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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Dan Schwartzman. Chrisner's

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Speaker 2: out this week. We begin in Japan, where the ruling

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Speaker 2: Liberal Democratic Parties sealed a new coalition deal that sets

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Speaker 2: up sanay At Takaichi to become the country's first female

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Speaker 2: prime minister. The LDP and Japan Innovation Party agreed on

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Speaker 2: a range of policy initiatives across the economy, national security,

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Speaker 2: and energy. Both parties are also aiming to cut the

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Speaker 2: number of lawmakers's seats in a parliamentary session and reforming

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Speaker 2: Japan's social welfare system. We get perspective from Sheila Smith,

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Speaker 2: Council on Foreign Relations Senior Fellow for Asia Pacific Studies.

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Speaker 2: She spoke to Bloomberg Sherry On in April Hong on

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Speaker 2: the Asia trade.

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Speaker 1: I do wonder how long we're expecting this cooperation and

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Speaker 1: collaboration between ASHEN and the LDP to last.

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Speaker 3: Well, Thank you, Sherry, thank you for having me. It's

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Speaker 3: fun to be with you always. You know, I don't know,

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Speaker 3: And that's the difficult thing as a japan politics experts

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Speaker 3: to say. At the moment, You know, Japan is really

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Speaker 3: pretty stable in its politics. We don't often have moments

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Speaker 3: of unpredictability, but I'll say the last three weeks has

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Speaker 3: been quite exciting for those of us who watch. Takaichisanai

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Speaker 3: is going to be the first female prime minister of Japan,

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Speaker 3: as we anticipate tomorrow. Her coalition partner, the ishin Nokai

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Speaker 3: or the Innovation Party as you introduce them, are an

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Speaker 3: Osaka based or a Kansai based for a formist oriented party,

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Speaker 3: but share a lot of the LDP's views on defense,

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Speaker 3: on security, on foreign policy.

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Speaker 4: Where they differ a little bit.

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Speaker 3: And to answer your question about how long this coalition

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Speaker 3: will last is really on the economic picture that they

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Speaker 3: want to see for Japan. So it'll be difficult.

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Speaker 4: I think.

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Speaker 3: I think she'll get her vote as prime minister, but

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Speaker 3: managing this coalition and this new coalition partner will be

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Speaker 3: a little bit tricky.

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Speaker 1: Some of those economic measures that they differ on, and

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Speaker 1: what does that mean for major government policy measures coming forward.

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Speaker 3: Well, I think they've basically decided that they want to

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Speaker 3: address the Japanese voters' concerns about inflation, so in short

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Speaker 3: term measures things like reducing the gasoline tax, reducing some

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Speaker 3: of the burden on households that are struggling with subsidies

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Speaker 3: from the national government. These are all things that in

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Speaker 3: the short run will be easy to do.

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Speaker 4: What will be.

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Speaker 3: Difficult is trying to find common ground on their policies

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Speaker 3: to address inflation rit large. That is not an area

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Speaker 3: that you saw explored in the coalition document that was

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Speaker 3: announced today in Tokyo. But I think you're going to

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Speaker 3: watch them walking forward gently together to figure out whether

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Speaker 3: or not they really do share some longer term economic

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Speaker 3: outlook sort of targets for economic priorities. Takaichi is what's

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Speaker 3: referred to as a fiscal dove. She's very very much

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Speaker 3: in the line of former Prime Minister Abe Shinzo. She

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Speaker 3: wants structural reforms, but she really also appreciates the idea

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Speaker 3: that the Japanese government can continue to help boost the economy.

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Speaker 3: So expect her to not be very sharp in the

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Speaker 3: way she addresses government debt. I think she's going to

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Speaker 3: have to think about the long term access to resources

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Speaker 3: that any kind of real serious structural reformal will need.

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Speaker 3: And again, ishin the Innovation Party wants social security reform,

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Speaker 3: they want other kinds of reform power sharing a little

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Speaker 3: bit on economic development between Osaka and Tokyo. These are

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Speaker 3: large structural reforms, and I think for the moment they're

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Speaker 3: very much focused on the short run. The next government

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Speaker 3: budget will be a real telltale sign about how this

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Speaker 3: coalition is going to work.

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Speaker 5: And also in reform, it's about what the LDP might

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Speaker 5: be pushing for goal funding reform. What is your sense

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Speaker 5: of the extent in which issue might be able to

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Speaker 5: exhust some influence in this arena.

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Speaker 4: It's a great question, you know.

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Speaker 3: The LDP has lost voters in both the Lower House

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Speaker 3: and the Upper House elections over the last year largely

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Speaker 3: because of this question of transparency over money in politics

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Speaker 3: and the resistance or the perception of resistance by the

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Speaker 3: LDP to true transparency. All of the opposition parties, including

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Speaker 3: the Innovation Party, have asked for an end to organizations

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Speaker 3: and corporations giving undisclosed amounts of money to political parties,

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Speaker 3: and transparency is key here. The political party that left

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Speaker 3: the coalition with the LDP, the longstanding junior partner of

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Speaker 3: the LDP, the Cometo, really wanted this kind of transparency

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Speaker 3: in the relationship between politics and money, and Takaichi said no,

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Speaker 3: and that was the issue that broke the coalition, the

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Speaker 3: twenty six year coalition between the LDP and Kometo. Ishin

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Speaker 3: also wanted transparency, especially for those corporate donations, but she

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Speaker 3: didn't offer it and it wasn't in the document, so

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Speaker 3: they have backed away from pushing hard on that piece

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Speaker 3: of their agenda.

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Speaker 5: What about defense priorities on the two sides? How aligned, Dottie.

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Speaker 3: Well, the interesting thing about a document that you saw

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Speaker 3: that came out on Monday Tokyo time was that they

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Speaker 3: acknowledged the need to defend the Japanese people. That they

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Speaker 3: noted that they were both forward leaning in a sense

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Speaker 3: on reforming Japanese security policy, thinking about a stronger Japanese

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Speaker 3: role in its defenses along with a strong US Japan alliance.

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Speaker 3: So I think on the defense and security side, especially

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Speaker 3: the USTER Pan alliance side, you'll find that Ishin and

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Speaker 3: LDP don't have a lot of differences among them. What's

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Speaker 3: harder to know about the party is they've never actually

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Speaker 3: held power, So once they get into power and have

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Speaker 3: to deal with the details, you might see some differences.

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Speaker 1: Emerge, which will really play well with President Trump.

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Speaker 6: Right.

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Speaker 1: We are expecting that meeting now with potentially Takaiichi next week.

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Speaker 1: Just quickly, how good do you expect the report to

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Speaker 1: be between the two because that's so important for President Trump.

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Speaker 3: It is, it is indeed, and so you saw the

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Speaker 3: President in Truth on Truth Social when he thought that

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Speaker 3: the LDP leader had been elected and would become the

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Speaker 3: next prime minister. You saw a very positive tweet by

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Speaker 3: the President. I think the visit by President Trump, which

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Speaker 3: hasn't been announced yet by the White House but is

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Speaker 3: expected soon to Tokyo on his way to soul in

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Speaker 3: the APEC meeting, I think you'll see there the Japanese

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Speaker 3: government will be rolling out the red carpet to demonstrate

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Speaker 3: the strength of the alliance and the partnership. It'll be

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Speaker 3: a very comfortable place for Takaichisanai as Prime Minister to

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Speaker 3: introduce her self to to President Trump.

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Speaker 2: That was Sheila Smith, Council on Foreign Relations Senior Fellow

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Speaker 2: for Asia Pacific Studies, speaking of Bloomberg, Sharry On and

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Speaker 2: April hon on the Asia trade. Coming up next, we'll

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Speaker 2: hear from Carol Schleife of BMO Private Wealth for Check

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Speaker 2: of the Markets. Welcome back to the Daybreak Asia Podcast.

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Speaker 2: I'm Dan Schwartzman Doug Prisoner is off this week in

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Speaker 2: the States. Wall Street traders drove stocks hire amidst solid

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Speaker 2: signals from Corporate America and hopes that tensions between the

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Speaker 2: US and China are cooling. With the earnings season well underway,

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Speaker 2: about eighty five percent of the companies in the S

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Speaker 2: and P five hundred reporting results so far have beaten

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Speaker 2: profit estimates. That's helped fuel rebound inequities, with a benchmark

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Speaker 2: notching its best two day gains since June. For one

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Speaker 2: of the markets, we hear from Carol Schleife, chief market

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Speaker 2: strategist of BMO Private Wealth. She spoke to Bloomberg s

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Speaker 2: Sherryon and April Hon on the Asia trade Well, I think.

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Speaker 4: Trade deal is part of it.

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Speaker 6: Also earnings are part of it too, because I mean

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Speaker 6: markets have been trying for months to move beyond the

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Speaker 6: trade war and we saw it pulled right back up

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Speaker 6: to the front burner a week ago Friday with the

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Speaker 6: back and forth between President Trump President She over the

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Speaker 6: weekend about you know a variety of things, the rare

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Speaker 6: earths and then the US and the tit for tet

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Speaker 6: that went on. But that so that's a piece of

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Speaker 6: it and pushing that back off the front burner, and

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Speaker 6: assuming that the two are going to meet and they're

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Speaker 6: going to have discussions and it isn't something that's going

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Speaker 6: to be settled quickly. Obviously there's a lot to negotiate here.

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Speaker 6: But I think it allows the markets to turn their

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Speaker 6: attention back towards earnings. And we've got a big earnings

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Speaker 6: week this week, with something like twenty percent of the

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Speaker 6: S and P that reports this week.

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Speaker 5: And do you see in terms of earnings big Tech

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Speaker 5: as the knicks key test for stocks.

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Speaker 6: Yeah, it definitely will be a test for stocks, because

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Speaker 6: if you get any sort of hint that somethings awry

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Speaker 6: among the where all the most significant leadership and optimism

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Speaker 6: has been, you could see a temporary sort of inhale

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Speaker 6: of collective inhale of breath from investors. But I think

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Speaker 6: it's important to remember, though, that the underlying economy is

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Speaker 6: still solid. Even though we're shut down and don't have

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Speaker 6: good firm economic stats on it, We've got lots of

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Speaker 6: tangential evidence.

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Speaker 4: You'll hear it from the companies.

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Speaker 6: There'll be a lot of parsing of not only the

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Speaker 6: earnings themselves, but more specifically the backlogs, the spending, the employment.

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Speaker 4: Levels, the capex plans.

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Speaker 6: There's a lot going on that's actually pretty positive, and

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Speaker 6: we think you'll see that pulled through the earning season

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Speaker 6: pretty consistently.

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Speaker 1: Which is why you understand that those risk processes are

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Speaker 1: gaining ground. But what's happening with haven's as well, because

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Speaker 1: as this charge shows, we're seeing on everything rally with

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Speaker 1: gold reaching background high scheel also continuing to gain ground.

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Speaker 4: That's exactly right.

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Speaker 6: I think it's the way investors are doing a Barbell

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Speaker 6: sort of strategy that I'm going to I don't want

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Speaker 6: to get off the growth train yet, but I'm a

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Speaker 6: little bit nervous at the edges.

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Speaker 4: It's one of the reasons.

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Speaker 6: Why you've seen some almost hyper activity, if you will,

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Speaker 6: in terms of it was a mere tweet that went

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Speaker 6: out or a truth social posts that went out on

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Speaker 6: that late Friday afternoon, and markets reacted really instantly and

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Speaker 6: really aggressively. And so yeah, I think gold bonds, you know,

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Speaker 6: traditional even the dollars behaving better, and so you're seeing

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Speaker 6: people trying to pull some assets out there. But there

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Speaker 6: are other places even in the stock market to hedge

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Speaker 6: that aren't the Magnificent Seven.

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Speaker 4: There's lots of other industry groups.

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Speaker 6: And portions of the global equity trade to participate in

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Speaker 6: as well, So having that diversified portfolio should help.

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Speaker 4: Guy through some of this. If we do get interim volatility, does.

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Speaker 1: A delayed release of the September CPI data post risks

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Speaker 1: for markets if we're at these levels.

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Speaker 4: It possibly.

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Speaker 6: I mean, the whole reason the CPI is out there

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Speaker 6: is because the fiscal year end was there, and that

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Speaker 6: CPI undergirds things like social security, cost of living increases

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Speaker 6: for oh one K.

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Speaker 4: Gifting increases.

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Speaker 6: There's a lot of stuff that's tied to that annual number,

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Speaker 6: and so while investors will take it in, they normally

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Speaker 6: would take it in along with the CPI or the

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Speaker 6: PPI and the PCE and lots of other things out there.

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Speaker 4: So it's just it's one data point.

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Speaker 6: And I think the more critical thing for an intermediate

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Speaker 6: or longer term will be the longer we are shut down,

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Speaker 6: the more likely it becomes that some of the data

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Speaker 6: will never get because of it being survey data and

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Speaker 6: things like that. So we need to get the government

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Speaker 6: reopen and the statistics mills generating again.

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Speaker 4: For the longer term.

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Speaker 6: But in the meantime, there's a lot of other sources

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Speaker 6: for people to look to, not the least of which

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Speaker 6: is earnings and company company managements and the FEDS Page

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Speaker 6: book and things like that.

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Speaker 5: Even as we look through the potential end of the

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Speaker 5: shutdown in terms of US politics and the impact on markets,

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Speaker 5: is also that gearing up for the big times. What

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Speaker 5: are you seeing in terms of how markets will likely

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Speaker 5: shape up in the year ahead.

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Speaker 6: I think the interesting thing is is that with the

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Speaker 6: midterms coming, and clearly the administration is very focused.

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Speaker 4: On wanting to.

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Speaker 6: Watch those midterms and be supportive, if you will, And

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Speaker 6: that's where with a lot of the trade policies and

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Speaker 6: the immigration policies, a lot of the things that were

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Speaker 6: potentially disruptive of markets get done early in the term,

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Speaker 6: and now the focus really is on how do we

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Speaker 6: sustain growth, how do we reduce regulation, how do we

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Speaker 6: get markets boosted again? And honestly, one of the things,

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Speaker 6: one of the other side effects that you've had of

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Speaker 6: a government shutdown has been in the IPOs that we're

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Speaker 6: queueing out. If they weren't approved, they're not out, and

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Speaker 6: so you've got to back up in some really high

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Speaker 6: quality IPO set to come as well on that supportive

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Speaker 6: of markets, and so you've got an administration that'll be

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Speaker 6: very focused on doing everything they can to support that

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Speaker 6: economy and to keep the growth going into the midterms.

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Speaker 2: That was Carol Schlife, chief market strategist of BMO Private Wealth,

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Speaker 2: speaking to Bloomberg, Sharry On and Avil Hang on the

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Speaker 2: Asia trade.

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Speaker 6: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 6: 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.

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Speaker 4: Join us again tomorrow for insight on the market.

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Speaker 2: Movie moves from Hong Kong to Singapore and Australia.

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Speaker 5: I'm Doug Prisoner and this is Bloomberg