Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business.

Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business.

App after the bill. Today, Netflix posted its best start to the year since twenty twenty, Netflix adding nine point three three million customers in the first quarter of twenty twenty four. That's nearly double the average estimate from analysts. Despite that, Netflix shares we're down about five percent in late trading. The streamer reported a weaker than expected second quarter revenue forecast. Joining us now for some discussion of this is Gita Ranganathan, Bloomberg Intelligence US media analyst, to take a closer look. So, Gita, Netflix, Well, pretty strong rebound, I think you have to say, albeit with a few qualifications. On balance, how do you read these results?

App after the bill. Today, Netflix posted its best start to the year since twenty twenty, Netflix adding nine point three three million customers in the first quarter of twenty twenty four. That's nearly double the average estimate from analysts. Despite that, Netflix shares we're down about five percent in late trading. The streamer reported a weaker than expected second quarter revenue forecast. Joining us now for some discussion of this is Gita Ranganathan, Bloomberg Intelligence US media analyst, to take a closer look. So, Gita, Netflix, Well, pretty strong rebound, I think you have to say, albeit with a few qualifications. On balance, how do you read these results?

Very very strong results, without a doubt. We're seeing really good momentum when it comes to the subscribers. And the big story of course for Netflix is that they are trying to balance subscriber growth along with their financial metrics. So the most important metrics here being you know, revenue growth, and they were guiding to or they were targeting rather double digit revenue gains, which they delivered and will continue to deliver it through the rest of the year. And then of course is profitability. They're one of the only streamers right now to have very very strong profitability metrics, and you know, they actually upped their guidance when it came to operating margins. So on balance, a very very strong report card, although you did point out the slightly muted outlook, which is why we're seeing the share reaction.

Very very strong results, without a doubt. We're seeing really good momentum when it comes to the subscribers. And the big story of course for Netflix is that they are trying to balance subscriber growth along with their financial metrics. So the most important metrics here being you know, revenue growth, and they were guiding to or they were targeting rather double digit revenue gains, which they delivered and will continue to deliver it through the rest of the year. And then of course is profitability. They're one of the only streamers right now to have very very strong profitability metrics, and you know, they actually upped their guidance when it came to operating margins. So on balance, a very very strong report card, although you did point out the slightly muted outlook, which is why we're seeing the share reaction.

Gaeta, I'm trying to understand whether or not this growth is being powered by original programming or crack down on password sharing, which is it?

Gaeta, I'm trying to understand whether or not this growth is being powered by original programming or crack down on password sharing, which is it?

So it really is.

So it really is.

I think the biggest driver of this subscriber momentum that we're seeing is really the password sharing initiative. Netflix had initially identified about one hundred million global households that we're not paying for the service, and we know that they've cracked down on password sharing across all of their global markets, so this is really the biggest driver. They haven't exactly outlined how much they've captured or how much is left. But you know, just kind of given the guidance and the fact that they alluded to, you know, much slower subscriber growth in the second half of twenty twenty four versus the first half, suggests to us that, you know, the positive tailwinds from this password sharing crackdown will start to fade pretty soon.

I think the biggest driver of this subscriber momentum that we're seeing is really the password sharing initiative. Netflix had initially identified about one hundred million global households that we're not paying for the service, and we know that they've cracked down on password sharing across all of their global markets, so this is really the biggest driver. They haven't exactly outlined how much they've captured or how much is left. But you know, just kind of given the guidance and the fact that they alluded to, you know, much slower subscriber growth in the second half of twenty twenty four versus the first half, suggests to us that, you know, the positive tailwinds from this password sharing crackdown will start to fade pretty soon.

Now. Netflix shares were up seventy one percent since October, so, to be fair, a five percent pullback is probably not very likely an indictment. It was a good quarter, and you said that, but it's important to talk about the qualifications too, and Doug raised one. Perhaps another might be that it's going to the company is going to stop reporting the number of subscribers. Now, that would raise a few questions among some what do you see as the reasons for that?

Now. Netflix shares were up seventy one percent since October, so, to be fair, a five percent pullback is probably not very likely an indictment. It was a good quarter, and you said that, but it's important to talk about the qualifications too, and Doug raised one. Perhaps another might be that it's going to the company is going to stop reporting the number of subscribers. Now, that would raise a few questions among some what do you see as the reasons for that?

What are you hearing?

What are you hearing?

Yeah, so, I think what they said is that there really are so many moving parts to this story. Right in the in the early days of growth, it was really just a very very kind of a plain vanilla story. You had more subscribers, you charge them whatever amount you were charging them, and you know, you kind of had this whole growth model. It's kind of become much more nuanced right now because we're kind of reaching this very mature stage in the Netflix narrative, and they are they have a lot of growth levers right Aizing is is a huge lever that is going to kind of start ramping up. They're probably going to start introducing new plans at different price points in different countries, and so it's kind of becoming harder and harder for them to parse out everything. And I think that is one of the reasons why they are suggesting that they don't want to be tied down to the subscriber metric because we know that every time Netflix reports, you know, the subscriber numbers, there is just so much volatility and so much noise surrounding that one number.

Yeah, so, I think what they said is that there really are so many moving parts to this story. Right in the in the early days of growth, it was really just a very very kind of a plain vanilla story. You had more subscribers, you charge them whatever amount you were charging them, and you know, you kind of had this whole growth model. It's kind of become much more nuanced right now because we're kind of reaching this very mature stage in the Netflix narrative, and they are they have a lot of growth levers right Aizing is is a huge lever that is going to kind of start ramping up. They're probably going to start introducing new plans at different price points in different countries, and so it's kind of becoming harder and harder for them to parse out everything. And I think that is one of the reasons why they are suggesting that they don't want to be tied down to the subscriber metric because we know that every time Netflix reports, you know, the subscriber numbers, there is just so much volatility and so much noise surrounding that one number.

Now, the lack of that number is also creating a lot of noise.

Now, the lack of that number is also creating a lot of noise.

So if you look at markets outside the US and Canada, away from North America, how is this company performing right now? Globally? Where is the strength coming from?

So if you look at markets outside the US and Canada, away from North America, how is this company performing right now? Globally? Where is the strength coming from?

The strength is really broad based. I mean, we know that the US and Canada is a mature market. It's almost you know, seventy seventy five percent penetrated that said it. You know, if you looked at the first quarter numbers, this was one of the strongest subscriber gains in the US and Canadian markets. But you know, growth is coming from other markets as well. If you look outside of the US, we you know, Europe tends to be a very very strong market, continues to perform very well. So is Asia Pacific, which is relatively underpenetrated market. And so there's obviously a lot of optimism for a growth upside in many, many years to come.

The strength is really broad based. I mean, we know that the US and Canada is a mature market. It's almost you know, seventy seventy five percent penetrated that said it. You know, if you looked at the first quarter numbers, this was one of the strongest subscriber gains in the US and Canadian markets. But you know, growth is coming from other markets as well. If you look outside of the US, we you know, Europe tends to be a very very strong market, continues to perform very well. So is Asia Pacific, which is relatively underpenetrated market. And so there's obviously a lot of optimism for a growth upside in many, many years to come.

Yeah, well, I'm curious in terms of revenue drivers, how's the AD tier doing.

Yeah, well, I'm curious in terms of revenue drivers, how's the AD tier doing.

So the AD tier, they haven't really given us a lot of color here other than to say that they are building, you.

So the AD tier, they haven't really given us a lot of color here other than to say that they are building, you.

Know, the infrastructure for this business.

Know, the infrastructure for this business.

They do have, you know, programming which will kind of serve that AD business well. And when I talk about the programming catering specifically to the AD business, it's.

They do have, you know, programming which will kind of serve that AD business well. And when I talk about the programming catering specifically to the AD business, it's.

Really live sports.

Really live sports.

They have a deal for WWE content starting in you know, twenty twenty five. They're also kind of dipping a toe dipping their toes a little bit with live events. So they have this big boxing match between Mike Tyson and Jake Paul which is coming up in July and that kind of allows them to test, you know, the appetite the market for live sports, and we think they will become a bigger player in the live sports market. That actually helps them scale their advertising ambitions, I think pretty significantly. And what we are kind of projecting at Blueberg Intelligence is that advertising will be roughly ten to fifteen percent of their business. This is a forty five billion dollar business in twenty twenty five, the total business, that is, and we think advertising will be about ten to fifteen percent of that.

They have a deal for WWE content starting in you know, twenty twenty five. They're also kind of dipping a toe dipping their toes a little bit with live events. So they have this big boxing match between Mike Tyson and Jake Paul which is coming up in July and that kind of allows them to test, you know, the appetite the market for live sports, and we think they will become a bigger player in the live sports market. That actually helps them scale their advertising ambitions, I think pretty significantly. And what we are kind of projecting at Blueberg Intelligence is that advertising will be roughly ten to fifteen percent of their business. This is a forty five billion dollar business in twenty twenty five, the total business, that is, and we think advertising will be about ten to fifteen percent of that.

Geta what do we know about what Netflix intends to spend on new content going forward? Do they have the pockets to continue driving on the content side, Oh.

Geta what do we know about what Netflix intends to spend on new content going forward? Do they have the pockets to continue driving on the content side, Oh.

They absolutely do.

They absolutely do.

So they've taken actually a pretty disciplined approach. So for this year they reaffirmed their content budget of about seventeen billion dollars. Going forward, we think it'll go up by about you know, ten to fifteen percent. It probably will reach about twenty billion dollars or so in the next two years time. But again that's well within you know, the range, and they are definitely taking a very disciplined approach again not just with their original content, but also they're going in more for licensed content, which tends to be much more effective and economical.

So they've taken actually a pretty disciplined approach. So for this year they reaffirmed their content budget of about seventeen billion dollars. Going forward, we think it'll go up by about you know, ten to fifteen percent. It probably will reach about twenty billion dollars or so in the next two years time. But again that's well within you know, the range, and they are definitely taking a very disciplined approach again not just with their original content, but also they're going in more for licensed content, which tends to be much more effective and economical.

So we see that Netflix is number one. I think Amazon Prime is number two. Right, how are we shaking out When we look at all of the big streamers.

So we see that Netflix is number one. I think Amazon Prime is number two. Right, how are we shaking out When we look at all of the big streamers.

Netflix clearly wins, not just in terms of subscriber numbers. Obviously they have two hundred and seventy million subscribers. They are the biggest streaming service across the world. But then again, it's not just that, it's also you know, engagement, and that is the one key metric that they kept on talking about over and over again in you know, the earnings call in their earnings newsletter today, because they do have they said they have roughly half a billion people across the globe tuning in every night into Netflix about two two and a half hours. And so as they have that engagement, that kind of then speaks to so much more monetization capabilities, right, so they can increase prices, They have a captive audience that they can.

Netflix clearly wins, not just in terms of subscriber numbers. Obviously they have two hundred and seventy million subscribers. They are the biggest streaming service across the world. But then again, it's not just that, it's also you know, engagement, and that is the one key metric that they kept on talking about over and over again in you know, the earnings call in their earnings newsletter today, because they do have they said they have roughly half a billion people across the globe tuning in every night into Netflix about two two and a half hours. And so as they have that engagement, that kind of then speaks to so much more monetization capabilities, right, so they can increase prices, They have a captive audience that they can.

Sell to advertisers.

Sell to advertisers.

So really kind of improves the growth outlook for the company on so many different fronts.

So really kind of improves the growth outlook for the company on so many different fronts.

KEETERA. Irong Andathan Bloomberg, Intelligence US media analyst, joining us in our Studios is Harold Vanderlinda, who's head of age specific equity strategy at HSBC. Perhaps a big sell off is underway. We've got higher for long grown rates, investors setting the bar pretty high, and a strong dollar. You see it that way or do you see things as maybe more like half full.

KEETERA. Irong Andathan Bloomberg, Intelligence US media analyst, joining us in our Studios is Harold Vanderlinda, who's head of age specific equity strategy at HSBC. Perhaps a big sell off is underway. We've got higher for long grown rates, investors setting the bar pretty high, and a strong dollar. You see it that way or do you see things as maybe more like half full.

No, I think you're nailing the Sorry, you're hitting the nail of that. We've gone from a scenario where by in the beginning of the year we were talking about maybe four, five, six, seven, I think even the one point in terms of people that seven rate cuts. Now what we then saw what inflation was coming down, it flattened out, and now it's actually ticking up a little bit and the market is really reshifting that right, So it's saying there might be no rate cut at all, and some people are talking about rate hike. Now that has that changes the macro environment for Asian equities completely, right. So we have a stronger dollar, we have higher bond yields and all of these things, and that just doesn't help Asian equity. So yeah, that's where that pressure is coming from.

No, I think you're nailing the Sorry, you're hitting the nail of that. We've gone from a scenario where by in the beginning of the year we were talking about maybe four, five, six, seven, I think even the one point in terms of people that seven rate cuts. Now what we then saw what inflation was coming down, it flattened out, and now it's actually ticking up a little bit and the market is really reshifting that right, So it's saying there might be no rate cut at all, and some people are talking about rate hike. Now that has that changes the macro environment for Asian equities completely, right. So we have a stronger dollar, we have higher bond yields and all of these things, and that just doesn't help Asian equity. So yeah, that's where that pressure is coming from.

But if I look at the fact that this is maybe an illustration of very strong American growth. Demand may still be a part of the story. And if you're an exporter anywhere in the APAC region, the outlook for business is going to be pretty good, is it not.

But if I look at the fact that this is maybe an illustration of very strong American growth. Demand may still be a part of the story. And if you're an exporter anywhere in the APAC region, the outlook for business is going to be pretty good, is it not.

Yeah, I mean that's a nice thing of equities, right, there's always something somewhere happening. So, yeah, you're right exports. But if you look at the totality of Asia, or for example, at the Chinese market, the vast majority of companies are domestic oriented companies, so they they won't be impacted so much by the strong US. They just have to deal with the domestic issues. But the ones that are exporters, and most of the Asian exporters are really in Korea, Japan, and Taiwan, they benefit on they benefit on the demand side and on the currency side because their currency is getting weaker and in so far they produce something in Korea, Japan or Taiwan, it means that they have a little bit of currency till winds as well helps.

Yeah, I mean that's a nice thing of equities, right, there's always something somewhere happening. So, yeah, you're right exports. But if you look at the totality of Asia, or for example, at the Chinese market, the vast majority of companies are domestic oriented companies, so they they won't be impacted so much by the strong US. They just have to deal with the domestic issues. But the ones that are exporters, and most of the Asian exporters are really in Korea, Japan, and Taiwan, they benefit on they benefit on the demand side and on the currency side because their currency is getting weaker and in so far they produce something in Korea, Japan or Taiwan, it means that they have a little bit of currency till winds as well helps.

And we're getting chirked around a little bit with some of the data. Like I was having a look at the Philadelphia Fed Factory Index. You know, it topped estimates. In fact in a very big way. The index all the way up at fifteen point five, the survey only two, but then price is paid, we're at twenty three versus three point seven before. So I mean, how do you actually digest this kind of data? Makes sense of it?

And we're getting chirked around a little bit with some of the data. Like I was having a look at the Philadelphia Fed Factory Index. You know, it topped estimates. In fact in a very big way. The index all the way up at fifteen point five, the survey only two, but then price is paid, we're at twenty three versus three point seven before. So I mean, how do you actually digest this kind of data? Makes sense of it?

Yeah, there's a lot of data coming at us, But I think the overriding picture is simply of just unexpected and credible strength in the US economy.

Yeah, there's a lot of data coming at us, But I think the overriding picture is simply of just unexpected and credible strength in the US economy.

And that leads to higher prices.

And that leads to higher prices.

That leads to higher prices and these sort of things. Then in addition to that, you have oil prices potentially being a bit volatile. That I mean, the Middle East has got all sorts of issues there, so that could lead to oil prices. So all of these things could fuel into higher prices. Now if you you can also find good reasons to believe that actually these inflation numbers will come off again and these sort of things. So we'll have to see how it goes. But that means that the market is just very uncertain on what the path of inflation is and therefore what the path of interest rates is. That creates that volatility in the stock market.

That leads to higher prices and these sort of things. Then in addition to that, you have oil prices potentially being a bit volatile. That I mean, the Middle East has got all sorts of issues there, so that could lead to oil prices. So all of these things could fuel into higher prices. Now if you you can also find good reasons to believe that actually these inflation numbers will come off again and these sort of things. So we'll have to see how it goes. But that means that the market is just very uncertain on what the path of inflation is and therefore what the path of interest rates is. That creates that volatility in the stock market.

One of the things that I'm noting now is that Japanese inflation for the month of March came in at a monthly reading of two point seven percent. That was a little bit below the consensus. I think that Street was looking at two eight. But we know that Japanese currency has been under pressure, still trading around a thirty four year low against the greenback. What choices do policymakers in Japan have, whether it's the Ministry of Finance can dering intervention in the foreign exchange or the BOJ.

One of the things that I'm noting now is that Japanese inflation for the month of March came in at a monthly reading of two point seven percent. That was a little bit below the consensus. I think that Street was looking at two eight. But we know that Japanese currency has been under pressure, still trading around a thirty four year low against the greenback. What choices do policymakers in Japan have, whether it's the Ministry of Finance can dering intervention in the foreign exchange or the BOJ.

Yeah, this is difficult for them because the currency has been very, very weak. And no we have that there's this meeting in the IMF, so maybe something will be discussed there. Who knows, but yeah, the currencies are we and we've now seen also when Yellen was around that the Koreans and the Japanese have publicly stated that they feel somewhat uncomfortable with that. With that currency weakness, Well, what can they do? The problem? The ultimate problem simply is that they have an interest rate policy that is still close to zero. Now you might say, yeah, they've increased a little bit, but we're talking about minuscule changes. So interest rates in Japan remain very very low, and in so far the US is strong and interest rates remain high. Yeah, that means that you have a massive interest rate differential. And you see this with Japanese households. They're taking their money out of Japan and putting into the US because that's where they get five percent on a deposits or something like that. In Japan you get nothing.

Yeah, this is difficult for them because the currency has been very, very weak. And no we have that there's this meeting in the IMF, so maybe something will be discussed there. Who knows, but yeah, the currencies are we and we've now seen also when Yellen was around that the Koreans and the Japanese have publicly stated that they feel somewhat uncomfortable with that. With that currency weakness, Well, what can they do? The problem? The ultimate problem simply is that they have an interest rate policy that is still close to zero. Now you might say, yeah, they've increased a little bit, but we're talking about minuscule changes. So interest rates in Japan remain very very low, and in so far the US is strong and interest rates remain high. Yeah, that means that you have a massive interest rate differential. And you see this with Japanese households. They're taking their money out of Japan and putting into the US because that's where they get five percent on a deposits or something like that. In Japan you get nothing.

Some Japanese companies are benefiting from China growth, but you know, it's not easy to estimate China growth. We put a piece out on the terminal today that Bloomberg calculation suggests that China will contribute more to global growth in the next five years than all the G seven combined. It's a staggering number. Yeah, twenty one percent versus twenty percent. Now, we know that in the short term, China's kind of gearing up for the May Day holiday and there could be a lot of spending. How do you see China moving here in the short term now?

Some Japanese companies are benefiting from China growth, but you know, it's not easy to estimate China growth. We put a piece out on the terminal today that Bloomberg calculation suggests that China will contribute more to global growth in the next five years than all the G seven combined. It's a staggering number. Yeah, twenty one percent versus twenty percent. Now, we know that in the short term, China's kind of gearing up for the May Day holiday and there could be a lot of spending. How do you see China moving here in the short term now?

Now, So, when the GDP numbers came out at the beginning of the year, a lot of people said for around five percent, I thought it would be much weaker. I even know people say I can't believe that particularly number. No, we now have more data, macro data coming out out of China that supports that actually the economy is chucking along reasonably a bit faster than what the market was forecasting. But we also look at earnings. Now you can say, well, earnings, you can accountants can fiddle around with that, but cash earnings what we call cash flow money that you flow in and out. There's nothing to fiddle there. And actually it's not too bad. Yeah, the earnings growth has held a reason to you. Oh, I've got about fifteen percent cash earnings about eight nine percent. That's probably in line with the macro numbers that we get. So there is growth in China and it's probably a little bit better than what people would have thought it would be three or six months ago.

Now, So, when the GDP numbers came out at the beginning of the year, a lot of people said for around five percent, I thought it would be much weaker. I even know people say I can't believe that particularly number. No, we now have more data, macro data coming out out of China that supports that actually the economy is chucking along reasonably a bit faster than what the market was forecasting. But we also look at earnings. Now you can say, well, earnings, you can accountants can fiddle around with that, but cash earnings what we call cash flow money that you flow in and out. There's nothing to fiddle there. And actually it's not too bad. Yeah, the earnings growth has held a reason to you. Oh, I've got about fifteen percent cash earnings about eight nine percent. That's probably in line with the macro numbers that we get. So there is growth in China and it's probably a little bit better than what people would have thought it would be three or six months ago.

Harold, thanks so much for coming into our studios and sharing your insights with this. Harold Vanderlinde, had of Asia Pacific Equity Strategy at HSBC. Our guest is David Finnerty, Bloomberg Effects and rates strategist, to take a closer look at markets. So the mood has changed quite a lot here over the past couple of weeks, David, we talked about higher for higher for longer rates there in some of those comments from leading fed proponents, and also the bar seems to be pretty high now for earnings. We saw that with a lot of the after hour is selling and the dollar, ever stronger, is also kind of wreaking havoc on markets. Do you see that holding for a while that kind of mood?

Harold, thanks so much for coming into our studios and sharing your insights with this. Harold Vanderlinde, had of Asia Pacific Equity Strategy at HSBC. Our guest is David Finnerty, Bloomberg Effects and rates strategist, to take a closer look at markets. So the mood has changed quite a lot here over the past couple of weeks, David, we talked about higher for higher for longer rates there in some of those comments from leading fed proponents, and also the bar seems to be pretty high now for earnings. We saw that with a lot of the after hour is selling and the dollar, ever stronger, is also kind of wreaking havoc on markets. Do you see that holding for a while that kind of mood?

