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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Today

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Speaker 2: we'll begin with the FED and FED Shair J. Powell

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Speaker 2: saying today that policymakers will likely have a difficult road

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Speaker 2: ahead as they weigh further cuts to interest rates. Here

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Speaker 2: is Powell speaking earlier to the Greater Providence Chamber of

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Speaker 2: Commerce in Rhode Island.

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Speaker 3: Near term risks to inflation are tilted to the upside

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Speaker 3: and risks to employment are tilted to the downside, a

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Speaker 3: challenging situation. Two sided risks mean that there is no

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Speaker 3: risk free path.

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Speaker 2: Powell offered no hints on whether he might support a

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Speaker 2: rate cut at the Fed's next meeting in October. Momentarily,

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Speaker 2: we'll have some reaction from the Asia Pacific. First, we'll

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Speaker 2: check in Stateside with Rob Hayworth. He is senior portfolio

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Speaker 2: manager at US Bank Wealth Management. Rob, thank you so

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Speaker 2: much for making time to chat with me. Let's begin

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Speaker 2: with the Powell story here. I wouldn't call it a

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Speaker 2: pivot necessarily, but can we agree that it's a bit

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Speaker 2: of a recalibration toward balance.

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Speaker 1: Yeah, Doug, great to be with you. I agree it

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Speaker 1: is more of a recalibration. When we left the press

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Speaker 1: conference last week, I think the market certainly felt that

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Speaker 1: we were on a path for more rate cuts, and

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Speaker 1: the chair pals speech today certainly gave some indication that

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Speaker 1: there's a little more equivocation around do we really need

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Speaker 1: another cut if he sees inflation being more of a

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Speaker 1: problem than employment. I think, and we saw that today

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Speaker 1: in the reaction in small companies relative to large where

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Speaker 1: they'd had a good run early in the day and

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Speaker 1: ended up selling off quite a bit. So I think

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Speaker 1: the market is a little concern that chairpell may be

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Speaker 1: equivocating a little more on that October rate cut.

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Speaker 2: So how do you feel about the inflation story as

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Speaker 2: it relates to tariff. I guess the longer end of

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Speaker 2: the curve has been pretty well behaved, so at this

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Speaker 2: point the market doesn't appear to be alarmed at all.

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Speaker 1: No, I don't think the market is alarmed yet about inflation,

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Speaker 1: but it is something we're watching and if we look right,

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Speaker 1: we'll certainly get more updates with PCE at the end

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Speaker 1: of the week. But inflation has been notching high, or

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Speaker 1: if we look at year every year rates of inflation

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Speaker 1: we've seen a couple of ticks higher, and looking back,

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Speaker 1: say a quarter ago, we're definitely above the rates we

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Speaker 1: were seeing a quarter ago. So that's something that could continue.

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Speaker 1: It doesn't seem persistent at this point, but it is elevated,

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Speaker 1: and that has to be concerning for the Federal Reserve

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Speaker 1: with that inflation mandate that they have.

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Speaker 2: So in today's price section, the AI trade seemed to

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Speaker 2: take a bit of a breather. I think there were

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Speaker 2: some concerns about maybe tech being overbought, some worries as

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Speaker 2: well about margin risk. How do you see the trade

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Speaker 2: around artificial intelligence.

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Speaker 1: Well, certainly it's been a great run all of a

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Speaker 1: sudden this year. I think if we were having this

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Speaker 1: conversation a few months ago, Doug, we would have been

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Speaker 1: talking about how challenging it was in artificial intelligence in

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Speaker 1: April and May, and we turn around and all of

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Speaker 1: a sudden, technology communication services are at the top of

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Speaker 1: the heap again, with artificial intelligence leading the way. I

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Speaker 1: think as we look at it, we're worried about elevated valuations,

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Speaker 1: but when we look at the fundamentals, we see strong

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Speaker 1: underpinnings here. We're seeing actual earnings, we're seeing revenue growth,

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Speaker 1: and we're seeing in innovation that while it may take

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Speaker 1: time to develop as to where everyone uses it and

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Speaker 1: where we use it every day, and how does that monetize,

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Speaker 1: the investment that has to happen today is real and

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Speaker 1: large and is going to spill over into many other

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Speaker 1: sectors besides just say the hyperscalers. We're trying to package

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Speaker 1: that data and those models together.

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Speaker 2: We heard from Micron Technology after the bell, and the

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Speaker 2: company gave a very positive forecast for revenue in the

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Speaker 2: current quarter. Micron, as we know, is a big maker

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Speaker 2: of those high bandwidth memory chips that are used in

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Speaker 2: artificial intelligence computing. But I'm wondering if perhaps in the

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Speaker 2: near term, we were to get some indication of a

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Speaker 2: misstep a company linked to the AI space that provided

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Speaker 2: maybe a slight indication that the mark is being missed.

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Speaker 2: I'm curious to get your take on the vulnerability of

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Speaker 2: some of these names to any slight disappointment.

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Speaker 1: Yeah, I think we're certainly valuations are elevated. There is

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Speaker 1: room for a reset here in terms of valuation, particularly

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Speaker 1: because it seems like we're priced to that perfection.

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Speaker 4: Now.

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Speaker 1: Companies have been delivering right the revenues have been coming through,

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Speaker 1: the orders have been coming through, but if we do

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Speaker 1: miss out on that perfection, we may see a reset

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Speaker 1: like we've seen earlier this year. Probably not the same magnitude,

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Speaker 1: but there could be that reset until we find the

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Speaker 1: level at which maybe orders are hitting. And that's kind

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Speaker 1: of the challenge. When we look at Nvidio earnings and

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Speaker 1: other earnings, the orders are clearly there, maybe it's not

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Speaker 1: hitting every It could maybe not hit every segment of

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Speaker 1: the market, and that may bring in a little more

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Speaker 1: question as to the forward path.

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Speaker 2: When we talk about the AI trade frequently we bring

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Speaker 2: in the energy story as a part of the conversation.

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Speaker 2: How are you feeling about some of the big energy names.

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Speaker 2: Are they potentially a little stretched as well?

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Speaker 1: We don't think they're stretched at this point. Data is

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Speaker 1: at the heart of this of artificial intelligence, and that

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Speaker 1: includes data centers and electricity to power those data centers

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Speaker 1: just so we can run those large language models. That's

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Speaker 1: an element of the market that is probably not run

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Speaker 1: quite as far, quite as fast as some of the

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Speaker 1: more well known names, and that's investment that has to

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Speaker 1: happen through time. So we would look to utilities, particularly

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Speaker 1: those with mixed power generation as one way to participate

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Speaker 1: in this rally as they look to build out that

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Speaker 1: capacity to support data centers in this AI endeavor through time.

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Speaker 2: Are you putting on hedges right now to protect again

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Speaker 2: and still a little bit of downside.

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Speaker 1: No, we're actually in a glass half full environment in

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Speaker 1: our view where we're still overweight equity. If we have

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Speaker 1: any hedge, we'd be watching inflation, and so we'd add

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Speaker 1: inflation sensitive assets to portfolios as well. For us, the

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Speaker 1: primary measures there would be treasury inflation protected securities relative

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Speaker 1: to owning just investment grade bonds. And then on the

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Speaker 1: equity side of the ledger, we would blend in some

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Speaker 1: global infrastructure which offers that diversification in terms of utilities,

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Speaker 1: midstream energy, trade and trans some trade and transportation. But

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Speaker 1: you get to participate in kind of higher inflation through

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Speaker 1: earnings growth in those companies, and we think that provides

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Speaker 1: a little inflation protection in your portfolio which you could need.

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Speaker 2: So are there foreign jurisdictions where you're primarily focused? Is

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Speaker 2: it Europe? Is it more Asia? Right now, we're more.

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Speaker 1: Globally diversified at this point. We're looking across the spectrum

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Speaker 1: we we're certainly seeing an uptick in earnings growth around

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Speaker 1: the world. It's not quite as strong as US earnings growth,

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Speaker 1: but it is an improvement from where it's been, so

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Speaker 1: we would look actually broadly across the developed and emerging markets.

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Speaker 2: So I'm also wondering about where geopolitical risk enters your thinking.

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Speaker 2: We've got the UN General Assembly here in New York

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Speaker 2: this week. A lot certainly has been made of this gathering,

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Speaker 2: many things to talk about, not the least of which

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Speaker 2: war in Ukraine. How are you feeling about geopolitics as

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Speaker 2: a part of approaching markets these days?

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Speaker 1: Well, I think the good news for us it's been

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Speaker 1: horrible news for those impacted. I mean, our hearts certainly

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Speaker 1: go out to those in Russia and Ukraine impacted by

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Speaker 1: these conflicts in Gaza as well. But the good news

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Speaker 1: is the market's been somewhat insulated from this because we've

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Speaker 1: been able to work around it. I think getting the

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Speaker 1: resolution will be generally constructive for the markets, and the

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Speaker 1: markets can put it behind them. If there's some contagion

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Speaker 1: or spread to them at risk we could have a

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Speaker 1: near term hiccup, but doesn't seem like that's the case

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Speaker 1: for now, but that's something we have to watch and

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Speaker 1: be aware of, but not a base case and not

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Speaker 1: a core of our strategy.

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Speaker 2: At this point. So you mentioned the PCE, which we

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Speaker 2: will get on Friday. We'll also have data in terms

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Speaker 2: of personal income and spending. And I'm wondering before we

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Speaker 2: let you go here, how you're viewing the American consumer.

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Speaker 1: Yeah. I think the good news here is the American

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Speaker 1: consumer has really been quite solid. We're along with Terror Powell,

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Speaker 1: we're watching what's going on with the labor market. That

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Speaker 1: softening is something that has us concerned about not taking

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Speaker 1: action at this point, but incomes are up. We're not

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Speaker 1: really seeing layoffs right, Jobless claims remain low, and consumers

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Speaker 1: are spending. The Johnson Redbook weekly year over year of

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Speaker 1: retail sales at five point seven percent. Retail sales for

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Speaker 1: the month of August came in fairly solid. So this

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Speaker 1: looks like a reasonably healthy concernsumer that is holding up

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Speaker 1: this economy to some great extent. And as long as

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Speaker 1: they remain employed and their incomes continue to grow even modestly,

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Speaker 1: I think we're on solid footing and that gives us

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Speaker 1: that glass half full perspective. On the economy of markets

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Speaker 1: at this point.

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Speaker 2: So is the FED though a little bit behind the curve,

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Speaker 2: do you think?

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Speaker 1: I think it's not really for us to say at

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Speaker 1: this point. I don't think that they've damaged the labor

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Speaker 1: market just yet, but we know labors can be such

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Speaker 1: a lagging indicator. But they're certainly tighter than they perhaps

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Speaker 1: need to be. That there's room for them to get

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Speaker 1: back to neutral, and I think that's certainly something we've

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Speaker 1: seen the market cheer and we'd look forward to as well. Right,

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Speaker 1: there's room for them to get back into that three

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Speaker 1: three and a half percent neutral rate for themselves, and

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Speaker 1: that would be actually helpful to the economy as well.

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Speaker 2: Rob will leave it there, Thank you so very much.

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Speaker 2: Rob Hayworth, as senior portfolio man. You're at the US

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Speaker 2: Bank Wealth Management, joining us on the line on the

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Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast

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Speaker 2: time Doug Krisner. Markets across the Asia Pacific are reacting

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Speaker 2: to comments earlier from fedsher Jay Powell. He said the

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Speaker 2: FED will likely have a difficult road ahead as it

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Speaker 2: weighs further cuts and interest rates. We got the views

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Speaker 2: of John Authur's senior editor for Markets, and he's a

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Speaker 2: Bloomberg opinion columnist. John spoke in Tokyo with Bloomberg TV

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Speaker 2: host Avril Ham.

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Speaker 4: Let's talk about the FED. I mean, when you look

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Speaker 4: at what Powell said overnight, he's not seeing anything materially new.

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Speaker 4: He's flagging rices on both sides, inflation and labor market weakness.

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Speaker 4: I mean, what do you make of the messaging.

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Speaker 5: Well, in the context of the FED, the messaging continues

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Speaker 5: to matter. He could have started making much more of

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Speaker 5: a us about unemployments and he's not doing that, and

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Speaker 5: he is still seeing the situation as being balanced. We've

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Speaker 5: had various Powell pivots, as they tend to get known,

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Speaker 5: in his eight years in charge. If he was very

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Speaker 5: clearly convinced that he was going to need to keep

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Speaker 5: cutting from here, he would be saying So. It looks

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Speaker 5: to me as though he is somewhat more confident than

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Speaker 5: he was a week ago. There's obviously immense amounts of

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Speaker 5: politics flowing around the FED at the moment. There's going

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Speaker 5: to be an almighty battle over exactly how independent it's

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Speaker 5: allowed to be once he stands down. But I think

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Speaker 5: he feels that he's more or less back in control

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Speaker 5: of the situation, or he wouldn't have been that open minded.

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Speaker 4: Do you think they should cut in October?

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Speaker 5: Probably? But I don't regard it as a completely done deal. Again,

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Speaker 5: they say they're data dependent and should be. I imagine

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Speaker 5: the data are going to move such that you do

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Speaker 5: want to cut again, But I can the tariff input

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Speaker 5: is in there in the inflation data. It's only very minor.

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Speaker 5: If you see that begin to pick up very significantly,

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Speaker 5: then you do probably have a picture. Well, a very

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Speaker 5: serious problem for the FED when you've got stagflation, and

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Speaker 5: they probably do have to arrest the decline there. And

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Speaker 5: then the other.

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Speaker 4: Thing about terrorists and inflation is how China seems to

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Speaker 4: be flooding, you know, markets with their goods. Yes, are

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Speaker 4: we already seeing these signs of this China shop two

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Speaker 4: point or three point zero and house of view? Might

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Speaker 4: that be for Asian economies and perhaps markets?

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Speaker 5: Well, this is only my third day here in Tokyo.

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Speaker 5: I have heard about that from more or less everybody

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Speaker 5: I've spoken to, so you can certainly see that that

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Speaker 5: is that, this is something that's happening. It's something that

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Speaker 5: was predictable. A lot of countries in this region have

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Speaker 5: a pretty strong need to stay friendly with China, and

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Speaker 5: they're unlikely to push back unless they really have to.

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Speaker 5: You do ultimately have the possibility of very serious negative

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Speaker 5: outcomes for the US eventually out of this. For the

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Speaker 5: time being, the critical factor which more or less ensures

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Speaker 5: that the US isn't going to do anything, isn't going

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Speaker 5: to change its posture, is that it's making a lot

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Speaker 5: of money out of it. If you look at the

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Speaker 5: revenues they've derived from tariffs, it's very impressive. It's getting

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Speaker 5: on for a quarter of what they get from personal

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Speaker 5: income tax already. That is difficult to forsake. It does

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Speaker 5: make all the physical problems in the US that much

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Speaker 5: easier to deal with. Of course, it means if you're

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Speaker 5: taking that much revenue, it means you haven't had the

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Speaker 5: desired effect of actually choking off imports, of protecting the

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Speaker 5: businesses that are but you are still making money. So

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Speaker 5: I suspect the US is locked into this path for

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Speaker 5: a while, and everybody else is going to do led

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Speaker 5: obviously by China by far the most powerful economy outside

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Speaker 5: of the US. Everybody else is going to do exactly

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Speaker 5: what you think they would do, which is find somebody

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Speaker 5: other than the US, the Celtic.

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Speaker 4: When it comes to revenues, it's tariffs, maybe also chip

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Speaker 4: revenues for the US, maybe each one the visas as

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Speaker 4: well to some extent. How much does all this help

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Speaker 4: to allay the concerns on the long end of the curve.

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Speaker 5: That's an interesting one. I guess it does help a little. Well,

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Speaker 5: you just need to look at the performance of the

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Speaker 5: long end of the curve in the last month or two.

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Speaker 5: The risk of a big jump beyond beyond five percent is,

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Speaker 5: you know, definitely looks much lower for the time being. Again,

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Speaker 5: a lot depends on exactly how companies and the economy

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Speaker 5: accommodates the tariffs. If you do see a renewed pick

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Speaker 5: up in inflation, that's going to make people very concerned.

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Speaker 5: If you see a successful push for much lower rates,

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Speaker 5: i e. If you see the treasury the government forcing

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Speaker 5: people to lend them at low rates, obviously they really

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Speaker 5: can have some degree of impact over the short short end,

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Speaker 5: and you would therefore expect the long end derise. So

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Speaker 5: in itself, yes, it definitely does alleviate the pressure on

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Speaker 5: the long end. And this is one of the big things.

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Speaker 5: You have to say, the Trump administration wanted a weaker dollar,

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Speaker 5: lower long bond yields, and cheaper oil, and it's getting

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Speaker 5: all of them, which for the time being, certainly explained

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Speaker 5: to the degree of confidence you have in the US

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Speaker 5: that they can continue doing what they're doing.

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Speaker 4: Thinking some of the boxers, So the Trump administration was

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Speaker 4: in terms of market reaction. What about when it comes

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Speaker 4: to investment pledges. I mean, we're here in Japan. Yes,

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Speaker 4: you know, hundreds of billion dollars worth from both Japan

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Speaker 4: and South Korea that are being askedful but light on details.

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Speaker 4: We had the immigration rates in the US and South

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Speaker 4: Korean factories. I mean, how realistic are you expecting these

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Speaker 4: pledges to come in?

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Speaker 5: I'm not really. I mean, this is the thing about

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Speaker 5: any trade deal like this, they you know, the World

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Speaker 5: Trade Organization deals with you know, they had two year

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Speaker 5: cycles between the major WTO meetings because that's how long

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Speaker 5: it takes to thresh out the details of a of

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Speaker 5: a real trade deal with all the definitions that are involved.

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Speaker 5: I think the last I heard in video still don't

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Speaker 5: know the details of exactly what revenue they're going to

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Speaker 5: be coughing over to the s for example, and that's

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Speaker 5: the biggest, most powerful company in the US doesn't still

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Speaker 5: doesn't know exactly what the deal is with its own government.

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Speaker 5: The Japanese and Korean governments don't need my advice. I wouldn't.

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Speaker 5: I wouldn't be reckoning on I wouldn't be relying on

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Speaker 5: any deal like that, and I would definitely be continuing

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Speaker 5: if I were then with plan B of working out

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Speaker 5: a way of surviving without doing so much business with

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Speaker 5: the US. You mentioned H one BBS again it's early

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Speaker 5: days in the response, but my impression at the moment

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Speaker 5: is that if you're really going to have to pay

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Speaker 5: one hundred thousand dollars to bring somebody over to do

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Speaker 5: skilled work in the States, that will work from the

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Speaker 5: point of view of helping US workers. It won't raise

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Speaker 5: them any revenue. It just means that a lot of

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Speaker 5: people are going to have to find ways to deploy

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Speaker 5: themselves in their home countries.

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Speaker 4: Companies and workers are going to be doing that cost

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Speaker 4: benefit analysis as we go as well.

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Speaker 5: I mean, it could be perversely good for the likes

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Speaker 5: of India and China, but it's certainly a mess in

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Speaker 5: the in the in the foreseeable future.

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Speaker 4: John has been really great to chat with you. Thanks

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Speaker 4: so much for insights. I've senior editor for Markets and

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Speaker 4: Bloomberg Opinion columnist John Osis.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg