Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak
Speaker 1: Asia podcast. I'm Doug Chrisner. So we have three key
Speaker 1: central bank decisions on the horizon. The Bank of Japan
Speaker 1: is up first. No change from the BOJ is expected.
Speaker 1: We'll also hear from the FED this week, as well
Speaker 1: as the Bank of England. But it's the Fed's decision
Speaker 1: that markets are eagerly awaiting. Since the statement will be
Speaker 1: parsed for any assessment as to how President Trump's trade
Speaker 1: policies are affecting the outlook, Let's take a closer look
Speaker 1: now with our guest Peter McGuire. He is the CEO
Speaker 1: of Trading dot Com Australia, joining us from Sydney. Peter,
Speaker 1: thank you so much. It's always a pleasure. No one
Speaker 1: is expecting the Fed to do anything, but I think
Speaker 1: the devil is going to be in the details in
Speaker 1: the statement. What are you expecting the Fed to kind
Speaker 1: of lay out there?
Speaker 2: Well, good morning dog think Greening's from Sydney.
Speaker 3: I'm not expecting any real great surprises, But as you said,
Speaker 3: devil's in the detail, it's going to be the commentary.
Speaker 2: I don't you know. The market is very much.
Speaker 3: You know, we're going to see everyone's anticipating to stand
Speaker 3: pat at this meeting, investors a penciling seventy five basis
Speaker 3: points worth of reductions this year, and that was at
Speaker 3: some point last week, you know, twenty five basis points
Speaker 3: worth of reductions to projected by the fed's latest dot plot.
Speaker 3: I want to see where the dot plot is. I
Speaker 3: also want to take on board the commentary, the interpretation
Speaker 3: from retail sales perspective, what's happening from an employment front,
Speaker 3: all of these factors naturally from FED chair power, and
Speaker 3: then the great uncertainty as far as the President Trump
Speaker 3: effect and the avalanche of news that that presents on
Speaker 3: a daily basis, that changes I think the footprint of
Speaker 3: so many interpretations.
Speaker 2: As far as market expectation.
Speaker 1: So are you expecting, given the FEDS announcement, a big
Speaker 1: dollar move subsequent to that, Well.
Speaker 3: It's currently sitting. I think we've seen the move in
Speaker 3: a lot of ways. We're running at one O three
Speaker 3: twenty five for the US dollar index, Euro's nudging closer
Speaker 3: to that one ten yen, you know, one for nine
Speaker 3: pound broken one point thirty. So I feel as though
Speaker 3: you could see a little bit further move for the
Speaker 3: US dollar index. You've got the ten year running at
Speaker 3: four twenty four point two eight. I just I'll wait
Speaker 3: and see, Doug. It's so difficult to see any further
Speaker 3: softness as far as US dollar index.
Speaker 2: I'm not going to be surprised.
Speaker 3: But what we've seen over the last couple of weeks
Speaker 3: has been dramatic. It's been a huge sell off, and
Speaker 3: I'm just observing at all and inhaling all of this current.
Speaker 2: Yeah, the circumstances of the play.
Speaker 1: A lot of that sell off. The flip side of
Speaker 1: it seems to be this rally that we have seen
Speaker 1: in the euro right.
Speaker 3: You bet you you know what we were we were
Speaker 3: nudging just you know, in January, everyone's saying we're going
Speaker 3: to see sub parody running you know that one o one,
Speaker 3: one o two sort of handle.
Speaker 2: You're now nudging one ten. Who could have believed that?
Speaker 2: How it's played out in.
Speaker 3: That quick six or seven week time frame. So if
Speaker 3: it breaks one ten, maybe a one eleven is the
Speaker 3: new handle. And also you can't take your eyes off
Speaker 3: the en so you know, all of those considerations. The
Speaker 3: currency markets have been electric over the last you know,
Speaker 3: six to eight weeks.
Speaker 1: We also have a rate decision this week from the
Speaker 1: Bank of England. What are your expectations there. How do
Speaker 1: you feel about the UK economy right now?
Speaker 2: Well, you've got to be conscious of it.
Speaker 3: I'm not expecting a rate cut, expect that tomorrow they're
Speaker 3: experiencing a soft patch when you know you're determining high
Speaker 3: inflation elevated risks of a split those on Thursday. So
Speaker 3: I'm conscious as far as you know. Again, retoric coming
Speaker 3: from coming from the Governor and from the decision makers.
Speaker 3: Governor Bailey mentioned after the February sixth meeting the consumers
Speaker 3: are more priced conscious and holding back on spending dug
Speaker 3: and there's a twelve percent probability of a rate cup
Speaker 3: with the next twenty five basis points there that'll be
Speaker 3: probably more to like.
Speaker 2: You know, the June meetings.
Speaker 3: So I'm not expecting anything from a rate cup perspective,
Speaker 3: but I think again you've just got to listen to
Speaker 3: the retoric and listen to the announcement and take on
Speaker 3: board the commentary.
Speaker 1: You mentioned the end a moment ago. Expectations are that
Speaker 1: the VOJ is going to be on hold, but there
Speaker 1: is certainly a lot of inflationary pressure building in that
Speaker 1: economy that would push the Bank of Japan to raise
Speaker 1: rates in the near term here right.
Speaker 3: Yeah, you bet, you know, fifty percent probability of a
Speaker 3: twenty five basis point to be that'll be materialized by June.
Speaker 2: They'll stay on hold this week.
Speaker 3: As you mentioned, Doug, you've got an acceleration of economic activity,
Speaker 3: hawkish remarks by the policy makers, and you know that agreement.
Speaker 3: What's got to be very conscious of that historic pay
Speaker 3: rise that you've seen, or pay height between companies and unions.
Speaker 3: So the next tiger is nearly fully priced in for September.
Speaker 3: If that doesn't, you've got a round about as I said,
Speaker 3: about an eighty percent probability for the Baja or maybe
Speaker 3: sixty percent by.
Speaker 2: By June. So that seems to be the state of play.
Speaker 3: And you know, when you're looking at consumer inflation, dug
Speaker 3: expectations have jumped.
Speaker 2: So yeah, that's the whole storyline there.
Speaker 1: We've talked a lot about the tariff policy from the
Speaker 1: Trump administration and a lot of the volatility that it
Speaker 1: has created. Certainly when you look at currencies like the
Speaker 1: Mexican peso, the Canadian dollar, no shortage of volatility. Are
Speaker 1: there currencies that you're monitoring closely when you look at
Speaker 1: this trade war?
Speaker 3: Oh, you've got to keep I think the you can't
Speaker 3: take your focus certainly off the Euro and that seems
Speaker 3: to be the trade. I think that the retail market
Speaker 3: have been really wrapped in because of the huge move
Speaker 3: you've seen and the pound. But really I think it's
Speaker 3: been eurocentric and we're keeping a mind's eye as far
Speaker 3: as as you said Canada and Mexico when you're looking
Speaker 3: at the big picture. Canada seventy six percent of its
Speaker 3: exports do go to the USA and that accounts for
Speaker 3: nine eight percent of jr DP. Mexico seventy eight percent
Speaker 3: of its exports go to the USA and accounts for
Speaker 3: thirty seven percent of its GDP. So naturally those two
Speaker 3: currencies are very closely looked at from a cross rate
Speaker 3: and trade perspective. And that's really a great attraction again
Speaker 3: to currency trade is because of the I think the
Speaker 3: big blowouts that you see as far as move.
Speaker 1: So what have you been seeing with the Aussie dollar
Speaker 1: and your neck of the woods.
Speaker 2: That's a sleep at the wheel. I can't.
Speaker 3: I said it to you the last time we spake,
Speaker 3: I said, the Aussie pace out, it's still running at
Speaker 3: sixty three and a half. It's just got you know,
Speaker 3: it just doesn't seem to it's a lagger at sixty
Speaker 3: three sixty one, Doug, you know it just we're going
Speaker 3: to have employment numbers coming out this week. Nothing seems
Speaker 3: to be shifting the Aussie at all. Maybe we're going
Speaker 3: to see another rate cut in the not too distant future,
Speaker 3: which would certainly take more wind out of the sales
Speaker 3: from a US Aussie perspective. So I just don't see
Speaker 3: a lot happening in the short term. You know, we
Speaker 3: used to be closer to that seventy to seventy five
Speaker 3: handle and now you're closer to sixty. So it's a
Speaker 3: great time to visit Australia with a strong US dollar.
Speaker 1: Let me tell you, so, give me your best cross
Speaker 1: right now. Long short, what is it?
Speaker 3: Well, it's been over the last couple of weeks has
Speaker 3: been very much euro so you know one O nine
Speaker 3: fifty is maybe it's to the tail.
Speaker 2: End of it, but maybe you're going to see a
Speaker 2: one eleven. Let's just see.
Speaker 3: As far as commentary coming from the FED this week
Speaker 3: really tells the story and Yan and Pound. You've got
Speaker 3: those three markets because of the three central bank meetings
Speaker 3: in the next thirty six hours. So keep an eye
Speaker 3: on Pan, keeping oil on Japanes Jinn and certainly don't
Speaker 3: take your focus away from Europe.
Speaker 1: We'll leave it there, Peter, it's always a pleasure. Thank
Speaker 1: you so much. Peena McGuire. He is the CEO at
Speaker 1: Trading dot Com Australia, joining us from Sydney. Here on
Speaker 1: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
Speaker 1: I'm Doug Chrisner. So, the US equity market declined today
Speaker 1: on signs investors are reducing their exposure to US risk assets.
Speaker 1: The latest survey from Bank of America shows investors have
Speaker 1: cut their holdings of US equities by the most on record,
Speaker 1: while at the same time cash levels have jumped. Seems
Speaker 1: like worries over tariffs and a possible economic slowdown are
Speaker 1: the big part of the story. Let's take a closer
Speaker 1: look now with our guest Rob Williams. He is the
Speaker 1: chief investment strategist at Sage Advisory, joining us from Austin, Texas. Rob,
Speaker 1: thanks for being with us. Talk to me a little
Speaker 1: bit about how you see the macro story unfolding right now,
Speaker 1: particularly given the thread of even more tariffs.
Speaker 4: Yeah, I mean that's been the dominant factor. Sort of,
Speaker 4: the catalyst has been the the insane level of uncertainty, right,
Speaker 4: and that is certain that's built into the soft data
Speaker 4: anything survey confidence base will get hit by uncertainty and
Speaker 4: the tarifs for doing that. But it's also you know,
Speaker 4: it's just created a lot of fears that growth is
Speaker 4: going to be revised down right. We were going to
Speaker 4: trough out here the second quarter sometime, you know, somewhere
Speaker 4: around two percent, and now people are going to have
Speaker 4: to reevaluate that or we're going to hit one percent,
Speaker 4: or were going to hit sub one percent. So it's
Speaker 4: kind of we've gone into the year thinking we were all,
Speaker 4: you know, very bullish and the growth was going to
Speaker 4: be so strong that the Fed was not going to
Speaker 4: be able to cut rates, and now we're we've had
Speaker 4: to reevaluate that whole thing, and the market has had
Speaker 4: to reprice for that, and it's and it struggles to
Speaker 4: find that pricing still.
Speaker 1: So what is your sense are we going to have
Speaker 1: a recession?
Speaker 4: You know, our official call has not moved, you know,
Speaker 4: shifted to recession, but we do believe growth forecasts are
Speaker 4: going to have to be reduced.
Speaker 1: Right.
Speaker 4: You'll probably see the FED, you know, go that way tomorrow. Right,
Speaker 4: So I think you don't have to hit recession to
Speaker 4: continue to rattle the markets and cause problems here and
Speaker 4: sort of self feed some more slow down you get
Speaker 4: you get sub one percent, and I don't know, you
Speaker 4: still consider that a soft thing. I don't know, but
Speaker 4: if the plane is certainly going to get closer to
Speaker 4: the ground and make us all very uncomfortable. So I
Speaker 4: think we may get that one percent or sub one
Speaker 4: percent and just get a lot closer to that negative
Speaker 4: growth than we thought we were going to get, and
Speaker 4: that will be enough to uh to keep this risk
Speaker 4: averse sort of tone in the market and keep the
Speaker 4: FED on the table for a couple of cuts later
Speaker 4: in the year.
Speaker 1: So at the long end of the curve, I'm seeing
Speaker 1: a tenure at about four point two eight percent. How
Speaker 1: far can yields move down at this point on the
Speaker 1: long end of the curve?
Speaker 4: Yeah, I mean they've adjusted quite a bit, you know,
Speaker 4: from the fourth quarter sort of repricing. And the problem
Speaker 4: is a FED has got you know, it's a growth problem.
Speaker 4: But inflation is gonna you know, don't We don't think
Speaker 4: it's going to pick back up meaningfully at the moment,
Speaker 4: but it's certainly stalling out a little bit. So there's
Speaker 4: less room at the back end of the curve, and
Speaker 4: probably more room and more value at the front end
Speaker 4: of the curve because that'll be driven more of what
Speaker 4: the Fed is going to have to do later this year.
Speaker 4: So we're back into kind of fair value territory for
Speaker 4: the longer end of the curve. But you know, investors
Speaker 4: shouldn't get tied up in the in the real short
Speaker 4: term interest rate volatility. Bonds are going to do their
Speaker 4: job because you're getting you know, four and a half
Speaker 4: five percent yield in high quality fixed income, So you're
Speaker 4: gonna get you that's a good basis for returns right there.
Speaker 4: So don't get too you know, caught up in the
Speaker 4: week to week, month to month interest rate fair value
Speaker 4: and volatility of rates.
Speaker 1: Right So we're talking about the possibility of weaker growth, okay,
Speaker 1: But if inflation remains stubborn or perhaps has a push higher,
Speaker 1: are we talking about a scenario that could resemble stagflation?
Speaker 4: I mean, that's certainly been tossed around. You know, we
Speaker 4: we lean to more of the growth weakness side at
Speaker 4: the moment. You know, some of the things that's happening.
Speaker 4: You know, the fiscal constraint hasn't really fully hit the
Speaker 4: job market, so we expect to see some deterioration there
Speaker 4: in the coming months, right. I mean, the government sector's
Speaker 4: made up a third of the job growth over the
Speaker 4: last couple of years, and you throw in, you know,
Speaker 4: certain parts of healthcare and social assistance and it becomes
Speaker 4: fifty sixty to seventy percent.
Speaker 2: So we know the growth story is.
Speaker 1: Going to weaken.
Speaker 4: Inflation is a little harder because we don't know what
Speaker 4: terriffs we're going to end up with, we don't know
Speaker 4: how substitution effects play in there. And really the sticky
Speaker 4: inflation story has been a service story, right, and that
Speaker 4: is starting to go the other way because consumer spending
Speaker 4: in the service sector is being hit by tariffs. So
Speaker 4: it's sort of there's some elements that will offset the
Speaker 4: terror story and the inflation story, and for us, it's
Speaker 4: a little more clear of the growth slowdown story.
Speaker 1: So a lot of the European bond markets have been
Speaker 1: rallying lately, particularly in Germany where it looks as though
Speaker 1: lawmakers have just passed a landmark package to increase defense spending.
Speaker 1: Is that where you want to have exposure right now?
Speaker 1: Fixed income markets that are offshore.
Speaker 4: Yeah, both equity and fixed income. I think diversification has
Speaker 4: been a good move so far, especially on the equity side,
Speaker 4: and also kind of non dollar emerging market debt has
Speaker 4: done very well recently.
