1 00:00:02,480 --> 00:00:10,480 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:10,520 --> 00:00:13,720 Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian 3 00:00:13,800 --> 00:00:16,640 Speaker 1: Curtis and myself for the stories, making news and moving 4 00:00:16,680 --> 00:00:19,560 Speaker 1: markets in the APAC region. You can subscribe to the 5 00:00:19,600 --> 00:00:23,080 Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio, 6 00:00:23,320 --> 00:00:26,120 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. 7 00:00:26,520 --> 00:00:30,320 Speaker 2: Let's get to our guest, George Merris, chief investment officer 8 00:00:30,400 --> 00:00:34,279 Speaker 2: and global head of Equities at Principal Asset Management. George, 9 00:00:34,360 --> 00:00:39,560 Speaker 2: we surveyed analysts and money managers and a little surprising here, 10 00:00:39,600 --> 00:00:43,479 Speaker 2: but they're gearing up for what is expected to be 11 00:00:43,520 --> 00:00:46,280 Speaker 2: an upbeat second half for China in the stock market 12 00:00:46,560 --> 00:00:50,199 Speaker 2: and also Hong Kong. The idea being that global funds 13 00:00:50,200 --> 00:00:53,080 Speaker 2: will return and corporate earnings will return. 14 00:00:53,720 --> 00:00:55,360 Speaker 3: Do you agree? Do you see it that way? 15 00:00:57,560 --> 00:00:59,959 Speaker 4: I certainly hope that we get a positive outcome out 16 00:01:00,200 --> 00:01:02,280 Speaker 4: out of China. 17 00:01:02,440 --> 00:01:03,760 Speaker 5: Look, I think a little. 18 00:01:03,480 --> 00:01:05,120 Speaker 4: Bit from Missouri on this one, and so there's an 19 00:01:05,120 --> 00:01:07,200 Speaker 4: American saying about you have to show me to believe it. 20 00:01:07,240 --> 00:01:07,600 Speaker 3: Show me. 21 00:01:07,680 --> 00:01:11,400 Speaker 4: I do think that right now, if we're looking at 22 00:01:11,400 --> 00:01:14,760 Speaker 4: differential growth rates around the world. China is still lagging, 23 00:01:15,160 --> 00:01:18,480 Speaker 4: and I think China still is dependent upon you know, 24 00:01:18,640 --> 00:01:22,240 Speaker 4: other countries, particularly from an export driven perspective, to drive growth, 25 00:01:22,280 --> 00:01:24,080 Speaker 4: and so the self sufficiency is open. 26 00:01:24,440 --> 00:01:24,600 Speaker 5: Now. 27 00:01:24,640 --> 00:01:27,399 Speaker 4: What is playing for it is it's still inexpensive. There's 28 00:01:27,440 --> 00:01:32,000 Speaker 4: still tremendously low expectations despite what you're canvassing. If we 29 00:01:32,040 --> 00:01:34,959 Speaker 4: look at market multiples relative to what we see elsewhere 30 00:01:34,959 --> 00:01:37,600 Speaker 4: in the world, the expectations are low. So, you know, 31 00:01:37,640 --> 00:01:39,840 Speaker 4: hope spring's eternal. I certainly hope that's the case. I 32 00:01:39,880 --> 00:01:43,120 Speaker 4: think there's some great long term ideas, but I don't 33 00:01:43,160 --> 00:01:44,839 Speaker 4: know that i'd be holding my breath for a second 34 00:01:44,840 --> 00:01:45,800 Speaker 4: half recovery. 35 00:01:46,040 --> 00:01:48,440 Speaker 1: So the latest data that we had from saisheen the 36 00:01:48,760 --> 00:01:52,160 Speaker 1: private PMI survey on manufacturing seems to support the point 37 00:01:52,160 --> 00:01:54,880 Speaker 1: that you're making here, which is that small and medium 38 00:01:54,880 --> 00:01:57,559 Speaker 1: sized businesses that do a fair amount of exporting into 39 00:01:57,800 --> 00:02:00,640 Speaker 1: foreign markets are holding up pretty well right now. But 40 00:02:00,760 --> 00:02:03,200 Speaker 1: as we enter you know, what will be a critical 41 00:02:03,240 --> 00:02:06,000 Speaker 1: election here in the US and the thread of more 42 00:02:06,120 --> 00:02:10,320 Speaker 1: tariffs on Chinese goods making their way into the United States, 43 00:02:10,360 --> 00:02:12,600 Speaker 1: I'm wondering whether that's a risk that we really have 44 00:02:12,680 --> 00:02:15,120 Speaker 1: to put front and center. Is Is that top of 45 00:02:15,200 --> 00:02:16,200 Speaker 1: mind for you right now? 46 00:02:17,600 --> 00:02:20,960 Speaker 4: No question, tariffs have to be top of mind. It 47 00:02:21,040 --> 00:02:24,800 Speaker 4: is one of the few issues that cross party lines 48 00:02:24,840 --> 00:02:28,799 Speaker 4: in the US where both Democrats and Republicans favor more 49 00:02:28,840 --> 00:02:33,079 Speaker 4: harsh sanctions on Chinese related trade. Don't think it's prudent. 50 00:02:33,160 --> 00:02:35,120 Speaker 4: We don't know how real that is, but for sure, 51 00:02:35,560 --> 00:02:37,960 Speaker 4: the rhetoric will only get worse over the next several months, 52 00:02:37,960 --> 00:02:41,000 Speaker 4: and that'll clearly cast a paul until we actually see 53 00:02:41,040 --> 00:02:42,120 Speaker 4: what happens post that. 54 00:02:42,639 --> 00:02:44,000 Speaker 3: The offset, though, is we. 55 00:02:43,960 --> 00:02:46,799 Speaker 4: Do see a very you know, the weakness in the 56 00:02:46,880 --> 00:02:52,040 Speaker 4: yuan continues to be a natural you know, offsetting support. 57 00:02:52,919 --> 00:02:57,280 Speaker 4: So it's helping that manufacturing export activity. But for sure, 58 00:02:57,320 --> 00:03:00,880 Speaker 4: you're only going to get further further political pressure coming 59 00:03:00,880 --> 00:03:03,440 Speaker 4: from the States on Chinese related exports. 60 00:03:04,639 --> 00:03:07,040 Speaker 2: Yeah, I mean there's reference to Smoot Hawley that if 61 00:03:07,040 --> 00:03:10,960 Speaker 2: you raise tariffs like this, you're just going to basically 62 00:03:11,639 --> 00:03:13,919 Speaker 2: lead to a stagflationary environment. 63 00:03:15,960 --> 00:03:17,760 Speaker 4: Look, no question, I mean, I will tell you as 64 00:03:19,080 --> 00:03:23,160 Speaker 4: the you know, there are certainly proponents for tariffs, and 65 00:03:23,320 --> 00:03:26,040 Speaker 4: they're very well maybe strategic reasons for doing so. 66 00:03:26,520 --> 00:03:27,600 Speaker 5: I do think so doing in. 67 00:03:27,600 --> 00:03:30,200 Speaker 4: A broad, broad based case, what does it do. It 68 00:03:30,240 --> 00:03:34,519 Speaker 4: reduces you know, it reduces supply and it increases cost. 69 00:03:34,639 --> 00:03:35,640 Speaker 5: It is by debt. 70 00:03:35,720 --> 00:03:39,360 Speaker 2: Well, all the other countries raised tariffs as well to fight. 71 00:03:39,240 --> 00:03:42,680 Speaker 4: You, right, And it's a it's a it's not a 72 00:03:42,800 --> 00:03:45,520 Speaker 4: zero sum game. It's a negative s game. And it's 73 00:03:45,560 --> 00:03:47,680 Speaker 4: clearly a reason why I think long term we have 74 00:03:47,720 --> 00:03:50,720 Speaker 4: to be very thoughtful about the structural impediments to both 75 00:03:50,720 --> 00:03:55,000 Speaker 4: growth and the structural uh, you know, placement of inflation. 76 00:03:55,120 --> 00:03:59,040 Speaker 4: Long term, these tariffs are not helpful for anybody. 77 00:03:59,040 --> 00:04:01,680 Speaker 1: Frankly, so when we look at US markets, a lot 78 00:04:01,680 --> 00:04:04,160 Speaker 1: of the conversation comes to the Fed and whether or 79 00:04:04,200 --> 00:04:07,120 Speaker 1: not we're going to get rate cuts this year. Powell 80 00:04:07,120 --> 00:04:10,200 Speaker 1: seemed to indicate today that we're on a path toward 81 00:04:11,000 --> 00:04:13,440 Speaker 1: disinflation here in the States, and therefore the Fed would 82 00:04:13,480 --> 00:04:18,680 Speaker 1: have flexibility presumably, and that I'm wondering whether you believe 83 00:04:18,680 --> 00:04:20,720 Speaker 1: that the market has fully priced in when you look 84 00:04:20,720 --> 00:04:23,360 Speaker 1: at the dollar in the foreign exchange, whether the market 85 00:04:23,440 --> 00:04:26,880 Speaker 1: is priced in maybe fifty bases points of easing this year, 86 00:04:27,000 --> 00:04:30,360 Speaker 1: or whether the dollar could when the FED begins actually 87 00:04:30,400 --> 00:04:32,080 Speaker 1: cutting rates weaken a bit. 88 00:04:34,240 --> 00:04:37,159 Speaker 4: I do think the market is all over what the 89 00:04:37,240 --> 00:04:39,279 Speaker 4: Fed is likely to do. I think, just given where 90 00:04:39,279 --> 00:04:40,880 Speaker 4: the calendar is, not only do you have an election, 91 00:04:40,960 --> 00:04:43,720 Speaker 4: but you've got a limited number of opportunities this year, 92 00:04:44,120 --> 00:04:45,920 Speaker 4: the market seems to be pricing in two cuts. 93 00:04:45,920 --> 00:04:46,960 Speaker 5: I think that's about right. 94 00:04:47,279 --> 00:04:49,599 Speaker 4: I also think that the currency markets are pricing it 95 00:04:49,640 --> 00:04:52,160 Speaker 4: in as well. Why is the dollar still strong than 96 00:04:52,160 --> 00:04:55,159 Speaker 4: when you've got potential rate cuts on the horizon. Clearly 97 00:04:55,200 --> 00:04:59,360 Speaker 4: Powell was ganting that he would love to love to cut. 98 00:05:00,080 --> 00:05:02,200 Speaker 4: I think the reason that the dollar remains strong is 99 00:05:02,240 --> 00:05:05,520 Speaker 4: one you've got continued bigger than neighbor policies happening around 100 00:05:05,520 --> 00:05:08,400 Speaker 4: the world. Look at the yen at one sixty one 101 00:05:09,440 --> 00:05:12,280 Speaker 4: and the boj continuing to be happy that it's sitting 102 00:05:12,320 --> 00:05:15,000 Speaker 4: there right again, we've got weak you want as well, 103 00:05:15,600 --> 00:05:19,200 Speaker 4: there is a bigger than neighbor currency war somewhat happening, 104 00:05:19,200 --> 00:05:22,320 Speaker 4: I think to drive export competitiveness, and I think that 105 00:05:22,400 --> 00:05:23,800 Speaker 4: is helping keep. 106 00:05:23,520 --> 00:05:26,200 Speaker 5: The dollars stronger. And I think the other reason. 107 00:05:25,960 --> 00:05:29,039 Speaker 4: Too, is that the US continues to be one of 108 00:05:29,080 --> 00:05:33,719 Speaker 4: the few sources right now of you know, self sustaining growth. 109 00:05:34,279 --> 00:05:36,320 Speaker 4: Right now, many places in the world again, whether you're 110 00:05:36,360 --> 00:05:39,799 Speaker 4: talking about Europe or significant parts of Asia that growth 111 00:05:39,839 --> 00:05:42,080 Speaker 4: is being driven by export lead demand, and I think 112 00:05:42,080 --> 00:05:46,239 Speaker 4: that is a much more tenuous case than self sustaining demand. 113 00:05:46,320 --> 00:05:48,840 Speaker 5: And that's I think, certainly boeing the dollar and. 114 00:05:48,839 --> 00:05:52,000 Speaker 2: A self sustaining stock market, which is kind of surprising 115 00:05:52,040 --> 00:05:55,600 Speaker 2: because you know, you've seen Nvidia pullback thirteen percent from 116 00:05:55,680 --> 00:05:59,240 Speaker 2: its recent fifty two week hi and you've also seen 117 00:05:59,279 --> 00:06:01,839 Speaker 2: Broadcom down in some of the others, and yet the 118 00:06:02,040 --> 00:06:04,800 Speaker 2: market itself is somehow managing. I mean, it's not like 119 00:06:04,839 --> 00:06:07,280 Speaker 2: it's it's spreading out tremendously at all. 120 00:06:07,360 --> 00:06:10,839 Speaker 3: It's just that it's rotating among the mag seven. Uh. 121 00:06:11,040 --> 00:06:13,320 Speaker 2: You know, how do you see AI stocks performing over 122 00:06:13,360 --> 00:06:14,360 Speaker 2: the next couple of months? 123 00:06:16,080 --> 00:06:16,279 Speaker 3: Boy? 124 00:06:16,279 --> 00:06:18,000 Speaker 4: And I wish I had a crystal ball that could 125 00:06:18,000 --> 00:06:19,120 Speaker 4: tell you a couple of months. 126 00:06:19,240 --> 00:06:20,680 Speaker 5: I do think that that. 127 00:06:20,880 --> 00:06:23,160 Speaker 4: I do think that the rotation we're starting to see 128 00:06:23,240 --> 00:06:27,440 Speaker 4: and it is evidence that maybe there's likely to be 129 00:06:27,480 --> 00:06:29,920 Speaker 4: a broadening out of the economy and of market returns. 130 00:06:29,960 --> 00:06:31,560 Speaker 5: And I think that's partly a function. 131 00:06:31,360 --> 00:06:36,159 Speaker 4: Of of one earnings growth outside the Mag seven is 132 00:06:36,200 --> 00:06:37,720 Speaker 4: going to catch up to the Mag seven. 133 00:06:37,800 --> 00:06:38,040 Speaker 5: Again. 134 00:06:38,040 --> 00:06:40,000 Speaker 4: The Max seven's been brilliant, nothing short of it, and 135 00:06:40,000 --> 00:06:42,720 Speaker 4: these are fantastic companies, but we're seeing troum. We're seeing 136 00:06:42,760 --> 00:06:45,640 Speaker 4: on consensus numbers the second half of this year the 137 00:06:45,800 --> 00:06:47,760 Speaker 4: non MAG seven in the S and P five hundred 138 00:06:47,760 --> 00:06:51,200 Speaker 4: in the US actually generate equivalent earnings growth rates, and 139 00:06:51,880 --> 00:06:54,520 Speaker 4: that runs into next year as well. I think the 140 00:06:54,600 --> 00:06:58,200 Speaker 4: strengthening of earnings outside the max seven will be very helpful. 141 00:06:58,480 --> 00:07:00,839 Speaker 4: I think you've got a very support to backdrop the 142 00:07:00,880 --> 00:07:02,880 Speaker 4: FED wants to cut. I think if it does cut, 143 00:07:03,160 --> 00:07:06,440 Speaker 4: that'll clearly be supportive of cyclicals and value stocks. I 144 00:07:06,480 --> 00:07:08,440 Speaker 4: also think that there's a notion that you're going to 145 00:07:08,480 --> 00:07:11,560 Speaker 4: get both the fiscal and monetary put in the US, 146 00:07:12,040 --> 00:07:15,280 Speaker 4: particularly driven by an election cycle. Nobody wants to see, 147 00:07:15,400 --> 00:07:17,240 Speaker 4: you know, certainly no one in power wants to see 148 00:07:17,240 --> 00:07:19,640 Speaker 4: the economy, you know, hit a lot of speed bumps 149 00:07:19,680 --> 00:07:24,040 Speaker 4: before November. For sure, you're going to have continued liquidity arise, 150 00:07:24,080 --> 00:07:27,840 Speaker 4: whether it's treasury driven liquidity, whether it's fiscal driven policy. 151 00:07:28,120 --> 00:07:30,440 Speaker 4: So I think you've got the AI going. You've got 152 00:07:30,440 --> 00:07:34,040 Speaker 4: a lot of things arguing for constructive second and a rotation. 153 00:07:34,600 --> 00:07:36,840 Speaker 3: All right, George, thank you for coming on the show. 154 00:07:37,000 --> 00:07:40,720 Speaker 2: George Merris there chief Investment Officer, chief and also global 155 00:07:40,760 --> 00:07:50,960 Speaker 2: head of Equities at Principal Asset Management. Let's get to 156 00:07:51,000 --> 00:07:56,440 Speaker 2: our guest, Jeff Klinop, chief global investment strategist at Charles Schwab. So, Jeff, 157 00:07:56,480 --> 00:07:59,160 Speaker 2: thanks very much for coming on the program. The S 158 00:07:59,200 --> 00:08:01,720 Speaker 2: and P five hundred is still climbing a wall of WRI. 159 00:08:01,840 --> 00:08:04,760 Speaker 2: There's lots out there to be concerned about. The debate 160 00:08:04,880 --> 00:08:08,840 Speaker 2: last week is one of those, sited geopolitics as well 161 00:08:08,960 --> 00:08:11,920 Speaker 2: slowing growth. And something that's kind of hanging around in 162 00:08:11,960 --> 00:08:16,320 Speaker 2: the background is the combined effect, the lagged defect of 163 00:08:16,320 --> 00:08:18,760 Speaker 2: the five hundred and twenty five basis points of hikes. 164 00:08:19,160 --> 00:08:22,080 Speaker 2: Yet the market is kind of inching up to all 165 00:08:22,120 --> 00:08:22,840 Speaker 2: time highs. 166 00:08:23,360 --> 00:08:24,160 Speaker 3: What's driving it? 167 00:08:25,960 --> 00:08:26,720 Speaker 6: Well, is it? 168 00:08:26,800 --> 00:08:28,440 Speaker 7: I mean, we have to look at the stock market 169 00:08:28,520 --> 00:08:30,680 Speaker 7: indexes and then we have to look at the stocks 170 00:08:30,680 --> 00:08:32,720 Speaker 7: that make them up. Right, So in the second quarter, 171 00:08:33,040 --> 00:08:35,840 Speaker 7: stock indexes did post some pretty good gains, and they 172 00:08:35,840 --> 00:08:36,679 Speaker 7: did again today. 173 00:08:37,280 --> 00:08:40,000 Speaker 6: But if we take a look at what the average. 174 00:08:39,559 --> 00:08:41,960 Speaker 7: Stock did in the second quarter, so for the SMP 175 00:08:42,040 --> 00:08:44,160 Speaker 7: five hundred, the index was up four point three percent, 176 00:08:44,480 --> 00:08:47,520 Speaker 7: but the average stock in the SMP five hundred was 177 00:08:47,640 --> 00:08:51,240 Speaker 7: down two point six percent. So and again we're seeing 178 00:08:51,280 --> 00:08:54,120 Speaker 7: that today with you know, leadership or on Tuesday with 179 00:08:54,200 --> 00:08:57,160 Speaker 7: leadership by Tesla, and a lot of stocks being left behind. 180 00:08:57,240 --> 00:08:58,240 Speaker 6: And so I think we're. 181 00:08:58,120 --> 00:09:03,160 Speaker 7: Seeing this divergence the megacap AI stocks seeming to lift 182 00:09:03,200 --> 00:09:06,280 Speaker 7: the overall market, while a lot of the average docs 183 00:09:06,280 --> 00:09:08,079 Speaker 7: are being left behind. If you didn't know those AI 184 00:09:08,120 --> 00:09:10,840 Speaker 7: high flyers, you might have lost money this quarter. And 185 00:09:10,840 --> 00:09:13,360 Speaker 7: so I think the market is beginning to reflect these 186 00:09:13,400 --> 00:09:18,000 Speaker 7: concerns about slowing economic growth, slowing job growth, questions about 187 00:09:18,000 --> 00:09:19,840 Speaker 7: whether the Fed is going to cut rates this year 188 00:09:20,000 --> 00:09:22,040 Speaker 7: and what all that looks like, particularly in light of 189 00:09:22,080 --> 00:09:24,559 Speaker 7: all the election uncertainty that we're in the midst of 190 00:09:24,640 --> 00:09:26,640 Speaker 7: right now. But it is only going to accelerate as 191 00:09:26,640 --> 00:09:27,679 Speaker 7: we get to November. 192 00:09:27,840 --> 00:09:29,840 Speaker 1: When I think of Charles Schwab, I think of a 193 00:09:29,840 --> 00:09:33,080 Speaker 1: big footprint on the retail side. To the point that 194 00:09:33,120 --> 00:09:36,839 Speaker 1: you're making about this divergence between what the indices may 195 00:09:36,840 --> 00:09:39,120 Speaker 1: be telling us and then what some of the underlying 196 00:09:39,160 --> 00:09:43,720 Speaker 1: securities are expressing. What do retailer people say about this? 197 00:09:43,840 --> 00:09:46,559 Speaker 1: Are they having a negative reaction? Are they concerned? Are 198 00:09:46,559 --> 00:09:49,520 Speaker 1: they telling you that maybe they want to seek refuge 199 00:09:49,520 --> 00:09:51,760 Speaker 1: in a safe place of the market, like the bond market. 200 00:09:53,280 --> 00:09:56,800 Speaker 7: Investors are and have been for some time, moving money 201 00:09:56,840 --> 00:09:59,280 Speaker 7: to the bond market, and we see that across the industry. 202 00:09:59,440 --> 00:10:01,800 Speaker 7: They're moving out of equities into bonds. Maybe this is 203 00:10:01,840 --> 00:10:04,679 Speaker 7: just a little bit of a realignment in their portfolios 204 00:10:04,720 --> 00:10:08,240 Speaker 7: after years where it just didn't pay to own bonds, 205 00:10:08,280 --> 00:10:10,640 Speaker 7: finally it does. There's income and fixed the income again, 206 00:10:10,720 --> 00:10:12,920 Speaker 7: and so some of that is a shift that maybe 207 00:10:12,960 --> 00:10:16,079 Speaker 7: isn't motivated by concerns about the major pullback in the 208 00:10:16,120 --> 00:10:20,480 Speaker 7: stock market, but more suddenly attractive yields in the bond market. 209 00:10:20,480 --> 00:10:23,360 Speaker 7: But yeah, we are seeing that, and you know, in general, 210 00:10:23,360 --> 00:10:27,920 Speaker 7: investors are remaining committed overall in their portfolios to being invested. 211 00:10:27,960 --> 00:10:30,719 Speaker 7: We don't see excessively high cash balances, but we do 212 00:10:30,880 --> 00:10:33,920 Speaker 7: get a lot of questions and concerns about investors right now. 213 00:10:33,920 --> 00:10:37,360 Speaker 7: So it seems like maybe they're a little bit more 214 00:10:37,400 --> 00:10:39,920 Speaker 7: fearful than usual, but that hasn't yet affected their behavior. 215 00:10:40,760 --> 00:10:42,520 Speaker 3: So we're a daily news show. We have to talk 216 00:10:42,520 --> 00:10:43,520 Speaker 3: about day to day action. 217 00:10:43,840 --> 00:10:47,120 Speaker 2: Today's action was actually runs a little counter to the 218 00:10:47,200 --> 00:10:50,640 Speaker 2: scenario that you painted there, because today we had more 219 00:10:50,640 --> 00:10:52,600 Speaker 2: of a broadening out. We had two stocks up for 220 00:10:52,640 --> 00:10:54,720 Speaker 2: every one down. It was more like what we saw 221 00:10:54,720 --> 00:10:56,720 Speaker 2: in the first quarter, where you had a lot of 222 00:10:56,760 --> 00:10:59,640 Speaker 2: sectors doing pretty well. I think the only two sectors 223 00:10:59,640 --> 00:11:04,040 Speaker 2: down to day were healthcare and energy. So my question 224 00:11:04,120 --> 00:11:05,880 Speaker 2: to you is that if we want, we didn't get 225 00:11:05,880 --> 00:11:08,720 Speaker 2: that movement in the second quarter because we had fears 226 00:11:08,720 --> 00:11:11,840 Speaker 2: of higher interest rates, because you know, we had fears 227 00:11:11,880 --> 00:11:15,319 Speaker 2: of higher inflation. So I'm wondering is today kind of 228 00:11:15,360 --> 00:11:18,559 Speaker 2: emblematic because you did have Pale talking about how disinflation 229 00:11:18,720 --> 00:11:22,040 Speaker 2: seems to be back in vogue now. So is that 230 00:11:22,120 --> 00:11:23,840 Speaker 2: what it needed? Do we need the Feds to start 231 00:11:23,840 --> 00:11:26,480 Speaker 2: talking about cutting rates for this thing to broaden out? 232 00:11:27,920 --> 00:11:30,240 Speaker 7: Well, that's that's a big part of it. But I 233 00:11:30,240 --> 00:11:32,920 Speaker 7: think broader earnings growth is critical as well. You know, 234 00:11:33,000 --> 00:11:34,839 Speaker 7: so much of the of the earnings performance of the 235 00:11:34,920 --> 00:11:37,480 Speaker 7: last four quarters I've been driven by a very very 236 00:11:37,559 --> 00:11:39,760 Speaker 7: narrow slice of the market that's fighting beginning to broaden. 237 00:11:39,800 --> 00:11:41,800 Speaker 7: So land hopeful in the second half of the year 238 00:11:41,840 --> 00:11:43,920 Speaker 7: we get a further trend like what we saw today. 239 00:11:43,920 --> 00:11:44,680 Speaker 5: It isn't just Tesli. 240 00:11:44,720 --> 00:11:47,080 Speaker 7: You're right, we saw most sectors up today and hopefully 241 00:11:47,120 --> 00:11:49,800 Speaker 7: that continues. One of the things I'm focused on is 242 00:11:49,880 --> 00:11:53,640 Speaker 7: the brighter earnings outlook, not just in many sectors across 243 00:11:53,640 --> 00:11:55,920 Speaker 7: the US, but in Europe. For the first time in 244 00:11:56,040 --> 00:11:58,640 Speaker 7: five quarters, we're actually going to see here in Q three, 245 00:11:58,679 --> 00:12:02,240 Speaker 7: according to analysts, earnings growth in Europe exceeding that at 246 00:12:02,240 --> 00:12:03,719 Speaker 7: the S and P five hundred. It's been a long 247 00:12:03,760 --> 00:12:06,160 Speaker 7: time since we've seen that, So maybe that's another sign 248 00:12:06,160 --> 00:12:10,160 Speaker 7: of maybe broader economic recovery and broader earnings growth helping 249 00:12:10,240 --> 00:12:12,320 Speaker 7: the markets perform in a way that's broader and not 250 00:12:12,520 --> 00:12:15,880 Speaker 7: so dependent on just a handful of those AI trending names. 251 00:12:15,960 --> 00:12:18,640 Speaker 1: I'm wondering whether you were in communication today with the 252 00:12:18,679 --> 00:12:21,120 Speaker 1: trading desk and whether or not they saw a light 253 00:12:21,240 --> 00:12:23,839 Speaker 1: volume on the desk, and if so, maybe that exaggerated 254 00:12:23,880 --> 00:12:25,600 Speaker 1: some of the price section that we saw today to 255 00:12:25,679 --> 00:12:26,479 Speaker 1: the upside. 256 00:12:27,559 --> 00:12:28,040 Speaker 6: I haven't. 257 00:12:28,040 --> 00:12:30,240 Speaker 7: I don't know, but it is a holiday shortened week, 258 00:12:30,280 --> 00:12:32,520 Speaker 7: and so generally when that's the case, you just don't 259 00:12:32,520 --> 00:12:35,040 Speaker 7: see as much volume, and perhaps that is we know 260 00:12:35,080 --> 00:12:37,800 Speaker 7: there's a lot of moving parts right now, particularly you know, 261 00:12:37,840 --> 00:12:41,040 Speaker 7: we've got the Powell today, We've got the Jobs report 262 00:12:41,080 --> 00:12:43,360 Speaker 7: on Friday, We've got the Jolts report on Tuesday, and 263 00:12:43,440 --> 00:12:45,560 Speaker 7: then of course we've got the French elections and an 264 00:12:45,559 --> 00:12:49,120 Speaker 7: important deadline today in terms of consolidating who's going to 265 00:12:49,120 --> 00:12:51,839 Speaker 7: be running against too, and that's an issue as well. 266 00:12:51,840 --> 00:12:53,840 Speaker 7: So lots of different factors going on in the background. 267 00:12:53,920 --> 00:12:55,520 Speaker 7: They could have driven some of that volatility. 268 00:12:55,559 --> 00:12:55,839 Speaker 6: Today. 269 00:12:57,040 --> 00:12:59,040 Speaker 2: We've seen a little bit of a stumble in China, 270 00:12:59,320 --> 00:13:01,240 Speaker 2: so maybe we can talk a little bit about Asia. 271 00:13:01,320 --> 00:13:04,600 Speaker 2: You raised a couple of points outside the US. How 272 00:13:04,600 --> 00:13:05,959 Speaker 2: are you looking at China at the moment? 273 00:13:07,920 --> 00:13:08,640 Speaker 5: Not well? 274 00:13:08,920 --> 00:13:11,400 Speaker 7: You know, China did well on the second quest. I mean, 275 00:13:11,440 --> 00:13:15,000 Speaker 7: it's hard to get enthusiastic. I know, the stocks are cheap, 276 00:13:15,040 --> 00:13:19,280 Speaker 7: they are single digit PE ratios, and some of these 277 00:13:19,320 --> 00:13:22,079 Speaker 7: are world class businesses. But the reality is that without 278 00:13:22,120 --> 00:13:25,920 Speaker 7: more effective actions to restore consumer confidence, which is pin 279 00:13:26,040 --> 00:13:29,480 Speaker 7: to recession loads in China, and to stabilize the property market, 280 00:13:29,760 --> 00:13:33,840 Speaker 7: China's domestically focused businesses are going to have trouble trying 281 00:13:33,880 --> 00:13:36,720 Speaker 7: to generate sales despite their low valuations. They're just not 282 00:13:36,760 --> 00:13:38,559 Speaker 7: going to get there. And at the same time, we've 283 00:13:38,600 --> 00:13:41,760 Speaker 7: got this rising populism around the world leading to maybe 284 00:13:41,800 --> 00:13:44,720 Speaker 7: more tariffs and other trade barriers that could weigh on 285 00:13:44,840 --> 00:13:48,640 Speaker 7: China's exporters, and so all that combines to really maybe 286 00:13:48,760 --> 00:13:52,000 Speaker 7: keep a lid on Chinese valuations. Now we've got the 287 00:13:52,040 --> 00:13:54,960 Speaker 7: third Plan of Meeting coming up here, gathering of China's 288 00:13:55,000 --> 00:13:57,559 Speaker 7: the lead every five years. There could be some policy 289 00:13:57,559 --> 00:14:00,480 Speaker 7: initiatives coming out of that next week, but or I 290 00:14:00,480 --> 00:14:03,480 Speaker 7: guess the week after Decks. I'm not enthusiastic they're going 291 00:14:03,480 --> 00:14:05,679 Speaker 7: to do enough to turn things around. And of course 292 00:14:05,880 --> 00:14:10,280 Speaker 7: tomorrow we've got European tariffs kicking in on those electric 293 00:14:10,360 --> 00:14:13,400 Speaker 7: vehicles and ongoing price war in China weighing on those 294 00:14:13,440 --> 00:14:15,680 Speaker 7: stocks as well, so I think that continues to be 295 00:14:15,679 --> 00:14:18,360 Speaker 7: a real headwind to China. In emerging markets, I'd focus 296 00:14:18,400 --> 00:14:19,040 Speaker 7: more in India. 297 00:14:19,680 --> 00:14:22,360 Speaker 1: Let's stay in a should talk a little bit about Japan. 298 00:14:22,680 --> 00:14:27,320 Speaker 1: The market has recently shown a lot of enthusiasm lately, 299 00:14:27,360 --> 00:14:29,320 Speaker 1: though we have seemed to stumble on a lot of 300 00:14:29,360 --> 00:14:32,240 Speaker 1: concern about what may be the next step for the 301 00:14:32,240 --> 00:14:34,840 Speaker 1: Bank of Japan. How are you feeling about the Japanese 302 00:14:34,880 --> 00:14:35,600 Speaker 1: equity space. 303 00:14:36,800 --> 00:14:39,120 Speaker 7: I'm a big fan and have been for a couple 304 00:14:39,120 --> 00:14:41,080 Speaker 7: of years now, and I know that hasn't been as 305 00:14:41,080 --> 00:14:43,200 Speaker 7: rewarding as it could be because the end has been 306 00:14:43,280 --> 00:14:47,320 Speaker 7: so weak. The FED probably more in control of what 307 00:14:47,360 --> 00:14:49,040 Speaker 7: the end does than the Bank of Japan is. But 308 00:14:49,120 --> 00:14:50,840 Speaker 7: I do expect a couple of rate hikes by the 309 00:14:50,880 --> 00:14:53,640 Speaker 7: Bank of Japan later this year, and we still penciled 310 00:14:53,680 --> 00:14:55,280 Speaker 7: into one or two rate cuts for the FED, So 311 00:14:55,320 --> 00:14:57,960 Speaker 7: I think that should bring some relief to the very 312 00:14:58,080 --> 00:15:00,640 Speaker 7: very weak yen and allow more of those gains translate 313 00:15:00,720 --> 00:15:03,960 Speaker 7: through to investors. We've got a global manufacturing recovery that 314 00:15:04,080 --> 00:15:06,040 Speaker 7: plays right into Japan's strengths. 315 00:15:06,160 --> 00:15:06,880 Speaker 5: We've got. 316 00:15:08,680 --> 00:15:11,280 Speaker 7: The financial sector, our favorite sector for the second half 317 00:15:11,320 --> 00:15:13,920 Speaker 7: of the year is one that correlates very closely with 318 00:15:14,000 --> 00:15:16,960 Speaker 7: japan stock market, in part because the businesses own shares 319 00:15:16,960 --> 00:15:18,400 Speaker 7: in the banks, and the banks own shares and the 320 00:15:18,400 --> 00:15:21,000 Speaker 7: businesses they all tend to baby like financials. We think 321 00:15:21,000 --> 00:15:23,120 Speaker 7: that's a positive for the second half of the year. 322 00:15:23,200 --> 00:15:25,200 Speaker 7: So a lot of things coming together, in addition to 323 00:15:25,280 --> 00:15:28,400 Speaker 7: the favorable environment for dividends and buybacks we're seeing, so 324 00:15:28,440 --> 00:15:30,720 Speaker 7: all that combines, I think to lift Japanese equities in 325 00:15:30,760 --> 00:15:33,160 Speaker 7: the second half of the year. We've just got to 326 00:15:33,160 --> 00:15:34,240 Speaker 7: see some strength in the end. 327 00:15:35,480 --> 00:15:38,320 Speaker 2: Yeah, well, we saw the nik get up over forty thousand. 328 00:15:38,600 --> 00:15:41,480 Speaker 2: It's been since somewhere on the middle of March, you know, 329 00:15:41,600 --> 00:15:44,800 Speaker 2: since we've been in that area. It's a little bit 330 00:15:44,840 --> 00:15:46,120 Speaker 2: of a tough time, but if you look at the 331 00:15:46,160 --> 00:15:49,200 Speaker 2: charge's looking pretty solid here over the past two months. 332 00:15:49,400 --> 00:15:52,600 Speaker 2: So in picking up Jeff, thank you for joining us. 333 00:15:52,640 --> 00:16:03,400 Speaker 2: Jeff Klintop, Chief Global investment Strategist, Charles Schwab. We are 334 00:16:03,480 --> 00:16:06,960 Speaker 2: joined now in our studios by Zerlina Zeng, who is 335 00:16:07,400 --> 00:16:11,160 Speaker 2: at of Asia Credit Strategy at Credit Sites and with 336 00:16:11,320 --> 00:16:13,360 Speaker 2: us live here on the program, joining us from our 337 00:16:13,400 --> 00:16:14,880 Speaker 2: studios in Singapore. 338 00:16:15,560 --> 00:16:16,400 Speaker 3: Zerlena, thank you. 339 00:16:17,000 --> 00:16:19,240 Speaker 2: So let's take a closer look at credit in the 340 00:16:19,280 --> 00:16:21,960 Speaker 2: Asia Pacific and I guess we can drill down first 341 00:16:22,000 --> 00:16:25,920 Speaker 2: on China. You seem to be reasonably positive on investment grade, 342 00:16:25,960 --> 00:16:29,400 Speaker 2: but still a little reluctant to dip your toes into 343 00:16:29,400 --> 00:16:30,440 Speaker 2: the high yield space. 344 00:16:30,520 --> 00:16:32,040 Speaker 3: So walk us through some of your thinking. 345 00:16:32,960 --> 00:16:36,360 Speaker 8: Yeah, we are still quite clotious towards Chinese highiold credits 346 00:16:36,400 --> 00:16:38,560 Speaker 8: for a couple of reasons. If you look at the 347 00:16:38,640 --> 00:16:42,320 Speaker 8: property segment, which is the biggest component of the Chinese 348 00:16:42,400 --> 00:16:45,480 Speaker 8: high old credit segment, we think the fiscal market is 349 00:16:45,480 --> 00:16:48,280 Speaker 8: still very weak despite a lot of the easy measures 350 00:16:48,280 --> 00:16:51,640 Speaker 8: coming from the government. And the important part is it 351 00:16:51,680 --> 00:16:56,400 Speaker 8: has become very difficult to identify in the next winner 352 00:16:56,600 --> 00:16:59,720 Speaker 8: or the next survivor of the sector. Is just very 353 00:16:59,720 --> 00:17:03,320 Speaker 8: hard to figure out the willingness and capacity to pay 354 00:17:03,360 --> 00:17:06,720 Speaker 8: of this developer, So we think the risk reward is 355 00:17:06,840 --> 00:17:11,159 Speaker 8: very poor. Our strategy is mainly focusing on slightly higher 356 00:17:11,240 --> 00:17:16,399 Speaker 8: quality carrier coming out from the non property related Chinese credits. 357 00:17:16,880 --> 00:17:19,160 Speaker 8: I think the good sin is because of the property 358 00:17:19,240 --> 00:17:23,080 Speaker 8: support measures, the credit contagion risk has reduced over the 359 00:17:23,119 --> 00:17:25,679 Speaker 8: past six to twelve months, so we still see some 360 00:17:25,760 --> 00:17:30,080 Speaker 8: opportunity in that segment. I think outside China, the high 361 00:17:30,119 --> 00:17:34,360 Speaker 8: old segment in Asia has become very expensive. If we 362 00:17:34,560 --> 00:17:39,440 Speaker 8: exclude Chinese properties, the Asian high old segment is more 363 00:17:39,520 --> 00:17:42,960 Speaker 8: expensive than US higholds as well as the em and 364 00:17:43,000 --> 00:17:45,439 Speaker 8: the European market. So I think a lot of the 365 00:17:45,480 --> 00:17:49,199 Speaker 8: investors are also looking for opportunities outside the region at 366 00:17:49,200 --> 00:17:49,639 Speaker 8: the moment. 367 00:17:49,800 --> 00:17:52,439 Speaker 1: Why not just focus, in the case of China, just 368 00:17:52,520 --> 00:17:55,840 Speaker 1: on the sovereign bond market and push aside for the 369 00:17:55,920 --> 00:17:57,800 Speaker 1: at least the moment, the IG space. 370 00:17:58,720 --> 00:18:01,879 Speaker 8: Yeah, I think a lot of investors are indeed looking 371 00:18:01,960 --> 00:18:06,040 Speaker 8: into the local currency space. The Chinese a local currency 372 00:18:06,080 --> 00:18:08,720 Speaker 8: market being one, and the Indian is also a quite 373 00:18:09,359 --> 00:18:12,000 Speaker 8: prominent one over the past few months because of the 374 00:18:12,000 --> 00:18:16,240 Speaker 8: index inclusion. I think there has been quite a strong 375 00:18:16,359 --> 00:18:20,439 Speaker 8: foreign influ into the atual Chinese bound market because of 376 00:18:20,480 --> 00:18:24,680 Speaker 8: the divergent monitary stands of the PBOC versus the FAT 377 00:18:25,040 --> 00:18:27,720 Speaker 8: and if you do affects Hagen, there are still some 378 00:18:27,800 --> 00:18:30,800 Speaker 8: carry and yield coming from the Hagien lag. This is 379 00:18:30,840 --> 00:18:33,760 Speaker 8: still a popular trade, but I think right now people 380 00:18:33,800 --> 00:18:36,760 Speaker 8: are seeing a little bit of resistance from the central bank. 381 00:18:37,040 --> 00:18:39,159 Speaker 8: There has been a lot of the window guidance of 382 00:18:39,480 --> 00:18:44,320 Speaker 8: the central Bank pushing back against the ever ever declining 383 00:18:44,400 --> 00:18:47,360 Speaker 8: yields of the Chinese onsure sovereign bunker. 384 00:18:47,520 --> 00:18:49,280 Speaker 3: Yeah, so there's not much yield there. 385 00:18:49,400 --> 00:18:53,359 Speaker 2: We understand that because so much Chinese local money local 386 00:18:53,359 --> 00:18:58,159 Speaker 2: currency has has kind of hidden there in safety. So 387 00:18:58,680 --> 00:19:00,800 Speaker 2: you like you like the credit and one of the 388 00:19:00,840 --> 00:19:03,320 Speaker 2: areas that you mentioned is Hong Kong trip will be 389 00:19:03,480 --> 00:19:06,920 Speaker 2: property credits Now, is that because you think they've made 390 00:19:06,920 --> 00:19:11,000 Speaker 2: better choices there are that they're just generally better managed 391 00:19:11,200 --> 00:19:12,840 Speaker 2: or just better financed. 392 00:19:13,480 --> 00:19:17,160 Speaker 8: I think our recommendation is really coming from a relative 393 00:19:17,240 --> 00:19:20,840 Speaker 8: point of relative value point of view. Because of the 394 00:19:21,000 --> 00:19:25,200 Speaker 8: trauma down of the Chinese property sector to the creditation 395 00:19:25,359 --> 00:19:30,200 Speaker 8: credit investors. These investors are very skeptical of anything related 396 00:19:30,240 --> 00:19:33,000 Speaker 8: to Greater China property. But we think it's a quite 397 00:19:33,040 --> 00:19:35,880 Speaker 8: different case for Hong Kong property developers. 398 00:19:36,480 --> 00:19:37,280 Speaker 9: First of all, they. 399 00:19:37,160 --> 00:19:40,600 Speaker 8: Are not just residential development. They have commercial property. They 400 00:19:40,640 --> 00:19:43,919 Speaker 8: also have a lot higher willingness to pay and capacity 401 00:19:43,960 --> 00:19:47,080 Speaker 8: to pay, so we still see some opportunities there. But 402 00:19:47,280 --> 00:19:50,480 Speaker 8: that's said, I think everybody knows the Hong Kong property 403 00:19:50,560 --> 00:19:54,440 Speaker 8: sector is facing a quite prolonged downturn as well. We 404 00:19:54,520 --> 00:19:57,280 Speaker 8: are trying to pick the stronger players of this sector 405 00:19:57,480 --> 00:20:00,639 Speaker 8: who can really hold up well through this down cycle. 406 00:20:00,800 --> 00:20:02,480 Speaker 1: And I'm curious as to whether or not when you 407 00:20:02,560 --> 00:20:06,040 Speaker 1: say in make a decision to go long an instrument, 408 00:20:06,080 --> 00:20:11,080 Speaker 1: whether you're thinking for maybe a shorter term capital gain 409 00:20:11,400 --> 00:20:14,400 Speaker 1: or whether you're looking at the yield and holding to maturity, 410 00:20:14,520 --> 00:20:17,280 Speaker 1: do you have maybe a strategy that you can share. 411 00:20:17,960 --> 00:20:20,200 Speaker 8: Yeah. Sure, I think if you look at the credits 412 00:20:20,240 --> 00:20:24,119 Speaker 8: spread right now in Asian credits, it's very expensive. If 413 00:20:24,200 --> 00:20:26,520 Speaker 8: we are talking about the spread is a ten year 414 00:20:26,720 --> 00:20:27,879 Speaker 8: historical low level. 415 00:20:28,280 --> 00:20:30,400 Speaker 9: So from a return. 416 00:20:30,119 --> 00:20:32,280 Speaker 8: Point of view, you're probably not going to get that 417 00:20:32,440 --> 00:20:36,040 Speaker 8: much of upside, But from a duration point of view 418 00:20:36,040 --> 00:20:38,720 Speaker 8: because our house you is still the fact is going 419 00:20:38,760 --> 00:20:42,160 Speaker 8: to cut about three times till end of this year 420 00:20:42,200 --> 00:20:45,320 Speaker 8: and another four times in twenty twenty five. So for 421 00:20:45,880 --> 00:20:49,920 Speaker 8: investors with a slightly longer term investment horizon, you can 422 00:20:49,960 --> 00:20:52,440 Speaker 8: still get quite good price return. 423 00:20:52,160 --> 00:20:53,920 Speaker 9: From this US Treasury movement. 424 00:20:54,600 --> 00:20:56,919 Speaker 8: But I think is still yeah, I need to be 425 00:20:57,000 --> 00:20:59,000 Speaker 8: cautious about duration given the volime. 426 00:20:59,240 --> 00:21:03,080 Speaker 2: You mentioned Hong Kong being in a long, long term downturn, 427 00:21:03,880 --> 00:21:06,640 Speaker 2: and I'm curious you mentioned three cuts from the FED 428 00:21:06,680 --> 00:21:09,480 Speaker 2: this year and four next year, so seven how long 429 00:21:09,640 --> 00:21:13,240 Speaker 2: is that longer horizon for you? For Hong Kong, for instance? 430 00:21:14,160 --> 00:21:16,520 Speaker 2: Do you see recovery anytime in the next few years. 431 00:21:17,440 --> 00:21:20,480 Speaker 8: We are looking for recovery paths towards the end of 432 00:21:20,920 --> 00:21:24,080 Speaker 8: next year because one of the reasons that people are 433 00:21:24,119 --> 00:21:26,879 Speaker 8: not buying homes is because of an active carry. The 434 00:21:26,920 --> 00:21:29,520 Speaker 8: rental yield right now is lower than the mortgage rate, 435 00:21:29,880 --> 00:21:33,679 Speaker 8: and the Hong Kong's and management policy basically followed the US. 436 00:21:33,840 --> 00:21:35,919 Speaker 8: So once the US FED cut, we are going to 437 00:21:35,960 --> 00:21:37,800 Speaker 8: see that situation improving a bit. 438 00:21:38,240 --> 00:21:41,199 Speaker 1: I'm curious too about your expectations on the part of 439 00:21:41,200 --> 00:21:45,040 Speaker 1: the PBOC forget you know, the issue of short term 440 00:21:45,080 --> 00:21:49,160 Speaker 1: monetary policy adjustments. What about the PBOC very quickly here 441 00:21:49,440 --> 00:21:52,320 Speaker 1: becoming more actively involved in the bond market. 442 00:21:53,520 --> 00:21:55,800 Speaker 9: I think that's very much a window guidance. 443 00:21:55,880 --> 00:21:58,240 Speaker 8: I think a lot of the investors are asking whether 444 00:21:58,280 --> 00:22:01,600 Speaker 8: this is another quantitative in coming out from the PBOC. 445 00:22:02,040 --> 00:22:03,359 Speaker 9: I don't think that's the case. 446 00:22:03,440 --> 00:22:07,760 Speaker 8: It's a regular or another new tool in their liquidity 447 00:22:07,880 --> 00:22:11,360 Speaker 8: and money supply management. I think the Central Bank over 448 00:22:11,640 --> 00:22:14,720 Speaker 8: a long term, as you're looking for the rates to 449 00:22:14,800 --> 00:22:18,280 Speaker 8: go lowered so that the local government bond cost won't 450 00:22:18,320 --> 00:22:19,000 Speaker 8: be so high. 451 00:22:19,400 --> 00:22:22,960 Speaker 2: Yeah, excellent sessions, Erlina, thank you very much for joining us. 452 00:22:23,119 --> 00:22:23,879 Speaker 3: I really enjoyed that. 453 00:22:24,040 --> 00:22:27,600 Speaker 2: Zerlina Jeng, who is head of Asia Credit Strategy strategy 454 00:22:27,640 --> 00:22:31,359 Speaker 2: at Credit sites with US in our Singapore studios. 455 00:22:38,440 --> 00:22:38,880 Speaker 3: Well, Doug. 456 00:22:38,960 --> 00:22:42,240 Speaker 2: Joining us now for some discussion of markets is Peter McGuire, 457 00:22:42,520 --> 00:22:45,959 Speaker 2: CEO of XM Australia. Peter, I know you look at 458 00:22:45,960 --> 00:22:48,160 Speaker 2: the US markets and we have some time we can 459 00:22:48,200 --> 00:22:51,399 Speaker 2: talk about Asia and the Asia Pacific as well. You 460 00:22:51,520 --> 00:22:53,879 Speaker 2: have strategists in the United States that are sort of 461 00:22:54,240 --> 00:22:59,080 Speaker 2: grudgingly raising their targets, but they're almost apologetic about it. 462 00:22:59,240 --> 00:23:01,600 Speaker 3: I was listening to Calvisina earlier. 463 00:23:02,160 --> 00:23:05,400 Speaker 2: She works over at RBC Capital Markets, and she said 464 00:23:05,520 --> 00:23:07,760 Speaker 2: she's doing so. She raised her target, but she says 465 00:23:08,200 --> 00:23:11,159 Speaker 2: the market has gotten a bit ahead of itself. 466 00:23:12,119 --> 00:23:14,400 Speaker 3: I guess that's climbing a wall of worry, right. 467 00:23:15,680 --> 00:23:17,840 Speaker 6: Well, good morning, gentlemen. Yeah, I think so. I mean, 468 00:23:17,880 --> 00:23:20,639 Speaker 6: you know, but it's very hard to argue when you 469 00:23:20,640 --> 00:23:22,760 Speaker 6: look at the screen now and you got fifty five 470 00:23:22,840 --> 00:23:24,760 Speaker 6: hundred for the S and P, and you've got the Nasdaq, 471 00:23:24,880 --> 00:23:27,680 Speaker 6: you know, crunched through wey in in thousand. That's fear 472 00:23:27,720 --> 00:23:30,760 Speaker 6: of missing out. Rally is just continuing, and I feel 473 00:23:30,760 --> 00:23:33,360 Speaker 6: as though that there's probably the opportunity over the rest 474 00:23:33,359 --> 00:23:37,080 Speaker 6: of summer to maintain that grind up. And how can 475 00:23:37,119 --> 00:23:40,000 Speaker 6: you argue against it because it just keeps on surprising 476 00:23:40,119 --> 00:23:43,480 Speaker 6: week on week, and that's what I think every trade 477 00:23:43,600 --> 00:23:46,520 Speaker 6: is mindful of. And you know, the Dow's approaching again 478 00:23:46,960 --> 00:23:49,840 Speaker 6: thirty nine and a half, so it's it's hard to 479 00:23:49,960 --> 00:23:50,600 Speaker 6: argue against. 480 00:23:50,920 --> 00:23:52,840 Speaker 1: So one of the narratives that we were kind of 481 00:23:52,880 --> 00:23:55,480 Speaker 1: teasing out in terms of the move higher today and 482 00:23:55,560 --> 00:23:57,080 Speaker 1: records for the Nasdaq comp and. 483 00:23:57,040 --> 00:23:57,480 Speaker 3: The S and P. 484 00:23:57,640 --> 00:24:00,439 Speaker 1: By the way, is this fled the FED story on 485 00:24:00,560 --> 00:24:06,000 Speaker 1: rate cuts. Powell today in Central Portugal at the ECB summit, saying, Hey, 486 00:24:06,359 --> 00:24:09,600 Speaker 1: the US is back on a disinflationary path. That sounds good. 487 00:24:09,600 --> 00:24:12,520 Speaker 1: Are you expecting the Fed to move let's say twice 488 00:24:12,720 --> 00:24:15,800 Speaker 1: for a total of fifty basis points in easing this year. 489 00:24:16,920 --> 00:24:19,359 Speaker 6: Well, I think, first off, there's a seventy five percent 490 00:24:19,400 --> 00:24:23,160 Speaker 6: probability of September with a rate cut. Then let's see 491 00:24:23,160 --> 00:24:25,320 Speaker 6: how that rolls. And then naturally you've got the election 492 00:24:25,400 --> 00:24:28,399 Speaker 6: early November, and do we see another one sometime in 493 00:24:28,480 --> 00:24:30,399 Speaker 6: that year in the in the rest of the year. 494 00:24:31,040 --> 00:24:33,919 Speaker 6: So it's a wait and see approach, But you know, 495 00:24:34,240 --> 00:24:36,440 Speaker 6: I'm in the camp that you will see something happen 496 00:24:36,480 --> 00:24:39,440 Speaker 6: in September. You had May inflation up, as you mentioned, 497 00:24:39,480 --> 00:24:42,560 Speaker 6: only zero point one percent, you know, right, So it's 498 00:24:42,640 --> 00:24:45,320 Speaker 6: moving in the right direction. There seems to be momentum 499 00:24:45,359 --> 00:24:47,920 Speaker 6: to you know what Fed chair Poal is saying as 500 00:24:47,920 --> 00:24:51,080 Speaker 6: far as rate cuts and all the inflation story and 501 00:24:51,480 --> 00:24:55,360 Speaker 6: the possibility. So you sit here as a trader realizing 502 00:24:55,440 --> 00:24:57,879 Speaker 6: that I think it's pretty much baked in at the moment. 503 00:24:59,520 --> 00:25:03,080 Speaker 2: The trickiness in this is that you have growth slowing, 504 00:25:04,000 --> 00:25:07,800 Speaker 2: and you know you have a segment wanting there to 505 00:25:07,840 --> 00:25:10,639 Speaker 2: be some spreading out in the market away from you know, 506 00:25:10,720 --> 00:25:14,800 Speaker 2: the Magnificent Seven because they've gained so much. But it's 507 00:25:14,840 --> 00:25:18,480 Speaker 2: hard to actually deploy capital into those industrials and other 508 00:25:18,520 --> 00:25:21,520 Speaker 2: cyclical names when you think the economy is slowing. So 509 00:25:21,600 --> 00:25:22,480 Speaker 2: how do we resolve that? 510 00:25:23,800 --> 00:25:25,760 Speaker 6: Well, that's the issue. I think. You know, you've got 511 00:25:25,760 --> 00:25:29,000 Speaker 6: that NFP coming out on Friday, you expecting about one 512 00:25:29,119 --> 00:25:32,119 Speaker 6: ninety five thousand. It's certainly a significant slowdown from the 513 00:25:32,119 --> 00:25:36,080 Speaker 6: month before, two seventy two thousand. Yeah, and you're looking 514 00:25:36,119 --> 00:25:38,480 Speaker 6: at you know, I'm looking at the PMIS for June. 515 00:25:39,000 --> 00:25:41,640 Speaker 6: Everything seems to be a little bit softer in that regard, 516 00:25:42,160 --> 00:25:45,399 Speaker 6: and I think it's just a waitnessly approach how the 517 00:25:45,440 --> 00:25:49,280 Speaker 6: rest of summer material will rolls out. There is some 518 00:25:49,720 --> 00:25:53,200 Speaker 6: softness certainly in the economy, and you can't take your 519 00:25:53,200 --> 00:25:56,399 Speaker 6: eyes off that. You know, many downsizing and certainly you 520 00:25:56,440 --> 00:26:00,240 Speaker 6: know businesses closing up. But the Magnificent seven and have 521 00:26:00,520 --> 00:26:03,800 Speaker 6: taken everyone on the big right of their life and 522 00:26:04,280 --> 00:26:05,760 Speaker 6: it's hard to stay away from them. 523 00:26:05,960 --> 00:26:08,000 Speaker 1: So you've been playing this game a while, can you 524 00:26:08,080 --> 00:26:13,240 Speaker 1: imagine or recall a time when things have deteriorated so rapidly, 525 00:26:13,280 --> 00:26:16,159 Speaker 1: almost like a pivot, that would cause the FED to 526 00:26:16,359 --> 00:26:19,159 Speaker 1: be maybe a little bit more reactive in terms of 527 00:26:19,200 --> 00:26:21,800 Speaker 1: easing than what the market is dictating right now. I 528 00:26:21,800 --> 00:26:26,040 Speaker 1: don't think the market's expecting anything near a recession slow growth. Yeah, 529 00:26:26,080 --> 00:26:28,600 Speaker 1: we know about the soft landing scenario, but is there 530 00:26:28,640 --> 00:26:32,480 Speaker 1: a potential for something that is abrupt in terms of deterioration. 531 00:26:34,080 --> 00:26:36,120 Speaker 6: Well, you know, I'll put my mind back to whahweight nine. 532 00:26:36,160 --> 00:26:38,240 Speaker 6: I'll put my mind back to you know, ninety nine. 533 00:26:38,280 --> 00:26:43,679 Speaker 6: And you know, these these inflection points do play a 534 00:26:43,760 --> 00:26:49,200 Speaker 6: part as far as from a historical look back in time. 535 00:26:50,359 --> 00:26:53,320 Speaker 6: You know, I think here at the moment, it's just 536 00:26:53,960 --> 00:26:56,200 Speaker 6: it's onward and upward. Will be a point in time 537 00:26:56,240 --> 00:26:58,440 Speaker 6: that the market will come off and it'll be sold off, 538 00:26:58,800 --> 00:27:01,080 Speaker 6: and you've just got be mindful of it, you know, 539 00:27:01,119 --> 00:27:04,000 Speaker 6: and take the necessary action. But you know, there's very 540 00:27:04,040 --> 00:27:06,840 Speaker 6: little opportunity in FX markets at the moment. The commodity 541 00:27:06,920 --> 00:27:10,600 Speaker 6: sector is pretty quiet. 542 00:27:08,960 --> 00:27:09,040 Speaker 7: And. 543 00:27:10,520 --> 00:27:12,880 Speaker 6: You know that all the big boys are still piling 544 00:27:12,920 --> 00:27:16,920 Speaker 6: into from a retail perspective, you know, US equities and 545 00:27:16,960 --> 00:27:18,160 Speaker 6: a lot of global equities. 546 00:27:19,640 --> 00:27:21,359 Speaker 2: Yeah, I suppose a lot of people would just be 547 00:27:21,440 --> 00:27:24,480 Speaker 2: hoping for a kind of mid cycle adjustment from the Fed, 548 00:27:25,080 --> 00:27:28,280 Speaker 2: a handful of cuts just to fine tune and not 549 00:27:28,400 --> 00:27:32,320 Speaker 2: go into some you know, broad based cutting, abrupt cutting cycle, 550 00:27:32,320 --> 00:27:35,040 Speaker 2: because that was signalant, you know, signified trouble. 551 00:27:35,800 --> 00:27:37,359 Speaker 3: So that's that's one thing. 552 00:27:38,240 --> 00:27:40,560 Speaker 2: You've got kind of a parallel picture to a certain 553 00:27:40,560 --> 00:27:44,240 Speaker 2: degree in Australia, although you don't have the big AI 554 00:27:44,359 --> 00:27:47,200 Speaker 2: winners there. But how are you playing the Australian market? 555 00:27:48,400 --> 00:27:50,520 Speaker 6: Well, I mean when you're looking at it as I 556 00:27:50,520 --> 00:27:53,440 Speaker 6: think you know from an inflation story, things are certainly 557 00:27:53,640 --> 00:27:56,280 Speaker 6: not under control. So there's a very big chance you're 558 00:27:56,280 --> 00:27:59,199 Speaker 6: going to see possibility of a right rise over the 559 00:27:59,240 --> 00:28:02,320 Speaker 6: next couple of months. So we wouldn't be surprised. The 560 00:28:02,359 --> 00:28:05,000 Speaker 6: Aussie dollar is still sitting at that sixty six sixty 561 00:28:05,040 --> 00:28:08,679 Speaker 6: seven handle US dollars seems to be creeping up. The 562 00:28:08,720 --> 00:28:14,360 Speaker 6: stock market, it's choppy, there's no real great breakouts, and 563 00:28:14,440 --> 00:28:16,520 Speaker 6: I think one's got to be very mindful of the 564 00:28:16,960 --> 00:28:20,800 Speaker 6: glott of the overall economy. There's some softness across it, 565 00:28:21,000 --> 00:28:24,680 Speaker 6: and I think you've just got to be very mindful 566 00:28:24,720 --> 00:28:27,520 Speaker 6: that there's other markets other than the Aussie stock market 567 00:28:27,560 --> 00:28:28,040 Speaker 6: at the moment. 568 00:28:28,440 --> 00:28:32,080 Speaker 1: So you're in Cyprus if I've got this rate correct, ye, 569 00:28:32,359 --> 00:28:34,560 Speaker 1: So you're very close maybe to what's happening on the 570 00:28:34,560 --> 00:28:38,000 Speaker 1: European continent with the elections in France final round in 571 00:28:38,040 --> 00:28:41,840 Speaker 1: the coming week. We've got the elections in the UK. 572 00:28:42,520 --> 00:28:44,560 Speaker 1: We saw what happened here in the States last week 573 00:28:44,560 --> 00:28:47,000 Speaker 1: with that presidential debate, and a lot of the conversation 574 00:28:47,160 --> 00:28:50,280 Speaker 1: right now is around whether there is a return of 575 00:28:50,600 --> 00:28:54,000 Speaker 1: Donald Trump to the presidency. Let's talk about the potential 576 00:28:54,160 --> 00:28:57,240 Speaker 1: for higher tariffs from the US on Chinese goods and 577 00:28:57,680 --> 00:29:00,840 Speaker 1: what this may do to the globe economy. Is that 578 00:29:00,960 --> 00:29:03,000 Speaker 1: something that you're discounting at this point. 579 00:29:04,080 --> 00:29:09,400 Speaker 6: Well, I think, look, there's from the performance last week. 580 00:29:09,440 --> 00:29:11,479 Speaker 6: One's got to be very mindful. He seems to have 581 00:29:11,520 --> 00:29:15,880 Speaker 6: a huge momentum to the upside of and you can't 582 00:29:15,880 --> 00:29:18,000 Speaker 6: take your eye off the ball with Donald Trump. So 583 00:29:18,960 --> 00:29:22,800 Speaker 6: he's got the support. Let's see how that again rolls 584 00:29:22,840 --> 00:29:25,400 Speaker 6: over the next three to four months leading into the election. 585 00:29:25,920 --> 00:29:28,440 Speaker 6: The next part is from a tariff perspective, Yes, he 586 00:29:28,480 --> 00:29:31,720 Speaker 6: wants to re engage those will certainly increase them and 587 00:29:32,160 --> 00:29:36,080 Speaker 6: return America to an economic powerhouse. From a manufacturing side. 588 00:29:36,120 --> 00:29:39,520 Speaker 6: So that seems to be very much his mantra, and 589 00:29:39,920 --> 00:29:42,760 Speaker 6: we won't be surprised to see something like that play out. 590 00:29:42,920 --> 00:29:46,800 Speaker 6: He's I think he's going to be far more robust 591 00:29:47,040 --> 00:29:49,240 Speaker 6: in a second term than he was in the first term. 592 00:29:49,360 --> 00:29:53,120 Speaker 6: And let's see how it goes as far as employment 593 00:29:53,560 --> 00:29:57,840 Speaker 6: and naturally the equity markets, how they appreciate it or 594 00:29:57,880 --> 00:29:58,480 Speaker 6: discount it. 595 00:30:00,240 --> 00:30:02,000 Speaker 2: Yeah, I suppose if you look at the levels of 596 00:30:02,080 --> 00:30:04,800 Speaker 2: debt and the deficit, you know it's an issue at 597 00:30:04,800 --> 00:30:08,120 Speaker 2: some point. Maybe the level of debt is not necessarily 598 00:30:08,160 --> 00:30:11,000 Speaker 2: a problem, but the path that it's on right now 599 00:30:11,080 --> 00:30:15,320 Speaker 2: is unsustainable. You know, at what point do you think 600 00:30:15,360 --> 00:30:16,479 Speaker 2: that needs to be dealt with? 601 00:30:17,560 --> 00:30:19,960 Speaker 6: Well, I mean, you know, he's the sort of guy 602 00:30:20,040 --> 00:30:22,120 Speaker 6: will do well that in some deal with it in 603 00:30:22,160 --> 00:30:25,720 Speaker 6: some fashion or form. Yes, you can't continue this sort 604 00:30:25,720 --> 00:30:26,280 Speaker 6: of spending on. 605 00:30:26,240 --> 00:30:28,680 Speaker 2: The way to make it worse. If if he continues 606 00:30:28,760 --> 00:30:30,480 Speaker 2: with the with the tax cuts. 607 00:30:30,280 --> 00:30:33,320 Speaker 6: Right, well, that's well, it does make it worse. And 608 00:30:33,360 --> 00:30:35,640 Speaker 6: there's the point, the first point. But the second point 609 00:30:35,680 --> 00:30:40,280 Speaker 6: is he's got to appease the I think the the electorate. 610 00:30:40,320 --> 00:30:42,760 Speaker 6: In a lot of ways, inflation is really biting into 611 00:30:42,760 --> 00:30:46,120 Speaker 6: the American families and global families. Everyone's feeling it, so 612 00:30:46,520 --> 00:30:49,480 Speaker 6: I'm not sure how he's going to play that. One 613 00:30:49,480 --> 00:30:51,360 Speaker 6: of the good one of the good points at the 614 00:30:51,400 --> 00:30:54,600 Speaker 6: moment is certainly with cheap energy prices in the sense 615 00:30:54,640 --> 00:30:56,680 Speaker 6: it's not that cheap, but h at eighty bucks, what 616 00:30:56,840 --> 00:30:58,120 Speaker 6: better than one hundred and twenty? 617 00:30:58,480 --> 00:31:00,280 Speaker 2: All right, Peter, you got to see it here in 618 00:31:00,320 --> 00:31:02,480 Speaker 2: the studio if you're ever in Hong Kong. Thank you 619 00:31:02,520 --> 00:31:05,680 Speaker 2: for joining us here by zoom Peter maguire, CEO of 620 00:31:05,880 --> 00:31:07,000 Speaker 2: XM Australia. 621 00:31:07,640 --> 00:31:10,560 Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you 622 00:31:10,640 --> 00:31:13,760 Speaker 1: the stories making news and moving markets in the Asia Pacific. 623 00:31:14,240 --> 00:31:17,360 Speaker 1: Visit the Bloomberg Podcast channel on YouTube to get more 624 00:31:17,400 --> 00:31:21,000 Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to 625 00:31:21,040 --> 00:31:24,840 Speaker 1: the podcast on Apple, Spotify, or anywhere else you listen, 626 00:31:24,920 --> 00:31:28,000 Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and the 627 00:31:28,040 --> 00:31:29,120 Speaker 1: Bloomberg Business app.