Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Daybreak
Speaker 1: Asia podcast. I'm Dog Krisner. US Equities eked out another
Speaker 1: game in the Wednesday session after a week reading on
Speaker 1: private payrolls from ADP. The numbers helped to cement bets
Speaker 1: of a FED rate cut next week. We also saw
Speaker 1: a rotation out of information technology shares. Let's take a
Speaker 1: closer look at what's happening in the Asia Pacific. Mark
Speaker 1: Cranfield joins us from our studios in Singapore. Mark is
Speaker 1: a Bloomberg Markets Live strategist. Mark, thank you so much
Speaker 1: for being here. We're focused a lot on the FED
Speaker 1: and the very high likelihood of a rate cut next week.
Speaker 1: It's kind of interesting that in spite of market expectations
Speaker 1: of that twenty five bases point rate cut, the dollar
Speaker 1: is holding in relatively well against the majors. We were
Speaker 1: a little weak today in New York, trading only by
Speaker 1: around three tens of one percent. If you look at
Speaker 1: the Bloomberg Dollars Spot Index, what are you seeing now
Speaker 1: when you look at the currency markets.
Speaker 2: That's really a function of the other side of the story.
Speaker 2: So although the dollar story is becoming relatively clear in
Speaker 2: the sense that we're expecting lower interest rates, but yields
Speaker 2: are still relatively high on a global basis. We haven't
Speaker 2: yet got a very strong theme in favor of the
Speaker 2: other currents. You need the Euro and the yen especially
Speaker 2: to have a story of their own why people want
Speaker 2: to buy those currencies as an alternative to the US dollar.
Speaker 2: It's emerging, but it isn't something that people are willing
Speaker 2: to bet a lot of money on yet. Until that happens,
Speaker 2: the dollar will be able to retain a reasonable level.
Speaker 2: It probably it is probably going to be a drawn out,
Speaker 2: like a slow motion action as we go into twenty
Speaker 2: twenty six, with the expectations that they're going to be
Speaker 2: further interest rate declines in the United States. Gradually the
Speaker 2: yield differentials will narrow between the US and other countries.
Speaker 2: It will undermine the US dollar. But the real kicker
Speaker 2: will only come when people are really bullish, for example,
Speaker 2: on Europe, when they see the potential for the European
Speaker 2: Central Bank to maybe start turning towards higher interest rates,
Speaker 2: when they see the European economies outperforming. When that kind
Speaker 2: of confidence comes in, then the Euro's story in itself
Speaker 2: becomes very clear, very tangible. People want to put money
Speaker 2: into the Europe and it will mostly be at the
Speaker 2: expense of the US dollar. We haven't yet fully reached
Speaker 2: that point yet yet.
Speaker 1: When we consider the end and the recent commands from BOJ,
Speaker 1: Governor Will way to talking up the prospects of a
Speaker 1: raid hike. I think right now money markets are implying
Speaker 1: maybe eighty percent probability that the BOJ will raise its
Speaker 1: policy rate on the nineteenth. Doesn't that do anything to
Speaker 1: strengthen the currency.
Speaker 2: The trouble with the end situation is that the Bank
Speaker 2: of Japan, even if they read twenty five basis points,
Speaker 2: which as you say, looks pretty much a done deal
Speaker 2: now in December, they are still way below the neutral rate.
Speaker 2: And if you look at the time gap. Since Governor
Speaker 2: Luada came in, it has been changing policy, which is
Speaker 2: a good thing, but we've had CPI running inflation levels
Speaker 2: around three percent for a long time. The target rate,
Speaker 2: if they raise it will go up to zero point
Speaker 2: seventy five. That's still deeply negative real rates in Japan.
Speaker 2: That's what undermines the Japanese currency, and nobody is expecting
Speaker 2: that gap to be narrowed in a quick basis, so
Speaker 2: even if they raise interest rates, And if you look
Speaker 2: at how long the time difference between the hikes under Auada,
Speaker 2: it's been many months. So we had one in January
Speaker 2: this year, We're likely to get one in December. That
Speaker 2: kind of time gap. If there's going to be another
Speaker 2: hike in twenty twenty sex it might not be intil
Speaker 2: the second.
Speaker 1: Half of the year.
Speaker 2: If traders see that, then they're fairly confident that the
Speaker 2: end will underperform. We might see Dolly Yen go a
Speaker 2: bit lower because of the US side as well. They're
Speaker 2: going to be lowering interest rates, but it's not going
Speaker 2: to be accelerating at a fast pace because the bank
Speaker 2: is still nowhere near the neutral rate.
Speaker 1: We've had a number of bond auctions for the Japanese
Speaker 1: market in the last week. I think we have a
Speaker 1: thirty year later today. How have things been performing. What's
Speaker 1: the appetite for Jgb's been like.
Speaker 2: Pretty mixed overall. As we approach the auctions, people are
Speaker 2: tending to price in higher yields, giving a concession. As
Speaker 2: it happens, the tenure went reasonably well this week. Actual
Speaker 2: demand at the auction itself was quite decent, and yet
Speaker 2: yesterday in the regular Bank of Japan operations, investors were
Speaker 2: quite willing to sell short dated bonds aggressively back to
Speaker 2: the central bank, so they're clearly expecting the interest rate
Speaker 2: hike to come. Jgbs are being pushed low again today
Speaker 2: head of the thirty year auction which is coming. Yields
Speaker 2: are at record higher levels in the thirty year They
Speaker 2: started selling these bonds only in nineteen ninety nine, and
Speaker 2: this week we reached the highest levels we a scene.
Speaker 2: So again they're pricing in a worst case scenario, so
Speaker 2: the auction itself may go okay. In the background, the
Speaker 2: big picture is that ten year yield is approaching the
Speaker 2: two percent area. Now that is where we may see
Speaker 2: some long term investors in Japan start to come in,
Speaker 2: but we haven't reached it yet. In the meantime, the
Speaker 2: whole Japanese curve is under pressure. That's roiling markets across
Speaker 2: the world. Until we see whether or not there is
Speaker 2: real genuine support for Japanese yields and the ten uere
Speaker 2: around two percent, people would assume that the Japanese market
Speaker 2: is the place to avoid.
Speaker 1: I want to change gears. Talk a little bit about
Speaker 1: what's been going on in South Korea today, notwithstanding where
Speaker 1: I'm seeing the costs be down about nine tens of
Speaker 1: one percent at the moment, but the South Korean equity
Speaker 1: market overall has been outperforming so many markets in the
Speaker 1: Asia Pacific, And in the last couple of days we
Speaker 1: had that upward revision from the Bok on a third
Speaker 1: quarter economic growth I think at one point thy percent
Speaker 1: growth rate quarter on quarter, which seemed to be stunning.
Speaker 1: What's happening here and is this kind of momentum likely
Speaker 1: to continue?
Speaker 3: Do?
Speaker 2: You'd think probably getting a bit overdone in the short term.
Speaker 2: But there are a few reasons why Koreas had an
Speaker 2: exceptional year. And it is ironic that we're talking about
Speaker 2: it now because it's a week to the year since
Speaker 2: they had the military action when they imposed martial law
Speaker 2: in Korea, and people thought, oh, that's the end of
Speaker 2: a career, but that actually was a turning point. Since then,
Speaker 2: they've got a new president, new policy is much more
Speaker 2: aggressive intervention from the government that's helped to boost the economy.
Speaker 2: Korean companies have proved themselves to be right at the
Speaker 2: forefront of the AI boom and other parts of the
Speaker 2: tech sector as well, and they've been keeping the currency
Speaker 2: relatively cheap as well. So from an investor's point of view,
Speaker 2: they know that exporters have an edge because the currency
Speaker 2: is helping them. They see the government doing the right
Speaker 2: moves and that's helped the Koreans, which are coming from
Speaker 2: a low base, that's helped them to be some of
Speaker 2: the best performers in Asia this year. They are starting
Speaker 2: to get a little bit expensive relative to the rest
Speaker 2: of Asia at this stage, so it will need some
Speaker 2: new drivers. We or may not see those as we
Speaker 2: go into twenty twenty six, but based on where we
Speaker 2: are now, unless we see some new developments in tech
Speaker 2: which really support Korean companies, we've probably seen the best
Speaker 2: that we're going to see in the Korean markets for
Speaker 2: a while.
Speaker 1: So have the US tariffs imposed on South Korea? Have
Speaker 1: they provided any kind of limitation here? Or have South
Speaker 1: Korean exporters been able to overcome them and kind of
Speaker 1: build those tariffs into their price structure in a way
Speaker 1: that has not been dad fremantle.
Speaker 2: They've found lots of ways around it, but the tariff
Speaker 2: is a relative game within Asia, and the only person
Speaker 2: that really seems to be outstandingly as a loser at
Speaker 2: the moment is India. Everybody else has renegotiate thanks to
Speaker 2: China and the way that China have stood up to
Speaker 2: the United States on the tariffs to a certain extent,
Speaker 2: that has helped everybody else be able to make adjustments.
Speaker 2: At the moment, India is the outlier from that point
Speaker 2: of view, even though it's not really hurting their stock
Speaker 2: market too much. The currency is collapsing though, so everything.
Speaker 2: If you look across whether Koreas being compared to Taiwan,
Speaker 2: it's being compared to Hong Kong, to China, it's pretty
Speaker 2: much in the same ballpark as all of those. So
Speaker 2: it's not winning or losing to a greater or lesser degree.
Speaker 2: So from that point of view, there's a kind of
Speaker 2: a neutrality about how tariffs are being played out in Asia.
Speaker 1: Mark, Before I let you go, I have to get
Speaker 1: your take on China. Next week we get the inflation data,
Speaker 1: and we know the economy in China right now is
Speaker 1: mired heavily in this deflationary trap. I think it may
Speaker 1: be concerning some people more than others. Beijing seems to
Speaker 1: be a little lax in addressing it, though can you
Speaker 1: make sense of that.
Speaker 2: It's a big complicated picture. They probably have already done
Speaker 2: a lot of stimus issues. They probably don't want to
Speaker 2: be seen to be the only person providing help to
Speaker 2: the economy. They'd like to see the stock market take
Speaker 2: care of itself. More private investment coming as well. It's
Speaker 2: likely that there will be more government support to market.
Speaker 2: You may have to wait till an early part of
Speaker 2: next year before we see that, but clearly they've done
Speaker 2: so much they want to stand back a bit and
Speaker 2: see how does that really play out. So far, it's
Speaker 2: been a little bit underwhelming, but it is early stages
Speaker 2: and they will get help if the rest of the
Speaker 2: world economy continues to do okay, China will benefit as well.
Speaker 1: Okay, great stuff, Mark, always a pleasure, Thank you so
Speaker 1: very much. Mark Cranfield, Bloomberg Markets Live Strategist, joining from
Speaker 1: Singapore here on the Daybreak Asia podcast. Welcome back to
Speaker 1: the Detbreak Asia podcast. I'm deg Prisner. Financial markets are
Speaker 1: widely expecting the Fed to lower interest rates next week.
Speaker 1: Even so, policymakers, i think it's fair to say, have
Speaker 1: been torn as they attempt balance the slowdown that we
Speaker 1: have seen in the American labor market with still elevated inflation. Today,
Speaker 1: the ISM reported activity among services expanded at a slightly
Speaker 1: faster pace in the month of November. Perhaps more importantly,
Speaker 1: the index of prices paid for services and materials showed
Speaker 1: the slowest growth in seven months. Now, that could suggest
Speaker 1: some easing in inflationary pressures. Now, on Friday markets, we'll
Speaker 1: get a delayed reading on the Fed's preferred measure of inflation.
Speaker 1: The PCE. Economists are projecting a third straight increase in
Speaker 1: the core PCE by two tenths of one percent. If so,
Speaker 1: that would keep the year over year figure hovering just
Speaker 1: around three percent, and it would suggest that inflationary pressures
Speaker 1: are stable yet still sticky. Let's bring Adam Turnquist into
Speaker 1: the conversation. Adam is chief technical strategist at LPL Financial. Adam,
Speaker 1: thank you so much for taking time to chat with us.
Speaker 1: What did you make of this ISM print, particularly on
Speaker 1: the prices paid side.
Speaker 3: Well, it certainly came at a good time after the
Speaker 3: ADP report, because the market was trading a little bit
Speaker 3: lower on that news than the ISM came out.
Speaker 4: We'll call it save the day, at least for price action. Today.
Speaker 3: You had As you mentioned, the price is paid component
Speaker 3: coming down, new orders holding above fifty a little bit
Speaker 3: slower than last month, but still in positive territory or
Speaker 3: expansionary territory. And then employment ticked up month over month,
Speaker 3: another good sign that I think helped offset some of
Speaker 3: the weakness that we've seen in the labor market data.
Speaker 1: There was a very interesting report to my mind in
Speaker 1: the FT today talking about the Treasury Department soliciting feedback
Speaker 1: on the nomination the potential nomination here of Kevin Hassett
Speaker 1: as FED chair. Other candidates were also evaluated in this
Speaker 1: one on one conversation format with a number of executives
Speaker 1: at major Wall Street firms and big players in the bondmark.
Speaker 1: I need to point out a number. We're worried about
Speaker 1: Hasset's alignment with Trump, and they said that Hasset could
Speaker 1: agitate for indiscriminate rate cuts even if inflation continues to
Speaker 1: run above that two percent target. It's there right now,
Speaker 1: but I'm wondering whether we still need to consider this
Speaker 1: idea of FED independence. Is that something that concerns you?
Speaker 4: It could for right now.
Speaker 3: I don't think it's part of the conversation in a
Speaker 3: big way, it's maybe on the back burner when you
Speaker 3: look at the market reaction to some of the news
Speaker 3: and just the betting markets. When you look at the
Speaker 3: Kevin Hasset odds of getting the nod for the FED chair,
Speaker 3: the market seems to like that. I know, Kevin Hassets
Speaker 3: mentioned it himself to the media, and that goes back
Speaker 3: to your point about him being too closely aligned with
Speaker 3: maybe the president or the president's objectives. But at the
Speaker 3: end of the day, it's still the Fed, right, There's
Speaker 3: policies in place that protect one member from completely running
Speaker 3: the table in terms of where monetary policy goes. It's
Speaker 3: really going to take him to convince the other members
Speaker 3: to lean more dubbish. If that is the case next year, how.
Speaker 1: Many more rate cuts are you expecting? I mean, if
Speaker 1: we do indeed get twenty five basis points in easing
Speaker 1: next week on the tenth, I mean, are you expecting
Speaker 1: a lot more in the way of Fed rate cuts?
Speaker 3: So the easy question, or the easy part of that question,
Speaker 3: next next week I think is a done deal, especially
Speaker 3: after the ADAP report, but even before that, very high
Speaker 3: odds and the FED funds futures market for a rate
Speaker 3: cut it's really going to boil down to the commentary
Speaker 3: and the summary of economic projections. The labor market clearly
Speaker 3: trendy lower, we'll call it stall speed. That's probably front
Speaker 3: and center on the Fed's mind and keeping them up
Speaker 3: at night. But I do think we have to be
Speaker 3: cognizant of inflation. Right we have commodities moving higher and
Speaker 3: in fact, the Bloomberg Commodity Index breaking out to new
Speaker 3: multi year highs. Think of that as an input cost
Speaker 3: and a leading indicator for inflation. I think it could
Speaker 3: complicate the overall inflation story for the FED and potentially
Speaker 3: leave the FED in a tough position next year. We
Speaker 3: do think the rate cutting cycle will continue. I think
Speaker 3: maybe on a nearturn basis, though the market expectations are
Speaker 3: getting a little a bit of ahead of themselves in
Speaker 3: terms of what to expect next week from the Fed
Speaker 3: in terms of how dubblish they're going to come out.
Speaker 1: So where does that leave you? Then that thinking, where
Speaker 1: does that lead you in terms of evaluating opportunities in
Speaker 1: the equity market.
Speaker 3: So for the equity market, we're bullish going into twenty
Speaker 3: twenty six. We do think there could be some near
Speaker 3: term volatility, especially With this latest pullback and some of
Speaker 3: the leadership trends that we've seen take place over the
Speaker 3: last month, the market has turned a little bit more defensive.
Speaker 4: There's been some risk aversion in.
Speaker 3: Overall retail participation in US equities. That's a new development
Speaker 3: we haven't seen in seven months. So on a near term.
Speaker 4: Basis, we'll call it mildly cautious if we can go there.
Speaker 3: But I think the playbook for next year is really
Speaker 3: going to be by the dip, the bull market will continue.
Speaker 3: We have our base case no recession. We think there'll
Speaker 3: be stimulative measures from the One Big Beautiful Bill Act
Speaker 3: that will support not only Corporate America but also the
Speaker 3: lower end of the consumer with some of these tax
Speaker 3: incentives and higher rebate checks coming in the first half.
Speaker 3: We also have our expectation for continued cutting from the Fed,
Speaker 3: although maybe two to three rate cuts next year's is
Speaker 3: probably probably the most likely scenario as it stands now,
Speaker 3: and look at Corporate America's doing quite well. We learned
Speaker 3: how resilient they are in the wake of higher effective
Speaker 3: teriff rates. Earning's power remains strong. The AI team we
Speaker 3: think will continue, so a pretty good backdrop as we
Speaker 3: look ahead to twenty twenty six.
Speaker 1: To what extent do you expect the AI theme to continue.
Speaker 1: I mean, we're three years into this right now, and
Speaker 1: it seems as though there is no end in sight.
Speaker 1: There have been maybe a few moments, particularly in the
Speaker 1: month of November, some naval gazing that allow the market
Speaker 1: to consider the fact that some of these evaluations are stretched.
Speaker 1: But are you still optimistic that the momentum here is
Speaker 1: positive for the foreseeable future?
Speaker 4: Yeah? Absolutely.
Speaker 3: When you look at the capex spending rates among the
Speaker 3: hyperscalers that's continuing to grow over twenty percent on a
Speaker 3: compounded annual growth rate, we don't really see that slowing
Speaker 3: down in this AI arms race. I think the big
Speaker 3: story for next year it's going to be a show
Speaker 3: me story. Right when you think about the return on investment.
Speaker 3: We started to see that when Meta reported earnings. There's
Speaker 3: more scrutiny because a lot of the hyperscalers they've been
Speaker 3: blowing through their free cash flow and now they've turned
Speaker 3: to the debt market in a big way.
Speaker 4: So you're adding debt to the balance sheet.
Speaker 3: That brings in added risk, added volatility, and of course
Speaker 3: added scrutiny. In terms of what's the actual return on
Speaker 3: all of this spending. I think that's going to be
Speaker 3: the big story next year.
Speaker 1: Are you tempted to look for opportunities offshore right now?
Speaker 1: If you're concerned about devaluation and maybe there's a question
Speaker 1: mark about the degree to which the American economy can
Speaker 1: still grow and drive a lot of these corporate earnings.
Speaker 1: Are you tempted maybe to look at a place like
Speaker 1: Europe or even markets in Asia.
Speaker 4: The emerging markets look really strong.
Speaker 3: They've had a surprising year in terms of out performance
Speaker 3: even in international developed so a lot of countries in
Speaker 3: Europe have done quite well, especially on a relative basis.
Speaker 3: I think the big question is going to be the
Speaker 3: dollar on that trade or investment. The dollars still in
Speaker 3: this what we call a secular up trend. If we
Speaker 3: start to see the dollar index roll over, that's our
Speaker 3: queue to start kicking the tires on some of these
Speaker 3: I would say emerging market countries. Look at Brazil, look
Speaker 3: at Mexico, and some countries in Latin America. There's some
Speaker 3: other countries in the Asian part of the world that
Speaker 3: have done quite well. We think those trends could accelerate
Speaker 3: especially if the dollar breaks down a little bit.
Speaker 1: Here, Adam, always a pleasure. Thank you so very much.
Speaker 1: Adam turnquiz there. He is the chief tech strategist at
Speaker 1: LPL Financial. Joining us here on the Daybreak Asia Podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 1: or anywhere else you listen. Join us again tomorrow for
Speaker 1: insight on the market moves from Hong Kong to Singapore
Speaker 1: and Australia. I'm Doug Chrisner, and this is Bloomberg