WEBVTT - Recapping the APAC Trading Week, Amazon Earnings, US Jobs Data 0:00:00.080 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.400 --> 0:00:13.840 Welcome to the Bloomberg day Break Asia podcast. I'm Doug Chrisner. 0:00:13.920 --> 0:00:17.680 On today's episode, we'll break down fourth quarter results from Amazon. 0:00:18.120 --> 0:00:21.360 We'll be talking with Aarun Sunderum, vice president of Equity 0:00:21.400 --> 0:00:26.239 Research at CFRA. Plus a preview of tomorrow's jobs report. 0:00:26.320 --> 0:00:29.160 We'll be talking with Keith Buchanan. He is a partner 0:00:29.200 --> 0:00:33.320 and senior portfolio manager at Globalt Investments. But we begin 0:00:33.680 --> 0:00:37.239 in the Lion City. Joining us now is Mary Nicolas. 0:00:37.320 --> 0:00:42.000 She's Bloomberg M Live strategist, joining from our studios in Singapore. 0:00:42.520 --> 0:00:45.880 I was reading your entry today in the M Live blog, 0:00:45.920 --> 0:00:49.320 and you're talking about how some Chinese e commerce stocks 0:00:49.320 --> 0:00:52.479 are under pressure here because they could be facing an 0:00:52.520 --> 0:00:55.640 additional levy this week. Can you explain what's going on here? 0:00:56.000 --> 0:00:56.320 Sure? 0:00:56.440 --> 0:00:59.360 So, earlier this week, when we had the Chinese tariffs, 0:00:59.400 --> 0:01:02.320 there a report that the US Postal Service was not 0:01:02.400 --> 0:01:05.759 going to accept any packages that was coming from China 0:01:05.800 --> 0:01:09.200 and Hong Kong. That was quickly reversed, but there is 0:01:09.240 --> 0:01:11.840 also reports saying that now these companies are going to 0:01:11.880 --> 0:01:15.480 have to pay an additional thirty percent levy for any 0:01:15.480 --> 0:01:19.399 packages coming into the US, So obviously there's going to 0:01:19.400 --> 0:01:21.320 be some pressure on e commerce. The news on the 0:01:21.400 --> 0:01:25.800 US postal service had already put some pressure on the 0:01:25.840 --> 0:01:29.200 e commerce. That aside, though, we saw Chinese stocks do 0:01:29.360 --> 0:01:34.240 absolutely well on the optimism surrounding AI and robotics, not 0:01:34.319 --> 0:01:37.800 only from deep Seek, but there was this other robotics 0:01:38.200 --> 0:01:41.800 dance actually that broke the Internet, just getting people excited 0:01:41.800 --> 0:01:44.840 about the wave and the future of robotics for China. 0:01:45.680 --> 0:01:48.320 But irrespective, it still puts pressure on a lot of 0:01:48.400 --> 0:01:50.400 the e commerce names and some of the bigger e 0:01:50.440 --> 0:01:51.280 commerce names. 0:01:51.480 --> 0:01:54.440 To what extent is the government in China right now 0:01:54.440 --> 0:01:57.080 involved in supporting the equity market. Is that part of 0:01:57.120 --> 0:01:59.320 the story when you look at the major benchmarks, that 0:01:59.360 --> 0:02:02.720 there is just something underneath the surface where Beijing is 0:02:02.800 --> 0:02:04.600 kind of lifting prices a little bit. 0:02:05.520 --> 0:02:08.200 Well there, I'm sure there's an element of it, because 0:02:08.240 --> 0:02:12.160 there was some sort of longer term plans of involving 0:02:12.639 --> 0:02:17.200 a lot of the mutual of of the pension funds 0:02:17.240 --> 0:02:20.240 and the lifers, et cetera. But I think there is 0:02:20.280 --> 0:02:24.440 this underlying excitement about AI and about tech, and that 0:02:24.560 --> 0:02:29.320 euphoria from deep Zeek is still really resonating among retail 0:02:29.440 --> 0:02:33.560 investors yesterday. The biggest the biggest supporters were robotics, and 0:02:33.600 --> 0:02:36.160 it was much of the much of it was focused 0:02:36.160 --> 0:02:38.639 on a lot of the smaller names. So that's why 0:02:38.639 --> 0:02:42.040 you didn't see huge games in the CSI three hundred 0:02:42.600 --> 0:02:46.520 or in the Shanghai composite, because of the fact that 0:02:46.560 --> 0:02:48.960 a lot of it was going to smaller software companies 0:02:49.280 --> 0:02:52.600 and smaller robotics companies. But I think if we see 0:02:52.639 --> 0:02:57.320 any sort of significant downdrafts in Chinese equities, I think 0:02:57.360 --> 0:02:59.320 you would see a lot of support coming in from 0:02:59.360 --> 0:03:00.240 the government side. 0:03:00.280 --> 0:03:02.720 Have you seen any high frequency data where the Chinese 0:03:02.760 --> 0:03:05.640 consumer is concerned? During the Lunar New Year holiday, do 0:03:05.720 --> 0:03:08.760 we know how well the spending was kind of helping 0:03:08.760 --> 0:03:09.800 to drive the economy. 0:03:10.320 --> 0:03:12.880 Yeah, so there were some reports that arrivals at the 0:03:12.880 --> 0:03:17.160 box office were really really strong. Travel was really strong 0:03:17.200 --> 0:03:20.520 as well, so it showed some sort of upside. But 0:03:20.600 --> 0:03:24.560 if you look underneath the hood and the per capita spending, 0:03:24.840 --> 0:03:27.240 it's still a little bit under what we saw in 0:03:27.280 --> 0:03:31.120 twenty nineteen, and that is still an issue because you 0:03:31.160 --> 0:03:35.280 don't see that there's a complete relaxation or a motivation 0:03:35.840 --> 0:03:39.600 to continue with spending the subsidies, the trade and subsidies 0:03:39.600 --> 0:03:42.520 that the government had provided the people where you can 0:03:42.560 --> 0:03:45.160 trade in some of your electronic goods for newer and 0:03:45.240 --> 0:03:49.440 more updated ones. That also showed some signs of resilience 0:03:49.480 --> 0:03:53.600 as well. So it's moving but very very slowly, and 0:03:53.920 --> 0:03:58.120 theyre's still underlying and underneath the hood, it's still confidence 0:03:58.160 --> 0:04:00.000 isn't as strong as you would expect. 0:04:00.120 --> 0:04:02.320 It's the final trading day of the week where you are, 0:04:02.400 --> 0:04:05.280 and I'm wondering if you look to next week, is 0:04:05.320 --> 0:04:07.680 there anything that we should be paying close attention to 0:04:07.760 --> 0:04:09.400 that may end up driving the market. 0:04:09.600 --> 0:04:11.520 Yeah. I think next week it's going to be about 0:04:11.600 --> 0:04:15.040 retail sales and CPI data out of the US. Today 0:04:15.040 --> 0:04:17.720 we have the labor market report, and that should give 0:04:17.760 --> 0:04:20.960 an indication of, you know, where risk assets are headed, 0:04:21.760 --> 0:04:24.120 because at the end of the day, even you know, 0:04:24.240 --> 0:04:27.640 trade noise aside this, still the drivers from the FED 0:04:27.800 --> 0:04:31.920 is still really strong. So where the Fed is heading 0:04:32.160 --> 0:04:35.000 and how the market perceives the Fed is heading because 0:04:35.000 --> 0:04:38.039 so far right now they're much more conservative than where 0:04:38.040 --> 0:04:40.440 the Fed is thinking. So market is looking for one 0:04:40.520 --> 0:04:43.960 to two rate cuts, where as the FED had told 0:04:44.040 --> 0:04:46.320 US that they were looking for two cuts in twenty 0:04:46.360 --> 0:04:50.279 twenty five, So the labor market report will be one, 0:04:50.440 --> 0:04:53.480 the second one will be CPI and where the direction 0:04:53.560 --> 0:04:56.080 of inflation is going. And then of course retail sales. 0:04:56.160 --> 0:04:58.480 Retail sales will not only be important in terms of 0:04:59.080 --> 0:05:02.479 showing the resilience of the US consumer, but also feed 0:05:02.480 --> 0:05:06.040 into the equity markets, and of course, you know the 0:05:06.640 --> 0:05:11.440 outlooks for a lot of the for equity. More generally, 0:05:11.839 --> 0:05:12.160 you and. 0:05:12.120 --> 0:05:14.039 I have talked a lot in the past about the 0:05:14.040 --> 0:05:16.880 strength of the US dollar, and I'm kind of surprised 0:05:16.880 --> 0:05:18.920 at the strength of the end this week. I mean, 0:05:18.960 --> 0:05:22.359 we're flirting with one fifty one. What's happening with the. 0:05:22.520 --> 0:05:25.400 En Yeah, it's it's had a really good run, and 0:05:25.480 --> 0:05:29.960 largely because we've heard little snippets from BOJ members talking 0:05:30.000 --> 0:05:32.839 about So for example, one of the BOJ members, Tamora, 0:05:33.040 --> 0:05:38.440 yesterday had commented about seeing rates at one percent, and 0:05:39.120 --> 0:05:43.080 he retraced and retraced some of those comments. But at 0:05:43.080 --> 0:05:45.840 the same time, if that's what the BOJ is thinking, 0:05:46.440 --> 0:05:49.080 and they're moving in that direction, and then of course 0:05:49.120 --> 0:05:53.599 you had wage earnings and they were really really strong today. 0:05:53.680 --> 0:05:58.000 Household spending was really strong. That's all pushing the narrative 0:05:58.160 --> 0:06:01.400 towards more rate hikes for the BA, and I think 0:06:01.520 --> 0:06:05.719 that's also increasing expectations from traders that they are coming. 0:06:06.120 --> 0:06:08.640 So if you look at pricing, not necessarily for the 0:06:08.640 --> 0:06:11.359 next meeting in March, but the following one on April 0:06:11.440 --> 0:06:16.520 thirty May, first, you're seeing expectations rise for a hike 0:06:16.720 --> 0:06:19.480 coming then, which was a lot sooner than people had 0:06:19.480 --> 0:06:21.839 projected because projections were more for July. 0:06:22.360 --> 0:06:26.159 Does that necessarily spell trouble for the Japanese equity market? 0:06:26.720 --> 0:06:29.760 Not necessarily, so it does for the big exporters, I 0:06:29.760 --> 0:06:31.880 would say, but we have seen a breakdown in the 0:06:31.880 --> 0:06:35.840 correlation between where the yen is headed and the directionality 0:06:35.880 --> 0:06:39.000 of the en and the equity markets. So I think 0:06:39.040 --> 0:06:42.320 some of the bigger names will suffer. But remember there's 0:06:42.320 --> 0:06:46.040 still a lot of importers within the Japanese equity markets 0:06:46.040 --> 0:06:49.839 who have been struggling as a result of a much 0:06:49.880 --> 0:06:50.520 weaker yen. 0:06:50.920 --> 0:06:53.120 So when you talk to analysts that focus on the 0:06:53.200 --> 0:06:57.200 Japanese equity market, are they highlighting certain industry groups or 0:06:57.680 --> 0:07:00.880 certain areas of the market that represent value right now? 0:07:00.920 --> 0:07:02.719 I mean you were talking about a move to shy 0:07:02.800 --> 0:07:06.880 away from anything that may have exposure to a stronger currency, 0:07:06.960 --> 0:07:10.280 those big multinational exporters. But I'm wondering whether there is 0:07:10.360 --> 0:07:13.440 value in some other pockets of the Japanese equity market. 0:07:13.720 --> 0:07:17.040 So there's a lot of excitement on Japanese financials because 0:07:17.040 --> 0:07:20.400 they're going to be one of the big beneficiaries from 0:07:20.400 --> 0:07:23.840 a rate hike. So financials have been doing well, They've 0:07:23.840 --> 0:07:28.120 actually surprised to the upside. Consumer discretionary have also surprised 0:07:28.120 --> 0:07:32.080 to the upside. That could continue as well, and earnings 0:07:32.120 --> 0:07:35.840 overall has been very much broad based, so there could 0:07:35.840 --> 0:07:39.920 be Probably the main pockets that will outperform are probably financials, 0:07:39.960 --> 0:07:42.600 but at the same time, the others have plenty of 0:07:42.680 --> 0:07:43.600 room to catch up. 0:07:43.880 --> 0:07:45.720 Mary will leave it there, Thank you so much. I 0:07:45.800 --> 0:07:48.320 hope you have a good weekend in Singapore. That is 0:07:48.320 --> 0:07:52.160 Bloomberg m Live strategist Mary Nicola joining us here on 0:07:52.200 --> 0:08:02.360 the Daybreak Asia podcast. Welcome back to the Daybreak Asia 0:08:02.400 --> 0:08:05.600 podcast time Doug Krisner. After the battle, we heard from 0:08:05.640 --> 0:08:08.720 Amazon and the company issued a revenue forecast for the 0:08:08.760 --> 0:08:12.200 current quarter below estimates. For a closer look, I'm joined 0:08:12.200 --> 0:08:16.160 by Arun Sundrum, Vice President of Equity Research at CFRA 0:08:16.600 --> 0:08:18.440 A run Thank you so much for making time to 0:08:18.520 --> 0:08:21.480 chat with us. I understand that you just jumped off 0:08:21.520 --> 0:08:23.240 the earnings called. What did you learn? 0:08:24.000 --> 0:08:24.240 Yeah? 0:08:24.320 --> 0:08:26.320 Yeah, I think one of the big takeaways from the 0:08:26.360 --> 0:08:30.240 earnings call is that this this capex cycle that we 0:08:30.320 --> 0:08:33.880 started to see this past year, that's going to continue 0:08:33.880 --> 0:08:36.200 into US in twenty five. I don't think that's that 0:08:36.320 --> 0:08:38.720 much of a surprise, given that all the big tech 0:08:38.760 --> 0:08:43.520 firms and have announced a pretty sizeable acceleration in capex spending. 0:08:43.559 --> 0:08:47.120 But Amazon did announce that they're expecting probably about one 0:08:47.200 --> 0:08:49.240 hundred and five billion, one hundred and ten billion dollars 0:08:49.240 --> 0:08:52.120 of capex in twenty twenty five. The consensus going into 0:08:52.160 --> 0:08:54.520 the year was eighty five billion, so it's about twenty 0:08:54.559 --> 0:08:56.680 and twenty five percent higher than the street expectation. So 0:08:57.520 --> 0:09:01.080 clearly big tech is still investing in specificly investing in AI, 0:09:01.240 --> 0:09:02.920 and that's that's going to continue. 0:09:03.040 --> 0:09:05.600 What do we know about demand for these services and 0:09:05.640 --> 0:09:08.040 whether or not there's going to be a return on investment? 0:09:08.440 --> 0:09:10.880 Yeah, I mean, I don't think Amazon, as well as 0:09:11.000 --> 0:09:14.280 a lot of analysts investors, are overly worried about the return. 0:09:14.600 --> 0:09:17.199 I say that because one, I mean this past year 0:09:17.200 --> 0:09:20.880 in twenty twenty four, the margins aws have been quite 0:09:20.920 --> 0:09:23.720 attractive despite the fact that they've been ramping up CAPEC 0:09:23.760 --> 0:09:26.320 spending there. And Amazon also has I think a proven 0:09:26.360 --> 0:09:31.520 track record to generating returns on their investment. So I think, 0:09:31.679 --> 0:09:34.040 you know, it'll take time for you know, to fully 0:09:34.080 --> 0:09:37.199 see the full ROI se on these investments. I think 0:09:37.240 --> 0:09:39.599 we'll likely see some headwinds in twenty twenty five, just 0:09:39.640 --> 0:09:43.360 given how much extra CAPEX are spending, but I think 0:09:43.400 --> 0:09:45.720 by twenty twenty six, twenty twenty seven, we should see 0:09:45.720 --> 0:09:48.439 something better returns you know, of the of those investments. 0:09:48.640 --> 0:09:51.840 So how is the market for cloud computing changing right now? 0:09:51.880 --> 0:09:54.880 Is it a lot less competitive and more concentrated? How 0:09:54.880 --> 0:09:55.920 would you evaluate it? 0:09:56.400 --> 0:09:58.840 No, I would say it's it's still very de bandside 0:09:58.880 --> 0:10:01.520 is still very strong, you know. I think all the 0:10:01.559 --> 0:10:05.080 big tech players, the hyper scalers have announced that right now, 0:10:05.280 --> 0:10:08.000 you know, their their demand is exceeding supply. So there's 0:10:08.040 --> 0:10:12.720 supply chain issues throughout the industry and Amazon included. You know, 0:10:12.720 --> 0:10:14.959 I think it's going to take probably at least half 0:10:15.000 --> 0:10:18.040 a year to a full year for supply to catch up. 0:10:18.200 --> 0:10:21.080 With demand. That's why these companies are investing so heavily. 0:10:21.960 --> 0:10:24.040 But there's clearly a lot of demand for AI. I 0:10:24.120 --> 0:10:26.880 think the recent news with deep sea coming out of China, 0:10:26.920 --> 0:10:29.800 there's been a lot of jitter in the market regarding that. 0:10:31.000 --> 0:10:33.920 In Amazon's perspective, this is just going to accelerate the 0:10:33.960 --> 0:10:37.080 adoption of AI. If AI is cheaper, more companies are 0:10:37.080 --> 0:10:39.240 going to adopt AI, and more companies probably gonna spend 0:10:39.280 --> 0:10:42.040 more on AI, and Amazon, being the largest cloud provider, 0:10:42.080 --> 0:10:44.880 should be a direct beneficiarya of that. So their a 0:10:45.040 --> 0:10:47.360 w's business is very large. Today Amazon is the leading 0:10:47.440 --> 0:10:50.400 leading market share in that of that business, but that's 0:10:50.440 --> 0:10:52.480 likely going to going to see continued growth over the 0:10:52.600 --> 0:10:54.319 over the next you know, foreseeable future. 0:10:54.400 --> 0:10:57.319 I'm looking at an item right now related to Amazon 0:10:57.559 --> 0:11:00.800 on the Bloomberg terminal and Andy Jase, the CEO, was 0:11:00.880 --> 0:11:04.640 talking about insufficient electricity. This seems to echo some of 0:11:04.640 --> 0:11:08.000 the concern that we heard from Microsoft. How does Amazon 0:11:08.720 --> 0:11:11.760 propose to solve this problem the power that's required to 0:11:11.840 --> 0:11:13.480 drive a lot of these data centers. 0:11:13.920 --> 0:11:18.439 Yeah, so they're even investing in their own power infrastructure themselves, 0:11:18.440 --> 0:11:21.840 and they're partnering with other companies. Clearly, over the next 0:11:22.000 --> 0:11:23.719 you say, five to ten years, it's going to be 0:11:23.720 --> 0:11:27.960 a massive demand for energy and that is a concern 0:11:28.040 --> 0:11:31.480 throughout throughout the industry. So I expect, you know, to 0:11:31.480 --> 0:11:36.280 see continued investments in that space from the hyperscalers, Microsoft, Google, Amazon. 0:11:36.320 --> 0:11:39.040 I think they'll start to also invest in energy infrastructure. 0:11:39.360 --> 0:11:41.800 So when you create these data centers, do you think 0:11:41.800 --> 0:11:44.960 it would behoove a company like Amazon to create a 0:11:44.960 --> 0:11:49.079 little bit more geographic distribution, not to have them concentrated 0:11:49.120 --> 0:11:52.640 in certain regions, to kind of help address this problem 0:11:52.640 --> 0:11:53.120 with power. 0:11:53.640 --> 0:11:56.120 Yeah, I mean, right now, a lot of these data centers. 0:11:56.120 --> 0:11:58.560 So I live in the Washington, DC metro area, and 0:11:58.600 --> 0:12:01.559 Northern Virginia is like the hub for for data centers. 0:12:01.800 --> 0:12:04.800 A lot of Amazon data centers are here. But right now, 0:12:04.880 --> 0:12:08.200 you know, Amazon's not a ws is not just expanding 0:12:08.200 --> 0:12:11.240 in the United States, They're also expanding around the world. 0:12:11.960 --> 0:12:14.440 You know, I think Amazon just recently announced I believe 0:12:14.440 --> 0:12:17.240 it's Thailand that's going to be another data center hub 0:12:17.320 --> 0:12:19.880 for the for the Asia market. So I do expect 0:12:19.960 --> 0:12:21.960 over the next you know, you know, five to ten years, 0:12:22.000 --> 0:12:25.680 we'll start to see more countries as essentially hubs for 0:12:25.679 --> 0:12:29.880 for data centers. As you know, AWS expands throughout the world. 0:12:30.160 --> 0:12:33.479 What do we know about the rest of Amazon's businesses? 0:12:33.720 --> 0:12:35.520 How well are they performing right now? 0:12:35.920 --> 0:12:36.160 Yeah? 0:12:36.200 --> 0:12:38.439 So, I mean the biggest businesses is their e commerce 0:12:38.480 --> 0:12:41.840 business that you know had a phenomenal quarter. That's not 0:12:41.880 --> 0:12:44.760 a surprise given that you know, overall the holiday spending 0:12:44.800 --> 0:12:47.160 in the US was really strong this past year. Uh, 0:12:47.280 --> 0:12:52.240 that business is on fire. Their their advertising business has 0:12:52.240 --> 0:12:54.520 slowed down a little bit. You know, right now, Amazon 0:12:54.559 --> 0:12:58.840 generates most of their ad revenue from their e commerce business. 0:12:58.880 --> 0:13:02.520 Only they're their video ads business or Prime Video. They 0:13:02.559 --> 0:13:05.240 just introduced ads to Prime Video this past year, so 0:13:05.240 --> 0:13:07.800 that's still a very portion of their overall advertising business. 0:13:07.960 --> 0:13:10.360 I think there's some excitement right now that in twenty 0:13:10.360 --> 0:13:13.640 twenty five we could see better monetization of Prime video ads, 0:13:13.720 --> 0:13:17.040 especially as Amazon rolls out more live sports in their 0:13:17.080 --> 0:13:20.240 own content. So that video ads business should see some 0:13:20.679 --> 0:13:23.960 strong growth over the next few years. And we're hopeful 0:13:24.000 --> 0:13:27.160 that that advertising business, that growth in that advertising business 0:13:27.160 --> 0:13:29.120 will reaccelerate because, like I said, last few quarters we 0:13:29.120 --> 0:13:31.160 did see some deceleration in the ad business. 0:13:31.200 --> 0:13:33.440 I'm curious as to whether the company on the call 0:13:33.480 --> 0:13:37.000 addressed the issue of tariffs, particularly those that have been 0:13:37.320 --> 0:13:41.160 put on China recently. Is that perhaps a benefit to 0:13:41.200 --> 0:13:41.760 this company? 0:13:42.320 --> 0:13:44.760 Yeah, so they didn't talk about it much on the call. 0:13:44.840 --> 0:13:46.960 I think it was a little bit baked into their outlooks. 0:13:47.240 --> 0:13:48.719 One of the reasons the stock is down right now 0:13:48.760 --> 0:13:51.319 is because of the weaker than expected outlook, and I 0:13:51.320 --> 0:13:54.160 think it's due to you know, tariff headwinds is one 0:13:54.200 --> 0:13:58.480 and also the stronger US dollars is another sizable headwind. 0:13:58.559 --> 0:14:01.600 But yeah, regarding tariff, you know, I think tariffs are 0:14:01.640 --> 0:14:04.040 a bad word in retail. But you know, the silver 0:14:04.120 --> 0:14:07.200 lining is that tariffs impact everyone. It's not it's not 0:14:07.400 --> 0:14:10.320 you know, single singling, one retailer out. So typically when 0:14:10.360 --> 0:14:12.959 you see tariffs like this, you tend to see the 0:14:13.040 --> 0:14:16.160 larger retailers, you know, oper form and find ways to 0:14:16.200 --> 0:14:19.720 better navigate through tariffs. So, you know, I'm expecting Amazon 0:14:19.760 --> 0:14:22.160 as well as you know, Walmart, Target, you know these 0:14:22.200 --> 0:14:24.720 I think these retailers will be able to better navigate 0:14:24.840 --> 0:14:26.880 and work through these tariffs. Then maybe some of the 0:14:26.960 --> 0:14:28.880 smaller retailers. And you have to remember, I mean this 0:14:28.920 --> 0:14:31.600 is not their first go around with tariffs. You know, 0:14:31.640 --> 0:14:34.200 these companies experience the trade war with China back in 0:14:34.200 --> 0:14:37.040 twenty eighteen, twenty nineteen, So overall, I think the industry 0:14:37.080 --> 0:14:39.200 is better prepared for tariffs this time this time around 0:14:39.360 --> 0:14:41.280 than you know, compared to back back in twenty eighteen, 0:14:41.320 --> 0:14:41.880 twenty nineteen. 0:14:42.200 --> 0:14:43.720 Run. We'll leave it there. Thank you so much for 0:14:43.760 --> 0:14:46.520 being with us. Aarun Sundrum, a vice president of equity 0:14:46.520 --> 0:14:49.440 research at cfr A joining us here on the Daybreak 0:14:49.480 --> 0:14:55.360 Asia podcast. Tomorrow's US jobs report will be the focal 0:14:55.400 --> 0:14:58.320 point for markets and the Fed as well. Joining me 0:14:58.400 --> 0:15:01.040 now for a preview is Keith Cannon. He is senior 0:15:01.080 --> 0:15:04.880 portfolio manager and partner at Global To Investments, joining us 0:15:05.240 --> 0:15:09.600 from Atlanta. If you look at the consensus estimate right now, Keith, 0:15:09.720 --> 0:15:12.120 when we're looking for non farm payrolls to rise by 0:15:12.200 --> 0:15:15.480 around one hundred and seventy three thousand, that doesn't sound 0:15:15.560 --> 0:15:18.120 like a lot. What do you think it says if 0:15:18.160 --> 0:15:20.200 that were to come to pass, what would it say 0:15:20.200 --> 0:15:21.200 about the labor market? 0:15:22.080 --> 0:15:24.840 Oh dog, and thanks again for having me. We've done 0:15:24.840 --> 0:15:26.440 a lot of work around you know, what's going on 0:15:26.480 --> 0:15:29.640 in the labor market from a perspective of we're seeing 0:15:29.640 --> 0:15:32.480 on the margin softness that hasn't really materialized into. 0:15:32.320 --> 0:15:33.200 The AUGORICM numbers. 0:15:33.960 --> 0:15:35.880 If we do hit one seven as come the sweet 0:15:35.880 --> 0:15:38.680 spot we have been, you know, the course of the 0:15:38.760 --> 0:15:41.400 last year or so if you look on a full 0:15:41.480 --> 0:15:44.600 week trailing basis, So that's kind of powerful the course. 0:15:44.640 --> 0:15:48.440 Anything shy of that, we feel like we'll ride on 0:15:48.560 --> 0:15:54.000 markets and probably reinstitute some expectations of a more aggressive fad. 0:15:54.400 --> 0:15:56.920 And also on the alternative, as we've seen a couple 0:15:56.960 --> 0:15:59.480 of beasts that were hired and expected for the past 0:15:59.480 --> 0:16:03.400 several months, anything much higher than two hundred to ten 0:16:04.120 --> 0:16:07.680 could bring into question whether or not the inflation will 0:16:07.720 --> 0:16:09.280 be taming. Of course, that it's going to come back 0:16:09.280 --> 0:16:12.120 to what wage both does within the report, but also 0:16:12.880 --> 0:16:16.400 just what stands the FED has and becoming more hawkish 0:16:16.480 --> 0:16:19.240 and if their hawkishness is more warranted given a very 0:16:19.280 --> 0:16:22.200 tight level market, which they've communicated over the last couple 0:16:22.240 --> 0:16:22.840 of years. 0:16:23.000 --> 0:16:25.280 How do you define an aggressive FED? Is that a 0:16:25.280 --> 0:16:27.720 FED that stays higher for longer or is that a 0:16:27.760 --> 0:16:30.320 FED that potentially could hike rates? 0:16:31.080 --> 0:16:35.360 Well, that's so the potential for a rate hike we 0:16:35.600 --> 0:16:39.560 really are starting to creep into some of vir expectations, 0:16:40.120 --> 0:16:43.560 not necessarily the odds on bet at this point, but 0:16:43.640 --> 0:16:47.600 we're noticing the rhetoric tilt a little from from the 0:16:47.600 --> 0:16:50.640 Federal Reserve VERET. They say very concerned with the re 0:16:50.720 --> 0:16:53.160 emergence of inflation, as they have been over the course 0:16:53.200 --> 0:16:56.080 of this tightening cycle, and they don't want to be 0:16:56.120 --> 0:16:59.240 too early in that three three and a half percent 0:16:59.280 --> 0:17:01.040 inflation and become the new norm. 0:17:01.080 --> 0:17:03.680 I think they still want to remain to keep pressure and. 0:17:03.680 --> 0:17:06.359 As long as the inflation rate is below the fair 0:17:06.359 --> 0:17:08.919 funds rate, that continues to be the case of restricted 0:17:08.920 --> 0:17:10.479 policy remained in place. I think they want to keep 0:17:10.480 --> 0:17:12.680 it restrictive as long as they can continue to see progress. 0:17:13.440 --> 0:17:15.199 But a tight living mark kind of leads to that 0:17:15.359 --> 0:17:18.280 progress diminishing in a way. They will make us more 0:17:18.280 --> 0:17:20.920 concern with a fair staying higher for longer, and again 0:17:21.080 --> 0:17:25.120 if it remains much tighter, possibly highs being priced into 0:17:25.160 --> 0:17:26.840 what we expect from the Fed to do over the 0:17:26.840 --> 0:17:27.760 next twelve months. 0:17:27.840 --> 0:17:30.800 So it's a very pivotal point right now in the 0:17:30.800 --> 0:17:31.280 Fed side. 0:17:31.440 --> 0:17:33.640 One of our colleagues here at Bloomberg had a very 0:17:33.680 --> 0:17:37.359 interesting conversation today with Treasury Secretary Besson and one of 0:17:37.359 --> 0:17:40.200 the things that he's stressed was that the Trump administration 0:17:40.359 --> 0:17:43.280 is not really focused on whether the FED will cut 0:17:43.440 --> 0:17:47.520 its policy rate. The focus for the administration is instead 0:17:47.560 --> 0:17:51.399 on achieving a lower tenure treasury yield. How does that 0:17:51.520 --> 0:17:55.520 square with your expectations of what we may see from 0:17:55.520 --> 0:17:57.280 the Trump administration, I. 0:17:57.240 --> 0:17:59.280 Think, and that was a fascinating interview. 0:18:00.000 --> 0:18:03.199 Couple of ways to get the tenure treasure rate lower, 0:18:03.440 --> 0:18:08.200 whether inflation expectations come down, or growth expectations come down, 0:18:08.440 --> 0:18:12.840 or some combination of the ball and both of those scenarios. 0:18:13.000 --> 0:18:15.040 From a policy standpoint, there is. 0:18:15.000 --> 0:18:18.399 A very delicate balance as to how we achieved those 0:18:19.680 --> 0:18:22.520 and with race being you know, inflation being where it is, 0:18:22.960 --> 0:18:27.200 that's really not anything that any any central bank or 0:18:27.200 --> 0:18:28.920 any government can fix in one fell swoop. 0:18:29.640 --> 0:18:32.040 So the focus on the tenure makes it makes it feel. 0:18:31.840 --> 0:18:34.320 A lot less month to month and quarter to quarter 0:18:34.440 --> 0:18:36.800 meeting the meeting from the fast standpoint, so there's some 0:18:36.880 --> 0:18:41.480 relief from that regard, but we've seen the tenure take 0:18:41.480 --> 0:18:43.199 on the mind of its own. It's not anything that 0:18:43.840 --> 0:18:47.320 any one entity or federal reserve can can really control. 0:18:47.480 --> 0:18:50.320 So you know, we're that interview was really perked our 0:18:50.359 --> 0:18:53.560 ears up to see what they're communicating as a focus 0:18:53.640 --> 0:18:56.000 is going to be almost to pivot away from what 0:18:56.040 --> 0:18:58.679 they think the market is thinking, which is more shorter terminature. 0:18:58.960 --> 0:19:01.760 The other thing that the Treasury Secretary addressed in that 0:19:01.840 --> 0:19:05.880 interview was a strong US dollar policy under the Trump administration. 0:19:06.680 --> 0:19:08.640 Bessin said it was completely intact. 0:19:09.280 --> 0:19:09.440 Now. 0:19:09.480 --> 0:19:12.000 I know you look at the earnings and the quality 0:19:12.040 --> 0:19:14.919 of earnings for the big multinationals in particular. So the 0:19:15.000 --> 0:19:17.879 question is whether the dollar is going to be a 0:19:17.920 --> 0:19:20.000 significant headwind here going forward. 0:19:20.840 --> 0:19:24.480 Just every economics textbook tells you that that is the case. 0:19:24.480 --> 0:19:28.080 When a stronger dollar affect international and global companies there 0:19:28.560 --> 0:19:33.560 and their overseas operations. It depends on the mixture of 0:19:33.600 --> 0:19:36.520 how we get to a stronger dollar. If we are 0:19:36.560 --> 0:19:39.600 talking about you know, inflation really aiding that path, or 0:19:40.119 --> 0:19:43.679 tariffs kind of pushing pushing the dollar higher. There's so 0:19:43.680 --> 0:19:45.600 many ways to get to a stronger dollar from where 0:19:45.560 --> 0:19:48.600 we are now, and it's really hard to say, you know, 0:19:48.720 --> 0:19:51.120 whether or not you know in the national marketplace would 0:19:51.119 --> 0:19:54.400 be better off or worse off with a stronger dollars. 0:19:54.400 --> 0:19:55.679 Two almost done a wrong because there's. 0:19:55.520 --> 0:19:57.600 So many pathways to get there, we're not. 0:19:57.560 --> 0:20:01.520 As concerned with the absolute level over the next twelve 0:20:01.560 --> 0:20:04.280 months mrgus I would necessarily in the path to get there, 0:20:04.320 --> 0:20:08.800 so you know, the quarter to quarter earnings and what 0:20:08.840 --> 0:20:11.080 we can pick up from these corporations. Then their plans 0:20:11.119 --> 0:20:15.199 for capital working capital expenditures going forward is going to 0:20:15.200 --> 0:20:17.520 play a role in that as well, So you know, 0:20:17.720 --> 0:20:20.520 we're less concerned about the absolute level of the dollar 0:20:20.520 --> 0:20:22.879 and more concerned with the path to get there and 0:20:22.880 --> 0:20:26.560 whether it's geopolitical driven or here. Strength here in the 0:20:26.640 --> 0:20:29.639 US without the rest of the world into a session 0:20:29.680 --> 0:20:30.760 is also important as well. 0:20:30.920 --> 0:20:34.159 You mentioned tariffs there, Keith, and what the conventional wisdom 0:20:34.200 --> 0:20:36.640 has been that this really has the potential to drive 0:20:36.680 --> 0:20:41.480 inflation higher. Tariff policy I'm referring to best during this 0:20:41.560 --> 0:20:43.960