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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Derek Krisner. We

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Speaker 2: begin today with TikTok. The company assigned a deal to

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Speaker 2: sell its US business to three American investors, Oracle, Silver Lake,

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Speaker 2: and MGX. We've also learned that US user data will

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Speaker 2: be stored locally in a system run by Oracle, and

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Speaker 2: TikTok's algorithm will be retrained on US user data to

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Speaker 2: ensure the content feed is free from outside manipulation. Here

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Speaker 2: is Bloomberg's Mike Shephard.

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Speaker 3: The idea is that it would be a copy leased

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Speaker 3: from byte Dance, but then retrained to some degree or

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Speaker 3: another by Oracle and also walled off in a way.

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Speaker 3: They would create some sort of a security firewall or

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Speaker 3: barrier that would keep byte Dance from ever gaining access

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Speaker 3: to US data to the algorithm itself, out of concerns

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Speaker 3: that there could be some manipulation.

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Speaker 2: That is Bloomberg's Mike Shepard. On Thursday, in the US,

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Speaker 2: the CPI report showed retail inflation cooled at a startling

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Speaker 2: clip last month. The so called core rate of CPI

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Speaker 2: increased at an annual rate of two point six percent

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Speaker 2: in November. That is the slowest pace since twenty twenty one.

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Speaker 2: But there's a caveat. Because of the government shutdown, the

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Speaker 2: BLS could not collect prices throughout October, and price sampling

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Speaker 2: in November started later than usual, and for that reason,

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Speaker 2: FED policymakers may be a little skeptical on the accuracy

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Speaker 2: of the CPI data. Markets, however, were undeterred. We had

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Speaker 2: a rally in both US stocks and bonds, and we

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Speaker 2: got some reaction from Amy Shea Patrick, head of income

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Speaker 2: Strategies at Pendle Group. She spoke with Bloomberg TV host

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Speaker 2: Paul Allen and Annabel Drulers.

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Speaker 4: We've got that too ye yield now in the US

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Speaker 4: at a three months low, and even though that CPI

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Speaker 4: DOTA walls shut down impacted, it does suggest more easings coming.

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Speaker 4: I guess the question is when what's your timeline?

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Speaker 5: Does it?

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Speaker 1: Though? I had a question because I looked at the

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Speaker 1: Yel curve moves last night as well. And the reason

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Speaker 1: the Yel curve is important is because generally when the

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Speaker 1: market believes that the FED or any central bank is

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Speaker 1: in an easing cycle that has a lot more room

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Speaker 1: to run, then the curve is happy to Stephen. But

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Speaker 1: now when I look at the reaction in the US

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Speaker 1: curve relative to the downside surprise of last night, notwithstanding

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Speaker 1: some of the caveats around the data, I kind of

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Speaker 1: think the market already got there. The market already got

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Speaker 1: there in terms of for the way that US inflation

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Speaker 1: is turning out right now. I know all the other

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Speaker 1: data points that we've had, you know, around unemployment and

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Speaker 1: things like that. You know, we've got two plus cuts

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Speaker 1: baked in for the FED for next year, and the

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Speaker 1: market didn't really want to do more than that last night.

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Speaker 1: So I question, with the way that things currently are

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Speaker 1: shaping up in the US, where the more easings will

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Speaker 1: be necessary from the FED next year.

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Speaker 4: Well, that's an interesting point that you make, because it

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Speaker 4: was certainly a theme of twenty twenty five, the market

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Speaker 4: really getting ahead of itself in terms of what it

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Speaker 4: was expecting and then the FED not following through. Do

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Speaker 4: you see this happening again?

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Speaker 1: Possibly? Right, So I would say that the two plus

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Speaker 1: cuts we have in the front of the curve is

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Speaker 1: broadly matching what the economic fundamentals should suggest. So you've

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Speaker 1: got inflation still coming down but still a little bit stubborn.

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Speaker 1: You know, the place inflation target is two percent, and

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Speaker 1: so where we are right now is not two percent. Obviously, unemployment, yes,

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Speaker 1: it's the labor markets loosening, but there is no unemployment

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Speaker 1: crisis that would suggest recession is around the corner. So

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Speaker 1: why would we have more than two cuts priced in? Well,

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Speaker 1: I think it's a little bit of what my colleagues

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Speaker 1: and I describe as the Trump tail trade. Right to

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Speaker 1: the extent that he hires somebody into the FED chair

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Speaker 1: role that is a bit of a yes man and

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Speaker 1: threatens FED independence. It's got to put some premium into that,

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Speaker 1: So there's a bit of that. And then to the

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Speaker 1: extent that Trump also manages to engage in large scale

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Speaker 1: tax cuts that would be you know, not all that

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Speaker 1: beneficial to the back end as well, but has an

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Speaker 1: anchor at the front because he is hider yes man.

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Speaker 1: Then maybe that keeps the front end down as well.

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Speaker 1: So I feel like that's the way the market's pricing

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Speaker 1: in that sort of Trump tail risk at the front

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Speaker 1: end of the curve is not entirely economic at this stage.

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Speaker 5: What about what we're getting from other central banks, Because

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Speaker 5: one of the other key things we've been talking about

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Speaker 5: is central bank desynchronization that could have been anticipated for

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Speaker 5: next year? I mean we had the BOE for instance,

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Speaker 5: the ECB both maybe saying overnight we're done on the

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Speaker 5: easing front. Do you see then in light of your

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Speaker 5: views around the FED and it maybe not much as

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Speaker 5: easy as could have been anticipated. Are we're going to

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Speaker 5: be a little bit more synchronized perhaps then for twenty

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Speaker 5: twenty six.

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Speaker 1: My social answer is I do think we're going to

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Speaker 1: be more synchronized, because there is nothing to suggest that

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Speaker 1: the world is all that desynchronized right now. There are

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Speaker 1: certain pockets of stories. You know, Europe will have more

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Speaker 1: physical stimulus next year, China question mark about which way

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Speaker 1: their stimulus is going to go. But overall, I do

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Speaker 1: think there will be more synchronization than what is currently

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Speaker 1: priced into markets. And for me, the biggest standout, and

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Speaker 1: we haven't touched on it yet, is the pricing for

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Speaker 1: the RBA. Yeah, in Australia, all right, so we are

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Speaker 1: essential bank where the market thinks that next year two

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Speaker 1: hikes is actually appropriate rather than any further cuts. And

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Speaker 1: again I look around at our economy and yes, where

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Speaker 1: this you know country that's further away and we've got

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Speaker 1: our own immigration dynamics, but there's nothing fundamentally or that

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Speaker 1: different economically about Australia that would mean that, you know,

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Speaker 1: inflation is somehow getting out of control here and only here.

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Speaker 5: Yeah, because yesterday, for instance, we were talking about just

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Speaker 5: that the split that we're seeing from the from the

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Speaker 5: big four banks essentially on whether even February is appropriate

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Speaker 5: for the first hike. So are you sort of very

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Speaker 5: much staying away from that.

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Speaker 1: Then I don't feel strong enough to put a trade

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Speaker 1: on for February at this stage. But I would argue that,

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Speaker 1: you know, the RBA is definitely waiting for the trimmean data.

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Speaker 1: I would argue that there's even further room to look

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Speaker 1: to wait a little bit longer some of the blips

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Speaker 1: that we've been seeing coming through our inflation data. When

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Speaker 1: I think about it, it's to do with the timing

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Speaker 1: of subsidies being coming off. But when I think about

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Speaker 1: the trends in wages that you see in Australia, you know,

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Speaker 1: the reason, as essential banker, you'd really worry about inflation

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Speaker 1: getting out of control again in your country is if

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Speaker 1: you see signs of any spiral happening right, whether it's

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Speaker 1: expectations into actual inflation, whether it's wage pressures into actual inflation.

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Speaker 1: None of these things are happening in Australia. So if

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Speaker 1: you even you know, do get a let's say one

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Speaker 1: percentrium mean course on quarter, there might still be room

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Speaker 1: to wait beyond that. If I had to put a

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Speaker 1: trade on, I would probably still lean against not February

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Speaker 1: the first hike, if indeed any hikes next year.

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Speaker 4: A growth in Australia is pretty anemic though, I mean

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Speaker 4: it's not part of the RBA's mandate and it's mostly

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Speaker 4: being propped up by government spending. At the moment, would

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Speaker 4: that be a factor considering inflation? You know, as you say,

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Speaker 4: isn't out of control?

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Speaker 1: Yeah? So right, growth is, it's anemic, but you know,

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Speaker 1: there are signs that the consumer is starting to spend

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Speaker 1: a little bit more. The huge problem in Australia seems

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Speaker 1: to be productivity, right, and I think the public spending

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Speaker 1: and the productivity that's hugely related because the public spending

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Speaker 1: in Australia has led to more of the employment growth

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Speaker 1: in Australia being in sectors that are productivity constrained by nature.

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Speaker 1: So you know, more healthcare workers because of NDIS things

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Speaker 1: like that, and as a result we're not seeing proper

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Speaker 1: investment in Australia into areas that can actually be far

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Speaker 1: more productive. Now on the other side of the pond,

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Speaker 1: in the US, they have been more productive. But is

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Speaker 1: that productivity story being now offset by the fact that

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Speaker 1: Trump's immigration policy is causing you know, the cheap and

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Speaker 1: perhaps undocumented labor that was propping up those products activity

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Speaker 1: numbers in the US to now shrink and reflect the

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Speaker 1: real productivity underlying.

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Speaker 6: In the US as well?

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Speaker 5: What about the speaking of the currency, I mean one

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Speaker 5: and c P will been watching is the Japanese yen

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Speaker 5: versus that you aren't as well? And what are you

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Speaker 5: thinking about about the Chinese economy and as well what

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Speaker 5: do you want signaling? But also the outlook for stimulus.

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Speaker 1: The Chinese economy has been really interesting this year, and

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Speaker 1: especially when you put it against for example, how the

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Speaker 1: MSCI China Index has been doing this year. So this

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Speaker 1: year's been another year of a lot of hope about

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Speaker 1: what Beijing will do for the Chinese economy in the

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Speaker 1: wake of the property bubble bursting, and yet a lot

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Speaker 1: of talk, not a lot of stimulus yet the equity

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Speaker 1: market has actually done pretty well in China this year,

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Speaker 1: so I think it's a tale of two halves. The

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Speaker 1: equaity market is probably a reflection of this is what

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Speaker 1: happens to markets when expectations are so dire, when so

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Speaker 1: many people have given up on a growth story. You

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Speaker 1: don't need a lot of stability. You don't even need

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Speaker 1: growth for the equity market to be able to perform.

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Speaker 1: But on the actual policy side of things, I mean,

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Speaker 1: I've wanted again and again to have a trade on

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Speaker 1: where you bet that yields will rise in China, But

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Speaker 1: I still think it's too soon for that trade. You know,

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Speaker 1: every time we've had some momentum in Chinese government bondy

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Speaker 1: old selling off it, you know, some policy disappointment comes through.

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Speaker 1: I think that ultimately, for Beijing, what they need to

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Speaker 1: come to sort of grips with is how much of

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Speaker 1: a fiscal lever they're willing to pull without it affecting

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Speaker 1: the property market, which obviously they don't want to again,

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Speaker 1: such that they can convince Chinese consumers, who are the

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Speaker 1: real weapon here in terms of the next part of

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Speaker 1: the Chinese growth story, to take over that mantle from

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Speaker 1: public to private and move forward. They're no, Beijing is

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Speaker 1: nowhere near comfortable in engaging in that sort of helicopter

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Speaker 1: money stimulus might view.

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Speaker 5: Okay, So if you're not, if you're not not quite

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Speaker 5: having enough conviction around Chinese and also around Australia disminishing

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Speaker 5: there with the RBA, what is your strongest conviction call

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Speaker 5: for next year?

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Speaker 1: Then? Oh uh, it's I'm actually a little bit worried

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Speaker 1: for next year and I'm I'm not sure what is

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Speaker 1: going to be the best way to express it. So normally,

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Speaker 1: whenever you guys have asked me that question, and I've

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Speaker 1: not had strong views on equities, I've not had strong

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Speaker 1: views on China, I've not had strong views on bonds,

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Speaker 1: I've kind of gone, oh, investment grade credit is where

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Speaker 1: you should park your money because a bit of floating

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Speaker 1: rate credit nicer crawl down the curve. That's a great

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Speaker 1: way to you know, just sleep at night and make money.

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Speaker 1: Now I feel like that story could have a couple

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Speaker 1: of wobbles in twenty twenty six, main reasons being not

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Speaker 1: that defaults are going up wildly, but what is going

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Speaker 1: to happen with the valuations baked into AI or the

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Speaker 1: hope of the AI capex that is happening right now,

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Speaker 1: what is funding that AI capex, and then all the

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Speaker 1: worries behind private credit as well. So this idea that

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Speaker 1: there are potentially two bubbles, I don't know if they're

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Speaker 1: really bubbles, to be honest, but if there are two bubbles,

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Speaker 1: and the market believes that there are two bubbles and

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Speaker 1: they meet and burst at the same time, investment grade

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Speaker 1: credit spreads aren't going to be immune. I mean, they'll

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Speaker 1: be safer than every other part of credit, but I'm

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Speaker 1: I'm kind of looking for places to hide at the minute,

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Speaker 1: is how I describe things.

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Speaker 5: Yeah, to your point, I mean, I think there's a

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Speaker 5: lot of concern around some of that investment great credit

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Speaker 5: that's price not that much above treasuries, But you actually

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Speaker 5: are being able to take on possibly some some significant

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Speaker 5: risks with the well.

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Speaker 1: Fifty percent of the US hyperscala AI capex is actually

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Speaker 1: being financed in the US investment grade market.

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Speaker 2: That is Amy Shea Patrick, head of Income Strategies at

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Speaker 2: Pendle Group, speaking with Bloomberg TV host Paul Allen and

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Speaker 2: Annabel droolers here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia podcast. I'm Doug Chrisner. US equities

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Speaker 2: moved higher on Thursday, and information tech led the way.

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Speaker 2: We had that strong outlook from industry giant Micron Technology

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Speaker 2: and that in turn boosted sentiment for all things related

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Speaker 2: to artificial intelligence. Micron shares were up by more than

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Speaker 2: ten percent. Joining US now is Keith Buchanan. He is

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Speaker 2: senior portfolio manager at Globalt. Keith is on the line

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Speaker 2: from Atlanta, Georgia. Keith, thank you for making time. How

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Speaker 2: would you view the information tech group right now?

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Speaker 6: We still have exposure that we're looking at this market

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Speaker 6: as really starting late in the fall as to win

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Speaker 6: this handoff. What happened from really being able to bet

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Speaker 6: on the direction of the for the reserve, direction of

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Speaker 6: monetary policy globally to really getting back to earning visibility,

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Speaker 6: you know, business model certainty, balance sheet stability, those tried

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Speaker 6: and true metrics that really drive markets in the interim

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Speaker 6: after we're getting through the space that we've kind of

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Speaker 6: gone through the last couple of years. So Micron kind

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Speaker 6: of shows that story is still alive. But we still

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Speaker 6: believe in how the market has been training since November

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Speaker 6: in that the market is really starting to appreciate and

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Speaker 6: pivot towards names that throw off more cash, have more

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Speaker 6: ability for us earnings, have more control over the outcome

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Speaker 6: of earnings over the next twelve to twenty four months,

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Speaker 6: and that's where we've been positioning our clients to benefit

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Speaker 6: in twenty twenty six.

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Speaker 2: Does that necessarily mean small cap?

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Speaker 6: It doesn't necessarily mean small cap. We feel like a

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Speaker 6: small cap move is just to move and rates coming lower,

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Speaker 6: and that's probably going to be the case of the

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Speaker 6: next call it five or six months. But as we

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Speaker 6: get into this as a soft landing that we've been

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Speaker 6: anticipating for we as in the market's been anticipating for

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Speaker 6: at least two years now, and kind of prematurely at times.

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Speaker 6: Now that it comes into focus now that the outcome

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Speaker 6: of the outcomes of the Federal Reserve and the markets

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Speaker 6: just in general becomes more wide and widespread, and there

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Speaker 6: are more mistakes that can happen from this point forward,

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Speaker 6: And with that in mind, we're looking at the market

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Speaker 6: and getting to those names that have a little more

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Speaker 6: margin for error and aren't necessarily betting on one theme

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Speaker 6: when trade one source of funding in order to generate

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Speaker 6: cash flow and earnings that we feel like we'll drive

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Speaker 6: the market further than in twenty twenty six, So we're

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Speaker 6: more diverse that we've been in some time. We still

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Speaker 6: do have exposure to those names driving the AI trade,

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Speaker 6: but not necessarily all of our bets on one trade.

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Speaker 2: So as a result of the last FED meeting, we

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Speaker 2: learned that policymakers in aggregate are expecting to make only

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Speaker 2: one more rate cut in the new year. But the

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Speaker 2: swaps market right now is still convinced that we've got

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Speaker 2: two rate cuts from the Fed happening in twenty twenty six.

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Speaker 2: Where are you right now in understanding what the Fed

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Speaker 2: is going to be challenged with in the new year.

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Speaker 6: It's really interesting that you brought that up because you

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Speaker 6: see the dispersing around that normal is distribution being wide

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Speaker 6: and it's been in the past, the markets doesn't know,

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Speaker 6: and the different between that's now as people that don't

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Speaker 6: know and people that don't know they don't know and

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Speaker 6: coming into a new chairperson of the Federal Reserve. I

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Speaker 6: think the market is priced in that there will be

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Speaker 6: some leeway and perhaps even some consensus that can we

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Speaker 6: build early and maybe get one or two cuts in

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Speaker 6: the spring but then there are lots of question marks

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Speaker 6: about where inflation goes, where laborer is, and the light

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Speaker 6: cut of going in through the second half of next year.

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Speaker 6: We don't really veer away from that. That uncertainty is

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Speaker 6: what kind of drives us to more rational cash generation

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Speaker 6: as far as how we position our clients. And we

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Speaker 6: feel like that trade will can take hold early in

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Speaker 6: twenty twenty six in a way that it started to

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Speaker 6: in the last part of this year. So we know

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Speaker 6: that we don't know, and we embrace that as part

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Speaker 6: of our thesis that there are a lot of moving

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Speaker 6: parts from a monetary policy standpoint, and being with companies

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Speaker 6: that have balance tief'tability and don't have to really rely

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Speaker 6: on the capital markets as much and aren't as relying

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Speaker 6: on our rates going forward as a place we want

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Speaker 6: to be with our clients assets.

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Speaker 2: Where does that leave you with regard to the bond market.

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Speaker 6: Sure, we're looking at the long end as somewhat stubbornly

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Speaker 6: high coming into twenty twenty six. The short end and

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Speaker 6: a steepening is kind of in our base case for

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Speaker 6: what we expect going forward. We don't think that the

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Speaker 6: FED will we'll really dive into four or five or

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Speaker 6: six cuts into the latter part next year. We don't

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Speaker 6: feel like that's necessarily anything we want to bet on

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Speaker 6: at this point, but we do think the inflation being stickier,

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Speaker 6: perhaps even real growth being stickier than the market really

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Speaker 6: expects at this point, can have the long end higher

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Speaker 6: with the short end maybe perhaps a table over where

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Speaker 6: we are now, but a steepening effect away from what

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Speaker 6: consensus things is is kind of where we see things

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Speaker 6: playing out in twenty twenty six.

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Speaker 2: So we remember well the month of November and a

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Speaker 2: lot of the questions around artificial intelligence, the whole AI trade.

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Speaker 2: There was a lot of volatility in the market, and

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Speaker 2: then when the dust settled, the move was higher. And

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Speaker 2: we're very near records right now. If you look at

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Speaker 2: the major benchmarks in the US, are you surprised that

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Speaker 2: we haven't seen a meaning full pulled back.

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Speaker 6: Not necessarily. Look, the earnest picture is clear, there's there's

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Speaker 6: a significant I mean, the disproportionate level of cash flow

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Speaker 6: and earnings is that those names present to the marketplace

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Speaker 6: deserves a reward and the market's rewarded, and that that

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Speaker 6: I don't know if I can call it a dislocation,

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Speaker 6: but the difference between that those valuations and the rest

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Speaker 6: of the market have been warranted again because of the

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Speaker 6: way they've been able to execute, So that pullback necessarily

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Speaker 6: hasn't been anything that we're we're totally banking on again.

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Speaker 6: We're we're marketwaight a lot of those names that you

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Speaker 6: mentioned and marketing with the theme more specifically, but we

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Speaker 6: want to make sure we're diverse and have bets spread

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Speaker 6: across sectors and names that present that case. I present

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Speaker 6: a few minutes ago of ballance, but stability, earnings, visibility,

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Speaker 6: and that's where we want to make sure we have exposure.

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Speaker 6: We're not underweight those spaces because we see the vible case.

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Speaker 6: We're investing, you know, for twenty twenty six returns in

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Speaker 6: those names as well.

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Speaker 2: There it's always a pleasure. Thanks very much, Keith Buchanan,

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Speaker 2: Senior portfolio manager at Globalt, joining from Atlanta, Georgia. Here

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Speaker 2: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: The Bloomberg podcast, YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg