Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
Speaker 2: along with Doug Krisner, join us each day for the
Speaker 2: stories making news and moving markets in the Asia Pacific.
Speaker 2: You can subscribe to the show anywhere you get your
Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
Speaker 2: the Bloomberg Business app. Well, with that DNC underway, Vonnie
Speaker 2: Quinn joins us Bloomberg US TV correspondent who has been
Speaker 2: taking a closer look. So it's fair to say I
Speaker 2: think that the Democrats appear pretty rejuvenated here and pretty
Speaker 2: excited about the prospects of Kamala Harris. But you also
Speaker 2: hear a lot of mention of Donald Trump. It seems
Speaker 2: that they're definitely looking at using that as a lever
Speaker 2: to get people to vote for Kamala Harris. What have
Speaker 2: you noticed today that stands.
Speaker 3: Out, I'm sure, Brian. Well, we actually had a surprise
Speaker 3: appearance from Kamala Harris tonight. We weren't expecting her to
Speaker 3: take to the DNC stage until Thursday when she formally
Speaker 3: accepts the nomination, but she did speak for about two minutes,
Speaker 3: really just pressing ahead to President Joe Biden. Speaking later,
Speaker 3: she made some remarks and obviously gave her campaign cry,
Speaker 3: When we fight, we win. But it was interesting to
Speaker 3: see who has been taking to the stage because we
Speaker 3: had union representatives, politicians including right now, progressive Alexandria Ocasio
Speaker 3: Cortes is on the stage, and we also expect to
Speaker 3: hear from Secretary of State formerly Hillary Clinton. Alexandra Ocasio
Speaker 3: Cortes made mention of Gaza, which was interesting because this
Speaker 3: is one of the areas where Kamala Harris is really
Speaker 3: hoping to bring back voters to the Democratic Party. AOC
Speaker 3: said that she was working tirelessly for a ceasefire and
Speaker 3: to bring back the hostages. Now she didn't go beyond that.
Speaker 3: And we know that there are thousands of demonstrators in
Speaker 3: Chicago right now, some of them trying to disrupt the
Speaker 3: convention because they want to know what exactly Kamala Harris
Speaker 3: would do differently from President Joe Biden, given that so
Speaker 3: far all she has done is offer a sympathetic ear
Speaker 3: to pro Palestinian protesters and that vote. So that's one
Speaker 3: of the things that stood out to me for sure.
Speaker 4: Well as you mentioned we are waiting to hear from
Speaker 4: President Biden. Interesting that we're hearing from a sitting president
Speaker 4: on day one of the convention, and also that as
Speaker 4: advisors a pushing back pretty strongly that this speech is
Speaker 4: not a Swan song.
Speaker 3: What is it? Yes, it's definitely going to push forward
Speaker 3: as well. Right, Biden wants to keep the emphasis on
Speaker 3: what comes next. He also doesn't want to write himself
Speaker 3: off THEUS five more months in which he wants to
Speaker 3: do some important work, including hopefully getting a ceasefire in Gaza,
Speaker 3: and also continuing to campaign. So the theme for Monday
Speaker 3: Night is for the people, and that will jive very
Speaker 3: nicely with what he intends to speak about, which is
Speaker 3: likely how he and his administration, including Kamala Harris, brought
Speaker 3: the US economy back from the pandemic. Also past legislation
Speaker 3: on infrastructure and climate and protected democracy. Now, this last
Speaker 3: has been so important to Biden during his own campaigning
Speaker 3: for several months and even post him dropping off the tickets,
Speaker 3: So we expect to hear a lot of comments about democracy.
Speaker 3: And then it's interesting to note that Biden will then leave,
Speaker 3: He'll have passed the baton to Kamala Harris, and he
Speaker 3: leave to go on vacation just for a short period,
Speaker 3: going to the West coast, California where you are, I
Speaker 3: believe Brian right now, and he will leave the stage
Speaker 3: to Kamala Harris. Of course, he will be getting back
Speaker 3: to his own important work as president of the United
Speaker 3: States following that vacation.
Speaker 2: We should talk a little bit about some of the
Speaker 2: key policy points that will eventually come from Kamala Harris.
Speaker 2: She wants to expand child tax credits, and she wants
Speaker 2: to offer more incentives for home buyers, trying to reduce
Speaker 2: the cost of food and prescription drugs, and she's made
Speaker 2: a really big point about cracking down on price gouging.
Speaker 2: And what some investors in some critics are saying is
Speaker 2: that that really what she's talking about is fixing prices,
Speaker 2: and that doesn't ring too well with people who are
Speaker 2: perhaps independence or in the middle. And then she also,
Speaker 2: quite closely with the Donald Trump, wants to exempt tips
Speaker 2: from federal taxes. So far today, have we heard a
Speaker 2: lot about issues or is it more about the difference
Speaker 2: between a Kamala Harris presidency and a Donald Trump.
Speaker 3: Want Actually, so far today we've just heard a lot
Speaker 3: of rallying cries, right, and the idea that you know,
Speaker 3: we all love our country, we need to fight for
Speaker 3: our values and you know, if we know what to
Speaker 3: fight for, we can fight. So there's been a lot
Speaker 3: of you know, tonal rhetoric, let's say, but not a
Speaker 3: lot on policy. Now, outside the convention, in various ways,
Speaker 3: we have been hearing a little bit more about policy.
Speaker 3: For example, Reuters did an interview with Donald Trump, who's
Speaker 3: been on the campaign fail in the Swing States, and
Speaker 3: managed to get from him that he would consider doing
Speaker 3: something on housing as well. It was seemingly a response
Speaker 3: to what Kamala Harris has said you will do on housing,
Speaker 3: and NBC also reporting the Kamala Harris will propose a
Speaker 3: corporate tax of twenty eight percent, So that would be
Speaker 3: the first revenue raising policy that we've heard from the
Speaker 3: Harris campaign. But yes, certainly on the stage, I would
Speaker 3: expect less policy and more celebratory rhetoric and rallying cries,
Speaker 3: and we should hear a little bit more about policy
Speaker 3: perhaps off the stage.
Speaker 4: Yeah, at that point, Funny, the convention does suck up
Speaker 4: a lot of oxygen around the user gender. What is
Speaker 4: the Trump campaign doing While this is going on, the.
Speaker 3: Drump campaign has been trying to suck some of that
Speaker 3: oxygen away actually from the Harris DNC. President Trump has
Speaker 3: been touring a factory in Pennsylvania, has been offering interviews
Speaker 3: writers reporting that he's been talking about Elon Musk, for example,
Speaker 3: that he would be happy to offer him the cabinet
Speaker 3: post if he were to be elected, or indeed an
Speaker 3: advisory role in the White House, and that he's also
Speaker 3: considering ending seven and a half thousand dollars tax credits
Speaker 3: for EV purchases. Not sure how the two fit together,
Speaker 3: but that he hasn't made a decision on it. So
Speaker 3: Donald Trump is definitely trying to keep him, at least
Speaker 3: in the headlines. He goes to Michigan tomorrow, and of
Speaker 3: course on Thursday, the day that is really Kamala Harris
Speaker 3: is to accept the nomination, he will be at the
Speaker 3: border in Arizona, and you know he's going to be
Speaker 3: hammering home the fact that that's one of her frailties.
Speaker 2: All Right, Bonnie, as usual, quite professional and nice to
Speaker 2: have you with us here on the program. We always
Speaker 2: love to have you with us. Monty Quinn Bloomberg USTv
Speaker 2: correspondent Jay Hatfield, CIO at Infrastructure Capital Management for a
Speaker 2: closer look at markets. So, Jay, is this a grind
Speaker 2: higher in risk assets or a breakout?
Speaker 5: Thanks Brian for having me on. Well, we actually so
Speaker 5: we've been hyper bullish really all year. We start with
Speaker 5: a fifty five hundred target on the S and P.
Speaker 5: Now we have a six thousand target. And we actually
Speaker 5: became incrementally bullish when there was the growth scare combined
Speaker 5: with the blow up in Japan, because what was bullish
Speaker 5: is that rates drop significantly. There's still below three ninety
Speaker 5: and that was the part of our call that was
Speaker 5: at risk because there's a lot of bond bears who focus,
Speaker 5: we think too much on the US budget deficit and
Speaker 5: not enough on monetary policy. So it became clear that
Speaker 5: if the Fed cuts, rates are going lower, and that's
Speaker 5: really required to help us justify six thousand target, you
Speaker 5: really need rates at three point fifty or below. So
Speaker 5: that's a twenty one multiple that implies really three point
Speaker 5: fifty to three and a quarter on the tenure. So
Speaker 5: we're not surprised we're grinding higher. We have a lot
Speaker 5: of positive catalysts. We don't normally have during the fall.
Speaker 5: You know, whether there's another freak out, we can't really predict,
Speaker 5: but we're sticking to our six thousand target.
Speaker 2: Clearly, investors see a lot of positivity, but so many
Speaker 2: things could go wrong. You know, Pal could surprise us.
Speaker 2: He may not feel comfortable with the rally in risk assets,
Speaker 2: and Vidia could stumble, you know, that's coming up on
Speaker 2: August twenty eighth. Hamas might not accept a cease fire deal,
Speaker 2: and Iran could launch a major strike on Israel. I mean,
Speaker 2: I know you know this, everybody knows it, but doesn't
Speaker 2: it paid a hedge here?
Speaker 5: Well, certainly. I mean, we're getting close to all time hunts,
Speaker 5: so it's a good time of year to be a
Speaker 5: little bit cautious where our call is for a fourth
Speaker 5: quarter rally, So we're not saying we're going to get
Speaker 5: to six thousand, you know, by the end of the week,
Speaker 5: and we normally you pull back. We already did it once.
Speaker 5: We could easily go down to five thousand. We think
Speaker 5: there's good support there and we concur that. You know,
Speaker 5: with your skepticism about the FED, they operate as if
Speaker 5: their third mandate is to be behind the curve, and
Speaker 5: so it would not be totally shocking if they pause
Speaker 5: yet again, but they certainly shouldn't. There's evidence of a slowdown.
Speaker 5: Our forecast is if they don't cut, we'll have a
Speaker 5: recession in twenty five.
Speaker 2: Yeah, and I suppose if you don't overthink it, you
Speaker 2: just look at this kind of situation where you have
Speaker 2: a FED cutting interest rates into an economy that does
Speaker 2: not seem to be stumbling. That's kind of a winning formula.
Speaker 5: Absolutely, And we also think that there'll be a rally
Speaker 5: when the election is resolved. Our call is for divided government.
Speaker 5: It seems that the Senate is going to go to
Speaker 5: the Republicans just because the math is overwhelming for them,
Speaker 5: probably the House the Democrats virtually impossible to call the
Speaker 5: presidential but divided government is really good for the market
Speaker 5: as well. So we see all the inflection points, even
Speaker 5: the ones you mentioned, as ultimately ending up positive, and
Speaker 5: that's why we're comfortable with our six thousand target.
Speaker 2: If there were to be a sweep, many think that
Speaker 2: it might be more likely to be a Republican sweep,
Speaker 2: but in any case, in either direction, if there was
Speaker 2: a sweep, does that bring that deficit blowout that you
Speaker 2: talked about as somewhat fictitious into more of a reality.
Speaker 5: No question, that divided government means that the opposing party
Speaker 5: opposes all spending proposed by the dominant party, and we've
Speaker 5: seen that over the last although for two years technically
Speaker 5: the republic I mean sorry, Democrats are in charge, but
Speaker 5: mansion and cinema blocked excessive spending. So that's a concern.
Speaker 5: There's also another concern that's unique to this year or
Speaker 5: next year, really, and that is if there's a Democratic sweep,
Speaker 5: there almost certainly will be a significant corporate tax increase,
Speaker 5: and regardless of your political outlook, that is unambiguously bad
Speaker 5: for the stock market. So we would drop our target
Speaker 5: by about twenty percent if that occurred, if we really
Speaker 5: got a twenty eight percent tox rate, which seemed likely.
Speaker 5: So we see that as a risk, and we also,
Speaker 5: as you're implying, it's not really that great if we
Speaker 5: have a Republican sweep and we spend too much money
Speaker 5: on defense and just cut taxes and run huge deficits.
Speaker 2: Yeah, Democrats, shapiir pretty rejuvenated here and seem to be
Speaker 2: rather excited about the prospects of Kamala Harris, but it'll
Speaker 2: be today. I think that President Biden looks back and
Speaker 2: looks to his own legacy, and we'll talk a lot
Speaker 2: about that, and it might suggest there's a little bit
Speaker 2: of discord over the way the president was sidelined by
Speaker 2: some of the heavyweights like Barack Obama, Nancy Pelosians. I
Speaker 2: got to ask you a little bit about politics, given
Speaker 2: the day and the fact that President Biden will be speaking,
Speaker 2: and by the way, we'll be carrying that and wrapping
Speaker 2: up the speech a little bit later on here on
Speaker 2: the network. But I want to get your take on
Speaker 2: whether or not you think that Democrats are united or divided.
Speaker 5: Well, they have one element that really kind of argues
Speaker 5: against all the divided arguments. And I don't know if
Speaker 5: you've heard of him. His name is Donald Trump. So
Speaker 5: that absolutely is going to and already has really unified
Speaker 5: the Democratic Party. They did what they had to do
Speaker 5: to get a more credible candidate. Seems like so far
Speaker 5: it's working. And the Trump administration so far, or Trump
Speaker 5: really himself, seems to be situation normal, completely disorganized campaign,
Speaker 5: off message, picta a vice presidential candidate that does not
Speaker 5: broaden the base if anything, and narrows it. So you know,
Speaker 5: we're we just look at the gambling odds, favors come
Speaker 5: all up. That's kind of our base case. Yeah, but
Speaker 5: it's a turnout elections. We won't know till we now.
Speaker 2: Yeah, absolutely, well, I should stay in my lane here
Speaker 2: and get you back to markets. You know, give me
Speaker 2: your number one theme to play at the moment.
Speaker 5: Well, we do think the rates are going lower, which
Speaker 5: is less of a non consensus call than it was
Speaker 5: at the beginning of the year. And if that occurs,
Speaker 5: that favors the intersensitive sectors, and these are sectors that
Speaker 5: have been beaten down during the FED tidening cycle. So
Speaker 5: we're strongly recommending financials and reads, and that also includes
Speaker 5: small caps because they're dominated by financial routs.
Speaker 2: Yeah all right, Jay, very good, Thank you very much
Speaker 2: for owning us here. Jay Hatfield there, CIO at Infrastructure
Speaker 2: Capital Management, Mary Nicola and live strategists with us live
Speaker 2: here on the program. So a lot of deals here
Speaker 2: of late Mary, a softer tone at the FED. You've
Speaker 2: got a rebound of some of the megacap tech stocks
Speaker 2: and also a broadening out of the marketplace and a
Speaker 2: weaker dollar. So there's a lot to like. But does
Speaker 2: it continue?
Speaker 1: Yeah? I think for now it does, and largely has
Speaker 1: to do with the fact that you've got a soft
Speaker 1: landing narrative that's really come through. So the data has
Speaker 1: shown that the US economy is actually holding up. It's
Speaker 1: not doing as bad as what was initially thought of
Speaker 1: when we saw the jobs report in early August, So
Speaker 1: the narrative has changed. It has shown that the US
Speaker 1: economy is resilient, inflation is softening, so playing feeding into
Speaker 1: that soft landing narrative, So giving the likes of the
Speaker 1: equity rally a little bit more of a boost and
Speaker 1: giving you know, things like Asian currencies another strong rebound
Speaker 1: and another lift higher as a result. So for now,
Speaker 1: and then obviously once the FED reconfirms that the easing
Speaker 1: is on its way, that should really continue.
Speaker 3: Yeah.
Speaker 4: Does soft landing necessarily mean easing though, because how is
Speaker 4: growth looking? And is there this disconnect again between what
Speaker 4: the markets are expecting and what JPAL might end up delivering.
Speaker 1: I mean, the fact is the market is pricing in
Speaker 1: something very aggressive in my view, in terms of highlighting
Speaker 1: the fact that there is going to be a cut
Speaker 1: almost every meeting from then on, I think what the
Speaker 1: FED is likely to take where the approach that they're
Speaker 1: likely to take is more of what we've been hearing
Speaker 1: from global central pangs, which they start cutting or they
Speaker 1: do their first cut and they become more data dependent.
Speaker 1: So right now, and one of the key things that
Speaker 1: some of the FED officials have highlighted is that keeping
Speaker 1: greats at the current level means that the economy is overheating. Obviously,
Speaker 1: we know that the economy is not overheating. We're seeing
Speaker 1: some softness coming through that takes them out of restrictive policy,
Speaker 1: so you move more towards normalizing rather than easing. And
Speaker 1: I think that message is likely to be emphasized at
Speaker 1: Jackson Hall.
Speaker 2: Interesting to see what he hints about in terms of
Speaker 2: the pace of additional cuts. I think everybody kind of
Speaker 2: feels now that September is likely on the way. That
Speaker 2: would surprise the markets and you'd probably see a negative reaction,
Speaker 2: but there's enough other good things happening that you know,
Speaker 2: perhaps it would pass, but people will calibrate. You know
Speaker 2: what's coming up next? What do you see as the
Speaker 2: natural pace into twenty twenty five?
Speaker 1: Yeah, I think what you do see is a gradual pace,
Speaker 1: So you see a start of a cut in September,
Speaker 1: then you sort of But I don't think a twenty
Speaker 1: five basis point cut is guaranteed for every consecutive meeting thereafter,
Speaker 1: and even to a jumbo rate cut unless you see
Speaker 1: a deterioration in the market, and so that emphasis on
Speaker 1: data dependency is likely to linger. It's something that we've
Speaker 1: heard from the ECB, from the Bank of England and
Speaker 1: that's unlikely to change with the FED as well. So
Speaker 1: you're likely to see some of the what the swap
Speaker 1: market is pricing in and some what traders are pricing
Speaker 1: in to be repealed a little bit and paired back,
Speaker 1: and that will set bring some upset into the market.
Speaker 1: But at the same time, we've seen large sways in
Speaker 1: FED pricing over the past year, where we've gone from
Speaker 1: starting the year with almost seven basis points of cuts
Speaker 1: heading into twenty twenty four, then we went down to
Speaker 1: almost two and even closer to one at one point.
Speaker 1: So I think these sways will remain, especially if the
Speaker 1: FED doesn't give some clear forward guidance of you know,
Speaker 1: what is the pace likely to do, and that's that's
Speaker 1: going to and that's going to resonate is the fact
Speaker 1: that we don't get clear forward guidance and we still
Speaker 1: rely on data dependence.
Speaker 4: Well, dollar weakness in this environment seems to be emerging
Speaker 4: as a theme. We've got the Bloomberg Dollar Spot index
Speaker 4: off about two percent in the past month, and that's
Speaker 4: causing some interesting moves in the yen. It went on
Speaker 4: quite the journey yesterday, didn't it. We broke through one
Speaker 4: forty eight now just above one forty six. Is yen
Speaker 4: strength now an entrenched narrative or is that too early
Speaker 4: to say?
Speaker 1: Yeah? Absolutely. I think that's one of the things is
Speaker 1: that every day it becomes all eyes on the end
Speaker 1: and that's not likely to change. So obviously the FED
Speaker 1: soft landing narrative helps assuage some of the concerns in
Speaker 1: the market. So let's say you don't get as much
Speaker 1: of a ruckus or disruption with a yen with a
Speaker 1: yen strength as you did for as a result. But
Speaker 1: I think the BOJ has let that normalizing genie out
Speaker 1: of the bottle, and so we're looking for more further
Speaker 1: normalization of rates. But I think one of the key
Speaker 1: things that Yuwaita will say when he speaks to the
Speaker 1: diet on Friday is the fact that when he continues
Speaker 1: with his path towards normalization that obviously market conditions will matter,
Speaker 1: and I think that's going to placate a lot of
Speaker 1: the nerves that in the far in the market. So
Speaker 1: you still see continued yen strength, but just not as
Speaker 1: at the accelerated pace that we've seen over the last month.
Speaker 2: So Doll again not unnerving markets. Now we have a
Speaker 2: few other negative developments that could emerge. We mentioned that
Speaker 2: Pal might surprise us in Nvidia could stumble, Hamas might
Speaker 2: not even sniff at that ceasefire that at Israel has
Speaker 2: agreed to, and Oran of course could could get pretty
Speaker 2: aggressive against Israel. Any of those do you think potential
Speaker 2: major stumbling points for the market.
Speaker 1: I think the major one will probably be in Vidia,
Speaker 1: especially because we've seen such a strong rally in equity
Speaker 1: markets and that equity market comeback, and so Nvidia is
Speaker 1: probably the key thing that's going to especially since the
Speaker 1: Magnificent seven companies, we've seen that the results the earnings
Speaker 1: so far for this quarter have been mixed. So it's
Speaker 1: really up to Nvidia to carry through and justify those
Speaker 1: high valuations. Even though we've seen a market improvement in
Speaker 1: company earnings x magnificent seven. But it really will come
Speaker 1: down to Nvidia showing us that, you know, the valuations
Speaker 1: and the expensive valuations for equity markets makes sense. So
Speaker 1: it's really going to be all about Nvidia.
Speaker 4: In terms of magots. Let's take a look at thenk
Speaker 4: rallying pretty hard despite the yen strengthening. What's going on
Speaker 4: with the carry trade?
Speaker 3: Now?
Speaker 4: Can we even unpick that?
Speaker 1: Yeah? I think that carry trade there's obviously a lot
Speaker 1: of we've seen such an aggressive unwind in the carry
Speaker 1: trade over the last few over the last month, and
Speaker 1: I think a lot of it was really snowballed by
Speaker 1: the fears of a recession. When you have a combination
Speaker 1: of weak US growth, slow China economy, you wonder where
Speaker 1: is emerging market growth going to come from? And that
Speaker 1: really becomes the key sticking point for emerging markets and
Speaker 1: why would you even hold a carry trade if that
Speaker 1: environment continues. The key thing, you know, what we've seen
Speaker 1: it for carry trades is the fact that equity markets
Speaker 1: make a comeback.
Speaker 2: Yeah, all right, Mary, thank you for joining us. Mary Nicola,
Speaker 2: m Live Strategist. This is the Bloomberg Daybreak Asia podcast,
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