haidi: welcome to "daybreak: australia." we are counting down to asia's major market opens. annabelle: the top stories this hour, asian stocks set for early gains with the best three-day rally since november on bets of fed rate cut this year is still on the cards. australia's reserve bank looking set for a hawkish hold. haidi: and anz with a buyback is the first time i earnings miss estimates. we speak with the group ceo, shane elliott. annabelle: israel rejects the cease-fire plan backed by hamas. we check on how u.s. futures are coming online this morning. we just come off the best three-day rally for stocks going back to november of last year. the s&p 500 pushed above its 50 day moving average in the prior session. it all comes down to a solid

earnings season that has been driving optimism's and expectations at the fed will cut rates later this year. we heard from the citadel ceo about this. take a listen. >> there likely -- there still question of will inflation accelerating up by then. deglobalization happening, that takes away from the constant deflationary trend that has helped the pricing of goods for frankly most of our adult lifetime. haidi: let's get to set up when it comes to here in asia, in terms of sydney stocks coming online in just an hour or so. a little more optimism when it comes to following the leadership we saw in the u.s. session, the rates optimism will

be the strongly from wall street there that the fed will start cutting rates this year. futures for the nikkei to 25 could jump almost 2% after being closed since the end of thursday. hong kong also looking ready steady. anz has unveiled a share buyback after first half earnings missed estimates. it was short of the 3.60 3 billion projection from analysts. joining us is shane elliott, great to have you with us. we appreciate your time as always. where did you see the weakness and how would you characterize this set of results? >> i sought strength, i think it was a strong result. we come up with a record 2023,

the revenue with flat, expenses well managed and importantly, it shone through the value of having a diversified portfolio. australian retail has been subdued and we experienced that, strong performance in institutional and international business. i think it's a good position for the environment. haidi: you're joining us on rba day. how are you seeing the mood when it comes to clients, customers and the broader economy and how that is impacting your business? >> clearly there is some stress on the economy. that's to be expected, given the interest rate rise, cost-of-living pressures, etc.. so the market is subdued here in australia and new zealand, and

we see that with your customers struggling. although the number of customers from an historic point of view is still relatively low. a number of people in our hardship program, it's devastating for those .3%. 79% of our customers are still ahead on their repayments, have paid more than they were required to do and 50% are ahead by more than three months. so there is a markable resilience in the economy, although things are subdued. haidi: with the competition in australia, how vindicated are you by your international strategy? given there were discussions with pension funds, for india, and an update on how procurement is going in the chinese market

for anz? >> in australia we have four great businesses, and the peace we really shine is institutional. some of -- we operate 29 markets around the world. it has been hard work, you can just turn up in singapore, india or china and expect to get a fair go. you have to work really hard, and we have worked really hard building up a strong foundation, investing in things we do better than others, which is facilitating the moment around the region and we are in all the right places we need to be. we've got all the right licenses we need to have and more importantly, we have the customers we need. we are dealing with the world's great companies and is going

particularly well. but you never take it for granted, international and asian banking is hard. we are competing with the world's greatest banks. it's great that we can sit here today and say we just delivered the record for our international institutional bank after many years of hard work we believe it is a sustainable position. annabelle: as you said, it is a challenging environment internationally. you're exiting or reducing some states. can you give us an update on that as well? >> sure. we have doubled down on anz branded corporations. we want to be the best bang for those who move goods and capital around the asia-pacific with anz. the right people at the right place. we inherited some previous

businesses and stakes that were partners in investments in other banks. we have decided they no longer have a place at anz, we are just not the best sure helder -- shareholder for them so it is time to move on. we announce a sale of a good bank in malaysia, we're just not the best partner for them. we have sold a lot over the years, we have sold 30 businesses, as a few left, and as we said, we don't think we are the right owner for those. we would like to ensure that we can monetize those for the benefit of our shareholders but we want to focus on core anz branded services across the asia-pacific. annabelle: as you said that sale

