WEBVTT - Traders Await the Fed Decision Amid Uncertainty 0:00:02.520 --> 0:00:11.680 Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak 0:00:11.680 --> 0:00:15.280 Asia podcast. I'm Doug Chrisner. So we have three key 0:00:15.360 --> 0:00:18.560 central bank decisions on the horizon. The Bank of Japan 0:00:18.680 --> 0:00:21.680 is up first. No change from the BOJ is expected. 0:00:22.000 --> 0:00:24.520 We'll also hear from the FED this week, as well 0:00:24.600 --> 0:00:27.440 as the Bank of England. But it's the Fed's decision 0:00:27.520 --> 0:00:31.040 that markets are eagerly awaiting. Since the statement will be 0:00:31.160 --> 0:00:35.520 parsed for any assessment as to how President Trump's trade 0:00:35.560 --> 0:00:38.960 policies are affecting the outlook, Let's take a closer look 0:00:39.000 --> 0:00:41.760 now with our guest Peter McGuire. He is the CEO 0:00:41.920 --> 0:00:45.960 of Trading dot Com Australia, joining us from Sydney. Peter, 0:00:46.040 --> 0:00:48.720 thank you so much. It's always a pleasure. No one 0:00:48.880 --> 0:00:51.280 is expecting the Fed to do anything, but I think 0:00:51.360 --> 0:00:53.400 the devil is going to be in the details in 0:00:53.440 --> 0:00:56.520 the statement. What are you expecting the Fed to kind 0:00:56.560 --> 0:00:57.400 of lay out there? 0:00:58.840 --> 0:01:01.440 Well, good morning dog think Greening's from Sydney. 0:01:01.520 --> 0:01:05.240 I'm not expecting any real great surprises, But as you said, 0:01:05.400 --> 0:01:08.800 devil's in the detail, it's going to be the commentary. 0:01:09.440 --> 0:01:11.800 I don't you know. The market is very much. 0:01:12.120 --> 0:01:16.240 You know, we're going to see everyone's anticipating to stand 0:01:16.280 --> 0:01:20.240 pat at this meeting, investors a penciling seventy five basis 0:01:20.280 --> 0:01:23.479 points worth of reductions this year, and that was at 0:01:23.520 --> 0:01:27.160 some point last week, you know, twenty five basis points 0:01:27.200 --> 0:01:30.559 worth of reductions to projected by the fed's latest dot plot. 0:01:30.600 --> 0:01:33.040 I want to see where the dot plot is. I 0:01:33.120 --> 0:01:36.720 also want to take on board the commentary, the interpretation 0:01:36.880 --> 0:01:40.920 from retail sales perspective, what's happening from an employment front, 0:01:40.920 --> 0:01:44.520 all of these factors naturally from FED chair power, and 0:01:44.560 --> 0:01:50.120 then the great uncertainty as far as the President Trump 0:01:50.160 --> 0:01:53.360 effect and the avalanche of news that that presents on 0:01:53.400 --> 0:01:57.240 a daily basis, that changes I think the footprint of 0:01:57.360 --> 0:01:59.400 so many interpretations. 0:01:59.440 --> 0:02:01.640 As far as market expectation. 0:02:01.880 --> 0:02:05.600 So are you expecting, given the FEDS announcement, a big 0:02:05.640 --> 0:02:09.240 dollar move subsequent to that, Well. 0:02:09.000 --> 0:02:11.200 It's currently sitting. I think we've seen the move in 0:02:11.240 --> 0:02:13.000 a lot of ways. We're running at one O three 0:02:13.160 --> 0:02:18.800 twenty five for the US dollar index, Euro's nudging closer 0:02:18.840 --> 0:02:22.040 to that one ten yen, you know, one for nine 0:02:22.080 --> 0:02:25.359 pound broken one point thirty. So I feel as though 0:02:25.400 --> 0:02:28.280 you could see a little bit further move for the 0:02:28.400 --> 0:02:30.560 US dollar index. You've got the ten year running at 0:02:30.560 --> 0:02:35.440 four twenty four point two eight. I just I'll wait 0:02:35.480 --> 0:02:39.760 and see, Doug. It's so difficult to see any further 0:02:39.880 --> 0:02:41.800 softness as far as US dollar index. 0:02:41.840 --> 0:02:43.200 I'm not going to be surprised. 0:02:43.240 --> 0:02:45.240 But what we've seen over the last couple of weeks 0:02:45.280 --> 0:02:48.799 has been dramatic. It's been a huge sell off, and 0:02:49.680 --> 0:02:55.240 I'm just observing at all and inhaling all of this current. 