About this transcript: This is a full AI-generated transcript of Bracing for Yen Swings; US Jobs Ease Fed-Hike Concerns — The Asia Trade 7/3/2026 from Bloomberg Television, published July 3, 2026. The transcript contains 16,139 words with timestamps and was generated using Whisper AI.
"This is the Asia trade. I'm Chef Rian in Tokyo. The top stories this hour. Asian stocks set for another day of declines as investors continue to dump tech shares on concerns over the AI rally. The Nasdaq sliding along with the gauge of U.S. chipmakers. A sharp slowdown in the U.S. jobs market..."
[00:00:00] Chef Rian: This is the Asia trade. I'm Chef Rian in Tokyo. The top stories this hour. Asian stocks set for another day of declines as investors continue to dump tech shares on concerns over the AI rally. The Nasdaq sliding along with the gauge of U.S. chipmakers. A sharp slowdown in the U.S. jobs market easing Fed rain hike bets. The Dow hits an all-time high while short data treasuries rally. Plus India and Japan agree to deepen cooperation and reduce their dependence on China. Japanese Prime Minister Takaichi in New Delhi for her first official visit.
[00:00:52] Heidi Stradwatts: I'm Heidi Stradwatts in Sydney. Take a look at the setup this Friday as trading kicks off across Asia in the next hour. And this is a picture. And we are looking like a pretty gentle start to trading in this part of the world as a second day of losses potentially could be seen across Asia. Investors continuing to see the rotation out of tech shares. These concerns that of course the AI field rally has run ahead of itself and perhaps we see a little bit more kind of risk management in the day there as well. Cosby futures in particular low by 1.8 percent. We are seeing pretty much a flat picture as we see Chicago traded Nikkei futures there. And that last close for U.S. stocks is pretty flat at the moment. But dollar yen pulling back a little bit. 160 127 is where we're trading at the moment. Watching the oil markets as well as we continue to monitor the state of really these ongoing U.S. Iran trade talks pretty steady trade at the moment when it comes to global oil prices. But also we are continuing to see fairly consistent tanker traffic through the Strait of Hormuz as well. The near term supply is starting to build talks between the U.S. and Iran continuing. We heard from President Trump saying that they are still negotiating and that Iran has agreed to just about everything we need in an interview with CNBC. But we are continuing to watch kind of the reestablishment of fundamentals particularly Sherry when it comes to how that passes through to inflation
[00:02:13] Chef Rian: policy and central banks. Yeah. And we've got some more signals when it comes to the U.S. jobs data as implications on Federal Reserve policy. Let's bring in Bloomberg's chief economist Tom Orlick. Also with us Garfield Reynolds who leads our markets live Asia coverage and markets reporter Anthony Stevens. But Tom let me start with you because we saw the labor market data cooling a little bit not necessarily breaking. Does this give us more indication that potentially we could see the self landing narrative come into play.
[00:02:48] Tom Orlick: So it was not a great jobs report Sherry, but it wasn't a disastrous jobs report either. Markets were looking for around 113,000 new jobs created in the U.S. in June. In the event the print came out 57,000 and there was also a backward revision to past months slightly lowering the profile of hiring in May. And the set of sectors which were creating jobs narrowed as well. So not a great jobs print. But with what's going on in the U.S. population right now, the collapse in immigration, the U.S. also doesn't have to create that many new jobs in order to keep unemployment low. And July, June's job print more than met that threshold. So does it support us? Does it support a booming U.S. economy narrative? No. Does it support the soft landing narrative that you mentioned? Yes, I think that's a fair assessment.
[00:03:56] Chef Rian: Hmm. Garth, I mean, it did also really scale back traders' expectations when it comes to that Fed rate hike. One analyst putting this as a great report for Kevin Warsh. We saw the reaction in the markets already.
[00:04:11] Garfield Reynolds: Yeah, well, I mean, the markets are facing the difficulty that under the new Fed chairman, you know, he's been very clear on this no forward guidance idea. So there's an extra element of volatility for every major economic release. I think Tom's take on the jobs data was pretty accurate. It wasn't a terrible jobs report. It just wasn't great. And if you look at where inflation is at, when you look at some of the indicators like we'll get an update on on the on this soon on the, you know, where the services ISM has been, where the PMIs have been, the U.S. economy is actually looking pretty strong, certainly strong enough, you would think, for rate hikes to stay on the table. However, as I mentioned, from sort of major release to major release, you're likely to see. There's going to be a bigger shift in what the rate strip is pricing. So therefore, you had, yeah, July was never going to happen. There were just some safety bets there in case it might look as though there could be a bit more of a hawkish shift. But those have come off. And now we're kind of back to square one where there's definitely going to be a rate hike this year. Now it's seen more likely as being in December than in October.
[00:05:31] Heidi Stradwatts: And we've already seen some pretty loud critics of this consensus call for a stronger dollar.
[00:05:37] Garfield Reynolds: Well, the dollar actually, as I was looking at yesterday, the Bloomberg dollar spot index was actually bumping up against the level where it's, it's failed to go much higher, you know, on several occasions. And, of course, we remember that far back when Donald Trump came into office, there was a lot of chatter about a Mar-a-Lago Accord and how a too strong dollar was one of the things that was stopping America from becoming great again. So I had been wondering how long it would be before strong dollar angst would start to come out from the U.S. side. And, of course, for the rest of the world, the strong dollar was becoming a problem. So while it does look as though the chip sell-offs are going to continue in Asia, more broadly, there's likely to be plenty of relief when it comes to emerging Asian assets. Now that the dollar has had a bit of the heat taken out of the momentum that it had been gathering.
[00:06:37] Heidi Stradwatts: Anthony, it's a fairly complex setup for the last trading day for Asia, right? After what's been a really frenetic week anyway, when it comes to what we're seeing in tech and AI, do we again attribute this down to a rotation or is there more going on?
[00:06:53] Speaker 5: Well, yeah, it is a very complex picture. And it started from a relatively simple reaction function to those pairing of those front end kind of rate bets. Initially, the entire U.S. market rallied together. But then you saw tech diverge very significantly. But just to touch on kind of the broad-based economic strength that Garth was mentioning, you saw a big rally in the credit card space, in the U.S. consumer space as these kind of aggressive bets on rate hikes kind of pared back. So that was the strong part. Equal-weighted S&P ended up up on the day. But tech, after initially opening up around 2% to 3%, because, you know, it's a long-duration trade, it fell off a cliff over the course of the day. And that is because the pace of technology change around the AI trade has started to remarkably pick up. You continue to see new headlines around technology and how LLMs are using memory and other pick-and-shovel plays. So we had the information report that Samsung and Anthropic are working on a custom AI ship together. Now, there's a lot of speculation on what the form that chip takes. But it's reasonable to assume that it's going to be a little bit more efficient than its predecessors, going by the OpenAI Broadcom collaboration. And that kind of sparked a panic in Micron and other names that require consistent forward spend on CapEx. So this is precisely the worries the Korean market had yesterday. And we did see a big intraday swing in Korean futures as well. At one point, when I was watching on Open, it was up 3%. And by the time I woke up in the morning, it was down 2%. So we're in for yet another choppy day. Bear in mind, Korea had multiple swings yesterday of 5% to 6%. And the rest of the region coming into our session looks a little bit more relaxed on those EMFX concerns that Garth mentioned. You know, places like ASEAN and India will look at that NFP print with a lot more relaxation. On the Japan industrial side, you probably have a little bit more calm on the yen to work with. And it'll be interesting to see whether the rates bets in Japan are also paired, you know, in a similar kind of manner and how the banks trade in Japan. It's very important to mention coming into today, we had a very similar setup. We could have almost predicted how the U.S. would have traded going by Asian price action. Banks strong, tech weak. And it looks like it's set up for yet another day of that.
[00:09:14] Chef Rian: Tom, I mean, all of this that we're seeing, especially a little bit more calm, as Anthony mentioned, when it comes to the Asian markets, how much has that to do with perhaps that whole idea of U.S. exceptionalism fading just because of this jobs report? And what are the implications of other data that we need to look forward to before the July FOMC?
[00:09:38] Tom Orlick: So I think the story on the potential July hike went something like this. President Trump's just got his pick into the Fed chair, Kevin Walsh, and President Trump's made no secret of his desire for lower rates. So you'd think the trajectory would be down. But Walsh, if you look at his track record, well, he's kind of an instinctive hawk. And if a blockbuster June jobs print as well, well, we don't think they were going to hike in July. But certainly that constellation of factors would have increased the possibility of a July hike. Now we've got this June jobs print, which isn't terrible, but certainly isn't that great either. And so that momentum has come out of the idea that July could be on the table for a Fed increase in interest rates. Now, what does all of this mean for Asia? Well, as other folks have said, it's a really complicated story. There's an important tech component to it. There's an important leverage component to it, especially in the Korean market. But certainly all else being equal, a Fed staying on hold as opposed to the possibility of hiking, the possibility of even higher yields in the United States, that takes a certain amount of stress out of markets in the rest of the world.
[00:11:13] Chef Rian: Yeah, that would definitely help when it comes to rate differentials between Japan and the U.S., right? Garfield, I mean, we saw a little bit of relief for the Japanese yen yesterday. We did have the softer dollar to help. But at the same time, we saw some big, sharp appreciation in the Japanese yen all of a sudden in the afternoon training session. So what are we thinking in terms of intervention here or not?
[00:11:38] Garfield Reynolds: Well, we had those comments from the current head of FX space for the Japanese government about they're willing to be surprised to surprise markets, shifting away from anything like a line in the sand approach, which seemed to be what they were at before. So in that environment, I do think traders were getting very nervous, heading into the jobs data and heading into today's U.S. public holiday. So liquidity is going to be thinner. You know, Treasuries, cash Treasuries aren't trading and all the rest of it. So I think there was a willingness to get out of some of the long dollar-yen positions that there had been or just to dial back. So therefore, you actually had a stronger move before payrolls than you did after it. That doesn't really resolve matters for the yen, though. You know, it still faces these concerns that the BOJ is seen as being way too behind the curve when it comes to what's going on with inflation. And that's put a lot of pressure on Japanese government bonds. Now, they'll get a little bit of relief this week. But then next week, they'll be facing more pressure. There's a 30-year sale that looms as a particularly difficult one after we had a weak 20-year last week and a soft 10-year just yesterday in terms of JGB auctions. So the pressure is going to remain on the yen until, I mean, either until, if the Fed suddenly goes to, we're neutral, well, that would make a difference. But otherwise, the most important thing is, will the BOJ actually look to accelerate rate hikes, especially because the composition of the BOJ board has actually changed with Takaichi's two appointees coming onto the board. So it's a little bit more instinctively dovish. So there's a feeling the BOJ is running out of time. If it's going to hike appropriately, that is going to keep the yen under pressure.
[00:13:56] Heidi Stradwatts: Tom, it's interesting because it feels like on these days we're barely talking about the implications of the war, right, with crude prices coming down, the energy crisis kind of in the rearview mirror, and yet no degree of real certainty that this is going to translate into a lasting peace deal. At the same time, you've got President Trump rebuilding his tariff wall as well. So if you look at the second half, how big are the risks, even if markets really want to ignore them?
[00:14:25] Tom Orlick: So I think you're absolutely right, Heidi. Clearly, this moment of ceasefire and this discussion of peace in the Middle East and the resumption of oil flows through the Strait of Hormuz is a significant positive for the world economy and for global markets. At the same time, there are really significant differences between the U.S., Iran and Israel that have to be bridged in order for this ceasefire to stick. Our base case is actually that we're going to be in a period of protracted, low intensity conflict. And what that means is, well, oil at $70 a barrel, $71 a barrel, certainly good news for today. Is it going to be the reality for the second half of the year? Well, we'll have to see. And if the conflict does reignite and oil prices start moving higher again, of course, that changes the dynamic for inflation, changes the dynamic for the Fed.
[00:15:34] Chef Rian: Bloomberg's Tom Orlick, Garfield Reynolds, also Anthony Stevens, it was really great talking to you all, of course, setting up the trading day for this last trading session of the week for Asia on this Friday. We have actually more on the U.S. Jobs report and its impact on bond markets coming up with TV securities as well. Also, we'll be talking to technology's research about Meta and also cell banks' moves to rent out computing resources as they look for new ways to cash in on the AI boom. Much more ahead. This is Bloomberg. India and Japan have agreed to deepen cooperation on energy, technology and defense during Prime Minister Sanaya Takaichi's first official visit to New Delhi. For more, let's bring in Bloomberg Politics reporter Sakura Murakami. This is an important partnership. What was achieved?
[00:16:38] Speaker 6: So, yeah, it was there weren't any big announcements. The thing is, this comes off the back of Japan-India vision that was already announced last year, which part of it was like a 10 trillion yen pledge of investment over 10 years. So that was already quite big. It was this time around. It was more a reaffirmation of deepening ties, that things are on track, that there's going to be cooperation. But in a sense, it was very wide raging. There were discussions on energy. There was discussions on defense. And there was also a business forum that was going on. So it was a very broad, wide ranging discussion and a reaffirmation of like the deepening ties and how important these two countries are to each other.
[00:17:21] Chef Rian: When it comes to the economic ties, that's really interesting, right? The business forum, the interests on Japan also when it comes to India.
[00:17:28] Speaker 6: Yes, absolutely. So, Prime Minister Takechi said there were 150 or so companies that were going to be, Japanese companies that were going to go to India timed with this visit that she's making to Delhi. And there were also 120 or so MOUs that were signed in tandem with this visit as well. So that goes to show the interest that Japan Inc. has in India. And I talked to an expert and he was saying he's been seeing a real rise in interest from Japan in India over the past couple of years. Not just among the conglomerates, among the big businesses that we usually see, but also among startups, small and mid-sized businesses, the kind of breadth of the cooperation and economic kind of collaboration there is becoming wider and deeper. So that's definitely a trend we're seeing now.
[00:18:18] Chef Rian: So important, especially because both nations have had awkward, if not at times, very tense relations with China.
[00:18:25] Speaker 6: Absolutely. Yeah, exactly. And that's sort of the backdrop of the visit as well. Last time when Prime Minister Modi visited Japan last year, that was in a very different geopolitical situation. You know, Prime Minister Takechi hadn't come in power. Tensions between Japan and China weren't in a better place than they are now. And President Trump and Chairman Xi hadn't met at that time. So the geopolitical situation is different. They're both bordering China. So it's an awkward situation for both of them, maybe more so for Japan than it is for India. But they're strategically incredibly important to each other, both in terms of defense and also the economy. What's the personal relationship been like there? Oh, yeah. So Prime Minister Modi was, I think, the first one to say that, you know, call Prime Minister Takechi little sister. And Prime Minister Takechi... The lengths of diplomacy these days, huh? But on Twitter this morning, or X this morning, Prime Minister Takechi had kind of posted a picture of her drumming with Modi. So this was like drumming diplomacy done all over again. All over again.
[00:19:41] Speaker 7: She's going around the world basically drumming with world leaders now.
[00:19:45] Speaker 6: So, I mean, this kind of also comes from the relationship that Modi had with Prime Minister Abe, or late Prime Minister Abe. And so it's very much, it seems like it's very much built on that. And the brother-sister relationship is something that probably works for both sides. So, yes.
[00:20:00] Chef Rian: Well, it seems like a very friendly visit between very important partners, right? Sakura Murakami, good to have you with us. Bloomberg Politics reporter breaking down that visit from the Prime Minister to India. And for an inside look at the forces reshaping Japan right now, what's next for its businesses, markets, consumers? Sign up for our new weekly Next Japan newsletter at Bloomberg.com forward slash newsletters.
[00:20:26] Heidi Stradwatts: Looking forward to reading that. And, Geri, let's get caught up with the top global headlines that we're following this hour. And Saudi Arabia's crude oil exports have surged close to their pre-war levels as the kingdom starts getting its tankers through the Strait of Hormuz again. Data showing that the world's top exports have shipped over 6 million barrels a day in the six days through Wednesday. Meanwhile, Bloomberg's learned that some leading European powers are now accepting that ships transiting Hormuz will have to pay fees to Iran and Oman. The Russia-Ukraine war has intensified with a missile and drone barrage on Kyiv, killing 20 people and injuring dozens more. Ukraine says ballistic and cruise missiles were used in the assault, as well as jet-powered drones. Moscow, meanwhile, says it shot down a long-range missile, while Ukraine also hit a major oil refinery. The escalation comes amid signs of tension within NATO ahead of next week's summit in Turkey. The U.S. and China are seeking to roll back tariffs on some agricultural products as they look to preserve a broader trade truce struck last year. China's Commerce Ministry says both sides have agreed, in principle, to include primary products in a reciprocal tariff reduction and set a broad goal of expanding two-way farm trade. The move could see U.S. soybean prices fall below rivals such as Brazil. President Trump's latest financial disclosure reveals more than 21,000 security trades in 2025. Trump averaged 85 trades per market day, with many transactions involving large companies that have business with the federal government. We're seeing the Japanese yen pretty steady at the moment against the U.S. dollar.
[00:22:24] Chef Rian: This, of course, after seeing a little bit of strength in the overnight session. It was interesting because we had this abrupt, sharp move to the upside on the Japanese yen against the U.S. dollar. So a little bit of strengthening, but still we are hanging very close to that 40-year low against the greenback. And, of course, this has led to different outcomes when it comes to the equity markets as well. Six billion dollars of profit windfall for car makers expected now. We have heard from the likes of the chief currency official here in Japan talking about how intervention has worked in the past. Of course, right now we are on the intervention watch. Again, Heidi, we had more than 70 billion dollars potentially authorities intervening earlier this year. We are watching for any more possible action here.
[00:23:06] Heidi Stradwatts: Sherry, let's take a look at some of the stories that we're following from the tech space today. And Anthropic is reportedly in talks with Samsung to make a custom AI chip. The information citing unnamed sources saying the AI startup is still determining the scale and scope of the processor and how it would fit into a server. Anthropic told the outlet that its partnerships with Amazon, Google and NVIDIA remain central to its computing strategy. SoftBank and its telecom unit will start renting AI computing resources in the U.S. Using a growing pipeline of data centers to compete with the likes of CoreWeave and Nebius. SoftBank says the so-called NeoCloud venture plans to supply data center capacity for large-scale AI model training and inference. It's joining a crowded field as concerns grow about potential over-capacity. More ahead here on the Asia trade. This is Bloomberg.
[00:24:06] Speaker 8: It tells you the labor market is fine. There's no real concern. Certainly no urgency for the Fed to be hiking. And that buys them time.
[00:24:13] Speaker 9: I think this is a great report for Kevin Warsh.
[00:24:15] Speaker 10: I think it's a good report for the bond market. Today's report is going to keep their focus squarely on inflation.
[00:24:21] Speaker 11: The labor market has proved to all of us in the last six months that it is more resilient even with today's numbers.
[00:24:27] Speaker 12: You've got an economy that's growing at some pretty significant numbers and the employment picture is just okay.
[00:24:33] Speaker 7: This is a very fragile labor market and we have very low hiring but low firing.
[00:24:39] Chef Rian: You can hear the different interpretations from our guests earlier when it comes to the jobs report, right? I mean, it's interesting because you have some of the more optimistic tone where you're thinking, perhaps, could we get to that self-landing? I mean, if you have easing inflation because of lower oil prices, but you also have a sort of a resilient labor market. Yes, the non-farm payrolls came in below expectations, rising only 57,000. We saw downward revisions for the previous two months as well. But at the same time, that lowered the expectations that the Fed will need to hike rates fast. So, the July hike odds declined into roughly 20%. A little bit of a mixed picture was the unemployment rate because it came in at 4.2%, the lowest level in more than five years. So, that's also complicated interpretation of the headline. But what was interesting also was looking at the sectors of where you saw hiring growth, the likes of manufacturing, construction. They continued hiring, but you saw the tech sector 17th time in the past 18 months continuing to reduce headcount. Of course, we've heard from the likes of Meta and Microsoft firing people as well.
[00:25:45] Heidi Stradwatts: Yeah, it's going to be really interesting as we look to the start of trading in Asia, right about 30 minutes away, particularly, as you say, with the impact of what we saw happening overnight in the chip sector and across some of the broader tech names as well. We've been talking about it as though it's a rotation, but really there's some pretty complex kind of underlying concerns about how fast this rally has just run, right? And so, we're expecting to really see the brunt of that being borne by the KOSPI, but we're already seeing it, right? SK Hynix, Samsung both down for a third day. Hynix nearing that break of 50-day moving average. Samsung have already gone beyond that as well. So, watching the KOSPI very closely in terms of that particular play and those heavyweights. The Nikko 225, pretty flat trading in Singapore, watching for the impact of the yen, which getting a little bit of a reprieve from the softer dollar situation. But still, at that 171 level, we are still, you know, pragmatically watching to see whether we'll see further jawboning or any sort of signs of intervention there from authorities in Japan. But U.S. futures at the moment, a little bit of upside of about a tenth of one percent. In currencies, we're also watching for South Korea kicking off 24-hour won trading as well at a time where we are seeing quite a bit of volatility, particularly for emerging market currencies. Let's get some more analysis when it comes to the implications of the eco data from the U.S. Molly Brooks is a U.S. rate strategist at TD Securities, joins us now. Molly, great to have you with us. So, give us your read first of when it comes to this particular data set. And does it meaningfully change expectations or, I guess, lower expectations, given where the markets were kind of setting their view to what the Fed might do this year?
[00:27:27] Speaker 7: Thanks so much for having me. I would say that the data that we got kind of just showed what we've been seeing, which has been a steady, stabilizing labor market. We saw a couple of prints that got investors a little bit worried at the beginning of this year, where there was concerns on if the labor market itself was actually re-accelerating. And in that scenario, that's where you would lead the Fed to hike more or hike a little bit sooner, given that inflation is one of their main concerns at this point. But this labor market report kind of poured some cold water on that idea. We saw the below consensus headline, as well as the revisions. And the unemployment rate, although it did tick down, it was driven by a decrease in the labor participation rate, rather than something that would be considered more of a good reason for the unemployment rate to move down, such as those that are unemployed coming back into the labor market and gaining jobs. So I think all in, this report kind of just keeps the same narrative, where the Fed can continue to remain on hold and focus on their inflation mandate. And it would just put more emphasis at this point on inflation prints. We have the CPI report coming up in a few weeks now, and that will be a key catalyst to kind of see how markets react and what is the Fed going to do going forward.
[00:28:53] Heidi Stradwatts: So pretty comfortable position for Treasuries as long as we have what sounds like at the moment almost a bit of a Goldilocks situation still, right?
[00:29:04] Speaker 7: Yeah, it is a bit of a Goldilocks situation in that the labor market isn't falling off a cliff here. It's kind of in that break-even range that we're expecting of the 50 to 100K is kind of where we're seeing that Goldilocks range. But it is kind of still remaining a concern. If it goes over that range, I think at this point, that's when markets are going to be concerned, because that's when we really need to be paying attention to the labor market and inflation together. And that's what will be leading to potential hikes. If we're seeing the labor market drop below this, then obviously that's more of a concern to the economy, and then that puts the Fed's mandates in tension. So right now, the Fed is kind of sitting in a good spot and a good place to assess the data going forward, and they don't need to react too soon to the inflation shock that's coming from the energy sector.
[00:30:00] Heidi Stradwatts: So pretty good news for the bond market. Does this also take away some of the sort of fervent belief that it's a one-way trade when it comes to dollar strength?
[00:30:12] Speaker 7: So I think that our view in terms of the dollar is that, you know, more hawkish situation here is obviously going to be leading to a stronger dollar. I think that this report in particular, we didn't see too much of a rally. We priced out some base points of hikes here, but we still are expecting a hike going forward. And I think as inflation remains strong, we're still going to remain in that hawkish mindset. It's really going to take a large, I guess, shift in sentiment to be moving back towards a materially more dubbish expectation than moving in a more hawkish direction with higher rates at this point. So I think it's kind of difficult to see a scenario in which, you know, we're going to a cut narrative in the near term. But somewhere around the current range is probably where rates will be trading in the next month or so, two months, until we see a catalyst to get it out of this range that would either lead us to believe that, you know, hikes are coming sooner or if the Fed's going to be remaining on hold and we should be pricing out the rest of these hikes that are priced in.
[00:31:28] Heidi Stradwatts: There's still a lot of risks for markets and investors, right? You spoke a little bit about the implications of higher volatility with the withdrawal of forward guidance that markets have really become quite reliant on. But there's also kind of the bigger existential question because we're hearing that the president's allies are still looking for ways to try and reshape the board of governors, namely to find ways to remove Lisa Cook, to remove Jay Powell. Is that something that you're thinking about in terms of how this could drastically reshape policy?
[00:32:01] Speaker 7: Yeah, I think I think a lot of these things we will see happen in terms of the race market, in terms of all of these are going to be leading to higher volatility within rates. In terms of reshaping of the Fed, there are a lot of, I guess, restrictions in place considering that the Fed votes as an entire board, all the members need to be on the same page, they need to be appointed. So there's a lot of, I guess, time that's going to be going into potentially, you know, filling spots and firing members potentially. And rates will react to that ahead of time. But I don't think that the I think the runway will be pretty long to see any actual progress towards one of these initiatives at this point, given that the Supreme Court just kind of shut down the Cook case in at least at least for now. So I think that the time frame for all of this to happen will be pretty long, but markets will probably price in some type of term premium as well as higher vol on the expectations that this could be a little bit of a bumpy ride.
[00:33:15] Heidi Stradwatts: Molly, really great to chat with you. Molly Brooks, U.S. rate strategist at TD Security is there with us. White House National Economic Council Director Kevin Hassett is doubling down on his call for a Fed rate cut after the softer than expected U.S. jobs report. Hassett told Bloomberg that the underlying data point to be strong for a strong and healthy labor market.
[00:33:35] Speaker 11: A little bit below expectations, but if you lift up the hood, then the basic story that we think is animating the economy right now is that there's a construction boom. It's the biggest construction boom we've ever had, in part because in the big, beautiful bill, we allowed people to expense factory construction. The president talks about all the all the time about all the commitments to onshore U.S. activity, and that's showing up in construction employment, which was up a lot this month. But the factories have to be turned on before the jobs go back up into the one 200,000 range. And so I actually have been a little surprised on the upside by the job market because it's been north of 100 quite a bit. And because we don't have a massive inflow of illegal immigration, then that makes the break even job number a little bit lower. And so I think this is a really strong, healthy job market and that this was a little bit on the other side of expectation. But the trend over three or four months is consistent with our view that, again, that we were growing about 3 percent and that we're going to have a better second half of the year
[00:34:38] Speaker 10: as those factories turn on the lights. You've been consistent on that. But you've also been consistent on this. You were saying this just a month ago. The Fed is behind the curve. Plenty of room to cut. What you're describing does not sound like an economy that needs a cut. Well, I think that, again, what one has to do.
[00:34:54] Speaker 11: And right now, you know, we've got Kevin Wurst there. It's different leadership. And we very much respect the independence of the Fed. I think that Kevin will watch the data and do what he thinks is right and we'll support him in that. I think that as an abstract principle, you know, going back a month ago on the show or anywhere else I've been speaking, I've been highlighting the fact that the old fashioned Phillips curve that says, if you have growth, you have to raise rates, doesn't apply in situations where there are big positive supply shocks. And so if there's a big positive supply shock, you know, like you have an economy with an apple tree, you plant another apple tree. Now you've got a lot more apples. The price of apples goes down. And with AI basically increasing productivity of firms all across the country, then that's increasing their output. We're seeing it in real GDP numbers, but not putting upward pressure on prices.
[00:35:45] Heidi Stradwatts: White House National Economic Council Director Kevin Hassett, they're speaking with Bloomberg's Danny Berger. More ahead on the Asia trade. This is Bloomberg.
[00:35:54] Chef Rian: This is how we're setting up for the Korea session. Of course, we've seen a lot of volatility on the KOSPI. I mean, we lost almost 8% in the previous session when it comes to Samsung and SK Hynix, erasing a combined $290 billion in market value overnight. We had the Philadelphia Semiconductor Index back-to-back declines, almost 11%. We'll see what the reaction function is today in the Asia session. But we've also had reports that Anthropic is in discussions with Samsung on making custom AI chips. Let's bring in Bob O'Donnell, President and Chief Analyst at TechNalysis. Really good to have you with us. I mean, how does this meaningfully change the market if this more custom chips come to play? Are they a meaningful threat to NVIDIA and the likes of chip makers, or are we just going to see more specialized chips?
[00:36:58] Speaker 9: I think we're just going to see more specialized chips, to be honest with you, Sherry. I mean, look, there is such demand for different types of architectures. And one of the interesting things that we're seeing that's driving this movement towards specialization is the fact that we're seeing companies trying to figure out how can they reduce the cost and increase the efficiency of how they generate tokens for all the queries that we're doing and all the agents that people are running. And so what they've realized is they can break it up into different chunks or disaggregate. That's what everybody calls it these days, is disaggregation. And what they're figuring out is different aspects of those workloads require different types of computing. So you're going to see companies say, aha, I'm going to work on pre-fill, or I'm going to do the decode portion. I'm going to do this part of the inference workload. There's still the training workloads as well. So all of which is to say a lot of different ways to look at this problem, but a lot of different ways for companies to come up with creative and differentiated ways to solve this. Because at the end of the day, look, people want to be able to generate more AI tokens to fulfill, like I said, all these inquiries, to let all the agents do the work they want to do, and they want to do it cost-efficiently so they can actually start making some money.
[00:38:17] Chef Rian: I mean, the chip guys are making money, to be clear. Yeah, to be fair, right? I mean, they are helping in the manufacturing process. I mean, Samsung could partner up with Anthropic. But when it comes to choosing those partners, does it make a difference who they are and what sort of facilities they have? Like Samsung, for example, full-stack memory foundry advanced packaging?
[00:38:39] Speaker 9: Yeah, I mean, all of those things matter. I mean, look, we all know there's only a couple places they can go, right? I mean, you're going to go to TSMC, you're going to go to Samsung, and maybe you'll go to Intel. But really, I mean, there's not a whole lot of choices when we're talking, you know, the most advanced silicon. So, look, it's a great win. If Samsung gets this, we've seen some other companies showing interest in getting access to Samsung. Part of it is because TSMC is completely sold out, right? I mean, so, look, you've got to go where there's availability to manufacture these chips. So, that's all part of the game as well, is just figuring out where that capacity is available.
[00:39:14] Chef Rian: But then again, you can make your own, right? You have the likes of these hyperscalers now coming up with custom chips. So, is this eventually a threat down the line when it comes to a few years from now?
[00:39:28] Speaker 9: Well, no, but I mean, again, all of those guys, all the hyperscalers, again, they're doing the same thing that Anthropic's trying to do, that Meta's talked about doing. Everybody is, again, looking at how can I do my own custom silicon to allow me to do these different types of workloads more efficiently. And everybody has different ideas on the way to approach it. But again, when it comes to the actual manufacturing, they don't have a lot of choice.
[00:39:54] Chef Rian: Okay. So, you mentioned Meta. We are also hearing that they want to sell AI computing capacity, the same thing that SoftBank seems to be doing, or ex-AI. Why is this important for them? And does that give you sort of a picture of the capacity and the need to start monetizing at this point?
[00:40:13] Speaker 9: Yeah. I mean, what's interesting with the Meta news is it shows the fact that AI compute supply and demand are completely out of whack. Some people have more than they need, and a lot of people have less than they need. And so, it's all about kind of trying to balance that out. Meta made a bunch of early bets to get as much capacity as they could. And it turns out that they're not using all of that capacity. So, they think, all right, we can be kind of like a NeoCloud, just like XAI did last week, and say, we're going to sell some of that excess capacity. And there are plenty of people willing to do it. And the point of fact, it's proven to be a very profitable business model. Now, there are questions longer term, like, is this something they're just doing to kind of spice up the stock for, you know, a year or two? That could be the case. But Meta does have a lot of capacity also being built. So, they're looking ahead and saying, okay, we think we're going to need this, and we know we're going to have this much capacity. So, it looks like we've got a little bit left, and the market seems to react very favorably to selling this stuff. We can make really great margins with it. So, why not?
[00:41:16] Chef Rian: I mean, great for the big guys. What happens to the smaller guys, right? We're talking about CoreWave, Nebius as well. I mean, are we going to see this stack and divergence of winners and losers?
[00:41:30] Speaker 9: Well, I don't know. It's a great question. But, look, I still think overall, I said the supply and demand were out of whack. But overall, if you look at the picture, based on all the data that I can see, demand is still significantly higher than supply. So, it's just a question of how people are moving these things around. I think, you know, certainly in the near term, there's still plenty of opportunity for the CoreWeaves and the other neoclouds that are out there. Because, again, people are looking for capacity. Also, remember, there are hundreds, thousands of different companies looking for compute resources. It may be that you see the CoreWeaves and the other neoclouds focus on, say, smaller vendors or more specialized types of applications. And the metas only sell to one or two people, a couple of the big guys, right, some of their coopetition. So, I think you're going to see a lot of diversity in who sells to whom. And that still gives plenty of opportunity. Because, again, fundamentally, there's still plenty of room for people to grow, which is why, oh, by the way, I didn't get to it. But NVIDIA, I think, still has plenty of room to grow, even with all this competition, because of the overall demand just raises all boats.
[00:42:39] Chef Rian: Bob, and before we let you go, I mean, how bad is the memory shortage right now? We're hearing that Apple is considering Chinese suppliers that are on a blacklist from the Pentagon.
[00:42:51] Speaker 9: Yeah, well, the Apple thing is interesting, because what Apple said is, look, we want to use the Chinese memory suppliers for all the products we ship into China, which, you know, makes logical sense. I mean, Apple needs a ton of memory. And if they can use all the existing memory they have for the U.S. and Europe and other markets and then get access to Chinese memory for the China market, that tremendously relieves, you know, the challenges that they're facing. I mean, we already saw the big price increases. I don't think those things are going to go away. I think that's basically where the world is going to be. And my expectation is when the new iPhones come out, they may not raise the current iPhone price, but when the new ones come out, they're going to be at a higher price point because of how bad the memory crunch is for everybody, including Apple.
[00:43:36] Chef Rian: Oof, everything is just getting more and more expensive. Bob O'Donnell, good to have your insights, president at TechAnalysis Research. And of course, you can get more on these big stories on tech on the Bloomberg Video Hub. You can also check out past episodes of Bloomberg Tech Asia and other shows on Bloomberg.com slash videos.
[00:43:54] Heidi Stradwatts: Microsoft is setting up a new organization with 6,000 staff to help businesses with the technical and strategic work of deploying AI. Microsoft commercial business CEO, Judson Althoff, told us more about the aims of this new unit.
[00:44:20] Speaker 12: It's necessary to assemble a world-class team with the right skill, the right scale and the right platform to drive these outcomes.
[00:44:29] Speaker 13: The bearish view on this is that those companies just haven't been able to work out yet what to do with AI. Is that is that fair?
[00:44:37] Speaker 12: I think the thing to really grasp here is that AI has to serve the business. It has to serve business outcomes. It's less about deploying FDEs to just simply drive AI adoption, but rather infusing the right level of skill around industry expertise, around change management and continuous improvement. And then, of course, world-class AI engineering. That's what's really different about what we're doing with Microsoft Frontier Company. Sure, we're going to put a lot of great engineers on the ground at customers to help them with AI, but we're first going to be methodical about making sure that the AI solutions that they're building are really driving business outcomes and that are infused into the way they work. AI has to empower human ambition and it has to empower AI outcomes for customers, and that's where we're really focused here. That's differentiated from how others are approaching this.
[00:45:25] Speaker 13: That, different from how others are approaching this, is really interesting. Like, I talk to a lot of FDEs, you know, all kinds of companies, that they would probably point out, right, that there is a distinction between forward-deployed engineer, the noun, and forward-deployed engineering, the verb, right? What the actual outcome Microsoft's trying to affect is. So, I think that the question I have for you, Justin, is how much is this a go-to-market enablement and strategy for you guys, or is it a way for you to build out a product, a specific Microsoft product?
[00:45:58] Speaker 12: It's a great question. I'm really glad that you asked that because it's super important to understand how customers get value out of these types of investments and, frankly, what's left behind. We're really, really focused on our customers' intelligence and their outcomes. So, every bit of work that we do at the face of the customer is going to be about compounding their intelligence and their unique value. So, any IP that's built, any data and semantic context that's derived, the evaluation thinking, all of that belongs to the customer at the end of the engagement, which is fairly differentiated here.
[00:46:34] Heidi Stradwatts: Microsoft Commercial Business CEO, Johnson Althoff, they're speaking to Bloomberg Tech co-anchor at Ludlow. We're heading towards the market opens, of course, and we do have a down day, looking like we're being set up for here Friday in this final trading session. A little bit of upside for Sydney futures, but decidedly lower when it comes to some of these tech-heavy gauges. This is Bloomberg.
[00:47:03] Chef Rian: This is the Asia trade. We were counting down to Asia's major market opens after we saw another tech sell-off in the overnight session, at least, Heidi, when it came to the U.S. payrolls numbers. Weaker than expected, so perhaps strengthening that self-landing narrative with those bets and the Fed rate hike easing.
[00:47:34] Heidi Stradwatts: Yeah, even talk of this kind of being a Goldilocks scenario, maybe how long can that last for? I guess it's a question, particularly at a time where there are worries over the sustainability of this AI and tech-driven rally, right? We're seeing that driving, particularly markets like Korea. What we're seeing in terms of the price action for Samsung and SK Hynix being really quite problematic in today's session.
[00:47:56] Chef Rian: Yeah, especially with the Philadelphia Semiconductor Index now losing almost 11% in two back-to-back declines already. So we will see the downside pressure, especially not only South Korea, but we do have a lot of those semiconductor equipment makers, chemical materials makers here in Japan. And you can see the Nikkei unchanged at the moment. The topic's a little bit higher, but the Japanese yen is the one that we're following right now. We saw a little bit of strength in the overnight session, especially yesterday over the afternoon Asia trading session. Sharp strength. We are an intervention watch because we're still very close to that 40-year low against the U.S. dollar. 1986 lows. And what's really interesting is now what is weak for the Japanese yen? How much weaker can it get? You have the likes of Monix, Blue Edge Advisors, for example, saying that 200 yen per dollar cannot be ruled out. I mean, that's a really scary scenario if you think about just a few years back where we were in the Japanese yen. We are also watching pressure on JGBs because we had the weakest demand for 10-year JGB auction since April. And that really comes to show you the concerns around Japan, especially when it comes to fiscal sustainability. Take a look now at South Korea. Of course, we have been talking about that tech sell-off that has continued really wiping out $290 billion from Samsung and SK Hynix combined in this latest bout of sell-off that we're seeing. The KOSPI regaining some of those losses, but it's been so volatile. I mean, in the last session, we had the KOSPI losing almost 8%. Now we're slightly higher. We're watching the Korean one. Still, it doesn't matter what equities do, what the rally is in Korean stocks. The Korean one has been really weak. And this foreign selling on equities has really not helped. So we are talking about those that we haven't seen since 2009, Heidi.
[00:49:46] Heidi Stradwatts: Cherry, take a look at how we're setting up when it comes to the trading and treasuries. And, of course, I talked a little bit about that comfort level. It's actually the jobs read was pretty good for bond markets, right? The question is how long we can kind of continue for. Government bonds ending up the week with lower short-term yields. We had the data really kind of challenging these fundamental expectations for how fast the Fed can move later on this year. The falling oil price situation as well also contributed to the move, keeping that Dowen pressure on inflation expectations, which really have essentially collapsed since we've had that peace deal working towards a more sustainable peace deal between the U.S. and Iran there. And we're hearing that talks remain constructive on that front, despite not having a great deal of detail. But what we do know is when it comes to the continued losses in oil prices, that is on account of vessels and supply continuing to make its way through the Strait of Hormuz. So that steadying price action when it comes to crude is still what we're looking for at the moment. Tanker traffic through the Strait really increasing further. That near-term supply situation really improving. Australian equities, they're up by about half of 1%. They're watching some of those energy names as well. Banks were some of the big gainers in the previous session, as we see sort of fewer losses in this part of the market that isn't particularly tech heavy, but does have a lot of strong energy names. Let's bring in Tim Mohas, the chief APAC regional equity strategist at Goldman Sachs. Tim, always great to have you with us. And we were having this conversation a little bit earlier about the pullbacks that we continue to see in the AI and semiconductor space. Is it fair to characterize it as a rotation, as risk management, or is this the start of sort of a fundamental shift towards a more pragmatic approach from investors?
[00:51:36] Speaker 14: I think it's more the former than the latter, Heidi. I think you can understand things in the context of the tremendous price performance we saw in the first in the first half. And a lot of gains that are on the table and also a fair number of technical aspects within the Korean market in particular. There's been a lot of focus on leveraged ETFs. And we've done some work on this that show that the amount of dealer hedging, which has to take place whenever there's a move in the underlying stocks or in the indices, which these ETFs are focused on, there's a lot of pro cyclical dealer hedging, so-called gamma hedging. To quantify that, we've calculated that for a 5% move in KOSPI that would elicit about $6 billion of pro cyclical buying or selling. You know, mark it up, dealers have to buy, mark it down, dealers have to sell. And that's about 16% of the average daily trading volume for Korea. For the semiconductor stocks, the two leading heavyweights, the numbers are more like $3 billion individually for each one, close to that, and close to a third of their average daily trading volume. So the stocks are normally volatile. We know that because of the underlying nature of the industry, but that volatility is being exacerbated by that hedging, which is going on. So I think it helps to explain why we've seen such increased volatility in the Korean stock market, which, as of yesterday's close, was down 15% from the recent over 9,000 KOSPI high. Now, to be clear, our fundamental view is that there still is a lot longer to go in the overall positive profit environment for the memory stocks and for the AI hardware supply chain space overall. So we think that the fundamentals are still very, very strong, and the market is still underpricing them. To give you one data point, as of yesterday's close, the Korean equity market was trading at 6.6 times for 12-month earnings. That's 2.7 standard deviations below its longer-term mean, and right at the same level it was trading after the global financial crisis. So I know that there's a pushback to say, look, these stocks are super cyclical and so forth. We think the market is overestimating the degree of cyclicality. There's more earnings growth to go, and at the current valuation, we're well, well below where the market has previously peaked. So we think that after this pullback, which clears out some of the fast money and some of the speculative aspects, we think risk award actually looks very, very compelling right here.
[00:54:07] Heidi Stradwatts: It's interesting what we've seen in terms of the sudden shift in from feeling like most of these companies feeling like they're not going to have enough AI compute and hoarding capacity to now the likes of meta looking for strategies to offset that in case that's been overdone, right? Is that indicating to you a bit of a shift in sentiment from within?
[00:54:31] Speaker 14: A bit, but, I mean, we could be totally wrong on this, but we think the market has misinterpreted the meta news, and that was clearly one of the things which contributed to Korea being very weak yesterday, and meta is building out high-priced, significant compute following a bit of what SpaceX has been doing in a very profitable manner. And from an AI hardware supply chain perspective, if meta is adding significantly more capacity and wants to get into the same sort of business that SpaceX has effectively pioneered in a very profitable manner, that's got to be good for the upstream hardware supply chain. It's got to elicit more demand for memory and all the other associated elements in the hardware supply chain. So I think the market appears to be getting this wrong, and I think it's a convenient excuse for for profit-taking, but I don't think it changes the fundamentals. In fact, it probably enhances them.
[00:55:28] Heidi Stradwatts: I know that you're pretty encouraged by the earnings outlook still for the Korean market. We see, obviously, the biggest moves always, whether to the upside or downside, from the likes of SK Harnik. Samsung, they're down for a third day, and we've seen Samsung breaking below that 50-day moving average and Harnik's sort of on the cusp of it. Does the singularity of stock issue worry you somewhat when it comes to the added volatility You know, are you going to see any story?
[00:55:57] Speaker 14: Well, it definitely contributes to the risks. I mean, I want to be clear that we have a positive view, but we're also trying to be balanced and and pay very close attention to the risks. I mean, I probably spend more time thinking about what could go wrong with our view than what could go right. And so one of the points that we made in the recent report was the significant concentration of returns for not just Korea, but for Asia more broadly. I'll give you one or two numbers. Of course, 96 percent of the MCI's 21 percent gain in the first half came from eight stocks, and three of those were the heavyweight, you know, large cap foundry of memory stocks in Asia. And actually two of them were related ones, SK Squared and Samsung Preferred. So you've definitely seen a very concentrated set of moves. And that's that certainly is true in Korea, where the significant performance of the two heavyweight stocks has led to their weight in the market going from, you know, call it maybe 35 percent or thereabouts to over 60 percent now. And that's very much akin to what's happened in Taiwan with a tremendous performance of TSMC over the last number of years has led its weight in the MSCI Taiwan index to go to 55 percent. So you know, you talk about mag seven in the U.S., you've got mag one and mag two in Taiwan and Korea, respectively. And that, of course, lends, you know, concentration risk. And it definitely increases volatility. But it's sort of it is what it is. And so our view to investors is, look, we're positive on not just that specific space, but more broadly, the hardware supply chain space. We've done some very good work on that. I can elaborate further if you wish. But that's going to come with that volatility. So for those investors who are able to do so, we think there are some interesting derivative overlay strategies that can mitigate the downside risk to an extent and more positively skew asymmetrically positively skew the return profile for those for those markets. But really, the message is we think they're still very good returns, but it's going to be a bumpy ride. So just open your eyes and
[00:57:53] Heidi Stradwatts: cream your expectations accordingly. Yes. And that's why we're going to keep talking to Tim. Stay with us. Tim from Goldman Sachs will be staying with us for more on this conversation. More ahead here on the Asia trade. This is Bloomberg.
[00:58:08] Chef Rian: We're seeing a little bit of divergence across indices in Asia. We're seeing some gains for SK High next Samsung turning positive after losses. Of course, we're talking after already losing and wiping out $290 billion of market cap in the latest bout of selling. South Bank under pressure, of course, very exposed to OpenAI, Tokyo Electron equipment maker. We are seeing the Nikkei more tech focused losing ground while the topics is slightly positive. Still with us is Tim Moe, chief APAC regional equity strategist at Goldman Sachs. Tim, thanks so much for sticking around because we have to get to Japan. I mean, there's so much happening in the tech sector here too. We saw the outperformance of the Nikkei over the topics. Could this continue? And what are the risks of this market when we're still waiting for potential intervention? Intervention to happen anytime soon.
[00:59:14] Speaker 14: There's a lot to unpack there. So let me start with a couple of numbers to kind of. Yeah. Let me start with a couple of numbers to level set us. So for the first half we saw, as you said, this record out performance of Nikkei and topics. So the so-called NT ratio, the Nikkei versus topics ratio reached an all-time high of about 17 or so. And what we saw in the second quarter was that that quarter, which was up sort of mid 30 percent, was actually the best quarter ever in Nikkei's history. And that's going back to the early 1970s. Right. So we had an extraordinary performance. Now topics for the first half was up about 16 percent, a credible performance, but, you know, not anywhere near approaching what Nikkei did. And really the reason for it is explained by the sector distribution difference. So Nikkei, of course, is much more as much more heavy weighting in terms of tech hardware space, you know, Kyokia and so forth. And and that and that really is what was driving that. And so when we say combine that with the tremendous performance of Korea and Taiwan, you can see that there's really this commonality across the region, even in China, where you look at the index was performed the best in China, the star 50 index, which is up 60 percent in the first half. It's all the tech hardware, you know, supply chain trade. So I just want to make that point that that kind of really explains this differentiated performance within Japan. But if you take things up one level to the macro level, I mean, there's there's a key set of, I guess, you know, stress points or or or or challenges between different asset classes. So equities have done well for the reasons very quickly enumerated. But there are clearly challenges in terms of concerns that there's an overly expansive fiscal policy, that there may be some some either, you know, political influence to try to restrain the Bank of Japan moving more forcefully. And if the market feels that the that that that the central bank is behind the curve in terms of raising to normalizing interest rates, then the release valve on that is the currency. And I think that's one of the key reasons why the end is broken through the 160 level, you know, it's flirting around 162. And even though we think it's about 30 percent undervalued. So so it's fundamentally cheap. But those factors are what are are driving it to be to be to be to be on the weaker side.
[01:01:38] Chef Rian: What are your assumptions right now of where the yen could go? I mean, we've seen this so much as 200 yen per dollar from the likes of Monix or Blue Edge advisors. And how would a weaker yen from here even create more divergence in the equity markets? Because, of course, we have the big winners, carmakers,
[01:01:56] Speaker 14: six billion dollars of profit windfall, for example, for this year. Well, OK, there's a few things there. I think we're in an environment where the dollar broadly has been has been stronger. I mean, if you think back to this year, sort of the macro evolution was we started the year thinking that growth was good. We still were at the tail end of an easing cycle and we thought the dollar would continue to to weaken. And then we got to the Iran war. And of course, the macro environment changed. And without going through all the all the changes to the price and so forth, from a currency perspective, there was there was certainly a move back towards a dollar strengthening partly as its normal safe haven currency status and also because the outlook for inflation and therefore what the market was pricing the Fed was going to do changed. And that still pertains today with like a slightly stronger dollar. We've seen a four percent rally in DXY and the dollar remains strong even with the weaker nonfarm payrolls numbers last night, which is taking some of the the Fed hiking pricing out of the market. We still generally have kind of a firmer dollar environment. And then we see that across the board where we've seen, you know, weakness in a number of currencies, but particularly in Japan, as you said, and for some of the reasons that I just mentioned, which you've got this, you know, specific idiosyncratic set of circumstances in Japan where the market is concerned that there isn't a fast enough normalization of interest rates, you know, for Japan that has come out of deflation and is back to sort of a moderately inflationary and a moderate growth environment. And so I think, you know, unless and until the market gets more confidence about the either the magnitude or speed with which the BOJ will will normalize rates and or the degree to which there's greater confidence in fiscal discipline, you know, which would not, you know, raise concerns about, you know, more debt issuance and high debt to GDP ratio. Then I think that the yen is going to still be trading on the weaker side.
[01:03:47] Chef Rian: Mm hmm. At least when it comes to the Iran war that you alluded to earlier, we are seeing the easing of oil prices. Right. Does that mean that we could see more broadening of the rally, especially through the broader emerging markets complex, for example, because even there, the rally in the first half was pretty narrow.
[01:04:09] Speaker 14: Absolutely, Sherry. And we just published a piece on that a couple of days ago. And, you know, our view is that we think that the the let me step back. We think the common thread that really explains market performance in the first half is earnings. We've got some interesting analysis we've done. If you kind of line up how all the markets have done in the first half and you compare that to either the level of earnings growth that's expected for 2026 or the change in the in the estimates for earnings growth, there's a very clear nearly 80 percent R squared or correlation explanation that earnings would explain about 80 percent of that of that price action. And we've done some historical analysis which shows that the degree to which markets are pricing earnings right now is higher than it's been in the past. So we think the organizing principle here is where the earnings being delivered. And that is why we continue to favor many of the North Asian markets with earnings growth is strongest. Now, all that being said, as you correctly noted, the delta in or in oil prices or price come up very significantly means that the markets which were hurt and were earnings were downgraded because of concerns over higher oil prices. There's a bit of reversal there. I'll give you one example, which is India, where we took our numbers from 16 percent earnings growth at the beginning of this year for 2026 down to 8 percent. And we recently raised them back up to 10. And there could be a bit more upside there as well because we've also raised our economic growth forecast. So if India didn't perform well and then now we've got a break in terms of lower oil prices, then we think that the market selectively could come back somewhat. Now, we're marking India. We don't think there's yet an argument to go overweight. But we do think at the margin that India can can regain a little bit of ground. And that would be some of that building out theme that you just mentioned, which can also be extended elsewhere. We've seen that, for example, in Brazil, we can make that argument in South Africa. And then as Sunil Cole, who's our emerging market strategist has noted, both Hungary and Greece also look look interesting as well. So we think there could be some broadening out, but still with some strong leadership from that tech North Asian tech hardware space. And perhaps not necessarily broadening out when it comes to the Chinese
[01:06:19] Chef Rian: market. I mean, you note in your views that the China Internet stocks, for example, they're not some of Goldman Sachs favorites. So can we just assume then that it's also, again, in China, the tech hardware play the semiconductor's advanced manufacturing leadership?
[01:06:39] Speaker 14: So the answer is yes, but with a little bit more. So one of the sort of nice ways we have of characterizing China right now is that there's not one China. There's actually three Chinas. You've got offshore China, which has had a greater weighting in the kind of software internet oriented part of tech. And that's about 40 percent of the MSCI China index. And that's done very poorly this year, down about 30 percent. And the overall MSCI China index more broadly was down about 16 percent. Then you have onshore China, approximately by the CSI 300 index. And that's actually up about nine. So 25 percentage point difference between offshore and onshore. And the difference there is because the sectoral weightings are different. And then more narrowly within China, some of the tech hardware areas like the star 50 index or the Chinix index are up like 40 to 50 even just recently up over 60 percent. So and those are very much tech hardware driven. So the market is also being rational in China and saying, look, you know, the areas that are delivering the growth are getting the price performance. The areas that are not delivering the growth are not. Now, what might happen as we go deeper into this year is some sort of stabilization of the earnings for offshore China. There's going to be easy base of comparison. There might be a little bit less intense competition in some say the food delivery space. So there's a potential we could see some sort of earnings recovery. But I think the market is somewhat jaded and has been disappointed by but by the lack of earnings delivery. So I think the markets can need to wait until there's better evidence that the earnings are coming through, which is why we're market weight on offshore China kind of waiting until things recover. But but overweight on onshore China was much more clear, immediate signs of earnings delivery.
[01:08:20] Chef Rian: OK, Tim. And before we let you go, I just wanted to get your thoughts when it came to Korea's 24 hour FX training launch. Which is starting next week and what the implications are for the broader markets, especially given the volatility that we've already seen on the South Korea market and what that would do also to the MSCI classification. I mean, they remained in EM status.
[01:08:43] Speaker 14: So there's three questions there. So the first is that the 24 hour trading, I believe, I believe starts on Monday, next Monday. And that's something which is one of the key requirements that MSCI cited for Korea to be upgraded to develop market status. Now, I'm not going into all the granular detail. The high level summary on the MSCI decision process is that there still are about six areas which MSCI said that Korea is not checking the box on and is going to wait until it sees progress on those and how the market is responding to that progress before it's going to make a decision on putting Korea on the watch list for an upgrade. So we've just had the annual review just just last week. It's going to be not until next year in June, probably the third week of June, we get the next annual review. So the earliest we think that that Korea might go on the watch list would be would be next year, which would then mean another year after that before it would be formally upgraded. So we're still some ways away before we have an upgrade. By the way, the upgrade did happen. We think it would drive net probably about 40, 50 billion dollars of flows into the Korean market. That's net of emerging market selling and developed market buying. But it probably narrowed the market concentration. So that's sort of the story there. As far as how the 24/7 trading yen go on the one go. Sorry, you know, it could add some greater volatility, which would enhance the issues that we're seeing right now. And by the way, the reason why the one has been so weak, you know, uncharacteristically so, is entirely because the capital account because of foreign selling, which is in turn been driven by selling in Samsung and Hynix, which in turn has been a function of technical factors relating to the fact that they've gone to be very high weighting in different indices, which is resulting in need to sell in a balanced town, even though people might like the stocks fundamentally. So it's a bit of a of a technical situation, but that could be exacerbated a bit if it goes 24/7. Tim, we're running out of time, but you're the best
[01:10:38] Chef Rian: funding off my multiple questions in one. Tim Moe, always good to have you with us, Chief A-Tag regional equity strategist at Goldman Sachs. We have more ahead. This is Bloomberg. And big losses for Kyoktia today. The memory maker losing ground. This, of course, as we have seen that big sell off in the
[01:10:56] Speaker ?: overnight session. We're talking about the chips indexing a sharp correction down more than 5 percent. Two day declines of
[01:11:02] Chef Rian: around 11 percent already. So it's not only about this by everything trend that we've seen is like who actually benefits from these returns. Not to mention that Kyoktia has to contend with other news earlier this week that Apple is even looking at potentially Chinese memory suppliers given, of course, this memory shortage. So we are seeing more competition in that space. Samsung Electronics, SK Hynix, a lot of volatility. Remember, they've lost about 290 billion dollars in market cap. The two stocks combined this week. We have more ahead on the Asia trade. This is Bloomberg. Take a look at how currencies are trading at the moment. Not a lot of movement, especially with some downside in Asian currencies, despite the fact that we have the Bloomberg dollar index seeing its worst day overnight since May. And this, of course, as we got softer payrolls reducing that urgency for further Fed tightening. That's the speculation in the markets. So we have that downside on the U.S. dollar. But you can see in the Asian session the downside continues for currencies like the Korean one, which is already trading near 2009 lows. EM currencies also further weakness on that space and the Japanese yen. Let me not get started on the Japanese yen. I mean, we're talking about four decades though. We're talking about analysts now calling 200 yen per dollar, not out of the question. And this deepening slide really taking a growing toll on Japan's economy. Yen related bankruptcies are now hitting their highest levels since 2022. Economy and government reporter Erica Yokoyama joins us with more. And Erica, this is what I've been talking about for the past few months or so. I mean, we keep talking about how a weak Japanese yen hex helps like really big exporters and the Toyotas of the world, but not necessarily the small guys. Tell us a little bit about these weekend
[01:13:16] Speaker 15: bankruptcies. Sure. I think it is one sign that parts of Japan are already starting to feel the pain of the weekend. And I think this could give a reason for policymakers to address the yen's weakness. That may include the BOJs moving towards the rate hike sooner than a rater. Looking at the data closely, 45 firms went bankrupt due to weak yen in the first six months through June. And about half of them are in the wholesale sector, which relies heavily on imports and has struggled to pass higher costs on to customers. And at the same time, most of these companies are smaller companies that were already facing challenges beyond the weak yen. For example, pleasure to keep raising wages and other cost increases. And ironically, higher borrowing costs resulting from the BOJs rate hike could become another burden for these companies. So the number of bank lapses linked to the weak yen is expected to rise again if the yen remains at this weak level. So policymakers needs to be really careful that any policy moves or communication don't need don't end up hurting the
[01:14:34] Chef Rian: original economies. We spoke recently with Bank of America and then they were pointing to foreign exchange foreign exchange hedging as part of the reason why you continue to see this weakness on the Japanese yen, especially since you have Japanese stocks rising. You need to balance that out and then you have more yen selling. But this foreign exchange hedging is also having implications for smaller companies when it comes to the structure of hedging. Tell us a little bit more about this.
[01:15:02] Speaker 15: Sure. Actually, it is a very interesting point because traders say many smaller local importers use so-called reverse knockout options to hedge their falling currency exposures. Under these reverse knockout options, once the exchange rate reaches the preset knockout level, the options expire and hedge no longer provide protections. So companies that still need to buy dollars, they must then purchase them in the spot market, enter a new hedge, often at much less favorable levels or remain exposed to further currency moves, adding to financial pressures. Normally, these knockout option levels are set at the exchange level that many never expect the yen to reach. And 162, for example, the level, the weakest level in four decades was one of them. Analysts estimate that many remaining reverse knockout levels are clustered between 163 and 70 yen per dollar. So if the yen weakness weakens farther, financial stress on companies using these options could increase
[01:16:09] Speaker ?: significantly.
[01:16:09] Chef Rian: When we're talking economy and government reporter Erica Yokoyama here with us. And of course, you can actually take a look at the forces reshaping Japan and what's next for its businesses, markets and consumers. Sign up for a new weekly next Japan newsletter at Bloomberg dot com forward slash newsletters. South Korean won will trade around the clock from
[01:16:35] Heidi Stradwatts: July 6th and a bid to increase its presence in global financial markets that shift to 24 hour trading comes with the one near 17 year lows, leaving the currency and the economy more exposed to speculators and volatility. Our Asia FX and rates reporter Young Kim joins us now from Seoul. So what are the main changes from July 6th? Hi. So trading hours for the South Korean won will be
[01:17:02] Speaker 16: extended to 24 hours from the current 17 hour trading window starting July 6th. This is a big moment for the Korean government that has been pushing to bring in more foreign investors, making its markets more accessible to these foreign investors. And it's also a move that could secure South Korea's upgrade to the MSCI's developed market index. That said, Korea is still considered an emerging market, which is strange to think about it because especially considering how big the economy has grown over the years is currently Asia's fourth largest economy. And most recently it has been doing very well thanks to the AI boom. So next week when the one opens, it will be a key step or key test for Korea's to to prove its global presence as its currency starts trading just like any other DM currency.
[01:18:11] Heidi Stradwatts: And there's a lot to prove. Right. It's challenging times for the one with that 17 year low. Not the best timing.
[01:18:17] Speaker 16: No. It is quite an awkward moment for the one especially because given how long it took the Korean government to open up this currency. It has put in decades of work to come this far after guarding its currency behind some very strong control since the financial crisis. The one is currently very weak. Like you said, 17 year low. That is the weakest since the financial crisis in 2009. It has been weakened by high oil prices, the Iran war risk aversion. And most recently, a lot of foreign foreign investors have been selling Korean stocks due to technical rebalancing. Liquidity during outside regular hours does tend to thin out. So it does leave the currency vulnerable to speculative moves that could increase volatility, which the government, which is the last thing the government wants as the one is still weak. So but to be fair, the data does support that Korea is not a state of crisis and the government has been saying there is enough dollar liquidity in the market. Unlike back in the days during the financial crisis when lack of dollars was an issue and the government has been running a test pilot so far this week. And they've been saying that there have there have been no issues with that. So we will see next Monday if that is the case as the one starts trading 24 hours.
[01:20:00] Heidi Stradwatts: Well, thanks for you and Kim there with us. And Sherry, it feels like we haven't talked about private private credit for a while. But that doesn't mean that the levels of tempest that continue to build within this space aren't still creating pressure on these funds, right, because we're going to pile up. Even a lot of the sort of marketing and education efforts from the likes of Blue Owl doesn't seem to have resulted in any kind of abated pressure for these redemptions. $14 billion being trapped in a bid to try and outlast this private credit storm. This relentless wave of redemption requests. We're seeing second quarter exit requests exceeding those even of the quarter prior that we saw 14 and a half billion dollars of invested capital being trapped over a dozen funds that compares to 8.6 billion that shareholders were able to get back. According to Bloomberg data, the pressure is expected to remain elevated to somewhere expecting up to eight quarters for the redemption queue to be clear while flows are still suppressed. So that second half of 2026 is still looking pretty dicey. And a lot of this, you know, as I alluded to, is really still the sort of pent up requests that weren't fulfilled previously. Blue Owl, in the meantime, hit with some of the largest redemption requests still. The manager again capping withdrawals. Also pretty dicey when it comes to the corporate bond
[01:21:24] Chef Rian: market in the US. I mean, on the surface, you would think that everything is fine, especially since you have these huge companies with high ratings. But at the same time, look at all of this AI spending. Right, Heidi? I mean, even in private credit, a lot has revolved around this AI infrastructure. And we're now seeing all of this AI spending, which Bank of America now says the bond issuance has reached about two hundred and twenty billion dollars this year. And for the rest of 2026, we could see hyperscalers expected to spend almost eight hundred and twenty billion dollars on AI. So what happens if all of these investments don't produce the returns that they want? You could see an AI credit bust that could widen investment grade spreads across the broader corporate bond market. And that's where the risk lies. Of course, we'll discuss all of this and more on Bloomberg TV. We have more ahead on the Asia trade. This is Bloomberg. Another choppy day of trading in Asian tech while non-AI trades are getting some support. Let's discuss all of the markets. I mean, you've talked about the layers and layers of complexity when it comes to market moves lately.
[01:22:51] Speaker 5: But what are you focusing on? The level of intraday volatility is becoming a much bigger factor as opposed to close on close volatility. So yesterday we had the cost, you know, swing more than five percent around three to four times. This morning it's already been a huge couple of swings from a very weak open to up on the day to down on the day. And this speaks to the prevalence of retail and domestic institutions in the Korean market. Foreigners have sold ninety eight billion dollars year to date. Their positioning is very thin in this market as the pace of technology change accelerates. So now we have all these headlines around a custom chip between Anthropic and Samsung. We have Kyokshia reporting a new model of flash memory. So there's a lot of technology change and an increasingly retail driven market which is driving this volatility. So people are still trying to figure out, you know, what is the future of the picks and shovels trade. In Japan, the situation is a little bit more complex as economic growth kind of broadens out and you see kind of the topics holding its own quite well versus the Nikkei as the tech trade underperforms. So in the in Japan, you see the domestic demand story kind of pick up the slack from tech. Korea doesn't quite have that function. Now, as the session accelerates, we have the Hong Kong based leveraged ETF for Hynix coming online. And that will be key to understanding how the session proceeds. Bear in mind yesterday, the sell off in Korea really accelerated as the ETF got trading. So if we have to wait till later in the session, unfortunately, to give you a narrative around how Kospi is going to trade. But the early analysis is that there continues to be a concern around tech, whereas the non tech part of the market now has some relief. Markets reporter Anthony Stephens there.
[01:24:38] Heidi Stradwatts: Take a look at how we're setting up in terms of this day and how it's going to impact the Taiwan, the broader China open there as well. Tech futures obviously on the way down for Hong Kong. Taiwan futures also look like we're going to see quite the downside impact there, given the big downside that we had in the Philadelphia Semiconductors Index overnight. And that's trickling through to markets like Korea and Japan at the moment. Here when it comes to A50 China futures, though, a little bit of upside, four tenths of one percent with, of course, that divergence that we always seem to see when it comes to onshore stocks, which haven't been performing as well at the moment. Hong Kong, though, becoming a vital pathway for high tech products moving in and out of China, carving out a new economic niche for the city in the AI age. Bloomberg has found Hong Kong countered for more than half of China's $239 billion of chip imports in the first five months of 2026. Our economy and government reporter, Nectar Gan, joins us now from Hong Kong. So, Nectar, what have we learnt about Hong Kong's role in terms of this booming chip trade across
[01:25:41] Speaker 17: Asia? Right. So first of all, Hong Kong actually doesn't produce almost any semiconductors, but it has emerged as a very crucial link in the about two trillion AI trade across Asia, and specifically when it comes to helping mainland China importing and exporting semiconductors. So we're looking to the data from Hong Kong and mainland China's customs, and we found that in the first five months of this year, Hong Kong accounted for more than half of all the semiconductors that China has imported from around the world. And in Maine alone, Hong Kong has absorbed about 43 percent of mainland China's semiconductor exports. So this is really pointing to Hong Kong's prominent role here as a middleman, as a trading hub for semiconductors, because, you know, Hong Kong doesn't really make any chips. So most of the shipments are re-exports. So 80 percent of that was heading to mainland China. And among the chip imports, Hong Kong got for about 40% of the about 40 percent are from mainland China, followed by about fifth from Taiwan and 10 percent from Singapore and South Korea, respectively.
[01:26:53] Heidi Stradwatts: So why do these chips go through Hong Kong? What are the advantages here? All right. That's a great question. A lot of it comes down to Hong Kong's
[01:27:01] Speaker 17: traditional strength as a trading hub, because, you know, we know that Hong Kong is an international aviation hub. It's got a very strong air cargo network across the world. And semiconductors are high value, lightweight and time sensitive. So these are perfect for, you know, air cargo. And at the same time, Hong Kong is also a free port with no capital controls, which is a sharp contrast with mainland China, where, you know, there are very strict financial regulations to control the flow of capital. So when the goods are imported into Hong Kong, they're exempted from tariffs. But when they cross the border into mainland China, they still have to pay any charges and taxes that the mainland imposes. However, even so, mainland companies might prefer to deal with Hong Kong because access to the city often makes the payment and currency conversion much easier when dealing directly with an overseas seller.
[01:27:58] Chef Rian: China economy and government reporter Nektar Gan there. Let's actually talk a little bit more about China's biggest internet firms now because we're seeing this sell off that has pushed some valuations to record lows. Investors say a recovery remains elusive with the sector still facing multiple headwinds. Asia Stocks reporter Jeanne Yu joins us now from Hong Kong. I mean, Jeanne Yu, Tencent with its P/E ratio trading below that of a defensive utility like CLP. What's going on?
[01:28:26] Speaker 18: Yeah, it's actually it's actually also a little bit surprising to me as well. We've seen Tencent is below the valuation level. You know, back then in the into China's internet crackdown, you know, in the in the concerns about the domestic competitions is below all the previous crisis levels. I think one of the reasons why investors are not not yet entering despite the cheap valuations is because the domestic domestic consumptions in China remains really weak, which is threatening some of the cash cow business. In Tencent's case is the advertising. Alibaba's case is that is the actual e-commerce business. I think all of all of those business is under a very big threat. Investor really, really we talked to. They said they really, really need the evidence that, you know, there is some recovery side in the macro world so that the consumption sentiment can see a meaningful pickup for them to reenter the China tech trades. I think the second key concerns, which has been lingering throughout this year is that it's really hard to see immediately immediate pay off from their massive investments. In Tencent's case, they are planning to double their investments and they're testing their AI agent initiatives in the WeChat empire. But the thing is like the timeline is a little bit uncertain. And also, you know, the inference costs in Tencent's case, the inferencing costs could could rise in the near turn and bite into their first quarter operating profits. I think the near term earnings earnings per share estimates in the Hanson index is a reflection of investors concern because you've seen a very big slash like a 20% cut in the earnings per share
[01:30:20] Chef Rian: estimates for the Hanson index. I mean, we were just talking to Goldman Sachs Timo and they actually downgraded their internet, also media and entertainment calls, which is mostly dominated by China internet stocks to neutral. So we are continuing to see these calls about this sector. But not everyone is bearish, right? What could be some of the upside surprises here?
[01:30:46] Speaker 18: Right. I think when we talk to people like some of the analysts we talked to, they did say that valuation is turning to be a little bit too cheap to ignore. So that's why we've seen a sort of like share rebounds since later last week in the China tech sector, especially in the e-commerce names and also also some of the rebounds we've seen in Tencent shares. So valuation is definitely one of the reasons. I think the second the second catalyst catalyst people are looking for is actually their AI AI innovations and how advanced in terms of their AI model they're going to launch in the pipeline, which could surprise on the upside. For example, like deep seek. They have a they have a key model to launch in mid-July, which is a widely watched model, which could help them to regain some investors' confidence over the AI development in China. And the other thing people are watching really closely is like how Tencent is going to monetize their AI agent initiative in the Weichai empire. You know, every time Tencent announced something related to that, shares would have chose to have a little rebounds. So I think that's also one of the key watching points for investors to turn more positive.
[01:32:04] Chef Rian: Ginny Yu, Bloomberg's Asia stocks reporter with the latest on China internet stocks. We have more ahead on the Asia trade. This is Bloomberg.
[01:32:24] Heidi Stradwatts: The top corporate stories that we're tracking this hour and Anthropic is reportedly in talks with Samsung to make a custom AI chip. The information sites unnamed sources saying the AI startup is still determining the scale and scope of the processor and how it fit into the server. Anthropic told the outlook that its partnerships with Amazon, Google and Nvidia will remain central to its computing strategy. SoftBank and its telecom unit will start renting AI computing resources in the US using a growing pipeline of data centers to compete with the likes of CoreWeave and Nebius. SoftBank says a so-called near cloud venture plans to supply data center capacity for large scale AI model training and inference. It's joining a crowded field as concerns grow over potential over capacity. Tesla's vehicle sales beat expectations last quarter gaining in a slower growing global market for plug-in cars. The company delivered more than 480,000 vehicles as a 25% jump from a year earlier and well above the average analyst estimate for fewer than 400,000. Despite the result, Tesla shares tumbled as it offered no updates on its AI and robotics projects. Amazon is planning to deliver a broadband internet service later this year using its LEO network after successfully launching more than 390 satellites. The latest batch of 29 satellites took off from Florida on Thursday aboard a United Launch Alliance Atlas 5 rocket. The service will be the rival the rival to SpaceX's Starlink.
[01:33:56] Chef Rian: volatility a little bit of a mixed picture. But when it comes to the tech sector, we're down, down, down, down, especially with tech heavy Nikkei really outpacing those declines for the topics. And of course, we're continuously watching the Japanese yen. Could we get yen intervention finally as we are now trading near those lows that we haven't seen in about 40 years? And if you really want to hear more about what's happening to the Japanese yen, but not only on the macro level, do sign up to my new newsletter, which is monthly and is launching on July 6th. It's called Tokyo Dispatch. On this first episode, I'll focus on what's happening on the ground. What are people telling us about the weak yen and what that really mean for the idea and the narrative that we've been talking about for the past two years? Is Japan really back? That's it for the Asia trade. Our markets coverage continues as we look ahead to the start of trade in Hong Kong, Shanghai and Shenzhen. The China Show is next. This is Bloomberg.