WEBVTT - S&P 500 Hits Record Ahead of PCE Data

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.

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<v Speaker 2>The American economy expanded faster than initially estimated in the

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<v Speaker 2>second quarter, a three point three percent annualized rate. Now

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<v Speaker 2>that reflects a pickup in business investment as well as

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<v Speaker 2>an outside boost from trade, and this news helped us

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<v Speaker 2>send the US equity market to record highs. However, those

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<v Speaker 2>gains were to some extent held in check by caution

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<v Speaker 2>in front of some key inflation data. We'll get the

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<v Speaker 2>July PCE Friday morning. Core PCE is expected to rise

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<v Speaker 2>at a two point nine percent rate, that would be

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<v Speaker 2>the fastest in five months. And in a moment we'll

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<v Speaker 2>get some perspective from the Asia Pacific. We'll hear from

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<v Speaker 2>Raj Singh, multi asset portfolio manager at Principal Asset Management.

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<v Speaker 2>But we begin here in the States, where late Thursday

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<v Speaker 2>we heard from Fed Governor Chris Waller. He supports cutting

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<v Speaker 2>interest rates by a quarter point next month, with more

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<v Speaker 2>reductions likely over the next six months. Even so, Waller

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<v Speaker 2>does think a half point cut next month isn't necessary.

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<v Speaker 2>He spoke earlier at a conference hosted by the Economic

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<v Speaker 2>Club of Miami.

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<v Speaker 3>I felt this way in July, and all the evidence

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<v Speaker 3>since then has led me to feel more strongly.

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<v Speaker 4>About it today.

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<v Speaker 3>Based on what I know today, I would support a

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<v Speaker 3>twenty five basis point cut at the committee's meeting on

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<v Speaker 3>September sixteenth and seventeenth.

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<v Speaker 2>That is FED Governor Chris Waller. There By the way,

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<v Speaker 2>he is seen as a potential successor to FED shair

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<v Speaker 2>Jay Powell. Joining us now for a closer look at

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<v Speaker 2>the FED story is Alonzo Munos. He is chief investment

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<v Speaker 2>officer at Hamilton Capital Partners. The firm is based in Atlanta. Today,

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<v Speaker 2>Alonzo joins us from here in New York City. Thanks

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<v Speaker 2>for making time to chat with me. I want to

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<v Speaker 2>begin with the comments that we're hearing this evening in

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<v Speaker 2>Miami from FED Governor Chris Waller. He seems to be

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<v Speaker 2>diffusing the need for a larger cut, but he's not

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<v Speaker 2>excluding the possibility of a fifty basis point move should

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<v Speaker 2>the payrolls data come in on the week side. Does

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<v Speaker 2>that seem to make sense to.

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<v Speaker 4>You, Well, dug it, eating you know, he really does

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<v Speaker 4>have to thread a needle, and it's a tug of

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<v Speaker 4>war for him. The FED is in a really difficult

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<v Speaker 4>position because we're getting a mixed bag on economic data,

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<v Speaker 4>and we're going into a really really important meeting here

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<v Speaker 4>in the next couple of week SPED meeting, where the

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<v Speaker 4>market expects a rate cut. So I think that he's

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<v Speaker 4>sort of pushing the envelope a little bit. And as

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<v Speaker 4>you know, we get PC tomorrow, which is a big

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<v Speaker 4>data point for the FED, and we're going to have

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<v Speaker 4>to see how this plays out going into the next

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<v Speaker 4>FED meeting. I think that you know, he's on the

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<v Speaker 4>right track.

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<v Speaker 2>Well, the inflation story, I think is key. It's interesting

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<v Speaker 2>that you mentioned that the PCEE data yes tomorrow morning

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<v Speaker 2>for July. After the bell today, we had warnings from

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<v Speaker 2>both Catapillar and GAP. Kind of interesting, a big industrial

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<v Speaker 2>powerhouse and a major retailer both talking about the headwinds

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<v Speaker 2>from so this could filter through to the consumer, whether

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<v Speaker 2>it's on the business end or on the retail side

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<v Speaker 2>in the near term, which, as you're kind of addressing,

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<v Speaker 2>could complicate the picture for the FED.

