Dollar Gains After Two-Day Dip, Oil Holds Decline With Higher OPEC+ Supply
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Pellett. Doug Krisner is off this week. On today's episode, a conversation on commodities with Vandana Hari, founder at Vanda Insights. But first, trading resumes in China following the Labor Day holiday. The greenback was steady after weakening on Monday against most major currencies.

This is speculation around potential trade deals sparked an extraordinary spike in Taiwan's dollar and resonated across global FX markets. For more, we heard from Suresh Tantia, Chief Investment Officer and APAC Strategist at UBS Global Wealth Management, and he spoke to Bloomberg Sherryon and Heidi Stroud-Watts.

Great to have you with us. That optimism over potential trade deals really sending Asian currencies higher. You like still Taiwanese equities, but if you have a surge in the Taiwan dollar, will that make this very trade dependent economy less appealing?

Absolutely. I think in the short term there is going to be some impact on the companies in Taiwan given the surge in the Taiwan dollar. But keep in mind that most of these companies, they have strong pricing power. There is no competition for these companies in the world, especially in the semiconductor space. So I wouldn't be surprised if these companies are able to have their way, manage the prices and offset the impact of the currency strength.

The other thing to keep in mind is that the result from the tech companies in the US is of any guide, the capex on AI is only going to accelerate.

we are looking at AI CapEx from big four companies in the tech space in US increasing by 50% this year and 30% next year. And that would mean strong earnings potential for the tech names in Taiwan. So despite short-term volatility, I think the outlook for the equity market in Taiwan looks quite promising.

Given the business environment that you mentioned in the United States, does that mean that you still like that market? Because right now what we're seeing is the pressure on the U.S. dollar, pressure on U.S. assets because of this sell American narrative.

Yeah, I think the outlook for the US equity market is still positive, especially if you look at the recent economic data. The jobs report last week and the ISF numbers last night point towards healthy economy. We are not looking at a recessionary scenario in the US. And healthy economic growth is good from an earning perspective. This quarter, earnings have been so far much better than market expectations. We are looking at 9% EPS growth for the first quarter compared to earlier expectations of 5% EPS growth.

So I think a combination of strong earnings and healthy economy can drive the equity market higher. And from an index perspective, I think it's quite possible that S&P goes higher to $5,800 from current levels. How do you feel about emerging markets at the moment, particularly markets like India? Apart from Taiwan, India is one of our other favourite markets within EM.

The reason being it's more a domestic oriented economy. So far the growth was struggling but I think it has bottomed out especially as the capex deployment from government is coming in. The consumer demand is also picking up as Reserve Bank of India is cutting rates again.

So, I think a combination of that should support the earnest growth for the Indian equity market. And if you look at the EPS growth, this year India should deliver close to 15% growth, which would place it as one of the highest earnest growth markets in the world. So, these factors should support higher equity prices in India.

What about, you know, obviously China remains a strong anchor and you talk about some of the domestic stories in India. There are domestic reasons why Chinese equities might be compelling too, right? Or do you see that as too direct an exposure to the trade and US related risks?

Yeah, I think in the short term, the Chinese equity market could remain volatile because we still need to see both sides coming to the table and start the negotiation. But from a long-term perspective, the Chinese tech stocks, the EV story look very promising.

For the last few years, the Chinese tech stocks have been under pressure because of regulations at home and overseas. But finally, that era is ending. We are seeing government is more friendly to these companies, to the private sector.

And with the end of regulations, finally, the sales growth, the earnings growth for the tech names in China is improving. So from a long-term perspective, I think the tech name looks very promising. Short-term, definitely, it depends on the trade negotiations. I think quite possible that with the messaging coming from authorities on Friday, the trade negotiations start soon.

Yeah, I mean, we still have to watch how those negotiations go, right? But Suresh, just looking at the currencies right now, especially in the smaller, more trade-dependent economies, we are seeing the Thai baht, the ringgit as well, at the strongest level since October 2024. Not to mention, of course, the Philippine peso also at the strongest level since March of 2024. The weakness of the U.S. dollar, you mentioned how Taiwan, at least when it comes to

to the likes of these big tech names could still fuel the equities boost in this market. What happens to smaller markets, say Malaysia, Thailand, Philippines, just Southeast Asia?

In the short term, what we have seen in the past is that whenever Asian currencies trend then normally you tend to see capital inflows in this part of the world and the equity market in Asia, they tend to actually outperform the rest of the world. So I would expect this happening. But from a longer term perspective, definitely a stronger currency is not good from an economic point of view because that would mean it would impact the earnings of the exporters.

So it depends on what kind of move we see. If we see a move similar to what we have seen in Taiwan, 10-15%, definitely there would be some economic damage as the earnings of the exporters will come into effect. But anything single-digit, I think companies can manage and equity markets should do well. We've seen a 26% surge for gold this year, right? Do you think we have peaked or do you think that trade uncertainties continue to see that relevance in the market?

I don't think this is the end of the bull run in gold.

because the geopolitical tensions are going to stay with us for the next four years. It depends on the commentary that we get from US administration. It's quite possible that there is a change of mind and that lead to further tensions and escalation on the trade front. And that could lead to further demand from central banks around the world for gold. Also keep in mind that gold tends to do well whenever Fed is cutting rate.

