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Welcome to the Daybreak Asia podcast. I'm deg Krisner. Market suffered some whiplash today from the headlines regarding war in Iran. After the US close, President Trump extended the ceasefire between the US and Iran at the request of Pakistan.
Now.
Trump also said the US military will continue its blockade of the straight offom moves, and he said he was taking these steps until Iran's leaders could present a unified proposal. This seemed to be quite a reversal from Trump's position as of early Tuesday morning, when the President said he would resume bombing without a deal in place. Now that ceasefire with Iran was set to expire on Wednesday. For a closer look at market action, I'm joined by Bloomberg's
Paul Dobson. Paul as executive editor for Asia Markets, and he joins from our studios in Singapore. It's clear that peace talks have faltered. Early in the day, Vice President JD. Vance suspended a trip to Islamabad, and I know there was a lot of confusion as to where Vance was
at the time. This seemed to be in direct response to representatives from Tehran refusing to attend these meetings, And I'm curious, Paul, to get your take on what you're hearing from market participants about what appears to be the real lack of a tangible resolution here.
Yeah, hi, Doug. So there's two different ways to be thinking about this as a market practitioner, I think, because one, what we're seeing in the Asian morning is actually a relatively positive macro outlook. Again, we have US stock index futures up currently, a little bit of weakness in Creede oil if anything, and weakness in the dollar as well, which are the trades that we tend to get when people are a bit more optimistic about the way the
situation in the Middle East is going. And I think what people are latching onto here is that intimation from Trump, not that it's you know, another sort of change of mind by him, so much as the idea that there is really some internal turmoil in Iran at the moment, and so we're sort of waiting for that side to figure out exactly what it wants to do. And I think the market sees it as hopeful in the idea that there's a more potentially moderate voice in the room
in Iran pushing in favor of those talks. At the same time, of course, you know, there are plenty of hardliners there that would prefer to prefer to maximum kind of resistance against the US. So I think that on that short term basis, that's why the market is at least taking a little bit of heart from the situation where we are right now, and the fact that there are no actual bombs falling is generally being seen by
the market as a positive. The longer term view, of course, is the strait is still closed, and every day that we have that the situation still as we've been saying for weeks now, Doug, every day, you know, the tightness in those energy markets does get a little bit more constraints, and we're starting to see we're seeing airline companies, for example, they're talking about reducing the number of flights that's happening. We're seeing some manufacturing production a bigger company starting to
just get a little bit ratcheted down as well. So I think that those signs are emerging a little bit more, and that's something that the market is going to have to keep in its mind. At the same time as the possibility of a resolution at some point.
I was struck by the fact that President Chichinpang of China was urging the restoration of transit through the Strait of Formos. Apparently there was a very rare call that happened with the crown prints of Saudi Arabia. It seems like China is beginning to exert a little bit of pressure here after what seven weeks of war.
Yeah, and if China can have any influence over I run, then that would presumably be a positive thing for the global market situation at the very least, if they do manage to bring talks back to the table. It's not entirely clear what China can achieve in that respect. It's sort of been, as you intimated, a little bit stand off in the whole situation, not getting involved so far, and maybe that's because, you know, it doesn't have that
much potential to influence things either. What we do see in China itself is still you know, relatively healthy looking economy relative to a lot of the rest of the world, because it came into this situation with such high energy reserves, and because it also is you know, been moving further and further away from fossil fuels, and I think that some of the energy companies have been talking about the idea that Chinese firms have been seen selling some energy
products into the market, suggesting that you know, they can actually help other people out somewhat because of that healthy reserve situation.
Obviously, higher crude oil prices correlates directly to inflation. And today in the States, we heard from Kevin Warsh. This is President Trump's nominee to lead the FED. He was at his confirmation hearing today before the Senate Banking Committee. He rejected concerns that he would be a sock puppet for President Trump, and he also pledged to act independently
if he is confirmed as FED chair. Is there any concern here in the market that he may be inclined to maybe think differently about inflation if President Trump is even mildly suggesting that the FED needs to be lowering interest rates sooner rather than later.
So the testimony seems me at least from catching up a little bit late to be relatively neutral. And you know, yes, the line of questioning from Elizabeth Warroma, she suggested that he might be a sock puppet for Donald Trump. Clearly sort of like grabbed the headlines to a certain extent, and he delivered the refuge of that that you would expect. I thought it was interesting that even myram we've seen in recent weeks has been talking about less need for
the Fed to cut interest rates quite so aggressively. Given the situation that we're in. I think Warsh probably would like to get through the hearing and get in through the door before he can make that assessment for himself. The Treasury's market itself has been interesting in recent days, Doug, because actually volatility has really been falling off a cliff there. The movement that we've seen in yields has really started to ratchet back in and sort of hold in check.
And it is I think that impression that maybe the Fed is just not going anywhere anytime soon, that the market is now starting to price in.
Well.
You referenced some dollar weakness that we are seeing now in Asian trading, but the dollar was stronger in New York trading. There's been a lot of volatility where the foreign exchange has been concerned. Is that really what we're going to be dealing with for the foreseeable future. A lot more volatility in some of these cross currency relationships.
I'm not convinced because the market doesn't really seem to know what to do with all the information. So what we have seen and been reporting in recent days is the idea that hedge funds are ratcheting up their bets on continuing dollar weakness, so they're using options. First of all, we had a story that was looking at how they were trading options betting on stronger Asia currencies, are the Chinese un and the Korean want being seen as favorites there.
Then they shifted a little bit into your Europe as well, looking for strength against the US dollar there. But of course, like you say, it's a little bit of a frustrating trade for them because every time the war dynamic moves in a different direction, the dollar appreciates again, and then those sort of the timing of those trades can get
out of kilter as well. So I think it's not huge amounts of volatility, but it's just kind of whiplashing backwards and forwards around those sort of pivoty areas, and so much is dependent on that headline risk at the moment.
What we have seen is, you know, commodity currencies in among all this have been some of the bigger winners, the Australian dollar, the Brazilian real for example, seem to be rising a little bit above the noise and showing more signs of consistent sort of appreciation process.
So I'm curious as to what the conversation has been like between central bankers and the Asia Pacific and markets. Is there a message that is being communicated that has some level of clarity behind it or are they pretty much in no man's land as well?
They Yes, in no man's land sounds about right. So we do hear from a couple of the Asian central banks this week. I think we have Indonesia and Philippines central bank decisions and those so those economies are in a slightly different place to a lot of the rest of the world. They're the ones that are really under the pressure because of their dependence on energy inputs to keep the economy running. And you know, Indonesia has extra issues in terms of this if it's stock market at
the moment. So for those central banks, what they what they would really like to do is to be able to ease interest rates to reduce pressure on the economy. But what they're also facing is pressure on their currencies, and so having higher interest rates would protect the currencies from too much setting pressure too. So they're a little
bit caught between a rock and a hard place. And you know, those are the economies that are really struggling, and as a result, they're the ones with the currencies that have been under pressure during the six or seven weeks that we've had this conflict in the Middle East.
Before I let you go, I have to ask about this story and mythos this new AI model released Bianthropic selectively. There have been some government entities that have been allowed to kind of test this model. There have also been a few banks within the kind of major money center banking community that have been allowed to experiment with it as a way of testing their own vulnerability for possible
cyber attacks. So today we learned that a small group of unauthor rised users was able to access this mythos AI model from Anthropic. They were able to gain access through a number of different tactics. One included basically a worker that had been assigned to a third party contractor for Anthropic was able to kind of allow access to the system. There were some other intranet sleuthing tools that
have been used. Is there concern here at all within the Asia Pacific, particularly when you look at some of these financial systems, about the vulnerabilities that may exist when you get a super sophisticated AI model that represents a threat to cybersecurity.
I think there must be. I think there's a sid in irony, right. The model that everyone is fearing is going to highlight all of these security loopholes in existing systems also has its own problems with back doors and access to and the potential for misuse is definitely high. And you know, we've seen plenty of cyber attacks already over the past few years that have proven pretty disruptive already.
I think I had a really interesting conversation with one of my colleagues where they were talking about this idea that the greater the sophistication that we get with the AI models, the bigger the risk there is of one day something just absolutely unthinkable happens. You know, for example, every sense everybody's bank account in the entire world is emptied simultaneously, which would be a very very extreme example.
But those kinds of really nasty things are a little bit less of a kind of non negligible risk of course, if you're a market practitioner, something like that is impossible almost to price in because it would be such a humongous shock globally. So it's sort of something that people have to keep in mind. I think the flip side of him propic and myth us is the tech industry, the AI industry, the chip industry is just you know,
having another phenomenal run at the moment. We see the costby setting record highs, the Taiwan benchmark setting record highs. We've seen the Philadelphia Socks Index on a fifteen day winning streak now, and so you know, there are risks and vulnerabilities out there, but there's also you know, a renewed massive enthusiasm for the potential for AI and technology going forwards.
And there really seems to be the need for kind of global regulators to get involved so that everyone is on the same page, right because I mean, the pervasiveness I mean of these systems globally. It's not just that we're talking about the US financial system, were we're talking about financial systems worldwide.
Yeah, I agree that it's running so fast that it's ahead of the regulators, and you know, the sensible thing would be for wise or cool heads to step in ensure that there's some sort of slow down mechanism in place so that things can be studanized. It's a bit like the nuclear energy industry, you know, where the regulators there are extremely careful and prudent before approving any new
plant because of the dangers. It's kind of a similar sort of risky sort of a thing, and you would hope that they could put in place structures that would be able to control it and self censor as well in terms of the developments that are being rolled out.
Good analogy, Paul, Thank you so very much. Bloomberg's Paul Dobson, Executive editor for Asia Markets, joining from Singapore here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Derek Prisner. So President Trump indefinitely extended the ceasefire between the US and Iran at the request of Pakistan. For a little more analysis, we heard from Jessica Genauer.
Jessica is the academic director of the Public Policy Institute the University of New South Wales, and she spoke with Bloomberg TV host Heidi Stroud Watts and Cherry on.
We've seen from the start the fifteen point Plan, the ten point Plan, the last round of negotiations that a lot of the really substantive issues have the part is very much far apart, almost exidentally apart. Right, what does that mean going forward? Now that this truth has been extended, We're now talking about the possibility of some type of a cold war, a frozen war, in your wording, a sort of forever war, if you will.
Yeah, that's right. So there are sort of a couple of tracks on which things are happening. So there's the track of more substantive political agreement around those really tricky issues, for example, what happens with the strait of Humor's what happens with Iran's capacity to enrich uranium and the whole nuclear issue, what happens in terms of sanctions on Iran, And we're really not seeing any movement on those deeper
issues use that are driving this conflict. And then on a sort of a parallel track, we have these shaky agreements around a ceasefire, which at the moment really depends a lot on the fact that I think Trump wants a cessation of hostilities, wants to kind of withdraw the US from that full scale military campaign that we saw in those weeks of full scale war, and so what I see happening is that most likely the ceasefires will hold because ultimately that's in the Iranian regime's interest at
the moment as well.
Whilst they have withstood.
The US bombing campaign so far and Israeli military strikes, they really wouldn't be able to withstand that forever. I mean, they might survive as a regime, but there'll be massive costs for them of that. So I think that the ceasefire will hold, mainly because it looks like that's the
direction that Trump wants to pursue. But at the same time, on that other track of those really substantial issues, I don't think we're going to get any agreement anytime soon if ever between this current Iranian regime, and that.
Means that there'll be a lot of volatility.
There'll be ongoing costs for the Iranian people, for the region and also around the world. And so whilst it might be a sort of a frozen conflict, it doesn't mean that there wouldn't be flare ups of violence, but also ways in which the conflict is actually going to have a heavy price for you. Know countries not only in the region but globally.
You've talked about how the asymmetry of this conflict in terms of military might actually create some more protracted situation. Right. Do you think for the leadership in Iran, having undergone this, having obviously lost their leader and a number of key personnel, that they're now going to just double down and this is going to be something that turns into a war of attrition, That's right.
So I think that's partly what we're seeing now with Actually it was the the Iranian negotiators who said that they were not going to show up in Islamabad in Pakistan this time, and Trump was actually quite willing to send jd Vance who was sort of primed and ready to go to meet the Ranian negotiators in Islamabad.
So I think what we're.
Seeing is the Iranian regime has seen a sort of success.
So whilst they definitely need a cessation of hostilities, they've seen a kind of success to their tactics so far, which have been using these asymmetric strategies, so using sort of small light attacks, closing the Strait of Hormuz, using missile attacks against the Gulf, so imposing these economic and political pressures on the US and on the Trump administration, And what we're seeing is that they are doubling down on that approach so by actually really playing this game
of brinkmanship with the US. So they didn't quite know whether the Trump would extend the ceasefire when they said they weren't going to go to Islamabad. But I think that what elements of the Iranian regime are feeling is that they need to double down on an internal narrative of staying strong and powerful themselves and continuing to resist the US. And we haven't really seen any softening of that so far from any of the remaining elements of the leadership of the Iranian regime.
What what do the internal dynamics look like in Iran? Because even President Trump are extending the seasfire, actually called a seriously fractured leadership structure in Iran and blame that for the collapse of the negotiations in Islamabad.
Yeah, I think this is a really interesting point, and I think I wouldn't necessarily say fractured at this point in time, but there definitely has been a very strong effect from the fact that we've seen high level political leadership killed since the beginning of this war, and very importantly the Supreme Leader so Ayatola Harmione, who was then
replaced by his son Mushtaba Hamioni. But what the issue here for the Iranian regime is that there's no one centralizing figure anymore with clear authority over all of the different parts of the Ranian regime, which the previous Supreme Leader did have. And so what that means the Iranian regime is certainly going to survive at this stage, and all of the elements of the regime are very much focused on its survival. So it's not that it's going
to collapse. But what we're seeing is a little bit of power struggle starting to happen between different sort of elements inside the regime who might want to take a slightly different approach to the way they're dealing with the US. So everybody in control now we could broadly call hardline from a sort of US perspective or a Western perspective, in that they're very much engaged with ensuring the regime survival and ensuring resistance to the US and resis distance
to Israel. But even within those groups, there are those who are a little softer in their approach to being willing to negotiate with the US, and there are those who are saying, we shouldn't negotiate with the US at all, we should just double down and we should even you know, potentially escalate in the war. Now, I think those slightly more pragmatic elements will probably win out, just because the Iranian regime does need a cessation of hostilities in order
to sort of regroup itself. But that's basically what we're seeing inside the regime.
So Jessica, if survival is the ultimate goal and they're managing to do that and drag out the war, what could the run look like in the next few months or even years. Are we talking about a frozen conflict that could lead to what happened in Afghanistan or even closer to home here in Asia, to say North Korea.
So what I expect is going to happen, and again there's always uncertainty around these things, but what I expect at the moment is that the cessation of hostilities will hold.
There will be no substantial politic agreement.
So what that will mean is that the Raning regime will very much still continue to be a disruptive actor regarding the Strait of Humors, And of course there's that US blockade at the moment with the Strait of Humors as well, so there'll still be a lot of tensions there. It will still be really hard to get shipping out
of the Strait of Humors. In terms of the region, it will be quite a long path for Gulf countries to rebuild that sort of impression of stability and safety and security that they had before this war, and for the Iranian people that the Ranian regime is going to be even more controlling and hardline in terms of its own domestic security. So I think going forward that we will see probably in the medium term, that the Ranian regime will stay in control of the country, but will
be a disruptive actor. I do expect, however, that within the longer term, so sort of three to seven years out, we might start to see those power struggles within the Iranian regime start to have a more sort of costly effect domestically. So that depending on what happens with mush de Bahamioni and whether he can really sort of bring those different parts of the regime together under his leadership,
which is not yet clear. We could actually see some kind of more internal fracturing, which would be more of a sort of civil war type situation within Iran, but I don't think we would see that for quite a few years. That's not something that would happen within months or even the next sort of three years.
Jessica, just a couple of final thoughts.
Has the war in a long term sense achieved anything other than showing the world how much leverage the leadership in Tehran has over the global economy through the straight of worar moves. And also, do you think at this point in a stalemate, are there any other global actors that can actually have influence China for example.
So in terms of what we're left with, if this ceasefire does sort of continue to be extended, then we are really left with. I mean, on the one hand, there would be certain US personnel who would say, well, we did achieve a lot of military objectives, and they certainly did so.
Both Israel and.
The US took out a lot of the Iranian regime's military capability, So in terms of their ability to act within the region militarily, they are severely degraded, and it will take them a long time to rebuild, and then we also don't quite know in terms of the nuclear program how much that was degraded, particularly in the bombing that took place last year, So there has certainly been some degrading of the nuclear program as well, So there would be those who would sort of claim that as
a win out of this war. On the other hand, we are seeing a region that has deeply uncertain where the Iranian regime will certainly and in fact the US at the moment will continue to disrupt shipping in and out of the Strait of Humors, and that uncertainty is like to continue. The Gulf States are in a very precarious position and the Iranian people are no better off.
So yes, coming out of this, there are a lot.
Of factors that are more uncertain and certainly less positive also around the world, seeing that disruption in shipping has a huge flow and effect for our cost of living and fuel scarcity, et cetera. As we're seeing all around the world and in our region as well. So in terms of other actors who could have influence, China is definitely the key one there. So China has been pretty sort of cautious and subtle in their approach so far.
I mean, they've certainly been critical of the US war in Iran, and they've been positioned in themselves in many ways, you know, cooperating with Iran in terms of sharing intelligence and things of that sort. But they haven't inserted themselves as any kind of key player in this war. But China probably are the only actor with the sort of political and economic leverage to lean on the Iranian regime if they wanted to to influence them one way or another.
They don't exactly have that leverage over the US, but they could certainly insert themselves more strongly if they wanted to in trying to push for some sort of solution to the war. But I think that at the moment, the Chinese regime is actually not in a bad position if they sort of sit back and look at what
happens rather than trying to insert themselves too strongly. I mean, their key concern will be that the strait of hum Wars can be reopened, But other than that, I don't think that they are too disappointed seeing the US involve themselves in a costly ongoing war that is going to have massive effects for the US.
Even if that sees fire holes.
That was Jessica Genauer, academic director of the Public Policy Institute at the University of New South Wales, speaking with Bloomberg TV host Heidi Stroud, Watts and Cherry On 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 Prisner, and this is Bloomberg