I think yeah. Overall, I'd say yes. I think the equity market, if you look at it now, is so much good news was baked into it then I don't think it takes a lot of bad news to just give it a nudge down. You know, the S and P look at run from forty two hundred up to fifty two basically without much of a correction. So some sort of correction is quite standard with US yields. I think the hawkishness has heavily baked in. I think to get more hawkish in the near to mean really it's all data dependent now, and you really need strong, strong data now. Having said that, we don't really have much data out next week until the USPCE, So without that, it's like, well, how do yours push higher? And actually pushing down slightly now because of Middle East tensions? So if US shields don't push much higher, that does to some degree limit what the dollar can do. Having said that the dollar does benefit in a risk off sneer, But overall, I think the moves we've seen have sort of been baked in, and I don't think exactly, you know, I think there's more risks to USU was pushing lower in the terms slightly and a bit more risk off sentiment.

I think yeah. Overall, I'd say yes. I think the equity market, if you look at it now, is so much good news was baked into it then I don't think it takes a lot of bad news to just give it a nudge down. You know, the S and P look at run from forty two hundred up to fifty two basically without much of a correction. So some sort of correction is quite standard with US yields. I think the hawkishness has heavily baked in. I think to get more hawkish in the near to mean really it's all data dependent now, and you really need strong, strong data now. Having said that, we don't really have much data out next week until the USPCE, So without that, it's like, well, how do yours push higher? And actually pushing down slightly now because of Middle East tensions? So if US shields don't push much higher, that does to some degree limit what the dollar can do. Having said that the dollar does benefit in a risk off sneer, But overall, I think the moves we've seen have sort of been baked in, and I don't think exactly, you know, I think there's more risks to USU was pushing lower in the terms slightly and a bit more risk off sentiment.

So when you look at the price section today, this weakness that we were seeing in equity markets in the APAC, where is that money rotating? Is it moving into the US treasury market? Is it a haven bid that we're seeing now? I'm looking accrued up nearly one point eight percent. The dollar is stronger the end, showing a little bit of strength here, not by much. Do you have a sense of how this money is moving through the market right now as we see weaker equities in the APAC?

So when you look at the price section today, this weakness that we were seeing in equity markets in the APAC, where is that money rotating? Is it moving into the US treasury market? Is it a haven bid that we're seeing now? I'm looking accrued up nearly one point eight percent. The dollar is stronger the end, showing a little bit of strength here, not by much. Do you have a sense of how this money is moving through the market right now as we see weaker equities in the APAC?

Yeah, it's tough to say. I mean it it fluctuates. Middle East was on the way here. I think I saw some central headlines coming across from some of the team saying that something may have been happening in Iran. And if that is the case, then obviously the market is very jittery when it comes to anything in the Middle East at the moment. So the safe haven flows. Is this where the money tends to go to very quickly, you know, it's like just go ask questions lates have is something going on in that area and obviously oil was reacting into it as well. Obviously that could calm down once the dust as settled, but the knee jerk reactions always just go to the safe havens until we have a clever picture of what's going on.

Yeah, it's tough to say. I mean it it fluctuates. Middle East was on the way here. I think I saw some central headlines coming across from some of the team saying that something may have been happening in Iran. And if that is the case, then obviously the market is very jittery when it comes to anything in the Middle East at the moment. So the safe haven flows. Is this where the money tends to go to very quickly, you know, it's like just go ask questions lates have is something going on in that area and obviously oil was reacting into it as well. Obviously that could calm down once the dust as settled, but the knee jerk reactions always just go to the safe havens until we have a clever picture of what's going on.

We talked about a number of factors that could be leading to risk off sentiment. In some cases, it's way worse under the hood than it is with the headline number. For instance, the S and P down just two tents of a percent, but it was quite a little bit of selling attached to some key names that people are heavily exposed to. I wonder whether or not yields getting up on the ten year up around you know, four and a half to five percent, Whether five percent could be a real kind of inflection point, really sucking in a lot of money by acid allocators.

We talked about a number of factors that could be leading to risk off sentiment. In some cases, it's way worse under the hood than it is with the headline number. For instance, the S and P down just two tents of a percent, but it was quite a little bit of selling attached to some key names that people are heavily exposed to. I wonder whether or not yields getting up on the ten year up around you know, four and a half to five percent, Whether five percent could be a real kind of inflection point, really sucking in a lot of money by acid allocators.

Yeah, I think five. Obviously five is the nice round numbers, so it could draw a lot of interest. I don't think there's a five percent is the number, but I think look, anything around this level just you know, four sevens to five or anything around that is certainly of interest to people. Of course, the catches you come in something your funds and you're trying to go long duration. You've been burned so many times before that it's a bit like broken record and you're worried. Now cap tip with this rhetoric coming out of the Fed like, hey, we are considered rate hike if needed, or that possibilities on the table if the data backs up, and of course should that happen again, this is all lots of caveats, but the ideas and you will see you see whats go even higher. So I think the interesting thing becomes is you go, oh, four to seven is attractive, but you go our five's attractive, and you get the five, and you go, actually five point two is attractive. So it's a bit of a moving line in the sand. And I think it's really only when the markets see that data flip and the confident that the data's flipped, that the rate hikes off the table and the rate cuts are back in, then I think the market will jump very quickly into treasure.

Yeah, I think five. Obviously five is the nice round numbers, so it could draw a lot of interest. I don't think there's a five percent is the number, but I think look, anything around this level just you know, four sevens to five or anything around that is certainly of interest to people. Of course, the catches you come in something your funds and you're trying to go long duration. You've been burned so many times before that it's a bit like broken record and you're worried. Now cap tip with this rhetoric coming out of the Fed like, hey, we are considered rate hike if needed, or that possibilities on the table if the data backs up, and of course should that happen again, this is all lots of caveats, but the ideas and you will see you see whats go even higher. So I think the interesting thing becomes is you go, oh, four to seven is attractive, but you go our five's attractive, and you get the five, and you go, actually five point two is attractive. So it's a bit of a moving line in the sand. And I think it's really only when the markets see that data flip and the confident that the data's flipped, that the rate hikes off the table and the rate cuts are back in, then I think the market will jump very quickly into treasure.

We had comments from the Japanese Finance minister. Suzuki was talking about the interest rate grap the differential between the US and Japan, and that's really what's been weighing on the end. Yeah, maybe there are a few other factors. Then we get this reading today on consumer inflation in Japan. Okay, excluding fresh food, we're up two point six percent. That's still above the boj's target, but it's below estimates. Is that in keeping with this idea that the Bank of Japan will continue to tighten or are they kind of in a holding pattern right now, particularly when of the data is not making a compelling case.

We had comments from the Japanese Finance minister. Suzuki was talking about the interest rate grap the differential between the US and Japan, and that's really what's been weighing on the end. Yeah, maybe there are a few other factors. Then we get this reading today on consumer inflation in Japan. Okay, excluding fresh food, we're up two point six percent. That's still above the boj's target, but it's below estimates. Is that in keeping with this idea that the Bank of Japan will continue to tighten or are they kind of in a holding pattern right now, particularly when of the data is not making a compelling case.

I think base of the rhetoric Bank of Japan has said one thing and done the other. So, but if you're based with the rhetoric, I think at the moment they are in the holding pattern. I mean, the consensus in the markets is if they're going to hike, it looks more like October or potentially September, which sort of makes sense. You're going to wait till all the way data is fed through, which comes through in basically July August. You get all the impacts on the labor cost earnings fully fed through, and then you obviously have the call leave reports later in that in that third quarter. So I think they'll wait till then. Obviously the next week Bankageman and got in your way, there's gonna be grilled on the exchange way. I think there's gonna be no shock on that. I don't think they'll do any thing. But how he reacts to the exchange rate. People can be looking at that words of you know, well, would you consider right high and one of the governors said yes, They said, okay, that's not really what you'd be using the exchange rate policy muntly policy for. But you know they'll be looking to see what your aid as says in the comment and go from that.

I think base of the rhetoric Bank of Japan has said one thing and done the other. So, but if you're based with the rhetoric, I think at the moment they are in the holding pattern. I mean, the consensus in the markets is if they're going to hike, it looks more like October or potentially September, which sort of makes sense. You're going to wait till all the way data is fed through, which comes through in basically July August. You get all the impacts on the labor cost earnings fully fed through, and then you obviously have the call leave reports later in that in that third quarter. So I think they'll wait till then. Obviously the next week Bankageman and got in your way, there's gonna be grilled on the exchange way. I think there's gonna be no shock on that. I don't think they'll do any thing. But how he reacts to the exchange rate. People can be looking at that words of you know, well, would you consider right high and one of the governors said yes, They said, okay, that's not really what you'd be using the exchange rate policy muntly policy for. But you know they'll be looking to see what your aid as says in the comment and go from that.

