Stocks Drop, Oil Surges as Israel Attacks Iran
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krizner. Let's update our top story. Israel has launched a preemptive strike against Iran. Now, Israeli Prime Minister Benjamin Netanyahu says that the strikes are focused on Iran's nuclear program and ballistic missiles, and the strikes will last until that threat is removed.

Israel's defense minister has declared a state of emergency, saying the country is anticipating retaliatory action. In Iran, state-run Neur News is reporting successive explosions have been heard in the capital city of Tehran. Meantime, U.S. Secretary of State Marco Rubio said the U.S. is not involved in these strikes against Iran.

Here is Bloomberg's Michael Heath. It was sort of interesting that we had President Trump saying that he didn't want Israel to do this. And obviously there's supposed to be talks in Oman on Sunday, a sixth round of these nuclear negotiations. And yet off the record, reporting was beginning to happen that an Israeli attack could happen within six to 12 hours. And then within half an hour of that, suddenly we're getting this news.

That is Bloomberg's Michael Heath. Now, the price of crude, not surprisingly, is rallying at this hour. Let's take a look now at some of the other issues that markets in Asia are grappling with this morning, not the least of which the tariff story. The dollar weakened to the lowest level in about three years in the New York session. Not only concern about how tariffs are impacting the U.S.,

but the global economy as well. For more, I am joined by Bloomberg MLive strategist Mary Nicola, who joins us from our studios in Singapore. Let's put aside the oil story for a moment, Mary. There is a lot that we still don't know, but talk to me a little bit about what you're observing in the currency market and the fluctuation, more importantly, the weakness that we have seen in the dollar.

Pretty evident that what we're seeing in the currency market is that the dollar has become the punching bag. So any sort of headlines around tariff uncertainty or any concerns about tariff just undermines the dollar. And we've seen it consistently talks about it.

expectations of more auto tariffs. The other day when Trump spoke about potential unilateral tariffs, it was the dollar that was first hit. And a lot of it has to do with the fact that the combination of policy uncertainty, the concerns about what the impact of U.S. growth can potentially be. And then, of course, precipitating the dollar decline has been what we've been seeing in yields. So we've seen a more benign environment for inflation and

And we had really good auctions, actually, this past week. So, whether it was the 10-year or the 30-year, where a lot of investors came in with a lot of angst, especially on the 30-year bonds, but they've actually done well. So, we've seen that the decline in yields has actually added to the downside dollar momentum. So, with dollar weakness, give me a sense of the currencies in Asia that are benefiting. Is it really a story of a stronger yen?

I think it's a story of a lot of across-the-board strength. So whether you're looking at the yen, the Korean won, especially those two because they're quite in the spotlight, especially with trade negotiations. The Korean officials have spoken about the currency being on the table. Taiwan dollar, of course, a few weeks ago, we had a surge in the Taiwan dollar. And a lot of it was on speculation that they were allowing it to move in light of trade negotiations.

And arguably, if you look at the yen, the Korean won, if you look at it over a long-term basis in terms of valuations, it is considered quite cheap. So there's plenty of scope for it to appreciate.

And then in terms of some of the other currencies, the CNY is also very, very closely watched. That was already on the Treasury monitoring list, along with the Japanese yen and the Korean won. And largely, the concern of the Treasury was on the lack of transparency on the yuan. And we're seeing a drift higher.

a drift of higher in the CNY. And that is also another thing that is going to keep the anchor for Asian currencies to continue to appreciate. We have a very important central bank meeting in the week ahead. The Bank of Japan will be confronted with a decision on interest rates. So, given everything that we've been talking about, the concern on global trade,

the flows of assets moving in and out of different markets, the fluctuations in currencies. Do you think that there is just too much noise right now and the BOJ is just going to be a little averse to making any type of adjustment to policy?

Absolutely. Inflation is a problem in Japan, and we've seen inflation prints come in higher, yet they're likely to stand pat because of the uncertainty that you just mentioned. But I think what the key focus will be for the markets is just on how they adjust their tapering and their quantitative and their balance sheet runoff. Because

As we know, we've seen increased volatility in the Japanese bond markets over the last few weeks. What that has done is the fact that, especially the longer-dated, we've seen heightened volatility and weak demand in the auctions as well. A lot of investors are focused on, do they change?

their tapering profile? And do they sell less of the back end and more of the front end to just ease some of that pressure? So away from Japan, what about China? And what may we learn in the days ahead? So for China, we do have their usual monthly data dump coming in on Monday and some money supply data. Obviously, the key risk for China and

its ongoing recovery is consumption. And the fact is, it's almost like the markets have become resigned to weak consumption right now. And what really was a setback for the markets was just where PMIs were. The Kaixin PMI that measures small and medium-sized businesses, their health, that really

fell into contraction in the last month, and that really upset markets. So the retail sales is just going to be just yet another drag, but we know that the focus for the government in terms of spending has been mostly on manufacturing and AI investment. So obviously, and the pickup on the consumer spending with some of the handouts has been actually quite limited recently.

So the focus will be on how manufacturing picks up more so than consumption, because there still is a massive drag on the consumption side. Mary, we'll leave it there. Enjoy the weekend. It's always a pleasure to chat with you. Mary Nicola there, Bloomberg Market Live strategist, joining from Singapore here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So in the U.S. during the last session, we got a second muted reading on inflation in as many days. Headline PPI was up at a monthly rate of one-tenth of one percent. And then on top of that, recurring applications for jobless benefits rose to the highest level since the end of 2021. I think it's fair to say these data points fueled hope of a dovish message from next week's Fed meeting. We had yields down across the curve today.

And at the same time, the dollar hit a three-year low. Now, that came after President Trump said he would set unilateral tariffs on trading partners in about two weeks. For a closer look now at the macro, I'm joined by Natalia Gurushina. She is the chief economist for Emerging Markets Fixed Income Strategy at VanEck. Natalia, thank you so much for being with us. I want to begin by asking to get your sense of the degree of slower growth that you're seeing.

Well, as you can probably hear, there is some noise in the office from our neighbors. So I think that's probably a sign that the U.S. economy is not completely collapsing. But the policy uncertainty is, I think, that's the key issue. That's probably one of the biggest growth headwinds, not just for the U.S., for emerging markets. I think there are definitely upsides. And I think the upside, one of the growth upsides globally actually comes from Asia. The fact that

China has got policy space to provide additional stimulus. And another, I think, positive for global growth is that China is in a better shape fundamentally than it was during the first trade war. And specific issues, you know, China definitely made a very significant progress moving up

technological value chain during the pandemic. And China also eliminated some of the important domestic, well, not necessarily eliminated, but lowered domestic negative tail risks. For example, local government's hidden debt and also real estate.

But as regards asset prices, what is very important for us in emerging markets is not just a weaker U.S. dollar, but the fact that China doesn't have to react policy-wise. It can remain patient, and specifically, it keeps the remaining stable. That's a very important anchor for EMFX.

But, you know, if you look at stable Asian effects together with slow growth, lower inflation, that probably should continue pushing local rates lower. So I think that's kind of one of the ways that markets can make money in a situation when we have concerns about the global growth outlook.

I want to get your take on the meeting that occurred in London this week between the U.S. and China. There was an agreement on a trade framework. Now, from the state's perspective, President Trump is hailing it as a game-changing breakthrough. But I think it's fair to say that this

is pretty much a reset from earlier terms, right? Even at some cost, I guess, if you look at the fact that the United States agreed to roll back a promised crackdown on visas for Chinese students. The rare earth shipments are set to return to levels that were pre-April 2nd. Give me your sense of what was accomplished in this meeting, if anything. You know, my sense is not really much because, first of all, there is a

great deal of uncertainty about the legal process regarding the tariffs in the US. So, for example, you know, there was a court decision to freeze the tariffs, which has been, you know, then reversed after the Court of Appeal. And there are also some other

provisions, legal provisions that are open to administration to impose tariffs. I'm specifically referring to Section 301 and Section 232. So, you know, it's

It might provide, as regards to the market reaction, it provides definitely some fresh air. But fundamentally, I'm on the skeptical side. I don't think a lot has been accomplished. As I said, it's a welcome post and it's good that emerging markets

you know, specifically Asian currencies can use this post to advance. That's definitely one of the reasons why, for example, EM local debt is performing so well because, you know, emerging markets are using this momentum. But as I said, as regards eliminating this uncertainty, I'm on the skeptical side simply because there is so much legal uncertainty exactly how this process is going to develop in the coming weeks and months.

I hear what you're saying in terms of what China has at its disposal to keep the economy going. One of the things that we're very sensitive to is the labor market in China and the degree to which people need to be employed. Do you think that is a critical part of the story domestically right now? You know, that's part of the story. I think one of the biggest issues for me as economist when I look at China is that each time when I look at the

the China's consumer confidence index, it remains frozen at a very low level. And unfortunately, the solutions are very long term. So it's not just the labor market right now. It's pension reform. It's social safety net.

China is thinking about this, which I think is a very good sign. So it's aware it's got problems. But again, you cannot achieve a solution in these very significant areas in a year or two. I mean, one potential catalyst, which I think kind of a reasonably short-term catalyst, which might actually provide a boost to consumer confidence, is an announcement

for example, about using the central government's balance sheet to deal with the problem of unfinished houses. But again, there are a lot of uncertainties there regarding the pricing, the valuations. It's just the sheer number of the houses, unfinished houses, is just so great. So, yes, I think I'm looking at these issues. I'm looking for more announcements regarding these kind of longer-term structural issues. But I agree with you. Yes, the labour market is...

That's an important point. But as I said, I don't think the solution to consumer confidence in China can be found on a very short term. And unfortunately, the markets are sometimes getting impatient, looking for a big bazooka or a big statement, whereas it's a longer term process of reforms. So how do you understand the risk if the deflation story in China is clearly problematic? What are the risks that you see associated with that maybe in the next six months to a year from now?

I'm a little bit less concerned about deflation in China. I think what is important for me is

how the government is going to, well, first of all, China has got policy space, right? China has got policy space on the fiscal side and China has got policy space on the monetary side. So I think that's very important because a lot of countries around the globe, you know, the fiscal space is lacking, unfortunately. I think what is also important kind of looking forward is

how the exchange rate is going to evolve. And it's again, it's not just for kind of shorter term portfolio considerations. It's

It's, you know, a more stable exchange rate, maybe slightly appreciating exchange rate will allow China to explore some other avenues. Like maybe, you know, if you think about benign Japanification, so to say, when back in the 80s, Japan was exporting FDIs to the rest of the world. So that's kind of one of the potential avenues China might expose. I don't think that's, you know, I don't want to think about necessarily risks.

in this regard, but thinking about kind of policy options. And that's, I think, one of the policy options that are more stable or stronger currency can give Chinese authorities. What about the way in which China has been redirecting some of its trade flows to compensate for the problems with the United States? And is that being done in an effective way to kind of mitigate the risk of weaker export activity to the United States?

I think this is a very important point that you mentioned because, you know, we talked about the elimination of some domestic risks, which I think gives China a key advantage right now, but also

So China, the fact that China is now less reliant on the U.S. in foreign trade also give it more policy options. And specifically the fact that with this in place, China can afford to be more patient and not to react each time the U.S. sneezes, right? So more countries, it's not just the trade, kind of more countries now trade with China than with the U.S. And also, as you pointed out, China started to redirect it

trade and also some supply chains, which I think is even more important towards emerging markets. Of course, some of this reflects China's attempts to circumvent the existing tariffs and restrictions, but it definitely does not explain 100 percent of the shift. So, you know, in my opinion, that's might be evidence of regionalization. China kind of trying to

maybe find more opportunities um link itself closely to the global south which again will benefit emerging markets and again maybe it's uh i don't know have you thought about the fact that if china is expanding in into global south um into the rest of asia providing more fdi again this scenario is associated with a stable maybe slightly stronger currency maybe maybe expand

supporting technology, expertise. Maybe this can help some of these countries to finally escape the middle income trap. I mean, that definitely would be a very positive scenario. And maybe the U.S. pays the price for that, which then would only fuel this idea that we're seeing the end of U.S. exceptionalism.

Oh, you know, we at VanEck are talking about the era of EM exceptionalism. And I think what is interesting about this is that in Asia, you have to

two big growth drivers. One of them, China, is already an independent global growth driver, but you also have India, right? And India, actually, India's growth has got, I would say, a second breath right now. And, you know, growth momentum is getting much needed policy support. And I'm particularly encouraged

by the fact that India's fiscal effort is finally focusing on capital expenditure, which is key for lifting India's long-term growth trajectory. But I definitely will not dismiss the idea of China's growth rebound yet. As I said, China has got policy room. And as one of my colleagues in VanEck pointed out, China's innovation engine is running at full speed. So I'm very happy about that.

Natalia, we'll leave it there. Thank you so much. Natalia Gurushina, she is the chief economist for emerging markets fixed income strategy at VanEck. Joining us here on the Daybreak Asia podcast.

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

This is what the market used to sound like.

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