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

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner. Join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business App.

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Speaker 1: Let's take a closer look now at our breaking news

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Speaker 1: of the show. The union representing striking doc workers here

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Speaker 1: in the States at both East and Gulf Coast ports

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Speaker 1: reaching a deal to suspend the strike that they had

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Speaker 1: been undertaking until January fifteenth. And let's bring in that

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Speaker 1: Kate Davidson. You just heard her voice there in Scott's newscast.

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Speaker 1: Kate is Bloomberg's managing editor for US ECO Policy. She

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Speaker 1: joins us from Washington, DC. So we're talking about a

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Speaker 1: couple of things as I understand it. There's the wage component.

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Speaker 1: What do we know about an agreement on the use

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Speaker 1: of automation though? Has that been resolved?

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Speaker 2: No?

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Speaker 3: And that's a really important point to note. The language

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Speaker 3: around certain protections for dock workers and what sorts of

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Speaker 3: roles and jobs at ports around the country and on

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Speaker 3: the East Coast and Gulf Coast in particular, what sorts

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Speaker 3: of jobs would be automated. They were really fighting to

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Speaker 3: preserve language and really strengthen language that would protect their jobs. Essentially,

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Speaker 3: they're resisting some of the automation that's been seen in

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Speaker 3: on places like on the West Coast and around the world. Frankly,

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Speaker 3: and basically making the pitch that the companies that the

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Speaker 3: shipping lines and terminal operators have reaped a lot of

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Speaker 3: profits during the pandemic and they want to share in

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Speaker 3: some of that with the higher wages, but also make

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Speaker 3: sure that their jobs are protected going forward. So that's

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Speaker 3: a wrinkle, an important one that will have to be

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Speaker 3: worked out over the next few months.

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Speaker 2: Kate, what are we hearing about a catalyst for them

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Speaker 2: to come to an agreement after just three days.

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Speaker 3: Well, it seems pretty clear that the White House that

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Speaker 3: the Biden administration played some kind of big role in this. Uh.

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Speaker 3: They they've been releasing statements and we've you know, had

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Speaker 3: been reporting throughout the week that they had been holding calls,

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Speaker 3: holding meetings, issuing public statements, really encouraging pressuring both sides

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Speaker 3: to start resuming negotiations in good faith, and those talks

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Speaker 3: that had been ongoing over the summer had basically stalled

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Speaker 3: out in June, they weren't didn't continue making much progress.

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Speaker 3: But of course we're just one month out for the

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Speaker 3: presidential election, and the threat of a major economic disruption

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Speaker 3: from from this kind of strike and the ripple effect

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Speaker 3: across the whole economy was certainly not something that any

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Speaker 3: White House would want to deal with at the timing

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Speaker 3: I think was particularly bad given the looming election, So

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Speaker 3: there was a big push for both of them to

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Speaker 3: work something out here.

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Speaker 1: Three days doesn't seem like a lot of time. To

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Speaker 1: what extent has cargo been kind of backed up? Is

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Speaker 1: there a significant backlae log that these dock workers are

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Speaker 1: now going to have to deal with.

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Speaker 3: Yeah, so the estimates from analysts suggests, you know, initially

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Speaker 3: we were hearing that for every day that the strike

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Speaker 3: went on, it could take up to a week for

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Speaker 3: them to clear that backlog. Some more recent estimates that

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Speaker 3: I've seen today suggested it could take something like twelve days,

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Speaker 3: maybe closely around two weeks for them to clear that backlog.

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Speaker 3: We know from tracking the ships that are basically anchored

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Speaker 3: off the ports. These ports that have been closed, they

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Speaker 3: were around nineteen on Monday, it's now up to about

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Speaker 3: forty three. So again that's just a huge backlog that

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Speaker 3: will have to be slowly worked through in addition to

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Speaker 3: the you know, the regular flow of goods that would

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Speaker 3: be coming in on any given day, and now now

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Speaker 3: you have this backlog to work through. So that was

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Speaker 3: sort of the risk and the warnings about the potential

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Speaker 3: impact here is that yes, it's a short amount of time,

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Speaker 3: but it's really complicated to work through at once operations resume.

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Speaker 2: So I'm curious what you're hearing kind of beneath the surface,

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Speaker 2: whether or not this is just kick the can down

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Speaker 2: the road, and you know, the election will happen and

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Speaker 2: we'll get into January and then all this blows up

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Speaker 2: again and there's heated discussions, well whether or not actually,

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Speaker 2: you know, they find agreement and that basically this deal

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Speaker 2: is done. As we heard from President Scott Cowan of

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Speaker 2: the long Shoreman's Association, the strike is over, is it.

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Speaker 3: That's right? I mean, certainly it's over for now. I

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Speaker 3: think that those two important words really are important. For now,

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Speaker 3: it's over until January fifteenth. But as we were just saying,

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Speaker 3: you know, it's a big hurdle to work out the

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Speaker 3: issues over over automation. I think that the the ISLA

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Speaker 3: A union leader Harold Daggett, is going to be to

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Speaker 3: be very tough. I think he clearly felt as though

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Speaker 3: he had a lot of leverage in the situation, and

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Speaker 3: it's definitely meaningful that they have that they have gotten

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Speaker 3: the US Maritime Alliance seemingly to agree to a much

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Speaker 3: bigger pay increase. Something close to sixty two percent is

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Speaker 3: what we're hearing just Monday, you know, the ship states

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Speaker 3: the employers were offering just fifty percent, So that's a

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Speaker 3: significant concession. I think it goes a long way toward

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Speaker 3: a better agreement. That you even heard from from President Biden.

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Speaker 3: He was speaking with reporters early today that he hopes

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Speaker 3: it can hold.

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Speaker 4: Right.

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Speaker 3: There's there's a bit of caution in some of the

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Speaker 3: statements that we're seeing from folks about the you know,

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Speaker 3: the challenges that are still to be worked out here.

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Speaker 1: So, Kay, we were talking about one elephant in the

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Speaker 1: room being the presidential election in November. I think it's

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Speaker 1: fair to say the other is that we're in the

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Speaker 1: fourth quarter right now, right, and a lot of commerce

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Speaker 1: happens in this period of time. Is this critical now

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Speaker 1: that the resumption of this cargo flow kind of get

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Speaker 1: back up to speed because there's so much consumption that happens.

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Speaker 1: Or is that not an issue because they essentially front

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Speaker 1: loaded that inventory.

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Speaker 3: I think it's less of an issue for sure, right.

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Speaker 3: It's it's true that we have been seeing some of

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Speaker 3: what appeared to be that front loading. A company and

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Speaker 3: shipper's businesses were aware of this looming issue, that it

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Speaker 3: might not be resolved, and also aware of the potential

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Speaker 3: for more care IFFs heading into next year, even later

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Speaker 3: in the year, So I think that that probably mitigated

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Speaker 3: some of it. And I also think the fact that

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Speaker 3: it was apparently you know, that it seems to have

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Speaker 3: been resolved within just a few days is definitely good.

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Speaker 3: It doesn't mean that there's no impact. There's certainly some

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Speaker 3: impact that will have to be worked out. But I

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Speaker 3: think that it could have been much worse.

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Speaker 1: Certainly, no doubt about that. So maybe we can say

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Speaker 1: fairly a sigh of relief. Kate, thanks so much for

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Speaker 1: making time to chat with us. Always a pleasure. Bloomberg

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Speaker 1: Kate Davidson there, managing editor of US Eco Policy, joining

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Speaker 1: us from Washington, d C here on daybreakas.

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Speaker 2: One of our top stories this morning, the spike in

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Speaker 2: oil prices. We've seen WTI trade up more than five percent,

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Speaker 2: seventy three dollars and seventy cents a barrel or thereabouts

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Speaker 2: at the moment. Joining us now in our studio is

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Speaker 2: for a little discussion about what is causing this and

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Speaker 2: where we go from here is Ben Sharples, Bloomberg Energy

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Speaker 2: and Commodities Editor. So, Ben, the market has been nervous

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Speaker 2: anyway because Israel has flat out said that it would respond.

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Speaker 2: But then you have President Biden talking about how the

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Speaker 2: US was discussing whether or not to support Israeli attacked,

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Speaker 2: and it has people worried now about a lot of

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Speaker 2: escalation and the removal of Iranian oil and then what else.

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Speaker 2: That's the question as you look at the markets here,

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Speaker 2: you think these prices are likely to run up from here?

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Speaker 5: Well, that means Brian, it's you know, Iran at the

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Speaker 5: side of the week has really knocked the old market

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Speaker 5: out of at Slumba. You know, a lot of the

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Speaker 5: narrative around oil recently has been bearish an oversupply, questions

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Speaker 5: about demand, but I mean that strike, that miss will

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Speaker 5: strike at the start of the week has really set

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Speaker 5: the market off. You know, the Brent cruds up almost

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Speaker 5: eight percent for the week we're looking at, you know,

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Speaker 5: the biggest weekly gain since February twenty twenty three, so

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Speaker 5: over a year. And depending on what Israel does, if

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Speaker 5: it does target that energy infrastructure, there's certainly a lot

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Speaker 5: of room to run. So it's the what if from

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Speaker 5: here and how they go about it is the big

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Speaker 5: question mark.

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Speaker 1: So Ben, what do we know about current levels of inventory?

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Speaker 1: How much cushion is there were the market to be disrupted,

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Speaker 1: let's say by some type of heightened tension going on

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Speaker 1: in the Mid East or you know, some military action.

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Speaker 5: Well, there's a lot of spare capacity in the market

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Speaker 5: at the moment, a lot of ample supply. A lot

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Speaker 5: of the thing is a lot of that spare capacity

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Speaker 5: is in the Middle East, particularly Souda Arabia, So they're

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Speaker 5: pumping around nine million barrels a day at the moment,

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Speaker 5: but they have capacity for twelve million barrels a day,

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Speaker 5: so there's a three million barrel a day cushion there.

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Speaker 5: There's Also the Libya is pumping more as well, so

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Speaker 5: there is a lot of all in the market. But

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Speaker 5: you know that taking out the Citygroup this week ransom numbers,

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Speaker 5: a major strike would take about one and a half

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Speaker 5: million barrels a day from Iran. That is a minus

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Speaker 5: strike around three hundred to four hundred thousand barrels a day.

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Speaker 5: Iran produces around just over three million, so you know

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Speaker 5: it would even though there's spare capacity in the market,

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Speaker 5: it would certainly have an effect. You will see definitely

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Speaker 5: a knee knee jerk reaction which could possibly depending on

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Speaker 5: what happens. If it happens over the weekend, would be

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Speaker 5: a big open on Monday, but there will be a

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Speaker 5: reaction even though there is that spare capacity in the market.

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Speaker 5: So I think it will take some time for it

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Speaker 5: to filter through and for people to get a sense

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Speaker 5: of what sort of how it's going to affect the markets.

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Speaker 5: But you know it's going to upset a lot of people,

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Speaker 5: especially a few of the buyers well exactly.

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Speaker 2: I mean, China has been a country that has bought

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Speaker 2: oil from Iran. Is are we hearing much from China

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Speaker 2: about this?

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Speaker 5: Well, as you know, Brian, China is on a a

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Speaker 5: week long holiday, so we're not hearing much out of

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Speaker 5: China at the moment. But you're right China unofficially, well

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Speaker 5: officially they haven't bought crude from Moran since June twenty

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Speaker 5: twenty two, But unofficially, if you look at the third

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Speaker 5: party data, they're buying a lot. They're enthusiastic buyers. If

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Speaker 5: you look at September, it was probably their biggest month

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Speaker 5: on record, or almost one point eight million barrels a day,

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Speaker 5: and that's primarily from the smaller teapots on the East

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Speaker 5: coast where margins matter a whole lot more for them,

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Speaker 5: and you know, China's slow down has really crimped those

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Speaker 5: margins and for them, cheap creued especially from Iran, is

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Speaker 5: what they is what they sort of they target because

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Speaker 5: it allows them to make some money. So for China

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Speaker 5: it would become an issue definitely.

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Speaker 1: Yeah, we're getting ready to go into the winter months

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Speaker 1: in the northern Hemisphere, and I mean that has got

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Speaker 1: to shock energy markets when you look at things like

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Speaker 1: home heating oil.

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Speaker 5: Right absolutely.

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Speaker 1: I mean Iran.

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Speaker 5: Iran has heavy and light crude, so you know it's

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Speaker 5: a lot of that sort of especially from the teapots.

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Speaker 5: You know, they are big bars of that, so that

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Speaker 5: would sort of flow on. But you know, I think

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Speaker 5: the going on from what Israel what Israel does? I

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Speaker 5: think what would be the reaction from Iran? And a

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Speaker 5: key part of a retaliation from Iran could be the

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Speaker 5: Straightupromuz And if you run the numbers there, you know

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Speaker 5: that's almost thirty percent of the world's oil trade flows

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Speaker 5: through that strait. It's very very narrow, straight, it's shallow,

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Speaker 5: it makes ships vulnerable to mines, to attacks from sure,

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Speaker 5: so you know a lot of oil coming from Saudi

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Speaker 5: Arabia or Iraq, Kuwait, Uae flows through that. So if Israel

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Speaker 5: attacks and then Iran retaliates, that could be the sort

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Speaker 5: of the element.

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Speaker 2: The escalation that really is is the problem or the

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Speaker 2: main issue. It's not so much the loss of the

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Speaker 2: one and a half million barrels of Iranian oil. And

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Speaker 2: you wonder about the impact of higher prices on oil

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Speaker 2: on inflation, because that's been a dragon that has seemingly

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Speaker 2: been almost slayed and it could pop back up again.

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Speaker 2: So oil is about midway through a range that has

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Speaker 2: been in for the last three or so years. So

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Speaker 2: if it moves up above eighty. Does that cause a

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Speaker 2: big problem.

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Speaker 5: Well, especially the US is in an election year, right,

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Speaker 5: and the energy prices matter a lot, you know. I

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Speaker 5: think it's around three dollars twenty a gallon the national average.

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Speaker 5: It's been coming down, so it's in a good place.

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Speaker 5: So you would think that the US is probably encouraging

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Speaker 5: Israel to perhaps stay away from those those that energy infrastructure.

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Speaker 5: But yeah, prices, the market is nervous. The market is

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Speaker 5: certainly nervous. It wears hedge funds and money managers held

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Speaker 5: the most bearish stance on all at the end of

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Speaker 5: last month. And you're seeing in the options market that

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Speaker 5: people are repositioning. They're repositioning for the possibility of one

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Speaker 5: hundred dollars rore. So you know, things are happening in

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Speaker 5: the background there and people are very very nervous, and

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Speaker 5: you know, a strike just get pushes process out.

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Speaker 2: Yeah, all right, Ben, thanks very much for coming into

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Speaker 2: the studios with us and shedding some light on this.

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Speaker 2: Ben Sharpole the Bloomberg Energy Commodities Editar Ed Gomez joins

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Speaker 2: US now CIO at SGMC Capital. I wanted to start

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Speaker 2: off with China since we just heard about that possible

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Speaker 2: stimulus coming in in the form of special debt. There

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Speaker 2: are a number of people calling for that now ed

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Speaker 2: we've seen the market surge. I note that no Mura

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Speaker 2: is out with a report saying a crash will follow.

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Speaker 2: Basically what their report says is that you've got a

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Speaker 2: lot of weaknesses that are built in from four years

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Speaker 2: of the housing crisis. You've got a lot higher local

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Speaker 2: government debt and escalating geopolitical tensions. Do you like that

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Speaker 2: side of the story or do you like the recovery

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Speaker 2: side of the story?

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Speaker 6: You know, a very interesting question. And we've been talking

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Speaker 6: about China for a few years as well, you know,

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Speaker 6: on the show, and I think what's relevant to assess is,

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Speaker 6: you know, does the government, does the party have the

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Speaker 6: will to pull this off? It's always been you know,

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Speaker 6: are they going to do the right things? And throwing

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Speaker 6: money at the problem is not the only thing, And

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Speaker 6: you know, to that extent, I think that's that's a

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Speaker 6: good assessment. Mind Nomura. You know, you can't just throw

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Speaker 6: money at the problem because if you throw money at

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Speaker 6: the problem and at the same time, you damage confidence,

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Speaker 6: whether it's consumer confidence, whether it's business confidence in any sort,

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Speaker 6: any any form, then that's going to work counter to

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Speaker 6: any kind of money that you're putting in. So you

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Speaker 6: need to have the money and the support. Yes, that's important,

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Speaker 6: but you also need to do everything else to make

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Speaker 6: sure that entrepreneurship, you know, at the brassroot level, in

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Speaker 6: the form that exists in a country like China, you know,

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Speaker 6: does flourish as well. And you know that's going to

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Speaker 6: be a very different form of entrepreneurship compared to the

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Speaker 6: United States or other places that we know. But if

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Speaker 6: the entrepreneur himself or herself is not sure about the

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Speaker 6: lee of the land, not sure about what the policies

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Speaker 6: are going to be, you know in the coming months

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Speaker 6: or in the coming quarters, they're not going to invest.

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Speaker 6: They're not going to take those risks. And that's what

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Speaker 6: you need to see. So, you know, fairly nuanced answered

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Speaker 6: and we're not trying to sit on the fence here.

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Speaker 6: But money alone doesn't solve the problem. You have to

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Speaker 6: address the confidence in the market.

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Speaker 1: So if we can agree that the eye of the

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Speaker 1: storm is really the property market, and the similarity between

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Speaker 1: what happened during the global financial crisis in the United

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Speaker 1: States and the property collapse or the collapse of investment

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Speaker 1: in property, and in the Japan's case, they were making

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Speaker 1: investments in many jurisdictions, including the United States. So if

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Speaker 1: you look at the problem that happened in the United States,

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Speaker 1: if you look at that problem that happened three decades

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Speaker 1: ago in Japan, has China been going to those histories

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Speaker 1: trying to understand the best way out of a situation

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Speaker 1: or they of flying a little blind here and not

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Speaker 1: looking at prior playbooks.

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Speaker 6: Would one would expect that they are looking at the playbooks,

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Speaker 6: but then they need to reconcile those playbooks with their

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Speaker 6: system of functioning. Right, if you look at the United States,

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Speaker 6: you know two thousand and seven, two thousand and eight,

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Speaker 6: a lot of companies were under severe US where the banks,

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Speaker 6: whether they were the property companies themselves. But tod Brothers

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Speaker 6: still exists. The trades is the healthy company, Lennar still trades,

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Speaker 6: put their Home still trades. Meaning if I look at

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Speaker 6: you know th evergrand I look at Country Garden, I mean,

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Speaker 6: there's been no trading in those names for the longest time,

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Speaker 6: so you know, they're effectively gone.

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Speaker 5: Right.

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Speaker 6: The Japanese experience has been slightly different from the US experience,

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Speaker 6: and I would say probably somewhere in between the China

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Speaker 6: experience that we've seen and the US in the sense

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Speaker 6: that they've taken a longer time to reconcile the losses

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Speaker 6: and the fact that you know, things have gone completely

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Speaker 6: out of control and you've got to let some things fail.

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Speaker 6: So in the US, you know, you take the pain

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Speaker 6: on a lot faster, it seems a lot more volatile,

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Speaker 6: but then you get to the new cycle a lot quicker.

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Speaker 6: In China, it's been a long time coming. And not

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Speaker 6: just the property sector, it's it's also the tech sector.

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Speaker 6: It's also you know, consumption. There was a point in

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Speaker 6: time and we've seen the reaction of Louis piton MCFP

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Speaker 6: as the ticker up, you know, almost twenty or thirty percent.

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Speaker 6: Ever since these new initiatives have been taken by the

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Speaker 6: Chinese government. Consumption itself drives the economy. So if you

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Speaker 6: if consumption is a fall out of word, that doesn't help, right.

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Speaker 6: So you've got to look at all of these things

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Speaker 6: in the unique way that China looks at its economy.

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Speaker 6: And I believe that they have studied the previous, the

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Speaker 6: previous examples, but they're just finding, you know, finding their

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Speaker 6: footing in terms of how they can express.

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Speaker 2: Me it's a socialist economy. So yeah, so I mean

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Speaker 2: it's a different approach that they feel they have to take.

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Speaker 2: Let's talk about the US for a few moments, because

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Speaker 2: there is still a debate about twenty five basis points

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Speaker 2: or fifty basis points coming from the FED. We've had

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Speaker 2: a lot of stronger economic data of late that would

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Speaker 2: seem to suggest that only twenty five basis points would

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Speaker 2: be there. But I heard Ellen Zettner at Morgan Stanley

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Speaker 2: and a few others arguing for normalization that that's still

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Speaker 2: on the table and fifty can fit that picture even

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Speaker 2: with stronger economic data. What do you think.

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Speaker 6: We're not, you know, as fussed about whether it's going

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Speaker 6: to be twenty five or fifty. It's just that the

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Speaker 6: sense is that the FED has done a lot in

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Speaker 6: the last couple of years with the tightening and keeping

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Speaker 6: things tight for a long time. So you know, the

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Speaker 6: path now for sure is lower the watershed event off

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Speaker 6: the US elections. I think that's a really big deal

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Speaker 6: in terms of just trying to figure out what the

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Speaker 6: makeup of the new Congress is and who's going to

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Speaker 6: be the new president, because policy can go in multiple

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Speaker 6: directions just from there. The other thing which we we

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Speaker 6: focus on is that the US economy right now is

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Speaker 6: not that weak, right so you don't have a situation

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Speaker 6: where you know, growth is falling off a cliff. Clearly

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Speaker 6: it's slower, but as you were discussing, you know, just

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Speaker 6: before the segment, the IM numbers are pretty strong. And

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Speaker 6: now that the strike, the board strike has been called

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Speaker 6: off temporarily, so you know you're not going to have

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Speaker 6: that drag and the big deal. I think the biggest

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Speaker 6: deal that I focus on is, you know, this this

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Speaker 6: move of reshoring or bringing back production and manufacturing to

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Speaker 6: the shores of the US. I think, you know that's

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Speaker 6: that's something which is going to only gain traction, only

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Speaker 6: gain steam. And that means, you know, smaller businesses across

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Speaker 6: the country are going to get formed in places where

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Speaker 6: we've never seen them before. Part of that is industrial

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Speaker 6: defense related, but part of that will just be support

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Speaker 6: industries as well. So we're not we're not taking a

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Speaker 6: call and whether it's twenty five or fifty. If it's fifty,

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Speaker 6: you know it could be a dubbish fifty or a

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Speaker 6: hocus fifty. Markets will react and we'll just do that.

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Speaker 6: But you know, clearly the trajectory is significantly lower. We

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Speaker 6: don't even know whether we're going to get seven cuts

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Speaker 6: over the next you know, twelve months. We'll just wait

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Speaker 6: for the elections and get a sense and policy direction.

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Speaker 1: Then Mexico is going to be a big beneficiary of

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Speaker 1: that reshoring as well. Away from Asia, I mean very

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Speaker 1: quickly at thirty seconds. I mean, opportunities right now that

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Speaker 1: you like the.

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Speaker 6: Most can't get away from AI. You need to pick

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Speaker 6: the stocks really well. But if you do that, you

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Speaker 6: know there's massive upside. We're just starting this, We're just

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Speaker 6: starting this game.

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Speaker 2: Yeah, does it help a little bit that over the

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Speaker 2: past three months or so, you know, big tech hasn't

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Speaker 2: done all that well. Does that help it?

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Speaker 6: Does? I mean I've been surprised recently when you see

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Speaker 6: the S and P five hundred out performing the NASNAT hundred.

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Speaker 6: You know, that's a bit of a surprise just given

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Speaker 6: the headlines. Right, So, yes, there's broad basing. But also

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Speaker 6: the important thing that tech now especially with AI, can help,

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Speaker 6: you know, stogy old companies actually get much more operational

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Speaker 6: value out of these technologies. To help them ramp up

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Speaker 6: their top line as well as bottom line.

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Speaker 2: Yeah, that's going to be one of the most interesting

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Speaker 2: things to study is how much productivity do we get

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Speaker 2: in terms of gains because of AI. Ed Gomez has

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Speaker 2: been with a CIO at s GMC Capital.

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Speaker 1: Nick Showenmaker. He is client portfolio manager at Drummond Capital.

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Speaker 1: Nick joins us from Sydney. Thanks for making time to

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Speaker 1: chat with us, Nick, We've got to talk about what's

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Speaker 1: happening in China. By one account, the effort on the

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Speaker 1: part of authorities to provide maybe the biggest stimulus that

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Speaker 1: we have seen since the g f C. I mean,

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Speaker 1: how do you think this is going to play out?

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Speaker 2: Yeah?

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Speaker 4: Thanks having me back on. It's certainly very topical at

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Speaker 4: the moment after China being the doldrums for so long.

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Speaker 4: It's the biggest stimulus package that we've certainly seen since

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Speaker 4: the pandemic. I think it's the biggest stimulus package that

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Speaker 4: we've ever seen in nominal terms, and the third biggest

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Speaker 4: in GDP terms. So we've seen equities responders, you know

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Speaker 4: very well. I think in austrained all the terms, Chinese

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Speaker 4: equities are up about eighteen percent through September. I think

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Speaker 4: given how hard the market has run, there's probably room

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Speaker 4: for a bit of a pause. You know, the market

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Speaker 4: is exceptionally cheap in China Pe ratios have always been

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Speaker 4: low there. I think what we need to see is

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Speaker 4: just do the measures sustainably benefit consumer spending, which has

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Speaker 4: been extremely weak for a while. So we need to

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Speaker 4: see the economic fundamentals having a sustainable uptick before I

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Speaker 4: think we're going to see foreign direct investors back into

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Speaker 4: the country on a more permanent basis.

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Speaker 2: Yeah, you've had this shot at all moment the whatever

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Speaker 2: it deaks if you will, So yeah, as you see now,

437
00:23:01,640 --> 00:23:03,760
Speaker 2: it has to show up in the data because you know,

438
00:23:04,119 --> 00:23:06,880
Speaker 2: indrestures will be will be very nervous if they see

439
00:23:06,880 --> 00:23:10,879
Speaker 2: weak data persist here even with this stimulus. So what

440
00:23:10,960 --> 00:23:12,320
Speaker 2: do you be watching rest closely?

441
00:23:14,520 --> 00:23:16,800
Speaker 4: So I think what we still need to stay for

442
00:23:16,880 --> 00:23:19,879
Speaker 4: us to really get confidence that we will see a

443
00:23:19,880 --> 00:23:23,199
Speaker 4: broader movement of foreign direct investors back. We need to

444
00:23:23,200 --> 00:23:27,880
Speaker 4: see packages that directly put a floor under the property

445
00:23:27,880 --> 00:23:31,359
Speaker 4: market and get the local government debt to a sustainable footing,

446
00:23:31,359 --> 00:23:34,720
Speaker 4: which is still totally out of control. So for now,

447
00:23:34,720 --> 00:23:37,879
Speaker 4: I think in the shorter term, they've underwritten the equity market.

448
00:23:38,200 --> 00:23:41,879
Speaker 4: But again we need to see consumer sentiment coming back

449
00:23:42,200 --> 00:23:45,520
Speaker 4: and the property market and local state debt on a

450
00:23:45,560 --> 00:23:46,199
Speaker 4: firmer footing.

451
00:23:46,680 --> 00:23:49,879
Speaker 1: So have some of the analysts a Drummond Capital begun

452
00:23:49,960 --> 00:23:53,320
Speaker 1: to kind of imagine how this may affect the Australian

453
00:23:53,320 --> 00:23:54,879
Speaker 1: economy if things work out.

454
00:23:56,320 --> 00:24:01,600
Speaker 4: Yeah, Well, it's helped direquity market have the best September

455
00:24:01,640 --> 00:24:04,719
Speaker 4: quarter since I think twenty nineteen. Our material sectors up

456
00:24:05,200 --> 00:24:07,359
Speaker 4: thirteen percent, and most of that was very late in

457
00:24:07,400 --> 00:24:12,160
Speaker 4: the month. So iron ore prices pushed higher, Commodities pushed high,

458
00:24:12,240 --> 00:24:15,080
Speaker 4: lippy and pushed high, and that had been quite weak

459
00:24:15,119 --> 00:24:17,399
Speaker 4: for most of the where financials really had led the

460
00:24:17,400 --> 00:24:21,399
Speaker 4: markets gaining year today, So high iron ore is obviously

461
00:24:21,400 --> 00:24:27,200
Speaker 4: good for our fiscal budget in Australia too, So it's

462
00:24:27,240 --> 00:24:30,080
Speaker 4: definitely a good thing if China expands a more demand

463
00:24:30,119 --> 00:24:32,920
Speaker 4: for iron ore and it started to be reflecting the prices.

464
00:24:32,960 --> 00:24:36,959
Speaker 4: But again, you know, we've had these little green streets

465
00:24:36,960 --> 00:24:38,840
Speaker 4: of recovery in China on and off for the last

466
00:24:38,880 --> 00:24:42,080
Speaker 4: three years, but just all the issues with common prosperity,

467
00:24:42,560 --> 00:24:45,760
Speaker 4: the market being seen as not being investable by the

468
00:24:45,800 --> 00:24:48,600
Speaker 4: global community, for quite some time. It's still just early

469
00:24:48,720 --> 00:24:50,200
Speaker 4: days for US in.

470
00:24:50,240 --> 00:24:53,720
Speaker 2: Terms of the global economy. If you get China living

471
00:24:53,800 --> 00:24:56,240
Speaker 2: again and the US seems to be, yeah, I'm pretty

472
00:24:56,240 --> 00:24:59,120
Speaker 2: solid footing. The city surprises INDUS. Yeah, it has really

473
00:24:59,200 --> 00:25:01,280
Speaker 2: jumped over the power this month. And I one who

474
00:25:01,320 --> 00:25:05,680
Speaker 2: also remind everyone that there's a lot of stimulus from

475
00:25:05,760 --> 00:25:08,880
Speaker 2: the Inflation Function Act and the Chips Act that hasn't

476
00:25:08,920 --> 00:25:11,119
Speaker 2: really played yet yet. I mean, these factories have not

477
00:25:11,200 --> 00:25:13,760
Speaker 2: been built yet, people are not working there, so there's

478
00:25:13,760 --> 00:25:15,680
Speaker 2: a lot of that that's baked in over the next

479
00:25:15,720 --> 00:25:19,040
Speaker 2: several years. And you've got foreign investment flooding into the US.

480
00:25:19,080 --> 00:25:21,439
Speaker 2: I mean, this could set up for a good period,

481
00:25:21,720 --> 00:25:22,320
Speaker 2: do you think so?

482
00:25:23,640 --> 00:25:26,320
Speaker 4: Yeah, I think there's some mirror behind that. It certainly

483
00:25:26,320 --> 00:25:29,760
Speaker 4: feels like we're in this soft landing macro backdrop at

484
00:25:29,800 --> 00:25:32,639
Speaker 4: the moment. You know, we did see some signs of

485
00:25:32,680 --> 00:25:36,040
Speaker 4: a weakening in the labor market, but overall GDP growth

486
00:25:36,119 --> 00:25:39,800
Speaker 4: of three percent in the US, our proprietary global growth

487
00:25:39,840 --> 00:25:43,200
Speaker 4: barometer isn't showing any innet weakening in the US economy.