So, in terms of risk gone and risk off, not being too specific about one market here or one market there, we do have the dollar and yields getting kind of close to I guess levels that you know there might be some resistance to get to the other.

So, in terms of risk gone and risk off, not being too specific about one market here or one market there, we do have the dollar and yields getting kind of close to I guess levels that you know there might be some resistance to get to the other.

Side of that.

Side of that.

Is it also quite possible that if you if you got you know, all sort of beared up here, that you could get your face ripped off because the rally can come back at any time.

Is it also quite possible that if you if you got you know, all sort of beared up here, that you could get your face ripped off because the rally can come back at any time.

Oh yeah, I think certainly with the dollar. Look, I've been a big dollar ball the whole year, but even now I just put a piece that will be going to shortly say that I think the neartime upsides a bit limited for the dollar, and the reason's been is, you know, ye would have the market prices only pricing thirty eight bases point cuts this year. That's not really that much and you need a lot more data to back that up, which can happen, certainly, but you need time for that and the other things to factor is also the other side of the effects equation, certainly on the euro, which is the bigger side, biggest portion of a dollar index or the bloomboat dollar index. Germany's economies starting to turn the corner, that being my data starting to improve, and I think if that starts to happen, the market sunny, it starts going, well, we were too aggressive on the FED ruck cuts this year. Are we too aggressive on the ECB rate cuts this year? Yes, tune's can be rate cut up, but after that these be is very vague. So something you go, well, why should I go from three cuts down to two? If you do, that's europositive, dollar negative. So I do think the upside it's a lot more harder for the dollar to rally in the near term. Having said that, as you alluded to, the downside is a bit limited because you're here, aren't going to tank anytime soon, and if they really did, it would because a big risk off, which is dollar positive anyway, So dollar upside is limited. I think a period of consolidation in the near term is what's going to happen.

Oh yeah, I think certainly with the dollar. Look, I've been a big dollar ball the whole year, but even now I just put a piece that will be going to shortly say that I think the neartime upsides a bit limited for the dollar, and the reason's been is, you know, ye would have the market prices only pricing thirty eight bases point cuts this year. That's not really that much and you need a lot more data to back that up, which can happen, certainly, but you need time for that and the other things to factor is also the other side of the effects equation, certainly on the euro, which is the bigger side, biggest portion of a dollar index or the bloomboat dollar index. Germany's economies starting to turn the corner, that being my data starting to improve, and I think if that starts to happen, the market sunny, it starts going, well, we were too aggressive on the FED ruck cuts this year. Are we too aggressive on the ECB rate cuts this year? Yes, tune's can be rate cut up, but after that these be is very vague. So something you go, well, why should I go from three cuts down to two? If you do, that's europositive, dollar negative. So I do think the upside it's a lot more harder for the dollar to rally in the near term. Having said that, as you alluded to, the downside is a bit limited because you're here, aren't going to tank anytime soon, and if they really did, it would because a big risk off, which is dollar positive anyway, So dollar upside is limited. I think a period of consolidation in the near term is what's going to happen.

David, very quickly, before we let you go, I want to get your thoughts on the Chinese currency. We haven't talked much about what's happening in China. We're seven twenty five seventy right now. If shore you want what's your outlook here?

David, very quickly, before we let you go, I want to get your thoughts on the Chinese currency. We haven't talked much about what's happening in China. We're seven twenty five seventy right now. If shore you want what's your outlook here?

Well, I think, obviously to fix the state around the seven to ten level. I thought they may go back in the seven or nine handle. But when the PBOC didn't do that, when it had the opportion earlier this week, then it did say, well, we can let it go weak if we wanted to. But again, though we're going to let it go very, very gradually. They're in no hurry to have to get towards the seven thirty or above seven thirty anytime soon, so I think any weakness will be a grind.

Well, I think, obviously to fix the state around the seven to ten level. I thought they may go back in the seven or nine handle. But when the PBOC didn't do that, when it had the opportion earlier this week, then it did say, well, we can let it go weak if we wanted to. But again, though we're going to let it go very, very gradually. They're in no hurry to have to get towards the seven thirty or above seven thirty anytime soon, so I think any weakness will be a grind.

Shall we say?

Shall we say?

All right, David, thank you for joining us. David Finnerty, Bloomberg EFX and Rate Strategist.

All right, David, thank you for joining us. David Finnerty, Bloomberg EFX and Rate Strategist.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.