see kind of that traffic increase again. If this is a wider conflict where Iran starts to target oil infrastructure, offshore platforms, LNG plants, refineries, then you start to get to a situation where it's more than just waiting for Hormuz to open up. It means that some of these facilities could take weeks, months, years to repair, depending on the damage. And then that has a larger impact on the oil market. [01:09:12] April Hong: What about, I mean, I take a point, but when it comes to how shipping or traffic to the Strait, given this latest flare-up, it's now slowed to, what, sort of trickle? [01:09:23] Jeff Mason: Yeah. [01:09:24] April Hong: The idea that the second time a shock comes around, you know, the markets or even countries that have pivoted, are adjusted, might be a bit, you know, on the back foot in dealing with the next energy shock. [01:09:34] Speaker 18: I mean, certainly, I think one thing, as you mentioned, being on the back foot, when this began in February, we had much larger reserves in SPRs, the Strategic Petroleum Reserves. There was much more of a cushion of oil on the market. There was floating storage. And there were ways to kind of deal with that first shock. Yeah, depending on how long this lasts, if this does last weeks or months of a closure, again, certainly there are less, I like to call them levers, that the market can pull. And that becomes quite a big problem. So, sure, certainly there could be prices increasing. But I think at the moment, there is still an expectation that we're not going to get to the worst that we saw in March and April, and that perhaps there will be some sort of way between these sides to make a deal. Not to be seen yet, and there are a lot of uncertainties, but, you know, with Brent at $85, we're certainly not in the danger zone we were months ago. [01:10:27] April Hong: Fair point. Stephen, always great to chat. Thank you, Stephen Stavczynski, who leads our Asia energy coverage. We have more ahead on the Asia trade. This is Bloomberg. [01:10:48] Sherian: These are some of the stories that we're following at the moment. South Carolina's governor has appointed the sister of the late U.S. Senator Lindsey Graham to serve out the remainder of his term through January. Her appointment comes as Republicans prepare for an August primary to choose the party's candidate for a full six-year term. A U.S. ICE agent has fatally shot a person during an operation in the state of Maine. Authorities say the individual was attempting to flee in a vehicle that was moving toward the officer when the shooting happened. The agent has been placed on administrative leave under standard protocol, while officials have not released the identity of the person killed. S&P Global Ratings has affirmed the Indonesia's BBB rating with a stable outlook, diverging from Moody's and Fitch, which recently lowered their outlooks over governance concerns. The rating comes as President Prabowo Subianto seeks to reassure investors following a bond market sell-off in June. We have more ahead on the Asia trade. This is Bloomberg. We're seeing risk assets under pressure in today's session, perhaps not surprising given that we're still digesting the latest conflict between the U.S. and Iran that has sent energy prices higher. We're talking about Brent crude now surpassing that $85 to barrel level. So we're seeing the ASX 200 down four-tenths of one percent, but the energy sector leading the gain. So we have a little bit of divergence when it comes to today's trading. We're seeing that in the KOSPI, in the Nikkei, a lot of volatility in the KOSPI. We're talking about two percent moves within the first 15 minutes of opening. Not surprising, again, because we had the Philadelphia Semiconductor Index in the overnight session losing more than five percent. SK Hynix ADRs losing more than nine percent. The KOSPI, in fact, seeing another trading halt in yesterday's session. So we'll continue to watch the volatility there. As we're seeing, the Nikkei also being led lower by eight-tenths of one percent. Banks were doing pretty well because of the BOG normalization policy. JGB yields higher. But in today's session, the Topics Banks Index, it's flat at the moment. As we're seeing, really, JGB is not doing much, Averill. But that whole idea of higher yields, multi-year higher yields here in Japan continuing. [01:13:17] April Hong: Yeah, and those worries, as some of our colleagues have highlighted earlier, given the slide and the yen, right, that seems to be a challenging backdrop for Japanese stocks. But to your point about how we've been seeing on the tech trade momentum and with these chip stocks, you know, on the back foot, we are seeing this week. Indeed, I think in the past week, there have been a bit of signs of rotation into what you're seeing in Chinese Internet names. To some extent, futures are pointing to perhaps a bit more softness at the start of trade. It will be interesting to see because also, given the backdrop, that Taiwan seems to have been holding up a bit better than South Korea, though Thai X futures are pointing to a down day. Bloomberg's Asia Equities reporter, Winnie Su, joins us with a preview of the market open in China. So, Winnie, we did see some signs that maybe investors were rotating into Chinese equities. How much of this is rotation? How much of this is fundamentals actually improving? [01:14:18] Speaker 13: Yeah, Averill, a big part of it, I have to say, is actually on this rotation trade. And in fact, yesterday, when we spoke to the likes of Texas and also East Spring, that's what they've been telling us, that they are selling some of these Korean equities, especially after how much it has run up. And buying further into the Chinese Internet names, which have been underperforming a lot so far this year. So, that is happening. But when you look at the fundamental side of things, actually, valuation remains very cheap. So, some value-seeking over there. But also when it comes to earnings, when you look at how investors reacted last week to the preliminary earnings from Alibaba, that was also quite positive. So, potentially seeing a bit more stabilization there. So, yesterday, when I actually talked to Nomura Asset Management, the fund manager there told me that they are actually doing this rotation as well, because they see a bit more catch-up when it comes to Chinese Internet names, while South Korean stocks would need further catalysts for this rally to run up further. So, that is kind of the dynamics that we're seeing there. [01:15:30] April Hong: So, they're rotating out of Korea. They're maybe going a bit into this Chinese Internet stocks. Where else are they going? [01:15:39] Speaker 13: Yeah, so, obviously, when it comes to the underperformers, we are seeing China and also India is another interesting area that investors are looking into. Now, when it comes to elsewhere, we just talked about how Japan's MUFG has become the most valuable company in Japan right now, overtaking Toyota. So, you can see there's a lot of interest in Japanese banks as well, given where the bond yields are trading right now. But another interesting opportunity I really like to flag, which I've been looking into for a while, is actually Thailand. Interestingly, it is one of the top performers globally so far this year, up about 30% or so. And it's one of the only Southeast Asian countries seeing inflows so far this year. And that's been driven by actually it has some exposure in the AI supply chain, but also political stability as well as the economic outlook. So, you can see that investors are really trying to diversify whether it's within tech, where we see Chinese Internet names getting more attention, as well as Chinese hardware names, and even Taiwanese names outperforming that of South Korea, but also these non-tech names providing more value for investors as well. [01:16:59] Sherian: And, of course, one Taiwanese company that we can take our eyes off is TSMC, now reporting a 36% jump in quarterly sales, meeting elevated expectations. According to Bloomberg calculations, revenue for the June quarter came in at $39.6 billion, matching the average analyst estimate. For more, Bloomberg Intelligence Senior Industry Analyst Steven Seng joins us now. And, Steve, I mean, we saw the overnight sell-off when it came to anything to do with semis, and yet when it comes to the global AI demand, are we seeing that reflected on TSMC's strength? [01:17:36] Speaker 19: Yes, obviously, the company continues to report a very solid result, and the major demand, obviously, is from AI. For TSMC, most of the AI demands they actually are relying on is a three- and five-nanometer process, which are actually highly efficient for them. So those businesses not just supporting the revenue growth, but also supporting the margin. So we should look forward to a pretty strong earnings in the coming result call. [01:18:09] Sherian: The full quarterly results out on Thursday. So tell us a little bit more about what you will be focusing on then. [01:18:17] Speaker 19: I think because now the management's previous revenue guidance is about 30% growth this year, but given what's happening in the first half, I assume the investor will look forward to the management's adjustment of that guidance. So it's possible that they may expect a higher growth for the year. So that's one thing. The other thing related to that is probably CAPEX. The company's guidance is $52 to $56 billion U.S. dollars for the year. It may not necessarily raise that range much higher, but it's possible that they provide a narrower range toward the higher bound of that guidance. So those are something we look forward to. [01:19:05] Sherian: And, of course, these days when it comes to the AI trade, it is very closely intertwined with geopolitics and security. Can we expect to hear a little bit more about that from executives? [01:19:17] Speaker 19: I think the executive of TSNC traditionally they're very tight-lipped on such matter in the public event. But obviously, given what they're doing, they've been spending pretty proactively in Arizona, and they will continue to build the most advanced process there in the coming years. So, obviously, they have been addressing the geopolitics issue pretty proactively. So I think they will continue to do that. [01:19:46] Sherian: I mean, how is TSMC also seeing the competition landscape right now, especially given that we are continuing to hear more about these memory makers in China, potentially Apple looking at alternatives at a time when expectations are so high for the sector? [01:20:04] Speaker 19: Yes. Obviously, the memory sector's dynamic is somewhat different from the foundry. The foundry sector, TSMC still have the leading position. At the moment, I think the capacity is very, very tight. So a lot of the competitors are actually taking the advantage simply because TSMC cannot fulfill all the demand. So I think given the situation, the customer will continue to look for second source. But I don't think that actually hurt the company's competitiveness, at least for the next two, three years. [01:20:44] Sherian: Steven Seng, good to have you with us. Bloomberg Intelligence Senior Industry Analyst on the latest from TSMC, as we're going to be watching those full results this Thursday. Now, China's efforts to offset a sluggish domestic market with overseas growth has become a major source of tension with trading partners. Bloomberg Opinion columnist Juliana Liu says the surge of Chinese EV sales in Europe is an example of a problem that will be difficult to solve. She joins us now with more than we continue to see, of course, a trade tensions between these two giants. Why is it so tough for the Chinese EV sector to consolidate? [01:21:20] Speaker 20: Hey there, Sherry. That's right. It's incredibly difficult for that industry to consolidate, and it should consolidate, because we know that overcapacity is a big issue. Overcapacity is happening to the tune of about 50 percent. So we know this is the problem. But what I'm arguing is that it's incredibly difficult for the sector to shrink, and it's actually important to look backwards to figure out why. So according to a study that was published this month in the China Journal, these researchers looked at the history of how the EV sector in China evolved and what they found is that Beijing essentially didn't mean to incubate so many carmakers. There were more than 140 of them actively active in the market last year. But what they did was that China actually designated less than 10 state owned enterprises to be making cars, and these companies got the lion's share of subsidies, state support, joint venture partners, what have you. But what happened was regional governments who were kind of locked out of this whole process decided, well, we want car companies, too. And what they did was they ended up partnering with privately owned companies, they put in their investments, they support these companies, incubating these companies. And these are now the biggest car makers that we really know today, the likes of Cherry, Geely and BYD. And so because essentially this process was very organic, you know, there's still a lot of pressure on local governments to incubate more companies. And so I think that is why, you know, if we look backwards, we can see that it's very difficult for this industry to shrink. [01:23:09] Sherian: Yeah. And you mentioned Cherry, of course, the largest exporter at this point. Could we continue to see the shipments given just the domestic pressures at this point? [01:23:18] Speaker 20: Oh, absolutely, Cherry. So exports were up 65 percent in the first six months of the year. The Iran war has provided a lot of impetus for this. Lots of growth in places like Southeast Asia and other regions of the world. And we are expecting this to continue because, frankly, this is the lifeline for these listed companies. And they are enormous listed companies now with shareholders all over the world. And we know that the home market is shrinking, expecting that to shrink 10 percent this year. So exports is really what's keeping these companies growing. It's a pillar of their finances. They're doing it well and they will continue. [01:23:58] Sherian: If there are no quick fixes at this point, then what does it really mean for the relationship between Beijing and its trading partners? [01:24:06] Speaker 20: Yeah. So I think this will continue to be a problem. As we know, China and the EU are in consultation, essentially. They've given each other until October to make some progress on how to bring down the trade deficit. I mean, the trade deficit in the EU is about a billion, more than a billion US dollars a day now. Very, very serious problem for the region and also for its industrial base. We have the likes of VW talking about the future. What are we going to do? Are we going to have to, you know, cut another 100,000 jobs? These are all question marks. And a big reason for this is this relentless flood of exports from China, which I think, you know, will be very, very challenging to tackle. [01:24:52] Sherian: Bloomberg Opinion columnist Juliana Liu there with the latest on the EV market in China. And you can get more on the biggest and most exciting stories in tech on the Bloomberg Video Hub. But you can also check out past episodes of Bloomberg Tech Asia and other shows on Bloomberg.com/videos. [01:25:10] April Hong: Some other corporate stories we're tracking. Bloomberg has learned that Xi'an is targeting a Hong Kong listing as soon as August after securing long-awaited approval from China's securities regulator. Sources tell us the fast fashion retailer could raise between two to three billion dollars in the IPO, marking its latest attempt to go public after failed listing efforts in the US and London. The offering comes as Xi'an faces pressure from slowing business growth amid rising competition. Bloomberg has learned that a group of US states is poised to sue to block Paramount Skydance's $110 billion acquisition of Warner Bros. Discovery. That's despite the deal already securing approval from the Justice Department. Opponents argue the merger could reduce competition in Hollywood by combining major film studios and streaming platforms. We have more ahead on the Asia trade. This is Bloomberg. [01:26:09] Speaker ?: We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. 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[01:28:17] April Hong: And we have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. [01:28:26] Speaker ?: We have more on the Asia trade. We have more on the Asia trade. [01:28:28] Speaker 21: We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. We have more on the Asia trade. 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[01:31:38] April Hong: So for the moment, it looks like for the AI industry, the private sector is taking the lead. What do you think can be done to perhaps spur more investments by the government in this? And I guess not just for the development of the sector, but also to share the profits of this AI boom, so to speak. [01:32:01] Speaker 21: Well, I think it's quite easy how you share the profits. We have this thing called taxation. And perhaps we need to apply some of that more forcibly to the tech giants who pay very low rates of tax compared to traditional players. In terms of seeing the opportunities, I think the biggest problem we have at the moment is the public's distrust, the public's concern about artificial intelligence, that AI is happening to them, that they have very little agency. We've seen the public's attitude in Ipsos survey recently in the United States put AI to a favorability rating of minus 18%. That was less favorable than ICE. The immigration service is minus 12 and Trump at minus 8. The only thing less popular than AI was Iran, who they're at war with. So we are facing a significant challenge where the public's attitude towards AI, for example, their attitude towards the AI data centers that are being built, turning very negative. And that's going to hold back countries looking to seize the benefits of artificial intelligence. [01:33:04] April Hong: Turning into a sort of social issue. Toby, it's great to chat. Thank you so much for taking the time. Toby Walsh is professor of AI at the University of New South Wales. We have more on Australia ahead every Tuesday at 10:40 a.m. If you're watching in Sydney, 8:40 in Hong Kong. More ahead on the Asia trade. This is Bloomberg. [01:33:35] Sherian: We're seeing a little bit of a rebound on the Japanese yen as well as JGBs after we heard from Finance Minister Katayama talking about how the government pension investment portfolio could be adjusted if needed. Remember, there was a little bit of skepticism after the government called for more domestic investment, especially coming from media reports that Japan has actually no plans to overhaul the government pension fund. Well, the finance minister is now coming out saying that GPIF assesses the investment environment. She's also talking about not remarking on possible fund sales of foreign assets. Remember, this was also part of that great repatriation trade. I mean, if the government pension fund of Japan, the world's largest pension fund, starts selling foreign assets and repatriates funds, what sort of downside pressure could that put on treasuries, on foreign assets? We still know at this point that any formal change still requires the pension fund's five-year review process. So we're still watching further developments on this point. [01:34:35] April Hong: Yeah, Sherry, to your point about what this means for treasuries, take a look as well at the pressure that has been coming for bonds overall. I mean, you look at how New Zealand, right, for the five-year, you're looking at the yield spiking 10 basis points today, to the point about how there is a lot of consternation in the markets as oil prices are around 85. [01:35:02] Speaker ?: We'll see you next time.