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>> welcome to "bloomberg daybreak: asia." counting down to asia's major market opens. >> australia has just come online. asia is set for a cautious start following the u.s. holiday. european stocks and bonds retreating as ecb officials hose down expectations for rapid rate cuts. houthi militants hit a u.s. owned ship with a missile as the u.s. warns commercial vessels to steer clear of the red sea. the iowa republican caucus is set to get underway. the first real test of donald trump's commanding lead in the holes. -- in the polls. we are live in des moines this hour.

haidi: we will be checking in on des moines and the key selection process ahead of monday's caucuses. the first test for the 2024 presidential nomination. this is the picture as we set up across the tuesday session. asia stocks are set to fall at the open. oil in particular, one to focus on as we trimmed the advance. sydney futures looking softer by about .1%. we are seeing the lows are lower on the tuesday session. we got the declines across european equities and bonds. the ecb officials, temping down expectations of more rapid rate cuts. that is very much a trajectory that markets have been trading on after the holiday monday. not a leap from wall street. but from europe, soft numbers, the nikkei future, looking stronger. 1.6% higher. japanese equities, again,

probably the outperformer in an otherwise session that could see risk appetite seeing a struggle. belle: not focus, still on japan over the course of this year, really strong start for japanese equities. in the u.s., the markets were shut on monday. this is the start of trading for futures following the martin luther king holiday. pretty muted so far. not a lot of action. liquidities, playing into it. we heard from the ecb, pivotal over the last session, starting to temper down expectations around rate cuts. we are still in the midst of the earnings season, at the start of it in the u.s., but results are due tuesday for the fourth quarter, as more banks, the likes of goldman sachs, goldman stanley as well are on their way. certainly wants to be watching. oil prices, brent crude, fractionally higher this morning.

investors, still coming to terms with what exactly is happening in the red sea. are we likely to see any contagion? the man, still the -- demand, still looking fairly subdued. this is the official start to the 2024 election cycle in the u.s.. a lot of focus from the u.s. audience on that event as well. haidi: i can't believe we are here again looking ahead to the results of the iowa caucus over the next couple of hours. it feels like four years go by in the blink of an eye. we keep saying these are unprecedented times but we knew going into 2024 political risk was going to be front and center for the risk we are already seeing playing out in the early days of the new year. so much of that will be the drumbeat to the presidential election. iowa voters, braving historically freezing temperatures and snow we wrote -- snowy roads.

we see the results being vital to the campaigns of nikki haley and ron desantis in particular but we know donald trump has really enjoyed that wide lead. we are hearing, in the gathering of davos, in terms of how they view this political risk with the prospect of another trump victory. >> from a european perspective, globalist perspective, it is of course of great concern. we have been there before. we survived i. we will see what it means -- we survived it. we will see what it means. the question is will it lead to more fragmentation in the global economy? if that's the case, the cost of that will become quite apparent. belle: just a couple of hours away from the start of caucusing now, it is 9 a.m. hong kong

time, 8 p.m. eastern, 7 p.m. central in the u.s. we will have special coverage of that ahead. want to be watching because -- one to be watching because the results are not just vital for the strong push toward trump, but also vital to the campaigns for nikki haley and ron desantis. that's ahead the next couple of hours, that special programming. that focus, really on davos and what exactly world leaders and business chiefs are saying at this event. unsurprising there is still that extreme focus on the economy. what we can expect in terms of fed rate cuts. other central banks over the course of this year. we are hearing pushback on these expectations from traders. a lot of cuts are priced in. norway's sovereign wealth fund was when we spoke to about about the impact of price pressures. they are a major holder of global stocks. they inflation, likely to be sticky --

they are saying inflation is likely to be sticky for some time to come. take a listen. >> there is underlying pressure. it will stay there for longer. i do think the international central banks will be careful in cutting rates to quickly. they were too slow and putting them up. -- too slow in putting them up. belle: let's get more on the outlook for recession and central banks. joining us is cheryl smith, economist and portfolio manager at trillian asset management. your best case of course is the u.s. is going to be entering a recession. how does that play into the outlook for fed rate cuts if price pressures and inflation is going to be staying higher for longer? >> i would agree with the previous clips that the likelihood of immediate rate cuts is much lower than what

the market is putting into play right now. and i would also ad -- i would also add, if the fed makes higher numbers of rate cuts than what the market is putting in, that would not be good for equities and the economy will deteriorate quickly. the fed will begin the cut, but it will be in the second half of the year, definitely not in march. as we saw today, the chinese central bank also declined to cut. that seems to be the overall central-bank position. we do anticipate the recession will be gathering steam. we are seeing signs in the labor market and the leading indicators. the ism purchasing manager's indexes. all leading indicators. unemployment is not, but the others are leading indicators. it is showing an economy approaching stall speed.

one positive that would bring this to a non-recession outcome would be of consumer spending for some reason continues to be strong. right now the u.s. congress is debating possibly the child tax credits. that might provide some additional impetus for consumers. but frankly i think that will just delay recession, not put it off entirely. belle: when you take a look at the 2/10's curve for instance, investors are seeing lower odds of a recession instead of a signal of that happening, what you think investors are missing -- what do you think investors are missing? >> some investors are just impatient. it takes quite a long time, from when a yield curve inverts to when you have the recession. in general, the longer the yield curve has been inverted, as you can see from the chart it is bent from the middle of 2022, no

longer the actual recession is. typical time for a recession to come from when the fed first starts hiking is 24 months. that's a pretty big range, from 15-36 months. but we are at 22. not even at the average yet. i think we have an awful lot of investors in the market that haven't been through that much in the way of recession. you have the lightning recession and bear market from the pandemic. but an extended recession, most have not been there for that. everything being faster now does not apply to how credit works to them -- works with the market. it takes a while. haidi: it does sometimes -- belle: it does sometimes seem a little faster now, due to your political risk, tensions in the red sea, things can move quickly in that sense.

do investors need to be positioning for more black swan events? >> it is cautious to do that. so, you are right, that's a very good distinction to make. the geopolitical risk can turn an economy around very quickly. but the normal credit cycle risk from federal reserves or central-banks, tightening credit, having the financial conditions tightening and that move through the economy does take time. a large political event can certainly have an effect -- i'm concerned about the houthis and the red sea and the disruption that will have for oil in particular, but for global trade. it is much longer to go around africa than through the suez canal. we could see additional supply disruptions. we are still trying to work out what the disruptions from covid did. the way those affected the

economy. it's going to be difficult. belle: what about the u.s. election, the iowa caucus? the small handful of delegates being decided here, how is that playing into your thinking for this year? perhaps we see a ramping up in fiscal spending? >> i've been thinking about that. it's an interesting question. typically you do see a stronger market in the year of a presidential election and the tendency is for a party in power to want to spend more. but the house of representatives in the u.s. is so dysfunctional at the moment that it becomes difficult for them to agree on any kind of spending bill. the impetus for fiscal policy is going to be a little challenged, if you will. one possible outcome that is being discussed right now is

potentially an extension of child tax care credits, which would be fiscal spending in the hands of those who most need it, and it could provide additional consumption expenditure. but i still will have to say, from an economics perspective, 22 months worth of federal reserve tightening will have an effect. it may be a very slow approaching steamroller but it is still a steamroller coming down. and it has momentum and once it gets started, it's difficult to turn on a dime and stop it. belle: perhaps they could inject more volatility into u.s. stocks. thanks, cheryl smith. haidi, a lot to focus on with the u.s. political situation. we are just into the aussie session now. you have to keep a focus on earnings continuing to roll in

and also the reports. haidi: focusing on the bread and butter but obviously the u.s. is one big want to watch. the other is china. whether the economy can get back on a growth track this year. this is playing into what we are seeing when it comes to the outlook for a lot of the miners, the iron ore producers. we are hearing from rio tinto, reporting production of iron ore falling to percent in the fourth quarter even as it sees positive signs -- saying it sees positive signs when it comes to china's economy. 87.5 million tons, production, rising 15%. hello minium, up 8% -- aluminum, up 8%, copper, as well. we have seen an extended loss since then. the biggest drop since april this year. the outlook when it comes to china's economy, still very much weighing them. coming up, taiwan loses one of

its less diplomatic allies to china after the island - after the island elects a u.s.-friendly leader. we have more, next. this is bloomberg. ♪ wealth-changing question -- are you keeping as much of your investment gains as possible? high taxes can erode returns quickly, so you need a tax-optimized portfolio. at creative planning, our money managers and specialists work together to make sure your portfolio and wealth are managed in a tax-efficient manner. it's what you keep that really matters. why not give your wealth a second look? book your free meeting today at creativeplanning.com.

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haidi: taiwan has lost another diplomatic partner with a pacific island nation, severing relations and switching alliances to beijing. let's bring in bloomberg's china senior executive editor. we have seen this as a broader trend of these alliances. how symbolic is this? >> well, we were all looking for what beijing would do in response to the election in taiwan over the weekend. i was concerned there might be military exercisess. this looks based on the timing of the announcement that it is switching its diplomatic recognition from beijing to taiwan. it seems to be a retaliation in response to that election. if this is the extent of what beijing is going to do in its reaction, it is probably more muted than many had feared. that will probably be supportive for markets and the outlook, for

all hopes that there will be stability across the taiwan strait. >> how do you think china's economic health is playing into that decision-making? tomorrow we've got the data dump coming out and the gdp coming in from last year as well. >> the economy is in a poor state. as long as the economy is struggling, xi jinping and the leadership around him will have less time to spend on issues such as taiwan or the south china sea. other issues that are external. we are expecting china to meet its growth target for 2023 of about 5% set by the government. most economists are expecting gdp to come in about 5.2%. we are also expecting the government in march of this year to set a target of about 5% for 2024. it's not just the growth goal --

a growth goal. it's a mechanism for communicate and with the central leadership, what they want the governments to do. the 5% target would be a powerful sign for people to do as much as they can to get the economy going again. belle: that was bloomberg's greater china senior executive editor, john liu. houthi militants have hit a u.s. owned commercial vessel with a missile. the strike underscores warnings from the u.s. that ships should still -- should steer clear of the red sea. last week, the move was aimed at reducing tensions in the area. >> i do not take decisions on the use of force lightly. that's why i stressed this action was taken in self-defense. it was limited, not escalatory. it was a necessary and proportionate response to a direct threat to u.k. vessels and therefore to the u.k. itself. belle: let's bring in

bloomberg's john herskovitz. based on the strikes, this u.s. shipping target as well, what's the main point of tension you would say in the red sea? >> we are looking at two different things, whether we are going to get more attacks from houthi militants, or in shipping in the region. the leader's groups have said they are looking at the u.s. warships in the region and they are also targeting commercial vessels, which they think have links to israel. on the others we have the u.s. and the u.k. -- the other side we have the u.s. and the u.k. looking at more strikes against houthi targets in yemen. we are wondering if we are going to see retaliation from the u.s. today for the attack on the merchant ship the other day. it is a back-and-forth going on. at stake is this crucial waterway. one of the most important

arteries free-trade -- for trade, the shipment of oil. we are seeing tensions ratcheting up and warnings to vessels to steer clear of this waterway. haidi: what is the latest when it comes to the region -- when it comes to shipping across the region now? >> we've gotten warnings from the u.s. and merchant groups that this is an area to avoid. we are seeing shipping going around the horn of africa. this is adding to shipping costs, it'll add costs to the global economy, it makes transport more difficult, and this regional conflict is spilling out into the economy in many different ways. we are seeing that specifically with shipping in the region. haidi: bloomberg's john herskovitz what the latest. you can get around above the

stories in today's edition of daybreak at dayb and also on the mobile bloomberg anywhere app. you can customize the settings so you get the news on the industries and assets that you care about. this is bloomberg. ♪

belle: apple is planning to remove an oxygen monitoring future from its latest smartwatch models if it's up against the u.s. ban fails. let's get more with our technology reporter, mark garment -- mark gurman. it's a pretty dramatic step for apple. reporter: absolutely. thank you for having me. incredibly dramatic, the idea of apple removing a future from its devices to avoid this continued litigation.

let me tell you where things stand as of today. as over friday, january 12 and the u.s., the u.s. customs and border patrol agency approved, if they remove the software from the watches, they are able to continue selling the watches. on tuesday, january 16, apple is hoping the u.s. federal appearance court circuit -- federal appeals court circuit will rule in its favor to have a one year stay on this issue meaning the oxygen watch can continue to be used for the next year or so -- sold or euro so without having to relet the new -- replace the new software. this is a really important piece of news we got today. one important -- the more important drumbeat is tomorrow. haidi: will we found out more in terms of how this is likely to impact consumer demand? this was such a highly touted feature.

even if it is not an immediate removal, how existing users might be impacted. >> if it is not immediate, apple will have about a year to figure out a solution. i would bet heavily that apple would be able to retain the future on the watch indefinitely and rework it to not have to violate laws. i was told they are working on the software fix that changes some of the algorithms and the blood oxygen saturation app to get that to happen. it's really important for apple that they win that appeal tomorrow. if they don't, the solution is remove the future and then got to work on getting the future back up and running on the watch without violating those pas sed. -- those paths. haidi: mark gurman there watching the latest of -- the latest developments in this latest issue. pretty quiet when it comes to

the public holiday in the u.s. affecting some of the lead we get in this part of the world. take a look at fx trading. we have seen strength when it comes to the bloomberg u.s. dollar index, reversing the drop, as we see a bit of yen selling emerging as well. quite interestingly, we are seeing signs the yen is starting to lose its haven role, as well. we are watching the aussie dollar off by .1%. we have seen outward pressure and continued acceleration when it comes to this correction in iron ore prices since the start of the year. watching china, gdp in focus, data dumping tomorrow and focus. the dollar holding steady at 145 level. this is bloomberg. ♪

breaking news -- haidi: breaking news when it comes to consumer confidence here in australia. the seasonally adjusted month on month rating coming through at a contraction of 1.3%, really paring back to 2.7% gain we saw the previous reading. the number if you take a look for january, as a headline number, coming in at 81, softer than the level of 82.1 seen in december. consumer sentiment seeing a fall of 1.3%. current conditions of seeing quite a steep fall month on month of 3.7%. expectations remaining unchanged. quite a bit of weakness when it comes to finances -- family finances, higher rates, and higher inflation on

households, seeing a contraction of 7.6% month on month. we had a bit of resilience going into the holidays. the january numbers are looking a bit softer. belle: we are tracking of course the market reaction. the dollar, not too changed at this point in time. we are watching the u.s. presidential campaign beginning in earnest today with the first official nominating race, the iowa republican caucuses. voters are facing record cold temperatures as an -- adding an element of uncertainty to donald trump's lead in the polls. are political news director jodi schneider joins us from des moines. there's only a handful of delegates that have decided at this point in time. why is this caucus so significant? reporter: partly because it is the first on the nation. this is the official kickoff to the nominating season, which will turn into the general

election season come november. this is where we will start will start to see -- we have been talking about this a while already -- well donald to as well as expected? will he be the person that will be running against joe biden come november? will this be a matchup? there are big expectations for the former president. is expected to handily win tonight -- he is expected to handily win tonight. the question is, who comes in second? for long, the answer was ron desantis. he's gone to all 99 counties in iowa. or nikki haley who has not been as focus year but has been coming up in the polls in recent weeks and she is expected to do well on the next contest in new hampshire. if she does well tonight, that could give her good momentum going into the new hampshire race.

then you could have a real race. we are looking at that and for any other signs of what could happen in the coming months. haidi: will we see any dropouts if they don't do well tonight? we have seen chris christie, dropping out a few days ago. is it too early to call that kind of decision-making? >> it's a real question, as to whether ron desantis will continue, especially of nikki haley beats him handily. he has made iowa such a focus of his campaign. he said he is staying in the race. he wants to stay until super tuesday in march. he's going to south carolina. it doesn't sound like he is going to be doing much in new hampshire which is next. vivek ramaswamy is still in the race. pulling in low numbers. will he drop out? that is another question. belle: there's also the question of momentum as well because how do you think the results of

today are going to play into what happens in new hampshire for instance later this month? reporter: that's right. again we will be looking very closely at how nikki haley does tonight. she's expected to do well in new hampshire. if she can do well tonight, this will give her campaign some momentum. in terms of funding, is another thing ron desantis -- that's another thing ron desantis is worried about. will they start losing their funders and will they be able to continue financially to stay in the race for long? belle: all right. really interesting. great stuff, jodi, our political news director in iowa. we will have more in depth analysis of the iowa caucus kicking off about 90 minutes from now. taking place later today. we are about half an hour into the aussie session so far, seeing the asx 200, really, the focus coming up to earnings so far in the session because we

had rio tinto putting out its orin -- its iron ore output report. even though the company was more positive on china's struggling economy, they are seeing weakness coming through and demand to a degree. you have rio tinto dropping somewhat. material stocks under pressure. equities looking to drift a little bit to the downside in the session. markets were shut in wall street. the big news was overnight with the ecb pushing back on trader expectations for rate cuts. the ecb had been tipped possibly to be one of the first possible central banks to start reducing given the recessionary outlook there. the focus, really on that, and what we can expect on china's economy. haidi: in particular earlier the transfer of data we are getting across the december activity numbers wednesday. the 2023 gdp numbers.

perhaps less impact going forward. consumer prices are slipping for a third month. speaking to us at davos, founder andrew forrest is a key player when it comes to iron ore, and the demand side across china and making ingredients, downplaying concerns about china's recovery. >> and to remember when china was growing in double-digits and it was tiny and then it was medium and started growing in the high single digits. it's massive. it's growing at 5%. some economies around the world are nowhere near china's scale. they would you often arm to get 5%. >> do you see china's demand recovering? a rebound in the property sector that would boost demand and

enhance prices? >> a look at the economics, but i also speak to chinese people and go walking down the streets of various cities. i still see the burning ambition in moms and dads to leave their children a better life than they had, and their parents, too. the satisfaction that they succeeded in doing that. i remember -- remember that most people were from the revolution. they came out of a farming sector. now they've got into industrial and high-tech. they are doing super well. they want to keep on improving their lifestyles. >> what are you seeing/expecting a rebound in china property? >> you want to go from macro to minor, its -- that's fine. i expect a rebound the next several months. as an iron ore later, i'm not concerned about it. i can't be worried about spikes and drops. what i do concern myself with

is, what is the long-term future for this economy? will it be good for the world? it won't be good for the world unless we send iron ore brain. but i know we can do that. it will be good for the world. >> how are you navigating china and the chinese market? >> through good relationship. by being a jack plant australian. we see -- we say exactly what we mean. who they see is who i am. and, look, we appreciate it. it is almost australian in that sense even though it's got a different historical culture. you can be very blunt with leaders in china like you can with leaders across the world. >> investors have either pulled fully from the chinese market or cut down exposure to chinese assets. what's the biggest risk for

china? >> i'd say china is leading the world in many cases about going green. if they pull back, that will be a major risk. because the popularity as an investment destination and a place to buy products from all helps their economy. as they pushed to go green -- push to go green, they've got this massive sector in fuel growing but faster than that is the green energy program. that is where the future support base will come from. haidi: andrew forrest, speaking with haslinda amin in davos. coming up, al gore is demanding reform of the diplomatic process around global climate talks. we will be hearing his views from davos next. this is bloomberg. ♪

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belle: the u.s. and china will have to chart a new course after the departure of the longtime envoys. both men spent years on opposite sides of the negotiating table, hammering out global deals to cut planet warming emissions. while also building a personal

relationship. china and the u.s. agreed in 2021 to establish a working group, collaborating on the energy transition. meanwhile the former u.s. vice president, al gore, says the u.s. election in november will greatly affect the direction of global climate policy. speaking to us in davos, he said something has to change in the u.s.-china -- u.n. climate talks to win back trust. >> the time has come to reform this process. the world is getting understandably impatient and frustrated that these conferences are rigged. that the deck is stacked in favor of the fossil fuel industry. >> but we did have agreement. >> such as they are. there are so many loopholes. and so many tricky phrases. it took 28 cops before we even could use the phrase fossil fuels. the climate crisis is a fossil

fuel crisis. it's taken us this long to overcome their resistance in even naming the problem. >> what happens to pledges from the u.s. if president trump has a second term? >> first of all let me say that in spite of the loopholes i mentioned, in spite of the frustration, many of the climate advocates, such as i, have felt, nevertheless, we see the direction of travel, as they use that phrase, for both business and government shifting toward low carbon, renewable energy, and toward net zero. we see the same thing here at the world economic forum. this place is unique in bringing all kinds of people together in a way that doesn't happen anywhere else. your question was -- >> if president trump gets into

the white house. >> i of course hope that doesn't happen. many of my fellow americans who are for him -- look at the last time, when he became president, we continued the march toward renewable energy. >> on the business side. >> on the business side, and state governments continued to pursue carbon reduction. here in davos, a republican red state governor from georgia is leading off, talking about the virtues of electric vehicles. we are seeing with the legislation president biden got past, the inflation reduction act, the biggest climate legislation ever passed in history, we are seeing a change in the political realities on the ground in the u.s. with the creation of tens of thousands of new jobs, electric vehicles, batteries, wind, solar, efficiency, green hydrogen. now some of these red states in particular are seeing the

benefits of all these new jobs being created. it's really changing the reality. >> do you think donald trump won't touch that? >> i wouldn't even begin to predict what goes on in his calculations. and of course tonight, we will see the results of the first contest. which all the pundits tell us he's likely to win. but in new hampshire, it could be a different story. >> that was the former u.s. vice president al gore speaking to lumbar's francine lacqua -- bloomberg's francine lacqua. we are watching the results of the iowa caucus. it's been a freezing evening in the morning, iowa -- des moines, iowa, as voters cast their votes in frostbitten temperatures. the former president does have a wide lead. the question is what we see in terms of the two closest

candidates and how they fare, whether we get any dropouts, and the political risk into 2024. climate is obviously one of them. in terms of what gap we see with these two men stepping down, in terms of setting policy into the future and what al gore would not like to see, another trump presidency and the impact on climate change policy. i was looking at one survey done by the global chief executive talking about how viable air business models would be in the face of the threats, including ai, but also the climate threat. this is a poll of almost 5000 company leaders saying almost half of them that their

businesses could fail the next 10 years as a result of these major existential risks. belle: interesting as well, because al gore was saying, really there is that focus on job creation, too. sometimes that transition away from fossil fuels is something that can inject more employment into some of those more republican heavy states as well -- democrat rather. republican. the focus on the iowa caucuses will be closely tracked. caucusing is kicking off and over an hour's time from now. the real start of the 2024 election cycle. you can watch the special programming coming ahead. you can also watch us live and see past interviews on our interactive tv function tv. you can dive into the bloomberg functions that we talk about plus become part of the conversation by sending us instant messages during our shows. this is for bloomberg subscribers only. check it out at tv. this is bloomberg. ♪

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haidi: as the first contest of the 2024 u.s. presidential election gets underway in iowa, that caucus, just hours away, one of many national boats of the seer -- votes this year.

let's bring in the head of apac research. we were listening to what al gore had to say about the potential risk, the potential reelection of president trump, not to mention the two key energy envoys stepping down. there's a lot of risk for this year and beyond. >> indeed, there's a lot of risk. in the u.s. domestically, the saving grace is, it is highly unlikely the republicans will be able to win a super majority in both the house and the senate. that means legislations such as the inflation reduction act are likely to survive the election regardless of the outcome. at the same time a trump 2.0 administration could still make administrative changes, like reinterpret what constitutes as clean hydrogen. it could make changes to some

of the rules he administers and has put in as part of the implementation of the ira. of course the biggest risk is to international cooperation around climate change. during the first trump administration, the u.s. did withdraw from the paris agreement. if the election results in another trump administration, we will likely see a lot of challenges with cop 29 which starts a few days later. belle: of course there was the time one election over the weekend. what does that result mean for its energy sector as well? >> the democratic progressive winners winning a third presidential change means we will unlikely -- we are unlikely to see changes.

they're falling down now to 51 seats in the legislature. with the official opposition having 52 seats, the balance of power, there is a more complex situation they have to manage. the party does not need a super majority to overrule any dpp legislations. at the same time they could force the government to compromise on things such as approval for the budget. the dpp signature policy is phasing out and reducing the dependence on coal and increasing the dependence on renewables. belle: that was bloomberg's

allie is already, our bloomberg head of aipac research. let's get a quick check on numbers dropping for japan. some producer prices unchanged in december -- we saw producer prices unchanged in december. producer prices rose .3 of a percent on the month. the japanese yen, little changed, holding around the 145 level. closer to 146 at this point. something that could force the boj to say dovish is the signs that inflation is moderating. but a dovish boj is one of the reasons that investors are continuing to pile into chinese equities. there is a series of measures being rolled out to dry and attract more retail investors. let's get more details from our editor, brett miller, in tokyo. one of those is the so-called name and shame list. can you walk us through the details of this one? >> that's right.

the tokyo stock exchange yesterday released its name and shame list. putting increasing pressure on companies to use the cash piles. that they will allocate their capital a lot more efficiently. what we saw yesterday was on the primary section. 40% of companies have issued improvement plans. 50% still have not. it was quite an interesting list. we saw big names like sony on the list of companies that have produced lists to improve their capital efficiency. a lot of big names like toyota, nintendo, there are still a lot of work to do for the tokyo stock exchange. but the recent improvement, we are seeing that in the stock market improvement. reform, driving the market as of late. it's important to note sometimes i companies that have an improvement plan for capital efficiency are not always the ones performing that will. some companies are still

performing very well and doing well with investors. haidi: as you say, it's a time of different governance reform. what else is in the pipeline when it comes to potential changes? >> i think we continue to see a lot of pressure from the tokyo stock exchange. it's been very vocal over the last 12 months. that will continue. that should help in terms of reform. they have some concrete plans. there will likely be an extension to trading hours later in the year. we are also seeing some rationalization in terms of regulatory filing around earnings. that should help investors. very important is the extension of the tax-free system for equities investors, that willre. haidi: brett miller there in tokyo. we have the market open in tokyo and seoul next. this is bloomberg. ♪

♪ bill: this is david." we are counting down to asia's major market opens. you have expectations around the fed. you have you see the officials pushing back on rate cut expectations and that is setting the stage for us, as well as earnings seasons. you have some of the banks in the u.s. for this than reporting later on tuesday. but of course, there is the tension on iowa. haidi: yes, this is the time in the election cycle every four years where attention globally is fixed on the morning, iowa. voters are headed to the polls would come to the first contest of the u.s. presidential election for 2024.

it's all beginning as we get the drumbeat down to november. annabelle: special coverage as well coming up in the next hour. but the market opened today, what we have in the nikkei so far, it is very flat. you had u.s. market closed in the prior session. perhaps a bit of liquidity coming into it. you also have traders continuing to parts over these data points. one of them coming from japan in the last 10 minutes was producer prices permit we saw that fairly steady. unchanged on the year, rising 0.3% of the month. still a signal to us about producer prices pressures are easing in japan. it sets the stage for the boj to with its dovish policy settings. -- stick with its dovish policy settings. the japanese yen continues to hold close to the 146 mark.

you also have the start of past treasuries at this point. you also will be tracking in the session the market reaction to japan that is continuing to try to lure in more retail investors , global funds. a slew of different measures including increasing the amount investors can put locally in japan into their retirement savings funds. you also have the tokyo stock exchange starting to name and shame companies that are planning to improve capital efficiency by listing or putting out a list of those who are in the market. that is the start for japan. let's change on and look at what is happening in korea. because it is just not the eco-points, it is also the geopolitical tensions. the red sea very much at the forefront. south korea early this morning saying that expecting a temporary shortage of shipping space because of those escalating tensions.

otherwise, no lead in from the u.s. session given markets were closed therefore a public lliday. futures are trading, though,. a bit of weakness. you can see the dollar strength, part of the story linking to that currency weakness. haidi: no lead in from the wall street session, but still a lot going on with these markets. take a look at trading when it comes to sydney at the moment. firmly lower, but almost 1%. no surprises, the biggest drugs are mining and financials. third annual output falling 10%. concerns over china's property sector continuing to way as we see the pullback after a 20% gain in iron ore. now it is seeing the longest slide since april. also watching a slide in aussie bonds after overnight, european government debt that was spurred

by you see the officials pushing back against rate cut bets. it is trading through to aussie bonds. cash trading in u.s.'s is closed for the holidays. u.s. dollars are a bit softer, 66.48. a bit of a give-and-take session when it comes to what we'll with the u.s. dollar overnight. we are watching oil prices. a lot of the contention and uncertainty over what happens when it comes to the red sea tensions elevating these risks for the crude markets. we are see oil continuing to edged higher, traders tracking geopolitical developments across the middle east, the latest being the u.s. telling commercial ships to avoid the area following missile strikes by houthi militants. ever net guest says with all this going on, there is a big contradiction happening in the markets. what do you make of the contradiction? is it to do with market expectations of where the

economy broadly, but particularly in the u.s., might be headed, and where expectations are for what central banks might do about it? kyle: most definitely. the big contradiction at the moment with markets is the rates markets are signaling and what is being estimated for earnings going forward for u.s. company, which is to say despite what will be low single digits or as quarter, very expansionary earnings consistent with a fairly expansionary economy in the middle part of this year and calendar euro 2024, earnings growth in the double digits. as we would be well aware right now, one of two things has to happen that one is either markets revert to reflect the more resilient economic conditions, or we see earnings expectations come down and prices have to reflect that in the equity market. i think the latter is what is likely to occur. perhaps one of the reasons we

are seeing subdued trading as we go into the earnings season prude that contradiction has to be worked out. it sets us up for a market that in the short term is looking skewed to the downside and has seen upward momentum because of rate cut expectations. haidi: how does it play out across reporting season then? kyle: i think effectively what we will see is typically a bit of upside surprise in this quarter. the bar is very low, we will call it single-digit, 1% or 2% earnings growth this quarter. there is not much corporate have to do to exceed that bar. it has been consistent in the last quarter as we have seen earnings downgrades for two or three quarters ahead. that is happening for the second quarter of this year and the third quarter of this year, albeit with the execution of expansionary earnings. because we have seen markets rise with rate cut expectations and the subsequent expansion of

multiples, not because of expectations for earnings growth, it does set up the market to run into a bit of an air pocket once we good wood will likely be some fairly negative earnings growth coming through the next efficiently into the middle of this year. haidi: japanese stocks continue to out run even after a huge year last year. we are seeing a very strong start to 2024. you are less convinced that this has legs? kyle: not particularly at all. if you look at things from a technical standpoint, things are fairly stretched. this can revert over time and is a short-term dynamic, but what i see in the nikkei at the moment is effectively the quintessential trend for the global economy. expectations that more or less an will stay fairly depressed relative to historical values. which is to say that effectively some of these red cards in the united states have to, of the markets to boost the u.s. dollar. we will see continued student

economic growth that will drive that export-sensitive market in japan to justify strong fundamentals. and that has to happen at a time where bond market volatility remains subdued, and again, that multiple expansion that we get from relatively low and stable rates remains as well. it's a very precarious and improbable makes. the corporate governance change is a and justifies the higher valuation, by the way this can occur is if there is this immaculate disinflation scenario and a very soft landing, which doesn't appear likely. haidi: we just had the consumer confidence numbers for january for australia. clearly, there is a degree of anxiety for household confidence at the moment. do you think that adds to the argument of the rba is done and does that express for a weaker dollar and some opportunities

there? kyle: i think the aussie dollar is due for a pullback, part because of the global story. iron ore was $140. almost ludicrous. but we look at domestic economic conditions. it might not only be anecdotal, but there is a significant level of household stress, particularly those who used leverage during the pandemic to buy houses and they are now finding their financial situation squeezed significantly. so confidence remains depressed. financial figures in principle could come out in the topside because we do see some market indicators that financial conditions in australia have been more expansionary than the rest of the world, with real rates only coming into positive territory over the last couple of months, depending on which part of the curve you look at. but overall, we are seeing weakness in the domestic economy. we had some good news the last couple of days when it comes to local retailers suggesting that spending is resilient, but we

will see a meaningful slowdown for the aussie economy. the aussie dollar at $.66 looks precariously positioned, given that we could see more rate cut priced in the market expectations of the rba falling in line with the rest of the world. in the china question remains unanswered. as a result, commodity prices remain skewed to the downside. haidi: would you want exposure to china directly or indirectly, at this point? kyle: from a technical point of view, it is a pretty attractive trade on the risk-reward's basis. but comes with a caveat that a lot of our clients are much more short-term. it is different from the value investor looking to uncover gems there. valuations are historically depressed. pricing for tenure multiples are oversold. the china question remains. when you talk about the kind of money that supports valuations and keeps trends moving higher

in the long-term, it looks a little bit bearish to meet on the basis that you have those demographic issues, the issue of distillation. all of that is tied to the -- the issue of deflation. out of that is tied to the property market. some of the risk seems to manifest as a balance sheet recession. in the long-term, things look pretty poor fundamentally in china, albeit i get a few are more technically inclined and looking for something to chase if you get a much more muscular response in terms of policy from the pboc or the central government. that could be insignificant rally from fairly depressed and oversold levels for chinese equities. haidi: kyle rodda, senior market analyst at capital.com, thank you for that. you look at the challenges facing china's economy. structural weakness is likely to

persist. but first, the republican caucuses are set to begin in iowa, the first real test of the u.s. presidential race. we will get a live update from a very cold, snowy des moines. this is bloomberg. ♪ when you automate sales tax with avalara, you don't have to worry about things like changing tax rates or filing returns. avalarahhh ahhh

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haidi: the u.s. presidential campaign begins in earnest today with the first official nominating base, the iowa republican caucuses, adding an element of uncertainty to the first big test of donald trump's lead in the polls. over texas bureau chief joined us from des moines. julie, former president trump is expected to win. his lead is a pretty big margin. does he need a big victory to make a big statement?

julie: he does need a big victory tonight and that is what the trump campaign is hoping for. i saw the former president who tells me, "we are going to win tonight." the emergent, though, as you just discussed is what people will be paying attention to. it's the first nominating event here, much tradition behind this. in 2016, republicans shattered records coming out to caucuses. this year may be a little different. the weather has been brutal. tonight is slightly better in terms of the blowing wind, but temperatures are below zero. there was a blizzard several days ago. however, i was told by the iowa state party that were concerned him the most in terms of getting people to the polls is a. so far we aren't seeing it on the streets tonight, everybody's eyes will be on iowa and we should start getting results within the next hour here.

annabelle: ron desantis as well has with the big push in iowa. how much does this matter to him? julie: this is huge for him. he has really put his eggs in the iowa basket and needs to do well here tonight. he especially needs to do better than former governor nikki haley, former governor to the -- former ambassador to the youth u.n.. today we talked to one of his campaign finance chairmen, who told us he expects desantis to perform better than expectations, that is what he is hoping. but for the desantis campaign tonight, a very big deal as they have staked so much in this state. haidi: what happens from here? we have seen in notable dropout in the campaign in the last few days. are we likely to see those decisions you made anyone how the numbers come in? julie: i think you will see the

top three candidates make their way to new hampshire. new hampshire will tell another tale that will, of course, depend on the numbers tonight. everybody here hoping for that strong finish. donald trump needs to probably get above 50 for people not to be wondering about the numbers and what the margin will be going forward. trump, of course, looking for that very large victory. desantis really hoping in the race for number two that he is well above in the state that he has so much into. annabelle: our texas bureau chief julie fine in iowa. we have more in-depth analysis and special coverage of the iowa caucus kicking off in about 45 minutes. stay tuned for that special coverage from des moines. the other focus ahead of the elections is really the direction for rates, with price pressures continuing on u.s. consumers. but as the vice chair of the

world's biggest money manager, he says based on u.s. rate cuts of 175 basis points that are already priced in by markets, could prove to be excessive once inflation turns out stickier than anticipated. blackrock's philipp hildebrand spoke in davos, explaining what he thinks investors are missing -- mystically pricing for near perfection. >> i think the story the next few months will be goods inflation will continue to drop quite rapidly. we have now negative numbers. that basically brings down the overall inflation numbers dramatically and as a result, the markets have now priced in what i think is probably excessive interest rate cuts in the u.s.. but that will run out at some point. this is the final leg of the post-pandemic adjustment by year-end, i would single be done with that and goods inflation will no longer drop. services and wage inflation is still very high.

at some point we will realize that it is not that easy to kind of stabilize a 2% inflation target that the central banks are, looking for so some of the optimism in rates right now in the u.s. in particular are is probably overdone. >> is there something that you worry is not correctly being priced in the markets? philipp: if anything i am a little worried that we are priced for near perfection, solar almost perfect soft landing where inflation is gone as a problem. where it may be central banks could cut in the face of any potential weakness. i am certain that what we are going to find is that inflation has become stickier than we think for the market things right now for various reasons -- we have lower growth, very high government spending, we have a fractured geopolitical system, all of this raises costs. what we will find as inflation drops now, mostly driven by goods prices, by the end of the

year we will realize that it doesn't settle easily at 2%, let alone something -- more than likely we settle above 2%, which means banks will have to stay on alert. >> you talk about risks, it's incredible to think of what is happening in the middle east and the fact that the market has barely taken notice, may be in moving the oil price. by there are attacks, there are drones, there is the houthi, yemen there is ukraine, we don't know what will happen with the president of the united states. how do you deal with all of those? philipp: it is hard. we have moved towards a much more fragmented geopolitical system and, therefore, a much more fragmented economy that is fragmented. that means a loss of efficiency. that means higher costs. and probably means unbalance a lower potential growth rate for the global economy. the focus has to be on maintaining the conflict and where possible to try to solve

them or stabilize them. in the sense -- in a sense, the good news is a lot of these things are man-made. demographics, there is not much we can do about it. that lowers potential growth. fragmentation in a sense we can address. we could find a way to stabilize the situation in the middle east, find a way to ultimately move towards some sort of cease fire discussion in ukraine, only could stabilize relations between the u.s. and china. so a lot of this in us than has been man-made. it weighs on markets and on the global economy and hopefully we can contribute toward lessening these tensions and moving back towards something less fragmented than what we currently have. >> what does a second-term president trump mean for the world economy? philipp: christine lagarde talked about it the other day and i think you will see her later on today. from a european perspective, from a globalist perspective, it

is, of course, a great concern. we have been there before, we survived it some people see what it means. but the question will be, does it lead to more fragmentation in the global economy? if that's the case, the cost will be quite apparent. haidi: blackrock's philipp hildebrand with bloomberg's francine lacqua in davos, as we continue to bring you these significant conversations taking place in davos, of course, thousands of miles away from davos, but we're also watching des moines, iowa. where we are seeing in the subzero temperatures of iowa, donald trump set to cement his status of the republican front in the first true gop contest of the 2024 election. the crushing lead appears to be bringing in multiples, polls showing that a trump and u.s. president joe biden will be facing off in a dead heat.

but some developments in the next couple of hours including those record cold temperatures. could that mean that some contenders will not be able to brave but whether to register their support? officials say they are confident that voters will still turn out. we will continue to bring you the latest of those results throughout the course of the day. much more to come here on "daybreak: asia." this is bloomberg. ♪

annabelle: you see the board member -- an you see the board member, the bundesbank president, says it is too old to early to consider rate cuts. he was speaking in davos. >> i think it is too early to talk about cuts. inflation is still high, the december numbers were higher than the november.

not a surprise because of the basic facts. nevertheless what we expect this year compared to last year that inflation will be half the level of last year, this is good news per se, but, as i said, inflation is too high. so for me the discussions regarding information cuts come to early. >> doesn't mean the markets are pricing it wrong? >> the markets are from time to time optimistic. 's from time to time, they are overoptimistic. i have a different view. i want to see data. we will wait for the next governing council meeting and then we will see. >> but if there is a mismatch between what you see and the majority of the governing council see and what the markets see, does it make the transition mechanism harder? does it somehow impede the kind of work you're trying to do? >>? >> it's all about communication. we are trying to explain to the

markets how we see the world as the governing council. we addressed it several times that we want to wait for data and decide from meeting to meeting. this is still my broad understanding. the latest numbers in december, they are above 3%. our target is 2%. this is something markets should see, this information, and then they can price. >> so is it safe to assume because you are so data dependent, that a cut would come when you have new data that basically it is on a date with new forecasts? >> we do have to wait. it's much too early. when we can wait for the summer break or whatever -- but i don't want to speculate. i think this is my understanding, we should wait for new data. we are living in a very uncertain world and we should not forget that 2024 is coming

with a lot of challenges. this will have an impact on monetary policy. we just have to believe that this meeting to meeting understanding is the right way to do it. >> is that also for central banks, that it is better to cut later to make sure that inflation is under control? >> i have said this several times, inflation is a greedy beast. could be a very stubborn phenomenon. so we should be more stubborn on the central banks' side and we should avoid mistakes to cut to early. this is often the mistake that was done in the past and i don't want to repeat this mistake. haidi: you see the board member and bundesbank president jerk imago, with bloomberg's francine lacqua in davos -- joachim nagel. take a look at how features are

haidi: take a look at markets trading across asia. quite a tepid session. a bit of downside for the nikkei 225 coming off some pretty hefty highs, even as futures signal a higher open for japanese trading. technical indicators adjusting quite a bit of heat in japanese equity markets at the moment. perhaps a bit of fullback not entirely unexpected. the kospi is down 0.5%. it's been the worst start to the year for south korean equities since the 2008 global financial crisis. perhaps an expectations but earnings growth for south korean companies in 2024 will mostly beat. at the moment, it's hard to defy the tide of pessimism. it's a down day across the board. annabelle: that's right. and something that can really add into that is what we get in

terms of china's economic outlook. it is that to report for your growth -- set to report full-year growth figures, exposure to meet the government's goal of around 5%. consensus of bloomberg economists surveyed is around 5%. we will also get the numbers for december industrial production and retail sales. beijing is again to set this year's growth target at around 5%. let's get more perspective with our next get, an independent economist, andy xie, joining us in a hong kong studio. it is an ambitious target given the higher base if we see the 5.2%. is it realistic? candy: i think last year there was --andy: i think last year tourism added to the growth rate. last year was a little rebound. it will be a bit more difficult this year i think, but it is possible that 5% is still

achievable because we are going to have an exporter rebound. annabelle: still, if we get that, it does perhaps rely quite a lot on aggressive stimulus. you are not really calling for that at the same time either? andy: no, i think growth last year was moderate. 10%. credit grew by 9.5%. it's higher than the gdp growth rate. but i think by historical standards, it did not suggest eggs -- they didn't suggest big stimulus. i don't see that coming this year either. china is letting the property market deflate, letting the economy shift towards more productive economic activities. the process may be long and difficult, but they have to bite the bullet and got to the other side. annabelle: annabelle: what are the positives to draw out for the chinese economy this year, what will help it along?

andy: it skita stop speculation that it's not good for people to speculate in the property and shadow banking system, it's a waste of resources. it creates better gdp. not sustainable -- it creates bad gdp. not sustainable. now people are focusing on productive opportunities like technology. i think the chinese economy and qualitatively is improving a lot. chinese companies now are competing against global companies. they make and sell their own products, so china is becoming a normal economy permit not like a low cost base where people come to make something. it's competing with the global economy on its own food that is how china will become a high income economy. haidi: it is easier said than done, right, we are seeing this renewed focus on local government corruption and graft

10 years after president xi kicked off this campaign. a lot of it has been due to the top-down directive of achieving gdp. how easy will it be for local government officials to implement that message of higher quality growth? andy: i think the government that likes to boost confidence, but in terms of policy priority, it is not short-term growth. the key is to stop corruption and speculation. if you stop corruption and speculation, the chinese people will do the right thing. the key is to stop people from going to the wrong places. that is the key to the chinese economy. it's important in terms of what people will do next. right now we are seeing people do the right thing, so corruption is the worst for long-term economic development. so i think the short-term, it might hurt a little bit, but it

is a big positive in the long-term. haidi: you mentioned the need to shore up confidence for corporations households, businesses, really across the board but the signs are that china's economy is facing a deflationary cycle. do you think it is going to be quite challenging to get demand and confidence up without more direct stimulus, more direct measures? andy: certainly, there are a lot of business people who are very bearish. these business people are usually associated with finance and property. there were big in the past 20 years. it's not a bad thing. china's economy is changing. the companies that will dominate the chinese economy in 10 years, 20 years, will be very different from what we are seeing today. so a lot of these companies need to disappear. so he lifeng to the transition

is much more important in the short-term growth. i don't see china in a monetary deflation spiral. he considers money deflation. prices are going down they were too high before. so it is more like price normalization. for china, the government is doing the right thing. hold on. don't get spooked by weeks -- weak sentiment, and promote new companies. companies that make their own products, have their own technologies. not like the back of shops that use china's cost structure to mixing things for other people and speculate. the past is over. china is heading towards any future. annabelle: in that new future, there is a focus on china growing industries like ev and solar and they need to find new

export markets as well. the flip, of course, is the concern of china's growing dominance in those fields and raising the risk of tariffs. how does that play into it? andy: i think the west is losing competitiveness. you look at what the west is doing and what people are talking about in davos, they are still talking about money, interest rates, money supply. china has moved on. china is focusing on real stuff. china will become more competitive than would. so that west will raise tariffs, they are trying to hang on. but that market is bigger than the west. industrialized economies are only 10% of people in the world. you look at growth in the automobile sector, for example, it is likely to double by 2030 mostly in emerging economies, and china will be doing very well over there, it will take up most of the growth over the next decade off the growth of fortune

dollars. import substitution is a big source of growth for china. that can't be stopped by tariffs from the other side. you look at semiconductors, look at commercial jets, you look at cruise ships, tankers, these are things china needs so china will buy. ic $1 trillion over there. there is a lot of growth opportunities if china focuses on the right areas. technology, branding, quality, understanding consumers. do your own thing. don't worry about what other people are thinking. don't worry about the sentiment. what you want to achieve in 10 years is the most important thing. so what is going on now is not so important. annabelle: andy, thank you so

much for your time this morning. we will be sure to have you on again soon. that was andy xie, independent economist, on the concerns around the credit space in china. our latest tracker shows debt markets are at their,'s levels in years over the month of december -- at their calmest levels in years in the month of december, but there is ongoing weakness in the property sector. our bond reporter lorretta chen is joining us now. what is keeping the trackers at such low levels? loretta: in the past matt we are seeing that developers turned their pages on that wave of defaults in the past three years. you have major private own developers going through the restructuring process. then the state owned developers get help from the government in terms of funding and they directly benefit from the stimulus on the demand side in the housing market. so we are seeing their performance holding up well, and defaults have gone down.

that is the main reason why we are seeing, the trackers have remained low. haidi: we have seen major chinese developers have been more than $10 billion of maturities coming through in the second quarter. does that tell us that we have not seen the debt crisis subside yet? lorretta: on the one hand we think this year for the second quarter, there will be another major task for developers, 10.5 billion of maturities coming up. but keep in mind, these developers have been the survivors of china's property crisis. many of them are state-owned developers. you look at the ranking in china's real estate sector, it's a very different picture from three years ago when we started, where the privately-owned companies were dominating. so i think they will continue to benefit from the government initiatives which are initially targeting the state owned developers. on the other hand, you are having a prolonged crisis in the real estate market.

you are seeing home prices still dropping and that has also extended to the commercial property sector. so in the long run, there's a slim chance this will be an upset, even for these state-owned players. annabelle: and you have an update on the restructuring plans. what is going on exactly? lorretta: logan has struck a deal with its creditors in terms of the dollar bond restructuring. on the other hand song in the -- on the other hand, in the hong kong court, two groups of creditors have disagreed on that restructuring. so a separate group of banks creditors are saying that they have not been updated by logan about the dollar bond restructuring and they may continue with the addition of two of logan's key units. . that is something we are watching. there is a legal drama. the court has ruled that in the next four weeks they will

consider whether they will pursue these claims. haidi: our bond and loan reporter lorretta chen in hong kong. coming up on "databricks," investors have been betting on a gymnastic brilliance in the economy with a pivot followed by a soft landing. we will look at what could spoil that perfect 10 performance, next. this is bloomberg. ♪ [flight attendant alert] [baby crying] [snoring] [luggage rattling] [baby crying] ♪ dramatic music ♪ ♪ upbeat music begins ♪ for everyone who's endured the bad seat, finally, sweet, sweet redemption. the lexus tx. three-row luxury that treats every seat like the best seat. (♪♪)

haidi: take a look at u.s. treasuries. we have seen the reaction across asian bonds, including here in australia, the. overnight we saw the weakness in the european government debt. we had ecb officials pushing back against rate cut bets. it's a holiday for trading in the u.s. in the absence of a cash market, treasury futures extending that slide in the early part of the asian session. cash u.s. bonds are closed on monday for that holiday. bond contracts for that 10-year are below friday's close. traders seemingly becoming more convinced that the u.s. yield situation is headed lower, betting on that series of fed rate cuts. the path to cheaper borrowing costs looking quite bumpy. investors are still upbeat,

betting on 2024 being the year of the pivot, the soft landing. rate cuts supporting growth. what could possibly go wrong? that is the focus today. bloomberg's big tech chief economist joins us. you don't think the fed is going to stick this perfect landing, what is the biggest risk for you? tom: you're welcome to call me a pessimist when the rcep. by half a world. let's see if you are brave enough to do it with i am in time. [laughter] yes, we have taken a pessimistic look at what could go wrong in the global economy this year. as you noted, markets are sanguine. expectations of a soft landing, fed cuts and cuts at other central banks supporting growth and driving markets. one big thing which can go wrong

and where the trajectory is certainly not favorable, is what is happening in the middle east. markets are betting that the war will state narrowly confined to gaza and there will not be significant impacts on shipping costs or oil prices. but as we have seen the houthis persist with their attacks on shipping in the red sea, despite the strikes in yemen by u.s. and u.k. forces as, we see daily exchanges of fire between israeli and hezbollah forces, clearly, there is a risk -- not the base case right now -- but a risk that this could escalate. in an extreme scenario where we see conflict not between israel and iran's proxies, the houthi and hezbollah, but between israel and iran itself. in that scenario, we could see oil going north of $100 a barrel. bad news for inflation. bad news for expectations of that said pivot which investors are betting on.

an bad news for global growth. annabelle: what about the u.s. election? we have got the iowa caucuses kicking off in about 10 minutes from now. how is that election, the key election in the u.s., going to play into over the course of this year? tom: great question. . the last few years have really demonstrated how politics and geopolitics can be the defining forces of shaping the economic in the market narratives. we saw that with ukraine, in the middle east. we just had a big election in taiwan with lai ching-te, the sitting vice president, coming back as president. so far, china's reaction to that, beijing's reaction to that has been muted. but they regard lai with deep suspicion, as a separatist and troublemaker. so there is the risk of that election to be a catalyst for increased stress in asia. in the u.s., it looks very

likely that the u.s. election will end up as a fight between incumbent joe biden and challenger and former president donald trump. that raises some political risks. i am sure you will remember january 6, 2021 and that challenged the legitimacy of the election. folks in d.c. will be on high alert for a repeat performance and, of course, former president trump has a very different set of economic policy priorities to joe biden. here in the united states, markets might well cheer expectations of lower taxes. globally, though, trump is already promised to impose a 10% tariff on all u.s. imports. so i think a global view on the return to a trump presidency could be fears of more trade wars. bad news in particular for asia's exporters. haidi: before we run and hide

after that, can we end on a positive note? what could possibly go right this year? tom: [laughs] in the last few years, it has been a period where low probability risks from brexit to a global pandemic have played out. so i think one of the things that could go right in 2024 is just that none of our risks materialize, right, they stay as risks. , what else could go right some substantial things? emerging markets. emerging markets in many cases will have central banks cutting interest rates, they will benefit from fed cuts which reduces pressure on their currency, and many like mexico, like poland, many countries in asean are benefiting from a geopolitical tailwind as companies think about near-shoring and friend-shoring strategies. so challenges for some of the big, major advance companies to

suck -- his some of the emerging markets benefiting from those rate cuts and near-shoring. annabelle: some good news there perhaps, tom. our chief economist tom orlik joining us. we are about one hour into the session for japanese and korean equities. taking a look at the session so far, a bit of red across the screen. what is driving that is the move we are seeing in bond yields this morning. it is that push higher as investors once again recalibrate their expectations around what central banks are going to be doing. we heard officials from the ecb pushing back on cut expectations overnight, so that could be something that is leading that move. we have also seen treasury yields also trading. cash treasuries are open now and we are seeing that rise across the curve. that leads to dollar strength in turn, in d.c. asian currencies

-- and you see asian currencies under pressure. you can see what is dropping the most is that asx 200, down around 1% at this time, the kospi likewise under pressure as well. ozzie stocks are the ones to be notated this morning -- rc stocks are the was to be noting. it's actually material stocks to the downside. rio tinto is one of the names to be keeping an eye on. we have its output report in just the last few hours, and it told us that fourth-quarter iron ore shipments declined around 2%. so, production of the steelmaking material dropping in the three months ending in december, even though it is getting more positive on the outlook for china's economy. certainly one of the names we are tracking. material stocks broadly. they are seeing weakness in the session so far. more ahead. this is bloomberg. ♪ thanks to avalara, we can calculate

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haidi: the top corporate headlands we are tracking, apple will remove the blood-oxygen feature from its latest watches to get around the u.s. ban if its appeal in a patent infringement case sales. -- sales.

masimo corp says the u.s. customs and border protection approved the move last week which would allow apple to keep its watches on the market. shares of this company sank the most in over a year in hong kong despite the company deny, or linking it to chinese military research. the south china post it could expose it to tensions. the issue comes at a difficult time for baidu which already faces an increasingly challenging outlook, especially in its core search engine business. bloomberg has learned that china's aviation regulator is delaying the restart of 737 max deliveries. the decision was made after boeing recommended inspections in late december, not related to the recent alaska airlines blowout. separately, boeing says it will keep up inspections of aircraft during production, and open its factories to airline customers as it moves to quell concerns. annabelle: we are just minutes away from the start of the 2024

election cycle. it's underway to a degree, but it is really that big focus on the iowa caucus that is kicking off in under five minutes from now, 8:00 p.m. eastern time or 7:00 p.m. central time in the u.s. really the focus is on who will be the republican presidential nominee. you could guess from the polling so far, everything is indicating it will be donald trump, but really close for nikki haley, and what ron desantis will be doing with his campaign as well. haidi: in a lot of ways this is the battle to be the runner up so wide is former president trump's lead going into today. we are heading into the votes. it will be key to see whether, potentially dependent on performance, if there is a dropout. does ron desantis stay in the race? how does nikki haley perform, with the lead exited to be held low zing temperatures.ith record ♪

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