Welcome to DAYBREAK, Australia.
I'm Heidi Stroud. What's in Sydney where markets have just
come online? I'm Annabel Jewel, as in Hong Kong.
We're counting down to Asia's major trading opens.
And the top stories this hour, a cautious start in store for Asia ahead
of Australia's January inflation numbers.
Treasuries mixed in another busy session of bond sales.
New Zealand central bank is set to keep rates on hold today, with traders on
alert for any revised projections on inflation and growth.
Plu
s, Bloomberg reveals Apple is canceling its decade long effort to
develop an electric car. Let's get you straight to this mid-week
session and how we're setting up with the staggered start to trading here in
Sydney. Looking pretty muted, about a 10th of 1%
higher. We are looking like a muted two positive
open, though, here in Asia at a reasonable handover from the US stocks.
S&P 500 just nudging higher. As Annabel mentioned, it is inflation in
focus for Aussie traders. Today we're about a 10th o
f a per cent
higher. At the start of that staggered session,
we did see US stocks advancing even after consumer confidence fell for the
first time in four months. We'll also be watching China stocks as
well with the Golden Dragon Index jumping in a fifth day of gains.
We'll see if there's any pass through in the Asian session today.
Australian ten year use rising in early trading.
We did see treasuries trading pretty mixed after $42 billion in an auction of
seven year notes. And it is a big week
when it comes to
that, a calendar of new corporate debt issuance as well.
The Aussie dollar is trading at 6546. The dollar gauge has been kind of
trading pretty steadily, but in particular it's a yen that we're
watching for around the best day in nearly two years.
After that, stronger than expected inflation data really supporting these
bets at the Bank of Japan potentially has an earlier date in mind now for
exiting its monetary policy settings. Again, the dollar erasing that decline.
We're se
eing a pretty sort of rangebound session ahead of the inflation numbers
on Thursday and really slate of Fed speak as well.
Expected New Zealand is in focus. Of course, it's about the BNZ today and
there are a couple of sort of outliers when it comes to expectations
potentially of a move, but broadly they are saying holds holding steady but
potentially maintaining that the bias towards maybe warning that more needs to
be done. Nick, futures up by about a 10th of 1%
so. You know, Heidi, just some
breaking news
here on CBC. You could just see some of those
headlines crossing there. But their net income coming in for the
fourth quarter. This is for you earnings as well.
But the fourth quarter net income coming in at 1.62 billion SGD.
That is a little bit softer than what analysts had been expecting for $1.71
billion. So a miss there for ICBC.
They are expecting, though, to maintain their 50% dividend patient payout ratio
target for 2024. There was a lot of focus on dividends
given expectat
ions of a strong 2023 performance.
What else we're tracking in this is their net interest rather than net.
They're focused on NIMS and they're expecting that range to be of 2.2 to
2.25% over the course of 2024. They're also seeing low single digit
loan growth over the course of next year.
That was as well another focus of these earnings, given that the profits were
looking to be driven more by that non lending income, things like wealth fees,
things like insurance as well. And actually when you
break it down,
their non-interest income for the fourth quarter period was $811 million.
That makes up roughly half of the overall income for the fourth quarter
period. Their final dividend, a share that's
coming in at 42 Singapore cents. So yes, that is the last of the
Singapore major banks to report here because we had the rivals DBS group UAB
as well reporting full year earnings and they were actually at all time highs.
But as we said, ocbc's fourth quarter net income, a little bit of a miss
on
what analysts had been expecting coming in at $1.62 billion.
Let's shift now. Take a look at how US futures have come
online here today because we are just seeing, again, fairly flat.
It's really been the trend over the course of this week because a lot of
that focus really is looking down to that that preferred inflation gauge from
the Fed. What that's going to signal about this
fight to get rates back to that or interest inflation, rather, back to the
2% range. And so it has really just bee
n wait and
see over the course of the few days, we didn't really see too much of a
direction in the prior session. Actually, a lot of focus on corporate
bond sales, but still little movement. Otherwise, that is what we're seeing so
far for the set up, Heidi. Okay.
Yeah, a bit of movement when it comes to implied volatility for the Kiwi over the
last 24 hours or so, but also suggesting that we could see some fireworks, even
though most economists are expecting New Zealand central bank to keep rat
es on
hold in the coming hours, but still retaining that hawkish tone and
inflation. Let's bring Bloomberg economics.
James MacIntyre here in Sydney. So certainly markets are kind of
expecting not a boring meeting. Yeah, that's right.
So there's a 25% chance of a rate hike priced in by markets.
And out of the 24 economists surveyed, two are actually predicting a rate hike.
We've seen coming into the meeting in the lead up over the last few weeks and
since the beginning of the year, the RBNZ, it
hasn't met since November last
year, so it's been a three month break. But we've seen communication from
officials, governor or included, that has been sounding particularly hawkish.
So the stage is set for potentially an interesting meeting.
We think that ultimately they're going to remain on hold at the meeting,
though, where the focus might be or where there might be some signs of
potential, I guess, fireworks. It's going to be more in their
projections where they predict inflation is going t
o be and their right track as
well. They had been at the November meeting
suggesting that there was a chance that further moves might be required.
We don't think there's enough in the data to suggest that they would need to
deliver that today, but they might be continuing to suggest that it's that
future meetings April and May could be could be live action.
Yeah. James, just give us a bit more context
here, because your view is actually that the RBNZ is going to be starting its
easing cycle a li
ttle bit earlier than what the bank is projecting itself.
That's right. So the bank is projecting a rate cycle
beginning sometime towards the end of this year.
I think around the middle of the year is probably a lot more likely.
And so, you know, that data flow that we've had over the last couple of months
since the RBNZ has lost projections, we've seen GDP undershoot, we've seen
CPI undershoot their projections. It's not the first time that that's
happened. And unemployment has been a little bi
t
stronger. And over on last week's data, we had a
very, very dire retail sales outcome that's showing that those rate hikes
that they've delivered thus far, quite aggressive, are really starting to flow
through into the economy. So in my view, is it we'll get to
continue to see that evidence build. And so it really will will sort of
render this exercise today or the communications that we're likely to see
in being hawkish as being more of a jawboning activity rather than an.
The thing that that
does that does suggest that further hikes are coming
soon. That date is likely to unwind their
ability to make those moves. How well shielded is the New Zealand
economy exposed? To an extent, the Australian economy as
well? We were watching that CPI, reading from
some of the global risks that we see, particularly playing out potentially
over the next year or two. Yeah, I guess one of the key risks is,
is concerns about inflation and war potentially beginning or continuing
these geopolitical ten
sions kind of further slowing global trade and meaning
some of that goods disinflation that we had been seeing and has been benefiting
and unflattering inflation over the last few months, you know, kind of stopping
for a little while and potentially reversing course.
New Zealand's definitely vulnerable to that with very, very high import rate
reliance, especially on on China. So on on the other side, though,
deflation out of China's factories is is sort of helping to offset that that risk
slight
ly. I guess one of the big things and one of
the surprises for the ANZ has been the super strong surge in migration much,
much faster than the BNZ and the New Zealand Treasury was expecting.
And that has been something that has driven both in Australia and in New
Zealand a bit of a demand surprise and hence some of the hawkishness that we
might be seeing. My view is that that that catch up
migration that we're seeing as we reopen those borders and students all came in.
It's a bit of a sugar rush
and once we get back to normal, we could see that
move away very, very quickly. And so I think, you know, on the on the
demand side, there's a risk that the strength in the economy that the ANZ
might be a bit concerned about and is worried might be continuing to put light
a fire under those some of those domestic inflation pressures which
remain a problem. And I think that that that that could
actually the risk there is that it could rapidly peter out and see the BNZ having
to about face on rat
es quite quickly. All right that was Bloomberg's James
McIntyre there. It's certainly a decision I'm going to
be watching very, very closely later today.
But Apple shares as well. They reversed their losses after
Bloomberg revealed it's cancelling a decade long effort to build an electric
car, abandoning one of the tech giant's most ambitious projects.
For more, let's bring in our senior executive editor for technology, Tom
Giles in San Francisco. And Tom, I mean,
billions of dollars, thousands
of employees, years of work going into
this. Why did they pull away from this
project? Now, it's a decade long project.
And you're right, they spent a lot of money.
Apple doesn't just walk away from big projects like this.
What what happened here is a realization that electronic vehicles are really
difficult. You also have to recognize that other
other manufacturers in this area, including Tesla, are having a rough go
of things, just declaring earlier this year that that demand is going to
decel
erate in 2024 from from torrid growth rates in past years.
It's hard to do. It's hard there's a lot of things that
are that are working against the EV industry right now, including supply
chain, getting the supplies that you need from where you need them at the
time you need them. That's challenging.
Being able to manufacture a car at a price point that the average consumer or
even a somewhat well-to-do consumer can afford that list.
The the number of people able to do that is also decreasing.
A
nd then lastly, you have another big challenge, which is the charging
infrastructure. There are still people who are worried
about will I be able to get home from where I'm driving to, will even be able
to get to where I'm driving to without the right infrastructure in place?
Will there be a charging station when I need it?
Will I be able to access it at the time that I need it?
Those are all questions that all of these EV makers are asking right now.
And that's that's the calculus that Apple ne
eded to make.
And Tom, as you've just been speaking about, it's not as though the
competitors are having an easy time of it either.
We did see a pretty saucy response from Elon Musk.
Do we have any kind of leaders in this area or is there a more likelihood of
consolidation, do you think, going forward?
Well, Tesla, as you know, took an early lead in this area and they have the
advantage. They have an early mover advantage in
this regard. This is a business they built their
business on EVs. For A
pple, it would be a major pivot.
This is not what they. They're great at supply chain.
They're great at consumer electronics. They've talked about the idea of a car
being kind of this mobile, this big mobile phone.
But this is not the area that they are strong in.
They are strong in handheld devices, not in terms of making these big vehicles
and putting all of the infrastructure behind that in terms of the rest of the
industry. You're even see, you know, Detroit
automakers have also struggled to
get the right balance when it comes to
electronic vehicles. You're seeing them pivot more in the
direction of hybrids, for example, giving consumers a little bit more
choice, giving them a little bit more flexibility, coming in at the right
price point, coming in with all of the specified specifications lined up in a
way that enables you to produce these on a mass scale.
That's just not something that Apple had quite figured out.
And they also remember they pivoted they've pivoted a lot with th
is
particular product, making changes in personnel, making change, missing
deadlines, pushing back a time of launch until a few years from now, they had
hoped to be much, much further along than they were right now.
And I think they made the realization it's time to cut bait.
It's such a great scoop that we got here because we got really a lot of details
on the disclosure internally. And we understand that those resources
are now being shifted to generative AI. So what sort of projects are we
ex
pecting? And at least from a market perspective,
it seems like this is being interpreted as sort of a good move, a positive move,
right? Any time you can, you know, get a sense
that Apple is making the hard choices that it needs to make in order to put
resources in areas where it can make a big difference.
Artificial intelligence, Generative artificial intelligence.
Remember, we talk a lot about the advances that are being made by Openai,
Microsoft, Google, Metta, the owner of Facebook, is getti
ng a lot of credit for
its approach to building that large language model, making it open source.
All of these big tech companies that Apple competes with.
And there is a sense that Apple has not made as many inroads, is not as far
along, is a bit of a laggard when it comes to generative A.I..
We're not talking about any kind of chat coming from Apple.
So what kind of difference are they going to make?
How can they weave this into their consumer electronics that we use every
day that have change
d the way we live, play, work?
That's what Apple needs to answer. And so you're going to see some of these
people who were working on this this project moving in that direction.
Also, remember Vision Pro, they've just introduced a new VR AR headset.
30 $500 price point. People who've used it generally are
liking it, but that is not a price point that is going to make the general public
come out in mass. So they've really got a they've really
got to make good on generative AI Vision Pro and keep
demand up for their
existing product line. That's where Apple needs to concentrate
its efforts. I was a tech executive editor, Tom Giles
there in San Francisco on that story of winding down its electric car effort.
We are also getting some news when it comes to the antitrust woes for the
company. Representatives from Apple met with the
Justice Department last week in a final bid to persuade the agency not to file
an antitrust suit against the company. That's according to people familiar with
the
matter. They've been probing Apple since 2019.
And we are hearing that they met with Assistant Attorney General Jonathan
Kanter. He'll be making that final call on
whether or not to file a suit. These last Rites meetings are often one
of the last steps before a lawsuit is a file.
So they're alleging, of course, that Apple imposed software and hardware
limitations on their devices to impede rivals from effectively competing.
Coming up next hour, we'll be talking more about tech stocks as well as
broader market strategy with Global X, why they think the outlook for equities
remains positive. This is Bloomberg. You're watching Bloomberg Daybreak
Australia here just kicking off with a pretty big milestone actually, that came
through for the Hong Kong and Chinese stocks yesterday because we saw the Hang
Seng gauge actually erasing its year to date losses here.
This chart taking a look at the momentum.
So both on a price gains basis, but also momentum basis.
This is the biggest reopening or
rally, rather, we've seen or second to the
reopening one, but still quite significant in that context because we
haven't seen these sort of gains now for for several months.
If you change on take a look at the other chart here.
You can see the Hang Seng China Enterprises index in more detail here,
closing up 1.5% in yesterday. As I said, that takes out the year to
date losses. We're back now to the levels of November
of last year, but let's get some more analysis with Rohan Reddy.
He's vice pre
sident and director of research at Global X.
And Rohan, let's kick it off with with China stocks.
I know you're a little bit cautious here, but would you be joining any sort
of investors in that interest that we're now seeing a little bit more in mainland
equities? I do think there's a real bull case
right now for some of the Chinese stocks in the short term, just because of some
of the data that we saw from the Lunar New Year and a lot of consumer spending,
which was previously a cause for conc
ern because there was some challenges and
where consumers were actually spending some of their capital.
But we do think that at least in the short term, there could be a real case
on the bull side for a lot of mainland Chinese equities just because of the
regulatory reforms that the government has started to introduce, and also the
fact that if they can effectively implement the stimulus, which they've
spoken about but not really been super clear on some of the details on that
might alleviate so
me of the fears right now in the market.
And right now, a lot of Chinese mainland equities, it feels like they're heavily
discounted, at least from a multiples perspective.
So that might introduce a little bit more of a price appreciation just from a
fair value multiple standpoint. And are there any sectors or or areas
that you'd be looking to invest in in particular?
We still really like the Chinese consumer a lot because there is this
long term secular bull case that we do believe even beyond
just what's going on
in the short term, the middle class is driving a lot of what gains in the
Chinese economy are starting to feel. And so right now, moving away from that
old economy sectors and moving towards more of the newer economy sectors, those
are some of the areas that we're guiding clients towards.
So if you look at manufacturing and PMI data, for example, that's really been
contracting and been an area of concern lately.
So we do feel that moving away from some of those very cyclical
segments of the
market and more towards where a lot of the economy is moving in China, that's
where investors can really capitalize on.
You've already started to see that in the beauty segment and also at some of
the lunar New Year spending. So we think some of the parts of what
needs to materialize is already occurring for the consumer.
Sorry. Geopolitics is the overlay that looms
large and will get ever more significant as we get into the end of the year.
Do you think that's an added risk for
China assets?
Yes. This is the looming overhang that we see
from a lot of Chinese stocks, not just on the mainland, but even for overseas,
too. And so this is part of the reason why a
lot of investors have remained cautious. If you actually look at ETF fund flows,
a lot of Chinese funds are experiencing outflows, whereas in China funds, those
are the ones experiencing inflows. So it is sending a signal that we do
think regulatory overhang is part of the concern.
And that is also part of what ex
plains some of the discounts and multiples that
we are seeing within some of those mainland equities.
So we do think that right now you should be at least somewhat cautious about
Chinese stocks overall. But in the short term, as we've seen
with the rally, there could be a little bit of a profit taking case to be had.
But at least for the foreseeable future, really, unless the Chinese government
starts to implement some clear reforms and also be able to effectively
implement stimulus measures, th
at's why you're seeing some of the discounted
multiples. Let's talk about the rest of Asia.
Japan obviously has been such a popular trade.
Do you see that being replicated in terms of finding value in South Korea as
well? Yes, And we really like for as many of
the challenges that we have seen in China recently, we have seen a lot of
investors migrate towards Japan on the international side, just because it
feels like a much more stable market. It's had 34 year highs on the Nikkei
index. And ther
e is this really long term
structural peace that's occurring with the Japanese market where you're
starting to see a lot of corporate reforms lead to market gains.
And we do think that there is a similar story in Korea that could occur because
you do see these ownership issues and a lot of value that could be unlocked.
You could see even some additional IPO's in the Korean market.
So we think that a lot of the playbook that's actually been implemented in the
Japanese market, if it starts to filt
er towards the Korean market, which has
some overlap in the way that that market is structured, that could actually lead
to more premium multiples for some of those stocks, but also a lot of value
that could be unlocked for shareholders. So that is an area that we see as more
of a focus for the rest of 2024 for international investors.
Brian, great to have you with us. Rohan Reddy, vice president and director
of research at Global X. Much more to come here on DAYBREAK,
Australia. This is Bloombe
rg.
And our financial system. Pretty much everybody follows the same
set of rules. I'm talking banks and credit unions and
credit card companies, gold traders and stock brokers.
Private equity now has to follow the rules.
Precious metal dealers. Venmo.
Western Union, but not crypto.
My view of the world is same kind of activity, same kind of risk, should have
the same regulation. That was the US Senator Elizabeth Warren
there, someone we know who's been quite a critic of the crypto industry over
all,
but also someone calling for regulation we just heard there.
Taking a look at what we're seeing, Bitcoin prices here trading above
$57,000, quite a big move high we've seen over the course of this week.
We're back at more than two year highs at this point and the overall value of
the cryptocurrency industry or market has now jumped to around $2 trillion.
That's the first time as well in almost two years.
So it is that focus on that ETF fueled rally. How do you assess recession come in
2023?
Like many predicted, global growth would
have been thrown off track was there are risks to our outlook.
America's growth has consistently exceeded projections.
In short, America's path to a soft landing has underpinned global growth.
That was the US Treasury Secretary, Janet Yellen, in Brazil ahead of
meetings with their counterparts from G20 countries and a draft of the G20
closing statement seen by Bloomberg News says the global economy also has a
growing chance of pulling off a soft landing.
But Yellen is flagging the downside risks to the global outlook for monetary
tightening. And really those views from Janet Yellen
sort of underscoring what's been the big focus point for markets this week.
Last week we were all about earnings. This week we're really all about the
numbers and what we're going to get out of that economic data.
We've been speaking across the course of this week.
We've got that Fed's preferred inflation gauge that's due later.
Is that going to still show inflationa
ry pressures that perhaps could be a little
bit resurgent in the economy? We've definitely seen that repricing
from investors already. So that expectation now we're going to
see 75 basis points of cuts over the course of 2024.
That very much brings it back in line with what's the projection from the Fed
instead. So that sort of sets the tone over the
course of this week. It's wait and see.
It's that focus on the economy. And, Heidi, it's really back to all
being about central banks here. It is e
specially ahead of the inflation
numbers we're expecting out of Australia in the US.
Lots of Fed speakers. Will that kind of original repricing of
expectations there. And NZ Bank is expecting a rate hike
from the RBA, ANZ in their decision that's due out in the coming hours and
that goes against consensus in a Bloomberg survey.
Most economists overwhelmingly expecting a hole.
Let's bring in Sharon Zollner is a chief and New Zealand economist at ANZ Bank
who's one of our top ranked economists and
certainly one of the most accurate
when it comes to the ANZ. Sharon, always great to have you with us
and I love that we have you on to talk about your contrarian call.
Why do you think the ANZ will go today? And I suppose that the question is if
they feel that there is a necessity potentially to do more, should they just
do it today? Well, that's what it boils down to.
But we can only see the unders and overs in the data.
It's been pretty mixed. There's no one smoking gun you can point
to. Mon
etary policy is clearly working.
So that is, of course, what most people acknowledge.
But as you look at what the Reserve Bank said in November, they basically they
showed a forecast of the official cash rate.
They had 19 basis points of tightening. So practically a full hike in there.
So our taking is that our take out of that was that they do need just a nudge
rather than a big shove. And since then, we've had unemployment
that didn't rise nearly as much as they thought.
We've had the non-trad
able domestic inflation that didn't fall nearly as
much as that as they expected had migration a bit stronger.
So overall, the picture is still things going their way, but just too slowly.
They've also revised up their estimate of the neutral official cash rate by 50
basis points since like cold since I last hiked in May last year.
So it's sort of just the story of the wheels slipping a little bit of of the
risk of inflation staying too high for too long and the risk of inflation
undershooting t
he target really becoming quite out of whack.
And so you can run with that for a while and hope for the best.
But our take is that the Reserve Bank's patience is running cent and if not
today, then so unless the tone of the data changes quickly,
there is something I guess counterintuitive on the face of
resetting rate hikes when GDP is down, particularly to the degree of growth
slowing that we see for New Zealand, do you think that's still, I guess, a
worthwhile cost benefit here? Well, essentia
lly the Reserve Bank
doesn't have a growth target. They're interested in growth in terms of
how it's running relative to potential. So what's the output gap, basically?
Is there a lot of spare capacity in the economy or are things quite stretched?
Things were obviously absurdly stretched during the period because the border was
closed and we couldn't bring in workers and everybody wanted to stop since they
couldn't all of the same things as globally.
And that has changed a lot. But what we have
seen in the last three
months is that the direct indicators of capacity, the most important, is
unemployment. But there's a bunch of them.
There have been really mixed, actually. So it's not the slam dunk that the
Reserve Bank would have expected in terms of showing that capacity is
opening up and that therefore inflation's going to fall in a
reasonable time frame. This there's a question marks around it,
surprisingly. So I'm interested.
You mentioned immigration or migration. How significant a
risk is that to to.
It's inflation. And also we're going to get these
updated projections. So what are we sort of expecting on how
fast inflation should be receding then? Well, immigration is a two sided coin.
On the one hand, it's a surge of workers.
We have imported a massive number of people for the size of our economy.
Population growth is running at nearly 3%.
So that's a lot more workers. And certainly questions like in surveys,
is it easy to find workers that that's just turned around tur
n on a dime?
But of course, all these people need somewhere to live and they need health
care and education and all these other things.
And the Reserve Bank estimates that it is a net positive for inflation.
And so we would view those two positive surprises that we've had on the
migration is likely to to add to the Reserve Bank sees that the jobs facing
them is is a little bit bigger rather than smaller.
Sorry, what was your second question? Inflation projections and and I think as
well like how
quickly that's going to we're going to see inflation starting to
recede for instance, from our own team at Bloomberg Economics.
They're saying that they actually expected to to start to recede faster
than what the ANZ says. Yeah.
In our forecast, it's it's slower and that's because of the stickiness of the
domestic inflation. So we really do need to put aside the
noise and the tradable inflation. The Reserve Bank does focus on that
domestic inflation and the wage pressure and the capacity press
ures, those sorts
of inflation that is stickier. And it's also that they have the most
control over and that is where the stickiness has been essentially since my
last year that domestic inflation has fallen at half the pace basically that
the Reserve Bank had expected. And I mean, if you extrapolate that out,
we're going to be back at Target sometime in 2030 or something.
You know, it is a question of of is incremental progress sufficient, that is
inflation making itself at home in the meantime
.
And there's just a few pieces of data suggesting that is the case.
When you look at things, the proportion of firms intending to raise their
prices, how much they're intending to raise their prices, the distribution of
large wage increases, these things are all flattening out at levels that are
not consistent with the inflation target.
That could just be a question of legs and just why let things go and let them
run? But the issue is for the Reserve Bank.
They estimate they're already about th
ree quarters of the way through the
direction that previous tightening will have delivered.
And if you put it off, then you'll end up having to go much higher with rates
for much longer and actually causing more pain than if you had just gotten on
with it. So yes, hiking would be risky, but not
hiking is a risky option too. There aren't any low risk options at
this point, I can say in your notes.
So you're saying if they don't hike in February, then they're going to be
hiking in April. But do yo
u think that if they do hike
today, do you think that's the last one for the current cycle?
Well, April, maybe May. The issue with April is that we don't
get any more CPI data until after that meeting because we only have quarterly
inflation data in New Zealand. And that's think is that if you just
think you're 25 points from where you need to be, then you're just out of the
gate. But we we suspect that the Reserve Bank
passed that point some time ago that to go through all the rigmarole of
rest
arting hiking cycle, particularly into a weakening economy, it's a big
deal and you're not really going to do it unless you think have your two hikes
away from where you need to be. We've got an example of this in the 2000
cycle, three times the Reserve Bank all in a longer each time and restarted
hiking, delivering at least twice each time.
And 2007 the Reserve Bank of New Zealand delivered four last hikes as the helm.
Of course, then the global financial crisis came along and that was the end
of that. Bye, Sharon.
Thanks for your time this morning. Sharon's over there.
As we said, one of the two economists that is seeing a hike from the RBA, ANZ,
and that decision is due in just under 2 hours from now.
So that was the chief New Zealand economist at ANZ Bank.
And you can also turn to your Bloomberg for more on this decision.
Go to t live, go to get commentary and analysis from Bloomberg's expert
editors. We'll have a series of commentary
running on that decision. As we said, counting
down to it.
It's 9 a.m. hong kong time.
So just under actually an hour and 20 minutes from now.
Moorhead, this is Bloomberg. You're watching DAYBREAK, Australia.
Here are some of the geopolitical headlines that we're tracking this
morning. And Lebanon's Hezbollah militants will
reportedly stop firing on Israel if Hamas agrees to a proposed proposal for
a truce with Israel in Gaza. But sources have told Reuters that if
Israel continues to shell Lebanon, then Hezbollah will keep fighting.
The mili
tant group in Israel have been locked in a cycle of attacks since
October, stoking fears of a wider conflict.
A top Pentagon official says the U.S. has hit 230 targets in Yemen since last
month. It's the most detailed public accounting
of the airstrikes so far as Washington seeks to deter Houthi attacks on
commercial ships in the Red Sea. Deputy Assistant Defense Secretary
Daniel SHAPIRO also says U.S. forces intercepted ships carrying lethal
aid from Iran to the houses. U.S.
Treasury Secretary
Janet Yellen is calling on G7 nations to use frozen
Russian assets to aid Ukraine. Speaking in Brazil, Yellen said there's
a strong legal, economic and moral case to unlock the value of the assets worth
billions of dollars. G7 members are exploring the way forward
as Ukraine's funding needs grow and the war with Russia grinds into a third
year. And the Ukrainian president, Volodymyr
Zelensky, has pitched his peace formula for ending Russia's invasion.
In a meeting with Saudi Crown Prince Mohamme
d bin Salman.
Cave is looking for support for its plan, which requires Russian forces to
withdraw from all Ukrainian territory. That's something Moscow is refusing to
do. Ukraine is running short of ammunition
as U.S. aid remains stalled in Congress.
Well, as the conflict with Russia continues, Ukraine's allies are now said
to be starting to think of the consequences of a Russian victory.
Let's discuss the end game scenarios with a Bloomberg Russia economist,
Alexander Isakov and our chief econo
mics analyst, Jennifer.
Well. So, Jeremy, start off with you first.
And obviously there is gaming going on in terms of some of these alternate
scenarios. Given how much has changed in the past
year as we enter this third year of the conflict, how do you assess the state of
the war? Thanks so much, Heidi.
Yes, As we're entering the third year of the war, Russia appears to have gained
the initiative with Ukraine facing ammunition and manpower shortfalls and
continues to lead in additional Western
aid.
Meetings were held here in Washington at the White House to try and break that
deadlock on U.S. aid.
It doesn't appear that they've reached a solution any time soon.
All that means that Ukraine's partners are concerned that Russia's odds of
securing even a partial victory might be the highest they've been since the
earliest days of its invasion. To be clear, Ukraine is not showing any
signs of backing down and remains clear. It's going to maintain the fight against
Russia. But if there cont
inued delays in Western
aid, if momentum really remains on Russia's side, Ukraine could face this
impossible choice of either fighting against the odds or approaching a
favorable negotiation over some sort of settlement.
Yeah, And Alex, as as Jennifer said, this is really bad since the start of
the invasion. The most it was saying that that Russia
possibly could have some sort of win here.
What would that mean for Moscow? Yes.
For the scenario of Russia's partial victory, which we explore with J
ennifer,
we see that Russia will actually have failed to achieve its original
maximalist objectives, maximum of just political objectives, but it will also
see some of the sanctions lifted. We don't see a world where Russia is
free from technological or export control sanctions, and it will actually
remain starved of access to new technology.
Still, we see that Russia will likely see more exports to Europe and some of
the energy exports removed from the country.
And again, we see that some of th
e losses Russia suffered will be
permanent. We don't see a world where Russia
continues to or goes back to supplying almost half of Europe's natural gas.
So that is probably a permanent hit to Russia.
Alex, what are the implications for Ukraine in the case of Deface?
And I guess what are the security implications for that region?
I think for Ukraine, it's actually pretty hard to exaggerate the cost of
even a partial Russian win. Those Ukrainians who will leave outside
the Russian controlled terr
itories, outside their Russian lines, will find
it pretty hard to rebuild the country. We see that in this scenario.
The capital inflows into the country will grow increasingly scarce and
Ukraine's allies and donors will see financial fatigue and will probably
gradually decrease the amount of financial aid to the country.
So the largest cost is probably will be ultimately in that some of the 6 million
people who actually fled Ukraine in the last two years will see less incentive
to return in the
country. That is this year's limited economic
growth and the high risk of another conflict.
Jen, as the war really goes into its third year, we're just seeing it
becoming increasingly politicized, perhaps in the U.S..
How is the outcome of the the invasion likely to affect Washington?
I think that's exactly right. And I think it's really important to
remind viewers here that even though this is a conflict, that in terms of its
geography is largely regional, the implications of it are truly glob
al,
including for U.S. interests and including for how U.S.
allies and partners around the world, as well as U.S.
rivals, are going to take lessons away from the ultimate outcome of this
conflict. I think in particular, if we are
envisioning a scenario in which Russia achieves even a partial victory and lack
of U.S. support or a shortfall in U.S.
support is seen as a potential reason behind that.
A lot of U.S. allies and partners around the world are
going to think twice about whether the U.S.
i
s a reliable partner that could leave some of them to head towards us rivals.
It could lead them to be less attentive to Washington's interests when it comes
to other policy priorities. And I think especially if you're
thinking about U.S. rivals from China to Iran to North
Korea, they're likely to interpret this as a sign of declining Western and in
particular declining U.S. power that could lead some leaders
around the world to be emboldened to think that they, too, could use military
force to
pursue their interests, to reserve to resolve some of the conflicts
that they have around the world. And paradoxically, we could be looking
at a situation in which the end of this war, however unbalanced or however
impermanent it might be, could actually open up the door to more international
conflict, the potential embodiment of Beijing when
it comes to Taiwan. Is that a scenario that you've been
looking very closely at? But I do wonder if there is a change in
the US leadership. Have you been s
ort of wargaming the
scenarios under which we have another presidency for Donald Trump and what
that means not just for this conflict, but of course, also the war in Gaza and
I guess how he deals with this stretch to bandwidths of security commitments
that the United States has going right now.
Well, that's certainly a key question for us here.
I think it's also a key question on a lot of countries minds.
We're seeing this in particular being discussed quite a bit in Europe,
including most recen
tly at the Munich Security Conference, where leaders were
talking about what Europe's future looks like if they cannot rely on the United
States. If former President Trump is reelected,
follows through on some of the things he said in the past in terms of withdrawing
from NAITO or not upholding NATO's commitments to partners who aren't
meeting their defense spending goals. I think that's leading partners in
Europe to think more about how they increase their defense spending and
become a little b
it more self-sufficient.
I think it's leading partners not just in Europe, but around the world, to
think about what are former President Trump's interests going to be, how they
be able to align with that. For example, working more with the
United States on trying to show that there's an alignment there.
But I think this is going to be a looming question over the next months
leading up to the election. And many partners around the world do
see that there would be significant differences in these
two candidates
approaches to the rest of the world. But
that was Bloomberg's Russia economist Alexander Isakov and now chief economics
analyst Jennifer Welsh. They're just really talking about those
scenarios. What if Putin wins thinking the
unimaginable? But be sure to tune in to Bloomberg
Radio to hear more from today's big newsmakers and get in-depth analysis
from the Bloomberg Daybreak team broadcasting live from studio in Hong
Kong. You can listen via the app radio plus or
Bloomberg Radio
dot com, but I have plenty more ahead.
This is Bloomberg. Okay.
Shares of ABC are going to be in focus when trading opens in Singapore in
another hour from now, but that's after a reported fourth quarter net income
that missed the average analyst estimate.
For more, let's bring in Bloomberg Intelligence senior analyst Sarah Jane
Mahmoud in Singapore. And Sara, just kick us off.
It was a little bit of a miss here at the headline level, but what were some
of the highlights from the report as well?
Thank you. So, yes, we did report a very strong set
of results for 2023, despite missing consensus estimates on weaker than
expected fee income. And total income actually did reach a
record high in 2023. And this is chiefly off the back of
strong net interest income growth due to the Fed rate hikes over the past couple
of years. And the strong performance is reflected
in a higher dividend for 2023, reflecting a 53% payout ratio.
Yeah. So what do we expect then, when it comes
to any kind of guid
ance for or forecast for 2024.
Sorry. Yeah.
I think 2024 is going to have its own challenges.
And, you know, with the growth in wealth management in both Greater China and in
Singapore, ICBC is very well positioned to gain from tailwinds and growth in
both of those regions. So it is likely to see an uptick in fee
income going through the course of this year.
Loan growth is likely to stay relatively weak, particularly in Singapore, and we
are likely to see some margin compression, just quite mode
st I think,
in the first half of this year on rising cost of funds.
And then second half of the expected Fed rate cuts.
What about the M&A outlook? Because that's something that's helped
DBS and you obey that Icbc's peers in Singapore.
I helped them along. So is that something we're also
expecting? Yeah.
I mean, OCP has been engaging in M&A, perhaps less high profile than that.
If you OPI and DP s is in the process at the moment of acquiring Commonwealth
Bank of Australia's business unit in Indo
nesia and also at MetLife in
Malaysia. And I think this all goes to its
strategic priorities of gathering growth in ASEAN and in Greater China and hoping
to capitalize on growth in World Cup, growth in wealth income and also growth
in trade flows between ASEAN and Greater China over the next 2 to 3 years.
And I think also ICBC has a much stronger capital position than its
peers, DBS and UAB. And this does put it in a very good
position to engage in further M&A over the mid to long term should th
e right
opportunity arise, I think is what a Bloomberg Intelligence senior analyst
for the Southeast Asian Bank, Sarah Jane Mahmoud there in Singapore.
Take a look at some of the stocks to watch when trading begins in Korea and
Japan in just about 4 minutes time. Watching Rakuten, it announced plans to
issue over $660 million of corporate bond type shares to strengthen its
financial position. Sony may move on on the news that it's
laying off 900 people across its video game division worldwide.
I
t is also closing a division in London Autos as well.
Toyota and Toyota Industries in focus. Japan's transport ministry lifting a
shipment ban on three car engine models. Market opens up next.
This is Bloomberg that.
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