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

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner, join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business app. Well, with that DNC underway, Vonnie

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Speaker 2: Quinn joins us Bloomberg US TV correspondent who has been

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Speaker 2: taking a closer look. So it's fair to say I

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Speaker 2: think that the Democrats appear pretty rejuvenated here and pretty

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Speaker 2: excited about the prospects of Kamala Harris. But you also

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Speaker 2: hear a lot of mention of Donald Trump. It seems

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Speaker 2: that they're definitely looking at using that as a lever

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Speaker 2: to get people to vote for Kamala Harris. What have

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Speaker 2: you noticed today that stands.

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Speaker 3: Out, I'm sure, Brian. Well, we actually had a surprise

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Speaker 3: appearance from Kamala Harris tonight. We weren't expecting her to

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Speaker 3: take to the DNC stage until Thursday when she formally

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Speaker 3: accepts the nomination, but she did speak for about two minutes,

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Speaker 3: really just pressing ahead to President Joe Biden. Speaking later,

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Speaker 3: she made some remarks and obviously gave her campaign cry,

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Speaker 3: When we fight, we win. But it was interesting to

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Speaker 3: see who has been taking to the stage because we

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Speaker 3: had union representatives, politicians including right now, progressive Alexandria Ocasio

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Speaker 3: Cortes is on the stage, and we also expect to

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Speaker 3: hear from Secretary of State formerly Hillary Clinton. Alexandra Ocasio

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Speaker 3: Cortes made mention of Gaza, which was interesting because this

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Speaker 3: is one of the areas where Kamala Harris is really

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Speaker 3: hoping to bring back voters to the Democratic Party. AOC

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Speaker 3: said that she was working tirelessly for a ceasefire and

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Speaker 3: to bring back the hostages. Now she didn't go beyond that.

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Speaker 3: And we know that there are thousands of demonstrators in

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Speaker 3: Chicago right now, some of them trying to disrupt the

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Speaker 3: convention because they want to know what exactly Kamala Harris

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Speaker 3: would do differently from President Joe Biden, given that so

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Speaker 3: far all she has done is offer a sympathetic ear

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Speaker 3: to pro Palestinian protesters and that vote. So that's one

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Speaker 3: of the things that stood out to me for sure.

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Speaker 4: Well as you mentioned we are waiting to hear from

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Speaker 4: President Biden. Interesting that we're hearing from a sitting president

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Speaker 4: on day one of the convention, and also that as

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Speaker 4: advisors a pushing back pretty strongly that this speech is

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Speaker 4: not a Swan song.

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Speaker 3: What is it? Yes, it's definitely going to push forward

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Speaker 3: as well. Right, Biden wants to keep the emphasis on

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Speaker 3: what comes next. He also doesn't want to write himself

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Speaker 3: off THEUS five more months in which he wants to

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Speaker 3: do some important work, including hopefully getting a ceasefire in Gaza,

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Speaker 3: and also continuing to campaign. So the theme for Monday

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Speaker 3: Night is for the people, and that will jive very

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Speaker 3: nicely with what he intends to speak about, which is

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Speaker 3: likely how he and his administration, including Kamala Harris, brought

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Speaker 3: the US economy back from the pandemic. Also past legislation

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Speaker 3: on infrastructure and climate and protected democracy. Now, this last

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Speaker 3: has been so important to Biden during his own campaigning

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Speaker 3: for several months and even post him dropping off the tickets,

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Speaker 3: So we expect to hear a lot of comments about democracy.

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Speaker 3: And then it's interesting to note that Biden will then leave,

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Speaker 3: He'll have passed the baton to Kamala Harris, and he

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Speaker 3: leave to go on vacation just for a short period,

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Speaker 3: going to the West coast, California where you are, I

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Speaker 3: believe Brian right now, and he will leave the stage

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Speaker 3: to Kamala Harris. Of course, he will be getting back

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Speaker 3: to his own important work as president of the United

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Speaker 3: States following that vacation.

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Speaker 2: We should talk a little bit about some of the

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Speaker 2: key policy points that will eventually come from Kamala Harris.

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Speaker 2: She wants to expand child tax credits, and she wants

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Speaker 2: to offer more incentives for home buyers, trying to reduce

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Speaker 2: the cost of food and prescription drugs, and she's made

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Speaker 2: a really big point about cracking down on price gouging.

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Speaker 2: And what some investors in some critics are saying is

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Speaker 2: that that really what she's talking about is fixing prices,

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Speaker 2: and that doesn't ring too well with people who are

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Speaker 2: perhaps independence or in the middle. And then she also,

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Speaker 2: quite closely with the Donald Trump, wants to exempt tips

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Speaker 2: from federal taxes. So far today, have we heard a

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Speaker 2: lot about issues or is it more about the difference

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Speaker 2: between a Kamala Harris presidency and a Donald Trump.

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Speaker 3: Want Actually, so far today we've just heard a lot

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Speaker 3: of rallying cries, right, and the idea that you know,

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Speaker 3: we all love our country, we need to fight for

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Speaker 3: our values and you know, if we know what to

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Speaker 3: fight for, we can fight. So there's been a lot

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Speaker 3: of you know, tonal rhetoric, let's say, but not a

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Speaker 3: lot on policy. Now, outside the convention, in various ways,

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Speaker 3: we have been hearing a little bit more about policy.

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Speaker 3: For example, Reuters did an interview with Donald Trump, who's

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Speaker 3: been on the campaign fail in the Swing States, and

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Speaker 3: managed to get from him that he would consider doing

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Speaker 3: something on housing as well. It was seemingly a response

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Speaker 3: to what Kamala Harris has said you will do on housing,

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Speaker 3: and NBC also reporting the Kamala Harris will propose a

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Speaker 3: corporate tax of twenty eight percent, So that would be

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Speaker 3: the first revenue raising policy that we've heard from the

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Speaker 3: Harris campaign. But yes, certainly on the stage, I would

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Speaker 3: expect less policy and more celebratory rhetoric and rallying cries,

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Speaker 3: and we should hear a little bit more about policy

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Speaker 3: perhaps off the stage.

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Speaker 4: Yeah, at that point, Funny, the convention does suck up

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Speaker 4: a lot of oxygen around the user gender. What is

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Speaker 4: the Trump campaign doing While this is going on, the.

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Speaker 3: Drump campaign has been trying to suck some of that

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Speaker 3: oxygen away actually from the Harris DNC. President Trump has

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Speaker 3: been touring a factory in Pennsylvania, has been offering interviews

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Speaker 3: writers reporting that he's been talking about Elon Musk, for example,

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Speaker 3: that he would be happy to offer him the cabinet

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Speaker 3: post if he were to be elected, or indeed an

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Speaker 3: advisory role in the White House, and that he's also

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Speaker 3: considering ending seven and a half thousand dollars tax credits

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Speaker 3: for EV purchases. Not sure how the two fit together,

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Speaker 3: but that he hasn't made a decision on it. So

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Speaker 3: Donald Trump is definitely trying to keep him, at least

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Speaker 3: in the headlines. He goes to Michigan tomorrow, and of

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Speaker 3: course on Thursday, the day that is really Kamala Harris

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Speaker 3: is to accept the nomination, he will be at the

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Speaker 3: border in Arizona, and you know he's going to be

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Speaker 3: hammering home the fact that that's one of her frailties.

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Speaker 2: All Right, Bonnie, as usual, quite professional and nice to

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Speaker 2: have you with us here on the program. We always

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Speaker 2: love to have you with us. Monty Quinn Bloomberg USTv

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Speaker 2: correspondent Jay Hatfield, CIO at Infrastructure Capital Management for a

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Speaker 2: closer look at markets. So, Jay, is this a grind

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Speaker 2: higher in risk assets or a breakout?

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Speaker 5: Thanks Brian for having me on. Well, we actually so

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Speaker 5: we've been hyper bullish really all year. We start with

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Speaker 5: a fifty five hundred target on the S and P.

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Speaker 5: Now we have a six thousand target. And we actually

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Speaker 5: became incrementally bullish when there was the growth scare combined

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Speaker 5: with the blow up in Japan, because what was bullish

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Speaker 5: is that rates drop significantly. There's still below three ninety

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Speaker 5: and that was the part of our call that was

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Speaker 5: at risk because there's a lot of bond bears who focus,

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Speaker 5: we think too much on the US budget deficit and

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Speaker 5: not enough on monetary policy. So it became clear that

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Speaker 5: if the Fed cuts, rates are going lower, and that's

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Speaker 5: really required to help us justify six thousand target, you

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Speaker 5: really need rates at three point fifty or below. So

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Speaker 5: that's a twenty one multiple that implies really three point

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Speaker 5: fifty to three and a quarter on the tenure. So

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Speaker 5: we're not surprised we're grinding higher. We have a lot

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Speaker 5: of positive catalysts. We don't normally have during the fall.

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Speaker 5: You know, whether there's another freak out, we can't really predict,

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Speaker 5: but we're sticking to our six thousand target.

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Speaker 2: Clearly, investors see a lot of positivity, but so many

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Speaker 2: things could go wrong. You know, Pal could surprise us.

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Speaker 2: He may not feel comfortable with the rally in risk assets,

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Speaker 2: and Vidia could stumble, you know, that's coming up on

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Speaker 2: August twenty eighth. Hamas might not accept a cease fire deal,

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Speaker 2: and Iran could launch a major strike on Israel. I mean,

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Speaker 2: I know you know this, everybody knows it, but doesn't

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Speaker 2: it paid a hedge here?

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Speaker 5: Well, certainly. I mean, we're getting close to all time hunts,

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Speaker 5: so it's a good time of year to be a

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Speaker 5: little bit cautious where our call is for a fourth

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Speaker 5: quarter rally, So we're not saying we're going to get

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Speaker 5: to six thousand, you know, by the end of the week,

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Speaker 5: and we normally you pull back. We already did it once.

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Speaker 5: We could easily go down to five thousand. We think

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Speaker 5: there's good support there and we concur that. You know,

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Speaker 5: with your skepticism about the FED, they operate as if

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Speaker 5: their third mandate is to be behind the curve, and

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Speaker 5: so it would not be totally shocking if they pause

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Speaker 5: yet again, but they certainly shouldn't. There's evidence of a slowdown.

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Speaker 5: Our forecast is if they don't cut, we'll have a

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Speaker 5: recession in twenty five.

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Speaker 2: Yeah, and I suppose if you don't overthink it, you

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Speaker 2: just look at this kind of situation where you have

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Speaker 2: a FED cutting interest rates into an economy that does

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Speaker 2: not seem to be stumbling. That's kind of a winning formula.

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Speaker 5: Absolutely, And we also think that there'll be a rally

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Speaker 5: when the election is resolved. Our call is for divided government.

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Speaker 5: It seems that the Senate is going to go to

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Speaker 5: the Republicans just because the math is overwhelming for them,

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Speaker 5: probably the House the Democrats virtually impossible to call the

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Speaker 5: presidential but divided government is really good for the market

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Speaker 5: as well. So we see all the inflection points, even

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Speaker 5: the ones you mentioned, as ultimately ending up positive, and

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Speaker 5: that's why we're comfortable with our six thousand target.

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Speaker 2: If there were to be a sweep, many think that

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Speaker 2: it might be more likely to be a Republican sweep,

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Speaker 2: but in any case, in either direction, if there was

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Speaker 2: a sweep, does that bring that deficit blowout that you

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Speaker 2: talked about as somewhat fictitious into more of a reality.

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Speaker 5: No question, that divided government means that the opposing party

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Speaker 5: opposes all spending proposed by the dominant party, and we've

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Speaker 5: seen that over the last although for two years technically

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Speaker 5: the republic I mean sorry, Democrats are in charge, but

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Speaker 5: mansion and cinema blocked excessive spending. So that's a concern.