0:02:56.160 --> 0:02:58.200 Yeah, the circumstances of the play. 0:02:58.240 --> 0:03:00.120 A lot of that sell off. The flip side of 0:03:00.160 --> 0:03:02.400 it seems to be this rally that we have seen 0:03:02.440 --> 0:03:03.480 in the euro right. 0:03:04.600 --> 0:03:06.960 You bet you you know what we were we were 0:03:07.080 --> 0:03:10.120 nudging just you know, in January, everyone's saying we're going 0:03:10.120 --> 0:03:14.000 to see sub parody running you know that one o one, 0:03:14.040 --> 0:03:15.280 one o two sort of handle. 0:03:15.320 --> 0:03:18.519 You're now nudging one ten. Who could have believed that? 0:03:18.639 --> 0:03:19.760 How it's played out in. 0:03:19.720 --> 0:03:25.000 That quick six or seven week time frame. So if 0:03:25.000 --> 0:03:27.480 it breaks one ten, maybe a one eleven is the 0:03:27.520 --> 0:03:31.160 new handle. And also you can't take your eyes off 0:03:31.200 --> 0:03:35.320 the en so you know, all of those considerations. The 0:03:35.480 --> 0:03:38.160 currency markets have been electric over the last you know, 0:03:38.360 --> 0:03:39.360 six to eight weeks. 0:03:39.640 --> 0:03:41.680 We also have a rate decision this week from the 0:03:41.680 --> 0:03:44.560 Bank of England. What are your expectations there. How do 0:03:44.600 --> 0:03:46.960 you feel about the UK economy right now? 0:03:48.440 --> 0:03:49.960 Well, you've got to be conscious of it. 0:03:50.000 --> 0:03:53.600 I'm not expecting a rate cut, expect that tomorrow they're 0:03:53.640 --> 0:03:57.240 experiencing a soft patch when you know you're determining high 0:03:57.320 --> 0:04:01.040 inflation elevated risks of a split those on Thursday. So 0:04:01.120 --> 0:04:05.600 I'm conscious as far as you know. Again, retoric coming 0:04:05.640 --> 0:04:10.440 from coming from the Governor and from the decision makers. 0:04:10.440 --> 0:04:13.880 Governor Bailey mentioned after the February sixth meeting the consumers 0:04:13.920 --> 0:04:16.960 are more priced conscious and holding back on spending dug 0:04:17.440 --> 0:04:19.880 and there's a twelve percent probability of a rate cup 0:04:19.880 --> 0:04:23.600 with the next twenty five basis points there that'll be 0:04:23.640 --> 0:04:24.800 probably more to like. 0:04:24.920 --> 0:04:26.160 You know, the June meetings. 0:04:26.240 --> 0:04:31.200 So I'm not expecting anything from a rate cup perspective, 0:04:31.240 --> 0:04:34.240 but I think again you've just got to listen to 0:04:34.760 --> 0:04:37.960 the retoric and listen to the announcement and take on 0:04:38.000 --> 0:04:39.400 board the commentary. 0:04:39.160 --> 0:04:42.800 You mentioned the end a moment ago. Expectations are that 0:04:42.839 --> 0:04:44.720 the VOJ is going to be on hold, but there 0:04:44.800 --> 0:04:47.560 is certainly a lot of inflationary pressure building in that 0:04:47.640 --> 0:04:51.360 economy that would push the Bank of Japan to raise 0:04:51.480 --> 0:04:53.279 rates in the near term here right. 0:04:54.160 --> 0:04:56.520 Yeah, you bet, you know, fifty percent probability of a 0:04:56.520 --> 0:05:00.400 twenty five basis point to be that'll be materialized by June. 0:05:00.400 --> 0:05:02.200 They'll stay on hold this week. 0:05:02.480 --> 0:05:05.719 As you mentioned, Doug, you've got an acceleration of economic activity, 0:05:05.960 --> 0:05:09.120 hawkish remarks by the policy makers, and you know that agreement. 0:05:09.160 --> 0:05:12.560 What's got to be very conscious of that historic pay 0:05:12.640 --> 0:05:16.200 rise that you've seen, or pay height between companies and unions. 0:05:16.600 --> 0:05:19.640 So the next tiger is nearly fully priced in for September. 0:05:19.640 --> 0:05:22.040 If that doesn't, you've got a round about as I said, 0:05:22.040 --> 0:05:25.520 about an eighty percent probability for the Baja or maybe 0:05:25.520 --> 0:05:26.679 sixty percent by. 0:05:28.279 --> 0:05:31.120 By June. So that seems to be the state of play. 0:05:31.680 --> 0:05:35.080 And you know, when you're looking at consumer inflation, dug 0:05:35.200 --> 0:05:36.480 expectations have jumped. 0:05:37.000 --> 0:05:39.720 So yeah, that's the whole storyline there. 0:05:40.480 --> 0:05:43.640 We've talked a lot about the tariff policy from the 0:05:43.640 --> 0:05:46.719 Trump administration and a lot of the volatility that it 0:05:47.040 --> 0:05:50.279 has created. Certainly when you look at currencies like the 0:05:50.320 --> 0:05:55.360 Mexican peso, the Canadian dollar, no shortage of volatility. Are 0:05:55.360 --> 0:05:58.400 there currencies that you're monitoring closely when you look at 0:05:58.400 --> 0:05:59.040 this trade war? 0:06:00.400 --> 0:06:03.280 Oh, you've got to keep I think the you can't 0:06:03.320 --> 0:06:07.480 take your focus certainly off the Euro and that seems 0:06:07.480 --> 0:06:10.200 to be the trade. I think that the retail market 0:06:10.200 --> 0:06:13.880 have been really wrapped in because of the huge move 0:06:13.920 --> 0:06:16.480 you've seen and the pound. But really I think it's 0:06:16.520 --> 0:06:21.200 been eurocentric and we're keeping a mind's eye as far 0:06:21.279 --> 0:06:23.840 as as you said Canada and Mexico when you're looking 0:06:23.880 --> 0:06:26.920 at the big picture. Canada seventy six percent of its 0:06:26.920 --> 0:06:29.159 exports do go to the USA and that accounts for 0:06:29.240 --> 0:06:32.359 nine eight percent of jr DP. Mexico seventy eight percent 0:06:32.360 --> 0:06:34.880 of its exports go to the USA and accounts for 0:06:34.920 --> 0:06:37.680 thirty seven percent of its GDP. So naturally those two 0:06:37.800 --> 0:06:41.279 currencies are very closely looked at from a cross rate 0:06:41.360 --> 0:06:45.679 and trade perspective. And that's really a great attraction again 0:06:45.720 --> 0:06:49.440 to currency trade is because of the I think the 0:06:49.480 --> 0:06:51.719 big blowouts that you see as far as move. 0:06:52.080 --> 0:06:54.719 So what have you been seeing with the Aussie dollar 0:06:54.800 --> 0:06:55.880 and your neck of the woods. 0:06:57.480 --> 0:07:00.240 That's a sleep at the wheel. I can't. 0:07:01.560 --> 0:07:03.160 I said it to you the last time we spake, 0:07:03.200 --> 0:07:06.200 I said, the Aussie pace out, it's still running at 0:07:06.200 --> 0:07:08.360 sixty three and a half. It's just got you know, 0:07:08.560 --> 0:07:12.240 it just doesn't seem to it's a lagger at sixty 0:07:12.280 --> 0:07:15.160 three sixty one, Doug, you know it just we're going 0:07:15.200 --> 0:07:18.480 to have employment numbers coming out this week. Nothing seems 0:07:18.480 --> 0:07:21.760 to be shifting the Aussie at all. Maybe we're going 0:07:21.800 --> 0:07:24.800 to see another rate cut in the not too distant future, 0:07:25.200 --> 0:07:27.960 which would certainly take more wind out of the sales 0:07:28.000 --> 0:07:32.320 from a US Aussie perspective. So I just don't see 0:07:32.320 --> 0:07:34.280 a lot happening in the short term. You know, we 0:07:34.800 --> 0:07:37.000 used to be closer to that seventy to seventy five 0:07:37.040 --> 0:07:40.280 handle and now you're closer to sixty. So it's a 0:07:40.320 --> 0:07:42.760 great time to visit Australia with a strong US dollar. 0:07:42.840 --> 0:07:45.680 Let me tell you, so, give me your best cross 0:07:45.760 --> 0:07:47.360 right now. Long short, what is it? 0:07:49.000 --> 0:07:50.920 Well, it's been over the last couple of weeks has 0:07:50.960 --> 0:07:53.680 been very much euro so you know one O nine 0:07:53.800 --> 0:07:56.760 fifty is maybe it's to the tail. 0:07:56.640 --> 0:07:58.120 End of it, but maybe you're going to see a 0:07:58.160 --> 0:07:59.400 one eleven. Let's just see. 0:07:59.440 --> 0:08:02.440 As far as commentary coming from the FED this week 0:08:02.520 --> 0:08:05.520 really tells the story and Yan and Pound. You've got 0:08:05.520 --> 0:08:08.800 those three markets because of the three central bank meetings 0:08:08.840 --> 0:08:11.520 in the next thirty six hours. So keep an eye 0:08:11.560 --> 0:08:15.080 on Pan, keeping oil on Japanes Jinn and certainly don't 0:08:15.120 --> 0:08:16.840 take your focus away from Europe. 