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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm dek Chrisner. The White House is

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Speaker 1: now taking steps to shut down the government after two

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Speaker 1: plans for short term funding failed in the Senate. Here

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Speaker 1: is Senate Democratic Leader Chuck Schumer.

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Speaker 2: Trump and the Republicans want to shut down and Democrats

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Speaker 2: do not. We need to deal with this healthcare crisis now,

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Speaker 2: not later, but the Republican bill fails to do that.

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Speaker 2: I urge my Republican colleagues instead to join with us

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Speaker 2: work in good faith to keep the government open, keep cauts.

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Speaker 1: Down despite the risk of a shutdown. The US equity

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Speaker 1: market closed higher on the final day of the third quarter.

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Speaker 1: The Dow actually finished at a record high. Joining me

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Speaker 1: now for a look at markets is Viaje Patel. He

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Speaker 1: is senior VP, also head of Asset Allocation, a fiduciary

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Speaker 1: trust international varage. Joining us from here in New York City.

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Speaker 1: Thank you so much for making time to chat with me.

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Speaker 1: So we had a record high today for the Dow

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Speaker 1: final day of the third quarter. Performance has been pretty respectable,

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Speaker 1: although there has been a lot in the way of

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Speaker 1: conversation around the vulnerability of certain pockets of the market

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Speaker 1: and I'm thinking certain areas of the artificial intelligence trade.

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Speaker 1: Is that a fair statement?

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Speaker 3: It certainly is. First of all, thank you for having me,

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Speaker 3: and I think that there has been a lot of

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Speaker 3: talk of bubbles echoes of the late nineties tech boom.

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Speaker 3: I think the big difference here is this is the

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Speaker 3: real technology that's being used, granted is not being used widely.

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Speaker 4: And more importantly, I think the.

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Speaker 3: Bubble speculation here might be a little overdone, as a

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Speaker 3: lot of this cap ax spend on artificial intelligence is

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Speaker 3: being funded by free cash flow from company ballot sheets

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Speaker 3: that are quite healthy. The first signs of kind of

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Speaker 3: going outside of balance sheet funding with some oracle as

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Speaker 3: they issued about eighteen billion dollars in dat to build

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Speaker 3: some of their own AI capabilities. But I think the

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Speaker 3: interesting point that you also bring up is the brunning

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Speaker 3: of the market. We're seeing it here domestically in cyclical

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Speaker 3: sectors like home builders, small caps, and even abroad looks

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Speaker 3: like there's a little bit of an icicleic goal rally.

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Speaker 4: That's continuing in Europe.

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Speaker 3: Japan has been doing well for multiple years, more of

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Speaker 3: a secular story there, and even China for the first

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Speaker 3: time in a very long time, feels like it's got

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Speaker 3: a little bit of a heart beat there, related to

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Speaker 3: a variety of factors AI included.

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Speaker 1: So I'm curious varage to get your take on the

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Speaker 1: extent to which the FED policy right now is factoring

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Speaker 1: into a lot of the upside that we're seeing. And

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Speaker 1: today's Fed speak seem to underscore the complexity of the outlook.

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Speaker 1: We had Susan Collins, who is the head of the

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Speaker 1: Boston FED, saying that further rate cuts may be appropriate

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Speaker 1: given the weakness that we have seen lately in the

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Speaker 1: labor market, but the FED needs to remain wary about

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Speaker 1: the possibility of persistent inflation, and those comments seem to

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Speaker 1: be echoed today by FED Vice Chairphil Jefferson. He was

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Speaker 1: saying the FED, yes, it faces a cooling labor market

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Speaker 1: alongside rising inflationary pressures, and Jefferson went on to say

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Speaker 1: that the mandate itself, that balance between employment and keeping

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Speaker 1: prices in check that is under pressure as well. So,

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Speaker 1: I mean, how do you navigate this right now in

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Speaker 1: terms of trying to figure out what the FED may

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Speaker 1: do next?

