US, Iran To Halt Attacks; Korea Looks to Cement AI Lead — The Asia Trade 6/29/2026

[00:00:00] Sherryan: This is the Asia Trade. I'm Sherryan in Tokyo. The top stories this hour. Oil prices paring opening gains on the report. The U.S. and Iran have agreed to halt attacks before resuming peace talks this week. This is after days of strikes threatened a fragile truce. A cautious open ahead for Asian stocks following Friday's sharp sell-off in U.S. tech. Central banks in focus too ahead of Thursday's U.S. jobs report. And South Korea to announce what he calls three mega cap projects as President Lee Jae-myung meets with Samsung and SK Hynix. And this is how we're setting up for another brand new week here across Asia. This of course after a wild ride the last few days. Especially in South Korea where we have the KOSPI topping 9,000 at one point on Monday just to plunge, recover, and then sell off again on Friday. Take a look at how we're setting up with U.S. futures. Pointing up to a little bit of upside. This is of course after a lot of volatility already in that rotation out of tech that we saw last week. We went into defensives like health care for example that gained ground in the U.S. session. A lot to do not only with that skepticism around the idea of whether the AI investments will actually pay off but also perhaps a concern about a more hawkish tilt at the Federal Reserve. And you can see Nikkei futures pointing to a little bit of upside. Of course we are also seeing the Japanese yen holding at that 161 level very close to 1986 lows against the U.S. dollar. We're also watching the Aussie dollar because we had seen the longest losing streak since January of last year. A lot to do with the price of oil. Right. Take a look at how it's trading. Because we saw the jump in oil prices at the start of the Asian session. This of course as we had the renewal of facilities around the straight of Hormuz. We have now seen a second tanker just last week being struck in the straight. We'll continue to hear for more developments this as we try to understand what's happening around the negotiations. The U.S. and Iran have reportedly agreed to stop attacking each other before peace talks resume this week. The development reported by Axial signals de-escalation after several days of tit-for-tat strikes tested a fragile truce. Bloomberg senior editor Wendy Benjaminson joins us now from Washington. Wendy, what do we know at this point about how these negotiations are progressing? [00:02:37] Wendy Benjaminson: Well, they certainly took a step backwards starting Thursday when Iran hit some ships and hit Bahrain. And Bahrain, of course, is where the U.S. Navy's Fifth Fleet is headquartered. And so that's a provocative attack. And then the U.S. hit back. And there was a lot of these small strikes going back and forth. But as you said, Cheri, they are going to resume this week. However, the focus has changed because the Strait of Hormuz is so critical to restoring, you know, pre-war prices, pre-war flows of oil and gas, things like that, that the focus on the talks is not going to be technical talks about Iran's nuclear ambitions, but instead talks about the Strait of Hormuz. They have also moved those talks to Doha, Qatar. Not exactly sure what day those are going to start, but it should be early this week. [00:03:37] Sherryan: Wendy, we have heard from the Iranian Foreign Minister Arachi saying that Iran is solely responsible for restoring traffic in the Strait of Hormuz at a time when we've already seen them charge tolls. What's the likelihood that we might get to a compromise where nobody's charging any service chargers or tolls around that waterway? [00:03:58] Wendy Benjaminson: Well, that's certainly the aim. And it is also the aim for ships to be doing exactly what they did before the war started, which is transit the Strait safely and quickly and get the oil to their customers where they need it to be. And the, of course, Donald Trump has also said that only he decides who goes through the Strait. So I'm that's probably what's going to be on the table for talks. The U.S. has said and our Western allies have also said that any tolls on the Strait is is a no go. That that's just that's not going to be anything that they could accept, because remember, before the war, this was never an issue. And so but what Iran has learned in this war is that it has tremendous leverage over the rest of the world by closing the Strait. And it is certainly in their interest to make some money off of that. So that's what these talks will really have to focus on is how to restore things back to normal. [00:04:59] Sherryan: Are at least the two signs aligned on other points? You mentioned earlier the nuclear talks, but of course, we do have concerns around Hezbollah in Lebanon, not to mention, of course, other issues around the Iranian frozen funds. [00:05:14] Wendy Benjaminson: Absolutely. Yes, the frozen assets are still a point of contention. They want to talk about when they would get that money back. Remember, this is Iranian money that was sent to the U.S. before this revolution in 1979 that has been sitting here waiting to go back. They got some of it back in the Obama deal. But then when Trump tore up that deal, when he was first president, they never got the rest of their money. There's also this talk of a $300 billion reconstruction fund, which is in the interim deal that hasn't been worked out. Trump insists no U.S. money will go to that, but we're not sure then where the money is actually coming from. It might be from allies in the Gulf, but they haven't agreed to this. And then, as you also correctly mentioned, there's Israel and Hezbollah. They are having their own war. They were not party to this interim deal. Israel wasn't at the table. Hezbollah wasn't at the table. So Israel and the government of Lebanon, where Hezbollah is based, have agreed not to fire at each other. The trouble is Hezbollah doesn't agree to that. And Iran says that if Israel continues to strike Hezbollah, the whole thing is off. So they're going to have a busy week, Sherry. [00:06:32] Sherryan: Yeah, Bloomberg senior editor Wendy Benjaminson, as Wendy mentioned, of course, a busy time for the Trump administration that's also trying to move to unwind decades of sanctions on Tehran as part of their deal. The pace and scale of the effort is creating a complex situation for governments, banks and other companies. Our U.S. Treasury reporter, Daniel Flatley, joins us on the line from Washington. Dan, I mean, this is decades of sanctions. And it was how much of it was stated already in the MOU. And what can feasibly be done at this point? [00:07:08] Speaker 3: Yeah, it's a great question. And as you as you say, you know, these are some of the first sanctions that were put on Iran were put on in 1979 following the revolution there. And over the years, there's just been successive waves from administration after administration. Congress has gotten involved. There's a very tight web of both statutory and executive-based sanctions on Iran that cannot be undone at the drop of a hat. In fact, they're designed not to be undone that way. But the administration has put forward that idea in a couple points in the memorandum of understanding. And there are some things that they can do on their own that Trump can do unilaterally as the chief executive. He can certainly waive sanctions for 60 days, as has happened with the general license that Treasury put out last week. But a lot of this, including one of the most important pieces of this, which is that Iran can now accept payment for its oil in U.S. dollars, requires some sort of U.S. touchpoint. So some U.S. or U.S.-linked bank has to play a correspondent role in allowing Iran to conduct transactions in that way. And that is something that a lot of banks are very reticent to do because they don't know where this is ultimately going to land. And they don't want to be left holding the bag if Congress or another administration or somebody else comes looking to see what their involvement was if things go south. [00:08:41] Sherryan: Yeah, I mean, we have already seen some progress with the U.S. already authorizing the sale of uranium oil and fuels. But when it comes to the sanctions themselves, take us through what's happened in the past. How effective have they been? And if they were lifted, what difference would that make to the Iranian economy? [00:09:01] Speaker 3: I think it would be a huge difference to the Iranian economy. You know, the administration, not just the Trump administration, but the Biden administration before it, the Trump first administration, previous administrations have all touted the fact that U.S. sanctions have really helped to cripple the Iranian economy. And so lifting those sanctions, either in part or in full, would obviously make a big difference to the economy, particularly when it comes to oil sales, because that's how Iran generates the majority of its revenue, certainly for the government. On the other hand, to actually undo this would take, in some cases, potentially an act of Congress. One of the things that we looked at in our story is some of the legislative sanctions that have been put in place over the years, including a requirement that all U.S. companies listed on U.S. exchanges have to report any business with or touching on Iran to the SEC. And so this is just sort of an indication that if things change, which is entirely possible, that Congress will come looking for banks or companies that have done business with or touching Iran and have some questions. So, you know, that's one point of contention. There are many others. And one of the things that, of course, we're all watching is what happens with the ceasefire. [00:10:24] Sherryan: Bloomberg U.S. Treasury reporter Daniel Flatley there. And not surprising, Asian investors set for a cautious start to the week. They're assessing the developments in the Middle East and Friday's sharp sell-off that we saw when it comes to tech stocks in the U.S. as well. Let's get more on the setup with markets reporter Anthony Stephens. Plenty for investors to digest this week. So what will be the key flashpoints for markets, especially on this Monday? [00:10:52] Speaker 4: Yeah, so this early move in oil, you see, is less than a one sigma move in oil. And this compression in volatility around oil speaks to how quickly the U.S. and Iran seem to go back to the negotiating table. So that seems to be the primary dynamic in play here around oil. U.S. inflation expectations have been drifting over the course of the last two months. And with an 80 basis point rise in oil on this latest uptick in violence, it probably is not an incremental concern to the market here. But at these levels where oil has a lot of negativity priced, you are seeing some inflows into the U.S. oil ETFs. They saw around $300 million worth of buying last week. So, you know, people are kind of hedging their bets here a little bit on oil. Moving to the wider markets, the tech rotation in U.S. equities was really noteworthy. It was the biggest rotation in U.S. tech equities pretty much since the data was out there. So you saw a huge rotation into U.S. software and out of chip makers. Now, that is obviously mirrored in Asia on Friday. We had a, you know, vicious downdraft in Asia. And people will be very nervous coming into today looking at those Korean policy announcements this morning to determine the future of the tech trade as far as semiconductors go in Asia. On the software side, you'd probably have some relief in India, but that remains to be seen today. [00:12:13] Sherryan: Yeah, let's talk a little bit more about South Korea and just North Asian markets where we're seeing a lot of flows around the chip narrative because we are expecting these big announcements in a market where we have seen immense volatility, right? Just a wild rollercoaster ride that we saw in the KOSPI last week reflecting what's happening. What will you try to take away from these industrial policy announcements that we're trying to get from the presidential office today? [00:12:42] Speaker 4: Yeah, what the market is concerned about is the balance of whether these investments are for business reasons, i.e. to increase production into what is a very tight memory market where they enjoy huge margins, or how much of that spending is actually social spending to broaden out the gains from the chip rally into the broader South Korean economy. That balance will be very interesting to markets. On the second hand, we also continue to watch developments in the memory space. You saw Apple going to Chinese suppliers, asking them for memory. So the memory shortage and how it plays out and how much it benefits Korea is another aspect of this trade that people have on. Now, as you alluded to, the volatility around this trade is so high. So, for example, in Korea, you have volatility trading at a 90 handle, and Taiwan is starting to catch up with Korea on volatility. In both markets, it's very important to note that domestic retail and domestic institutions are very long. So they are very exposed to any downdraft here. [00:13:43] Sherryan: Yeah, interesting. We have seen retail investors in South Korea snap up those shares, while foreign investors have been dumping some of those Korean stocks. Anthony Stevens, great to get your outlook. Bloomberg Markets reporter there. And still to come, of course, we do have a big week ahead for the global economy, monetary policy as well. Key data, including the U.S. jobs report, is on tap. Central banks also in the spotlight at a major gathering in Portugal. Westpac joining us next with the Outlook. This is Bloomberg. Global central banks are taking the spotlight as the ECB's annual symposium kicks off in Sintra, Portugal today. Fed chair Kevin Walsh is set to speak on Wednesday in his debut overseas appearance since taking office. Meanwhile, China's commerce minister is visiting Brussels for trade talks with EU officials. China releases manufacturing PMI data on Tuesday with the official gauge expected to edge back into expansion. Midweek, attention shifts to Japan's Tancan survey and the India-Japan summit in New Delhi. And on Thursday, the U.S. June jobs report takes center stage with economists expecting the best six-month stretch for hiring in almost two years. Let's discuss all of this eco-data coming up. Joining us now is Ileana Jain, international economist at Westpac. Ileana, great to have you with us. When it comes to what's happening in the U.S., good, solid numbers expected in the economic front. Of course, we were already potentially factoring in a more hawkish Fed at a time when we're seeing these tensions boil up again in Iran that could lead to higher oil prices. How does this set us up for the inflationary outlook there? [00:15:37] Speaker 5: Yes, certainly. And so we are expecting that there is still some upside risk to inflation in the U.S. You're right in that dissipating oil prices will help put downside pressure onto the overall inflation outlook. But it's important to note that services inflation in the U.S. has been pretty strong. And that's come from a lot of domestically driven pressures there. And part of it has got to do with supply capacity. Over the last couple of years, we've seen that investments picked up quite significantly. But a lot of that's gone towards AI. So that capital investment has still been quite weak. That lack of capital investment has meant that the capacity in the economy hasn't perhaps grown as much as it should have. And that'll keep inflation risks pretty high. So overall, we are expecting that inflation remains elevated through the course of this year and into next, with the FOMC likely to remain on hold during this time as well. [00:16:36] Sherryan: You don't expect the FOMC to hike rates in order to curb inflation at this point. And why is that? What are the weak parts of the economy there? [00:16:46] Speaker 5: Sure. We do think that there is a little bit of weakness around the domestic demand front. While we have seen inflation coming quite strong, the labour market doesn't seem like it's weakening substantially. We are seeing risks on the household front when it comes to real wages. Real wage growth has been quite weak. And that's going to result in a bit of an income squeeze for households. Now, households have been quite resilient over the last couple of years. But there's only so far that resilience is likely to go. So we think those weaker real wage figures are really going to constrain households on how much they can spend. [00:17:25] Sherryan: We're seeing a similar picture across Japan, across South Korea as well, where the economy of both nations seem to be doing pretty strong when it comes to headline numbers. But households don't necessarily feel that rich. What are some of the risks that Asia faces as we're seeing a potentially more hawkish Fed on the other side? [00:17:45] Speaker 5: Yes, certainly. I think one of the key risks for Asia stems at home. It's that concentration in the tech sector. So like you said, places like Japan, Korea and Taiwan have been doing quite well because they're very much involved in that global tech build-out as a supplier of semiconductors and other electronics. But the rest of the economy, if you take those parts out, isn't doing as well. We've seen that employment growth since 2019 has been incredibly strong in the tech sector in Korea. But employment growth hasn't really picked up. In fact, there are some sectors that have been weaker than they were in 2019. Overall, it's going to mean that within these countries, there's a little bit of a K-shaped growth, stronger growth in the tech sector, which again, there's a lot of risks there when it comes to the pace of that build-out in the US, but weakness elsewhere. That K-shaped isn't just within country, it's broader countries as well. So we think that there'll be stronger growth in a lot of those countries associated with that tech build-out. But weaker growth in countries like India and the Philippines that aren't directly involved in the build-out of AI infrastructure. And so we're likely to see weaker growth there. And there aren't really big growth drivers there that are going to spur greater investment into those countries. So there is a little bit of greater risk of stagflation in those regions. [00:19:14] Sherryan: Iliana Jane, good to have you with us. International economist at Westpac, we do have more ahead. This is Bloomberg. South Korea is set to unveil what it calls three mega projects on Monday as President Lee Jae-myung meets with executives from Samsung and SK Group. The presidential office now saying the heads of those groups will unveil investment plans. Bloomberg Intelligence senior industry analyst Masahiro Wakasugi joins us with more. We don't necessarily know exactly what they're going to unveil, but they have plenty of capacity to do so. Their business has been going on so well. [00:20:00] Speaker 6: Yeah. And, you know, last week we had Micron earnings and we found that, you know, Micron is seeing a really good, you know, strong demand maybe in 2027. But the company was hinting that even 2028 may be another, you know, they didn't say in a shortage year. But we calculate the supply demand for the conventional DRM and also HBM, but still we think that we have more capacity. We will have to see more capacity expansion from Samsung or SK Hynix. In that sense, I think that they could announce a really big investment for the HBM or maybe, you know, conventional DRM because of the AI inference adoption globally. [00:20:46] Sherryan: Even if you do make those investment announcements, it takes a pretty long time for capacity to come online. [00:20:52] Speaker 6: Yes, that's right. So that's why I guess that the industry consensus is already 2027 is a shortage year. And if, you know, dealer makers really accelerate the capex in this year and the next year, the supply could catch up with the demand in 2028. But because, you know, the demand is so strong that they really have to accelerate the capex. Otherwise, we may see the shortage even in 2028. [00:21:21] Sherryan: Does that mean that, at least for now, their next earnings season should be another strong one? [00:21:26] Speaker 6: Yeah, I think so. Micron reported the really solid earnings last week. And their earnings period was the March, April, May. So there are two months overlap for the second quarter for Samsung and SK Hynix. And Micron reported 85% gross margin. That was really strong. And the operating margin was 80%. So I think that at least SK Hynix could have the similar, you know, earnings, you know, profitability in the second quarter. [00:21:56] Sherryan: Yeah, as we're also headed towards our U.S. listing as well. Big news on that front. Masahiro Wakasugi, really good to have you with us bright and early about those investments announcements to come from South Korea. Right. The latest from the corporate front as well. Anthropic has won U.S. approval to restore some global access to its Mythos 5 AI model for what the Commerce Secretary calls certain trusted partners. Howard Lutnick says the company has made significant progress on resolving concerns about potential national security threats. Ananthropic disabled global access to Mythos 5 and a related model this month on U.S. government orders. Apple is reportedly pressing the White House for approval to purchase memory chips from blacklisted Chinese company CXMT. The report from the Financial Times says that Apple is seeking guarantees that CXMT will not be added to the so-called U.S. entity list, which would impose stiff licensing restrictions. The move comes as Apple grapples to rein in chip costs, which have forced it to raise prices for its products. We have more ahead on the Asia trade. This is Bloomberg. Bloomberg. Take a look at how assets are trading early in the Asia session. We are seeing a little bit of paring back of that initial jump when it comes to oil prices. We're talking about Brent staying at that $72 a barrel level. Of course, we continue to see the hostilities around the Iran war, but we're waiting to hear about those reports that both sides could be holding another