WEBVTT - Hot US PPI Data, China Vows Bigger Fiscal Spending

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<v Speaker 1>Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Officials

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<v Speaker 1>in China are signaling a shift in spending for the

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<v Speaker 1>next year, focusing now on consumption, and in a moment

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<v Speaker 1>we'll take a look at what that means for markets

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<v Speaker 1>with our very own Mary Nicola, m Live Strategist. But

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<v Speaker 1>first to us inflation and whether it's proving to be

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<v Speaker 1>a little stubborn and how that could lead the FED

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<v Speaker 1>to soon hit pause when it comes to raid cuts.

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<v Speaker 1>Today headline PPI came in much above forecast with an

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<v Speaker 1>annual gain of three percent. Joining us now is Shana Sissel.

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<v Speaker 1>She is the founder and CEO at Banery on Capital

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<v Speaker 1>Management in Chicago. Shana, thanks for joining us today. It

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<v Speaker 1>appears as though markets are really becoming a little cautious

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<v Speaker 1>on the notion of FED raid cuts in the new year.

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

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<v Speaker 1>in the months ahead.

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<v Speaker 2>The market is fairly convinced that the FED is going

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<v Speaker 2>to cut in the Demimber meeting, and the market is

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<v Speaker 2>typically correct on these things. I think if they do,

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

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<v Speaker 2>has proven to be quite sticky. But more importantly, the

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<v Speaker 2>economy continues to be quite strong in the US, and

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<v Speaker 2>so you have to ask yourself, like, are you cutting

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<v Speaker 2>for the correct reasons? You know, a strong economy with

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<v Speaker 2>stubborn inflation is not the worst scenario to be in.

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<v Speaker 2>Slightly higher inflation is not a bad thing, you know.

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<v Speaker 2>Obviously you don't want it to be double digits like

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<v Speaker 2>when we started. But I think we're in a really

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<v Speaker 2>good place right now. And my biggest concern is that

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<v Speaker 2>if the FED continues to be as aggressive as they

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<v Speaker 2>are and continues to cut, they're really positioning the economy

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<v Speaker 2>to get overheated very quickly, and there's unintended consequences to that,

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<v Speaker 2>for sure.

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<v Speaker 1>One of the things I think that's going to be

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<v Speaker 1>interesting when the FED meets next week is the indication

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<v Speaker 1>we may get on whether we're close to a neutral

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<v Speaker 1>rate or still well above it. Do you have a

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<v Speaker 1>sense of that. I know it's kind of a theoretical notion.

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<v Speaker 1>Where is neutral right now in your view?

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<v Speaker 2>So it's funny. I watched an interview with one of

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<v Speaker 2>the former FED members on one of the other networks yesterday,

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<v Speaker 2>and he was saying that we're not at neutral, and

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<v Speaker 2>then the question was asked, well, what's neutral, and he

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<v Speaker 2>didn't answer it. So if former FED insiders can't tell

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<v Speaker 2>you what neutral is, I'm not sure I can either.

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<v Speaker 2>But what I do know is that it's not where

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<v Speaker 2>we're at today. And so the belief is that the

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<v Speaker 2>FED will cut until they get to what they feel

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<v Speaker 2>is neutral. And the problem is is like the economy

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

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<v Speaker 2>going to be interesting to see what the FED does

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<v Speaker 2>from here. I thought they would pause in December, but

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<v Speaker 2>it's not looking like that's going to be the case.

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<v Speaker 2>But I do believe that if they do cut in December,

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<v Speaker 2>they will definitely start twenty twenty five off in a pause.

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<v Speaker 1>We're going to have a new administration in January. From

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<v Speaker 1>what you have heard so far as it relates to

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<v Speaker 1>economic policy from the incoming Trump administration, are you encouraged

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<v Speaker 1>in a way that would make you bullish on risk

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<v Speaker 1>assets in the US.

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<v Speaker 2>Yes, I am encouraged.

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<v Speaker 3>We have a one party.

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<v Speaker 2>Majority coming in, so we have a Republican Congress, a

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<v Speaker 2>Republican in the White House, and typically having a single

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<v Speaker 2>party kind of making the fiscal or the policy decisions

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<v Speaker 2>is not always a good thing in the fiscal side. However,

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<v Speaker 2>if it's going to be one party, having it be

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<v Speaker 2>Republican tends to be better for markets. The Trump administration

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<v Speaker 2>is a business friendly administration, it's a crypto friendly administration,

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<v Speaker 2>and these things are all really positive and bullish for

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

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<v Speaker 2>years where we've seen twenty plus percent returns of the

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<v Speaker 2>S and P five hundred, and then the question becomes

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<v Speaker 2>is sustainable in our valuations stretched? But just because valuations

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

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<v Speaker 2>So it's a really hard judgment call. But there's certainly

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<v Speaker 2>nothing that seems to be a headwind with the new administration.

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<v Speaker 1>I remember talking to you recently about artificial intelligence at

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<v Speaker 1>the time in video was a big key at least

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<v Speaker 1>where you were concerned in putting money to work. After

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<v Speaker 1>the bell today we heard from Broadcom and the numbers

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<v Speaker 1>for the latest quarter on the profit side beat estimates.

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<v Speaker 1>But I think more encouraging for the market was the

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<v Speaker 1>news that we had after the bell when the company

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<v Speaker 1>predicted on the call with analysts sixty five percent growth

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<v Speaker 1>in AI Chip sales in the current quarter. It seems

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<v Speaker 1>as though there's just this very, very robust demand from

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<v Speaker 1>data center operators. Where are we right now in this cycle?

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<v Speaker 1>Are we near the end or is this still have

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<v Speaker 1>some legs?

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<v Speaker 3>Oh?

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<v Speaker 2>I actually think we're like very early in this cycle.

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<v Speaker 2>I know it's done so well, it's hard to believe that,

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<v Speaker 2>but we are so so early and understanding and the

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<v Speaker 2>application of AI. So a lot of what's happening right

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<v Speaker 2>now is a ramp up to try to prepare for

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<v Speaker 2>the application of AI and the needs of AI related

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<v Speaker 2>technology in terms of data centers and you know, cooling systems,

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<v Speaker 2>all that kind of stuff. The infrastructure has to be

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<v Speaker 2>there first. But I think that we're really in the

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<v Speaker 2>early stages of building the infrastructure so that we can

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<v Speaker 2>actually start to have application of the technology. And and

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<v Speaker 2>for that reason, I think, you know, we're going to

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<v Speaker 2>see kind of a cycle of where you know, this

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<v Speaker 2>infrastructure plays of the things that need to happen for

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<v Speaker 2>AI to be broadly applied has to happen before we'll

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<v Speaker 2>start to see the actual broad applications. And when that happens,

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<v Speaker 2>there will be other players that will win in that environment.

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<v Speaker 1>So is there a risk though that maybe that doesn't

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<v Speaker 1>happen immediately, that the return on investment is not apparent

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<v Speaker 1>at least right away.

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<v Speaker 2>Well, when we got earnings from Alphabet last month and

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<v Speaker 2>some of the other technology companies, and in those earnings calls,

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<v Speaker 2>their management teams noted that they were starting to see

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<v Speaker 2>ways to monetize AI, which is sooner than I expected.

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<v Speaker 2>So I actually think that we're already seeing practical application

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<v Speaker 2>and monetization of AI technology with the players you would

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<v Speaker 2>expect it from, like Meta and Apple, and that as

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<v Speaker 2>you have a broader application of it, it starts to

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<v Speaker 2>be implemented in other industries. I think the opportunities quite large,

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<v Speaker 2>and the monetization proof is there, So you know, the

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<v Speaker 2>tech guys are kind of the experiment, and you're going

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<v Speaker 2>to see financial companies, healthcare companies and more start to

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<v Speaker 2>use AI and broader application and be able to monetize

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<v Speaker 2>that tool.

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<v Speaker 1>When you speak with your clients, is there a worry

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<v Speaker 1>that they have right now given the current environment? Maybe

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<v Speaker 1>valuation concern, maybe the fact that inflation could be persistent.

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<v Speaker 1>Is there something that you are willing to share with

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<v Speaker 1>me about what your clients are saying they're most concerned about.

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

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<v Speaker 2>really is the main bear case for the markets is

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<v Speaker 2>how sustainable is it with valuations where they're at. I

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<v Speaker 2>think that's a valid concern, but I think it's a

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<v Speaker 2>concern only in certain to the market. The problem is

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<v Speaker 2>the place is of concern is the places that are

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<v Speaker 2>driving returns right now, so like the tech space. So

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<v Speaker 2>I think you have to kind of think about how

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<v Speaker 2>far the market can go and stay stretched at these

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<v Speaker 2>premium valuations before we see a significant pullback. I don't

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<v Speaker 2>think it's in the next month or so, but I

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<v Speaker 2>do think it is caused for concern and a reason

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<v Speaker 2>to position more defensively in your portfolio for sure.

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<v Speaker 1>So if you're looking at valuations, are there evaluations offshore

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<v Speaker 1>that are attractive right now? Are you perhaps dipping your

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<v Speaker 1>toe into the water in markets in the Asia Pacific?

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<v Speaker 2>Yeah, So if you look at other markets, the European

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<v Speaker 2>markets have some structural headwinds that are concerning, but I

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<v Speaker 2>do think the Asian markets are a little more interesting.

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<v Speaker 2>They tend to be a little more innovative. Obviously, China

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<v Speaker 2>is a place that we're starting to see a resurgence there,

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<v Speaker 2>those valuations are more attractive. I think overseas are definitely

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

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<v Speaker 2>of have to It's a delicate balance of finding attractive

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<v Speaker 2>valuations with improving momentum, and you want to stay away

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<v Speaker 2>from the places where you're going to fall into value

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<v Speaker 2>traps where you have really cheap stocks but also negative momentum.

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

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<v Speaker 1>for taking time to chat with us. Shane Assisil is

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<v Speaker 1>founder and CEO at Banery on Capital Management, joining us

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<v Speaker 1>here on the Daybreak Asia podcast. Welcome back to the

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<v Speaker 1>Daybreak Asia Podcast. I'm Doug Prisner. In Beijing. The two

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<v Speaker 1>day Central Economic Work Conference has wrapped up, and for

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<v Speaker 1>only the second time in the last decade, Chinese officials

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<v Speaker 1>made lifting consumption vigorously and stimulating overall domestic demand their

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

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

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<v Speaker 1>joins from Singapore. Mary, thanks for taking time to chat

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<v Speaker 1>with us. I'm curious about getting your take on the

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<v Speaker 1>messaging that's coming from Chinese officials who are now focused

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<v Speaker 1>on this notion of consumption. What does that say to you?

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<v Speaker 3>What I mean, we've heard a lot of great messaging

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<v Speaker 3>coming from Beijing. The key thing, though, especially for equity markets,

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<v Speaker 3>is the follow through. I think there's been just a

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<v Speaker 3>lot of announcement fatigue in the sense of we've heard

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<v Speaker 3>a lot of big, bold statements, but nothing coming through

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<v Speaker 3>in terms of concrete action. And I think that's why

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<v Speaker 3>the market hasn't been as exuberant in their response to

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

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<v Speaker 3>especially during this round, whether they were talking about more

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<v Speaker 3>aggressive monetary policy and fiscal stimulus. The market hasn't responded

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<v Speaker 3>in kind because of the fact that it's just it's

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<v Speaker 3>been a little bit disappointing in terms of the follow

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<v Speaker 3>through so far. So now we just need something, some

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<v Speaker 3>real action to come.

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<v Speaker 1>So, even if we do get greater clarity on this,

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<v Speaker 1>is it a foregone conclusion that the equity market is

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<v Speaker 1>going to move higher on that news or is there

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<v Speaker 1>a lot of good news that's already been somewhat baked

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<v Speaker 1>into the pie here.

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

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<v Speaker 3>think about where it's come. It's come a long long way,

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<v Speaker 3>and so if we're going to get that extra spice

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<v Speaker 3>and that extra move up in the equity market, you

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<v Speaker 3>need something very strong to come through. One of the

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<v Speaker 3>key things is that they need to avoid this Japanification

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<v Speaker 3>of the equity markets, and that means, you know, stagnation,

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<v Speaker 3>lackluster returns over the next few years. But the key

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<v Speaker 3>thing to do that is to ensure that there's an

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<v Speaker 3>improvement in consumer confidence and a turnaround in what we've

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<v Speaker 3>seen in disinflation and deflation producer prices. So the whole

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<v Speaker 3>focus needs to be on how does China avoid Japanification

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<v Speaker 3>of their equity markets, and for that they need to

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<v Speaker 3>really focus on consumer confidence as well as turning around

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<v Speaker 3>that disinflation momentum that we've been seeing in consumer prices

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<v Speaker 3>as well as the deflation that we're seeing in producer prices.

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<v Speaker 3>As long as you target those two, then we can

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<v Speaker 3>see a really sharp turnaround in the equity markets. But

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<v Speaker 3>until then you're not going to see the same sort

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<v Speaker 3>of enthusiasm that we got in September.

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<v Speaker 1>So if there's a question mark over what has been

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<v Speaker 1>a very strong aspect of the Chinese economy, and I'm

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<v Speaker 1>thinking here of exports, and if that's maybe a little

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<v Speaker 1>at risk, given the fact that there may be looming

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<v Speaker 1>US tariffs threatening the export economy in China, then it's

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<v Speaker 1>reasonable that Beijing would try to resuscitate the domestic story, right.

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<v Speaker 3>They would have to, especially if equity, if exports are

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<v Speaker 3>going to start slipping, if the pressure from the US

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<v Speaker 3>in terms of on tariffs is going to really heat up,

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<v Speaker 3>I think they don't have They don't have much of

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<v Speaker 3>a choice. We saw the numbers from exports for this month.

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<v Speaker 3>It wasn't that great, and then of course imports were

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<v Speaker 3>much much weaker, and as a result, we're seeing that

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<v Speaker 3>the impact of domestic demand is really coming through from

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<v Speaker 3>the on the import side. So if exports aren't picking

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<v Speaker 3>up the slack like let's say they were prior and

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<v Speaker 3>in the first half of the year, or in the

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<v Speaker 3>back end of last year as well, then you're really

0:13:31.640 --> 0:13:34.880
<v Speaker 3>going to need a push through on the domestic demand side.

0:13:35.000 --> 0:13:38.560
<v Speaker 3>The key thing, though, is that their old playbook of

0:13:39.000 --> 0:13:43.800
<v Speaker 3>stimulating investment has always been their go to, So how

0:13:43.800 --> 0:13:47.080
<v Speaker 3>do they move and shift to consumption is going to

0:13:47.120 --> 0:13:49.240
<v Speaker 3>be something that the markets are watching for Yeah.

0:13:49.040 --> 0:13:51.040
<v Speaker 1>We get some key data next week, I think the

0:13:51.080 --> 0:13:53.840
<v Speaker 1>monthly activity data for the month of December, and I

0:13:53.880 --> 0:13:56.760
<v Speaker 1>think much of the focus will be not only on

0:13:57.240 --> 0:14:01.160
<v Speaker 1>industrial production, but critically that retail sayes data. Can we

0:14:01.240 --> 0:14:05.240
<v Speaker 1>pivot to Japan? I was looking at the ton Khan Survey,

0:14:05.480 --> 0:14:08.600
<v Speaker 1>the large Manufacturing Index from the Bank of Japan coming

0:14:08.600 --> 0:14:11.719
<v Speaker 1>in at a reading of fourteen, a little above forecast.

0:14:11.800 --> 0:14:12.680
<v Speaker 1>What's going on here?

0:14:13.520 --> 0:14:16.720
<v Speaker 3>Yeah, you know, it's all about I feel like with

0:14:16.760 --> 0:14:19.560
<v Speaker 3>the boj it's about it's waiting for Goodoh you're just

0:14:19.600 --> 0:14:22.760
<v Speaker 3>waiting for the next hike? Is it ever going to

0:14:22.800 --> 0:14:25.280
<v Speaker 3>come through? And the markets have just been waiting. So

0:14:25.680 --> 0:14:28.080
<v Speaker 3>a lot of the data that we've seen, whether it's

0:14:28.080 --> 0:14:33.040
<v Speaker 3>the ten Can survey, whether it's inflation wages, they're pointing

0:14:33.120 --> 0:14:36.960
<v Speaker 3>that there should be some move towards normalization from the

0:14:36.960 --> 0:14:39.680
<v Speaker 3>Bank of Japan. But then you get reports over the

0:14:39.720 --> 0:14:41.840
<v Speaker 3>past week that are saying that, you know, they could

0:14:41.840 --> 0:14:45.840
<v Speaker 3>afford to take their time. So the market is really

0:14:45.880 --> 0:14:49.840
<v Speaker 3>stuck where yen bulls just get really excited with news

0:14:49.880 --> 0:14:51.680
<v Speaker 3>that you know, this is it, this is going to

0:14:51.720 --> 0:14:56.320
<v Speaker 3>be the likelihood of a hike coming soon, and then

0:14:56.680 --> 0:15:00.440
<v Speaker 3>they regress because of some leak that comes out, that

0:15:00.520 --> 0:15:04.880
<v Speaker 3>comes out. So I think what we're looking for, especially

0:15:04.880 --> 0:15:07.400
<v Speaker 3>coming into next week from the BOJ. They're not going

0:15:07.440 --> 0:15:11.080
<v Speaker 3>to hike next week, but I think the end bulls

0:15:11.120 --> 0:15:15.080
<v Speaker 3>out there are looking from for a strong signal from

0:15:15.160 --> 0:15:19.960
<v Speaker 3>the BOJ that March, or even January or even March

0:15:20.280 --> 0:15:21.960
<v Speaker 3>will be when the next hike comes.

0:15:22.080 --> 0:15:23.760
<v Speaker 1>That kind of takes us to the Fed. And if

0:15:23.880 --> 0:15:27.600
<v Speaker 1>yield differentials contract just a little bit on the notion

0:15:27.640 --> 0:15:29.960
<v Speaker 1>that the Fed is going to cut rates next week,

0:15:30.120 --> 0:15:32.480
<v Speaker 1>there's a big question mark is to what happens with

0:15:32.520 --> 0:15:34.880
<v Speaker 1>the Fed in twenty twenty five. But if we can

0:15:34.920 --> 0:15:36.960
<v Speaker 1>accept the fact, at least for the moment that US

0:15:37.080 --> 0:15:39.480
<v Speaker 1>rates are coming in, that does in fact take a

0:15:39.520 --> 0:15:41.640
<v Speaker 1>little bit of pressure off the BOJ, doesn't not.

0:15:42.280 --> 0:15:44.520
<v Speaker 3>Well, the thing is with the Fed is that yes,

0:15:44.760 --> 0:15:48.160
<v Speaker 3>next week is probably a done deal. The Fed isn't

0:15:48.160 --> 0:15:50.360
<v Speaker 3>going to disappoint the market, But it's what's happening in

0:15:50.400 --> 0:15:54.840
<v Speaker 3>twenty twenty five. PPI yesterday didn't help very much. We're

0:15:54.880 --> 0:15:57.840
<v Speaker 3>realizing that that last mile of inflation is quite sticky,

0:15:59.440 --> 0:16:03.640
<v Speaker 3>and the labor market is holding up. Okay, it's not

0:16:03.720 --> 0:16:06.560
<v Speaker 3>causing or triggering any cost for concern. And then of

0:16:06.600 --> 0:16:10.600
<v Speaker 3>course they've got issues with fiscal policy that they need

0:16:10.680 --> 0:16:14.120
<v Speaker 3>to think about. They've got to think about potential tax cuts,

0:16:14.160 --> 0:16:17.560
<v Speaker 3>they have to think about the implications of tariffs. So

0:16:17.840 --> 0:16:20.680
<v Speaker 3>I think what ends up happening is, yes, the FED cuts. Yes,

0:16:20.720 --> 0:16:23.520
<v Speaker 3>it probably takes on a cautious tone, but that doesn't

0:16:23.600 --> 0:16:27.680
<v Speaker 3>really help whether it's Japan or other Asian currencies, because

0:16:27.720 --> 0:16:30.440
<v Speaker 3>the outlook for the FED is a lot cloudier and

0:16:30.480 --> 0:16:31.360
<v Speaker 3>a lot murkier.

0:16:31.600 --> 0:16:34.400
<v Speaker 1>All right, so you mentioned currencies, give me your take

0:16:34.440 --> 0:16:36.200
<v Speaker 1>before I let you go on the path of the

0:16:36.320 --> 0:16:39.360
<v Speaker 1>dollar as you see it for the foreseeable future, maybe

0:16:39.400 --> 0:16:41.800
<v Speaker 1>just the near term, and then what it means for

0:16:41.880 --> 0:16:42.200
<v Speaker 1>the end.

0:16:42.280 --> 0:16:44.840
<v Speaker 3>On the flip side, yeah, I think the path for

0:16:44.920 --> 0:16:48.600
<v Speaker 3>the dollar is still some strength, even though it's done

0:16:48.640 --> 0:16:52.440
<v Speaker 3>extremely well this year. I think the path forwards still

0:16:52.720 --> 0:16:55.600
<v Speaker 3>it's hard to It's hard to turn against a dollar

0:16:55.640 --> 0:16:59.760
<v Speaker 3>when the FED isn't likely to cut very aggressively, when

0:17:00.200 --> 0:17:03.720
<v Speaker 3>growth differentials are in favor of it. If you're looking

0:17:03.720 --> 0:17:06.640
<v Speaker 3>out there to seeing where growth is coming from, it's

0:17:06.680 --> 0:17:09.960
<v Speaker 3>not coming from China, it's not coming from Europe. It

0:17:10.119 --> 0:17:13.960
<v Speaker 3>still really is coming from the US. Earnings from on

0:17:14.080 --> 0:17:17.520
<v Speaker 3>equity markets are still much better in the US than

0:17:17.520 --> 0:17:21.720
<v Speaker 3>the rest of the world, so it really bodes a

0:17:21.800 --> 0:17:24.800
<v Speaker 3>better picture and a brighter picture for the dollar than

0:17:24.840 --> 0:17:28.359
<v Speaker 3>other currencies. And that also means for the yen is

0:17:28.359 --> 0:17:31.439
<v Speaker 3>going to remain under pressure unless we get a strong

0:17:31.600 --> 0:17:36.359
<v Speaker 3>move from the BOJ just even words, some sort of

0:17:36.400 --> 0:17:39.520
<v Speaker 3>strong signal from the BOJ because the Fed isn't going

0:17:39.560 --> 0:17:40.040
<v Speaker 3>to help it.

0:17:40.400 --> 0:17:42.520
<v Speaker 1>Mary, thanks for talking with us. By the way, you

0:17:42.520 --> 0:17:45.280
<v Speaker 1>can read what Mary is writing about today if you

0:17:45.320 --> 0:17:48.679
<v Speaker 1>have a Bloomberg terminal. The function is mliv than the

0:17:48.720 --> 0:17:51.280
<v Speaker 1>Green go key. Mary Nicola is one of our m

0:17:51.359 --> 0:17:54.840
<v Speaker 1>live strategists. Joining us here on the Daybreak Asia podcast.

0:17:57.200 --> 0:18:00.520
<v Speaker 1>Thanks for listening to today's episode of the Bloomberg Daybreak

0:18:00.680 --> 0:18:04.000
<v Speaker 1>Asia Edition podcast. Each weekday, we look at the story

0:18:04.080 --> 0:18:08.320
<v Speaker 1>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:18:08.359 --> 0:18:12.399
<v Speaker 1>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:18:12.520 --> 0:18:15.480
<v Speaker 1>or anywhere else you listen. Join us again tomorrow for

0:18:15.600 --> 0:18:19.040
<v Speaker 1>insight on the market moves from Hong Kong to Singapore

0:18:19.440 --> 0:18:23.160
<v Speaker 1>and Australia. I'm Doug Chrisner and this is Bloomberg