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<v Speaker 4>Well, I think there's even more complication, Doug. As you know,

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<v Speaker 4>the deminimous exemption runs out tonight and so consumers potentially

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<v Speaker 4>are looking at higher prices for all types of goods,

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<v Speaker 4>and companies are struggling on how to address this tariff

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<v Speaker 4>disruption issue, and it's something that we're going to continue

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<v Speaker 4>to watch very closely. On the other hand, though, Doug,

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<v Speaker 4>when you look at corporate earnings, things still look pretty good.

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<v Speaker 4>We got a good GDP data, Personal consumption was up.

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<v Speaker 4>We'll see how personal incoming personal spending comes in tomorrow.

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<v Speaker 4>But that's what makes this market so difficult, and that's

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<v Speaker 4>why I refer to this some of war, if you will,

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<v Speaker 4>where we're getting a mixed bag on economic data. The

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<v Speaker 4>consumer is still strong, but businesses are saying we have

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<v Speaker 4>to eventually pass these costs to consumers, potentially raising inflation.

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<v Speaker 4>Putting the FED and fetch them and pal in a

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<v Speaker 4>corner as they go this sext meeting.

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<v Speaker 2>Speaking of the next meeting, we've got this cloud hanging

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<v Speaker 2>over it with the firing, the attempt at firing of

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<v Speaker 2>FED Governor Lisa Cook. She filed a lawsuit today. Her

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<v Speaker 2>lawyer is basically saying that the claims that she allegedly

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<v Speaker 2>lied on mortgage applications really have to do with an

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<v Speaker 2>unattentional clerical error, and the lawsuit does call this firing

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<v Speaker 2>an illegal attempt by the president. He's using a phony

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<v Speaker 2>pretext that doesn't amount to sufficient cause to remove her.

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<v Speaker 2>Do you have a sense of how this is going

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<v Speaker 2>to play out? I know you're not a lawyer, but

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<v Speaker 2>until we get some resolution, perhaps from the Supreme Court,

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<v Speaker 2>this is going to be an issue for the market,

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<v Speaker 2>will it not?

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<v Speaker 4>Well, it's exactly how you how you framed it. It's

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<v Speaker 4>a dark cloud over the FED, specifically as they go

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<v Speaker 4>into their next FED meeting. What we saw from the

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<v Speaker 4>fixed income markets was not a lot of not a

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<v Speaker 4>lot of fireworks. We didn't see big moves on the

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<v Speaker 4>back end of the yield card of anything. We saw

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<v Speaker 4>a little bit of a reprieve today and it has

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<v Speaker 4>shruged this off. It's another Trump administration moved to apply

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<v Speaker 4>pressure from fall angles against a FED that has been

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<v Speaker 4>unwilling to cut against his recommendations, and so something that's

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<v Speaker 4>going to continue to hummer over and be very uncomfortable

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<v Speaker 4>for the FED as we go to the FED making.

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<v Speaker 2>A lot of talk this week about the artificial intelligence trade.

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<v Speaker 2>We had the earnings from in Nvidia this week, a

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<v Speaker 2>forecast that basically indicates a little bit of deceleration in growth.

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<v Speaker 2>And then today after the bell, Dell Technology has boosted

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<v Speaker 2>its annual outlook. This company is seeing strong demand for

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<v Speaker 2>AI servers. I'm curious about how you feel about the

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<v Speaker 2>AI trade right now.

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<v Speaker 4>Well, with the market, Doug, it all time highs. It

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<v Speaker 4>just makes you wonder how much this musket can power higher,

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<v Speaker 4>specifically on AI enthusiasm. But when we dig through the numbers,

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<v Speaker 4>it's remarkable. I know you spoke about Dell, but in

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<v Speaker 4>Nvidia data center revenue was just absolutely astonishing and it's

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<v Speaker 4>something that's continuing to power this market. As we look

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<v Speaker 4>back into the last couple of weeks and months, earnings

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<v Speaker 4>from the Mac seven continue to highlight and really strong catbacks,

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<v Speaker 4>and it's something that can continue to power this AI enthusiasm,

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<v Speaker 4>this AI trade forward into the back half of this

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<v Speaker 4>year and it's something that we're excited about. But again,

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<v Speaker 4>there's a little bit of caution as we go into

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<v Speaker 4>the back half of this year that some of these

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<v Speaker 4>names local little bit overextended.

