Speaker 1: Good morning.
Speaker 2: I'm Brian Curtis and I'm Doug Krisner. Here are the
Speaker 2: stories we're following today.
Speaker 1: Add A hard rain's going to fall, and I'm not
Speaker 1: talking about the Apples story just yet, but the heaviest
Speaker 1: rain in Hong Kong since eighteen eighty four. That is incredible,
Speaker 1: a black rainstorm. Warning it may affect the markets today.
Speaker 1: So for those of you who will be looking and
Speaker 1: listening for the Hong Kong market information, be forewarned about that,
Speaker 1: and we'll track that as those developments ensue. Well, let's
Speaker 1: take a close look at the Apple story. Shares down
Speaker 1: almost another three percent today, wiping out nearly two hundred
Speaker 1: billion dollars of market value in just two days. It
Speaker 1: comes as China plans to expand a ban on the
Speaker 1: use of iPhones in sensitive departments across the government structures.
Speaker 1: So I just tell Bloomberg that the new restrictions could
Speaker 1: include state don't enterprises and other government run organizations. Bloomberg's
Speaker 1: Honor Agrana discusses the potential impact on Apple financially.
Speaker 3: I would say government official nots buying the iPhone is
Speaker 3: not going to be material for Apple. But the question
Speaker 3: really is not so much about that. The question is
Speaker 3: is the close relationship that China has had with Apple
Speaker 3: or the Apple has had with China, are we seeing
Speaker 3: some kind of intent in that? I think that is
Speaker 3: the biggest question here.
Speaker 1: So we're down three point six percent yesterday and two
Speaker 1: point nine percent today, so talking round about six and
Speaker 1: a half percent in two days performance, and we're just
Speaker 1: hearing the views there of Bloomberg's on rog Grana Dock.
Speaker 2: Well, let's get to the day's Fed speak. We heard
Speaker 2: from the New York President John Williams saying monetary policy
Speaker 2: is in a good place. However, you thinks officials will
Speaker 2: need to be data dependent going forward.
Speaker 4: We'll have to keep watching the data carefully, analyzing all
Speaker 4: of that and really asking ourselves the question, is this
Speaker 4: sufficiently restrictive? Do we need to maybe raise rates again to.
Speaker 5: Make sure that we're keeping that steady progress in terms
Speaker 5: of getting the imbalances, you know, shrinking balances in the
Speaker 5: labor market and bring inflation back down.
Speaker 2: Now, the futures market is suggesting the FED will hold
Speaker 2: rate steady again when the committee meets later this month,
Speaker 2: you know, policymakers will have some more economic data to review.
Speaker 2: Before then, including some fresh readings on inflation ran Well.
Speaker 1: The United Auto Workers' Union has rejected an offer a
Speaker 1: counter offer that was made by General Motors. We get
Speaker 1: the story from Bloomberg's and Kates.
Speaker 6: GM had proposed a total sixteen percent pay raise for
Speaker 6: top wage earners at its plants and a fifty six
Speaker 6: percent increased for newer employees who make less. GM also
Speaker 6: included eleven thousand dollars in inflation protection payments and improved
Speaker 6: wages for temporary staff. But UAW President Sean Fain reacted quickly,
Speaker 6: saying that proposal is insulting, with contracts with Detroy's Big
Speaker 6: Three to expire next week. In addition to much higher raises,
Speaker 6: Fain also once guaranteed pensions, reinstated cost of living allowances,
Speaker 6: and retiree healthcare Bloomberg's and cats Well.
Speaker 2: Zoom Video Communications has met with regulators not just here
Speaker 2: in the US, but in the European Union as well
Speaker 2: in some other jurisdictions. The aim here was to outline
Speaker 2: concerns about allegedly anti competitive behavior on the part of Microsoft.
Speaker 2: The story from Bloomberg's Charlie Pellett.
Speaker 7: The source says the communications software maker has talked with
Speaker 7: the Federal Trade Commission, as well as competition enforcers from
Speaker 7: the EU, UK and Germany over the past year. The
Speaker 7: source says Zoom expressed concerns about the way Microsoft gives
Speaker 7: preference to its team's video conferencing software through price bundling
Speaker 7: and product design. Microsoft has been under scrutiny from the
Speaker 7: EU's competition watchdog in New York, Charlie Pellett, Bloomberg Radio, and.
Speaker 1: Again Microsoft trading down about nine tenths of one percent
Speaker 1: in the latest session. China is said to be trying
Speaker 1: to link chip access to climate action at the G
Speaker 1: twenty summit. We get that story from Bloomberg Spawnyaw in
Speaker 1: Hong Kong.
Speaker 8: We hear Chinese officials raise the issue about delivering more
Speaker 8: financing and technology, including chips, to aid efforts to combat
Speaker 8: global warming. Negotiations on climate action are high on the
Speaker 8: agenda ahead of the weekend's meeting in New Delhi. China
Speaker 8: has repeatedly condemned a US move to titan export controls
Speaker 8: on chip technology to China, and it has been in
Speaker 8: talks with G twenty counterparts, including the US, Japan, and
Speaker 8: South Korea. But China's efforts to link chip access to
Speaker 8: climate action are not expected to succeed in Hong Kong.
Speaker 8: I'm Bonnie al Bloomberg Radio.
Speaker 2: Prime Minister Justin Trudeau says Canada is on track to
Speaker 2: sign a trade agreement with Indonesia in the next year.
Speaker 2: Now this comes as Canada is looking to expand trade
Speaker 2: with a number of Asian economies, while it as the
Speaker 2: same time, reduces its reliance on China. Now Trudeau was saying,
Speaker 2: even though relations with China have improved, there is still
Speaker 2: no political space for reprochement.
Speaker 4: China has made decisions over the past years that have
Speaker 4: made it more difficult, not just for Canada but for
Speaker 4: other countries to engage in ways. I will admit in
Speaker 4: twenty fifteen the conversations we had was about working towards
Speaker 4: a free trade deal with China, working towards those sorts
Speaker 4: of things, but in real terms, the choices and the
Speaker 4: actions of China have made that more difficult.
Speaker 2: Well, the relationship between China and Canada turned hostile back
Speaker 2: in twenty eighteen. That's when Canada arrested Huawei executive Mung
Speaker 2: wang Zhou on an extradition request from the US. Now
Speaker 2: that prompted China to detain two Canadians and then impose
Speaker 2: embargoes on some Canadian food exports.
Speaker 1: Right, and even though the US dropped those charges against
Speaker 1: Mung and even though the two Michaels who were released
Speaker 1: from China, relations have not improved. And Doug, you know,
Speaker 1: these comments from Justin Trudeau about no room for rap
Speaker 1: Rochman are quite severe. Trudeau said that a normal relationship
Speaker 1: is quote impossible. Now, those are the types of comments
Speaker 1: that you often hear from ideologues, but not usually from
Speaker 1: prime ministers and presidents. And I think China, I think
Speaker 1: many would understand this and feel this. China is becoming
Speaker 1: much more isolated from the West.
Speaker 2: Most definitely, and I think the markets are kind of
Speaker 2: confirming that trend.
Speaker 1: Before we go, can I just add one quick line.
Speaker 1: It happens on a day when we see that China's
Speaker 1: imports from Russia actually reach a record high, the largest
Speaker 1: ever surge in imports from Russia.
Speaker 2: You're absolutely right. Quick note on the treasury market, because
Speaker 2: I mentioned earlier we had yields down across the curve today,
Speaker 2: I think there is a lot of interest now in
Speaker 2: evidence of softer wages. The Atlanta Fed Wage tracker came
Speaker 2: in an increase in August of five to three, down
Speaker 2: from July's reading of five to seven, and the Wall
Speaker 2: Street Journal reporting that Walmart is cutting wages from new hires.
Speaker 2: I thought that was interesting.
Speaker 1: It is you love to get down and dirty with
Speaker 1: the bond market. I know you go to bed at
Speaker 1: night thinking about the inversion of the yield curve. Well,
Speaker 1: we've got another We've got a guest coming up, Nick Schunmacher,
Speaker 1: who is in the same sort of camp client portfolio
Speaker 1: manager at Drummond Capital Partners. Get we'll get his views
Speaker 1: on markets and how things are moving here at the moment,
Speaker 1: we've seen a lot of red numbers on these screens.
Speaker 1: Time now for global news. Well, let's get right to
Speaker 1: San Francisco and the nine to sixty newsroom. We've got
Speaker 1: Ed Baxter, who is looking at well Asian's closing statements
Speaker 1: on the Russian war in Ukraine. It has set up
Speaker 1: what is expected to be a ten G twenty ed.
Speaker 9: Yeah, that's not the way they wanted, Brian, but it
Speaker 9: looks like the way it is neweling statements. And as
Speaker 9: he ends closed regarding Ukraine, one of the condemned it,
Speaker 9: and another that didn't mention it at all. The formal
Speaker 9: announcement made no mention of the war, although the chair
Speaker 9: statement noted with quote deep concern earn the impact of
Speaker 9: the war that most members strongly condemn. So now the
Speaker 9: focus India and G twenty with Vladimir Putin and Jijimping
Speaker 9: not attending, does it have any meaning at all?
Speaker 7: Well?
Speaker 9: Tim ash RBC global asset strategist says, that is a
Speaker 9: very good question.
Speaker 10: Really, what is it for? What is it now achieving
Speaker 10: when you know, you G seven knocking out the park
Speaker 10: around the Ukraine and unit see all that kind of
Speaker 10: thing bricks enlarged obviously g using that as a as
Speaker 10: a you know, his kind of motor or is his
Speaker 10: you know, his means to kind of project Chinese influence
Speaker 10: and is kind of floundering.
Speaker 9: Yeah. Esh On Bloomberg says it affects economic issues as
Speaker 9: well as climate change, as well as what's going to
Speaker 9: happen in the end of Pacific. US President Joe Biden meanwhile,
Speaker 9: it's tested negative again for COVID, so he was cleared
Speaker 9: to make the trip to the G twenty. We're getting
Speaker 9: more details on the latest US aid package for Ukraine.
Speaker 9: Secretary of State Anti blank And has reported yesterday is
Speaker 9: there today? Pentagon spoke, so when Sabrina Singh outlined what
Speaker 9: has gone.
Speaker 5: The Department announced a new security assistance package through the
Speaker 5: Ukraine's Security Assistance Initiative to support Ukraine's battlefield needs. This
Speaker 5: six hundred million dollar package includes equipment to augment Ukraine's
Speaker 5: air defenses, artillery, munitions, and other capabilities.
Speaker 9: Yeah side note it's mentioned in a new Biden campaign
Speaker 9: ad as well. As Ukraine continues to take back land
Speaker 9: from Russia, it's having to deal in a major way
Speaker 9: with clearing land mines. US Secretary of State Antony blank
Speaker 9: And is continuing his visit there.
Speaker 11: I saw estimates as much as one third of Ukraine's
Speaker 11: territory has to deal with minds or unexploded ordinance. One
Speaker 11: third of the entire country farmland throughout the country unexploded
Speaker 11: ordnance mines, farmland that was feeding eighty million people around
Speaker 11: the world.
Speaker 9: Blanc And says Ukrainians are working together to reclaim their land.
Speaker 9: Things have become more problematic for Congress to dodge a
Speaker 9: US government shutdown. Bloomberg Zach Cohen reports how Speaker Kevin
Speaker 9: McCarthy's officers now trying to tie in Ukraine.
Speaker 12: Could be tied instead to a border bill, which is
Speaker 12: much more contentious and certainly won't pass this month, and
Speaker 12: especially since it doesn't have time to get over to
Speaker 12: the Senate and back in the same version. But there's
Speaker 12: all whole host of issues on border security that the
Speaker 12: two parts need to work out ahead of time. So
Speaker 12: Ukraine ad really in question right now, really the first
Speaker 12: time that's happened on an issue that has had why
Speaker 12: bipartisan supporting Congress since Russia's invasion.
Speaker 9: And President Biden will not be able to work on
Speaker 9: until he gets back from the G twenty and Australian
Speaker 9: Prime Minister Anthony Albanesi will visit Beijing to meet with
Speaker 9: a Chinese government senior leadership before the end of twenty
Speaker 9: twenty three, latest sign of some thaw in the relationship.
Speaker 9: Global News powered by more than twenty seven hundred journalists
Speaker 9: and analysts in over one hundred and twenty countries. In
Speaker 9: San Francisco, I met Baxter in This is Bloomberg.
Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis along with
Speaker 1: Rushad Salamat and we are joined by Nick Schumaker, who's
Speaker 1: a client portfolio manager at Drummond Capital Partners. Nick, thanks
Speaker 1: very much for joining. As Apple's woes in China sideshell
Speaker 1: or a mean.
Speaker 13: Event, I guess on a geopolitical front, it's quite It's
Speaker 13: a main event, just given the efforts that China went to,
Speaker 13: particularly over the last year, to shut down that the
Speaker 13: US went to to shut down China's capabilities and semiconductors.
Speaker 13: So I think it's a big event geopolitically in terms
Speaker 13: of Apple. I mean, every wealthy person in every country
Speaker 13: in the world owns an iPhone, and I don't think
Speaker 13: that kind of technology staple nature of Apple is changing,
Speaker 13: So I'd say that's more of a shorter term hurdle.
Speaker 13: There obviously be countries now that will be concerned that
Speaker 13: the US and the West can weaponize semiconductors to some
Speaker 13: extent and may favor the version of the new kind
Speaker 13: of iPhone that's been made in China that will have
Speaker 13: a that will have an impact to Apple's margins. But
Speaker 13: I think that's kind of more of a secondary consideration,
Speaker 13: but more just the geopolitical optics of what's happened. I
Speaker 13: think is quite significant.
Speaker 14: Well, certainly, and it doesn't bring Washington and Beshion close
Speaker 14: in any way, shape or form.
Speaker 8: But but tell me.
Speaker 14: About how this is all affecting right now, Nick, What's
Speaker 14: what's happening with the with markets? What has been priced in?
Speaker 14: Or is everybody just looking at monetary policy right now
Speaker 14: and ignoring the geopolitical risks.
Speaker 13: The geopolitical risks do seem to be ignored. I think,
Speaker 13: as you say, markets this year have performed very buoyantly,
Speaker 13: and I think, you know, if you're just some justification
Speaker 13: for that, is that kind of immaculate disinflatory trend that
Speaker 13: we've had. If you think though just about you know,
Speaker 13: the S and P five hundred and the Magnificent seven,
Speaker 13: you know, it's really only two stocks in a Video
Speaker 13: and Meta that have had earnings revisions for this year
Speaker 13: and next, and the rest have had nothing, but they've
Speaker 13: still been up fifty to sixty percent. You've had Tesla
Speaker 13: whose earnings have been essentially going backwards since twenty twenty
Speaker 13: two and are up over one hundred percent. So you've
Speaker 13: had a lot of this kind of what feels in
Speaker 13: some ways like late cycle exuberance in markets this year
Speaker 13: Obviously there's a big innovation cycle now that's going to
Speaker 13: be a result of AI and the introduction of chat
Speaker 13: GPT late last year. But the economic rent from AI
Speaker 13: isn't going to be seven stocks. It's going to be
Speaker 13: a five ten year process. So certainly it does seem
Speaker 13: that the whole soft landing narrative, as that's become more palatable,
Speaker 13: investors have been cheered along by that, and as you
Speaker 13: alluded to, have been ignoring geopolitical risk to a large degree.
Speaker 1: Well, we haven't really been performing all that well of late.
Speaker 1: It could be seasonal in nature, or it could be
Speaker 1: that investors are worried about higher rates for longer from
Speaker 1: the fair. Yeah, although you are starting to hear some
Speaker 1: commentary about perhaps a new direction that the Fed will
Speaker 1: start recalibrating pretty soon about when it needs to start
Speaker 1: pulling back on reads. Where do you stand in that argument?
Speaker 1: Where are you on the spectrum?
Speaker 13: I think so In terms of the US, I think
Speaker 13: the most likely outcome later this month would be a
Speaker 13: hawkish pause. We've probably got the ECB perhaps going one
Speaker 13: more time. They don't have a dual mandate, so it
Speaker 13: really is just fighting inflation. It's too high I think
Speaker 13: what the market is going to recalibrate and why there
Speaker 13: may be some upward pressure on bondules that we've started
Speaker 13: to see with that bears steepening over the last month,
Speaker 13: will be that the markets pricing of rate cuts next
Speaker 13: year may start to be pushed out and the higher
Speaker 13: for longer narrative will be more embedded into market participants.
Speaker 13: Psyche for now.
Speaker 1: And Nick, we've got you for a little extra time.
Speaker 1: So I want to ask a follow up and that Yeah, sure,
Speaker 1: is this a new paradigm. Do you think that going
Speaker 1: forward we're going to see reids stay elevated, They're not
Speaker 1: going to go back down into the one and two
Speaker 1: percent range.
Speaker 13: Yeah, it seems that way. Look, when we run our acylocation,
Speaker 13: we looked at a number of scenarios and one of
Speaker 13: them was the deflatory quagmire. And what a deflatory quagmire
Speaker 13: is is if we were going back to that twenty
Speaker 13: and twelve to twenty nineteen period where you had zero
Speaker 13: interest rate policy QE and negative real yields. I don't
Speaker 13: think we're going back to that. I think kind of
Speaker 13: more return to normal in terms of positive real yields,
Speaker 13: where we have the real yield now at about two
Speaker 13: percent is more of a likely scenario. And I think
Speaker 13: inflation volatility is something that's going to be very relevant
Speaker 13: over the twenty twenties. Even if we do continue to
Speaker 13: see inflation and those disinflationory impulses continuing this year and
Speaker 13: even perhaps next year, I think just the concept of
Speaker 13: inflation volatility will see rates kind of high for longer
Speaker 13: and turn premium in long bonds perhaps higher as well.
Speaker 1: Nick.
Speaker 14: The thing is, you know, we've got a structural shift.
Speaker 14: I mean, you know when Brian was talking about this
Speaker 14: paradigm shift, I mean it is structural in the sense
Speaker 14: that we probably will not return to years of no
Speaker 14: little inflation for quite a while because we've got demographics
Speaker 14: in play. We've got decarbonization have We've got also de
Speaker 14: risking i e. These globalization trends or deglobalization trends, all
Speaker 14: of the moment contriving together to make inflation higher for longer.
Speaker 1: Yeah.
Speaker 13: Correct, Yeah, you've got the friends shoring and all of
Speaker 13: those things. And even now we've seen just more recently
Speaker 13: the energy price at about ninety dollars, which will potentially
Speaker 13: put them up with pressure on inflation, and also inflation
Speaker 13: expectations as well, which we know the FED has still
Speaker 13: shown that they're concerned about keeping I think rates high
Speaker 13: for longer to avoid inflation expectations become unhinge, which was
Speaker 13: that situation we had back in the seventies. So yeah,
Speaker 13: it does feel like inflation will be higher for long.
Speaker 1: So Nick, you're cautious on the US economy if you
Speaker 1: think infleation will be Yeah, you're probably not all that
Speaker 1: enamored with the bond market. I don't know. So one
Speaker 1: question is what else are you cautious on? And secondly,
Speaker 1: where's the best place to put your money over the
Speaker 1: next year.
Speaker 13: So in terms of the bond market, so we have
Speaker 13: been incrementally adding to government bonds or G seven government
Speaker 13: bonds as rates have continued to trend higher. So we
Speaker 13: are closer to neutral on our duration, our interest rate risk.
Speaker 13: And that really is just the fact that you've got
Speaker 13: a good carry cushion in sovereign bonds now, which we
Speaker 13: didn't have when we're in the zero interest rate policy error.
Speaker 13: Also the fact that we do think it's highly likely
Speaker 13: that we still could get a recession over the next
Speaker 13: say nine months. Sometime there will be the case then
Speaker 13: that you do get a very good, once once in
Speaker 13: a cycle capital gain from long bonds. But we are
Speaker 13: aware of that continued risk around that bear steepening, and
Speaker 13: we'll manage our rates risk tactically. In terms of equities
Speaker 13: we have, we still are underweight, we're neutral Austraine shares
Speaker 13: where underweight global equities, and that is expressed most notably
Speaker 13: through the US In terms of where we see opportunities.
Speaker 13: You know, in a hedge fund macro fund that we
Speaker 13: run internally, we bought commodities a couple of months ago.
Speaker 13: We did the equivalent of a bear steepening. We we're
Speaker 13: very tactical with how we run money, so it's kind
Speaker 13: of working around our strategic ASAD location at the moment
Speaker 13: and really just seeing when we get greater line of
Speaker 13: sight to what's happened in central Bank's inflation and the
Speaker 13: economy before we take any big macro calls through our
Speaker 13: location at this juncture.
Speaker 1: This is Bloomberg Daybreak Asia, your morning brief on the
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