488
00:25:43,680 --> 00:25:46,160
Speaker 4: The fiscal spending is still supporting growth as it has

489
00:25:46,200 --> 00:25:50,679
Speaker 4: for quite some time. Unemployment in the state sector, so

490
00:25:52,359 --> 00:25:55,960
Speaker 4: it is a time where it does feel like there

491
00:25:56,040 --> 00:25:59,280
Speaker 4: is that soft landing backdrop. I think something that will

492
00:25:59,280 --> 00:26:01,840
Speaker 4: be very interesting to watch this week, which Wall Street's

493
00:26:01,880 --> 00:26:05,239
Speaker 4: really focused on, is the non farm payrolls, and just

494
00:26:05,280 --> 00:26:08,280
Speaker 4: if we did get a stronger data point there, we

495
00:26:08,280 --> 00:26:10,160
Speaker 4: could get like a bare flattening of the yield curve

496
00:26:10,160 --> 00:26:11,919
Speaker 4: where short term rates push a bit higher, and that

497
00:26:11,960 --> 00:26:14,119
Speaker 4: could actually put the equity market under a bit of

498
00:26:14,119 --> 00:26:17,240
Speaker 4: pressure in the short term. But we've got to see

499
00:26:17,600 --> 00:26:19,880
Speaker 4: how that data print comes out today. I think there's

500
00:26:19,880 --> 00:26:23,080
Speaker 4: about a forty percent probability of a fifty basis point

501
00:26:23,080 --> 00:26:25,720
Speaker 4: cut priced into November, so they could change the odds

502
00:26:25,760 --> 00:26:28,040
Speaker 4: of that if it is a stronger set of numbers.

503
00:26:28,280 --> 00:26:30,640
Speaker 1: We've seen a lot of volatility in the Japanese yend

504
00:26:30,640 --> 00:26:33,040
Speaker 1: this week. I mean it's spin head spinning, right. What's

505
00:26:33,040 --> 00:26:35,080
Speaker 1: your sense of what's happening at Japan with a new

506
00:26:35,119 --> 00:26:38,440
Speaker 1: prime minister, where the economy may be headed, whether there

507
00:26:38,520 --> 00:26:41,040
Speaker 1: is still opportunity to invest in Japan?

508
00:26:43,240 --> 00:26:48,119
Speaker 4: There is? Look, so JGB ten y yields are about

509
00:26:48,200 --> 00:26:50,399
Speaker 4: zero point eight seven now. I think one of the

510
00:26:50,400 --> 00:26:52,320
Speaker 4: things that we really keep inn eye with Japan is

511
00:26:53,080 --> 00:26:56,479
Speaker 4: when those teen y jgbields get towards fair value. If

512
00:26:56,480 --> 00:26:59,960
Speaker 4: they do, I think that's at about one point five percent.

513
00:27:00,040 --> 00:27:01,600
Speaker 4: And if we get to that level, I think we

514
00:27:01,680 --> 00:27:06,560
Speaker 4: start to see some of the repatriation of bond money

515
00:27:06,560 --> 00:27:09,359
Speaker 4: coming back to Japan because the local market becomes more investable.

516
00:27:09,400 --> 00:27:11,639
Speaker 4: That is a big macro thematic that I think we

517
00:27:11,680 --> 00:27:15,320
Speaker 4: still shouldn't forget about. Because Japan's the biggest holder of

518
00:27:15,440 --> 00:27:18,640
Speaker 4: US treasuries. They own about a third of the Australian

519
00:27:18,840 --> 00:27:20,720
Speaker 4: sovereign debt. Marketers will they buy a hell of a

520
00:27:20,720 --> 00:27:23,400
Speaker 4: lot of structured credit, whether it's CEOs, asset backed security,

521
00:27:23,480 --> 00:27:28,440
Speaker 4: securitized assets globally, not to mention high carried currencies and

522
00:27:28,480 --> 00:27:32,080
Speaker 4: emerging markets. So we keep an eye closer on inflation

523
00:27:32,240 --> 00:27:35,200
Speaker 4: and just where the tenurey goes. But for now it's

524
00:27:35,320 --> 00:27:38,800
Speaker 4: quite well behaved. So that's a key thing we watch

525
00:27:39,440 --> 00:27:40,080
Speaker 4: the bond market.

526
00:27:40,119 --> 00:27:40,280
Speaker 5: There.

527
00:27:41,480 --> 00:27:43,280
Speaker 1: Nick, thanks so much for making time to chat with us.

528
00:27:43,320 --> 00:27:47,440
Speaker 1: He's Nick show and Maker, client portfolio manager at Drummond Capital,

529
00:27:47,560 --> 00:27:50,160
Speaker 1: joining us this morning from Sydney here on Daybreak Asia.

530
00:27:54,119 --> 00:27:57,520
Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the

531
00:27:57,600 --> 00:28:01,040
Speaker 2: stories making news and moving markets in the Asia Pacific.

532
00:28:01,320 --> 00:28:04,440
Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more

533
00:28:04,520 --> 00:28:08,280
Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

534
00:28:08,359 --> 00:28:12,119
Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen,

535
00:28:12,440 --> 00:28:15,639
Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and The

536
00:28:15,640 --> 00:28:16,600
Speaker 2: Bloomberg Business.

537
00:28:16,640 --> 00:28:16,840
Speaker 6: Awn