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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 2: The main event for markets this week will be the

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Speaker 2: Fed's rate decision, and the only debate seems to be

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Speaker 2: over whether an expected cut will be either twenty five

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Speaker 2: or fifty basis points. Importantly for markets, the focus will

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Speaker 2: be on messaging with regard to future rate cuts. And

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Speaker 2: in addition to the Fed, we have rate decisions this

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Speaker 2: week for central banks in Canada, the UK, and in Japan,

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Speaker 2: And in a moment we'll have some insight from Singapore.

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Speaker 2: We'll hear from louislu lead economist at Oxford Economics. But

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Speaker 2: we begin here in the States. Joining me now is

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Speaker 2: Adam Koons. He is the chief investment officer at Winthrom

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Speaker 2: Capital Management. Adam is on the line from Indianapolis. Adam,

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Speaker 2: thank you so much for making time to chat with me.

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Speaker 2: Can we begin with the Fed's decision this week? I

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Speaker 2: think the only thing the market's seems to be debating

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Speaker 2: right now is whether this cut is going to be

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Speaker 2: twenty five basis points or fifty basis points. Where do

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Speaker 2: you come down?

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Speaker 3: First off, we're going to look at what the market,

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Speaker 3: how it could react, and like you said, the market

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Speaker 3: has kind of priced in the best case scenario. So

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Speaker 3: I think really all that could happen that would move

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Speaker 3: the markets would be some sort of disappointment. But I think, yeah,

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Speaker 3: the FED is going to probably move with a twenty

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Speaker 3: five basis point cut. I think a fifty basis point

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Speaker 3: cut is very unlikely. While the data has started to

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Speaker 3: tilt towards, you know, being somewhat more negative, I just

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Speaker 3: don't think there's enough to push the Fed towards cutting

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Speaker 3: more aggressively than twenty five basis point I think, you know,

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Speaker 3: it neededly something in the holster.

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Speaker 4: Down the road if we do see further deterioration.

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Speaker 3: But I think moving data aggressively like a fifty basis

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Speaker 3: point cut would just be too much right now.

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Speaker 2: So I'm curious to get your tick on whether you

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Speaker 2: believe stagflation is a risk at all. I mean, we

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Speaker 2: know the labor market is weakening and inflation remains stubborn.

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Speaker 2: We're well above the fed's two percent target. Is stagflation

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Speaker 2: a risk in your view?

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Speaker 3: I think you know, you could see the headlines and

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Speaker 3: you could see maybe a print or so where it

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Speaker 3: looks like there's stagflation, but ultimately the you know the

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Speaker 3: old saying that the remedy for high prices or high prices.

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Speaker 3: I think if we saw some kind of uptaking inflation,

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Speaker 3: that would be very short lived because that essentially would

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Speaker 3: accelerate this idea or thought that the US economy is

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Speaker 3: going to move towards a recession because if at the

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Speaker 3: end of the day, the consumer only has so much

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Speaker 3: they could spend, and when we look at, you know,

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Speaker 3: credit card debt, when we look at you know, all

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Speaker 3: the levers of the consumer could pull, they kind of

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Speaker 3: have pulled them all. And so I think if we

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Speaker 3: saw some sort of increase in prices that was outpacing wages,

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Speaker 3: the consumer essentially is tapped out. So that essentially would

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Speaker 3: push us into a recession and would kind of solve

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Speaker 3: it is kind of the worst case scenario solution for inflation,

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Speaker 3: but I think it would lead us back towards a

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Speaker 3: disinflation or potentially even the deflationary period.

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Speaker 2: It's interesting because at the end of last week, the

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Speaker 2: University of Michigan released its preliminary survey on consumers long

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Speaker 2: run inflation expectations at a rate of three point nine

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Speaker 2: percent households seemed to be concerned about the consequence of tariffs.

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Speaker 2: That's got to be a little concerning when you hear

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Speaker 2: a number like three nine.

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Speaker 4: Yeah, it does.

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Speaker 3: But it really comes down to the fact that the

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Speaker 3: fact that the consumers concerned about our three to nine

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Speaker 3: is going to affect behavior. And that's really what we

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Speaker 3: have to focus on, is, you know, what is consumer

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Speaker 3: behavior going to look like? And I think if we

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Speaker 3: look at the reality of tariffs tarffs, you know, it's

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Speaker 3: hard for us to model tariffs pushing inflation towards four percent.

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Speaker 3: What will likely happen is the consumer will be, you know,

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Speaker 3: fearful of a four percent inflation, might you know, cut

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Speaker 3: back on spending, thinking that there may be something coming

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Speaker 3: on the horizon they need to prepare for, and that

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Speaker 3: in them itself would actually cause that disinflation that I

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Speaker 3: was speaking of. And I know that's backwards as what

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Speaker 3: you know, the economic theory says. But when you look

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Speaker 3: at the consumer and when you kind of do your

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Speaker 3: own survey around and do the anecdotal survey of what

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Speaker 3: consumers are thinking, how they're reacting. Consumers right now, like

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Speaker 3: I said inverse of what economic theory tells you they

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Speaker 3: should do is actually when they see or think or

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Speaker 3: feel that inflation on the horizon, they're preparing and slowing

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Speaker 3: down their spending. And so I think that the reality

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Speaker 3: is the fear of tariffs might actually solve the inflation

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Speaker 3: that they might cause in their own So I think

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Speaker 3: you're just going to see it overall deceleration from the

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Speaker 3: consumer because of that fear, because, like I said, obviously,

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Speaker 3: when you see the employment that we're starting to contract,

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Speaker 3: employment generally is just weaker.

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Speaker 5: Now.

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Speaker 3: It's obviously not declining yet, but when you see the

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Speaker 3: employment picture weakening, the consumer is also just going to

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Speaker 3: be a little bit more cautious, and that in himself,

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Speaker 3: like I said, we'll solve the problem of potential inflation.

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Speaker 2: So I know you're not a trader, went from capital

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Speaker 2: as a money manager from my understanding, But let's go

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Speaker 2: ahead and think about the way in which the market

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Speaker 2: may react on Wednesday when we get news of this

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Speaker 2: FED rate cut, which is probably more likely to be

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Speaker 2: twenty five basis points than fifty. If it's twenty five,

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Speaker 2: does the market sell the Fed news?

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Speaker 3: Well, I think it really comes down to how the Fed,

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Speaker 3: how Jerome comes out and gives his kind of speak

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Speaker 3: of what's next. I think twenty five basis points with

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Speaker 3: rhetoric that looks like they're going to continue to cut

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Speaker 3: interest rates as long as the economy is showing the

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Speaker 3: data signs that it is. If Drone comes out and

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Speaker 3: it does a twenty five basis point cut but shows

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Speaker 3: signs or at least there's an interpretation that they may

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Speaker 3: pause for the rest of the year, then I think

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Speaker 3: that's when you see the stock market sell off. But

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Speaker 3: as long as he at least demonstrates the willingness to

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Speaker 3: continue to cut, I think that the markets will rally

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Speaker 3: or at least kind of have that unchanged mentality, given

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Speaker 3: that's the general consensus estimation right now.

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Speaker 2: So we're not that far from record highs in the

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Speaker 2: equity market right now, and I'm wondering whether that makes

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Speaker 2: you a little bit nervous given how far and how

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Speaker 2: fast we have come with a lot of the risk

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Speaker 2: that you're sketching out right now, are you still constructive

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Speaker 2: on the US equity market or are you starting to

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Speaker 2: become maybe a little claust more cautious.

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Speaker 3: Absolutely, I think, look, you can't time the market norsees

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Speaker 3: you try. I think valuations are something you should pay

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Speaker 3: attention to, but once again, you should have time in

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Speaker 3: the market based off of valuations.