0:08:17.120 --> 0:08:19.080 We'll leave it there, Peter, it's always a pleasure. Thank 0:08:19.120 --> 0:08:21.920 you so much. Peena McGuire. He is the CEO at 0:08:21.920 --> 0:08:25.480 Trading dot Com Australia, joining us from Sydney. Here on 0:08:25.520 --> 0:08:37.920 the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. 0:08:38.120 --> 0:08:41.880 I'm Doug Chrisner. So, the US equity market declined today 0:08:42.080 --> 0:08:46.360 on signs investors are reducing their exposure to US risk assets. 0:08:46.920 --> 0:08:50.160 The latest survey from Bank of America shows investors have 0:08:50.280 --> 0:08:53.439 cut their holdings of US equities by the most on record, 0:08:53.520 --> 0:08:57.800 while at the same time cash levels have jumped. Seems 0:08:57.880 --> 0:09:01.439 like worries over tariffs and a possible economic slowdown are 0:09:01.520 --> 0:09:03.840 the big part of the story. Let's take a closer 0:09:03.840 --> 0:09:05.800 look now with our guest Rob Williams. He is the 0:09:05.840 --> 0:09:11.200 chief investment strategist at Sage Advisory, joining us from Austin, Texas. Rob, 0:09:11.240 --> 0:09:13.240 thanks for being with us. Talk to me a little 0:09:13.240 --> 0:09:16.560 bit about how you see the macro story unfolding right now, 0:09:16.600 --> 0:09:19.920 particularly given the thread of even more tariffs. 0:09:21.360 --> 0:09:23.920 Yeah, I mean that's been the dominant factor. Sort of, 0:09:23.920 --> 0:09:28.440 the catalyst has been the the insane level of uncertainty, right, 0:09:28.800 --> 0:09:31.720 and that is certain that's built into the soft data 0:09:31.840 --> 0:09:36.320 anything survey confidence base will get hit by uncertainty and 0:09:36.360 --> 0:09:38.880 the tarifs for doing that. But it's also you know, 0:09:38.920 --> 0:09:42.000 it's just created a lot of fears that growth is 0:09:42.040 --> 0:09:44.520 going to be revised down right. We were going to 0:09:44.880 --> 0:09:48.760 trough out here the second quarter sometime, you know, somewhere 0:09:48.800 --> 0:09:50.680 around two percent, and now people are going to have 0:09:50.720 --> 0:09:53.400 to reevaluate that or we're going to hit one percent, 0:09:53.480 --> 0:09:56.079 or were going to hit sub one percent. So it's 0:09:56.160 --> 0:09:59.320 kind of we've gone into the year thinking we were all, 0:09:59.559 --> 0:10:02.080 you know, very bullish and the growth was going to 0:10:02.080 --> 0:10:03.880 be so strong that the Fed was not going to 0:10:03.920 --> 0:10:06.080 be able to cut rates, and now we're we've had 0:10:06.120 --> 0:10:08.640 to reevaluate that whole thing, and the market has had 0:10:08.640 --> 0:10:11.319 to reprice for that, and it's and it struggles to 0:10:11.960 --> 0:10:13.240 find that pricing still. 0:10:13.520 --> 0:10:15.160 So what is your sense are we going to have 0:10:15.200 --> 0:10:15.840 a recession? 0:10:17.240 --> 0:10:20.320 You know, our official call has not moved, you know, 0:10:20.440 --> 0:10:24.560 shifted to recession, but we do believe growth forecasts are 0:10:24.600 --> 0:10:25.560 going to have to be reduced. 0:10:25.600 --> 0:10:25.760 Right. 0:10:25.760 --> 0:10:30.400 You'll probably see the FED, you know, go that way tomorrow. Right, 0:10:30.480 --> 0:10:32.640 So I think you don't have to hit recession to 0:10:32.640 --> 0:10:36.880 continue to rattle the markets and cause problems here and 0:10:36.920 --> 0:10:39.920 sort of self feed some more slow down you get 0:10:39.960 --> 0:10:42.720 you get sub one percent, and I don't know, you 0:10:42.760 --> 0:10:44.480 still consider that a soft thing. I don't know, but 0:10:44.559 --> 0:10:46.360 if the plane is certainly going to get closer to 0:10:46.400 --> 0:10:49.520 the ground and make us all very uncomfortable. So I 0:10:49.559 --> 0:10:52.240 think we may get that one percent or sub one 0:10:52.280 --> 0:10:55.640 percent and just get a lot closer to that negative 0:10:55.640 --> 0:10:57.320 growth than we thought we were going to get, and 0:10:57.360 --> 0:11:00.600 that will be enough to uh to keep this risk 0:11:00.960 --> 0:11:03.520 averse sort of tone in the market and keep the 0:11:03.559 --> 0:11:06.160 FED on the table for a couple of cuts later 0:11:06.160 --> 0:11:06.560 in the year. 0:11:06.840 --> 0:11:08.640 So at the long end of the curve, I'm seeing 0:11:08.679 --> 0:11:11.800 a tenure at about four point two eight percent. How 0:11:11.880 --> 0:11:14.679 far can yields move down at this point on the 0:11:14.760 --> 0:11:15.720 long end of the curve? 0:11:17.200 --> 0:11:20.000 Yeah, I mean they've adjusted quite a bit, you know, 0:11:20.920 --> 0:11:24.800 from the fourth quarter sort of repricing. And the problem 0:11:24.920 --> 0:11:27.920 is a FED has got you know, it's a growth problem. 0:11:27.920 --> 0:11:30.559 But inflation is gonna you know, don't We don't think 0:11:30.559 --> 0:11:32.760 it's going to pick back up meaningfully at the moment, 0:11:32.800 --> 0:11:35.040 but it's certainly stalling out a little bit. So there's 0:11:35.120 --> 0:11:37.080 less room at the back end of the curve, and 0:11:37.120 --> 0:11:39.920 probably more room and more value at the front end 0:11:39.920 --> 0:11:42.080 of the curve because that'll be driven more of what 0:11:42.120 --> 0:11:44.400 the Fed is going to have to do later this year. 0:11:44.840 --> 0:11:47.800 So we're back into kind of fair value territory for 0:11:47.880 --> 0:11:51.120 the longer end of the curve. But you know, investors 0:11:51.120 --> 0:11:53.120 shouldn't get tied up in the in the real short 0:11:53.200 --> 0:11:55.880 term interest rate volatility. Bonds are going to do their 0:11:56.000 --> 0:11:58.800 job because you're getting you know, four and a half 0:11:58.840 --> 0:12:03.000 five percent yield in high quality fixed income, So you're 0:12:03.000 --> 0:12:06.080 gonna get you that's a good basis for returns right there. 0:12:06.400 --> 0:12:08.800 So don't get too you know, caught up in the 0:12:08.840 --> 0:12:11.760 week to week, month to month interest rate fair value 0:12:11.559 --> 0:12:13.120 and volatility of rates. 0:12:13.200 --> 0:12:17.440 Right So we're talking about the possibility of weaker growth, okay, 0:12:17.559 --> 0:12:23.240 But if inflation remains stubborn or perhaps has a push higher, 0:12:23.640 --> 0:12:26.640 are we talking about a scenario that could resemble stagflation? 0:12:28.160 --> 0:12:31.640 I mean, that's certainly been tossed around. You know, we 0:12:31.640 --> 0:12:34.679 we lean to more of the growth weakness side at 0:12:34.679 --> 0:12:37.640 the moment. You know, some of the things that's happening. 0:12:37.760 --> 0:12:41.240 You know, the fiscal constraint hasn't really fully hit the 0:12:41.320 --> 0:12:44.160 job market, so we expect to see some deterioration there 0:12:44.880 --> 0:12:47.840 in the coming months, right. I mean, the government sector's 0:12:47.840 --> 0:12:49.920 made up a third of the job growth over the 0:12:50.000 --> 0:12:52.960 last couple of years, and you throw in, you know, 0:12:53.080 --> 0:12:56.600 certain parts of healthcare and social assistance and it becomes 0:12:56.679 --> 0:12:58.240 fifty sixty to seventy percent. 0:12:59.120 --> 0:13:00.839 So we know the growth story is. 0:13:00.760 --> 0:13:01.200 Going to weaken. 