WEBVTT - Netflix Earnings, Global Monetary Policy 0:00:00.160 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APAC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.040 the Bloomberg Terminal, and the Bloomberg Business. 0:00:25.800 --> 0:00:30.040 App after the bill. Today, Netflix posted its best start 0:00:30.120 --> 0:00:33.400 to the year since twenty twenty, Netflix adding nine point 0:00:33.440 --> 0:00:36.280 three three million customers in the first quarter of twenty 0:00:36.280 --> 0:00:40.000 twenty four. That's nearly double the average estimate from analysts. 0:00:40.400 --> 0:00:43.680 Despite that, Netflix shares we're down about five percent in 0:00:43.800 --> 0:00:47.479 late trading. The streamer reported a weaker than expected second 0:00:47.560 --> 0:00:51.120 quarter revenue forecast. Joining us now for some discussion of 0:00:51.159 --> 0:00:55.320 this is Gita Ranganathan, Bloomberg Intelligence US media analyst, to 0:00:55.360 --> 0:00:59.840 take a closer look. So, Gita, Netflix, Well, pretty strong rebound, 0:00:59.880 --> 0:01:03.160 I think you have to say, albeit with a few qualifications. 0:01:03.440 --> 0:01:06.840 On balance, how do you read these results? 0:01:06.959 --> 0:01:10.840 Very very strong results, without a doubt. We're seeing really 0:01:10.840 --> 0:01:14.240 good momentum when it comes to the subscribers. And the 0:01:14.240 --> 0:01:16.319 big story of course for Netflix is that they are 0:01:16.360 --> 0:01:20.240 trying to balance subscriber growth along with their financial metrics. 0:01:20.240 --> 0:01:23.720 So the most important metrics here being you know, revenue growth, 0:01:24.440 --> 0:01:28.480 and they were guiding to or they were targeting rather 0:01:28.680 --> 0:01:32.959 double digit revenue gains, which they delivered and will continue 0:01:32.959 --> 0:01:34.959 to deliver it through the rest of the year. And 0:01:35.000 --> 0:01:37.880 then of course is profitability. They're one of the only 0:01:37.959 --> 0:01:42.440 streamers right now to have very very strong profitability metrics, 0:01:43.360 --> 0:01:46.160 and you know, they actually upped their guidance when it 0:01:46.200 --> 0:01:50.240 came to operating margins. So on balance, a very very 0:01:50.280 --> 0:01:53.480 strong report card, although you did point out the slightly 0:01:53.560 --> 0:01:57.000 muted outlook, which is why we're seeing the share reaction. 0:01:57.720 --> 0:02:00.760 Gaeta, I'm trying to understand whether or not this growth 0:02:00.840 --> 0:02:05.520 is being powered by original programming or crack down on 0:02:05.840 --> 0:02:07.320 password sharing, which is it? 0:02:08.520 --> 0:02:09.400 So it really is. 0:02:09.480 --> 0:02:13.880 I think the biggest driver of this subscriber momentum that 0:02:13.919 --> 0:02:17.480 we're seeing is really the password sharing initiative. Netflix had 0:02:17.520 --> 0:02:22.839 initially identified about one hundred million global households that we're 0:02:22.919 --> 0:02:24.960 not paying for the service, and we know that they've 0:02:25.000 --> 0:02:29.040 cracked down on password sharing across all of their global markets, 0:02:29.600 --> 0:02:31.960 so this is really the biggest driver. They haven't exactly 0:02:32.160 --> 0:02:36.280 outlined how much they've captured or how much is left. 0:02:36.960 --> 0:02:40.280 But you know, just kind of given the guidance and 0:02:40.320 --> 0:02:43.440 the fact that they alluded to, you know, much slower 0:02:43.480 --> 0:02:45.959 subscriber growth in the second half of twenty twenty four 0:02:46.040 --> 0:02:48.640 versus the first half, suggests to us that, you know, 0:02:48.720 --> 0:02:52.919 the positive tailwinds from this password sharing crackdown will start 0:02:52.960 --> 0:02:54.680 to fade pretty soon. 0:02:56.280 --> 0:03:00.520 Now. Netflix shares were up seventy one percent since October, so, 0:03:00.800 --> 0:03:03.800 to be fair, a five percent pullback is probably not 0:03:04.280 --> 0:03:08.280 very likely an indictment. It was a good quarter, and 0:03:08.360 --> 0:03:10.959 you said that, but it's important to talk about the 0:03:11.000 --> 0:03:16.120 qualifications too, and Doug raised one. Perhaps another might be 0:03:16.280 --> 0:03:18.880 that it's going to the company is going to stop 0:03:18.919 --> 0:03:21.840 reporting the number of subscribers. Now, that would raise a 0:03:21.840 --> 0:03:25.080 few questions among some what do you see as the 0:03:25.120 --> 0:03:25.920 reasons for that? 0:03:26.080 --> 0:03:26.760 What are you hearing? 0:03:28.520 --> 0:03:32.239 Yeah, so, I think what they said is that there 0:03:32.280 --> 0:03:35.760 really are so many moving parts to this story. Right 0:03:35.800 --> 0:03:38.800 in the in the early days of growth, it was 0:03:38.840 --> 0:03:42.080 really just a very very kind of a plain vanilla story. 0:03:42.120 --> 0:03:44.520 You had more subscribers, you charge them whatever amount you 0:03:44.520 --> 0:03:46.480 were charging them, and you know, you kind of had 0:03:46.520 --> 0:03:49.600 this whole growth model. It's kind of become much more 0:03:49.680 --> 0:03:53.400 nuanced right now because we're kind of reaching this very 0:03:53.480 --> 0:03:58.200 mature stage in the Netflix narrative, and they are they 0:03:58.240 --> 0:04:00.880 have a lot of growth levers right Aizing is is 0:04:00.920 --> 0:04:02.880 a huge lever that is going to kind of start 0:04:02.960 --> 0:04:07.280 ramping up. They're probably going to start introducing new plans 0:04:07.320 --> 0:04:10.440 at different price points in different countries, and so it's 0:04:10.520 --> 0:04:13.040 kind of becoming harder and harder for them to parse 0:04:13.120 --> 0:04:15.240 out everything. And I think that is one of the 0:04:15.280 --> 0:04:17.560 reasons why they are suggesting that they don't want to 0:04:17.600 --> 0:04:20.400 be tied down to the subscriber metric because we know 0:04:20.480 --> 0:04:23.159 that every time Netflix reports, you know, the subscriber numbers, 0:04:23.200 --> 0:04:25.920 there is just so much volatility and so much noise 0:04:26.200 --> 0:04:27.440 surrounding that one number. 0:04:27.520 --> 0:04:30.000 Now, the lack of that number is also creating a 0:04:30.000 --> 0:04:30.599 lot of noise. 0:04:30.760 --> 0:04:33.440 So if you look at markets outside the US and Canada, 0:04:33.520 --> 0:04:37.640 away from North America, how is this company performing right now? Globally? 0:04:37.720 --> 0:04:40.640 Where is the strength coming from? 0:04:41.000 --> 0:04:43.919 The strength is really broad based. I mean, we know 0:04:44.000 --> 0:04:46.200 that the US and Canada is a mature market. It's 0:04:46.200 --> 0:04:49.760 almost you know, seventy seventy five percent penetrated that said it. 0:04:50.040 --> 0:04:52.480 You know, if you looked at the first quarter numbers, 0:04:52.520 --> 0:04:56.359 this was one of the strongest subscriber gains in the 0:04:56.480 --> 0:04:59.680 US and Canadian markets. But you know, growth is coming 0:04:59.680 --> 0:05:02.039 from other markets as well. If you look outside of 0:05:02.080 --> 0:05:04.640 the US, we you know, Europe tends to be a 0:05:04.760 --> 0:05:08.279 very very strong market, continues to perform very well. So 0:05:08.560 --> 0:05:12.320 is Asia Pacific, which is relatively underpenetrated market. And so 0:05:12.320 --> 0:05:16.240 there's obviously a lot of optimism for a growth upside 0:05:16.320 --> 0:05:18.039 in many, many years to come. 0:05:18.200 --> 0:05:23.119 Yeah, well, I'm curious in terms of revenue drivers, how's 0:05:23.160 --> 0:05:24.320 the AD tier doing. 0:05:26.000 --> 0:05:29.120 So the AD tier, they haven't really given us a 0:05:29.160 --> 0:05:31.840 lot of color here other than to say that they 0:05:31.880 --> 0:05:33.680 are building, you. 0:05:33.600 --> 0:05:35.440 Know, the infrastructure for this business. 0:05:36.320 --> 0:05:39.360 They do have, you know, programming which will kind of 0:05:39.760 --> 0:05:42.360 serve that AD business well. And when I talk about 0:05:42.600 --> 0:05:45.680 the programming catering specifically to the AD business, it's. 0:05:45.560 --> 0:05:46.680 Really live sports. 0:05:47.080 --> 0:05:51.440 They have a deal for WWE content starting in you know, 0:05:51.480 --> 0:05:54.320 twenty twenty five. They're also kind of dipping a toe 0:05:54.560 --> 0:05:56.960 dipping their toes a little bit with live events. So 0:05:56.960 --> 0:06:01.200 they have this big boxing match between Mike Tyson and 0:06:01.320 --> 0:06:04.240 Jake Paul which is coming up in July and that 0:06:04.320 --> 0:06:07.280 kind of allows them to test, you know, the appetite 0:06:07.760 --> 0:06:10.599 the market for live sports, and we think they will 0:06:10.640 --> 0:06:13.640 become a bigger player in the live sports market. That 0:06:13.720 --> 0:06:18.280 actually helps them scale their advertising ambitions, I think pretty significantly. 0:06:18.600 --> 0:06:20.840 And what we are kind of projecting at Blueberg Intelligence 0:06:20.880 --> 0:06:23.920 is that advertising will be roughly ten to fifteen percent 0:06:24.000 --> 0:06:26.600 of their business. This is a forty five billion dollar 0:06:26.680 --> 0:06:30.160 business in twenty twenty five, the total business, that is, 0:06:30.200 --> 0:06:32.200 and we think advertising will be about ten to fifteen 0:06:32.200 --> 0:06:32.760 percent of that. 0:06:33.000 --> 0:06:35.680 Geta what do we know about what Netflix intends to 0:06:35.720 --> 0:06:38.599 spend on new content going forward? Do they have the 0:06:38.680 --> 0:06:43.360 pockets to continue driving on the content side, Oh. 0:06:43.240 --> 0:06:44.279 They absolutely do. 0:06:44.839 --> 0:06:48.520 So they've taken actually a pretty disciplined approach. So for 0:06:48.600 --> 0:06:52.040 this year they reaffirmed their content budget of about seventeen 0:06:52.080 --> 0:06:55.600 billion dollars. Going forward, we think it'll go up by 0:06:55.640 --> 0:06:58.599 about you know, ten to fifteen percent. It probably will 0:06:58.640 --> 0:07:01.400 reach about twenty billion dollars or so in the next 0:07:01.400 --> 0:07:05.200 two years time. But again that's well within you know, 0:07:05.279 --> 0:07:09.720 the range, and they are definitely taking a very disciplined 0:07:09.760 --> 0:07:12.920 approach again not just with their original content, but also 0:07:12.920 --> 0:07:16.640 they're going in more for licensed content, which tends to 0:07:16.680 --> 0:07:19.160 be much more effective and economical. 0:07:20.680 --> 0:07:23.320 So we see that Netflix is number one. I think 0:07:23.400 --> 0:07:27.720 Amazon Prime is number two. Right, how are we shaking 0:07:27.760 --> 0:07:30.840 out When we look at all of the big streamers. 0:07:31.280 --> 0:07:34.520 Netflix clearly wins, not just in terms of subscriber numbers. 0:07:34.520 --> 0:07:36.960 Obviously they have two hundred and seventy million subscribers. They 0:07:36.960 --> 0:07:39.960 are the biggest streaming service across the world. But then again, 0:07:40.000 --> 0:07:43.680 it's not just that, it's also you know, engagement, and 0:07:43.720 --> 0:07:46.240 that is the one key metric that they kept on 0:07:46.360 --> 0:07:48.800 talking about over and over again in you know, the 0:07:48.800 --> 0:07:52.200 earnings call in their earnings newsletter today, because they do 0:07:52.320 --> 0:07:56.240 have they said they have roughly half a billion people 0:07:56.360 --> 0:08:00.560 across the globe tuning in every night into Netflix about 0:08:00.560 --> 0:08:02.840 two two and a half hours. And so as they 0:08:02.960 --> 0:08:06.000 have that engagement, that kind of then speaks to so 0:08:06.120 --> 0:08:10.400 much more monetization capabilities, right, so they can increase prices, 0:08:11.200 --> 0:08:13.200 They have a captive audience that they can. 0:08:13.080 --> 0:08:14.400 Sell to advertisers. 0:08:14.680 --> 0:08:17.160 So really kind of improves the growth outlook for the 0:08:17.200 --> 0:08:18.720 company on so many different fronts. 0:08:18.840 --> 0:08:30.800 KEETERA. Irong Andathan Bloomberg, Intelligence US media analyst, joining us 0:08:30.840 --> 0:08:33.800 in our Studios is Harold Vanderlinda, who's head of age 0:08:33.840 --> 0:08:38.080 specific equity strategy at HSBC. Perhaps a big sell off 0:08:38.160 --> 0:08:41.160 is underway. We've got higher for long grown rates, investors 0:08:41.400 --> 0:08:44.160 setting the bar pretty high, and a strong dollar. You 0:08:44.200 --> 0:08:45.960 see it that way or do you see things as 0:08:46.400 --> 0:08:47.520 maybe more like half full. 0:08:47.679 --> 0:08:52.280 No, I think you're nailing the Sorry, you're hitting the 0:08:52.360 --> 0:08:57.120 nail of that. We've gone from a scenario where by 0:08:57.160 --> 0:08:58.840 in the beginning of the year we were talking about 0:08:58.880 --> 0:09:02.280 maybe four, five, six, seven, I think even the one 0:09:02.280 --> 0:09:05.520 point in terms of people that seven rate cuts. Now 0:09:05.760 --> 0:09:07.880 what we then saw what inflation was coming down, it 0:09:07.960 --> 0:09:10.240 flattened out, and now it's actually ticking up a little 0:09:10.240 --> 0:09:13.280 bit and the market is really reshifting that right, So 0:09:13.360 --> 0:09:15.800 it's saying there might be no rate cut at all, 0:09:15.880 --> 0:09:18.200 and some people are talking about rate hike. Now that 0:09:18.280 --> 0:09:22.160 has that changes the macro environment for Asian equities completely, right. 0:09:22.200 --> 0:09:25.000 So we have a stronger dollar, we have higher bond 0:09:25.080 --> 0:09:27.320 yields and all of these things, and that just doesn't 0:09:27.440 --> 0:09:30.199 help Asian equity. So yeah, that's where that pressure is 0:09:30.559 --> 0:09:31.040 coming from. 0:09:31.080 --> 0:09:32.920 But if I look at the fact that this is 0:09:32.960 --> 0:09:36.280 maybe an illustration of very strong American growth. Demand may 0:09:36.360 --> 0:09:38.440 still be a part of the story. And if you're 0:09:38.640 --> 0:09:41.960 an exporter anywhere in the APAC region, the outlook for 0:09:42.000 --> 0:09:43.760 business is going to be pretty good, is it not. 0:09:44.400 --> 0:09:46.280 Yeah, I mean that's a nice thing of equities, right, 0:09:46.320 --> 0:09:49.880 there's always something somewhere happening. So, yeah, you're right exports. 0:09:49.920 --> 0:09:53.000 But if you look at the totality of Asia, or 0:09:53.040 --> 0:09:56.040 for example, at the Chinese market, the vast majority of 0:09:56.120 --> 0:10:00.240 companies are domestic oriented companies, so they they won't be 0:10:00.240 --> 0:10:02.800 impacted so much by the strong US. They just have 0:10:02.840 --> 0:10:04.920 to deal with the domestic issues. But the ones that 0:10:05.080 --> 0:10:08.280 are exporters, and most of the Asian exporters are really 0:10:08.280 --> 0:10:13.160 in Korea, Japan, and Taiwan, they benefit on they benefit 0:10:13.240 --> 0:10:16.760 on the demand side and on the currency side because 0:10:16.880 --> 0:10:18.880 their currency is getting weaker and in so far they 0:10:18.920 --> 0:10:22.199 produce something in Korea, Japan or Taiwan, it means that 0:10:22.240 --> 0:10:26.080 they have a little bit of currency till winds as 0:10:26.080 --> 0:10:26.920 well helps. 0:10:26.920 --> 0:10:28.880 And we're getting chirked around a little bit with some 0:10:28.920 --> 0:10:30.600 of the data. Like I was having a look at 0:10:30.600 --> 0:10:34.880 the Philadelphia Fed Factory Index. You know, it topped estimates. 0:10:34.920 --> 0:10:37.440 In fact in a very big way. The index all 0:10:37.520 --> 0:10:40.840 the way up at fifteen point five, the survey only two, 0:10:42.120 --> 0:10:45.160 but then price is paid, we're at twenty three versus 0:10:45.160 --> 0:10:47.760 three point seven before. So I mean, how do you 0:10:47.760 --> 0:10:50.839 actually digest this kind of data? Makes sense of it? 0:10:51.840 --> 0:10:55.160 Yeah, there's a lot of data coming at us, But 0:10:55.520 --> 0:10:59.720 I think the overriding picture is simply of just unexpected 0:10:59.760 --> 0:11:02.280 and credible strength in the US economy. 0:11:01.880 --> 0:11:03.640 And that leads to higher prices. 0:11:03.920 --> 0:11:05.760 That leads to higher prices and these sort of things. 0:11:05.840 --> 0:11:10.079 Then in addition to that, you have oil prices potentially 0:11:10.120 --> 0:11:12.920 being a bit volatile. That I mean, the Middle East 0:11:12.960 --> 0:11:15.920 has got all sorts of issues there, so that could 0:11:16.080 --> 0:11:19.480 lead to oil prices. So all of these things could 0:11:19.520 --> 0:11:22.439 fuel into higher prices. Now if you you can also 0:11:22.480 --> 0:11:25.439 find good reasons to believe that actually these inflation numbers 0:11:25.480 --> 0:11:27.040 will come off again and these sort of things. So 0:11:27.120 --> 0:11:29.000 we'll have to see how it goes. But that means 0:11:29.040 --> 0:11:31.040 that the market is just very uncertain on what the 0:11:31.080 --> 0:11:33.320 path of inflation is and therefore what the path of 0:11:33.360 --> 0:11:37.520 interest rates is. That creates that volatility in the stock market. 0:11:37.720 --> 0:11:39.480 One of the things that I'm noting now is that 0:11:39.600 --> 0:11:41.920 Japanese inflation for the month of March came in at 0:11:41.920 --> 0:11:44.240 a monthly reading of two point seven percent. That was 0:11:44.280 --> 0:11:46.640 a little bit below the consensus. I think that Street 0:11:46.679 --> 0:11:49.080 was looking at two eight. But we know that Japanese 0:11:49.160 --> 0:11:52.320 currency has been under pressure, still trading around a thirty 0:11:52.520 --> 0:11:57.359 four year low against the greenback. What choices do policymakers 0:11:57.360 --> 0:11:59.840 in Japan have, whether it's the Ministry of Finance can 0:12:00.120 --> 0:12:02.840 dering intervention in the foreign exchange or the BOJ. 0:12:04.320 --> 0:12:06.760 Yeah, this is difficult for them because the currency has 0:12:06.800 --> 0:12:09.480 been very, very weak. And no we have that there's 0:12:09.480 --> 0:12:11.840 this meeting in the IMF, so maybe something will be 0:12:11.840 --> 0:12:14.079 discussed there. Who knows, but yeah, the currencies are we 0:12:14.240 --> 0:12:17.000 and we've now seen also when Yellen was around that 0:12:17.040 --> 0:12:20.559 the Koreans and the Japanese have publicly stated that they 0:12:20.600 --> 0:12:24.199 feel somewhat uncomfortable with that. With that currency weakness, Well, 0:12:24.440 --> 0:12:27.360 what can they do? The problem? The ultimate problem simply 0:12:27.920 --> 0:12:30.360 is that they have an interest rate policy that is 0:12:30.400 --> 0:12:33.480 still close to zero. Now you might say, yeah, they've 0:12:33.520 --> 0:12:36.480 increased a little bit, but we're talking about minuscule changes. 0:12:36.520 --> 0:12:40.240 So interest rates in Japan remain very very low, and 0:12:40.320 --> 0:12:43.360 in so far the US is strong and interest rates 0:12:43.400 --> 0:12:45.880 remain high. Yeah, that means that you have a massive 0:12:45.880 --> 0:12:48.920 interest rate differential. And you see this with Japanese households. 0:12:48.960 --> 0:12:51.240 They're taking their money out of Japan and putting into 0:12:51.280 --> 0:12:53.760 the US because that's where they get five percent on 0:12:53.880 --> 0:12:56.640 a deposits or something like that. In Japan you get nothing. 0:12:57.080 --> 0:13:01.320 Some Japanese companies are benefiting from China growth, but you know, 0:13:01.400 --> 0:13:04.240 it's not easy to estimate China growth. We put a 0:13:04.280 --> 0:13:09.040 piece out on the terminal today that Bloomberg calculation suggests 0:13:09.080 --> 0:13:11.800 that China will contribute more to global growth in the 0:13:11.840 --> 0:13:14.640 next five years than all the G seven combined. It's 0:13:14.640 --> 0:13:18.559 a staggering number. Yeah, twenty one percent versus twenty percent. Now, 0:13:18.600 --> 0:13:20.480 we know that in the short term, China's kind of 0:13:20.480 --> 0:13:22.600 gearing up for the May Day holiday and there could 0:13:22.600 --> 0:13:24.280 be a lot of spending. How do you see China 0:13:24.280 --> 0:13:25.480 moving here in the short term now? 0:13:25.800 --> 0:13:29.319 Now, So, when the GDP numbers came out at the 0:13:29.360 --> 0:13:30.680 beginning of the year, a lot of people said for 0:13:31.200 --> 0:13:33.480 around five percent, I thought it would be much weaker. 0:13:34.320 --> 0:13:36.880 I even know people say I can't believe that particularly number. No, 0:13:36.960 --> 0:13:40.319 we now have more data, macro data coming out out 0:13:40.320 --> 0:13:43.480 of China that supports that actually the economy is chucking 0:13:43.520 --> 0:13:48.520 along reasonably a bit faster than what the market was forecasting. 0:13:48.840 --> 0:13:52.600 But we also look at earnings. Now you can say, well, earnings, 0:13:52.600 --> 0:13:55.720 you can accountants can fiddle around with that, but cash 0:13:55.760 --> 0:13:58.040 earnings what we call cash flow money that you flow 0:13:58.080 --> 0:14:02.600 in and out. There's nothing to fiddle there. And actually 0:14:02.960 --> 0:14:05.840 it's not too bad. Yeah, the earnings growth has held 0:14:05.840 --> 0:14:08.320 a reason to you. Oh, I've got about fifteen percent 0:14:08.600 --> 0:14:12.000 cash earnings about eight nine percent. That's probably in line 0:14:12.080 --> 0:14:14.360 with the macro numbers that we get. So there is 0:14:14.440 --> 0:14:17.440 growth in China and it's probably a little bit better 0:14:17.480 --> 0:14:20.720 than what people would have thought it would be three 0:14:20.840 --> 0:14:21.600 or six months ago. 0:14:22.120 --> 0:14:24.400 Harold, thanks so much for coming into our studios and 0:14:24.440 --> 0:14:28.080 sharing your insights with this. Harold Vanderlinde, had of Asia 0:14:28.080 --> 0:14:39.120 Pacific Equity Strategy at HSBC. Our guest is David Finnerty, 0:14:39.160 --> 0:14:42.440 Bloomberg Effects and rates strategist, to take a closer look 0:14:42.440 --> 0:14:45.520 at markets. So the mood has changed quite a lot 0:14:45.520 --> 0:14:48.120 here over the past couple of weeks, David, we talked 0:14:48.160 --> 0:14:52.080 about higher for higher for longer rates there in some 0:14:52.120 --> 0:14:56.040 of those comments from leading fed proponents, and also the 0:14:56.080 --> 0:14:58.280 bar seems to be pretty high now for earnings. We 0:14:58.320 --> 0:15:00.760 saw that with a lot of the after hour is 0:15:00.800 --> 0:15:04.120 selling and the dollar, ever stronger, is also kind of 0:15:04.480 --> 0:15:07.800 wreaking havoc on markets. Do you see that holding for 0:15:07.840 --> 0:15:09.320 a while that kind of mood? 0:15:10.160 --> 0:15:13.440 I think yeah. Overall, I'd say yes. I think the 0:15:13.640 --> 0:15:16.640 equity market, if you look at it now, is so 0:15:16.680 --> 0:15:18.840 much good news was baked into it then I don't 0:15:18.840 --> 0:15:20.280 think it takes a lot of bad news to just 0:15:20.280 --> 0:15:22.440 give it a nudge down. You know, the S and 0:15:22.480 --> 0:15:24.280 P look at run from forty two hundred up to 0:15:24.320 --> 0:15:28.200 fifty two basically without much of a correction. So some 0:15:28.240 --> 0:15:31.640 sort of correction is quite standard with US yields. I 0:15:31.680 --> 0:15:35.080 think the hawkishness has heavily baked in. I think to 0:15:35.120 --> 0:15:37.600 get more hawkish in the near to mean really it's 0:15:37.640 --> 0:15:40.360 all data dependent now, and you really need strong, strong 0:15:40.440 --> 0:15:42.480 data now. Having said that, we don't really have much 0:15:42.520 --> 0:15:45.960 data out next week until the USPCE, So without that, 0:15:46.080 --> 0:15:48.400 it's like, well, how do yours push higher? And actually 0:15:48.400 --> 0:15:51.680 pushing down slightly now because of Middle East tensions? So 0:15:51.960 --> 0:15:54.120 if US shields don't push much higher, that does to 0:15:54.160 --> 0:15:57.320 some degree limit what the dollar can do. Having said 0:15:57.360 --> 0:15:59.920 that the dollar does benefit in a risk off sneer, 0:16:00.840 --> 0:16:03.760 But overall, I think the moves we've seen have sort 0:16:03.800 --> 0:16:07.040 of been baked in, and I don't think exactly, you know, 0:16:07.120 --> 0:16:09.960 I think there's more risks to USU was pushing lower 0:16:09.960 --> 0:16:13.880 in the terms slightly and a bit more risk off sentiment. 0:16:14.560 --> 0:16:16.320 So when you look at the price section today, this 0:16:16.440 --> 0:16:18.880 weakness that we were seeing in equity markets in the APAC, 0:16:18.920 --> 0:16:21.440 where is that money rotating? Is it moving into the 0:16:21.520 --> 0:16:23.760 US treasury market? Is it a haven bid that we're 0:16:23.760 --> 0:16:27.040 seeing now? I'm looking accrued up nearly one point eight percent. 0:16:27.360 --> 0:16:30.360 The dollar is stronger the end, showing a little bit 0:16:30.400 --> 0:16:32.520 of strength here, not by much. Do you have a 0:16:32.560 --> 0:16:34.600 sense of how this money is moving through the market 0:16:34.680 --> 0:16:37.160 right now as we see weaker equities in the APAC? 0:16:37.760 --> 0:16:39.760 Yeah, it's tough to say. I mean it it fluctuates. 0:16:40.040 --> 0:16:42.160 Middle East was on the way here. I think I 0:16:42.200 --> 0:16:44.840 saw some central headlines coming across from some of the 0:16:44.880 --> 0:16:48.080 team saying that something may have been happening in Iran. 0:16:49.040 --> 0:16:51.040 And if that is the case, then obviously the market 0:16:51.080 --> 0:16:53.200 is very jittery when it comes to anything in the 0:16:53.240 --> 0:16:55.920 Middle East at the moment. So the safe haven flows. 0:16:56.000 --> 0:16:58.040 Is this where the money tends to go to very quickly, 0:16:58.400 --> 0:17:00.760 you know, it's like just go ask questions lates have 0:17:00.880 --> 0:17:03.120 is something going on in that area and obviously oil 0:17:03.160 --> 0:17:05.280 was reacting into it as well. Obviously that could calm 0:17:05.320 --> 0:17:07.760 down once the dust as settled, but the knee jerk 0:17:07.760 --> 0:17:10.560 reactions always just go to the safe havens until we 0:17:10.720 --> 0:17:12.159 have a clever picture of what's going on. 0:17:12.760 --> 0:17:15.399 We talked about a number of factors that could be 0:17:15.480 --> 0:17:19.160 leading to risk off sentiment. In some cases, it's way 0:17:19.160 --> 0:17:21.480 worse under the hood than it is with the headline number. 0:17:21.640 --> 0:17:24.000 For instance, the S and P down just two tents 0:17:24.040 --> 0:17:26.200 of a percent, but it was quite a little bit 0:17:26.200 --> 0:17:29.320 of selling attached to some key names that people are 0:17:29.320 --> 0:17:32.960 heavily exposed to. I wonder whether or not yields getting 0:17:33.040 --> 0:17:34.800 up on the ten year up around you know, four 0:17:34.800 --> 0:17:37.520 and a half to five percent, Whether five percent could 0:17:37.560 --> 0:17:41.280 be a real kind of inflection point, really sucking in 0:17:41.320 --> 0:17:43.480 a lot of money by acid allocators. 0:17:43.840 --> 0:17:47.000 Yeah, I think five. Obviously five is the nice round numbers, 0:17:47.000 --> 0:17:48.600 so it could draw a lot of interest. I don't 0:17:48.600 --> 0:17:51.960 think there's a five percent is the number, but I 0:17:51.960 --> 0:17:54.280 think look, anything around this level just you know, four 0:17:54.440 --> 0:17:57.640 sevens to five or anything around that is certainly of 0:17:57.720 --> 0:18:00.919 interest to people. Of course, the catches you come in 0:18:00.960 --> 0:18:03.159 something your funds and you're trying to go long duration. 0:18:03.520 --> 0:18:06.240 You've been burned so many times before that it's a 0:18:06.240 --> 0:18:09.720 bit like broken record and you're worried. Now cap tip 0:18:09.720 --> 0:18:11.640 with this rhetoric coming out of the Fed like, hey, 0:18:11.680 --> 0:18:15.680 we are considered rate hike if needed, or that possibilities 0:18:15.800 --> 0:18:18.600 on the table if the data backs up, and of 0:18:18.640 --> 0:18:21.560 course should that happen again, this is all lots of caveats, 0:18:21.760 --> 0:18:23.440 but the ideas and you will see you see whats 0:18:23.560 --> 0:18:26.639 go even higher. So I think the interesting thing becomes 0:18:26.680 --> 0:18:28.879 is you go, oh, four to seven is attractive, but 0:18:28.920 --> 0:18:30.880 you go our five's attractive, and you get the five, 0:18:30.920 --> 0:18:33.199 and you go, actually five point two is attractive. So 0:18:34.080 --> 0:18:35.840 it's a bit of a moving line in the sand. 0:18:35.920 --> 0:18:37.840 And I think it's really only when the markets see 0:18:37.840 --> 0:18:41.440 that data flip and the confident that the data's flipped, 0:18:41.800 --> 0:18:43.679 that the rate hikes off the table and the rate 0:18:43.720 --> 0:18:46.040 cuts are back in, then I think the market will 0:18:46.160 --> 0:18:48.000 jump very quickly into treasure. 0:18:48.240 --> 0:18:51.919 We had comments from the Japanese Finance minister. Suzuki was 0:18:51.960 --> 0:18:55.560 talking about the interest rate grap the differential between the 0:18:55.680 --> 0:18:57.679 US and Japan, and that's really what's been weighing on 0:18:57.720 --> 0:18:59.600 the end. Yeah, maybe there are a few other factors. 0:18:59.720 --> 0:19:03.919 Then we get this reading today on consumer inflation in Japan. Okay, 0:19:04.280 --> 0:19:07.960 excluding fresh food, we're up two point six percent. That's 0:19:07.960 --> 0:19:11.199 still above the boj's target, but it's below estimates. Is 0:19:11.240 --> 0:19:14.200 that in keeping with this idea that the Bank of 0:19:14.280 --> 0:19:16.960 Japan will continue to tighten or are they kind of 0:19:17.000 --> 0:19:19.280 in a holding pattern right now, particularly when of the 0:19:19.359 --> 0:19:21.800 data is not making a compelling case. 0:19:22.560 --> 0:19:26.159 I think base of the rhetoric Bank of Japan has 0:19:26.160 --> 0:19:27.800 said one thing and done the other. So, but if 0:19:27.800 --> 0:19:29.560 you're based with the rhetoric, I think at the moment 0:19:29.800 --> 0:19:32.399 they are in the holding pattern. I mean, the consensus 0:19:32.400 --> 0:19:34.080 in the markets is if they're going to hike, it 0:19:34.119 --> 0:19:37.240 looks more like October or potentially September, which sort of 0:19:37.280 --> 0:19:39.400 makes sense. You're going to wait till all the way 0:19:39.560 --> 0:19:42.440 data is fed through, which comes through in basically July August. 0:19:42.760 --> 0:19:44.920 You get all the impacts on the labor cost earnings 0:19:44.960 --> 0:19:47.760 fully fed through, and then you obviously have the call 0:19:47.800 --> 0:19:51.520 leave reports later in that in that third quarter. So 0:19:51.600 --> 0:19:53.959 I think they'll wait till then. Obviously the next week 0:19:54.240 --> 0:19:56.560 Bankageman and got in your way, there's gonna be grilled 0:19:56.640 --> 0:19:58.399 on the exchange way. I think there's gonna be no 0:19:58.440 --> 0:20:00.280 shock on that. I don't think they'll do any thing. 0:20:00.600 --> 0:20:03.879 But how he reacts to the exchange rate. People can 0:20:03.920 --> 0:20:06.520 be looking at that words of you know, well, would 0:20:06.600 --> 0:20:09.680 you consider right high and one of the governors said yes, 0:20:09.720 --> 0:20:11.679 They said, okay, that's not really what you'd be using 0:20:11.680 --> 0:20:15.280 the exchange rate policy muntly policy for. But you know 0:20:15.320 --> 0:20:17.000 they'll be looking to see what your aid as says 0:20:17.000 --> 0:20:18.320 in the comment and go from that. 0:20:19.480 --> 0:20:21.600 So, in terms of risk gone and risk off, not 0:20:21.720 --> 0:20:25.520