made up quite a portion of the money return to shareholders. on that basis, is it the biggest return of capital we will see from anz in a while? >> perhaps, time will tell. the important thing here is what we have built in terms of the balance sheet. we have really strengthened the balance sheet. holding onto capital, and even after the buyback, even after we paid to buy central bank which we hope to get approved later in the year, we've still got significant value in our base. when i looked through to the balance sheet, what gives me real confidence is our customization. we've chosen the very best

customers to deal with. we are generating capital each and every day. some of that capital will go back to shareholders in the form of dividends. it will get reinvested into the business to generate growth for the long-term. if there is excess capital, we will return enter shareholders, but we've got a long way to go. we will take it from there. haidi: we talked about the rba earlier and i want to get some insight from you. potentially even more tightening across the end of the cycle, what businesses are you focused on growing at this point in the cycle? >> that's been the view of anz for quite a while. we felt the environment was such that we should expect rates to state high for longer. the market was getting overly

excited about the potential for rate cuts and i think now there is general consensus that any rate cuts will be later, potentially into your. it comes down to running the right businesses. as i said, we've got four businesses. i don't know what's going to happen in the economy or with currencies, but i know the needs of our customers will shift and change. we need to build a dynamic business and ability to move investments around to respond to what our customers need. we are seeing structural slowdown of growth in china. china is critically important in australia and around the asia-pacific. capital from customers is being redeployed elsewhere into asia and supply chains move. ainsley is perfectly

well-positioned to benefit from that because we are in those places, india, vietnam or wherever it might be, we are there. if we are nimble and able to move capital to respond to customer needs, those are the areas where we will have growth. the second one, the other really important thing is our transformation away from being a lending leader of investments around the region. it has underpinned the strength of our business, we see that as fundamentally inspiring growth over the long-term. international payment processing grew 8.5% year on year. digital payments grew 70%. real-time payments grew 20%. that's where the growth will come from in the future.

haidi: great to have you with us, shane elliott from anz group. garfield rentals, we had some interesting comments there in terms of the environment on rba day, challenging terms of the competition for a lot of these banks in the moment. we've seen that focus on return to shareholders this week. >> the focus on return to shareholders is not just an australian theme at the moment, is very much part of what is going on in the u.s. and is expected to go on. on the one hand it's back to business as usual for companies, they are making plenty of money, and they want to share that around with their shareholders. the reason there's a little bit of concern for a broader story pointing to strong competition,

the flipside to returning money to shareholders is that the companies don't see all that much worthwhile that they can do with it themselves. that's a little bit of caution, especially with share prices in general elevated. this is likely to drive them up in the short term. in the longer term, or companies going to be building the sort of set up that will deliver greater earnings going forward? annabelle: share buybacks, giving dividends, stronger earnings, it has been a fairly consistent theme throughout the earnings season so far. then the fed backdrop lending positivity. how long do you see this dynamic lasting, and what's going to be the next big driver for momentum? garfield: we are still very much

in that situation where central banks and what they are doing our very key, especially because -- and i was pondering this as i was reading some of the comments, i saw the headlines out from franklin templeton talking about 0, 1, or two fed cuts, that we've had a shift in what central-bank same for when they raise interest rates. it always used to be the traditional idea of how the rbnz does things. kind of no matter what, the strong message from fed chair powell and governor bullock here in australia, from the ecb has been we want to tame inflation without breaking economies.

we want to achieve that rare, beautiful thing of a soft landing. so as long as you have a soft landing still as the apparently achievable aim, that is definitely the way central bankers and investors are looking at these things. then i don't see any reason why you can't go on having wrong earnings and also a willingness to return some of those earnings to shareholders. when the companies are looking around and saying we want a higher share price and we don't necessarily see something we could put all this money to work with that will give us the returns we want. as long as a soft landing is in play, you can see that coming along, if there is no landing in play, then you might well see companies say we can get the

earnings we want. if we get a hard landing that could argue against returning cash to shareholders because there won't be so much of it to go around. annabelle: that was garfield rentals. you can follow all of our stories on the bloomberg at ny . there is commentary and analysis from bloomberg's expert editor so you can find out what is affecting your investments right now. this is bloomberg. ♪

haidi: israel is rejecting a cease-fire plan back by hamas saying its operations in rafah will continue. this was a unanimous rejection, and at the same time we see the strikes intensifying. >> when we look into the details, there are a of things. it's not exactly what was proposed or what israel had agreed to in the first place. as i understand it, couple of reports are showing that must had changed it to bodies or live hostages, not just live hostages, and pushing for the end of the war is unacceptable. israelis began sending messages

to begin moving inrafah. is not the whole city, there's an area they started trying to ship people out of what it look like the beginning of cooperation. our reporting shows israeli officials estimate it will take a few weeks at least to remove people from that area, but it looks like any sort of cease-fire or truce is off. annabelle: israel said it will send in a delegation to meet with media to exhaust the possibility of reaching an agreement. is there any common ground that could be found perhaps in the 11th hour? >> you never say never. there's a lot of pressure being exerted. one school of thought said israel's movement with rafah, it

has not gone in there, that's designed to pressure hamas even further here. you could rule out that there -- could not rule out there would be a last-minute agreement. there's like 5000-8000 in leadership estimated to be there. they obviously don't want an operation there and if they feel there's no alternative perhaps that would take an extension that a cease-fire would offer. it's difficult to assess, the leadership of hamas is very well aware of israeli politics. they were really just have to judge it on whether they believe netanyahu is bluffing on rafah, or if there is immense pressure coming from outside. it is very hard to get a read on it. they believe they have the hostages, they have that trump card because israel has traditionally done everything possible to try to save those

people. so they still believe they have an ace up their sleeve. all indications are that it will pull through, but they are still talking. israel has said it will send you go shaders and exhaust all possibilities. but hamas and agreeing to its own terms for the deal, it's impossible for israel to agree with them, it would reverse everything netanyahu has set in place. annabelle: let's turn to china because president xi jinping has held talks with his french counterpart, calling on emmanuel macron to help fend off what he calls a new cold war. stephen engle has the details. we know that france is the first stop for xi jinping, the war in ukraine was going to be one of the key topics but what if we heard from both sides about this? >> he's not necessarily going to

get an earful like he would in other places because again, the fact remains that the european union is sort of aligning itself more toward a u.s. position towards china on trade on a number of issues and potential tariffs on ev's and the like. and also of course the security threat, with the war in ukraine into its third year come of that is front and center. xi jinping in many ways bristled at, i wouldn't say allegations but the suggestion that essentially the u.s. has made that china in indirect ways is aiding pollutants war in ukraine, whether it is dual use technologies on the battlefield, or he was described as bristling when this was raised. he says beijing is not aiding the war in ukraine and beijing

is not at the origin of this crisis, nor a party to it, nor a participant. very absolute terminology there. he also them referred to the united states and its efforts to essentially get a coalition together against china. he said we oppose the crisis in ukraine being used to place responsibility on a third country. he is alluding to china, of course, and tarnish its image and incite a new cold war. so this is xi jinping's first trip to the e.u. in five years and he clearly has a mission to offer china's economic benefits, while at the same time making sure to fend off the tide that is happening in europe of aligning with the united states, which clearly xi jinping feels is stirring the pot. haidi: we will get more on that in the next hour.

that was stephen engle and we will have more ahead on "daybreak: australia." this is bloomberg♪

annabelle: looking at how currencies are faring this morning, we're hearing from tokyo about the direction of the japanese yen. still declining, -- declining to say if they will intervene but they should reflect the fundamentals. declining to comment on the yellen piece, treasury secretary janet yellen declined to say whether

haidi: australia's central bank

set to keep its key rate at the 12 year high. next guest is among those expecting the rba to hold. let me throw up this chart that presents the market pricing, no full rate cut at all expected this year. some parts of the market with expectations that we might see more timing yet. is that a risk for you? >> we were always of the view that easing was unlikely this year. the second half of the gear will potentially better as consumers get a little more real wage growth and they will see some impact of the tax cuts expected to flow through. market prices are now reflecting i would say were consistent with

the economic data, inflation to the upside in the first quarter. we think the rba has done enough to get inflation down and be of the view that there's a strong case to wait and see how the data evolves. but if we continue to see surprises on inflation to the upside we see more risk tightening could be on the table. haidi: the rba is now a situation where if they revise the forecast it could impact the growth forecast. so do they just kind of waiting see, just sound more hawkish it actually just sit back and watch the data come in? >> there is high uncertainty around this particular meeting. our expectation is for them to increase the forecast in the second quarter. that debt is looking a little stronger than they expected.

that would probably be seen as hawkish from a market perspective but that also makes it more likely that they could achieve the target earlier. the expectations for the cash trade in the forecast with consensus along with market pricing. they could choose to extend that period or give them a little more flexibility in terms of when to achieve that target. annabelle: so if the inflation forecast is raise and at the same time we are looking weaker, how concerned we have to be up -- about stagflation building? >> i'm not very concerned. what the rba will be pleased with is that there are still some major progress toward the target. inflation six months ago was close to the 5% level, then it

would down to 4.1%, and now we are at three point 6%. so it's not very far off the top of the target. inflation has not really been driven by demand, demand has been quite weak. the consumer is under a lot of stress. it's also matter of the lack of seeing results in the dead as well. stagflation is low in my view. we will see of period of below trade growth and inflation either way but toward the target. haidi: so when it comes to your expectations around rate cuts, how much longer do you think strain consumers can continue to withstand rates at these levels? >> the australian consumer will look at it is slightly better in the second half of the year. you have tax cuts coming

through, some expectations for more cost saving pressure measures to support the consumer budget which is due next week. i still see a strong case for easing if the labor market slows down faster than people expect. so in my forecast, the first cut will be in february 2025 and i still see -- there was an increase in the unemployment rate, not as fast as the rba would like to see but the labor market is showing more easing of book -- capacities coming up in the second quarter. the rba is forecasting

productivity growth, even though they don't look at it from a quarter on quarter perspective, productivity is improving. is still negative and down but it is slowly returning back to pre-pandemic levels. the focus is on productivity, given its impact on labor costs that has been extremely high. but most of the productivity growth in australia comes from the mining sector. so it's a mixed picture for the rba to make a call on that. they previously said it's not something they were looking at in the near term. we expect productivity to come back to pre-pandemic level within the next two years. annabelle: the inflation gauge has come in quite soft. what does that tell you when you look at the other headline numbers that we follow? >> we don't look at that closely.

it's a good gauge for about 40% of the basket. it's a good measure of inflation expectations, there's no issues that suggest going to be in a period where consumers are constrained due to inflation and they expect high inflation for longer. this is something the rba has highlighted before. but overall it is mostly reflecting the trade-offs side of inflation which is been very soft. annabelle: thanks so much for your insights this morning ahead of that all-important rba decision. looking at how markets are faring, we are just under 30 minutes out from the open. a fair bit of positive be coming through for asian equity futures. new zealand a little bit to the

downside. s&p 500 futures fairly flat. we did have the s&p 500 rising above its 50 day moving average, a bullish indicator for sentiment. the expectation rounds where the u.s. equity rally goes, ahead of the age of trading day, jp morgan's chief market strategist says expectations for double-digit earnings growth this year for s&p 500 companies are too high. endless projections imply earnings will rise 17% from the first to the fourth quarter. that would require high topline growth or substantial expansion. she doubts companies can achieve either amid high interest rates. the citigroup ceo sees more upside for the u.s. equity rally. she says stocks could benefit from strong fundamentals and possible rate cuts.

>> certainly valuations are quite high on many of the metrics. technology is a very high percentage in terms of valuation. there's a potential win for equities here in the near term because if growth is stronger, equity valuations benefit. and if rates come down, equity valuations benefit. so it's opportunity for potential win-win here. haidi: saying capital markets have strong -- shown resilience. >> before talking about the future, let's talk about the recent past. if you think about what the world is been through in terms of the challenges it's faced,

any challenge in the real economy translates to the financial economy. pat a pandemic, a once in a century kind of pandemic and we've also had war break out in europe. we think of how capital markets have adapted to that, how you see underlying economies prepare themselves, and the capital markets are very much a function of what goes on in the real economy. we've seen extraordinary resilience in the real economy relative to what any of us would've expected. >> what do you think was behind that resilience? >> not to sound jingoistic, but a lot of it was, the u.s. led the way. certainly in the repair of supply chains. in the middle of 2020 we were talking about the potential of this going on for five or six years, and the rebalancing would take that long. in fact really led by u.s.

corporations, and large corporations around the world. it was led by large companies figuring it out and saying what do we need to do here? >> if you think about the pandemic, global companies are rethinking their supply chains and that is led to a new idea. walk us through the new investable ideas coming off the pandemic and a lot of things being different. >> let's stick with supply chains for a moment. with globalization maybe we went a little too far because supply chains became highly optimized, with very little built-in slack, or for that matter capacity for the unexpected. what you are seeing now is a much more resilient supply chains, there might be double or triple source rather than single source. some activities being brought back to countries, and it's not

so much political statements as much as, well to have little capacity in whatever country. finally, we are seeing opportunities being created for other countries. it may be that a country like china had it all or had a large portion of it, and china is not going to lose everything, all these represent investment ideas. >> we were all focused this week in on the annual meeting at berkshire hathaway warren buffett saying wall street creating an atmosphere for investors. do you agree with that, or how do you see it? >> there is a concern about market valuations, and it is really a concern about a relatively small number of companies that are seeing lots

of valuation expansion, driven by things like ai, the belief of ai. a couple of things i would say about that, if you take the s&p 500 index, which is cap weighted and equal weight it, you're saying it's actually not that overvalued and there's opportunities and lots of other companies. were talking about seven companies in the s&p 500. point number two, which we do need to think about, i'm old enough to remember the advent of the internet. if you think about the mid to late 90's, there was that same kind of excitement and exuberance around a few companies. the internet was going to change everything right away. then 1999 and 2000 came. we could find ourselves in a situation like that again, because the hype of the

technology oftentimes isn't met by the actual implementation of it. if he asked me what i believe, i think artificial intelligence in all of its forms will be a fundamental game changer for many industries. is it going to happen overnight and is it going to reflect the valuations that we are seen in a few companies? probably not. annabelle: that was a state street ceo speaking with our colleagues carol massar and romaine bostick. you can dive into any of the securities are bloomberg functions we talk about and become part of the conversation by sending us instant messages during our shows. this is for bloomberg subscribers only, check it out at tv . ♪

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>> we need to maintain the

low-cost, otherwise nobody can afford the energy transition process. haidi: that was china's special envoy for climate change speaking about the global cost of the energy transformation. president xi jinping visits the continent. cleantech has been a particular grind in brussels amid accusations of overcapacity. our guest has some data on that relationship in particular. we know the e.u. is investing in solar and wind equipment from china. give us the sense of the level of dependency at this point for the e.u. on chinese technology. >> when it comes to clean technologies, the e.u. has become almost 100% dependent on

chinese supply chains for the solar sector. for evey's and batteries, initially the you was fairly self-sufficient, that as the market grew more dependent, if you look at 2023, by rallying in the ev market, the eu was dependent about 46% on imports and just over half of it was imports from china. for ev batteries, this was a bit higher, dependence was around 56% in china's share of that dependence was about 86%. that's out of the sectors, the pendants is relatively limited. there are concerns that as european manufacturers have struggle, it has open opportunities for chinese any factors to enter europe. haidi: the use intention is to

lessen or overcome its dependence on china. is that achievable, and if so, at what cost? >> the short answer would be no. it wants local production by 2032 account for 40% of solar demand, and for batteries it is looking at local production accounting for 85% of demand. these are very ambitious targets, and to be fair, the act has not been finalized yet. to realize he's targets coming need a combination of either really generous subsidies are very high tariffs, both of which would ultimately increase the cost of transition for the eu. is not just about the production capacity advantage that china has built. in some areas chinese manufacturers have significant technological advantages. there might be room for the eu

to attract more investors within the market. as we've seen in batteries, that's one way that might be possible to avoid dependence but it would not be possible without the inclusion of chinese manufacturers. annabelle: we've heard from someone calling for continued collaboration between china, the eu, and the u.s.. do you think that could still be possible? >> indeed, collaboration is critical. we saw that in the run-up to the paris agreements and negotiations by china and the u.s. which led to successful agreements. given the current environment, there are two relatively easier areas to see more collaboration. one is around methane emission reduction. we have a new all and gas

methane partnership and so far from china, only china gas has joined the partnership, providing support to get the three all and gas companies to join the initiative, which would be a really good area and likely face resistance. another area they cannot to reach agreement would be support for the long-delayed final rules for the paris agreement for governing markets. given the recent trade tensions and geopolitics, it's difficult to see where they could collaborate. but trying to get other governments to agree is critical but that will be tough to get them to agree. haidi: more ahead on "daybreak:

australia." this is bloomberg. ♪

annabelle: the ibm ceo says its agony his book more than $1 billion worth of business already this year. he spoke with us in beverly

hills about the regulatory landscape for ai and for tech. >> i think there is worry about three topics, innovation, competition, and safety and regulation. when you take those three together, the ai alliance comes together to foment innovation. it helps a regulator should think about what is going on here. in my experience, open technology has always been safer and more secure than close technology. >> did some of the big guys get an advantage in habit and transposition? >> when you have a walled garden, have areas of innovation

been better? it helps create more competition. isn't it good for all of us? >> are you pro regulation? >> i am pro regulation as long as it is light touch and allows innovation to happen. i absolutely will be pro regulation. >> what about distinguishing between regulating technology and uses? we had someone who said regulating use does not regulate technology. >> how can you regulate technology when you don't even know where the technology will go? >> there will be another one and another one. trying to regulate technology implies that the regulator --

regulatory and policy folks believe no more invention can happen. haidi: let's look at how were setting up, where about five minutes away from the start of cash trading here in sydney and also japan, markets reopening after being closed since the end of thursday. a bit of catch-up is expected. a pre-good handover from the u.s. session, optimism that the fed will start cutting this year pushing shares to the best three rally since november in the u.s. hong kong looking pretty steady as we head into that open in the next couple of hours. the market opens in sydney, soul, and tokyo are next. this is bloomberg. ♪

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annabelle: we are counting down to asia's major market opens. it is a resumption of trade for japan and korea that have been shut for extended breaks. and what the market will be coming back into as you have u.s. stocks notching their best three-day rally going back to november of last year. haidi: we are expecting a big jump potentially to around 2% when it comes to japan markets. also seeing upside indicated for australia. it is rba decision day. expected to keep rates at the 12 year high. watching out for perhaps some hawkish messaging as market expectations build of higher for longer and maybe even more tightening back on the table. annabelle: certainly something to be tracking later this morning. we just got the open of japanese equities coming online. it is that big earnings theme coming in across the course of this week. earnings that are due from toyota, tokyo electron.