set of negotiations in Qatar this week. Nikkei futures pointing to some upside, six cents of one percent. This is as U.S. futures also pointing higher. Of course, we had a big rotation last week when it came to the S&P 500. We're talking about defensive sectors gaining ground, not to mention that the index in itself has rallied about 20 percent from its March low to its June peak. So we have seen a wild ride when it comes to U.S. equities. That's the setup for the Asian session today. Let's discuss all of this with Garfield Reynolds, who leads our Markets Live Asia coverage. Garfield Reynolds, I talked about that rotation in the U.S. session. Of course, also across Asia, as we saw that sell-off in tech. What are you watching this week, especially as we await those investment announcements to come from South Korea? [00:24:44] Speaker 7: Yeah, well, that's going to put the spotlight even more firmly on Hynix and Samsung, which is where, honestly, it was going to be. And I think Asia is particularly vulnerable if this rotation trade is what's going to take place, because you've got a couple of markets, South Korea and Taiwan, that are so phenomenally concentrated around the chip makers, the memory chip makers. Those two that I mentioned, plus TSMC, that's on a memory chip maker, that's a fab, but all those three have been the major drivers and they account for such a large amount of their own markets and even of Asian markets more generally that you're going to see plenty of pain across the region. It even spills over in places like Australia and Malaysia that aren't particularly AI exposed or AI non-exposed, but just the souring of sentiment that you are going to get unless things like these announcements and the way they're sold to investors, unless those can reinvigorate the trade that has been driving South Korean markets higher and higher and taking Asian markets with it. [00:26:01] Sherryan: We also saw a lot of downside when it came to the Treasury space because of the fundamental factoring in of a potential change, hawkish tilt at the Federal Reserve. We saw a little bit of relief with oil prices falling, but what are your expectations of how investors are setting up here? [00:26:21] Speaker 7: Well, on the one hand, investors are looking at the declines in crude and especially they would be relieved to see that although there's been some tensions over the weekend in the Gulf, crude has not climbed substantially this morning. It's still stuck in that range of low 70s for both WTI and Brent, so they can put that on the back burner as far as concern goes, but what matters a lot is both how households are looking at inflation, what their expectations are, and then how central bankers are going to respond to that. And so far there's an overall theme that central bankers are not willing to look at a couple of weeks of lower crude futures and say their job is done. They're anticipating clearly an inflationary impulse coming through from what's happened over the last few months, and I think we'll get some updates on that looking forward this week to the ECB summit in Cintra. Well, it's ECB hosted, but you will get Fed Chairman Walsh speaking, you will get other central bankers speaking. That's going to be a major focus as bond investors look to see how determined the hawkish pivot is and whether it will flip as rapidly as crude prices have. [00:27:48] Sherryan: Bloomberg Garfield Reynolds, who leads our MLive Asia Markets coverage, of course, with his take on the broader markets. But let's really hone in with what's happening with that emerging market bond rally as we get this hawkish Fed potentially slamming the brakes there. Analysts now saying that the key risk has shifted from the oil market to U.S. policy tightening. Let's bring in our EM and macro strategist Marcus Wong. Marcus, has really what's happening at the Fed taken over perhaps the big influence that oil had when it comes to EM bonds? [00:28:22] Speaker 8: Yeah, you know, as one strategist put it, you know, the bait of risk has been passed from the Fed, from the oil prices to the Fed, essentially. And I think, you know, you know, you know, in June 15, you know, we saw the interim peace deal announced. I think there were some people of us who were expecting some stronger rally to come in for bonds. And it wouldn't be surprising because especially bonds in EM, local bonds in Asia, have really been hit by the surge in oil prices. And look where we are right now. You know, oil prices are, you know, sub-$75 as we speak today. You know, but that's it. You know, strategies are now reinforcing the fact that, as you mentioned, the risk has shifted to the Fed instead. If you look, you know, for example, you know, the reaction of average EM yields in the four days after the June 15 interim peace deal agreement, yields fell by about 12 basis points. But if you look at the initial reaction to the ceasefire that was announced in April, yields fell by 23 basis points or so on average. So, basically, the reaction was much larger back then. And, you know, investors are packing to the fact that, you know, that this risk from the Fed is essentially quite real. And another thing to look forward into is that the correlation between five-year U.S. Treasuries and, you know, five-year EM benchmark yields across the board have essentially risen. In Latin America, this 30-day correlation is close to 0.5%, similar to EMEA, essentially. So, what this means is that sensitivity of EM yields to Treasury yields have increased. And if we expect the Fed to be more hawkish moving forward, this will be, of course, this will, of course, weigh on EM local currency bonds. So, you know, as Garth mentioned, you know, looking forward, what we are expecting, what do we expect from Kevin Walsh at Sintra this week? It would be very important if it sends a more hawkish signal, which sends U.S. yields as well as U.S. dollar much higher. This will definitely weigh on the larger EM asset complex as a result. [00:30:12] Sherryan: Mark, as in yet, there are some contrarian views that even if you get a Fed rate hike, that shouldn't have a meaningful impact when it comes to local currency EM bonds. Why? [00:30:25] Speaker 8: Yeah, so, again, this view is not, obviously, these views are, the views on the Fed is not, you know, there's no strong consensus. In the sense, you could say that some people, obviously, who think that, you know, Kevin Walsh sounds hawkish now, but in the end, he might become a dove at the end of the day. Others say that, oh yeah, you know, the markets have priced in a one Fed rate hike this year. I think it was around 35, 32 basis points as of this morning. So, even if the Fed does hike one rate hike this year, still is within expectations in a sense. Others say, point to the fact that the reasons why the Fed hikes is very important. If the Fed hikes because of robust growth, as obviously we have seen in the markets right now in the U.S. economy, this Fed hike isn't exactly bad for EM local currency bonds because EM assets like robust U.S. growth outlook. Last but not least is that others see, you know, the previous rate hikes from EM as providing some sort of defense against U.S. rate hikes. So, we've seen central banks, especially EM emerging Asia, such as the BI, the BSP, having high rates since the start of the event war. So, even if the Fed does hike, you know, the rate differential isn't as big as what it would be. And this will provide some defense for EM local currency bonds as a result. [00:31:39] Sherryan: Emerging markets and macro strategies, Marcus Wong, they're joining us from Singapore. And these are some of the other global headlines that we're following right now. The Saudi press agency is saying a helicopter operated by Saudi Aramco crashed on Sunday, killing all 14 people aboard. The state energy ministry says it happened in the Rasa Noor energy hub and the victims were all Saudi nationals. It didn't give a cause for the crash. Aramco had only just resumed loading crew at terminals in the area for shipments through the Strait of Hormuz. A small plane that crashed into Beijing's tallest skyscraper on Friday has exposed a vulnerability in the Chinese capital's controlled airspace. Officials say it killed a pilot who was flying solo and injured 13 other people. Authorities haven't revealed how airspace security was violated, with swift online censorship suggesting the Communist Party views the incident as sensitive. And coming up, we preview a big week of economic data out of Japan, including the BOJ's latest tank-on survey of business confidence. More with Moody's analytics next. This is Bloomberg. Take a look at how we're setting up for the market opens across Japan. We are seeing still the Japanese yen very close to that 161.95 level. That would be your 1986 low against the U.S. dollars. We continue to price in a potentially more hawkish Fed, that rotation out of tech as well. That rotation out of tech we'll be watching very closely in the Nikkei session. We had a session of losses on Friday with a big sell-off globally here in Japan as well. But futures pointing to a little bit of upside. Keep an eye on JGBs, of course, all to do with spending. We're getting a little bit more details when it comes to Prime Minister Takaichi's spending plans. And, of course, we continue to watch different sectors across the economy, given that carmakers could get a windfall of around $6 billion, according to company forecasts, because of the Japanese yen being this week. Now, when it comes to companies and how they're feeling, the Bank of Japan's tank-on survey will be key. It's going to be out later this week. It will give investors a fresh check on business sentiment. Bloomberg Economics sees large manufacturers holding up, despite the oil shock bolstered by resilient exports and domestic demand. Joining us now is Stefan Angrig, Head of Japan and Frontier Market Economics at Moody's Analytics. Stefan, really good to have you with us. Give us your insight on what to expect from how businesses are feeling here in Japan. Of course, the tank-on survey will be backwards-looking, but there are some forward-looking components as well. [00:34:31] Speaker 9: First of all, thank you so much for having me, Sherry. It's very good to be with you. Our view would be that we expect sentiment to broadly decline across the board. We wouldn't be surprised if the numbers hold up here or there, but generally, our view is that the numbers should take down on account of the various shocks that have hit the Japanese economy. Manufacturers are doing too well at the moment because of the Middle East conflict. The conflict has pushed up commodity prices. It's scrambled supply chains, creating a sort of echo of the kind of disruptions we saw after Russia's invasion of Ukraine. Now, it does look like the conflict is in the process of wrapping up, but the tank-on survey is conducted through the entirety of June, so it's very likely that that will still have bled into the numbers. More fundamentally, it does look like corporates across Japan are increasingly taking the view that geopolitical conflict, disruptions to trade, those sort of things are here to stay, and those will weigh on the numbers, particularly for small and mid-sized firms would be our guess. All of this is also going to impact the non-manufacturing side of the economy. So here I'm thinking services, providers, higher energy costs, of course, raise costs across the entire economy, and they also make travel to Japan more expensive. And indeed, we've seen visitor arrivals flatline a little bit through the last couple of months. So the numbers aren't falling yet. They've stabilized at a fairly high level, but also we're not seeing a ton of growth, so that may weigh on retailers, it may weigh on services providers catering to tourists. [00:36:14] Sherryan: At least helping tourists will be the weak Japanese yen. We're talking about 40-year lows against the U.S. dollar, right? I mentioned just a bit earlier how car makers were expected to see this huge profit windfall that could amount to $6 billion or so. It's affecting companies in different ways. Tell us about those who are more vulnerable to a weak yen. [00:36:36] Speaker 9: The weak yen is indeed a double-edged sword, if you will. It has big advantages if you are a multinational, you're exporting or you're operating abroad, because it makes the profits you generate look a whole lot bigger in the end terms, as you mentioned earlier. But it's not such good news if you're an ordinary household or an SME. SMEs depend on imports. They do not export a whole lot, so they don't see the sort of windfall gains that you touched upon there earlier. They're dependent on domestic demand, which is very much missing in action. And their ability to absorb the increase in commodity prices or indeed pass it on to consumers is a whole lot more limited. So that is one reason why we would expect sentiment for SMEs to deteriorate more broadly. And I think it speaks to how K-shaped the Japanese economy has become. Everyone that's exporting, everyone that's plugged into tech in the AI boom is doing great at the moment, mostly electronics, machinery makers. Everybody else, not so much. So that is a complication if you're in the Bank of Japan or a fiscal policymaker at the moment. [00:37:46] Sherryan: Right. Stefan, the idea, though, is that big companies benefit. The idea is that you have wage growth at the top, that that will trickle down into even SMEs. Is that really what's happening right now in the Japanese economy, especially when we see these very unequal relationships between smaller vendors, firms, and bigger conglomerates? [00:38:10] Speaker 9: Yeah. It's a great question. I suppose a somewhat disappointing answer is that it's not really happening enough, right? We're seeing wage growth pick up in parts of the economy. But if you look at wage growth overall, it's not really keeping pace with the glossy results reported for this year's spring wage negotiations. It's not keeping pace with GDP growth or profit growth. It's also not really keeping pace with inflation, unfortunately. So wage growth has trailed inflation for a number of years now, which means that real wages, wages adjusted for inflation, are still sitting below pre-pandemic levels. And 2026 was really the year when this was supposed to, the relationship was supposed to flip. Households were supposed to finally see real wage growth, but with the prospect of a fresh jump in inflation, that sort of scenario has gotten pushed into the distance. And it's the key reason why domestic demand is still pretty weak. All of this is accompanied by broader weakness across the employment data. Unemployment is pretty high. The openings to applications ratios are looking pretty soft. Working hours are lower than we would like them to be. So labor markets are tight in certain industries, but they're not really tight enough overall to see more sustained, better wage growth. [00:39:30] Sherryan: This is really a headache for policymakers in Japan, right? What will the Bank of Japan do when you have, of course, inflation concerns coupled with a very weak yen that could sell off even further, but then all of those economic woes that you're just talking about now? Is it then the time for fiscal policies to do more here? Who can do the heavy lifting? [00:39:53] Speaker 9: Yeah, it's a really good question. I think when it comes to the distributional impact, addressing the K-shaped nature of the economy, that's indeed a job for a fiscal policy. But when it comes to BOJ policy, there are two things we know. Number one is that the BOJ still wants to hike. That is pretty clear from what it's communicated to the public. But number two, and that is something that we've learned at the last press conference, it's not exactly clear how far the BOJ will go. The BOJ wants to hike for the reasons that you've mentioned. It looks like inflation will re-accelerate from here on out, but the BOJ will also move gradually. Our forecast is for another hike in December, which would broadly fit that six-month cadence that the BOJ has adhered to with its rate hikes. But something that was very interesting, listening to the last press conference, is that the deputy governor, Governor Uchida, has said that all of that, that entire debate about what Japan's neutral rate is, its long-run equilibrium rate, the BOJ doesn't consider that very useful because the estimates are just way too wide to be useful in day-to-day policymaking. So the way he presented it is to say they're going to move stepwise, they're going to hike rates gradually, and they're going to try and look for signs, you know, for how the economy might react, right? So indications are they're going to move gradually, they're going to move carefully. We're still going to rate hike rates, but it's going to happen at a gradual pace. [00:41:23] Sherryan: Stefan Angrig will be watching, of course, a BOJ policy decision in July as well, head of Japan and Frontier Market Economics at Moody's Analytics. Really great to have you with us. Catch Japan Ahead every Monday at 40 a.m. if you're watching in Tokyo. Subscribers can also watch live on the terminal using the TV GO function. This is Bloomberg. We have breaking news out of Japan. We are getting the latest retail sales number, surprising to the upside. Month-on-month growth of 1.9%, and it's also expanding from a contraction in the previous month. For the month of May, you're a near growth of 5.3%. This is an acceleration from the previous month, not to mention beating economists' expectations, just showing that consumer demand stays solid despite, of course, inflation continuing to outpace some wage gains that we have seen in this economy. Of course, this will be a big setup when it comes to the Bank of Japan's policy decision after that rate hike that we got in the last meeting to the highest level in about three decades. But let's turn to South Korea because now we're expecting these plans for what the presidential office says will be massive investments in tech mega projects to be unveiled today by Samsung and SK Group. Bloomberg's Asia Equities reporter Sangmi Cha joins us with more on this. Sangmi, what details do we have about what we could potentially expect today? [00:42:58] Speaker 10: Sherry, 2 p.m. is exactly when they're going to be releasing this data, but what we're hearing is that the Korea Economics Daily this morning said that a combined investment of SK and Samsung would amount to about 2,000 trillion won. We're talking $1.3 trillion here over the next 10 years. And some of the plans include building four to five fabs in Gwangju area, R&D centers, and money that's going to the AI centers as well. So the consensus here from the market watchers is that this is a positive because this means that the money is going to continue to flow for the next 10 years. But again, this is a flagship industrial plan from the president. So there has been a lot of the discussion whether this is only corporate or is this a combination of some government and corporate efforts. But whether it's one one way or the other, the money is definitely flowing in here and we're going to find out the exact amount at 2 p.m. The presidential policy chief has mentioned that it's going to be a very unusual number. [00:44:06] Sherryan: And Sang-mi, money also flowing in and also out when it comes to the South Korea markets. It's been a wild ride for the KOSPI. What are we expecting in today's session? [00:44:17] Speaker 10: That's correct. Last week, we have seen two circuit breakers that were activated. In the history, we have seen just 11 such suspension happen in the entire Korea's KOSPI history. But two of them happened last week and five this year. So we have been seeing a lot of that volatility in KOSPI, and that's been making it very difficult for traders to navigate the market in Korea. But of course, all these investments from SK Hynix and Samsung are going to be one of a boost, potentially, for the KOSPI market today. We're going to be watching how the markets will fare today after a plunge that we have seen on Friday. And foreigners, they're keeping selling the market here because of the rebalancing needs. But at the same time, we're seeing the retail investors come in and stamp up billions of dollars in KOSPI. So we'll see what the market does today. [00:45:15] Sherryan: Thank you, Chad. Good to have you with us. Bloomberg's Asia Equities reporter as we head towards the market opens. Here across Asia, of course, we're talking about the KOSPI and that wild ride that we saw last week. We're seeing futures now pointing to some downside. But this, of course, after it topped 9,000 at one point earlier in the week for the KOSPI just to lose some of those gains because of foreign selling. You can see Nikkei futures, though, pointing to some upside. This after a session of losses already for the Japanese stock market. The yen continues to be very close to the weakest level since 1986. Retail sales just surprised to the upside. The ASX 200 also pointing to a little bit of gains as, of course, this market very sensitive to what energy prices are doing. We're seeing oil continuing to gain ground, although pairing back some of those initial advances that we saw as the U.S. and Iran exchanged fresh military strikes over the week. And we have now seen reports that they will hold talks again later this week. The market opens in Sydney, Seoul, and Tokyo are next. This is Bloomberg. This is the Asia Trade. We're counting down to Asia's major market opens and bracing for potential volatility after that tech sell-off that we saw last week, Paul, across the world. But, of course, we're also bracing for volatility on the Iran-U.S. tensions. We saw fresh military strikes. We're hearing from reports that they are going to hold another round of talks this week. [00:47:04] Speaker 11: Yeah, that's right, Sherry. No shortage of uncertainty or volatility, that's for sure. Australia actually got out of Friday relatively unscathed, thanks to the very small amount of exposure by weight on the index to IT. But, yeah, not so much luck when it comes to energy, which has also been royal by the events over the weekend. But closing in on the market open, it's going to be interesting to see how the KOSPI behaves today after that circuit breaker towards the end of last week. [00:47:31] Sherryan: Yeah, we had a couple last week for the South Korea market. But, of course, it's really the volatility across global equities at this point. And we'll be watching what happens in Japan as well because we have the yen at very weak levels against the U.S. dollar. We're talking about 1986 lows that we haven't seen in decades. The Nikkei right now pointing to a little bit of upside, recouping some of those losses that we saw in the Friday session as we had that global sell-off. The Japanese yen also holding steady at the moment. We did have retail sales surprising to the upside. Really interesting given that we continue to see inflationary pressures in this economy. Do watch out for JGBs, of course, the inflationary outlook, not to mention the spending outlook, all having an impact on the 10-year yield holding at that 263 level today. Take a look at South Korea because we talked about how interesting this market could get because we had that tech sell-off last week, that rotation that led us to see the cost be past 9,000 on Monday just to plunge and recover and then to sell-off on the Friday session. So we're seeing a little bit of downside, about 1%. But we are expecting those three mega project announcements coming from the government, semi's industrial policy back in the spotlight when it comes to South Korea. We heard already from the presidential office that we could be seeing investment announcements coming from the heads of SK and Samsung, both stocks under a little bit of pressure as we're seeing more pressure for the Korean one against the greenback, Paul. [00:48:59] Speaker 11: Let's take a look at how we're performing on the oil front. Getting a little bit of bounce on Brent at the moment, $72, $16 a barrel. It was a pretty interesting weekend. We saw prices rise, of course, after that tanker carrying Qatari crude was hit in the Strait of Hormuz. Both sides accusing each other of violating the ceasefire, but both the US and Iran are agreeing to halt attacks. The ceasefire, barely 11 days old, so underscores just how fragile it is. Take a look at what's moving in terms of yields. And not a lot at the moment. Both the US two-year and 10-year trading pretty much where they were where we closed out the week. Here in Australia, meanwhile, we're moving to the upside by a third of 1%. I did mention the ASX was one of the few major markets in the Asia-Pacific that actually ended higher on Friday thanks to its lack of exposure to that tech story. But it is that tiny IT sector that's performing best at the moment. We're better by 4%. But also energy higher and financials higher as well, even after an utterly woeful weekend. For auction clearance rates in Australia, Sherry, the property market continuing to suffer after the May budget. [00:50:04] Sherryan: Let's discuss all of this with Sean Cochran, head of research at CITIC CLSA. Sean, great to have you with us. Of course, we talked about this rotation trade in the markets, right? That sell-off from tech. South Korea, very reflective of the jitters around AI spending. What will the announcements today of more investments to come in this sector do for the market in the long term? [00:50:27] Speaker 12: Well, that's exactly the question the market is trying to resolve and why we're seeing the volatility, which is that it's very clear there's a very strong demand for memory. And that's coming from this AI revolution that we're all witnessing unfold. What the market is trying to decide is two things. First of all, how much supply will come and then how will that be consumed? The real challenge that's actually driving the end volatility is the market's trying to decide what's the true profitability of this memory that's being purchased for the purposes of AI, which would then tell us what's the sustainable nature of that spending. [00:51:02] Sherryan: And really, while we try to understand if this will pay off or not, we have seen this U.S. exceptionalism narrative continue, strength in the dollar as well. Combined with what the Fed could potentially do in a more hawkish narrative now unfolding at the moment, what are the implications for Asian economies that, of course, are also suffering from pressuring their currencies? [00:51:28] Speaker 12: It's really interesting in that there's the growth element to it, which is pulled around North Asia in that for those economies that are geared towards the AI capex boom, and they're participating in what we might call this K-shaped economic structure where economies are seeing strong capex, which is holding up the economic growth overall. At the same time, the general population is not necessarily participating in so far as we're not getting pervasive jobs, it's not moving out into consumption. At the same time, we have a new Fed environment and the signal is relatively clear, which is this new Fed is saying we will not provide strong guidance to the market. The market is actually a core source of intelligence for them, and they're more of a fact-driven scenario is what the Fed is signaling to us now. So the markets are trying to balance these mixed signals. Overall, this is meaning that yields have pushed up into this change in the Fed. Overall, however, the long-term yields are already quite elevated, and it's unlikely that the market can sustain very high levels of yields increases, especially at the long end of the curve. [00:52:34] Speaker 11: Yeah, in one of your recent reports, you say the yen's looking attractive, but this is even though it's hovering around 40-year lows, so maybe a buying opportunity here. But what's your outlook for the currency, for the U.S. dollar? And is it intervention that's going to finally break the downtrend for the yen, or is it something else? Ideally, well, probably Bank of Japan tightening. [00:52:55] Speaker 12: Right, so two very important questions. Let's unpack them separately. So if we look at the U.S. dollar, we've been contrarian bullish on the dollar. It's been quite fashionable to be bearish on the dollar. And some time ago, there was the view that there was going to be an engineered decline in the dollar, in that certainly it's performed well and it's not cheap relative to global currencies. That said, the challenge has become the global economy has been very much dependent on credit provision to continue this growth. We're even seeing this in the tech sector. Overall, this means that as credit conditions get worse, as the debt loads become high relative to the sustainable cash flows, this increases demand for high-quality collateral and over time creates demand for the dollar. The next phase for this is a deterioration in the credit cycle and more demand for the dollar. So tactically, I would say we're bullish on the dollar. Certainly, I'm personally bullish on the dollar. The yen is very interesting in that the yen is a net creditor, a very strong economy in terms of the amount of capital that it has to deploy, often deployed offshore. And so in an environment of tightening credit conditions, you'd normally see yen capital repatriate at home, which should put upward pressure on the yen. What's fascinating is that the yen has been weakening for some time, whereby historically, its monetary conditions were too loose relative to global conditions. They've been seeking to tighten and the market is yet to respond. And obviously, there's inflationary pressures that have built in Japan that is unusual in the historical context. A base case would be that the yen can find a floor here and can rally in tightening credit conditions. If that doesn't happen, that would be a major change in the way that the market is looking at the yen. [00:54:33] Sherryan: There were some ideas that the weakness of the Japanese yen and the extra pressure that we're getting on the currency was because also Japanese stocks were rallying at the same time. So when you have foreigners hedging the gains in the Nikkei, you have to rebalance and that will actually lead to huge yen selling. How does the pressure on the yen affect the equity space net-net? Because you have some of those big exporters, but at the same time, when you have a weakening economy, won't that dampen demand? [00:55:07] Speaker 12: Right. So certainly from a causal perspective, the most likely thing that I could see investors having conviction is the idea that as long as the yen is weakening, it creates an environment where equities as a real asset provide a natural inflation heads. And as a result, a weakening of the yen creates an increased risk of future inflation. And investors will therefore be more inclined to be interested in equities because that provides the natural hedge combined with the fact that Japan as an economy has been performing reasonably well and there's clearly the value-up theme that has increased the investors' conviction that equity can deliver value given that Japanese equities are not expensive in a global context, albeit equities as an asset class are not cheap right now in a long-term perspective. [00:55:52] Speaker 11: Sean, I just want to get back to this AI story because we had a very interesting report over the weekend from the Bank of International Settlements warning of a potential AI bust in the short term, but in the longer term, the utter hollowing out of the middle class. And they point out that this is not like other tech revolutions. AI can pretty much handle any new job up or down the value chain, near-term, medium-term, long-term. Do you lose any sleep over these kinds of themes and how do you play them? [00:56:19] Speaker 12: Yeah, well, certainly I've done markets a long time and the one thing that you learn with enough time in markets is we don't know anything for sure and so we need to be extremely open-minded. That said, the long arc of history suggests that usually technologies create more jobs than they destroy and that would be my base case until there's very strong evidence to the contrary. Now, what we're witnessing right now is a peak concern around job destruction or the replacement of humans via machine solutions simply because it's a slightly naive application of how these models should be applied. What do I mean by that? If you think of how models are being applied right now, some of the most advanced front-team models give us a PhD-level capability in certain contexts. Think of us as having our own Sheldon from the Big Bang available to us at call. The challenge becomes that rather than asking this individual to help us solve string theory, we're sometimes asking this individual to solve simple problems. The market's slowly going to figure out that we need to apply the right technology in the right context and that will give us a better solution in terms of the cost involved and how this will be evolved in terms of how companies actually apply it. [00:57:29] Sherryan: In the meantime, while we get to that equilibrium, will we see more of that K-shaped recovery that we talk about within economies among economies? We have seen this inequality leading to protests in South Korea, for example, between chip workers and non-chip workers. And what does that mean for investors that are trying to really bet on the next big sector? [00:57:52] Speaker 12: Right, so certainly as long as the market remains focused on CapEx-driven growth, which is IT-oriented, then this K-shaped phenomena will continue and you will have this bifurcation between those that participate in that and those that don't, which will create political tension. If we think about what's driving that, the core dynamic for now is the market is looking forward to the potential of AI. We don't know exactly how companies will make money from AI. That is the core question. As a result, capital markets are playing a crucial role. What we're witnessing is a lot of private companies that are a large part of the purchasing where this CapEx is coming from. The money that's funding that is typically through equity and to a lesser extent for the private sector debt raises and certainly for the public sector for debt raises. As we come into the process of some of these companies listing, that should reduce the ability for consistent, aggressive equity capital raisings which should slow the CapEx when that happens it should then slow the orientation on AI and the market's focus will move to other sectors which can either broaden or slow the economy. [00:58:59] Speaker 11: All right, Sean Cochran, great analysis there. Thanks so much for joining us today. That's Sean Cochran, Head of Research at CITIC CLSA. We have more ahead on the Asia trade. This is Bloomberg. Bloomberg. Let's check in on the progress of South Korea. 15 minutes into the trading for the new week and we are resuming declines. We're off by 1.7% on the KOSPI at the moment and those two indexed heavyweights, Samsung Electronics, SK Hynix also softer in the early going and what a wild ride for the KOSPI last week. Hitting 9,000, falling, recovering, falling again, a couple of circuit breakers. It's still more than doubled this year and if that wasn't enough excitement, we're going to get an announcement shortly today from Samsung Electronics, SK Hynix and the South Korean government expected to announce a huge investment, $1.3 trillion over the next decade as part of President Yi's flagship industrial strategy. Let's get a little bit more on this, get to Korea tech reporter Yulim Lee. So Yulim, we are waiting to hear more on South Korea's plans for massive tech investments. How significant is this? [01:00:22] Speaker 13: Yeah, it's potentially one of the most ambitious industrial strategies we've seen anywhere in the world. We will know the details when the details come out later today, but when you added together the investment in advanced semiconductor manufacturing, gigawatt scale, AI data centers and physical AI, you're looking at a program that could ultimately exceed $1 trillion over the coming decade. This isn't simply an industrial policy. It is a national strategy to ensure South Korea remains at the forefront of the AI era. [01:01:00] Speaker 11: So it's not hard to understand why the government's putting so much emphasis on these three areas, but is it potentially coming to the detriment of other things and what's it going to mean for infrastructure? [01:01:13] Speaker 13: Yes, they are, they reinforce one another. Chips are the foundation of AI, AI data centers, create demand for increasingly powerful intelligence machines. And the physical AI, such as robots, autonomous factories and intelligence machines is where the government expect the next wave of productivity gains to come from. South Korea already has world-leading semiconductor companies and advanced manufacturing expertise. So it's really trying to build an entire ecosystem rather than invest in isolated industries. [01:01:54] Speaker 11: South Korea is, of course, not alone in making huge investments around this theme, but what does what South Korea is doing compare with what other countries are doing? [01:02:05] Speaker 13: That's a great question. We're seeing a global arms race in technology, in global technology. The U.S. has poured tens of billions of dollars into semiconductor subsidies. China continues to invest heavily to achieve technological self-sufficiency. Japan, on the other hand, has revived its chip industry through generous incentives. So every major economy in the world now views semiconductor and AI as strategic assets, not just simple commercial industries. So South Korea's response is to really leverage its existing strength and move even further up on the value chain. But there are challenges. I mean, execution is everything. So you can spend all this money, but, you know, I think the investing in semiconductors requires enormous amounts of capital, water, and electricity. So how, you know, for over the 10 years, how the government plans to actually execute that in a sustainable way will be the key to watch. [01:03:17] Sherryan: Bloomberg Korea tech reporter Yulim Lee there. And as Yulim mentioned, of course, these investments are very complex. Let's discuss with Bloomberg Intelligence Senior Industry Analyst Masahiro Wakasugi. Masahiro, so Yulim was telling us about how the challenges and the variables around these huge CapEx plans for these companies. We're expecting SK Hynix, Samsung's head, to come out with new investment plans. But their business has been good. I mean, it would benefit them as well to increase production. [01:03:45] Speaker 6: Yes. So probably maybe potential investment could be huge. So, you know, that may create some concern about potential oversupply. But one thing we have to, you know, bear in mind is that last week Micron reported that earnings and they were saying that they are making a multi-year, long-term contract with customers. And it seems like we have kind of a ceiling of the, you know, selling price range and also floors. So even in the downturn, probably, you know, dealer makers or non-flash makers can achieve a kind of, you know, sufficient profit to recoup the investment. In that sense, you know, the memory makers a bit, you know, they can make a decision a bit more easily than before because they can expect some kind of cash flow over the next, say, you know, three, four, five years. [01:04:42] Sherryan: We always talk about this memory shortage just affecting the whole tech environment right now. But when you look at some of the products that SK Hynik, Samsung produced at the moment, where do you think the priority should lie in terms of where you could see more demand and where you're really having supply constraints? [01:04:59] Speaker 6: So, of course, when we look at the product types, HPM high bandwidth memory for AI should be the priority. I think that the companies are really discussing with the customers over the past in several years on the AI development. So, I think that the HPM should be the priority and also, you know, HPM is DRAM, a kind of DRAM. And also, even DRAM demand is so strong that probably the next priority should be the, you know, DRAM, conventional DRAM. And after that, probably, you know, Samsung, SK, Heinz will focus on non-flash memory. But when we talk about Kyokusha, you know, the company has only, you know, non-flash memory. So, maybe they can focus on the only, you know, non-flash memory. [01:05:45] Sherryan: We're seeing some of these stocks like SK, Heinz, Samsung, at least in today's session, perhaps because of the broader market pressure, but downside today. I do wonder, though, how much is it also about the idea that you're going to get all of these investments, however large they are, but in order to get to the production and output, it will still take time. [01:06:03] Speaker 6: Yes, so that's why I think that now we are in 2026 and next year, 2027, and it seems like all, you know, DRAM flash memory are sold out in this year and next year as well. So, I think that unless they expand capacity now, we don't see pretty much, you know, comfortable supply demand situation in 2028. So, I think that they have to accelerate the investment at this point. [01:06:32] Sherryan: Sahiro Wakasugi, really good to get your insights into, of course, the investment landscape when it comes to Samsung, SK Hynix and the broader chip space. He's the Bloomberg Intelligence Senior Industry Analyst. Still ahead, oil traders assessing a report that the US and Iran have agreed to halt the tax before resuming peace talks this week. Details next. This is Bloomberg. This is Bloomberg. Barak. [01:07:07] Speaker 11: Seeing a bit of upward pressure on energy prices after a rather nervous weekend in the Strait of Hormuz. Brent crude right now, 72.13 a barrel. We've got natural gas, European gas futures up as much as 3% as well. Now, this is after tit-for-tat attacks in the Persian Gulf. A Qatari crude carrier was hit in the Strait of Hormuz. The US struck Iranian targets over the weekend. Both sides have now agreed to halt attacks. This ceasefire, just 11 days old, looking very fragile as well. Also in Russia, President Vladimir Putin acknowledging the country faces supply problems and a ban on diesel exports is under discussion. Let's get a bit more on the situation now between the US and Iran with Bloomberg Managing Editor Jill Deesis. So, Jill, we've had a rather action-packed weekend in the Strait of Hormuz. Can you tell us about the latest and where are we with hostilities as the talks head to Qatar? [01:08:04] Speaker 14: Yes, that's right, Paul. We've actually just confirmed ourselves, according to a US official who's requested anonymity, that these two sides, the US and Iran, have agreed to halt these attacks. Now, obviously, Paul, there's been quite a lot of volatility just within the last few days, beginning with that strike on a tanker on Thursday. Then we saw some tit-for-tat actions here. Now, though, we're heading into this week potentially with some, maybe some cautious optimism there. But again, you know, you still have this idea that this truce, this ceasefire that was reached for a 60-day period of negotiations really is, it remains very fragile. because, you know, again, just going back and forth over these attacks. Now, what Axios is reporting is that these talks on Tuesday, potentially in Doha and Qatar, could resolve around just continuing to try to reopen the Strait of Hormuz. Previous discussions have revolved around some technical negotiations involving Iran's nuclear program, but really that looking forward, really focusing on the Strait of Hormuz, about getting traffic through there without, you know, raising this risk for continued volatility and violence here. Obviously, you see why that remains such an important part of these negotiations and of shoring up the world's energy supply. [01:09:25] Speaker 11: What do we know about the current state of traffic in the Strait of Hormuz compared to where it was pre-war, and who says they're in charge of it at the moment? [01:09:34] Speaker 14: Yeah, I mean, look, Paul, there's, you know, continued, you know, concern over, you know, how much traffic we're actually seeing through there. You know, obviously, there have been some ships that we've been tracking here. But again, the fact that you've got these negotiations that are continuing to revolve around ensuring that that sort of is flowing freely, it remains incredibly key. You know, you've got a lot of those, you know, again, the fact that you've got the U.S. and Iran sort of blaming each other for violating ceasefires. You've got Trump, who at various points has sort of asserted control over the strait does indicate to you that this is, you know, an ongoing concern, certainly for oil markets that are obviously watching all of this with, you know, a lot of great intent. So we'll have to see whether those planned negotiations, those reported negotiations, go on on Tuesday in Doha and whether that actually leads to something that feels a little bit longer lasting. [01:10:24] Speaker 11: All right. Bloomberg Managing Editor Jill Deces there. Still to come, we'll have some more on commodities. As traders assess reports that Iran and the U.S. have agreed to stop attacks that have threatened that fragile truce. Analysis coming up with ANZ next. This is Bloomberg. Let's take a look once again at how oil prices are tracking. A little bit stronger today. It was a rather nerve-shredding weekend in the Strait of Hormuz. Again, we had a Qatari-flagged ship being fired upon the U.S. striking Iranian targets over the weekend as well. Both sides have now agreed to halt attacks. We have recently learned that the ceasefire is still very young and still a lot of uncertainty around the fate of traffic trying to move through that vital waterway. And with that in mind, perhaps unsurprising that we've got gold back above $4,000 an ounce. Well, joining us now is Daniel Hines, Senior Commodities Strategist at ANZ. And, Daniel, of course, we've got to start with these movements that we've seen in the oil price. How seriously should markets be taking these sort of tit-for-tat escalations? Is it part and parcel of a fragile ceasefire or could we be headed to a darker place? [01:11:55] Speaker 15: Look, I think markets were obviously taking a glass-half-full approach on that initial interim deal or signing of it. And I suppose, you know, these latest skirmishes do highlight the risks involved in keeping this deal in place. I think the assumption that oil flow through the strait would be relatively quick and efficient is clearly a misnomer, I think. And, you know, you need to expect there's going to be these types of disruptions, headwinds, call it what you will, in the immediate future. I mean, certainly from our perspective, you know, Iran feels like it needs to assert its control over the management and movement of vessels through the strait. So assuming that we were going to see an unpaided sort of surge was a little bit misdirected. And I think this is probably going to be the norm for the near term. [01:12:51] Speaker 11: There's other factors to consider as well. And you point this out in your most recent note. I mean, this is not like turning on a tap. I mean, there is ship owner caution, obviously, with missiles flying around, but also other factors like, you know, getting ships seaworthy again. [01:13:03] Speaker 15: Yeah, no, absolutely. It's not a simple process. And I think assuming that it is, you know, we'll clearly, put, I suppose, keep sentiment relatively weak. But, you know, from our perspective, there are so many challenges ahead that it's really difficult to see how, you know, things can return to normal. So expect delays, expect the shipping industry to remain really cautious. But oil producers, while keen to get sort of, you know, production restarted, are going to face challenges that just haven't emerged yet as well. So it's going to be a pretty bumpy road. [01:13:43] Speaker 11: Yeah, and the supply side of the equation is an interesting one as well because we've heard the UAE leave OPEC. Iraq now reportedly thinking about it because they want to pump more. Is this still a market underneath it all, still an oversupply? [01:13:56] Speaker 15: Look, it is right here and now. I mean, we've seen, you know, a huge amount of oil leave the strait over the past week or so. And as a consequence, the prompt market right now is pretty flush. But, you know, that can evaporate in seconds. You know, once we get these stranded vessels out, you know, the production side is going to come back into focus. And I think outside of the UAE and Saudi Arabia, most of those other producers, I suspect, are going to really struggle to get output up and running relatively quickly. So, yes, that's, I think, going to be the focus once, you know, the vessels the stranded vessels, you know, depart the Persian Gulf. That focus back onto supply will be a key one to really directing how oil markets go over the medium term. [01:14:44] Sherryan: Dan, so you still think that after the initial skirmishes around the strait of Hormuz that we could get those production ramp-ups come online quick enough? Because the concern at the beginning of this war was that perhaps, yes, you could reopen the strait of Hormuz, you'll get this flurry of vessels going through, you'll get oil into the markets, but long-term, what happens when a lot of these facilities have taken strikes, when they have halted, and then you have to restart production, is that an easy process? [01:15:18] Speaker 15: Definitely not. And I think it's complicated by the dislocations in the market between crude and the product inventory. So, a lot of the damage that we've seen has been impacting the refining side more so, and that's going to be an ongoing sort of issue. Getting crude out may be a little easier than sort of easing the tightness that we're seeing in product markets, partly due to those disruptions to refining in the Persian Gulf, but also, you know, the relatively strong demand. We're seeing refining rates rise in the U.S. in particular. These lower gasoline prices, for example, are probably going to incentivize relatively strong pickup in demand that may be avoided if gasoline prices were above $5 a gallon. So, you know, the rising sort of demand on product fuels against a pretty lean sort of inventory backdrop means that, you know, refineries are going to continue to really demand barrels of oil, and, you know, that dislocation is going to cause some issues down the track. [01:16:34] Sherryan: Given the risks surrounding Iran and oil, does that mean that we could see potential long-term support for gold, although right now with the factoring in of a potentially hawkish Fed, we are seeing the downside? [01:16:49] Speaker 15: Yeah, I think for the moment, you know, the expectations around monetary policy are probably driving gold more so than the broader sort of inflationary outlook, certainly on headline sort of numbers. That, you know, that hawkish tilt that we saw the Fed emerge from the last meeting did surprise the gold market, and, you know, we're subsequently seeing prices, you know, briefly pushed below $4,000 an ounce. But, you know, if those things, well, that sort of, those expectations stabilise, and clearly some of the data that we saw on Friday just provided some hope that maybe core inflation isn't rising, you know, above expectations, then I think, you know, the other sort of more global macro issues will come to the fore, and certainly they all would suggest, you know, some ongoing support for gold over that medium to longer term, but at the moment there's too much fixation, I suppose, on where monetary policy eventually ends up at. [01:17:54] Speaker 11: Dan, I also want to talk about copper. Prices are off their peak now, but there's a review of the copper market coming from the U.S. Should the market be feeling a little bit nervous about the potential implications of that? [01:18:07] Speaker 15: Yeah, well, we just don't know which way, you know, the U.S. policy will go. We've shown how, or seen how, Trump can change, change his tune relatively quickly. The review by the administration is due soon. Traders don't seem to be waiting for that outcome. They're clearly concerned about, you know, a tariff being put in place, and that's driving this strong import demand from the U.S. I suspect that's going to be an ongoing sort of issue, and that'll create concern outside of the U.S. for copper, metal, which is in relatively strong demand at the moment, driven by this infrastructure AI boom that we're seeing at the moment. So, yeah, it certainly feels like it's tighter than it probably is, but, you know, the expectations of inventory being trapped in the U.S. is a real one. [01:19:01] Speaker 11: All right, Daniel, thanks as always for your time. That's Daniel Hines, Senior Commodity Strategist at ANZ. Still to come, we're going to be live at the Hong Kong exchange for the trading debuts of two Chinese companies focused on biotech and chip components. The latest on the city's IPO pipeline, next. This is Bloomberg. [01:19:18] Sherryan: Take a look at how Korean assets are trading at the moment. We have seen now the country briefly halting the Cossack trading program as we've seen futures gain more than 6%. Of course, we have seen a lot of volatility in the South Korea market. We're talking about gains on the Monday session last week. The top, the KOSPI, passed 9,000 just to plunge, recover, and then sell off again on the Friday session. Samsung is leaving some of those declines down 5%. And of course, the big news here in South Korea today is those announcements coming from Samsung, SK Hynix, when it comes to those industrial policies around semiconductors. President Yi and the office saying now that Samsung Electronics and SK Heads will be announcing investment plans today. Of course, we're also headed towards the Chinese market opens and there are two Chinese companies that will be making their trading debuts in Hong Kong when markets open in the next hour. We're talking about Aliband Pharmaceuticals, not to mention an optical electronic components firm, Creed Lights, as well. Let's bring in our China correspondent, Min Min Lo, joining us now from the Hong Kong Stock Exchange. Min Min, tell us a little bit about the Creed Lights firm that raised 1.5 billion Hong Kong dollars when it comes to this IPO that we're expecting. [01:20:57] Speaker 16: Yes, as you said, this is an optical module company and if you haven't been following, optical stocks have been the absolute outperformer on the CSI 300 this year. If you look at the top three Chinese optical firms, we're talking about triple-digit gains and so there's been a lot of interest in Creed Lights as well. We're talking about more than 1,200 times oversubscribed in the retail portion. This is a company whose biggest rival, of course, is Zhongji Enolite who, by the way, is also looking to list here in Hong Kong sometime later this year. Creed Lights is about ranking number 12th globally in terms of revenue in 2025. It has about 0.8% of the global market share but it is still not yet profitable. In fact, net losses have been expanding and the company is blaming that on increased R&D costs as well as sub-optimal production scale. So I'll be speaking with the CEO later to ask about when they expect to turn profitable and what are some of the challenges in their industry. [01:21:59] Sherryan: And what about Aliband Pharmaceuticals? They raised, what, 1.28 billion Hong Kong dollars? [01:22:07] Speaker 16: Yes, Aliband is a pharmaceutical company that develops drugs for kidney patients and again, as with many biotech firms, it's always a multi-year, if not a multi-decade timeline to go from drug development to clinical trials to regulatory approval and then commercialization and mass production. So this is also a company that is not yet profitable but still a lot of interest. Again, more than 900 times oversubscribed in the retail portion here and that's because this has been a pretty hot sector earlier this year even though they haven't done as well really being replaced by the tech sector that's driving growth this year. But this is a sector that will benefit heavily from the government's priority to grow China's biotech sector as part of that push for self-reliance and to push up the value chain in high-tech manufacturing. [01:23:01] Sherryan: So Min Min, what does this tell us about the broader IPO market in Hong Kong for the second half? [01:23:09] Speaker 16: Yeah, it's been a really busy time. If you can see behind me, there are a lot of people streaming in now because it's been such a busy first half of the year, right? We're talking about $44 billion in share sale in Hong Kong in the first half. That is a 30% increase on year and it's really reversing the multi-year slump we have seen in the deal space, right? And this is, mind you, against this backdrop where you have sentiment being weak. You look at the HSI is down by 12% year-to-date this year. You have the Chinese government sort of discouraging these so-called red-chip Chinese companies from listing in Hong Kong as well. And yet, it is the enthusiasm around the AI scene that is really driving a lot of these IPOs, particularly in the robotics, in the component maker space that support the entire AI supply chain. [01:23:54] Speaker 11: Right, China correspondent Min Min Lo there. Hong Kong, China and India have emerged as the only major stock markets where top companies account for a smaller share of market capitalization than a year ago. And that's underscoring how they're falling behind in the global AI race. AJ Equities reporter Winnie Su joins us now in Hong Kong with more on this. So, Winnie, what does this lower concentration in these markets tell us about the AI trade? [01:24:22] Speaker 17: Morning, Paul. I think the biggest takeaway is how this AI trade is really driving the divergence between the AI winners and the losers. On one hand, you have these North Asian markets like the likes of Taiwan, South Korea with clear AI winners. And hence, you are seeing these companies growing bigger, growing faster. And then on the other hand, you have the likes of India, China, for example, where they don't really have a clear dominant AI winner. And hence, you're seeing the growth across industries a bit more spread across. Now, the nuance is actually in the performance of these markets because, in fact, you are seeing Hong Kong and Indian markets really underperforming this year. And that is not just because of the lack of AI, but also because these top traditional companies also losing momentum. Well, on the other hand, when you look at China, although a bit lack of AI, but when you look at the onshore performance, CSI 300, still up about 5% this year. And that's partly also driven by kind of the breadth and the other of this rotation into some of the other names, including the high yielding names and also some of the other AI adjacent names. So quite an interesting nuance divergence there as well. [01:25:48] Speaker 11: Given the concentration risks in North Asian markets, does this mean there can be more opportunities for less concentrated markets going forward? [01:25:58] Speaker 17: Yeah, so unfortunately for now, near term for the time being, we are still seeing that the North Asian markets likely going to take the lead. In fact, we saw a note from Goldman Sachs this morning saying that in terms of the second half playbook, they say that it's better to stick with the winners as they see earnings being the key market drivers. And hence, they're still overweight on the likes of Taiwan, South Korea, and China, air share markets. But as you just mentioned, going forward, if there is a pullback in the AI trade, that can potentially be more of a tailwind for these markets like India, like China that have been underperforming. And when we spoke to Sokjian last week, they say that, in fact, the pullback in Korea can most likely benefit India as there seems to be a bit more stability in terms of policy front compared to the still weak retail demand when it comes to China. [01:26:56] Speaker 11: Talk to us a little bit about offshore Chinese stocks as well. They've been struggling and, of course, the Hang Seng Index, it's on the cusp of the bear market. [01:27:05] Speaker 17: Yeah, exactly. So last week, we saw MSCI China, HSCI in the bear territory. Of course, we have HS Tech already in that level as well. And for the HSI, just about 1% away. And that has been really disappointing because of the performance, in fact, so far this year for offshore Chinese stocks is the second worst globally, just coming right after Indonesia, driven by the weak earnings. And also, we just mentioned how retail continue to be a big drag. And when it comes to when that might turn around for now, we don't see much of a sign because when it comes to what economists are saying, it is that the strong export sales that we are seeing right now is still driving the growth of China. And as so long as we have this AI boom driving exports, driving growth, there is less of an urgency for Chinese policymaker to come up with further policy support to drive the domestic consumption. And hence, we most likely will continue to see a bit of an underperformance in these internet names, especially under this macro environment. [01:28:20] Speaker 11: All right, Bloomberg Asia Equities reporter Winnie Su there in Hong Kong. Let's get to the top corporate stories that we're tracking. Apple reportedly pressing the White House for approval to purchase memory chips from blacklisted Chinese company CXMT. PFT reports Apple is seeking guarantees that CXMT will not be added to the so-called U.S. entity list, which would impose stiff licensing restrictions. Now, the move comes as Apple grapples to rein in ship costs, which have forced it to raise prices for its products. Anthropic has won U.S. approval to restore some global access to its Mythos 5 AI model for what the Commerce Secretary calls certain trusted partners. Howard Lutnick says the company has made significant progress on resolving concerns about potential national security threats. Anthropic disabled global access to Mythos 5 and a related model this month on U.S. government orders. We have more ahead on the Asia trade. This is Bloomberg. [01:29:29] Sherryan: Rising electricity demand driven by data centers and EVs is reshaping China's energy outlook amid a push for green power. spoke exclusively to the planning director of China's National Energy Administration Ren Yuji about how they intend to meet these evolving needs. [01:29:49] Speaker 18: It must be said [01:29:53] Speaker 19: that forecasting future energy development especially electricity is challenging in the 15th five-year plan. During this period apart from meeting traditional energy needs we also need to satisfy the daily living needs of our citizens. However the most significant impacts are appearing in new sectors. First the computing centers you just mentioned. Secondly there is the development of EVs. EVs have experienced even faster development over the last few years particularly since the start of this year. Consequently charging power consumption has grown significantly. During the 15th five-year plan we will focus heavily on meeting these new demands. We need to formulate more comprehensive strategies regarding electrical energy substitution. Therefore we will continue to track and study the changes in our energy transition especially in energy substitution and electrification to forecast long-term energy demand. [01:30:54] Speaker 20: Could you please tell us about China's plans for direct green powered connections and how it's going to drive investment in that area? [01:31:05] Speaker 19: There's three aspects in this policy. First to promote the local development and utilization of new energy especially wind and solar power. Second to meet corporate demands [01:31:19] Speaker 18: for green electrical energy. [01:31:27] Speaker 19: The third aspect is primarily to satisfy the requirement for green power traceability. Currently many companies need clear and distinct boundaries to adopt green power. This is the rationale behind the policy. following its implementation investment will increase in three areas. First corporate direct investment in green electrical energy. Our wind and photovoltaic power can be developed directly in the vicinity of enterprises. This will boost investment in green production capacity as well as corporate investments. The second area is investment in auxiliary facilities for direct green power connections. Since the power grid connections must be constructed separately this requires new infrastructure. Furthermore investments in regulation dispatch and system control will also rise. [01:32:25] Speaker 11: That's China's National Energy Administration planning director speaking exclusively with Bloomberg's Dan Murtagh. OK. We are about 35 minutes away from the open in China Hong Kong Taiwan as well. Here's a look at our futures are shaping up at the moment. Pretty positive day. Hang Seng futures better by almost 1% now. The Hang Seng Index already in a technical correction. Bear market getting close but we may avoid that today. A couple of big debuts to watch out for as well in Hong Kong that we were discussing earlier. Prelights Technology and Aleban Pharma both making their debut on the Hang Seng Index. FTSE China futures also better by eight tenths of 1%. That's notwithstanding some somewhat disconcerting data from over the weekend. Industrial profits rising last month a shade over 21%. But that's weaker than what we saw back in April. So that's slowdown in industrial profits in China. Something of a surprise after China exited factory deflation back in March after more than three years. Thai X futures also better by two thirds of 1%. Let's see if that plays out or not because we're seeing the tech heavy Kospi pretty weak today and those two giants SK Hynix and Samsung a bit softer as well although we are expecting a big announcement from those two companies along with the Korean government later on this morning. But for now that is it for the Asia trade. Markets coverage does continue as we look ahead to the start of trade in Hong Kong, Shanghai and Shenzhen. The China Show next. This is Bloomberg. [01:33:56] Speaker ?: We'll see you next time.