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<v Speaker 2>So are you expecting them maybe a pullback in the

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<v Speaker 2>next quarter.

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<v Speaker 4>Well, Doug, I don't see why we would. In September

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<v Speaker 4>is usually, at least over the last ten years, from

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<v Speaker 4>a seasonality standpoint, not a great month for financial market,

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<v Speaker 4>specifically US equities, and so we would have some pause

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<v Speaker 4>and maybe keep a little bit of cash and draw

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<v Speaker 4>powder on the sidelines to take advantage of the STIPs.

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<v Speaker 4>But over the long term, we're still very optimistic about

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<v Speaker 4>the AI trade and some of these names that are

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<v Speaker 4>driving and leaders in the space.

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<v Speaker 2>Interesting development today from the European Union they're going to

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<v Speaker 2>follow through with a demand from President Trump. They have

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<v Speaker 2>adopted draft regulations to remove all terror on US industrial goods.

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<v Speaker 3>Now.

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<v Speaker 2>The block is also going to give some preferential treatment

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<v Speaker 2>to a few US agricultural and seafood products, and in exchange,

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<v Speaker 2>the European Commission is saying this is going to pave

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<v Speaker 2>the way for the US to lower tariffs on European

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<v Speaker 2>cars and auto parts to fifteen percent. I think that

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<v Speaker 2>current tariff right is around twenty seven and a half percent.

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<v Speaker 2>How are you feeling about the tariff story right now?

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<v Speaker 2>Do you think that the market is becoming a little

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<v Speaker 2>bit more comfortable or is there still so much uncertainty

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<v Speaker 2>in regard to how this is going to play out

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<v Speaker 2>that you just want to maybe be a little bit

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<v Speaker 2>more cautious.

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<v Speaker 4>Well, the market has become a little bit callous, if

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<v Speaker 4>you will, to some of these tariff moves in terraf negotiations.

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<v Speaker 4>We all remember April when we were scrambling to sort

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<v Speaker 4>of predict what was going to happen next. But again

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<v Speaker 4>we're not seeing huge, as you know that huge reactions

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<v Speaker 4>to either these tariff announcements. Whether the present is being

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<v Speaker 4>more aggress saver for nations are are they thank some

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<v Speaker 4>of the heat away from tariff. So something that we're

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<v Speaker 4>going to continue to watch, but again we're cautious going

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<v Speaker 4>into the accounts. We're keeping a little bit cash on

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<v Speaker 4>the sidelines and seeing how this smunket slave that going

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<v Speaker 4>into the back of the year.

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<v Speaker 2>Alonso, I'm curious as to whether you're finding opportunities outside

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<v Speaker 2>of the US right now. Is that a focus for

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<v Speaker 2>you offshore markets?

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<v Speaker 4>What we are right now with all the tariff disruptions

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<v Speaker 4>and really keeping up with this administration, We're trying to

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<v Speaker 4>keep our dry powder focused on dips in the US markets,

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<v Speaker 4>but we are looking at Europe, and we are looking

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<v Speaker 4>at Asia and maybe India is an interesting market. But

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<v Speaker 4>right now we're concentrated here in the US.

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<v Speaker 2>Alonzo will leave it there, Thank you so very much.

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<v Speaker 2>Alonzo Munos He is the chief investment officer at Hamilton

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<v Speaker 2>Capital Partners. The firm is based in Atlanta. Alonso joining

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<v Speaker 2>us today from here in New York City on the

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<v Speaker 2>Daybreak Asia podcast. Come back to the Daybreak Asia podcast

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<v Speaker 2>time Derek Prisner. So, as mentioned, all eyes will be

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<v Speaker 2>on the PCE report here in the States Friday morning.

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<v Speaker 2>For more, we heard from Raj Saying, multi asset portfolio

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<v Speaker 2>manager at Principal Asset Management. Raj spoke earlier with Bloomberg

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<v Speaker 2>TV hosts Cherry On and April Honng on the Asia trade.

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<v Speaker 5>So, Raj, we did see really solid performance on Wall

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<v Speaker 5>Street in terms of stocks. Are you looking ahead to

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<v Speaker 5>the inflation data that's coming out later as something that

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<v Speaker 5>could potentially derail this?

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<v Speaker 6>Yeah, First of all, on Good Morning, I would say

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<v Speaker 6>that the inflation data, the today's PCIe reports, definitely we

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<v Speaker 6>are not looking for big surprises because we know from

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<v Speaker 6>the PPI and CPI that how it's going to look like.

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<v Speaker 6>So in terms of what it means like for the

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<v Speaker 6>Fed policy, I think the September base cases twenty five

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<v Speaker 6>basis point cut. It's fully priced in into the market.

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<v Speaker 6>So what will be more for an innovur opinion is

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<v Speaker 6>how the next Friday is labor market report looks like,

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<v Speaker 6>and what will be the CPI reading for the August number,

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<v Speaker 6>whether we see further signs of tariff inflation creeping into

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<v Speaker 6>that that number. So that's what we'll be watching for.

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<v Speaker 6>Any big downside surprises on the payroll sides specially can

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<v Speaker 6>boost the case for a jumbo cut. Otherwise, I think

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<v Speaker 6>twenty five basis point is is the base case. However,

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<v Speaker 6>what markets will be looking for will be basically beyond

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<v Speaker 6>this September meeting, how the FED policy path folds out.

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<v Speaker 6>People are looking for one d and twenty five basis

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<v Speaker 6>point of cut in one ear so whether the time

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<v Speaker 6>period really holds up is the big cushion, and the

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<v Speaker 6>second beyond that, I would say the policy aspect. Market

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<v Speaker 6>is really paying a lot of attention to the fat

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<v Speaker 6>independence aspects, and any erosion of the fat independence can.

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<v Speaker 4>Spook the market.

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<v Speaker 7>I was just about to ask you how might the

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<v Speaker 7>threat to FED independence, or the perceived threat actually play

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<v Speaker 7>out in markets towards the end of the year and

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<v Speaker 7>going into next year and might there muddy the waters.

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<v Speaker 4>Yeah, so I would say it's a twoache.

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<v Speaker 6>So definitely, as the composition of the fact keeps changing

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<v Speaker 6>and the tilt goes towards the dowish side of the things,

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<v Speaker 6>it will be good for the risk assets. So in general,

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<v Speaker 6>I would say the risk assets are still looking in

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<v Speaker 6>a pretty good, pretty good spot here despite some of

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<v Speaker 6>the I would say fragility sewing up in the economic data,

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<v Speaker 6>especially on the labor side, But where it can have

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<v Speaker 6>bigger impact will be definitely on the bond side, and

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<v Speaker 6>that's where right now the action is happening. The US

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<v Speaker 6>curve is steepening, but bear in mind the cove is

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<v Speaker 6>steepening everywhere, so definitely it's a factor. Market is also

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<v Speaker 6>hooked up, But in a long term I'm not sure

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<v Speaker 6>how much impact it's going to have on the FED

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<v Speaker 6>policy because ultimately the FED is going to driven by

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<v Speaker 6>the data, which is labor and inflation, and that's going

0:12:10.640 --> 0:12:15.760
<v Speaker 6>to drive the policy action to large extent. And despite

0:12:15.840 --> 0:12:20.040
<v Speaker 6>all the noise we see in the markets, it's highly

0:12:20.120 --> 0:12:22.959
<v Speaker 6>underappreciated that when you look at the developed market curve,

0:12:23.480 --> 0:12:26.440
<v Speaker 6>US thirty year is still on a relative basis is

0:12:26.440 --> 0:12:29.720
<v Speaker 6>the best performing curve out there in the developed market.

0:12:29.760 --> 0:12:33.079
<v Speaker 6>The German booms are up like thirty close to a

0:12:33.160 --> 0:12:36.600
<v Speaker 6>sixty basis point, your jgb's thirty year up close to

0:12:36.679 --> 0:12:39.040
<v Speaker 6>ninety basis point. In fact, we have seen that movement

0:12:39.120 --> 0:12:43.480
<v Speaker 6>in China as well, So it's a global phenomenon, that

0:12:43.559 --> 0:12:48.440
<v Speaker 6>cheepening of the curve, but definitely, like like erosion of

0:12:48.440 --> 0:12:52.760
<v Speaker 6>the faith in the FED policy can have longer term replications,

0:12:52.800 --> 0:12:55.920
<v Speaker 6>and we'll see how that plays out in the market,

0:12:55.920 --> 0:12:58.439
<v Speaker 6>but it would be mainly a bond market story at

0:12:58.440 --> 0:12:58.880
<v Speaker 6>the beginning.

0:13:00.040 --> 0:13:02.520
<v Speaker 1>We're in China's a story of tech because we do

0:13:02.600 --> 0:13:05.280
<v Speaker 1>have Ali Baba of course results out today as well.

0:13:05.880 --> 0:13:08.760
<v Speaker 1>What are we expecting in terms of some opportunities that

0:13:08.800 --> 0:13:10.079
<v Speaker 1>we could see in that market.

0:13:11.080 --> 0:13:13.880
<v Speaker 6>Yeah, so China is a very interesting market, and I

0:13:13.880 --> 0:13:16.600
<v Speaker 6>would say we have been highlighting it for some time.

0:13:17.040 --> 0:13:20.440
<v Speaker 6>What you see in China is basically that there are

0:13:20.440 --> 0:13:23.760
<v Speaker 6>a lot of household savings, So the households are sitting

0:13:23.760 --> 0:13:26.920
<v Speaker 6>close to let's say nineteen twenty three in US dollar,

0:13:27.720 --> 0:13:30.400
<v Speaker 6>not kind of like the deposits of the So the

0:13:30.440 --> 0:13:34.360
<v Speaker 6>household savings are in excess in China, especially after COVID

0:13:34.440 --> 0:13:36.800
<v Speaker 6>that savings have built up. At the same time, the

0:13:36.880 --> 0:13:41.520
<v Speaker 6>policy makers are definitely trying to guide that long term

0:13:41.520 --> 0:13:45.720
<v Speaker 6>institutional capital into the market. And the reason for that

0:13:45.960 --> 0:13:49.640
<v Speaker 6>is that it can act as a catalyst for the

0:13:50.520 --> 0:13:53.800
<v Speaker 6>economy because of the wealth effect. So in China, I

0:13:53.840 --> 0:13:58.959
<v Speaker 6>think you may keep seeing this bifocation between the fundamentals

0:13:59.679 --> 0:14:02.760
<v Speaker 6>and and and the market where the market keep may

0:14:02.880 --> 0:14:06.679
<v Speaker 6>keep driven by the liquidity aspect because the deposit based

0:14:06.760 --> 0:14:10.040
<v Speaker 6>that access savings are quite huge, the bond deals are

0:14:10.440 --> 0:14:14.120
<v Speaker 6>roll low, so that rotation from aquities into equities from

0:14:14.120 --> 0:14:17.640
<v Speaker 6>fixed income will will be there. And and I think

0:14:17.960 --> 0:14:21.640
<v Speaker 6>the opportunities lie structurally in the high divisend stocks and

0:14:21.640 --> 0:14:23.720
<v Speaker 6>in some of these tech stocks, so that bible of

0:14:23.840 --> 0:14:28.200
<v Speaker 6>tech and high dividends still makes sense to us. And uh,

0:14:28.240 --> 0:14:30.800
<v Speaker 6>and we have to see what happens to this price

