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Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: On today's episode, we dive into the risk of tariff

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Speaker 1: policy proposed by President elect Trump and reaction to news

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Speaker 1: on the US Department of Justice working to have Google

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Speaker 1: divest it's Chrome web browser on anti monopoly grounds. Joining

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Speaker 1: us now is Rob Hayworth. He is a senior investment

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Speaker 1: strategist at US Bank Asset Management Group. Rob joins us

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Speaker 1: from Seattle. I'd like to begin Rob with a story

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Speaker 1: that just broke after the bell here in the US

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Speaker 1: on Monday, top anti trust officials that the DOJ have

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Speaker 1: decided to ask a federal judge to force Google to

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Speaker 1: sell off the Chrome browser. Now, that seems to be

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Speaker 1: a pretty aggressive crackdown. Now we know that, now we

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Speaker 1: know the administrations are in the process of transitioning here,

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Speaker 1: it's not clear to me that the next would decide

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Speaker 1: to pursue such a drastic measure. How do you understand,

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Speaker 1: generally speaking, regulatory risk that the incoming administration represents.

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Speaker 2: Yeah, I think our interpretation and we're seeing the market

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Speaker 2: think this too, right, That regulations should generally ease across many,

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Speaker 2: many sectors, and that could include technology. But I think

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Speaker 2: the hard part we're seeing right now because we also

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Speaker 2: saw news that they may be a little more concerned

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Speaker 2: about autonomous vehicles right so, I think it's going to

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Speaker 2: be fairly granular how the new administration approaches this and

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Speaker 2: may or may not support this. We may see a

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Speaker 2: lot of this walked back. And that's kind of the

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Speaker 2: challenge as we look through the cabinet picks today is

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Speaker 2: it's not clear yet to us what the exact policy

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Speaker 2: path will be, how far will the administration go vis

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Speaker 2: a vis the election promises that were made, and what

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Speaker 2: will the outcome be. So I think this is is

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Speaker 2: something to watch in the near term. May not be

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Speaker 2: a long term problem, but could be.

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Speaker 1: One of the things that we're waiting for is the

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Speaker 1: nomination for US Treasury Secretary. According to Bloomberg reporting, there's

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Speaker 1: concern that it may be difficult to find someone completely

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Speaker 1: aligned with mister Trump's economic agenda, and that goes to

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Speaker 1: the heart of the matter, since he campaigned on applying

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Speaker 1: tariffs on imported goods, especially those from China. To what

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Speaker 1: extent is the risk of these tariffs a major risk

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Speaker 1: for the American economy, and by extension, the equity market.

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Speaker 2: Well, yeah, I think we absolutely have to pay attention

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Speaker 2: to tariffs and how they shift the landscape and particularly

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Speaker 2: the price landscape. Over the first administration, the increase in

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Speaker 2: tariffs did not lead to inflationary pressures, but we also

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Speaker 2: know it was a more modest increase in tariffs than

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Speaker 2: what we're hearing proposed today. I think we're going to

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Speaker 2: have to again right to your point, it's challenging to

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Speaker 2: find a treasury secon terry. I think it's a question

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Speaker 2: of who will be in the administration and how far

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Speaker 2: will these go in changing the inflation outlook here in

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Speaker 2: the economy. I think we're a long ways away from

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Speaker 2: being worried yet, but it is something I think we

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Speaker 2: have to pay attention to, and certainly as we think

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Speaker 2: about our longer term scenarios over the full business cycle,

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Speaker 2: thinking about the next four years, it's a risk we

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Speaker 2: want to manage.

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Speaker 1: To words, What did you make of the price action

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Speaker 1: Right after the election, we were talking a lot about

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Speaker 1: the Trump trade being on in full force. It seems

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Speaker 1: to have dissipated a little bit since that time. Can

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Speaker 1: you give me your sense of how you're reading the

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Speaker 1: tea leaves right now.

