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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.

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Speaker 2: Markets in Asia are gearing up to follow an update

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Speaker 2: for Wall Street. US markets rallied on the bet for

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Speaker 2: an imminent rate cut by way of the FED. Equities

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Speaker 2: at all time highs in the States and yields were

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Speaker 2: down across the Treasury curve. Meantime, Treasury Secretary Scott Bessont

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Speaker 2: is calling on the FED to cut the policy rate

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Speaker 2: by fifty basis points after this week's report on consumer prices.

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Speaker 2: Speaking earlier to Bloomberg Surveillance, Besson said that could be

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Speaker 2: the beginning of a new rate cutting cycle.

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Speaker 3: The rates are too constrictive if you look at any model.

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Speaker 1: That the.

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Speaker 3: We should probably be one hundred and fifty one hundred

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Speaker 3: and seventy five basis points lower. So I think the

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Speaker 3: committee needs to step back.

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Speaker 2: That is Treasury Secretary Scott Besson speaking earlier to Bloomberg.

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Speaker 2: In a moment or two, we'll get some reaction from

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Speaker 2: Ross Mayfield, investment strategist at Baird. But we begin this

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Speaker 2: morning in Hong Kong. Joining me now is Helen Ju,

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Speaker 2: managing partner and CIO at NF Trinity. Helen joins us

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Speaker 2: from our studios in Hong Kong. It's always a pleasure

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Speaker 2: to visit with you, Helen. Can we begin by talking

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Speaker 2: about the Chinese economy and the big reveal that we'll

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Speaker 2: get at the end of the week monthly activity data

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Speaker 2: for July, and I want to focus first on industrial

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Speaker 2: production and retail sales, two big components here. Give me

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Speaker 2: a sense of what you're expecting to see.

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Speaker 4: Well, I think the overall economy has been lackluster for

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Speaker 4: quite some time, and so we don't expect to see

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Speaker 4: any major pickup in either of those two items. Industrial

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Speaker 4: production in particular, I would say obviously a lot of

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Speaker 4: that relies on global pmis and orderers as well as

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Speaker 4: the trade expectations, and even pmis outside of China have

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Speaker 4: been pretty lackluster for a couple of years already, So

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Speaker 4: to start off with the export demand is not great,

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Speaker 4: and then at on top of that the fact that

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Speaker 4: you've got trade uncertainty. There may have been some frontloading

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Speaker 4: of activity in the first half of the year or

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Speaker 4: beginning of the year before the tariffs were supposed to

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Speaker 4: kick off, But I think as we go into the

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Speaker 4: second part of the year, it's going to be hard

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Speaker 4: to see major impetus for significant v shape recovery in

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Speaker 4: that regard.

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Speaker 2: So if the export economy has been a little sluggish,

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Speaker 2: where would things be if this tariff truce did not

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Speaker 2: exist and domestic demand being as weak as it is

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Speaker 2: on the mainline, what would the overall economy look like?

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Speaker 4: Look, I think the Chinese government are trying very hard

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Speaker 4: to boost the domestic consumption and domestic demand. So that

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Speaker 4: comes partly from some of the supportive policies we've seen

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Speaker 4: on you know, let's say fixed asset investment, infrastructure stuff

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Speaker 4: that's government related. Spending has actually picked up to try

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Speaker 4: to buffer the slow down in the external demain and

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Speaker 4: manufacturing industries and property sector. We see that the government

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Speaker 4: has passed a number of consumption related supports, although consumption

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Speaker 4: is very difficult to get a meaningful change in behavior

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Speaker 4: in the short term, especially if you're feeling not so

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Speaker 4: great about your wealth effects from your property price you know, stagnating.

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Speaker 4: But that said, you know, the a share market has

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Speaker 4: been stronger recently and has performed relatively well, so that

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Speaker 4: helps the buffer it to some extent. So you know,

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Speaker 4: I would say the domestic side is a little bit

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Speaker 4: more visible and more stable versus the external demand, where

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Speaker 4: things were starting to look a little bit choppy even before.

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Speaker 2: The trade war. So you mentioned the property market. Where

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Speaker 2: are we in this process of healing and getting rid

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Speaker 2: of some of the bad debt that is kind of

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Speaker 2: tied to the problems with the property market.

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Speaker 4: We're actually pretty far along in that regard, So probably

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Speaker 4: the vast majority of companies that had the significant leverage

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Speaker 4: and concerns about their ability to deliver what they've sold.

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Speaker 4: I think that's pretty much, you know, eighty percent ninety

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Speaker 4: percent cleaned up at this point. But the concern is that,

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Speaker 4: you know, China's market on housing used to be eighty

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Speaker 4: percent new homes and twenty percent existing sales, and then

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Speaker 4: that shifted meaningfully more towards existing secondhand homes. When people's

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Speaker 4: expectation about price appreciation forever ended, they started to put

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Speaker 4: their existing homes up for sale. So now the volume

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Speaker 4: of sales is very skewed or much more skewed versus

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Speaker 4: before to existing homes rather than new, which basically means

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Speaker 4: that all the fixed asset investment activity on the new

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Speaker 4: homes has meaningfully slowed down for the last couple of years, right,

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Speaker 4: and then that's with the increase in supply of the

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Speaker 4: secondary market. Then it's actually pressured overall prices in the

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Speaker 4: market as well, And that's actually the more important thing

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Speaker 4: to look at for consumer confidence.

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Speaker 2: So maybe we can talk about one of the bright

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Speaker 2: spots high tech, particularly the artificial intelligence trade. Big news

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Speaker 2: in the last week was that President Trump struck a deal,

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Speaker 2: an unusual deal with US chip makers and video and AMD,

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Speaker 2: and they're going to be allowed to sell some of

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Speaker 2: their less advanced AI chips into the Chinese markets if

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Speaker 2: these companies pay fifteen percent of the revenue from those

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Speaker 2: Chinese sales to the US government.

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Speaker 4: Kind of a.

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Speaker 2: Creative bit of enterprise here. What is this going to

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Speaker 2: mean for China do you think?

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Speaker 4: I think the fifteen percent will be partly absorbed by

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Speaker 4: the chip makers and partly absorbed, probably by the customer.

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Speaker 4: I think that China is very keen to develop its

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Speaker 4: AI landscape, but that Chinese manufacturers themselves are certainly short

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Speaker 4: of the capacity to produce in the order of magnitude

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Speaker 4: that they actually need. Therefore, I believe that the Chinese

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Speaker 4: side are very eager for continued GPU exports at China,

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Speaker 4: and that this H twenty deal that's been inked by

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Speaker 4: Jensen and President Trump will be very much welcomed by

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Speaker 4: the Chinese. Of course, in the recent days, there's been

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Speaker 4: a little bit of newsflow regarding whether China is discouraging

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Speaker 4: the use of this, but I actually think that the

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Speaker 4: discouragement is probably only towards very sensitive customers, including military

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Speaker 4: and other type of specific usage. But for the broader

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Speaker 4: AI landscape as a whole, I do believe that there

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Speaker 4: is going to be sizeable imports that the Chinese government

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Speaker 4: wants to bring in in order to continue to grow

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Speaker 4: its AI ecosystem.

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Speaker 2: To what extent is this deal opening up less advanced

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Speaker 2: AI chips to the Chinese market going to be critical

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Speaker 2: if the US and China were to kind of find

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Speaker 2: a way out of this trade war.

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Speaker 4: Oh, I think it's a huge ask, a huge important

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Speaker 4: ask by the Chinese, and the negotiation it's probably way

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Speaker 4: more important versus whether the tariffs on other stuff is

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Speaker 4: five percent or ten percent higher or lower. I think

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Speaker 4: that's been part of the critical negotiation all along. And

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Speaker 4: keep in mind that H twent t is not a

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Speaker 4: new incremental supply to China. It was supplied to China

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Speaker 4: for quite some time and just recently suspended earlier because

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Speaker 4: of the trade war. So now it's just a resumption

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Speaker 4: of the export supplied to China. It's not necessarily, you know,

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Speaker 4: all new incremental supply to China.

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Speaker 2: So we're dealing a lot with predictions on FED policy here.

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Speaker 2: Maybe we get a twenty five basis point rate cut

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Speaker 2: at the September meeting, although the Treasury Secretary was saying

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Speaker 2: after the CPI printed, maybe the FED could go as

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Speaker 2: much as fifty basis points. Where are you in terms

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Speaker 2: of factoring in US monetary policy into your thinking about

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Speaker 2: putting money to work well?

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Speaker 4: US monetary policy is obviously the most important policy decision

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Speaker 4: in the world that one has to watch for ASA classes.

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Speaker 4: I think Scott Bessen's rationale was that because the NFP

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Speaker 4: was revised down so dramatically for the prior two months,

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Speaker 4: you know, the reported numbers were one hundred something thousand,

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Speaker 4: but the post revision numbers were like ten percent of

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Speaker 4: the original reported numbers. So his point was, were the

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Speaker 4: accurate numbers reported in the last couple of months. The

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Speaker 4: FED may have already cut once and therefore, should it

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Speaker 4: just catch up by cutting twice in September.

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Speaker 5: My view is that they're probably.

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Speaker 4: Just going to do twenty five basis points, because unless,

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Speaker 4: of course, the beginning of September NFP number four August

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Speaker 4: ends up being absolutely disastrous, in which case they might

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Speaker 4: want to accelerate to fifty basis points. But if not,

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Speaker 4: I think it's twenty five basis points. We're looking at

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Speaker 4: consensus expectations of five to six cuts before the end

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Speaker 4: of next year. Whether that's spaced out as three this

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Speaker 4: year or two this year, it's not necessarily that important.

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Speaker 4: But you know, the consensus terminal rate now is around

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Speaker 4: three percent at the end of the cut cycle. We

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Speaker 4: think actually, if anything, it could be a little bit

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Speaker 4: lower than that and back to like the two handle.

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Speaker 2: So is that already reflected in the dollar right now

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Speaker 2: in terms of its value, let's say, against the end

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Speaker 2: and the offshore you on.

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Speaker 4: I think it's partially reflected, but probably not entirely reflected,

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Speaker 4: because if you look at the upcoming data, I don't

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Speaker 4: think that the CPI really matters that much. I think

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Speaker 4: what the government cares about, what the Fed cares about,

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Speaker 4: what the markets care about is really employment numbers, right,

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Speaker 4: because employment numbers determine everything. So it's the NFP, it's

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Speaker 4: the unemployment rate. If those numbers are good in the

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Speaker 4: next month, people will have a sigh of relief. But

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Speaker 4: I don't think that it means that rates are going

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Speaker 4: to rally dramatically or the dollar is going to dramatically strengthen.

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Speaker 4: But if those numbers are bad yet again for the

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Speaker 4: third fourth month, then I think the market is going

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Speaker 4: to really get stressed out and you'll see that the

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Speaker 4: long end is going to come down, and actually the

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Speaker 4: pressure on the dollar will be bigger and bigger. So

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Speaker 4: and by the way, and the Trump government wants the

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Speaker 4: dollar to be weaker anyway, so all of that is

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Speaker 4: online for a weaker dollar and better performance outside of

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Speaker 4: the US.

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Speaker 2: So as we're talking the Japanese equity market, is it

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Speaker 2: record highs and on Friday will get the preliminary estimate

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Speaker 2: on second quarter GDP for Japan. How are you viewing

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Speaker 2: the Japanese economy right now, and maybe more broadly, what

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Speaker 2: is being reflected in Japanese stocks at the moment.

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Speaker 4: The economy is doing okay from a headline perspective, but

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Speaker 4: nothing spectacular and actually, if you look at the economic

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Speaker 4: surprise Index, which is how it's come in versus expectations,

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Speaker 4: it's actually been a little bit losing momentum recently versus

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Speaker 4: what had become slightly higher expectations. And I always say

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Speaker 4: the post COVID kind of tourism and consumption wave when

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Speaker 4: the dollar, when the dollar was super strong and the

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Speaker 4: end was like super weak, that has kind of started

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Speaker 4: to wear off a little bit this year. Recently we

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Speaker 4: have a little bit of a boost from the World Expo,

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Speaker 4: which definitely drew some activity in the second quarter of

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Speaker 4: the year, But going into the rest of the year,

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Speaker 4: we think probably just in line with expectations. We're not

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Speaker 4: seeing any major upside surprises from Japan in particular.

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Speaker 2: Helen will leave it there. It's always a pleasure. Thank

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Speaker 2: you so very much. Helenge you managing partner and CIO

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Speaker 2: atf Trenditdy joining us from a Home Kong studio here

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Speaker 2: on the Daybreak Asia podcast. Welcome back to the Daybreak

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Speaker 2: Asia Podcast. I'm deg Krisner. Two weeks ago, market saw

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Speaker 2: the chance of a rate cut in September at less

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Speaker 2: than fifty percent. Well, now a quarter point cut is

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Speaker 2: fully priced in and some are even betting on a

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Speaker 2: larger reduction. Speaking earlier to Bloomberg, Treasury Secretary Scott Bessen

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Speaker 2: hinted at a series of radcuts beginning with a fifty

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Speaker 2: basis point move at the Fed's next meeting next month.

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Speaker 2: Joining me now for a closer look is Ross Mayfield

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Speaker 2: is investment strategist at Baird Ross. Always a pleasure, Thanks

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Speaker 2: for making time. This is kind of an unusual situation.

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Speaker 2: I can't recall the last time a Treasury secretary is

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Speaker 2: kind of leaned in to the conversation on FED rate cuts.

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Speaker 2: Is that a little concerning to you?

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Speaker 1: I think the whole thing is a little concerning. Obviously,

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Speaker 1: they've kind of backed away from intentions or directly firing Pal,

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Speaker 1: at least for now, but the public pressure definitely kind

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Speaker 1: of just gives an air of questioning whether that independence

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Speaker 1: is still going to be there now again, you know,

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Speaker 1: the Treasury secretary doing it might be new, but it

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Speaker 1: won't be the first time that we've had a president

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Speaker 1: over the years want breatcats want you know, a hotter

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Speaker 1: economy heading into a midterm election year. But it certainly

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Speaker 1: makes the job harder on share Pal and puts the

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Speaker 1: Central Bank in a pretty tough position here, especially with

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Speaker 1: tariffs kind of ramping up.

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Speaker 2: So Besen said that the Fed may have already cut

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Speaker 2: interest rates, or they would have done so at the

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Speaker 2: last meeting if they had been aware of the revised

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Speaker 2: jobs data kind of indicating the weakness in the labor market.

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Speaker 2: How do you understand the labor market right now? Are

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Speaker 2: things kind of increasing in dynamism, perhaps as a result

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Speaker 2: of the tariff story and maybe even the artificial intelligence story.

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Speaker 1: Yeah, I mean the way I see the job marketing

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Speaker 1: right now is cooling, weakening, but not recessionary. Nothing to

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Speaker 1: outrrite panic over. I mean, we're still adding jobs a

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Speaker 1: month on month despite that big revision downwhard. You know,

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Speaker 1: we still have those weekly initial claims numbers, you know,

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Speaker 1: hovering at cycle lows. And those cycle lows also happened

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Speaker 1: to be you know, fifty year lows for the data set.

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Speaker 1: So we still have, you know, a labor market where

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Speaker 1: people really aren't getting fired and people in the workforce

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Speaker 1: are working. We have you know, prime age employment to

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Speaker 1: population still at near cycle has. So it's a labor

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Speaker 1: market that is not growing. There's not a lot that's

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Speaker 1: kind of boosting job growth, especially outside of healthcare. But

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Speaker 1: it's not a labor market that's that's in a ton

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Speaker 1: of trouble in my view. Now, all that said, I

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Speaker 1: do think the Fed would have cut if they had

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Speaker 1: had that non farm perils number. So I don't think

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Speaker 1: that Treasury Secretary Vessett is out of line for calling

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Speaker 1: for a fifty basis point rate kid in September. I

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Speaker 1: think it kind of mirrors closely this time last year,

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Speaker 1: where the Fed went ahead and did a fifty basis

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Speaker 1: point ket to start things off because they felt a

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Speaker 1: bit behind the curve. So I think that's a reasonable

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Speaker 1: place to be. You know, the market is more expecting

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Speaker 1: one cut. We'll get another CPI report before then, so

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Speaker 1: that'll be obviously critical. But I don't think fifty bases

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Speaker 1: whence should be off the table. I think that should

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Speaker 1: be a live decision for the Fed in September.

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Speaker 2: So we had record highs today for the S and

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Speaker 2: P five hundred NASDAK composite, all time highs here. How

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Speaker 2: are you feeling about the equity trade?

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Speaker 5: Yeah? Really strong.

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Speaker 1: I mean I would I be surprised if the market

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Speaker 1: consolidated a bit here in August or September or October.

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Speaker 1: I mean these are seasonally week months. We've been on

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Speaker 1: such a strong run. No, I wouldn't, But everything else

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Speaker 1: about the setup I love. You know, we're talking raycats,

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Speaker 1: which is obviously risk on. The fundamental story is incredibly strong.

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Speaker 1: Despite all the headwinds that we talk about all day,

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Speaker 1: this earning season has just been incredibly resilient, and guidance

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Speaker 1: is actually pretty good as well. You know, you look

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Speaker 1: underneath the hood of the equity market and you see

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Speaker 1: things like today the S and P five hundred equal

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Speaker 1: weight discretionary made in all time high. I mean, that's

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Speaker 1: full of sub sectors, sub industries like autos and luxury

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Speaker 1: retail and home builders. The home builders on fire. So

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Speaker 1: it's not just a big tech story, although that you know,

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Speaker 1: sucks up a lot of air in the room, the

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Speaker 1: AI trade. But things look pretty healthy. And you know,

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Speaker 1: if you even wanted to look outside of the US,

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Speaker 1: this rally has a global tilt to it. Japan looks great,

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Speaker 1: Europe has had a nice year, is consolidating a bit.

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Speaker 1: But there's a lot to like about this equity market.

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Speaker 1: So even if things need to take a breather and

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Speaker 1: continue to let the fundamentals catch.

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Speaker 5: Up to price, I would view it as very much

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Speaker 5: biable here.

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Speaker 2: So one of the things we learned this week the

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Speaker 2: cost of tariff exposed goods really didn't rise as much

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Speaker 2: as feared. In July. Tomorrow we're going to get the

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Speaker 2: wholesale inflation report, the PPI data. Some companies have been

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Speaker 2: holding off on increasing prices. Maybe there's a little bit

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Speaker 2: of fear that consumers would then pull back on. How

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Speaker 2: are you feeling about corporate margins right now as companies

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Speaker 2: try to deal with the effect of tariffs.

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Speaker 1: Yeah, I mean it's been a pretty incredible story. You've

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Speaker 1: got next twelve month profit margins have actually hooked higher

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Speaker 1: this earning season despite what we know is coming down the.

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Speaker 5: Pipe as far as tariffs.

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Speaker 1: So you know, ultimately it's it's I think it's going

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Speaker 1: to be divided up in three ways. I think suppliers

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Speaker 1: are going to eat some of the costs. I think

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Speaker 1: that margins are going to get hit in some of

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Speaker 1: these goods important countries. And I think ultimately consumers you know,

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Speaker 1: in those sectors will will pay a higher price. Whether

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Speaker 1: they balk at that, you know, I don't know. Obviously,

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Speaker 1: the consumer is doing okay, but is in a weaker

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Speaker 1: position today than they were in say twenty twenty two,

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Speaker 1: when the inflation story and the corporate profit you know,

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Speaker 1: greed inflation story was really ramping up. So I think

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Speaker 1: companies will do everything they've can. I think they've probably

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Speaker 1: tried to you know, run these tariffs as best as

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Speaker 1: possible during the pause here. Obviously, the China pause helps

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Speaker 1: a lot. A lot of the you know, imported goods

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Speaker 1: from China will have another ninety days, so you might

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Speaker 1: see a lot more you know, inventory stocking, so that

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Speaker 1: companies can hold off on making that hard decision. But

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Speaker 1: ultimately it's a boring answer, but I think it's going

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Speaker 1: to be spread out amongst the three players here. I mean,

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Speaker 1: a tariff as attacked and somebody pays it, so it'll

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Speaker 1: probably end up being a combination of supplier, importer, and

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Speaker 1: ultimately end consumer in those sectors.

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Speaker 2: We had a big move today among small cap stocks.

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Speaker 2: I think the Russell was up about two percent. How

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Speaker 2: are you feeling about that end of the market, the

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Speaker 2: small cap space.

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Speaker 5: I'm not inclined to chase a small cap rally here.

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Speaker 1: Obviously, you know, rate cat hype is going to be

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Speaker 1: good for small caps.

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Speaker 5: They have a lot more debt, a lot more variable

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Speaker 5: rate debt in the books.

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Speaker 1: But regardless of what the FED does in September, regardless

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Speaker 1: of what the FED does in twenty twenty six, I

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Speaker 1: think that because of the more structure inflation dynamics, because

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Speaker 1: of the debt.

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Speaker 5: And deficit, because of some issues.

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Speaker 1: That are more structural in nature, I think that we're

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Speaker 1: in a higher, for longer great environment, especially compared to

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Speaker 1: the twenty tens. And I think that is just a

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Speaker 1: really difficult operating environment for small caps. And then you

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Speaker 1: think about what is driving the market today in this

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Speaker 1: AI trade, and you know, it's not something that small

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Speaker 1: caps can just tap into right away. They don't have

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Speaker 1: the capital, they don't have the capacity. And then when

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Speaker 1: these large caps and megacaps need something new, they go

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Speaker 1: out and you know, they gobble up a smaller name

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Speaker 1: that has what they need. So I think it's a

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Speaker 1: really tough environment for small caps. I'm not inclined to

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Speaker 1: chase the rally here, and if we have a nice

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Speaker 1: small cap pop on some ray kind enthusiasm, I'm okay

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Speaker 1: missing out on that and kind of hiding out in

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Speaker 1: high quality large caps but you know, staying invested, staying

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Speaker 1: risk on with kind of a cyclical tilt, but just

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Speaker 1: not going to chase that small cap move.

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Speaker 2: So we had yields down today across to curve the

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Speaker 2: two and the ten, each by about five basis points.

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Speaker 2: And with those lower yields, some dollar weakness crept in

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Speaker 2: Bloomberg dollar spot was down about two tens to one percent.

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Speaker 2: Is dollar weakness going to be the narrative going forward?

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Speaker 2: You seem to be questioning the degree to which rates

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Speaker 2: can move lower, But I'm wondering what all of this

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Speaker 2: means for the dollar and then by extension, offshore markets.

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Speaker 1: Yeah, I mean, we have anecdotally a lot of clients

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Speaker 1: asking about the dollar for the first time in a while.

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Speaker 1: I think the weakness is generally a good thing. We

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Speaker 1: have a lot of multinationals here that will really benefit

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Speaker 1: from a week dollar, especially as they try to digest,

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Speaker 1: you know, other new input costs. Getting a break on

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Speaker 1: currency exchange for foreign profits will be huge for international markets.

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Speaker 1: I mean, you're seeing the result. Obviously these markets are

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Speaker 1: doing well in local terms, but in dollar terms, the

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Speaker 1: all world xus is lap in the field, and a

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Speaker 1: big part of that is dollar weakness, so I don't

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Speaker 1: know that it can continue into perpetuity. You know, interest

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Speaker 1: rate differentials would still suggest, you know, the US has

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Speaker 1: higher rates than a lot of our kind of contemporaries

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Speaker 1: in developed markets. So I don't think the dollar is

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Speaker 1: in free fall. I don't think that the quote unquote

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Speaker 1: sell America trade is.

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Speaker 5: All that real, you know.

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Speaker 1: I do think there's maybe a little bit of diversification

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Speaker 1: going on, but international investors still want to own the

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Speaker 1: best companies, the safest assets, and they'll still reside in

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Speaker 1: the US for now. So I think the dollar weakness

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Speaker 1: has been a positive, but I don't think it's going

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Speaker 1: to extend into perpetuity, and I don't think that it's

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Speaker 1: something for investors to worry about too much.

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Speaker 2: Ross will leave it there. It's always a pleasure. Thanks

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Speaker 2: so very much. Ross Mayfield there. He is investment strategist

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Speaker 2: at Baird Joining here on the Daybreak Asia podcast. Thanks

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Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia

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Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolos in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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00:21:06,520 --> 00:21:09,639
Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisoner and this is Bloomberg