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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner, and today we begin in the oil markets, where prices are soaring. This escalating tension in the Middle East has prompted the US State Department to reportedly order American workers at the US diplomatic mission in Saudi Arabia to leave. The New York Times reports it's an indication that senior US diplomats are bracing for a possible surge in violence
in the war with Iran. Now, major producers like the UAE and Kuwait have reached storage capacity and so as a result, they're now reducing production, joining Iraq, which has already cut output down to about sixty percent. And at the same time, the most important waterway for global energy markets, the Strait of Horn Moves, is essentially closed. Joining US now. As Bloomberg's Paul Dobson, he is executed an editor for Asia Markets. Paul joins from our studios in Singapore. Thank
you so much for being here. This surge in oil prices has sparked some heavy selling and Asian equity markets, and the losses are quite dramatic. Aren't they.
Well.
I think that the situation has definitely become more tense over the weekend as far as market watches are concerned. We have Eran appointing Camini Junior as the new leader, which doesn't suggest any sort of a pivot away from
a kind of hardline policy. We have signs of more production getting shut in in the Middle East region because it can't get out of the strait of Hormes as well, and so that's leading to those sort of knee jerk fears of scarcity of oil supplies in some parts of the world, at least blockages in the refinery output, which is also pushing up the likes of jet fuel diesel prices,
and the fear that that creates is twofold. On the one hand, the inflationary fear because our higher oil prices will push up costs right the way through the economy, and secondary the fact that that will slow down growth
as well. So it's not just inflation but stagflation that people are worried about, especially after the nonfarm payrolls number that we had at the ends of last week, which was deeply negative and troubling, when people had been assuming that the US economy was still holding up relatively well.
So last week when we saw that massive sell off in the COSPI, I think at one point we were down twelve percent. A lot of the thinking was that this was the result of forced liquidation because margin calls had gone into effect and rather than pay into those accounts to bring that level of equity up to the required level, you just were forced to liquidate a position. Is that playing out again, do you think today?
I'm sure that there will be the risk of that again. Yes. The Korean traders love leverage, they love risk, and they don't stop. They suddenly bought the dip in decent numbers after that set off that we saw last week, and say the fact that there's another down date may again lead to some trader's hitting margin limits and being forced to either put up more collateral or cut their positions.
And I think that it's probably the same across Asia today because levels have implied volatility are likely to rise. With the big moves that we're seeing in all markets. That's going to lead to more demands for collateral across the whole investment complex, which will again cause people to seek to liquid ate. Not just the sort of holdings that have done well already, but also the most liquid ones, so that may be adding to the downward momentum on things like bonds, for example.
Very difficult to find a haven in today's session. I mean US treasuries, which are normally considered to be a haven, not the case today. To go back to the point that you just made about rising inflation that's being reflected in US bond yields, we have the precious metals that are showing weakness. I think spot gold is down around two and a half percent we speak silver more so. The only thing that seems to be positive at the moment is the dollar. Can you help me make sense of that.
The dollar has been performing well as that haven of choice during the term or that we've seen over the last week or ten days, partly because of its deep liquidity, partly because of its relatively high interest rates in the idea that the FED isn't going to be cutting anytime soon, and partly because as a net exporder of both oil and natural gas, the US is not in a completely disfavorable position right now, and relative to the rest of the world, maybe looks a little bit better off in
some respects and so people are going to that as a kind of place where they would prefer to have their money right now. Partly, you know, it's that cleanest dirty shirt kind of a thing that we've heard before, where if you look at the rest of the world, do you think, well, you know, where's to write at this moment in time, And so that's where the cash
will tend to flow. And it's not, as you said, it's not the government bond market, but it's you know, the money markets where the cash is basically sloshing around are kind of unallocated.
Basically, I'm curious as to whether or not anyone is talking about private credit today in the APEC because last Friday here in the US, we had chairs in Blackrock down nearly eight percent after the firm curbed some withdrawals from one of the private credit funds that Blackrock operates. You and I have spoken about this in the past, and I'm wondering whether or not it's even part of the conversation today or whether it's being obscured by everything that's happening in the oil market.
It has really come across my radar particularly, But I think that the reasons for that are two For one. Yes, obviously the noise from the rise in crude oil prices is kind of canceling everything else out at the moment. But also in Asia, private credit not quite such a big deal as the rest of the world, and so therefore, you know, as we move into the usday, maybe those concerns come up again as well. But what I will say is it certainly doesn't help the bigger macro picture.
When we have that, plus the AI disruption worries that have been weighing on traders minds in recent days and weeks, along with the backdrop of the crisis in the Middle East that we're seeing right now, creates a toxic cocktail for global markets.
No doubt about that. And I think one of the key questions at this point that's so far been unanswered is you know, what could the duration of this conflict be? Are people talking about worst case scenarios on calls today that you've maybe have been privy to.
I think what we learned over the weekend is Iran seems to be doubling down when you look at the appointment of the leader, when you look at where the missiles have been going. For all that, we heard a bit of an apology, it doesn't seem to have changed anything. The fact that a desalination plant was hit in Bahrain was seen as a negative thing if it means that more civilian infrastructure may be targeted. Israel hit some of
Iran's crude oil infrastructure as well. And I think on top of that, you know, we heard from Donald Trump in a tweet saying one hundred dollars a barrel oil for a short period of time is a reasonable price to pay in order to you know, secure the goals that the US has in Iran. So it also doesn't
seem like he's immediately panicked by that move. So the idea, you know, the thing that people have in the back of their mind, will the US president at some point retreat having escalated, doesn't really sound like he's backing down right at this moment in time at all. And so that does make people concern that there will be a
much longer term war here. So I think that you have that on the on the side of pointing to longer conflict, I think on the flip side of that, you could say, well, if you look at the crude oil curve, it's still in very, very steep backwardation, which means the prices for the back end of this year are still down at about seventy dollars a barrel, suggesting that people feel that once you know that this situation is resolved, the price of oil could fall off again quite rapidly.
So President Trump and Chinese President and Chi Jinping are set to meet in the next couple of weeks. Do you have a sense of what this conflict in Iran may do to that meeting?
What I will say is that all the noise that we're hearing out of China at least has been very positive still in terms of the setup for this meeting, talk about this being the start of a reset and and a longer term kind of stabilization in relationships. So it doesn't sound like China is going to raise this as a particularly big issue or some reason that would in some way holt those talks stop those talks from
taking place. Think that there are some initial meetings planned had come up in the next couple of weeks as well to lay the groundwork for that. So far, actually, the signs there as something of a thoring of a relationship. And I think that if you look at what China's markets have been doing. They've been relatively well insulated actually from what's happened so far in Iran and the oil
market and that tension. So the interesting if when you're talking about haven's where the actually China emerges as another place where people have relative confidence compared to some of the more excessive news that we're seeing, for example in career in Japan today.
What about the story in India? Last week, we had reporting that indicated that Russia was going to be granted some privileges to be able to sell crude oil to India. Now that had been a line that President Trump had drawn previously, pressuring Indian Prime Minister Modi not to buy any more Russian crude. He seems to have reversed himself, just perhaps temporarily, given the what's going on, the ructionans happening in the oil market. Do we know anything more about what's going on with India?
As he said, they were very quick to take advantage of that and to lock in some purchases of the Russian oil which has been floating around on chips not too far away, so they're able to take some deliveries, which is very good news because they need to get those refineries running and to continue to have oil flowing
through the economy. I think across Asia there were signed at the weekend of worries in various locations that there may be fuel shortages, so not just the cost being the concern, but actually the availability and so that at least provides a little bit of a relief as far as India is concerned at a quite important time of year for the economy in terms of the crop rotations.
So that at least is one crumb of good news, But it also speaks to just how kind of crazy and mixed up this whole situation is right now, right Doug, that you know you have to cut off your nose to spite your face in a way by allowing some step back from pollen see in one conflict in order to see paper over the cracks that have been caused by conflict somewhere else.
You're absolutely right about that, Paul, Thank you so very much. Paul Dobson, Executive Editor for Asia Markets, joining from our studios in Singapore here on the Daybreak Asia Podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner, and now let's take a closer look at what those higher oil prices mean for economies in the APEC. Chian Wang is the chief Asia Pacific economist at the Vanguard Group, and she spoke to Bloomberg TV host Heidi Stroud Watts and Avril Hong.
So, I wonder what is your take first, at one hundred and ten dollars a barrel of oil, which we are now within reach of, what's that going to mean in terms of the scenarios for Asian economies both on growth and inflation?
Good morning, Thanks for having me here today. I think, you know, in terms of the macrow impact, I mean, there is no doubt the higher oil price is actually a saculationary shop, you know, to most of the economies. You know, it's negative for economic growth and it's going to lift the inflation higher. But I would say in terms of the actual magnitude of the impact, it also depends on how long the oil price will stay at the current level, right, So that duration of the higher
oil prices actually matters as well. We estimate that, you know, for Asian economies in general, because this region is prettily vulnerable, because most of them are you know, like you rely heavily if not entirely on inputed oil and also heavily reliant on the supply from Middle East. We do estimate that every ten percent of increasing oil prices will lead to about to say, you know, ten to twenty base points lower in GDP growth and twenty two forty based
point higher in headline inflation. So the had is in there if the higher oil price is going to last. But of course I would say every country is different.
On that note, perhaps also worth unpacking. I mean, we know how consumer's fear of inflation can also tend to drive these price pressures. We're hearing in parts of Asia people are lining up at palms. What is that aspect going to mean for the pressures we see in prices.
Yeah, I think you know, there's like direct and indirect impact, right, And I think what you're describing is also this kind of inflation expectation, you know that actually can push the prices for the up. But you know, as I mentioned earlier, every country is different, right, because I think on one, it really depends on whether the country has strategic reserves
that can help to stabilize the domestic price. And two, I think it also depends on the government whether they're going to intervene, right, either through subsidy has cut or you know, there's different kinds of pricing mechanism in different economies that is going to limit the pass root from crude oil prices to retail prices. And I think for Asia the good news actually is that most of the economy actually at this moment experience low inflation, right and
domestic demand is pretty weak. So on that front, I think when central bank are looking at that, I don't think, you know, high inflation is going to be their primary concern this moment, So to that extent, I don't think they are going to react to the higher inflation by you know, aggressive tightening the money gary policy.
So to that point, do you think that it will be some time before we see a reaction from central banks in terms of how they tweak policy settings.
Well, I think, let's put this way, regardless of what they plan to do, right, either they plan to hide or cut, I think at this moment, you know, all central banks are going to be more cautious with any move in the near term because of the heightened uncertainty, right gio political uncertainty, higher oil prices. I mean, obviously stacuflation is show always going to put central bank in
a very difficult situation. But you know, given the uncertainty at this moment, I think their best strategy is just the wait a little bit, right, you know, wait for the dust to settle. So I think you do see last week, for example, you know, central bank in Malaysia they actually turned you know, Modovis and then you know, like Singapore, right, we think they are actually the more hokish one in this region. I don't think they are in the rush to titan. Central banking India and No
Korean probably will stay on an extended pause. UH and central banking in Thailand and Philippines they plan to cut. You know, we expect them to cut, but we also think they probably also will take a little time to observe what's going on before they you know, start the next cut.
When it comes to the PBOC settings and the Chinese government, we know that China has large exposure to Middle East energy, but are there also strategies and buffers in place there because we also know that they have pretty significant reserves.
Yes, I think you know, for China, we actually estimated the impact you know on economic growths will be rather limited, right, you know, we only estimate about like five base points lower growth for every you know, ten percent of oil price increase. I think part of that is because China, one, as you mentioned, you know, a strategy reserve they have been building over the past several years. And two, I think China really diversify the you know, uh imports market
for oil. Right so when we talk about Middle East, it's about forty percent of China's total you know, imported oil. And the other thing is that in recent years, I think China also you know, was moving very resent with the green trans green transition, right, so those green energy actually is now accounting for twenty percent of China's energy consumption compares to you know, fifteen percent in twenty ninety. So I think all of that actually helped to alleviate
some of the impact from higher oil prices. And I also you know, would expect that yes, physcal policy will actually you know, be ready right to limit and you know the impact on oil price, crude oil prices, the impact on households.
Aside from that energy security angle, talk to us also about the trade angle, given how the streets traffics pretty much hold Asia's economies, many of them are you know, reliant on exports realized.
Yes. I think you know, at this moment, you know, this kind of global supply shock, right is going to a big you know, disruption to the potentially to the global supply chain. Right. So what does that mean, you know for the global trade further down the road, I think remains you know, something that we need to watch very closely. I think the whole at this moment for a lot of people is that this conflict could be rather short lived, may not last more than a few weeks.
Right then, in this case, I think the disruption to the global economy global trade will be rather limited. But I think if the conflicts and also you know, what happens to the trait of hormus that actually sustained you know, more than just a few weeks, then I think that the disruption to global economy and trade could be quite significant.
That's Chian Wang, chief Asia Pacific economist at the Vanguard Group, speaking to Bloomberg TV host Heidi Stroud wattson April Hong, bringing you their conversation here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg