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Speaker 1: Good morning.

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Speaker 2: I'm Brian Curtis and I'm Doug Krisner. Here are the

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Speaker 2: stories we're following today.

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Speaker 1: Add A hard rain's going to fall, and I'm not

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Speaker 1: talking about the Apples story just yet, but the heaviest

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Speaker 1: rain in Hong Kong since eighteen eighty four. That is incredible,

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Speaker 1: a black rainstorm. Warning it may affect the markets today.

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Speaker 1: So for those of you who will be looking and

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Speaker 1: listening for the Hong Kong market information, be forewarned about that,

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Speaker 1: and we'll track that as those developments ensue. Well, let's

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Speaker 1: take a close look at the Apple story. Shares down

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Speaker 1: almost another three percent today, wiping out nearly two hundred

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Speaker 1: billion dollars of market value in just two days. It

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Speaker 1: comes as China plans to expand a ban on the

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Speaker 1: use of iPhones in sensitive departments across the government structures.

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Speaker 1: So I just tell Bloomberg that the new restrictions could

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Speaker 1: include state don't enterprises and other government run organizations. Bloomberg's

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Speaker 1: Honor Agrana discusses the potential impact on Apple financially.

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Speaker 3: I would say government official nots buying the iPhone is

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Speaker 3: not going to be material for Apple. But the question

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Speaker 3: really is not so much about that. The question is

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Speaker 3: is the close relationship that China has had with Apple

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Speaker 3: or the Apple has had with China, are we seeing

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Speaker 3: some kind of intent in that? I think that is

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Speaker 3: the biggest question here.

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Speaker 1: So we're down three point six percent yesterday and two

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Speaker 1: point nine percent today, so talking round about six and

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Speaker 1: a half percent in two days performance, and we're just

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Speaker 1: hearing the views there of Bloomberg's on rog Grana Dock.

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Speaker 2: Well, let's get to the day's Fed speak. We heard

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Speaker 2: from the New York President John Williams saying monetary policy

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Speaker 2: is in a good place. However, you thinks officials will

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Speaker 2: need to be data dependent going forward.

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Speaker 4: We'll have to keep watching the data carefully, analyzing all

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Speaker 4: of that and really asking ourselves the question, is this

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Speaker 4: sufficiently restrictive? Do we need to maybe raise rates again to.

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Speaker 5: Make sure that we're keeping that steady progress in terms

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Speaker 5: of getting the imbalances, you know, shrinking balances in the

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Speaker 5: labor market and bring inflation back down.

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Speaker 2: Now, the futures market is suggesting the FED will hold

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Speaker 2: rate steady again when the committee meets later this month,

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Speaker 2: you know, policymakers will have some more economic data to review.

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Speaker 2: Before then, including some fresh readings on inflation ran Well.

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Speaker 1: The United Auto Workers' Union has rejected an offer a

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Speaker 1: counter offer that was made by General Motors. We get

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Speaker 1: the story from Bloomberg's and Kates.

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Speaker 6: GM had proposed a total sixteen percent pay raise for

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Speaker 6: top wage earners at its plants and a fifty six

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Speaker 6: percent increased for newer employees who make less. GM also

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Speaker 6: included eleven thousand dollars in inflation protection payments and improved

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Speaker 6: wages for temporary staff. But UAW President Sean Fain reacted quickly,

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Speaker 6: saying that proposal is insulting, with contracts with Detroy's Big

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Speaker 6: Three to expire next week. In addition to much higher raises,

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Speaker 6: Fain also once guaranteed pensions, reinstated cost of living allowances,

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Speaker 6: and retiree healthcare Bloomberg's and cats Well.

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Speaker 2: Zoom Video Communications has met with regulators not just here

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Speaker 2: in the US, but in the European Union as well

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Speaker 2: in some other jurisdictions. The aim here was to outline

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Speaker 2: concerns about allegedly anti competitive behavior on the part of Microsoft.

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Speaker 2: The story from Bloomberg's Charlie Pellett.

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Speaker 7: The source says the communications software maker has talked with

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Speaker 7: the Federal Trade Commission, as well as competition enforcers from

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Speaker 7: the EU, UK and Germany over the past year. The

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Speaker 7: source says Zoom expressed concerns about the way Microsoft gives

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Speaker 7: preference to its team's video conferencing software through price bundling

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Speaker 7: and product design. Microsoft has been under scrutiny from the

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Speaker 7: EU's competition watchdog in New York, Charlie Pellett, Bloomberg Radio, and.

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Speaker 1: Again Microsoft trading down about nine tenths of one percent

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Speaker 1: in the latest session. China is said to be trying

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Speaker 1: to link chip access to climate action at the G

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Speaker 1: twenty summit. We get that story from Bloomberg Spawnyaw in

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Speaker 1: Hong Kong.

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Speaker 8: We hear Chinese officials raise the issue about delivering more

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Speaker 8: financing and technology, including chips, to aid efforts to combat

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Speaker 8: global warming. Negotiations on climate action are high on the

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Speaker 8: agenda ahead of the weekend's meeting in New Delhi. China

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Speaker 8: has repeatedly condemned a US move to titan export controls

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Speaker 8: on chip technology to China, and it has been in

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Speaker 8: talks with G twenty counterparts, including the US, Japan, and

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Speaker 8: South Korea. But China's efforts to link chip access to

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Speaker 8: climate action are not expected to succeed in Hong Kong.

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Speaker 8: I'm Bonnie al Bloomberg Radio.

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Speaker 2: Prime Minister Justin Trudeau says Canada is on track to

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Speaker 2: sign a trade agreement with Indonesia in the next year.

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Speaker 2: Now this comes as Canada is looking to expand trade

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Speaker 2: with a number of Asian economies, while it as the

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Speaker 2: same time, reduces its reliance on China. Now Trudeau was saying,

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Speaker 2: even though relations with China have improved, there is still

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Speaker 2: no political space for reprochement.

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Speaker 4: China has made decisions over the past years that have

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Speaker 4: made it more difficult, not just for Canada but for

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Speaker 4: other countries to engage in ways. I will admit in

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Speaker 4: twenty fifteen the conversations we had was about working towards

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Speaker 4: a free trade deal with China, working towards those sorts

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Speaker 4: of things, but in real terms, the choices and the

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Speaker 4: actions of China have made that more difficult.

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Speaker 2: Well, the relationship between China and Canada turned hostile back

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Speaker 2: in twenty eighteen. That's when Canada arrested Huawei executive Mung

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Speaker 2: wang Zhou on an extradition request from the US. Now

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Speaker 2: that prompted China to detain two Canadians and then impose

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Speaker 2: embargoes on some Canadian food exports.

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Speaker 1: Right, and even though the US dropped those charges against

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Speaker 1: Mung and even though the two Michaels who were released

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Speaker 1: from China, relations have not improved. And Doug, you know,

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Speaker 1: these comments from Justin Trudeau about no room for rap

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Speaker 1: Rochman are quite severe. Trudeau said that a normal relationship

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Speaker 1: is quote impossible. Now, those are the types of comments

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Speaker 1: that you often hear from ideologues, but not usually from

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Speaker 1: prime ministers and presidents. And I think China, I think

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Speaker 1: many would understand this and feel this. China is becoming

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Speaker 1: much more isolated from the West.

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Speaker 2: Most definitely, and I think the markets are kind of

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Speaker 2: confirming that trend.

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Speaker 1: Before we go, can I just add one quick line.

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Speaker 1: It happens on a day when we see that China's

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Speaker 1: imports from Russia actually reach a record high, the largest

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Speaker 1: ever surge in imports from Russia.

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Speaker 2: You're absolutely right. Quick note on the treasury market, because

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Speaker 2: I mentioned earlier we had yields down across the curve today,

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Speaker 2: I think there is a lot of interest now in

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Speaker 2: evidence of softer wages. The Atlanta Fed Wage tracker came

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Speaker 2: in an increase in August of five to three, down

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Speaker 2: from July's reading of five to seven, and the Wall

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Speaker 2: Street Journal reporting that Walmart is cutting wages from new hires.

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Speaker 2: I thought that was interesting.

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Speaker 1: It is you love to get down and dirty with

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Speaker 1: the bond market. I know you go to bed at

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Speaker 1: night thinking about the inversion of the yield curve. Well,

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Speaker 1: we've got another We've got a guest coming up, Nick Schunmacher,

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Speaker 1: who is in the same sort of camp client portfolio

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Speaker 1: manager at Drummond Capital Partners. Get we'll get his views

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Speaker 1: on markets and how things are moving here at the moment,

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Speaker 1: we've seen a lot of red numbers on these screens.

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Speaker 1: Time now for global news. Well, let's get right to

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Speaker 1: San Francisco and the nine to sixty newsroom. We've got

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Speaker 1: Ed Baxter, who is looking at well Asian's closing statements

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Speaker 1: on the Russian war in Ukraine. It has set up

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Speaker 1: what is expected to be a ten G twenty ed.

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Speaker 9: Yeah, that's not the way they wanted, Brian, but it

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Speaker 9: looks like the way it is neweling statements. And as

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Speaker 9: he ends closed regarding Ukraine, one of the condemned it,

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Speaker 9: and another that didn't mention it at all. The formal

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Speaker 9: announcement made no mention of the war, although the chair

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Speaker 9: statement noted with quote deep concern earn the impact of

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Speaker 9: the war that most members strongly condemn. So now the

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Speaker 9: focus India and G twenty with Vladimir Putin and Jijimping

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Speaker 9: not attending, does it have any meaning at all?

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Speaker 7: Well?

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Speaker 9: Tim ash RBC global asset strategist says, that is a

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Speaker 9: very good question.

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Speaker 10: Really, what is it for? What is it now achieving

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Speaker 10: when you know, you G seven knocking out the park

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Speaker 10: around the Ukraine and unit see all that kind of

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Speaker 10: thing bricks enlarged obviously g using that as a as

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Speaker 10: a you know, his kind of motor or is his

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Speaker 10: you know, his means to kind of project Chinese influence

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Speaker 10: and is kind of floundering.

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Speaker 9: Yeah. Esh On Bloomberg says it affects economic issues as

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Speaker 9: well as climate change, as well as what's going to

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Speaker 9: happen in the end of Pacific. US President Joe Biden meanwhile,

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Speaker 9: it's tested negative again for COVID, so he was cleared

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Speaker 9: to make the trip to the G twenty. We're getting

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Speaker 9: more details on the latest US aid package for Ukraine.

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Speaker 9: Secretary of State Anti blank And has reported yesterday is

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Speaker 9: there today? Pentagon spoke, so when Sabrina Singh outlined what

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Speaker 9: has gone.

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Speaker 5: The Department announced a new security assistance package through the

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Speaker 5: Ukraine's Security Assistance Initiative to support Ukraine's battlefield needs. This

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Speaker 5: six hundred million dollar package includes equipment to augment Ukraine's

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Speaker 5: air defenses, artillery, munitions, and other capabilities.

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Speaker 9: Yeah side note it's mentioned in a new Biden campaign

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Speaker 9: ad as well. As Ukraine continues to take back land

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Speaker 9: from Russia, it's having to deal in a major way

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Speaker 9: with clearing land mines. US Secretary of State Antony blank

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Speaker 9: And is continuing his visit there.

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Speaker 11: I saw estimates as much as one third of Ukraine's

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Speaker 11: territory has to deal with minds or unexploded ordinance. One

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Speaker 11: third of the entire country farmland throughout the country unexploded

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Speaker 11: ordnance mines, farmland that was feeding eighty million people around

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Speaker 11: the world.

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Speaker 9: Blanc And says Ukrainians are working together to reclaim their land.

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Speaker 9: Things have become more problematic for Congress to dodge a

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Speaker 9: US government shutdown. Bloomberg Zach Cohen reports how Speaker Kevin

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Speaker 9: McCarthy's officers now trying to tie in Ukraine.

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Speaker 12: Could be tied instead to a border bill, which is

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Speaker 12: much more contentious and certainly won't pass this month, and

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Speaker 12: especially since it doesn't have time to get over to

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Speaker 12: the Senate and back in the same version. But there's

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Speaker 12: all whole host of issues on border security that the

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Speaker 12: two parts need to work out ahead of time. So

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Speaker 12: Ukraine ad really in question right now, really the first

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Speaker 12: time that's happened on an issue that has had why

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Speaker 12: bipartisan supporting Congress since Russia's invasion.

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Speaker 9: And President Biden will not be able to work on

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Speaker 9: until he gets back from the G twenty and Australian

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Speaker 9: Prime Minister Anthony Albanesi will visit Beijing to meet with

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Speaker 9: a Chinese government senior leadership before the end of twenty

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Speaker 9: twenty three, latest sign of some thaw in the relationship.

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Speaker 9: Global News powered by more than twenty seven hundred journalists

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Speaker 9: and analysts in over one hundred and twenty countries. In

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Speaker 9: San Francisco, I met Baxter in This is Bloomberg.

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Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis along with

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Speaker 1: Rushad Salamat and we are joined by Nick Schumaker, who's

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Speaker 1: a client portfolio manager at Drummond Capital Partners. Nick, thanks

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Speaker 1: very much for joining. As Apple's woes in China sideshell

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Speaker 1: or a mean.

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Speaker 13: Event, I guess on a geopolitical front, it's quite It's

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Speaker 13: a main event, just given the efforts that China went to,

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Speaker 13: particularly over the last year, to shut down that the

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Speaker 13: US went to to shut down China's capabilities and semiconductors.

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Speaker 13: So I think it's a big event geopolitically in terms

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Speaker 13: of Apple. I mean, every wealthy person in every country

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Speaker 13: in the world owns an iPhone, and I don't think

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Speaker 13: that kind of technology staple nature of Apple is changing,

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Speaker 13: So I'd say that's more of a shorter term hurdle.

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Speaker 13: There obviously be countries now that will be concerned that

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Speaker 13: the US and the West can weaponize semiconductors to some

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Speaker 13: extent and may favor the version of the new kind

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Speaker 13: of iPhone that's been made in China that will have

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Speaker 13: a that will have an impact to Apple's margins. But

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Speaker 13: I think that's kind of more of a secondary consideration,

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Speaker 13: but more just the geopolitical optics of what's happened. I

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Speaker 13: think is quite significant.

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Speaker 14: Well, certainly, and it doesn't bring Washington and Beshion close

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Speaker 14: in any way, shape or form.

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Speaker 8: But but tell me.

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Speaker 14: About how this is all affecting right now, Nick, What's

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Speaker 14: what's happening with the with markets? What has been priced in?

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Speaker 14: Or is everybody just looking at monetary policy right now

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Speaker 14: and ignoring the geopolitical risks.

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Speaker 13: The geopolitical risks do seem to be ignored. I think,

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Speaker 13: as you say, markets this year have performed very buoyantly,

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Speaker 13: and I think, you know, if you're just some justification

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Speaker 13: for that, is that kind of immaculate disinflatory trend that

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Speaker 13: we've had. If you think though just about you know,

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Speaker 13: the S and P five hundred and the Magnificent seven,

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Speaker 13: you know, it's really only two stocks in a Video

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Speaker 13: and Meta that have had earnings revisions for this year

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Speaker 13: and next, and the rest have had nothing, but they've

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Speaker 13: still been up fifty to sixty percent. You've had Tesla

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Speaker 13: whose earnings have been essentially going backwards since twenty twenty

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Speaker 13: two and are up over one hundred percent. So you've

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Speaker 13: had a lot of this kind of what feels in

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Speaker 13: some ways like late cycle exuberance in markets this year

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Speaker 13: Obviously there's a big innovation cycle now that's going to

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Speaker 13: be a result of AI and the introduction of chat

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Speaker 13: GPT late last year. But the economic rent from AI

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Speaker 13: isn't going to be seven stocks. It's going to be

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Speaker 13: a five ten year process. So certainly it does seem

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Speaker 13: that the whole soft landing narrative, as that's become more palatable,

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Speaker 13: investors have been cheered along by that, and as you

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Speaker 13: alluded to, have been ignoring geopolitical risk to a large degree.

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Speaker 1: Well, we haven't really been performing all that well of late.

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Speaker 1: It could be seasonal in nature, or it could be

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Speaker 1: that investors are worried about higher rates for longer from

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Speaker 1: the fair. Yeah, although you are starting to hear some

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Speaker 1: commentary about perhaps a new direction that the Fed will

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Speaker 1: start recalibrating pretty soon about when it needs to start

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Speaker 1: pulling back on reads. Where do you stand in that argument?

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Speaker 1: Where are you on the spectrum?

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Speaker 13: I think so In terms of the US, I think

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Speaker 13: the most likely outcome later this month would be a

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Speaker 13: hawkish pause. We've probably got the ECB perhaps going one

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Speaker 13: more time. They don't have a dual mandate, so it

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Speaker 13: really is just fighting inflation. It's too high I think

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Speaker 13: what the market is going to recalibrate and why there

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Speaker 13: may be some upward pressure on bondules that we've started

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Speaker 13: to see with that bears steepening over the last month,

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Speaker 13: will be that the markets pricing of rate cuts next

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Speaker 13: year may start to be pushed out and the higher

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Speaker 13: for longer narrative will be more embedded into market participants.

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Speaker 13: Psyche for now.

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Speaker 1: And Nick, we've got you for a little extra time.

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Speaker 1: So I want to ask a follow up and that Yeah, sure,

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Speaker 1: is this a new paradigm. Do you think that going

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Speaker 1: forward we're going to see reids stay elevated, They're not

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Speaker 1: going to go back down into the one and two

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Speaker 1: percent range.

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Speaker 13: Yeah, it seems that way. Look, when we run our acylocation,

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Speaker 13: we looked at a number of scenarios and one of

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Speaker 13: them was the deflatory quagmire. And what a deflatory quagmire

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Speaker 13: is is if we were going back to that twenty

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Speaker 13: and twelve to twenty nineteen period where you had zero

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Speaker 13: interest rate policy QE and negative real yields. I don't

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Speaker 13: think we're going back to that. I think kind of

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Speaker 13: more return to normal in terms of positive real yields,

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Speaker 13: where we have the real yield now at about two

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Speaker 13: percent is more of a likely scenario. And I think

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Speaker 13: inflation volatility is something that's going to be very relevant

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Speaker 13: over the twenty twenties. Even if we do continue to

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Speaker 13: see inflation and those disinflationory impulses continuing this year and

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Speaker 13: even perhaps next year, I think just the concept of

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Speaker 13: inflation volatility will see rates kind of high for longer

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Speaker 13: and turn premium in long bonds perhaps higher as well.

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Speaker 1: Nick.

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Speaker 14: The thing is, you know, we've got a structural shift.

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Speaker 14: I mean, you know when Brian was talking about this

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Speaker 14: paradigm shift, I mean it is structural in the sense

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Speaker 14: that we probably will not return to years of no

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Speaker 14: little inflation for quite a while because we've got demographics

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Speaker 14: in play. We've got decarbonization have We've got also de

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Speaker 14: risking i e. These globalization trends or deglobalization trends, all

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Speaker 14: of the moment contriving together to make inflation higher for longer.

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Speaker 1: Yeah.

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Speaker 13: Correct, Yeah, you've got the friends shoring and all of

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Speaker 13: those things. And even now we've seen just more recently

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Speaker 13: the energy price at about ninety dollars, which will potentially

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Speaker 13: put them up with pressure on inflation, and also inflation

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Speaker 13: expectations as well, which we know the FED has still

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Speaker 13: shown that they're concerned about keeping I think rates high

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Speaker 13: for longer to avoid inflation expectations become unhinge, which was

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Speaker 13: that situation we had back in the seventies. So yeah,

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Speaker 13: it does feel like inflation will be higher for long.

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Speaker 1: So Nick, you're cautious on the US economy if you

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Speaker 1: think infleation will be Yeah, you're probably not all that

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Speaker 1: enamored with the bond market. I don't know. So one

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Speaker 1: question is what else are you cautious on? And secondly,

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Speaker 1: where's the best place to put your money over the

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Speaker 1: next year.

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Speaker 13: So in terms of the bond market, so we have

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Speaker 13: been incrementally adding to government bonds or G seven government

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Speaker 13: bonds as rates have continued to trend higher. So we

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Speaker 13: are closer to neutral on our duration, our interest rate risk.

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Speaker 13: And that really is just the fact that you've got

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Speaker 13: a good carry cushion in sovereign bonds now, which we

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Speaker 13: didn't have when we're in the zero interest rate policy error.

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Speaker 13: Also the fact that we do think it's highly likely

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Speaker 13: that we still could get a recession over the next

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Speaker 13: say nine months. Sometime there will be the case then

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Speaker 13: that you do get a very good, once once in

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Speaker 13: a cycle capital gain from long bonds. But we are

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Speaker 13: aware of that continued risk around that bear steepening, and

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Speaker 13: we'll manage our rates risk tactically. In terms of equities

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Speaker 13: we have, we still are underweight, we're neutral Austraine shares

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Speaker 13: where underweight global equities, and that is expressed most notably

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Speaker 13: through the US In terms of where we see opportunities.

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Speaker 13: You know, in a hedge fund macro fund that we

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Speaker 13: run internally, we bought commodities a couple of months ago.

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Speaker 13: We did the equivalent of a bear steepening. We we're

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Speaker 13: very tactical with how we run money, so it's kind

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Speaker 13: of working around our strategic ASAD location at the moment

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Speaker 13: and really just seeing when we get greater line of

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Speaker 13: sight to what's happened in central Bank's inflation and the

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Speaker 13: economy before we take any big macro calls through our

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Speaker 13: location at this juncture.

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