Good morning.
I'm Brian Curtis and I'm Doug Krisner. Here are the stories we're following today.
Add A hard rain's going to fall, and I'm not talking about the Apples story just yet, but the heaviest rain in Hong Kong since eighteen eighty four. That is incredible, a black rainstorm. Warning it may affect the markets today. So for those of you who will be looking and listening for the Hong Kong market information, be forewarned about that, and we'll track that as those developments ensue. Well, let's
take a close look at the Apple story. Shares down almost another three percent today, wiping out nearly two hundred billion dollars of market value in just two days. It comes as China plans to expand a ban on the use of iPhones in sensitive departments across the government structures. So I just tell Bloomberg that the new restrictions could include state don't enterprises and other government run organizations. Bloomberg's Honor Agrana discusses the potential impact on Apple financially.
I would say government official nots buying the iPhone is not going to be material for Apple. But the question really is not so much about that. The question is is the close relationship that China has had with Apple or the Apple has had with China, are we seeing some kind of intent in that? I think that is the biggest question here.
So we're down three point six percent yesterday and two point nine percent today, so talking round about six and a half percent in two days performance, and we're just hearing the views there of Bloomberg's on rog Grana Dock.
Well, let's get to the day's Fed speak. We heard from the New York President John Williams saying monetary policy is in a good place. However, you thinks officials will need to be data dependent going forward.
We'll have to keep watching the data carefully, analyzing all of that and really asking ourselves the question, is this sufficiently restrictive? Do we need to maybe raise rates again to.
Make sure that we're keeping that steady progress in terms of getting the imbalances, you know, shrinking balances in the labor market and bring inflation back down.
Now, the futures market is suggesting the FED will hold rate steady again when the committee meets later this month, you know, policymakers will have some more economic data to review. Before then, including some fresh readings on inflation ran Well.
The United Auto Workers' Union has rejected an offer a counter offer that was made by General Motors. We get the story from Bloomberg's and Kates.
GM had proposed a total sixteen percent pay raise for top wage earners at its plants and a fifty six percent increased for newer employees who make less. GM also included eleven thousand dollars in inflation protection payments and improved wages for temporary staff. But UAW President Sean Fain reacted quickly, saying that proposal is insulting, with contracts with Detroy's Big
Three to expire next week. In addition to much higher raises, Fain also once guaranteed pensions, reinstated cost of living allowances, and retiree healthcare Bloomberg's and cats Well.
Zoom Video Communications has met with regulators not just here in the US, but in the European Union as well in some other jurisdictions. The aim here was to outline concerns about allegedly anti competitive behavior on the part of Microsoft. The story from Bloomberg's Charlie Pellett.
The source says the communications software maker has talked with the Federal Trade Commission, as well as competition enforcers from the EU, UK and Germany over the past year. The source says Zoom expressed concerns about the way Microsoft gives preference to its team's video conferencing software through price bundling and product design. Microsoft has been under scrutiny from the EU's competition watchdog in New York, Charlie Pellett, Bloomberg Radio, and.
Again Microsoft trading down about nine tenths of one percent in the latest session. China is said to be trying to link chip access to climate action at the G twenty summit. We get that story from Bloomberg Spawnyaw in Hong Kong.
We hear Chinese officials raise the issue about delivering more financing and technology, including chips, to aid efforts to combat global warming. Negotiations on climate action are high on the agenda ahead of the weekend's meeting in New Delhi. China has repeatedly condemned a US move to titan export controls on chip technology to China, and it has been in talks with G twenty counterparts, including the US, Japan, and
South Korea. But China's efforts to link chip access to climate action are not expected to succeed in Hong Kong. I'm Bonnie al Bloomberg Radio.
Prime Minister Justin Trudeau says Canada is on track to sign a trade agreement with Indonesia in the next year. Now this comes as Canada is looking to expand trade with a number of Asian economies, while it as the same time, reduces its reliance on China. Now Trudeau was saying, even though relations with China have improved, there is still no political space for reprochement.
China has made decisions over the past years that have made it more difficult, not just for Canada but for other countries to engage in ways. I will admit in twenty fifteen the conversations we had was about working towards a free trade deal with China, working towards those sorts of things, but in real terms, the choices and the actions of China have made that more difficult.
Well, the relationship between China and Canada turned hostile back in twenty eighteen. That's when Canada arrested Huawei executive Mung wang Zhou on an extradition request from the US. Now that prompted China to detain two Canadians and then impose embargoes on some Canadian food exports.
Right, and even though the US dropped those charges against Mung and even though the two Michaels who were released from China, relations have not improved. And Doug, you know, these comments from Justin Trudeau about no room for rap Rochman are quite severe. Trudeau said that a normal relationship is quote impossible. Now, those are the types of comments that you often hear from ideologues, but not usually from prime ministers and presidents. And I think China, I think
many would understand this and feel this. China is becoming much more isolated from the West.
Most definitely, and I think the markets are kind of confirming that trend.
Before we go, can I just add one quick line. It happens on a day when we see that China's imports from Russia actually reach a record high, the largest ever surge in imports from Russia.
You're absolutely right. Quick note on the treasury market, because I mentioned earlier we had yields down across the curve today, I think there is a lot of interest now in evidence of softer wages. The Atlanta Fed Wage tracker came in an increase in August of five to three, down from July's reading of five to seven, and the Wall Street Journal reporting that Walmart is cutting wages from new hires. I thought that was interesting.
It is you love to get down and dirty with the bond market. I know you go to bed at night thinking about the inversion of the yield curve. Well, we've got another We've got a guest coming up, Nick Schunmacher, who is in the same sort of camp client portfolio manager at Drummond Capital Partners. Get we'll get his views on markets and how things are moving here at the moment, we've seen a lot of red numbers on these screens. Time now for global news. Well, let's get right to
San Francisco and the nine to sixty newsroom. We've got Ed Baxter, who is looking at well Asian's closing statements on the Russian war in Ukraine. It has set up what is expected to be a ten G twenty ed.
Yeah, that's not the way they wanted, Brian, but it looks like the way it is neweling statements. And as he ends closed regarding Ukraine, one of the condemned it, and another that didn't mention it at all. The formal announcement made no mention of the war, although the chair statement noted with quote deep concern earn the impact of the war that most members strongly condemn. So now the focus India and G twenty with Vladimir Putin and Jijimping not attending, does it have any meaning at all?
Well?
Tim ash RBC global asset strategist says, that is a very good question.
Really, what is it for? What is it now achieving when you know, you G seven knocking out the park around the Ukraine and unit see all that kind of thing bricks enlarged obviously g using that as a as a you know, his kind of motor or is his you know, his means to kind of project Chinese influence and is kind of floundering.
Yeah. Esh On Bloomberg says it affects economic issues as well as climate change, as well as what's going to happen in the end of Pacific. US President Joe Biden meanwhile, it's tested negative again for COVID, so he was cleared to make the trip to the G twenty. We're getting more details on the latest US aid package for Ukraine. Secretary of State Anti blank And has reported yesterday is there today? Pentagon spoke, so when Sabrina Singh outlined what has gone.
The Department announced a new security assistance package through the Ukraine's Security Assistance Initiative to support Ukraine's battlefield needs. This six hundred million dollar package includes equipment to augment Ukraine's air defenses, artillery, munitions, and other capabilities.
Yeah side note it's mentioned in a new Biden campaign ad as well. As Ukraine continues to take back land from Russia, it's having to deal in a major way with clearing land mines. US Secretary of State Antony blank And is continuing his visit there.
I saw estimates as much as one third of Ukraine's territory has to deal with minds or unexploded ordinance. One third of the entire country farmland throughout the country unexploded ordnance mines, farmland that was feeding eighty million people around the world.
Blanc And says Ukrainians are working together to reclaim their land. Things have become more problematic for Congress to dodge a US government shutdown. Bloomberg Zach Cohen reports how Speaker Kevin McCarthy's officers now trying to tie in Ukraine.
Could be tied instead to a border bill, which is much more contentious and certainly won't pass this month, and especially since it doesn't have time to get over to the Senate and back in the same version. But there's all whole host of issues on border security that the two parts need to work out ahead of time. So Ukraine ad really in question right now, really the first time that's happened on an issue that has had why bipartisan supporting Congress since Russia's invasion.
And President Biden will not be able to work on until he gets back from the G twenty and Australian Prime Minister Anthony Albanesi will visit Beijing to meet with a Chinese government senior leadership before the end of twenty twenty three, latest sign of some thaw in the relationship. Global News powered by more than twenty seven hundred journalists and analysts in over one hundred and twenty countries. In San Francisco, I met Baxter in This is Bloomberg.
This is Bloomberg Daybreak Asia. I'm Brian Curtis along with Rushad Salamat and we are joined by Nick Schumaker, who's a client portfolio manager at Drummond Capital Partners. Nick, thanks very much for joining. As Apple's woes in China sideshell or a mean.
Event, I guess on a geopolitical front, it's quite It's a main event, just given the efforts that China went to, particularly over the last year, to shut down that the US went to to shut down China's capabilities and semiconductors. So I think it's a big event geopolitically in terms of Apple. I mean, every wealthy person in every country in the world owns an iPhone, and I don't think that kind of technology staple nature of Apple is changing, So I'd say that's more of a shorter term hurdle.
There obviously be countries now that will be concerned that the US and the West can weaponize semiconductors to some extent and may favor the version of the new kind of iPhone that's been made in China that will have a that will have an impact to Apple's margins. But I think that's kind of more of a secondary consideration, but more just the geopolitical optics of what's happened. I think is quite significant.
Well, certainly, and it doesn't bring Washington and Beshion close in any way, shape or form.
But but tell me.
About how this is all affecting right now, Nick, What's what's happening with the with markets? What has been priced in? Or is everybody just looking at monetary policy right now and ignoring the geopolitical risks.
The geopolitical risks do seem to be ignored. I think, as you say, markets this year have performed very buoyantly, and I think, you know, if you're just some justification for that, is that kind of immaculate disinflatory trend that we've had. If you think though just about you know, the S and P five hundred and the Magnificent seven, you know, it's really only two stocks in a Video and Meta that have had earnings revisions for this year and next, and the rest have had nothing, but they've
still been up fifty to sixty percent. You've had Tesla whose earnings have been essentially going backwards since twenty twenty two and are up over one hundred percent. So you've had a lot of this kind of what feels in some ways like late cycle exuberance in markets this year Obviously there's a big innovation cycle now that's going to be a result of AI and the introduction of chat GPT late last year. But the economic rent from AI isn't going to be seven stocks. It's going to be
a five ten year process. So certainly it does seem that the whole soft landing narrative, as that's become more palatable, investors have been cheered along by that, and as you alluded to, have been ignoring geopolitical risk to a large degree.
Well, we haven't really been performing all that well of late. It could be seasonal in nature, or it could be that investors are worried about higher rates for longer from the fair. Yeah, although you are starting to hear some commentary about perhaps a new direction that the Fed will start recalibrating pretty soon about when it needs to start pulling back on reads. Where do you stand in that argument? Where are you on the spectrum?
I think so In terms of the US, I think the most likely outcome later this month would be a hawkish pause. We've probably got the ECB perhaps going one more time. They don't have a dual mandate, so it
really is just fighting inflation. It's too high I think what the market is going to recalibrate and why there may be some upward pressure on bondules that we've started to see with that bears steepening over the last month, will be that the markets pricing of rate cuts next year may start to be pushed out and the higher for longer narrative will be more embedded into market participants. Psyche for now.
And Nick, we've got you for a little extra time. So I want to ask a follow up and that Yeah, sure, is this a new paradigm. Do you think that going forward we're going to see reids stay elevated, They're not going to go back down into the one and two percent range.
Yeah, it seems that way. Look, when we run our acylocation, we looked at a number of scenarios and one of them was the deflatory quagmire. And what a deflatory quagmire is is if we were going back to that twenty and twelve to twenty nineteen period where you had zero interest rate policy QE and negative real yields. I don't think we're going back to that. I think kind of more return to normal in terms of positive real yields, where we have the real yield now at about two
percent is more of a likely scenario. And I think inflation volatility is something that's going to be very relevant over the twenty twenties. Even if we do continue to see inflation and those disinflationory impulses continuing this year and even perhaps next year, I think just the concept of inflation volatility will see rates kind of high for longer and turn premium in long bonds perhaps higher as well.
Nick.
The thing is, you know, we've got a structural shift. I mean, you know when Brian was talking about this paradigm shift, I mean it is structural in the sense that we probably will not return to years of no little inflation for quite a while because we've got demographics in play. We've got decarbonization have We've got also de risking i e. These globalization trends or deglobalization trends, all of the moment contriving together to make inflation higher for longer.
Yeah.
Correct, Yeah, you've got the friends shoring and all of those things. And even now we've seen just more recently the energy price at about ninety dollars, which will potentially put them up with pressure on inflation, and also inflation expectations as well, which we know the FED has still shown that they're concerned about keeping I think rates high for longer to avoid inflation expectations become unhinge, which was
that situation we had back in the seventies. So yeah, it does feel like inflation will be higher for long.
So Nick, you're cautious on the US economy if you think infleation will be Yeah, you're probably not all that enamored with the bond market. I don't know. So one question is what else are you cautious on? And secondly, where's the best place to put your money over the next year.
So in terms of the bond market, so we have been incrementally adding to government bonds or G seven government bonds as rates have continued to trend higher. So we are closer to neutral on our duration, our interest rate risk. And that really is just the fact that you've got a good carry cushion in sovereign bonds now, which we didn't have when we're in the zero interest rate policy error. Also the fact that we do think it's highly likely that we still could get a recession over the next
say nine months. Sometime there will be the case then that you do get a very good, once once in a cycle capital gain from long bonds. But we are aware of that continued risk around that bear steepening, and we'll manage our rates risk tactically. In terms of equities we have, we still are underweight, we're neutral Austraine shares where underweight global equities, and that is expressed most notably through the US In terms of where we see opportunities.
You know, in a hedge fund macro fund that we run internally, we bought commodities a couple of months ago. We did the equivalent of a bear steepening. We we're very tactical with how we run money, so it's kind of working around our strategic ASAD location at the moment and really just seeing when we get greater line of sight to what's happened in central Bank's inflation and the economy before we take any big macro calls through our location at this juncture.
This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong to Singapore and Wall Street.
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And I'm Doug Krisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Asia