0:14:30.880 --> 0:14:33.560
<v Speaker 6>war on the on the over capacity side, we see

0:14:33.600 --> 0:14:36.880
<v Speaker 6>and and market will be definitely UH like passing through

0:14:36.920 --> 0:14:39.720
<v Speaker 6>the earnings of some of these tech giants, like how

0:14:39.760 --> 0:14:43.840
<v Speaker 6>that competition is looking like and what it means for

0:14:43.960 --> 0:14:47.440
<v Speaker 6>the deflation story at the macro site. And the second

0:14:47.560 --> 0:14:50.360
<v Speaker 6>for the corporate earning story. And I would say that

0:14:50.400 --> 0:14:53.880
<v Speaker 6>the earning so far are a little bit underwhelming and

0:14:54.040 --> 0:14:57.800
<v Speaker 6>uh and some of the market thing is market rally

0:14:57.880 --> 0:15:00.680
<v Speaker 6>is driven by the valuation aspects, because it's it's a

0:15:00.680 --> 0:15:04.040
<v Speaker 6>liquid driven rally. But I think tech and dividend stock

0:15:04.080 --> 0:15:06.800
<v Speaker 6>share definitely with their story in China.

0:15:07.240 --> 0:15:09.800
<v Speaker 1>And just before we let you go, credit spreads grinding

0:15:09.840 --> 0:15:12.760
<v Speaker 1>lower across the world. Where are you seeing the opportunities?

0:15:13.600 --> 0:15:17.200
<v Speaker 6>Yeah, I think the credit spreads are quite tight globally,

0:15:17.280 --> 0:15:20.520
<v Speaker 6>and the credit spreads credit curves are quite flat, so

0:15:20.960 --> 0:15:24.360
<v Speaker 6>I think we still like the carry so definitely at

0:15:24.400 --> 0:15:26.840
<v Speaker 6>the short end of the curve we are shifting more

0:15:27.080 --> 0:15:29.160
<v Speaker 6>from the credit side, and at the longer end of

0:15:29.200 --> 0:15:31.640
<v Speaker 6>the curve we are switching the duration to more to

0:15:31.680 --> 0:15:34.240
<v Speaker 6>the treasury duration. Preparing for some of them, maybe we

0:15:34.400 --> 0:15:36.800
<v Speaker 6>say like the air pocket, which we may see given

0:15:36.880 --> 0:15:39.480
<v Speaker 6>the uncertainty in the macro data we are expecting on

0:15:39.480 --> 0:15:42.840
<v Speaker 6>the back of these uh uh, these tariffs and other

0:15:42.920 --> 0:15:46.600
<v Speaker 6>policies we are seeing from the US administration, and also

0:15:46.920 --> 0:15:49.360
<v Speaker 6>some of the front loading which has played out so far.

0:15:49.640 --> 0:15:52.360
<v Speaker 6>Probably it will give back in next thirty six months.

0:15:52.760 --> 0:15:57.360
<v Speaker 2>That's Raj saying, multi asset portfolio manager at Principal Asset Management,

0:15:57.640 --> 0:16:01.480
<v Speaker 2>speaking earlier with Bloomberg TV host chair and April Hong

0:16:01.760 --> 0:16:06.760
<v Speaker 2>here on the Daybreak Asia podcast. Thanks for listening to

0:16:06.760 --> 0:16:11.720
<v Speaker 2>today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

0:16:11.760 --> 0:16:15.720
<v Speaker 2>we look at the story shaping markets, finance, and geopolitics

0:16:15.720 --> 0:16:19.000
<v Speaker 2>in the Asia Pacific. You can find us on Apple, Spotify,

0:16:19.120 --> 0:16:22.640
<v Speaker 2>the Bloomberg Podcast YouTube channel, or anywhere else you listen.

0:16:23.040 --> 0:16:25.920
<v Speaker 2>Join us again tomorrow for insight on the market moves

0:16:26.000 --> 0:16:30.520
<v Speaker 2>from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

0:16:30.680 --> 0:16:32.119
<v Speaker 2>and this is Bloomberg