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Speaker 4: But you do need to pay attention to where we are.

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Speaker 3: And I think when you look at the asymmetry of events,

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Speaker 3: it's towards the downside, meaning that.

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Speaker 4: There are more things that could go wrong that could

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Speaker 4: probably go right.

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Speaker 3: And so when you see valuations, when you see the

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Speaker 3: equity market essentially shrug off everything and we kind of

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Speaker 3: have completely undone everything from the drawdown that happened to

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Speaker 3: March and April, say the bord it.

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Speaker 4: All the time high.

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Speaker 3: So we're seeing that by no means isn't a bubble,

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Speaker 3: By no means is it. You know, this completely over

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Speaker 3: extended market. But you have to pay attention. And like

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Speaker 3: I said, what it really does is it eliminates the

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Speaker 3: margin of error when you see valuations as high. So

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Speaker 3: what that means is that if you do see maybe

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Speaker 3: something like the AI Trede start to fade or misses

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Speaker 3: on earnings estimates, then that's what's going to you know,

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Speaker 3: there's just less margin of error for those kind of events,

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Speaker 3: and less margin of error if they fed actually takes

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Speaker 3: a stance that the market doesn't like. So I think

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Speaker 3: you just need to be a little bit cautious, but

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Speaker 3: by no means you need to be moving out of

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Speaker 3: equity markets.

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Speaker 4: I think you want to continue to ride.

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Speaker 3: The momentum, but you just need to do it more

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Speaker 3: cautiously and, like I said, more proactively taking tips off

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Speaker 3: the table, moving towards dividend paying stocks, lower beta stocks,

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Speaker 3: and just kind of watching for those stocks that are

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Speaker 3: only going higher because of narrative versus actual fundamentals.

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Speaker 2: So you were talking a moment ago kind of about

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Speaker 2: a defensive posture in terms of equity trading. I'm curious

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Speaker 2: as to whether you're looking to the bond market for optionality,

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Speaker 2: and if so, where on the curve are you finding

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Speaker 2: value these days?

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Speaker 3: Yeah, we absolutely are, So I think you need to

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Speaker 3: look kind of in the middle of the curve. That

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Speaker 3: intermediate five to ten year space I think is kind

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Speaker 3: of the pocket to be in. You've obviously seen the

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Speaker 3: short income down as the bomb market is essentially priced

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Speaker 3: in anything the Fed's going to do, and then the

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Speaker 3: long end of of the curve is a little bit

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Speaker 3: kind of in a guessing game, and you've seen some

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Speaker 3: big moves up and down, and rates on the long end,

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Speaker 3: trying to understand not only what the Fed's going to do,

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Speaker 3: because obviously the Fed absolute decision doesn't affect the long

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Speaker 3: end of the curve, but it could trickle into inflation

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Speaker 3: and growth and that sort of thing. So you have

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Speaker 3: seen rates come down. You obviously have the tenure at

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Speaker 3: that four percent type mark, and that is well off

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Speaker 3: of its highs near four and a half.

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Speaker 4: And so I think, you know, when.

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Speaker 3: You're trying to play defense, you're trying to lock in

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Speaker 3: some income, a little bit of spread, the accept the

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Speaker 3: ability to curve five to ten year you kind of

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Speaker 3: get that Goldielux portion of fixed income where you get.

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Speaker 4: Both the steepness of the curve.

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Speaker 3: Now that we actually do have some steepness in the curve,

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Speaker 3: we're not inverted any longer. And then, like I said,

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Speaker 3: you do pick up in the corporate bonds a little

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Speaker 3: bit of spread. I think that makes sense to be

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Speaker 3: able to get you know, four and a half to

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Speaker 3: five percent, even though spreads are tight.

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Speaker 4: I think to lock that in right now is critical.

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Speaker 3: If you're a portfolio manager looking at your asset allocation,

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Speaker 3: you know, to say that we're going to get five percent.

