Can Asian Stocks Defy The September Curse This Year? | Bloomberg: The Asia Trade 9/02/24

This is the Asia tray, though I'm sure Rihanna in Tokyo have hardly while it's in Sydney. The top stories this hour. A mixed open ahead for stocks as investors count down to a likely Fed rate cut later this month. A wave of Asian factory PMI numbers are set to kick off the week in this region. But China's growth headwinds mount as factory and housing data worsen, suggesting that further government support is needed to hit the official expansion target. Plus, Israel's largest labor union calls a nationwide strike to pressure Benjamin Netanyahu into a Gaza ceasefire due

to free hostages. This is a setup across Asia after three weeks of gains for the Nikkei. We are seeing futures pointing to the upside of a quarter of a percent. The Japanese yen holding steady was weakening for the past three sessions against the US dollar. We'll also watching the Aussie dollar because we saw incredible strength against the US dollar. Of course, it was also a function of broad dollar weakness. We do have Australia's GDP numbers for the second quarter later in the week as well. We're also watching the offshore yuan at the highest level in

about a year against the US dollar. But really as I said, it was really a function of dollar weakness. Take a look at the other side of the train and what the dollar is doing now, because we saw, despite the fact that it was a big week of gains for the US dollar and the monthly basis, it was still a big loss given, of course, the uncertainty as well over what happens with Fed rate cuts to come. We will be watching US futures right now pointing to the downside on a holiday Labor Day weekend. So

investors will be away for a long break this weekend. But of course, we saw those gains the last few minutes of trading on the Friday session for the S&P 500. Of course, we have seen a lot of volatility on the S&P 500. The VIX actually falling towards that 15 level after surging more than 65 earlier in the month. Given the market meltdown that we had around August 5th. We're also watching, of course, oil prices, given the rising geopolitical tensions in the Middle East and around Israel and Gaza. But, Heidi, it will really be about those

jobs numbers coming up later in the week. Of course, we do have the payrolls numbers. And now with more cracks being shown in the labor market, the core PC price index that we got on Friday, so important, are we seeing sustainable disinflation pressures in the US economy? We saw a core PC price index gaining about 0.2%, which was a mild gain. And perhaps really another indication of why Chair Powell talked about the time being right for those rate cuts to come. Yeah, it still kind of underscores the sense of global fragility, right? Because even if

expectations are still mounting that the US, a Fed will be able to hit that soft landing, there are still global headwinds. And one of them is, of course, the big question mark over what happens in China. We've seen a sort of, you know, signals of government support. They clearly don't want to overdo it. But none of that has really translated To a meaningful improvement either on the industrial activity side, and certainly not when it comes to the beleaguered property sector. And this as we take a look at kind of the most recent data suggesting that

these growth headwinds are only mounting factory and housing data that we've gotten over the past few days continue to worsen. Economists now say that 5% GDP target is now in threat, that the government must do more. And of course, this is a big thing symbolically for China to be able to hit or exceed that growth target of 5%. It's very low for China, but obviously there are plenty of economies around the world that would love to have 5% levels of economic growth every year. The manufacturing PMI that we've got posting a fourth straight month in

the zone of contraction. We also saw the residential property Slump deepening in August as well. The expectations of a further drop in new home prices really hampering any kind of effort we've seen from the government to cushion the downturn. New home sales values of the 100 biggest real estate companies fell almost 20, 27% from a year earlier, much faster than that almost 20% decline in July. So this sort of accelerating slide across data points in China suggesting that we will need to see more from Chinese authorities, including potentially from the PBOC and other fiscal measures

as well. Yeah, let's delve into some of the other data points that we need to keep an eye on. I mean, we were talking about the US labor market. We're going to get more data on job openings, private sector job creation. And as we talked about the monthly payrolls numbers and all of these Reports could give the Fed some insight into the need for further rate cuts after on the all but certain cut this month. Also, Bloomberg survey of economists expect the US to add 165,000 jobs in August and the jobless rate to fall slightly.

And in the Asia I mean, Heidi, you were talking about the PMI numbers and the manufacturing data, but we're also going to get China citing manufacturing PMI numbers. And those are expected to show an expansion later this week. We're also getting those GDP numbers out of Australia in South Korea as well. We also have a rate decision from Malaysia. We'll also be covering a slew of high profile summits in the region as well. Heidi is never a dull week as we kick off this trading week. So let's bring in Carlos Casanova, senior Asia economist at

BP. Carlos, always great to have you with us. And we sort of positioned the two major factors for the global economy about whether the Fed can stick this, a soft landing, whether China can kind of get its growth back on track sufficiently to be able to maintain that 5% GDP target. What do you think the risks are at this point? And do you think that there are sort of recessionary risks lurking for the US even as the data continues to be quite resilient? I would be more worried about the China side of the equation. To

be quite frank, in the US we have okay visibility. Of course the disinflationary process continues as we saw with core PC data last week, but this is going very slowly and so we don't think that that Inflation measure is going to be at the 2.5 level anytime before December this year from December onwards. Of course, lower inflation can pave the way for more rate cuts. But what the Fed is going to be focusing on for the coming weeks is the labor market and avoiding a correction in the labour market. That is why the numbers this

week, including nonfarm payrolls and the unemployment rate on Friday, are so, so, so important because it will dictate whether or not the Fed is able to do 25 or 50 basis points. If we see a much stronger weakening in the labour market, which is not currently the consensus, then we could be in a situation where we are looking at a faster pace of slowdown in the US with the need for more preemptive support. But indicators remain quite mixed, so our House view remains 25 basis points And another 25 in December. No recessionary risks in the

US, but just a slowdown and that is panning out as expected. China is a bit more worrisome in my opinion, and we are seeing weakness, you know, across manufacturing and the housing sector. So that 5% growth target remains elusive. And we've maintained this 4.8 forecasts since the beginning of the year. I would add to that there's if anything, there's downside pressures on that number. I also think that as we get into the rest of the year, we've got, of course, the US election in November and potentially some fiscal risk and trade risk derived out of

that. How do you think that impacts both the Fed's mandate and certainly complicates matters potentially for China as it Tries to get the recovery back on force on for the US? I think the Fed is of course independent, but the Fed is not immune to potential market volatility and so we do not think that it will be the best time for the Fed to cut rates around November due to the timing of the election. That means that if the US economy is indeed slowing faster than expected, September would be the time to do that. Pre-emptive

larger rate cuts. So on the US, definitely something that we're monitoring very clearly elections and other measures are going to impact the pace of timing and of course, depending on who wins the election, an increase in protectionist measures could challenge the outlook for rate cuts in the US. If, you know, trade tariffs, for example, result in higher imports, which in turn fuel inflation in 2025. So very important for the Fed indeed for China. Well, China is going to have to count on its domestic economy because they have to rebound or get out of the hole

against a much, much more challenging external environment. It's not only in the US. We are seeing a series of other important trade partners like the European Union also follow suit, introducing trade tariffs. There's been a lot of concern around overcapacity issues in some sectors. We are even seeing that translate into weakness across the manufacturing PMI. If you look at the subcomponents and so I think it is a big issue for China in the coming few months, this overcapacity constraint and how to get out of the hole when you're not going to be able to export

your way out of it as easy as before. But Carlos is in, as you said, an issue For China or is it an issue for the rest of the world? Because I wonder about the global implications. Is it the concern for you that we will see the ripple effects across the world, or will it remain contained? Because every time China had a problem with its economy, they just threw money at it. Can we expect that again? Hmm. Well, the The Economist in the House is, of course, going to say that protectionist measures don't benefit anybody.

So it is an issue for China, but it is also an issue for the rest of the world. So we do expect to see protectionist measures translate into stronger inflation. And of course, this reshoring or reshuffling of global supply chains is inflationary in nature, and the US Consumer ends up paying the price for that. So definitely not in favor of some of those protectionist measures. For China, of course, you know, they have been able to benefit a little bit from a stronger US demand in the first half of the year. Exports account for a much

larger chunk of GDP than they used to. But that's going to start to phase out once the US demand normalizes in the second half of this year and into 2025. So for China, it's going to be imperative to lean on domestic demand and domestic consumption in order to stabilize growth at around 4.5 to 5%. And I'm saying 4.5 to 5% because it's a theme that over arches this year and also into 2025. And for that to happen, we need to see sentiment improve. And that is going to be very challenging in the absence of a

recovery in the Housing sector. So to your point, we are expecting a lot more support coming out of China. It's either that or they have to pivot on their GDP target for this year. Hmm. What are the likelihoods of that will happen? Is being increased incredibly slow. I think everyone has a little bit of investor fatigue because we have been waiting since April for these measures to take place. And of course, the big political meetings over the summer, the July Politburo and also the third Plenum were a little bit disappointing. The tone was was correct

in line with, you know, what they have been saying for the past few months, but we lacked actionable measures. We do expect to see some of those measures coming in over the coming months. We do expect that they will expand the fiscal deficit target to at least 3.8% of GDP like last year, if not 4%. And of course, bond issuance has been very slow, both at local government but also in terms of those ultra long special government bonds that they are planning to use to develop a new infrastructure in China. So we do expect to

see them expedite that a little bit, perhaps move some of the quota for next year into the fourth quarter. Overall, we should see a slightly more supportive fourth quarter for Chinese risk assets, but it is going to be very difficult to sustain that. You know, they are being very slow and there is not enough policy space to do big bazooka support measures like in 2009. So this time around, the low hanging fruit is domestic consumers. And so there has to be a pivot at central government level in favor of consumers over sort of the emphasis

on the supply side that has dominated policymaking in the past couple of years. Carlos Casanova, senior Asia economist at BP. Good to have you with us. Happy Monday. We have a busy week ahead. Coming up on the Asia trade here, why Neuberger Berman thinks M&A deals are becoming more attractive in Japan. We'll also get more on the market outlook with Bmkg family office and credit sites as traders await key U.S. economic data, while China's growth headwinds keep on mounting. But first, to Israel's largest labor group calls a nationwide strike as pressure from a cease fire

grows over the deaths of hostages in Gaza. Details next. This is Bloomberg. Israel's largest labor group is poised for a nationwide strike on Monday. It is the strongest push yet to force the government into a ceasefire deal in Gaza and what looked to be the largest protest since October. Hundreds of thousands of Israelis demonstrated in cities around the nations on Sunday after the bodies of six hostages were found in a tunnel in the Gaza Strip over the weekend when boats Michael. He joins us now. So, of course, the tragic developments over the weekend and you're

seeing this kind of deepening anger within Israel that clearly they don't think the government has prioritized the safe return of these hostages and the remaining hostages. Yeah, I mean, one of the crucial issues is should Israel have troops between Gaza and Egypt and Netanyahu? Prime Minister Netanyahu is insisting on that, the military Philadelphia car. Yeah, exactly right. And and the defense minister in the military establishment is saying it's not critical if it helps us get a deal. But the cabinet voted in favor of the prime minister. So, yeah, that that sort of stuck there in

terms of in terms of getting a deal. And so almost what we're seeing now is politics moving from parliament to the streets to try to exert pressure on the government to get this done, because they're actually not far off getting a deal. It looks like, though, on the Hamas side, we're not sure where things stand. Okay. I do wonder, because we've seen Netanyahu really proceed with the way that this war, this conflict has been conducted almost without regard for any Kind of political pressure that's been building. Do you think these sorts of protests, you know,

as large as they are, that they were the worse since October, the deep sense of dissatisfaction and hurt in the nation? Does it make a difference in having him change his stance? Is there any political pressure on him? It's difficult to judge Harry from this distance because he I mean, in a sense, he's like every politician is looking after himself there, but he's sort of got the government and the parliamentary majority locked up. What's interesting is it's not just the labor unions, but business also was talking about joining in this election. So there's sort of

a bit of a cross section of Israeli society now that sort of enough is enough. The polls show that more than 60% of Israelis want a deal. Only 10% are opposing it. And within the military establishment, you know, the various reports sort of show that they think now is the time for a deal as well, that it's not going to make too much difference militarily in terms of Hamas, the possibility of getting these hostages who have been there for almost 11 months now. It's a long, long time. And obviously these six who died that the

Israeli side that were executed 24 to 48 hours before that were found, the Israelis sort of had an understanding they were in the area. So, you know, this it sort of also puts a lie to this idea that the military campaign can free the hostages, because it seems that Hamas the strategy is if there's any risks, they'll be afraid they'll execute them. And so it I mean, the pressure has to be building on him to do that. And of course, on the US side as well, They would desperately love a deal. So it's mounting. But

then you've got Sinwar in charge of Hamas who is in a tunnel somewhere in Gaza. Does he does he just wait out and allow the pressure to build on Netanyahu to get more concessions? It's very, very difficult. You know, there's 70 moving pieces going on here. Any idea at this point how much of a toll this would impose the strike on Israel's economy? It's hard to tell at this moment. Sure. And it's whether the airport is closed, the Ben-Gurion Airport, the Israel's main airport. There's discussions there about whether they will be closed the whole time

or a couple of hours. I mean, it depends how many come out. The finance minister who's part of the Sort of this very right wing nationalist group, he's trying to get a court injunction to make to prevent Israelis from doing this from. And he's sort of saying that public servants shouldn't do it. So it sort of depends what the reaction is. But as the pictures showed at the start, just the spontaneous protest yesterday, there were quite a lot of people out there as well. So there's probably a decent chance that it will be a good

showing. But at the end of the day, Israel is a nation at war, so its economy is not in great Nick as it is now. Whether this this is not going to tip it over the edge one way or the other, It's more a political show, I think, than anything else. Linguist Michael Haight there with the latest on the Israel and Gaza war. And these are the other political Stories that we're following. A new poll suggesting that Democratic presidential nominee Kamala Harris has erased most of Donald Trump's lead among likely voters in the battleground state

of Michigan. The statewide epic MRA poll of likely voters had 46% of respondents supporting Trump, while 45% backed Harris. The same poll in mid-July gave Trump a seven percentage point lead over President Biden. German Chancellor Olav Schulz ruling coalition has suffered significant losses in regional elections. Parties on the extreme right and left took more than 60% of the vote in two states in eastern Germany. Media projections put the alternative for Germany on course for the first win for a far right party in a German state ballot since World War Two. But it's highly unlikely to

be able to form a government. French President Emmanuel Macron is set to hold talks with senior political figures as he prepares to name a new prime minister. He'll meet on Monday with former socialist Bernard Cazeneuve and also plans discussions with conservative Xavier Bertrand. Macron may announce a decision in the next few days. France has been under a caretaker government since indecisive parliamentary elections in July. We have more ahead on the Asia train. This is Bloomberg. The social media platform has gone dark in Brazil after an order by the nation's top court, and it follows Elon

Musk's refusal to name a legal representative to deal with requests to take down alleged misinformation. Let's bring in our global business editor currently for more. So to hear from the judge in terms of his rationale behind this. We did. And we've also heard from Elon Musk is obviously not happy. He's lashed out at that Supreme Court judge on the platform already. But, Heidi, let's take a look at what the judge said. This really caps a months long feud between Musk and the Supreme Court justice who's been leading efforts to combat fake news in Brazil, hate

speech that he says is harming Brazil's democracy. The justice saying extremist groups and digital militias are using X to spread racist hate speech, saying the company has repeatedly and deliberately disrespected court orders. And really, take a look at this language. These are fighting words. X has been contributing to an Environment of total impunity and lawlessness in Brazilian social networks, including during the 2024 local elections. So this is really the end of something that's been going on in this court for a while. And now we're going to see how that affects it's going forward. Do we

have an idea of how widespread the blackout is and I guess the implications for its ongoing in Brazil? Well, it's starting to go dark, but let's look at the context around this. I mean, Brazil is Latin America's biggest country. It's the world's fifth most online nation, has 20 million users in Brazil. And this is a huge hub for the company outside of countries like the US and Japan. So one of the things we're obviously going to be looking at going forward is how this impacts its users in the Country, whether they turn to other platforms.

Now, President de Silva is already among those bracing for the ban, tweeting at social media users the names of other platforms. Blue Sky from Twitter founder Jack Dorsey reported 1 million new users in the three days ending on Saturday in Brazil, tweeting a welcome message in Portuguese. The other thing to look at here is, of course, what this means for investment in the country. You already have Bill Ackman among the early criticisms of the court's decision. So there's a lot at stake here on the investment side. On the social media side for everyday Brazilians. We'll

be taking a close look at global business editor Karen Lee there with the latest on X in Brazil. Let's take a look at how we're setting up for the opens across Asia. We, of course, have three weeks of gains for the Nikkei. We'll see if those gains are sustained this week as well of this as the Japanese yen holds about 146 level. We saw some weakness against the US dollar for the past three sessions. We had some broad dollar weakness for the month of August, but when it came to the last week of August, it

was the best weekly gain for the dollar since April. We'll be watching JGB yields as well. They dropped the most this year. Of course, we continue to have uncertainty about the Bank of Japan's policy outlook. We'll be watching. Sydney futures down 2/10 of 1% after we saw the ASX 200 gaining ground on the Friday session. We also had significant strength for the Aussie dollar and the Kiwi dollar Against the US dollar last month. Take a look at US futures down a 10th of 1%. But remember we're on a holiday weekend so investors will be away

in the US on Monday. We have more ahead on the Asia trade. This is Bloomberg. China's factory activity contracted for a fourth straight month in August. Officials are blaming the weak economic activity on bad weather. For more, we're joined by our China correspondent. Me, me know so I mean, what do the longest PMI numbers tell us about the broader economy right now? Yeah, the August data was released for the manufacturing PMI. It was disappointing to the downside. And if you look at the past 17 months, we've only seen three months of expansion so far, at

least since April of last year. The services PMI, though, looking slightly surprising to the upside. It was 50.3, the consensus was 50.1, the prior month was 50.2. But if you dig a little bit deeper into the services PMI, the subindex for construction that had slipped further, which suggests that construction activity is slowing down and maybe some of that government support when it comes to infrastructure spending was slowing down as well. When it comes to manufacturing, if you look at the gauges for input and output prices, that has slipped as well, which suggests that weak demand

is posing more deflationary pressures on factory gate prices. And you have the government saying that the weak economic data is because of bad weather, the hot temperatures as well as heavy rainfall. But our Bloomberg economics team believes that there are more troubling Factors at play here because you have these local governments, reports of them maybe not being able to keep up with the expansionary budgets set in March because of heavy local government debt. Goldman Sachs had written that so far year to date, so far that revenue collected from taxes and land sales may not be

able to meet the projected budget this year, which could weigh on government spending. And really, government spending this year is really one of the few levers left to boost the economy, given that private spending has really been extremely lackluster, what else needs to be done then? Impassively when it comes to housing? Yeah, we have had the preliminary data for housing coming in for August and it looks like there is a big decline in sales of about 26%, much bigger than the July decline of close to 20%. But in some ways this wasn't unexpected Because of

some of those government measures. Recently, we have seen at least ten cities either relaxing on or scrapping those new home price guidance, which has led to many developers slashing prices, giving big discounts to attract buyers. And no surprises here that some home buyers are staying on the sidelines waiting for prices to bottom out. So home sales again going down for this month. And again, economists are calling for much bigger stimulus for the housing sector. We have previously reported that the government may be considering letting local governments use their special bonds to the funds from that

to buy up those unsold housing. There are currently still about 61 million unsold homes in the market right now. And another measure that they are Looking at, we previously reported as well that the government may be considering allowing homeowners to refinance their mortgages about $5.4 trillion worth of those. But that's going to be equivalent to a mortgage rate cut, really, and it is going to be positive for the housing sector. But some economists say it's not going to be big enough to be a game changer. China correspondent in Manila. They are watching out for the

impact when it comes to Chinese risk assets as we get into the start of trading. We do have a slew of Asia premiers as well to watch to see if some of that might provide a more positive foil to the dismal China data that continues to come in. Take a look at the set up as we get into this new trading week. Looking pretty cautious broadly. We're seeing a gain of about a quarter Of 1%. It was the worst month this year for the US dollar more broadly, but we did see an advance along with

treasuries as well as a little bit of more sort of risk on towards the end of the session on Friday as we got really pretty mild acceleration when it comes to the Fed's preferred gauge of inflation, as well as a pickup in household spending as well. China looking pretty flat at the moment. And let's get some analysis from golfer Reynolds who later m love Asia coverage. I suppose the question is, you know, if now the the talk is what China potentially needs to do to hit that 5%. We've got to say China almost the bit

correlated from broader M that it managed to forge ahead regardless of of of the Chinese woes. What's most vulnerable here? Well, it's one of those things where China doesn't seem to matter until suddenly it does. We'll see. We'll see how it's going. You know, the Australian dollar is one obvious potential area of vulnerability. Vulnerability because, you know, longer term, there's plenty that can go wrong for the Australian economy if China is going to continue to slow down. And in particular of things like real estate is going to continue to get worse and worse and worse.

Yet for the moment, iron ore is still sitting at about 100 USD a tonne and that's just fine for for Australian producers. But when you're going into a situation where we've got the Australian GDP this week that's seen coming in pretty weak, if it comes in weaker, if we start to get some concerns that the RBA is, as the Treasurer was was flag was flagging, the interest rates here are helping to add to the burdens for the economy at a time when it faces all the burdens. And if China's woes are seen as impacting Australia

on top of that already weak GDP, well then you've got the potential for those rate cut. This to really jump here down on that. That should bring the Australian dollar down along with Australian yields. I also think there's a slow burn impact for Europe. We've got European stocks failing to really take off relative to the US, even though there was a lot of talk that once the IE bubble started to at the very least get some air taken out of it, that that would help European stocks. Instead, there's a lot of concerns about Europe's economy.

Germany in particular is showing a lot of the economic weakness, and that's also translating into more political instability in Europe, all of which looms over European stocks and to a certain extent, the euro itself, the far right party on course to win a regional Ballot for the first time. I mean, do we need to be sort of concerned about what that potentially does to the balance of of of fiscal policy? I would definitely think that that's one of the concerns. And Europe faces this difficult balancing act. It's also got a war on its borders, of

course, or potential, I suppose you could say a couple if you want to include the Middle East on their borders. So there's plenty of instability there that makes it hard to readily pivot towards any sort of stimulus that might be needed. There's the looming concern that with or without a second Trump presidency, Europe faces lots of need to increase defence spending. How do they find that while maintaining the social contract where we've already Started to see last week some concerns coming to the fore again in France, where during the Olympics people sort of relaxed about

the fact that they don't actually have a government as yet. It's a couple of months old. You have more than more than a month since the since the election. So all of those things hang over Europe. The concern about, you know, there's the need to bring fiscal policy to the party and get it lined up with monetary policy. Can they manage that in a more fractured environment? But I guess also the broader question is there were a lot of hopes about the European stock markets because of their underperformance so far, given the rally that we

saw in the US, especially among the Magnificent Seven. Could we see again the shift towards value, towards some bargain hunting not only in Europe but say, in Asia? I mean, that's been the whole case for, say, Chinese stocks or Japanese stocks, right? While Japanese stocks are facing their own potential difficulties with what's going on with with the yen. Meanwhile, the difficulty is that at the moment a lot of investors are still looking to the US. The US economy is holding up relatively well. The Nvidia earnings last week were that were disappointing apparently because they only

hit expectations for very strong revenue and profit growth. So the a lot of the sentiment seems to be you still look to the US just maybe you don't look so closely at the magnificent Seven Bloomberg intelligence was saying that the S&P index outside of the Magnificent seven so 493 other companies earnings for that would were good at best they've Been in in some time on a sequential basis yet to two straight quarters. So in that scenario, if you're looking for value, you might well look to the US outside of the Magnificent Seven, the rotation play

that people are looking back at. I think the bigger concern for everybody is what this payrolls bring. Remember at the beginning of last month, we had this absolutely right, a sell off that was partly created by concern that weaker than expected payrolls meant that the US was about to tip into recession. The Fed needed to cut rates by 50 basis points or all that fair of the way. And it said it's being treated this ancient history mostly by the markets. But we do have another payrolls coming up. You have to be concerned that you get

strong downside or upside. Surprises could cause a lot of turmoil. So I think to some extent, people are Going to wait before going into AM or Europe or elsewhere in the US until we see we get more clarity about what payroll. So what that means for the Fed. Yeah, we could see some sidelines trading right now. Thank you so much, Garfield Reynolds who leads the markets live Asia coverage focusing, of course, on that make or break number coming up. Payrolls in the US. This is Bloomberg. Take a look at how markets are setting up for

the Japanese Open. We have the Nikkei gaining ground for three consecutive weeks, The Japanese yen weakening a little bit against the US dollar over the past few sessions. We're headed towards that 147 level now where the round one 4645 And this of course as we continue to watch JGB yields as well. We actually saw the biggest drop in the most this year. We have, of course, uncertainties about the BOJ as well. One stock that we'll continue to watch what's happening around seven in ia7 and nine investor are urging the company to engage with couche-tard and

provide an update on the canadian companies buyout bid by September 19th. US based manager artisan partners warned seven and I will be held accountable if it doesn't open negotiations. They add that the Canadian operator of Circle K Stores is uniquely positioned to enhance shareholder value at the Japanese firm. Let's bring in our next guest is positive about the outlook on M&A is in Japan. With us now is K Okamura, senior VP and portfolio manager at Neuberger Berman. Great to have you here in the Tokyo studio. Good morning. Thanks for having me. Let's talk a little

bit about this increasing interest on Japanese firms. Is it all to do with the Japanese yen being as weak as it is or what's attractive about this market? That is definitely an important factor, but I think it's sort of a confluence of many other factors as well, like the deal that you mentioned earlier. There's a lot of interest for Japanese assets in the public equity space that I'm looking at. I'm speaking to clients from across the world. And what they're telling me is that they like the macroeconomic fundamentals that's improving. So you got the paradigm

shift, the potential end to last decades of deflation. And then on top of that, you've got the capital management corporate governance Reforms. That's changing mindsets of many Japanese companies. You got the weak in and then, of course, associated to that are the weak valuations. Now, the topics right now is trading at around 14 times PE, 1.4 times price to book. Compare that to the U.S., which is around 20 times PE and five times price to book. So clearly there is that, you know, huge opportunity. I think a lot of people are starting to look at

in this market what are the messages that you're getting from the Japanese government and regulators? Because now we're hearing on that seven and nine deal at least that the management could be asking for government protection according to the foreign exchange in foreign trade. And they want to be designated as a core Company, according to sources. Yeah. Yeah. Well, unfortunately, I can't speak directly to that deal. However, that being said, I can talk about the situation in general just because I do think that this is going to come up more and more going forward. Keep in

mind that Japan, like the rest of the world, does have regulations, laws in place to protect national security assets. This is the same as the U.S.. This is a great example. Now, we have been looking at the situation of the last several years. We work with the Industry Association Light Asian Corporate Governance Association. We put out an open letter saying, look, this has to be done in an open and transparent way. I think going forward, we are going to See cases like this emerge where there can be potential opposing interests happening at the same time.

That being said, I think the message is clear Japanese companies are open to do businesses. They are open to looking at various opportunities going forward. And keep in mind, last summer we had the fair M&A guidelines that were revised by the Minister for Trade that clearly states that all deals transactions have to be taken into consideration for the sake of all minority shareholder interests. Do you think if there is a decision made on this that could be perceived as protectionist, that it would swing, even, as you say, sort of neutrality to how perhaps governance and

boards are starting to approach foreign interests? Do you think that would kind of from the outside swing opinion that perhaps not As much progress on governance has been made as previously thought in Japan? I think, you know, 15 years ago, yeah, I would agree. Yes. But today, the situation is clearly changed. The economic fundamentals are completely different. The amount of pressure from shareholders to company management to get their capital efficiency higher and to achieve top line growth, but domestically and internationally has grown enormously. So I think going forward, we will see cases like this where

there can be opposing interests at hand. But that being said, I think companies will still find out ways to to form good alliances. M&A is there are definitely going for and I think this will be the case for the future of Japan. How much of this has been down to the Levels in the yen? And do you see this kind of window still being even as the yen continues to strengthen that it still is still a sweet spot, if you will, when it comes to sentiment. Yeah, I think at the end of the day, the

weekend does have an impact. I mean, just think about it this way, right? In the last month we saw for the first time in 20 years, US active investors turning overweight on Japan equities. This is a historic moment for Japan equities on that front. And I think it's not a coincidence that it's happened around the same time that the market has jolted by a significant amount going back to 1987, I believe. So I think from that standpoint, the weekend absolutely has one thing or one point to play. And of course, the weak Japanese assets, especially

in terms of equities, is Certainly looking very attractive for global investors. There has been a lot of optimism, as you say, in Japanese equities because of this optimism over the changes in corporate governance. I do wonder, though, how in line are these changes not only among large corporations, but also the small and mid-sized ones? Yeah, in the last 2 to 3 years there's been a huge bi friction between large cap equity performance and small to make up equity performance. I'm not going to do a history lesson, but if we look back in the early 20

tens, we saw something very similar. But after that, from 2014 on, for the next four years, we saw Japanese small and mid-sized companies outperform the rest of the market for four straight years. This is a very similar situation. You got reforms weekend all helping as a Tailwind for large cap equities. That was the case for last 2 to 3 years. Now, look at it today, things are reversing. The end is appreciating the domestic economy is breathing life again. This will be a good set up for the small to midsize companies and not to mention, as

you said, the reforms. We will certainly see more reforms that are coming from the small mid-sized because of the last two or three years. It's really been the large caps that's been sort of leading the pack on trying to improve corporate governance. So you think this time is different from what you saw years ago? Because I think always the skepticism with Japan has been these starts and stops, optimism coming, foreign investors becoming interested and then leaving in just a few years later. Absolutely. Look, I'm not going to say, you know, Everything is going to be

perfect. I think there's going to be starts and stops. What is it? The risks. The risks, obviously, is that, you know, as you just mentioned, the regulatory issues or, for instance, we see a huge sort of decline in corporate willingness to address many of these issues. But as I mentioned, a lot of the drivers are now structural nature of Japanese companies don't have the sort of a second chance to go back to I was speaking really the urgency they are, and even more so, the regulators are feeling the urgency. They say this is the last

time they have to convince foreign investors to look at Japan again. Kay Okamura, senior VP and portfolio manager, great to have you with us here from Neuberger Berman here. Dissecting the Yemeni environment for Japan as we're getting breaking news as well. We're getting capital spending year on year for the second quarter. Growth of 7.4% is an acceleration from the previous month, but it's also coming in slightly below expectations. And economists had expected growth in spending year on year of about 10%. Although when it comes to spending X software, it's a beat and growth of 9.1%.

And we were watching this closely to see how Japanese companies were doing with capital investments. We saw in the fourth quarter that they actually trimmed some of those investments. This time around, we're seeing that they're coming in below expectations, but still an acceleration from the fourth quarter year on year growth of 7.4% cash. Japan ahead every Monday on 8:40 a.m.. If you're watching in Tokyo, that's 7:40 p.m. Sunday in New York. And of course subscribers can watch live on the terminal using the TVE go function. This is Bloomberg. Let is corporate headlines for you. And

Chinese automakers registered fewer electric cars across Europe in July. This is new tires amplify the impact of a broader slump in EV sales research and data. Fall says brands, including BHIWADI and SAIC Motor, accounted for nearly 10% of EV registration, but is down slightly compared to a year earlier. New tariffs introduced in July raised duties on Chinese made EVs to as high as 48%. Goldman Sachs is said to be planning to dismiss several hundred employees in coming weeks as part of its annual cull Of low performing staff. Sources say that would bring total cuts this

year to around 3 to 4% of the bank's workforce. That is in line with Goldman's typical approach as it seeks to keep a lid on costs and make room to enlist new talent. Oasis fans rushing for tickets to the British band's first concerts in more than a decade, overwhelming the sites of Ticketmaster and other sellers. Fans complained of long lines and errors, with many walked away empty handed after hours of waiting. The 17 night UK and Ireland tour is the first since the band broke up in 2009 after years of in-fighting between the Gallagher brothers.

I. I told you they were really popular. They're a classic. I tried to get those tickets, but I would be angry as well. Also, we'll be watching the opens in Korea, Japan and Australia. Yeah, go ahead. Did you try? No, dear. I was just thinking of what about, you know, a young producer saying, I've heard of Oasis. I haven't heard the music, but I've heard of them. Yeah, we felt ancient up to that point. Wonderwall, like a perfect road trip song. But these are the Asian chipmakers that are in focus. Of course, Bloomberg has reported

that Intel is considering options such as a split of its product design and manufacturing businesses. And Intel may reportedly consider selling its programmable programmable chip unit Altera, as part of a cost cutting plan. Reuters also signing a source saying the Company is also considering capital spending cuts, confirming a and report by Bloomberg News. And these are the markets overall right now, a little bit of a mixed picture. We could see some upside. On Japanese equities, we had the Japanese yen now holding steady at that 146 level. We're going to be watching South Korean stocks as

well. Of course, we had two weeks of gains there, too. The market opens in Sydney, Seoul in Tokyo. And next, this is being bark. This is the Asia trade war, counting down to Asia's major market opens. And of course, Heidi, this week it will really be about the August payrolls numbers in the US given all of the volatility after we saw last month's Figures. The expectation right now is for really, really sustainable growth in the labor market. Also sustainable the inflation we saw in the PC coindesk's as well. Yeah, it was sort of a pretty

well balanced kind of set of data, right in the household spending numbers picked up. So that sort of pushed back these expectations of a supersized 50 basis point cut. 25 is sort of what we're looking at. But share we're also looking at the risk coming ever increasing when it comes to weakness in China, raw data when it comes to housing, industrial production, PMI numbers continuing to look very weak. Yeah, here in Japan. We'll be watching. Of course, the market opens and where the Japanese yen is headed as well. We have the Nikkei now opening higher

by about 1% while the Japanese yen is holding on that 146 level. We had some weakness against the US dollar, but we'll be watching JGB yields as well. They dropped significantly last week. Given, of course, the uncertainty over where the Bank of Japan goes from here. We had second quarter CapEx numbers rising and accelerating from the previous quarter. This are the second quarter numbers, but also missing expectations. We we'll be watching those company investments very closely as we get wage numbers also out of Japan. So, yes, really data is a driving force these days when

it comes to broader markets. But take a look kind of how the Cosby is opening, because we also had export numbers out of South Korea returning to double digit growth for the previous Month. The Cosby gaining 3/10 of 1% at the open. We'll be watching the Korean one holding steady and the 1337 level. We do have inflation numbers on Tuesday for South Korea as well. Of course, very important whether or not we return to that 2% inflation target by the BOC Heidi. Yeah, those macroeconomics in focus for Australia as well. We're talking about the malaise

in Chinese property continuing. We're seeing the Aussie property starting to heat up again and we did see that ongoing imbalance between supply and demand really continuing to play out with that acceleration of higher prices across capital cities here in Australia in the month of August, the pace of gains has moderated. Some of that affordability constraint is starting to play out as well. So we are watching when it comes to the impact of the poor China data on some of these risk assets in Australia. Aussie dollar holding actually pretty steady, 6767 even as we saw that

broader recovery in the US dollar. Of course after the US is worst of month for August, that was a worst month this year I should say. But we did see that sort of modest advance along with Treasury yields after the preferred measure of underlying inflation for the Fed came in at a pretty mild pace in Australian bonds at the moment, looking like we're seeing a little bit of softness there. We're also seeing that fall in Kiwi debt early on in the session there as well, really tracking the the same sort of trend that we saw

in the US ten years as well as of course over in Germany as well, where markets are pairing expectations of easing from the ECB. Taking a quick look at oil, we're seeing Downside of about three quarters of 1%, there are signs that Opec+ output is going to be boosted. Some of the demand woes out of China also weighing there as well. OPEC+ is set to add 180,000 barrels a day of supply in October, and that just compounds those wars as we saw factory activity in China shrinking for that fourth straight month. Cheri. Heidi. Let's bring

in our next guest, Paul Gambles, founding partner and BMG family Office. And Paul, I want to get to China, but I want to start with a potential risk this week. How prepared are you for a potential market meltdown like we saw when we got the July payrolls numbers? Yeah. Good morning, Sherry. So I think, you know, we're kind of. We've been worrying about that. Been getting ready for that for some time now because we don't quite know, you know, what's going what's going to trigger it. We've we've seen these vulnerabilities gradually building up in the

system. And they they just seem to be getting worse and worse. You know, our expectation actually is that maybe the markets can make it to the end of next year and it's probably 2025. That's this really dangerous time. But, you know, we're definitely seeing, you know, a significant systemic slowdown across most aspects of developed economies, particularly the U.S.. You know, we've seen relatively weak, you know, data for some time coming in in the in the employment side. If we look at ours, would we look at job openings? You know, therefore we start to look at

employee remuneration as well. It's it's actually been a picture that's that's been looking weak for some time, but people have been kind of holding their nose and looking the other way. So if we start to see, you know, sustained data points that that really reinforces weakness, then yeah, you know, that that market reaction could come a lot sooner than we think. But, you know, our best guess is next year, but nobody knows for sure what the timing on that is. It's really it's not something you can play the timing on. When we're talking about sustained

weakness. Of course, that's something that we're clearly seeing in China. The Question of the Day today, what assets are vulnerable to Chinese slowdown? Yeah, So that's a really interesting point. And I think, you know, what we have to remember is when we see, you know, some of the weaker data that that's coming out of China, we have to remember that a lot of that is probably, you know, the best way of actually understanding Western data, because obviously if we look at the we look at the trade volumes, that's where it's really getting hurt. And obviously

we haven't yet seen the Chinese authorities pull off successfully this transition from, you know, export to that domestic consumer driven. But we're actually a lot less worried. We're still a lot less worried about China than we are in its own terms than we are about the state. So, again, you know, we see we see China whenever we see weak PMI manufacturing coming out of China, that that just Reinforces to us the view of just how weak the the US economy is. And I guess, you know, what we're seeing is a very gradualist approach from Chinese

authorities to completing this transition and to stimulating that transition. And to us kind of, you know, we think they've probably got a better take a better handle on what's going on in their own economy than, for instance, the Fed or the Treasury having what's going on in the US economy. So we've we never fully trust policymakers because historically they make mistakes. But we probably got more faith, even despite, you know, the the weak data out of China. We've really got more faith that Chinese policymakers really have got that one under control than we have in

the States. What do you like in China, then? Tech in particular is is compelling? Yeah, I think so. I think the check the tech story and ultimately, you know, you've got to remember that when you looking at China, this is very big because the approach is very gradualist. It's very long term. Then, you know, you're going to be set up for an awful lot of disappointments on the way. But if you've got a long term view or if you're prepared to trade those, those those, you know, dips and bounces, then I think tech is Chinese

tech is potentially a great story. I think, you know, a lot of the consumer stories as well are also very, very compelling. And of course, you know, there is that that huge intersection because we've got so much e-commerce, you've got a huge intersection between, you know, consumer and technology. And that's an area where, you know, bargain hunters can definitely go looking. Right now, as I say, if you if you're if you're an investor, then it's very, very much a long term proposition just adding on weakness and enlightening on strength. But for traders, you know, it's

it's a it's a fantastic market. There's so much volatility in that market. How much risk appetite do you need to have, though? Because we know that, you know, a lot of things in China can turn on a dime. But the reality is that they're in the middle of a pretty prolonged structural slowdown. And I would hazard to say that policymakers are actually quite comfortable with the structural elements of that slowdown, because property, for Example, was an issue that for a long time needed to be deflated. Now, that's exactly right. I mean, we're not going to

see, you know, policymakers rushing to support the market. So you are going to be, as I say, for an investor, you are going to have to live through some pain. It is it is very, very much a long term process. And I mean, just to be clear, it's a it's a pretty small part of our portfolio. You know, we saw throughout Asia that some allocators were getting a bit carried away with the China story a few years ago, and I'm way over allocating Chinese equities to their portfolios, you know, because of the amount of risk

that's in there. As you rightly point out, this really needs to be a pretty small exposure if you're if you're going to take a long Only exposure to China. So, yeah, from it from from a risk point of view, definitely be very, very careful. It's just that as a as a small component, as an interesting story to, to just tweak a bit more alpha added portfolios, being able to add a small China component and and being really willing to, as I say, you know, trade in and out when we get these these really big moves

up and down to increase or decrease the position, it's it's it's one of the most compelling value propositions that's out there. But it will definitely be a situation where policymakers are very much looking at the long term. And I don't think they've them. They think they've got the property side under control. I think they want to see more air let out of that particular bubble. But I think, you know, the fact that They're managing it, it just shows that this is, you know, very, very much a long term process. There's no way we're going to

see, you know, pursuit of growth at any cost and in Chinese policy. Whereas, you know, I think the interesting thing is if our thesis that the West is slowed more than than know policy has reacted to, you know, we're going to see a really interesting policy response in 2025. We're going to see massive policy responses from Western policy makers. Paul, given the risks that you're talking about, whether it's in the Chinese economy or the US economy, could we expect more safe haven bids for the Japanese yen? I mean, we haven't seen that sort of a

strengthening in the past couple of years. But given the BOJ policy shift, will this now be the time where you'll be Buying Yen? Actually, we were buying yen when it was at 160 and in fact all the way from 150 to 160 we were buying yen. I think the really interesting thing that we saw in August was obviously when we saw the yen spike, I think most most commentators, as I was included, expected yen to give some of that back. We thought Yam would run all the way back to two on 50 before the next

bout of buying strength. And I think, you know, on an intraday just about 3150. But that really didn't hold and and now it seems like it's it seems like it's strengthening again. So I think perhaps, you know the the worst of the yen might be behind it now and definitely is a safe haven bed definitely is an interest rate differential play as well because even if even if some of the Japanese data Disappoints and Japan cuts, we don't expect the the level of interest rate cuts from DOJ that we expect the Fed to have to

make when they when they correct the fact that they're too far behind the game. So yen, I think, is probably one of the best value havens out there. Treasuries, of course, remain a very good haven. We were, you know, the Fed kind of defensive arrow that we had in our quiver was was gold and gold miners. But we've largely sold that off because, you know, the rally in gold, it may still have a lot of legs to go, but certainly relative to yen, relative to treasuries, gold now looks like it's overdone. We're expecting that it

will hand the battle over to over to yen and over to treasuries from here on. Paul Gambles. Good to have you with us. Founding partner of the BMG Family Office Group. Take a look at some of the movers across the Asian session. We're watching those chipmakers after Bloomberg reported the news on Intel that sent the shares spiking. It's discussing various scenarios to navigate the current challenges, including a split of its product design and manufacturing businesses, not to mention which factory projects could potentially be scrapped, according to people speaking to Bloomberg. So we're just tracking the

semiconductors across Asia and trading a little bit of a mixed picture, Heidi. Yeah. Still ahead, Gerri, credit sites joins us to discuss the latest gloomy economic signals out of China, including the potential refinancing of $5.4 trillion of mortgages. But first, Israel's largest labor group Is poised for a nationwide strike as domestic pressure for a cease fire and a hostage deal builds. This is Bloomberg. Israel's largest labor group is poised for a nationwide strike on Monday, its strongest push yet to force the government into a ceasefire deal in Gaza. In what looked to be the largest

protest since October, hundreds of thousands of Israelis demonstrated in cities around the nation on Sunday after the bodies of six hostages were found in a tunnel in the Gaza Strip over the weekend. Bloomberg's Michael Hayes joins us now. So an enormous amount of grief and anger and the running out of patience, not just, of course, domestically, but certainly we're hearing from the US as well. Yeah, I mean, the there is a real sense is that I think Heidi and and the you know, the tragedy also being that these People, it seems, were executed, these hostages

were executed 24 to 48 hours before they were found. So there were probably troops within proximity, which sort of undermines Prime Minister Netanyahu's argument. The best way to free the hostages is to win the war or to defeat Hamas, because if Hamas is going to do that, then you're only going to find dead hostages, which, you know, is sort of a tragic situation. But it looks like the Israeli public has sort of realized that it's one thing, you know, that it's said in polls that they're for this, but then they've got this sort of they've

got a government which doesn't face any sort of imminent election. It has a majority, a fairly solid majority in the Knesset with these sort of right wing ministers who have their block on side. So it sort of feels like it can use to Its own thing. And for Netanyahu that's just pursued this war to the end, keep the right wing onside. So it looks like politics is going onto the streets now with these with this labor union calling that calling the strike and then the protest we saw yesterday. So it looks like sort of quite

an escalation within Israel, but a difficult situation for the US as well. Rod, President Biden, obviously outgoing Kamala, pressure to take perhaps either a more humanitarian focused approach because it's not just about these hostages, their families, the ones that remain and their fates, but also the 40 plus thousand fatalities on the other side. Yeah, I mean, it's just the whole the whole thing is just a tragic it's just horrible. You know, there's no no other way to Sort of describe it. But yeah, I mean, the how how Kamala Harris handles this is going to be

really quite interesting because as much sympathy as the US has felt for Israel, that doesn't necessarily extend to the government of Israel. You know, Israel isn't just it's it's prime minister and its cabinet at this stage. And I think that there's probably a lot of frustration and disquiet in the US about how they're handling handling that. So, yes, I mean, with Biden, he's just you can just see that he was just heartbroken that this Israeli US hostage who was who was found dead, you know, they were so close to releasing him. And there was a

report in The Washington Post that was saying that they sort of the negotiators sort of had enough and they're going to sort of have this take it or leave it deal on the table. So, yeah, I mean, it is hard to know where we'll go with a. And we've also heard, of course, of the challenges, economic hardships that Israeli people are suffering now, given the really prolonged conflict with Gaza. What can we expect in terms of economic impact here for Israel? Yeah. Sherry. I mean, it will if it depends on on just how how far

the strike extends. But if it is, you know, if they do shut down the country, it's obviously going to be reasonably significant. And business is also I mean, just to give you a sense that this is not just labor led, this is this is a, you know, a wide set strata of society. The top 200 businesses were also talking about joining this action. But it also depends on on how, you know, it might be more symbolic. I mean, with Ben Gurion Airport, they Had the largest airport in Israel. There's talk that maybe it'll be open

for a couple sorry, maybe to be shut for a couple of hours or maybe they'll be rolling strikes. People aren't quite sure. So we'll really have to see how that unfolds. But Israel's economy is obviously is not in great shape. I mean, they've been fighting a war for 11 months, which is obviously very, very expensive. And it stops a lot of economic activity at home as well. And, you know, not even looking at what's going on in Gaza, in the in the Palestinian territories, in the West Bank as well. So, yeah, look, economically, it's it's

not good for anyone. But, you know, until basically the war comes to an end, this is going to be costly financially and economically for All involved. Mike, any updates when it comes to the tensions spreading to neighboring Lebanon, the West Bank as well? Yeah. Look, I mean, there's been there's been an escalation in the West Bank in terms of Israeli troops sort of targeting targeting militants there and not so much with with Hezbollah at this stage. So there was there was a lawmaker I was reading about in the weekend who was sort of complaining that

Israel is is obviously Hezbollah has has sort of drawing is drawing Lebanon into this conflict without any, you know, acknowledgement by the state there or in the wider Lebanese society not having any control over that and that its actions really are doing nothing for the Palestinians. It's firing off all these rockets. The conflict is continuing and they're probably going to draw down potentially A lot of Israeli response on innocent Lebanese there, which is a really good point. I mean, Hezbollah is sort of a state within a state in Lebanon. They can't control it. And again,

so, yeah, the wider the wider region is really obviously it's always worth watching because that's that's that's the real concern beyond the tragedy that we're already seeing, the pace of terrorism across the region has kind of been in relative decline in recent years. Right. Is this a real threat that this conflict, this kind of revives the risk of extremism? And certainly, if you take a look at what's happened in Gaza, there's that real risk of how much it's radicalising, more generation. I mean, you look you could you could say that logically, the entirety of of

the Youth of Gaza, of children of Gaza feel raised in war and and a breakdown of services and this sort of thing. And we've seen this all over the world that where there's civil strife or conflict or whether whatever people are raised in normal environments of going to school or anything like that, all you know is weapons and violence. And, you know, the the struggle, basically. So the notion, particularly in Gaza of that being the case, but also in the West Bank, where because this right wing government settlers are sort of emboldened and there's a

lot of attacks on Palestinians there as well. And yeah, I mean, similarly, obviously, with with Yemen and the Houthis. And so that whole axis, you know, the more that war begets war in that sense and and the radicalization no doubt is going to worsen as a result of the conflict. That's Michael Heath with the latest. More ahead on the energy trade. This is Glenn Beck. Hong Kong Finance Secretary Paul Chan will visit Sydney and Melbourne this week in a bid to sell Australian companies on the future of the Asian financial hub. Paul Allen joins us

now for more. So what's on the itinerary for Paul Chan and what does he want to sort of cut through with his message to you? Will it be giving a couple of speeches while he's here, one to a major business summit, another to the Asia Society of Australia, and he's looking to attract investment in emerging industries. So Australia already exports a lot of food, particularly wine, to Hong Kong. But he's looking to diversify that move into new energy, fintech, biotech and he's emphasizing Hong Kong as world class universities, research, etc. And he describes Hong Kong

as a two way gateway connecting the Chinese mainland and the world. So that's really the message that he's bringing. How's it being received? Bailey Raising a pulse at the moment, and you wouldn't know that he was here, if you will. Only looking at local media. This might change, of course, when he delivers his addresses. But you've also got to wonder how receptive the audience is going to be to these messages. The Australian Government is going to travel advisory in place against Hong Kong at the moment, so what's called an alert to exercise a high degree

of caution and it's all around the national security law. The advisory says that can be interpreted broadly. You could be detained without charge, Denied access to a lawyer. So when you consider that context, you've got to wonder how receptive the audience is going to be to this message. Plumbers Paul Allen there. And these are some of the other stories that we're following from around the world. A new poll suggesting that Democratic presidential nominee Kamala Harris has erased most of Donald Trump's lead among likely voters in the battleground state of Michigan. The state wide epic MRA

poll of likely voters had 46% of respondents supporting Trump, while 45% backed Harris. That same poll in mid-July gave Trump a seven percentage point lead over President Biden. German Chancellor Olav Schulz ruling coalition has suffered significant losses in regional elections. Parties on the extreme right and left took more than 60% of the vote in two States in eastern Germany. Media projections put the alternative for Germany on course for the first win for a far right party in a German state ballot since World War Two. But it's highly unlikely to be able to form a government.

French President Emmanuel Macron is set to hold talks with senior political figures as he prepares to name a new prime minister. He'll meet on Monday with former socialist Bernard Cazeneuve and also plans discussions with conservative Xavier Bertrand. Macron may announce a decision in the next few days. France has been under a caretaker government since indecisive parliamentary elections in July. Take a look at how European futures are opening. Of course, quite a lot of political volatility that we're sort of bracing For. The German DAX futures actually looking pretty steady, about about a 10th of 1% higher

there. It is looking pretty flat more broadly. But of course, we've had this surge of populism in Germany's regional elections. Really a humbling moment for Chancellor Olav Schulz. A ruling coalition punished across two regional votes in eastern Germany on Sunday. We saw populist parties there on the extreme right and left, taking more than 60% of the vote, almost half in Saxony as one example. So we are seeing some of that potential implications when it comes to fiscal policy making and highlighting the risks that the broader coalition facing going into that national election due in just

over a year. The economy has been stagnating. Migration is on the top of voters concerns. So we are seeing that political instability play out. More ahead on the Asia trade. A bit of a mixed picture across markets in Asia, we're seeing the cost be falling about half a percent. We're talking about consumer discretionary and communication services leading the declines. This, of course, after two weeks of gains for the Cosby already, in fact, when it comes to the Nikkei stock market, also three weeks of gains and extending those gains in today's session. Information technology materials leading

those gains in the Nikkei index. When it comes to the ASX 200, we're seeing some downside as well. We had gains for the Friday session and also very strong Aussie dollar against The US dollar. Of course, broad dollar weakness was a theme in the month of August, the worst month when it comes to this year for the greenback Heidi. Yeah, and of course, there's a lot of headwinds as we head into the end of the year, particularly when it comes to the question mark over whether China's slowdown is going to really play out in a

more serious way for economic activity across its Asian trading partners. Take a look at the Asia PMI as it will monitor at the moment. Of course, this comes on the back of the weakness that we have seen when it comes to factory activity in China. It is a mixed picture. We're seeing Japan where really the recovery has been on foot, but it's steady going. Right. We're seeing still under that 50 level that suggests contraction. We're seeing South Korea seeing some strengthening as well as the Philippines looking pretty stagnant at this point. Taiwan pulling back a

little bit and we're seeing a little bit more weakness from the likes of Thailand and in particular Indonesia, also falling further into contractionary territory. And as I mentioned, China's factory activity cherry contracting again in August. Thank you. You know, officials are really blaming the weak economic activity on bad weather. For more, we're joined by our China correspondent. I mean, no. So. I mean, what do the August PMI numbers tell us about the broader economy here? Yeah, the manufacturing PMI missed expectations coming in at 49.1. The expectation was 49.5. And look, over the last 17 months,

basically since August last year, we have only seen three months of of expansion when it comes to manufacturing PMI. And if you look at the services that has slightly surprised to the upside 50.3 versus expectation of 50.1. The prior month was 50.2. And officials are saying that the services PMI was really boosted by the summer travel season because schoolchildren are on holiday. But you would dig deeper into that construction index that has slowed down. It's basically at the weak, as we have seen since February of 2020, which suggests, again, building activity is slowing down and

perhaps the government support in the form of infrastructure spending also going down. The manufacturing manufacturing PMI is below expectations for the fourth Consecutive month. And if you look at the gauges for input and output prices, that has slipped as well, suggesting that we are seeing this persistently weak demand, which is putting more deflationary pressures on factory gate prices. Now, officials are blaming this on the hot temperatures, the heavy rainfall, but a Bloomberg economics team believe that there are more troubling factors at play. We are looking at stimulus that hasn't really been picking up steam, perhaps

because local governments are settled by heavy debt. We have Goldman Sachs writing that so far year to date in terms of revenue from Texas and legacy that is that may not be able to meet the projected budget this year, which means that government spending could lag behind, especially if there's no upward revision to the budget deficit this year. What else needs to be done, particularly when it comes to the housing sector. Yeah, the housing sector is still not looking very positive at the moment. The August preliminary data that we saw. Sales were down 26, 27%.

That's compared to a nearly 20% decline in July. In some ways, this is not unexpected because we are seeing developers slashing prices heavily to attract home buyers. So those neo sales numbers understandably, ostensibly don't look very good. You also have some home buyers staying on the sidelines waiting for prices to bottom out. This is after at least ten cities have scrapped or relaxed those new home prices, guidance prices from the government's allowing market forces to determine prices here. But so far, we are seeing, you know, the Measures introduced by the PBOC back in May not

really being enough to turn around the sector. And our Bloomberg economics team believes that maybe the government may be running out of measures to help turn this sector around. The we previously reported that the government may be looking to allow a mortgage owners to refinance some of their loans about $5.4 trillion worth of debt. But that's really equivalent to a mortgage rate cut, which the PBOC has been introducing in the second half of last year. And that hasn't really been enough to really turn the housing sector around. Most China correspondence from the Bloomberg is noted

that China is considering letting home owners refinance as much as $5.4 trillion in mortgages to lower borrowing costs and boost consumption. Let's bring our next guest who sees some pretty high hurdles when it comes to the successful implementation of such a plan. As Zang is a head of Asian corporates in Asia Credit strategy at Credit Suisse. Great to have you with us. So we've seen really incremental efforts to try and at least put have put a floor under the property sector. Right. Is this latest development likely to actually create positive growth? I think to some

extent at least, this is a positive signal to the market because it shows that the central government is very much aware that the previously implemented property support measures have so far failed to rescue this slump of the housing market. To some extent, this is also a recognition from the central government that consumption needs to be boosted. And the first way of doing it is to turn Around the housing prices and to boost this animal spirit of demand from for the housing market again. But I think the the details here is a bit lacking. And in

a previous round of support measures, the implementation has been not so effective. So I think we still need to wait and see what are the exact implementation mechanism for these measures. Certainly high yield property bonds have not been trading in a way that shows a real investor conviction here. I think if you look at the price action over the past few days, some of the higher quality, high yield property developers such as your van Keys, the link to GMO, and some of the big names are trading up slightly. But if you look at those lower

quality ones, the price action is really mixed. I think this really reflected the market is lacking conviction in terms of how These policy support measures will go. Just because of the past two years, the government has pushed out a lot of policies about the implementation details and the effectiveness is quite disappointing. I think to some extent. We also share this view. We are slightly more positive towards the investment grade property, Chinese property developers in the dollar bond space. But the for the high yield sector, we still see very poor risk reward, I would say given

the poor risk reward that you mentioned, are those the most vulnerable assets? The question of the day for Bloomberg today is what assets would be the most vulnerable in China slowdown? I think if you look at the China dollar bond credit space, this has been extremely resilience for a couple of Reasons. The first is we don't have new supply coming to the market over the past two years. And if you look at retail risk, it has been reduced. Even though these government supported measures didn't really help to rescue the continued fall of the high yield

property sector. But the contagion risk to the non property sector has been largely contained. So because of that, the high yield on the industrial dollar bonds has been trading very well. But I think if you look in into the second half of the year, a lot of the investors are adopting a very defensive stance. And with the US Treasury yields moving lower, the all yields for a lot of the big names is also getting less attractive. So I think there is this downside risk that China credit spreads could might maybe widen into the next few

quarters. And we're seeing really that reflected already in the data, right. I mean, manufacturing PMI numbers, contracting for a fourth consecutive month or at least in contraction territory. What are you expecting for that tightening PMI numbers? Are we going to see that reflection then into broader eco data across China? I guess the question is also will they be able to achieve the 5% growth target? I think the growth target is still achievable because a year today the export numbers still have been quite great and into the second half of year, the government do still have

some fiscal stimulus measures. And year to date we have issued about close to half of the special purpose bonds. So in terms of fiscal stimulus, there are still some room to go, but I think the property sector is still going to be the biggest drag on the economy and the consumption. Lot of the measures are in the pipeline. But I think the effectiveness, we still need to wait and see. Do you have a view on the yuan? Because we're now seeing the offshore yuan at the highest level this year. But I wonder if that's just

a function. Also what's happening to the US dollar and the other side? I think to some extent or to a large extent, this is because of the a broader softness of the dollar. If you look at the Chinese yuan against the Asian currencies, it actually underperformed a bit. I think the PBOC still have this a mindset that the yuan cannot appreciate or depreciate too much because on one hand they need to take care of the Export at export growth and on the other hand they need to pay attention to the capital outflow looking into the

next few months. I think the broader weakness of the dollar might provide some support to the yuan and the strength of the Japanese yen could also be an anchor strengthening factor in the Asian currency space. But if you look at the macro economic development, I think if ornamental wise, it's not very supportive of a stronger Yuan sterling than saying always good to have you with us. Feeds ahead of East Asia, corporates at credit sides and of course, we're in the thick of earnings season in China, or at least we're almost done with it. 95% of

MSCI China has reported earnings already, including many of the big banks and also real estate developers. And we actually saw 60% of companies Missing profit estimates. This, of course, really doesn't help broader investor confidence. Of course, the Chinese market has been broadly pressured in the past year. The biggest laggard real estate and financials, the only two sectors with negative growth. We actually saw a little bit of outperformance when it comes to consumer staples and communication stocks, Heidi. We are just getting an alert crossing the Bloomberg when it comes to Ari. A, This is, of course,

the sort of digital advertising company they run in Australia, residential and commercial property websites. And we are hearing from ARIA, a group that is considering a possible cash and share offer for the entire issued and to be issued share capital of Rightmove policy. Rightmove is a UK based House price index provider. They have a website that lists properties across Britain showing changes in house prices and providing some of that data across England and Wales as well. ARIA has not a promotional held any discussions with Rightmove regarding any potential offer, but we're hearing that ARIA group

confirming that they are considering a cash and share offer for the UK business. More ahead on the Asia trade. This is Bloomberg. Take a look at the latest corporate stories we're tracking. And Chinese automakers registered fewer electric cars across Europe in July. Now says news tariffs amplify the impacts of a broader slump in EV sales. Research data for says brands, including BHIWADI and SAIC Motor, accounted for nearly 10% of registrations. That's down slightly compared to a year Earlier. New tariffs introduced in July raise duties on Chinese made EVs to as high as 48%. Goldman Sachs

is said to be planning to dismiss several hundred employees in coming weeks as part of its annual cull of low performing staff. Sources say that would bring total cuts this year to around 3 to 4% of the bank's workforce. That's in line with Goldman's typical approach as it seeks to keep a lid on costs and make room to enlist new talent. Intel may reportedly consider selling its programmable chip unit, Altera, as part of a cost cutting plan. Reuters cites a source saying the company is also considering capital spending cuts, confirming a Friday report by Bloomberg

News. Our sources say other possibilities include a surplus of Intel's design and Manufacturing businesses, with options to be presented to a board meeting later this month. Oasis fans rushing for tickets to the British band's first concerts in more than a decade overwhelmed the sites of Ticketmaster and other sellers. Fans complained of long lines and errors, many walking away empty handed after hours of waiting. The 17 night UK and Ireland tour is the first since the band broke up in 2009 after years of in-fighting between the Gallagher brothers Sherry. Let's go now to some market calls

we're following today. Top performing emerging market bond managers are recalibrating positions ahead of a likely Fed rate cut this month. Investors from PIMCO, Neuberger Berman and GMO are eyeing local currency debt and select reform stories from countries including Ecuador and Argentina. They say those two nations stand to benefit most from the boon the Fed cuts should provide to risk assets. Global investor was also seen boosting exposure to Indonesia and Malaysia. For more, let's bring in senior Asia equities reporter Abhishek Bishnoi. So Abhishek, why is ASEAN becoming hot when, say, bigger rivals like China are so

cheap and India also is witnessing a red hot rally? Hi there. So, you know, if you look, India and Malaysia are seeing a lot of money coming in. It's the highest month to date flow. And in the month of August, in about two years for both the markets and rupiah and ringgit as well, were, you know, we saw great outperformance in among all emerging market currencies. Now, there are a few reasons for this. One is obviously the rate easing cycle, which becomes which is based on the World life here. The market sort of gains when

interest rates go down. But in case of action, these these markets are better positioned than their rivals. And if you look, the region had been ignored for a very long time. I mean, the rise of China, the rise of India, but there hasn't been a rise of Asia. And so, you know, they're very cheap, They are very lightly positioned and they are showing responsible fiscal behavior. If you look, you know, the bitter rivals like China, I mean, it's their problem problematic. China is going through a slowdown now been able to fix the economy so far

and India is becoming very expensive. So in that macro context, there is some rotation as well from these two markets or, you know, the new money that is Getting allocated to Asia, going to markets like Indonesia, Malaysia, put putting all that together, you know, ASEAN as commanding a bigger heft in the investing. What does it mean for Asia allocation then? So, you know, if you look at the week till date flaws, it's not just about Indonesia. Malaysia, Philippines is also seeing a lot of money coming in. We've also seen other markets in ASEAN. Most of

the market and I'll say I'm seeing good flows, they've got their own, you know, individual factors because of which they are getting. Malaysia is also, Bethany, Indonesia seeing policy continuity even when even as a new leader stepped in. All this means that ASEAN as a region would be commanding a bigger rate. Likely this also means there would be continued rotation of incremental money From markets like China and India to two Asian markets, Indonesia and Malaysia being the best stories there. And this is, again, you know, a symptom of the growing aspect of emerging market allocation,

excluding China, which China has disappointed investors, strategists so much that, you know, they are looking at it without, you know, without China. Recently, Nomura downgraded China, as I think those very reasons, and they used that downgrade to fund the upgrades of Indonesia and Malaysia. Senior reporter for Asia Equities Abhishek Schneider or head on the Asia trade. This is Bloomberg. The latest episode of Bloomberg's Tiger Money podcast features one of the best known China analysts in a row investment group partner and chief economist Howe Hong. Our colleague David NG. Let's ask him what the world is

getting wrong about the world's second biggest economy. There's so many misconceptions, though. We can go on another hour. You know, whole thing about just, you know, just to clear the misconceptions, I think. Well, what is one that you think? Just the biggest one is. Yeah. Is is something that if people get over that, if people understand the new ones and that misconception disappears, we get a decent allocation back. Yes. Into Chinese equity markets from dollar investors. Yes. The Chinese mentality of working hard and saving hard. I think it's very difficult to understand, you know, because

it is a Cultural thing is it's been passed on, passed down for generations. You know, ever since we were kids, you know, we were taught to, you know, work very hard and safe where you have a rainy days. And so I don't think, you know, the Chinese savings are a phenomenon. And as a result, the overinvestment is a phenomenon that's going to go away because of the tariffs. So I think that's a huge misconception. You know, this is a structural sort of a structural peculiarity that cannot be fixed by tariffs and by all these, you

know, trade wars and stuff. So I think if people understand that, then, you know, people will sort of think differently, you know, because for some of the foreign investors that I talked to, you know, this day seems to be, you know, seeing the Chinese over investment in the manufacturing industry. It's a it's it's a it's an action with malicious purpose. Gro investment Group partner and chief economist Holder, who we will be speaking to again a little bit shortly live on the China show. After that, you can get the full episode of the Tiger Money podcast

on Apple Podcasts, Spotify, YouTube and Bloomberg.com and new editions dropping every second Tuesday. Take a look at how we're setting up when it comes to the futures session, sort of bifurcated trading session we're seeing so far with the markets that are open here in Asia, quite a bit of caution. U.S. futures looking a little bit to the downside there. Taiex futures up by just about a 10th of 1%. You're seeing that weakness continuing to probably play through to Chinese risk assets as well. For the A50. China futures down by about 4/10 of 1% as we

really see the weakness in the Panama numbers or of course getting the CAC in reading on factory activity this week as well. Likely to continue to show that weakness the property sector data as well when it comes to new home price sales. Also just deepening that plunge there. We are seeing some weakness when it comes to South Korea and Australian equities at the moment. Some of the miners not doing very well. Again, that reaction to the China eco weakness. But Japan stocks at this point looking a little bit better. Sherry Yeah, which is why we're

seeing a little bit of a divergence when it comes to Asian equities, right? The ASX 200 right now, as you said, we are seeing some movement in the miners, But the cost is down 2/10 of 1%, retracing some of those earlier losses. But we still have health care. Consumer discretionary stocks also leading the declines, although industrials are up right now. Of course, we did get those export numbers out of South Korea, really returning to double digit growth for the month of August. So we continue to see some strength in those semiconductors and automobile exports. But

when it comes to the Nikkei, we're seeing health care and consumer staples also really dragging the market. But at the same time, tech gains are pretty strong right now. Materials and financials also leading those gains. So we're up about 7/10 of 1%. We're watching the Japanese yen, which is now a little bit steady after weakening for the past few sessions Against the US dollar. And that's it for the Asia trade. The market coverage continues with Hong Kong, Shanghai and Shenzhen. The China show is next. This is Bloomberg.