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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner. Join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business app. Showing us now on the program,

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Speaker 2: Frank Benzimra, head of Asia Equity Strategy at Associate General. Frank,

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Speaker 2: thanks very much for joining us. I just wanted to

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Speaker 2: ask you about Jackson Holetz. Part of the big week,

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Speaker 2: We've got a lot going on. We'll have continued trading

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Speaker 2: after the big moves we've seen, both to the downside

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Speaker 2: and the upside. Jerome Powell will be speaking about the

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Speaker 2: economic outlooks, so that'll be way up there on people's list.

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Speaker 2: The Bank of England Governor Andrew Bailey will also be

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Speaker 2: making an appearance on Friday in Philip Lane. The chief

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Speaker 2: economists at the ECB speaking a day later. Will it

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Speaker 2: be kind of a consistent message that we hear. Are

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Speaker 2: you expecting a lot of divergent talk?

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Speaker 3: Well, I think probably the most important is going to

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Speaker 3: be to be Jackson Hall after the recent volatilities that

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Speaker 3: we had in the in the market. The thing is

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Speaker 3: after we are expecting to see more of the long

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Speaker 3: term issue and being being discussed. I think the theme

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Speaker 3: is a transmission of monetary policy and how effective it is.

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Speaker 3: But of course we are going to look for some

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Speaker 3: clue on the on the short term, so I think

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Speaker 3: that's that's going to be to be very very important.

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Speaker 3: What the data we've seen recently are more arguing for

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Speaker 3: a twenty five basics cut in in September, but that's

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Speaker 3: obviously something that we need to that we need to follow.

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Speaker 2: And how do Asian markets look positioned here at the moment.

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Speaker 3: Well, you have really three types of market and you

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Speaker 3: have Japan, China and the rest of Asia and Japanese

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Speaker 3: super interesting and it has rebounded by more than twenty

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Speaker 3: percent since in the law of the market with financials

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Speaker 3: more than twenty five twenty five percent. What is interesting

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Speaker 3: is that we are seeing the net position on the

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Speaker 3: on the end. Now the market is becoming net longer,

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Speaker 3: but still we are seeing some download pressure on the end.

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Speaker 3: So it means that some carriage trade are elsewhere, and

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Speaker 3: we think that it makes a lot of sense to

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Speaker 3: go more domestic on that. On that market, China is

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Speaker 3: very much in the earning season at the moment, which

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Speaker 3: is not great, not terrible, but not great. And then

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Speaker 3: you have the rest of Asia where you have this

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Speaker 3: divergence between take on the one hand and the more

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Speaker 3: domestic fem and here, as in the case of Japan,

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Speaker 3: it's going to be probably a good idea to look

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Speaker 3: more at what's happening on the domestic part of the

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Speaker 3: of the market.

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Speaker 2: Let's focus on China for the moment. China apparently is

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Speaker 2: putting private sector policy on the front burner. This is

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Speaker 2: what we heard from Premier Lee Chang at the end

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Speaker 2: of the week telling the cabinet that more has to

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Speaker 2: be done to boost domestic demand. It's just talk. We've

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Speaker 2: heard a lot of talk. There's work this.

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Speaker 3: Time, yes, that's indeed there has been a lot of

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Speaker 3: discussion about that, and again in the in the polit Bureau,

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Speaker 3: the latest the latest polit Bureau. I think the only

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Speaker 3: element which can be a little bit more comforting when

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Speaker 3: it comes to domestic consumption and the domestic economies. We

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Speaker 3: start to see some bottoming in the housing, sales and construction,

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Speaker 3: but in terms of what the government is going to

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Speaker 3: do to boost consumptions, but it really remains to be

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Speaker 3: to be seen because what we are seeing is still

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Speaker 3: it's the greatest focus is on manufacturing and on and

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Speaker 3: on building some advanced manufacturing industry.

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Speaker 2: We saw some uneven performance in the earnings of ten

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Speaker 2: Cents and Ali Baba. We did close out the week

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Speaker 2: pretty strongly for both of those names, but there was

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Speaker 2: a little bit of uncertainty about the earnings. In ten

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Speaker 2: Cents case, the gaming looked pretty pretty good, but some

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Speaker 2: of the other areas of business not so much. And

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Speaker 2: Ali Baba is still struggling a little bit with overall sales.

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Speaker 2: I don't know if you can talk about individual names,

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Speaker 2: but are some of the former star performers in Asia

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Speaker 2: about ready to get a turn again.

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Speaker 3: Yeah, well, I'm not going to talk about some single names,

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Speaker 3: but just just a couple of observation as the earnings

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Speaker 3: on China fit Tech a mess. China, for instance, the

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Speaker 3: earnings pature has not grown for the last ten years

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Speaker 3: and it has even declined over the last over the

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Speaker 3: last three years, which means that you have some expectations

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Speaker 3: which are not very not very ambitious, so you don't

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Speaker 3: have a lot of expectation when the earning season is starting.

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Speaker 3: So when we see something which is a little bit

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Speaker 3: about this slow expectation, so the market tends to take

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Speaker 3: it to take it positively. And when it comes more

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Speaker 3: specifically to the to the Internet platform and to the

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Speaker 3: big Internet Internet names, it's rather recomforting to see that

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Speaker 3: we have some sign of life. And so you were

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Speaker 3: mantaining the gaming industry, so in some more consumer oriented

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Speaker 3: industry we start to see some turn around and that's

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Speaker 3: I think this is something which is in line with

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Speaker 3: what we had in the previous quarter and it is

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Speaker 3: extending into this quarter.

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Speaker 2: Yeah, fighting really strong resistance from at least three fronts.

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Speaker 2: I mean, one, you can say policy has been pretty restrictive. Secondly,

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Speaker 2: there's massive competition in China now, something we didn't have

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Speaker 2: as much of going back a number of years, particularly

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Speaker 2: those companies we talked about earlier. And then also you

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Speaker 2: have basically a weak economy, so there's a lot of

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Speaker 2: marks against them.

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Speaker 3: Yes, so we have the big picture is that you

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Speaker 3: still have some defleationary pressure on the economy. One thought

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Speaker 3: is coming from the housing market, and the other part

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Speaker 3: is coming from this very intense competition that you are mentioning,

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Speaker 3: with over capacity being the result of it. So they're

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Speaker 3: just a couple of things. And to say here, the

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Speaker 3: first one is we are seeing export booming and the

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Speaker 3: structure of the export is also changing towards emerging economies,

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Speaker 3: and this is something that is a factor of support.

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Speaker 3: And then as I was mentioning, we start to see

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Speaker 3: some very timid sign of bottoming in the economy in

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Speaker 3: the housing market. So one question now after the latest

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Speaker 3: daya whether we are going to reach the five percent

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Speaker 3: target that the government has set for the GDPSS here

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Speaker 3: and this is where you could have some expectation of

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Speaker 3: further support if we are not reaching it.

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Speaker 2: All right, Frank, thanks very much taking out the time

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Speaker 2: to be with us. Frank Benzimra, head of Asia Equity Strategy,

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Speaker 2: Associated General, I'm Brian Curtis along with Paul Allen, and

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Speaker 2: joining us now is Steve Sosnick, chief strategist at Interactive

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Speaker 2: Brokers for a look at market. Steve, always great to

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Speaker 2: have you on the program just to give our audience

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Speaker 2: kind of an overview of how you're feeling about what

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Speaker 2: we've seen in markets over the past month. What makes

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Speaker 2: more sense to mister Steve Sosnick a Vicset fifty or

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Speaker 2: a Vicset fifteen.

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Speaker 4: Good morning, Brian, Well, I mean, fifteen is more sensible

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Speaker 4: than fifty. But I don't think that's particularly sensible either.

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Speaker 4: I think the way that we you know, obviously, the

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Speaker 4: fifty print was the result of several the overcrowded trades

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Speaker 4: converging at once. The carry trade, the dispersion trade where

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Speaker 4: people were shorting index ball and buying individual equity vall,

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Speaker 4: along with a few other mishaps, all combined that morning

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Speaker 4: to give you the crazy VIX print. But I think

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Speaker 4: the fact that we've gone, we flipped from you know,

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Speaker 4: get me protection asap to protection who needs protection? There's

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Speaker 4: nothing coming in the next thirty days, which is really

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Speaker 4: what a fifteen vix is telling you, is not correct either.

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Speaker 4: I don't think.

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Speaker 5: Yeah, it's interesting, isn't it. We got the yen knocking

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Speaker 5: on the door of one forty eight again. The NIKA

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Speaker 5: had an amazing week last week. Are we getting set

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Speaker 5: up for a sequel of the craziness of a couple

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Speaker 5: of weeks ago.

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Speaker 4: It's hard to say, Paul, because you know, the size

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Speaker 4: of the carry trade is pretty much a guess. You know,

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Speaker 4: a JP Morgan said it was seventy five percent on.

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Speaker 4: Others have said fifty percent done. It's really quite opaque,

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Speaker 4: so we don't know the extent to which the carry

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Speaker 4: trade exists, although I do get the sense that people

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Speaker 4: were putting it right back on this week, you know,

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Speaker 4: at least certainly buying US tech stocks with their bar

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Speaker 4: at the end, so you know, yes, we could be

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Speaker 4: setting up for a rerun. And especially I think, you know,

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Speaker 4: the the idea that nothing can happen in a couple

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Speaker 4: of week period where you have Powell giving a very

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Speaker 4: consequential speech, a Nvidio earnings next week does seem a

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Speaker 4: little bit risk, you know, risk tolerant, maybe more than

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Speaker 4: we should be.

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Speaker 2: It seems like we've had a lot of these really

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Speaker 2: big market shocks over the past decade or so. I

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Speaker 2: know that generally speaking, you know, when you look at markets,

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Speaker 2: you can say, well, you know, things are not really

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Speaker 2: as bad as sometimes markets suggest, and things are not

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Speaker 2: as good as they sometimes suggest. But it is a

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Speaker 2: little bit curious. I think we had a pretty good

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Speaker 2: piece on the terminal over the weekend about about these shocks.

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Speaker 2: Do you think it's greater than before, and if so,

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Speaker 2: what's causing it?

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Speaker 4: I actually don't think right now we're seeing that in

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Speaker 4: many great shocks. That's why I think for lack of

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Speaker 4: a better order was so shocking, you know, a couple

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Speaker 4: of weeks ago, because we really haven't you know, we

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Speaker 4: didn't have a two percent down day on the S

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Speaker 4: and P five hundred until about a week or two ago.

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Speaker 4: You know, it happened. I think the week prior to

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Speaker 4: Monday too, you know, it was like three weeks ago.

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Speaker 4: But we hadn't had one since December of twenty two,

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Speaker 4: so we've gone a long time without any real shocks,

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Speaker 4: at least in the stock market. You know. The part

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Speaker 4: that's a little interesting to me is the amount of

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Speaker 4: volatility that you see in the bond market. Certainly some

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Speaker 4: of very big moves, even in two year notes, but

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Speaker 4: yet somehow Normally, when you can't price safe assets, you

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Speaker 4: shouldn't be able to price risky assets. But right now, people,

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Speaker 4: I think it's really just you know, fomo drive in

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Speaker 4: the fomo and momentum. If they're going up, people are

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Speaker 4: going to buy them, and it doesn't take much to

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Speaker 4: get them to go up. And I think that's kind

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Speaker 4: of why the blow ups seem bigger than they are,

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Speaker 4: because we quite frankly, we haven't had them. We're not

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Speaker 4: used to them.

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Speaker 5: How about pricing in the Fed's next move, because we've

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Speaker 5: got less than one hundred basis points of cuts priced

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Speaker 5: in for the rest of the year, but that's still

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Speaker 5: a cup at every remaining meeting that we've gone. Is

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Speaker 5: that realistic or is the getting a bit of hit

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Speaker 5: of itself again?

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Speaker 4: Yeah, the market's been ahead of its The market's been

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Speaker 4: ahead of the Fed the entire year. Right, we came

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Speaker 4: into the year at six to seven rate cuts. We're

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Speaker 4: still waiting for our first And it's funny because I

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Speaker 4: went back and looked at the twenty twenty two Jackson

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Speaker 4: Hole conference, which which you know, really was pretty nasty

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Speaker 4: for the markets, and the talk then was the market

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Speaker 4: was waiting for the FED to pivot, which obviously they

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Speaker 4: still haven't pivoted. But this just tells you. And so

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Speaker 4: I think my concern is that Powell comes out and says, look,

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Speaker 4: I told you, I told you people to expect ray

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Speaker 4: cuts in September. You're right, but the data isn't there

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Speaker 4: to say that we're going to go to fifty. The

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Speaker 4: data isn't there to say that we're going to cut

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Speaker 4: every meeting. We'll give you an adjustment cut, and we're

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Speaker 4: going to start to go, and we'll go slowly unless

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Speaker 4: the data dictates otherwise. And the market may just like

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Speaker 4: the idea of oh oh, you mean there's a possibility.

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Speaker 4: But when you think about that, if the data dictates otherwise,

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Speaker 4: it means that the economy is not particularly friendly to

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Speaker 4: stocks at that point. So it's my risk going into

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Speaker 4: this week.

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Speaker 2: Yeah, A reference made to to when J. Powell spoke

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Speaker 2: for only eight minutes and said you're going to feel

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Speaker 2: some pain. Is there any chance that this time he says, hey,

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Speaker 2: you're going to feel some glee.

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Speaker 4: I don't think that's in his playbook. I do think

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Speaker 4: the market now, I do think see one of the

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Speaker 4: things I've always think when we have these feed meetings

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Speaker 4: is he sort of goldilocks, like, you know, not too hot,

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Speaker 4: not too cold, and the market definitely if he says,

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Speaker 4: you know, we're not likely to cut rates, but we might.

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Speaker 4: The market here as well, we might cut rates. So

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Speaker 4: the difference is at Jackson Hole, where he controls the message.

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Speaker 4: It's not a back and forth with reporters, and I

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Speaker 4: think he's got a genuinely good rapport with most of

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Speaker 4: the reporters. If he wants to tell a sterner message,

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Speaker 4: this is the one time he can actually do so,

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Speaker 4: because there's really no back and forth to it. It's

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Speaker 4: just I'm going to read. I'm going to read what

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Speaker 4: I wrote, and you're gonna take it and we'll see

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Speaker 4: what he says. I don't know that he's in the

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Speaker 4: mood to bearticularly accommodative sounding, because if you look at

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Speaker 4: what markets are doing, you know, fixed income equities, whatever,

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Speaker 4: it's not like we need a ton of stimulus right now.

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Speaker 4: We seem to be doing fine with what we have

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Speaker 4: at the moment.

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Speaker 5: Yeah, there's other data to support that as well. I

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Speaker 5: mean the Bloomberg this morning. We've got California import data

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Speaker 5: that's looking pretty strong. Goldman's kind of cirsation risk, you know,

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Speaker 5: right's excessively restrictive right now.

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Speaker 4: I don't think so, although I do think the FED

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Speaker 4: has to be quite vigilant of it, because I do

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Speaker 4: think there is there is certainly the possibility, if not

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Speaker 4: the probability, that we could slip into recession. A lot

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Speaker 4: of the data is softening. But you know, again the Fed,

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Speaker 4: it has more control over the amount of money flowing

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Speaker 4: around the system that it does necessarily the economy itself.

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Speaker 4: And certainly in terms of liquidity, the Fed, you know,

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Speaker 4: they've got to be looking around and saying, there's certainly

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Speaker 4: ample liquidity even with the rate structure that we have

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Speaker 4: these days.

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Speaker 2: So it would seem to be then that the jobs

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Speaker 2: report coming up, the September of sixth jobs report would

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Speaker 2: be considerably more important than a lot of what we've

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Speaker 2: seen of late.

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Speaker 4: Absolutely, because I think, you know, the disinflationary story I

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Speaker 4: think is here, and you know, to the extent that

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Speaker 4: the Fed really is going to you know, they've indicated

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Speaker 4: that they don't need to wait exactly till two percent,

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Speaker 4: and you know, so we could argue certainly that this

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Speaker 4: is why we might see it. You know, we're likely

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Speaker 4: to see a cut in September, but the degree to

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Speaker 4: which the job market tells that story, you know, first

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Speaker 4: week is first Friday in September is going to be

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Speaker 4: a big one because you know, we saw that slowing

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Speaker 4: in you know, in the August report, the July numbers.

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Speaker 4: Let's see what it says in August, because there were

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Speaker 4: a lot of economists saying that the temporary factors, even

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Speaker 4: though the FED kind of pooh pooed them, there was

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Speaker 4: some temporary factors relating to some hurricanes and stuff that

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Speaker 4: that messed up up the numbers a little bit, maybe

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Speaker 4: weaker than they seemed.

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Speaker 2: Okay, Steve, out of time, but a great session, Thank

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Speaker 2: you very much, Steve Soasnik, chief strategist at Interactive Brokers

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Speaker 2: through Jamalik Partner at NetBoot Capital, we take a closer

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Speaker 2: look at markets here and bore we had a good

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Speaker 2: week last week. Who it was the data? I think

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Speaker 2: that calmed a lot of frayed nerves, retail sales data

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Speaker 2: and the jobless claims. And it has some forecasters, for

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Speaker 2: instance Goldman Sachs in lowering their recession risk levels. Others

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Speaker 2: maybe think it's a little too soon for that. How

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Speaker 2: much more data would you need to see, or maybe

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Speaker 2: would the markets need to see to be reassured that

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Speaker 2: the economy is on solid footing.

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Speaker 6: It really depends what data the FED needs to see,

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Speaker 6: right and the signal that the FED sends to the markets,

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Speaker 6: and the FED really has two goals is you know,

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Speaker 6: unemployment and inflation. Right, we have an unemployment number coming

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Speaker 6: out in the first week of September, and I think

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Speaker 6: that's the critical number for the FED.

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Speaker 1: The FED is.

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Speaker 6: Trying to manage, on one hand, the risk of recession,

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Speaker 6: which seemingly is not high right now. Q two real

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Speaker 6: GDP growth came in very strong at two point four percent,

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Speaker 6: So the FED is trying to manage the risk of

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Speaker 6: recession against rising unemployment. And so the important data that

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Speaker 6: I think the FED is going to be looking out

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Speaker 6: for is the unemployment number, and I think that's going

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Speaker 6: to determine what the FED does, which in turn determines

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Speaker 6: how the market moves.

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Speaker 2: So what you're saying is this September sixth jobs report

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Speaker 2: is pretty important, maybe considerably more important than most of

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Speaker 2: what we've seen of late.

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Speaker 6: I think so because some of the other things we've seen.

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Speaker 6: For example, we've seen strong earnings, but despite that, we

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Speaker 6: had the market y when we had the unemployment number.

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Speaker 6: So the market seems to be focused more on unemployment

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Speaker 6: as unemployment and inflation as opposed to earnings.

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Speaker 2: Yeah, so I guess it's a combination of what the

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Speaker 2: market expects to hear from japwell and what the FED

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Speaker 2: needs to see that everybody will be kind of edgy over.

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Speaker 2: In some ways, I think the better data took a

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Speaker 2: little pressure off of Jypowell because you had that big

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Speaker 2: market sell off and a lot of fears of unemployment

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Speaker 2: running to the upside and such in the market was

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Speaker 2: pretty negative, and he probably would have felt at least

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Speaker 2: slightly incentivized to hint that rate cuts are coming. Now

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Speaker 2: perhaps he can be a little more nuanced, don't you think.

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Speaker 6: Yes, I agree with you. He has a little bit

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Speaker 6: more leviate than he would have otherwise, and I think

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Speaker 6: he's going to continue to be dubbish, but point towards data.

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Speaker 6: The one thing, though, I think with retail sales coming

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Speaker 6: in higher than expected, that really is an opportunity for

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Speaker 6: investors because of the bifurcation we're seeing within retail, meaning

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Speaker 6: the overall retail numbers was strong, but there are pockets

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Speaker 6: like credit card delinquencies going up, like brands like Starbucks

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Speaker 6: and Amazon that are more retail sensitive reporting weaker earnings

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Speaker 6: versus brands like Walmart doing very well. So I think

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Speaker 6: underlying that retail data, Brian, there is opportunity for good

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Speaker 6: stock picking as there's a lot of dispersion underneath that

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Speaker 6: overall retail number.

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Speaker 2: Yeah. In fact, it's been a really good year so

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Speaker 2: far for stock picking. One last question on the FED

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Speaker 2: and Jerome Palell. I mean, do you think if he

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Speaker 2: does not, because we ran a story on this actually

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Speaker 2: included some comments that well, if he doesn't hint at

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Speaker 2: rate cuts, you're going to likely see another market sell up.

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Speaker 2: Are you in that camp or do you think that

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Speaker 2: the market out there that you know, they're sort of

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Speaker 2: in a position where they feel as though they can

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Speaker 2: be patient.

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Speaker 6: No, I don't think the market wants to be patient.

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Speaker 6: I think the.

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Speaker 2: Market so you embrace the sell off idea. Then if

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Speaker 2: he doesn't hint, yes.

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Speaker 6: Yeah, I think the market is looking for at least

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Speaker 6: some kind of positive or it the neutral news that

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Speaker 6: he's going to continue on the same path of being

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Speaker 6: devision watching for data because the issue right now is

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Speaker 6: there's so much uncertainty amongst investors and as you will

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Speaker 6: now Brian August, you know there's lower trading volumes. Lots

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Speaker 6: of people are on vacation, So the lower trading volumes

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Speaker 6: combined with this uncertainty, is leading to very large market

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Speaker 6: moves in market votility and policies that so I think

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Speaker 6: I think he's going to stay neutral, just slightly positive,

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Speaker 6: hoping for a calm market reaction.

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Speaker 2: Well, you can understand how the market would be frustrated

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Speaker 2: with this because you have the FED funds rate at

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Speaker 2: five and three eight percent that was geared at inflation

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Speaker 2: at nine percent. Now you've got inflation at three percent,

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Speaker 2: so at least x amount of the cutting that ultimately comes,

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Speaker 2: it's just calibration, right, It's not saving the economy, don't

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Speaker 2: you think so?

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Speaker 6: True?

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Speaker 3: True?

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Speaker 6: I do think though investors have been spoilt in the

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Speaker 6: last decade, Brian, because yes, is not frustrated. But if

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Speaker 6: you look at where markets are, we're still fifteen percent

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Speaker 6: for the year, given that we were up twenty five

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Speaker 6: percent last year, right, so there is actually no good

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Speaker 6: reason for investors to be frustrated with either the stock

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Speaker 6: market or with the Fed. And if you step back

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Speaker 6: and think about where we were two or three years ago,

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Speaker 6: not a lot of people believed that the Fed would

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Speaker 6: be able to pull this off in terms of managing

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Speaker 6: recession and guiding rates and unemployment. But so far, so good.

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Speaker 2: Oh yeah, they'll get huge kdos if they do pull

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Speaker 2: off a soft landing. So let's go a couple of

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Speaker 2: other different directions. Here, are investors, in your view, actively

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Speaker 2: playing the election or keeping it at arm's length.

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Speaker 6: It's too early, i would say, to be actively playing

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Speaker 6: the election, but investors are definitely starting to think about

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Speaker 6: the what if scenarios. The outcome of the election still

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Speaker 6: remains unclear and we are still a few away. These

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Speaker 6: things can change pretty quickly. You know, the possibility of

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Speaker 6: US tariffs I think is the big one, depending on

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Speaker 6: election results. And as you know, for emerging markets, that's

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Speaker 6: also a big impact. Meaning if the US titans tariffs,

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Speaker 6: that impact is welled not just in China but all

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Speaker 6: through emerging markets.

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Speaker 2: Yeah. Absolutely in China. You know, every day you get

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Speaker 2: something new. We've had just in the past couple of days,

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Speaker 2: defaults on convertible bonds kind of really hurting consumers even

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Speaker 2: and then this latest development of the exchange in exchange

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Speaker 2: is not publishing the buying and selling of foreign investors,

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Speaker 2: which would seemingly turn off foreign investors even more.

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Speaker 6: Yes, that's a bad sign. Bigness and markets is always

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Speaker 6: a bad sign, right. It's like saying you have something

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Speaker 6: to hide right. Nevertheless, I think in China it's really

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Speaker 6: I think the whole economy is dependent on what the

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Speaker 6: government is going to do, because as you know, corporate

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Speaker 6: sentiment is negative. Retail investors are still saving, they're not

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Speaker 6: ready to spend, they don't have discretionary income to spend.

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Speaker 6: So the Chinese economy still comes down to what the

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Speaker 6: government can do, either in terms of physical stimulus, montre

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Speaker 6: stimulus supporting Chinese banks and state on enterprises. And I

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Speaker 6: think the new thing in China is of course the

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Speaker 6: rise of the exporters, which for a long time China

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Speaker 6: was driven by domestic demand. But the last time, I

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Speaker 6: would say eighteen months or so, the stocks that have

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Speaker 6: done well are the export oriented stocks in China, which

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Speaker 6: I think has been an interesting change in the Chinese

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Speaker 6: stock picking landscape.

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Speaker 2: Okay, so finally, and not just in China, but maybe globally.

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Speaker 2: You talked about it being a good stock pickers market.

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Speaker 2: Are there any interesting kind of corporate developments that have

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Speaker 2: caught your eye for an investing theme.

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Speaker 6: Yes, as you know, we invest broadly across emerging markets,

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Speaker 6: and in general right now, given the certain tea, we're

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Speaker 6: being very defensive, which means we're buying stocks with strong

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Speaker 6: cash flows, stocks that are likely to beat earnings and

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Speaker 6: dividend yield, but overall we're looking for stocks that are

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Speaker 6: pivoting more to global AI demand.

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Speaker 2: Poojah, thanks so much for joining us on the weekend

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00:24:15,520 --> 00:24:20,760
Speaker 2: and getting our investors and listeners ready for Monday morning trading. Pujamaleg,

439
00:24:20,840 --> 00:24:32,480
Speaker 2: partner at Nipu and Capital. Brian Jacobson, Chief economist at

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00:24:32,520 --> 00:24:35,960
Speaker 2: Anex Wealth Management. Brian, one of your points is that

441
00:24:36,080 --> 00:24:41,320
Speaker 2: recession fears have faded, but they haven't disappeared. Unemployment, and

442
00:24:41,359 --> 00:24:43,920
Speaker 2: this is my point. Unemployment has jumped from three point

443
00:24:44,080 --> 00:24:48,240
Speaker 2: four percent on May first to four point three percent. Now,

444
00:24:48,600 --> 00:24:52,520
Speaker 2: that's almost a full percentage point in less than three months.

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00:24:52,880 --> 00:24:56,160
Speaker 2: Is that not worrisome? And if so, what's the FED

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00:24:56,200 --> 00:24:56,720
Speaker 2: waiting for?

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00:24:58,040 --> 00:25:00,879
Speaker 1: Yeah, it definitely is heading in the ro direction. I

448
00:25:00,880 --> 00:25:02,560
Speaker 1: guess you could say that, but you know, from the

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00:25:02,560 --> 00:25:05,640
Speaker 1: FEDS perspective, it's actually somewhat heading in the right direction

450
00:25:06,040 --> 00:25:08,560
Speaker 1: because they did think that that three point four percent

451
00:25:09,040 --> 00:25:11,399
Speaker 1: was too low. And if you look at kind of

452
00:25:11,400 --> 00:25:14,320
Speaker 1: the broader arc of history, when we look at the

453
00:25:14,359 --> 00:25:16,879
Speaker 1: Bloomberg terminal, as far as what it's telling US with

454
00:25:17,320 --> 00:25:19,960
Speaker 1: going back to the nineteen fifties, with the unemployment rate,

455
00:25:20,200 --> 00:25:23,359
Speaker 1: it's averaged five point seven percent. So even though it's

456
00:25:23,400 --> 00:25:26,720
Speaker 1: gone from three point four up to four point three,

457
00:25:27,320 --> 00:25:29,600
Speaker 1: the question in my mind is whether or not it's

458
00:25:29,640 --> 00:25:32,320
Speaker 1: going to hang out around here, maybe get to four

459
00:25:32,320 --> 00:25:34,760
Speaker 1: and a half, or if it's going to keep marching higher.

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00:25:35,000 --> 00:25:37,520
Speaker 1: I'm somewhat optimistic about the outlook, and so I think

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00:25:37,560 --> 00:25:40,280
Speaker 1: that we're actually going to probably settle in closer to

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00:25:40,320 --> 00:25:43,639
Speaker 1: about four point five percent, which isn't too worrying in

463
00:25:44,040 --> 00:25:44,800
Speaker 1: my mind.

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00:25:45,000 --> 00:25:47,520
Speaker 2: And the positive news over the past week has helped

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00:25:47,560 --> 00:25:48,120
Speaker 2: in that view.

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00:25:48,960 --> 00:25:52,440
Speaker 1: It has, yeah, the initial unemployment claims numbers coming back down,

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00:25:52,840 --> 00:25:56,280
Speaker 1: stronger retail sales numbers as well. However, I think that

468
00:25:56,320 --> 00:25:59,200
Speaker 1: there is a lot of superficial strength in that retail

469
00:25:59,280 --> 00:26:02,400
Speaker 1: sales number because the month of June, we know that

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00:26:02,520 --> 00:26:06,760
Speaker 1: auto sales were adversely affected by that hacking attack on

471
00:26:06,960 --> 00:26:10,000
Speaker 1: a number of car dealers on their computer systems, and

472
00:26:10,040 --> 00:26:12,359
Speaker 1: so there was bound to be a big bounce back

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00:26:12,640 --> 00:26:15,239
Speaker 1: in auto sales in July, and we did see that

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00:26:15,520 --> 00:26:18,679
Speaker 1: there was also an increase in the building material and

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00:26:18,720 --> 00:26:21,840
Speaker 1: also the garden center sales. Maybe some of that was

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00:26:21,960 --> 00:26:25,639
Speaker 1: due to people rebuilding or cleaning up after Hurricane Barrel

477
00:26:25,760 --> 00:26:29,120
Speaker 1: barreled down on the Houston area. And so even though

478
00:26:29,160 --> 00:26:31,679
Speaker 1: a lot of people have now come out those who

479
00:26:31,760 --> 00:26:34,760
Speaker 1: are increasing their recession odds in June, they're kind of

480
00:26:34,800 --> 00:26:37,600
Speaker 1: walking that back in July. Maybe that's a little premature.

481
00:26:37,720 --> 00:26:39,560
Speaker 1: I mean, I think that we're going to a point

482
00:26:39,600 --> 00:26:43,480
Speaker 1: where we are seeing some economic slowing, but I don't

483
00:26:43,480 --> 00:26:45,520
Speaker 1: think that we're all of a sudden getting that all

484
00:26:45,680 --> 00:26:49,159
Speaker 1: clear signal that everything is all sunshine and happiness.

485
00:26:49,400 --> 00:26:51,600
Speaker 2: Still in all the Fed funds rate is up there

486
00:26:51,600 --> 00:26:54,480
Speaker 2: around five and a half percent. That did its job

487
00:26:54,600 --> 00:26:57,400
Speaker 2: on bringing inflation down all the way down from eight

488
00:26:57,520 --> 00:27:01,000
Speaker 2: nine percent down to the current levels, which depending on

489
00:27:01,080 --> 00:27:02,840
Speaker 2: how you look at it could be between say two

490
00:27:02,880 --> 00:27:06,720
Speaker 2: and a half and around three percent or so. It

491
00:27:06,720 --> 00:27:09,359
Speaker 2: would seem to be out of step with where we

492
00:27:09,480 --> 00:27:12,760
Speaker 2: are now, and that we know that a lot of

493
00:27:12,760 --> 00:27:15,719
Speaker 2: this has been in the pipeline and will be coming

494
00:27:16,080 --> 00:27:19,680
Speaker 2: even if they start cutting It seems like on balance,

495
00:27:19,800 --> 00:27:22,080
Speaker 2: a lot of people think, and perhaps even the Fed thinks,

496
00:27:22,119 --> 00:27:23,960
Speaker 2: that it's just about time to go.

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00:27:24,960 --> 00:27:27,240
Speaker 1: Yeah, I think that they are coming to that conclusion.

498
00:27:27,280 --> 00:27:29,320
Speaker 1: It's just a question of how they want to message

499
00:27:29,359 --> 00:27:32,280
Speaker 1: it as far as the timing of the initial cut

500
00:27:32,320 --> 00:27:35,760
Speaker 1: and then also the pace of subsequent cuts. Now, in fairness,

501
00:27:35,760 --> 00:27:38,880
Speaker 1: probably half of the improvement that we've seen in inflation,

502
00:27:39,040 --> 00:27:43,159
Speaker 1: if not slightly more, has happened regardless of what the

503
00:27:43,200 --> 00:27:45,640
Speaker 1: FED did. It was mainly because it was a supply

504
00:27:45,840 --> 00:27:48,040
Speaker 1: side issue. And I think that you could I actually

505
00:27:48,040 --> 00:27:51,560
Speaker 1: make the argument that some of the Fed's policies has

506
00:27:51,720 --> 00:27:55,320
Speaker 1: actually created some supply side problems in the housing market,

507
00:27:55,440 --> 00:28:00,600
Speaker 1: keeping that owner's equivalent rent and the rental component of

508
00:28:00,600 --> 00:28:04,000
Speaker 1: the inflation numbers somewhat higher than it otherwise would be.

509
00:28:04,320 --> 00:28:06,920
Speaker 1: And so you know, half of the progress that we've

510
00:28:06,920 --> 00:28:10,000
Speaker 1: seen on inflation would have happened anyways. And so the

511
00:28:10,040 --> 00:28:14,280
Speaker 1: FED maybe they because they were slow to react to inflation,

512
00:28:14,800 --> 00:28:18,480
Speaker 1: that they overreacted, and now they do need to do

513
00:28:18,640 --> 00:28:21,159
Speaker 1: a type of course correction. And it's more than just

514
00:28:21,320 --> 00:28:24,640
Speaker 1: the course correction that Powell talked about in twenty nineteen.

515
00:28:24,920 --> 00:28:28,639
Speaker 1: This is more about recalibrating policy to what's more appropriate

516
00:28:28,960 --> 00:28:32,880
Speaker 1: for inflation that is probably going to get to their

517
00:28:32,920 --> 00:28:35,520
Speaker 1: target by some point in twenty twenty five.

518
00:28:35,880 --> 00:28:38,640
Speaker 2: Okay, I give you thirty seconds for this this question,

519
00:28:38,800 --> 00:28:41,640
Speaker 2: and this was actually a question that was in one

520
00:28:41,640 --> 00:28:44,640
Speaker 2: of our pieces as a tease. How soon do they start?

521
00:28:44,680 --> 00:28:46,880
Speaker 2: How fast do they go and where do they end?

522
00:28:47,000 --> 00:28:47,720
Speaker 2: Thirty seconds?

523
00:28:48,000 --> 00:28:50,840
Speaker 1: Yeah, I think they'll start in September at that meeting

524
00:28:50,880 --> 00:28:54,480
Speaker 1: twenty five basis points every meeting. They'll probably end up

525
00:28:54,520 --> 00:28:57,480
Speaker 1: at something close to about three percent. So we're not

526
00:28:57,600 --> 00:28:59,720
Speaker 1: too far right if you kind of do the math there,

527
00:28:59,800 --> 00:29:04,440
Speaker 1: it's only about about two years away from being to

528
00:29:04,560 --> 00:29:05,160
Speaker 1: their target.

529
00:29:06,200 --> 00:29:09,719
Speaker 2: Okay, let's talk a little bit about Asia, Pacific, China

530
00:29:10,000 --> 00:29:12,920
Speaker 2: and also some of the top themes. Maybe I can

531
00:29:12,960 --> 00:29:17,280
Speaker 2: go to the top theme of the year, which was AI.

532
00:29:18,120 --> 00:29:22,680
Speaker 2: From the economic standpoint, Brian, is AI a net positive

533
00:29:22,920 --> 00:29:24,640
Speaker 2: or negative on hiring?

534
00:29:26,320 --> 00:29:28,320
Speaker 1: It depends on who you are, right, And I think

535
00:29:28,320 --> 00:29:30,959
Speaker 1: that's one of the challenges. It was just like robotics

536
00:29:30,960 --> 00:29:34,239
Speaker 1: and automation in the nineteen eighties. It was probably just

537
00:29:34,360 --> 00:29:38,400
Speaker 1: like the assembly line in the nineteen twenties. For some

538
00:29:38,440 --> 00:29:40,959
Speaker 1: people it was a net benefit, others it was a

539
00:29:40,960 --> 00:29:44,240
Speaker 1: net negative. Longer term, it's a net positive, but it's

540
00:29:44,280 --> 00:29:47,200
Speaker 1: that adjustment that can be very difficult, especially for those

541
00:29:47,240 --> 00:29:50,400
Speaker 1: who don't have the skills to really use it as

542
00:29:50,440 --> 00:29:53,240
Speaker 1: a tool in order to help them become more productive.

543
00:29:53,480 --> 00:29:56,080
Speaker 1: So there are a number of jobs that are probably

544
00:29:56,240 --> 00:29:59,240
Speaker 1: at risk, but this is likely going to play out

545
00:29:59,360 --> 00:30:01,640
Speaker 1: over time where those people are going to be able

546
00:30:01,640 --> 00:30:05,440
Speaker 1: to put their skills and energy into something else.

547
00:30:06,200 --> 00:30:08,200
Speaker 2: Okay, I had a follow up, but I wanted to

548
00:30:08,240 --> 00:30:11,040
Speaker 2: slip in China, so we'll skip to this. We have

549
00:30:11,120 --> 00:30:15,480
Speaker 2: a story that says why China's woes don't move markets

550
00:30:15,880 --> 00:30:18,959
Speaker 2: like Americas, and I'm interested in your views on that.

551
00:30:19,720 --> 00:30:22,280
Speaker 1: Well, I think it's just because the US has been

552
00:30:22,760 --> 00:30:27,040
Speaker 1: really the locomotive of economic growth over the last couple

553
00:30:27,040 --> 00:30:29,920
Speaker 1: of years while other countries Europe was in a recession,

554
00:30:30,560 --> 00:30:33,600
Speaker 1: Japan was still struggling, China hasn't been able to kind

555
00:30:33,640 --> 00:30:37,120
Speaker 1: of turn things around. So coming out of COVID, initially

556
00:30:37,360 --> 00:30:40,880
Speaker 1: China and the US were the twin engines, but now

557
00:30:41,080 --> 00:30:44,080
Speaker 1: it's really the sole locomotive has been the United States,

558
00:30:44,080 --> 00:30:45,719
Speaker 1: And I think a lot of people have just written

559
00:30:45,760 --> 00:30:49,360
Speaker 1: off China thinking that you know, they're an aging demographic,

560
00:30:49,600 --> 00:30:52,880
Speaker 1: it's a totalitarian state and so don't really expect much

561
00:30:52,920 --> 00:30:53,360
Speaker 1: out of there.

562
00:30:54,160 --> 00:30:57,320
Speaker 2: Well, put succinct as usual, Brian, Thank you very much

563
00:30:57,320 --> 00:31:00,880
Speaker 2: for joining us, particularly given the time the weekend. Brian Jacobson,

564
00:31:01,000 --> 00:31:06,840
Speaker 2: chief Economist at NX Wealth Management. This is the Bloomberg

565
00:31:06,920 --> 00:31:10,520
Speaker 2: Daybreak Asia podcast, bringing to the stories making news and

566
00:31:10,680 --> 00:31:14,240
Speaker 2: moving markets in the Asia Pacific. Visit the Bloomberg Podcast

567
00:31:14,360 --> 00:31:17,320
Speaker 2: channel on YouTube to get more episodes of this and

568
00:31:17,440 --> 00:31:22,120
Speaker 2: other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify,

569
00:31:22,360 --> 00:31:25,760
Speaker 2: or anywhere else you listen and always on Bloomberg Radio,

570
00:31:25,880 --> 00:31:28,480
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App.