Good morning.
I'm Doug Prisner and I'm Brian Curtis. Here are the stories we're following today. The en has jumped against its peers after a report said the Bank of Japan would discuss tolerating higher bond yields. The story from Bloomberg's Bonnie.
Ol The Nikki reported the BOJ is considering letting long term rates rise above its zero point five percent cap in its youth curve control policy. The yen rose as much as two percent against the euro and about one percent against the dollar before easing. Markets have been speculating on the timing of changes to the YCC program. It might be seen as the beginning of a monetary tightening
campaign by the BOJ. That said, Bloomberg Economics expects the BOJ to stand pad at today's meeting, and we'll hold through the first half of twenty twenty four. In Hong Kong. I'm Bonnie Ol Bloomberg Day Break Asia.
Next we go to the European Central Bank Today. The ECB has expected hiked its key rate by twenty five basis points. You know, this is the ninth straight increase since last July. So the key deposit rate is now at three point seven five percent. All of this comes as ECB officials have flagged at their hiking campaign may be close to ending. President Christine Legard said the ECB would have an open mind as to what to do next, and it will follow a data dependent approach.
Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our two percent medium term target.
Now, as Madame Leguard spoke, money markets began looking at Betts for the September meeting. Right now, odds of another rate hike only about forty percent. Earlier that had been fifty percent. Madame Leguard may be offering some more clues on her thinking when she gives a speech at the fed's annual retreat in Jackson Hall. That will happen Brian. Late August well.
The chip maker Intel saying that sales in the current quarter will be as much as thirteen point nine billion dollars. Analysts we're estimating thirteen point three billion. The outlook suggests that Intel has turned a corner after a sluggish demand for PC chips earlier we heard from Angeline Zino at CFRA Research.
So it does look like that kind of inventory overhang that we've seen over the last four or five quarters at least is starting to stabilize here, and you know, clearly on the guidance side of things, it also does indicate that we are going to see more momentum going into the second half of the year. So all good signs for Intel, at least from a cyclical perspective.
Intel also reported second quarter revenue that fell fifteen percent to twelve point nine billion dollars, but that did beat analyst estimates of about twelve billion. Client computing and data center sales both beat analyst expectations, and the shares really popped in the after hours DOUG currently up seven point nine percent.
Well top US regulators have unveiled plans for their most comprehensive overhaul of banking rules in years. More from Bloombergs and Kates.
The Feeder Reserve, the FDIC, and the Office of the Controller of the Currency would boost the amount of capital that banks with at least one hundred billion dollars in assets must hold by an average of sixteen percent. The biggest banks face a nineteen percent increase to thicken their financial cushions to absorb unexpected losses. The reforms are part of an international overhaul that began more than a decade ago in response to the two thousand and eight financial crisis.
The package isn't likely to be implemented for years, with companies, consumer advocates, and others to weigh in on the proposal over the next four months. In Washington and Kates Bloomberg day Break.
Asia, China's top housing official has stepped up the pressure on regulators and lenders to try to revive the property sector. Bloomberg's Joan Wong has that story from.
Hong Kong, Housing Minister Niehong has called for home buyers who've paid off previous mortgages to be considered first time purchasers up until now. Buyers who have a mortgage history but don't currently own a property are subject to higher down payment rules. Home sales resumed declines in June, following a brief rebound earlier this year. Earlier this month's financial regulators did step up the pressure on banks to east
terms for property companies. Now. Ni is also calling for further measures, such as tax and fee relief for housing upgrades and replacement in Hong Kong. I'm Joanne Wong, Bloomberg Day Brigasia Doug.
The move in the end was huge today, although it did ease back. As we noted, Krishna guhad Evercore said that obviously any change in this would have to be really carefully managed, otherwise it could have a big impact on markets. But Evercore also said that they believe that this process has already been over discounted on what might happen, and we noted at the end of our story that Bloomberg Economics is expecting no change today and maintaining this policy through next year or into next year.
Well, I was looking at a note from Alan Ruskin over at Deutsche Bank, and he was saying that a hawk policy tweak even rhetorically by the Bank of Japan would likely be seen as an early step, a very early step toward pulling short term rates in Japan into positive terrain. I think the policy rate is what negative ten basis points, and if that were to occur, it would undoubtedly offer even more support to the Japanese end.
Well, it's another one of these adjustments that you have to look at how much has already been discounted versus the imagine total impact and you know it's probably somewhere in there and it makes it difficult. But we'll of course be watching that very closely today. Interesting the moves
in China. We had reported this a week ago, and so you know, kudos to the reporters on that story a week ago because we heard from the Housing Minister just looking at making it a little bit easier for people to acquire properties that otherwise had some restrictions.
Interesting that Goldman Sachs was saying today that each hedge fund clients net purchased Chinese stocks at the fastest pace in nine months on two day. And obviously, Brian, as you know, this is going to be connected to a lot of the policy support that we've been talking about as a result of what's been coming out of the Politburo meeting.
Yeah, and that's a big, big thing because the hedge funds have been short the currency and short stocks for a period of time. We've got Peter Sheer coming up head of Macro's strategy at Academy Securities. He's great on the bond market, done on rates generally, so he'll be a fantastic guest to have on the program. That's all dead ahead. Now it's time for global news. US Senate is on a path to pass a military and a package of sorts to counter China and Ukraine. Along the way,
let's get to Ed Baxter. He'll sort through all that and bring you some pearls of wisdom.
Ed Yo, I don't know about the wisdom part. I can start it through it, Brian thanks. Senate Appropriations Committee is backed Communitions buill to counter China's military build up as well as in Ukraine. So both things now. This is the Pentagon's request to enter into a multi year contract with Lockheed Martin and RTX Corporation. French President of Maniu Macron says France is trying to position itself as buffer between superpowers when it comes to the South Pacific.
He says the sovereignty of many states is threatened by new imperialisms and power dynamics. Both China and the US have sought to build influence in the region of Macron wants Paris to act as a balance force. Even though the month isn't through you and climate scientists say they'll certainly go down as the warmest July on record. Secretary General Antonio guteris using the strongest words yet.
Climate change is here, It is terrifying, and it is just the beginning. The era of global warming has ended the era of global boiling as it arrived.
And US President Joe Biden, at an event today with Phoenix mayor, said heat is the number one weather related killer in the United States.
There used to be a lot of time when I first got here, a lot of people said, oh, it's not a problem.
Well, I don't know anybody.
I shouldn't say that to anybody who honestly believes climate change is not a serious problem.
Phoenix, by the way, top one hundred and ten degrees today for the twenty seventh consecutive day, with the heat expected last end of the weekend. Court official in Washington, DC says there will be no Trump indictment today, although his legal team is indicating it could come at any time. This would involve charges related to the twenty twenty election results. Now, Bloomberg Balance of Power co host Joe Matthews says, timing, well, it's totally up to the Special prosecutor.
And one thing we do know is that the Special Council can do this anytime he wants. A lot of questions today about whether he's waiting for Congress to get out of town. And we suspect that Jack Smith will do this when he's good and ready.
Now, we also know there was a meeting today between Trump attorneys and the Special Council Justice Department officials, declining to comment and following now and this is the separate indictment that's already dropped. A second Trump employee has been charged, Carlos Dylara, who's a maintenance worker at mar A Lago. North Korea showcased its nuclear weapons and its military parade marking the Korean War armistice. Delegations from China and Russia
were present. Satellite imagery of preparations indicated the event included ICBMs, designed to deliver nuclear warheads to the US mainland. So far, there has been no mention of the event in its official media. Global News powered by more than twenty seven hundred journalists and analysts in over one hundred and twenty countries. In San Francisco, I'm Ed Baxter, and this is Bloomberg.
This is Bloomberg Daybreak Asia. I'm Brian Curtis. In Hong Kong, along with Rashad, so I'm not in London. Our guest is Peter Shecher, head of macro strategy at Academy Securities. Well, a lot to talk about, and I like it that you've got David Bowie in your notes, So I think this is going to go very well. Let's talk first about the yen and the big move today and the hints that the boj will do what we've always thought they were going to do at some point. Your thoughts on that.
Yeah, it's not very often that the markets have been taken by surprise lately, but I think we are all in this mode that, Okay, the Fed's kind of done, maybe completely done, hiking the ECB actually sound a little
bit more dubbish than people were expecting. Markets were rallying, we were all looking at Meta and all of a sudden, the boj talked about changing the rumors came out that they changed their yell cre control allowed the tenure to go to fifty BIPs, and that sent everything spiraling because I think that's been such a huge driver of US rates, global rates, as Japanese buying of foreign debt, and that could change if this really occurs.
Peter it's strange. I mean, it is history about to repeat itself because ever since the start of the modern boj we're talking about the BOJ Act in nineteen ninety eight, there've only been two occasions when the Center Bank has shifted to policy tightening. Once was in August two thousand, the other was in July two thousand and six. And guess what both of them happened after the FED finished a series of rate hikes.
Spooky.
Yeah, And it's almost like there's a coordinated effort, right, Okay, maybe globally you can't handle everyone hiking or tightening at the same time. So now's Japan's turn to take the mantle and run with this, which would be really interesting if true. But again, there's no reason for Japanese yields to stay as well as they are. I think you will get more and more Japanese domestic buyers of JGB.
So what's started with the end today in terms of strength could well continue, and I think that's going to be a trend. I'm not sure why stocks reacted as negatively as they did in the US saying that could reverse itself, but I do think higher yields is probably here to stay a little bit, and yen strength is a new thing.
Yeah, And let's face it, I mean US doocs may have just used it as an excuse to pull back a little bit after some pretty solid gains. But I mean we had the yield curve control adjusted from twenty five basis points to fifty, and what they were suggesting in the Nick story was just to a certain degree a move from that. The end really strengthened back after that call in December, but then gave most of it back and we went back into the one forties on dollar yen. So it's not like this is totally.
New, you know. I think maybe it was the timing of this that really everyone had just got so comfortable with Powell. It was just after the ECB presser, where again Madame Leguard came out as relatively dubbish. So the timing I think had something to do. People have been positioned aggressively. I think people have been buying into this rally. People have been buying into that central banks are down the tightening, So I think it was probably more the
shock value. My gut feel is you want to fade this move, at least in stocks and US dollar yields, I think in I do like the end though, because it probably is a shift in mentality and it should be supportive to the end.
Just sort of bring something up here as well. And you know, we look at what's what happened just about what six weeks ago, you know, still and I'm talking about the ECB here they were projecting your pick up in a second quarter, growth and solidity for the second half of the year, and then you know it didn't
look unreasonable. Composite pmis in the euro Zone were reasonable, and then after two months of day to the pictures entirely different, pmis collapsing, the nascent recovery, especially for Germany looking more like a blip, and.
They raised rates.
Now this reminds me of tell me, Louise, there's no stopping them.
Well, you know, I think I can talk more about the FED. I think they are still making up for mistakes that were made in twenty twenty one when everything was transitory, transitory, transitory, and it turned out not to be transitory at all. And I think that's one of the big things all these central banks are facing is they missed it. They missed the inflation so badly that they've been over correcting, and now I think we're sitting here in the US a little bit and now obviously
within Europe saying have we gone too far? I think they've gone too far. I think they are supposed to allow the economy to play out. See what impact has already gone on from the global rates. You're starting to see a lot of the COVID stimulus prestricted in the US, but probably across the globe diminished. I think they're supposed to be much more dubbish, see how this plays out.
And that's been the since and that's why I think Japan today was so surprising, because they kind of went the other way.
Oh we get a lot of pop culture into this, so with the Thelma and Louise and David Bowie and the changes. But let's talk a little bit about the better economic data in the US. I wonder whether or not that emboldens the FED to maybe not worry too much about the lagged effect and to stay strong on inflation. I heard Jan Hatzias at Goldman Sachs talking earlier on a rival network, and he thinks the FED is done, that they're not going to hike again.
What do you think so I think they are actually truly data dependent, and I think data dependency has been a word that gets way overused or a phrase this gets way overused. They weren't really data dependent for the last year and a half. They were looking for data that justified hiking. And the message I'm taking away from Powell recently in the said is they are really going to look the preponderance of data over the next two months.
It's going to include inflation data, jobs data, and it's going to have to send a really strong signal either one way or the other for them to do something. So I think they're really on and that kind of brought back to David Bowie and she changes. Is My view is we're going to see a leadership change in the US and it's going to go from the quote unquote magnificent seven to a broader based rally.
Where will that come from.
I think it's really going to come from money that's on the sidelines that's starting to feel well, if the Fed's almost done, if the ECB is almost done, the data continues to come in, Okay, I've got to put this money to work. And you can either close your eyes and buy something that's already up to one hundred two hundred percent this year, or we can buy something that's up three or five percent. So I think the money is going to flood into those things that people
are generally underweight or still short. And that's the next stage of this rally. Isn't going to be the big megacaps continuing to drive it. It's going to be everything else running up. And I think you're going to see a lot of the laggers, including commercial real estate, to be honest, really outperform over the next month or so.
We've we've really already seen it. I mean we've been squawking about that a lot in this program about Industrials have moved a lot, of transports have moved a lot. Even banking now has been moving a lot. And I note that in terms of earnings, the financial sector and the industrial sector are actually raising their earnings now, So that means that earnings have trost and they're actually raising rather than just reporting earnings that are less bad than expected.
So what you're saying is a process that is unfolding. I think for many the question is would that continue if we drifted toward recession. But it seems like the data is suggesting now that's not happening.
Yeah, And so about two weeks ago I was taking some of that risk off the table. We'd had a good run on commercial real estate on the laggards, and it felt time to take some chips off the table. But given the FEDS messaging, given the current data, I think it's really hard to bet coming into August that
we're going to see this slowdown. So I think you want to own those things that people are underweight and talking to clients, I still think that's where people are going to be much more comfortable putting their next dollar in. Is the things that seem a little bit cheap, smaller pe ratios than the quote unquote magnificent seven.
All right, well, okay, Peter, The thing is what are the dangers that lie ahead? Because you know they could be overtightening, but at the same time hasn't. Now, you know, the conversation tilted towards not how far rates will go, but how long they'll stay at those levels. And I just want to just ask you, do you think that this is normalization and they don't need to perhaps cut in the future for any and meaningful way as they wait, perhaps with the next downturn.
Yeah, so I don't think they have to cut any time in the future. I think they will wait until at least December January, even if the data is week. My biggest fear is obviously now all of a sudden, bullishness has become a consensus view, and as a contrarian, I always kind of, you know, hate to be on the consensus side of you. So maybe I'm a little bit more aggressive with the laggers. But also August tends to be a time where consensus can win. Whether it's
people are on vacation or whatever's going on. It's hard to fight the trend in August. So that's why I think we could see some good news in August. But as we near September, I think people are going to start focused on Hey, recession risk is probably still real.
Everyone got squeezed out of the recession trades. But I think we kind of have this two to three week window where everyone's gonna be a little bit more calm, assuming that boj doesn't do anything, you know, to really shock us, and then after that we can start thinking about the promise, is the recession coming? What's happening in the US with student loan, debt, repayments, et cetera, deglobalization, the function between US and China. There's a lot of
risks out there. I think they're just gonna be ignored for the next two to three weeks.
This is Bloomberg Daybreak Asia, your morning brief on this story's making news from Hong Kong to Singapore and Wall Street.
Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcasts.
You can also listen live each day on Bloomberg eleven three to zero in New York, Bloomberg ninety nine to one in Washington, Bloomberg one oh six to one in Boston, and Bloomberg nine sixty in San Francisco.
Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty plus.
Listen coast to coast on the Bloomberg Business app, Sirius XM Channel one nineteen, the iHeartRadio app, and on Bloomberg dot Com. I'm Brian Curtis.
And I'm Doug Prisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg day break Asia,