0:13:01.280 --> 0:13:03.040 Inflation is a little harder because we don't know what 0:13:03.120 --> 0:13:05.200 terriffs we're going to end up with, we don't know 0:13:05.240 --> 0:13:09.040 how substitution effects play in there. And really the sticky 0:13:09.040 --> 0:13:12.800 inflation story has been a service story, right, and that 0:13:13.000 --> 0:13:17.000 is starting to go the other way because consumer spending 0:13:17.000 --> 0:13:20.320 in the service sector is being hit by tariffs. So 0:13:20.360 --> 0:13:23.840 it's sort of there's some elements that will offset the 0:13:23.960 --> 0:13:27.359 terror story and the inflation story, and for us, it's 0:13:27.400 --> 0:13:30.760 a little more clear of the growth slowdown story. 0:13:31.200 --> 0:13:33.360 So a lot of the European bond markets have been 0:13:33.480 --> 0:13:37.160 rallying lately, particularly in Germany where it looks as though 0:13:37.280 --> 0:13:41.240 lawmakers have just passed a landmark package to increase defense spending. 0:13:41.600 --> 0:13:44.240 Is that where you want to have exposure right now? 0:13:44.440 --> 0:13:47.040 Fixed income markets that are offshore. 0:13:46.840 --> 0:13:50.559 Yeah, both equity and fixed income. I think diversification has 0:13:50.640 --> 0:13:53.959 been a good move so far, especially on the equity side, 0:13:54.000 --> 0:13:57.520 and also kind of non dollar emerging market debt has 0:13:57.600 --> 0:13:58.960 done very well recently. 0:13:59.040 --> 0:14:01.360 I think you want to be safe, becaulse. 0:14:01.400 --> 0:14:04.000 Spreads are tight and there is some economic risks, so 0:14:04.040 --> 0:14:06.400 you don't want to reach, you know, quote unquote reach 0:14:06.440 --> 0:14:08.400 to aggressively for yield, but I think you do want 0:14:08.400 --> 0:14:10.440 to spread yourself out a little bit more. We see 0:14:10.440 --> 0:14:15.200 opportunities in sort of non core markets and then big 0:14:15.240 --> 0:14:17.760 opportunity in the in the mortgage back market here in 0:14:17.800 --> 0:14:18.280 the US. 0:14:18.480 --> 0:14:21.000 Let's assume you're being forced to chase yield in the 0:14:21.080 --> 0:14:23.760 US right now with a risk of slower growth. How 0:14:23.760 --> 0:14:25.840 does the high yield market look to you right now? 0:14:26.360 --> 0:14:26.560 Yeah? 0:14:26.600 --> 0:14:30.240 I mean, you know, you know, yield usually and technical 0:14:30.280 --> 0:14:33.880 is usually trump spreads, so right, we know spreads are tight, 0:14:34.040 --> 0:14:36.200 but yields are attractive, So it's still going to draw 0:14:36.320 --> 0:14:39.680 money in and hopefully keep it somewhat range bound. But 0:14:39.800 --> 0:14:42.960 we were not buyers of adding high yield at this level. 0:14:43.240 --> 0:14:46.680 We're looking for ways to spread out, right. Bank loans 0:14:47.080 --> 0:14:51.280 have have a modestation that their valuations and bank loans 0:14:51.280 --> 0:14:53.080 have been a little bit better than high yield. So 0:14:53.120 --> 0:14:56.320 there's other areas that diversify your high yield and could 0:14:56.320 --> 0:15:00.560 spread yourself out. Like I said, em debt owns even 0:15:00.600 --> 0:15:02.440 a little bit preferred stocks, and I think it's a 0:15:02.480 --> 0:15:05.480 better way than to put all your eggs in one basket. 0:15:05.520 --> 0:15:10.360 On the US spread side, what is your predominant concern? Yeah, 0:15:10.400 --> 0:15:11.320 I mean we kind. 0:15:11.120 --> 0:15:14.600 Of hit on the growth aspect of it, and the 0:15:14.720 --> 0:15:18.320 volatility and the uncertainty sort of feeding into itself and 0:15:18.880 --> 0:15:21.880 getting much worse. And you know, the worst scenario for 0:15:21.920 --> 0:15:25.240 investor is that stagflation one you mentioned, right, because then 0:15:25.960 --> 0:15:31.040 we saw that correlations stocks and bonds are correlated. You 0:15:31.040 --> 0:15:33.680 know when you have an inflation problem, right, So if 0:15:34.240 --> 0:15:36.560 and a low growth problem, so that would hit both 0:15:36.600 --> 0:15:39.120 the equity and the fixed income side. We're less worried 0:15:39.120 --> 0:15:41.120 about a growth slowdown on the fixed income side. 0:15:41.200 --> 0:15:41.800 That'll help you. 0:15:41.840 --> 0:15:43.640 That'll be okay on the fixed income. 0:15:43.360 --> 0:15:45.000 Side and hurt the equity side more. 0:15:45.280 --> 0:15:48.160 But stagflation scenario, which is not our call right now, 0:15:48.200 --> 0:15:50.920 that would be most painful for all asset. 0:15:50.560 --> 0:15:53.400 Classes, no doubt about that. And at the end of 0:15:53.480 --> 0:15:55.960 last week we had data from the University of Michigan 0:15:56.000 --> 0:16:00.760 and a big jump in consumer expectations for and that's 0:16:00.760 --> 0:16:04.800 got to be problematic for the FED. I would imagine, yeah, 0:16:04.800 --> 0:16:06.000 that's it is problematic. 0:16:06.040 --> 0:16:09.280 They're going to have to if the equity market's looking for, 0:16:09.640 --> 0:16:13.880 you know, a douvish help or a put to help 0:16:13.920 --> 0:16:15.360 the equity market. I don't know if they're going to 0:16:15.440 --> 0:16:18.160 get it, because they do have to balance They're going 0:16:18.200 --> 0:16:20.520 to have to acknowledge that we're getting weaker growth, and 0:16:20.560 --> 0:16:24.120 they also have to acknowledge that inflation is stalling a 0:16:24.160 --> 0:16:27.760 bit here and with tariffs and some of the uncertainty, 0:16:28.600 --> 0:16:30.840 it could be more of a problem than they thought. 0:16:30.920 --> 0:16:33.880 So they really got to balance it out here on 0:16:33.920 --> 0:16:36.520 the growth and inflation issue. And so I don't I 0:16:36.560 --> 0:16:39.960 think it's if anything, it'll be okay for bonds and 0:16:39.960 --> 0:16:41.760 I don't think it's going to be helpful for equities. 0:16:42.000 --> 0:16:44.960 You mentioned bank credit a short while ago. Yesterday we 0:16:45.040 --> 0:16:47.760 had news that Michelle Bowman, the Fed governor has been 0:16:47.800 --> 0:16:51.960 tapped to serve as vice chair for Supervision. We know 0:16:52.120 --> 0:16:54.880 that she's been critical of a plan to require banks 0:16:54.920 --> 0:16:58.560 to hold more capital, so maybe she, if she's confirmed, 0:16:58.800 --> 0:17:02.480 she brings a lighter touch to regulation. Does that cause 0:17:02.520 --> 0:17:06.240 you to become a little bit more interested in bank credit? 0:17:08.560 --> 0:17:13.000 I mean, look, the banking sector is one of the 0:17:13.080 --> 0:17:17.400 fundamentally most solid parts of the credit market. So even 0:17:17.440 --> 0:17:22.400 though spreads are tight, there's opportunity in banks, and anything 0:17:22.440 --> 0:17:26.280 that's supported by sort of AI infrastructures there's opportunities, and energy, 0:17:26.400 --> 0:17:28.400 there's opportunities in some of the utilities. 0:17:28.760 --> 0:17:30.160 So yeah, we're. 0:17:30.000 --> 0:17:33.479 Already like the bank and finance sector in credit, and 0:17:33.960 --> 0:17:40.440 you know, less regulation only sort of bolsters that near term, right. 0:17:41.000 --> 0:17:43.760 I don't know if it's a great thing long term, 0:17:43.760 --> 0:17:46.760 but it certainly will probably help spread short term. 0:17:47.200 --> 0:17:49.639 So as long as we're talking about industries, when you 0:17:49.680 --> 0:17:52.360 look at credit markets, are there industries that you want 0:17:52.400 --> 0:17:54.200 to avoid at all costs these days? 0:17:55.920 --> 0:17:59.160 You know, probably the things that are in the most 0:17:59.440 --> 0:18:03.200 kind of consumer discretionary areas of the market, the most 0:18:03.240 --> 0:18:06.679 consumer cyclical areas of the market, and some of the 0:18:06.680 --> 0:18:11.399 communication areas of the market where spreads are still very tight, 0:18:12.080 --> 0:18:15.200 and they're more you know, they have a higher beta 0:18:15.280 --> 0:18:18.280 or attachment to if the consumer retrenches a little bit. 0:18:18.760 --> 0:18:20.720 So that's kind of what you kind of you can 0:18:20.800 --> 0:18:25.440 actually keep a full allocation to investment grade credit and 0:18:25.480 --> 0:18:28.159 a bond portfolio and be set up to be defensive 0:18:28.480 --> 0:18:31.800 because you can have a shorter sort of interest rate 0:18:31.920 --> 0:18:34.440 risk in that credit exposure, and then you can also 0:18:34.560 --> 0:18:38.080 have lower beta sectors and names. So if you get 0:18:38.080 --> 0:18:40.600 spread widening, you you know, you get hurt, but you 0:18:40.640 --> 0:18:42.800 outperform the index a little bit, and then you can 0:18:43.119 --> 0:18:45.800 you know, use some dry powder to take advantage of 0:18:45.840 --> 0:18:46.680 wider spreads. 0:18:46.760 --> 0:18:50.400 What about the margage I'm sorry, what about them? Let 0:18:50.400 --> 0:18:52.680 me say that again. What about the mortgage market? 0:18:53.720 --> 0:18:55.800 Yeah, I mean that's been a good story for a 0:18:55.840 --> 0:18:59.160 while now, right, you know, usually you have to give 0:18:59.280 --> 0:19:04.040 up yield to be in in high quality government backed 0:19:04.080 --> 0:19:08.160 agency mortgage versus credit. Right and right now you're picking 0:19:08.240 --> 0:19:10.000 up a little bit of yield. So you're picking up 0:19:10.080 --> 0:19:13.800 quality and you have good liquidity, and you're actually picking 0:19:13.880 --> 0:19:16.960 up a little yield. You know, you're you're getting similar 0:19:17.000 --> 0:19:19.680 yields are like a triple B corporate bond So that's 0:19:19.720 --> 0:19:21.840 a great that's a great trade. Right now you have 0:19:21.880 --> 0:19:25.000 to be somewhat have active management and do your coupon 0:19:25.080 --> 0:19:27.200 selection and things like that. But it's a great place 0:19:27.200 --> 0:19:29.840 to be because you're you're literally lowering your risk a 0:19:29.880 --> 0:19:31.800 little bit and you're adding a little bit of yield 0:19:32.119 --> 0:19:35.040 and in spreads don't have to tighten. If you go sideways, 0:19:35.119 --> 0:19:36.000 you're still winning. 0:19:36.400 --> 0:19:38.520 So it's so it's okay. So that's been a. 0:19:38.480 --> 0:19:41.600 Good place to be in the in the US market 0:19:41.640 --> 0:19:44.680 for sure, and probably where our largest overweight. 0:19:44.280 --> 0:19:46.280 Is before I let you go, Rob, in terms of 0:19:46.520 --> 0:19:48.560 if you're right and we do get easing from the 0:19:48.600 --> 0:19:52.120 FED at some point this year, what is the magnitude 0:19:52.160 --> 0:19:52.880 of that cut? 0:19:53.160 --> 0:19:54.800 You know, I think the pricing is two and a 0:19:54.840 --> 0:19:57.880 half or three kind of area you know, from now 0:19:57.920 --> 0:20:00.840 to the end of the year. That's certainly feels right 0:20:01.359 --> 0:20:04.639 to what we see in the growth fundamentals in the 0:20:04.720 --> 0:20:07.720 job market. That might hit us is two cuts to 0:20:07.720 --> 0:20:11.240 twenty five basis point cuts. You know, this is all 0:20:11.280 --> 0:20:14.240 subject to change as data evolves. With that. Right now, 0:20:14.400 --> 0:20:18.160 the pricing feels fair in kind of that level. 0:20:18.280 --> 0:20:20.359 Rob will leave it there, thank you so much. Always 0:20:20.359 --> 0:20:22.960 a pleasure. Rob Williams. There. He is the chief investment 0:20:23.000 --> 0:20:27.639 strategist at Sage Advisory. Joining from Austin, Texas here on 0:20:27.680 --> 0:20:33.159 the Daybreak Asia Podcast. Thanks for listening to today's episode 0:20:33.200 --> 0:20:37.240 of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we 0:20:37.280 --> 0:20:41.159 look at the story shaping markets, finance, and geopolitics in 0:20:41.200 --> 0:20:44.359