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

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

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Speaker 1: Joining us now is Adam Turnquisty is the chief technical

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Speaker 1: strategist at LPL Financial. Adam, it's an important day, I

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Speaker 1: think for markets because the Fed delivered what many had

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Speaker 1: been expecting, a quarter point cut in the FED funds rate.

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Speaker 1: The outlook, though, seems less clear, particularly in the context

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Speaker 1: of the presidential election results. How are you reading the

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Speaker 1: landscape right now.

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Speaker 2: Or today's price action and the meeting from the Fed?

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Speaker 2: I think it was kind of a no news is

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Speaker 2: good news backdrop for equity markets.

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Speaker 3: That at least seem to be the reaction.

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Speaker 2: They delivered the twenty five basis point rate cut as expected.

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Speaker 2: Looks like we're still going to get another one for December,

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Speaker 2: but to your point, a lot of ambiguity. I guess

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Speaker 2: we'll call it as we look ahead to next year.

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Speaker 2: I was surprised by the tone that Chair Powelly used today.

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Speaker 2: He was almost bullish on growth when you look at

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Speaker 2: some of the commentary he talked about, especially highlighting this

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Speaker 2: backup and treasury yields, pointing out the fact that that's

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Speaker 2: largely driven by more growth than it is inflation expectations

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Speaker 2: ramping up. So some pretty interesting takeaways, I think.

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Speaker 1: But I think on the inflation side there seems to

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Speaker 1: be a very big question mark on the horizon, particularly

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Speaker 1: when you consider the fact that we could be looking

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Speaker 1: at tariffs which could have an inflationary impact, a wider

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Speaker 1: budget deficit, which then probably would force yields higher as well.

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Speaker 1: Are you convinced that inflation has kind of been effectively

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Speaker 1: dealt with?

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Speaker 2: I don't think I could say convinced, especially when you

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Speaker 2: start looking at the trends in break even inflation rates.

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Speaker 2: That's the market's expectation of future inflation, and whether that's

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Speaker 2: two years, five years, ten years out, those break even

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Speaker 2: rates are certainly moving higher now.

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Speaker 3: Is it out of control? No? I think the Fed

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Speaker 3: can still manage at where rates are.

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Speaker 2: It's just a matter of the growth outlook as well,

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Speaker 2: and how much of that inflation is really just a

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Speaker 2: byproduct of better than expected growth.

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Speaker 1: So, based on what you know of the Trump economic

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Speaker 1: plan right now, would you be betting on growth for

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Speaker 1: twenty twenty five.

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Speaker 2: I would not be betting against it. We still have

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Speaker 2: a long ways to go. Until we start to see

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Speaker 2: policy get delivered and what Congress looks like. There's still

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Speaker 2: some ambiguity around that as well, with the House still

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Speaker 2: being decided. But when you look at some of the

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Speaker 2: measures of his policy, just the deregulation, the likely extension

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Speaker 2: of the twenty seventeen tax cuts, some of the potential

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Speaker 2: tax exemptions, in terms of whether that's social security, over

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Speaker 2: time pay, things like that, I think you can attribute

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Speaker 2: that to better than expected growth. Of course, we also

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Speaker 2: have to be cognizant of where rates are and how

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Speaker 2: they could actually weigh on the growth outlook. With yields

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Speaker 2: now hovering around four forty four fifty earlier in today's session,

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Speaker 2: on the tenure.

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Speaker 1: I'm curious to get your take on the equity market.

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Speaker 1: In the Wednesday session, we had volume in the S

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Speaker 1: and P as the benchmark set a record high. I

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Speaker 1: think it was ninety percent above the average over the

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Speaker 1: last month. Today there was another all time high for

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Speaker 1: the S and P. Same is true where the Nasdaq

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Speaker 1: composite was concerned. I think the Dow may have been

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Speaker 1: flat on the day. How do you assess the price

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Speaker 1: action in equity trading right now?

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Speaker 3: Party like it's twenty sixteen.

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Speaker 2: At least for the last two days, we've had this

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Speaker 2: reflation trade reignite. If you remember back then, small caps rallying,

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Speaker 2: yields moving higher, the dollar moving higher. Of course, what

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Speaker 2: I'm hearing from our advisors is how sustainable is this move,

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Speaker 2: especially when you look at small caps. Some of the

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Speaker 2: moves we witness there. We like more on the bank

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Speaker 2: side of the small cap trade. That's really where the

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Speaker 2: momentum is, and I think more of a beneficiary to

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Speaker 2: this President elect Trump policy, especially on the deregulation antitrust

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Speaker 2: deal making, all good tailwinds for the banking space. Not

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Speaker 2: to mention in a disinversion or disinversion of the curve

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Speaker 2: and that steepening effect that's playing out as well. But

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Speaker 2: I think from you now to your end, we could

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Speaker 2: likely see a little bit of a dip, but seasonals

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Speaker 2: do tell us to buy the dip.

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Speaker 3: Pretty strong momentum coming into your end here.

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Speaker 1: Tighter regulation certainly has been one of the clouds overhanging

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Speaker 1: the megacap tech space. How are you with big cap tech?

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Speaker 3: Big cap tech seems to be back.

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Speaker 2: If you look at the equal Weight Magnificent seven index

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Speaker 2: finally breaking out to new highs. It's been really dragging

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Speaker 2: and lagging the broader market. I think a lot of

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Speaker 2: people are surprised by that when you look at the

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Speaker 2: broader index level and it has not kept up with

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Speaker 2: the S and P and it has not made new highs

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Speaker 2: in tandem. Starting to see some leadership reassert itself in

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Speaker 2: that space, But again it goes back to interest rates

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Speaker 2: and how they're going to be able to digest a

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Speaker 2: potentially higher interest rate backdrop.

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Speaker 1: Looking at a note to earlier in the week, may

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Speaker 1: have been late last week from the guys over at

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Speaker 1: a city group talking about the possibility that if there

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Speaker 1: were two have been as it seems there may be

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Speaker 1: a Republican sweep. That there is a big question about

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Speaker 1: corporate earnings going forward, and particularly if you were to

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Speaker 1: see a lot of the price section that we have

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Speaker 1: been seeing in the equity market where there's been this

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Speaker 1: huge rally, maybe you want to think about selling into

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Speaker 1: some of the strength. Would you agree with that?

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Speaker 2: I think the market's broadening now for sure, and your

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Speaker 2: portfolio should probably follow that with some of the concentration risks.

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Speaker 3: We do see the broadening.

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Speaker 2: Theme play out on the earnings front when you look

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Speaker 2: at this year's earnings and the contributions from those megacap names,

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Speaker 2: that percentage drastically drops next year as we start to

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Speaker 2: get contributions from other sectors. So I think that's where

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Speaker 2: you're going to see some momentum. You can see it

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Speaker 2: already when you look at the financial sector in the

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Speaker 2: S and P five hundred, the industrial sector, those are

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Speaker 2: the sectors that are starting to out perform, and those

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Speaker 2: are not where you see the megacap names. These are

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Speaker 2: more cyclical oriented type of sectors tied to the economy,

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Speaker 2: and I think that's a good sign for the overall

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Speaker 2: sustainability of this bull market.

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Speaker 1: One of the things that we've been talking about lately

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Speaker 1: the proposed tariffs that the incoming Trump administration seems to

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Speaker 1: be advocating for. How does that change your thinking about

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Speaker 1: international markets?

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Speaker 2: I think when we look at international markets, especially on

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Speaker 2: the tariffs. So you have to talk about China, a

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Speaker 2: lot going on there this week outside of the US

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Speaker 2: election and the impacts there, especially with their top legislative

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Speaker 2: party meeting this week and hopefully delivering some details on stimulus.

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Speaker 2: I think that could be maybe enough to offset some

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Speaker 2: of those tariffs and of course, we know the starting

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Speaker 2: point in what President elect Trump has talked about sixty

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Speaker 2: percent potentially on all imports from China. Likely that will

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Speaker 2: come down and we'll see how the negotiation goes, but

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Speaker 2: certainly a risk, I think in terms of the inflation

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Speaker 2: backdrop as well just on the broader tariff threat.

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Speaker 1: So some of his proposals on tax cuts have kind

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Speaker 1: of provided a bit of a carrot for major corporations

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Speaker 1: to begin reshoring operations in the United States, presumably, although

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Speaker 1: many companies have already identified Mexico as kind of a

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Speaker 1: safe harbor. How are you playing the reshoring trade?

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Speaker 2: We like the reshoring trade or near shoring trade, depending

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Speaker 2: on how you want to define it. That was one

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Speaker 2: of our more positive views last year, when we're looking

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Speaker 2: at the market through the industrial sector and holding that overweight.

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Speaker 2: They're a big beneficiary of that theme as some of

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Speaker 2: these companies kind of repatriate their manufacturing and their assembly

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Speaker 2: in the United States. Of course, some of that industrial

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Speaker 2: theme also ties into AI. A lot of those industrial

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Speaker 2: companies building out some of these data centers an added

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Speaker 2: kicker for the industrials and some of those more we'll

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Speaker 2: call it the build out of these factories and data centers.

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Speaker 1: Some of that trade has involved utility companies, companies that

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Speaker 1: produce power. Is there still life in that trade right

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Speaker 1: now or is that pretty much faded?

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Speaker 3: We think there's still some life there.

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Speaker 2: Of course, this higher rate back drop putting some cold

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Speaker 2: water on that rally, but likely overdo. When you look

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Speaker 2: at some of these utility names, they're trading like almost

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Speaker 2: like Navidia momentum in some of them. But when you

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Speaker 2: look at the overall electric demand forecasts, especially driven by

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Speaker 2: those data centers and what we have for supply, there's

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Speaker 2: a big gap there, which you can talk about. Uranium

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Speaker 2: mining in that space is a potential another derivative play

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Speaker 2: in that space that also seems to be showing some

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Speaker 2: pretty good momentum.

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Speaker 1: So do you expect the momentum that we've seen over

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Speaker 1: the last forty eight hours in the equity trade to

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Speaker 1: continue through the end of the year. Will we have

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Speaker 1: this kind of proverbial Santa Claus rally?

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Speaker 3: Not at this current rate of change.

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Speaker 2: I think the honeymoon period will likely end here over

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Speaker 2: the coming days, maybe the next week, as overbought conditions

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Speaker 2: start to take effect and we get some profit taking pressures,

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Speaker 2: and I do think there will be a dip buying

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Speaker 2: opportunity into some of these more overbought areas. But I

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Speaker 2: think we do have the likelihood of finishing higher. I

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Speaker 2: just don't think we're going to be in a linear

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Speaker 2: fashion as we've been doing the last really the last

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Speaker 2: few sessions here.

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Speaker 1: Adam, thanks so much for joining us on the Daybreak

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Speaker 1: Asia podcast. Adam Turnquist is the chief technical strategist at

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Speaker 1: LPL Financial. Joining us now is Mary Nicola. She has

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Speaker 1: Bloomberg and Live Strategies, joining us from Singapore. So much

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Speaker 1: to talk about. There's the election and the Fed decision today,

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Speaker 1: but I want to begin with the market's interpretation of

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Speaker 1: the election results. How do you understand the price action

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Speaker 1: and what it seems to be suggesting here?

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Speaker 4: Yeah, so far, it looks like stocks are really happy

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Speaker 4: with the prospects of the Trump administration, largely because of

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Speaker 4: the fact that it will be favorable for corporates in

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Speaker 4: terms of tax cuts deregulation. Of course, that's always a

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Speaker 4: big positive for markets. So stocks look relatively happy. It

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Speaker 4: just seems that the bond side is going to be

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Speaker 4: a bit shaky, and the outlook for bonds are a

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Speaker 4: lot shakier because of the fact now that this with

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Speaker 4: the potential red wave, you're going to get tax cuts,

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Speaker 4: you're going to get a much higher deficit, and that's

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Speaker 4: going to weigh on bond investors.

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Speaker 2: Ye.

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Speaker 1: And it's very interesting. Obviously, we had the FED decision

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Speaker 1: today with a twenty five basis point radcot that was

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Speaker 1: widely expected by the market for Powell to say that

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Speaker 1: the presidential election will have no effect on the Fed's

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Speaker 1: decision making in the near term. Okay, I understand that

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Speaker 1: near term, but longer term, clearly, anything that comes out

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Speaker 1: of the Trump administration as it's channeled through Congress will

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Speaker 1: definitely challenge the FED, don't you think?

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Speaker 4: Absolutely? And I think that's the The emphasis on the

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Speaker 4: near term that you mentioned is absolutely critical because of course,

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Speaker 4: not only does a FED have to figure out what's

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Speaker 4: happening with inflation, but of course what is the impact

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Speaker 4: of fiscal policy. How does fiscal policy weigh on inflation?

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Speaker 4: How is trade policy? The Trump the Trump two point

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Speaker 4: zero is expected to increase tariffs across the board. What

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Speaker 4: does that mean for inflation? So I think the outlook

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Speaker 4: for the FED actually becomes a little bit more muddied

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Speaker 4: in the in the sense of it's not only about

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Speaker 4: the labor market data and the inflation data that the

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Speaker 4: FED is worried about. It's going to be compounded by

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Speaker 4: what's happening on the fiscal policy front. We've seen it

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Speaker 4: with the BOE. The BOE is likely taking a cautious

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Speaker 4: approach because of expansionary physical policy, and it's going to

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Speaker 4: be the same case for the FED.

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Speaker 1: It's not just a matter of spending more. It's that

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Speaker 1: you're going to have far less revenue if you push

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Speaker 1: forward a lot of tax cuts and you're forced to

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Speaker 1: put a lot more supply into the bond market, and

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Speaker 1: it seems to me like the bond market is going

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Speaker 1: to demand much higher yields under that scenario. It's kind

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Speaker 1: of very interesting because you mentioned the term red wave

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Speaker 1: and perhaps fewer guard rails for the new Trump administration.

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Speaker 1: It seems like the bond market has the potential to

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Speaker 1: be one of those guardrails. Wouldn't you agree with that

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Speaker 1: to some degree?

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Speaker 4: But I think at the same time, you're going to

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Speaker 4: have a lot more volatility in the bond market because

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Speaker 4: of this, because of the fears of bond investors. Again,

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Speaker 4: as you mentioned who's going to absorb all the supply

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Speaker 4: that's coming through, and if we have less revenue, there's

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Speaker 4: a whole outlook for the bond market that is a

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Speaker 4: lot more cloudy than it was, let's say, before the

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Speaker 4: Trump administration or the elections. And so if we're looking

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Speaker 4: at what is the outlook over the next twelve twelve months,

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Speaker 4: I would probably highlight that the clearest one is more

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Speaker 4: volatility in the bond markets.

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Speaker 1: So let's talk about what's happening in your neck of

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Speaker 1: the woods. I know you're in Singapore, but I want

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Speaker 1: to talk about the NPC's Standing Committee meeting that's been

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Speaker 1: going on in Beijing over the course of the week.

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Speaker 3: What do we know.

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Speaker 1: About what policymakers in China have been rolling out and

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Speaker 1: how has the market been responding.

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Speaker 4: Yes, so far, it has been that we've heard a

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Speaker 4: lot of skepticism about what they've already rolled out. There's

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Speaker 4: been a lack of details that's been exceptionally disappointing. We

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Speaker 4: not only heard it from the markets, but we heard

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Speaker 4: it from the likes of the IMF and even there

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Speaker 4: was a lot of criticism at the IMF World Bank

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Speaker 4: meetings of how China has handled this so far, so

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Speaker 4: the market is expecting a lot more, not only a

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Speaker 4: lot more in terms of fiscal policy, but a lot

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Speaker 4: more in terms of details. So what are they going

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Speaker 4: to do on the consumption side, How are they going

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Speaker 4: to revive consumer demand, what are they going to do

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Speaker 4: when it comes to the local government debt, and also

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Speaker 4: what happens to all this property supply and the property overhang.

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Speaker 4: That still is the underlying issues that are stifling the

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Speaker 4: growth in China, and so the market is looking for

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Speaker 4: something bigger. I think to some degree, there was a

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Speaker 4: lot of talk about maybe they were waiting to see

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Speaker 4: the outcome of the elections because of the potential ramifications

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Speaker 4: on their economy with another Trump administration. So there's the

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Speaker 4: main factor. Still comes down to the fact that they

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Speaker 4: have to come out big and bold and show the

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Speaker 4: resolve and show that this is a whatever it takes

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Speaker 4: moment like we saw in September with that coordinated action,

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Speaker 4: but really follow it through.

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Speaker 1: Yeah, big unknown I think for the export side of

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Speaker 1: the Chinese economy is the issue of tariffs. We can

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Speaker 1: save that for another day, Mary, but talk to me

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Speaker 1: about what you're seeing in the currency market. I thought

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Speaker 1: that yesterday the PBOC set a much weaker reference rate

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Speaker 1: for the yuan largely because of the rally that we had,

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Speaker 1: the powerful rally in the US dollar, right.

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Speaker 4: Yeah, and that makes sense, right, And I think there's

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Speaker 4: going to be a lot of volatility in the CNY.

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Speaker 4: But we have to remember also the CNY matters so

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Speaker 4: much for let's say Asian currencies and either and even

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Speaker 4: the Euro because of their dependence on China for trade.

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Speaker 4: So what happens in the CNY is just as important

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Speaker 4: as let's say, what happens in the dollar. So the

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Speaker 4: stability is going to be absolutely critical for Asian currencies

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Speaker 4: and even for the Euro. But at the end of

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Speaker 4: the day, the weakness in the currency is is a

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Speaker 4: positive for their economy in terms of helping with export growth,

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Speaker 4: and we saw export growth come out quite strong in

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Speaker 4: last month. So they want to keep that momentum because

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Speaker 4: that is the silvering lining that we're seeing so far

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Speaker 4: in the economy when consumption just remains so incredibly weak.

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Speaker 1: So what have you been writing about today on the

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Speaker 1: m Live blog on the Bloomberg Terminal.

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Speaker 4: Yeah, so a lot of it has been because of

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Speaker 4: the focus has been on the NPC meeting. That's been

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Speaker 4: one of the key things in terms of how does

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Speaker 4: that turn sentiment around and the importance of them coming

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Speaker 4: out with a bigger boulder move to show that to

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Speaker 4: really keep the momentum in Chinese stocks going. There's been

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Speaker 4: a lot of speculation in terms of an optimism and

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Speaker 4: that optimism just really needs to be backed up. Another

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Speaker 4: key thing that we've been looking at is just what's

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Speaker 4: happening with the rest of Asia in terms of equity,

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Speaker 4: So equity revision earnings revisions have come off across some

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Speaker 4: of the big markets like Taiwan and India, and obviously

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Speaker 4: that means especially for the likes of Taiwan and India

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Speaker 4: where valuations were quite frothy, poses some headwinds for these markets.

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Speaker 1: Mary, it's always a pleasure. Thank you so much for

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Speaker 1: making time to chat with us. Mary Nicola, Bloomberg m

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Speaker 1: Live Strategist, joining us from Singapore on the Daybreak Asia podcast.

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