. and you want people to be saved and to have a better life, then you don't stop. we have been able to reach over 100 million people impacted and affected, and at risk of hiv. the rocket fund takes all of the work that we're doing, all over the world, and looks at the most effective ways, to get resources to them, to get services to them. the idea that we have saved five million people's lives, it's overwhelming. it's everything.

>> you are one "daybreak: asia." coming to you live from new york, sydney, and hong kong. >> treasury selloff across the curve, the latest jobs in gdp data showing the u.s. economy is defying session fears. seeking ways to stop a worsening run selloff, plus japan's economy focuses on the closely watched tokyo cpi numbers. we do have some breaking numbers when it comes to south korea's industrial production. metal industrial -- may industrial output falling 7.3% year on year against and estimate of a contraction of 8.6%. so we are seeing a little bit of an improvement on some pretty

dire expectations there. when it comes to the rise we're seeing month on month, that is also better than expected results with that contraction of almost 1% as we continue to gauge some of the sentiment and expects us well, earlier this week we had manufacture sentiment gauge falling to 72. we know in terms of cpi outlook more broadly, it has slowed below 3% according to bloomberg economics and is not likely to move the needle when it comes to expectations from the bank of korea. industrial output for the month of may seeing a less steep fall than expected. annabelle: that's right, korea opening at the top of the next hour alongside tokyo and sydney as well. in terms of the outlook for the session today, setting up for fairly mixed trading in the session. new zealand sox already online pointing a little bit weaker. what will determine the outlook

today is more around what happens in the bond space. we did that big spike higher in treasury yields. it wasa we continue to see in the u.s. economy and importantly what that tells us about the outlook for the fed rate hikes. i don't want to take the details away from sherry and others but the reflection of that in the japanese yen this morning, we are still monitoring the currency weakness here very close to the 145 mark which would be a level where we could start to talk more about intervention coming in. the focus this week on jawboning from government officials but nothing concrete as of yet. we are still about six yen away from the levels at which the japanese government stepped in in september and another time at the end of last year. shery: let's pick up where we talk about the treasury space,

the longer that he yells rising less and leading to that deepening of the inversion of the yield curve. this as we continue to get further tightening from the fed. strong economic that out today, not to mention the jobless claims unexpectedly fell and all of this headed toward friday numbers as well. we have the higher yields being felt alongside tech stocks which were under pressure. you can see futures at the moment not doing much. there's a lack of clear direction at this point. the s&p 500 did manage to edge higher that we are seeing a lot of volatility because we are headed towards the quarter inch. oil under a little bit of pressure in the asian session, also in the new york session we had a choppy trading day given

signals but chair powell continues to hammer home his hawkish policy message saying at least two more rate hikes will be need to bring down stubbornly high inflation. kathleen hays is here with the details. what exactly is chair powell saying? kathleen: chair powell is saying he expects at least two more rate hikes. i guess it opens a door to more than two. he was speaking today at an event in spain, one day after he spoke at the ecb conference in portugal. in his prepared remarks, he said that again, they are prepared, the majority of everybody at the fed is prepared to do more than two, or at least two. here's exactly what jay powell said. >> as noted in the summary of

economic projections, a strong majority expect it will be appropriate to raise interest rates two or more times by the end of this year. kathleen: he is putting a lot of emphasis on the now, saying in answer to questions that it's not just about the number of hikes, it is our commitment to getting to a sufficiently restrictive policy. he made that statement, it has only recently got district event has to be definitive -- definitively restrictive. he said we could doit's going tl would like to see.

different large from the president of the atlanta who talked about the pause which happened in june. he said he sees less urgency to hike and he thinks it's time to sit back and assess what has happened so far. let's listen to how he finished off that thought. >> it is less certain and we need to keep hiking the interest rate in the near term less we risk draining too much momentum from the economy. kathleen: he said he will have to convince his colleagues to think as he does. it just for right now we've done a lot, let's assess the impact on the economy and see what we have to do next. when the fed officials meet, everybody makes her point, everyone tries to convince everybody else. jay powell is going to want a consensus at the next meeting in july. haidi: we been waiting for that for quite some time.

the bmi numbers, what is that shown as for the month ahead? kathleen: not that much weaker, but definitely not getting stronger. it supports his view that post-covid, people are not confident, that is what surveys have shown. so we are looking to see the manufacturing pmi, it will get a little stronger but it is still below 50 and that's not a definitive move higher. for the non-manufacturing pmi, it is supposed to stay above 50, but it has declined a bit, going to 53 in june. it is not going in the right direction, underscoring views that the pboc, the government has started doing some rate cuts. people are waiting for an looking for more targeted stimulus and that again is underscored by somebody things we are seeing out of the members

and china's currency taking a beating this week, reflecting the fact that so many businesses and consumers are just not confident in where the economy is going. haidi: kathleen hays there. she mentioned chinese regulators are said to be stepping up scrutiny of trading as the yuan -- e1 slides to the deepest levels in several months. of course that weakness is being seen when you look at the trade-weighted basket of currencies as well. what can the pboc do next to support the yuan? they have quite a few tools in their arsenal. >> that's correct. they will do what they've done last year, firstly they would have to signal for a stronger fixing, yesterday we had the largest deviation since last november. that has to continue to send a message to the market that the

people want a stable if not stronger yen instead of a weaker yen. the next tool, they could cut the ratio down to 5% which was the level before 2021 so that could release more dollar liquidity and support the yuan. two sort of slow capital outflows. shery: what would be the outlook for dollar yuan going forward? >> the level we are looking at, the high we reach last year, and it's more difficult this year because last year everybody was expecting a rate and we are still not there yet. higher for longer is still not well priced in the market. in terms of the dollar is

probably going to have to rise a little bit more and that will hurt the yuan. last year we still had the fear that -- now we've seen it has been proved or at least the recovery is not as strong as the market expected. so now there is little reason to support so we are looking for more weakening from that. haidi: we are approaching that psychological level, is that five fundamental risk of intervention? or is it more speculative at this point, given how high the differentials are between the boj and the fed and the rest of the world? >> the yen is actually more interesting. we are entering an alarming level right now in terms of boj intervention. last year boj intervention came

at 145 and then about 150. so we are certainly near a very dangerous level, in terms of the pace of the in depreciation. last year when it dropped 1.5% a week consecutively, now we are close to that pace of yen drop. certainly the market will be very alarmed. shery: there is more speculation with the chief being appointed for another year. good to have you with us, still ahead, we will hear from the first female foreign director of one of japan's biggest companies. we will look at the battle for gender balance on japanese boards with katrina lake. first, why the investment piece is scheduled around multinationals in china. we will get there top stop picks

next. this is bloomberg. ♪

shery: we are counting down to the final trading day of the first half of the year. this chart showing the msci all country world index. this is showing the winning streak continuing.

the cool thing about half the losses from the peak of the start of last year. the investor frenzy over ai related names contributing to that strong performance, this breakdown by sector showing tech stocks gaining 36% all consumer discretionary sector added about 26%. haidi: our next guest says markets have rightly priced in pessimism when it comes to china's prospects and she also thinks exposure to multinationals can tell and sell those risks without losing that exposure to the chinese market. let's discuss where the opportunities lie the founder and ceo. great to have you with us. you want to maintain some opportunistic exposure to the china story, but you prefer to do it through offshore multinationals. >> yes, because we think the bubble recession is pre-much everywhere.

china is in contraction compared to 2021 and 2019. europe is perhaps even worse. in this environment we want geographic diversification. with exposure to all economies will do better. that said, we are very selective in uber dissipates. those are the brands that are taking share and even though the consumption pie is growing, their share in the pie is growing. l'oreal, for example in the cosmetics set, and nike in the sneaker segment. those are our picks. we understand that global investors appetite and sentiment on china is very low and is unlikely to improve in the foreseeable future. we don't foresee any dramatic

stimulus or changing events in the next few months. so we want to kind of lever up the exposure of china to play the recovery story there. haidi: nike as you say is one of your stock picks. what was behind the reaction today, because the north american business seems resilient. the china numbers were quite good. this is concerned that it cannot be sustained? >> i think north america at last quarter was at 5%, so that's a little bit weak. currencies up 20% but that was a low base. i am pleasantly surprised that china's number is flat compared to 2020 one. however, as we all know, the

consumption growth of acceleration, april was fantastic, because of a low base. last year shanghai entered into a lockout starting at the beginning of more than persistent -- of march and persisted throughout april. ever was good for the first week because of a national holiday, but decelerated quickly after the first week. so that is not good. so far the retail performance has been very slow. so i think that is on everyone's mind, and the guidance seems to be pretty weak. there is a moderate growth in china but perhaps a little decline in north america. so people don't feel like the growth is attractive enough. shery: let's talk about your biggest short right now, is it a

call about credit markets as well and the diversification point you just may, or is this something else? >> it's mostly -- mostly about the company specific demand the market in china is overly crowded. we've been talking about ev for many months. see pca which is a leading industry association, predicts flat sales year-over-year through 2023. yet if you add the top ev makers and some of their guidance for the year, you see 90% growth year-over-year. what it implies is that if that guidance is achieved collectively, the penetration of ev will reach 40% toward the end of the year and we are already in june. as we going to july the

penetration is about 30%. so some companies will have to drop off. nio has two factories, each one is extremely underutilized. each one makes about 300 cars a day, that is not really a business. it has already complicated the product line. when you go into the store, you don't really know what to look for and they don't know what to sell you. shery: when you look at broader chinese outfits, how much does the weaker chinese model pass that factor into your portfolio allocations? >> i think the week renminbi is the headline to all assets, i think the market priced in the

peism rightfully because the divergence and central-bank policies, the u.s. is still very restrictive, yet it is growing low single digits. in china, however, the liquidity is loose, the loss of money is low. the demand for activity is low, and there's a conference coming up in july, and people expect more liquidity on rate cuts etc. that will further the credit supply. so you see divergence in economic fundamentals. so it could possibly be below 7.2 in the second half. haidi: ai rivalry looks like the next major flashpoint when it comes to china-u.s.. i know you are a former tech

analyst. where are you identifying the opportunities there between those two narratives? >> i think ai in china is perhaps a couple of years behind the u.s., and the reason that i believe that is the release of nvidia earnings. they had a blowout q2 announced a month ago. a lot of the backlog of the gross was contributed by the demand from china big enterprise customers. even though there are export bands, many do not sell chinese customers the current generation processors, they are selling less powerful chips. even so, there's a huge backlog coming from china. the crunch is in the payments to

get that processor and the solution which tells me that this type of import should be substituted. there is no equivalent of hardware and software. the solution as a whole to replace the chips from the u.s.. so i think that is the dynamic. shery: thank you so much for joining us again. we have plenty more to come on "daybreak: asia." this is bloomberg. ♪

haidi: let's look at some of the other stories we are watching this hour. harvard university is defending diversity as essential to u.s. equity -- check -- excellence.

voting along ideological lines, ruled affirmative action programs at harvard and the university of north carolina violated the constitution. president biden has condemned the decision. pres. biden: today's decision does not change the simple fact, a student has had to overcome diversity on the path to education. college should recognize and value that. haidi: the chinese conglomerate is set to face another bond repayment test. the group has a $400 million bond due july 23. at the same time, it could revive liquidity concerns. it trades above $.90 on the dollar after declining from last month low of $.69.

the trade minister says small but important sticking points threatened to derail plans to sign a pact by the end of august. australia remains dissatisfied with the level of market access when it comes to agricultural exports and geographical protection for many european products. coming up next, fresh data on the way from japan's economy with the may unemployment numbers next, plus that cult -- closely watched tokyo inflation print. this is bloomberg. ♪

shery: we have breaking news out

of tokyo, we are getting the cpi numbers for the capital city, excluding fresh food, we're talking about core inflation year on year rising 3.2%, which is coming in below economists expectations, and staying at the same level of acceleration as the previous month. when it comes to the core cpi and excludes not only food but also energy, were talking about gains of 3.8% for this month. this is easing from the previous month, so we are now seeing signs of perhaps inflationary pressures have peaked at least when it comes to the core cpi numbers excluding fresh food and energy and even when it comes to the core cpi number in tokyo year on year growth of only 3.2% coming in below what economists expected. the expectation was that we would get those electricity fees higher and that would push inflation higher given that utilities had passed on the cost from earlier fuel price

increases but it seems that inflationary pressure has not been as strong as expected. we headline cpi year on year growth of 3.1% for the month of june also easing from the previous month. this of course is important because this is a tokyo number but it gives an indication of where national prices are headed and perhaps now that we are seeing signs of peaking, and also adds to the bank's case for saying on hold, given they are saying this is really inflation, not demand led but cost push lead. haidi: this adds to the credibility of the bank of japan and the new governors saying they need to be more confident and longer sustainable inflation levels. it is their view of course that inflation will start to soften going into the start of this year and that does potentially seem to be the start of that.

we do have the labor market numbers as well, pretty steady in terms of the jobless rate, unchanged from the previous month of april. the job to applicant ratio showing we did not see as much tightening in the job market as expected. 1.31, a little softer than expectations. bloomberg economics had been expecting a stronger number as we saw. supply chain disruptions are starting to ease and were seeing the return of overseas tourism as well spurring more demand when it comes to that labor-intensive service sector. the expectation is that japan's labor market will continue to see that tightening as the reopening keeps demand high across services. isabel reynolds joins us now for more insight out of tokyo. there's a new report when it comes to the economic outlook. what is he seeing in terms of

growth? >> the headline story>> on growth is that we are recovering from the pandemic. that pent-up demand that was kept on hold for three years or so willpower the economy this year to a higher growth rate of 1.4%. as we go forward into 2024 and 2025, that will fall back gradually and fizzle out to the level of .45% growth. so the pent-up demand will only going -- will only last so long and it would not lead into a bigger swing upward in terms of economic growth. shery: part of the equation with the inflationary outlook as well as what happens to wages. we know the prime minister has repeatedly pushed companies to raise them. what is the outlook here? >> it seemed earlier this year that he had had wage rises to

levels we had not seen in decades in terms of the big annual negotiations between the labor unions and the companies in japan. that doesn't seem to have translated into broader income rises across the board. so what we've seen is that wages have only gone up a nominal 8% in april whereas inflation is rising more than 3%. so the overall effect is that the money people have in their pockets will go less far than it did before and the promised or won't be able to claim that he has made success in terms of giving people more money in their pockets so they have to spend more to get the economy going and back on track. so at the moment things are not looking good on that front. shery: a big impact to potential spending by japanese people and the broader coming out look will depend on where the japanese yen

goes from here. annabelle: just looking at market reaction, that dated that just came through and focusing on the tokyo inflation reading in particular. it was that softness from the month prior that in terms of market, still holding close to that 145 level. you can see futures are flat. we were expecting more volatility, it was that rebalancing expectation coming through from the pension funds in japan. really are the numbers enough to force the boj to rethink its policy settings in any way, and the indication so far is that they will be sticking with their current settings.

now again they are expecting inflation to start to decelerate into the year end and those latest inflation numbers from tokyo are reflecting that somewhat. this chart showing the impact it is having with the boj staying on hold, taking a look at the average policy rate and you can see that huge spike. so every single central bank hiking set for the bank of japan in the g10 space. the impact on what it's -- impact on what it's having, is not just about the dollar yen, their other peers in focus as well given those recent hikes in the guidance we had from the likes of the ecb and switzerland's central bank as well. these are all in focus. the yen trading at multiyear lows against its peers. haidi: i'm glad you mention the challenges for the ecb because

we've seen the latest data, the uneven picture across the area, then drastically slowing in spain. that comparison for from last year helping push inflation up to 6.8% in june. in spain, consumer prices weakening below the 2% target. the euro group president says they support the ecb's efforts in bringing inflation down following criticism of the central bank's most aggressive tightening cycle on record. >> we are focused on getting to a place where we get inflation down in that we can still support growth within our economies. i'm confident we are still able to do that and that confidence is underpinned by the record levels of employment we still have my consumer sentiment that continues to be positive. haidi: a member of the ecb

governing council says september's interest rate decision is still open. >> for me, it is very clear that it is open as to whether or not there will be a need to tighten. i see things now as more undecided. increases the probability of having the most -- if this materializes, this would lead to higher tightening needed in the future. at the same time i also see that the monetary policy is working in a very forceful way.

the fact that we are observing some weaknesses in the economic data might be related to the fact that more tightening is already having an effect on the economy. given the size, magnitude and speed of the tightening in a very short period of time, their potential consequences, so also more tightening of monetary policy. haidi: that was pablo hernandez. coming up next, a conversation with katrina late, the first female foreign board director of one of the biggest companies. this is bloomberg. ♪

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interesting dynamics in japan right now where i think there's a lot more international attention and desire to be investing in japanese companies. i think people are recognizing the value of japanese companies and i also think there's a lot of attention being paid right now in japan specifically around how can we increase the role of women in leadership roles and board roles, and i think those are the kind of dynamics that make it very interesting and also something i would love to be able to be part of for a country i care a lot about and feel connected to. >> what are your top priorities and some of the goals you would like to achieve in that position? >> i'm really excited about being able to contribute to recruit and way of bringing some of my experiences, i can bring my experience as an entrepreneur , as an employer, i think

there's a lot of really interesting analogies in terms of being in the business of matching. at stitch fix we were matching people with apparel and recruit we are matching people with jobs. that's a compelling, interesting face. using data science and humans together. it uses ai machine learning and is able to deliver a better experience for people and create new jobs. there's also an analogy therewith recruit. i'm excited to be able to bring those skills and be part of the future of recruit. >> speaking of ai, how do you see that going forward? >> there is some newfound interest because of the generative tools like chatgtp. it will change the ecosystem and the ecosystem of recruit will change us some of these things

evolve. recruit will be part of that ecosystem. being in the business of matching like stitch fix is, there is a world to be able to use the data and make that connection between the human and the data to make that stronger. at stitch fix we used insights to help our stylists be better and it recruit there's lots of wonderful humans that are part of the matching process of helping people to find great jobs. there are ways to leverage data to make those people more effective and efficient at being better at matching. so there's a lot of interesting intersections as we think about the role of ai and recruit business software. >> what does it take for them to improve that diversity? >> the government has set goals around this of being able to have 30% representation of women on board.

i think broadly, people understand that to be able to have a company that will have lasting value and to last for the next 100 years, that increasing that representation is going to be an important part of that equation. while a think we all would love to see more progress, i'm really excited to see that there are government and business leaders that are rallying around trying to make this happen. a company like recruit is leading in that. they have set public goals around equity and representation and that's an exciting way for recruit to leave. i would love to see more companies do that. shery: we have more to come on "daybreak: asia." this is bloomberg. ♪ is he hailing a ride to the concert hall? no. he's making sure his portfolio

and retirement plans work in harmony. they want to adopt a child and build a new home. so they're talking numbers with their merrill adviser. she's not researching her next role. she's learning how to handle market ups and downs without the drama. personalized advice so impressive your money never stops working for you with merrill. a bank of america company.

haidi: japanese stocks saw their first foreign fund outflows in 13 weeks, but after the rebalancing happen for their portfolios, demand for ai is like to go right back. we have seen shares all losing a little bit of steam and repositioning after such a strong rally.

>> yes, exactly. we have seen foreign investors selling south korean and taiwanese stocks in the past two weeks and japanese share markets falling for the first time in 13 weeks. i would say they're becoming a victim of their own success because of sharp gains in their prices drinking a little bit of profit taking and of course long-term investors will rebalance their portfolios after such big gains. monitoring the capital flows, their data excludes short-term money like hedge funds. according to their data, long-term investors are still

committed to those markets. so i don't think this is caused by changing sentiment, it's more about questioning. shery: so why is there so much optimism around north asia? is it semiconductors bottoming out with some optimism over tech? what is it? >> absolutely, the bottom out of the semiconductor market is one thing, but it's getting driven more by hopes around generative ai these days. if you think about it, we have seen nvidia reporting very strong demand related to ai. investors expected, when you think about ai, you need a lot of chips and those chips need to be assembled in taiwan. so they need memories from south

korea. those markets seem to be well-positioned to any increase in ai relative demand in the future. shery: our senior asia stock reported joining us from tokyo, talking about the optimism around semiconductors, we are not necessarily seeing that in the broader production aspect because global demand continues to be a bit weak. we were looking at those numbers for japan for the month of may. month -- month-to-month it's a construction of 1.6% and the expectation was for a contraction of 1%. dipping into contraction territory from gains in previous month. gaining ground from a contraction the previous month, so if you're comparing to last year, it is growth of 4.7%,

beating expectations, but on a month to month basis it is still weaker than expected. you have to take into account the softening global demand picture against the benefits of healing supply chains, support -- perhaps that's why you have the divergeetw the month on month and year on year numbers. haidi: speaking of divergence, as we get into the second half of the year, looking back at what has been outperforming. globally we are seeing tech and consumer stocks sticking, and here in australia we are seeing a gauge of technology shares in a country advancing 20% in the second quarter, and outperformance of peers across the u.s. and asia. why are we seeing this particularly strong standout rally when it comes to aussie

tech stocks? >> as you said we've got the local tech gauge up about 20%. what is driving this is that in australia you've got the market pricing at near peak interest rates and a cash rate of 1.4% currently. ubs are positive on aussie tech more broadly, given the defense of growth nature as we got macro conditions that continue to be observed. and of course the broader ai mania instead of supporting the tech sector here and then globally. on the other hand with got a bit of cyclical growth, and tech in australia is performing quite well under that. and then capital was flowing

into the i.t. sector which is smaller here. the moves are being exactly rated -- exaggerated. it being described as winning by accident. shery: is there a risk that the sector might look a little bit frothy, so where to from here? >> some analysts saying valuations might be a premium levels and it might be a constraint on the potential for future advancement or growth. and then this rapid ai reshaping inditex space -- in the tech space. there's the potential of the market lagging in that respect. the rba rate decision is next week and who knows which way that will go? retail sales data out this week,

but earlier in the week we had inflation data suggesting easing more than expected. we will see what happens. shery: here are some of the latest headlines over in the tech sector. sega has dismissed speculation it may be the target of a virus, including microsoft's cove chief executive officer. saying it room -- intends to remain part of its parent conglomerate. >> we still work closely with microsoft. we always show our respect. having a good relationship with them and we really appreciate that they somehow value us.

>> does sega have any intention to be acquired? >> no, not now. shery: electrified america plans to add teslas reactors to its charging stations across the country. the georgia company said it will offer teslas north america standard charging connectors across the u.s. and canada by 2025. the markets in tokyo -- market open in tokyo is next. this is bloomberg. ♪ ♪ (upbeat music) ♪ ( ♪♪ ) woah. ( ♪♪ ) ( ♪♪ ) ( ♪♪ )

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. we have been able to reach over 100 million people impacted and affected, and at risk of hiv. the rocket fund takes all of the work that we're doing, all over the world, and looks at the most effective ways, to get resources to them, to get services to them. the idea that we have saved five million people's lives, it's overwhelming. it's everything.

>> this is daybreak asia counting down to is as major market opens after the jump in treasury yields we saw on the wall street session. this as traders are now pressing in further federal reserve tightening and we had strong u.s. szeto showing a resilient -- data showing a resilient job market. >> and we have to talk about the japan data, that closely watched tokyo cpi we just spoke about in the last half-hour as well, with the jobs numbers suggesting that the boj may have a fair point when it comes to staying cautious while normalizing policy. >> that's right, the expectation that japan inflation is going to be decelerating into the end of the year, but the open here upon us of japan, south korea and australia, and of course you mentioned the open of cash treasuries and we did monitor that spike in the year yield at

the front end of the curve in the prior session. it was down to that data and just to recap some of that we saw first quarter gdp revised up, household spending rising, jobless claims, there it -- was that expectation that the hike -- fed will be hiking two more times. in terms of where that lead us in terms of currencies in asia it comes down to the japanese yen and you can see that just within a whisker of reaching that 145 level which had been the one to watch for any signals of formal intervention in japan. again, what we saw in terms of the data coming out just in the last half-hour because, as you say, inflation numbers coming through, the core of trading at 3.2%, the core figure in at 3.8% down from 3.9% in the prime. , jobless claims there to watch, and apple slipping 1.6% on the month, there had been an

estimated contraction of 1%. this signals to the boj that further reinforcing the reason why they may keep their policy settings in place for a while longer. last day of the trading court, we had the nikkei 225 down .06% at the start of trade. in korea we also have -- .6%, in korea we have industrial data and we had that dropping at the top of the last hour and on a year on year basis we saw it shrieking 7.3%. what is interesting when you break down the month on month, that showed an expansion of 3.2% from april, better than what economists had been expecting, it does perhaps tell us that the sector is heading for a recovery in the is a reason that the be ok could have room to keep its policy type. taking a look at the korean won, we are past that 13 -- 1300 level we hit earlier this week, more signs of u.s. dollar

