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Speaker 1: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. This

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Speaker 1: week's key data point for markets is the USCPI print.

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Speaker 1: It happens on Wednesday, and in a moment we'll consider

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Speaker 1: the outlook for US inflation and how the Fed may

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Speaker 1: respond with Lawrence Gillim. He is the chief fixed income

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Speaker 1: strategist at LPL Financial. But first economic stimulus in China.

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Speaker 1: The country's top leaders recently signaled a more forceful approach

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Speaker 1: in stimulus for the next year. Let's bring in Bloomberg's

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Speaker 1: Chill Disis. She is our news desk editor, joining from

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Speaker 1: Hong Kong. Jill, I want to begin with a language

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Speaker 1: that's being used by the Polet Bureau. How would you

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Speaker 1: characterize it and is it different from what we've heard

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Speaker 1: in the past.

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Speaker 2: Yes, Doug, I think this is absolutely significant. So what

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Speaker 2: the Polet Bureau did, is they so right now? This

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Speaker 2: is December, This is the time of the year when

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Speaker 2: the pollt Bureau, when a lot of other China's top

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Speaker 2: leaders all get together and they start to talk about

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Speaker 2: what policy is going to look like in twenty twenty five.

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Speaker 2: So in a way you can kind of think of

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Speaker 2: this as sort of their forward guidance for next year, right,

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Speaker 2: And what they've actually done here is they've said they

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Speaker 2: want to embrace what they call a moderately loose monetary

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Speaker 2: policy in twenty twenty five. I mean, when it comes

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Speaker 2: to China, you know, everything is always just a little

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Speaker 2: bit opaque. But this is pretty significant because it represents,

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Speaker 2: for the first time in nearly fourteen years, a shift

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Speaker 2: from a more restrictive stance what the polyp Beer has

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Speaker 2: called quote unquote prudent. And this is all, you know,

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Speaker 2: kind of in response to some you know concerns around

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Speaker 2: you know, what's happening with you know, deflation or you know,

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Speaker 2: sort of dissflationary concerns in China, some of these price

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Speaker 2: pressures and concerns about economic growth, and then also what's

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Speaker 2: happening with, you know, within the geopolitical sphere more broadly.

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Speaker 2: And so what this tells us about how China is

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Speaker 2: approaching policy in twenty twenty five is that, you know, this,

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Speaker 2: this is an economy that for the last decade or

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Speaker 2: so has been pretty restrictive about how much stimulus they

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Speaker 2: actually roll out publicly. I mean, you know, you go

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Speaker 2: back to you have to go back all the way

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Speaker 2: to the Great Recession to actually find when they were

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Speaker 2: introducing tons and tons of stimulus into the economy. They've

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Speaker 2: been much more cautious recently, but it does seem like

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Speaker 2: they're willing to make some changes here to actually get

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Speaker 2: things growing in the economy.

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Speaker 1: So it's curious. I mean, I'm wondering whether any of

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Speaker 1: this is related to the possibility that Beijing is anticipating

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Speaker 1: a much more adversarial relationship with the US when Donald

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Speaker 1: Trump takes office. Do you think that's a part of

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Speaker 1: the story here.

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Speaker 2: It may be. I mean, look, you know, China has

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Speaker 2: dealt with Donald Trump before. I'm sure Shi Jinping is

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Speaker 2: credibly mindful of the relationship that these two had. During

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Speaker 2: the first Trump administration, obviously, that's when the trade war

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Speaker 2: was launched. You saw Donald Trump talk incredibly tough on China,

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Speaker 2: and you saw quite a few you know, tariffs and

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Speaker 2: other restrictions come into a fact then that you know,

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Speaker 2: quite frankly, just weren't you know they were kept in place, right,

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Speaker 2: I mean, the Biden administration actually kept in place and

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Speaker 2: actually tightened a lot of restrictions. I mean, the US

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Speaker 2: does have at this point. While you know, these two

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Speaker 2: economies the world's largest do depend on each other in

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Speaker 2: many ways. There's still this adversarial relationship that's developing. And

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Speaker 2: I'm sure Shehijin Ping is thinking about the fact that

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Speaker 2: during Donald Trump's latest presidential campaign, he was talking about

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Speaker 2: imposing tariffs of boards of sixty percent on China for

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Speaker 2: certain goods. I mean, this is not a relationship that

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Speaker 2: seems to be improving in that sphere anytime soon. And

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Speaker 2: so if you're China, you're sitting there thinking, well, you know,

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Speaker 2: you obviously want to keep things going. You want to

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Speaker 2: you know, keep your economy growing, but you do have

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Speaker 2: to hedge against the fact that the relationship but the

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Speaker 2: US doesn't really seem like it's going to be improving

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Speaker 2: meaningfully anytime.

