host: welcome to daybreak: asia. host: top stories. asian stocks are set to follow wall street higher. nikes stumbling after the bell as earnings missed estimates. china -- challenging the u.s. on supplies of strategic raw materials. when it comes to their trading sessions ahead of the christmas holidays, stocks are already off for the holidays. we are seeing a little upside at the start of that cash open. about 130-150 points away from the record high of august 2021.

we will have to see how strong the momentum is in today's session given we are seeing thin liquidity across markets. watching the aus saw a big job of about 1% at about the 68 level. a lot of it has been the weakness in the greenback with the dollar falling to a four month low. after the third quarter gdp was revised lower. watching for more momentum when it comes to that. elsewhere, around the region, look at where we are setting up for trading in japan. there were hurdles for japan equities as we are seeing close to a 33 year high for the nikkei 225. slow pullback of yen weakness that has been such a tailwind

for japan equities. we are seeing a bit of a downside when it comes to the nikkei futures. the yen trading at 142. just below the 200 day moving average. we are watching dollar china as well as chinese equities and light of some of the rare earth news that we are processing. >> look at how we are starting the session in u.s. futures. across asia we are seeing downside pressure. we had every sector in the green lead higher by consumer discretionary and health care. about to see eight weeks of gains for the s&p 500. the broader narrative right now driving the market is where the fed goes from here. we are expecting preferred

inflation gauge. we will be looking for more indications on inflation pressures there. we are also watching treasuries losing a little ground with the global bond rally retreating. the 10 year yield around the 390 level. the dollar falling to the four month low and oil prices also under pressure. we continue to see them linger around lows that we have not seen in a few we given that we continue to see you surging u.s. production and news from angola announcing its exit from opec. it has to do with the data we are seeing right now. i mentioned the preferred inflation gauge coming out and we also have the third quarter inflation growth. there was also the core pce price index -- pc price

index. and we are seeing moderation when it comes to the labor market. the jobless claims are rising. it is less than what economist expected. we are still seeing historic lows. haidi: it was the expectations when it comes to core pc hitting 2%. it fed into the need to revise expectations by the fed. that is what cemented these hopes of a fed pivot if not a pause. we will be watching. because that has increased confidence among a lot of -- we will be watching that because that has increased confidence among a lot of forecasters. in the previous hour we looked at the optimistic caution that we are hearing from fed speakers

that they are willing to wait to see if the data continues to trend down in the way that it has been so hard. our next guest things still looks constructive and comes to equities going into the new year. with us now is kyle rodda, senior market analyst at capital.com. have the markets overdone it on the kool-aid in terms of expectations from the fed? kyle: that is the risk in the short term. everyone has gone to one side of the boat. we need to see a justification that the 5-6 rate cuts next year are where the market is heading or where the u.s. economy is heading in terms of the slow down. as far as markets are concerned it seems that they are strong. we confront data points.

it is the asymmetric risk where if it does not come down as much as expected, the positioning can unwind rapidly. we could hit significant air pockets. our kits overshoot -- markets overshoot in both directions. the trader mentality of trying to adjust is relevant in these times. at the moment, chasing the rally might be risky. right now everyone seems to be on the rate cut trade. there is a by everything -- buy everything mind. we have not gotten the data justification that so that is a risk for volatility going into the new year. haidi: is there justification to

continue to chase growth tech? do you expect that rally will gain more breadth in the u.s. beyond the magnificent seven? kyle: i think we have seen reasonable breadth. officially it has been a broad-based move. that has boosted valuations across the board. the problem going forward is you have to look at diversions in terms of the fundamental outlook in terms of companies. because of the high multiples already experiencing, there is a need to execute on that and show results. other areas of the economy are sensitive to growth.

and almost running contradictory to what is being implied in the rates market. where than likely that we'll a significant slowdown. -- that is more than likely to see a significant slowdown. that is -- by all data points that we have received recently, thanks are slowing down in the u.s. but the economy is slowing down moderately and not reflective of an economy that requires rate cuts as soon as next year. haidi: let's talk about the winners. it is been a year for japan equities. are the gains going to be harder to come by next year? kyle: that is an example of a market that has almost everyone

on one side of the boat, bullish japanese equities. it is time to turn things around for japan after three lost decades and we will continue deceived bullishness. rates have come down and expectations have come down and yields have come down which are supportive of equities. i think we are going into significant headwinds globally which will put downward pressure on yields in the u.s. and upward pressure on the japanese yen. effectively it is an inverse of the japanese yen which i think will appreciate in the environment we will see next year. combine that fact with the fact also that the economy, the global economy, ought to slow down next year. there is a bullish sentiment that we have seen this year. that -- the risk is skewed to

the downside for japanese equities. haidi: let's get to the other end of the spectrum, the deeply unloved chinese equities. is there a way to look at this opportunistically given valuations? kyle: valuations are extraordinarily attractive by historical perspectives. everyone is taking the china question and leaving it to be answered year. maybe we will see a reallocation from a tactical point of view. the risk looks reasonably attractive because things are so oversold. there is an attractive risk reward scio. -- risk reward skew.

i think the other thing that is not spoken about enough in terms of china is the potential country risks with the economy and political environment being lows conducive to business interests and less conducive to investing. that means that investors will look outside of china to put their money to work. this is a dynamic situation. an opaque one. valuations are low and oversold. from a tactical point of view, there is upside for chinese equities. if you are looking at a longer-term picture, it is more difficult and more bearish. haidi: always great to chat with you, kyle rodda from capital.com. the china question is one of the

hardest questions that we have been confounded with this year. shery: especially given the disappointment of all chinese assets and the lack of confidence that we will see a rebound especially when it comes to the economic growth outlook. coming up we will talk about a key -- a key firm that we are watching for next year, apple. there is a ban related to patent dispute. we will have the details. more china banding exports of -- banning exports. this is bloomberg. ♪

shery: china is halting the

export of a range of rare earth technologies potentially making it harder for the u.s. and other western nations to bolster their supplies. it is clever and targeted. we are technologies for making rare-earth metals not necessarily for the products themselves. >> the advantage china has when it comes to rare-earths is the ability to separate the material from the other stuff that gets dug up with and then the ability to turn that into metals and magnets. we have heard other countries including the u.s., australia and europe talking about the need for more independent supply chain's that do not depend on china when it comes to rare earths. this is a move by china that

will make it more difficult for the world to be producing and supplying rare earths without chinese participation. haidi: how does this fit into the broader geostrategic competition that we see between china and u.s. and u.s. allies? >> even though we have seen a thaw and the relationship after the joe biden and president xi meeting, the trade war and technology rivals and the u.s. commerce industry is looking into how dependent american economies -- american companies have become on chinese companies. and there is also talk in the

biden administration putting additional tariffs on things coming from china so all signs of the rivalry steaming ahead. shery: it is an interesting dynamic unfolding. you have talks on one hand but then you have the tit-for-tat measures that seem targeted and deliberate. what will 2024 look like for u.s.-china relations especially as we head into elections in washington. >> i think there will be a continued effort to find stability from both sides. you see that when it comes to military talks. it is probably the thing that both beijing and washington are most concerned about, an accident. around taiwan, in the air, along the sea causing an escalation that gets out of control. there will be some stabilization

of their relationship but there will be a lot of competition when it comes to technology, trade and when it comes to things like russia-ukraine and the conflict in the middle east. both countries will be vying for the upper hand -- upper hand. haidi: it will be another eventful year. staying on geopolitics and the philippine president says his country will continue to assert its rights in the south china sea after beijing warned manila against causing trouble in the area. vessels have clashed several times recently in the disputed waters. a chinese top military official has urged respect of china's interests in the south china say. the pentagon is looking to speed up the sale of jets to taiwan after some lawmakers said that some deliveries will be undercut .

the pentagon says 136 aircraft have been delivered so far with more on the way. taiwan is holding presidential elections next month which could reshape the future of its relations with china and the u.s. you can get more on that on taiwan decides, special report featuring bloomberg's exclusive interviews with all three candidates. it is also available on youtube. more to come here on "bloomberg daybreak: asia." this is bloomberg. ♪

shery: nike shares tumbling after the bell.

the company you sing it is looking for as much as $2 billion -- the company saying it is looking for as much as $2 billion. we saw sales in china also falling short. >> some positive noises about china. the company did say they are seeing macro headwinds in greater china. that is something they will be contending with and it leads to the production of a softer a second fiscal half for them. haidi: heavily focused on how they are feeling about the chinese market. the second quarter revenue shortfall and the challenging outlook. are they still trying to sound confident when it comes to this major market? >> they are.

there were a lot of -- there was a lot of upbeat commentary from john donahoe saying they still believe they are in a good position in china. they are positioned to benefit whenever spending does pick up among consumers there. but they acknowledge that with the softening in consumption in the market at the moment, they are going to have to contend with that and part of that is the cost-cutting effort they announced. shery: how much will that help? >> it will help a bit. looking for $2 billion over three years, they said some of that will be cutting out management layers. they said it will come throughout their value chain, up and down the p&l. it will be interesting to see

how comprehensive that will be. they also said they will focus on innovation. they feel that is what will drive consumers to buy their products more. making sure they have the newest and best technology out in the marketplace and emphasize that over some of their older products. haidi: bloomberg's lead consumer reporter. sticking with another major consumer story, apple has stopped online sales of its latest apple watch models. the company says it will also no longer be able to repair watch models past their warranty date. take a step back, why has it gotten to this point? >> maybe they should look in a mirror and ask how they got to this point. they have known for several months that this was a strong possibility and here we are still at the point where they

had to take the unprecedented measure of removing their two newest apple watch is market. the question now is, how do you move forward? they are looking at multiple different measures. they could try to get a federal reprieve. they could reach a settlement with the company that created the blood oxygen patents that they allegedly violated. worst case scenario, may be a hardware fix. there is a lot for apple to weigh and do. shery: could it lead to other cases? could this expand to other patents and issues that apple might face with other companies? >> that is the billion dollar question and probably the number one reason why apple would be reluctant to reach a supply agreement or crosslicensing agreement with maximo. their concern would be about

other companies coming out of the woodwork. they looked at their technology and wanted to hire other companies. they got into discussions about acquiring others and then released similar technologies of their own. in a process called sherlock-in g. apple wants to avoid other companies wanting to sue them. not every company has the financial resources or legal ability of maximo. maximo is going after several companies. shery: watching apple. in other corporate stories, bloomberg has learned that barclays will delay its final decision on a bonus pool to reflect last-minute business. capital market activities are

picking up so bonuses should account for that. the decision on bonuses has been delayed until the new year. china has signed off on the direct delivery of a boeing 787 jet, an indication that u.s.-china trade relations could be easing. one of china's largest privately owned carriers took delivery of its newest jet on thursday. it also marks a breakthrough for boeing that has been largely shut out of china's aviation market for the last few years. we have more to come on daybreak: asia. just stay with us. this is bloomberg. ♪

shery: breaking news out of

japan. we are getting the november national cpi number. you're on year growth of 2.8%. easing from over 3% in the previous month but coming in as expected by economists surveyed by bloomberg. the core inflation number excluding fresh fruit. that is the one the boj watches. also easing. a growth of 2.5 percent. perhaps giving more indication that the cost push inflation is slowing down here the boj waiting to see signs of positive wage price cycle. this may not be the set of numbers the boj may of wanted to say. exclude energy as well and you have core cpi coming in at 3.8 percent growth for november which is a do silla brush. -- which is a deceleration from

their previous month. the japanese government came out yesterday and said they are expecting 2.5 percent inflation in the next fiscal year. above the inflation target. the fact remains that we are seeing inflationary pressures easing. let's bring out our next guest who says higher inflation rates will get the boj confidence that it's target is -- that its target is achievable. give us your reaction to the latest cpi numbers. ayako: this moderation in core inflation is as expected. the decline in inflation is determined by service and food prices. what boj is looking for and what it is focusing on now is more on service inflation. not underlying inflation.

it remains sticky. the boj is seeking an easing. it does not necessarily mean the boj is staying back from [inaudible]. we have to pay more attention to the underlying inflation and particularly for services. shery: in the spring we will head towards the shinto wage negotiations. what are the trends? ayako: we see rising momentum in terms of higher wages. also facing strong pressure to raise wages because of a tight labor market conditions. we expect spring wage negotiations to come stronger than this year which gives the

boj confidence. shery: how soon are you expecting the boj to give up on this negative interest rate policy? ayako: my expectation is some time next year. this seems to be premature. the condition for the boj as you laid out is that we have to see stronger wages and [inaudible] the boj would probably prefer to wait until we get through the spring wage negotiations as well as to see a stronger response to consumer consumption.

to assess this, we think the boj would pervert to wait one ordered two quarters. shery: we saw the tweets winek comes to yield -- we saw the tweets when it comes to yield curve --. where does that fit into the boj policymaking broadly? ayako: the boj, even after officially moving, it still has a strong intention to remain in control of the longer end of the curve. it officially says they still have issues regarding the framework. before moving the negative interest rate, the boj --

the boj prefers to prioritize the policy before qe tapering. shery: how does the federal reserve play into the boj's calculations? will they wait for the fed to make its first move regarding rate cuts before acting themselves or will they move in lockstep? ayako: the boj sees risk to missing the window. it is not an important factor. boj does not have to wait until the fed starts cutting before they move. but if the currency starts appreciating, that gives a little concern for the boj. at the same time, the boj does

not have to worry about missing the window at this point because if the boj prefers, it can have a negative interest rate. in likely conclusion well, after may of next year. the boj has a plan b. shery: how much stronger will the japanese yen that given the expectations that the boj will have to move next year anyway? ayako: we don't think the boj is keen -- positive territory anytime soon.

there is not much pressure on the yen appreciation. movement is more critical. haidi: we will be watching as the japanese yen holds at around the 142 level. happy holidays. ayako fujita joining us from tokyo. haidi: on the others of the coin when it comes to the boj, it is also what the fed does. we spoke with robert kaplan who said the central bank needs to see sustained improvement in inflation before it can think about rate cuts. even a cooling in the fed's preferred inflation indicator will not be enough by itself. >> the fed is going to need to see at least 2-3 months more of

continued improvement. tomorrow will probably be good news. they will need to see sustained improvement before they will be willing to take more action. and so, i think the market should expect it will take a while and more sustained improvement before the fed does something. haidi: they are not in the business of predicting business but in the business of risk management. the confluence of risks is difficult to navigate. there is still a lot of upside risk in terms of stickiness of inflationary factors including services and confusion in energy prices as well. >> that is right. brian moynihan mentioned there is a tug of war between the fed being very restrictive and on the other hand fiscal policy and project spending are very accommodative. it is white-hot. there is a bit of a conflict there.

they will be watching to see if the service sector inflation settles down so much. it will be hoping the price of oil continues to be muted. but i would also be aware of fiscal spending in this kind of strength means i want to see more sustained improvement. the last thing you want to do is start taking action to cut rates and then see inflation start to back up. that is a scenario they have to avoid. that is why i say they are in the risk management business. they don't have to predict the future accurately but they have to manage the risks which means being very deliberate and that is why you have seen the walk back. shery: how big of a risk is it that we continue to see financial conditions loosen? >> i think that is a significant possibility in that there is so much money in short, they did paper and bills that has to find a place to go and does not want to be left on the sideline when

rates start to move down. you are seeing a rush to take duration or by other financial assets and that is what we've seen in the last week or so. i think the fed has to be aware of that. it can't do anything about that phenomena. it has to do its job which is manage the risks and take its time and be deliberate. but i think you will see the story of 2024 is that the fed will be more balanced in terms of two-sided risk. they will be aware that they want to manage inflation. they will also be sensitive to the path of the economy. the level of fiscal spending being so significant will be a big factor and allow them to be a little more prioritizing inflation over a slowing in the economy. shery: expand on that because

there is a lot of treasury volume that needs to be digested in the next few years. >> yes. and i think this is a big concern. the good news is that we saw treasury yields back up over the last 3-4 months. we have now seen them come back into the high three 80's. we have $9 trillion in treasury securities to sell in 2024 and seven is refinancing, another $2 trillion is refunding the deficit we just ran. the danger is we keep building interest expense into the budget from 625 billion this year to 800 trillion year. i think that is an issue worth

watching carefully. shery: robert kaplan speaking to us earlier and you can watch it live and catch up on some of the past interviews at tv . you can also dive into any of the securities on bloomberg functions that we talk about. and join in on the conversation by sending us instant messages during their shows. this is for bloomberg subscribers only and it is that tv . this is bloomberg. ♪

haidi: angola says it is leaving opec after 16 years as the dispute continues of the lower production numbers. >> in june there was a big dispute with angola and some of the other african members including the congo and nigeria. they were concerned they were being pressured to accept lower output curbs in favor of the demands from key leadership. angola is africa's second largest crude oil producer and in late november the opec governor rejected a new quota

and announced it would defy the cartel and produce above that level. their position at the time is that this is not a matter of obeying opec. we presented our position and opec should have taken that into consideration. the oil minister has now announced they will leave opec saying our role in the organization was not deemed relevant and it was not a decision made lightly. the time has come here angola's exit shrinks opec to 12 nations at a time when the organization is struggling to shore up prices which have lost about 20% in the last three months. and led by saudi arabia the group has cut output to offset booming u.s. production. we are also seeing production from guyana and brazil and other countries. the timing is probably the biggest impact. shery: you mentioned how prices

have been depressed because of the oversupply concerns. at the same time we have risks coming from the red sea as well. >> we saw both play in the markets in london and new york. added volatility. west texas intermediate closed under $74. that is playing through in asia trading. the slight declines holding. it is because the red sea premium is starting to fade out and the fact that this week we got confirmation from the u.s. government, record oil production for the u.s. underscoring the oversupply concerns. in terms of the red sea we know that the houthi rebels backed by iran have vowed to retaliate if the u.s. and anyway tries to strike their bases in yemen. haidi: su keenan.

more to come on "bloomberg daybreak: asia." this is bloomberg. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

shery: welcome back. the u.k. chancellor says a new financial services deal with switzerland is groundbreaking.

it allows the countries to recognize each other's financial rules. he told us more about the possibility of similar deals with other countries. >> what i would say is it was much easier to do this deal with switzerland because there is a lot of trust between switzerland and the u.k. and there is a lot of confidence in each other's regulatory structures and legal systems. we are open to this kind of discussion with any country around the world. anything that boosts choice and competition while respecting our authority and our ability to make our own rules and regulations is something we are happy to talk. >> there have been discussions of financial hubs moving. how important is this to make these connections to boost tax revenue in the united kingdom? >> we have had a lot of

discussion post-brexit of people, banks, operations potentially moving out of london. it has not materialized on anything like the scale that people predicted. london has shown itself to be very resilient. look at the last year, we have said we will be hungry to keep businesses in london and we are committed to financial services in the u.k. we passed the financial services and markets act. we are changing the rules around ipo's to make the london stock exchange more competitive. we have reforms that will lead to more capital growth businesses for pension funds. we are hungry to attract business around the world in the u.k. and the deal with switzerland is another step in that direction. >> how much are you looking to

some of these revenues to be able to enact tax moves? where are you planning to have those tax cuts? with savings, property or other areas? >> we have said we would like to cut the tax burden, more if we are able to do so. we will not be in a position to do that until much closer to the spring budget. we have not yet announced a date for that. we won't find out the latest forecasts from the office of budget responsibility to know if we are in a position to do that for some time. we would like to bring down the tax burden in a way that is responsible if we are able to do so. but right now our priority is to bring down inflation. we had good news yesterday. 3.9% inflation reading market

expectations buys some way. that is because we have shown discipline in government. we have taken decisions that are supportive of the bank of england and what they are trying to do with interest rates to bring down inflation. and it is still above targets. we still have more to do so that will remain our primary focus. >> there is a concern around strikes. another strike shut down train systems. doctors are striking again. are you prepared to start to increase salaries at a time when you are still concerned about inflation? >> that is an important question to ask. what i would say is i would put it the other way around. the reason we are having strikes is because when i became chancellor after what vladimir putin did in ukraine, we had inflation of 11.1%. people could see their living standards eroding because the

weekly price of shopping was going up. the way you bring back industrial harmony is to bring down inflation. that is why it is a primary focus of myself and rishi sunak. when it comes to doctors or train drivers, we are prepared to be reasonable and pragmatic but we have always said we will not agree to pay deals that threaten our progress in bringing down inflation. haidi: the u.k. chancellor jeremy hunt speaking with bloomberg. let's look at currencies. thin volume in liquidity's as we head into the holidays. watching for further upside to the aussie dollar. we saw a jump of about 1% on the back of the four month low we saw the greenback hit in the previous session. seeing some corporate model flows. the aussie dollar climbing to the highest level since july 27.

the higher metal prices are playing in as well. dollar-yen holding steady this morning. 142.07. dollar-yen falling to the 200 day moving average. also watching dollar china. watching some of the geopolitical headlines including measures on rare earths equipment and watching sterling. it is still the dollar story, the decline in the bloomberg dollar index saw the biggest drop in a week and we see the greenback trading lower against all of its g10 peers. one stock we have been watching this year has been the world's best performing stock and it is not one that we have spoken about before. we have talked about the magnificent seven. the world's best stock of 2023 is a korean ev supplier that is

marked a 600% jump. it is still the best performer. short-sellers getting burnt. this is part of the frenzy over everything ev related. shery: the south korean ant traders is what they call themselves, the individual traders leading to a huge gain on ecopro. we have the market open in tokyo and seoul next. this is bloomberg. ♪

haidi: this is daybreak asia, we are counting down to the major market open, we are driven by that one narrative that the fed will deeply cut rates in 2024 as early as march. we are ready sell the s&p 500 gaining ground today. we are headed for eight weeks of gains, the longest winning streak in about five years. haidi: yes, the risk rally seems to steamroll on. is this a fed pivot or our markets expecting a fed put? we did hear from robert kaplan striking a tone saying they will need a couple of months, maybe three or four of data trending in the right direction. shery: data trending in japan not in the direction the boj wanted. november core consumer prices rose 2.5% year on year.

that was the deceleration from the previous month, adding to that signal that we are still not getting a positive wage price cycle that the bank of japan wants. we are getting minutes of the october policy meeting. they say they need to continue with easing under yield curve control. the inflation target is not in sight yet. they are talking about easing gradually and they are also seeing upward pressure on yields because of u.s. yields. boj members say they need to see wage price cycle, and as i said we have seen core inflation decelerating from the previous month. take a look at the nikkei, up 0.3%. the japanese yen continues to strengthen, already outperforming his peers. the government expects inflation to stay above target.

there is expectation the boj will move next year. the kospi is coming online, gains of 0.8%, recouping losses from the previous session. the korean won with a little bit of strength against the u.s. dollar, not surprising given the greenback fell. we are watching the meme stocks, ecopro is the best stock of 2023. haidi: take a look at what we are watching in australia, close to a record high here but it does not look like we will reach the santa claus rally unless we pick up momentum. upside up 0.2%. they are reversing weakness we saw in the previous session.

some miners giving the announcement from beijing that we are processing. quite a bit of gains in tech. this rally has been heavily concentrated in rate sensitive growth. tech stocks continue to power into the end of the year. gains across energy, as well as communications and materials. everything else is looking more tepid. the aussie dollar with a gain of over 1%. so much has been on the back of the weakness we saw in the bloomberg dollar index, falling 0.6%, the biggest drop in about a week. we did see the aussie dollar climbing to the highest level to the dollar since july 27. some of the higher metals have helped as well. we are under that 68 level we saw. oil is another story we are watching closely.

angola quitting opec over a disagreement over quotas. we are seeing a pullback when it comes to u.s. output gains alongside the departure of angola from opec. the risk to ships in the red sea are helping limit losses we are seeing. 73.86 is how new york crude is trading at the moment. basically the only thing markets continue to focus on is this idea of the fed pivot. how much further does this equity rally continue to run as that new data and the expectations of core pc will support this notion of fed cuts coming next year as well. let's bring in our next guest, who is optimistic on equities. vasu menon, managing director of investment strategy, oversea-chinese banking corp.,

great to have you with us. is your upgrade all about the fed? vasu: largely the fed. we are positive that the fed could cut rates, and the markets are taking that he was well. our view is premised that we will see a mild recession in the u.s.. we do not see a soft landing but a mild recession, but that is fine. the economy will get past that after two quarters. a mild recession, low inflation, fed rate cuts. that should help equity markets hit higher. we caution that the climb will not be a straight line. you will see some bumps and bruises along the way because economic data will not always paint a positive picture.

you could have doubts from time to time and markets pulling back. it will not be a straight line climb. but we think the end of 2024, you will see the markets higher than where they were at the end of 2023. haidi: you talk about the risk for asset prices, and the risk is reflationary in the fight against inflation more broadly. is that a risk that it will not be a straightforward trajectory in this last part of the cycle? vasu: i think the last part of the cycle is where the fed is trying to fight inflation, it looks like it has the upper hand on inflation but there are risks because if the fed does cut rates significantly and the economy does do better-than-expected, then inflation could see some kind of

resurgence. don't forget the chinese economy is fairly week, and that has resulted low imported inflation in the u.s. as the chinese economy recovers, then the economy in the u.s. would be better-than-expected, then inflation could turn out to be stronger-than-expected. they are very optimistic. the cuts the markets are pricing in may not play out, and the markets could pullback but overall in the next 2-3 years, the trend will be reasonably cut, and that should provide upside support for equity markets. as you said, it will not be a straight line potentially. haidi: you are notable overweight for asia. how easy for the gains going to be particularly given the

challenges we are seeing, eventually that we will get more yen strength? vasu: no doubt the stronger yen will be a modest headwind for the japanese equity markets but on the flipside, a stronger yen means currency gains for those with exposure to the japanese equity markets but japan has been over the last 5-8 years fund managers putting money into japan over the last 3-6 months. even if the yen strengthens, the markets will focus on the fact that the economy is gaining traction. deflation is a story of the past. economic fundamentals are quite solid. corporate fundamentals are solid as well. corporate governance has improved in the government is putting more emphasis on corporate governance. all of this together will make a

story for japanese equity markets despite further gains for the japanese yen. haidi: i have to ask about china. do you find that compelling at the moment given the valuations or is it too difficult to navigate? vasu: it is a difficult one. we are cautiously optimistic on china. valuations are very low with expectations. the chinese equity market is under owned by foreign managers. there is skepticism in the markets about the government not being prepared to support the economy. the property market is ailing. you have a string of negativity around china, and sometimes the best time to buy in a market is when it is as negative as it is but you have to be patient. you have to be able to ride out volatility.

a little exposure to chinese markets makes sense but it requires patience. collectively it is starting to look more significant, and if the property market stabilizes over the next 12 months, the upside swing in chinese markets can be significant. again, it requires patience. haidi: always great to have you with us, vasu menon, managing director of investment strategy, oversea-chinese banking corp.. shery: we will in fact be talking more about the risks from china's real estate prices from shrinking local government revenues to slowing consumption. plus, challenging the west on supplies of strategic raw materials. details, next. this is bloomberg. ♪

>> this in moderation of core inflation and boj core inflation is expected because we see the decline is driven by food prices and service inflation. shery: jp morgan talking about japan's inflation numbers showing signs of clearing. we got that growth number, 2.5% for the november core cpi. for more, garfield reynolds joins us. we're above the boj 2% inflation target, no surprise our guest was telling us she thinks that will give the boj confidence next year when it comes to achieving that target.

garfield: yes, it was softer than expected and did not break the trend. if you look at the end, it is maintaining its gains recently and bond futures are down. the market certainly does not think this was something that would radically shift the needle for the boj. we did have the minutes with a couple of speakers were saying -- it is funny we always talk about it like this because that is the way they talk about it -- there were some signals about the idea that tightening is coming. one of the things on investors minds is the feeling that the boj might have to accelerate any moves it makes towards tightening because it will be a lot harder for it to tighten if it does so once the fed another global central banks start cutting rates, because then you

will exacerbate the impact on the yen in particular but also potentially on government bonds at a time when, if the boj is once again going again the global trend, the bigger the diversions in direction -- divergence in direction, the more chance for accident to happen. they want to manage this, and the longer they wait, the harder it might become. haidi: what are the risks? we know what to expect for core cp, but there is concern of the pivot does not happen, it may not last as long

as what traders are hoping for, that rate cuts might not be as numerous as the markets are pricing in. garfield: there were plenty of risks on that front, and those are mostly bourne by the bond market. we have already seen how strongly equities can rally on the idea that rate hikes are over. and in particular on the significant shift down in benchmark treasury yields and global bond yields, which remain a key yardstick for how equity investors judge. if the fed does not cut further, that will hurt the bond market. we have six cuts next year priced in at the moment. the pain for the equities market will not be all that great i would argue because if the fed does, for example, only cut 75 basis points, that will mean the

economy is holding up all right. that is consistent with something like the soft landing that the fed is ending for, and a soft landing for the economy. we have had a couple of those the last few decades, mostly late 1980's, 1990's, those were excellent times for equities. if we get a soft landing, that will be hard for bonds and easy for equities. if we get a hard landing, bonds will love it, equities, not so much. shery: garfield reynolds. haidi: china is holding the export of rare technologies that could make it harder for the u.s. and other western nations to bolster their own supplies. let's get more from our chinese senior executive editor. what we know about this and the intention behind it?

john: we know china is banning the export of technologies used in separating the rock doug -- dug up and turning it into metals usable for all sorts of products around the world. it is also restricting other technologies when it comes to the refining of rare earths. the motivation it seems is to prevent this de-pegging of supply chains away from china. other countries have a desire to not have their supply chain rely upon chinese rare earths, that would involve being able to excavate and refine those metals themselves. shery: despite the fact we talk about the falling of relations between washington and beijing, we have these measures from beijing, and we are hearing the biden administration is perhaps thinking of tarriffs on chinese

ev's. where are at what the relationship? john: the relationship looks significantly more stable than a year earlier. at the start of this year we had the alleged spy balloon and tensions that that caused. we are in a better place but that does not change the fact that the united states and china, that relationship is fundamentally one of competition and rivalry, so you will continue to see both countries vying for the upper hand when it comes to technology, it comes to trade, when it comes to supply chains and influence in the developing world. all of those things are at play still. shery: staying with geopolitics, the philippine president says his country will continue to assert its right in the south china sea after beijing warned manila against causing trouble in the area.

there vessels have clashed recently in disputed waters. china's top military official urged washington to respect beijing's sovereignty and interests in the south china sea. the pentagon is looking to speed up the sale of f-16 jets to taiwan after u.s. lawmakers said deliveries may be undercut by expanding regional security concerns including commitments to ukraine and israel. the pentagon says 136 aircraft have been delivered so far with more on the way. a u.s. program to retrofit the existing f-16 jets have seen delays due to the lack of key parts. taiwan is holding presidential elections next month that could reshape the relations with china and the u.s. you can get more on that on "taiwan decide," a special report with bloomberg exclusive interviews with all three presidential candidates. it is also available on youtube. more to come on "daybreak:

asia." this is bloomberg. ♪

haidi: former dallas fed president robert kaplan says the central bank needs to see sustained improvement in inflation before it can think about rate cuts. he said the preferred indicator will not be enough by itself. >> the fed is going to need to see at least 2-3 months more of continued improvement. tomorrow will be good news that they will need to see sustained improvement before they are willing to take more action, and so i think the market should expect that it will take a while and more sustained improvement before the fed does something. haidi: they are not in the business of predicting business

but in the business of risk management, and the confluence of risks is difficult to navigate going into next year. there is upside risk in terms of stickiness of inflationary factors, and services, and confusion in energy prices. >> there is a tug-of-war between the fed is very restrictive but on the other hand fiscal policy and this project spending is very accommodative. there is a bit of conflict. they will be watching to see if the service sector inflation settles down somewhat. they will be hoping the price of oil continues to be muted but i would also be aware fiscal spending in this strength means i want to see more sustained improvement, because the last thing you want to do is start taking action to cut rates and then see inflation back up. that is a scenario they have to avoid. they are in the risk management

business. do not have to predict the future accurately but they have to manage the risk, and that means being very deliberate. that is why you have seen the walk back. shery: how big of a risk we see conditions loosening? >> that is a significant possibility in that there is so much money in short in paper and bills the has to find a place to go, and does not want to be left on the sideline when rates start to move down. there is a rush to take duration or buy other financial assets, that is what we have seen over the last week or so. the fed has to be aware of that. it cannot do anything about that phenomenon. it has to do is job, manage the risk and tickets time and be deliberate. you will see the story of 2024 will be the fed will be more

balanced in terms of two sided risk. they will want to manage inflation but they will be sensitive to the path of the economy. the level of fiscal spending being so significant should be a big factor and allow them to be more prioritizing inflation over a slowing in the economy. shery: expand on that because there is treasury volume that needs to be digested in the next few years? >> yes, and this is a big concern. the good news is we saw treasury yields back up over the last 3-4 months, and we have seen and come back to the high 380s. we have 9 trillion of treasury securities to sell in 2024. seven of it is refinancing. another 2 trillion is to finance

the deficit we just ran, and it will be financed at 200 basis points higher than the treasury yields of what is rolling off. the danger is we keep building interest expense into the budget from 625 billion this year to 800 billion on its way to a trillion. if that continued, it was squeeze out not only discretionary spending but some mandatory spending. i think that is an issue worth watching carefully. shery: former dallas fed president robert kaplan speaking to us. u.s. futures, we are not seeing a lot of movement after stocks gained ground in the new york session. every sector in the s&p 500 in the green and the benchmark index is headed for eight weeks of gains, the longest winning streak in more than five years. it has been about that one

single narrative driving the market this year end, the federal reserve will deeply cut interest rates in 2024 starting as early as march. we got data again supporting that narrative. we are seeing this cooling economy that will keep the fed on track. third quarter gdp growth revised lower. jobless claims rising but still at near historic lows. the dollar under a little pressure. this is bloomberg. ♪

haidi: a few years ago chinese

policy makers engineered a gradual slowdown in the real estate sector to snuff out financial risk, but what they got instead was a meltdown that damaged household wealth and deprived local governments of much-needed revenue. we are joined now from hong kong. this was always going to be an incredibly tough ask to deflate this bubble without risking systemic risk to so many other different aspects of the economy. how has that played out? jill: what we have looked at ultimately is the scale of what this property meltdown over the last three years has taken effect. i want to point you to bloomberg economic calculations that represent the massive amount that has affected the economy. you look at 2015, property related development contributed 1.6 percentage points to the 7%

gdp growth. fast-forward to last year and it weighed it down by 1.3 percentage points. it captures the scale of the issue. we have also looking at what layoffs have looked like. you look at the major property developers, some laying off staff by as much as 80%. you are capturing the extent to which the property crisis has impacted the economy. it played out in elements of social unrest and protests. 1800 protests across the country over the years. it captures the scale of the issue which will continue to be a challenge for economic growth going into 2024. shery: tell us about the impact on the chinese economy because of how it hurts households. so much of their wealth is tied to the property sector. jill: yes, exactly.

a part of this comes into how this is impacting confidence among businesses and households. if you rewind to the back of 2023, many economists explained the importance of the consumption driven economy. the importance of confidence on households especially as china was reopening post-covid zero. we expected them to rebound and part of the big issue denting growth has been in the form of the lack of confidence that comes from people saving money rather than spending it. all of this comes back to the idea that the property sector is weighing on people's minds and impacting growth. despite some of the measures that the chinese government has taken to shore up the sector, we are seeing that play out and do something weighing on growth as we head into the next year.

haidi: one of the elements of this is to push lenders to cut rates to stoke the man but this has become a wholesale sentiment and confidence issue. you can make credit sheet that you will not necessarily still demand? jill: yes, that is right. today they are cutting deposit rates for the third time this year. that might allow them to provide better terms on loans. what this will do, when we pivot to a policy easing perspective is pave the way for policy rate cuts in 2024. maybe some of the biggest banks address their prime rates going into 2024. there is a mixed picture on how much rates will be cut but maybe that is something to set them up for into the new year. shery: thank you. let's talk about china and delve

into that economy. our next guest expects a cyclical recovery to continue in 2024 but the road will remain bumpy. let's get more from larry hu, head of china economics, macquarie securities. great to have you with us. as we head into 2024, how big of a wild card with the property sector be? larry: property remains a big headwind as well as uncertainty for the chinese economy in the next year. it is partly because this time the downturn is unprecedented. and is partly because at this moment only policy can turn the property sector around. but to forecast a policy is very difficult these days. they are right that property is

probably the biggest wildcard next year. shery: are you expecting the central government to do more? they have room to add leverage. why aren't we seeing more of that? larry: definitely, i think they have a lot of room to leverage. the question is not whether they can come about whether they will. i think they will eventually but the timing is hard to call. haidi: how important is it -- shery: how important is it to get there? is that lack of confidence coming? you can still demand some of these measures which have trickled down when people want to see something bigger? larry: yes, i think they are right, and confidence is very important. it is lacking in the market.

these days we see the property sector that has had a lot of difficulties, especially the key issue is the credit risk for developers which in the downturn we sell with demand. just like we saw was shadow banking during the financial crisis in 2008. it has to be the government to step in to instill confidence in the liquidity. just like the u.s. government did in 2008. at this moment policymakers are still waiting. they have not done much to really address the credit risk for developers. shery: if policymakers do not intervene more forcefully, could we see that contagion happened to other sectors of the chinese economy? we have seen the trust industry

see a fallout from that exposure to real estate. larry: yes, we will see that. we have seen that happen in 2023. i think the chinese economy will continue to recover next year because it is now below its potential. that is why we see deflationary pressure. but the recovery will be bumpy because if the policy is not forceful enough, we will see the growth fluctuate because the confidence will fluctuate. shery: we have seen export numbers improving, will that potentially be a driver of growth for china given they are a big manufacturer as well? larry: i think that will help on the margin, but i do not really

see a bigger bound for chinese external demand next year because we expect a gradual slowdown of the global economy next year. china will stabilize from here. the most important thing for china's economy is property and fiscal policy especially from the central government. other things will help but property in the fiscal are game changers. shery: with potentially a little help from the monetary policy side of things, and how that will interact with fed policy and impact on the chinese yuan? larry: i think it is good, positive news for the pboc that the fed may stop this hiking cycle which gives them more room

to cut the benchmark interest rate in china. a cut in the first half of next year will help the chinese economy on the margins but fiscal policy is more important than monetary policy. the u.s. will probably enter a cutting cycle in the second quarter. shery: larry hu, good to have you with us, head of china economics, macquarie securities. haidi: that is really the wildcard going into next year, and the wildcard when it comes to where next for chinese market. they open in less than a half hour. i think i have asked the question of every guest we have

had on in recent memory as to whether they see compelling opportunities in these low valuations for china next year. none of them have been constructive, shall i say. [laughter] david: yeah, either they have not been constructive, or if they have been, they were not correct. to put it bluntly. [laughter] a couple of things we are tracking. we start short-term and go long-term as we wrap up a challenging year. against the backdrop of a global equity market, eight weeks of gains and it has gone the opposite direction, we have data on that. we are fairly rich his heart as sector watches are concerned. we talked about the big banks. from today, reducing rates which

might show cuts coming on the lending side which might preserve some margins, record low margins. we talked about rare earth restrictions. there is a lot of stocks traded in australia. nike and the earnings you were talking about, a couple of sports apparel names related to the industry. the journal reporting yesterday on the u.s. possibly looking to increase more tariffs. and a big drop in bond yields in china. two basis points is quite big. we have an option today, a local currency bond. that is the snapshot today. we have looked at the relation between msci china and a couple of etfs. if you want to play ems without exposure to china, that is how you do that.

the co-relations have dropped substantially. a miss this fed pivot risk rally, it has been falling, and currently now at the lowest level of the year. in many ways, the global rally we are seeing aan indication of what direction chinese markets will go. keep that in mind as we look to the final session of the week. six weeks of losses, we could avert that today with a rally, which we might get. haidi: probably not. [laughter] you can follow more on this story on our markets live blog. get a rundown with one click with ongoing commentary from our team of expert editors. you can get exactly what is

affecting your investments at any given point in time. this is bloomberg. ♪

haidi: one segment of stocks we are watching on an asian supplier seeing some declines after reported chinese sales

fell short of market expectations. they are looking for is much as $2 billion in cost savings, streamlining efforts. nike shares sliding in the u.s., and some big declines. asix down 5.4%. some of these asian footwear makers are being affected. also some hong kong listings coming online. some could also see rice moves. shery: let's bring in su keenan with the latest on nike. a weak outlook. su: they want to find 2 billion and cost savings by dismissing workers and simplifying the

shoemaking part of the company. the ceo is reiterating confidence in china but clearly that is where part of the weakness is showing up. shares were down double digits, down as much as 11.5% in extended trading. on the earnings call, the ceo said the new outlook reflects a challenging environment particularly in greater china, referring to europe. he added there are indications of more cautious consumer behavior around the world. revenue in the quarter was 13.4 billion, roughly in line. sales in the greater china region came in lower than expected while earnings-per-share surpassed wall street estimates. in terms of outlook, the full year revenue rising 1% after declines in the current quarter and a modest increase in the subsequent one. haidi: what is driving the

change in sales in asia? su: analyst say it is difficult to tell, if it is the fact that consumers have more choices including local brands to choose from, or if it is a pullback in consumer spending, and it is possibly a combination of both. investor concerns for china are a key focus for the sportswear company amid fears of a pullback in consumer spending. as recently as the conference call over the last quarterly report, nike's ceo said they have great confidence about the future and the chinese consumer, however the latest results may foster more doubts about a recovery. china has seen slower consumption and growing unease about the government prospects but still on the earnings call, the ceo saying we feel very good about our position in china, and that has not changed from 90 days ago.

clear challenges for nike going forward but they are putting a good face on it. investors pushing the stock down double digits on this news. shery: we are seeing the asian suppliers also under pressure. we have more to come. this is bloomberg. ♪

shery: take a look at how oil is trading at the moment, not a lot of movement. we are headed to the year end and they're are completing factors when it comes to the energy pricing. we do have the threat of more violence on ships in the red sea but at the same time we saw the surge in u.s. oil production. angola announcing its exit from opec. supply concerns continue. the bloomberg commodities index has been down for two consecutive sessions, at the lowest level since the middle of this month. haidi: china's growing demand for ev's has executives bringing forward predictions for when oil consumption will peak. bloomberg data shows china has more than 18 million ev sales since 2017, half the world's total and over four times more

than the u.s. the switch from the internal combustion engine has consequences far beyond the auto industry. a road trip across china looks at the impact of ev adoption. our transport reporter joins us for more. the high ev adoption rate, does that mean the end of oil, down to this one sizable market? linda: china is a net energy importer and half of its oil goes to transportation. every ev people are buying and driving means it will put a dent in the oil consumption. china's push in ev's as well as other clean energy initiatives has brought forward the peak oil estimates. the consensus is it will be reached this year. on the other hand, there will be

uncertainty over how accurate these predictions are because as china gets richer, they will also -- people will travel more, they will have more consumption. if they travel more, more jet fuel will be used, and a lot of consumption goods are made from plastics which use fossil fuels. there is still questions over whether the end of oil and what time that will be coming. shery: also the call for the peak in oil means ev adoption will continue in china but the surge is so much already that i wonder what is next. is it going to be in adoption rate as we have seen in the past? what are the challenges? linda: ev adoption rate has been growing fast in china the past two years but as they become

more saturated, the next path will be in rural areas. people will need to drive longer distances, longer than the range of the average ev. china is trying to tackle this problem as well as also promoting ev's through other incentives like getting more discounts, coming up with newer models and hopefully with ev is going deeper into the country, that will help keep this momentum going. haidi: the biden administration is considering hiking tariffs on chinese cvs, they are already in place, does this have an impact for chinese carmakers in the u.s. market?

linda: in the short term there will not be a lot of change because the tariffs have been in place the last several years in the u.s. market has largely been off-limits to chinese automakers due to such a high tariff. over the long term as china's domestic auto market becomes saturated, chinese automakers will want to export to the rest of the world. being shut off from the second largest auto market, the u.s., that will be a big loss for the chinese automakers. shery: asia's transport reporter with china's ev landscape. we are watching one ev maker, the financial times reporting that byd is in talks with the hungarian government for a multibillion euro investment into a new factory. byd is planning to manufacture batteries and electric cars at the new site.

hungary expects this to double due to a surge in the ev industry. in aviation space, china has signed off on the first direct delivery of a boeing 787 jet in four years, perhaps u.s.-china trade relations might be easing. one of china's private largest carriers is to to get the jet on thursday, and that is a breakthrough for boeing, largely shut out of china's aviation market for the last two years. haidi: as we close out the hour and headed to trading in greater china, a bit of stability with the yen at the moment and a pullback with the aussie. the question is if there is more dollar weakness to go. ♪

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