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Speaker 3: It was a time not long ago that we were

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Speaker 3: struggling to get three percent in bond. So to get

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Speaker 3: five percent in fixed income, I think you want to

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Speaker 3: lock that in for as long as you can.

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Speaker 2: All right, Adam will leave it there, Thank you so

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Speaker 2: very much. Adam Koons is Chief investment Officer at Winthrop

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Speaker 2: Capital Management, joining from Indianapolis here on the Daybreak as

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Speaker 2: your podcast. Welcome back to the Daybreak Asia podcast. I'm

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Speaker 2: Douk Krisner. We've been talking about how monetary policy is

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Speaker 2: front and center for markets this week. Among the rate

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Speaker 2: decisions we'll hear from the Fed and the boj And

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Speaker 2: for some more perspective, we heard from Louise lou lead

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Speaker 2: economist at Oxford Economics. Louis spoke with Bloomberg TV host

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Speaker 2: Cherry On and NML droolers on the Asia trade.

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Speaker 6: So, Louise, thanks so much for joining us this morning.

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Speaker 6: I mean, it's really a lot to contend with right now.

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Speaker 6: Not only are we really influenced, of course by these

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Speaker 6: ongoing trade headlines, not between US and China, career and

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Speaker 6: the US, I mean many other nations as well, conducting

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Speaker 6: these negotiations ongoing, but at the same time we're looking

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Speaker 6: at the first FED ratecard of twenty twenty five, a

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Speaker 6: slew of central bank's decisions this week as well. What's

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Speaker 6: standing out to you the most right now and what's

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Speaker 6: going to be most important for you this week?

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Speaker 5: Well, there are a lot of data points, a lot

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Speaker 5: of days to follow this week. Well, first up today

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Speaker 5: we have the China data. I think the conclusion there

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Speaker 5: seems to be that we should be looking at full

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Speaker 5: the weakness. That should set the stage quite nicely for

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Speaker 5: further domestic easy by the Chinese authorities and the further

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Speaker 5: down the week, we have a number of central banks

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Speaker 5: in Asia that all of which we expect to stay

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Speaker 5: on hole, all for different reasons. The Bank Indonesia one

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Speaker 5: will be particularly interesting, just because of the domestic political

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Speaker 5: pressure that we're seeing over the past week. With fat easy,

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Speaker 5: you would have thought, you know, maybe a few months

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Speaker 5: ago that this would have been an easy decision for them.

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Speaker 4: But clearly, I think where most.

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Speaker 5: Market analysts, including ourselves, are expecting is a whole in

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Speaker 5: the meeting just because of the market volatility that they're

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Speaker 5: contenting with.

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Speaker 6: What about the FED though, I mean, as we said

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Speaker 6: it's it's expectation around the first fake cut this year.

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Speaker 6: I mean, it's not significant than is that going to

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Speaker 6: be for the central banks in this region, especially when

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Speaker 6: at the same time we're monitoring that you want appreciation

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Speaker 6: that is supporting a lot of them market currencies.

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Speaker 4: Yeah, that's right.

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Speaker 5: So I think I think going into this first rate

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Speaker 5: cut this from the FAT, we are seeing a lot

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Speaker 5: of a lot of negative rate differentials with a lot

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Speaker 5: of the Asian central banks in the region. So that's

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Speaker 5: that's contrary to what we see in the headline currencies.

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Speaker 5: That has actually been a bit of an ankle for

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Speaker 5: the currencies in the region. So to the extent that

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Speaker 5: you know, the cent that the FAT is easing rates,

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Speaker 5: that is actually positive news. Follow central banks here who

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Speaker 5: are in the coming in the coming months possibly having

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Speaker 5: to content with slow and growth. The fact that inflation,

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Speaker 5: this infliction has been tapering off a little bit and

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Speaker 5: plituing at about two percent one of the HILF percent.

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Speaker 4: There's a pretty low inflation print.

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Speaker 5: But central banks in the region are looking to be

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Speaker 5: a little bit more dubvish to lean towards an easy

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Speaker 5: bias to support the economy. Given the trade uncertainties are

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Speaker 5: finally settling in. So I think, you know, the fat

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Speaker 5: cutting rates by twenty five big or perhaps even fifty dips,

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Speaker 5: that will be pretty good newsful for the regional center tents.

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Speaker 1: But Louise, let's back out a little bit. Are we

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Speaker 1: correct in assuming the FED is now firmly on an

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Speaker 1: easing path because markets are pricing in the fact that

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Speaker 1: perhaps the focus will be much more on the jobs

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Speaker 1: market slowing down, we still have inflation to contend with.

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Speaker 1: So what happens after the first twenty five basis point

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Speaker 1: rate cut?

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Speaker 5: Yeah, I think the way we have characterized the fat

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Speaker 5: cutting cycle this time around is one of normalization rather

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Speaker 5: than easy. You're right, the jobs report obviously is not competing,

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Speaker 5: but the number set the jobs numbers that we see

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Speaker 5: does imply that that deterioration in trend job growth has

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Speaker 5: been more graduate than we thought before. So that's positive news,

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Speaker 5: as positive as you can pick from from these numbers.

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Speaker 5: And the fact that inflation inflation is not really on

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Speaker 5: the very clear path towards two percent, I think that

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Speaker 5: sort of dynamic is really forcing the FED to be

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Speaker 5: a little the more cautious that maybe the outright fifty

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Speaker 5: BIPs that we that some some parts of the markets

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Speaker 5: are expecting. So given that, you know, I think that

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Speaker 5: the toculus is really towards the fat, moving rates very

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Speaker 5: gradually towards neutral, which we think is about three percent

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Speaker 5: three point one percent with that starting of that twenty

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Speaker 5: five bits that we see that we were likely to

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Speaker 5: see in September and maybe perhaps another twenty five in December.

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Speaker 1: And louis also very consequential when it comes to the

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Speaker 1: global bond markets, has been the Bank of Japan as well,

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Speaker 1: especially with JGB yields in the long end surging. What

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Speaker 1: are we expecting in this week's decision and when could

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Speaker 1: we expect the first rate hike?

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Speaker 5: Well, so in the case of back of Japan, the

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Speaker 5: calculus that is really whether not economic activity is going

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Speaker 5: to be strong enough. We have seen some signs of

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Speaker 5: inflation in recent quarters, so that's positive. But you know,

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Speaker 5: in general, we think that the terror shock, the peak

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Speaker 5: terror shop to the economy is going to come towards

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Speaker 5: the second half of this year. So the Bank of

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Speaker 5: Japan in our view, is likely to stay foot for

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Speaker 5: a while. And I'll view our our japan economists view

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Speaker 5: is that the central part will start hiking again only

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Speaker 5: in the second half of next year.

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Speaker 1: What does that mean for the Japanese yeen? I mean,

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Speaker 1: Animal just brought up the yuan's anchoring role when it

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Speaker 1: comes to Mordu markets, but the Japanese yen has also

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Speaker 1: been really range bound. And what does that mean for

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Speaker 1: the other side of the trade with the US dollar

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Speaker 1: as well?

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Speaker 5: I think the fact that given that the fat is

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Speaker 5: going to cutting rates, great differentials are in pavor of

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Speaker 5: the yuan, and so therefore, you know, you should expect

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Speaker 5: some appreciation parriers in the quarters ahead. Now, having said that,

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Speaker 5: I think there's a lot of mosatility in the market.

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Speaker 4: To see through, to work through.

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Speaker 5: So it may be the case that you know, the

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Speaker 5: dollar might find exputing again towards the end of this

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Speaker 5: year next year, and that should, you know, be a

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Speaker 5: little bit of a booth for the economies off of

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Speaker 5: the for the regional currencies here al here in Asia, WISTU.

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Speaker 1: Good to have you with us lead economists at Oxford Economics.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg