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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Krisner. So the Fed's Economic Policy

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Speaker 1: Symposium in Jackson Hole, Wyoming will be taking center stage

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Speaker 1: this week, especially the keynote speech from FED shared Jay

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Speaker 1: Powell that will happen Friday morning. I think it's fair

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Speaker 1: to say that markets seem confident that a weakening job

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Speaker 1: market has opened the door for a more dubvish tone

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Speaker 1: from Powell. In a moment, will preview his address with

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Speaker 1: Skyler weinand he is the CIO at Reagan Capital. Now

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Speaker 1: for markets in Asia, a key question is how the

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Speaker 1: Japanese he in may react to what we hear this

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Speaker 1: week from Jackson Hole. To help us understand where we

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Speaker 1: may go in the week ahead. Paul Dobson joins us.

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Speaker 1: Paul is executive editor for Asia Markets. Paul joins us

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Speaker 1: from our studios in Singapore. Paul, thank you so much.

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Speaker 1: So right now I'm looking at a little bit of

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Speaker 1: weakness in the ear, but there's no mistaking the fact

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Speaker 1: that the Japanese secuity market is at record highs. What

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Speaker 1: is the bet right now, Paul, that the market is

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Speaker 1: making on the direction of the end this week.

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Speaker 2: Yeah, hi there, Doug. As you said, there'll be a

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Speaker 2: lot of attention on the Jackson Hole right at the

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Speaker 2: end of the week, but the market will be getting

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Speaker 2: ready for that, and the assumption is that Powell will

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Speaker 2: open the door for the Fed to begin cutting interest

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Speaker 2: rates again in September. The market is pricing a couple

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Speaker 2: of cuts from the Fed by the end of the year,

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Speaker 2: maybe a little bit more as well. Meanwhile, the Bank

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Speaker 2: of Japan is supposed to be moving in the opposite direction.

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Speaker 2: It's supposed to be getting ready to raise interest rates again.

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Speaker 2: That's what the market's expecting, and it's sort of been

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Speaker 2: bringing forwards those estimations just a little bit. Some of

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Speaker 2: the political uncertainty that's been dock in Japan seems to

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Speaker 2: be clearing, and that opens opens the door for the

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Speaker 2: BOJA to get another high kin while they can. So

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Speaker 2: with the two central banks moving and opposite directions, the

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Speaker 2: difference in interest rates between the two nations should be

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Speaker 2: narrowing and that should be supportive for the en all

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Speaker 2: things considered. So market will be looking for any indications

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Speaker 2: on either side that this is becoming a more lately

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Speaker 2: scenario and will be very much trading the en off

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Speaker 2: the back of that.

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Speaker 1: So we know that inflation in Japan is above target,

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Speaker 1: and last week we had that very very strong GDP report.

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Speaker 1: Is it the market to you right now that the

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Speaker 1: BOJ may hike as soon as October?

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Speaker 2: I think that that's definitely a possibility that the market

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Speaker 2: is looking at. As you said, the GDP numbers were really,

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Speaker 2: you know, kind of a lot better than the market

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Speaker 2: had anticipated, and that did give the stocks a real

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Speaker 2: rocket boost as well, and it definitely raised those expectations

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Speaker 2: for what the BOJ will do. And BOJ you know,

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Speaker 2: is very very cautious still. It doesn't want to move

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Speaker 2: so fast that it slows down the economy. It doesn't

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Speaker 2: want to sort of crush inflation. But inflation has been

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Speaker 2: running pretty high in Japan for quite a sustained period

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Speaker 2: of time now, and that's pretty unpopular with the population

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Speaker 2: as a whole. So about time maybe for the central

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Speaker 2: bank to feel confident in being able to raise interest

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Speaker 2: rates again. I think what's really interesting about that GDP

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Speaker 2: figure is it gives the Prime minister it should be

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Speaker 2: a little bit more breathing room. He can say, hey,

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Speaker 2: things aren't as bad as everybody's been saying in the economy,

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Speaker 2: so maybe that gives him a little bit more confidence

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Speaker 2: to stay in position, and that political certainty can give

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Speaker 2: the Central Bank in turn a little bit more certainty

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Speaker 2: and confidence in moving ahead too.

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Speaker 1: Let's change gears, because at the end of last week,

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Speaker 1: as you know, we had that weak data coming out

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Speaker 1: of China industrial production, retail sales, both numbers below forecast,

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Speaker 1: and more evidence that home prices in China are continuing

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Speaker 1: to decline. What is the government going to do in

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Speaker 1: a situation like this.

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Speaker 2: The government has been cautiously adding to stimulus for quite

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Speaker 2: a while now, making reforms, adding some extra social benefits,

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Speaker 2: those kinds of things. And we had a report last

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Speaker 2: week as well that it's looking for extra ways to

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Speaker 2: try to mop up some of the unsold inventory and

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Speaker 2: the property market as well to try to stabilize prices there.

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Speaker 2: It's also pushing ahead with these anti involution measures, trying

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Speaker 2: to prevent the cutthroat competition among Chinese companies from getting

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Speaker 2: too damaging for each other and for the economy as well,

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Speaker 2: to try to bring forward some further benefits and to

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Speaker 2: continue to stimulate the consumer as well. I feel like

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Speaker 2: although those data overall were bad and were worse than

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Speaker 2: what the analyst said been forecasting. Nonetheless, it comes off

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Speaker 2: that very strong first half of the year where there

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Speaker 2: was a lot of front loading in terms of exports.

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Speaker 2: China is still running towards meeting its growth target of

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Speaker 2: around about five percent for the full year, so the

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Speaker 2: government won't feel obliged to go extremely hard with any stimulus. Nonetheless,

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Speaker 2: the market is starting to expect that at some point,

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Speaker 2: along with continued support in terms of those social measures,

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Speaker 2: we may get the PBOC acting again at some point

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Speaker 2: just to keep the economy ticking over, maybe with a

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Speaker 2: cut in the chip l R rate, or continuing to

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Speaker 2: keep injections into the money markets and keep liquidity loose.

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Speaker 1: So let's talk a little bit about the trade war

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Speaker 1: with the US and the extent to which exports continue

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Speaker 1: to hold up reasonably well. We know that there is

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Speaker 1: a trade truth that is in effect. Now to what

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Speaker 1: extent is China really working aggressively to diversify itself away

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Speaker 1: from such dependency on the American market and look at

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Speaker 1: other jurisdictions, maybe in APAC or other parts of the world,

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Speaker 1: so that the economy on the export side is not

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Speaker 1: so reliant on the US.

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Speaker 2: Yeah, well, that's definitely going on in the background. I

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Speaker 2: think China is the deal scenario, is finding some sort

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Speaker 2: of a truce with Trump where it can keep those

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Speaker 2: tariffs to a reasonable rate and therefore continue to explore

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Speaker 2: to the US. But for several years already China has

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Speaker 2: been looking at opening up new markets and strengthening relationships.

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Speaker 2: We've seen quite a lot of movement with India. At

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Speaker 2: the moment, of course, India also under Trump scrutiny and

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Speaker 2: suddenly sort of sort of having a think about pivoting too,

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Speaker 2: So there is that. I mean, my view overall though

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Speaker 2: of China's markets is not negative or bearish at the moment,

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Speaker 2: quite the opposite. The stock market seems to have been

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Speaker 2: surviving and weathering the storm from the negative data that

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Speaker 2: we saw at the end of last week, from all

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Speaker 2: of this pressure on the trade side as well. And

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Speaker 2: you know, we have the Shanghai composite at the highest

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Speaker 2: level since twenty twenty one. It wouldn't take very much

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Speaker 2: further for it to go to something like a twenty

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Speaker 2: year sorry, a ten year high, just coming down from

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Speaker 2: when the last big bubble bursts. So there is pretty

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Speaker 2: decent momentum on the mainlandages and a little bit more

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Speaker 2: interest in buying equities in China At the moment, there's

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Speaker 2: a couple of good growth stories, right there's the AI

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Speaker 2: deeps Seek revolution, but also the Chinese biotech companies have

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Speaker 2: really been on a strong tear this year, and the

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Speaker 2: electric vehicles as well. So lots of technological kind of

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Speaker 2: support there for the market overall.

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Speaker 1: So is China getting what it needs from the Trump

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Speaker 1: administration to support that continued advancement within AI. I mean,

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Speaker 1: certainly when it comes to advanced semiconductors, maybe not the

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Speaker 1: most sophisticated, but that H twenty I think from Nvidia

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Speaker 1: is necessary, particularly in terms of training various models in AI.

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Speaker 2: Right, it seems like it. But at the same time,

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Speaker 2: China doesn't want to become the same the US doesn't

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Speaker 2: want China to become used to using US manufacture chips.

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Speaker 2: China doesn't really want to become dependent on those either.

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Speaker 2: It would prefer to see the homegrown models coming from

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Speaker 2: and you know, so there's a little bit of a

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Speaker 2: delicate balance there. We've been reporting that there's been some

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Speaker 2: discouraging from going too far with H two o chip

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Speaker 2: technology noneth US. Having access to those is definitely a

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Speaker 2: benefit to the Chinese companies as they try to develop

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Speaker 2: more sophisticated models as well. It feels like China is

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Speaker 2: doing fine on that front, and probably, you know, visit

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Speaker 2: a relative to the US if you look at the

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Speaker 2: energy supply sector and how that matters for the data

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Speaker 2: centers for the AI industry. Overall, China is certainly, you know,

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Speaker 2: in a more favorable position, having easier planning rules, having

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Speaker 2: added a lot of renewable energy capacity recently, and being

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Speaker 2: able to sort of feed and power those big data centers,

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Speaker 2: whereas in the US we feel that maybe the eligacy

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Speaker 2: supply market is getting a little bit tighter as the

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Speaker 2: demand ramps up for those data centers.

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Speaker 1: So we mentioned Jackson Hall, Wyoming and the FED symposium

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Speaker 1: a moment ago, and I'm wondering about the important and

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Speaker 1: the key things that you're going to be looking for

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Speaker 1: in the week ahead, particularly within Asia.

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Speaker 2: The key things to look for in the week ahead

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Speaker 2: from Asia. So, first of all, at the end of

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Speaker 2: last week, we had a bunch of different budget announcements

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Speaker 2: from all around the region, some projections of death issuents

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Speaker 2: for next year. Some spending plans as well in Thailand,

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Speaker 2: in Singapore, and then in Indonesia and in India in particular,

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Speaker 2: and India was pretty interesting. The Modi administration announced tax

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Speaker 2: cuts and quite a lot of fiscal stimulus as well.

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Speaker 2: So we'll be looking to see how that impacts the

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Speaker 2: equity market, whether it can turn it around from a

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Speaker 2: little bit of pressure that it's been under recently. I

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Speaker 2: think overall, you know, the market just continues to scale

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Speaker 2: new heights in all sorts of different markets and jurisdictions

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Speaker 2: at the moment, and we'll be looking to see how

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Speaker 2: long that positive vibe in the stock space can continue.

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Speaker 2: It will to a certain extent even for us matter

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Speaker 2: what the FED and what Pale says at Jackson Hole.

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Speaker 2: That of course comes right at the end of the

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Speaker 2: week for Asia and the sort of next week. But

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Speaker 2: we'll be reacting to that in g course as well.

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Speaker 1: All right, Paul, we'll leave it there. It's always a pleasure.

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Speaker 1: Thank you so much, Paul Dobson, Executive editor for Asia.

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Speaker 1: Markets joining from Singapore here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.

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Speaker 1: Markets are bracing for the Fed's Economic Policy Symposium this week.

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Speaker 1: It'll take place in Jackson Hole, Wyoming, and on Friday,

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Speaker 1: we'll have the keynote address from Fed Shared J. Powell.

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Speaker 1: This at a time when there is certainly fair amount

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Speaker 1: of political pressure on the FED to cut interest rates.

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Speaker 1: Markets right now seem confident that a weakening job market

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Speaker 1: has opened the door for a more dubvish tone from

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Speaker 1: the chairman. Joining us now for a look at what

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Speaker 1: we may here is Skyler winand he is the CIO

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Speaker 1: at Reagan Capital. Skyler, thank you so much for making

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Speaker 1: time to chat with me. What do you think we're

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Speaker 1: going to hear from Powell this week?

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Speaker 3: They're delving into employment and that's what they're meeting about.

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Speaker 3: I expect the speech to revolve around employment specifically and

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Speaker 3: what we're seeing, which is a little bit of deterioration

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Speaker 3: and employment numbers, and specifically for newer entrance to the

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Speaker 3: job market. Did you know that over eleven percent of

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Speaker 3: males from twenty to twenty four are currently unemployed that

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Speaker 3: have college degrees, and so they're getting really worried about that.

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Speaker 3: But also, you know, inflation is ticking up as well,

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Speaker 3: so they have this dual mandate, but they're going to

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Speaker 3: show They're going to show their cards this week. I

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Speaker 3: think that employment is a much bigger concern for them

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Speaker 3: than runaway inflation.

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Speaker 1: So inflation is picking up, we learned last week. That's

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Speaker 1: particularly the case to the wholesale level. Seems to be

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Speaker 1: terror related. But let's go back to the labor market

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Speaker 1: and try to get a sense of what's happening under

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Speaker 1: the surface. And I'm wondering whether or not tariff policy

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Speaker 1: is a part of that story, and maybe to a

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Speaker 1: lesser extent, artificial intelligence. Are those forces very much at

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Speaker 1: work right now.

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Speaker 3: They're huge, and we're just starting to see the start

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Speaker 3: of that. And so if you take STEM education, engineers,

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Speaker 3: computer scientists, programmers, a lot of those jobs are going

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Speaker 3: to be done away by AI, okay. And then when

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Speaker 3: you take immigration policy, that's where the big holes are,

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Speaker 3: which is manual labor. And so for the first time

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Speaker 3: in recorded history, college graduates have a harder time of

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Speaker 3: finding a job right now than high school and that's

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Speaker 3: indicative of what we're seeing, and we're only starting to

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Speaker 3: see the start of it, which is a huge gap,

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Speaker 3: a huge need for skilled and unskilled manual labor, whereas

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Speaker 3: the jobs that STEM graduates were employed in, those aren't

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Speaker 3: going to be necessary in maths over the next ten years.

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Speaker 1: So I'm wondering whether or not lower interest rates can

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Speaker 1: help address the issue, or whether or not we have

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Speaker 1: to rethink the labor market in such a way to

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Speaker 1: perhaps put less emphasis on easier monetary policy as a

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Speaker 1: remedy when things start to weaken.

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Speaker 3: Yeah, I mean that, And they'll say this, and Jerome

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Speaker 3: Powell say this, interest rates are a blunt tool. They

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Speaker 3: are a hammer, when what we really need right now

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Speaker 3: is a you know, a Swiss Army Knight to fix

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Speaker 3: these issues. So you know it's a blunt tool. But

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Speaker 3: you have the administration right now that is absolutely coming

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Speaker 3: down on the FED and specifically the FED share. And

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Speaker 3: you have this this little wrinkle, which is, you know,

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Speaker 3: three or four of the current FED governors and folks

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Speaker 3: that are sitting on the FED want to be FED share,

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Speaker 3: and so you know, they're starting to let that creep

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Speaker 3: into their speak and how they're going to vote. And

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Speaker 3: you're seeing them speak and you're seeing them potentially voting,

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Speaker 3: you know, potentially against their will and against the economic

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Speaker 3: will of what they should be doing, which is potentially

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Speaker 3: raising interest rates.

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Speaker 1: Where are you right now in understanding the degree of

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Speaker 1: leverage in markets? I mean the S and P right

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Speaker 1: now is not there far below a record high. I

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Speaker 1: think we had a record midweek last week. Are you

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Speaker 1: seeing evidence that there is a great deal of leverage

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Speaker 1: in the system right now when.

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Speaker 3: It comes to leverage and whether we're we're hitting potentially

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Speaker 3: you know, peak stock market valuations, Yes, that's true. You know,

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Speaker 3: we're looking down, depending on what measure you want to

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Speaker 3: look at, you know, between twenty two and twenty four

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Speaker 3: PE on the S and P, and so you know,

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Speaker 3: it's starting to get folks a little bit nervous. But

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Speaker 3: also earnings are catching up to that, and that's what's

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Speaker 3: bringing that PE ratio down. So yeah, you do get

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Speaker 3: a little bit nervous about these these daily options zero

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Speaker 3: data layoffs, and you know by the dip means stocks,

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Speaker 3: et cetera. The market is getting a little heady here,

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Speaker 3: But I don't think that's necessarily caused for concern given

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Speaker 3: the amount of dry powder that's on the sidelines.

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Speaker 1: So we had that retail sales report last week. The

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Speaker 1: control group number, which obviously is used to calculate GDP

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Speaker 1: was much stronger than forecast. Is that evidence that the

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Speaker 1: American consumer, in spite of everything that we're talking about

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Speaker 1: with higher rates, is that evidence that the American consumer

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Speaker 1: is holding up pretty.

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Speaker 3: Well in a good Yes, the American consumer is doing great.

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Speaker 3: Tons of home equity, tons of built up cash in

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Speaker 3: the stock market. You have this gigantic wealth effect. You know,

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Speaker 3: from April first Liberation Day until today, we tropped at

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Speaker 3: a stock market evaluation of about fifty two trillion, and

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Speaker 3: today we stand at around sixty seven trillion. So you

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Speaker 3: have fifteen trillion dollars in wealth that's been added over

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Speaker 3: the last roughly four months. That's going to put a

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Speaker 3: wind at in the sales of the American consumer until

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Speaker 3: it doesn't.

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Speaker 2: Right.

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Speaker 3: And so whether that wealth effects coming from the stock

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Speaker 3: market or US real estate and or you know, folks

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Speaker 3: doubling down on stocks returning another ten percent over the

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Speaker 3: next four or five months here, who knows. But I

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Speaker 3: see little cost for concern really when it comes to

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Speaker 3: the health of the consumer. Now, you know, America is

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Speaker 3: very bipercated, right, and so you know, and that's who

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Speaker 3: inflation and tariffs are really going to affect tariffs and

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Speaker 3: inflation are a regressive tax. They are going to hurt

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Speaker 3: main Street the most, and so that's that's the cost

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Speaker 3: for concern obviously, But in aggregate, the consumer is doing

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Speaker 3: great well.

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Speaker 1: At the same time, we learned at the end of

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Speaker 1: last week from the University of Michigan that consumer expectations

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Speaker 1: for inflation picked up a bit. And I think, to

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Speaker 1: go back to where we started the conversation with the FED,

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Speaker 1: that's got to be pretty concerning.

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Speaker 3: Yeah, no doubt. And I saw, you know, a study

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Speaker 3: done this past week where you know, the way that

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Speaker 3: they're measuring inflation has changed dramatically since the eighties. If

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Speaker 3: we were to measure inflation like we did in the eighties,

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Speaker 3: inflation would appeaked at roughly twenty percent a couple of

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Speaker 3: years ago. And the way that they changed it primarily

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Speaker 3: was using owner equivalents versus true housing costs. Okay, so

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Speaker 3: by using the owner's equivalence rents versus what people actually

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Speaker 3: pay every month oe R is just an estimate. Inflation

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Speaker 3: is much much worse than what the numbers are telling us,

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Speaker 3: and that's what it's being reflected in those consumer surveys.

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Speaker 1: Skyler is speaking of the consumer. Before I let you go,

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Speaker 1: I got to get your take on Walmart and Target

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Speaker 1: the old report earnings in the week ahead. Are we

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Speaker 1: going to get decent numbers here or is there going

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Speaker 1: to be some evidence that margins are under pressure? And

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Speaker 1: maybe that again is a tariff story, even with the

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Speaker 1: front running that some of these companies were involved with.

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Speaker 3: Yeah, Walmart's already said that tariffs are causing some ripples,

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Speaker 3: uh in their margins. That's for sure. Now, if you

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Speaker 3: look at those two as a paris trade, I'm definitely

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Speaker 3: going to pick Walmart here. H. Targets had some real

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Speaker 3: issues on a number of different issues they have. They

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Speaker 3: have trouble getting people and to the store. H. They've

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Speaker 3: had some bad campaigns over the last three or four years.

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Speaker 3: They they just got their people back into the office

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Speaker 3: I think three days a week most recently, you know,

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Speaker 3: you know, up until recently, Targets employees, I think they

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Speaker 3: only worked in the office once a quarter. That's at

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Speaker 3: corporate headquarters. But yeah, it's I would definitely be picking

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Speaker 3: lower cost retailers like a Walmart, like a TJ Max

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Speaker 3: or rosstores over a Target over h you know, higher

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Speaker 3: cost items.

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Speaker 1: Skyler will leave it there. Thank you so very much

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Speaker 1: for making time to chat with me as Skyler Wine

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Speaker 1: and he is the CIO at Reagan Capital on the

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Speaker 1: line from Dallas, Texas. Here on the Daybreak Asia Podcast.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Prisoner and this is Bloomberg