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

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Speaker 1: day Break Asia podcast. I'm deg Krisner. The blistering run

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Speaker 1: in US equities kind of hit a wall on Thursday.

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Speaker 1: We had a spike in wholesale inflation and it kind

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Speaker 1: of caused markets to reduce bets on a FED rate

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Speaker 1: cut next month. Money markets now see about an eighty

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Speaker 1: five percent chance of a twenty five basis point rate

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Speaker 1: cut in September. That's after fully pricing in a rate

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Speaker 1: cut on Wednesday, and any notion of an outsized cut,

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Speaker 1: let's say fifty basis points, I think it's fair to

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Speaker 1: say that's been snuffed. And as we get set to

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Speaker 1: wrap up the week, we'll look at consumers in the

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Speaker 1: Asia Pacific. In a moment, I'll be joined by Matthew Driver.

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Speaker 1: He is executive vice president of services for the Apacket MasterCard.

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Speaker 1: But we begin here in the States, and as I mentioned,

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Speaker 1: US producer prices jumped into lie by the most in

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Speaker 1: three years, fueled by higher import cost as a result

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Speaker 1: of those tariffs. PPI month on month up nine tenths

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Speaker 1: of one percent, the annual rate three point three percent,

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Speaker 1: and services cost increased last month by one point one percent,

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Speaker 1: if you're wondering, that's the most we have seen since

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Speaker 1: March twenty twenty two. Joining me now is Mark Lushini.

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Speaker 1: He is the chief investment strategist at Janey Montgomery Scott.

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Speaker 1: Mark is on the line from Pittsburgh. It's good of

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Speaker 1: you to make time to chat with me. Let's talk

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Speaker 1: about this PPI print. What does it say about the

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Speaker 1: impact of tariffs on the economy.

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Speaker 2: Well, then we're learning more as we get these data

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Speaker 2: releases that are beginning to show some signs of how

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Speaker 2: tariffs are manifesting in items that may ultimately feed into

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Speaker 2: the economy, either in the form of higher prices yet

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Speaker 2: to come, whether you call that attax or inflation, and

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Speaker 2: or the other side of it, and perhaps even the

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Speaker 2: darker side of it is to what degree it is

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Speaker 2: going to road consumer spending in a way that could

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Speaker 2: have a deleterious effect on economic activity.

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Speaker 1: What about the extent to which it's going to begin

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Speaker 1: to compress margins. I'm sure for a person such as yourself,

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Speaker 1: that's got to be a concern most.

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Speaker 2: Definitely, And we've heard a lot from companies here as

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Speaker 2: we're deep into the second quarter earning season about what

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Speaker 2: companies have done or attempted to strive to accomplish over

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Speaker 2: the last couple of months in terms of tariff mitigation measures,

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Speaker 2: and so for the most part, it hasn't really shown

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Speaker 2: up necessarily in the results, which so far in the

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Speaker 2: second quarter have been quite strong. But at the same time, though,

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Speaker 2: we know that some companies have stated that they are

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Speaker 2: going to be passing along costs, and to some degree

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Speaker 2: they have absorbed the cost. Now the proportion of which

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Speaker 2: is going to be either eaten by exporters and that

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Speaker 2: which is going to be eaten by importers and then

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Speaker 2: and we're passed along to consumers is still evolve. But

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Speaker 2: it would seem as though there's going to be some

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Speaker 2: margin pressure applied from these tarras that isn't going to

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Speaker 2: be able to fully pass along the consumers. That therefore

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Speaker 2: could have an impact on earnings as we go forward.

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Speaker 2: And given the rich valuations we have today in the

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Speaker 2: stock market, highly dependent upon not only positive economic activity

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Speaker 2: but the earnings growth that would be a bypartuct to that,

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Speaker 2: it's going to be very important to monitor as we

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Speaker 2: go deeper here into not only the third quarter, but

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Speaker 2: ultimately here from management in third quarter earning season.

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Speaker 1: So today a number of economists were saying the report

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Speaker 1: is essentially a validation of the Fed's weight and see approach,

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Speaker 1: and the head of the FED Bank in Saint Louis,

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Speaker 1: Albertu Muslim was telling CNBC it's simply too early for

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Speaker 1: him to decide on whether to lower rates at next

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Speaker 1: month's FED meeting. Where are you in understanding what the

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Speaker 1: Fed may do, let's say, between now and the end

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Speaker 1: of the year.

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Speaker 2: Well, certainly they're going to continue to be data dependent,

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Speaker 2: They've said as much, and so that leaves certainly before

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Speaker 2: their FMC meeting in mid September at least another CPI

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Speaker 2: print to come, another jobs report to come, and so

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Speaker 2: that and other obviously data in between. But importantly those

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Speaker 2: two will give further evidence as to what degree we

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Speaker 2: continue to see mounting price pressures coming from tariffs and

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Speaker 2: or obviously its impact on the job market, which is

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Speaker 2: in a somewhat delicate phosition as we speak, particularly given

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Speaker 2: the last print we had on jobs, which some have

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Speaker 2: suggested had the FED had that prior to their decision,

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Speaker 2: they may have already cut interest rates as a consequence.

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Speaker 2: So obviously, I think those two factors are going to

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Speaker 2: matter more than all the other data that, while be

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Speaker 2: interesting to note, will ultimately be the driver of the

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Speaker 2: Fed's decision as to whether they prioritize maintaining the job

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Speaker 2: market if it looks like it's stalling out, or conversely

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Speaker 2: combat inflation. If in fact, these price pressures appear to

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Speaker 2: be more than transitory, that could ultimately lead to some

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Speaker 2: unmooring of consumer expectations with regard to forward looking inflation prospects.

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Speaker 1: I'm going to change gears. Today we learned that the

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Speaker 1: Trump administration is considering taking a stake in Intel. This

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Speaker 1: potential stake on the part of the government could support expansion.

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Speaker 1: We are told of Intel's domestic manufacturing. What is your

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Speaker 1: sense of the industrial policy that the Trump administration has

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Speaker 1: been rolling out. Do you think it's going to be

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Speaker 1: effective in certain areas? I know you're in Pittsburgh. We

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Speaker 1: just had a deal between Nipon Steel and US Steal.

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Speaker 1: The Trump administration was obviously involved in that, and I'm

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Speaker 1: wondering from your perspective whether you feel as though what

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Speaker 1: the Trump administration is putting forward in industrial policy will

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Speaker 1: have a material effect.

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Speaker 2: Well I think it can have some positive benefits. I mean,

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Speaker 2: it's too soon to tell is going to happen between

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Speaker 2: the deal that was basically arranged by President Trump with

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Speaker 2: regards to Nippon Steel and US Steel, mostly to maintain

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Speaker 2: substantially all the operations in Pittsburgh as well as employment.

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Speaker 2: But at the same time, it is not necessarily unprecedented,

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Speaker 2: but rather uncommon to see this kind of industrial policy

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Speaker 2: being applied. We also saw it obviously with MP materials

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Speaker 2: relative to rare earth metals, and so this is kind

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Speaker 2: of a continuation of the same theme where there's the

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Speaker 2: strategic industries that President Trump and his administration have touted

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Speaker 2: our paramount to the success of the US and its

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Speaker 2: competitive state relative to other countries around the world, and

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Speaker 2: is trying to make specific surgical investments in industries and

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Speaker 2: or in companies in the case of Intel, which has

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Speaker 2: had some trouble from a financial standpoint, to perhaps meet

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Speaker 2: the obligation that it has committed to to underwrite the

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Speaker 2: facility in Ohio to produce semiconductors and the kind of

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Speaker 2: technological products that are necessary to once again keep the

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Speaker 2: US on the forefront of technology, but as well remain

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Speaker 2: competitive at a minimum on a global basis. So well,

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Speaker 2: you know, too soon to tell what may come of it,

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Speaker 2: but ultimately you would hope it would be a win win.

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Speaker 2: But it also invites a bit of a moral hazard,

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Speaker 2: which is to say, to what degree does this breed

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Speaker 2: an industrial policy that starts to actually impact the capitalistic uh,

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Speaker 2: you know, narrative that the US has embraced for so

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Speaker 2: many decades, if not centuries, relative to you know, the

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Speaker 2: interest of the companies and its shareholders and obviously its

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Speaker 2: ability to compete on a not only domestic but world

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Speaker 2: stage without heavy handed governmental influence. So it's obviously a

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Speaker 2: policy that everybody's watching closely. In the meantime, this is

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Speaker 2: just the latest example of something that's already know I've

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Speaker 2: been put forth in terms of MP materials and the

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Speaker 2: steel company's arrangements.

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Speaker 1: So the equity market kind of stalled today. Nonetheless, the

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Speaker 1: S and P was able to extend a record high

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Speaker 1: nasdat comp very near to a record mark. Are you

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Speaker 1: still finding value in the equity market? I mean, we

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Speaker 1: could argue that, especially in the area of technology, some

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Speaker 1: of these valuations are pretty lofty.

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Speaker 2: Well, it's more of a function of seeking relative value doug.

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Speaker 2: If you look at the S and P five hundred

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Speaker 2: in the aggregia as a capitalization weighted INDEXES trading it

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Speaker 2: called it roundly twenty two times forward earnings estimates, which

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Speaker 2: is on the richer side of where it's traded at

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Speaker 2: over say the last five years, which is closer to twenty,

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Speaker 2: or over the last ten, which is closer to eighteen

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Speaker 2: to nineteen. But you could say, well, given the concentration

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Speaker 2: in tech and tech adjacent companies, that's having a big

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Speaker 2: influence because their price earnings multiple is pulling up the

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Speaker 2: multiple the overall market. Again, the multiple for the Magnificent seven,

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Speaker 2: for instance, is approaching thirty times those same twelve month

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Speaker 2: forward earnings estimates. So what does that leave. That leaves

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Speaker 2: the S and P four hundred and ninety three. You

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Speaker 2: might say, well, they should be cheap or at least

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Speaker 2: offering good value, And there the answer is, relatively speaking,

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Speaker 2: yests trading it about nineteen times forward earnings as a group.

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Speaker 2: But at the same time, even then hardly an expensive

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Speaker 2: relative to you know, a typical market environment, which you

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Speaker 2: would expect, you know, sixteen or seventeen times forward earnings

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Speaker 2: for non tech related companies so I still think there's

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Speaker 2: an opportunity, particularly in the context of a market that

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Speaker 2: I still think is poised to continue to move higher

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Speaker 2: on the back of an economy that has perhaps experiencing

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Speaker 2: a bit of a soft patch, but I think has

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Speaker 2: some reason to believe is going to pick up a

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Speaker 2: bit of a tailwind as we get into the fourth

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Speaker 2: quarter of this year into twenty twenty six, particularly with

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Speaker 2: some of the provisions from the One Big Beautiful Bill Act.

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Speaker 2: And in addition to that, I think we've seen that

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Speaker 2: companies have done a pretty good job so far in

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Speaker 2: being able to handle the impact of tarrors by way

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Speaker 2: of all kinds of measures that they've taken to reorder

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Speaker 2: supply chains, seek operational efficiencies, and to some degree likely

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Speaker 2: to pass along some price hikes, but hopefully not so

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Speaker 2: much in the way that the consumer rolls over. But

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Speaker 2: collectively it leads me to believe that this market is

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Speaker 2: still very investable and buyable, because I expect higher prices

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Speaker 2: yet before the year is out.

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Speaker 1: All right, Well leave it there, Mark, Thank you so

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Speaker 1: very much. Mark Lushini there. He is the chief investment

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Speaker 1: strategist at Cheney Montgomery Scott, joining from Pittsburgh here on

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Speaker 1: the Daybreak Asia podcast. Welcome back to the day Break

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Speaker 1: Asia Podcast. I'm Doug Chrisner. This morning in Asia, markets

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Speaker 1: are focused on the readings for Chinese retail sales and

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Speaker 1: industrial production. I think it's fair to say that recent

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Speaker 1: measures by Beijing to strengthen consumption reflect a growing recognition

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Speaker 1: of domestic demands pivotal role. Let's take a closer look

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Speaker 1: now at the consumer across the Asia Pacific. Joining me

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Speaker 1: now is Matthew Driver. He is the executive vice president

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Speaker 1: for Services in the APAC at MasterCard. Matthew is on

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Speaker 1: the line from Sydney. Matthew, thank you so much for

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Speaker 1: making time to chat with me. I know consumers across

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Speaker 1: the Asia Pacific are as varied as the economies themselves. Japan,

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Speaker 1: for example, is dealing with levels of inflation it hasn't

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Speaker 1: seen in decades. Other countries, as we know, are dealing

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Speaker 1: with very very different dynamics. But I'm hoping you can

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Speaker 1: speak to the overall level of consumer spending that you're

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Speaker 1: seeing across the APEC. What is it right now?

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Speaker 3: Yeah?

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Speaker 4: Sure, look, I think and thanks for hosting and having

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Speaker 4: me on the show. Look, despite the macro economic concertainty.

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Speaker 4: You know, consumer spending across a pack remains healthy. I

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Speaker 4: think that's driven by a couple of factors that are important.

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Speaker 4: You've really got low unemployment, You've had a decent amount

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Speaker 4: of real wage growth, and that's really helped to essentially

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Speaker 4: ensure that you've got demand across segments. I think our

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Speaker 4: Economics Institute forecast steady GDP growth.

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Speaker 3: So what we are seeing is broad based. You know,

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Speaker 3: is the customer is pretty resilient.

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Speaker 4: There's been a little bit of stress in some places

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Speaker 4: as rates have been higher for longer, but you have

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Speaker 4: to think about there are also some longer term drivers

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Speaker 4: that are going to be quite positive. Right. You've seen

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Speaker 4: interest rates are starting to come down number one. Number twos,

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Speaker 4: You've got some easing of fuel prices.

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Speaker 3: That's point number two.

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Speaker 4: And point number three is you know, goods continue to

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Speaker 4: be cheap. China's leaning into the region and so that's helping,

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Speaker 4: you know, on the value side as well.

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Speaker 1: Do you have a sense of whether US tariff policy

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Speaker 1: has adversely impacted consumer sentiment in the region.

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Speaker 4: Look, I think that you know, we're really trying to

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Speaker 4: think through you know, the impact of you know, towerists,

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Speaker 4: I think, look, it's a complicated environment, but look aga

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Speaker 4: specific continues to navigate that there are going to be

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Speaker 4: some alterations and adjustments. But also I think while those

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Speaker 4: dynamics post some challenges, they also understood that the region

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Speaker 4: is very resilient and adaptable, right. I think that post COVID,

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Speaker 4: some of the supply chains have become pretty flexible.

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Speaker 3: That's been very very important.

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Speaker 4: And while territs have raised input you know, import costs

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Speaker 4: to a certain degree and more price sensitive markets, there's

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Speaker 4: been you know, trying to I guess adjust you know,

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Speaker 4: consumer spending has been a little bit of value shifting,

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Speaker 4: like we talked about. But what we're really trying to

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Speaker 4: do is make sure that you know, we're helping our

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Speaker 4: customers navigate that with insights and intelligence. So I think

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Speaker 4: that despite some of that uncertainty, people are probably putting

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Speaker 4: off some of the longer term transactions, right, They're really

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Speaker 4: focusing on how do they enswer that they're driving value today,

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Speaker 4: shifting those patterns of spend a little bit. And so

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Speaker 4: with that in mind, and the fact, as I mentioned earlier,

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Speaker 4: we are seeing pretty steady demand and that's really reflecting

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Speaker 4: the resilience of the consumer overall.

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Speaker 1: So I'm wondering about the challenges that MasterCard may be

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Speaker 1: facing right now, especially among the younger generations who may

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Speaker 1: prefer digital apps rather than the use of a credit card.

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Speaker 1: I mean, are you seeing the impact of that? Has

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Speaker 1: that presented something that you've had to address pretty specifically?

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Speaker 4: Well, I think what you've got to realize is that

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Speaker 4: a lot of the digital applications MASCAR deeply participates in

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Speaker 4: needs already.

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Speaker 3: Right So, whether it's.

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Speaker 4: If you think about the digital wallets out there, they're enabled,

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Speaker 4: they're enabling a digital transaction, That digital transaction is secured,

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Speaker 4: and the comments happens on the MasterCard network as it

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Speaker 4: might do with Apple and things like that. We also

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Speaker 4: work on embedding our partnerships with these digital wallet providers.

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Speaker 4: So we've just announced that partnership with the Ali Barbe

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Speaker 4: Group about their wallets enabled to utilize our contact list

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Speaker 4: technology when the part when those consumers travel overseas. So

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Speaker 4: I think it's much more about saying that that innovation

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Speaker 4: and that mobile first centricity that happens in AP is

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Speaker 4: actually really important for us because that enables us to

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Speaker 4: find opportunities to collaborate and the trust and security that

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Speaker 4: comes with the MasterCard brand is a very very important

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Speaker 4: aspect of that. So where if you like, powering and

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Speaker 4: extending the reach of these wallet players, and we're also

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Speaker 4: providing that trust and reassurance. So we're definitely leaning into that.

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Speaker 4: And you know, we've grown up business substantially because of

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Speaker 4: our ability to partner with these digital players.

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Speaker 1: We talk a lot these days about the revolution and

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Speaker 1: artificial intelligence, whether you're talking about a large language model

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Speaker 1: or the buildout of data centers, and I'm curious about

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Speaker 1: how MasterCard is embracing and using AI.

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Speaker 4: Yeah, well, I mean, look, that's you know, that's a

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Speaker 4: great question, and you wouldn't be too surprised to know

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Speaker 4: that we've been doing AI already for a long time, right,

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Speaker 4: the original kind of machine learning kind of approaches that

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Speaker 4: we have been using to really power our network and

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Speaker 4: protect consumers on the fraud side, we've been doing that

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Speaker 4: fifteen sixteen years already. I think what's happening now is

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Speaker 4: in a region defined by speed, complexity, and digital, we're

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Speaker 4: really using data and AI to help transform the business,

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Speaker 4: so to really help commerce be smarter, safer, and more personal.

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Speaker 4: So that means that we do we already are building

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Speaker 4: on using this in fraud and scam protection, but we're

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Speaker 4: also working on at advanced analytics and personalization and everything

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Speaker 4: we do that really helps you provide the personalization that

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Speaker 4: consumers want today, but also help our bank partners merchants

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Speaker 4: that set navigate the complexity by bringing insights into action

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Speaker 4: and really navigate a dynamic environment with confidence. So we

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Speaker 4: sort of really talk about coming back to this point

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Speaker 4: about leveraging AI to make commerce safer, smarter, and more

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Speaker 4: personal And that's a good way.

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Speaker 3: Of thinking about it because it's such a complex topic.

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Speaker 1: So as we are speaking, looking at the price of bitcoin,

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Speaker 1: which is trading very near record highs, and I'm wondering

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Speaker 1: about the challenge that digital assets present your company, especially

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Speaker 1: given the fact that the blockchain technology is pretty revolutionary.

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Speaker 1: I don't know whether MasterCard has a similar type platform

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Speaker 1: that enables it to maybe compete more directly with digital assets.

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Speaker 1: Could you share some perspective on what MasterCard is feeling

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Speaker 1: right now as we see kind of this explosion, this

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Speaker 1: continued explosion in digital assets.

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Speaker 3: Yeah.

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Speaker 4: Look, I think the one thing that's really important is

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Speaker 4: to realize that massacred already has a significant number of

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Speaker 4: patients and distributed ledge of technology.

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Speaker 3: Right, So we've been doing this for a long time.

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Speaker 3: So that's point number one.

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Speaker 4: Point number two, we're really been working carefully to ensure

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Speaker 4: that we're partnering with crypto class but the crypto players

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Speaker 4: that really have the right degree of customer transparency protections,

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Speaker 4: making sure that they've got the right KOC and onboarding capabilities,

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Speaker 4: really with the ability to on ramp and off ramp

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Speaker 4: you transactions to ensure that people have these assets that

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Speaker 4: they can actually leverage the MasterCard network to release value

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Speaker 4: and actually transact.

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Speaker 3: So I think that's the second thing.

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Speaker 4: So we're partnering with the exchanges, with the right ones

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Speaker 4: that have the right standards for us and making sure

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Speaker 4: that you've got that trust and security layer.

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Speaker 3: And then the third.

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Speaker 4: Area we're really working is on the multi Tooken network,

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Speaker 4: you know what we call massacard r MTN, which is

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Speaker 4: really ensuring that we'll have the ability to support and

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Speaker 4: settlement into stable coins and things like that. So I

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Speaker 4: think that we're really directly already directly participating in this

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Speaker 4: space and ensuring that consumers have the utility that obviously,

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Speaker 4: you know, some of these digital assets don't have and

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Speaker 4: they can leverage the trust and security of the massacred

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Speaker 4: network to create that utility, but also carefully partnering to

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Speaker 4: make sure that we're actually upgrading our network to support

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Speaker 4: the ability to settle directly in stable coins atomically, which

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Speaker 4: also just raises the performance of our network. So we're

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Speaker 4: quite extensively partnering and enabling our systems to ensure that

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Speaker 4: we are definitely leading and ahead in this global transformation.

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Speaker 1: Matthew will leave it there. Thank you so much for

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Speaker 1: visiting with us. Matthew Driver there. He is the executive

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Speaker 1: vice president for Services for the a Packet MasterCard. Joining

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Speaker 1: from Sydney here on the Daybreak Asia Podcast. Thanks for

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Speaker 1: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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