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Speaker 1: Good morning, and welcome to the Bloomberg Daybreak Asia podcast.

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Speaker 1: I'm Doug Prisner. Here are the stories we're following today.

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Speaker 1: Joining us now is Jamie Cox. He is the managing

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Speaker 1: partner at Harris Financial Group. He's on the line from Richmond, Virginia. Jamie,

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Speaker 1: good of you to make time to chat with us.

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Speaker 1: Let's talk about the FED first. Right now, the market

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Speaker 1: has been in the process of backing away from the

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Speaker 1: notion that the Fed is going to be and I

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Speaker 1: don't want to say aggressive, but certainly accommodative in cutting

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Speaker 1: interest rates here in the near term. How do you

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Speaker 1: see the makeup of the adjustment that we have seen

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Speaker 1: in the Fed's policy pivot.

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Speaker 2: I think it's healthy that the market is starting to

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Speaker 2: back off of these aggressive, you know, the potential aggressive

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Speaker 2: rate cuts by the Fed. It was never going to be,

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Speaker 2: you know, large scale cuts by the Fed really quickly,

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Speaker 2: and the market sold off, or the treasury market, you know,

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Speaker 2: basically tried to front run what they thought the Fed

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Speaker 2: might do instead of listening to what the Fed was saying,

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Speaker 2: that they were going to be slow, methodical, and that

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Speaker 2: even though they went fifty basis points, it was more

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Speaker 2: of a reflection that the FED should have started cutting

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Speaker 2: rates in the summer, so they were just doing a

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Speaker 2: little catch up by doing their September rate cup with

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Speaker 2: a little bit more authority than they typically do when

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Speaker 2: they start a rate cutting cycle. But from here forward

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Speaker 2: we're going to be back on the typical step function

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Speaker 2: twenty five basis point cut, on a clear path down

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Speaker 2: to know what they believe should be the terminal rate,

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Speaker 2: probably in the mid threes. But it's not going to

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Speaker 2: be quick. It's going to be very slow, and it's

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Speaker 2: very possible they could skip a meeting or two, and

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Speaker 2: I think that's what's causing the treasury market to kind

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Speaker 2: of oscillate around here as they try to find the

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Speaker 2: rate level of rates going forward.

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Speaker 1: I think that's a good point. I mean, yields were

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Speaker 1: up today across the curve, not by much, but it

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Speaker 1: kind of goes to the point you just made, so

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Speaker 1: we can maybe agree that the next FED meeting is

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Speaker 1: one of the near term risk for the market. I

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Speaker 1: think there are a few others. We are in the

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Speaker 1: midst of a lot of earnings. We have the jobs

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Speaker 1: data for the month of October that's about two weeks

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Speaker 1: from now, and then we've got an election coming up.

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Speaker 1: So if you were to assign the greater influence here

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Speaker 1: of each of those risks, what would rank on top

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Speaker 1: of your list.

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Speaker 2: I think inflation data going forward is going to be critical.

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Speaker 2: You know, we've been in sort of a cycle where

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Speaker 2: markets have maybe misinterpreted or there were some you know,

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Speaker 2: some points in the in the inflation story at the

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Speaker 2: beginning of the year that sort of took the market

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Speaker 2: all sides in terms of what the expected path of

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Speaker 2: rates would be. And we've seen sort of that, you know, disinflation,

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Speaker 2: you know, sort of be baked in the numbers of

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Speaker 2: the last couple of months, and I think if that continues,

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Speaker 2: then markets will feel more comfortable in the path of rates,

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Speaker 2: you know, as we go into twenty twenty five. But

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Speaker 2: we have some PCE data and things like that next

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Speaker 2: week which will confirm I think the base case of

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Speaker 2: and that's a good thing overall in the in the

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Speaker 2: economy and also here in the United States for consumers,

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Speaker 2: it's a big deal. So I sign a high level

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Speaker 2: of of worth to the inflation data following very closely

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Speaker 2: by in the next two weeks the election. I think,

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Speaker 2: you know, this is kind of unusual time. Most of

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Speaker 2: the time, election years are rife with you know, large

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Speaker 2: market moves. You know, you have you know, multiple corrections,

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Speaker 2: sometimes deep ones when they're one party or another sort

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Speaker 2: of pulls one way or the other, or there's some

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Speaker 2: type of October surprise. You haven't really seen that at

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Speaker 2: all this year. It's been very calm, but all of

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Speaker 2: a sudden in the last couple of days, you've started

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Speaker 2: to see what is your typical pre elections sell off.

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Speaker 2: And I think we're in the middle of it right now,

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Speaker 2: and I think we'll be living with some volatility for

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Speaker 2: the next two weeks until the election is over. That's

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Speaker 2: that's the second most important, and then the rest is,

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Speaker 2: you know, we still have a very strong consumer based economy. Jobs,

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Speaker 2: they're still very strong. And when all all of that

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Speaker 2: you know, sort of election nonsense goes away and people

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Speaker 2: start paying attention to things that really matter, which are

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Speaker 2: earnings and companies are going to be very pleased and

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Speaker 2: we're going to see very good economic growth continue for

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Speaker 2: probably the next six to eight months. And if the

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Speaker 2: Fed continues, you know, is rate cutting cycle. This may

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Speaker 2: be the fourth time that the FED has started to

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Speaker 2: cut rates outside of a recession, and that's very, very

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Speaker 2: positive for stocks. And you see in the two months

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Speaker 2: after Rick cunning cycle happens, when there's no recession, you

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Speaker 2: see almost every single sector up so well twelve months later,

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Speaker 2: and I think you're going to see that be the

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Speaker 2: dominant trend once we get by these smaller things, which

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Speaker 2: are whether their inflation wave is researched or whether or

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Speaker 2: not you know which party wins in the election in

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Speaker 2: the next two weeks.

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Speaker 1: So if growth remains positive, that would be a positive

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Speaker 1: for the equity market. And if the Fed is cutting

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Speaker 1: in the face of that growth, I would imagine that

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Speaker 1: a lot of cash comes off the sidelines and goes

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Speaker 1: into stocks. Is that your view?

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Speaker 2: Indeed, And most of the time when you hear the

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Speaker 2: you know, sort of the mantra cash on the sidelines.

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Speaker 2: That's sort of a fiction that people on Wall Street

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Speaker 2: makeup when they want to think that money's going to

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Speaker 2: move from one asset class to another. But in this

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Speaker 2: instance it's actually true because when the FED started raising

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Speaker 2: interest rates about a year and a half ago. It

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Speaker 2: seems like it's forever ago when they first started raising rates,

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Speaker 2: but there was a lot of money that moved out

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Speaker 2: of yield alternatives like utilities or telecom or really really

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Speaker 2: high dividend paying stocks and moved into very safe places

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Speaker 2: like key bills or money markets where you could earn

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Speaker 2: respectable rates of interest for the first time. But now

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Speaker 2: we're getting to the point where that respectable rate of

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Speaker 2: interest is going to decline over the next you know,

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Speaker 2: probably six to nine months, to a level which those

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Speaker 2: dividend paying stocks are going to become a preferenced again.

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Speaker 2: So you're going to see that money find its way

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Speaker 2: back to where it came from. So I really believe

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Speaker 2: you're going to see some you know, nice turns in

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Speaker 2: consumer staples, financials, real estate. The only sector I would

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Speaker 2: say would that would typically participate in that value trade

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Speaker 2: will not be energy. I think energy is probably one

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Speaker 2: of those sectors where the likely path is down, so

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Speaker 2: I think investors can be careful there. But in the

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Speaker 2: other more traditional value sectors, it's going to be a

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Speaker 2: pretty good There's gonna be good and stable flows into

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Speaker 2: those funds in those sectors.

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Speaker 1: So I hear how positive you are on the outlook

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Speaker 1: for the US, but I'm curious about whether or not

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Speaker 1: you're seeing opportunity offshore particularly in Asia, as China tries

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Speaker 1: to supercharge its economy with varieties of stimulus.

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Speaker 2: It's an interesting dynamic for sure. I mean, you've had

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Speaker 2: Japan having it's you know, it's been doing very well.

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Speaker 2: I don't follow the Chinese markets as closely, but when

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Speaker 2: you see, you know, a large economy like China being

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Speaker 2: determined to make sure that it's manufacturing bass protected, that

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Speaker 2: it's going to make sure it's consumer economy is protected

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Speaker 2: to make things cheaper. When you have that many people,

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Speaker 2: you know, consuming things, it is definitely going to be

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Speaker 2: positive overall. And if you sell things into China, if

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Speaker 2: you own US companies that sell things into Asia, you're

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Speaker 2: going to be very happy. And so I think that's

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Speaker 2: the way I would play it. I don't know necessarily

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Speaker 2: how it will play out, but you know, anytime the

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Speaker 2: rates are being reduced and you have reserve requirements reduced,

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Speaker 2: that does supercharge and directly affect the economy, and I

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Speaker 2: think that's something that they are very much intend to do. Europe.

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Speaker 2: You know, they have finally maybe broken the back of

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Speaker 2: inflation over there, and I think when you will see large,

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Speaker 2: larger interest rate declines or cuts in the next few

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Speaker 2: quarters and that will help them as well. They've been

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Speaker 2: it's been a struggle for Europe the last year or so,

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Speaker 2: and I think that may now that the inflation story

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Speaker 2: is starting to turn for them, I think you'll start

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Speaker 2: to see some positive things there. But you know, these

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Speaker 2: are all like sector specific things. But if you look

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Speaker 2: and drill down to companies specific areas, there's plenty of

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Speaker 2: money to be made, particularly in healthcare. I mean, if

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Speaker 2: you're talking about a europe story, there's no better place

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Speaker 2: to find a place to make money than in the

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Speaker 2: healthcare stocks Eli Lilly Advisor. You know, you can find

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Speaker 2: all kinds of places to make money in Europe if

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Speaker 2: you want to, if you're just looking in the healthcare sector.

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Speaker 1: So to bring it back to the US equity market,

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Speaker 1: given everything that we've been talking about, do you want

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Speaker 1: to be more exposed, let's say, to large US multinational companies,

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Speaker 1: or given the fact that you are expecting growth to

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Speaker 1: kind of be very very positive in the States, do

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Speaker 1: I want to be more exposed let's say, to the

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Speaker 1: small caps sector.

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Speaker 2: I think that it's a little bit of both. And

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Speaker 2: if interest rates are falling and you have a really strong,

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Speaker 2: really strong economy, the small caps are going to outperform,

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Speaker 2: And there was a little bit of that in the

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Speaker 2: summer where there was a large allocation shift from you know,

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Speaker 2: technology stocks and things like that into the small cap

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Speaker 2: area in Arena, and I think that maybe was a

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Speaker 2: little bit premature, but I think it's going to play

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Speaker 2: out next year because the interest rate environment is going

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Speaker 2: to drop enough where it's going to be meaningful for them.

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Speaker 2: But you know, the large multicap stocks are still levered

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Speaker 2: largely to tech, and that story just is the story

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Speaker 2: that keeps on giving and there's very little let up,

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Speaker 2: and it's really hard to look at any other sector

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Speaker 2: and be as excited as you can be with what

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Speaker 2: the potential of you know, a technology company that is,

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Speaker 2: you know, trying to participate or sell AI related services.

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Speaker 2: It's going to be a good run for them for

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Speaker 2: a while.

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Speaker 1: So we've been talking really about equities primarily, but I

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Speaker 1: want to understand whether you're seeing opportunities still in fixed

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Speaker 1: income right now, Assuming that you're right in the FED

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Speaker 1: is consistent in the number of rate cuts that it delivers,

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Speaker 1: you're looking for a terminal rate of around three and

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Speaker 1: a half percent, Is there anything in fixed income that

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Speaker 1: you like right now high yield.

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Speaker 2: High yield is an easier play. You have very little

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Speaker 2: bankruptcy risk in some of the credits that are around junk,

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Speaker 2: the triple C area, and so that's a good place

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Speaker 2: where value can be gleaned. And then really short duration

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Speaker 2: it's definitely tough, and longer term and longer duration treasuries,

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Speaker 2: it's not a lot of money to be made there.

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Speaker 2: And if the no landing scenario continues to play out,

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Speaker 2: twenty thirty year US treasuries are not going to do

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Speaker 2: much for you for a while. So I think if

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Speaker 2: outside of high yield, it's very very short duration maybe

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Speaker 2: two years in below on the treasury market and then

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Speaker 2: corporates five years in below in duration.

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Speaker 1: That is Jamie Cox, he is managing partner at Harris Financial,

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Speaker 1: joining from Richmond, Virginia on the Bloomberg Daybreak Asia podcast.

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Speaker 1: Earlier today, US Secretary of State Anthony Blinkin held talks

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Speaker 1: with Saudi Crown Prince Mohammed Ben Salomon. The aim here

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Speaker 1: was to reach a ceasefire deal of some sort, not

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Speaker 1: only for Gaza, but Lebanon as well. The Biden administration

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Speaker 1: has been trying to garner regional support to push toward peace.

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Speaker 1: For a closer look, we are joined by Monica Bitskuskai,

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Speaker 1: to public policy director at Key Elements Group in London. Monica,

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

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Speaker 1: Do you think are you optimistic right now that the

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Speaker 1: latest trip from Anthony? Are you optimistic that the latest

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Speaker 1: trip by US Secretary of State Anthony blink And can

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Speaker 1: move the needle in any direction toward peace?

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Speaker 3: Thank you for having me so. Yes, this is definitely

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Speaker 3: important for the Middle East because is once again showing

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Speaker 3: that it is really a vested and regional stability in

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Speaker 3: the Middle East. And during the visit both to Israel

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Speaker 3: and also to saudier Aba, we have seen reports emerge

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Speaker 3: from these countries and other countries such as Egypt, who

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Speaker 3: is a key interlocker term with Hamas pull without a

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Speaker 3: proposal for temporary seas fire for hostages deal. Under this proposal,

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Speaker 3: we could see living Israeli hostages to be released in

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Speaker 3: exchange for a CS fire that would last for a

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Speaker 3: couple of days and hopefully that could help to break

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Speaker 3: the deadlock. So I think that something like this, a

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Speaker 3: temporary seas fire agreement could be seen in near future,

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Speaker 3: and I'm rather optimistic about this type of agreement. However,

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Speaker 3: if we're thinking about long lasting, well thought and employment

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Speaker 3: and cease fire, I think that that could be a

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Speaker 3: bit premature to talk about, especially because the countries in

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Speaker 3: the Middle East are anticipating dus presidential election. It's coming

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Speaker 3: very soon, and we know that what is right for

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Speaker 3: one administration might not be right for the other administration.

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Speaker 3: And because of knowing that Nata Yahoo is a very

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Speaker 3: seasoned politician, so or the other politicians that we're talking

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Speaker 3: about in Saudarabia, there are season politicians and they know

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Speaker 3: that they have to abate out this period so that

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Speaker 3: they can make this lasting ceasefire agreement an administration that

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Speaker 3: will be there for the next four years, and they

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Speaker 3: know that this agreement could be stable, could be implemented

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Speaker 3: and well respected. So I think that when you think

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Speaker 3: about long lasting agreement, it's a bit mature. However, short

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Speaker 3: term agreement could be made after these visits and after

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Speaker 3: this period that is happening right now.

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Speaker 1: One of the things that is extremely clear is that

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Speaker 1: Israel has been highly effective in eliminating the leadership not

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Speaker 1: just for Hamas but Hazbolah as well to what extent

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Speaker 1: does this kind of improve the chances that there may

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Speaker 1: be peace.

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Speaker 3: Yeah, so you're definitely right about the killing of h Snbar,

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Speaker 3: who was probably the last standing Hama's leader, who was

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Speaker 3: the architect of the horrific October seventh terror attacks on Israel.

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Speaker 3: The killing of this leader has showed that Israeli intelligence

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Speaker 3: is back on the map and that Israeli intelligence has

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Speaker 3: the capabilities and if they have to use them, they

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Speaker 3: will use them. And if you compare let's say has

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Speaker 3: well As attacks on Israel, we have seen them to

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Speaker 3: be much less effective because of these intelligence capabilities that

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Speaker 3: Israel has, and I think that they are likely to

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Speaker 3: see continued limited operations from Israel to continue to fight

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Speaker 3: against Hasbola as well as Hamas. And that definitely is

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Speaker 3: a game changer because because we see that Israeli intelligent

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Speaker 3: is able to dismantle these organizations, at least their operational side.

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Speaker 3: Of course, the ideology is still alive and it will

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Speaker 3: take very long time for theology to change. However, venues

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Speaker 3: talking about operational side, we can see that Israel is

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Speaker 3: achieving its strategic efforts and strategic tigers are well achieved

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Speaker 3: by Israeli intelligence.

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Speaker 1: Has Hamas both operatives for Iran. To what extent do

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Speaker 1: we have to be concerned about a direct conflict between

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Speaker 1: Israel and Iran.

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Speaker 3: I think that direct conflict for scale war is not

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Speaker 3: necessarily something that we need to think about right now. However,

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Speaker 3: when I think about Iran, we have to think about

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Speaker 3: other type of coalitions that are being built because they

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Speaker 3: know that Iran is not a sole actor. There's also Russia.

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Speaker 3: Iran and Russia has been definitely increasing their collaboration, and

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Speaker 3: we're talking not all about weapons, but we're talking about

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Speaker 3: knowledge being passed between the two countries. We have seen

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Speaker 3: that even in Hasbola operations there has been Russian weapons used,

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Speaker 3: and Israel has the detected ideas has found Russian custom

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Speaker 3: made weapons in the hospital headquarters. So we know that

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Speaker 3: whereas Iran has central actor in the least, it's not

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Speaker 3: necessarily acting alone. Russia's building coalition of our indivision, and

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Speaker 3: I think this is something that we definitely need to

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Speaker 3: think about as well as now. We have seen our

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Speaker 3: FREA being involved in the worn in Ukraine and is

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Speaker 3: now fighting for Russia, so we have to think about

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Speaker 3: alliances like that being built. In the future because that

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Speaker 3: is a huge risk geopolitically for not only for them

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Speaker 3: the least, but for the world.

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Speaker 1: It's very interesting because last week we were talking about

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Speaker 1: the league of two classified US intelligence documents indicating Israeli

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Speaker 1: military preparations, indicating Israeli military preparations for a potential strike

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Speaker 1: against Iran. This is not something though, that you are

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Speaker 1: particularly concerned about.

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Speaker 3: The strike against Iran. Yes, we might be able to

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Speaker 3: see that because especially there has been assassination at a

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Speaker 3: Palanta and Yahoo, and this definitely was a red line crossed. However,

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Speaker 3: when you're thinking about full scale war, we have to

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Speaker 3: remember that there are other actors. We were talking about Savilis,

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Speaker 3: who is also trying to ensure that there there's no

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Speaker 3: regional major war happening, because of course that would be

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Speaker 3: detrimental to the region. So because of that, I think

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Speaker 3: that we need to consider some sort of limited attacks.

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Speaker 3: And we have seen that Israel also is trying to

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Speaker 3: you know, eliminate Hamas and Hasbola, and they are targeting

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Speaker 3: specific targets. They're not necessarily trying to create a regional

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Speaker 3: war that would encompass you know, different countries, and definitely

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Speaker 3: other countries would get involved in a world like this,

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Speaker 3: so I think we need to think about tactical operations

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Speaker 3: rather than full scale war. However, of course Middle East

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Speaker 3: is you know, a region where everything is changing every day,

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Speaker 3: and things can get out of hand. The attentions are

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Speaker 3: really high, and of course things can happen. However, I

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Speaker 3: think that Israel is trying to achieve its strategic goals,

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Speaker 3: which is first of all, you know, returning off their

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Speaker 3: hostages and also this mantling Hamas and hospital at and

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Speaker 3: making sure that there's no more thereist attacks like that

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Speaker 3: one that happened on October seventh, so Monica.

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Speaker 1: As you know, Russia recently hosted the Brick Summit. Iran

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Speaker 1: is now a member of the Alliance. Helped me understand

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Speaker 1: the developing relationship. How close Russia and Iran are becoming

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Speaker 1: these days.

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Speaker 3: So they're definitely becoming closer, and there's a lot of

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Speaker 3: military type of corporation and you know, weapons being shared

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Speaker 3: withtwin the countries and knowledge being exchanged within the countries.

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Speaker 3: And another aspect that we need to worry is Russia's

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Speaker 3: access to information regarding nuclear weapons and development of nuclear weapons,

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Speaker 3: because Russia is still a part of European body of

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Speaker 3: Nuclear Nuclear Agency and Nuclear weapon development as part of

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Speaker 3: this kind of agencies mandate, and Russia is hiding behind

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Speaker 3: scientists scientific neutrality, seeing that these are just scientists on

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Speaker 3: a peaceful mission. However, they're collecting very important data and

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Speaker 3: they are still collaborating in Western institutions and are able

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Speaker 3: to gather dis Western knowledge and transfer to countries alike Iran,

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Speaker 3: So I think we need to be very very of that.

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Speaker 3: And definitely put In is trying to show that bricks

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Speaker 3: is an important alliance. He is trying to show that,

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Speaker 3: you know, Russia is not acting alone and even the

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Speaker 3: war in Ukraine, other countries are going to start participating

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Speaker 3: and in a way countering Needle. So that is definitely

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Speaker 3: important to look at both in Ukraine and the Middle East.

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Speaker 3: And this is developing fast, and I think this is

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Speaker 3: an important issue to definitely think about in the future.

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Speaker 1: Monica, Before I let you go, can I get your

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Speaker 1: reaction to the US saying today that North Korean troops

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Speaker 1: are in Russia to aid in the fight against Ukraine.

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Speaker 3: Of course, this is a very important topic and definitely

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Speaker 3: there's spend reports that twelve a thousand soldiers will be

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Speaker 3: fighting in Ukraine for Russia, and that is definitely showing

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Speaker 3: that Russia is trying to expand this conflict and trying

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Speaker 3: to have powers of support from other countries. But the

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Speaker 3: most important part of all of this is that Russia

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Speaker 3: is also teaching North Koreans and giving them know how,

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Speaker 3: giving them the knowledge not only of the weapons and

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Speaker 3: the military action, but also at least had nuclear weapons.

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Speaker 3: So this is something that Russia is trying to, you know,

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Speaker 3: help North Korea to develop their own assets, and that

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Speaker 3: is something extremely troublesome and I think that the best

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Speaker 3: definitely will have to pay even more attention now to

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Speaker 3: Ukraine because you know, with Ukraine there has been a

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Speaker 3: lot of war fatigue unfortunately in the best and some

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Speaker 3: Western countries believe that this is not a primary issue

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Speaker 3: right now. However, it is a primary issue, and I

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Speaker 3: think the involvement of North Korea definitely shows that, and

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Speaker 3: we need to turn our attention and learn how to

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Speaker 3: divide the attention between. Of course, there is the price

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Speaker 3: simble least, but there's still the more in Ukraine and

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Speaker 3: it's ongoing and it's getting worses. We can see with

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Speaker 3: Russia trying to maneuver and have these types of actions

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Speaker 3: like in a little bit North Koreas. I don't think

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Speaker 3: that many analysts even expected this to happen, and it

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Speaker 3: is happening, so we need to start thinking what to

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Speaker 3: do next in Ukraine on how to help your cream

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Speaker 3: and the best we can.

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Speaker 1: Monica, thank you so much. We've covered a lot of

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Speaker 1: ground and I really appreciate your time. Monica Bichus kaita

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Speaker 1: public policy director at Key Elements Group, joining us on

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Speaker 3: M H