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Bloomberg Audio Studios podcasts radio

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Welcome to the Daybreak Asia podcast.

[music] I'm Doug Krer. Crude oil prices

have steadied in Asian trading even as

President Trump escalated threats to

Iran. Earlier, Trump said the US will

obliterate key Iranian infrastructure if

his terms are not met before a Tuesday

night deadline. Now, chief among them is

freedom of navigation through the

straight of Hormuz. For a closer look at

how markets are digesting all of this

news, I'm joined by Bloomberg's Paul

Dobson. Paul is executive editor for

Asia Markets. He joins from our studios

in Singapore. Thank you so much for

being here. This is kind of a difficult

moment in time. I'm not convinced that

Trump is really locked in to this

deadline. Is it possible based on past

history that he could move the goalpost,

so to speak?

It definitely is, isn't it, Doug? I I I

mean, the precedent suggests that

there's every likelihood that a deadline

will be pushed back again or there'll be

found some sort of a way to deescalate

the tension having gotten to this point.

And you know, we we've seen that

playbook many times before. So, the

question will be what if there is no

opportunity to do that? What if Iran

continues to step up its defiance?

instead, you know, will um Trump be

pushed to actually follow through on his

words and with with with more action.

And so I think that the next 24 hours

from a markets perspective is really

going to be that waiting game, watching

very carefully what we hear from uh

diplomacy all around the world. Um, one

of the reports today was talking about

how Japan's leader Takayichi is planning

to speak with um, the Iranian leadership

as well, looking to see, you know, where

the grounds are for some kind of

negotiation to stave off the latest sort

of threats and that we've seen from the

US side. So, I think a lot of nervous,

twitchy traders out there. And if it

gets through to, you know, 600 7 p.m.

tomorrow, then, you know, we will be

we'll be a whole lot more anxious about

what happens next.

>> You mentioned Japan, but isn't the same

conversation happening maybe in a

slightly different way in South Korea

where the government is considering an

extra budget if the higher oil price

does have a devastating impact on

economic growth.

>> Yeah. So I think that what's going to be

interesting bigger picture is that

response that we see from leadership

governments all around the world. I

think Doug you know in all honesty if

you had told me

5 and a half weeks ago the straight of

Hormus is going to be closed where do

you think we will be in terms of the

global economy by the time you get round

to the the second week in April? I would

have said well you know based on

everything that we know surely there

will be big shortages of uh fuel uh feed

stocks energy supplies all around the

world and really you know apart from in

emerging markets particularly in Asia

the actual impact you know the real

world sort of things grinding to a halt

is pretty pretty small yeah we do have

Asian nations that have gone to a 4-day

working week we do have some flights

that have been grounded or or halted and

we do have you know localized

disruptions ions in terms of energy

supplies, you know, the Indian cooking

gas for example was a big story. But I

think that, you know, the fact that the

world has managed to last so long, you

know, releasing strategic reserves,

finding the the floating storage,

getting that into the system as well has

has been actually one of the more

remarkable things here. But the problem

is, you know, it can't last forever

until the straight of Hormuz does get

opened. And so governments are thinking

about you know what can we do to ensure

that we have what we need to keep on

going in Japan seems like Takayuchi work

very hard to ensure that there's enough

NAPA which is a key ingredient for a lot

of manufacturing processes for plastics

and so on and South Korea likewise you

know I think each of the individual

governments is sort of looking out for

themselves and figuring out where else

they can get these energy supplies from

to ensure that things can run for as

long as possible but everybody knows

that it can't it can't last uh forever

like that.

>> So a key debate that's going on right

now in the US Treasury market seems to

be either higher oil creates a growth

shock or much much higher inflation. Is

it clear right now in your mind which is

going to be more impactful?

>> No. And part of the reason for that is

that suspicion that were the US and

Israel and Iran to find some kind of a

compromise that could reopen the

straight, then the price of oil would

come off relatively rapidly and that oil

shock, uh, yes, we would probably see

higher oil prices for longer because

we'd need to refill inventories and so

on and so forth and there's been a lot

of uh, destruction. But all that being

said, the price of oil would come off

quite dramatically and so that would

reverse the picture quite quickly as

well. So for slowmoving central banks,

it's it's a really difficult one. And I

think it's not just the Fed, but central

banks all around the world have got this

sort of jewel sort of choice basically.

Either they look through the inflation

and choose not to move. So New Zealand,

for example, would be in that camp or

they move rapidly now to try to snuff

out the risk of inflation bubbling up

and becoming more entrenched in the

economy. And so you see much higher

short-term interest rates and Australia

would be an example of that. I think for

the US, you know, where we are right

now, we've wiped out the possibility of

the Fed cutting interest rates this year

based on market pricing right now, but

whether they would actually go ahead and

hike interest rates instead still is

sort of a big uncertainty.

>> So, we have the minutes of the last Fed

meeting midweek in the US and then

Thursday, I believe, the Fed's preferred

measure of inflation. That's core PCE.

Friday, it's the CPI data. So there's a

lot to consider in terms of inflation at

least as it relates to the US. Can we

talk about the chip makers? We had uh

some positivity during US trading where

the Philadelphia semiconductor index was

up about 1%. And news that the South

Korean memory chip maker SKHEX has filed

to list ADRs uh US listed shares

sometime this year and we are being told

this deal could raise as much as 10

billion. Let me get your reaction and

maybe you can help me understand what a

company like SKHinix would do with that

$10 billion.

>> Yeah, good question. Well, I guess you

know carry on expanding. Um, partly

partly uh South Korean companies as part

of the trade deals with Trump if you can

remember those before everything else

that's happened since supposed to be uh

investing and building more uh

facilities in the US um as well as

domestically. Um, so you could

definitely see uh the likes of the South

Korean companies building facilities in

in the US alongside uh Japanese firms

and uh TSMC from uh Taiwan as well. But

I think that right now the demand for

the memory chips from Samsung and SKH

Highix is just so staggeringly large.

you know they're basically sold out and

so whatever they can do to increase

capacity and keep on going is beneficial

for them and you know kind of keeps

keeps the whole sort of process

unfolding. the demand is there because

of the uh uses that they have in the AI

related data centers of course and so we

had earnings uh from Samsung this

morning preliminary earnings not a lot

of details in there but it seemed like a

pretty big beat relative to analyst

estimates and so South Korean shares

have opened today again looking looking

strong

>> so if we can agree that demand for these

memory chips is very very strong right

now I'm going to imagine that a company

like SKH or Samsung has a great deal of

pricing power, right? They're going to

try to preserve their margins by by

raising prices. Is that fair?

>> Yeah. Well, and and prices have been

going up relatively rapidly as well, and

and that hasn't really uh stopped

anything. I think that, you know, there

are there is some competition from uh

Chinese names, for example, but

relatively, you know, the the wool can

hardly get enough right at this moment

in time. The memory chip cycle does seem

to be a sort of boom and busty kind of

up a long way and then down a long way.

So it's not guaranteed that it will last

forever, but at the moment they do seem

to be on on a relatively a a exciting

puff. And of course, you know, the Cosby

is still, I think, one of the world's uh

best performing equity indexes this

year. It's still, you know, it rose as

much as 40ome%

uh before the war broke out and it's

held on to something like half of those

gains, maybe a little bit more as well.

So, it's still a place where people

would like to invest were it not for the

economic strains that have been caused

by the war in Iran. I think what would

be really interesting is if we do start

to see that sort of knock-on impact of

higher bond yields, higher borrowing

costs, deferring some data center

projects were that to lead to any

cancellation of orders in memory chips

and that would disrupt the narrative,

but it's not something that we've seen

so far.

>> So, we've talked a little bit about the

impact of the war as it relates to

countries like Japan and South Korea.

I'm curious about the China story

because we're about a month away now

from uh President Trump meeting with

Chinese President Xi at last check.

That's still on course. Are we hearing

anything from the Chinese side as it

relates to higher energy cost?

>> So, China has uh somehow managed to find

its way through all of this uh so far um

relatively unscathed. And I think that

there's a couple of reasons for that.

One, extremely large reserves um that it

has built up for such an eventuality.

Two, you know, it's it's diversified

energy supplies or electricity

production certainly helps. So, a lot of

renewable energy in the system uh

already in China, a lot of electric

vehicles as well. So, that reduces fuel

demand relatively speaking. And you

know, China is still getting deliveries

we think or or or or probably most

likely from those Iranian channels via

the um sort of established network. So

what is getting out from the Iran side

from the trader form is probably uh some

of it is finding its way into China. So,

so far, you know, what we have seen and

what we do know is that is that China's

um markets have held up relatively well

compared to some of the rest of Asia and

the the the currency in particular has

continued to uh look pretty strong even

against the US dollar and certainly

against the rest of um the region's

markets. So, people talking about how

usually in the second quarter the UN

comes under sort of pressure. It's a

seasonal thing. this year people may be

looking for it to continue to strengthen

rather than uh follow that usual

trajectory.

>> Okay, Paul, thank you so very much.

We'll leave it there. Bloomberg's Paul

Dobson. He is executive editor for Asia

Markets joining from our studios in

Singapore [music]

here on the Daybreak Asia podcast.

Welcome back to the Daybreak Asia

[music] podcast. I'm Doug Krer. So on

Monday, President Trump gave Iran a

deadline of 8:00 p.m. Eastern time

Tuesday to reach a deal with the US. And

the president said if Iran does not

agree to his terms, the US military

could destroy every bridge in Iran by

12:00 tomorrow night and put every power

plant out of business. Now, the UN said

on Monday, Trump risk violating

international law if he were to make

good on those threats. For more analysis

of the president's actions, we turn to

Alyssa Euers. She is senior fellow for

Middle East Studies at the Council on

Foreign Relations. Alyssa spoke earlier

with Bloomberg TV host Sherion and Paul

Allen.

>> The Iran war apparently on the brink of

escalation here uh as President Trump

issues that warning about 24 hours to

destroy Iran's critical infrastructure,

bridges, power stations. Are we on the

brink of an escalation here or do you

anticipate a lastminute reprieve?

Well, thank you for having me on. I

think both sides appear to be far from a

deal and both are telegraphing that

they're ready to escalate. So, when you

look at the demands that each side have

presented, they don't seem very

compatible with one another. But

underlying all of that, I think is an

interest on both sides to try and find

an off-ramp if they can. It's just

unsure that they can do so by the end of

tomorrow.

So, if Iran's critical infrastructure is

hit, what sort of retaliation would you

anticipate from the regime?

>> Well, I think we'll see an escalation of

what we've seen over the last 6 weeks,

which is an unabashed targeting of

civilian and critical infrastructure

throughout the region, hitting all of

the Gulf States and even further field,

increasing potentially the targeting

inside of Israel as well. Now, the

Iranian regime has not held back from

hitting critical infrastructure and

civilian targets throughout the war thus

far, but it will certainly continue to

do so in ways that uh will harm the

economies of the region and and

certainly have repercussions for the

global economy as well.

>> If President Trump goes ahead and hits

civilian infrastructure in Iran, how

would the world have to respond? The UN

has already called this an international

humanitarian law issue.

>> Well, hitting critical infrastructure is

in fact uh prohibited under the Geneva

Convention. What you are seeing is that

in order to increase pressure on the

regime, uh President Trump is

considering violating or potentially

violating the Geneva Convention in order

to get the regime to be willing to

concede and capitulate. uh the regime

has been violating the Geneva Convention

all along as well. And so you really

have two sides who have dismissed kind

of the validity of the Geneva

Conventions in their decision-m thinking

that increasing pressure on both sides

will get will get to an outcome that

they want uh regardless of the

implications of international

humanitarian law.

>> We've heard that third countries like

Pakistan, Egypt, Turkey are trying to

obtain a ceasefire. Where do you think

these negotiations are going right now?

>> I think they have been actively seeking

to mediate and trying to bridge the gap

between the two sides. You've seen, I

think, reported that the United States

had originally presented something that

Iran had rejected. Now the government of

Pakistan offering both sides uh a kind

of this is a middle road so to speak uh

that Iran reportedly has rejected and

sent its own uh plan instead. I think

these negotiations these mediations are

ongoing and they are intense. I think

there is a desire on behalf of those who

are doing the mediating to find some

resolution, but as I said earlier, the

demands on both sides are are not

exactly compatible with one another. And

so these mediators are doing a lot of

work, but may not be able to bridge the

gap.

>> Alisa, as we mentioned, you've

previously served on the National

Security Council under both Republican

and Democratic administrations. I'm

wondering if you can give us an insight

into some of the thinking here around

the messaging because last week

President Trump said look the straight

of Hormuz is going to be Europe's

problem to reopen and over the weekend

we had that uh tweet or that social

media post filled with fbombs saying

open the straight. So is there a

strategy here?

Well, I I don't think you can uh draw a

comparison between President Trump's

administration and and any other

administration that has come before his.

Uh I think the strategy here is that he

is trying to increase pressure and also

find a way to manage for the the kind of

domino effects that the war has had. His

polling here at home is is not

encouraging. We're seeing polling over

the weekend, highest disapproval rates

uh so far in the six weeks, upward of

80% who do not want to see the United

States put our armed forces in harm's

way. A and so I think he is balancing

that. He's balancing the markets and the

price of oil. And so he's, as we would

say here, throwing some spaghetti

against the wall to see what sticks and

uh either devolving the interest in the

straight of Hormuz being open to others,

but also kind of demanding that he will

make Iran or the Iranian regime pay as

well as the Iranian people pay in the

event that it does not open.

>> In terms of making the Iranian people

pay as well, is there a risk here of

actually entrenching entrenching the

regime? Because as cruel as the regime

is to its own people, I mean worse as

having a foreign power bomb your

critical infrastructure. Could we see

some nationalism here?

>> Well, there's there's no mistaking that

this regime is the most brutal actor

against its own people, having killed

tens of thousands just uh earlier this

year that we know of, probably even

more. Um, but I do think that you're

right in suggesting that six weeks into

a war where the population has been, you

trying to stay safe, staying out of

harm's way, to see the kind of broad

impact that hits on civilian in

infrastructure will have will certainly

impact their ability to continue to

withstand and not suffer throughout this

campaign. So while there are those who

say Iranians wanted to see um pressure

on this regime to try and and create a

crisis where it might collapse, uh this

is probably not the way that they wanted

to. I think it's hard to speculate what

it would mean in terms of nationalism.

But it it is important to notice that

this comes at the suffering of the

Iranian people.

And Alisa, where are Gulf States right

now and where can we expect them to make

the biggest difference in this conflict?

>> Well, I think generally speaking, the

Gulf States were not wanting this war

before it started. Now that it has gone

on for 6 weeks, they want to make sure

that when they come out of this, they

are safer than they were on February

27th. So the fact that Iran the Iranian

regime has held the straight of Hormuz

at risk having such significant impact

on the economies of these states. Uh

they do not want to see that precedent

set that is incredibly dangerous for

them moving forward even in a ceasefire

uh situation. They've seen direct

attacks on their civilian

infrastructure.

this is not uh the kind of safe haven

and economic opportunity model that they

have tried to promote for the last

decade. And so they are of course

wanting to see something decisive come

out of this war uh where the Iranian

regime is not stronger but is in fact

weaker and not able to threaten them.

Alisa, what does the future hold for the

straightfor now that we have Iran more

decisively asking for fees in order to

transit this area? Not to mention that

they want international recognition of

their authority as well.

>> Well, that's right. That is exactly the

dangerous president that we're talking

about. I mean, having that kind of

tolling system, the regime getting to

decide who passes and who does not pass

and extracting a cost for passing I is

something in international waterways

where so much commerce transits that we

would not want to see elsewhere in the

world replicated. And so there's a real

premium on ensuring that whatever the

ceasefire or longer term arrangement

that comes out of this war, it does not

give Iran the authority to make those

decisions on the behalf of all of those

who share the waterway and all of those

who transit international commerce

through the straight of Hormuz. So the

demands are clear. They would like to

keep that upper hand. It is certain the

leverage certainly the leverage that

they have used over the last several

weeks during the escalation of this war

but I think uniformly and we've seen

this in the international community

coming together 30 plus nations uh

deciding to sign on to commitments to

that freedom of navigation uh in

addition to the United States obviously

that there is a real premium on ensuring

that the regime does not have that power

coming out of this

>> that is Alyssa Eers senior fellow for

Middle Eastern Studies at the Council on

Foreign Relations, speaking with

Bloomberg TV host Sheron and Paul Allen,

bringing you their conversation here on

the Daybreak Asia podcast.

Thanks for listening to today's episode

of the Bloomberg Daybreak Asia Edition

podcast. Each weekday, we look at the

stories shaping markets, [music]

finance, and geopolitics in the

Asia-Pacific. You can find us on Apple,

Spotify, the Bloomberg Podcast YouTube

channel, or anywhere else you listen.

[music] Join us again tomorrow for

insight on the market moves from Hong

Kong to Singapore and Australia. I'm

Doug Krer, [music] and this is

Bloomberg.