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Speaker 2: Yeah, absolutely. I think right after the election, the thing

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Speaker 2: that really wasn't baked in was the Republican suite. That

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Speaker 2: was I think the most surprising and decisive thing for

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Speaker 2: the markets and where the market had to catch up,

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Speaker 2: because before that, I think the market was really taking

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Speaker 2: the polls to heart that it was a very very

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Speaker 2: close election. The Senate was probably going to shift to

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Speaker 2: Republican hands. The House was not very clear, and so

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Speaker 2: this Republican sweep and particularly the quick conclusion of the

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Speaker 2: presidential election was surprising the market. And I think that's

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Speaker 2: where we got swept up in the week as we

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Speaker 2: started to get the news about potential policies and the

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Speaker 2: potential cabinet picks. I think the market wasn't quite sure

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Speaker 2: how far would policies go. I think there was some

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Speaker 2: hope maybe that that they wouldn't be particularly as aggressive,

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Speaker 2: particularly on the on the tariff side, and that's what

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Speaker 2: we saw walked back this week. And I think we

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Speaker 2: have a lot of questions that have yet to be answered.

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Speaker 2: And right one, we still haven't seeded in new Congress. Two,

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Speaker 2: the president elect is not yet the president. That's still

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Speaker 2: a couple of months away. I Three we need. We

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Speaker 2: still need to fund the government that's coming up first

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Speaker 2: of the year, and so we need to get a

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Speaker 2: new budget resolution through to just extend into at least

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Speaker 2: the new Congress. So I think there's a lot of

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Speaker 2: uncertainty for the market as we push ahead, and we

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Speaker 2: may have gotten a little ahead of ourselves in terms

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Speaker 2: of pricing in what a Republicans suite may mean and

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Speaker 2: exactly how quickly will policies come through.

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Speaker 1: There may have been a bit of optimism, maybe excessive optimism,

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Speaker 1: on the degree to which the FED would be easing

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Speaker 1: before the end of the year and into next year.

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Speaker 1: I think that's the other wild card, right, I mean,

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Speaker 1: if you listen to what the FED chairman said after

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Speaker 1: the November policy meeting, maybe the market is a little

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Speaker 1: disinclined to make big bets on aggressive rate cuts going forward.

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Speaker 1: Is that a safe bet? And maybe the rethinking on

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Speaker 1: the path of the FED has contributed to the kind

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Speaker 1: of the pullback in the equity market to some extent.

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Speaker 2: I think that's absolutely right, and we heard that in

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Speaker 2: speeches last week as well, with Chair Powell kind of

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Speaker 2: walking back expectations that he had to cut at the

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Speaker 2: December meeting. I think the most important thing, though, we

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Speaker 2: heard after the November meeting was that they were very

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Speaker 2: data dependent and they were watching the data rather than

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Speaker 2: trying to anticipate where the data was headed. And I

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Speaker 2: think that's what we point to is for the markets,

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Speaker 2: is that the Feds not really on a fully predetermined path.

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Speaker 2: They're in an easy mode. They want to normalize policy,

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Speaker 2: but the pace of that is really going to depend

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Speaker 2: upon the economic data, which we know in the US

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Speaker 2: has been quite resilient consumer right, Retail sales last week

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Speaker 2: were quite good. The consumer sentiment numbers look to be improving.

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Speaker 2: Inflation is slowing, but slowing very slowly. Right, We're still

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Speaker 2: kind of elevated in terms of prices, So I think

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Speaker 2: that gives the FED room to pick their way through

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Speaker 2: this normalization process.

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Speaker 1: The other important data point this week will be the

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Speaker 1: earnings from Nvidia. The stock was down a little more

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Speaker 1: than one percent today. It was a report in the

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Speaker 1: publication The Information that indicated that in Vidia had asked

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Speaker 1: some of its suppliers to change the design of server

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Speaker 1: racks for those new Blackwell GPUs because of an apparent

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Speaker 1: problem with overheating. Now, when it comes to earnings from

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Speaker 1: Nvidia this week. What are you going to be looking for?

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Speaker 2: Really, we're looking for where is where? What is their

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Speaker 2: revenue growth expectation? Artificial intelligence has been the artificial intelligence

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Speaker 2: spending has been entirely focused on that acceleration in revenue growth.

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Speaker 2: It's concerning to see how the market treated Microsoft Azure

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Speaker 2: after the cut and their expectations for their revenue growth

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Speaker 2: by a point or two for coming quarters. And I

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Speaker 2: think that's what we're going to focus on. And in Vidia,

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Speaker 2: is the growth rate still the same? Is that finally

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Speaker 2: coming off the bloom? And so is the market maybe

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Speaker 2: a little pricing a little too aggressively for growth coming

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Speaker 2: out of that sector.

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Speaker 1: Before we get to in Nvidia tomorrow, I think before

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Speaker 1: the opening bell will hear from Walmart. This is going

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Speaker 1: to give us a little bit of a sense on

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Speaker 1: the health of the American consumer. Do you have a

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Speaker 1: read on the consumer at this point?

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Speaker 2: Well, the consumer is on average really solid. But I

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Speaker 2: think what we're watching from both Walmart and Target is

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Speaker 2: how is the lower income consumer doing. Is that starting

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Speaker 2: to fall off? Is that a sign that things are

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Speaker 2: getting a little tough for the consumer or are they

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Speaker 2: doing okay? Because when we look at the headline numbers,

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Speaker 2: the average consumer seems to be doing okay, But what's

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Speaker 2: really happening with the lower income segment, And that's where

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Speaker 2: we could start to become concern that maybe the labor

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Speaker 2: market is tightening quicker than we think. So that's really

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Speaker 2: what we'll look for coming out of there. I think

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Speaker 2: the second thing for both Walmart and Target is are

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Speaker 2: we seeing a shift where middle to higher income consumers

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Speaker 2: are becoming concerned about their budgets as well? Or are

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Speaker 2: they they confident enough to buy the name brand products.

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Speaker 2: We'll we'll have to watch that from both those companies.

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Speaker 1: I want to talk before I let you go on

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Speaker 1: whether or not you're seeing opportunities offshore. I mean, we

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Speaker 1: know that Europe is very weak right now, pockets of

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Speaker 1: Asia are struggling, principally China. Are you seeing anything worthwhile

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Speaker 1: outside of the US these days?

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Speaker 2: We do think there's some improving growth coming out of

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Speaker 2: the rest of the world, and I think it's tough

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Speaker 2: to say that it's accelerating, but I think it's less

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Speaker 2: worse and valuations are particularly cheap. Additionally, we have both

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Speaker 2: the European Central Bank and the Bank of England on

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Speaker 2: a more aggressive cutting cycle, which should ultimately support support

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Speaker 2: the European economy, support the economy of the United Kingdom.

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Speaker 2: We saw decent GDP numbers out of Japan, not great,

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Speaker 2: not accelerating, but at least decent, so we think there's

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Speaker 2: some opportunity that it's worth looking at those cheap valuations.

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Speaker 2: Not aggressively, but it might be time to start picking

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Speaker 2: and choosing some allocations outside the US.

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Speaker 1: Rob, we'll leave it there, Thanks so much for making

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Speaker 1: time for us. Rob Hayworth is senior investment strategist at

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Speaker 1: US Bank Asset Management Group, joining from Seattle. Here on

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Speaker 1: the Daybreak Asia podcast. Welcome back to the Bloomberg Daybreak

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Speaker 1: Asia Podcast. I'm Doug Krisner. Joining us now is Zachary Hill.

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Speaker 1: He is head of portfolio management at Horizon Investments. Joining

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Speaker 1: us from Charlotte, North Carolina. Zach, thanks for making time

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Speaker 1: to chat with us. I want to know how you're

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Speaker 1: viewing the change in administration and the impact that it's

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Speaker 1: going to have on the outlook for corporate earnings next year,

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Speaker 1: if we can only go that far out, do you

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Speaker 1: have a sense sure?

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Speaker 3: Doug, great to be with you today. You know, I

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Speaker 3: think we're trying to assess right now sort of the

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Speaker 3: balance and priorities of this incoming administration. Between one set

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Speaker 3: of policies is that's pro markets and good for corporate

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Speaker 3: earnings and the economy more broadly, and that would be

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Speaker 3: you know, deregulation, lowering taxes and then just unleashing animal

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Speaker 3: spirits amongst the business community. That's the positive side of things,

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Speaker 3: versus stirring the pot in terms of global trade, potentially

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Speaker 3: imposing really putative tariffs across the board on our trading partners,

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Speaker 3: which would obviously, you know, be negative. And so as

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Speaker 3: we're thinking about it broadly speaking, we see the economy

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Speaker 3: doing pretty well into this you know, change in administration,

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Speaker 3: and so continue to see that. It's just we're trying

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Speaker 3: to assess the balance between those two priorities, and certainly

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Speaker 3: I think watching appointees and the like in terms of

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Speaker 3: which comes first and what's going to be emphasized in

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Speaker 3: this new administration.

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Speaker 1: Many of the political analysts that have looked closely at

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Speaker 1: the election results have pointed to the fact that there

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Speaker 1: has been or was a little bit of anxiety about

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Speaker 1: the economy expressed in voting and I'm wondering how you're

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Speaker 1: viewing the overall health of the American consumer right now

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Speaker 1: visa vi these election results. That seems to be the

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Speaker 1: case that a lot of people are struggling and they're

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Speaker 1: worried about persistently high inflation.

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Speaker 3: Yeah, I think inflation was a huge issue in this election.

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Speaker 3: There's nothing more topical than gas prices, and so that's

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Speaker 3: obviously going to be a priority for this with the

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Speaker 3: new administration, to try to get gas prices lower. That

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Speaker 3: has a lot of, you know, psychological effect on consumers.

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Speaker 3: But broadly speaking, you know, over these last few years,

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Speaker 3: if you ask people how they feel about the economy,

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Speaker 3: they've been very, very negative. Some of the readings on

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Speaker 3: consumer confidence were as bad as they were in two

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Speaker 3: thousand and eight, two thousand and nine, for example. But

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Speaker 3: if you look at the objective measures across the broad

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Speaker 3: swaths of the economy, consumers are employed, they have plenty

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Speaker 3: of runway in terms of the ability to take on

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Speaker 3: debt if they need it, and they have very strong

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Speaker 3: balance sheets. And so we put all those things together

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Speaker 3: and think there's more underlying strength in the economy than

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Speaker 3: a lot of people have given them credit for. And certainly,

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Speaker 3: if you're listening to what consumers say on surveys, you

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Speaker 3: would be very much surprised by the economic strength that

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Speaker 3: we've seen over the last few years.

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Speaker 1: Maybe that's one of the reasons that the FED is

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Speaker 1: taking a kind of a slower approach to rate cuts.

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Speaker 1: Not only the fact that the economy seems to be

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Speaker 1: very healthy, the job market seems to be strong, but

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Speaker 1: there is with a new administration maybe a little concern

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Speaker 1: that some of the policies that could be unleashed would

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Speaker 1: contribute to maybe a pickup in inflation. Where does this

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Speaker 1: leave the FED right now trying to understand where the

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Speaker 1: economy is and what the path forward may be given

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Speaker 1: this new administration that's going to unleash very very different

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Speaker 1: economic plans.

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Speaker 3: Yeah, I mean that's certainly something the FED is grappling

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Speaker 3: with and the market, and I think I think we're

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Speaker 3: all in the same boat on this. We're just watching

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Speaker 3: the incoming data and that's been tricky over the last

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Speaker 3: month or so because of the distortions from the hurricanes

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Speaker 3: and the strikes that we had across this injury That

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Speaker 3: will likely to continue to be tricky, you know, as

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Speaker 3: we get a new administration and a new set of

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Speaker 3: policies and priorities coming out of out of d C.

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Speaker 3: But you know, broadly speaking, you know, we think the

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Speaker 3: Fed is in a position where they know rates are

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Speaker 3: too high, they just don't know how high, how too much,

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Speaker 3: how high they are, and so you know that likely

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Speaker 3: sets them up for you know, another twenty five bases

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Speaker 3: point cut in December and then a bit of a

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Speaker 3: wait and see, and certainly we had pal suggesting that

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Speaker 3: last week and then kind of just see how the

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Speaker 3: economy evolves. And if we have stronger growth, that means

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Speaker 3: we'll have higher rates, and if we have weaker growth,

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Speaker 3: it means we'll have lower rates, and buy and large.

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Speaker 3: You know, we think equity markets, other than a little

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Speaker 3: bit of indigestion over the near term, can handle either

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Speaker 3: of those scenarios.

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Speaker 1: Where does that leave the fixed income markets? Would you

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Speaker 1: be inclined to put money to work in certain bond

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Speaker 1: markets right now or not?

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Speaker 3: You know, that's challenging backdrop for fixed income markets. And

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Speaker 3: I'm not even you know, mentioning any concerns about you know,

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Speaker 3: fiscal and term premium and at long term rates and

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Speaker 3: that type of thing. And so you know, we've been

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Speaker 3: dipping our toes certainly into parts of the fixed income

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Speaker 3: market that we might have shunned when the curve was inverted.

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Speaker 3: But broadly speaking, you're still not getting paid, you know,

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Speaker 3: very much for for terming out your exposure there. And

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Speaker 3: so you know, we've we've tended to like credit. It

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Speaker 3: fits with our overall economic view. And you know, the

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Speaker 3: coupon's on offer in the short and intermediate part of

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Speaker 3: the curve are are quite attractive on an on a

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Speaker 3: total return basis. And so that's that's been our focus

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Speaker 3: in fixed income and it's been a relatively consistent one

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Speaker 3: for us.

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Speaker 1: Where are you when it comes to the equity market?

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Speaker 1: Are there themes there that you believe will return decent

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Speaker 1: returns going forward?

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Speaker 3: Absolutely? I mean broadly we're we're positive on equities, and

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Speaker 3: especially US equities, and and you know certainly that that

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Speaker 3: is not just because of what's happened over the last

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Speaker 3: two weeks, but just because of the broad earnings power

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Speaker 3: of corporate America and the resilience of the economy, especially

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Speaker 3: piece of b the rest of the globe. But I

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Speaker 3: think two themes are really interesting right now. I mean,

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Speaker 3: one is the AI theme, and we have a video

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Speaker 3: coming up this week, and they're the most important stock

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Speaker 3: in the world. That's important for the overall sentiment towards

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Speaker 3: towards that part of the market. But you know, broadly speaking,

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Speaker 3: semiconductors have not really been leading global equities, you know,

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Speaker 3: since about June or July of this year, and so

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Speaker 3: that is a pretty noticeable change, and so it's for

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Speaker 3: our perspective helpful to see. You know, some of that

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Speaker 3: AI trade broadened out into some software and service providers

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Speaker 3: that are adjacent to the scene. Uh and the and

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Speaker 3: the other part of the market that we do like

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Speaker 3: are some select cyclical parts of the market, you know

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Speaker 3: that that have some tailwinds from a stronger economy, from

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Speaker 3: interest rates and from the potential for deregulation. And so

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Speaker 3: two there that stand out are our financials and and

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Speaker 3: small caps more broadly, you know that doesn't extend to

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Speaker 3: the entire universe, and you know, you do think we

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Speaker 3: do think you want to be selective in that area

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Speaker 3: because we still have that overhang of potential for higher

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Speaker 3: rates weighing on on sentiment and parts of that parts

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Speaker 3: of the market. But those are the two areas that

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Speaker 3: we like and then you know, defensive sectors which did

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Speaker 3: really well in the third quarter with interest rates were falling.

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Speaker 3: We we don't really favor those at all.

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Speaker 1: We don't.

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Speaker 3: We don't see how they translate into into our view

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Speaker 3: from a portfolio construction perspective.

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Speaker 1: At this point, one of the tenets of the Trump

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Speaker 1: economic plan is to drill for a lot more crude

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Speaker 1: oil in the US. Are you playing energy at all

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Speaker 1: right now?

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Speaker 3: Yeah? I mean, you know, you would think kind of

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Speaker 3: based on that that overall view, that that cyclicality would

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Speaker 3: be in favor, and energy certainly is one of the

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Speaker 3: more cyclical sectors out there. I do think it's a

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Speaker 3: little bit of an open question. A. We've had just

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Speaker 3: a lot of global supply. You know, the OPEC compliance

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Speaker 3: has not nearly been a strong as it has in

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Speaker 3: years past. And then B, you know, the potential for

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Speaker 3: more supply in the US, and going back to that

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Speaker 3: idea of trying to get inflation down and the salience

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Speaker 3: of gas prices into consumer psyche around you know, inflationary

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Speaker 3: dynamics that is potentially good for the overall economy, but

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Speaker 3: not necessarily good for equity holders in energy companies. And

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Speaker 3: so that's that's a part of the market you know

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Speaker 3: that we don't favor at this point remains to be

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Speaker 3: seen on policies, and certainly we're watching that space very closely.

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Speaker 3: But that's why I think you need to be a

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Speaker 3: little nuanced when you're thinking about, you know, more cyclical

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Speaker 3: exposures at this point.

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Speaker 1: How are you viewing markets offshore right now, especially in Asia?

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Speaker 1: Is there anything in that region that you like right now?

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Speaker 3: You know, the international markets have just really struggled for

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Speaker 3: catalysts over the last few years, and you know, the

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Speaker 3: market had a very large rally in China and we've

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Speaker 3: given quite a bit of that back as it's been

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Speaker 3: clear that you know, stimulus, even though it is forthcoming,

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Speaker 3: is not and to meet the standards of offshore investors

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Speaker 3: and so, you know, emerging markets is a part of

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Speaker 3: the global market that we like more than we have

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Speaker 3: in the past, but it still is really difficult to

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Speaker 3: get behind, you know, meaningful overweights to that sector. But

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Speaker 3: if I had to pick kind of one place internationally

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Speaker 3: that I do think has some nice tailwinds, it would

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Speaker 3: be Japan. Very cheap currency, normalization of policy and just

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Speaker 3: the structural reforms, the corporate Japan is undertaking all of

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Speaker 3: those things, even though that trade has been more volidle

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Speaker 3: over the last few months. All of those things are

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Speaker 3: are more positive than anything we see coming out of

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Speaker 3: you know, Europe or broad emerging markets at this point.

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Speaker 3: So that's the one kind of highlight as we look Overseas.

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Speaker 1: Big question is whether or not we're going to get

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Speaker 1: a rate hike from the BOJ as soon as December.

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Speaker 1: A lot of folks are saying maybe it doesn't come

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Speaker 1: until January. Zach, thank you so much for taking time

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Speaker 1: to chat with us. Zachary Hill there, the head of

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Speaker 1: portfolio management at Horizon Investments. Joining I'm from North Carolina

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Speaker 1: here on the Daybreak Asia Podcast. Thanks for listening to

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Speaker 1: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 1: and this is Bloomberg