# Stocks Drop on AI Slowdown Concerns, Central Bank Lookahead

An episode of [Bloomberg Daybreak: Asia Edition](https://invisiblenetwork.ai/podcast/1663863437), 14 Sep 2026, 22 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/58e85be7-dbb5-4043-afed-af80014dc0b3/8b061c32-ca95-4d45-be4d-b4c50033d77d/audio.mp3?utm_source=Podcast&in_playlist=27143354-63aa-4ac5-965d-af80014dc0d3

Business and finance news from the Asia-Pacific. Central banks from much of the Group of Seven face a pivotal week as mounting inflation risks heap pressure on them to raise interest rates. The US will be most closely watched in the wake of a higher-than-expected core inflation reading, which stoked investor bets that Fed Chairman Kevin Warsh and his colleagues will raise their benchmark rate. Meantime, the Reserve Bank of Australia is set to have their rate decision later in the month. We speak to James McIntyre, Bloomberg Economist for Australia and New Zealand. Plus - Asian stocks and US equity-index futures retreated after major artificial intelligence companies called for a slowdown in the technology's development, raising concerns about a sector that has powered this year's rally. Oil rose. Bloomberg's Haidi Stroud-Watts spoke to Vasu Menon, Managing Director, Investment Strategy, OCBC. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios.
[0:04] Speaker 2: Podcasts.
[0:05] Speaker 3: Radio. News.
[0:11] Speaker 1: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Three
[0:14] Speaker 1: of the world's major central banks have rate decisions this week,
[0:18] Speaker 1: beginning with the Fed on Wednesday. Now, the case for
[0:21] Speaker 1: a rate hike in the States was strengthened last Friday
[0:23] Speaker 1: with a hot reading on core consumer prices. And in response,
[0:27] Speaker 1: we had a spike in treasury yields, Right across the curve,
[0:30] Speaker 1: at the long end, the 10-year came very close to 5%.
[0:33] Speaker 1: We'll also hear this week from the Bank of England
[0:36] Speaker 1: and the Bank of Japan. And Taiwan Central Bank is
[0:39] Speaker 1: expected to tighten its policy. Then, later this month, the
[0:43] Speaker 1: Reserve Bank of Australia could raise its policy rate by
[0:46] Speaker 1: 25 basis points. At the end of this week, we'll
[0:49] Speaker 1: hear from RBA Governor Michelle Bullock when she appears before Parliament.
[0:54] Speaker 1: For a closer look at what's happening in the rates
[0:56] Speaker 1: environment globally and some of the stories that are coming
[0:59] Speaker 1: out of Australia, let's bring in Bloomberg economist James McIntyre.
[1:04] Speaker 1: James covers the economies of Australia and New Zealand, and
[1:07] Speaker 1: he joins from our studios in Sydney. Thank you for
[1:10] Speaker 1: being here. I want to get to the story on
[1:12] Speaker 1: what's happening with the private credit markets in Australia in
[1:16] Speaker 1: a moment, since that very much seems to intersect with
[1:20] Speaker 1: the RBA's posture on tightening. But give me your sense
[1:24] Speaker 1: right now in terms of where central bankers are in
[1:28] Speaker 1: trying to get inflation under control. You get this feeling that,
[1:31] Speaker 1: I don't know what jurisdiction you're talking about, but the
[1:34] Speaker 1: consensus is there behind the curve.
[1:38] Speaker 3: Thanks, Doug.
[1:39] Speaker 2: Yeah, look, there is this, that's where markets are really
[1:42] Speaker 2: seeing things right now. And there's a couple of reasons why.
[1:46] Speaker 2: It's a bit of a, you know, the central banks
[1:48] Speaker 2: are facing two global shocks that everyone is having to
[1:51] Speaker 2: respond to. And the two global shocks that We had
[1:55] Speaker 2: economies thinking that we were going to be going in
[1:57] Speaker 2: one direction with a little bit of a slowdown and
[2:01] Speaker 2: a view in– if we think about where we might
[2:03] Speaker 2: have been in 2025 towards inflation from the Russia invasion
[2:10] Speaker 2: of Ukraine in 2022 and 2023 moving through the system.
[2:14] Speaker 2: But here we are. We've got this renewed energy inflation
[2:17] Speaker 2: shock from the conflict with Iran. And then overlaid behind
[2:21] Speaker 2: all of that is the growing realisation and the growing
[2:25] Speaker 2: physical impacts of the AI investment boom that's hitting everyone.
[2:30] Speaker 2: Down here in Australia, we've got a major capital investment
[2:35] Speaker 2: program underway, and that's the case that's hitting many places
[2:39] Speaker 2: around the world. So you've got central bankers having to pivot,
[2:42] Speaker 2: and pivot quickly. Markets have pivoted well before them, and
[2:45] Speaker 2: that's what bond yields are suggesting, that, look, as we
[2:48] Speaker 2: go through this inflationary shock higher energy prices, and this
[2:52] Speaker 2: seemingly unrelenting demand boom that's coming to build out all
[2:56] Speaker 2: of the data centers so we can undertake and utilize
[3:00] Speaker 2: the incredible tools that AI continues to evolve, those things
[3:05] Speaker 2: are now catching central banks on the hop. And they're wondering, well,
[3:08] Speaker 2: what do we need to do in response? What here
[3:11] Speaker 2: is permanent? What here is a transitory shock? And do
[3:15] Speaker 2: we have the luxury of waiting? And I think markets
[3:17] Speaker 2: view right now is that there's a little less of
[3:19] Speaker 2: that luxury than many of us would prefer.
[3:22] Speaker 1: So in the last week, there was a very good example,
[3:24] Speaker 1: it seemed to me, in Australia of the unintended consequences
[3:27] Speaker 1: of higher interest rates with the collapse of an Australian
[3:31] Speaker 1: property developer. Give me the story first before we get
[3:34] Speaker 1: into some of the details.
[3:36] Speaker 4: Yeah.
[3:37] Speaker 2: So in Australia, we've had three rate hikes this year.
[3:41] Speaker 2: Rates are at their relatively high level compared to where we've,
[3:47] Speaker 2: you know, recent years, especially post-pandemic. And so we've seen
[3:51] Speaker 2: a lot of strain across the residential construction sector. In Australia,
[3:56] Speaker 2: mortgages are generally floating rate. And so that means that
[4:00] Speaker 2: the monetary policy instrument does have a big rapid effect
[4:03] Speaker 2: and pass through into the economy. And the most interest
[4:05] Speaker 2: rate sensitive sector of the, of of the economy is
[4:09] Speaker 2: the residential construction sector. The sector's been under pressure and
[4:12] Speaker 2: we're starting to see the pressure emerging with cracks or
[4:16] Speaker 2: failures of businesses. And one of them was a developer,
[4:20] Speaker 2: a predominantly Sydney-based group called Bathla, and they specialised in
[4:27] Speaker 2: low to mid-range cost or a more affordable end of
[4:31] Speaker 2: the market and apartments. And so you've had this interest
[4:34] Speaker 2: rate shock, A lot of uncertainty within consumers from the
[4:38] Speaker 2: Iran conflict and the fuel price hit that's come from that.
[4:43] Speaker 2: And then at the same time, another bogey entered in
[4:47] Speaker 2: the form of government taxation changes. And all of that
[4:51] Speaker 2: meant investors pulled back from purchasing these apartments. The housing
[4:56] Speaker 2: market went into decline. We've had a 5% decline so far,
[4:59] Speaker 2: probably some more still to go. and a bit of
[5:04] Speaker 2: a bigger decline in Sydney in prices. So all of
[5:07] Speaker 2: a sudden you have these developers sitting there, rising construction costs,
[5:12] Speaker 2: rising costs of debt for the stock that they're holding,
[5:17] Speaker 2: buyers running in the other direction, and the product that
[5:19] Speaker 2: they're trying to sell, finished apartments, falling in price as well.
[5:24] Speaker 2: So this is, I guess, a bit of a perfect storm,
[5:26] Speaker 2: and we've seen this big company, Bathler, go into administration,
[5:30] Speaker 2: and that's a challenge because... The residential developers this time
[5:34] Speaker 2: around in this cycle have sourced a lot of their funding,
[5:38] Speaker 2: not from banks where they traditionally tended to source it from,
[5:41] Speaker 2: but from the private credit sector.
[5:43] Speaker 1: But that was going to be my question, whether these
[5:44] Speaker 1: developments in any way kind of alter the thinking at
[5:47] Speaker 1: the RBA right now, or is it too soon to know?
[5:50] Speaker 2: This is the challenge. The RBA is a dual mandate
[5:53] Speaker 2: central bank, and they have been incredibly concerned about what's
[5:57] Speaker 2: happening with inflation. From all of those issues we just
[6:00] Speaker 2: spoke about a little bit earlier, And so that's where
[6:03] Speaker 2: the RBA is very, very concerned about the demand remaining
[6:06] Speaker 2: strong in the economy, inflation higher than they want for
[6:09] Speaker 2: longer than they want, and these fuel prices encouraging consumers
[6:14] Speaker 2: to think that, you know, well, there is a bit
[6:16] Speaker 2: more inflation. And so that is being offset by a
[6:20] Speaker 2: downturn in the property sector. The downturn, it's had this casualty,
[6:25] Speaker 2: but it's having another casualty as well in terms of
[6:28] Speaker 2: the wealth effect, a negative wealth effect, perhaps putting helping
[6:32] Speaker 2: consumers or encouraging consumers to keep their wallets shut. As
[6:35] Speaker 2: those balance sheets are hit by falling house prices at
[6:39] Speaker 2: the consumer side, there's this real tension for the RBA
[6:44] Speaker 2: about problems with inflation and inflation persisting, but weakness of consumers,
[6:50] Speaker 2: but that's being overrun by the demand piece in the
[6:53] Speaker 2: economy from the data center boom. So this is really
[6:56] Speaker 2: squaring things up for a big, Expectation within markets and
[7:00] Speaker 2: market pricing has shifted for the RBA to, if they
[7:04] Speaker 2: don't hike at the September meeting, perhaps hiking again in November.
[7:08] Speaker 1: What is your base case for the September meeting?
[7:11] Speaker 2: Well, our base case is that the RBA looks through
[7:15] Speaker 2: in September. But I was just looking through some of
[7:18] Speaker 2: the data this morning. Fuel prices are looking like they're
[7:22] Speaker 2: going to be increasingly moving higher based on what we're
[7:25] Speaker 2: seeing at the refinery level in Asia and in Singapore
[7:30] Speaker 2: with those benchmark prices for fuel products there at the
[7:34] Speaker 2: wholesale level. So that's straining my base case a little bit.
[7:39] Speaker 2: But my view is that the base case is that
[7:41] Speaker 2: they'll hold in December. which brings us through to give
[7:44] Speaker 2: them another monthly and, importantly, the big quarterly inflation reading,
[7:49] Speaker 2: which they'll get ahead of the November meeting. So that
[7:52] Speaker 2: could be the setup there, that if they might hold
[7:54] Speaker 2: fire just now, and that sets up November for a
[8:00] Speaker 2: potential hike, depending on what inflation delivers.
[8:03] Speaker 1: James, before I left you go, last question in terms
[8:06] Speaker 1: of what Bathlem may represent, the collapse of that property developer,
[8:11] Speaker 1: whether there is a conversation going on right now in
[8:13] Speaker 1: Australia about potential systemic problems within the financial system, whether
[8:19] Speaker 1: or not it's isolated more on the shadow banking side
[8:22] Speaker 1: rather than the kind of the normal banking industry, whether
[8:26] Speaker 1: people are beginning to be a little concerned and perhaps
[8:30] Speaker 1: defensive that we could see other situations like we have
[8:32] Speaker 1: seen with Bethlehem?
[8:34] Speaker 2: I think this is going to be a problem not
[8:36] Speaker 2: just within Australia, but everywhere as a result of where
[8:39] Speaker 2: bond yields are. Bond yields are repricing assets all across
[8:44] Speaker 2: the economy. And when we think about what might the
[8:47] Speaker 2: value of commercial assets, such as commercial properties or land
[8:53] Speaker 2: banks for developers, the cap rate that is going to
[8:56] Speaker 2: be applied to those is going to mean that the
[8:59] Speaker 2: value of those assets right now is not what it
[9:02] Speaker 2: was when books might have been ruled off at 30 June,
[9:05] Speaker 2: as they are from an Australian fiscal perspective. And so
[9:08] Speaker 2: that means that this private credit sector is really facing
[9:11] Speaker 2: a tension right now of, well, we had a loan
[9:14] Speaker 2: covenant for a loan-to-value ratio for these assets of this,
[9:18] Speaker 2: but if we were to dynamically mark that to market today,
[9:22] Speaker 2: where bond yields are, that loan-to-value might be out of range.
[9:27] Speaker 2: And so, this is where the private credit sector within
[9:29] Speaker 2: the local economy is facing an incredible attention. Some of
[9:33] Speaker 2: the funds have had to lock up to prevent investors
[9:36] Speaker 2: from redeeming their funds, but that capital tension is also
[9:39] Speaker 2: going to be going the other way, with that next
[9:41] Speaker 2: dollar potentially going out the door to fund a project,
[9:45] Speaker 2: really getting that extra scrutiny. And this is where it
[9:47] Speaker 2: starts to, I guess, the financial market's starting to really
[9:51] Speaker 2: impose that discipline from high bond yields onto activity in
[9:55] Speaker 2: the real economy. So this is, I think, something that
[9:58] Speaker 2: we're going to... It's not just... a one-off when it
[10:01] Speaker 2: comes to Bathlow. We'll be seeing that tension rising through
[10:05] Speaker 2: the Australian private credit sector. And I would hazard to
[10:07] Speaker 2: say that bond yields are elevated everywhere. So this is
[10:11] Speaker 2: going to not just be an Australian story. But from
[10:14] Speaker 2: an Australian perspective, it's going to be sort of really
[10:17] Speaker 2: putting the brakes on a lot of economic activity. And
[10:21] Speaker 2: that will be, I guess, the, you know, the cure
[10:24] Speaker 2: for high bond yields is high bond yields, so to speak.
[10:27] Speaker 2: And we'll see that process continue over the next couple
[10:30] Speaker 2: of months, I would expect.
[10:31] Speaker 1: All right, James, thank you so very much. Always a pleasure.
[10:34] Speaker 1: We'll leave it there with Bloomberg economist James McIntyre. He
[10:37] Speaker 1: covers Australia and New Zealand. Joining us here on the
[10:40] Speaker 1: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
[10:51] Speaker 1: I'm Doug Krisner. As I mentioned a moment ago, the
[10:54] Speaker 1: Fed has a rate decision this week, and policymakers are
[10:57] Speaker 1: facing renewed pressure to raise rates given elevated levels of inflation.
[11:02] Speaker 1: And this will put Chair Kevin Warsh on a collision
[11:05] Speaker 1: course with President Trump, who has pressed the Fed to
[11:08] Speaker 1: cut rates. On Sunday, Trump said again the U.S. should
[11:12] Speaker 1: be paying the lowest interest rate in the world. And
[11:15] Speaker 1: that's where we begin our conversation with Vasu Menon. Basu
[11:19] Speaker 1: is Managing Director of Investment Strategy. At OCBC, he spoke
[11:23] Speaker 1: with Bloomberg TV host Heidi Stroud-Watts. Heidi started the conversation
[11:27] Speaker 1: by asking Vasu for his outlook on markets.
[11:30] Speaker 3: I've been tracking markets for the last 30, 40 years,
[11:33] Speaker 3: and I must tell you that, you know, this is
[11:34] Speaker 3: one period where you have so many moving parts, so
[11:37] Speaker 3: difficult to analyze the markets. But, you know, I think
[11:39] Speaker 3: one of the key events this week will clearly be
[11:41] Speaker 3: the Fed meeting, and all eyes will be on the
[11:43] Speaker 3: Fed meeting, you know, and it's going to be a
[11:46] Speaker 3: close call. I mean, the inflation data, while... It turned
[11:51] Speaker 3: out to be higher than expected on Friday. Doesn't really
[11:54] Speaker 3: support a very strong case for the Fed to hike,
[11:57] Speaker 3: you know, this week, we think. But nevertheless, there is
[12:01] Speaker 3: a chance that with so much of pressure from the
[12:04] Speaker 3: markets and, you know, the markets expecting wash to act,
[12:09] Speaker 3: he may just deliver an insurance card. I mean, it's
[12:11] Speaker 3: possible the Fed may deliver an insurance card, and that
[12:14] Speaker 3: may be necessary to prevent the long bond yields from
[12:17] Speaker 3: rising further. Because one reason why the long bond yields
[12:20] Speaker 3: have been rising is because the market's also testing the
[12:23] Speaker 3: credibility of the Fed and its inflation-fighting commitment. So, you know,
[12:28] Speaker 3: that will be put to test this week. And so
[12:31] Speaker 3: it's a very close call. But if you look at
[12:33] Speaker 3: the fundamentals in terms of wage growth, underlying inflationary pressures, yes,
[12:37] Speaker 3: it's running above 2%, the Fed's target, but it's been
[12:40] Speaker 3: running above 2% for the last five years. And there
[12:42] Speaker 3: isn't a strong enough case for the Fed to act aggressively.
[12:45] Speaker 3: And we think... That means that the backdrop for equity
[12:48] Speaker 3: markets in general should still be quite positive for the
[12:51] Speaker 3: medium term. Although in the short term, I think everything
[12:55] Speaker 3: that's happening to the yield markets and with the Fed
[12:57] Speaker 3: meeting and the BOG meetings coming up, that's going to
[13:00] Speaker 3: create quite a bit of noise and volatility.
[13:04] Speaker 1: There's a lot of volatility, of.
[13:06] Speaker 4: Course, when it comes to the AI thematic chip makers.
[13:09] Speaker 4: At the moment, we're seeing SK Hynix in the first
[13:11] Speaker 4: few minutes falling more than 5%. Samsung is down more
[13:14] Speaker 4: than 4% as well. The broader Kospi is down by
[13:17] Speaker 4: over 3%. We are clearly seeing that reaction to top
[13:21] Speaker 4: AI executives warning about the slowing, wanting to slow the
[13:25] Speaker 4: development of AI technology. Of course, we heard from the
[13:28] Speaker 4: anthropic chief saying that the company would introduce additional safeguards
[13:32] Speaker 4: including independent third-party evaluations. We also heard Sam Altman backing
[13:37] Speaker 4: the proposal, saying that Dario is right, is what we
[13:39] Speaker 4: heard from Elon Musk as well. So, when it comes
[13:43] Speaker 4: to this coming from within AI itself, essentially, some of
[13:47] Speaker 4: the biggest proponents of the technology, what implication does this have,
[13:51] Speaker 4: do you think, when it comes to the broader AI
[13:53] Speaker 4: trade and certainly the rally that we've seen in these
[13:56] Speaker 4: chip makers?
[13:59] Speaker 3: Well, you know, it clearly calls for caution from investors.
[14:01] Speaker 3: You know, we have to draw a distinction. This does
[14:05] Speaker 3: not indicate that, you know, the AI boom is over.
[14:08] Speaker 3: It just highlights that, you know, many of the frontier
[14:12] Speaker 3: model developers are injecting caution into the market for safety reasons.
[14:16] Speaker 3: They're not saying that, you know, AI demand is going
[14:18] Speaker 3: to collapse. They're basically saying for safety reasons, you know,
[14:22] Speaker 3: we should be careful with the frontier models. And so far,
[14:26] Speaker 3: as you said, you've got Entropic, you've got OpenAI, You've
[14:28] Speaker 3: got Elon Musk adding his two cents. And the question
[14:32] Speaker 3: is whether you'll see more and more of the hyperscalers
[14:35] Speaker 3: and perhaps some of the frontier labs coming out and
[14:38] Speaker 3: saying that as well. Now, if they say that, then
[14:41] Speaker 3: the markets will have to readjust its assumptions about AI
[14:45] Speaker 3: KPEC spending. Because right now, the markets are very bullish
[14:49] Speaker 3: on AI KPEC spending for 26, 27, and 2028. And
[14:55] Speaker 3: so if more companies come out and inject caution into
[14:59] Speaker 3: the market, then those assumptions could be tested. And as
[15:02] Speaker 3: a consequence, you could see some degree of digestion taking
[15:05] Speaker 3: place in the AI space, especially among the semiconductor players.
[15:10] Speaker 3: But I think this by no means indicates that, you know,
[15:13] Speaker 3: the AI boom is over. I think it's a multi-year trend.
[15:16] Speaker 3: It's just that, you know, it's going through, it's probably
[15:18] Speaker 3: going to go through a period of consolidation if you
[15:20] Speaker 3: have more AI-related players coming on and singing the same
[15:25] Speaker 3: tune as Entropic and OpenAI.
[15:29] Speaker 4: In the meantime, are there better opportunities perhaps in China?
[15:35] Speaker 3: Well, you know, definitely, I mean, Chinese technology companies, internet
[15:40] Speaker 3: companies do offer opportunities, but we would not advise investors
[15:45] Speaker 3: to throw all the eggs into one basket. We believe that,
[15:49] Speaker 3: you know, the AI space is very diverse. And you're
[15:52] Speaker 3: going to see dispersion in terms of performance. And I
[15:55] Speaker 3: think it's important for investors to invest in China. I
[15:59] Speaker 3: think there are going to be opportunities there as well.
[16:01] Speaker 3: But at the same time, keep a very diversified portfolio.
[16:05] Speaker 3: Be very nimble and ready to rotate as developments play out.
[16:13] Speaker 1: We.
[16:14] Speaker 4: You spoke a little bit earlier about the big risk
[16:17] Speaker 4: at the energy pipeline. Where do you see this playing
[16:19] Speaker 4: out perhaps most negatively in Asia and where you see
[16:23] Speaker 4: pockets of resilience and how would you invest according to that?
[16:28] Speaker 3: Well, you know, that's a very tough one. What's happening
[16:30] Speaker 3: in Saudi Arabia, shutting down its oil pipeline because of,
[16:33] Speaker 3: you know, attacks from Iraq, right? And, you know, I
[16:37] Speaker 3: think that's caused oil prices, as you said earlier, to
[16:39] Speaker 3: rise by 2%. So oil is clearly in focus. We
[16:42] Speaker 3: talked about what I'm focusing on, and clearly oil is
[16:45] Speaker 3: one of the factors we are keeping a very close
[16:46] Speaker 3: eye on because it's gone above $ 100 a barrel. And
[16:49] Speaker 3: it's a very tough one. I mean, it means that,
[16:52] Speaker 3: you know, the markets are going to be very worried
[16:54] Speaker 3: about oil prices. It's a second round impact on inflation.
[16:59] Speaker 3: But we've seen this happen before. We've seen oil prices
[17:02] Speaker 3: go past 100 only to pull back as tensions ease.
[17:05] Speaker 3: So what Iran is doing with Oman and its regional
[17:10] Speaker 3: Gulf partners, I think that will be something to watch
[17:13] Speaker 3: very closely. They've run into some hiccups, but if they're
[17:15] Speaker 3: able to sort it out and we could see greater
[17:17] Speaker 3: traffic go through Hormuz, you know, control traffic, go through hormones,
[17:21] Speaker 3: that could increase oil supply. If tensions ease, oil prices
[17:25] Speaker 3: would come down, so we wouldn't press the panic button or,
[17:28] Speaker 3: you know, bring out the red flag. We've seen this
[17:30] Speaker 3: happen before, and we think that, you know, more than
[17:33] Speaker 3: just oil, it's really about the interest rate picture, central
[17:38] Speaker 3: bank picture, and yields that are probably more important. Although
[17:41] Speaker 3: those things do get impacted by oil prices as well.
[17:46] Speaker 4: And certainly the impact for the Bank of Japan is
[17:49] Speaker 4: going to be quite acute when you take a look
[17:51] Speaker 4: at the response function in the yen, right? Does this
[17:55] Speaker 4: largely depend on what we see and hear out of
[17:58] Speaker 4: the Fed on Wednesday that's going to also potentially change
[18:03] Speaker 4: the risk factor for the Bank of Japan?
[18:07] Speaker 3: I think the Bank of Japan will be paying very
[18:09] Speaker 3: close attention to what the Fed says. Its meeting takes
[18:12] Speaker 3: place a day or two after the Fed meeting, so
[18:16] Speaker 3: it will have additional input. But I think Eureda has
[18:19] Speaker 3: made it quite clear that a rate hike is on
[18:21] Speaker 3: the table. It's something they'll discuss at the September meeting
[18:24] Speaker 3: this week. And, you know, I think there is a
[18:27] Speaker 3: case for the BOJ to hike rates once again. So
[18:30] Speaker 3: I think, you know, it's almost a given that, you know,
[18:33] Speaker 3: the BOJ will probably hike rates come this week, given
[18:36] Speaker 3: the underlying inflationary picture. Import prices in Japan have gone
[18:40] Speaker 3: up by more than 20% because of the weaker yen.
[18:43] Speaker 3: Producer prices are running at more than 7%. and core CPI,
[18:48] Speaker 3: especially in Tokyo, is now at 2%, which is at
[18:52] Speaker 3: the BOJ's target. So I think there's a case for
[18:57] Speaker 3: the BOJ to hike rates. More important to me would
[18:59] Speaker 3: be what the BOJ says about future rate hikes, what
[19:03] Speaker 3: UEDA says about future rate hikes, whether this will just
[19:06] Speaker 3: be a one-off or whether we'll see more consecutive rate hikes.
[19:10] Speaker 3: I think that's going to be more important to watch
[19:12] Speaker 3: out for.
[19:15] Speaker 4: How much pressure are we going to continue seeing on
[19:18] Speaker 4: equity sentiment if yields continue to push higher? Obviously, 5%
[19:22] Speaker 4: is going to be key for treasuries. But does that
[19:25] Speaker 4: also take some of the shine off earnings season in
[19:28] Speaker 4: the sense that even if we do have outperformance for earnings,
[19:32] Speaker 4: that's going to have a lot less cachet than it
[19:35] Speaker 4: perhaps would have without such a challenging yield environment?
[19:41] Speaker 3: Without a doubt, if yields go past 5%, it will
[19:44] Speaker 3: pose some challenges for the equity markets, without a doubt,
[19:48] Speaker 3: and the bond markets especially. But I think if you
[19:50] Speaker 3: go back to history, the last time US 10-year yields
[19:54] Speaker 3: went past the 5% level and stayed above that level
[19:57] Speaker 3: for a prolonged period was in 1999. In February of 1999,
[20:02] Speaker 3: the yields went up above 5%, stayed above 5% and
[20:05] Speaker 3: headed towards the close to 7% mark in the year 2000.
[20:10] Speaker 3: So it was up above 5% for 11 months, headed
[20:13] Speaker 3: towards 7% during that period. But what's interesting is this. Now,
[20:17] Speaker 3: if you look at how the S & P 500
[20:18] Speaker 3: index performed during that period, there was a lot of volatility.
[20:21] Speaker 3: But despite the significant increase in yields, the S &
[20:25] Speaker 3: P 500 index actually rose by 14% and the MSCI
[20:29] Speaker 3: All Country Index global equities rose by more than 20%.
[20:33] Speaker 3: So rising yields are not necessarily something that could derail
[20:39] Speaker 3: the equity markets. I think what's going for equity markets
[20:42] Speaker 3: is very strong economies and earnings. And yes, the rise
[20:46] Speaker 3: in yields could create some short-term floods and volatility, but
[20:49] Speaker 3: I think in the medium term, what history tells us
[20:52] Speaker 3: is that, you know, as long as the rise in
[20:54] Speaker 3: yields is accompanied by strong growth, especially in earnings, I
[20:57] Speaker 3: think equity markets may still hit higher, especially when valuations
[21:01] Speaker 3: are not excessively high at this juncture.
[21:05] Speaker 1: That was Vasu Menon, Managing Director of Investment Strategy at OCBC,
[21:09] Speaker 1: speaking with Bloomberg TV host Heidi Stroud-Watts bringing you their
[21:13] Speaker 1: conversation here on the Daybreak Asia podcast. Thanks for listening
[21:22] Speaker 1: to today's episode of the Bloomberg Daybreak Asia edition podcast.
[21:26] Speaker 1: Each weekday, we look at the story shaping markets, finance,
[21:30] Speaker 1: and geopolitics in the Asia Pacific. You can find us
[21:33] Speaker 1: on Apple, Spotify, the Bloomberg podcast YouTube channel, or anywhere
[21:37] Speaker 1: else you listen. Join us again tomorrow for insight on
[21:40] Speaker 1: the market moves from Hong Kong to Singapore and Australia.
[21:45] Speaker 1: I'm Doug Krisner, and this is Bloomberg.

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