1 00:00:00,160 --> 00:00:10,440 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:10,520 --> 00:00:13,720 Speaker 1: Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian 3 00:00:13,800 --> 00:00:16,640 Speaker 1: Curtis and myself for the stories, making news and moving 4 00:00:16,680 --> 00:00:19,560 Speaker 1: markets in the APAC region. You can subscribe to the 5 00:00:19,600 --> 00:00:23,080 Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio, 6 00:00:23,320 --> 00:00:28,000 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Gene Goldman, 7 00:00:28,040 --> 00:00:31,240 Speaker 1: he is the CIO at Setera Financial Group, joining us 8 00:00:31,280 --> 00:00:34,240 Speaker 1: here in New York and the Bloomberg Interactive Broker Studio. 9 00:00:34,720 --> 00:00:36,320 Speaker 1: Nice of you to drop by. Good to see you. 10 00:00:36,800 --> 00:00:38,599 Speaker 1: Let's talk a little bit about the FED because we've 11 00:00:38,640 --> 00:00:41,360 Speaker 1: got this meeting next week and today the reading on 12 00:00:41,520 --> 00:00:44,320 Speaker 1: CPI was a little above forecast. I think, from the 13 00:00:44,360 --> 00:00:48,000 Speaker 1: market's perspective, fifty basis points in terms of a cut 14 00:00:48,040 --> 00:00:50,400 Speaker 1: next week seems to be off the table, right twenty five? 15 00:00:50,520 --> 00:00:51,200 Speaker 1: Is that your sense? 16 00:00:51,320 --> 00:00:51,560 Speaker 2: Yeah? 17 00:00:51,560 --> 00:00:54,400 Speaker 3: Definitely. I think today's CPI number definitely. It came in 18 00:00:54,440 --> 00:00:56,720 Speaker 3: as expected, a little bit higher core. And that core 19 00:00:56,800 --> 00:00:59,360 Speaker 3: is so important because that core really cemmens the fact 20 00:00:59,400 --> 00:01:02,080 Speaker 3: the FED that's twenty five next week. Why the core 21 00:01:02,120 --> 00:01:04,960 Speaker 3: is so important. Owner's equivalent rent came a little bit higher, 22 00:01:04,959 --> 00:01:07,520 Speaker 3: but it's more broad based, so that worries us a 23 00:01:07,520 --> 00:01:10,360 Speaker 3: little bit about that pick up in inflation. But overall, 24 00:01:10,520 --> 00:01:12,320 Speaker 3: we think the Fed cuts twenty five for each the 25 00:01:12,400 --> 00:01:14,240 Speaker 3: next three months, we don't head to a recession. We 26 00:01:14,240 --> 00:01:16,959 Speaker 3: don't see a recession anytime soon, so we think that 27 00:01:17,080 --> 00:01:19,199 Speaker 3: twenty five twenty five to twenty five makes sense. Because 28 00:01:19,240 --> 00:01:21,600 Speaker 3: the payroll report, while it was a little weaker last week, 29 00:01:21,760 --> 00:01:24,000 Speaker 3: saw some strength on the ploument rate four point two percent, 30 00:01:24,080 --> 00:01:26,720 Speaker 3: and we also saw more people coming back into the workforce. 31 00:01:27,120 --> 00:01:29,920 Speaker 4: So you definitely heard some people saying, wow, this CPI 32 00:01:30,000 --> 00:01:32,480 Speaker 4: report was really not what we wanted to see. I 33 00:01:32,480 --> 00:01:34,920 Speaker 4: think you can actually argue just the opposite, And it 34 00:01:34,959 --> 00:01:37,360 Speaker 4: seems like the market picked up on this that a 35 00:01:37,480 --> 00:01:42,520 Speaker 4: really rapid fall in inflation would further stoke growth concerns, 36 00:01:42,600 --> 00:01:45,120 Speaker 4: and that has been the bigger concern of late than inflation. 37 00:01:45,560 --> 00:01:49,600 Speaker 4: So while a little higher inflation isn't great, it does 38 00:01:49,640 --> 00:01:54,000 Speaker 4: suggest that growth is intact. Thus let's rally yeah. 39 00:01:54,080 --> 00:01:55,960 Speaker 3: I think that's a great point. I think that's what 40 00:01:56,040 --> 00:01:58,200 Speaker 3: helped the markets reverse say, because I think the markets 41 00:01:58,280 --> 00:02:01,160 Speaker 3: and the investors realized the fact that if the Fed 42 00:02:01,280 --> 00:02:04,760 Speaker 3: does gradual rate cuts. This really says no policy errors 43 00:02:04,800 --> 00:02:06,720 Speaker 3: around the corner. This is just a FED loping to 44 00:02:06,760 --> 00:02:07,880 Speaker 3: prevent a potential recession. 45 00:02:08,040 --> 00:02:10,960 Speaker 1: Did it surprise you that leadership was coming from megacap 46 00:02:11,000 --> 00:02:11,560 Speaker 1: tech today? 47 00:02:12,000 --> 00:02:14,160 Speaker 3: I think I saw it. I mean not really, because 48 00:02:14,200 --> 00:02:16,360 Speaker 3: you saw in video in Vidia came out with some 49 00:02:16,400 --> 00:02:18,679 Speaker 3: really great news in terms of some of their products. 50 00:02:18,880 --> 00:02:21,040 Speaker 3: Saw that, you know. I do think when the FED 51 00:02:21,120 --> 00:02:23,639 Speaker 3: does cut rates next week, you'll see a continued sort 52 00:02:23,639 --> 00:02:26,600 Speaker 3: of pivot in terms of market breath widening, especially value, 53 00:02:26,680 --> 00:02:29,720 Speaker 3: especially small cap. But sales leadship didn't surprise me because 54 00:02:30,080 --> 00:02:31,680 Speaker 3: technology has been leading all year. 55 00:02:33,080 --> 00:02:35,280 Speaker 4: Yeah, this is a big day, But prior to this, 56 00:02:35,320 --> 00:02:37,359 Speaker 4: if you look back over the past month, you've had 57 00:02:37,440 --> 00:02:40,520 Speaker 4: utilities up four point two percent and the queue is 58 00:02:40,560 --> 00:02:43,919 Speaker 4: only up one point three percent. So it's really quite 59 00:02:44,040 --> 00:02:47,480 Speaker 4: stark in some ways. Maybe not great news that these 60 00:02:47,560 --> 00:02:49,560 Speaker 4: ultra defensives have rallied. 61 00:02:49,240 --> 00:02:50,880 Speaker 3: I think, And that's a great point in Some of 62 00:02:50,880 --> 00:02:54,680 Speaker 3: our favorite sectors right now include industrials, financials, and utilities. 63 00:02:54,840 --> 00:02:57,360 Speaker 3: Utility's second quarter earnings growth year year was up what 64 00:02:57,480 --> 00:02:59,800 Speaker 3: nineteen percent. Part of it is the fact that AI 65 00:02:59,880 --> 00:03:03,280 Speaker 3: is helping utilities and the fact that lower rates benefit 66 00:03:03,400 --> 00:03:04,760 Speaker 3: utilities by pretty wide margin. 67 00:03:05,120 --> 00:03:07,440 Speaker 1: Are you focused solely on what's happening in the US. 68 00:03:07,480 --> 00:03:09,200 Speaker 1: Are you looking anywhere offshore right now? 69 00:03:09,600 --> 00:03:11,640 Speaker 3: For our clients and our advisors, we look everywhere. We 70 00:03:11,680 --> 00:03:14,680 Speaker 3: are completely global, and what are you seeing globally out 71 00:03:14,800 --> 00:03:17,200 Speaker 3: relative to non US we were a little bit underweight. 72 00:03:17,280 --> 00:03:20,160 Speaker 3: We were thinking about boosting our non US position a 73 00:03:20,200 --> 00:03:22,400 Speaker 3: little bit later this year. But we do believe that 74 00:03:22,440 --> 00:03:24,760 Speaker 3: the dollar won't weaken as much as the markets at price, 75 00:03:24,800 --> 00:03:27,200 Speaker 3: and we do want to see a weeker dollar significantly 76 00:03:27,240 --> 00:03:29,880 Speaker 3: in order to go non US just from currency translation. 77 00:03:30,560 --> 00:03:33,480 Speaker 3: What we're watching carefully is Japan. Japan's bouncing back in 78 00:03:33,560 --> 00:03:37,120 Speaker 3: terms of inflation. Europe, you know, valuations are extremely cheap, 79 00:03:37,120 --> 00:03:39,760 Speaker 3: but what's the driver. Maybe an end to the Russia 80 00:03:39,880 --> 00:03:43,680 Speaker 3: Ukraine war that could be the possibility. Maybe less geopolitical risks, 81 00:03:43,880 --> 00:03:47,440 Speaker 3: but I think overall, you know, Europe, we're cautious right now. 82 00:03:47,600 --> 00:03:50,520 Speaker 3: The other are we're cautious overall is energy energy. No 83 00:03:50,560 --> 00:03:53,360 Speaker 3: matter who wins the election, we are worried about energy prices. 84 00:03:53,400 --> 00:03:56,520 Speaker 3: We think that let's say, if Harris wins, more regulations. 85 00:03:56,680 --> 00:03:59,560 Speaker 3: We think if Trump wins, you know, there'll be deregulation, 86 00:04:00,040 --> 00:04:01,560 Speaker 3: but there'll be more drilling. But where are we going 87 00:04:01,600 --> 00:04:03,920 Speaker 3: to put the oil? You know, record levels of production 88 00:04:04,000 --> 00:04:06,400 Speaker 3: and record levels of exports. We do think oil is 89 00:04:06,440 --> 00:04:08,280 Speaker 3: going down no matter who wins. 90 00:04:09,280 --> 00:04:13,200 Speaker 4: You talked about drivers and that, for instance Europe, it's 91 00:04:13,240 --> 00:04:15,680 Speaker 4: hard to exactly find one. One of the big drivers 92 00:04:15,720 --> 00:04:18,960 Speaker 4: globally has been AI, and we did have Jensen Wong 93 00:04:19,080 --> 00:04:23,440 Speaker 4: from Nvidia talking. He was very very complementary of TSMC. 94 00:04:24,360 --> 00:04:27,800 Speaker 4: He did answer that you know, they would have options 95 00:04:27,880 --> 00:04:30,400 Speaker 4: if there was ever an issue. But when you look 96 00:04:30,440 --> 00:04:34,520 Speaker 4: at AI, the question that Jensen didn't really answer all 97 00:04:34,560 --> 00:04:37,960 Speaker 4: that well was about whether or not we're seeing return 98 00:04:38,040 --> 00:04:40,360 Speaker 4: on investment. I mean, obviously, for in Nvidia there's a 99 00:04:40,360 --> 00:04:44,400 Speaker 4: return on investment. They're doing extraordinary numbers. But for those 100 00:04:44,440 --> 00:04:48,320 Speaker 4: that are buying these chips and trying to make that work, 101 00:04:48,600 --> 00:04:51,040 Speaker 4: it's still a question mark out there. I mean, what 102 00:04:51,080 --> 00:04:53,240 Speaker 4: do you see as the answer to that question? Will 103 00:04:53,279 --> 00:04:55,160 Speaker 4: these gains be monetized? 104 00:04:55,360 --> 00:04:57,640 Speaker 3: I think that's an amazing question. This reminds me of 105 00:04:57,680 --> 00:05:00,680 Speaker 3: the tech bubble. Tech bubble, everything was about the Internet 106 00:05:00,800 --> 00:05:01,360 Speaker 3: was the future. 107 00:05:01,800 --> 00:05:02,120 Speaker 1: AI. 108 00:05:02,320 --> 00:05:05,120 Speaker 3: Right now AI is the future. Fundamentals for AI look 109 00:05:05,279 --> 00:05:08,640 Speaker 3: amazing valuations. I am worried about valuations, so I'm not 110 00:05:08,680 --> 00:05:10,960 Speaker 3: sure we'll see a lot of the games. But survival 111 00:05:11,040 --> 00:05:13,000 Speaker 3: to fitness the better companies will likely win in the 112 00:05:13,040 --> 00:05:13,640 Speaker 3: AI space. 113 00:05:13,680 --> 00:05:16,080 Speaker 1: And we had news today that open AIS and talk 114 00:05:16,120 --> 00:05:18,520 Speaker 1: stories about six and a half billion. This would give 115 00:05:18,560 --> 00:05:21,200 Speaker 1: this funding round would produce a valuation of around one 116 00:05:21,279 --> 00:05:24,120 Speaker 1: hundred and fifty billion dollars for the company. Now we 117 00:05:24,160 --> 00:05:26,800 Speaker 1: know Microsoft has a big part of that story. When 118 00:05:26,800 --> 00:05:29,200 Speaker 1: you look at a name like Microsoft, are you're interested? 119 00:05:29,880 --> 00:05:32,359 Speaker 3: We and I apologize for laughing before, but you know, 120 00:05:32,440 --> 00:05:35,480 Speaker 3: we are diversifviers. We like to be diversified amongst sectors. 121 00:05:35,480 --> 00:05:37,040 Speaker 3: So there are some opportunities, you know, And I really 122 00:05:37,040 --> 00:05:40,080 Speaker 3: can't talk about individual company names, but we do like technology. 123 00:05:40,120 --> 00:05:43,520 Speaker 3: We do like some of the cheaper value technology companies, 124 00:05:43,640 --> 00:05:47,960 Speaker 3: a little bit in sort of the cybersecurity, a little 125 00:05:48,000 --> 00:05:50,719 Speaker 3: bit in software. But again, can't really talk about individual 126 00:05:50,760 --> 00:05:51,320 Speaker 3: company names. 127 00:05:52,640 --> 00:05:55,520 Speaker 4: Let's talk a little bit about you know, what could 128 00:05:55,520 --> 00:05:58,320 Speaker 4: go wrong here? Because it feels it feels kind of 129 00:05:59,279 --> 00:06:01,839 Speaker 4: comfortable at the moment, and that you've got the beginning 130 00:06:01,839 --> 00:06:05,599 Speaker 4: of a fed rate cutting cycle and economy seems to 131 00:06:05,600 --> 00:06:07,880 Speaker 4: be kind of hanging in there. Would you say that 132 00:06:08,120 --> 00:06:10,360 Speaker 4: arise in unemployment is the number one issue or something 133 00:06:10,440 --> 00:06:11,560 Speaker 4: else like geopolitics. 134 00:06:12,040 --> 00:06:13,600 Speaker 3: I think you know, and that ties into our theme 135 00:06:13,960 --> 00:06:16,200 Speaker 3: for the next foreseeable future or something that we talked 136 00:06:16,240 --> 00:06:18,080 Speaker 3: about last time I was on your show. We do 137 00:06:18,160 --> 00:06:20,320 Speaker 3: think a pullback at eight to ten percent pullback in 138 00:06:20,360 --> 00:06:22,720 Speaker 3: the stock market is probable, it's likely, and you can 139 00:06:22,720 --> 00:06:24,400 Speaker 3: point to a few reasons. I mean, I think you 140 00:06:24,440 --> 00:06:26,440 Speaker 3: can look at what we call the triple whammy. You 141 00:06:26,480 --> 00:06:29,760 Speaker 3: have high valuations, high expectations, high concentration in the US 142 00:06:29,800 --> 00:06:32,120 Speaker 3: stock market. You also have a little bit of disappointment 143 00:06:32,160 --> 00:06:34,800 Speaker 3: around the FED only cutting maybe twenty five next week. 144 00:06:35,040 --> 00:06:39,080 Speaker 3: We also have election volatility. Take all this together, September seasonality, 145 00:06:39,120 --> 00:06:41,719 Speaker 3: and you take the fact that China's growth is slowing. 146 00:06:41,720 --> 00:06:44,560 Speaker 3: You saw kaisheen and the Chinese PMIS last week come 147 00:06:44,600 --> 00:06:47,080 Speaker 3: in well below expectations. All this together concerns. 148 00:06:47,200 --> 00:06:49,320 Speaker 1: So how much cash are you sitting on right now 149 00:06:49,360 --> 00:06:52,280 Speaker 1: as a percentage of your overall portfolio. 150 00:06:52,320 --> 00:06:54,680 Speaker 3: Yeah, we're not market timers. We're not market timing at all. 151 00:06:54,720 --> 00:06:57,640 Speaker 3: So what we've done is within our portfolios, we've pivoted 152 00:06:57,839 --> 00:07:01,040 Speaker 3: away from traditional equity exposure, reduce some of that much 153 00:07:01,080 --> 00:07:04,719 Speaker 3: more into liquid alternatives like multi manager alternatives, basically those 154 00:07:04,720 --> 00:07:06,800 Speaker 3: investments that zig when the rest of the market is zagging. 155 00:07:06,960 --> 00:07:10,120 Speaker 3: We believe diversification is the most amazing strategy on the 156 00:07:10,160 --> 00:07:12,400 Speaker 3: go forward basis for your clients and our advisors. 157 00:07:12,840 --> 00:07:16,119 Speaker 4: And we talked to clients what are they most concerned about. 158 00:07:16,640 --> 00:07:18,680 Speaker 3: I think clients are concerned about the election, and we 159 00:07:18,800 --> 00:07:21,440 Speaker 3: try to tell our clients listen, the election. If you 160 00:07:21,440 --> 00:07:23,960 Speaker 3: look at the last twenty election years, the stock market's 161 00:07:24,040 --> 00:07:26,480 Speaker 3: up eighteen to the last twenty years, averaging about ten 162 00:07:26,520 --> 00:07:29,640 Speaker 3: point five percent. The only down years were two thousand 163 00:07:29,640 --> 00:07:32,320 Speaker 3: and eight Great Financial Crisis and then two thousand during 164 00:07:32,440 --> 00:07:34,120 Speaker 3: Y two K when the three of us were wearing 165 00:07:34,440 --> 00:07:37,320 Speaker 3: tinfoil hats and protecting ourselves from Y two K. 166 00:07:37,440 --> 00:07:40,200 Speaker 1: So not just a presidential election, what about the make 167 00:07:40,280 --> 00:07:42,640 Speaker 1: up in Congress? How do you expect that to shift 168 00:07:42,640 --> 00:07:43,880 Speaker 1: and what does it mean for the market. 169 00:07:44,000 --> 00:07:46,000 Speaker 3: Yeah, I think our base case today right now is 170 00:07:46,280 --> 00:07:49,840 Speaker 3: from Congress's standpoint. We do think the Democrats take the House. 171 00:07:49,920 --> 00:07:52,400 Speaker 3: I think they only need four seats. I think with Harris, 172 00:07:52,880 --> 00:07:55,720 Speaker 3: you know, potentially winning the election. I think with Harris 173 00:07:55,800 --> 00:07:58,320 Speaker 3: you probably get five seats coming over three from New 174 00:07:58,400 --> 00:08:01,760 Speaker 3: York to from California. So I do think the Democrats 175 00:08:01,800 --> 00:08:04,080 Speaker 3: take the House. The Senate is tough because you've mansioned 176 00:08:04,080 --> 00:08:08,120 Speaker 3: retiring you have, so West Virginia probably goes Republican, Montana 177 00:08:08,120 --> 00:08:11,280 Speaker 3: probably goes Republican. This puts the scent more likely on 178 00:08:11,320 --> 00:08:14,520 Speaker 3: the Republican side either way. Whoever wins the presidential election 179 00:08:14,560 --> 00:08:17,560 Speaker 3: in the Harris or Trump, we think you will have gridlock, which, 180 00:08:17,680 --> 00:08:20,000 Speaker 3: as we all know, means gridlock means nothing. It's done. 181 00:08:20,280 --> 00:08:23,440 Speaker 1: Jane, thank you so much for stopping by joining us 182 00:08:23,440 --> 00:08:25,760 Speaker 1: for the good conversation we just had with Jane Goldman, 183 00:08:25,880 --> 00:08:28,080 Speaker 1: CIO of Satero Financial Group. 184 00:08:34,200 --> 00:08:37,000 Speaker 4: Joining us now on the program is Lydia Bussor, senior 185 00:08:37,000 --> 00:08:40,880 Speaker 4: economist at ey Lydia thank you for joining us. The 186 00:08:40,960 --> 00:08:43,680 Speaker 4: latest data that we've seen in the United States, including 187 00:08:43,720 --> 00:08:47,040 Speaker 4: the CPI report we just reported on, does that tell 188 00:08:47,080 --> 00:08:50,440 Speaker 4: a story to you that is a softening economy but 189 00:08:50,559 --> 00:08:51,760 Speaker 4: not a collapsing one. 190 00:08:53,080 --> 00:08:57,839 Speaker 2: Yeah. So the data this morning on the CPI really 191 00:08:57,920 --> 00:09:01,960 Speaker 2: showed that the disinflation trend continue. Use we saw accelerating 192 00:09:02,000 --> 00:09:07,480 Speaker 2: momentum in headline CPI. This inflation we're looking at headline 193 00:09:07,480 --> 00:09:11,200 Speaker 2: CPI now at two point five percent year every year. 194 00:09:11,600 --> 00:09:14,160 Speaker 2: We also saw at the same time some stickiness in 195 00:09:14,240 --> 00:09:19,520 Speaker 2: services prices, which kept core inflation from moving lower. But overall, 196 00:09:19,720 --> 00:09:23,360 Speaker 2: I think this report shows that inflation continues to move 197 00:09:23,400 --> 00:09:25,679 Speaker 2: in the right direction and that there is room for 198 00:09:25,720 --> 00:09:28,760 Speaker 2: the FEDNAW to recalibrate policy a gradual move. 199 00:09:28,800 --> 00:09:30,480 Speaker 1: I think we could agree with that. When it comes 200 00:09:30,480 --> 00:09:32,360 Speaker 1: to cutting infrast rates, there had been a lot of 201 00:09:32,400 --> 00:09:35,800 Speaker 1: speculation that maybe we would see a fifty basis point 202 00:09:35,840 --> 00:09:38,640 Speaker 1: cut next week. The market seems to be settling in 203 00:09:39,200 --> 00:09:41,840 Speaker 1: to the notion that that rate cut the first will 204 00:09:41,880 --> 00:09:43,480 Speaker 1: be twenty five. Would you agree with that? 205 00:09:44,240 --> 00:09:46,840 Speaker 2: Yeah, we're in the camp that twenty five business point 206 00:09:46,880 --> 00:09:50,439 Speaker 2: reycut is more likely. There are some Fed officials, including 207 00:09:50,480 --> 00:09:55,000 Speaker 2: fetchair Power, that looked to be open to larger recuts, 208 00:09:55,040 --> 00:09:58,959 Speaker 2: but overall, it seems like most FED official are more 209 00:09:59,040 --> 00:10:01,480 Speaker 2: in favor of a gradual approach when it comes to 210 00:10:01,520 --> 00:10:04,080 Speaker 2: that easing cycle. And when you look at the latest 211 00:10:04,120 --> 00:10:07,079 Speaker 2: batch of data, the jobs report showed that the label 212 00:10:07,120 --> 00:10:10,679 Speaker 2: market is softening, but it's not collapsing. We had the 213 00:10:10,720 --> 00:10:15,480 Speaker 2: unemployment rate edging lower, we saw hours work rebounding and 214 00:10:15,520 --> 00:10:18,440 Speaker 2: at the same time, the data this morning also showed 215 00:10:18,480 --> 00:10:22,160 Speaker 2: that this inflation remain on track, but that they are 216 00:10:22,200 --> 00:10:26,520 Speaker 2: still some stickiness that some FED officials that are perhaps 217 00:10:26,600 --> 00:10:29,880 Speaker 2: more in favor of a gradual approach will look at 218 00:10:30,240 --> 00:10:33,319 Speaker 2: and argue for that twenty five business point cut. 219 00:10:34,040 --> 00:10:36,240 Speaker 4: I think officials would not admit it, but I think 220 00:10:36,559 --> 00:10:38,880 Speaker 4: they would see this as a gift, this latest data, 221 00:10:38,960 --> 00:10:41,800 Speaker 4: because they want to be gradualist in nature. Even when 222 00:10:41,840 --> 00:10:44,679 Speaker 4: they knew they had made a mistake and they decided 223 00:10:44,720 --> 00:10:47,559 Speaker 4: to raise interest rates, they went twenty five and then 224 00:10:47,600 --> 00:10:51,600 Speaker 4: fifty and then four seventy fives. So for the fit, 225 00:10:51,640 --> 00:10:54,360 Speaker 4: it's probably a lot more comfortable to just do twenty five. 226 00:10:54,440 --> 00:10:57,800 Speaker 4: And actually it seems like looking at the market performance today, 227 00:10:57,840 --> 00:10:59,520 Speaker 4: they feel pretty comfortable with that as well. 228 00:11:00,600 --> 00:11:03,960 Speaker 2: Yeah, I think the key here is really the performance 229 00:11:03,960 --> 00:11:06,800 Speaker 2: of the economy and what type of labor markets softening 230 00:11:06,840 --> 00:11:09,760 Speaker 2: we're seeing today. When you look at you know, broad 231 00:11:09,800 --> 00:11:13,200 Speaker 2: economic conditions, you look at overall economic data, the US 232 00:11:13,240 --> 00:11:16,680 Speaker 2: economy is still moving forward at a decent pace. We're 233 00:11:16,679 --> 00:11:19,960 Speaker 2: looking at growth around two percent, slightly below two percent 234 00:11:20,480 --> 00:11:23,280 Speaker 2: in the third quarter of the year. The label market 235 00:11:23,960 --> 00:11:28,079 Speaker 2: is softening, but there are no signs of broad based layoffs. 236 00:11:28,080 --> 00:11:30,560 Speaker 2: So in this environment, I think the FED is going 237 00:11:30,600 --> 00:11:34,000 Speaker 2: to remain cautious and go with you know, twenty five 238 00:11:34,040 --> 00:11:36,560 Speaker 2: basis point recut in September and a steady pace of 239 00:11:37,160 --> 00:11:39,480 Speaker 2: decreases heading into twenty twenty five. 240 00:11:39,880 --> 00:11:42,720 Speaker 1: We were on the air last night with a presidential debate. 241 00:11:42,760 --> 00:11:45,160 Speaker 1: Do you have a sense of what this election may 242 00:11:45,320 --> 00:11:50,760 Speaker 1: mean for the American economy under two possible and very 243 00:11:50,800 --> 00:11:52,160 Speaker 1: different scenarios. 244 00:11:52,880 --> 00:11:53,040 Speaker 5: Yeah. 245 00:11:53,040 --> 00:11:55,440 Speaker 2: I mean, when we look at the election on the 246 00:11:55,440 --> 00:11:58,480 Speaker 2: post election landscape, I think there are two key themes 247 00:11:58,480 --> 00:12:00,720 Speaker 2: that are going to be very important or the outlook. 248 00:12:01,240 --> 00:12:04,040 Speaker 2: The first one is what happens on the fiscal policy 249 00:12:04,080 --> 00:12:06,800 Speaker 2: front and the tax policy front, in particular with the 250 00:12:06,800 --> 00:12:10,280 Speaker 2: expiration of the Tax Cut and Jobs Act. We've you know, 251 00:12:10,360 --> 00:12:13,120 Speaker 2: run some estimates and we could see a significant drag 252 00:12:13,760 --> 00:12:15,439 Speaker 2: if nothing is done. So there's going to be a 253 00:12:15,480 --> 00:12:19,760 Speaker 2: lot of pressure to do something on the tax policy front. 254 00:12:20,080 --> 00:12:22,440 Speaker 2: And then on the trade policy front, we have this 255 00:12:22,960 --> 00:12:26,960 Speaker 2: potential for renewed tariffs and an escalation in tariffs and 256 00:12:27,040 --> 00:12:31,880 Speaker 2: so you know, potentially hurting the economy and also leading 257 00:12:31,920 --> 00:12:34,840 Speaker 2: to a renewed inflationary impulse. So there is a lot 258 00:12:34,880 --> 00:12:38,200 Speaker 2: of uncertainty on the policy front, and that's also one 259 00:12:38,200 --> 00:12:40,760 Speaker 2: more reason why the Fed needs to create some room 260 00:12:40,840 --> 00:12:43,240 Speaker 2: here and lower interest rates to be in a better 261 00:12:43,280 --> 00:12:45,000 Speaker 2: position to address these risks. 262 00:12:45,559 --> 00:12:47,400 Speaker 4: It does seem like we might see a little bit 263 00:12:47,440 --> 00:12:50,320 Speaker 4: of a battle between monetary and fiscal policy in the 264 00:12:50,360 --> 00:12:53,080 Speaker 4: next year, because you know, if you think about it, 265 00:12:53,120 --> 00:12:55,719 Speaker 4: you could almost imagine a scenario where the Fed is 266 00:12:55,760 --> 00:12:59,880 Speaker 4: cutting interest rates, but the spending is just so dramatic 267 00:13:00,400 --> 00:13:03,000 Speaker 4: that yields start to edge higher, And I want to 268 00:13:03,360 --> 00:13:06,440 Speaker 4: what sort of story that tells investors. 269 00:13:07,360 --> 00:13:09,920 Speaker 2: Yeah, there's going to be an interplay, an interesting interplay 270 00:13:09,920 --> 00:13:14,560 Speaker 2: between monetary policy and fiscal policy. Our base case is 271 00:13:14,600 --> 00:13:17,640 Speaker 2: that the Federal Reserve will lower interest rates by seventy 272 00:13:17,679 --> 00:13:20,640 Speaker 2: five bases point this year and will lower interest rates 273 00:13:20,679 --> 00:13:24,000 Speaker 2: by another one hundred and fifty bases point next year. 274 00:13:24,520 --> 00:13:28,480 Speaker 2: But that's under the assumption that the economy continues to 275 00:13:28,520 --> 00:13:32,120 Speaker 2: gradually cool. We see below trend growth heading into twenty 276 00:13:32,160 --> 00:13:35,920 Speaker 2: twenty five, and that's also under the assumption that inflation 277 00:13:36,760 --> 00:13:40,720 Speaker 2: gradually reverts back towards that two percent target, and that 278 00:13:40,800 --> 00:13:45,080 Speaker 2: the label market also continues to rebalance in an orderly manner. 279 00:13:45,520 --> 00:13:49,679 Speaker 1: If memory serves. I think the latest Atlanta Fed GDP 280 00:13:49,880 --> 00:13:54,040 Speaker 1: now forecast was around two percent growth. Is that pretty 281 00:13:54,120 --> 00:13:56,880 Speaker 1: much the way you see the American economy expanding right now? 282 00:13:56,880 --> 00:13:58,120 Speaker 1: Two percent annualized. 283 00:13:59,000 --> 00:14:03,200 Speaker 2: I mean looking at they we also have our tracker 284 00:14:03,320 --> 00:14:07,079 Speaker 2: right now at around one point eight percent. Consumer spending 285 00:14:07,280 --> 00:14:09,680 Speaker 2: is shaping up to be quite solid in the third 286 00:14:09,760 --> 00:14:14,560 Speaker 2: quarter because we have great momentum heading into the third quarter. 287 00:14:15,200 --> 00:14:17,600 Speaker 2: But you know, when you look at the overall picture, 288 00:14:18,000 --> 00:14:21,640 Speaker 2: what we're seeing is consumer and businesses becoming more discerning 289 00:14:22,120 --> 00:14:25,440 Speaker 2: with your spending decisions because we're still in an economy 290 00:14:25,440 --> 00:14:28,760 Speaker 2: where policy is quite restrictive. We still have interest rates 291 00:14:28,800 --> 00:14:31,360 Speaker 2: above five percent, and it's going to take some time 292 00:14:31,440 --> 00:14:34,560 Speaker 2: to go back to a neutral stance. And so that's 293 00:14:34,640 --> 00:14:37,400 Speaker 2: really the reason why I think BELU trend growth is 294 00:14:37,440 --> 00:14:40,560 Speaker 2: the base case scenario at least for the next few quarters. 295 00:14:41,080 --> 00:14:44,200 Speaker 4: So Lydia, where do you actually see the neutral rate 296 00:14:44,240 --> 00:14:45,120 Speaker 4: at the moment. 297 00:14:46,280 --> 00:14:49,120 Speaker 2: So we have the neutral rate, you know, slightly below 298 00:14:49,120 --> 00:14:53,680 Speaker 2: three percent, so we expect interest rates to move gradually lower. 299 00:14:54,160 --> 00:14:56,880 Speaker 2: There is a wide range of estimates around the neutral rate, 300 00:14:56,960 --> 00:15:00,440 Speaker 2: as you know, but I think what's really clear today 301 00:15:01,000 --> 00:15:04,560 Speaker 2: is that we're still way above that, and so there 302 00:15:04,600 --> 00:15:07,520 Speaker 2: is always this risk that you know, it will take 303 00:15:07,640 --> 00:15:10,120 Speaker 2: too much time to get there, and that we're still 304 00:15:10,120 --> 00:15:13,440 Speaker 2: going to see a lot of downward pressure on the economy. 305 00:15:13,680 --> 00:15:15,480 Speaker 1: Well, if you look at the bond market right now, 306 00:15:15,520 --> 00:15:20,200 Speaker 1: it's amazing because this spread between the two and the 307 00:15:20,240 --> 00:15:22,480 Speaker 1: ten year is less than a full basis point. We 308 00:15:22,600 --> 00:15:25,280 Speaker 1: essentially have a flat yield curve right now. When you 309 00:15:25,360 --> 00:15:28,560 Speaker 1: look at that and what the market is beginning to expect, 310 00:15:28,720 --> 00:15:29,760 Speaker 1: how do you understand it? 311 00:15:31,040 --> 00:15:33,480 Speaker 2: Well, you know, it's the we are today in this 312 00:15:33,680 --> 00:15:37,360 Speaker 2: environment where the Fed is going to get this easy 313 00:15:37,440 --> 00:15:40,080 Speaker 2: cycle going. There is a lot of recuts currently priced 314 00:15:40,080 --> 00:15:42,800 Speaker 2: in by the market, and we think that the Fed 315 00:15:43,240 --> 00:15:46,960 Speaker 2: is likely to deliver on some of these dcuts because 316 00:15:47,520 --> 00:15:49,760 Speaker 2: there are you know, attuned to this risk that the 317 00:15:49,800 --> 00:15:54,440 Speaker 2: label market's softening could turn into something more significant, and 318 00:15:54,480 --> 00:15:58,000 Speaker 2: because they also now are acknowledging the fact that the 319 00:15:58,040 --> 00:16:01,800 Speaker 2: inflation the website bass to the inflation outlook have been receding. 320 00:16:02,400 --> 00:16:05,240 Speaker 2: So if you put all of these together, you have, 321 00:16:05,360 --> 00:16:08,320 Speaker 2: you know, an outlook where the Fed is likely to 322 00:16:08,360 --> 00:16:13,360 Speaker 2: be moving interest rates. You know on this is going 323 00:16:13,400 --> 00:16:16,080 Speaker 2: to stay on this easy cycle until it gets to 324 00:16:16,120 --> 00:16:18,760 Speaker 2: that neutral rate, which we think will happen by the 325 00:16:18,840 --> 00:16:20,840 Speaker 2: end of twenty twenty five early twenty twenty six. 326 00:16:21,360 --> 00:16:23,640 Speaker 4: So, for at the moment, is the US economy the 327 00:16:23,680 --> 00:16:25,440 Speaker 4: sort of shining light at the top of the hill 328 00:16:25,680 --> 00:16:25,880 Speaker 4: or no. 329 00:16:27,200 --> 00:16:29,760 Speaker 2: Well, if you look at some of the data you're 330 00:16:29,800 --> 00:16:33,920 Speaker 2: getting out of Europe and Asia, we're still seeing a 331 00:16:33,920 --> 00:16:38,040 Speaker 2: lot of resilience in the US economy, but what we're 332 00:16:38,160 --> 00:16:42,200 Speaker 2: likely to see going forward is a softening in economic conditions. 333 00:16:42,520 --> 00:16:42,880 Speaker 5: Yeah. 334 00:16:43,080 --> 00:16:47,240 Speaker 4: Yeah, it's a really interesting point. Lydia, thank you so 335 00:16:47,360 --> 00:16:57,680 Speaker 4: much for joining us. Lydia Bassour, senior economist at ey Well, 336 00:16:57,720 --> 00:17:00,920 Speaker 4: a Bank of Japan board member, says the boj will 337 00:17:01,000 --> 00:17:05,600 Speaker 4: adjust policy it provided the economy performs in line with projections. 338 00:17:06,200 --> 00:17:09,640 Speaker 4: We welcome Paul Jackson to the air waves Bloomberg Economy 339 00:17:09,720 --> 00:17:12,439 Speaker 4: Editor to take a closer look at what we might expect, 340 00:17:12,520 --> 00:17:17,000 Speaker 4: Paul bog officials seem a little nervous here about the 341 00:17:17,080 --> 00:17:20,359 Speaker 4: volatility that was caused by the rate hike in July. 342 00:17:20,680 --> 00:17:22,760 Speaker 4: So let me go out on a limit and say 343 00:17:23,240 --> 00:17:25,399 Speaker 4: not likely they will make a move this month. 344 00:17:26,560 --> 00:17:29,320 Speaker 5: Yeah, I think you're right there. I think it's a 345 00:17:29,359 --> 00:17:34,000 Speaker 5: time to wait and watch. Given the extreme volatility we 346 00:17:34,040 --> 00:17:38,080 Speaker 5: saw after that July rate hike. Remember this is only 347 00:17:38,080 --> 00:17:41,240 Speaker 5: the second time the Bank of Japan has raised rates 348 00:17:41,760 --> 00:17:46,680 Speaker 5: in the last seventeen years, so we saw in very 349 00:17:47,080 --> 00:17:51,160 Speaker 5: sharp volatility afterwards, the nick K stock index and its 350 00:17:51,160 --> 00:17:55,840 Speaker 5: biggest drop on record following the rate hike. Of course, 351 00:17:56,240 --> 00:17:59,320 Speaker 5: one of the key factors was also US data, which 352 00:17:59,600 --> 00:18:03,639 Speaker 5: fed in fed into the narrative for the Federal reserve 353 00:18:03,720 --> 00:18:06,840 Speaker 5: and rate cuts, So it wasn't just the BOJ rate 354 00:18:06,920 --> 00:18:10,320 Speaker 5: hike that caused that volatility. But still I think there's 355 00:18:10,480 --> 00:18:14,639 Speaker 5: enough reason there for the central Bank in Japan to 356 00:18:14,880 --> 00:18:18,880 Speaker 5: want to just wait and see look at market stability, 357 00:18:19,000 --> 00:18:23,159 Speaker 5: and also to look at the impact of that second 358 00:18:23,280 --> 00:18:27,760 Speaker 5: rate hike in July. So I think the widely held 359 00:18:27,880 --> 00:18:31,320 Speaker 5: consensus for next week is there's going to be no 360 00:18:31,480 --> 00:18:35,439 Speaker 5: move from the Bank of Japan, but that does not 361 00:18:35,800 --> 00:18:40,040 Speaker 5: mean rate hikes aren't in the pipeline coming ahead. 362 00:18:40,280 --> 00:18:43,639 Speaker 1: The enormous volatility with the unwinding of that yen carry 363 00:18:43,680 --> 00:18:46,679 Speaker 1: trade as well, which then brings to my mind the 364 00:18:46,760 --> 00:18:50,080 Speaker 1: concern that the BOJ may have when it watches the 365 00:18:50,119 --> 00:18:53,199 Speaker 1: currency perform in markets. Is there a kind of a 366 00:18:53,240 --> 00:18:56,119 Speaker 1: comfort zone that the BOJ has do you think for 367 00:18:56,160 --> 00:18:57,399 Speaker 1: the en visa e the dollar? 368 00:18:58,600 --> 00:19:02,159 Speaker 5: Ah, well, that's that's a very interesting question. Of course, 369 00:19:02,440 --> 00:19:06,200 Speaker 5: the BOJ would argue that it is not targeting any 370 00:19:06,600 --> 00:19:11,360 Speaker 5: currency levels. But let's face it. You know, the yen 371 00:19:11,680 --> 00:19:17,520 Speaker 5: has been extremely weak against the dollar, and while that 372 00:19:17,600 --> 00:19:21,359 Speaker 5: really helps its global companies, its companies with a lot 373 00:19:21,359 --> 00:19:25,080 Speaker 5: of exports, it inflates the earnings for those companies. For 374 00:19:25,240 --> 00:19:30,280 Speaker 5: domestic operations, it's the opposite. It raises all the costs, 375 00:19:30,280 --> 00:19:35,359 Speaker 5: puts pressure on them, and it also makes the power 376 00:19:35,359 --> 00:19:38,960 Speaker 5: of the end for the average Japanese consumer, especially for 377 00:19:39,680 --> 00:19:44,520 Speaker 5: thinking of going abroad, much much weaker. So in terms 378 00:19:44,560 --> 00:19:48,120 Speaker 5: of levels, I'd say one sixty is definitely two weak. 379 00:19:49,040 --> 00:19:52,200 Speaker 5: We see a lot of talk about the en getting 380 00:19:52,200 --> 00:19:55,840 Speaker 5: too strong when it's you know, between one hundred, one 381 00:19:55,880 --> 00:19:57,919 Speaker 5: hundred and ten, So we're a long way off that, 382 00:19:58,480 --> 00:20:02,160 Speaker 5: but for sure the narrative is going to change towards 383 00:20:02,200 --> 00:20:04,840 Speaker 5: is the end strengthening too much we get past one twenty? 384 00:20:04,880 --> 00:20:07,240 Speaker 4: I would say it's hard to argue with the math. 385 00:20:07,280 --> 00:20:10,000 Speaker 4: At the moment, it looks like US rates are heading down, 386 00:20:10,680 --> 00:20:14,360 Speaker 4: that Japanese rates are heading up, and when you put 387 00:20:14,400 --> 00:20:17,280 Speaker 4: that all together, it would seem to argue for a 388 00:20:17,359 --> 00:20:21,400 Speaker 4: stronger yen. The pace is what matters, I suppose the most. 389 00:20:21,480 --> 00:20:24,679 Speaker 4: The pace was just too abrupt when we had the 390 00:20:24,760 --> 00:20:28,639 Speaker 4: July rate hike, So some modulation there, But the end 391 00:20:28,680 --> 00:20:30,280 Speaker 4: will get stronger from here, right. 392 00:20:31,280 --> 00:20:33,960 Speaker 5: I think the end is going to get stronger. But 393 00:20:34,160 --> 00:20:38,800 Speaker 5: I think we should be wary of thinking that the 394 00:20:38,840 --> 00:20:41,880 Speaker 5: Bank of Japan has seen that volatility and is now 395 00:20:41,960 --> 00:20:45,960 Speaker 5: scared off hiking again. I think they've been very consistent 396 00:20:46,000 --> 00:20:49,840 Speaker 5: in the messaging that no, no, If forecasts are met 397 00:20:50,200 --> 00:20:54,920 Speaker 5: as we hope, then we are going to continue hiking. 398 00:20:54,960 --> 00:20:55,160 Speaker 2: Now. 399 00:20:55,200 --> 00:20:56,480 Speaker 5: Is it going to be every quarter? 400 00:20:56,920 --> 00:20:57,080 Speaker 2: No? 401 00:20:57,400 --> 00:20:59,879 Speaker 5: I don't think so. But I think the consensus is 402 00:21:00,080 --> 00:21:04,520 Speaker 5: that December or January is probably the timing for the 403 00:21:04,560 --> 00:21:07,679 Speaker 5: next rate hike. And I don't forget. We had a 404 00:21:07,680 --> 00:21:12,720 Speaker 5: story in the last few days with people familiar and 405 00:21:13,040 --> 00:21:17,119 Speaker 5: their views that BOG officials see this idea that a 406 00:21:17,200 --> 00:21:21,439 Speaker 5: nominal interest rate about one percent is probably around the 407 00:21:21,560 --> 00:21:24,080 Speaker 5: minimum level for the neutral rate. So if you think 408 00:21:24,119 --> 00:21:27,720 Speaker 5: of it in those terms, that's three quarter percentage rate 409 00:21:27,800 --> 00:21:30,640 Speaker 5: hikes that could be in the pipeline. 410 00:21:30,840 --> 00:21:33,560 Speaker 1: Paul, take a step back, help us understand the macro 411 00:21:33,800 --> 00:21:38,720 Speaker 1: view of the Japanese economy right now, economic growth and inflation, 412 00:21:38,840 --> 00:21:40,840 Speaker 1: how are they performing well? 413 00:21:40,880 --> 00:21:45,240 Speaker 5: The economy has been sputtering. We've been lacking a consumption 414 00:21:45,280 --> 00:21:49,600 Speaker 5: in real terms, and that's really down to inflation. Don't forget, 415 00:21:49,680 --> 00:21:52,520 Speaker 5: Japan has not been used to inflation. It's had decades 416 00:21:52,560 --> 00:21:56,280 Speaker 5: of deflation. The goal in Japan has been to create inflation, 417 00:21:56,440 --> 00:22:01,000 Speaker 5: not crush it. So the optics a very different in Japan. 418 00:22:01,320 --> 00:22:04,560 Speaker 5: Inflation at the moment overall is at two point eight percent, 419 00:22:05,119 --> 00:22:09,200 Speaker 5: and that's been really weighing on consumer spending. So really 420 00:22:09,280 --> 00:22:12,439 Speaker 5: we're looking to see if the economy is kind of 421 00:22:12,560 --> 00:22:16,280 Speaker 5: engaging gears and is now moving towards growth with a 422 00:22:16,400 --> 00:22:19,879 Speaker 5: positive inflation cycle that allows more rate hikes. 423 00:22:20,320 --> 00:22:23,400 Speaker 4: Well, and wage data is very important. How have wages 424 00:22:23,480 --> 00:22:25,240 Speaker 4: been moving well? 425 00:22:25,280 --> 00:22:27,960 Speaker 5: I think we're seeing some encouraging signs in the wage 426 00:22:28,040 --> 00:22:31,480 Speaker 5: data picking up and that hopefully should feed in to 427 00:22:31,960 --> 00:22:36,360 Speaker 5: stronger consumer spending over the coming quarters. Don't forget, We've 428 00:22:36,359 --> 00:22:39,359 Speaker 5: got another key factor that's going to weigh in on 429 00:22:39,400 --> 00:22:43,000 Speaker 5: the boj's calculus, and that is we've got a leadership 430 00:22:43,000 --> 00:22:46,320 Speaker 5: election for the country at the moment taking place, and 431 00:22:46,560 --> 00:22:51,760 Speaker 5: there's a strong possibility also of a Japanese general election 432 00:22:51,920 --> 00:22:55,560 Speaker 5: this fall, so there's another reason why maybe the boj 433 00:22:55,640 --> 00:22:57,840 Speaker 5: would wait until the end of the year or early 434 00:22:57,880 --> 00:22:58,360 Speaker 5: next year. 435 00:22:58,400 --> 00:23:00,679 Speaker 1: Paul, you were talking a moment ago about the extent 436 00:23:00,720 --> 00:23:04,440 Speaker 1: to which a week currency benefits Japanese exporters. How is 437 00:23:04,640 --> 00:23:06,520 Speaker 1: Japan Inc. Performing these days? 438 00:23:07,880 --> 00:23:11,800 Speaker 5: Well, I think we go back to that point that 439 00:23:12,000 --> 00:23:17,399 Speaker 5: those companies with the presence abroad overseas, they've got this 440 00:23:17,520 --> 00:23:23,000 Speaker 5: big currency inflation factor that bumps up their earnings. So 441 00:23:23,200 --> 00:23:27,240 Speaker 5: they're doing well. I mean they've got record profits. Of course, 442 00:23:27,960 --> 00:23:32,080 Speaker 5: they will be tempered as the yen gain strength. So 443 00:23:32,560 --> 00:23:35,320 Speaker 5: I think it's really a case of will the currency 444 00:23:35,359 --> 00:23:38,680 Speaker 5: get back to a kind of sweeter spot that balances 445 00:23:39,400 --> 00:23:43,040 Speaker 5: the growth of the firms with the global presence and 446 00:23:43,119 --> 00:23:45,320 Speaker 5: the firms that are more domestically focused. 447 00:23:45,840 --> 00:23:49,800 Speaker 4: Paul, Thank you, Paul Jackson, Bloomberg Economy Editor. 448 00:23:52,080 --> 00:23:55,000 Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you 449 00:23:55,080 --> 00:23:58,200 Speaker 1: the stories making news and moving markets in the Asia Pacific. 450 00:23:58,680 --> 00:24:01,800 Speaker 1: Visit the Bloomberg Podcast channel on YouTube to get more 451 00:24:01,840 --> 00:24:05,439 Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to 452 00:24:05,480 --> 00:24:09,280 Speaker 1: the podcast on Apple, Spotify, or anywhere else you listen 453 00:24:09,359 --> 00:24:12,480 Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and the 454 00:24:12,480 --> 00:24:13,560 Speaker 1: Bloomberg Business app.