WEBVTT - Big Tech Slips Ahead of Nvidia Earnings, Canada-China Tariffs 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.320 --> 0:00:13.040 This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis 0:00:13.119 --> 0:00:15.840 along with Doug Krisner. Join us each day for the 0:00:15.880 --> 0:00:19.280 stories making news and moving markets in the Asia Pacific. 0:00:19.480 --> 0:00:21.880 You can subscribe to the show anywhere you get your 0:00:21.920 --> 0:00:25.799 podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and 0:00:25.920 --> 0:00:27.280 the Bloomberg Business App. 0:00:27.560 --> 0:00:30.040 Let's get to our guest, Alex wolf is with us, 0:00:30.120 --> 0:00:33.720 a head of Asia Investment strategy at JP Morgan Private Bank, 0:00:33.760 --> 0:00:36.480 and Alex joins us from our studios in Hong Kong. 0:00:36.840 --> 0:00:38.680 Good of you to make time to chat with us. 0:00:38.680 --> 0:00:41.800 I hope you're doing well. We're talking a lot about 0:00:41.840 --> 0:00:44.880 the interest rate environment here and what is being described 0:00:44.960 --> 0:00:47.559 as the Powell pivot now as the result of what 0:00:47.600 --> 0:00:49.640 we heard at Jackson Hole. Do you think this is 0:00:49.680 --> 0:00:51.640 a major inflection point for markets? 0:00:52.880 --> 0:00:55.920 It seems so. It does look like how they assess 0:00:56.000 --> 0:00:58.720 the balance of risks have shifted. Where you go back 0:00:58.720 --> 0:01:01.200 to the summer. Just before the summer, the risk was 0:01:01.240 --> 0:01:04.200 really moving too soon, the risk of inflation reigniting if 0:01:04.200 --> 0:01:06.840 they cut too much too soon, whereas now after the 0:01:06.920 --> 0:01:09.520 labor market data and some signs of weakness. It's really 0:01:09.520 --> 0:01:11.720 the risk of waiting too long and how they balance 0:01:11.760 --> 0:01:13.440 that has shifted over the course of the year, but 0:01:13.720 --> 0:01:16.240 it does appear that they are balancing waiting too long 0:01:16.319 --> 0:01:21.240 as a more significant risk. So we could see as 0:01:21.240 --> 0:01:22.880 we expect, three cuts for this of this year and 0:01:23.240 --> 0:01:25.560 then a few more into next year, but there's still 0:01:25.560 --> 0:01:27.679 a very open question mark as to how much, because 0:01:27.680 --> 0:01:29.400 they do have quite a bit of room to cut 0:01:29.440 --> 0:01:32.080 to bring rates to neutral. So it is an inflection point. 0:01:32.080 --> 0:01:33.880 Markets are already pricing a lot of it in, though 0:01:33.959 --> 0:01:36.760 so not necessarily from a purely from a markets perspective, 0:01:36.760 --> 0:01:38.480 but inflection point for what we're going to see in 0:01:38.520 --> 0:01:39.559 terms of the interest rate environment. 0:01:39.600 --> 0:01:41.560 You know, it's very interesting because we heard before the 0:01:41.600 --> 0:01:44.240 power speech, we heard from the Governor of the Bank 0:01:44.240 --> 0:01:47.559 of Japan, Kazuo Auweita, and he was saying last Friday, 0:01:47.600 --> 0:01:51.040 the BOJ is likely going to continue raising interest rates. 0:01:51.640 --> 0:01:53.440 Is that going to happen between now and the end 0:01:53.480 --> 0:01:55.680 of the year. I'd heard earlier that maybe the BOJ, 0:01:55.880 --> 0:01:58.000 given the turbulence that we had and a lot of 0:01:58.440 --> 0:02:01.680 market volatility, particular in the foreign exchange, that maybe the 0:02:01.720 --> 0:02:04.320 boj would wait until March. Do you think it will 0:02:04.360 --> 0:02:05.000 happen sooner? 0:02:05.920 --> 0:02:09.520 So their speech, that the most recent speech, has shifted 0:02:09.560 --> 0:02:12.400 the view a bit because when they were looking at 0:02:12.400 --> 0:02:14.720 the market volatility after the most recent hike, then they 0:02:14.760 --> 0:02:17.519 gave indication they would not. Now as markets calm down, 0:02:17.680 --> 0:02:20.160 data comes through strong, they're given an indication that they could. 0:02:20.960 --> 0:02:23.160 We think it will be very, very dependent on what 0:02:23.160 --> 0:02:24.880 we're seeing, both in terms of you know, you say 0:02:24.919 --> 0:02:26.760 central banks are data dependent in many ways, a BODA 0:02:26.880 --> 0:02:29.679 is market dependent what happens from a market volatility perspective, 0:02:29.800 --> 0:02:32.760 but also what happens in terms of a US growth perspective. 0:02:33.120 --> 0:02:35.600 If US growth stays okay, we see the soft land 0:02:35.600 --> 0:02:40.080 and continue, the backdrop of Japanese markets stays or volatility 0:02:40.120 --> 0:02:43.560 comes down, then yes they absolutely could because the macro 0:02:43.639 --> 0:02:46.079 backdrop p byab points to another cut. But I think 0:02:46.080 --> 0:02:49.880 those two factors will really be the determining factors whether 0:02:49.919 --> 0:02:51.320 or not they go before the end of this year 0:02:51.440 --> 0:02:52.639 or they wait until next year. 0:02:52.680 --> 0:02:54.840 So if we look at the currencies in and of themselves, 0:02:54.919 --> 0:02:57.880 I'm thinking the path forward for the dollar against the 0:02:58.000 --> 0:03:01.320 end is weaker and the end is on course. I 0:03:01.360 --> 0:03:04.280 would think to appreciate. Is that a good way of 0:03:04.280 --> 0:03:05.040 thinking about it? 0:03:05.120 --> 0:03:09.120 I think not necessarily, because the end has already appreciated 0:03:09.200 --> 0:03:12.360 quite a bit, and you already see a lot of 0:03:12.560 --> 0:03:16.080 cuts Fed cuts in the price, so to speak. So 0:03:16.120 --> 0:03:18.400 I think you would have to see the FED surprising 0:03:18.720 --> 0:03:21.880 on the dubbish side for the dollar to really depreciate 0:03:22.360 --> 0:03:24.680 against the end, given how much move we've already we've 0:03:24.680 --> 0:03:27.480 already seen. So it does look like the current path 0:03:27.560 --> 0:03:31.480 of the current path of a consensus path around rates 0:03:31.760 --> 0:03:33.639 is someone in the price on the currency perspective, because 0:03:33.639 --> 0:03:35.880 the move has been fairly substantial. But yeah, if the 0:03:36.000 --> 0:03:37.960 Fed does a surprise on the other side, then yes 0:03:38.000 --> 0:03:40.080 we will see dollard appreciation, likely against the end. 0:03:40.720 --> 0:03:43.000 So later today in China will have the numbers on 0:03:43.080 --> 0:03:45.680 industrial profits. Give me your view of what's happening there. 0:03:45.720 --> 0:03:48.480 I mean, it seems as though the economy has just 0:03:48.560 --> 0:03:52.360 been mired in stagnation. We know about the troubles with 0:03:52.480 --> 0:03:55.520 the property market, to the resistance on the part of 0:03:55.560 --> 0:03:58.680 the government to do more to stimulate. Is there an 0:03:58.800 --> 0:03:59.400 end in sight? 0:04:01.480 --> 0:04:04.960 Depends how much time you have for us. I think 0:04:06.120 --> 0:04:10.920 you're suffering from a shortage of demand broad weak demand, 0:04:11.080 --> 0:04:15.920 both from a business capex perspective, business investment as well 0:04:15.960 --> 0:04:19.960 as household demand perspective, and on the policy side, have 0:04:20.040 --> 0:04:22.719 not done enough to really stimulate demand. That's really the 0:04:22.720 --> 0:04:25.359 crux of the problem. And it doesn't appear that we 0:04:25.640 --> 0:04:29.320 are facing an inflection point in the near future either, 0:04:29.560 --> 0:04:32.880 because policy has not been aggressive enough and it's continuing 0:04:32.920 --> 0:04:35.160 to focus on the supply side versus the demand side, 0:04:35.360 --> 0:04:38.480 which is continuing to exacerbate some of those imbalances and 0:04:38.560 --> 0:04:42.120 further push prices down in deflationary territory. So it really 0:04:42.160 --> 0:04:44.800 stems from that weakness of overall demand, and they're not 0:04:45.000 --> 0:04:46.359 yet doing enough to fix that. 0:04:47.000 --> 0:04:49.920 It seems like the other problem is just this dependence 0:04:49.960 --> 0:04:52.960 on the export economy. And you know, with talk now 0:04:53.000 --> 0:04:57.039 in the States about maybe revisiting the tariff issue, is 0:04:57.080 --> 0:05:00.240 there a problem for China if let's imagine that Trump 0:05:00.279 --> 0:05:05.919 administration gets another term and we're dealing with more tariffs 0:05:05.960 --> 0:05:09.200 on the way. I mean, is that potentially a major 0:05:09.240 --> 0:05:11.599 event for China and something that would hold back the 0:05:11.640 --> 0:05:13.000 export part of the economy. 0:05:13.440 --> 0:05:16.039 You know, I think the short answer is yes, but 0:05:16.120 --> 0:05:19.359 it depends on whether you see a broadening out versus 0:05:19.560 --> 0:05:22.680 just trade tensions with the US, because you're right, it 0:05:22.680 --> 0:05:25.039 has been a surprise to see China really go back 0:05:25.080 --> 0:05:28.600 to mid two thousand type economy that is more dependent 0:05:28.680 --> 0:05:31.080 on exports, and certainly it has been a very long time. 0:05:31.640 --> 0:05:35.200 And if you see many countries start to push back, 0:05:35.720 --> 0:05:39.560 raise trade restrictions, raised tariffs, somewhat close off their markets 0:05:39.600 --> 0:05:43.080 to Chinese exports, then that will have an impact because 0:05:43.160 --> 0:05:45.960 China has been at least from a growth perspective, you 0:05:46.000 --> 0:05:48.800 have seen net exports and how that feeds through into 0:05:48.839 --> 0:05:51.159 manufacturing and other aspects of the economy that has been 0:05:51.200 --> 0:05:56.120 a key driver. And so pushback that's more broad from 0:05:56.240 --> 0:05:59.440 a number of economies could then feed through and kind 0:05:59.440 --> 0:06:02.200 of hurt that at that growth engine right now that 0:06:02.200 --> 0:06:04.840 that that China is relying on. So it'll be key 0:06:04.880 --> 0:06:08.120 to see what are the countries step come through with 0:06:08.320 --> 0:06:09.520 their own trade restructures. 0:06:09.640 --> 0:06:12.599 One of the things that came became very clear after 0:06:12.640 --> 0:06:16.599 the pandemic is that many manufacturers were overly concentrated in 0:06:16.680 --> 0:06:20.560 China and they began to diversify away from the mainland 0:06:21.000 --> 0:06:23.280 very quickly. Here, Alex, is that a trend that's going 0:06:23.360 --> 0:06:24.400 to gather steam here? 0:06:26.200 --> 0:06:28.080 I don't think it's going to gather steam. I think 0:06:28.080 --> 0:06:33.640 it's continuing apace. China is a manufacturing powerhouse that most 0:06:33.680 --> 0:06:36.440 companies have to use and have to rely on, but 0:06:36.480 --> 0:06:39.000 many want to diversify with with kind of that China 0:06:39.000 --> 0:06:42.200 plus one or a few other locations just from a 0:06:42.240 --> 0:06:44.440 supply chain resiliency perspective. So I don't think it's going 0:06:44.520 --> 0:06:46.680 to gather steam. It has been a trend, it will 0:06:46.720 --> 0:06:48.760 continue to be a trend, but I don't think it's 0:06:48.760 --> 0:06:50.320 necessarily accelerating. 0:06:51.200 --> 0:06:54.320 Good conversation. Thanks for dropping by Alex Wilflare. He is 0:06:54.400 --> 0:06:57.719 head of Asian Investment Strategy at JP Morgan Private Bank. 0:06:58.080 --> 0:07:00.520 Joining from our studios in Hong Kong here on a 0:07:00.600 --> 0:07:09.760 daybreak asion, let's bring in our guests. Sarah Mallick is 0:07:09.760 --> 0:07:13.360 with us, the CIO of Neuven, who joins us on 0:07:13.440 --> 0:07:16.040 the line from San Francisco. Good of you to make 0:07:16.040 --> 0:07:18.920 time to chat with us, Sarah, I hope you're doing well. 0:07:19.040 --> 0:07:21.600 Let's talk first about the FED, because I think it's 0:07:21.600 --> 0:07:24.440 top of mind for many folks, particularly after what we 0:07:24.560 --> 0:07:28.400 heard from Chair Jay Powell last week. Seems like rate 0:07:28.480 --> 0:07:30.600 cuts are on the horizon. Do you think This is 0:07:30.600 --> 0:07:32.760 going to be a pretty slow and steady process. 0:07:34.200 --> 0:07:36.160 Hi, and yeah, thanks for having me. It's great to 0:07:36.200 --> 0:07:38.920 be here. We did get proof of the Powell pivot 0:07:38.960 --> 0:07:41.280 on Friday at Jackson Hole, which is the good news. 0:07:41.480 --> 0:07:44.080 I think the market's question is exactly what you just said. 0:07:44.360 --> 0:07:46.480 We're moving now from when are we getting ratecuts to 0:07:46.520 --> 0:07:48.760 how many rate cuts are we getting. I think the 0:07:48.800 --> 0:07:51.680 market's maybe overly optimistic in the short term about the 0:07:51.760 --> 0:07:54.000 number of rate cuts we're going to get because the 0:07:54.040 --> 0:07:57.040 economy is not on the cusp of a recession. Inflation 0:07:57.200 --> 0:08:00.240 is now trending towards two percent, which is the fed's target. 0:08:00.360 --> 0:08:02.720 So I think we start slowly twenty five basis points 0:08:02.720 --> 0:08:05.040 in September. Then the Fed may take a little bit 0:08:05.040 --> 0:08:07.120 of a wait and see and do another twenty five 0:08:07.160 --> 0:08:08.720 at the end of the year, and then we'll see 0:08:08.720 --> 0:08:11.239 what happens with the economy and what happens with inflation, 0:08:11.480 --> 0:08:13.640 because let's not forget at the beginning of twenty twenty 0:08:13.640 --> 0:08:15.560 four inflation was actually reaccelerating. 0:08:15.600 --> 0:08:17.960 Again, that's a good point. Let's talk a little bit 0:08:17.960 --> 0:08:22.760 about megacap tech the Magnificent seven, using the Bloomberg gauge 0:08:22.840 --> 0:08:25.760 as a kind of a metric here was down today 0:08:26.160 --> 0:08:28.480 broadly at around nine tens of one percent. We do 0:08:28.560 --> 0:08:31.960 have the results from Nvidia after the bell on Wednesday. 0:08:31.960 --> 0:08:33.880 What are you expecting to hear from Nvidia? 0:08:35.040 --> 0:08:36.880 Yeah, I think in Nvidia the important thing is going 0:08:36.920 --> 0:08:40.160 to be any commentary about the adoption of AI. I 0:08:40.240 --> 0:08:42.880 think what people want to want to know is when 0:08:42.960 --> 0:08:45.280 is artificial intelligence going to show up in terms of 0:08:45.360 --> 0:08:49.120 increasing revenues and productivity for companies. You know, in Nvidia 0:08:49.200 --> 0:08:53.200 already rebounding almost around twenty percent since the August lows, 0:08:53.240 --> 0:08:55.400 so the stock has you know, quite a bit of 0:08:55.600 --> 0:08:58.880 optimism in it already, and so I think people are 0:08:58.880 --> 0:09:00.920 cautious going into the number. But if you look at 0:09:00.920 --> 0:09:03.800 prior quarters for Nvidia, they've tended to bet and raise 0:09:03.840 --> 0:09:06.199 and put up very strong numbers. So I certainly wouldn't 0:09:06.240 --> 0:09:08.280 count out a strong quarter from them. I think it 0:09:08.320 --> 0:09:10.520 will be. But the question is what's in the stock 0:09:10.559 --> 0:09:12.360 price and how much higher can it go from here, 0:09:12.520 --> 0:09:14.520 since it's already rebounded quite a bit in the last 0:09:14.520 --> 0:09:15.000 few weeks. 0:09:15.040 --> 0:09:17.600 So you're in San Francisco, obviously you're very close to 0:09:17.640 --> 0:09:19.959 Silicon Valley, but within the city there are a lot 0:09:20.000 --> 0:09:23.280 of AI startups. What's your sense of what's happening right now? 0:09:23.320 --> 0:09:28.800 Where are we in this phase of adopting this new technology. 0:09:30.240 --> 0:09:32.480 I think we're in a bit of a consolidation phase. 0:09:32.480 --> 0:09:34.400 So if you look at these new technologies when they 0:09:34.440 --> 0:09:36.520 come out, first of all, at the beginning, there's a 0:09:36.559 --> 0:09:37.960 lot of excitement around something. 0:09:38.040 --> 0:09:38.720 It's new. 0:09:39.280 --> 0:09:41.480 Companies are very excited about it. I think we've already 0:09:41.520 --> 0:09:43.320 gone through a lot of that phase. You see a 0:09:43.360 --> 0:09:46.000 lot of the companies that dominate in the space performing 0:09:46.080 --> 0:09:48.360 very well. Then there's a bit of a consolidation phase 0:09:48.640 --> 0:09:51.400 where investors start to think about, Okay, how is this 0:09:51.400 --> 0:09:54.600 actually going to get adopted into clients business models, how 0:09:54.640 --> 0:09:57.160 is it going to be used? I think artificial intelligence 0:09:57.200 --> 0:10:01.560 over time will show a big push improvement in productivity 0:10:01.720 --> 0:10:04.160 and revenue growth for companies, but it's going to take 0:10:04.200 --> 0:10:05.720 a while, and that's the phase that we're in now. 0:10:05.760 --> 0:10:07.760 A bit of a weight and see. But when you 0:10:07.800 --> 0:10:10.120 look at the companies that have invested heavily in this 0:10:10.200 --> 0:10:13.079 space for many years, like Microsoft and also in Vidia, 0:10:13.120 --> 0:10:15.000 that sort of wins because it's in the center of 0:10:15.040 --> 0:10:18.280 everything and every company that uses AI, those are going 0:10:18.320 --> 0:10:20.240 to be clear winners over time, it's just a matter 0:10:20.280 --> 0:10:22.520 of what price do you want to own them, and 0:10:22.559 --> 0:10:24.720 the quarter to quarter maybe volatile over time. 0:10:24.920 --> 0:10:27.520 So if you look at the rivalry between the US 0:10:27.520 --> 0:10:31.040 and China, particularly where technology is concerned, is the US 0:10:31.080 --> 0:10:34.480 so far out in front that there's nothing to worry 0:10:34.520 --> 0:10:36.640 about or are you of the view that maybe we 0:10:36.679 --> 0:10:38.880 should be looking over our shoulder when I say we 0:10:39.679 --> 0:10:43.600 folks in the United States that are really invested in 0:10:43.800 --> 0:10:47.319 this technology and probably be a little bit more concerned 0:10:47.320 --> 0:10:49.440 about what China is trying to do to catch up. 0:10:50.920 --> 0:10:54.319 Well, I certainly wouldn't bet against US technology. I think 0:10:54.360 --> 0:10:58.160 the US does have a strong lead in that sector. 0:10:58.480 --> 0:11:01.560 But always in any sector that's growing quickly, where things 0:11:01.559 --> 0:11:04.040 are changing very rapidly, you always need to be looking 0:11:04.040 --> 0:11:06.760 over your shoulder and most importantly thinking about what's in 0:11:06.840 --> 0:11:09.320 front of you. And so you know, for any US companies, 0:11:09.360 --> 0:11:11.920 any new technology, at any time, you know there's going 0:11:11.960 --> 0:11:13.760 to be startups. There's going to be different areas of 0:11:13.800 --> 0:11:16.040 the world that could come up with ideas that leapfrog 0:11:16.080 --> 0:11:18.000 where we are today. So I think, you know, it's 0:11:18.040 --> 0:11:21.720 important the US has shown a dominance in technology in AI. 0:11:23.120 --> 0:11:25.640 You know in digital technology for a number of years now, 0:11:25.640 --> 0:11:28.280 and that's why growth stocks have tended to outform on 0:11:28.280 --> 0:11:31.640 an annual basis for most of the prior decade plus. 0:11:31.640 --> 0:11:34.040 But we definitely still need to keep an eye on 0:11:34.120 --> 0:11:35.800 the rest of the world and what's happening in those 0:11:35.840 --> 0:11:38.840 areas you Our view in general is that emerging markets 0:11:38.840 --> 0:11:42.720 look attractive here. Their valuations are attractive, they have strong 0:11:42.760 --> 0:11:46.240 earnings growth expectations going forward, and global portfolio managers have 0:11:46.320 --> 0:11:48.920 tended to be under allocated to emerging markets. But the 0:11:48.960 --> 0:11:53.680 areas that we favor are Indonesia, Brazil, and in international development, 0:11:53.720 --> 0:11:56.880 we like Japan and India. I think China still has 0:11:57.240 --> 0:11:58.800 some issues that it needs to work through. 0:11:59.000 --> 0:12:01.040 One of the things that I think is going on 0:12:01.120 --> 0:12:03.520 in terms of the advancements that China had hoped to 0:12:03.559 --> 0:12:06.600 make in terms of technology the export controls that were 0:12:06.600 --> 0:12:09.920 imposed on the part of the Biden administration where high 0:12:10.000 --> 0:12:14.600 quality semiconductors were concerned. We've got an election in November. 0:12:14.880 --> 0:12:17.400 Is there a policy change that you would like to 0:12:17.440 --> 0:12:21.040 see from either the Trump administration should there be one, 0:12:21.200 --> 0:12:23.560 or the Harris administration, should there be one. 0:12:24.960 --> 0:12:28.040 I think definitely tariffs have had a heightened impact on 0:12:28.480 --> 0:12:31.880 China and its growth rate. And also post the pandemic, 0:12:31.920 --> 0:12:35.040 where many countries, including the US, have moved to onshore 0:12:35.080 --> 0:12:38.040 and near shoring of manufacturing and supply change so that 0:12:38.080 --> 0:12:41.320 we can rely more more positively on our supply change. 0:12:41.320 --> 0:12:43.240 So those are two trends that I think also help 0:12:43.440 --> 0:12:45.920 the United States in general. You know, I think generally, 0:12:46.000 --> 0:12:48.559 you know, in terms of regulations and policies going forward, 0:12:48.760 --> 0:12:50.079 it's a bit of a wait and see. But I 0:12:50.080 --> 0:12:52.080 think most importantly is they should be set in place 0:12:52.120 --> 0:12:54.600 so that we can advance as quickly as possible in 0:12:54.679 --> 0:12:57.720 terms of technology in a safe way so that you know, 0:12:57.760 --> 0:13:01.600 it can help productivity for companies, consumers, help companies grow 0:13:01.600 --> 0:13:03.880 their revenues, and you know, we can stay ahead because 0:13:03.920 --> 0:13:06.280 if the US isn't doing it, or China isn't doing it, 0:13:06.360 --> 0:13:08.200 build be another region of the world that is doing it. 0:13:08.240 --> 0:13:10.480 So we need to make sure that, you know, technology 0:13:10.520 --> 0:13:13.840 is advancing on a global basis as quickly as it 0:13:13.920 --> 0:13:16.319 can in a way that's safe for people to use. 0:13:16.520 --> 0:13:18.319 So if we can agree that there is weakness in 0:13:18.360 --> 0:13:21.760 the Chinese economy, I'm curious is to the bullish case 0:13:21.760 --> 0:13:24.320 that you're making for Japan because I believe that China 0:13:24.440 --> 0:13:28.719 is Japan's largest trading partner. Now things may be improving 0:13:28.800 --> 0:13:31.640 for corporate Japan. One of the things that had been 0:13:31.760 --> 0:13:35.480 kind of a good tailwind was the weaker end, but 0:13:35.559 --> 0:13:38.360 that seems to have turned around just a bit. Give 0:13:38.360 --> 0:13:41.120 me your case for putting money to work in Japan 0:13:41.200 --> 0:13:41.600 right now. 0:13:42.720 --> 0:13:46.640 Sure, So japan currency volatility has definitely had an impact 0:13:46.920 --> 0:13:49.200 of factors for Japan that we like, or companies that 0:13:49.200 --> 0:13:52.400 are domestically oriented, that are oriented that are more protected 0:13:52.720 --> 0:13:58.360 from export issues from currency issues. Sectors like financials five 0:13:58.480 --> 0:14:01.080 X are very strong there. Return on equity is strong, 0:14:01.160 --> 0:14:03.679 so a company like Orrex which has a fifty billion 0:14:03.760 --> 0:14:06.720 yen buy back in place and strong first quarter results. 0:14:07.000 --> 0:14:09.079 And then we also like companies that are paying dividends 0:14:09.080 --> 0:14:12.439 that provide income to investors. So construction companies which aren't 0:14:12.440 --> 0:14:15.440 exposed to a lot of oversea product overseas projects are 0:14:15.480 --> 0:14:18.840 attractive to us, like Shimizu and Tayse. So I think, Japan, 0:14:18.880 --> 0:14:20.320 do you want to say in the companies that are 0:14:20.400 --> 0:14:23.600 less exposed to external factors outside of the country. 0:14:24.120 --> 0:14:27.440 We had an announcement today from Apple very quickly is 0:14:27.440 --> 0:14:29.120 this a company that do you want to take another 0:14:29.160 --> 0:14:31.640 look at if you are not already invested in Apple. 0:14:32.920 --> 0:14:35.600 So we have been owners of Apple for quite a 0:14:35.640 --> 0:14:37.440 long time. If you look at Apple from a seasonal 0:14:37.480 --> 0:14:39.960 point of view, the seasonal positive trade for them tends 0:14:39.960 --> 0:14:42.640 to be made to September, leading up to that iPhone 0:14:42.680 --> 0:14:44.920 launch that you mentioned that's coming out in a couple 0:14:44.960 --> 0:14:48.280 of weeks. So seasonally, I think Apple is a stock 0:14:48.360 --> 0:14:50.240 that is at the tail end of when it tends 0:14:50.240 --> 0:14:52.160 to do well. But it's also a bit under owned 0:14:52.280 --> 0:14:53.760 and a bit more stable than some of the other 0:14:53.800 --> 0:14:55.880 mag seven. So I think that Apple is still a 0:14:55.880 --> 0:14:58.720 company that investors want to keep within their portfolios as 0:14:58.720 --> 0:15:01.160 they implement more artificial intelligence into their phones. 0:15:01.320 --> 0:15:03.400 Sarah, good stuff. Thank you so much for being with us. 0:15:03.400 --> 0:15:06.120 Sarah Mallick from Neuvene, joining us here on a day 0:15:06.120 --> 0:15:16.320 break Asia. This is Bloomberg. Our guest is Laurence saidel Baker, 0:15:16.400 --> 0:15:21.880 economist at ITR Economics, joining us from Manchester, New Hampshire. Lauren, 0:15:21.920 --> 0:15:24.160 thanks for being with us. Let's begin with the Fed, 0:15:24.280 --> 0:15:26.400 shall we. What did you think of what we heard 0:15:26.480 --> 0:15:28.640 from Powell last Friday? 0:15:28.840 --> 0:15:32.360 Yes, Friday's comments from share Powell. We're a stunning a 0:15:32.360 --> 0:15:34.880 burst of clarity from a FED chair who does not 0:15:35.000 --> 0:15:37.760 usually like to give the market that much clarity. So 0:15:37.800 --> 0:15:40.600 I think he has all but cemented rate cuts to 0:15:40.600 --> 0:15:43.240 come in September. I firmly believe we're in that twenty 0:15:43.240 --> 0:15:46.040 five basis point camp. So the market likely to be 0:15:46.080 --> 0:15:49.120 a little bit disappointed. I think many market participants were 0:15:49.160 --> 0:15:51.840 looking for a bit more out of the gate, but 0:15:51.920 --> 0:15:54.640 twenty five basis points in September, we'll start that rate 0:15:54.720 --> 0:15:55.320 cutting cycle. 0:15:55.520 --> 0:15:58.640 So if you had to evaluate the Fed's performance throughout 0:15:58.640 --> 0:16:01.920 this period where they've struggle to normalize in an environment 0:16:01.960 --> 0:16:05.640 where inflation has been stubborn, I mean, transitory is one 0:16:05.720 --> 0:16:09.120 term that got thrown around quite a bit, and then 0:16:09.240 --> 0:16:12.320 that proved not to be the case. We saw something 0:16:12.360 --> 0:16:15.360 a little bit more durable. Now inflation seems to be 0:16:15.520 --> 0:16:20.120 no longer at a boil. Are you critical of the 0:16:20.160 --> 0:16:24.160 way that the FED executed You know, the Fed. 0:16:24.040 --> 0:16:26.160 Was doing the best they could in what was really 0:16:26.160 --> 0:16:30.000 an unprecedented scenario. On Friday, Chair Palell, he actually made 0:16:30.080 --> 0:16:33.720 jokes about how everyone thought inflation would be transitory. He 0:16:33.760 --> 0:16:36.280 called us all sailors on the good ship transitory I 0:16:36.320 --> 0:16:38.880 believe was the uh, well, what passes for a joke 0:16:38.920 --> 0:16:41.640 in central banker speak at least, And so the FED 0:16:41.680 --> 0:16:43.960 certainly does have one eye on the history books and 0:16:43.960 --> 0:16:45.800 how this time will be remembered. But we have to 0:16:45.920 --> 0:16:48.760 remember we did not know what we were up against 0:16:48.840 --> 0:16:52.600 with COVID. So many of these inflationary impacts, they were 0:16:52.680 --> 0:16:56.160 the pandemic echoes, they were the supply chain hurdles. But 0:16:56.480 --> 0:16:59.440 many of them have also just been stubborn due to 0:16:59.520 --> 0:17:01.840 the fact that our labor market is tight. It's tight 0:17:01.840 --> 0:17:05.119 for demographic issues, it's not tight for really the types 0:17:05.160 --> 0:17:07.919 of things that the FED has control over. So I 0:17:07.920 --> 0:17:11.960 think they're doing what they can. Again, they can't control demographics, 0:17:11.960 --> 0:17:14.280 and at some point that is what's going to control 0:17:14.320 --> 0:17:17.120 the labor market, I firmly believe in twenty twenty five 0:17:17.160 --> 0:17:17.600 and beyond. 0:17:17.840 --> 0:17:20.399 So how do you evaluate the labor market right now? 0:17:20.440 --> 0:17:23.680 We had the adjustment from BLS last week, we'll get 0:17:23.720 --> 0:17:27.159 non farm payrolls a week from this Friday. Are you 0:17:27.280 --> 0:17:31.040 seeing a deterioration in the labor market to the extent 0:17:31.080 --> 0:17:34.119 to which we should be looking for much weaker growth 0:17:34.200 --> 0:17:40.919 or are things kind of holding up fairly well. 0:17:38.880 --> 0:17:42.280 So I really want to separate direction from the level 0:17:42.359 --> 0:17:45.520 or the magnitude. So yes, we are seeing deterioration in 0:17:45.560 --> 0:17:49.240 the labor market. That said, this deterioration is coming from 0:17:49.359 --> 0:17:53.639 just an incredibly tight starting point. So we're seeing some loosening, 0:17:53.680 --> 0:17:56.320 but we are still tight by any historical standard. If 0:17:56.320 --> 0:17:58.720 you compare any of these measures back to their trailing 0:17:58.760 --> 0:18:01.560 five or ten year average, just certainly to their long 0:18:01.640 --> 0:18:04.359 term averages, this is still a tight market. We still 0:18:04.400 --> 0:18:08.200 do not have one unemployed worker for each available job opening. 0:18:08.280 --> 0:18:10.880 Now we're a far cry from the two job openings 0:18:10.920 --> 0:18:13.960 to one available worker ratio that we saw at the 0:18:14.359 --> 0:18:17.359 worst of this time, but not back to that one 0:18:17.400 --> 0:18:20.080 to one ratio. So the labor market will be tight 0:18:20.440 --> 0:18:23.040 by twenty twenty five when growth picks back up again. 0:18:23.080 --> 0:18:25.879 We're already seeing some of these green shoots, already seeing 0:18:25.880 --> 0:18:29.000 those kind of leading indicators come into play, so there 0:18:29.040 --> 0:18:31.359 will be more demand for these workers. And again we 0:18:31.400 --> 0:18:34.440 don't have some new glut of workers coming on the scene. 0:18:34.760 --> 0:18:38.000 We have the Baby boomers finally retiring, finally aging out. 0:18:38.080 --> 0:18:41.480 We don't have another huge generation Gen Z. They're aging 0:18:41.560 --> 0:18:45.840 into labor force participation now. They're actually a smaller generation 0:18:45.920 --> 0:18:49.400 than the millennials were. So until we see businesses really 0:18:49.480 --> 0:18:52.960 invest in automation really replacing the need for these workers, 0:18:53.160 --> 0:18:55.600 this will be a challenge going forward and something that 0:18:55.640 --> 0:18:58.879 we will have to balance our first of all behavior 0:18:58.960 --> 0:19:01.720 as businesses, but also just our understanding of what is 0:19:01.800 --> 0:19:03.040 a balanced labor market. 0:19:03.119 --> 0:19:05.760 You'll have to forgive me. When I'm listening to the 0:19:05.800 --> 0:19:08.679 points that you're making, my reaction is that you're in 0:19:08.720 --> 0:19:10.760 the soft landing camp. Is that true? 0:19:11.600 --> 0:19:13.680 I think it's too soon to take a victory laugh, 0:19:15.200 --> 0:19:18.879 But you know, it's if this is a recession and 0:19:19.280 --> 0:19:22.200 it's not a GDP recession. Very clearly we are seeing 0:19:22.240 --> 0:19:26.760 manufacturing activity contract very mildly. The industrial economy, i'll call 0:19:26.840 --> 0:19:29.760 it flat. That's largely plateaued for about a year now. 0:19:29.760 --> 0:19:32.840 It was really since last August that we saw flatness 0:19:32.840 --> 0:19:35.520 in the industrial sector. So it depends where you're sitting 0:19:35.560 --> 0:19:38.360 as to how you feel this cycle. But if your 0:19:38.359 --> 0:19:42.120