Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 2: Markets in Asia are gearing up to follow an update
Speaker 2: for Wall Street. US markets rallied on the bet for
Speaker 2: an imminent rate cut by way of the FED. Equities
Speaker 2: at all time highs in the States and yields were
Speaker 2: down across the Treasury curve. Meantime, Treasury Secretary Scott Bessont
Speaker 2: is calling on the FED to cut the policy rate
Speaker 2: by fifty basis points after this week's report on consumer prices.
Speaker 2: Speaking earlier to Bloomberg Surveillance, Besson said that could be
Speaker 2: the beginning of a new rate cutting cycle.
Speaker 3: The rates are too constrictive if you look at any model.
Speaker 1: That the.
Speaker 3: We should probably be one hundred and fifty one hundred
Speaker 3: and seventy five basis points lower. So I think the
Speaker 3: committee needs to step back.
Speaker 2: That is Treasury Secretary Scott Besson speaking earlier to Bloomberg.
Speaker 2: In a moment or two, we'll get some reaction from
Speaker 2: Ross Mayfield, investment strategist at Baird. But we begin this
Speaker 2: morning in Hong Kong. Joining me now is Helen Ju,
Speaker 2: managing partner and CIO at NF Trinity. Helen joins us
Speaker 2: from our studios in Hong Kong. It's always a pleasure
Speaker 2: to visit with you, Helen. Can we begin by talking
Speaker 2: about the Chinese economy and the big reveal that we'll
Speaker 2: get at the end of the week monthly activity data
Speaker 2: for July, and I want to focus first on industrial
Speaker 2: production and retail sales, two big components here. Give me
Speaker 2: a sense of what you're expecting to see.
Speaker 4: Well, I think the overall economy has been lackluster for
Speaker 4: quite some time, and so we don't expect to see
Speaker 4: any major pickup in either of those two items. Industrial
Speaker 4: production in particular, I would say obviously a lot of
Speaker 4: that relies on global pmis and orderers as well as
Speaker 4: the trade expectations, and even pmis outside of China have
Speaker 4: been pretty lackluster for a couple of years already, So
Speaker 4: to start off with the export demand is not great,
Speaker 4: and then at on top of that the fact that
Speaker 4: you've got trade uncertainty. There may have been some frontloading
Speaker 4: of activity in the first half of the year or
Speaker 4: beginning of the year before the tariffs were supposed to
Speaker 4: kick off, But I think as we go into the
Speaker 4: second part of the year, it's going to be hard
Speaker 4: to see major impetus for significant v shape recovery in
Speaker 4: that regard.
Speaker 2: So if the export economy has been a little sluggish,
Speaker 2: where would things be if this tariff truce did not
Speaker 2: exist and domestic demand being as weak as it is
Speaker 2: on the mainline, what would the overall economy look like?
Speaker 4: Look, I think the Chinese government are trying very hard
Speaker 4: to boost the domestic consumption and domestic demand. So that
Speaker 4: comes partly from some of the supportive policies we've seen
Speaker 4: on you know, let's say fixed asset investment, infrastructure stuff
Speaker 4: that's government related. Spending has actually picked up to try
Speaker 4: to buffer the slow down in the external demain and
Speaker 4: manufacturing industries and property sector. We see that the government
Speaker 4: has passed a number of consumption related supports, although consumption
Speaker 4: is very difficult to get a meaningful change in behavior
Speaker 4: in the short term, especially if you're feeling not so
Speaker 4: great about your wealth effects from your property price you know, stagnating.
Speaker 4: But that said, you know, the a share market has
Speaker 4: been stronger recently and has performed relatively well, so that
Speaker 4: helps the buffer it to some extent. So you know,
Speaker 4: I would say the domestic side is a little bit
Speaker 4: more visible and more stable versus the external demand, where
Speaker 4: things were starting to look a little bit choppy even before.
Speaker 2: The trade war. So you mentioned the property market. Where
Speaker 2: are we in this process of healing and getting rid
Speaker 2: of some of the bad debt that is kind of
Speaker 2: tied to the problems with the property market.
Speaker 4: We're actually pretty far along in that regard, So probably
Speaker 4: the vast majority of companies that had the significant leverage
Speaker 4: and concerns about their ability to deliver what they've sold.
Speaker 4: I think that's pretty much, you know, eighty percent ninety
Speaker 4: percent cleaned up at this point. But the concern is that,
Speaker 4: you know, China's market on housing used to be eighty
Speaker 4: percent new homes and twenty percent existing sales, and then
Speaker 4: that shifted meaningfully more towards existing secondhand homes. When people's
Speaker 4: expectation about price appreciation forever ended, they started to put
Speaker 4: their existing homes up for sale. So now the volume
Speaker 4: of sales is very skewed or much more skewed versus
Speaker 4: before to existing homes rather than new, which basically means
Speaker 4: that all the fixed asset investment activity on the new
Speaker 4: homes has meaningfully slowed down for the last couple of years, right,
Speaker 4: and then that's with the increase in supply of the
Speaker 4: secondary market. Then it's actually pressured overall prices in the
Speaker 4: market as well, And that's actually the more important thing
Speaker 4: to look at for consumer confidence.
Speaker 2: So maybe we can talk about one of the bright
Speaker 2: spots high tech, particularly the artificial intelligence trade. Big news
Speaker 2: in the last week was that President Trump struck a deal,
Speaker 2: an unusual deal with US chip makers and video and AMD,
Speaker 2: and they're going to be allowed to sell some of
Speaker 2: their less advanced AI chips into the Chinese markets if
Speaker 2: these companies pay fifteen percent of the revenue from those
Speaker 2: Chinese sales to the US government.
Speaker 4: Kind of a.
Speaker 2: Creative bit of enterprise here. What is this going to
Speaker 2: mean for China do you think?
Speaker 4: I think the fifteen percent will be partly absorbed by
Speaker 4: the chip makers and partly absorbed, probably by the customer.
Speaker 4: I think that China is very keen to develop its
Speaker 4: AI landscape, but that Chinese manufacturers themselves are certainly short
Speaker 4: of the capacity to produce in the order of magnitude
Speaker 4: that they actually need. Therefore, I believe that the Chinese
Speaker 4: side are very eager for continued GPU exports at China,
Speaker 4: and that this H twenty deal that's been inked by
Speaker 4: Jensen and President Trump will be very much welcomed by
Speaker 4: the Chinese. Of course, in the recent days, there's been
Speaker 4: a little bit of newsflow regarding whether China is discouraging
Speaker 4: the use of this, but I actually think that the
Speaker 4: discouragement is probably only towards very sensitive customers, including military
Speaker 4: and other type of specific usage. But for the broader
Speaker 4: AI landscape as a whole, I do believe that there
Speaker 4: is going to be sizeable imports that the Chinese government
Speaker 4: wants to bring in in order to continue to grow
Speaker 4: its AI ecosystem.
Speaker 2: To what extent is this deal opening up less advanced
Speaker 2: AI chips to the Chinese market going to be critical
Speaker 2: if the US and China were to kind of find
Speaker 2: a way out of this trade war.
Speaker 4: Oh, I think it's a huge ask, a huge important
Speaker 4: ask by the Chinese, and the negotiation it's probably way
Speaker 4: more important versus whether the tariffs on other stuff is
Speaker 4: five percent or ten percent higher or lower. I think
Speaker 4: that's been part of the critical negotiation all along. And
Speaker 4: keep in mind that H twent t is not a
Speaker 4: new incremental supply to China. It was supplied to China
Speaker 4: for quite some time and just recently suspended earlier because
Speaker 4: of the trade war. So now it's just a resumption
Speaker 4: of the export supplied to China. It's not necessarily, you know,
Speaker 4: all new incremental supply to China.
Speaker 2: So we're dealing a lot with predictions on FED policy here.
Speaker 2: Maybe we get a twenty five basis point rate cut
Speaker 2: at the September meeting, although the Treasury Secretary was saying
Speaker 2: after the CPI printed, maybe the FED could go as
Speaker 2: much as fifty basis points. Where are you in terms
Speaker 2: of factoring in US monetary policy into your thinking about
Speaker 2: putting money to work well?
Speaker 4: US monetary policy is obviously the most important policy decision
Speaker 4: in the world that one has to watch for ASA classes.
Speaker 4: I think Scott Bessen's rationale was that because the NFP
Speaker 4: was revised down so dramatically for the prior two months,
Speaker 4: you know, the reported numbers were one hundred something thousand,
Speaker 4: but the post revision numbers were like ten percent of
Speaker 4: the original reported numbers. So his point was, were the
Speaker 4: accurate numbers reported in the last couple of months. The
Speaker 4: FED may have already cut once and therefore, should it
Speaker 4: just catch up by cutting twice in September.
Speaker 5: My view is that they're probably.
Speaker 4: Just going to do twenty five basis points, because unless,
Speaker 4: of course, the beginning of September NFP number four August
Speaker 4: ends up being absolutely disastrous, in which case they might
Speaker 4: want to accelerate to fifty basis points. But if not,
Speaker 4: I think it's twenty five basis points. We're looking at
Speaker 4: consensus expectations of five to six cuts before the end
Speaker 4: of next year. Whether that's spaced out as three this
Speaker 4: year or two this year, it's not necessarily that important.
Speaker 4: But you know, the consensus terminal rate now is around
Speaker 4: three percent at the end of the cut cycle. We
Speaker 4: think actually, if anything, it could be a little bit
Speaker 4: lower than that and back to like the two handle.
Speaker 2: So is that already reflected in the dollar right now
Speaker 2: in terms of its value, let's say, against the end
Speaker 2: and the offshore you on.
Speaker 4: I think it's partially reflected, but probably not entirely reflected,
Speaker 4: because if you look at the upcoming data, I don't
Speaker 4: think that the CPI really matters that much. I think
Speaker 4: what the government cares about, what the Fed cares about,
Speaker 4: what the markets care about is really employment numbers, right,
Speaker 4: because employment numbers determine everything. So it's the NFP, it's
Speaker 4: the unemployment rate. If those numbers are good in the
Speaker 4: next month, people will have a sigh of relief. But
Speaker 4: I don't think that it means that rates are going
Speaker 4: to rally dramatically or the dollar is going to dramatically strengthen.
Speaker 4: But if those numbers are bad yet again for the
Speaker 4: third fourth month, then I think the market is going
Speaker 4: to really get stressed out and you'll see that the
Speaker 4: long end is going to come down, and actually the
Speaker 4: pressure on the dollar will be bigger and bigger. So
Speaker 4: and by the way, and the Trump government wants the
Speaker 4: dollar to be weaker anyway, so all of that is
Speaker 4: online for a weaker dollar and better performance outside of
Speaker 4: the US.
Speaker 2: So as we're talking the Japanese equity market, is it
Speaker 2: record highs and on Friday will get the preliminary estimate
Speaker 2: on second quarter GDP for Japan. How are you viewing
Speaker 2: the Japanese economy right now, and maybe more broadly, what
Speaker 2: is being reflected in Japanese stocks at the moment.
Speaker 4: The economy is doing okay from a headline perspective, but
Speaker 4: nothing spectacular and actually, if you look at the economic
Speaker 4: surprise Index, which is how it's come in versus expectations,
Speaker 4: it's actually been a little bit losing momentum recently versus
Speaker 4: what had become slightly higher expectations. And I always say
Speaker 4: the post COVID kind of tourism and consumption wave when
Speaker 4: the dollar, when the dollar was super strong and the
Speaker 4: end was like super weak, that has kind of started
Speaker 4: to wear off a little bit this year. Recently we
Speaker 4: have a little bit of a boost from the World Expo,
Speaker 4: which definitely drew some activity in the second quarter of
Speaker 4: the year, But going into the rest of the year,
Speaker 4: we think probably just in line with expectations. We're not
Speaker 4: seeing any major upside surprises from Japan in particular.
Speaker 2: Helen will leave it there. It's always a pleasure. Thank
Speaker 2: you so very much. Helenge you managing partner and CIO
Speaker 2: atf Trenditdy joining us from a Home Kong studio here
Speaker 2: on the Daybreak Asia podcast. Welcome back to the Daybreak
Speaker 2: Asia Podcast. I'm deg Krisner. Two weeks ago, market saw
Speaker 2: the chance of a rate cut in September at less
Speaker 2: than fifty percent. Well, now a quarter point cut is
Speaker 2: fully priced in and some are even betting on a
Speaker 2: larger reduction. Speaking earlier to Bloomberg, Treasury Secretary Scott Bessen
Speaker 2: hinted at a series of radcuts beginning with a fifty
Speaker 2: basis point move at the Fed's next meeting next month.
Speaker 2: Joining me now for a closer look is Ross Mayfield
Speaker 2: is investment strategist at Baird Ross. Always a pleasure, Thanks
Speaker 2: for making time. This is kind of an unusual situation.
Speaker 2: I can't recall the last time a Treasury secretary is
Speaker 2: kind of leaned in to the conversation on FED rate cuts.
Speaker 2: Is that a little concerning to you?
Speaker 1: I think the whole thing is a little concerning. Obviously,
Speaker 1: they've kind of backed away from intentions or directly firing Pal,
Speaker 1: at least for now, but the public pressure definitely kind
Speaker 1: of just gives an air of questioning whether that independence
Speaker 1: is still going to be there now again, you know,
Speaker 1: the Treasury secretary doing it might be new, but it
Speaker 1: won't be the first time that we've had a president
Speaker 1: over the years want breatcats want you know, a hotter
Speaker 1: economy heading into a midterm election year. But it certainly
Speaker 1: makes the job harder on share Pal and puts the
Speaker 1: Central Bank in a pretty tough position here, especially with
Speaker 1: tariffs kind of ramping up.
Speaker 2: So Besen said that the Fed may have already cut
Speaker 2: interest rates, or they would have done so at the
Speaker 2: last meeting if they had been aware of the revised
Speaker 2: jobs data kind of indicating the weakness in the labor market.
Speaker 2: How do you understand the labor market right now? Are
Speaker 2: things kind of increasing in dynamism, perhaps as a result
Speaker 2: of the tariff story and maybe even the artificial intelligence story.
Speaker 1: Yeah, I mean the way I see the job marketing
Speaker 1: right now is cooling, weakening, but not recessionary. Nothing to
Speaker 1: outrrite panic over. I mean, we're still adding jobs a
Speaker 1: month on month despite that big revision downwhard. You know,
Speaker 1: we still have those weekly initial claims numbers, you know,
Speaker 1: hovering at cycle lows. And those cycle lows also happened
Speaker 1: to be you know, fifty year lows for the data set.
Speaker 1: So we still have, you know, a labor market where
Speaker 1: people really aren't getting fired and people in the workforce
Speaker 1: are working. We have you know, prime age employment to
Speaker 1: population still at near cycle has. So it's a labor
Speaker 1: market that is not growing. There's not a lot that's
Speaker 1: kind of boosting job growth, especially outside of healthcare. But
Speaker 1: it's not a labor market that's that's in a ton
Speaker 1: of trouble in my view. Now, all that said, I
Speaker 1: do think the Fed would have cut if they had
Speaker 1: had that non farm perils number. So I don't think
Speaker 1: that Treasury Secretary Vessett is out of line for calling
Speaker 1: for a fifty basis point rate kid in September. I
Speaker 1: think it kind of mirrors closely this time last year,
Speaker 1: where the Fed went ahead and did a fifty basis
Speaker 1: point ket to start things off because they felt a
Speaker 1: bit behind the curve. So I think that's a reasonable
Speaker 1: place to be. You know, the market is more expecting
Speaker 1: one cut. We'll get another CPI report before then, so
Speaker 1: that'll be obviously critical. But I don't think fifty bases
Speaker 1: whence should be off the table. I think that should
Speaker 1: be a live decision for the Fed in September.
Speaker 2: So we had record highs today for the S and
Speaker 2: P five hundred NASDAK composite, all time highs here. How
Speaker 2: are you feeling about the equity trade?
Speaker 5: Yeah? Really strong.
Speaker 1: I mean I would I be surprised if the market
Speaker 1: consolidated a bit here in August or September or October.
Speaker 1: I mean these are seasonally week months. We've been on
Speaker 1: such a strong run. No, I wouldn't, But everything else
Speaker 1: about the setup I love. You know, we're talking raycats,
Speaker 1: which is obviously risk on. The fundamental story is incredibly strong.
Speaker 1: Despite all the headwinds that we talk about all day,
Speaker 1: this earning season has just been incredibly resilient, and guidance
Speaker 1: is actually pretty good as well. You know, you look
Speaker 1: underneath the hood of the equity market and you see
Speaker 1: things like today the S and P five hundred equal
Speaker 1: weight discretionary made in all time high. I mean, that's
Speaker 1: full of sub sectors, sub industries like autos and luxury
Speaker 1: retail and home builders. The home builders on fire. So
Speaker 1: it's not just a big tech story, although that you know,
Speaker 1: sucks up a lot of air in the room, the
Speaker 1: AI trade. But things look pretty healthy. And you know,
Speaker 1: if you even wanted to look outside of the US,
Speaker 1: this rally has a global tilt to it. Japan looks great,
Speaker 1: Europe has had a nice year, is consolidating a bit.
Speaker 1: But there's a lot to like about this equity market.
Speaker 1: So even if things need to take a breather and
Speaker 1: continue to let the fundamentals catch.
Speaker 5: Up to price, I would view it as very much
Speaker 5: biable here.
Speaker 2: So one of the things we learned this week the
Speaker 2: cost of tariff exposed goods really didn't rise as much
Speaker 2: as feared. In July. Tomorrow we're going to get the
Speaker 2: wholesale inflation report, the PPI data. Some companies have been
Speaker 2: holding off on increasing prices. Maybe there's a little bit
Speaker 2: of fear that consumers would then pull back on. How
Speaker 2: are you feeling about corporate margins right now as companies
Speaker 2: try to deal with the effect of tariffs.
Speaker 1: Yeah, I mean it's been a pretty incredible story. You've
Speaker 1: got next twelve month profit margins have actually hooked higher
Speaker 1: this earning season despite what we know is coming down the.
Speaker 5: Pipe as far as tariffs.
Speaker 1: So you know, ultimately it's it's I think it's going
Speaker 1: to be divided up in three ways. I think suppliers
Speaker 1: are going to eat some of the costs. I think
Speaker 1: that margins are going to get hit in some of
Speaker 1: these goods important countries. And I think ultimately consumers you know,
Speaker 1: in those sectors will will pay a higher price. Whether
Speaker 1: they balk at that, you know, I don't know. Obviously,
Speaker 1: the consumer is doing okay, but is in a weaker
Speaker 1: position today than they were in say twenty twenty two,
Speaker 1: when the inflation story and the corporate profit you know,
Speaker 1: greed inflation story was really ramping up. So I think
Speaker 1: companies will do everything they've can. I think they've probably
Speaker 1: tried to you know, run these tariffs as best as
Speaker 1: possible during the pause here. Obviously, the China pause helps
Speaker 1: a lot. A lot of the you know, imported goods
Speaker 1: from China will have another ninety days, so you might
Speaker 1: see a lot more you know, inventory stocking, so that
Speaker 1: companies can hold off on making that hard decision. But
Speaker 1: ultimately it's a boring answer, but I think it's going
Speaker 1: to be spread out amongst the three players here. I mean,
Speaker 1: a tariff as attacked and somebody pays it, so it'll
Speaker 1: probably end up being a combination of supplier, importer, and
Speaker 1: ultimately end consumer in those sectors.
Speaker 2: We had a big move today among small cap stocks.
Speaker 2: I think the Russell was up about two percent. How
Speaker 2: are you feeling about that end of the market, the
Speaker 2: small cap space.
Speaker 5: I'm not inclined to chase a small cap rally here.
Speaker 1: Obviously, you know, rate cat hype is going to be
Speaker 1: good for small caps.
Speaker 5: They have a lot more debt, a lot more variable
Speaker 5: rate debt in the books.
Speaker 1: But regardless of what the FED does in September, regardless
Speaker 1: of what the FED does in twenty twenty six, I
Speaker 1: think that because of the more structure inflation dynamics, because
Speaker 1: of the debt.
Speaker 5: And deficit, because of some issues.
Speaker 1: That are more structural in nature, I think that we're
Speaker 1: in a higher, for longer great environment, especially compared to
Speaker 1: the twenty tens. And I think that is just a
Speaker 1: really difficult operating environment for small caps. And then you
Speaker 1: think about what is driving the market today in this
Speaker 1: AI trade, and you know, it's not something that small
Speaker 1: caps can just tap into right away. They don't have
Speaker 1: the capital, they don't have the capacity. And then when
Speaker 1: these large caps and megacaps need something new, they go
Speaker 1: out and you know, they gobble up a smaller name
Speaker 1: that has what they need. So I think it's a
Speaker 1: really tough environment for small caps. I'm not inclined to
Speaker 1: chase the rally here, and if we have a nice
Speaker 1: small cap pop on some ray kind enthusiasm, I'm okay
Speaker 1: missing out on that and kind of hiding out in
Speaker 1: high quality large caps but you know, staying invested, staying
Speaker 1: risk on with kind of a cyclical tilt, but just
Speaker 1: not going to chase that small cap move.
Speaker 2: So we had yields down today across to curve the
Speaker 2: two and the ten, each by about five basis points.
Speaker 2: And with those lower yields, some dollar weakness crept in
Speaker 2: Bloomberg dollar spot was down about two tens to one percent.
Speaker 2: Is dollar weakness going to be the narrative going forward?
Speaker 2: You seem to be questioning the degree to which rates
Speaker 2: can move lower, But I'm wondering what all of this
Speaker 2: means for the dollar and then by extension, offshore markets.
Speaker 1: Yeah, I mean, we have anecdotally a lot of clients
Speaker 1: asking about the dollar for the first time in a while.
Speaker 1: I think the weakness is generally a good thing. We
Speaker 1: have a lot of multinationals here that will really benefit
Speaker 1: from a week dollar, especially as they try to digest,
Speaker 1: you know, other new input costs. Getting a break on
Speaker 1: currency exchange for foreign profits will be huge for international markets.
Speaker 1: I mean, you're seeing the result. Obviously these markets are
Speaker 1: doing well in local terms, but in dollar terms, the
Speaker 1: all world xus is lap in the field, and a
Speaker 1: big part of that is dollar weakness, so I don't
Speaker 1: know that it can continue into perpetuity. You know, interest
Speaker 1: rate differentials would still suggest, you know, the US has
Speaker 1: higher rates than a lot of our kind of contemporaries
Speaker 1: in developed markets. So I don't think the dollar is
Speaker 1: in free fall. I don't think that the quote unquote
Speaker 1: sell America trade is.
Speaker 5: All that real, you know.
Speaker 1: I do think there's maybe a little bit of diversification
Speaker 1: going on, but international investors still want to own the
Speaker 1: best companies, the safest assets, and they'll still reside in
Speaker 1: the US for now. So I think the dollar weakness
Speaker 1: has been a positive, but I don't think it's going
Speaker 1: to extend into perpetuity, and I don't think that it's
Speaker 1: something for investors to worry about too much.
Speaker 2: Ross will leave it there. It's always a pleasure. Thanks
Speaker 2: so very much. Ross Mayfield there. He is investment strategist
Speaker 2: at Baird Joining here on the Daybreak Asia podcast. Thanks
Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolos in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Prisoner and this is Bloomberg