Welcome to daybreak australia. I am haidi stroudwatts in sydney we are counting down to asias major market opens. Annabelle im Annabelle Droulers in hong kong. Stock investors playing it safe with age and futures mixed and wall street flats. 10year treasury yields falling for the first time in six sessions. An auction draws tepid demand. Arm shares tumbling out a lukewarm revenue forecast raising concerns of the Tech Industry ai spending three spree slowing. Xi jinping lands in hungary counting ties to Eastern Europe as a boon for the chinese economy. Shery breaking news for the account balance for south korea. The trade surplus number for march widening to just under 8. 1 billion u. S. We are seeing the current account surplus also there widening to 6. 931 billion as well. We have seen quite a big move over the past few months when it comes to the you want. Yuan. We are seeing a bit of an increase when it comes to net exports of goods. We have seen a decline in manufacturing services, transport, and travel and a bit of upside for construction and building as well as investment income, particularly when it comes to the contribution of equity income. Lets get to how we are setting up when it comes to the thursday session in asia. This is a picture for futures trading in australia. We are seeing futures down by about. 25 . We have a firmer dollar and a bit of weakness in the end. We are seeing broadly the equity session primed for a bit of a mixed open. U. S. Stocks ended more or less flat and at the wednesday session. We do have the effect of higher yields supporting the currency there. Expect weakness across asian fx today. Kiwi stocks off by about. 3 in the early session. Chicago nikkei futures look a little softer. Shery also looking at how u. S. Stocks are coming online. When you say softer that is the dynamic of wall street as well. Given we did not really see too Much Movement coming through. Future steady at likes of tesla, alphabet, intel all falling intraday on the session. Arm is really the one we are tracking. We had a bit of a tepid forecast from the company. It perhaps casts a little doubt over the ai lead or ai enthusiasm we are continuing to see over the course of the year. A big drop in after hours. 10year treasury yields rising a few basis points. Also continuing to assess the outlook from fed speakers and the outlook for rate hikes or rate cuts or whatever happens with rights over the course of this year. Certainly, the boston fed president , susan collins, for instance is saying that reaching the 2 inflation goal could take quite a bit longer. Listen. There is a significant amount of uncertainty around that outlook. The recent data leads me to believe it will just take longer than was previously thought. Lets get to our first guest. Senior market analyst at capital. Com. Kyle, where does the fed go from here . We know they dont want to cut rates. At the same time we have not seen much progress on inflation over this year. What are the options . What is the Market Impact . Kyle as you said it is abundantly clear the fed does not want to have to hike Interest Rates further. That could be a mistake, obviously. Potentially there is a sort of bias entering their policymaking that does not consider the balance of risk to inflation. I see this playing in three potential ways. Basically, the strategy at the moment is for the fed to keep policy at what it thinks or assumes is restricted levels and hope that the disinflation process plays out. Increasingly, we are running into a situation going back to the old question that should never really be strayed from much. How much damage does the economy have to sustain, in particular, the jobs market, to be able to get inflation back to target . That is a much bigger concern, and likely to manifest in much higher volatility in the bond markets and equities over the next few months. The last, very unlikely, outcome that would be very favorable for asset prices is we start to see a said that at least tacitly acknowledges inflation is not going to get back to the 2 target anytime soon. And, it is willing to essentially stomach a 3 rate. We have heard from fed speakers at that kind of walking away, effectively, at least comedy prioritizing, reprioritizing the dual mandate, further towards the labor market and away from the 2 inflation target is terribly unlikely and would be bad for said credibility. It is the final option as to how the fed could play their cards with the kind of scenario we have at hand. At the moment, the fed is clearly banking on the hope strategy. The hope strategy is probably good for markets, as we have seen over the last couple weeks. If we continue to see strengths coming through inflation data, yes, last weeks data was not very strong but the economy is still robust. The tradeoffs inherent in monetary policy, what damage has to be done to the economy to get inflation back to target . That will reemerge and i expect it will be a driver of market volatility for at least the next few months and probably the rest of the year. Haidi looking like option two. I can see you have a short right now on u. S. Stocks. Kyle yes. Days, weeks, if not the next month. Our clients are very shortterm in their thinking. The rationale has a Bigger Picture view. To say that really what is sustaining optimism in equities over the last few weeks, yes, they walked back of the potential for further rate hikes from the fed being priced into the market, but the earnings outlook has actually improved. It is a narrow group of stocks driving that. Technology stocks have driven outperformance in q1 in earnings leading to a list in expectations for not just second quarter, but the full year. At the moment, if you really look at the spreads between bonds and equities, yield spreads between bond and equities, they arent particularly favorable. Assuming we see bond yields remaining roughly around where they are may be the twoyear continues to push towards 5 . The key element is to see a lift under earnings expectations, giving that outlook from here, the fact that we have come to the end of earnings season, increasingly unlikely. We are running into a 52 hundred level on the s p 500. The yield advantage and equities is narrow. Shortterm the out trend in equities is basically in tact. It looks like we will see an unwind of the post fed, post earnings season relief rally and i think that the risk reward in the virtual term looks reasonably attractive to short in particular the nasdaq but the s p 500 as well. Haidi we are hearing from japans currency chief and we tended to hear from them every morning. The language is different this morning. They said they are ready for currency intervention at any time. Are we my question about the yen is two fold. Is there a concern about more currency volatility more broadly and potentially indications of the early parts of a currency war in asia, and, is it surprising we have not seen a stronger correlation with the performance in Japanese Equities . How the first kyle the first part of the question to begin with. Clearly, the only way the situation will end is if u. S. Disinflation, u. S. Disinflation trend continues and we see u. S. Dollar weakness reemerge because of rate cuts priced into the market or the boj steps back into the fold and starts to signal tighter monetary policy. Ultimately, the yen will be driven by fundamentals. At the moment the fundamentals are not particularly favorable for the japanese yen. There is a question of whether the ministry of finance will intervene again. If it gets close to 160, they probably will. They are really just trying to basically shock the markets as much as possible and give themselves some time to hopefully see the prevailing macroeconomic fundamentals start to move in a more favorable direction for them. The second part of the question, as you said, is we really have not seen a pickup in the nikkei despite the yen radiating significantly remaining around 155 level. It would seem Financial Stability risk is starting to come into question. And also, the possibility that maybe even if the bank of japan does not adjust its key interest rate, it will maybe have a more active stance trying to guide 10 year jgb, obviously negative for evaluations in japan and it also raises, at the margins, a higher risk for market volatility. We are seeing uncertainty in currency dynamics as well as where the 10 year jgb could head if the bank of japan has to try to lean against the currency in some way, affecting writer uncertainty in risk assets. For a while i have felt skeptical about the nikkei rally. I was a short on that one. Now it seems to be the case that the uncertainty prevailing because of this the financial dynamics, the currency dynamics are playing out in market sentiment. Haidi does it depend on further progress on policy and the economy . Kyle interesting point about flows. There was an argument the reason why japan was performing so well was capital was coming out of china, both because of some Financial Stability risks we saw there and also because of changing geopolitical dynamics and structural challenges may be china is facing. I suspect that is less of a factor now because we are talking about money that is looking to allocate over much longer term time horizons and effectively exit china in favor of japan because of longerterm trends of decoupling as well as the kind of, may become lower trend growth that could emerge in china. The way i see china at the moment in the rally is threefold. The technical sentiment element, the Financial Stability element, and macroeconomic fundamentals. The first two have become very favorable to china for china because a fantastic work. At least for now the situation is fluid and it difficult to contain. At the fantastic work policymakers did to restore market confidence, intraFinancial Stability risks were for now and then because of interventions from the national team. Every time we have seen a selloff in chinese equities they have been quick to jump in and a short prices to support them come confidence and diminishing Financial Stability risks, at least for now, in a way where again there is major structural concerns about overleveraged in some sectors and the risk it poses to the Financial System and Banking System more broadly. The fundamental question is still a little murky for me. We have seen that as Financial Risks and stability factors improve we have seen an undervalued market price out the discount because of Financial Stability risks return to a stronger position of valuation or longerterm run averages. We dont have any signal yet the 5 growth target is achievable. I will call that long run because of structural issues. Shortterm the rally can continue because market confidence has been restored because of the hard work of policymakers. Haidi great to chat with you. Coming up later on bloomberg television, bonnie chan joins us for her first tv interview since taking the top job in march at 9 00 a. M. Hong kong time. First, President Biden holds back further arms shipments to israel as u. S. Unease grows over civilian casualties in gaza. This is bloomberg. Annabelle chinese president xi jinping arrived in hungary for the last stop of his European Visit where he is expected to sign more than a dozen agreements with the beijing friendly government. Our chief north Asian CorrespondentStephen Engle is here. We saw xi jinping in serbia and there were a number of commercial agreements reached there. It is this the point where we really see the tide three and first between china and Eastern Europe in particular . Stephen his visit to france basically cemented ties with emmanuel macron. Using the french visit as a bit of a counterweight against some of the more urgent Economic Issues and political issues being pressed by ursula von der leyen, the ecb president. Then, serbia was more symbolic. Talking about the nato bombing, the u. S. Nato bombing of the Chinese Embassy in belgrade 35 years ago, submitting those ties with the belgrade government. Now this one to hungary will really bring all of the issues together where we are expecting xi jinping and the government of viktor orban to sign more than a dozen agreements. A lot of them will be in the Priority Industries xi jinping is pushing. The socalled new three including electric vehicles. Already bite byd in december announced it would build its first european plant in hungary. If that is underway now. We are expecting possibly another even bigger ev plant to be announced at sometime today. Assigned with great wall motor. See atl, the big battery maker, is also building a big battery plant in east hungary. Clearly victor or bond costs victor or bond is welcoming Chinese Investment with open arms and he has also been at odds with other European Union leaders especially over its stance on russia. He has open arms with Chinese Investments. There is this belgrade to budapest highspeed rail in the midst of being built as well. It is a very strategic move by xi jinping. A friendly government in Eastern Europe at a time when the European Union, especially, led by ursula von der leyen is really hammering home the overcapacity issues. China is exporting cheaper prices and overcapacity into european markets. That conversation with ursula von der leyen was very much about the overcapacity issue and implications if beijing does not address data. Is he willing to do anything to allay those concerns . The question is, can he do anything at a time when the domestic economy in china is slowing and unable to soak up excess capacity . We have a fullscreen quote from ursula von der leyen. Essentially, the quote is thats the wrong quote. Ok. There was another about overcapacity. Essentially she said she wants to see china act on the overcapacity issues sooner. But that is the big problem now, that china has all of this excess capacity and its clear that across the industries in green, whether it is solar and also, of course, electric vehicles, they have to find a way to export it. That is why we go back, again, to why hungary plays a big role. If they are voting those plans, obviously, in hungary, eventually those will be classified as domestically built products in the eu. They wont necessarily be tariffed under the proposed tariff schema by the ec right now upwards of 20 . This is a strategic move by xi jinping. Later we will get export numbers from china, expected to pick up a little bit in april from the dismal numbers of march. It all plays into xi jinpings strategy of underpinning growth through exports if they cannot sell it at home and that is a political hot potato obviously in the u. S. And in particular europe and places like germany. Haidi our chief north Asian CorrespondentStephen Engle there. The International Charm offensive continues for the chinese president and we see signs of work done by chinese diplomats with criticism recently from the u. S. And western allies approach to dealing with israel and the conflict in gaza. We heard from a top chinese diplomat, taking the microphone at the United Nations last week, criticizing the supply of weapons to israel. By the united states. Very interesting dynamic in terms of the attempts to try to capture is, perhaps, some would say come on the International Criticism the u. S. And its allies have faced over supporting israel. The pressure continues. President biden is saying he will halt additional shipments of weapons to israel if it goes ahead with a Ground Invasion of rafah. He said at the potential loss of civilian life is just wrong. Bloomberg opinion editor Michael Eisen joins us now for more. We have talked about the red lines and what it would take for the u. S. To be more firm and the capability President Biden has to push harder on israel. Michael this is a real shot across the bowels of Prime Minister netanyahu. The u. S. Has been weird writing has been reiterating this for weeks and it has not really resonated with israel. This is something that will. 3. 5 thousand bombs. Some are really quite big. This ordinance will cause a lot of damage in builtup areas. What they are talking about here makes a lot of sense. The problem is the fallout. When you are trying to negotiate a deal with hamas, which i think israel is correct in saying it only respects strength, the idea that the u. S. May be cannot exert enough pressure from stopping israel to stop israel from going into rafah, that may not be enough. It is a judgment call from biden. There are a lot of people in the u. S. That feel israel as a longterm ally. He has weigh that sentiment against real unhappiness among people on the left, and perhaps, i guess you would say, middle america, that this is just carnage going on here and the u. S. Does have a role to play here in really pressuring israel. Munitions is a great one. Israel cannot manufacture these things at home. It has to import all that stuff. Israels strategy has always been to produce what cannot be produced out elsewhere and by the rest on the market. The west does have some leverage here, particularly the u. S. Annabelle we have heard from a number of Top Republican lawmakers that say any delay sends the wrong message to its ally, israel, and more importantly, to possibly embolden iran and iranian backed groups. Obviously, thats very nuanced. There is no blackandwhite here. What weight should we put on the argument you think . Michael they have a good point. I mean, you dont want to be showin