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Speaker 3: Yeah, I think it's a really tricky situation, and you

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Speaker 3: nail it on the head. The FED has a dual

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Speaker 3: mandate that's in conflict with each other. Right, we have

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Speaker 3: clearly weakening and softening labor market, so their full employment

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Speaker 3: mandate is under pressure. And then clearly we've done a

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Speaker 3: lot of work or the FED has done a lot

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Speaker 3: of work on the inflation that was induced during the

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Speaker 3: peak pandemic period, and then we're going to get an

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Speaker 3: inflationary impulse related at haaroffs, but that hasn't manifested itself yet.

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Speaker 3: I think our read from the lifestat MC meeting and

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Speaker 3: share Powell's comments are while they will be data dependent

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Speaker 3: and they're still sticking with their dual mandate on employment

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Speaker 3: and inflation, it seems to be tilted a little bit

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Speaker 3: in favor of labor because that could be more problematic

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Speaker 3: and create more downside risks for the economy in our opinion.

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Speaker 1: So do you necessarily look to the bond market maybe

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Speaker 1: for opportunities right now if you're convinced that rates are

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Speaker 1: going lower no matter what.

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Speaker 3: I'm not sure the bond market is giving us much

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Speaker 3: of a signal here. I think the move off of

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Speaker 3: the highs was a clear signal that Okay, maybe weaket

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Speaker 3: growth is slowing a little bit, it's a little weaker employment,

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Speaker 3: and labor markets are a little softer, but we think

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Speaker 3: that yields have settled here underneath four point two percent,

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Speaker 3: which was a very strong level of support for the

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Speaker 3: better part of.

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Speaker 4: A year or a year and a half. So maybe

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Speaker 4: the move down to four percent was a little overdone.

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Speaker 3: And if you look at the backage of economic data

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Speaker 3: that's come out over the last couple of days and

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Speaker 3: a little over a week, probably signals that the move

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Speaker 3: off of four to closer to four zero point one

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Speaker 3: point five where we are today makes a lot of sense,

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Speaker 3: as the economic data has been firmer and economic activity

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Speaker 3: in particular related to consumption, I mean personal expenditures has

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Speaker 3: been pretty firm. So we're pretty constructive on the US

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Speaker 3: economy despite labor market softness here. It's tough to tell

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Speaker 3: whether that's related to trade and serreony and some seasonal

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Speaker 3: softness in the summer where hiring kind of slowed down,

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Speaker 3: or more indicative of problems in the second sorry, the

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Speaker 3: last quarter and into twenty twenty six. But it's a

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Speaker 3: data dependent fed from where we sit and dens here

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Speaker 3: the second part of your question, We think that the

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Speaker 3: cyclical and raid area or raid sensitive sectors the economy

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Speaker 3: should benefit. Right, I mentioned that homebuilders are showing life again,

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Speaker 3: small caps are acting well. Any areas that are floating

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Speaker 3: rate deat in their cap structure, any areas of the

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Speaker 3: economy that are red sensitive that have been in the

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Speaker 3: doldrums and been masked, in our opinion, by a really

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Speaker 3: strong AI. Part of the economy is starting to show

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Speaker 3: lives and the market is starting to broaden out, and

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Speaker 3: economic activity is starting to broaden out nicely as well.

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Speaker 1: So I want to feel that when it comes to

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Speaker 1: the inflation story, obviously you have to mention tariffs. So

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Speaker 1: that's one of the policies that's coming out of the

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Speaker 1: White House. The other today was on the pharmaceutical story,

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Speaker 1: where Pfizer is cutting cost of some drug prices of

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Speaker 1: up to eighty five percent in a deal with the administration.

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Speaker 1: So broadly speaking, right now, how do you think the

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Speaker 1: administration is influencing economic activity? Is it net positive?

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Speaker 4: That's an excellent question.

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Speaker 3: We think, you know, the administration, the White House and

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Speaker 3: President Trump is trying to influence economic activity.

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Speaker 4: It's tough to separate the signal from the noise.

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Speaker 3: There's no question that President Trump's one of his policy

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Speaker 3: priorities is protectionism, and he wants fair trade, and he

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Speaker 3: wants to do it in a way that's supportive for

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Speaker 3: the US economy and US businesses. And I'm not necessarily

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Speaker 3: sure that he wants to kill or hurt meaningfully foreign

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Speaker 3: countries and foreign businesses. He just wants it to be

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Speaker 3: a little bit more fair, or maybe in some bastance

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Speaker 3: is a lot more fair. Now, the short term impacts

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Speaker 3: of that, whether it's disruption of supply chains, a massive

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Speaker 3: inflation impulse that comes to the pipeline, and just sales

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Speaker 3: falling off of a cliff, are yet to be determined.

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Speaker 3: But for now, our early read is a couple of things. One,

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Speaker 3: we think that a lot of the rhetoric coming out

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Speaker 3: of the Trump administration White House seems to be more

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Speaker 3: negotiations and posturing in terms of getting a deal, so

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Speaker 3: to speak, and that's the business a President Trump coming out.

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Speaker 3: And then two, you know, six to seven months after

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Speaker 3: President Trump announced those punitive tariffs in early April, it

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Speaker 3: seems that corporations in the economy for now are managing

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Speaker 3: the tariffs and concerns quite quite well, right, So companies

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Speaker 3: are managing terariffs for a position of strength, And what

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Speaker 3: I mean by that is revenues are all time highs,

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Speaker 3: profits are all time highs, and more importantly, profit margins

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Speaker 3: are all time highs. So there is a little flexibility

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Speaker 3: there for them to potentially eat some of that tariff

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Speaker 3: impulse or tariff costs of the pipeline and not necessarily

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Speaker 3: have to pass on a meaningful amount of costs to consumers. Again,

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Speaker 3: we're not in steady state yet, so we have no

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Speaker 3: idea what the picture actually looks like where tariff's rates

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Speaker 3: will be or final rates with our biggest trading partners.

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Speaker 3: But our reader is there are a lot of moving parts.

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Speaker 3: But markets are seemingly looking past a lot of the

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Speaker 3: worst case left Heil scenarios related to terrorists and climbing

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Speaker 3: the wall of worry every day.

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Speaker 1: Well, historically, October can be a pretty ugly month for

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Speaker 1: the equity market. It's going to be very interesting in

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Speaker 1: terms of what we hear from corporate America when the

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Speaker 1: earnings begin to trickle in guidance, I think we can

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Speaker 1: agree will be critical. How are you hedged right now

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Speaker 1: against maybe a little bit of a pullback or some

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Speaker 1: downside at the very least.

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Speaker 3: So we're overweight cash waiting for that proverbial pullback. We've

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Speaker 3: been a little bit cautious given we have no clear

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Speaker 3: idea and how the trade levels play out over the

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Speaker 3: summer months and negotiations that coupled with valuations which are

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Speaker 3: quite stretched.

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Speaker 4: We're far from cheap.

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Speaker 3: I wouldn't call it, you know, bubble territory like we

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Speaker 3: were in the late nineties, but we are an elevated

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Speaker 3: evaluation level here. The s andps back at the highs effectively.

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Speaker 3: So our view is, as you pointed out, that a

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Speaker 3: little bit of a tricky period from a seasonality perspective

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Speaker 3: in October, we have some technicals that are maybe a

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Speaker 3: little stretched and a little overbought, coupled with some even

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Speaker 3: driven situations that could possibly cause the market to consolidate

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Speaker 3: a little bit.

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Speaker 1: All right, Varaje, we'll leave it there, Thank you so much.

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Speaker 1: Vaje Patel is Senior VP, also Head of Asset Allocation

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Speaker 1: at Fiduciary Trust International, based here in New York City.

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Speaker 1: Joining us on the Daybreak Asia podcast. Welcome back to

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Speaker 1: the Daybreak Asia Podcast. I'm deg Krisner. We go to

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Speaker 1: China next, where the Golden Week holiday is now underway.

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Speaker 1: It started today with National Day and it will run

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Speaker 1: for eight days through next week's Mid Autumn Festival. I

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Speaker 1: think it's fair to say that Golden Week is the

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Speaker 1: most important travel period in China, and more broadly, the

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Speaker 1: holiday represents an opportunity for a lot more when it

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Speaker 1: comes to domestic consumption. To help me take a look

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Speaker 1: on what's happening is Bloomberg's Katherine Limb. She's retail analyst

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Speaker 1: for Bloomberg Intelligence. And Catherine joins us from the Lion

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Speaker 1: City of Singapore. Thank you so much for making time

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Speaker 1: to chat with me. Can you give me a sense

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Speaker 1: on the extent to which there is optimism over the

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Speaker 1: outlook for consumer spending this year?

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Speaker 5: Right? You know, happy to be here and things are evolving,

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Speaker 5: Doug as we speak. Do you know, as you've highlighted,

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Speaker 5: we are into the dual holiday period over eight days,

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Speaker 5: you're gonna see celebrations not just for National Day, but

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Speaker 5: also the Mid Autumn Festival, which is a traditional, you

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Speaker 5: know event that family and friends together. So it was

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Speaker 5: very timely seeing how some of the cities are issuing

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Speaker 5: consumption vouchers out to to you know, their consumers, so

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Speaker 5: that you could stimulate a little bit more of that

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Speaker 5: spend day, which admittedly had put on a dreg in

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Speaker 5: August because there was a calendar shift in that very

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Speaker 5: important mid autumn festival that I've just talked about where

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Speaker 5: by family and friends gather. So all of that's going

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Speaker 5: to kick in in September and through the next ten days.

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Speaker 1: I'm wondering about sentiment right now, and maybe we can

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Speaker 1: tie to the equity markets in China which have been

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Speaker 1: performing very well. Is that expected to provide some positivity

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Speaker 1: to sentiment? Do you think?

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Speaker 5: Well, definitely, I guess. You know, when you look at

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Speaker 5: asset and asset value creation, it's either property if not.

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Speaker 5: Do you know the equity market, and I think in

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Speaker 5: the last two to three years both of these market

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Speaker 5: hasn't been you know, in the best of shape. In

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Speaker 5: the year to date, equity market, the rally definitely brings

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Speaker 5: relieved and you know, does help stimulate that centiment if

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Speaker 5: you ask me so.

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Speaker 1: When I think of destinations in China, one of the

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Speaker 1: things that comes to mind is Macau and the casinos.

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Speaker 1: Are people feeling reasonably optimistic about casino business this year

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Speaker 1: and traffic at the big places, well.

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Speaker 5: We've also seen traffic and I would say it the

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Speaker 5: you know, these the table rolls, et cetera, picking up

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Speaker 5: in terms of the crowd, so that is a good sign.

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Speaker 5: On the other hand, what I'll say is that you

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Speaker 5: know a lot of these spenders, whether you're gamblers or

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Speaker 5: your shoppers per se, there is more discerning spending that

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Speaker 5: we have observed, so I'm not sure whether we should

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Speaker 5: be putting that much bet on Macau. Similarly, you know,

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Speaker 5: even Hong Kong per se, I would say that, you know,

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Speaker 5: after the recent typhoon hits and we are anticipating another

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Speaker 5: typhoon hitting you know, the South over the next ten days,

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Speaker 5: et cetera, it may not actually be you know, the

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Speaker 5: biggest thing for these two autonomous regions within country, within

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Speaker 5: the country itself. I'm a little more optimistic about domestic

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Speaker 5: tourism within the country, as you know, more of the

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Speaker 5: shoppers or consumers take a break out into you know,

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Speaker 5: the suburban regions and there are more camping sites as

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Speaker 5: well as you know, areas that consumers can take a

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Speaker 5: break from the city.

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Speaker 1: What about moving offshore to visit a place like Singapore

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Speaker 1: or Japan. Let's say, is that going to be a

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Speaker 1: driver do you think?

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Speaker 5: Yeah, that's a great question because effective you know, yesterday,

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Speaker 5: South Korea is giving a new visa exemption to mainland

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Speaker 5: Chinese visiting the country. So you know, we could actually

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Speaker 5: be seeing uptakes in some of these places. South Korea, Japan,

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Speaker 5: as you've highlighted, has always been a popular place. And

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Speaker 5: I have to touch on Singapore because this year the

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Speaker 5: f Wonder Formula one race is will take place over

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Speaker 5: the next two to three days and that actually coincides

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Speaker 5: with the Golden Week holiday. Whether you know it was

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Speaker 5: deliberately engineered in such a way, but it's all good

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Speaker 5: because that is definitely drawing traffic.

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Speaker 1: So you mentioned a moment ago that domestic governments in

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Speaker 1: China are handing out vouchers and coupons and things to

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Speaker 1: kind of stimulate domestic consumption. Give me a sense of

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Speaker 1: how they are applied and whether we should be looking

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Speaker 1: for kind of high frequency data among retailers, whether it's

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Speaker 1: more a story about restaurants, whether it's a story about

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Speaker 1: air travel, right.

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Speaker 5: You know, for restaurants, definitely, because you know, we are

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Speaker 5: still seeing lots of promotions ongoing for platforms like Ali Baba,

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Speaker 5: may twe and JD dot Com when it comes to

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Speaker 5: food delivery and quick commerce. You know, you would have

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Speaker 5: heard of the competition that was ongoing among these three

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Speaker 5: companies since the beginning, since the middle of this year itself,

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Speaker 5: and it continues to actually intensify as we go into

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Speaker 5: the holiday season. Again, you know, all the gatherings that's

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Speaker 5: going on now that will likely come through and on

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Speaker 5: a more intensified level into October and November. Doug, Let's

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Speaker 5: not forget that we are now very close to the

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Speaker 5: start of the Singles Day shopping festival, which is essentially

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Speaker 5: a near two month long shopping festival, and it will

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Speaker 5: kick start sometimes on the seventh of October, which is

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Speaker 5: essentially next week itself. Once the consumers returns from the holidays,

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Speaker 5: they may actually be shopping more online. So I would

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Speaker 5: say that, going back to your earlier point about consumption vouchers,

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Speaker 5: it's definitely good to actually have an extra you know,

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Speaker 5: vouchure on hand to spend. But we'll let's look at

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Speaker 5: the discretionary side of things itself. Those spending may actually

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Speaker 5: come through in October and November, particularly during the Singles

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Speaker 5: Day promotions.

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Speaker 1: Catherine, before I let you go, can we take a

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Speaker 1: step back. I'd like to get your sense of what

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Speaker 1: more the government can do on the mainland to stimulate

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Speaker 1: consumption beyond everything that's being undertaken as part of the

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Speaker 1: Golden Way.

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Speaker 5: Holiday, right. You know, it's interesting that we've also seen

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Speaker 5: the announcements coming through that they're trying to stimulate consumption

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Speaker 5: through new scenarios, essentially different ways of you know, consuming,

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Speaker 5: And I'll just put across for instance, May twe is

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Speaker 5: starting the drone deliveries at night in Shunjin, So just

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Speaker 5: to give you a sense, it's you know, it is new,

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Speaker 5: I would say, and I'm not sure how scillable this

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Speaker 5: business is because there are obviously constraints when it comes

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Speaker 5: to drone deliveries and at night. I'm not very sure,

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Speaker 5: but you know, it is different scenarios that the country

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Speaker 5: is trying to actually put across, including increased use of

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Speaker 5: the robots and humanoids within the country.

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Speaker 1: Believe it there, Catherine, It's always a pleasure. Thank you

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Speaker 1: so much. Katherine Limb, Bloomberg Intelligence retail analyst joining from

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Speaker 1: Singapore here on the Daybreak Asia podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on apple Spot, off if by, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Prisoner and this is Bloomberg