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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: In the US session, the equity market fluctuated a bit.

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Speaker 2: That was after J. Powell said again the Fed is

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Speaker 2: not in a rush to cut interest rates. And in

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Speaker 2: a moment we'll be joined by Adam Turnquist for a

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Speaker 2: closer look. Adam is the chief technical strategist at LPL Financial.

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Speaker 2: But we begin this morning in the Asia Pacific and

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Speaker 2: in Hong Kong with our friend Ben Look. He is

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Speaker 2: senior multi asset strategist at State Street Global Markets. Joining

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

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Speaker 2: Happy New Year. I know it's been a while since

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Speaker 2: we last spoke the em story. You and I were

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Speaker 2: talking a moment ago about how it's become a lot

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Speaker 2: more interesting these days, and I'm wondering, if for no

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Speaker 2: other reason then valuation is that possible.

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Speaker 3: I mean, it's to your point, Doug, valuation is attractive,

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Speaker 3: and I think the second most important thing is really

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Speaker 3: just positioning. Over the last couple of years, irrespective of COVID,

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Speaker 3: right we had the post pandemic and then really massive

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Speaker 3: rate hikes around EM to really stem inflation. Earnings weren't good,

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Speaker 3: so positioning has just been a steady unwine across institutional

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Speaker 3: investors that we track. So no major EM countries had

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Speaker 3: an overweight in terms of the data over the last

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Speaker 3: couple of years, and which is why I think year

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Speaker 3: to date, although we're starting to see a little bit

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Speaker 3: of inflows, I wouldn't say a lot, but you are

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Speaker 3: starting to see maybe there's this a value pickup in

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Speaker 3: terms of some institution investors that yes, we know about

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Speaker 3: the tariffs, but maybe that that's something I can live

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Speaker 3: with as long as valuation and positioning is still quite low,

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Speaker 3: which is why we've seen year to date performance isn't

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Speaker 3: so bad for EM.

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Speaker 2: Yeah, we know the Chinese asshats, generally speaking, have been

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Speaker 2: much under owned. I was reading a piece on the

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Speaker 2: Bloomberg just the other day. Billionaire investor David Tepper ramped

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Speaker 2: up his stakes and a lot of China related stocks

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Speaker 2: and ETFs in the last quarter. Is there a thesis

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Speaker 2: here that you think represents the most value.

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Speaker 3: The issue right now in terms of the flows that

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Speaker 3: we see, it's not been big flows. Is there's still

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Speaker 3: the uncertainty doug in terms of, first of all, whether

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Speaker 3: or not there's going to be targeted tariffs or very

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Speaker 3: specific sanctions that are going to be in place from

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Speaker 3: the US against China. That's the first thing, right that

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Speaker 3: most people are worried about. The second thing is whether

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Speaker 3: or not Chinese policymakers themselves can really use let's say,

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Speaker 3: the two sessions that's going to come out next month

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Speaker 3: in order to drive the domestic stimulus story and to

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Speaker 3: offset basically the export drag if and when the US

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Speaker 3: does fire at China in terms of many of these

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Speaker 3: tariffs or policies that are going to come place. So

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Speaker 3: I think that's why investors are okay with slow increments

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Speaker 3: right now. But whether or not they can actually have

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Speaker 3: a structural neutral or benchmark position really comes from more

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Speaker 3: clarity from China. As we go through the end of

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Speaker 3: Q one.

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Speaker 2: Maybe we can talk a little bit about artificial intelligence

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Speaker 2: in China and the shock waves that Deep seek set

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Speaker 2: in motion across the globe. And we've since that time

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Speaker 2: seen a rally in a lot of equities AI related

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Speaker 2: on the mainland. I was looking at a note I

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Speaker 2: think it was from UBS saying we're less than halfway

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Speaker 2: there where are you when it comes to understanding the

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Speaker 2: AI trade in China.

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Speaker 3: Well, we've actually broken down looking at flows really since

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Speaker 3: the Deep Seek momentum and really and then comparing that

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Speaker 3: flow momentum relative to last year where we have those

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Speaker 3: policy stimulus announcements that came through and right now, the

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Speaker 3: flows that we see since the Deep Seek are positive,

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Speaker 3: but they're nothing spectacular, to be honest. So I think

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Speaker 3: maybe a lot of that uptick in terms of the

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Speaker 3: AI outperformance is more domestic driven, I think, at least

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Speaker 3: for now, whereas foreign investors are getting more interested, but

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Speaker 3: they're still basically on the sideline as they wait for

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Speaker 3: more of a firmer pickup. I think in terms of

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Speaker 3: whether or not let's just say, Chinese policies become structurally supportive,

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Speaker 3: or maybe we see more of government sponsorship to come

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Speaker 3: through in the future, or even deregulation, let's just say,

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Speaker 3: not just from Chinese tech and Chinese AI, but broader

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Speaker 3: sector deregulation that can really start to improve and grow

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Speaker 3: the multiple valuation story as we actually come into let's

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Speaker 3: just say the second half of this year.

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Speaker 2: But for the moment, can we say that the safer

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Speaker 2: bed and maybe the more prudent bed is to put

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Speaker 2: money to work in a cloud company like say Ali Baba.

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Speaker 2: Is that a way to go?

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Speaker 3: I think yes. I think most of the natural beneficiaries

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Speaker 3: or where the flows tends to go at the very

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Speaker 3: beginning would be market leaders, uh and in the large

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Speaker 3: cap companies that that that tends to benefit from. Especially

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Speaker 3: to your earlier point, Duck, maybe a lot of investors

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Speaker 3: at the beginning when they start to increase some of

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Speaker 3: those exposures or position would invest via ETFs right and

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Speaker 3: ETF naturally is is going to benefit those bigger players

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Speaker 3: within the market, which is why I think at the

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Speaker 3: very initial get go, it's going to benefit some of

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Speaker 3: the bigger players in the field first, and then maybe

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Speaker 3: as we see a broader earnings recovery across the across

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Speaker 3: the sector, then the smaller players can can can benefit

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Speaker 3: from that.

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Speaker 2: Ben, how do you understand the change that's been happening

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Speaker 2: in the domestic demand story in China? Is the property

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Speaker 2: market improving enough that it's kind of improving investors sentiment

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Speaker 2: at all?

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Speaker 3: I think the answers no. The issue is that is

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Speaker 3: I think a lot of the flows are still geared

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Speaker 3: towards buying into cgbs in particular, which basically sends a

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Speaker 3: signal that there isn't that much of a confidence yet

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Speaker 3: from domestic investors to actually go up the risk spectrum,

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Speaker 3: let's just say, in terms of buying back into property

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Speaker 3: or property sectors or property stocks per se. I think

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Speaker 3: what we can say, at least from all the supports

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Speaker 3: that've come through from Beijing is that maybe the worst

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Speaker 3: is over in terms of they're trying to close more

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Speaker 3: of the loopholes. But whether or not we can go

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Speaker 3: from the loopholes closing towards really a stabilization, I still

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Speaker 3: think it's still a drag right now, and it's still

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Speaker 3: going to take potentially a full year in terms of

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Speaker 3: what the bay of what policymakers needs to do to

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Speaker 3: revive or even improve that sector.

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Speaker 2: So we know that the Trump administration has put on

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Speaker 2: this ten percent tariff on all Chinese goods, Beijing has

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Speaker 2: responded to some extent. Are you braced for a lot

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Speaker 2: more at tension in this trade war and perhaps higher tariffs?

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Speaker 3: Well, I think right now the retaliation from China has

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Speaker 3: been very mild. In particular, I think they have been

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Speaker 3: very selective in not really trying to send the signal

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Speaker 3: that they want a full blown trade war either. If

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Speaker 3: we basically look at all the products that China is

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Speaker 3: going to tax in terms of US exports into China,

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Speaker 3: it's basically I would say one fifth or even less

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Speaker 3: than that comparing to what the US is going to

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Speaker 3: impose on China. So I think it is a manage

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Speaker 3: approach right now from Beijing. It's really not in the

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Speaker 3: best interest for them to engage in this. And second

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Speaker 3: of all, in the way that the PBOC is setting

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Speaker 3: the fixing and controlling the Remenbee both on shore and offshore,

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Speaker 3: also sends a signal that they want stability right now

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Speaker 3: in terms of the currency that and that obviously spills

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Speaker 3: over to acid class flows as well in the future.

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Speaker 3: So I think they actually want to I would say,

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Speaker 3: toned down in terms of the war or the trade

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Speaker 3: narrative with the US as opposed to trying to escalate it,

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Speaker 3: at least from the early signals that we're seeing from Beijing.

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Speaker 2: So when you take out the US from this story

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Speaker 2: and you look at China's relationship with some of its

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Speaker 2: other trading partners in the Asia Pacific, are there flows

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Speaker 2: there that you find particularly intriguing at the moment.

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Speaker 3: Right, So, outside of EM, I'm sorry, Within EM, most

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Speaker 3: of the beneficiary has I mean, it's concentrated more i

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Speaker 3: would say, into North Asia, whereas the bulk of the

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Speaker 3: selling remains to be in places like ind inequities is

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Speaker 3: one area that we continue to see very very aggressive

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Speaker 3: outflow still, and this is to your earlier point, Doug.

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Speaker 3: I think valuation does come into play when everything is

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Speaker 3: already underweight.

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Speaker 4: One area that.

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Speaker 3: People want to avoid would be expensive countries or expensive sectors,

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Speaker 3: and India falls into that trap, which is why we

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Speaker 3: have actually seen pretty aggressive outflows in terms of Indian equities.

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Speaker 3: But to our surprise, it's not really been the EM story,

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Speaker 3: but it's really been a recent surge in terms of

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Speaker 3: institution investors buying into European equities, and this is something

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Speaker 3: that we are still quite skeptical. We're still underweight Europe.

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Speaker 3: We don't think the Trump administration is going to exempt

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Speaker 3: Europe from any of this trade terriffs. But outside of

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Speaker 3: just the trade concerns, the fundamental story is still very

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Speaker 3: very weak and they're really avoiding technical recession right now,

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Speaker 3: which to us is a very surprise that institution investors

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Speaker 3: right now are really piling money into European equities at

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Speaker 3: the expense of all others right now as they try

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Speaker 3: to play this hedge with res back to the new

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Speaker 3: Trump administration.

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Speaker 2: Ben, we'll leave it there. Thank you so much for

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Speaker 2: joining us. Ben luck there. He is senior multi asset

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Speaker 2: strategist at State Street Global Markets. Joining us here on

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

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Speaker 2: I'm Doug Krisner. The US equity market closed little changed

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Speaker 2: on Tuesday. We had Fed Shair J. Powell injecting a

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Speaker 2: bit of caution when he said the FED is not

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Speaker 2: in a rush to adjust interest rates. And the tariff

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Speaker 2: policy from the Trump administration, I think it's fair to say,

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Speaker 2: has reignited fear over higher inflation, and markets are now

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Speaker 2: focused on tomorrow's reading on consumer prices. Joining me now

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Speaker 2: for a closer look at all of these elements, Adam Turnquist.

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Speaker 2: He is the chief technical strategist at LPL Financial. Adam,

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Speaker 2: thank you so much. Let's talk about what Powell had

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Speaker 2: to say. Shouldn't be a real surprise here that the

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Speaker 2: FED is not in a rush to cut infrastrates.

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Speaker 1: It Hey, Doug, thanks for having me on.

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Speaker 4: And it was one of those days where no news

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Speaker 4: is good news when it comes to Fed policy. I

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Speaker 4: think some people were expecting maybe he would get into

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Speaker 4: some color on TARA forecasts and what they could mean

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Speaker 4: for inflation and growth, but he dodged those questions pretty

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Speaker 4: good today. We'll see if that plays out tomorrow, of course,

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Speaker 4: with CPI on the calendar, but I think it's not

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Speaker 4: such a problem for markets when he's reiterating the fact

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Speaker 4: that the labor market is not a source of significant

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Speaker 4: inflationary pressures.

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Speaker 1: Of course, that has.

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Speaker 4: Been welcome news over the last year, and that we're

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Speaker 4: getting back into balance. It doesn't take away the terra risk,

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Speaker 4: of course, and I think that's a very fluid situation.

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Speaker 4: But for the one side of the mandate, it seems

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Speaker 4: to be pretty certain that labor market back in balance,

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Speaker 4: less inflationary, and I think that's at least helping the

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Speaker 4: market hold up here in near record hives.

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Speaker 2: We also heard today from former Treasury Secretary Larry Summers,

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Speaker 2: and he was warning of a potential breakout in price pressure.

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Speaker 2: Was looking kind of at the tightness of the labor

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Speaker 2: market and some of the recent growth that we have

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Speaker 2: seen in wages, and Summers went on to put his

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Speaker 2: finger on some of the recent teriff action from the

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Speaker 2: Trump administration, saying that, combined with labor market pressures, these

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Speaker 2: teriff restrictions could potentially lead to a pickup in consumer prices.

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Speaker 2: Does he have a point?

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Speaker 1: I think he does.

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Speaker 4: And I've spent a lot of time over the last

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Speaker 4: week or so reading through several different.

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Speaker 1: Cell Side Strategist research reports.

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Speaker 4: I didn't see anything that said inflation is coming down

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Speaker 4: if these inflationary or these tariff are implemented.

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Speaker 1: I think when we look at things a little bit.

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Speaker 4: More technical, and we get some of the noise and

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Speaker 4: political posturing out of the way, we'll look at break

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Speaker 4: even rates. That's the market's implied expectation. We'll call it

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Speaker 4: for inflation. We'll use, for example, the one or two

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Speaker 4: year break even rates, and those are actually breaking out

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Speaker 4: a little bit. We're seeing new highs at least on

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Speaker 4: a twelve month basis for two year break evens. I

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Speaker 4: think that's a little bit of a concern. Also on

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Speaker 4: CPI swap rates. Now these get a little bit noisy,

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Speaker 4: of course, but they're also starting to break out to

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Speaker 4: new heighs. I think that's an early warning sign of

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Speaker 4: potential inflation coming back. I haven't quite seen that in

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Speaker 4: the fixingco market, and a repricing of monetary policy in

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Speaker 4: terms of the rate cuts for this year, although they

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Speaker 4: have been dialed back a little bit, but still in

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Speaker 4: the cut camp here.

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Speaker 2: So you mentioned consumer prices there the CPI data. We

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Speaker 2: will get that tomorrow morning. Do you have a sense

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Speaker 2: of what we may get.

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Speaker 1: I'm going to take the over.

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Speaker 4: I don't have an official forecast, but I lived through

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Speaker 4: the last couple months here in the Midwest. We had

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Speaker 4: higher energy costs, heating demand is up. Plus we can't

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Speaker 4: forget about heck prices. I don't know if you've been

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Speaker 4: to the store at all, but that's certainly a factor

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Speaker 4: into this. I think I can't remember the exact number

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Speaker 4: how much they contributed to the headline print last month,

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Speaker 4: but still going up at least based on my anecdotal

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Speaker 4: evidence of shopping.

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Speaker 1: And at the core level, I think it's going to

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Speaker 1: be a little bit sticky.

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Speaker 4: That owners equivalent rent category, that's the one I'll be

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Speaker 4: watching carefully. That contributed to about half of the core

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Speaker 4: CPI print last month, and it was up four point

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Speaker 4: eight percent in December. Now some of the higher frequency

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Speaker 4: rent data suggests that will come down, but it's been

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Speaker 4: a pretty bumpy path for that component of CPI. So

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Speaker 4: if I'm a betting man, I'll take the over tomorrow.

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Speaker 1: I think so.

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Speaker 2: Money markets right now, Adam, are still fully pricing in

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Speaker 2: just one quarter point rate cut this year, and that's

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Speaker 2: not until September. I'm wondering if you think there's a

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Speaker 2: risk that we don't get any rate cuts this year.

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Speaker 4: That is certainly a risk unlikely at this stage, but

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Speaker 4: we know that expectations in reality are far far apart

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Speaker 4: sometimes when it comes to forecasting what the Fed may

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Speaker 4: or may not do. And right now I think the

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Speaker 4: market is okay given the policy path is still pricing

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Speaker 4: in those cuts. That narrative can change, though a I

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Speaker 4: think the driver of that, of course, could be tariffs.

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Speaker 4: If they're implemented and they're implemented for longer than expected

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Speaker 4: and they're no longer just a negotiating tool their reality,

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Speaker 4: that could really flip the script on the narrative, and

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Speaker 4: I think, really flip the script on this bull market.

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Speaker 4: But of course we'll give that low probability for now.

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Speaker 2: So if the script does indeed get flipped, does that

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Speaker 2: mean the tenyure yield flirts with five percent?

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Speaker 1: I think that.

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Speaker 4: Would certainly be a logical spot for a retest. And

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Speaker 4: we're coming into some pretty important levels right now as

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Speaker 4: we look at it. Technically four fifty on the ten year,

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Speaker 4: there's some support levels, a fifty day moving average. Not

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Speaker 4: going to get too far into the technical weeds, but

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Speaker 4: keep that level in mind because it has been a

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Speaker 4: pressure point for risk appetite.

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Speaker 1: When we get above four fifty, we see we tend

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Speaker 1: to see.

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Speaker 4: A sell off inequity markets a little bit too much

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Speaker 4: for maybe valuations to absorb.

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Speaker 1: When we're talking about, you know, the ten year moving higher.

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Speaker 4: And then if we're above four fifty and above a

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Speaker 4: rising twitter to day moving average, that does mean risk

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Speaker 4: is to the upside. So if we start to see

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Speaker 4: those rate cuts priced out of the market, I think

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Speaker 4: look for a ten year possibly approaching that five percent level.

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Speaker 2: For the sake of our discussion here, let's split the

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Speaker 2: difference between four fifteen and five. Let's call it a

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Speaker 2: four to seventy five yield on the tenure. What would

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Speaker 2: that mean for the equity market if the ten year

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Speaker 2: were to reach four point seventy five percent.

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Speaker 4: I think you have to look at the details. Of course,

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Speaker 4: that's the devil's always in the details. In what's driving

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Speaker 4: us to four seventy five.

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Speaker 1: We'll call it.

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Speaker 4: If it's accompanied by stronger than expected growth, then I

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Speaker 4: think equity markets may do okay. But when you start

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Speaker 4: to see yields move higher and some of those economic

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Speaker 4: surprise indexes move lower, that means we're really pricing in

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Speaker 4: a higher term premium. We've seen that play out over

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Speaker 4: the last several months, and we're also pricing in higher inflation.

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Speaker 4: Now that's going to be harder for the equity markets

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Speaker 4: to absorb. I think that's going to be a potential catalyst.

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Speaker 4: We'll call it if we're splitting the difference seventy five

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Speaker 4: for potential correction in the s and P five hundred.

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Speaker 2: So upward bias on yields, stronger dollar. How does that

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Speaker 2: influence your thinking when it comes to putting money to

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Speaker 2: work in the equity space, Do you want to stay

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Speaker 2: away from anything that is offshore and focus solely on

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Speaker 2: domestic and maybe reduce your exposure to some of the

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Speaker 2: big multinational names.

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Speaker 1: At a high level, that's basically been the playbook.

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Speaker 4: We've been more overweight toward US over international, especially emerging markets,

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Speaker 4: especially if we're talking about a stronger dollar, which is

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Speaker 4: another big technical story over the last few months. Em

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Speaker 4: Our emerging markets tends to underperform, especially in that stronger

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Speaker 4: dollar backdrop, So we like US over international, and then

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Speaker 4: at the multinational level, depends on what data set you're

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Speaker 4: looking at. Tech has a big weighting in terms of

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Speaker 4: exposure to foreign revenue, so when those get repatrated, it

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Speaker 4: tends to ding earnings.

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Speaker 1: We haven't quite seen that yet.

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Speaker 4: I think most of the commentary has been so fixated

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Speaker 4: on tariffs when you start looking at the earnings reports,

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Speaker 4: but I think that could be a big factor for

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Speaker 4: the tech space. And let's be honest, tech hasn't really

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Speaker 4: done anything for the last several months. It had a

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Speaker 4: great first half, second half of last year kind of

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Speaker 4: underperforming on a relative basis. So we look at other

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Speaker 4: areas like communication services, the consumer discretionary and industrials as

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Speaker 4: potential are as overweights right now in the market, and

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Speaker 4: that's where we think you should be leaning into.

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Speaker 2: We'll leave it there, Adam, Thank you so much for

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Speaker 2: joining us. Adam turnquis there. He is the chief technical

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Speaker 2: strategist at LPL Financial, joining us here on the Daybreak

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Speaker 2: Asia Podcast. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 2: YouTube channel, or anywhere else. You listen again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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