strength, a reflection on expectations around the fed. australia stocks also come online, and when you take a look at what has moved the most over the course of this quarter it has been tech stocks really outpacing their peers, advancing around 20% in that second quarter. it has moved back into those a hailing to stocks and we are seeing crude come online a little bit softer, but traders have a lot to get there in terms of economic indicators with what we expect for china and the fed. >> let's bring in our next guest, who says level equities with all of the uncertainty we are talking about are headed for choppy waters in the second half of the year. with us is the managing director of investment strategy at ocbc back. always good to have you with us. we have seen the run-up in global equities as this chart shows, with that rally in the

tech sector, even consumer discretionary getting 26% in the first half. those recession fears earning downgrades, finally starting to hit? >> that is the fear. recession has eluded the markets. the markets got it wrong. many thought a recession would happen and it has not, and that is something we got wrong. and markets have responded with global index is up sharply. but as you go into the second half of this year, the concerns for a recession will come back into play, no doubt the u.s. employment numbers and the other data has been stronger-than-expected, but with high inflation and high interest rates it is possible the economy will face downward pressure and so profession -- so recession

fears could bring downgrades back into the markets. when earnings get downgraded, the markets will take a hit. and right now i think that recent data points affecting the economy indicate it is resilient, but downgrades are not in focus at this juncture. they will become more relevant later. >> will cash become more attractive? >> cash is attractive at this juncture. it's going up as you mentioned earlier. but, having said that, i think it does not make sense for investors to hold onto cash, enlargement of cash, given that we have medium-term positive markets. there is a lot of idle sightlines once the fed cuts rates historic we, the markets have shown is that you see a rally. i think the best strategy right now, is really to drip feed in the markets all across average. definitely not majority cash at this juncture.

>> so the strategy you are pointed out is potentially to just hold on tight for the rest of 2023 as we get into that end of this tightening cycle globally. how do you position some of the pullback so that you can perhaps see better returns in 2024? we are telling our clients to buy gradually, not saying stay out of the market, stay invested but invest carefully, invest gradually. invest over time and where we see opportunities, we see opportunities in several areas such as among developed market interest -- investment bonds, especially ones with long-duration, because interest rates are cut historic there. you seee long-duration working like that. invest a great bonds offer you a hit against potential recession that will hit us in the next 6-12 months. beyond that, in asia be like

japanese equities, they have done very well. but there is more upside going forward, it weekend is positive for japanese equities and a whole host of other factors, corporate governance is proof, japanese companies are holding onto a lot of cash and can pay out higher dividends. the economy is resilient, more resilient than the u.s. and europe. with the inflation numbers coming in below excitations clearly the boj will keep monetary policy looser for longer, there are few central banks that are listening policy, and the boj is one of them. -- loosening policy and the boj is one of them. >> where to next for the japan rally? there has been portfolio rebalancing that has adjusted things over the last 12-13 weeks of one-way bets on that market. how much for the upside do you see based on the fundamentals we are working with?

>> it is hard to put a precise number, but i think it will still outperform at developed markets given the backdrop of potential recession in the u.s. and maybe even the u.k., europe, and you know, other economies. japan is looking good edited to western economies, and the central bank is under no pressure, with monetary policy at this juncture. entry to the economy is doing relatively well, inflation is not a problem. we see more upside for the japanese stock markets, the yen is week as i said, it is a silver lining, and we see the upside, but perhaps after more than a 20% run in that -- in japanese equities we will not be able to see another 30%, maybe 10-15% would be possible. >> in the second half when it comes to other chinese equities over -- for stocks that have

exposure to the china growth story, do you expect estimates and to continue or are we waiting for stimulus? >> we have downgraded china recently to neutral, we have not take it down to underweight, we went from overweight to neutral because the economy momentum has not been as strong as it is made. there is a lack of consumer confidence and business confidence. we thought that big spending would happen because of the opening up of the economy has not come through in a big way yet. i think they need to second -- step in in a bigger way, and restore confidence which is more important than government stimulus. there is greater confidence if they step in, consumers will spend more and businesses will spend more, and i think china is suffering from an issue confidence which requires

stimulus before we have greater conviction that chinese equities can actually hit a lot higher from here. >> the director at ocbc bank here, and let's get you to bell who is looking at some of these nike suppliers. i was a little bit surprised when it came to the trade direction for nike and the after hours given that the number is, but tickly when it come china, pre-good. -- comes to china, pre-good. >> it's pretty interesting, when you take a look at these peers and suppliers with nike because you see that divergence between the ones listed in japan versus in korea and it is speculative but i'm wondering whether the reason we see these korean ones at the bottom gaining so much is because of that trading relationship between korea and china. as you say, nike's performance is really improving in the greater china region and the latest reporting. which is a crucial growth market where nike doesn't appear to be regaining some of its lost

ground with revenue in the country up $1.8 billion for the quarter. that was topping analyst estimates. but you have those japanese once declining your, have nike dropping in the after hours trading here, expecting for your revenue for the fiscal year of 2044 to grow in the middle single digits. let's change on because there is another sector in focus today at the start here, and these are the japanese food stocks. and the reason we are watching these is because there is a report out that the eu is prepar lift import curbs as soon as this summer, so these restrictions were placed on certain japanese food products and imposed in the wake of the fukushima nuclear disaster. we are tracking some of these names here that have been under restrictions from the e.u.. so far, we are not seeing too much reaction yet. >> still ahead, the race for ai supremacy continuing as china taps a billionaire tech investor

-- billionaire tech investors and the u.s. considers locking ship exports to you -- beijing. we discuss that later in the hour. but first, china's pmi's show the recovery struggling to gain traction and we look at their mounting economic problems tax. this is bloomberg. -- next. this is bloomberg. ♪

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>> taking a look at how the yuan is trading against the u.s. dollar we continue to see that weakness at that 7.27 level and we are talking about the weakest level since november, it has already we can, what about, 5% or so against the -- i can state your today. now regular this our secular -- stepping up scrutiny on

cross-border capital flows given this mounting pressure on the chinese yuan. not surprising, given the rate differentials as well. and the economic recovery being disappointing. >> we have been talking about the momentum for beijing to surpass the u.s. as the world's biggest economy, it could be thwarted by these current dynamics which is the subject of our latest take which -- pegida, discussing china's mounted -- mounting economic rose. james may talked about it, and we want to talk about the structural nature of the slowdown, not just as covid or pre-covid, and the limitation that policymakers have from the top to turn that around. >> as you say, there are structural limitations but also policies the government can put in place. one of the big ones that people

often don't think about is that you see people saying post-covid or pre-covid or look at the problems the economy is facing but the birth rate and the demographic changes that china is undergoing is impossible to turn around. there is nothing that any government can do to turn around a slowing birth rate and a aging population. when you look at japan, you could see a situation where the population has been falling for more than 10 years now, the workforce has been falling for even longer but the people working has increased. if the government does put in place structural policies to encourage women to return to the workplace and people to work longer, these kinds of things, then you can see a situation where you have a falling population and a rising workforce. what we see in china is that the government is not able to do those things. you don't see it big change in women in the workforce. the government has been unable to increase and raise the pension age and force people to stay in the workplace longer.

the government is facing a lot of the structural problems like a secular slowdown in the economy and falling productivity and falling workforce and population. it seems impossible for them to make the changes necessary to deal with those problems. >> and we see those struggles across a range of sectors in the chinese economy. what are some of the most depressing changes that need to take place? -- focusing changes that need to take place? >> the biggest problem with the housing market is that it needs to collapse further. the demand for housing is not there. and the fallen population means that demand for housing is not going to return to levels available now. china has massive overcapacity in the house building. there are more builders the demands for houses. it is not going to change in the future. the demand for houses is going to increase radically from the situation now. it may rise a bit as people become more confident with housing prices falling or it may

fall because people want to upgrade their current housing stock and a lot of it is very old. he wants see the levels of growth which was supporting the thousands of there's developers across the country. there still needs to be a shakeout in the housing market and the problem is that shakeout is going to be damaging for the economy and demand and for commodities from other countries. it is also damaging for the corporate sector. the problem is demand is falling and needs to fall further because of the demographics but at the same time they need to support housing market now because the economy is in such a poor condition. this contradiction is what they are facing, and so far they have not been out of this which is better, they look long-term and except the housing market slowdown continue and possibly get worse or do they look short-term and prop up the housing market or prices now to provide growth and jobs this year and next year? >> there are a lot of

contradictions, another one would be where we are left with the deal averaging campaign, it seems to be renewed commitment when looking at local government debt which we know has continued to balloon during covid zero. >> and this is another, i think the local government issue is something that is an incredibly impressing -- pressing problem. there is a solution they don't want to do. they need to take more of that debt onto their balance sheet. their balance sheet is very good, that debt-gdp ratio is much better than other developed nations, specifically japan. if you look at where japan is, china is in the situation that japan was in and say, the 90's with the central government having very little debt and there is more debt in the community and the corporate sector and local governments. what happened in japan over the last 20 or 30 years is that a lot of that debt has been moved to the central government and that allowed governments and companies to repair their

balance sheets. and china has the solution, but what we are seeing this year and what we saw in previous years was that the central government does not want to take on that debt and they want it to be resolved in the provinces. so you just see this debt problem, local government financing problem ballooning and some of them are struggling to deal with it. they've been calling for help. places in mongolia are helping for -- asking for help. the solution is something that the government does not want to do. and so they are forcing it to continue to grow further. >> james weaver there with a great big take story that we have this week on the terminal, do check it out. the federal reserve chair continues to hammer home his hawkish policy message. now saying at least two more rate hikes will be needed to bring down stubbornly high inflation. our global economics policy

editor kathleen hays is here with the details. kathleen, given the -- the eco-data we got, does that reinforce his message? >> it does. when he was speaking in spain today when he was speaking with portugal at the annual forum, where he said policy needs to get more restrictive, it has not been restrictive long enough, when he signaled we are going to hike rates more, today, in his prepared remarks he meant to say this, he put this in the context of what the steps and summary of economic projections and dot plots are indicating about more rate hikes. >> as noted in the summary of economic projections a stronger majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of this year. >> that is why i go to the dots from the june meeting because every few months they update their view of the economy and inflation and you can see the

plots. there is one line in the middle that suggests at least two more rate hikes and then you have some outliers or the people see even more, the hocks leading the fight for a more aggressive policy, showing it go even higher above 6%. two more hikes, two more 25 basis point hikes seem to to be a more safe bet than ever. and powell also said today and answer questions that there is a chance of the fed doing too little, which is less of a risk been doing too much. things are not in balance and it will take more time to see just what the impact is and if it is an impact of 500 basis points of hikes. an important outlier is rafael bostic, resident of the federal reserve bank of atlanta. he was one of the first fed officials to signal that may be fed should pause. and he still thinks the fed should pause and he has been saying i guess i have to convince my boss this.

and he said it is time to wait and see what is going on after all of these moves and here's what he said. >> it is less certain that we need to keep hiking the policy interest rate in the immediate term. lest we risk tightening too much and draining too much momentum from the economy. >> he is worried about doing too much and not being little bit prudent, waiting to see how things are going before you to mark and he does not rule out the possibility that the fed will have to do more rate hikes. he just thinks that it is time to take some time and let this coalesce more before they go again so quickly with another rate hike which powell has signaled could, as early as the next meeting in july. --, as early as the next meeting in july. cracks with numbers we see out of germany and spain, there is evidence of how uneven it is across the euro area.

>> and we look broadly at the aggregate cei -- cpi to see whether we meet targets. and it is a complicated thing to try to guide policy for this euro area which has some a countries and most of them going in the same direction, but germany inflation actually had a pretty sharp acceleration on a year-over-year basis up to 6.8% from 6.3. part of -- 620%. last year in the sometime the germans cut the right price for railroad tickets and brought to get sound and a very -- in a very important part of the economy and now that they went back to normal that causes this increase in inflation. nevertheless, it is certainly a trend that you can see mostly inflation is coming down. spain year-over-year has fallen 1.9% and italy is down to 6.7%. what is important about germany is that it is this biggest

economy in europe, and if they say inflation is entrenched there it could affect the rest of your, eurozone aggregate is out in the next 24 hours and that is supposed to show the headline going up and the quarter going down or rather the other way around, that is the number people are watching very closely. >> more to come here on daybreak asia. this is bloomberg. ♪

>> heading into the third quarter here is what happened in the bond space in the first half of 2023. government bond yields present, but corporate debt has performed ok, helping the global bond index posted its first six-month gain in more than two years and an index on em bonds also on

track to deliver its best start to a year since 2020. this gauge, tracking 23 developing markets and local currency debt is poised for a return of more than 2% and em bonds have been supported by currencies against the dollar and haidi tracking moves in u.s. treasuries. >> speaking of treasuries, we continue to see this big move in yields as the repricing continues to happen when it comes to fed expectations. jay powell and co-drive home a very consistent message about the kneading form -- need for more tightening ahead. that surge is seen as traders favoring two more rate hikes in favoring two more rate hikes in terms of building it's an amazing thing

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with a check on markets 30 minutes into the trading session for japan, korea and australia. today we are most certainly focusing on what we see in the bond space because yields are generally moving high in the session today, but that does follow what came through in the u.s. session overnight, we saw the two year yield jumping up as much as 13 basis points. why was that? it came down to better numbers coming through for the health of the u.s. economy, around jobless claims for instance, gdp data as well, but, importantly, it is the direction for the fed and this expectation from traders that we will see more hikes by the end of the year. that is that repricing action going on also leading into dollar strength. on the flipside is currency weakness that we see in asia this morning, even though we have seen signals of economic strength coming through such as in south korea where we saw industrial production slump on the year but improve month on

month which tells us that the be ok may have reason to keep its policy type. otherwise, in the session today we are looking at stocks here and we are seeing these drift lower, a low conviction session on wall street with trading volumes well off the 20 day moving averages. let's change on the last day of the trading quarter and so far a lot of that focus has been on that trump, that rally that we have seen in tech stocks led by the enthusiasm and optimism around ai. and so, because of that, we saw taiwan, korea and japan, these stock benchmarks moving higher. what is interesting that we have started to see foreigners selling korea taiwan stocks lately and we saw those outflows on a weekly basis in japan in the week prior. investors are saying that it will not last long, and there is still a lot of optimism around ai generally. >> optimistic, enthusiasm,

exuberance perhaps, and it is no wonder that ai is now, of course, a major flashpoint when it comes to the tech between u.s. and china, it's mr. king -- there are restrictions coming to beijing after selling the -- technology to key competitors. let's speak to our next guest, the author of the book the digital world. winsted, always good to have you with us. how big a limitation is beijing's inability to import u.s. hardware where -- that is critical to building up these a high-capacity -- this ai capacity and how big do you see the gap as being between them? >> think you very much. from my perspective, this -- i was an electronics and materials major before becoming a professor. i can see the tech industries

are focused on this because the chips are the foundation of all of the calculation and computer networks. the pressure is real but at the same time, china is the biggest importer of chips for the u.s.. so, for the u.s. chip companies, they need to get to those revenues for their increasing ind efforts. so i think that right now the tension is a lose lose situation of potential collaboration in the scenario. >> what is the china ai ambition because you have regulation as well, china has moved very quickly to draft regulations and a lot of these revelations specify that a full security review is required. how much does that present a problem when it comes to generative ai and some of the other technology we have been talking about?

>> i think the indication is bifurcated. on the one hand, it puts limits on chatgpt type applications in china, because of the content review process. at the same time, it forces the chinese companies to focus the ai applications in the industries. the sectors of the real industry. in china, you will see companies from alibaba, tencent and other companies to the new generation ai startups focusing more on the integration of artificial intelligence with industries from i.t. all the way to traditional and even energy and mining. so, the indication is profound. -- implication is profound. >> so you are in shanghai

because of the mobile world congress. when we talk about this exuberance and this optimism and excitement over ai, how much do you see that at the event as opposed to, say, just conversations on other more traditional topics like 5g networks? >> excellent question. i see a guy becoming a new driver for china's push into 5g networks. when we look at the vendors like huawei or carriers like china mobile, they are putting a lot of efforts at -- and investments into 5g networks. but they also admitted in the keynote speech that the challenges of bringing 5g to businesses is more than chic -- they expected. that is the consensus of the industry. now the ai, because of its demand for more computing power

and more potentially real-time digital infrastructure, it may become a driver for these 5g players as they find new scenarios for 5g networks. >> all of this talk about digital infrastructure and the internet has been going on for a while. when you go back to the event this year, how much progress do you see? x think progress is there. as you said, the push for 5g infrastructure started years ago during the pandemic when china focused on digital infrastructure as the new stimulus package instead of putting stimulus into traditional infrastructure like highway or toll roads. the keyword now is five point 5g, meaning -- 5.5 g, meaning

that the key players are focusing on an even stronger version of 5g networks, in order to bring the network to traditional industries such as mining so that underground mining can have no people operating in dangerous environment. >> one proposed takeover marks kind of an acceleration in the competition, if you take a look at some of the major players, tencent, alibaba, who stands out to you as a potential big winner when it comes to the race to monetize ai and china? -- in china? >> to me, tencent because even though we talk a lot about 5g habitations for businesses, in the short-term, the more immediate impact may still be in the consumer sector. may be that is because china has

the largest consumer internet population and more importantly, that is because the consumers touch on the 5g networks, maybe more directly and quickly, as compared to enterprises which take more time to adopt 5g networks and this is even obvious in the speech that the huawei chairwoman mate, integrating thousands of industry sectors, and she was mostly focusing on 5g networks to empower interactive, immersive internet experiences and that is mostly about the metaverse, gaming, and interactive social networks where tencent and similar gaming companies will have the best advantage. >> always good to catch up with you, adjunct professor at the nyu school of law joining us today. let's stay on china, because we want to take a look at the

consumer made your outlook with bloomberg intelligence senior analyst kathlyn lim in singapore. let's talk about whether we are going to see those bright spots in consumer spending in the second half, the recovery post-covid in the first half seems to have disappointed. >> i hear you, i think topline retail sales numbers did fall short of market expectations in the first half and into the second half, the top line still remains uncertain, but what is interesting that if you actually look at the bottom line and where the margins are, i see specific sectors whereby there may be opportunities for companies to actually be on the upside. so specifically overnight, we have seen how nike has had better-than-expected top lines as well as margins deliveries coming through in china on the

back of better inventories management within the country. and i do expect that we may be able to actually see margins improving for some domestic points. that is something to watch out for especially as the import more materials trickling down words and that gives us a bit of room to actually lift margins for retail with sales growth still not being as strong as expected. it is a leaner cost structure they are operating on and that is one of the bright spots. we are looking forward to that for the second half. >> with some much uncertainty over the broader economic outlook what should the market be focusing on when it comes to specific sectors? >> it is still going to be choppy because of the high base, low base effect into the third quarter and the fourth quarter. but i think some of the structural shifts such as

spending that we see like more service oriented and travel oriented industries, they will continue to stay. and some of the travel-based companies with exposure in that from makes want -- makes want to aaa that, might want to focus on the end and they may be in a position to deliver better than i expected with earnings as well as sales expectations in the second half. >> are seeing analysts there. we do have more to come on daybreak asia. this is bloomberg. ♪ ♪ at music) ♪ ( ♪♪ ) ( ♪♪ ) ( ♪♪ )

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>> the other headlines for watching, harvard university defending diversity as central to academic excellence after the supreme court bad universities from using race as a factor to admissions. 36-3 along -- voting 6-3 along ideological lines, affirmative action plans were determined as violating the constitution. president biden has condemned that decision. president biden: today's

decision does not change systemic racism. it is a civil fact. a student had to overcome adversity on their path to education. college did not recognize the value in that. >> australia says the european union has failed to offer satisfactory terms to seal a free-trade accord. the trade minister says small but important sticking points threatened to derail plans to sign a pact by the end of august. australia remains dissatisfied but the level of cultural exports and geographical indication protection for many european products. >> take a look at how currencies have been trading across the moji -- the emerging markets space. but before we get the back, take a look at how currencies are emerging, because we are seeing the weakness in emfx and that's

falling to a one month low against the u.s. dollar. this coming at a time when we continue to hear that hawkish central bank rhetoric coming from around the world. the brazilian real, outperforming today, but that has to do with its own idiosyncratic news expectations of where inflation is headed and the central bank is headed, but the russian ruble and the one among the worst performers in the em space and we have been watching the philippine peso as well holding up around 55-33 level, steadier here today. -- for the 5.33 today, steady today. the president is marking his first year in office with resilient growth and improving business sentiment. challenges remain in the face of shifting people attacks and -- shifting geopolitics and waiting post-covid demand. let's bring in our guest. how do we see president marcos

government doing in the first year? >> i think overall economists and analysts are saying that he has done a very decent job in his first year because there were expectations or fears of a doomsday scenario, but none of that planned out. -- panned out. despite one of the most aggressive moves in the region, the philippines boasted one of the best economic growth's at 6.4%. and expectations are about 6%, probably, slowing down a bit here. but still, at 6% it could be one of the best in asia. i think it is a decent job according to economists and analysts. >> what about challenges for the second year in office?

>> ethic taming inflation would be on top of that. i think, right now, at just about 6%, it is still elevated and it is still outside the 2-4% target range of the central bank. and they see that inflation will come back to its target range by september or october this year. and there is also the depression issue of food security -- depressing issue of food security because i think early this year we have seen rises in the prices of onions becoming most -- the most expensive, in the philippines. that is not a supply issue, more of traders hoarding the commodity. because we had a bumper crop last year. and now we see rice prices rising again.

and we should remember that marcos actually promised that he would have the prices of rice -- have the prices of rice. marcos actually also said that despite whatever the progress, despite delivering on his campaign progress is there is still work in progress and he needs to undo 30 or 40 years of what has been done to the agricultural sector, which remains a key sector of the economy. >> be sure to tune into bloomberg radio and hear more from the biggest newsmakers and get in-depth analysis from the daybreak team broadcasting live from our studio in hong kong. follow us on bloomberg radio plus and bloombergradio.com. this is bloomberg. ♪

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>> let's take a look at the performance of cryptocurrencies from the first half of 2023, this chart showing bitcoin surging more than 80% here here today while ethereum is up as well. but cracks are showing and equipped to market as we see consolidation towards bigger and more established coins, smaller coins tumbling with the sec

planning to regulate crypto securities and not just currencies. you can take a look at how bitcoin is trading at the moment about that $30,000 level and we see smaller gains for a second consecutive session as we settle into this narrow trading range for the biggest cryptocurrencies , after a fresh one your high, fidelity also joining to file for coin etf's, and that optimism is developing in the sector for a few weeks. cracks not so much optimism when it comes to the broader commodities outlook. there is so much that hinges on the outlook for china stimulus, whether that economy is going to see much of a bounceback. oil is headed for its first back-to-back quarterly dave pine -- quarterly decline since 2019, down almost 8% this quarter. this is a persistent concern

over the demand outlook. it is again the china story continuing to weigh down on headwinds, not just china but with aggressive rate hikes and supply levels from there as well. we are watching copper of course, this key proxy of global growth and in particular china growth, dropping to the lowest level in more than four weeks. we had more hawkish comments from the fed chair jay powell, really capping risk appetite there and that rally in the middle at the start of the year is fading over the past quarter as these global recession risks really begin to way. also watching irr -- iron ore, it could get eroded by surplus levels we are watching closely as well. and it is that china story so closely tied to china -- australia as well for a proxy for china-related economic risk. let's bring in our energy and commodities editor for more. taking a look at oil and it is

so much that global demand weakness is being perceived at play here. >> as you have really alluded to, i think that we can characterize sort of the theme of 2023 so far as one of fading optimism. for oil there was a lot of bullishness at the beginning of the year, mainly tied to china throwing off the covid shackles and there was supposed to be this rebound, $100 a barrel of oil, that has not happened. there was a bit of travel after covid zero, then that simmered down again because of the economic growth not happening, demand for industrial fuels like diesel has not been great, one thing about china is that

international flights in and out of china are actually only at about 40% of pre-virus levels so that really shows the impact on jet fuel there. outside of china, as you have mentioned, we have had rate hikes which have been -- had to be more aggressive than people were talking about at the start of the year. and we also had that resilient supply, particularly from russia which was going to cut back earlier but has not really. all that adds up to -- it is hard to be optimistic about the second half. >> quickly, what about a stronger dollar, what about hawkish central banks, just quickly? >> hawkish central banks, china is a bigger factor than it is on oil, what we have not seen, was policy easing out of china but what we have not seen that we

did see in previous big slowdowns is this big ramp-up in infrastructure spending, it doesn't look like china is going to use massive interest -- infrastructure projects to spend its way out of this current of this current situation, and we might even be seeing the end of the super cycle which has been driven by china over the last couple of decades. rice the latest on the commodities space. that is all the time we have for now, that is it from daybreak asia, market coverage continues as we look forward to the start of trade, look -- standby for bloomberg markets china open. this is bloomberg.

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