Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Speaker 1: Curtis and myself for the stories, making news and moving
Speaker 1: markets in the APAC region. You can subscribe to the
Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2: Well.
Speaker 3: Joining us now on the program is Adam Turnquist, chief
Speaker 3: technical strategist LPL Financial for a closer look at markets.
Speaker 3: So it was seemed it seemed a little bit like
Speaker 3: a douvish FED meeting compared to what we had expected.
Speaker 3: And you get these comments from Powell, which you know
Speaker 3: are sort of like, well, he's less confident than before,
Speaker 3: but still confident of disinflation continuing. And how you take
Speaker 3: that probably says more about you know, who you are
Speaker 3: versus who he is.
Speaker 4: You think it was an interesting FED meeting.
Speaker 5: I think there was a lot there really no surprises
Speaker 5: from the Fed when you look at the commentary was
Speaker 5: really just a reverberation of the higher for longer narrative
Speaker 5: that we've been hearing about from the Fed. Who's really
Speaker 5: have been pushing back against the idea of rate cuts.
Speaker 5: A lot of April was that repricing of that narrative.
Speaker 5: I think if you were to classify it, it was maybe
Speaker 5: less hawkish than feared, and really for the market, it
Speaker 5: touched on a lot of things they were looking to hear.
Speaker 5: I think most importantly, Chair Powell noted that a rate
Speaker 5: hike is unlikely. As you mentioned, they're a little less
Speaker 5: confident in the timing of reaching their two percent inflation target,
Speaker 5: but he certainly sounded.
Speaker 4: Confident they'll eventually get there, and he also sounded confident
Speaker 4: in the economy.
Speaker 5: He noted that he doesn't see the stag or the
Speaker 5: flation risk as he coined it at the meeting, pushing
Speaker 5: back against any of the stagflation headlines that it percolated recently,
Speaker 5: citing really a strongly or market and growth moving along
Speaker 5: at a solid pace. I was really more surprised by
Speaker 5: the fade into the clothes, as you talked about earlier
Speaker 5: sp given up at one point two percent gain and
Speaker 5: closing at session lows today.
Speaker 4: That was that was more of a surprise than the
Speaker 4: initial reaction.
Speaker 1: Yeah, there were a lot of cross currents, and I
Speaker 1: think another one was this rally, this incredible rally that
Speaker 1: we had in the Japanese yen against the dollar in
Speaker 1: late New York trading. At one point we were up
Speaker 1: three percent, and that obviously fostered a lot of speculation
Speaker 1: that maybe it was an opportune moment for the Ministry
Speaker 1: of Finance in Japan to intervene to support the currency.
Speaker 1: Now that you know you got the fed out of
Speaker 1: the way, let's deal with the other big problem here,
Speaker 1: which has been yen weakness. And I think that may
Speaker 1: have correlated with a lot of the volatility that we
Speaker 1: had in the equity market. When you look at Japan
Speaker 1: right now, what is your feeling. Maybe it's about the
Speaker 1: way that the currency has been behaving. Maybe it's about
Speaker 1: whether there is still opportunity to put money to work
Speaker 1: in the equity market. How are you seeing Japan these days?
Speaker 4: Right now?
Speaker 5: There's a rising risk of currency stability and you can
Speaker 5: see that ever since the yen weakened against the dollar
Speaker 5: through one fifty two. That was the spot where the
Speaker 5: boj came in back in twenty twenty two, and I
Speaker 5: think most people thought they would do the same, and
Speaker 5: you can see now we briefly hit one sixty Sunday overnight,
Speaker 5: the Bank of a Japan presumably came in with about
Speaker 5: a thirty five billion dollar order to prop up the end,
Speaker 5: and that was the same type of reaction that we
Speaker 5: witnessed going into the close.
Speaker 4: It was pretty interesting.
Speaker 5: I looked down at my screen and I was shocked
Speaker 5: when I thought when I saw the yen where it
Speaker 5: was trading, it is bounced back a little bit or
Speaker 5: weakened a little bit against the dollar. But I think
Speaker 5: if they can maintain control and we're not going to
Speaker 5: be pushing through one sixty, that should help stabilize the
Speaker 5: Japanese equity market in the yen.
Speaker 4: Of course, a lot of that's correlated.
Speaker 5: To what's going on in the US, and you can't
Speaker 5: really ignore that big rate differential when you're talking about
Speaker 5: BED policy and BOJ policy. But from a longer term
Speaker 5: investor standpoint, we continue to like Japan within international developed
Speaker 5: I think there's a great earning story there. Shareholder friendly
Speaker 5: practices are being implemented, and there's a lot of households
Speaker 5: that are underinvested in equity markets, and you're seeing kapital
Speaker 5: of move into equity markets at this time. So long term,
Speaker 5: I think that theme has shelf life. Might be some
Speaker 5: bumps along the road as we work through this Yen
Speaker 5: weakness story.
Speaker 3: Adam, you said you were quite surprised at the market
Speaker 3: reaction because, as we know, when Pal finished speaking, both
Speaker 3: the NASDAC and the S and P five hundred were
Speaker 3: up more than one percent, and then just in the
Speaker 3: last hour of training I ended up with the loss.
Speaker 3: Doug talked about one possibility. I think also some of
Speaker 3: the momentum plays did get slammed pretty hard, particularly some
Speaker 3: of the chip makers. Now that might change with Coalcom
Speaker 3: after the bill, but you did have Nvidia and Broadcom
Speaker 3: and AMD down pretty sharply. I wonder whether or not
Speaker 3: we're still in this process of sort of squeezing out
Speaker 3: the giddiness in markets.
Speaker 4: What do you think. I think that's a good point, Brian.
Speaker 4: It was interesting.
Speaker 5: We look at things a lot technically, at least in
Speaker 5: my role, and you've had this short relief rally off
Speaker 5: some oversoul levels hit mid April that's stalled out right
Speaker 5: around the fifty day moving average. That's often a spot
Speaker 5: where you see these relief rallies die just not enough
Speaker 5: the momentum. It does raise the risk we could go
Speaker 5: back retest those April lows. We start breaking down there,
Speaker 5: that could be another leg lower down more toward the
Speaker 5: forty eight hundred level and potentially retesting those prior highs.
Speaker 4: We were very frothy.
Speaker 5: We'll call it if you look back, coming into the
Speaker 5: second quarter after an impressive first quarter rally that had
Speaker 5: I think a record high every three trading days. So
Speaker 5: we're taking some of that froth out. It looks like
Speaker 5: a pretty orderly pullback at this point. No major trend
Speaker 5: line violations from technical standpoint, Breath still holding up well,
Speaker 5: so looks like I could have a little bit more
Speaker 5: of a shakeout though, as you mentioned in some of
Speaker 5: those momentum.
Speaker 1: Areas, Unfortunately Adam tech tech canalysis really doesn't work well
Speaker 1: on the radio. But I'm going to go out on
Speaker 1: a limb anyway.
Speaker 4: I'm looking at the.
Speaker 1: Bloomberg now on the S and P five hundred, it
Speaker 1: looks like the one hundred day moving averages at forty
Speaker 1: nine seventy four, and we seem to be using that
Speaker 1: as support right now. Is that the key number for you?
Speaker 1: I mean, we're trading today. We close the S and
Speaker 1: P at fivey eighteen, so we're not far away from
Speaker 1: the one hundred day moving average. If we violate that
Speaker 1: level the number I just quoted forty nine seventy four,
Speaker 1: is there a lot more in the way of downside,
Speaker 1: I think so.
Speaker 5: I'm really watching the April lows forty nine sixty seven
Speaker 5: if we're going to get super technical tonight. But if
Speaker 5: dip buyers aren't stepping in and there's no demand off
Speaker 5: those lows, there's a pretty big pocket of air to
Speaker 5: really that forty eight hundred level where those prior highs are.
Speaker 5: And when you have how these type of parabolic moves,
Speaker 5: you often revert back to towards the longer term trend
Speaker 5: that tends to be around that forty eight hundred level.
Speaker 5: So it could be a pretty quick trip down there
Speaker 5: if we start breaking through those intra day lows.
Speaker 4: In April, J.
Speaker 3: Powell was asked if loose financial conditions were actually hurting
Speaker 3: the FEDS fight against inflation, and he shrugged it off
Speaker 3: to a certain degree, saying that growth in the early
Speaker 3: part of this year was weaker than last year even
Speaker 3: with the looser conditions, and he noted that inflation came
Speaker 3: down fast last year despite overall GDP growth being really
Speaker 3: high in the US up three point four percent in
Speaker 3: the fourth quarter, stronger than this year. It's kind of
Speaker 3: another way of saying that the relationships of these things
Speaker 3: are not hard and fast.
Speaker 5: I think that's fair and it's been. Of course, we
Speaker 5: have to factor in the lagged effects of monetary policy
Speaker 5: and when that's really going to take fold. If you
Speaker 5: look at some of the trends in consumer spending. Obviously
Speaker 5: we witnessed that in the first quarter GDP with spending
Speaker 5: slowing down, But other areas of the market that we've
Speaker 5: watched in terms of some spending slowdowns have been just
Speaker 5: in the delinquency rates, whether it's.
Speaker 4: Auto loans or credit credit cards.
Speaker 5: Ninety day delinquencies are up, and also just credit scores
Speaker 5: have been moving lower as some of the bills come
Speaker 5: doe and a lot of the excess savings have been
Speaker 5: drawn down from the pandemic era.
Speaker 1: So you seem a little cautious on the equity market
Speaker 1: very quickly. If I'm short duration in the bond market,
Speaker 1: is that a buy.
Speaker 4: Yeah? I think so. We think you should be taking
Speaker 4: advantage of yields.
Speaker 5: You don't need to go out long duration right now,
Speaker 5: or even in high yield. Credit spreads in the high
Speaker 5: yield space are call it ninetieth percentile, So you're not
Speaker 5: really getting.
Speaker 4: Paid what you used to get paid to pick on
Speaker 4: credit risk.
Speaker 3: Thank you, Adam Turnquist, Chief technical strategist LPL Financially.
Speaker 1: Let's get to what we heard after the belt from Qualcomm,
Speaker 1: the company with an upbeat forecast for both sales and
Speaker 1: profit in the current quarter. Qualcom, you may know, is
Speaker 1: the world's largest seller of smartphone processors. We have now
Speaker 1: on the line from San Francisco, Bloomberg Intelligence Senior semiconductor
Speaker 1: analyst kun John Sabani. What did you make of what
Speaker 1: you heard from the company or what you're kind of
Speaker 1: reviewing now as you look at the statement from the company.
Speaker 6: Yeah, I mean, you know, the main positive was that
Speaker 6: while most of the smartphone guys, including its chips peers,
Speaker 6: gave a really bleak June quarter outlook lower than seasonal,
Speaker 6: Qualcoms sort of stood out from the pack as the
Speaker 6: only one which not only came in line but with
Speaker 6: a slight beaed, which was sort of a win in itself.
Speaker 6: And we think there were two primary drivers of that. One,
Speaker 6: Apple has seen a significant share loss in China and
Speaker 6: the Android OEMs have picked up that loss, so that
Speaker 6: really benefits a qual Comm and sort of the premium,
Speaker 6: really high end segment is seeing less of this demand weakness,
Speaker 6: which is again where Qualcom has a much higher exposure.
Speaker 3: Yeah, as mentioned, Qualcomm seems to have made a comeback
Speaker 3: in China, both on the sales front but also on
Speaker 3: its relations with regulators. What's the latest there, I.
Speaker 6: Mean for Qualcom revenues. Sort of these US China trade
Speaker 6: sanctions never had any major impact because it goes most
Speaker 6: of its devices goes in a consumer product and again
Speaker 6: you know the Chinese OEMs who they're selling into. There's
Speaker 6: sort of no other big alternative grown, homegrown alternative from China,
Speaker 6: so it doesn't impact them. The tensions have impacted Apple,
Speaker 6: which again is sort of a beneficial benefit. Qualcom is
Speaker 6: a beneficiary from that because every Apple phone that is
Speaker 6: not sold and is replaced by a Chinese Android OEM phone,
Speaker 6: Qualcom gets sort of a three x to a five
Speaker 6: x asp uplift from that.
Speaker 1: Yeah, for the last two quarters, I think the number
Speaker 1: in terms of sales to Chinese phonemakers was like a
Speaker 1: gain of forty percent. I mean, that's just a stunning
Speaker 1: number to look at, But when you look at the
Speaker 1: guidance for the current quarter, I want to understand it.
Speaker 1: Clearly we're calling it an upbeat forecast. Are we to
Speaker 1: look at it in that way? I mean, is it
Speaker 1: is it barely meeting expectations or is it more optimistic
Speaker 1: than I'm kind of alluding to.
Speaker 6: Well, it's not a significant beat in terms of magnitude,
Speaker 6: but it's more of an optimistic sentimental beat, right, Like,
Speaker 6: while rest of your peers are suffering and gave double
Speaker 6: digit decline or beats, I should say non decline, you
Speaker 6: came in in line or slightly up. That's sort of
Speaker 6: an invitelf right. And what also is helping them is
Speaker 6: the auto con which has been continued to grow sequentially
Speaker 6: continues its tragedory, but IOD, which was declining significantly for
Speaker 6: multiple quarters in a row, sort of has stopped that
Speaker 6: bleeding and is now expected to turn around slowly. So
Speaker 6: all that is sort of a win in a market
Speaker 6: where again, like most of its peers are struggling.
Speaker 3: Yeah, when I asked about actually about regulators earlier, I
Speaker 3: was kind of referring back to the difficult period that
Speaker 3: Qualcomm had in China. Over licensing and the billion dollar,
Speaker 3: almost billion dollar fine that it had to pay. But
Speaker 3: it seems like basically what you're saying is that things
Speaker 3: are pretty hunky dory for Qualcom in China now, including
Speaker 3: the relationship with Shaumi, Honor one plus Opo, Vivo, you
Speaker 3: name it.
Speaker 6: Yeah, exactly. I mean, China is one of their, if
Speaker 6: not the biggest, most important market for them specifically, and
Speaker 6: we don't see any sort of geopolitical or regulatory issues
Speaker 6: for them in China, at least in the near future.
Speaker 1: Huawei is a different story, right.
Speaker 6: Yeah, I mean, Wawei is not a negative for them, right.
Speaker 6: It seems the share gains in Wahwei had in five
Speaker 6: G came again a lot at the expense of Apple,
Speaker 6: and Wawei has actually indirectly helped them to drive up
Speaker 6: the TAM for the Android space, so sort of indirectly
Speaker 6: helping them.
Speaker 3: Just briefly on AI and Internet of Things, I know
Speaker 3: quakam as a group on that. How is the company
Speaker 3: faring in those two areas.
Speaker 6: You know, AI outside of smartphones sort of in let's say,
Speaker 6: in automotive variety, it's too early. I don't think it's
Speaker 6: having material revenue impact on the fundamentals, it's most of
Speaker 6: its sort of other diversified products. The next big thing
Speaker 6: to look out for the companies really bullish on in
Speaker 6: that IoT segment is the AIPC, which I'd expected to
Speaker 6: hit the market sort of in second half twenty four.
Speaker 6: We don't think it is going to drive significant revenue
Speaker 6: this year. If it goes all goes well, it could
Speaker 6: be a driver in fiscal twenty five, but nothing this year.
Speaker 1: All right, Kunjohn, it's always a pleasure. Thanks for making
Speaker 1: time to chat with us, Bloomberg Intelligence Senior semiconductor analyst,
Speaker 1: Kun John Subani. As we talk call Tom here.
Speaker 3: Let's get to our guest, Nancy Davis, founder in CIOT
Speaker 3: Quadratic Capital Management, to talk a little bit more about
Speaker 3: markets and the FED. I always love watching the FED
Speaker 3: news conference and how definitely Pal handles the questions. I
Speaker 3: thought he was a little nervous at the open, really
Speaker 3: referring to notes and scrambling and get the papers in there.
Speaker 3: But then he started to kind of reach stride. He
Speaker 3: blasted the notion of stagfla, He blasted the notion that
Speaker 3: the FED would do anything different on policy because of
Speaker 3: the election coming up. He said, look, I'm less confident
Speaker 3: now about disinflation continuing, but I'm still confident. Your takeaway
Speaker 3: from the way that this meeting rolled.
Speaker 2: Out, well, I don't think he said anything really new,
Speaker 2: but he was trying to thread the needle. I think
Speaker 2: the markets definitely were worried a little bit that the
Speaker 2: Fed was going to be more hawkish in their commentary,
Speaker 2: and I think all the it was read more dubvish
Speaker 2: just because of there's still they're using quantitative tightening. They're
Speaker 2: still providing so much liquidity to the market that it
Speaker 2: is still easing even though they haven't started cutting rates yet.
Speaker 1: Yeah, they kind of dialed back on the amount of
Speaker 1: quantitative tightening they're going to be doing. Is certainly where
Speaker 1: US treasuries are concerned. I mean, the mortgage back portion
Speaker 1: of unwanting the balance sheet remained in tech I think
Speaker 1: months rated around thirty five billion. What is your sense
Speaker 1: do you fear or suspect that the market is would
Speaker 1: have a strong negative reaction if the Fed were to
Speaker 1: remain on the same track that it's been with respect
Speaker 1: to unwinding the balance sheet. Was there a risk that
Speaker 1: Powell was trying to address today that may have to
Speaker 1: do a little bit with some type of potential tantrum.
Speaker 2: Well, he's easing by slowing the pace of quantitative tightening,
Speaker 2: which really wasn't very large when you think about the
Speaker 2: Fed's denominator, which is the balance sheet, is about seven
Speaker 2: trillion dollars in the SOMA piece of the balance sheet,
Speaker 2: So that's the piece of the Fed's balance sheet that
Speaker 2: the New York Fed actually went into the open market
Speaker 2: and bought during QE. So reducing the quantitative tightening is easing,
Speaker 2: and they're easing in a very very hot economy in
Speaker 2: the US, so it's all quite inflationary in the long term.
Speaker 2: So it's sort of like talking out of both sides
Speaker 2: of your mouth. You know, they're they're not cutting, but
Speaker 2: they still are reducing QT.
Speaker 3: We like to think of there being a lot of
Speaker 3: volatility in the bond market, but as as we heard
Speaker 3: from a number of practitioners, I mean, if you really
Speaker 3: look at it, the ten year has been in a
Speaker 3: range of around this this sort of area of four
Speaker 3: point six percent going back on you know, back to November.
Speaker 3: So yeah, we've fluctuated thirty forty basis points, but not
Speaker 3: that much, are you do you like the short end
Speaker 3: of the curve better here, or you would you go
Speaker 3: out in duration.
Speaker 4: I don't think you.
Speaker 2: Really get paid to go out in duration, because the
Speaker 2: US yield curve is still, you know, massively inverted. Especially
Speaker 2: even if you look at the sofa curve, the not
Speaker 2: the treasury curve, but the swaps curve, it's you know,
Speaker 2: the choose tens as negative sixty four basis points, so
Speaker 2: you literally get paid sixty four this points less to
Speaker 2: lend the US money for ten years versus two years.
Speaker 2: I mean, it's nonsensical. Even markets like Japan, their yield
Speaker 2: curve is positive sixty basis points, so we're exactly opposite
Speaker 2: being negative. So I just don't think investors in the
Speaker 2: bond market really get paid to own duration. It's almost
Speaker 2: like you're paying a tax, right, You're taking more risk
Speaker 2: and getting paid less yield, And especially if the Fed's
Speaker 2: gonna leave it higher for longer, I just don't see
Speaker 2: any point to extend duration.
Speaker 1: I'm glad you brought up Japan because we had a
Speaker 1: lot of action in the foreign exchange in the last
Speaker 1: hour of a New York trading in the equity market,
Speaker 1: at one point, the end strengthened buy around three percent
Speaker 1: against the greenback. The dollar had been a little week
Speaker 1: after the you know, the FED meeting, we saw a
Speaker 1: drop and yield. Some of that may have been due
Speaker 1: to the quantitative tightening adjustment. But when when you trade
Speaker 1: a market like the one that we find ourselves in
Speaker 1: right now, if you're short yen, that may help explain
Speaker 1: why we saw a pullback in US stocks. Would you
Speaker 1: have to you know, sell the equity market to raise
Speaker 1: cash to cover your short position in yen? Is Can
Speaker 1: that help explain a little of what we saw in
Speaker 1: the final moments of trading today.
Speaker 2: Well, I do think that the yen, the currency is
Speaker 2: more closely tied to the treasury market. More too, because
Speaker 2: Japan such a large owner of our debt and the
Speaker 2: treasury does have to refinance a ton of the debt. Yeah,
Speaker 2: And at the same time, the Fed is still doing
Speaker 2: They reduced quantitative tightening starting in June, but they're still
Speaker 2: doing it, and so I think, you know, I would
Speaker 2: say the foreign currency moves are more tied to the
Speaker 2: rate differential. In carry trade.
Speaker 1: We were like six basis points down in the case
Speaker 1: of both the two and the ten, but that was
Speaker 1: a three percent move in yen. That felt to me
Speaker 1: like a massive short squeeze that was tied to fear
Speaker 1: that or maybe the Ministry of Finance was already in
Speaker 1: there kind of trying to prompt a bit of short covering.
Speaker 2: Yeah, I mean there's definitely a lot of chatter about
Speaker 2: intervention because again, as we can you know, if you
Speaker 2: just take a big step back, you know, the end
Speaker 2: was ninety and then got to one sixty in a
Speaker 2: very short period of time. So it's had massive depreciation recently,
Speaker 2: and the dollar has been very strong, so you know,
Speaker 2: three percent pullback before even Asia is really open. I'm
Speaker 2: sort of you know, like the bond market's moving like
Speaker 2: crazy too. It's kind of just noise at this point,
Speaker 2: and we'll really have to.
Speaker 6: See what actually.
Speaker 3: Where then do you see the best value in the
Speaker 3: bond market, including credit? Would you look at investment grade
Speaker 3: but the better you know, sort of maybe triple b's
Speaker 3: instead of higher than that.
Speaker 2: No, I wouldn't touch that stuff with a ten foot pull.
Speaker 2: I mean, if you have equities in your portfolio already
Speaker 2: have that corporate beta, you know, with investment grade, you know,
Speaker 2: you pull up your Bloomberg terminal and look at the
Speaker 2: CDX index for the two year investment grade bond. It's
Speaker 2: twenty two basis points. I mean that you can only
Speaker 2: go to zero, right. It's a spread trade. You want
Speaker 2: credit spreads Titan to Titan to go lower. If you
Speaker 2: own the bonds, you're not getting paid with credit. Frankly,
Speaker 2: I think if you're going to take corporate resk, you
Speaker 2: might as well have equities, and I think values of
Speaker 2: value our inflation protection bonds.
Speaker 3: No time to go into it, but that was Jeff
Speaker 3: Gundlock speaking on CNBC earlier saying that he thought that
Speaker 3: was the best value shot. I thought I'd throw it
Speaker 3: at you're saying no way, Nancy. Thank you for joining us,
Speaker 3: Nancy Davis from Quadratic.
Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you
Speaker 1: the stories making news and moving markets in the Asia Pacific.
Speaker 1: Visit the Bloomberg Podcast channel on YouTube to get more
Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to
Speaker 1: the podcast on Apple, Spotify, or anywhere else you listen
Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and the
Speaker 1: Bloomberg Business app.