We still expect Fed to cut rate by 75 to 100 basis point by the end of this year. And that would only increase the demand for gold. So we still see this pullback as a buying opportunity and expecting gold prices to go up to 3,500 by the end of this year. Suresh Tanja, APEC strategist and CEO at UBS Global Wealth Management.

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Welcome back to the Daybreak Asia podcast. I'm Charlie Pellett. In for Doug Krisner this week, OPEC Plus has agreed to another large output increase, raising concern that additional supply could lead to a global glut just as the trade war threatens demand. Vandana Hari is founder at Vanda Insights.

She believes that crude prices may stabilize if the U.S. announces a deal with a major trading partner this week. Vandana spoke with Bloomberg's Sherry Ann and Heidi Stroud-Watts. Always great to have you with us. What magnitude of trade deal do you think we would need to see and how would that play out given that, you know, the OPEC Plus supply return has happened at a pretty difficult time for the demand side for this market? Yes.

Yeah, good morning, Heidi. So it does look like the only thing that could put a bottom under prices now or even lift them a little bit would be some sort of a rapprochement starting to happen on the trade deals front. Now, of course, we I think overnight we heard Trump saying a few deals may be announced as early as this week. And from reports, it seems like it's

It could be some of the major countries, major trading partners, including India, perhaps Japan, South Korea. But really what the markets are waiting for, and I would say this is especially true for oil, is what the U.S. and China are going to go do together. As you were just mentioning, the trade between the two countries is almost seized up. But, you know, for the for oil, these you're talking about the world's two largest, not just two largest economies, but the two largest

oil consumers. And China, yes, its growth has been slowing down, but it has still been a major driver of oil demand growth. So it looks like what happens between the U.S. and China is still a bit up in the air. So I won't hold my breath for oil starting to climb anytime soon. Were you surprised that OPEC Plus decided to go now?

Not really. I think there were plenty of hints through last week, and I'm not sure if that was deliberate on the part of some of the OPEC plus ministers to, you know, kind of prepare the market for the shock. But there were reports that this was going to be the outcome, that they decided to yet another acceleration, putting nearly three times

as much oil as they had initially planned back into the market in June, about 411,000 barrels per day. I think what has spooked the markets more than that decision is reports coming out after the ministers' meeting on Saturday

that Saudi Arabia has put the quota busters, you know, Kazakhstan, Iraq, Russia, on notice. That if they don't improve the compensatory mechanism, the compliance with compensatory cuts, then all of the oil could be brought back before the end of this year, you know, instead of staggered over 18 months. I think that would probably spell quite a bit of glut in the market.

It's been interesting that it's been really framed like trying to punish these cheating cartel members, but how much of it could also be about a fundamental shift when it comes to Saudi oil policy at this point? Yeah, so it's two sides of the coin to my mind. One could look at it as...

punishing or even warning, you know, trying to get them back in line. But it could also be simply placating the other members, you know, the remaining five members of that eight-member group who have been disciplined about their quotas and who are perhaps now not concerned

too comfortable, unhappy even, that the three of their group members are overproducing, are not adhering to their compensatory cuts either. Because now it's really a race back to market share even more than what would have been the case in normal times. Because oil demand is going down. The markets, especially in Asia, are going to be shrinking a little bit. And these countries, especially the eight countries

amongst the OPEC+ that have been holding back 2.2 million barrels per day since January of last year, have given up a lot of their market share. And while they have given it up to the non-OPEC+ members, there's quite a bit of competition internally as well, because amongst these eight, the five that have been more disciplined, you could argue have given up more of the market than the three that haven't been. So there's quite a bit of this internal dynamics playing out as well.

About those non-OPEC competitors, how much is this to do potentially with U.S. shale producers? Of course, we know that historically Saudi Arabia has fought back against them and flooded the markets back in 2014 and 2016 with oil. Yeah, so U.S. as the biggest oil producer and growing, not as phenomenally as was the case during the shale boom, but, you know, still growing to...

successive record highs above 13 million barrels per day, it will always remain a competitor, and especially one that is not given to restraining its production except under responding to market economics. It will always be a competitor.

I don't think, however, that OPEC plus decisions are being guided by this competition with the U.S. It's pretty clear, in fact, since late last year, but especially so in the last few weeks. Overnight, we had Diamondback Energy, which is a pure play major shale producer in the Permian, saying that they are going to be cutting back, cutting back on drilling, fracking. And that's the story across the shale industry.

So, you know, Shaila is going to sort of

come down, moderate quite a bit in its growth because of lower oil prices, current, or even below 70 oil prices. So I don't think OPEC Plus particularly needs to drive that sector down with its policies. I think it's more to do with maintaining OPEC Plus internal cohesion. And at this point, really, they are out of chips. It's hard for OPEC Plus, especially just eight members,

to be struggling against this major contraction that we are seeing, wave of economic downturn and demand downturn. Vandana Hari, always good to see you. Founder of Vanda Insights with her take on oil prices right now.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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There's no business like small business. Hiscox Small Business Insurance. Is this a negotiation or the new rules of the game? It could be either. It is up to the president how he wants to negotiate. A deal is going to be made with China. Nothing's over yet. There's been a lot of confusion up to now. A 90-day pause.

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