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Speaker 5: There's also another concern that's unique to this year or

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Speaker 5: next year, really, and that is if there's a Democratic sweep,

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Speaker 5: there almost certainly will be a significant corporate tax increase,

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Speaker 5: and regardless of your political outlook, that is unambiguously bad

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Speaker 5: for the stock market. So we would drop our target

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Speaker 5: by about twenty percent if that occurred, if we really

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Speaker 5: got a twenty eight percent tox rate, which seemed likely.

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Speaker 5: So we see that as a risk, and we also,

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Speaker 5: as you're implying, it's not really that great if we

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Speaker 5: have a Republican sweep and we spend too much money

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Speaker 5: on defense and just cut taxes and run huge deficits.

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Speaker 2: Yeah, Democrats, shapiir pretty rejuvenated here and seem to be

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Speaker 2: rather excited about the prospects of Kamala Harris, but it'll

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Speaker 2: be today. I think that President Biden looks back and

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Speaker 2: looks to his own legacy, and we'll talk a lot

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Speaker 2: about that, and it might suggest there's a little bit

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Speaker 2: of discord over the way the president was sidelined by

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Speaker 2: some of the heavyweights like Barack Obama, Nancy Pelosians. I

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Speaker 2: got to ask you a little bit about politics, given

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Speaker 2: the day and the fact that President Biden will be speaking,

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Speaker 2: and by the way, we'll be carrying that and wrapping

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Speaker 2: up the speech a little bit later on here on

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Speaker 2: the network. But I want to get your take on

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Speaker 2: whether or not you think that Democrats are united or divided.

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Speaker 5: Well, they have one element that really kind of argues

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Speaker 5: against all the divided arguments. And I don't know if

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Speaker 5: you've heard of him. His name is Donald Trump. So

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Speaker 5: that absolutely is going to and already has really unified

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Speaker 5: the Democratic Party. They did what they had to do

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Speaker 5: to get a more credible candidate. Seems like so far

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Speaker 5: it's working. And the Trump administration so far, or Trump

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Speaker 5: really himself, seems to be situation normal, completely disorganized campaign,

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Speaker 5: off message, picta a vice presidential candidate that does not

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Speaker 5: broaden the base if anything, and narrows it. So you know,

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Speaker 5: we're we just look at the gambling odds, favors come

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Speaker 5: all up. That's kind of our base case. Yeah, but

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Speaker 5: it's a turnout elections. We won't know till we now.

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Speaker 2: Yeah, absolutely, well, I should stay in my lane here

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Speaker 2: and get you back to markets. You know, give me

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Speaker 2: your number one theme to play at the moment.

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Speaker 5: Well, we do think the rates are going lower, which

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Speaker 5: is less of a non consensus call than it was

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Speaker 5: at the beginning of the year. And if that occurs,

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Speaker 5: that favors the intersensitive sectors, and these are sectors that

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Speaker 5: have been beaten down during the FED tidening cycle. So

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Speaker 5: we're strongly recommending financials and reads, and that also includes

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Speaker 5: small caps because they're dominated by financial routs.

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Speaker 2: Yeah all right, Jay, very good, Thank you very much

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Speaker 2: for owning us here. Jay Hatfield there, CIO at Infrastructure

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Speaker 2: Capital Management, Mary Nicola and live strategists with us live

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Speaker 2: here on the program. So a lot of deals here

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Speaker 2: of late Mary, a softer tone at the FED. You've

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Speaker 2: got a rebound of some of the megacap tech stocks

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Speaker 2: and also a broadening out of the marketplace and a

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Speaker 2: weaker dollar. So there's a lot to like. But does

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Speaker 2: it continue?

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Speaker 1: Yeah? I think for now it does, and largely has

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Speaker 1: to do with the fact that you've got a soft

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Speaker 1: landing narrative that's really come through. So the data has

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Speaker 1: shown that the US economy is actually holding up. It's

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Speaker 1: not doing as bad as what was initially thought of

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Speaker 1: when we saw the jobs report in early August, So

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Speaker 1: the narrative has changed. It has shown that the US

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Speaker 1: economy is resilient, inflation is softening, so playing feeding into

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Speaker 1: that soft landing narrative, So giving the likes of the

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Speaker 1: equity rally a little bit more of a boost and

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Speaker 1: giving you know, things like Asian currencies another strong rebound

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Speaker 1: and another lift higher as a result. So for now,

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Speaker 1: and then obviously once the FED reconfirms that the easing

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Speaker 1: is on its way, that should really continue.

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Speaker 3: Yeah.

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Speaker 4: Does soft landing necessarily mean easing though, because how is

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Speaker 4: growth looking? And is there this disconnect again between what

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Speaker 4: the markets are expecting and what JPAL might end up delivering.

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Speaker 1: I mean, the fact is the market is pricing in

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Speaker 1: something very aggressive in my view, in terms of highlighting

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Speaker 1: the fact that there is going to be a cut

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Speaker 1: almost every meeting from then on, I think what the

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Speaker 1: FED is likely to take where the approach that they're

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Speaker 1: likely to take is more of what we've been hearing

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Speaker 1: from global central pangs, which they start cutting or they

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Speaker 1: do their first cut and they become more data dependent.

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Speaker 1: So right now, and one of the key things that

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Speaker 1: some of the FED officials have highlighted is that keeping

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Speaker 1: greats at the current level means that the economy is overheating. Obviously,

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Speaker 1: we know that the economy is not overheating. We're seeing

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Speaker 1: some softness coming through that takes them out of restrictive policy,

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Speaker 1: so you move more towards normalizing rather than easing. And

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Speaker 1: I think that message is likely to be emphasized at

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Speaker 1: Jackson Hall.

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Speaker 2: Interesting to see what he hints about in terms of

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Speaker 2: the pace of additional cuts. I think everybody kind of

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Speaker 2: feels now that September is likely on the way. That

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Speaker 2: would surprise the markets and you'd probably see a negative reaction,

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Speaker 2: but there's enough other good things happening that you know,

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Speaker 2: perhaps it would pass, but people will calibrate. You know

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Speaker 2: what's coming up next? What do you see as the

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Speaker 2: natural pace into twenty twenty five?

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Speaker 1: Yeah, I think what you do see is a gradual pace,

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Speaker 1: So you see a start of a cut in September,

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Speaker 1: then you sort of But I don't think a twenty

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Speaker 1: five basis point cut is guaranteed for every consecutive meeting thereafter,

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Speaker 1: and even to a jumbo rate cut unless you see

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Speaker 1: a deterioration in the market, and so that emphasis on

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Speaker 1: data dependency is likely to linger. It's something that we've

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Speaker 1: heard from the ECB, from the Bank of England and

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Speaker 1: that's unlikely to change with the FED as well. So

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Speaker 1: you're likely to see some of the what the swap

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Speaker 1: market is pricing in and some what traders are pricing

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Speaker 1: in to be repealed a little bit and paired back,

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Speaker 1: and that will set bring some upset into the market.

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Speaker 1: But at the same time, we've seen large sways in

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Speaker 1: FED pricing over the past year, where we've gone from

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Speaker 1: starting the year with almost seven basis points of cuts

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Speaker 1: heading into twenty twenty four, then we went down to

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Speaker 1: almost two and even closer to one at one point.

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Speaker 1: So I think these sways will remain, especially if the

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Speaker 1: FED doesn't give some clear forward guidance of you know,

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Speaker 1: what is the pace likely to do, and that's that's

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Speaker 1: going to and that's going to resonate is the fact

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Speaker 1: that we don't get clear forward guidance and we still

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Speaker 1: rely on data dependence.

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Speaker 4: Well, dollar weakness in this environment seems to be emerging

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Speaker 4: as a theme. We've got the Bloomberg Dollar Spot index

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Speaker 4: off about two percent in the past month, and that's

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Speaker 4: causing some interesting moves in the yen. It went on

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Speaker 4: quite the journey yesterday, didn't it. We broke through one

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Speaker 4: forty eight now just above one forty six. Is yen

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Speaker 4: strength now an entrenched narrative or is that too early

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Speaker 4: to say?

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Speaker 1: Yeah? Absolutely. I think that's one of the things is

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Speaker 1: that every day it becomes all eyes on the end

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Speaker 1: and that's not likely to change. So obviously the FED

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Speaker 1: soft landing narrative helps assuage some of the concerns in

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Speaker 1: the market. So let's say you don't get as much

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Speaker 1: of a ruckus or disruption with a yen with a

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Speaker 1: yen strength as you did for as a result. But

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Speaker 1: I think the BOJ has let that normalizing genie out

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Speaker 1: of the bottle, and so we're looking for more further

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Speaker 1: normalization of rates. But I think one of the key

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Speaker 1: things that Yuwaita will say when he speaks to the

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Speaker 1: diet on Friday is the fact that when he continues

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Speaker 1: with his path towards normalization that obviously market conditions will matter,

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Speaker 1: and I think that's going to placate a lot of

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Speaker 1: the nerves that in the far in the market. So

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Speaker 1: you still see continued yen strength, but just not as

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Speaker 1: at the accelerated pace that we've seen over the last month.

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Speaker 2: So Doll again not unnerving markets. Now we have a

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Speaker 2: few other negative developments that could emerge. We mentioned that

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Speaker 2: Pal might surprise us in Nvidia could stumble, Hamas might

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Speaker 2: not even sniff at that ceasefire that at Israel has

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Speaker 2: agreed to, and Oran of course could could get pretty

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Speaker 2: aggressive against Israel. Any of those do you think potential

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Speaker 2: major stumbling points for the market.

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Speaker 1: I think the major one will probably be in Vidia,

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Speaker 1: especially because we've seen such a strong rally in equity

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Speaker 1: markets and that equity market comeback, and so Nvidia is

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Speaker 1: probably the key thing that's going to especially since the

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Speaker 1: Magnificent seven companies, we've seen that the results the earnings

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Speaker 1: so far for this quarter have been mixed. So it's

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Speaker 1: really up to Nvidia to carry through and justify those

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Speaker 1: high valuations. Even though we've seen a market improvement in

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Speaker 1: company earnings x magnificent seven. But it really will come

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Speaker 1: down to Nvidia showing us that, you know, the valuations

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Speaker 1: and the expensive valuations for equity markets makes sense. So

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Speaker 1: it's really going to be all about Nvidia.

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Speaker 4: In terms of magots. Let's take a look at thenk

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Speaker 4: rallying pretty hard despite the yen strengthening. What's going on

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Speaker 4: with the carry trade?

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Speaker 3: Now?

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Speaker 4: Can we even unpick that?

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Speaker 1: Yeah? I think that carry trade there's obviously a lot

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Speaker 1: of we've seen such an aggressive unwind in the carry

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Speaker 1: trade over the last few over the last month, and

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Speaker 1: I think a lot of it was really snowballed by

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Speaker 1: the fears of a recession. When you have a combination

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Speaker 1: of weak US growth, slow China economy, you wonder where

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Speaker 1: is emerging market growth going to come from? And that

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Speaker 1: really becomes the key sticking point for emerging markets and

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Speaker 1: why would you even hold a carry trade if that

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Speaker 1: environment continues. The key thing, you know, what we've seen

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Speaker 1: it for carry trades is the fact that equity markets

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Speaker 1: make a comeback.

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Speaker 2: Yeah, all right, Mary, thank you for joining us. Mary Nicola,

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Speaker 2: m Live Strategist. This is the Bloomberg Daybreak Asia podcast,

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Speaker 2: bringing you the stories making news and moving markets in

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Speaker 2: the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube

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