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You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. on Apple, Spotify, YouTube, or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Daybreak Asia podcast. I'm Doug Krizner. So we know that the U.S. and Iran remained locked in a battle for control of the Strait of Hormuz. Earlier today, Iran attacked three ships near this critical waterway. Now, on Tuesday, President Trump extended the ceasefire that was due to expire today. And earlier today, we had some confusing signals from the president. He told Fox News the ceasefire extension was for two to five days. And then later, the White House said the president had not set a firm deadline for a proposal from Iran. Now, we also know that the U.S. is maintaining its naval blockade on vessels going to and from Iranian ports. It's a move that Iran's foreign minister, Abbas Arachi, called a violation of the ceasefire. For a closer look at what we're seeing in market action, let's bring in Bloomberg strategist Mark Cranfield, who joins from our studios in Singapore. Thank you for being here. To say that the market is on edge right now, I think, is an understatement. Give me a sense of how skittish things are from your point of view. Well, we just had a great example of it this morning. So it's Thursday morning in Asia. People were coming in expecting a very positive day. We just had excellent earnings from SK Hynix, one of the biggest companies in Korea and one of the drivers of the whole AI infrastructure boom, which you're seeing going across the world. Samsung, Taiwan Semiconductor, the other major companies in Asia in the same story. So everything looked very good. Korean stocks opened higher as expected. Then suddenly, within a few seconds, the whole mood changed dramatically. It appears that some investors had seen social media stories suggesting that Iran and the US had started fighting again. It now looks very much as though they were fake stories. But that didn't stop traders from completely ditching their good mood, which they had at the start of the session. And oil prices jumped higher. Treasury bonds got sold off. The dollar was strong and equity futures sold off. Most of that has been reversed almost as quickly as it started. But it just shows you that investors are working on the assumption that there is not going to be a big resumption of fighting in the Middle East. But if it did happen, you can just see how edgy everybody is and they will be willing to take risk action very, very quickly should that materialize. I was speaking earlier in the day to a member of the equities team in New York who said the market just wants to go higher. What is the role that momentum is playing in what we're seeing on a day when in the States, the S&P and the NASDAQ each closed at record highs? Equity investors always like to extrapolate good news. By nature, they're an optimistic group of people. I've worked with both fixed income investors and equity investors and they're a completely different mood. Fixed income investors tend to be generally more pessimistic because the bond markets do best when economies are struggling. and the complete opposite is the case for equity investors. So they want to extrapolate when there's the sense of good news, plus earnings have been coming in nicely as well. From assuming there is no more major conflict in the Middle East, equity investors can price for the scenario that we have. Oil prices can be high but remain relatively stable. So as long as if oil prices stay around about $90 per barrel, that can last for an extended period, as long as bond markets are relatively calm and currency markets are relatively calm. That is pretty much the case we've had. The huge durations we saw in the middle of March have largely calmed down. But from an equity investor's point of view, you can price in higher prices in oil, but for a sustained period you know that is a factor which is going to be in your equity calculations As long as companies are making good earnings you can live with it That pretty much the situation we have for now Incessant demand for all things chips related to AI production It something that they can live with What they can live with is when you get a sudden spike in oil prices that is uncontained. It's interesting. We had recent data from the Energy Information Administration in the U.S. showing that American oil exports, and I would include both fuel and crude oil, rose to new record highs in the most recent period. I'm wondering whether that helps explain a little bit why perhaps American markets could maybe overlook certain aspects of what the war with Iran is doing to energy, because at the end of the day, we've got data to support the idea that the U.S. is an energy powerhouse. well as long as there are no shortages of fuel and fuel products in the united states as long as exports help to sustain gdp growth in the u.s then the the picture there will look quite different say for example compared to europe europe is clearly at the other end of the scale they rely completely on imports they're looking at losses in growth because of supply constraints in various products not just in energy but in others as well you're already seeing airlines slashing like Lufthansa one of the biggest airlines in Europe is cutting 20,000 flights during the summer because they have to make a decision about which routes are going to be more profitable and which ones they can they can get rid of in order to save costs that's just an example of how it's already hitting Europe severely US may well be able to protect itself from all of those negative of things which are happening in other parts of the world. If, of course, again, we go back to the same point, if there's a re-escalation in the Middle East, all bets are off. But certainly, the US is in a much stronger position than most countries. So if we look at the price of oil and extend that to the ramifications that it may have for the market that produces electricity, the power plants that rely on crude or some derivative of that to power the generators that are used to create electricity. Does that create a little bit of uncertainty where the AI trade is concerned because these data centers are so heavily reliant on power? Yeah, definitely. I mean, we could easily go back to the situation we saw briefly in the fourth quarter of last year when equity markets were getting concerned that all this heavy investment in things like building data centers, the whole CapEx buildup across the board for AI products was not going to be sufficient in comparison to the amount of income stream that was coming from the other side. So there was going to be a negative trade-off there. We're overlooking that again for the time being because chip prices, the demand for chips seems to be insatiable. And every time chip makers want to raise prices, no one complains about it. They just continue to buy. So income streams are protected for the time being. But there's a crossover point. There always is a tipping point when somebody says, these numbers do not add up. You're putting too much money in it and returns don't match up. And we saw it briefly last year. It could easily happen again before the end of this year. We don't know exactly when it will be. Equity markets are assuming it's going to be way down the track, but it could be a very quick turnaround, particularly if we go back into a scenario where suddenly futures markets in oil start repricing $100 plus for a period. And then people say, well, this is we're back into a regime where we see elevated prices at a higher threshold than we even thought they could be. So now we have to reconsider everything. So what is the conversation then on the macro when you consider the drag on economic growth that that would have higher oil, particularly for economies in the APAC region? Is there a conversation around kind of bringing down expectations for overall GDP? We're going to get a good test of it next week. Most of the major central banks in the world have policy meetings next week. You can bet that in all the press conferences, but probably in the discussions anyway, everybody will be asking them about stagflation, the risk of stagflation in the G10 world. Sustained high energy prices clearly mean that CPI numbers, inflation numbers will be tending on the higher side. They will be above average, particularly compared to what we've seen over the past couple of years. And yet the hit to growth, potential slowdown of growth later in the year and in going into 2027 is real. And central banks are stuck somewhere in between the two. They see their inflation numbers rising. We've already seen the Reserve Bank of Australia's hike twice in a row. Singapore has tightened monetary policy. We're expecting Philippines to do the same today. And then you've got pricing in the markets, which suggests the European Central Bank the Bank of England would all start moving towards higher interest rates And yet they may also be warning at the same time that growth will come in below expectations It is a very unpleasant difficult situation for central bankers to explain but we going to probably hear a lot more about it next week. All right, Mark. Good stuff. Thank you so very much. Bloomberg strategist Mark Cranfield, joining from our studio in Singapore here on the Daybreak Asia podcast. The news doesn't stop on the weekends. Context changes constantly. 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Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. Welcome back to the Daybreak Asia podcast. I'm Doug Krizner. So as Mark mentioned in our last segment, we heard from South Korean chipmaker SK Hynix, and the company reported a five-fold jump in quarterly profit. SK Hynix also reiterated plans to ramp up its CapEx significantly this year due to surging prices of memory chips. And that's where we begin our conversation with Tom Kang. Tom is director at CounterPoint Research, and he spoke to Bloomberg TV host Heidi Stroud-Watts and Paul Allen. I just wondered what your key takeaways from those SK Hynix numbers were. Well, the numbers are very surprising. SK Hynix, we thought they would report record earnings, and they did, but it was much higher than we expected. So we were expecting 50 trillion, but they did more than that. And the profit is amazing, 37 trillion Korean won. So this trend we see coming from AI is affecting the memory market a lot and SK Hynix is benefiting the most we can see. Talk to us about the CapEx story as well because SK Hynix setting aside a significant sum here also. Right so SK Hynix they were reluctant in the beginning of the year because they weren't sure if this AI boom was here to stay or would go away. And it's a risky move to invest. But now they made the decision that they have to invest because AI companies like OpenAI and Anthropic have been showing good revenue numbers now. And so it looks like the AI trend is real and it's generating revenue. And there's another factor. They see CXMT, their largest Chinese competitor, investing heavily. And so they're feeling the heat. So they made the decision to invest in CapEx. And this will be a big change for the memory industry. Tom, it's interesting everyone's still calling this a trend, right? Do you see a situation where we're starting to see chip and memory stocks not being traded and treated like a commodity anymore and not being susceptible to the usual kind of boom-bust cycle that we might see? They seem a lot more intrinsically tied to AI companies, AI accelerator projects and those prospects. Well, this is a big super cycle and it's lasting longer than we expected. Actually, if we look at the Q2 contract prices, they're still rising. So it's not going away. And we've never seen such a cycle being extended to such a long period. But definitely the memory market is cyclical. There are ups and downs. We just have longer cycles sometimes. So the downturn will definitely happen. But it will probably happen at a time we never expect. But you can say that the need for memory from the AI side is going to continue. But as you see companies like SK Hynix invest more and then companies like CXMT from China invest even more there will at a certain moment be oversupply in the industry and that's what everyone is fearing. But the problem is no one knows and it doesn't seem to be coming this year or even early next year. So they've made decisions to invest with confidence. You've mentioned one of the challenges being China. The other one, obviously, in a broadly macro sense, is what's going on in the Middle East. You said that it's minimal, the disruption. Do you see a situation where the commodities price pressure, the energy price pressure starts to have an impact on these foundries, on production and costs? Yes, of course, the crisis in the Middle East is going to be a worldwide problem. And actually, oil prices are very important because this is linked to electricity, power. And power is very important for AI. So right now, it's not just memory that is in shortage, it's power. It's electricity that's also in a very tricky situation where demand is exceeding supply. So if oil prices go up and if energy prices go up, it will affect the AI industry and then AI companies will have to slow down. And that could affect the memory industry. But right now, it's not just AI. We see demand for better memory in PCs, mobile, everywhere. So there could be some impact, but unless the oil prices go beyond 120 per barrel, it won't slow down the AI boom right now. In terms of SK Hynix, it's just been an incredible 12 months really. That stock is up by more than 570% on year and about 90% year to date. How much more upside do you see for SK Hynix? Do you have a target for the year end? Right. So the surprise we see in the QN numbers comes from the fact that the long-term contract prices were not rising in January, but it started to rise in February. So companies like Apple, Samsung, Huawei, Motorola, they make long-term contracts. the long-term contract prices started to rise in February and we saw this rise rapidly in March and that was the extra margin the extra profit that SK Hynix earned in Q1. So this we see this continuing in April according to our price tracking in in April the prices are rising even more so it's not slowing down. So we expect a better Q2. So the profits, the Q1 profits are actually going to be smaller than the Q2 or Q3 and Q4. So I can just say that till the end of this year, there's definitely a lot of upside for SK Hynix. That's Tom Kang, director at CounterPoint Research, speaking with Bloomberg TV host Heidi Stroud-Watts 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 story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg podcast, YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krizner, and this is Bloomberg. I'm Francine Lacroix, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment, but I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts.
