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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. It is Culture Day in Japan,

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Speaker 1: so a market holiday, and we will have no trading

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Speaker 1: in US treasuries until the London session Elsewhere over the weekend.

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Speaker 1: Opek Plus said it will make a modest increase in

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Speaker 1: oil production next month, but then the cartel will pause

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Speaker 1: hiking output during the first quarter of the new year.

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Speaker 1: Oil prices are trading higher this morning, and we're getting

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Speaker 1: some PMI releases across Asia that would include South Korea

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Speaker 1: and Taiwan. For a closer look at market action across

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Speaker 1: the APAC I'm joined by Paul Dobson. He is Bloomberg

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Speaker 1: Executive Editor for Asia Markets. Paul joins us from our

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Speaker 1: studios in Singapore. Thanks for making time. Can we start

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Speaker 1: with the PMI data. The South Korean number dips into

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Speaker 1: contraction if you look at the manufacturing PMI Taiwan a

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Speaker 1: bit stronger than the figure that we had in September.

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Speaker 1: I know that there are very different themes here across

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Speaker 1: these jurisdictions, but can we begin to paint with a

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Speaker 1: broad brush. What are we seeing in the PMI data.

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Speaker 2: Hi there, Doug. I think that one thing to keep

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Speaker 2: in mind is the backward looking nature that we have

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Speaker 2: for some of the data compared to the agreements that

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Speaker 2: we've seen with Trump's visit over the past couple of weeks,

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Speaker 2: and I think that that will give people renewed confidence

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Speaker 2: in the outlook for the economy and particularly for exports

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Speaker 2: going forwards from here. So that might make everything a

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Speaker 2: little bit more more tricky to sort of cut through

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Speaker 2: the noise on the whole. If you look across the

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Speaker 2: Asia sector, PMI is mostly in positive territory, and exports

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Speaker 2: have been holding up relatively strongly as well, a lot

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Speaker 2: of it anchored by China, which has been, you know,

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Speaker 2: continuing to sort of set a path for that five

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Speaker 2: percent growth target too. At the moment, it seems, you know,

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Speaker 2: I guess you could wrap it up as being sort

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Speaker 2: of steady as she goes in some ways, nothing to

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Speaker 2: particularly worry about at this moment in time.

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Speaker 1: So, Paul, I'm glad you mentioned last week's agreement between

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Speaker 1: Presidents Trump and She when it came to trade. So China,

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Speaker 1: we know, will terminate investigations targeting US companies in the

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Speaker 1: semiconductor of supply chain, and Beijing will also suspend implementation

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Speaker 1: of additional export controls on rare earth minerals. Now, for

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Speaker 1: the Trump side, it's a big win. Now from the

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Speaker 1: US side, the Trump administration is going to pause some

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Speaker 1: of those reciprocal tariffs on China for one year an

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Speaker 1: additional year, and at the same time, the US will

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Speaker 1: hold plans to implement that one hundred percent tariff that

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Speaker 1: was floated on imported Chinese goods. But I'm wondering, is

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Speaker 1: it too much to say that perhaps Beijing got the

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Speaker 1: better part of this deal.

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Speaker 2: I guess you could probably sum it up that way.

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Speaker 2: I think that China was able to show the its

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Speaker 2: policy for escalating rather than backing down and negotiating immediately

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Speaker 2: with the US paid off to a certain extent. And

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Speaker 2: I think that the longer term view is that China

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Speaker 2: is in certainly in a much stronger position for these

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Speaker 2: trade negotiations this time around versus where it was in

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Speaker 2: the first US Trump presidency. And I think that you know,

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Speaker 2: they they're pretty cognizant of that. They know now that

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Speaker 2: the rare earths and the critical minerals can be a

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Speaker 2: pretty strong leverage point in the trade negotiations. There's also

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Speaker 2: some biotech and pharma related goods that haven't been brought

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Speaker 2: into the equation so far. That could also be another

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Speaker 2: lever that China could pull. But you know, on the

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Speaker 2: flip side of that, China wants stuff as well, it

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Speaker 2: wants more access to the US technology that it's being

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Speaker 2: shut out of at the moment. So I think both

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Speaker 2: sides were able to bear their teeth, but both of

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Speaker 2: them were able to come away with pretty much what

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Speaker 2: they wanted, which is that compromise that pushing things forwards

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Speaker 2: a year, both on some of the technology stuff and

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Speaker 2: on the rare earth stuff and you know, keep them

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Speaker 2: going on this path that this seems pretty clear to

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Speaker 2: everyone as best and we're describe it not decoupling exactly,

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Speaker 2: but de risking or you know, strategic sort of separation.

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Speaker 2: And so the US will be on the hunt for

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Speaker 2: rare earths and ways to get out of that China

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Speaker 2: supply chain, and China will be continuing to push its

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Speaker 2: own technological and industrial development to try to get away

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Speaker 2: from the US dependence as well.

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Speaker 1: Well. I'm glad you refer to the best in comment

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Speaker 1: there of not wanting to decouple, but trying to de risk,

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Speaker 1: and I would argue that that's something that Beijing has

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Speaker 1: been doing for a while when it comes to the US, right.

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Speaker 2: Yeah, I think so. I think so. I was trying

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Speaker 2: to characterize it the other day as a sort of

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Speaker 2: amicable divorce, you know, so long as there's not too

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Speaker 2: much disagreement, then they can kind of split up a

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Speaker 2: move their separate ways. And it's complicated because there's you know,

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Speaker 2: like like if you extend the metaphor a little bit,

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Speaker 2: there will be some arguments over who gets custody of

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Speaker 2: certain goods, certain ownerships and property rights and those kinds

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Speaker 2: of things. Certain relationships with our third parties as well,

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Speaker 2: you know, who stays friends with who and stuff like that.

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Speaker 2: But yes, China has definitely been on this route, but

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Speaker 2: also the US has been on this route for quite

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Speaker 2: a long time as well. It became kind of clearer

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Speaker 2: over the last five years that there's a need to

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Speaker 2: you know, reimagine all of the supply chains, and COVID

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Speaker 2: really threw that into very sharp relief, and ever since then,

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Speaker 2: that's been that sort of path that we've been on.

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Speaker 2: I think that what it looks like longer term isn't

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Speaker 2: just you know, China and US moving apart. But as

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Speaker 2: I said, you know who takes what with them, and

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Speaker 2: China is doing a lot of diplomacy in order to

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Speaker 2: try to you know, make sure that it has a

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Speaker 2: larger sort of zone of influence that sort of splits

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Speaker 2: off from the US or at least leans more wall

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Speaker 2: towards China. And so you know that's interesting and could

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Speaker 2: be troublesome economically or could you know, further sort of

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Speaker 2: fragment trade routes and trading as well, and so therefore

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Speaker 2: have some impacts on financial markets and the economic outlook

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Speaker 2: long term. But it's very hard to figure out exactly

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Speaker 2: what that course is going to look like from here.

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Speaker 1: So help me understand what your team is going to

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Speaker 1: be focused on in the week ahead, the stories and

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Speaker 1: the APAC that will be particularly important for markets.

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Speaker 2: Yeah, well, the stories in the APEC are not that

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Speaker 2: different from the global themes. I think more important than

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Speaker 2: anything else is still the tech story and whether that

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Speaker 2: rally can continue going. We saw, you know, the the

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Speaker 2: NASDAK had a good day on Friday, lifted by Apple Amazon,

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Speaker 2: so that set us up a little bit more positively

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Speaker 2: for the week ahead and No, Japan is on holiday today,

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Speaker 2: but the Nikki just had its best month in thirty

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Speaker 2: five years, so the text story they're flying ahead. But

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Speaker 2: also Takaichi seems, you know, the new lead in Japan

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Speaker 2: seems to have had a really good couple of weeks

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Speaker 2: of diplomacy, getting photographed with all of the leaders from

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Speaker 2: around the region and really sort of establishing herself and

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Speaker 2: her popularity ratings have shot up as a result, So

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Speaker 2: you know, giving Japan a little bit more of a

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Speaker 2: confident direction may be interesting. On the flip side of that, though,

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Speaker 2: the yen has been under a lot of pressure. That's

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Speaker 2: been one of the bigger movers as well for US

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Speaker 2: weakening against the US Dora is the sort of flip

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Speaker 2: side of the stocks are gaining in some ways. So

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Speaker 2: I think Japan is going to be an interesting one

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Speaker 2: to focus on this week, as well as keeping an

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Speaker 2: eye on China and then keeping keeping an eye on

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Speaker 2: what global central bank policy is going to look like

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Speaker 2: with the FED path a little bit less clear after

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Speaker 2: what we heard from Jerome Powell at the end of

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Speaker 2: or in the middle of last week.

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Speaker 1: Yeah, he went on to say last week that it's

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Speaker 1: not a foregone conclusion that the FED is going to

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Speaker 1: cut at the December meeting, and we have the BOJ

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Speaker 1: still a little retican toward the idea of raising interest rates.

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Speaker 1: Is that pretty much the dynamic that we'll cantinue now

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Speaker 1: for the next or for the foreseeable future.

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Speaker 2: Yes, yeah, I like to joke, you know, rather than

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Speaker 2: the always going on about the taco trade, it's the

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Speaker 2: BOJ that always chickens out. You know, whenever they get

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Speaker 2: that opportunity to raise interest rates, they seem to shirk it,

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Speaker 2: and so we're still waiting for them to move again.

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Speaker 2: The thinking is that, you know, wait until Takaichi is

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Speaker 2: in place. Don't move too fast. Give them. She wants

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Speaker 2: to think about what she's going to do in terms

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Speaker 2: of monitor of sorry, fiscal stimulus and economic stimulus. But

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Speaker 2: at some point the BJ should be raising rates and

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Speaker 2: that should give the EN a little bit more support.

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Speaker 2: It's just, you know, it seems to always be pushed

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Speaker 2: off into the long grass. And as you said, on

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Speaker 2: the FED side, you know, I think it's really interesting

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Speaker 2: because we heard them three policymakers at the end of

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Speaker 2: last week all telling us why they didn't want to

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Speaker 2: cut interest rates at the last meeting. I mean, they

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Speaker 2: did anyway, and they voted for it. But you know

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Speaker 2: the fact of the matter is that they're getting a

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Speaker 2: little bit more noisy in their complaints, and that split

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Speaker 2: among the FOMC is going to get wider. It seems

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Speaker 2: like we shall make make it very difficult for power

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Speaker 2: to kind of try to middle path.

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Speaker 1: Okay, Paul, we'll leave it there. Thank you so much.

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Speaker 1: Paul Dobson, Bloomberg's executive editor for Asia Markets, 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 Krisner. Earnings are very much

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Speaker 1: in focus now. In the week ahead, we'll hear from

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Speaker 1: a few big US consumer names. Last week, of course,

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Speaker 1: big tech was in the spotlight. We heard from five

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Speaker 1: key players. Earnings growth outpaced estimates. Quarterly profit growth tracked

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Speaker 1: at around twenty seven percent for the entire group for

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Speaker 1: those five companies. For a closer look, now, I'm joined

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Speaker 1: by Carol Schleifs. She is the chief investment officer at

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Speaker 1: BMO Capital Management. Carol joins us from just outside Minneapolis.

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Speaker 1: Thank you for making time to chat with me. I'd

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Speaker 1: like to begin by getting you to break down for

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Speaker 1: me what you heard from Alphabet, from Microsoft, Meta Apple,

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Speaker 1: and Amazon, and what it tells you about the current

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Speaker 1: AI trade.

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Speaker 3: No, I actually think if you step back and you

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Speaker 3: look at it, you've got companies, many of them forty

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Speaker 3: or fifty years old, that are still generating billions of

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Speaker 3: dollars in revenue, growing business twenty to forty percent. So

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Speaker 3: over arkingly, if you step out of the sort of

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Speaker 3: quarterly numbers and look at the trend, it's still very

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Speaker 3: much intact, with very vibrant companies contributing a lot to

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Speaker 3: the GDP and the economy. And it's tough because investors,

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Speaker 3: you could tell, and investors are very focused on short

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Speaker 3: term issues. You saw some volatility in the stocks, both

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Speaker 3: up and down, and even when companies met so called expectations,

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Speaker 3: if they didn't knock the cover off the ball, which

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Speaker 3: I think was a little unrealistic, and you know, the

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Speaker 3: stock prices moved in those directions. With these companies that

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Speaker 3: are still very much operating from position of strength, if

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Speaker 3: you will, and they're producing and they're producing it out

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Speaker 3: of legit businesses.

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Speaker 1: When you look at the level of expenditures that these

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Speaker 1: AI companies are going about, right now and I'm wondering

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Speaker 1: whether there is enough evidence in your mind to justify

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Speaker 1: the valuation and to bet on a near term reward.

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Speaker 3: Well, I'm not sure we're necessarily betting on near term rewards.

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Speaker 3: But I think the other thing is is that's where

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Speaker 3: you broaden it out in terms of our companies in general,

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Speaker 3: because we're in the process of another big shift, much

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Speaker 3: like as we introduced the Internet itself, and then it

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Speaker 3: took a while once the Internet was there, because you

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Speaker 3: think about the late nineties when we first started talking

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Speaker 3: about a lot of the dot com stocks and we

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Speaker 3: were doing the infrastructure build out, but it really wasn't

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Speaker 3: until almost a decade later when we had very cheap

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Speaker 3: when we had storage all of a sudden get very cheap,

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Speaker 3: and we had the iPhone invented and we all went mobile.

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Speaker 3: So it took a while to get all of the

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Speaker 3: use cases put together. And as long term investors, I

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Speaker 3: think that's what we're focused on. And you've seen companies

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Speaker 3: actually have been using AI internally and creating test cases

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Speaker 3: for use cases for it for a very long time,

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Speaker 3: a lot prior to the introduction of chat GPT, and

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Speaker 3: so you've had you had some companies. There was a

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Speaker 3: big logistics company here locally that this dock performed very

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Speaker 3: well because they were showing how they were using AI

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Speaker 3: in the ability to adapt supply chains. And so there's

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Speaker 3: a lot of that going on, and as investors, as

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Speaker 3: long term investors, the AI and the tech buildout is

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Speaker 3: one piece of it, but there's also a lot of

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Speaker 3: tangential stuff going on in terms of healthcare is using it,

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Speaker 3: financial services is using it and backing it. And you've

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Speaker 3: also got a whole variety of companies that will benefit

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Speaker 1: So last week, Carol, as you know, in Vidia made

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Speaker 1: history when it became the first company ever to have

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Speaker 1: a market cap of five trillion dollars. Obviously, this company

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Speaker 1: is at the heart of the AI revolution. Interestingly, I

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Speaker 1: was reading a piece over the weekend researchers in China

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Speaker 1: have developed a new analog chip that they say is

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Speaker 1: one thousand times faster than the high end in Vidia GPU,

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Speaker 1: And I'm wondering whether I understand the influence that in

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Speaker 1: Nvidia has right now on the AI story. But the

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Speaker 1: question is whether there is some risk minor as it

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Speaker 1: may be, of a sort of complacency that we need

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Speaker 1: to be on alert for a potential threat to in

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Speaker 1: Vidia's dominance.

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Speaker 3: Yeah, I definitely think that's the case in terms of

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Speaker 3: picking a horse to ride on our a single stock.

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Speaker 3: I mean, you've got mag seven participation just in a

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Speaker 3: passive index. You've got massive participation there, and so leaning

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Speaker 3: into some of these other things because the other thing

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Speaker 3: is in a lot of those companies as well as

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Speaker 3: the government and other entities are looking to invest in

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Speaker 3: quantum computing, and there's a lot of stuff in quantum

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Speaker 3: where if and when that breakthrough comes. You know, there's

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Speaker 3: estimates that it could come in five years, there's estimates

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Speaker 3: that might take thirty but who knows when it comes.

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Speaker 3: But when it does, that changes the game again and

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Speaker 3: shifts the trajectory. So I think the bigger theme is

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Speaker 3: to figure out which companies, no matter what industries they're in,

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Speaker 3: are leaning into being adaptive and being able to not

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Speaker 3: shift on a whim, but being cognizant enough of the

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Speaker 3: way technology is evolving because we are in a whole

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Speaker 3: new age here, and being able to lean into that

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Speaker 3: and not necessarily pick one particular company that's going to

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Speaker 3: be the harbinger of that, but understanding that there's going

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Speaker 3: to be a lot of different ways to play, and

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Speaker 3: there's all kinds of different ways to play it these

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Speaker 3: days in terms of different technology ETFs and things like that.

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Speaker 3: And you know, the one thing we haven't even talked

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Speaker 3: about is when you start talking about defense, there's lots

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Speaker 3: of overlays and defense there's overlays, and logistics, there's overlays

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Speaker 3: all it'll touch every single aspect, not unlike when we

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Speaker 3: all came off the farms and we're able to go

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Speaker 3: to the city because there was electrification and indoor plumbing.

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Speaker 3: It sort of changed everything.

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Speaker 1: So I mentioned a moment ago that we'll hear from

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Speaker 1: a few US consumer companies this week to what extent

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Speaker 1: do you believe the strength of the American consumer is

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Speaker 1: really about the wealth effect?

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Speaker 2: Right now?

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Speaker 3: Yeah, there's a big piece of that. But the wealth

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Speaker 3: effect isn't just the market. It's a big components the market,

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Speaker 3: but it's also housing values and things like that. And

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Speaker 3: we wrote about it a couple of weeks ago in

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Speaker 3: terms of you know, everyone talking about you've got not

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Speaker 3: only the ke shaped economy with the top the top

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Speaker 3: ten percent generating fully a third of GDP and half

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Speaker 3: of consumer spending, but you've also got different demographic cohorts

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Speaker 3: and those are important to watch two in terms of

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Speaker 3: the way they plug in not only to investing and

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Speaker 3: participating in things, but the way they purchase and where

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Speaker 3: their sensibilities are and things like that. But that bears

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Speaker 3: a lot of watching, and I think a lot of

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Speaker 3: old line, traditional old line companies, particularly Staples, are having

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Speaker 3: trouble keeping up with some of that because you've got

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Speaker 3: the impact of the way consumers are spending. Yes, they're

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Speaker 3: feeling better about spending because of where markets are, but

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Speaker 3: you've also got that top tier that is less impacted,

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Speaker 3: if you will, by employment trends, and a lot more

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Speaker 3: impacted by the fact that even if you had a

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Speaker 3: pullback in markets, they've still made significant gains over the

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Speaker 3: last four or five years in their portfolios.

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Speaker 1: So last week, Carol, we heard from FED share J. Powell.

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Speaker 1: He seemed to push back on this idea that a

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Speaker 1: December rate cut was a foregone conclusion. There are many

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Speaker 1: voices at the FED that seem to be a little

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Speaker 1: concerned about how sticky inflation has become. Its rising a

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Speaker 1: little bit, and inflation expectations are also picking up just

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Speaker 1: a bit, where are you right now and looking at

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Speaker 1: inflation and help me understand how that may influence your

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Speaker 1: thinking as to what the FED does next.

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Speaker 3: You know, the interesting thing is is, like the Fed

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Speaker 3: so wedded to two percent, but the markets did you know,

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Speaker 3: the sort of average or typical rate of inflation posts

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Speaker 3: World War two was closer to three to three and

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Speaker 3: a half percent. And we're all arguing right now about

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Speaker 3: whether it's two percent or three you know, getting to

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Speaker 3: the Feds two percent or whether three percent is tolerable.

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Speaker 3: And the fact of the matter is these companies are

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Speaker 3: still generating some pretty great revenues with inflation as sticky

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Speaker 3: as it is, so you know, it remains to be

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Speaker 3: seen if they cut or not in December. You've got

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Speaker 3: you know, as much as they don't want it to

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Speaker 3: creep in, politics are creeping at the edges of it

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Speaker 3: in terms of some of the governors. And you saw

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Speaker 3: that it was the most adamant I've ever seen Shair

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Speaker 3: Paul Bee about the fact that there was a lot

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Speaker 3: of dissension in that meeting. Clearly that there was probably

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Speaker 3: more heated interaction, and you know, I'm sure it was respectful,

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Speaker 3: but just very strong opinions on both sides in terms

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Speaker 3: of whether they should cut or not, and we honestly

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Speaker 3: think that market's you know, the FED is important, but

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Speaker 3: it's also important to remember that something like eighty percent

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Speaker 3: of lending happens outside the regulated banking system. Now it's

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Speaker 3: really moved that we've disintermediated a lot out of the bank.

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Speaker 3: So well, the FED has important overtones psychologically to things.

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Speaker 3: The bond markets are moving very carefully in their own

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Speaker 3: in their own sphere, if you will, and they're watching

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Speaker 3: company dead. I think the bigger issue for us that

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Speaker 3: we're watching, especially as at really cific syncome markets, is

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Speaker 3: how does all the data center spending get funded? Because

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Speaker 3: a lot of it has been funded out of cash

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Speaker 3: flow now, but now you've got an increasing amount that's

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Speaker 3: being funded both debt on and off the balance sheet,

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Speaker 3: and so there's a lot more dynamics that will impact stuff.

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Speaker 3: And the faster we get access compute capacity out there,

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Speaker 3: the more deflationary impacts that has. And to the extent

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Speaker 3: that you know, if tariffs stays sticky, that has a

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Speaker 3: tendency to reduce demand somewhat, which would also have some

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Speaker 3: deflationary impact. So there's enough on both sides of the

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Speaker 3: ledgard I mean, you know, maybe we stay stuck around

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Speaker 3: three percent, and I'm not sure it really matters for

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Speaker 3: earnings and for the long term.

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Speaker 1: So before I let you go, Carol, give me your

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Speaker 1: sense of what's happening in the private credit space right now.

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Speaker 1: Should we be worried?

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Speaker 3: I think we should be watchful. We should be really

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Speaker 3: watchful because you've got a lot of companies out there

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Speaker 3: playing it. And in my mind, one of the things

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Speaker 3: I'm most watchful for is between a lot of the

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Speaker 3: big private credit companies funding the big important technology companies.

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Speaker 3: Do we create entities so big that in and of

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Speaker 3: themselves they're too big to fail? Because right now, the

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Speaker 3: advantage to all this spending has been, well, the taxpayer's

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Speaker 3: not going to have to bail anybody out because they're

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Speaker 3: all doing it out of their own cash flow. Well,

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Speaker 3: if banks are backing big private credit companies and the

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Speaker 3: private credit companies are in a circular manner funding technology now,

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Speaker 3: I think we're years away from that, but it's one

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Speaker 3: of those things where we're trying to watch it pretty

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Speaker 3: closely on the margin where we can and try to

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Speaker 3: pull numbers together and make sure that We're keeping an

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Speaker 3: eye on that because that, to me would be where

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Speaker 3: things could get funky.

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Speaker 1: Okay, we'll leave it there with things could get funky, Carol,

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Speaker 1: Thank you so much. Carolschlife, a chief investment officer at

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Speaker 1: BMO Capital Management, joining from us outside Minneapolis here on

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Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 1: look at the story shaping markets, finance, and geopolitics in

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Speaker 1: the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisner,

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Speaker 1: and this is Bloomberg