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Speaker 1: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Officials

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Speaker 1: in China are signaling a shift in spending for the

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Speaker 1: next year, focusing now on consumption, and in a moment

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Speaker 1: we'll take a look at what that means for markets

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Speaker 1: with our very own Mary Nicola, m Live Strategist. But

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Speaker 1: first to us inflation and whether it's proving to be

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Speaker 1: a little stubborn and how that could lead the FED

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Speaker 1: to soon hit pause when it comes to raid cuts.

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Speaker 1: Today headline PPI came in much above forecast with an

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Speaker 1: annual gain of three percent. Joining us now is Shana Sissel.

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Speaker 1: She is the founder and CEO at Banery on Capital

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Speaker 1: Management in Chicago. Shana, thanks for joining us today. It

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Speaker 1: appears as though markets are really becoming a little cautious

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Speaker 1: on the notion of FED raid cuts in the new year.

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Speaker 1: I'm curious as to how you're viewing the Fed's work

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Speaker 1: in the months ahead.

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Speaker 2: The market is fairly convinced that the FED is going

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Speaker 2: to cut in the Demimber meeting, and the market is

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Speaker 2: typically correct on these things. I think if they do,

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Speaker 2: it's probably not the right move. To your point, inflation

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Speaker 2: has proven to be quite sticky. But more importantly, the

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Speaker 2: economy continues to be quite strong in the US, and

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Speaker 2: so you have to ask yourself, like, are you cutting

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Speaker 2: for the correct reasons? You know, a strong economy with

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Speaker 2: stubborn inflation is not the worst scenario to be in.

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Speaker 2: Slightly higher inflation is not a bad thing, you know.

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Speaker 2: Obviously you don't want it to be double digits like

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Speaker 2: when we started. But I think we're in a really

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Speaker 2: good place right now. And my biggest concern is that

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Speaker 2: if the FED continues to be as aggressive as they

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Speaker 2: are and continues to cut, they're really positioning the economy

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Speaker 2: to get overheated very quickly, and there's unintended consequences to that,

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Speaker 2: for sure.

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Speaker 1: One of the things I think that's going to be

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Speaker 1: interesting when the FED meets next week is the indication

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Speaker 1: we may get on whether we're close to a neutral

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Speaker 1: rate or still well above it. Do you have a

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Speaker 1: sense of that. I know it's kind of a theoretical notion.

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Speaker 1: Where is neutral right now in your view?

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Speaker 2: So it's funny. I watched an interview with one of

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Speaker 2: the former FED members on one of the other networks yesterday,

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Speaker 2: and he was saying that we're not at neutral, and

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Speaker 2: then the question was asked, well, what's neutral, and he

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Speaker 2: didn't answer it. So if former FED insiders can't tell

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Speaker 2: you what neutral is, I'm not sure I can either.

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Speaker 2: But what I do know is that it's not where

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Speaker 2: we're at today. And so the belief is that the

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Speaker 2: FED will cut until they get to what they feel

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Speaker 2: is neutral. And the problem is is like the economy

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Speaker 2: and inflation doesn't necessarily support that decision. So it's really

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Speaker 2: going to be interesting to see what the FED does

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Speaker 2: from here. I thought they would pause in December, but

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Speaker 2: it's not looking like that's going to be the case.

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Speaker 2: But I do believe that if they do cut in December,

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Speaker 2: they will definitely start twenty twenty five off in a pause.

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Speaker 1: We're going to have a new administration in January. From

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Speaker 1: what you have heard so far as it relates to

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Speaker 1: economic policy from the incoming Trump administration, are you encouraged

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Speaker 1: in a way that would make you bullish on risk

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Speaker 1: assets in the US.

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Speaker 2: Yes, I am encouraged.

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Speaker 3: We have a one party.

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Speaker 2: Majority coming in, so we have a Republican Congress, a

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Speaker 2: Republican in the White House, and typically having a single

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Speaker 2: party kind of making the fiscal or the policy decisions

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Speaker 2: is not always a good thing in the fiscal side. However,

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Speaker 2: if it's going to be one party, having it be

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Speaker 2: Republican tends to be better for markets. The Trump administration

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Speaker 2: is a business friendly administration, it's a crypto friendly administration,

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Speaker 2: and these things are all really positive and bullish for

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Speaker 2: markets as a whole. Now that said, we've had two

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Speaker 2: years where we've seen twenty plus percent returns of the

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Speaker 2: S and P five hundred, and then the question becomes

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Speaker 2: is sustainable in our valuations stretched? But just because valuations

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Speaker 2: are stretched doesn't mean that the market's going to turn.

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Speaker 2: So it's a really hard judgment call. But there's certainly

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Speaker 2: nothing that seems to be a headwind with the new administration.

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Speaker 1: I remember talking to you recently about artificial intelligence at

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Speaker 1: the time in video was a big key at least

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Speaker 1: where you were concerned in putting money to work. After

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Speaker 1: the bell today we heard from Broadcom and the numbers

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Speaker 1: for the latest quarter on the profit side beat estimates.

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Speaker 1: But I think more encouraging for the market was the

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Speaker 1: news that we had after the bell when the company

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Speaker 1: predicted on the call with analysts sixty five percent growth

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Speaker 1: in AI Chip sales in the current quarter. It seems

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Speaker 1: as though there's just this very, very robust demand from

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Speaker 1: data center operators. Where are we right now in this cycle?

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Speaker 1: Are we near the end or is this still have

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Speaker 1: some legs?

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Speaker 3: Oh?

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Speaker 2: I actually think we're like very early in this cycle.

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Speaker 2: I know it's done so well, it's hard to believe that,

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Speaker 2: but we are so so early and understanding and the

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Speaker 2: application of AI. So a lot of what's happening right

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Speaker 2: now is a ramp up to try to prepare for

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Speaker 2: the application of AI and the needs of AI related

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Speaker 2: technology in terms of data centers and you know, cooling systems,

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Speaker 2: all that kind of stuff. The infrastructure has to be

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Speaker 2: there first. But I think that we're really in the

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Speaker 2: early stages of building the infrastructure so that we can

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Speaker 2: actually start to have application of the technology. And and

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Speaker 2: for that reason, I think, you know, we're going to

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Speaker 2: see kind of a cycle of where you know, this

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Speaker 2: infrastructure plays of the things that need to happen for

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Speaker 2: AI to be broadly applied has to happen before we'll

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Speaker 2: start to see the actual broad applications. And when that happens,

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Speaker 2: there will be other players that will win in that environment.

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Speaker 1: So is there a risk though that maybe that doesn't

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Speaker 1: happen immediately, that the return on investment is not apparent

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Speaker 1: at least right away.

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Speaker 2: Well, when we got earnings from Alphabet last month and

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Speaker 2: some of the other technology companies, and in those earnings calls,

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Speaker 2: their management teams noted that they were starting to see

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Speaker 2: ways to monetize AI, which is sooner than I expected.

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Speaker 2: So I actually think that we're already seeing practical application

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Speaker 2: and monetization of AI technology with the players you would

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Speaker 2: expect it from, like Meta and Apple, and that as

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Speaker 2: you have a broader application of it, it starts to

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Speaker 2: be implemented in other industries. I think the opportunities quite large,

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Speaker 2: and the monetization proof is there, So you know, the

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Speaker 2: tech guys are kind of the experiment, and you're going

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Speaker 2: to see financial companies, healthcare companies and more start to

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Speaker 2: use AI and broader application and be able to monetize

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Speaker 2: that tool.

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Speaker 1: When you speak with your clients, is there a worry

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Speaker 1: that they have right now given the current environment? Maybe

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Speaker 1: valuation concern, maybe the fact that inflation could be persistent.

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Speaker 1: Is there something that you are willing to share with

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Speaker 1: me about what your clients are saying they're most concerned about.

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Speaker 2: It's definitely valuation. The market does appear stretched, and that

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Speaker 2: really is the main bear case for the markets is

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Speaker 2: how sustainable is it with valuations where they're at. I

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Speaker 2: think that's a valid concern, but I think it's a

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Speaker 2: concern only in certain to the market. The problem is

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Speaker 2: the place is of concern is the places that are

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Speaker 2: driving returns right now, so like the tech space. So

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Speaker 2: I think you have to kind of think about how

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Speaker 2: far the market can go and stay stretched at these

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Speaker 2: premium valuations before we see a significant pullback. I don't

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Speaker 2: think it's in the next month or so, but I

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Speaker 2: do think it is caused for concern and a reason

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Speaker 2: to position more defensively in your portfolio for sure.

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Speaker 1: So if you're looking at valuations, are there evaluations offshore

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Speaker 1: that are attractive right now? Are you perhaps dipping your

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Speaker 1: toe into the water in markets in the Asia Pacific?

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Speaker 2: Yeah, So if you look at other markets, the European

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Speaker 2: markets have some structural headwinds that are concerning, but I

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Speaker 2: do think the Asian markets are a little more interesting.

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Speaker 2: They tend to be a little more innovative. Obviously, China

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Speaker 2: is a place that we're starting to see a resurgence there,

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Speaker 2: those valuations are more attractive. I think overseas are definitely

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Speaker 2: more attractive. The momentum isn't there, and so you kind

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Speaker 2: of have to It's a delicate balance of finding attractive

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Speaker 2: valuations with improving momentum, and you want to stay away

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Speaker 2: from the places where you're going to fall into value

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Speaker 2: traps where you have really cheap stocks but also negative momentum.

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Speaker 1: We'll leave it there, Shane, It's always a pleasure. Thanks

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Speaker 1: for taking time to chat with us. Shane Assisil is

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Speaker 1: founder and CEO at Banery on Capital Management, joining us

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Speaker 1: here on the Daybreak Asia podcast. Welcome back to the

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Speaker 1: Daybreak Asia Podcast. I'm Doug Prisner. In Beijing. The two

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Speaker 1: day Central Economic Work Conference has wrapped up, and for

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Speaker 1: only the second time in the last decade, Chinese officials

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Speaker 1: made lifting consumption vigorously and stimulating overall domestic demand their

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Speaker 1: top priorities. For a closer look, now, let's bring in

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Speaker 1: Bloomberg's Mary Nicola, one of or En Live strategist. She

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Speaker 1: joins from Singapore. Mary, thanks for taking time to chat

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Speaker 1: with us. I'm curious about getting your take on the

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Speaker 1: messaging that's coming from Chinese officials who are now focused

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Speaker 1: on this notion of consumption. What does that say to you?

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Speaker 3: What I mean, we've heard a lot of great messaging

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Speaker 3: coming from Beijing. The key thing, though, especially for equity markets,

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Speaker 3: is the follow through. I think there's been just a

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Speaker 3: lot of announcement fatigue in the sense of we've heard

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Speaker 3: a lot of big, bold statements, but nothing coming through

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Speaker 3: in terms of concrete action. And I think that's why

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Speaker 3: the market hasn't been as exuberant in their response to

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Speaker 3: some of the shift and tone that we've gotten from Beijing,

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Speaker 3: especially during this round, whether they were talking about more

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Speaker 3: aggressive monetary policy and fiscal stimulus. The market hasn't responded

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Speaker 3: in kind because of the fact that it's just it's

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Speaker 3: been a little bit disappointing in terms of the follow

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Speaker 3: through so far. So now we just need something, some

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Speaker 3: real action to come.

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Speaker 1: So, even if we do get greater clarity on this,

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Speaker 1: is it a foregone conclusion that the equity market is

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Speaker 1: going to move higher on that news or is there

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Speaker 1: a lot of good news that's already been somewhat baked

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Speaker 1: into the pie here.

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Speaker 3: I mean, it's moved a lot since September. If we

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Speaker 3: think about where it's come. It's come a long long way,

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Speaker 3: and so if we're going to get that extra spice

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Speaker 3: and that extra move up in the equity market, you

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Speaker 3: need something very strong to come through. One of the

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Speaker 3: key things is that they need to avoid this Japanification

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Speaker 3: of the equity markets, and that means, you know, stagnation,

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Speaker 3: lackluster returns over the next few years. But the key

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Speaker 3: thing to do that is to ensure that there's an

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Speaker 3: improvement in consumer confidence and a turnaround in what we've

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Speaker 3: seen in disinflation and deflation producer prices. So the whole

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Speaker 3: focus needs to be on how does China avoid Japanification

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Speaker 3: of their equity markets, and for that they need to

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Speaker 3: really focus on consumer confidence as well as turning around

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Speaker 3: that disinflation momentum that we've been seeing in consumer prices

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Speaker 3: as well as the deflation that we're seeing in producer prices.

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Speaker 3: As long as you target those two, then we can

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Speaker 3: see a really sharp turnaround in the equity markets. But

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Speaker 3: until then you're not going to see the same sort

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Speaker 3: of enthusiasm that we got in September.

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Speaker 1: So if there's a question mark over what has been

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Speaker 1: a very strong aspect of the Chinese economy, and I'm

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Speaker 1: thinking here of exports, and if that's maybe a little

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Speaker 1: at risk, given the fact that there may be looming

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Speaker 1: US tariffs threatening the export economy in China, then it's

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Speaker 1: reasonable that Beijing would try to resuscitate the domestic story, right.

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Speaker 3: They would have to, especially if equity, if exports are

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Speaker 3: going to start slipping, if the pressure from the US

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Speaker 3: in terms of on tariffs is going to really heat up,

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Speaker 3: I think they don't have They don't have much of

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Speaker 3: a choice. We saw the numbers from exports for this month.

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Speaker 3: It wasn't that great, and then of course imports were

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Speaker 3: much much weaker, and as a result, we're seeing that

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Speaker 3: the impact of domestic demand is really coming through from

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Speaker 3: the on the import side. So if exports aren't picking

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Speaker 3: up the slack like let's say they were prior and

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Speaker 3: in the first half of the year, or in the

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Speaker 3: back end of last year as well, then you're really

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Speaker 3: going to need a push through on the domestic demand side.

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Speaker 3: The key thing, though, is that their old playbook of

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Speaker 3: stimulating investment has always been their go to, So how

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Speaker 3: do they move and shift to consumption is going to

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Speaker 3: be something that the markets are watching for Yeah.

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Speaker 1: We get some key data next week, I think the

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Speaker 1: monthly activity data for the month of December, and I

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Speaker 1: think much of the focus will be not only on

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Speaker 1: industrial production, but critically that retail sayes data. Can we

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Speaker 1: pivot to Japan? I was looking at the ton Khan Survey,

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Speaker 1: the large Manufacturing Index from the Bank of Japan coming

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Speaker 1: in at a reading of fourteen, a little above forecast.

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Speaker 1: What's going on here?

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Speaker 3: Yeah, you know, it's all about I feel like with

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Speaker 3: the boj it's about it's waiting for Goodoh you're just

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Speaker 3: waiting for the next hike? Is it ever going to

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Speaker 3: come through? And the markets have just been waiting. So

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Speaker 3: a lot of the data that we've seen, whether it's

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Speaker 3: the ten Can survey, whether it's inflation wages, they're pointing

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Speaker 3: that there should be some move towards normalization from the

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Speaker 3: Bank of Japan. But then you get reports over the

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Speaker 3: past week that are saying that, you know, they could

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Speaker 3: afford to take their time. So the market is really

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Speaker 3: stuck where yen bulls just get really excited with news

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Speaker 3: that you know, this is it, this is going to

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Speaker 3: be the likelihood of a hike coming soon, and then

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Speaker 3: they regress because of some leak that comes out, that

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Speaker 3: comes out. So I think what we're looking for, especially

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Speaker 3: coming into next week from the BOJ. They're not going

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Speaker 3: to hike next week, but I think the end bulls

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Speaker 3: out there are looking from for a strong signal from

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Speaker 3: the BOJ that March, or even January or even March

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Speaker 3: will be when the next hike comes.

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Speaker 1: That kind of takes us to the Fed. And if

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Speaker 1: yield differentials contract just a little bit on the notion

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Speaker 1: that the Fed is going to cut rates next week,

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Speaker 1: there's a big question mark is to what happens with

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Speaker 1: the Fed in twenty twenty five. But if we can

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Speaker 1: accept the fact, at least for the moment that US

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Speaker 1: rates are coming in, that does in fact take a

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Speaker 1: little bit of pressure off the BOJ, doesn't not.

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Speaker 3: Well, the thing is with the Fed is that yes,

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Speaker 3: next week is probably a done deal. The Fed isn't

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Speaker 3: going to disappoint the market, But it's what's happening in

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Speaker 3: twenty twenty five. PPI yesterday didn't help very much. We're

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Speaker 3: realizing that that last mile of inflation is quite sticky,

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Speaker 3: and the labor market is holding up. Okay, it's not

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Speaker 3: causing or triggering any cost for concern. And then of

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Speaker 3: course they've got issues with fiscal policy that they need

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Speaker 3: to think about. They've got to think about potential tax cuts,

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Speaker 3: they have to think about the implications of tariffs. So

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Speaker 3: I think what ends up happening is, yes, the FED cuts. Yes,

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Speaker 3: it probably takes on a cautious tone, but that doesn't

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Speaker 3: really help whether it's Japan or other Asian currencies, because

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Speaker 3: the outlook for the FED is a lot cloudier and

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Speaker 3: a lot murkier.

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Speaker 1: All right, so you mentioned currencies, give me your take

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Speaker 1: before I let you go on the path of the

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Speaker 1: dollar as you see it for the foreseeable future, maybe

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Speaker 1: just the near term, and then what it means for

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Speaker 1: the end.

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Speaker 3: On the flip side, yeah, I think the path for

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Speaker 3: the dollar is still some strength, even though it's done

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Speaker 3: extremely well this year. I think the path forwards still

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Speaker 3: it's hard to It's hard to turn against a dollar

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Speaker 3: when the FED isn't likely to cut very aggressively, when

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Speaker 3: growth differentials are in favor of it. If you're looking

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Speaker 3: out there to seeing where growth is coming from, it's

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Speaker 3: not coming from China, it's not coming from Europe. It

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Speaker 3: still really is coming from the US. Earnings from on

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Speaker 3: equity markets are still much better in the US than

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Speaker 3: the rest of the world, so it really bodes a

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Speaker 3: better picture and a brighter picture for the dollar than

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Speaker 3: other currencies. And that also means for the yen is

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Speaker 3: going to remain under pressure unless we get a strong

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Speaker 3: move from the BOJ just even words, some sort of

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Speaker 3: strong signal from the BOJ because the Fed isn't going

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Speaker 3: to help it.

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Speaker 1: Mary, thanks for talking with us. By the way, you

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Speaker 1: can read what Mary is writing about today if you

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Speaker 1: have a Bloomberg terminal. The function is mliv than the

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Speaker 1: Green go key. Mary Nicola is one of our m

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Speaker 1: live strategists. Joining us here on the Daybreak Asia podcast.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Chrisner and this is Bloomberg