Yen Hits Four-Decade Low, China's Manufacturing Activity Returns to Growth

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Welcome to the Daybreak Asia podcast. I'm deg Krisner. Tuesday marks the end of the second quarter, and it's likely to be the best quarter for US equities in six years. So far, the S and P five hundred is up nearly fourteen percent in Q two. Sound impressive. Consider this In that same period, South Korea's cospy is up more than sixty four percent in the local currency.

So we have a.

Holiday shortened week in the States. Markets will be closed Friday to mark Independence Day. We will get monthly jobs data that will be released on Thursday. For a closer look at some of the price action, let's bring in Bloomberg strategist David Finnerty. David joins from our studios in Singapore. Thank you for being here. Can we start in the foreign exchange, which is kind of your specialty. The en right now flirting with a forty year low against the Greenbeck,

Yeah, it's about one sixty two twenty three the last I saw, so both the one sixty two level. Yeah for me, he won sixty two to one sixty three area I think is intervention territory for MF.

I mean's got a bit of a problem here.

One is that it knows last time it did intervene or legitdly intervened, it didn't last very long at all when downe one fifty five and bounce back. The second thing is you have Kevin Walsh speaking tomorrow, you have US payrolls to day after. If war sounds hawks or payrolls comes in strong or both of those obviously dollars supportive. So if you intervene now, you're going, well, he may be a fighting a rising tide of dollar strength.

So I think they'd like to intervene now.

I think they're well aware of these headwinds that could or taw winds for dollar that could materialize. But cet I think one sixty two, one sixty three were definitely in a where they may intervene again.

So it's not necessarily if we did get some sort of intervention that the psychology of the market changes. It's basically you're triggering a short squeeze right pretty much.

I think that as far as the market's concerned, this is a dollar yen story higher it's position. For that, I think anything any intervention would be just see as opportunity to buy the dip. If I'm on a surn anything around one fifty five, I think they if it even got that low, even one fifty seven, I think people propably to start by this up again because I think from the market's perspective to go, look.

The underlying scenario hasn't changed the tool.

And we know from recently that when you did intervene, it lasted, it lasted very short the dip.

So therefore, in Bolden's trying.

To say, okay, it's by the dip again, nothing's really changed. Bojay's hiking gradually hawkish. If Warshaw Payrolls comes in, you know, hawkish slash strong for payrolls. But I think they'll say, look, okay, the dollar side of equation is still very strong. We're still worried about fiscal spending in Japan. So they're going to go, look, nothing's changed, so why should I short it. You're only going to short dotti in if you think

So you mentioned FED shir Kevin worsh there making his debut public appearance outside the US this week at the ECB symposium in Central Portugal. At that last FED meeting, he sounded maybe a little more hawkish than the market was expecting. Do you think that tone is going to remain in place? If he addresses kind of monetary policy.

It's certainly gonna.

Be interesting because since that last FED meeting, obviously oil prices have come off and they come up quite considerably, So it is going to be interesting to see if he maintains that stance or if he slightly eases it. Obviously you can have still second amount effects from higher oil prices. So I don't think about the woods, but I think the market. Remember, the market when he was appointed was assuming, oh, you know, he's going to come in and do cuts what President Trump wants.

Obviously that since.

Change, but it will be interesting now he's got another chance quite soon after last FED meeting, so has changed with oil that if he wants to not duvish stance but more of a neutral stance, should we say he could do it now? And so I think the market's definitely wary of you. What does he say? But again very quickly, the iron is it's followed the following day by payroll. So even if he was say more neutral, I think obviously US shields and donald would come off.

So let's pick up on that fact that oil has come off the highs after the onset of the war in Iran. Obviously the US has been in did we know what WTI has been doing? But I'm thinking about economies in Asia, I'm thinking about Japan, I'm thinking about South Korea. Are those central banks in somewhat a different position than the FED finds itself in.

I think certainly.

Look some of them have the you know, Bank of Japan's raise rates in Philippine and Indonesia phrase rates, so they have raised race. I think now the question is how much more would they need to raise rates. I think it varies from central bank to central bank. I think if you look at Indonesia, the classic case they is they were really doing it to support the currency, and they were very honest about that. They've intermed in the fix markets. They did an off cycle rate hike

Say what about the degree of leverage given the raid environment? Right now? When you look at the figure one point four trillion US, I think that has been levered into the equity trade. Doesn't that sound a little alarming?

Well, I think that we're always worried about equity trades because it's a one way train until it's not a one way training. And every market, of course, has a history of correction. I'm not saying it's not to be a big correction, but you know there's a pullback. I mean it's it's quite standard. It's never just by bye bye, But you know, the general equity trade sort of has been that, and I think any dip has been a

It's getting higher and high and higher.

But traders will say, look at the end of the day, trenders your friend, and I think there's a lot of fomo at the moment as well. So you know, at the moment, I think people look and let's I see a fundamental reason to change my stance, which at the moment, no one's really seen that You're going.

I think, just it's higher.

Over the weekend, we had the assessment from the Bank of International Settlements, its annual report was published, I believe on Sunday, and the BIS was talking about an AI bust, higher inflation, also a thread and fiscal stress. When I consider those different elements, it seems like maybe in inflation surprise something that remains maybe beyond sticky. Maybe that we see some type of move higher in inflation and it is not necessarily driven by the oil trade. Could that shock markets?

I think it could, But I think that debate, the AI debate spur inflation has been discussed and has been discussed, so I mean, I think it's something the markets are aware of. I do think at the moment though, the market's like, look, hey, if the glass is half empty or half full, it's definitely half full. And therefore were upwards and you know, not saying to infinity and beyond, but certainly upwards in the near term. So they are wary of those potentials. But it's not enough at the

So that hasn't derailed this market.

So you go, well, if it just stays elevated, you go okay. I mean, yes, the Fed may hike more, such ways may hike more, but again those already been factored in. So unless there's suddenly a very very aggressive hiking cite tal, that's not being factored in. I don't

Equities, certainly for a while. I mean that exagen a shock was provided by geopolitics, right and that may have caught the market a little flat footed at the end of February when we had the US and Israel attacking Iran. That seems to be completely discounted right now. We seem to be moving in a direction where things are much more relaxed. Now we're working towards some type of peace deal. The market doesn't seem to be as concerned about that situation right now.

Yeah, it doesn't.

And I think if you look at the moves that you had when the war started, and let's compare that to the TRUP liberation day back last year, which seems a long time ago now, But like Liberation Day, you did see some moves about question following that shock. You know, it was a lot bigger when the Talis we announced than was expected. The war you sort of saw the build up going started because obviously the US naval forces were moving into the regions, so we were aware that

It's what I thought it was.

Oil went up to you know, nearly one hundred and twenty, and s Mark's like, oh, we got past that. So the market has this little panic attacks and then it goes it's actually not as bad as I thought.

We can keep trying it a.

Long and certainly now with oil coming off, and look with ongoing talks and the tip for tat on the strikes between US and Iran and realities, do you honestly expect a deal to be done in sixty days? I would say no, because history is said that it's very much like it will be done. It can can be kicked down the road several times, but I think the market goes kick it down the road as long as it doesn't fundamentally change the economics of global growth and everything.

Then you know what, We're fine with it. So that's what I would say.

You, all right, listen, I know you're getting ready to take some time off. I hope it's a full time, RESTful holiday. Bloomberg strategist David finerdid, joining from Singapore here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. The official PMI data for China shows factory activity improved in June by more than expected. The story is of booming exports offsetting slower growth in the domestic economy. Now, the official manufacturing PMI came in

So it seems like things are improving marginally. But what is your takeover all the numbers so far?

Well, I think generally this is good.

We're talking about the manufacturing sector, you know, doing a little bit better even in a sequential basis. But at the same time, I think the non manufacturing side, the service side, is also holding up pretty well, so that I think at LESA like basically LESA a relatively constructive picture for June, and especially at the time when we're about to look at at least a second quarter and think about whether the policymakers are about to do something.

So thinks I mean, is it soft enough do you think for them to do anything well?

To be honest, the PMI doesn't really tell the story. We have to wait until two weeks later when we look at the third quarter data together with the June activity growth indicators. At the moment, I think PMI tells us that on the supply side things are okay, But we already know that. Think about exports, think about IP they have been pretty resilient for some time. So the question is really on the demand side, consumption and investment, as ever just said, and.

So what are we tracking here in terms of this case shaped, I mean, it seems like out of all the economy that we talk about, you're seeing it much more wider. This k of an economy. Is the macro story that we're seeing, you know around Asia? Is it really only about AI and semis? How do you look at the non sort of tech sector.

Well, it's probably different from the market. I think the market only cares about the A and the related parapheral sectors. But actually for em Asia we're looking at basically growth diverging.

So the front runners.

Are the text exports exporters such as Taiwan and also Korea, a little bit of Japan and China as well. But at the same time we also have the other sectors, the other countries, for example those in Southeast Asia and in South Asia that struggle a little bit because they are more domestic demand oriented and they also you know, relies more on imports of energy.

And now with.

Oil prices still relatively elevated, hopefully in the near future is coming down a little bit further, they are seeing more struggle in terms of the growth pressure at the time when inflation is about to edge.

Up on oil. I mean, what was interesting was how it came out that the oil demand, the imports for China was not as high as some maybe had expected amid the war. What is your sense of what is transient. What is structural in these energy shifts within China.

Well, I think the oil prices staying at elevated levels are presenting some growth challenges not only to China but also the rest of the Asia in general. But for China, I think it is better prepared because of the following reasons. Number one, it has a large strategic reserve so that they can draw upon when things are getting hard. And two, they also have more diversifieds origins or sources of energy and therefore they are less impacted by GCC country issues

Bit of upside for corporate and.

Also for household when the energy prices are lower, so that demand can recover better.

What do you.

Think needs to happen for that to be that good? Inflation? How are you assessing so far their drive to rebalance the economy drive domestic demand?

The key is to see the gap between supply and demand. At the moment, supply is relatively resilient, as we just mentioned, and that's particularly supported by external demand rather than the MESSA demand. But if we can get the MESSA demand back, especially on the investment side, because it's faster investment that has a higher volatility compared to consumption.

So our hope is.

That we can see a little bit better fixed As at investment, we still hold the view that for the full year fixeds that investment growth can be as high as two percent in average, And.

In terms of your growth forecast you still think four and a half percent for this year.

It's really going to be driven by exports. You still think.

Mostly we were holding very high hopes for rebalancing, but that hope has dashed and we're now saying that it's mostly driven by exports, and the export growth this year can be as high as fifteen percent phenomenal.

Term, when can we hear I mean you're saying, obviously with the supply side still looking struct exports look construct that it could actually delay this whole next round of stimulus from the government. Is a pull up your meeting in July going to be a good catalyst or at least an opportunity to look at measures there or do we have to wait a few months, as you say, maybe more data sets?

Good question.

I think the key depends on what the numbers we're going to see in two weeks. First, So if by June mid mid July we're looking at the June numbers with a substantial contraction of fixcess and investment growth continuously into June, and with retail sales numbers still in negative territory in yar on year growth terms, I think that probably will prompt the policy makers do a quite a bit more. And are we going to see the second quarter data surprising on the downside to below four point five?

Probably not. I think we still have.

That, you know, at this level, and therefore, are they going to actually pull out some big cannons and you know, really use a lot of ammunition in the near term. I actually am skeptical because at the moment we are still you know, basically going into the second quarter against the first quarter five point zero against last year five point zero, and what.

Is the urgency.

I think that they need to see a significant you know, deceleration before they actually pull out the big guns.

So does that mean for monetary policy you don't see that much in the way of easing potentially as well, is there a need for that?

I certainly think that there is a need for that. I do believe that, you know, more policy easing is needed, including both on the monitoring terms as well as a fiscal But we're not placing very high hopes of an immediate policy change just because that we think policy makers you know, will take time to assess how bad the deceleration will be and how much of support the mesode demand will need, and therefore we're not expecting an interestry

This whole overnight reverse repob and there's so much questions about them, why didn't they disclose the rate? They unveil this new tool, But then, you know, what can we read from that here? Are they really shifting more to the short end of of you know, interest rates and whatnot and make it more aligned with central banks around the world, or do you think?

I don't know what do we glean from that?

To be honest, we don't know what the message is because in the first place, policy makers are trying to emphasize the point that they still want the seven day repel rates as the key policy rate. So you know, if they do something to the overnight but not to seven day, is this the emphasis of the most important policy rate. We don't know, So that could be one concern.

Helen, why did I ask you as well, what do you think of the biggest risk maybe for the Chinese ecconomy in the back half of the because their trade frictions seem to be brewing China between the EU and then with Japan as well.

Well.

I think trade environment wise, we are seeing, you know, in certain places, for example you as China, the environment is getting a little bit better, not the least because of the top leadership meetings anchoring the thing. You know, I would say in the very near future to mention that there are three more Trump Sea meetings waiting before the end of the year.

So we think that US China is probably doing okay.

But at the same time, on the other hand, we are seeing for example, China, EU, China and Japan having a little bit more turmoil in the in the trade front, and we are seeing that potentially China is see going to see more, you know, challenges in terms of seeing the higher tariffs or trade barriers, so that they probably would see some downward pressure on external demand coming from

That was Helen Choos, chief economist for Greater China at Bank of America Global Research, speaking with Bloomberg TV host Von Mann and April Han, 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