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Speaker 1: Soon, particularly when you consider the fact that the export

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Speaker 1: segment of the Chinese economy is really one of the

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Speaker 1: strong points, right. I mean, you consider the fact that

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Speaker 1: consumer sentiment, business sentiment even has been very, very weak.

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Speaker 1: The property market obviously has been a big culprit. But

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Speaker 1: if we go back for a moment to the stimulus package,

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Speaker 1: how much of this is being addressed to kind of

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Speaker 1: target the property market, to target the equity market as

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Speaker 1: a way of boosting sentiment.

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Speaker 2: Yes, Doug, Well, I think that at this point. Ye, certainly,

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Speaker 2: sentiment is an issue here, and you know, sometimes we've

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Speaker 2: seen China kind of target these announcements to kind of

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Speaker 2: get you know, the sort of the equities market moving. Again,

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Speaker 2: Remember China, it's a pretty closed off system, so you

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Speaker 2: have quite a lot of retail investors, you know, an

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Speaker 2: overwhelming number of retail investors that actually invest in these

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Speaker 2: onshore markets, and so gauging how exactly that market is

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Speaker 2: performing is a pretty good barometer for what sentiment within

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Speaker 2: the economy is looking like. So yeah, I mean a

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Speaker 2: lot of these measures are going to be targeted to

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Speaker 2: that extent. We have seen quite a lot of stimulus

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Speaker 2: measures this year that are sort of targeted at the

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Speaker 2: property sector in particular, as you mentioned, Doug, I mean

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Speaker 2: that's been really sort of you know, this this huge

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Speaker 2: issue for China over the last several years and kind

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Speaker 2: of you know, stabilizing demand, kind of you know, getting

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Speaker 2: this market you know, revived to some extent, sort of

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Speaker 2: stemming a lot of the losses that are happening among

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Speaker 2: a lot of these big property developers has been a

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Speaker 2: really key concern for China, but of course they want

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Speaker 2: to do so in a way that doesn't add to

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Speaker 2: you know, tremendous debt burdens, particularly for regional governments, and

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Speaker 2: so this is all a big balancing act for China

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Speaker 2: right now. And it looks like what they're doing is

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Speaker 2: they're willing to sort of loosen policy a little bit

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Speaker 2: in order to get things moving again. But you know,

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Speaker 2: they are still you know, sort of you know, using

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Speaker 2: some level of restraint here as they kind of calculate

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Speaker 2: how this needs to be done.

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Speaker 1: A moment ago, you were talking about this issue of deflation,

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Speaker 1: and China really has been struggling with us for such

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Speaker 1: a long time, at least more than two years, where

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Speaker 1: factory gate inflation is concerned. We just had the latest

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Speaker 1: PPI CPI. What do we know about deflationary trends at

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Speaker 1: the most, I.

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Speaker 2: Mean, it's it's really really rough. I think at this point,

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Speaker 2: producer prices have fallen for twenty six straight months. You

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Speaker 2: I mean, it's it's an unbelievable eye popping number there.

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Speaker 2: When you look on the consumer side of things, you're

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Speaker 2: also looking at you know, prices rising at their slowest

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Speaker 2: pace in several months. Those prices have still been hovering

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Speaker 2: around zero. So even when you know these prices have

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Speaker 2: been increasing month and month, you're barely eking out any

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Speaker 2: gains here. And a lot of this does have to

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Speaker 2: do with the fact that the average Chinese consumer just

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Speaker 2: still isn't super confident in the economy. We have seen,

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Speaker 2: you know, trying to make some efforts to shore things

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Speaker 2: up here. They've introduced, you know, sort of smaller cash

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Speaker 2: stimulus programs. There's one thing called like a cash for

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Speaker 2: Clunkers program, which essentially months to consumption vouchers that people

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Speaker 2: can use to buy electronics and cars and stuff at discounts.

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Speaker 2: But you know, obviously it does seem like there needs

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Speaker 2: to be more done there. And so what the poll

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Speaker 2: Up Bureau is prompt missing is this idea of more

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Speaker 2: forcefully lifting consumption. Maybe that means expanding some of those

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Speaker 2: programs into twenty twenty five.

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Speaker 1: So before I let you go, I have to ask

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Speaker 1: about this investigation that Beijing has opened into the chip

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Speaker 1: maker in Vidia, obviously a big US company, particularly when

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Speaker 1: it comes to the particularly when it comes to artificial intelligence.

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Speaker 1: What do we know about this probe?

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Speaker 2: Yes, So, what it appears to be is that you know,

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Speaker 2: China's it's their market regulations agency that's probing into Nvidia,

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Speaker 2: looking at, you know, the acquisitions of some companies. Here,

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Speaker 2: there's this acquisition of a company called Melanox Technologies that

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Speaker 2: Beijing approved four years ago on the condition that Nvidia

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Speaker 2: not discriminate against Chinese companies. It seems here that based

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Speaker 2: on the fact that they're launching this investigation, maybe they

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Speaker 2: think that things have happened otherwise. Here. The way that

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Speaker 2: I would look at this, Doug, is you've got to

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Speaker 2: put this in context of all of the US lefe

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Speaker 2: technology curbs against China over the past several years. The

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Speaker 2: US has really leaned on a lot of its allies,

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Speaker 2: particularly in the West, to you know kind of you know,

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Speaker 2: stop selling technology to China or sort of bar the

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Speaker 2: types of technology that they're selling to China. So the

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Speaker 2: way that I would look at this probe into Nvidia

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Speaker 2: is this is kind of you know, China trying to

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Speaker 2: fight back in some respect. I mean, how successful they

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Speaker 2: ultimately are with you know, trying to sort of push

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Speaker 2: back on the US will have to ultimately see, because again,

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Speaker 2: as we've seen, the US has been pretty forceful about

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Speaker 2: launching all of these curves against China which have been

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Speaker 2: pretty successful. I mean, we've you know, seen ways in

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Speaker 2: which China has been prevented from using cutting edge chips

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Speaker 2: technology for example. China obviously wants to see what kind

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Speaker 2: of tools in its own toolkit it has to kind

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Speaker 2: of stand up against the US here.

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Speaker 1: Yeah, and just last week I think the Biden administration

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Speaker 1: expanded some of those curbs. The big question I think

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Speaker 1: for Beijing is what will in coming President Donald Trump do. Jill,

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Speaker 1: thank you so much for taking time to chat with us.

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Speaker 1: Jill Deese is there. Bloomberg News Desk editor joining from

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Speaker 1: Hong Kong on the Daybreak Asia podcast. Welcome back to

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Speaker 1: the Daybreak Asia Podcast. I'm Doug Chrisner. Stateside markets are

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Speaker 1: bracing for the latest reading on US retail inflation. We've

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Speaker 1: got that CPI data do on Wednesday to help us

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Speaker 1: look ahead. We're joined by Lawrence Gillham. He is the

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Speaker 1: chief fixed income strategist at LPL Financial, Joining from just

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Speaker 1: outside Charlotte, North Carolina. Lawrence, thanks for being here. I

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Speaker 1: think it's fair to say that CPI print is the

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Speaker 1: critical data point before next week's FED meeting.

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Speaker 3: That's absolutely right. First, of all, thanks for having me on.

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Speaker 3: I appreciate the time. But yeah, this week it's all

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Speaker 3: about CPI. Last week was labor market kind of came

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Speaker 3: and went, but markets are really focused on CPI this week.

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Speaker 3: Last big data point, as you point out out before

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Speaker 3: the Fed meets next Wednesday, do.

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Speaker 1: You see anything possible that could remove the idea that

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Speaker 1: we're not going to get a rate cut in December.

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Speaker 3: I think it would be tough. So right now our expectation,

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Speaker 3: markets expectation is that the Fed is going to cut

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Speaker 3: rates quarter of a point next Wednesday. I think it's

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Speaker 3: going to take a reacceleration of inflationary pressures on this

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Speaker 3: Wednesday to kind of maybe push back the the rate

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Speaker 3: cutting plans perhaps till January. But you know, with the

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Speaker 3: labor market report that came in that showed the unemployment

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Speaker 3: rate creeping up a little bit higher last week, I

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Speaker 3: think that kind of gave the Fed all clear to

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Speaker 3: cut next week.

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Speaker 1: So yields today we're up right across the curve, not

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Speaker 1: by a lot. I think the tenure was up about

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Speaker 1: four bases points in New York, so you got a

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Speaker 1: ten year at four point one to nine percent, a

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Speaker 1: two year at four point one two percent. Where do

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Speaker 1: you yields, in your view, go from here? Lawrence?

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Speaker 3: Yeah, So we've been in the camp where we're kind

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Speaker 3: of in this trading range all year. So we've had

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Speaker 3: a three seventy five four twenty five target for the

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Speaker 3: tenure this year. We're likely going to carry that into

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Speaker 3: next year as well. Really, there's I mean, the curve

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Speaker 3: is still pretty flat. As you mentioned, the gap between

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Speaker 3: two years and ten years is only about seven basis points.

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Speaker 3: So with the Fed cutting, we'll see the front end

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Speaker 3: of the yield curve move lower. But I think really,

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Speaker 3: you know, the the ten years kind of around where

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Speaker 3: it should be given what the markets are pricing in

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Speaker 3: for the for the FED rate cut cycle this time.

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Speaker 3: So four twenty five, you know, we could possibly see

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Speaker 3: four fifty on an upside, but I think we're kind

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Speaker 3: of where we are on a go forward basis.

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Speaker 1: So we've been getting a little bit of detail in

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Speaker 1: terms of economic policy from the incoming administration. Tariffs obviously

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Speaker 1: one of the big issues for the market, and whether

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Speaker 1: or not that necessarily leads to inflationary pressures. What's your

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Speaker 1: view on what you're hearing from the incoming administration as

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Speaker 1: it relates to inflation.

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Speaker 3: Yeah, so we are still waiting to hear more details.

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Speaker 3: There's been a lot of kind of discussion or or

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Speaker 3: bluster out there, but you know, until these tariffs are

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Speaker 3: you know, fully kind of announced and what's targeted, what's

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Speaker 3: just talk, you know, you know, markets are kind of

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Speaker 3: pushing that off into a twenty twenty five type event.

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Speaker 3: So it's it's still i think too early to try

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Speaker 3: to try to figure that out into the current rate

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Speaker 3: and market right now. Market, like we just talked about,

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Speaker 3: are really concerned about the inflationary data, the labor market data.

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Speaker 3: Twenty twenty five, I think is going to be all

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Speaker 3: about the fiscal support, the fiscal plans for this this

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Speaker 3: upcoming Trump administration tariffs. You know, we've we've talked about

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Speaker 3: tariffs with our advisors and clients here at LPL, and

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Speaker 3: we've you know, we've we've pointed out that it's not

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Speaker 3: as cut and dry as you know. Tariffs always increase prices.

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Speaker 3: They increase prices for sure for somebody, but it doesn't

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Speaker 3: always necessarily translate into higher consumer prices. So you know,

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Speaker 3: again it's the devil is in the details, so to speak.

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Speaker 3: So we're really going to have to see what is

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Speaker 3: the result of all this tariff discussions.

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Speaker 1: Do you have a sense of the risk of a

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Speaker 1: lot more treasury supply coming to market, supply that would

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Speaker 1: have to be digested in a way that may lead

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Speaker 1: to higher yields.

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Speaker 3: Yes, No, that's that's a great question. It's something that

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Speaker 3: we've are we're releasing our twenty twenty five outlook piece

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Speaker 3: tomorrow in fact, and that is a big piece of

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Speaker 3: it from my section, because there is a lot of

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Speaker 3: treasury debt coming to market over the next call it

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Speaker 3: twelve to the well, actually the next couple of years. Frankly,

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Speaker 3: right now, the maturity schedule for the US Treasury Department

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Speaker 3: is I think about six to seven trillion of debt

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Speaker 3: needs to be refinanced next year. Plus there's an additional

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Speaker 3: call it two trillion of debt that needs to be

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Speaker 3: issued to fill those those budget deficits. So I mean

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Speaker 3: you're looking at, you know, eight to nine trillion dollars

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Speaker 3: of treasury debt that needs to find a home next year.

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Speaker 2: Now.

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Speaker 3: To be fair, a lot of that treasury debt is

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Speaker 3: in T bills, these short maturity securities. So as long

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Speaker 3: as cash levels are elevated, that should be easily digestible

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Speaker 3: by the market. But when you start to consider that

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Speaker 3: this new Treasury secretary may have to actually extend issuance,

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Speaker 3: extend the maturity profile of the debt. That means potentially

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Speaker 3: a lot more coupon issuance next year, which could keep

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Speaker 3: rates elevated or even push interest rates a little bit higher.

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Speaker 1: What does that do to the corporate bond market.

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Speaker 3: Yeah, so the corporate bond market is it's been an

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Speaker 3: interesting year for corporate credit markets. If treasury supply increases

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Speaker 3: to the extent that we think it is, and it

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Speaker 3: has the impact on treasure yields as we expect it to,

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Speaker 3: that means corporate borrowing rates are going to go higher

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Speaker 3: as well. The spread between treasuries and corporate debt level

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Speaker 3: or corporate debt right now is pretty tight, so you

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Speaker 3: can envision a scenario where that those spread levels kind

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Speaker 3: of stay at current levels or even tighten a little

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Speaker 3: bit based upon just the amount of issues coming to

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Speaker 3: market on the treasury side. The corporate credit market, I mean,

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Speaker 3: it's expensive, but really it's in a good spot fundamentally,

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Speaker 3: so we don't expect borrowing costs to increase significantly from

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Speaker 3: current levels, but there will be some upward pressure on

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Speaker 3: some of these corporate corporate yields as well as a

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Speaker 3: result of this increase in treasury issuance next year.

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Speaker 1: I'm wondering about markets credit markets offshore, particularly China. We

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Speaker 1: just had word relatively recently that Beijing is going to

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Speaker 1: target a lot more when it comes to monetary easing

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Speaker 1: to try to improve domestic consumption and a little bit

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Speaker 1: of fiscal spending as well. Given what you're hearing coming

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Speaker 1: out of Beijing, would you be tempted to play anything

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Speaker 1: in the Chinese bond market.

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Speaker 3: Well, the Chinese bond market has been on a tear recently, right,

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Speaker 3: I mean, we had Chinese yields that were inside I

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Speaker 3: think Japan at one point out the thirty year ten

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Speaker 3: or so. It's been a hot market for fixed income

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Speaker 3: investors over there. I think given the potential stimulus that

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Speaker 3: was announced, we'll see if it gets enacted, but we'll

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Speaker 3: see if they do in fact enact the stimulus that

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Speaker 3: they've talked about today, I think that could actually make

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Speaker 3: inflationary pressures pick up a little bit, both in China

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Speaker 3: and perhaps globally. So I would stay away from things

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Speaker 3: that are pretty interest rate sensitive globally at this point,

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Speaker 3: just given the fact that you know, we don't think

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Speaker 3: the inflationary genies back in the bottle just yet. And

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Speaker 3: if China stimulus actually helps consumption grow in China, and

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Speaker 3: particularly as it relates to the commodity complex, we could

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Speaker 3: see higher commodity prices next year, which would flow into

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Speaker 3: the inflationary prints, which is not a great a great

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Speaker 3: thing for fixed income and investors. I would stay away

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Speaker 3: from anything with any sort of duration risk at this point.

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Speaker 1: So play things at the short end of the curve

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Speaker 1: right to reduce that risk.

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Speaker 3: Absolutely that I mean, we're seeing a lot of attractive

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Speaker 3: income opportunities in front end of curves, not only in

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Speaker 3: the US, but in non US extra pan markets, emerging markets.

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Speaker 3: You know, you can get a lot of a lot

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Speaker 3: of income and without taking on a lot of interest

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Speaker 3: rate risk or even credit risk in some of these markets.

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Speaker 3: So you don't have to take risk in the fixing

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Speaker 3: income markets if you're not getting paid for it. So

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Speaker 3: our advice is to stay within the belly and in

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Speaker 3: in terms of where to position money in fixed income.

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Speaker 1: Lawrence, thanks so much for joining us helping us look

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Speaker 1: ahead to the CPI print and talking more broadly about

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Speaker 1: what's happening in bond markets. Lawrence galem is chief fixed

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Speaker 1: Income strategist at LPL Financial, joining us here on the

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

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

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

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

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