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Speaker 1: Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner.

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Speaker 1: The latest data on US retail inflation supports the case

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Speaker 1: for another FED rate cut next month. A bit later,

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Speaker 1: we'll be joined by Chris Carey, portfolio manager at the

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Speaker 1: Carnegie Investment Council. We'll begin by looking at today's price

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Speaker 1: section with Mary Nicola, Bloomberg m Live strategist. She joins

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Speaker 1: us from our studios in Singapore. The bond market is

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Speaker 1: still reacting to President Elect Trump's victory and the implication

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Speaker 1: that we're going to see a lot more in the

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Speaker 1: way of inflationary pressures building more so at the long

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Speaker 1: end and than the short end. And what the backup

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Speaker 1: and yield has done at the same time is strengthened

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Speaker 1: the dollar quite a bit. The Bloomberg Dollar Spot Index

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Speaker 1: was up today by four tenths of one percent, and

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Speaker 1: I think the index has been up for five of

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Speaker 1: the past six trading days. Can you see any end

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Speaker 1: in sight for this rally that we have seen in

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Speaker 1: the dollar?

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Speaker 2: Yeah, you know, it's interesting. I was thinking about today

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Speaker 2: what would trigger a reversal in the door, and I

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Speaker 2: think one thing would come is likely. Let's say you

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Speaker 2: get a weak labor market data, that could be one

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Speaker 2: thing that could come through. But for now, it looks

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Speaker 2: like everyone's so focused on the Trump administration, the potential

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Speaker 2: policies tariffs, especially in this part of the world, and

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Speaker 2: what are the implications from tariffs here. Of course, last time,

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Speaker 2: we still remember what happened in twenty eighteen nineteen and

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Speaker 2: the implications on the CNY and how much it weakened

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Speaker 2: and how much currencies across Asia Asia had weakened as

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Speaker 2: a result. So there's still that overhang and that cloud

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Speaker 2: that's really overtaken the region of what happens next. And

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Speaker 2: of course, because Trumps, the new Trump administration has come

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Speaker 2: in with a lot of China hawks and fulfilling a

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Speaker 2: lot of the promises, and that's the concern is will

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Speaker 2: they fulfill some of the promises on tariffs.

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Speaker 1: So you saw today that the CPI print here in

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Speaker 1: the US was pretty much smack in line with market forecast,

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Speaker 1: and I think there's an eighty percent probability that we're

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Speaker 1: going to get a twenty five bases point rate cut

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Speaker 1: in December. But a number of Fed officials today we're

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Speaker 1: saying there's a little bit of uncertainty over how far

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Speaker 1: the Fed will need to go in lowering rates. I

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Speaker 1: think there's a real concern about overshooting whatever the neutral

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Speaker 1: rate is right now, and perhaps if they were to overshoot,

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Speaker 1: you could get a lot more in the way of inflation.

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Speaker 3: Yeah.

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Speaker 2: Absolutely, And of course now we have confirmation of the

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Speaker 2: Republican trifecta, so essentially we know that any sort of

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Speaker 2: passage of tax cuts further fiscal expansion is likely, and

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Speaker 2: I think that's where the Fed is going to try

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Speaker 2: and stay a little bit more cautious, even though, of course,

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Speaker 2: as Jerome Powell said last week, it's not going to

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Speaker 2: affect them in the near term, but it's obviously something

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Speaker 2: that they're going to continually be thinking about, especially because

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Speaker 2: they're still just trying to get inflation down and it's

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Speaker 2: moving in the right direction, and that's what the Fed

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Speaker 2: officials are talking about, is it's moving in that right direction,

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Speaker 2: but that last mile is just becoming a little bit

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Speaker 2: more difficult.

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Speaker 1: So let's talk about something that's on the flip side

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Speaker 1: of dollar strength, and that's the end weakness. We've got

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Speaker 1: a one fifty five handle right now. I think we're

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Speaker 1: waiting to hear something from officials in Japan about the

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Speaker 1: degree to which we have seen this rapid weakening in

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Speaker 1: the end, is intervention or risk at this point.

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Speaker 2: Yeah, the radio silence is quite interesting, but the thing

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Speaker 2: is it's not only focused on the end, so nobody

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Speaker 2: is everyone's been a victim of the dollar strength, right,

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Speaker 2: So I think that there's sympathy because of the fact

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Speaker 2: that everyone's everything is moving in tandem. Where you've got

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Speaker 2: euro ausy, everyone is moving, just they're all weakening. So

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Speaker 2: there's probably a little bit more of a reluctance to

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Speaker 2: really step in when it's happening across the board. But

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Speaker 2: what it has been interesting is what we've seen from

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Speaker 2: the Chinese authorities, and they're pushing back, trying to show

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Speaker 2: that the CNY is not a one way bet. But

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Speaker 2: I think for Japan it's just going to be a

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Speaker 2: little bit more difficult, especially given how much it's dependent

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Speaker 2: on what's happening in the US.

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Speaker 1: So you mentioned the CNY, let's talk about China next.

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Speaker 1: The possibility that we're going to see pretty tough tariffs

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Speaker 1: on Chinese imports into the United States. I would imagine

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Speaker 1: that's a big concern if you're an exporter in China.

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Speaker 1: I mean, to what extent is the currency going to

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Speaker 1: begin to reflect it. I think we had a guest

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Speaker 1: yesterday saying that she wouldn't be surprised if we went

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Speaker 1: to seven to twenty seven on the offshore.

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Speaker 3: Is that possible?

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Speaker 2: Yeah, I think at this point, especially because we don't

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Speaker 2: know the extent of how big the tariffs could be,

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Speaker 2: I think that is a very very much a possibility

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Speaker 2: of the yuani weakening considerably, and then of course the

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Speaker 2: momentum of that just going even further. But of course

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Speaker 2: for them, for authorities, not only in China but across

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Speaker 2: the region, it's about this about at the pace of

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Speaker 2: the depreciation, and so anytime they see some sort of

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Speaker 2: rapid pace of depreciation, they will step in at least

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Speaker 2: to smooth out the volatility. We see that all the

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Speaker 2: time in India. We're going to see it in China

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Speaker 2: as well. So I think that's one thing that we

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Speaker 2: should be expecting more in the coming months.

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Speaker 1: What are some of the other issues that your colleagues

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Speaker 1: on the m Live blogger are highlighting this morning.

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Speaker 2: Yeah. I think some of the key things that we're

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Speaker 2: focused on is, you know, is this rally in equity

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Speaker 2: market sustainable. We've obviously had a few days of a drawback,

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Speaker 2: but the fact is that there's been a really strong

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Speaker 2: momentum behind equities, really strong momentum behind bitcoin as well.

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Speaker 2: So does that continue? And it's all because of the

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Speaker 2: Trump trades? So how long? What is the longevity of

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Speaker 2: a lot of these Trump trades? And I think that's

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Speaker 2: maybe the key focus of how does this play out?

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Speaker 2: I think for equity markets, the real test for them

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Speaker 2: is going to be in Vidia next week, because that's

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Speaker 2: going to be the big one yep. And of course

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Speaker 2: it will lay out the Obviously we're so used to

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Speaker 2: in Nvidia having skyrocket amazing results and if they don't deliver,

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Speaker 2: the market gets upset, so they're going to have to

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Speaker 2: exceed expectation.

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Speaker 1: It was interesting that you mentioned bitcoin there. I can

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Speaker 1: remember years ago people saying that you could use this

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Speaker 1: cryptocurrency as a hedge against inflation. Right, so today we

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Speaker 1: break above ninety three grand Is any part of this

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Speaker 1: trade reflecting concern about rising inflation? Do you think? Is

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Speaker 1: it tracking what the long end of the bond market

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Speaker 1: may be telling us just a bit or is it

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Speaker 1: something completely different?

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Speaker 2: I don't think so I think a lot of that

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Speaker 2: has to do with the fact that you've got a

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Speaker 2: republican trifecta regulation is not likely to come in on

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Speaker 2: a lot of the crypto side. I think there's just

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Speaker 2: a lot of exuberance around crypto because of the new

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Speaker 2: administration and its potential friendliness towards the sphere more so

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Speaker 2: than an inflation hedge.

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Speaker 1: Let's talk a little bit about China before I let

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Speaker 1: you go, and the degree to which the equity market

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Speaker 1: is a gauge of positive sentiment. Are you seeing signs

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Speaker 1: now that there is a little bit of upward bias

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Speaker 1: in equity trading on the mainland and might that suggest

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Speaker 1: that maybe the Chinese economy is bottoming and people are

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Speaker 1: starting to feel a little bit better about some of

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Speaker 1: the policies that the government's pushing out.

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Speaker 2: So to some degree, you know, when Chinese authorities came

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Speaker 2: out with the share buybacks and the encouragement of share buybacks,

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Speaker 2: they've put a floor under equities to some degree. And

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Speaker 2: of course, when you have the national team coming in

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Speaker 2: when they do, when there is a stark sell off,

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Speaker 2: so there has been a bit of a floor in

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Speaker 2: terms of the policies. I think the market has essentially

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Speaker 2: been disappointed overall in how much in terms of we

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Speaker 2: haven't gotten anything really on pushing consumer demand. We haven't

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Speaker 2: gotten anything in detail about what they will do on

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Speaker 2: the property supply stuff. So I think they're talking about

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Speaker 2: next year we'll get more forceful measures. But you and

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Speaker 2: I know that the market tends to be impatient. So

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Speaker 2: we've got a lot of foreign investors moved back into China,

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Speaker 2: but if it doesn't deliver, I think they'll get impatient

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Speaker 2: again and start pulling out.

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Speaker 1: Mary, thank you so much for playing along. It's always

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Speaker 1: a pleasure to visit with you. Mary Nicola is Bloomberg

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Speaker 1: m Live strategist joining us from Singapore here on the

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Speaker 1: Daybreak Asia podcast. Joining us now is Chris Carey. He

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Speaker 1: is portfolio manager at Carnegie Investment Council, joining us from Cleveland, Ohio. Chris,

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Speaker 1: thanks for taking time. I'd like to get your take

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Speaker 1: to begin with on what the incoming Trump administration means

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Speaker 1: from not only markets, but the economy as well. Now,

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Speaker 1: one of the things that's been striking here since the

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Speaker 1: election has been this rally in bitcoin. I think it

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Speaker 1: is up about thirty five percent since the President elects victory.

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Speaker 1: What do you make of of what Trump means right

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Speaker 1: now for financial markets?

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Speaker 3: I definitely think that the Trump administration is is definitely

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Speaker 3: welcome to financial markets, especially with regards to, you know,

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Speaker 3: some of the the dampening effects we had over the

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Speaker 3: last four years with the parcel Lena Kah and her

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Speaker 3: tenure at the FTC. I think that the negative pressures

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Speaker 3: of the wire in terms of the M and A environment,

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Speaker 3: it's going to be good to be able to see

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Speaker 3: those lifts, especially for for large cap tech. I think

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Speaker 3: that's definitely a benefit. And then also on the tax

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Speaker 3: side of things too, I think the continuation of you know,

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Speaker 3: the Tax Cut and Jobs Act potentially even lowering earnings

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Speaker 3: sorry not earnings taxes even further for corporations, you know,

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Speaker 3: it's definitely obviously going to support their bottom line. I

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Speaker 3: think that's reflected in the markets. It's going to be

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Speaker 3: interesting to see, though, you know, kind of with everything

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Speaker 3: when it come to when it comes to that whether

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Speaker 3: you know he's going to actually go through on what

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Speaker 3: actually you know he says.

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Speaker 1: But is it there some concern about the potential inflationary

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Speaker 1: impact of some of these policies. I'm looking at the

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Speaker 1: behavior of the bond market, just watching yields back up

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Speaker 1: since the election, does that concern you?

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Speaker 3: Yeah, I mean I think there's definitely some concerns that

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Speaker 3: his policies could be you know, inflationary. But I guess

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Speaker 3: the other side of the coin is that when you're

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Speaker 3: able to stimulate economic growth, you don't have to cut

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Speaker 3: interest rates as much as you might have had to.

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Speaker 3: So I really do think it's only going to be,

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Speaker 3: you know, a matter of time until we see what

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Speaker 3: really is going to be the you know, the reason

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Speaker 3: why rates rates are arising. If you're looking at inflation,

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Speaker 3: I mean, what eighteen months ago we had nine percent CPI,

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Speaker 3: Now we're down to two point six percent. That's a

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Speaker 3: job well done, as is. I know the Fed targets

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Speaker 3: two percent, but two point six for you know CPI

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Speaker 3: that we've got today is still pretty damn good. I

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Speaker 3: also think with regards to the threast of the tariffs, it's,

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Speaker 3: you know, you say one thing, but is that actually

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Speaker 3: going to be what he follows through with. I think

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Speaker 3: they're probably going to use more as a negotiating tool

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Speaker 3: than actually seeing these you know, widespread twers being slapped

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Speaker 3: on which would have inflationary effects. But there's definitely fears.

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Speaker 3: You're definitely starting to see that.

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Speaker 1: Well, you were talking a moment ago or alluding to

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Speaker 1: the fact that we may be seeing less regulatory risk

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Speaker 1: when it comes to big cap tech, But I'm wondering

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Speaker 1: about the financials as well. Could they perhaps benefit from

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Speaker 1: less regulation.

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Speaker 3: Yeah, definitely, they definitely poist a benefit from a less

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Speaker 3: regulated landscape. The economy still is strong. If we're able

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Speaker 3: to avoid those, you know, significant loan losses, I think

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Speaker 3: that's fantastic as well as you know, encouraging more consolidation

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Speaker 3: within the banking space. You know, large cap banks still

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Speaker 3: traded pretty appealing multiples. I think that the you know,

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Speaker 3: and that's reflected in the chart, and it's not just

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Speaker 3: banks too. I think that, you know, the whole financial

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Speaker 3: sector of the whole does stand to benefit as a result.

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Speaker 1: One of the things we were talking about yesterday was

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Speaker 1: this Department of Government Efficiency that the President elect is

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Speaker 1: putting in place. Elon Musk will be working in conjunction

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Speaker 1: with Vivek Ramaswani, and the two are going to be

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Speaker 1: task essentially with looking for ways to cut excess regulation

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Speaker 1: to reduce wasteful expenditures and restructure some federal agencies. That's

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Speaker 1: pretty ambitious. Do you think they're going to make a

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Speaker 1: lot of headway with this?

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Speaker 3: It is definitely a remarkably ambitious thing that they are undertaking.

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Speaker 3: I think they will probably be able to make some

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Speaker 3: some headway. The fact now, though, is that you know,

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Speaker 3: the federal budget has just ballooned and we're at a

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Speaker 3: point now where interest payments are making up more of

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Speaker 3: the budget than defenses. I think that it's great that

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Speaker 3: we are finally paying attention to the deficit. It's really

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Speaker 3: going to be the case. Though we've had decades of

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Speaker 3: complaining about a ballooning deficit, someone's going to try and

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Speaker 3: do something about it. If they're successful, that's that's tremendous,

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Speaker 3: and you know, being able to chip away at that.

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Speaker 3: There are tons of inefficiencies and the fact that you know,

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Speaker 3: the government pays you know, insane multiples for for for

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Speaker 3: goods and services that you and I would pay as

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Speaker 3: as business owners or consumers. So I definitely think there

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Speaker 3: is definitely some fact that can be chopped off. The

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Speaker 3: magnitude of those cuts will only be able to see

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Speaker 3: with time. But you know, as silly as the name is,

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Speaker 3: and I think that it's definitely welcome and I'm going

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Speaker 3: to be very interested to see what we're able to

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Speaker 3: actually pull off, like a lot of the things that

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Speaker 3: have been promised that you know, led to led to

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Speaker 3: Trump getting elected. You know, you can talk the talk,

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Speaker 3: but can you walk the walk.

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Speaker 1: Yeah, most definitely. Maybe we can talk a little bit

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Speaker 1: about what you're seeing off shore. One of the things

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Speaker 1: that's happening in China is the early, maybe green shoots

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Speaker 1: of some sort of recovery. We know that government has

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Speaker 1: applied a lot of stimulus, but I think there are

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Speaker 1: a number of analysts that agree that the risk right

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Speaker 1: now to a recovery in China is being a bit

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Speaker 1: derailed by the possibility that these threats of tariffs from

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Speaker 1: President elect Trump would be very real, targeting obviously those

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Speaker 1: Chinese shipments exports from China to the United States. Do

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Speaker 1: you think this has the potential to hold China back

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Speaker 1: in a very big way?

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Speaker 3: I definitely think so, you know, tarifs or not. You're

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Speaker 3: already starting to see that companies are diversified in their

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Speaker 3: supply chain away from China to begin with, you know,

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Speaker 3: to to other places in Asia. I think that you know,

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Speaker 3: the threat of tariffs will have a material impact on

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Speaker 3: the Chinese economy. I think that unless are right to

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Speaker 3: be concerned about it. It's one reason another reason why

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Speaker 3: at off and we prefer to favor US stocks VERSU

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Speaker 3: international especially, you know, we only have an exposure to

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Speaker 3: China just because you know, there's such a export driven

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Speaker 3: economy and they rely so much on the United States.

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Speaker 3: I think it's definitely a very big risk and I

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Speaker 3: wouldn't want to be exposed to China at the moment.

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Speaker 1: So if you're favoring US markets right now, and assuming

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Speaker 1: that we're going to see a continuation of economic growth,

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Speaker 1: maybe a little bit stronger growth given a lot of

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Speaker 1: what we're expecting from the incoming Trump administration, I'm wondering, Chris,

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Speaker 1: whether you want to be more exposed to companies that

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Speaker 1: are particularly economically sensitive in the small cap space.

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Speaker 3: Yeah, definitely. I mean small cups have definitely had a

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Speaker 3: pretty tough time, you know, prior to the lasts a

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Speaker 3: month or so, based on the fact that interest rates

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Speaker 3: are high. I think that the fact that we're starting

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Speaker 3: to see those cut we just saw that from based

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Speaker 3: on the CPI figures that there was no upside surprise

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Speaker 3: that the chance of another rate cut in December is

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Speaker 3: now twenty percent. I think that's terrific. I think that

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Speaker 3: definitely provides some upward momentum for small caps. Overall, though,

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Speaker 3: I think that you know, US is the best place

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Speaker 3: in the business, a less place in the world to

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Speaker 3: do business. It's why the vast purity of companies are

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Speaker 3: founded here. We have great regulatory environment, legal environment. All

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Speaker 3: the best companies are set up here. I think that,

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Speaker 3: especially with Trump coming to into office as well, you know,

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Speaker 3: it's likely that US markets are going to outperform national

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Speaker 3: markets like they did you know in Trump Trade one

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Speaker 3: point zero if you will. We do have the strongest economy.

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Speaker 3: I think history indicates stronger re terms for US aputies,

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Speaker 3: at LEAs relative to their global counterparts.

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Speaker 1: Since the election, I think we can agree that there's

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Speaker 1: been a pretty powerful rally in risk assets, and I'm

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Speaker 1: curious to get your take as to whether or not

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Speaker 1: there's some vulnerability here that maybe we've come pretty far

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Speaker 1: in a short period of time and a pullback might

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Speaker 1: be in order.

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Speaker 3: Is that possible? We definitely come pretty far. I would

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Speaker 3: also say, though, that you know, even though we're twenty

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Speaker 3: four to twenty five percent strength, but get strength. You know.

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Speaker 3: It's I think over the last one hundred years, eighteen

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Speaker 3: of those we've had a the S and P has

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Speaker 3: ended up plus thirty percent. You take that down, you know,

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Speaker 3: anything above twenty five, it's a quarter of you know,

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Speaker 3: all years going back that period of time they've been

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Speaker 3: up there. And when you have the equity market up

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Speaker 3: twenty five percent in a given year, typically the next

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Speaker 3: year returns from there are still you know, plus eight

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Speaker 3: plus ten percent. I definitely think that maybe in the

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Speaker 3: short term we're a little bit overbought, and there definitely

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Speaker 3: is some exuberance, but I think that we are rerating

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Speaker 3: for potentially a much more favorable business environment, so it

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Speaker 3: doesn't really affect our long term positioning in terms of

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Speaker 3: being long US equities.

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Speaker 1: Chris will leave it there. Thanks for joining us. Chris

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Speaker 1: Carey is portfolio manager at the Carnegie Investment Council, joining

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Speaker 1: from Cleveland, Ohio. Here on the Daybreak Asia. This is

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