Speaker 2: I think you want to be safe, becaulse.
Speaker 4: Spreads are tight and there is some economic risks, so
Speaker 4: you don't want to reach, you know, quote unquote reach
Speaker 4: to aggressively for yield, but I think you do want
Speaker 4: to spread yourself out a little bit more. We see
Speaker 4: opportunities in sort of non core markets and then big
Speaker 4: opportunity in the in the mortgage back market here in
Speaker 4: the US.
Speaker 1: Let's assume you're being forced to chase yield in the
Speaker 1: US right now with a risk of slower growth. How
Speaker 1: does the high yield market look to you right now?
Speaker 2: Yeah?
Speaker 4: I mean, you know, you know, yield usually and technical
Speaker 4: is usually trump spreads, so right, we know spreads are tight,
Speaker 4: but yields are attractive, So it's still going to draw
Speaker 4: money in and hopefully keep it somewhat range bound. But
Speaker 4: we were not buyers of adding high yield at this level.
Speaker 4: We're looking for ways to spread out, right. Bank loans
Speaker 4: have have a modestation that their valuations and bank loans
Speaker 4: have been a little bit better than high yield. So
Speaker 4: there's other areas that diversify your high yield and could
Speaker 4: spread yourself out. Like I said, em debt owns even
Speaker 4: a little bit preferred stocks, and I think it's a
Speaker 4: better way than to put all your eggs in one basket.
Speaker 1: On the US spread side, what is your predominant concern? Yeah,
Speaker 1: I mean we kind.
Speaker 4: Of hit on the growth aspect of it, and the
Speaker 4: volatility and the uncertainty sort of feeding into itself and
Speaker 4: getting much worse. And you know, the worst scenario for
Speaker 4: investor is that stagflation one you mentioned, right, because then
Speaker 4: we saw that correlations stocks and bonds are correlated. You
Speaker 4: know when you have an inflation problem, right, So if
Speaker 4: and a low growth problem, so that would hit both
Speaker 4: the equity and the fixed income side. We're less worried
Speaker 4: about a growth slowdown on the fixed income side.
Speaker 2: That'll help you.
Speaker 4: That'll be okay on the fixed income.
Speaker 2: Side and hurt the equity side more.
Speaker 4: But stagflation scenario, which is not our call right now,
Speaker 4: that would be most painful for all asset.
Speaker 1: Classes, no doubt about that. And at the end of
Speaker 1: last week we had data from the University of Michigan
Speaker 1: and a big jump in consumer expectations for and that's
Speaker 1: got to be problematic for the FED. I would imagine, yeah,
Speaker 1: that's it is problematic.
Speaker 4: They're going to have to if the equity market's looking for,
Speaker 4: you know, a douvish help or a put to help
Speaker 4: the equity market. I don't know if they're going to
Speaker 4: get it, because they do have to balance They're going
Speaker 4: to have to acknowledge that we're getting weaker growth, and
Speaker 4: they also have to acknowledge that inflation is stalling a
Speaker 4: bit here and with tariffs and some of the uncertainty,
Speaker 4: it could be more of a problem than they thought.
Speaker 4: So they really got to balance it out here on
Speaker 4: the growth and inflation issue. And so I don't I
Speaker 4: think it's if anything, it'll be okay for bonds and
Speaker 4: I don't think it's going to be helpful for equities.
Speaker 1: You mentioned bank credit a short while ago. Yesterday we
Speaker 1: had news that Michelle Bowman, the Fed governor has been
Speaker 1: tapped to serve as vice chair for Supervision. We know
Speaker 1: that she's been critical of a plan to require banks
Speaker 1: to hold more capital, so maybe she, if she's confirmed,
Speaker 1: she brings a lighter touch to regulation. Does that cause
Speaker 1: you to become a little bit more interested in bank credit?
Speaker 4: I mean, look, the banking sector is one of the
Speaker 4: fundamentally most solid parts of the credit market. So even
Speaker 4: though spreads are tight, there's opportunity in banks, and anything
Speaker 4: that's supported by sort of AI infrastructures there's opportunities, and energy,
Speaker 4: there's opportunities in some of the utilities.
Speaker 2: So yeah, we're.
Speaker 4: Already like the bank and finance sector in credit, and
Speaker 4: you know, less regulation only sort of bolsters that near term, right.
Speaker 4: I don't know if it's a great thing long term,
Speaker 4: but it certainly will probably help spread short term.
Speaker 1: So as long as we're talking about industries, when you
Speaker 1: look at credit markets, are there industries that you want
Speaker 1: to avoid at all costs these days?
Speaker 4: You know, probably the things that are in the most
Speaker 4: kind of consumer discretionary areas of the market, the most
Speaker 4: consumer cyclical areas of the market, and some of the
Speaker 4: communication areas of the market where spreads are still very tight,
Speaker 4: and they're more you know, they have a higher beta
Speaker 4: or attachment to if the consumer retrenches a little bit.
Speaker 4: So that's kind of what you kind of you can
Speaker 4: actually keep a full allocation to investment grade credit and
Speaker 4: a bond portfolio and be set up to be defensive
Speaker 4: because you can have a shorter sort of interest rate
Speaker 4: risk in that credit exposure, and then you can also
Speaker 4: have lower beta sectors and names. So if you get
Speaker 4: spread widening, you you know, you get hurt, but you
Speaker 4: outperform the index a little bit, and then you can
Speaker 4: you know, use some dry powder to take advantage of
Speaker 4: wider spreads.
Speaker 1: What about the margage I'm sorry, what about them? Let
Speaker 1: me say that again. What about the mortgage market?
Speaker 4: Yeah, I mean that's been a good story for a
Speaker 4: while now, right, you know, usually you have to give
Speaker 4: up yield to be in in high quality government backed
Speaker 4: agency mortgage versus credit. Right and right now you're picking
Speaker 4: up a little bit of yield. So you're picking up
Speaker 4: quality and you have good liquidity, and you're actually picking
Speaker 4: up a little yield. You know, you're you're getting similar
Speaker 4: yields are like a triple B corporate bond So that's
Speaker 4: a great that's a great trade. Right now you have
Speaker 4: to be somewhat have active management and do your coupon
Speaker 4: selection and things like that. But it's a great place
Speaker 4: to be because you're you're literally lowering your risk a
Speaker 4: little bit and you're adding a little bit of yield
Speaker 4: and in spreads don't have to tighten. If you go sideways,
Speaker 4: you're still winning.
Speaker 2: So it's so it's okay. So that's been a.
Speaker 4: Good place to be in the in the US market
Speaker 4: for sure, and probably where our largest overweight.
Speaker 1: Is before I let you go, Rob, in terms of
Speaker 1: if you're right and we do get easing from the
Speaker 1: FED at some point this year, what is the magnitude
Speaker 1: of that cut?
Speaker 4: You know, I think the pricing is two and a
Speaker 4: half or three kind of area you know, from now
Speaker 4: to the end of the year. That's certainly feels right
Speaker 4: to what we see in the growth fundamentals in the
Speaker 4: job market. That might hit us is two cuts to
Speaker 4: twenty five basis point cuts. You know, this is all
Speaker 4: subject to change as data evolves. With that. Right now,
Speaker 4: the pricing feels fair in kind of that level.
Speaker 1: Rob will leave it there, thank you so much. Always
Speaker 1: a pleasure. Rob Williams. There. He is the chief investment
Speaker 1: strategist at Sage Advisory. Joining from Austin, Texas here on
Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode
Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we
Speaker 1: look at the story shaping markets, finance, and geopolitics in
Speaker 1: the Asia Pacific. You can find us on Apple, Spotify,
Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 1: Join us again tomorrow for insight on the market moves
Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
Speaker 1: and this is Bloomberg two