1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:10,119 --> 00:00:13,480 Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. 3 00:00:13,840 --> 00:00:17,200 Speaker 2: Certainly will be a busy Thursday morning in the Asia Pacific. 4 00:00:17,360 --> 00:00:20,560 Speaker 2: US equity futures are higher. That's after strong earnings from 5 00:00:20,560 --> 00:00:24,680 Speaker 2: both Meta and Microsoft. Meantime, the equity market state side 6 00:00:24,720 --> 00:00:27,480 Speaker 2: finished mix. That was after the FED held its policy 7 00:00:27,560 --> 00:00:31,000 Speaker 2: rates steady, and then later in the day President Trump 8 00:00:31,040 --> 00:00:33,960 Speaker 2: announced a trade deal between the US and South Korea. 9 00:00:34,320 --> 00:00:37,160 Speaker 2: And in a moment we'll get some reaction from Naomi Fink, 10 00:00:37,240 --> 00:00:40,800 Speaker 2: she is the chief Global strategist at Nico Asset Management. 11 00:00:41,120 --> 00:00:43,680 Speaker 2: But we begin here in the States and FED officials 12 00:00:43,760 --> 00:00:47,519 Speaker 2: leaving interest rates unchanged, they also downgraded their view of 13 00:00:47,560 --> 00:00:52,519 Speaker 2: the American economy. Interestingly, the tone in Powell's press conference 14 00:00:52,560 --> 00:00:54,200 Speaker 2: skewed a bit hawkish. 15 00:00:54,360 --> 00:00:57,560 Speaker 3: Despite elevated uncertainty, the economy is in a solid position. 16 00:00:58,200 --> 00:01:01,080 Speaker 3: The unemployment rate remains low, and the labor market is 17 00:01:01,200 --> 00:01:05,080 Speaker 3: at or near maximum employment. Inflation has been running somewhat 18 00:01:05,080 --> 00:01:07,600 Speaker 3: above our two percent longer run objective. 19 00:01:07,840 --> 00:01:10,319 Speaker 2: Now, Powell went on to say that no decision has 20 00:01:10,400 --> 00:01:13,480 Speaker 2: been made with regard to a rate cut in September 21 00:01:13,840 --> 00:01:16,679 Speaker 2: and as he spoke, the market gradually reduced odds for 22 00:01:16,720 --> 00:01:19,480 Speaker 2: that cut. It's now seen as basically a fifty to 23 00:01:19,560 --> 00:01:22,160 Speaker 2: fifty event. Let's take a closer look at market action 24 00:01:22,240 --> 00:01:25,080 Speaker 2: now and reaction to the Fed's decision. Joining me is 25 00:01:25,120 --> 00:01:28,399 Speaker 2: Dean Smith. He is the chief strategist at Folio Beyond. 26 00:01:28,480 --> 00:01:31,000 Speaker 2: He's on the line from here in New York City. Dean, 27 00:01:31,080 --> 00:01:33,360 Speaker 2: thank you so much for making time to chat. This 28 00:01:33,400 --> 00:01:36,039 Speaker 2: is pretty much what the market had been expecting. Although 29 00:01:36,080 --> 00:01:39,280 Speaker 2: we did have two members of the committee dissenting, the 30 00:01:39,360 --> 00:01:41,560 Speaker 2: first time that's happened in over thirty years. We had 31 00:01:41,560 --> 00:01:45,600 Speaker 2: Governors Chris Waller and Michelle Bowman favoring a quarter point 32 00:01:45,640 --> 00:01:49,360 Speaker 2: rate cut. But overall it wasn't really a surprise. Is 33 00:01:49,400 --> 00:01:50,200 Speaker 2: that how you saw it? 34 00:01:51,080 --> 00:01:54,200 Speaker 4: Yeah, the July rate cut went off to table at 35 00:01:54,240 --> 00:02:00,880 Speaker 4: the prior jobs report. This was exactly what the market 36 00:02:00,920 --> 00:02:03,480 Speaker 4: was expecting. I mean, Pal just said it himself in 37 00:02:04,200 --> 00:02:07,840 Speaker 4: the clip you just quoted. Economy's doing pretty well. I mean, 38 00:02:07,960 --> 00:02:10,799 Speaker 4: you know, financial market conditions are pretty good. People can 39 00:02:10,840 --> 00:02:14,600 Speaker 4: get access to credit. Inflation is a little in above 40 00:02:14,639 --> 00:02:19,280 Speaker 4: its target, and the official numbers probably are understating inflation. 41 00:02:19,600 --> 00:02:23,000 Speaker 4: So and we've got full employment of course, So given 42 00:02:23,040 --> 00:02:26,680 Speaker 4: that backdrop, there's not really any reason for the FED 43 00:02:26,760 --> 00:02:30,320 Speaker 4: to cut rates right now other than you know, the 44 00:02:30,720 --> 00:02:35,800 Speaker 4: political pressure that they're getting from the administration, which is 45 00:02:35,919 --> 00:02:39,280 Speaker 4: which is pretty severe, but so far they've managed to 46 00:02:39,440 --> 00:02:40,240 Speaker 4: mostly ignore it. 47 00:02:40,400 --> 00:02:42,440 Speaker 2: But we're in the midst of these trade deals and 48 00:02:42,480 --> 00:02:44,679 Speaker 2: we just had a deal today which we will hear 49 00:02:44,720 --> 00:02:49,080 Speaker 2: more about momentarily with South Korea where a fifteen percent 50 00:02:49,160 --> 00:02:51,920 Speaker 2: tariff will be put in place, and at some point 51 00:02:52,240 --> 00:02:56,760 Speaker 2: that could trickle down and actually create inflationary pressure, could 52 00:02:56,760 --> 00:02:56,959 Speaker 2: it not. 53 00:02:57,760 --> 00:03:01,240 Speaker 4: Well, yeah, I mean, the the thing with these tariffs 54 00:03:01,480 --> 00:03:05,160 Speaker 4: is we haven't really seen much of the effect. We're 55 00:03:05,200 --> 00:03:09,360 Speaker 4: starting to see it now. GM last week said that 56 00:03:09,400 --> 00:03:11,720 Speaker 4: they had a billion dollar hit for it. I think 57 00:03:11,720 --> 00:03:14,120 Speaker 4: it was today, so they had a two billion dollar hit. 58 00:03:14,200 --> 00:03:16,680 Speaker 4: So they're starting to bite. But we've got a couple 59 00:03:16,680 --> 00:03:19,240 Speaker 4: of things with the tariffs. First of all, we don't 60 00:03:19,280 --> 00:03:21,800 Speaker 4: actually have final agreements. We've got, you know, sort of 61 00:03:21,800 --> 00:03:25,239 Speaker 4: a statement of intentions, and there's a lot of uncertainty 62 00:03:25,280 --> 00:03:29,399 Speaker 4: about where these things are actually going to land, so 63 00:03:30,000 --> 00:03:32,800 Speaker 4: we don't really know what the trade deals are going 64 00:03:32,880 --> 00:03:36,880 Speaker 4: to be. Second of all, if these tariffs come in 65 00:03:37,360 --> 00:03:40,280 Speaker 4: as they're being advertised and announced right now, or if 66 00:03:40,280 --> 00:03:43,400 Speaker 4: they're increased that any further, it's going to start to 67 00:03:43,440 --> 00:03:46,320 Speaker 4: show up towards the end of this year and into 68 00:03:46,360 --> 00:03:50,560 Speaker 4: next year. These supply shocks and price increases take a 69 00:03:50,720 --> 00:03:52,800 Speaker 4: long time to work through the supply chain. 70 00:03:52,880 --> 00:03:54,160 Speaker 5: There's a bunch of steps. 71 00:03:54,400 --> 00:03:57,720 Speaker 4: It's not as if a tariff of fifteen percent gets 72 00:03:57,720 --> 00:04:01,160 Speaker 4: announced and all prices magically increase by fifty percent. 73 00:04:01,200 --> 00:04:02,440 Speaker 5: You know, First it's the. 74 00:04:02,360 --> 00:04:05,200 Speaker 4: Guy at the at the port, then it's the guy 75 00:04:05,280 --> 00:04:08,240 Speaker 4: down the line producing intermediate goods, and then it's the retailers, 76 00:04:08,240 --> 00:04:09,640 Speaker 4: and it has to work its way through, and that 77 00:04:09,680 --> 00:04:11,800 Speaker 4: takes quite a lot of time. So the FED is 78 00:04:11,880 --> 00:04:14,200 Speaker 4: watching that, and that's what they're supposed to. 79 00:04:14,200 --> 00:04:14,760 Speaker 5: Be doing well. 80 00:04:14,760 --> 00:04:17,640 Speaker 2: As part of the South Korean deal, President Trump said 81 00:04:17,720 --> 00:04:20,200 Speaker 2: that the country will be purchasing one hundred billion dollars 82 00:04:20,240 --> 00:04:23,839 Speaker 2: in liquefied natural gas and other energy products. There was 83 00:04:23,880 --> 00:04:26,760 Speaker 2: a similar story where the trade deal with the European 84 00:04:26,880 --> 00:04:29,680 Speaker 2: Union is concerned, and I'm wondering if we can talk 85 00:04:29,720 --> 00:04:32,080 Speaker 2: a little bit now about what these other countries are 86 00:04:32,080 --> 00:04:35,720 Speaker 2: willing to buy from the United States and maybe at 87 00:04:35,720 --> 00:04:37,760 Speaker 2: the same time to address this idea that we're going 88 00:04:37,839 --> 00:04:41,120 Speaker 2: to see some foreign direct investment flowing into the US. 89 00:04:41,600 --> 00:04:44,520 Speaker 2: Is this a net positive in both instances? 90 00:04:45,040 --> 00:04:47,440 Speaker 4: Well, I have to tell you the liquid natural gas 91 00:04:47,800 --> 00:04:53,400 Speaker 4: is kind of interesting because they announced I think it 92 00:04:53,400 --> 00:04:56,280 Speaker 4: was one hundred and twenty five billion per year. 93 00:04:57,920 --> 00:04:59,000 Speaker 5: To the EU and. 94 00:04:58,960 --> 00:05:04,480 Speaker 4: Then another really large number here to Korea. Total exports 95 00:05:04,520 --> 00:05:09,120 Speaker 4: to the world of LNG by the US last year 96 00:05:09,240 --> 00:05:16,279 Speaker 4: was about fifty billion. There is not the capacity to produce, ship, store, 97 00:05:16,720 --> 00:05:20,600 Speaker 4: make use of anywhere near the amount of LNG that 98 00:05:21,880 --> 00:05:25,239 Speaker 4: is being talked about as the announced. 99 00:05:24,760 --> 00:05:26,239 Speaker 5: These so called trade deals. 100 00:05:26,680 --> 00:05:30,000 Speaker 4: So that is a bit of let's be generous and 101 00:05:30,000 --> 00:05:36,600 Speaker 4: call it puffery in these announcements. But when you get 102 00:05:36,640 --> 00:05:40,400 Speaker 4: back to the other question about direct investment, I mean, 103 00:05:40,480 --> 00:05:45,400 Speaker 4: if you're running a trade deficit, you're going to accumulate 104 00:05:45,640 --> 00:05:49,320 Speaker 4: dollars as a foreign country, right, what can you do 105 00:05:49,440 --> 00:05:52,280 Speaker 4: with dollars, Well, you can make investments in US dollar 106 00:05:52,360 --> 00:05:56,200 Speaker 4: denominated assets, and that's what countries have been doing. They've 107 00:05:56,200 --> 00:05:59,479 Speaker 4: been accumulating government bonds, they've been buying, in the case 108 00:05:59,480 --> 00:06:04,800 Speaker 4: of China, been buying farmland. So these announcements are basically 109 00:06:04,839 --> 00:06:09,960 Speaker 4: describing what's already happening in the economy. There's to think 110 00:06:10,080 --> 00:06:13,960 Speaker 4: that you're going to have entirely new net investment of 111 00:06:14,000 --> 00:06:17,880 Speaker 4: the magnitude that's been coming out of these announcements. 112 00:06:18,960 --> 00:06:19,880 Speaker 5: It's just not real. 113 00:06:20,160 --> 00:06:22,440 Speaker 2: Let's change gears. Talk about some of the earnings that 114 00:06:22,480 --> 00:06:24,440 Speaker 2: we had here in the US after the bell two 115 00:06:24,480 --> 00:06:28,359 Speaker 2: big ones. Microsoft up first with better than expected growth 116 00:06:28,760 --> 00:06:31,479 Speaker 2: in the cloud business Azure. I think sales in the 117 00:06:31,560 --> 00:06:34,479 Speaker 2: unit were up thirty four percent, and we're talking about 118 00:06:34,480 --> 00:06:37,760 Speaker 2: total revenue for the year that ended in June at 119 00:06:37,800 --> 00:06:41,520 Speaker 2: seventy five billion. This is all about AI. Is this, 120 00:06:42,040 --> 00:06:45,279 Speaker 2: in your view, still going to deliver the momentum that 121 00:06:45,320 --> 00:06:47,799 Speaker 2: we have seen over the last let's say, eighteen months, 122 00:06:47,880 --> 00:06:50,120 Speaker 2: or are we at a point now given all of 123 00:06:50,120 --> 00:06:54,359 Speaker 2: the investment that this company has made in AI infrastructure, 124 00:06:54,520 --> 00:06:56,440 Speaker 2: that we've got to be a little bit more careful 125 00:06:56,440 --> 00:06:58,120 Speaker 2: here about the return on investment. 126 00:06:58,920 --> 00:07:03,080 Speaker 4: Well, when you talk about the AI explosion that we're 127 00:07:03,120 --> 00:07:08,560 Speaker 4: experiencing here, and you pointed to Microsoft and the Azure platform, 128 00:07:08,560 --> 00:07:10,560 Speaker 4: you've also got the Amazon. 129 00:07:10,160 --> 00:07:11,240 Speaker 5: With their aws. 130 00:07:11,680 --> 00:07:15,640 Speaker 4: These are the guys that are selling the pick axes 131 00:07:15,640 --> 00:07:19,560 Speaker 4: and the shovels to the gold miners. Okay, and that's 132 00:07:19,640 --> 00:07:23,400 Speaker 4: always been a great business, and so the ability of 133 00:07:23,440 --> 00:07:26,760 Speaker 4: these companies to continue to grow those cloud computing platforms 134 00:07:27,560 --> 00:07:29,600 Speaker 4: is pretty positive. 135 00:07:29,640 --> 00:07:31,600 Speaker 5: I think that's a real bright spot. 136 00:07:32,040 --> 00:07:36,800 Speaker 4: The biggest problem with AI and the valuations that are 137 00:07:36,840 --> 00:07:40,600 Speaker 4: on some of these companies is actually the energy generation 138 00:07:41,360 --> 00:07:45,040 Speaker 4: that is going to be the constraint and the amount 139 00:07:45,080 --> 00:07:49,560 Speaker 4: of energy that has to be generated and then transmitted 140 00:07:50,320 --> 00:07:54,440 Speaker 4: you're building these massive data centers. I haven't seen anybody 141 00:07:54,520 --> 00:07:57,559 Speaker 4: who's quite figured out how that's all going to work. 142 00:07:57,720 --> 00:08:01,400 Speaker 4: So I'm a little bit from Missouri when it comes to, 143 00:08:01,880 --> 00:08:05,400 Speaker 4: you know, some of the biggest AI valuations, You've got 144 00:08:05,400 --> 00:08:07,360 Speaker 4: to show me because it's not clear to me how 145 00:08:07,360 --> 00:08:08,560 Speaker 4: it's all going to get built out. 146 00:08:09,040 --> 00:08:12,840 Speaker 2: If you're questioning AI, then Dean, I'm curious about other 147 00:08:12,920 --> 00:08:16,160 Speaker 2: areas of the market that you feel are attractive right now. 148 00:08:16,160 --> 00:08:20,080 Speaker 2: Would you put energy generation, power generation into that arena? 149 00:08:20,880 --> 00:08:24,080 Speaker 5: Well, you know, I'm not questioning AI per se. 150 00:08:24,200 --> 00:08:31,000 Speaker 4: I think AI has just an amazing potential to enhance business. 151 00:08:31,680 --> 00:08:36,880 Speaker 4: You know, individual life and the internet, all sorts of 152 00:08:36,880 --> 00:08:42,360 Speaker 4: things and medicine. There's all kinds of potential. But like anything, 153 00:08:43,920 --> 00:08:47,720 Speaker 4: it's going to be a big challenge logistically to get 154 00:08:47,800 --> 00:08:52,440 Speaker 4: from where we are to there. In addition, AI right 155 00:08:52,480 --> 00:08:56,160 Speaker 4: now is a little bit like the railroads. You know, 156 00:08:56,200 --> 00:08:58,240 Speaker 4: two hundred years ago or one hundred fifty years ago, 157 00:08:58,840 --> 00:09:00,760 Speaker 4: there were a lot of companies building a lot of 158 00:09:00,800 --> 00:09:05,560 Speaker 4: railroads that are only a handful really survived the shakeout. 159 00:09:05,679 --> 00:09:09,160 Speaker 5: So I expect something similar is going to happen in AI. 160 00:09:09,800 --> 00:09:14,319 Speaker 4: Energy generation is clearly something that has you know, it's 161 00:09:14,360 --> 00:09:15,160 Speaker 4: sort of generic. 162 00:09:15,240 --> 00:09:16,080 Speaker 5: Anybody can use it. 163 00:09:16,120 --> 00:09:19,439 Speaker 4: But when you talk about individual AI companies that are 164 00:09:19,480 --> 00:09:22,440 Speaker 4: actually building these models and deploying these models, I'd be 165 00:09:22,480 --> 00:09:23,679 Speaker 4: a lot more cautious there. 166 00:09:23,880 --> 00:09:25,920 Speaker 2: Let's talk a little bit about the bond market. There's 167 00:09:25,960 --> 00:09:30,160 Speaker 2: been a pretty fair amount of volatility in US treasuries 168 00:09:30,200 --> 00:09:33,439 Speaker 2: and in some corporates lately. Today we had yields actually 169 00:09:33,440 --> 00:09:36,360 Speaker 2: pushing higher across the curve. I think the market's kind 170 00:09:36,360 --> 00:09:39,400 Speaker 2: of dialing back from the notion that September is a 171 00:09:39,440 --> 00:09:41,440 Speaker 2: done deal now in terms of a rake cut, We'll 172 00:09:41,440 --> 00:09:43,600 Speaker 2: have to wait and see what the data kind of 173 00:09:43,640 --> 00:09:46,000 Speaker 2: tell us about the strength of not only the economy 174 00:09:46,040 --> 00:09:48,800 Speaker 2: but the outlook for inflation. Are you looking at the 175 00:09:48,840 --> 00:09:51,720 Speaker 2: bond market for opportunity these days, or are you more 176 00:09:51,800 --> 00:09:53,360 Speaker 2: focused on the equity side. 177 00:09:53,720 --> 00:09:57,480 Speaker 4: No, we're actually principally fixed income guys. The funds that 178 00:09:57,520 --> 00:10:02,000 Speaker 4: we manage are all invested in and fixed income assets, 179 00:10:02,559 --> 00:10:06,280 Speaker 4: so we're very keen to have a view on where 180 00:10:06,360 --> 00:10:09,560 Speaker 4: we think rates are going. The bottom line here is 181 00:10:09,640 --> 00:10:14,079 Speaker 4: that people are waiting for a return. Not everyone, but 182 00:10:14,280 --> 00:10:16,200 Speaker 4: a lot of folks are waiting for a return to 183 00:10:16,280 --> 00:10:20,480 Speaker 4: the extremely low interest rate levels that we saw in 184 00:10:20,520 --> 00:10:23,400 Speaker 4: the aftermath of the financial crisis and then through COVID. 185 00:10:24,960 --> 00:10:28,080 Speaker 4: That's we're not going back there. The interest rates that 186 00:10:28,120 --> 00:10:32,200 Speaker 4: we see today call it, you know, four and three 187 00:10:32,240 --> 00:10:36,040 Speaker 4: eighths to four and a half on tens and pushing 188 00:10:36,080 --> 00:10:40,160 Speaker 4: towards five on the thirty year bond. Those are kind 189 00:10:40,200 --> 00:10:42,840 Speaker 4: of normal rates historically if you go back and look, 190 00:10:43,760 --> 00:10:47,920 Speaker 4: you know, the anomaly was the one in two percent rates, 191 00:10:47,920 --> 00:10:51,800 Speaker 4: and the normal rate is about where we are right now. 192 00:10:52,080 --> 00:10:55,840 Speaker 4: We don't see any way barring some sort of, you know, 193 00:10:55,880 --> 00:10:59,520 Speaker 4: another crisis to get back to those really low rates. 194 00:10:59,520 --> 00:11:03,360 Speaker 4: People need to reorient their thinking and accept the fact 195 00:11:03,440 --> 00:11:05,679 Speaker 4: that we're going to be in this higher interest rate 196 00:11:05,760 --> 00:11:07,800 Speaker 4: environment for the foreseeable future. 197 00:11:08,360 --> 00:11:10,000 Speaker 2: So is it the middle of the curve, then that 198 00:11:10,080 --> 00:11:12,120 Speaker 2: where you want to kind of hide out at least 199 00:11:12,160 --> 00:11:13,520 Speaker 2: for the near term. 200 00:11:14,360 --> 00:11:17,160 Speaker 4: Well, what we think makes a lot of sense is 201 00:11:17,280 --> 00:11:20,520 Speaker 4: to not take on a lot. 202 00:11:20,240 --> 00:11:23,560 Speaker 5: Of interest rate risk, a lot of duration as the 203 00:11:23,679 --> 00:11:24,440 Speaker 5: term of art is. 204 00:11:24,840 --> 00:11:28,720 Speaker 4: We think that yeah, staying a little shorter, staying you know, 205 00:11:28,840 --> 00:11:32,040 Speaker 4: inside of ten years for sure. And we think that 206 00:11:32,160 --> 00:11:35,640 Speaker 4: also makes sense for most investors right now. To find 207 00:11:35,840 --> 00:11:37,520 Speaker 4: ways to generate income. 208 00:11:38,120 --> 00:11:38,440 Speaker 5: Okay. 209 00:11:38,480 --> 00:11:41,280 Speaker 4: We think that income is going to be the key 210 00:11:41,400 --> 00:11:45,000 Speaker 4: to making it through this rough patch here, as opposed 211 00:11:45,080 --> 00:11:48,960 Speaker 4: to you know, other sorts of sources of return, you know, 212 00:11:49,200 --> 00:11:54,360 Speaker 4: big finding the next n N VideA, you know, finding ways 213 00:11:54,400 --> 00:11:57,440 Speaker 4: to really swing for the fences. We think that it 214 00:11:57,520 --> 00:12:01,160 Speaker 4: makes much more sense to stay close to home, generate 215 00:12:01,200 --> 00:12:04,200 Speaker 4: income and let the power compound interest do its work 216 00:12:04,240 --> 00:12:06,600 Speaker 4: while we figure out sort of where we're headed with 217 00:12:06,920 --> 00:12:08,840 Speaker 4: in this new global economy. 218 00:12:09,000 --> 00:12:10,920 Speaker 2: Okay, we'll leave it there. Good stuff, Dean, Thank you 219 00:12:10,960 --> 00:12:13,600 Speaker 2: so much, Dean Smith. He is the chief strategist at 220 00:12:13,640 --> 00:12:16,000 Speaker 2: Folio Beyond. On the line from here in New York 221 00:12:16,040 --> 00:12:26,280 Speaker 2: City on the Daybreak Asia podcast. Welcome back to the 222 00:12:26,320 --> 00:12:30,120 Speaker 2: Daybreak Asia podcast. I'm deg Krisner. As mentioned, the US 223 00:12:30,120 --> 00:12:32,960 Speaker 2: has reached a trade deal with South Korea, a fifteen 224 00:12:33,000 --> 00:12:36,000 Speaker 2: percent tariff will be placed on South Korean goods being 225 00:12:36,040 --> 00:12:39,000 Speaker 2: imported into the US. In a post on truth Social 226 00:12:39,040 --> 00:12:42,679 Speaker 2: President Trump said Soul has also agreed to invest three 227 00:12:42,760 --> 00:12:45,760 Speaker 2: hundred and fifty billion dollars into the US, and Trump 228 00:12:45,800 --> 00:12:49,000 Speaker 2: said South Korea will purchase one hundred billion dollars of 229 00:12:49,080 --> 00:12:53,120 Speaker 2: liquefied natural gas and other energy products. Now from the 230 00:12:53,160 --> 00:12:55,520 Speaker 2: other side of this deal, President Lee ch A Mung 231 00:12:55,559 --> 00:12:59,959 Speaker 2: said the agreement eliminates uncertainty in South Korea's export environment. 232 00:13:00,520 --> 00:13:03,319 Speaker 2: Let's get some perspective now. We heard from Naomi Fanks. 233 00:13:03,320 --> 00:13:06,680 Speaker 2: She is the chief global strategist at Nico Asset Management. 234 00:13:06,960 --> 00:13:09,640 Speaker 2: She spoke with Bloomberg TV host Sherry On and Heidi 235 00:13:09,720 --> 00:13:11,760 Speaker 2: Stroud Watts on the Asia trade. 236 00:13:12,080 --> 00:13:13,880 Speaker 6: Naomi, always good to have you with us. 237 00:13:14,120 --> 00:13:16,040 Speaker 1: Can we expect the markets to take all of the 238 00:13:16,160 --> 00:13:19,520 Speaker 1: latest trade news positively and just final an excuse to 239 00:13:19,640 --> 00:13:20,240 Speaker 1: rally again. 240 00:13:21,000 --> 00:13:22,920 Speaker 7: Well, at least if we take a look at better 241 00:13:22,960 --> 00:13:26,280 Speaker 7: than expected data out of the US and Japan, then 242 00:13:26,440 --> 00:13:31,760 Speaker 7: it does appear at least that some of the fears, 243 00:13:31,920 --> 00:13:35,520 Speaker 7: at least immediately aren't aren't manifesting. The only thing is 244 00:13:35,559 --> 00:13:38,880 Speaker 7: that markets have rallied quite a lot already after the 245 00:13:38,960 --> 00:13:43,080 Speaker 7: Japan trade deal, possibly in excess of the good news 246 00:13:43,120 --> 00:13:46,440 Speaker 7: presented by that deal, and what we've seen with Korea 247 00:13:46,480 --> 00:13:49,319 Speaker 7: is very similar. It seems like fifteen percent is the 248 00:13:49,720 --> 00:13:53,600 Speaker 7: level that signals not as bad as feared, So a 249 00:13:53,600 --> 00:13:56,080 Speaker 7: lot of that is priced into markets at the moment. 250 00:13:56,320 --> 00:14:00,959 Speaker 7: So right now, we probably maybe need new additional news 251 00:14:01,120 --> 00:14:04,439 Speaker 7: to go any further. And conversely, it's possible that we're 252 00:14:04,480 --> 00:14:07,640 Speaker 7: a little bit overstretched and we might be vulnerable to 253 00:14:07,720 --> 00:14:09,360 Speaker 7: corrections if we get bad news. 254 00:14:10,040 --> 00:14:12,440 Speaker 1: Where would the catalysts potentially come from. 255 00:14:13,400 --> 00:14:19,640 Speaker 7: Well, we do have economic data coming out from many directions. 256 00:14:19,920 --> 00:14:22,400 Speaker 7: We still have some out of the US later this 257 00:14:22,520 --> 00:14:26,920 Speaker 7: week as well, so I think we could still get 258 00:14:27,080 --> 00:14:31,640 Speaker 7: minor corrections if we do have disappointments. If, for instance, 259 00:14:32,320 --> 00:14:35,880 Speaker 7: the market decides that yes, we had strong data, but 260 00:14:35,960 --> 00:14:39,720 Speaker 7: that also disincentivizes the FED from cutting any time soon, 261 00:14:40,000 --> 00:14:42,520 Speaker 7: then the stock market can get a little bit wary. 262 00:14:43,080 --> 00:14:45,480 Speaker 7: That said, it's not as if we saw anything that 263 00:14:45,600 --> 00:14:48,880 Speaker 7: is really groundbreakingly bad news, So it's possible that just 264 00:14:48,920 --> 00:14:52,400 Speaker 7: supply and demand conditions and overstretched positioning. 265 00:14:51,960 --> 00:14:53,040 Speaker 6: Might correct a little bit. 266 00:14:53,280 --> 00:14:56,800 Speaker 7: But so far we haven't seen any large catalysts to 267 00:14:56,840 --> 00:14:58,560 Speaker 7: make any structural change the. 268 00:14:58,560 --> 00:15:01,880 Speaker 1: Bank of Japan to use to normalize policy or hopes 269 00:15:01,920 --> 00:15:05,520 Speaker 1: to What sort of implication does that have for the 270 00:15:05,520 --> 00:15:09,120 Speaker 1: markets here, which, as you said, have already been pretty stretched. 271 00:15:09,720 --> 00:15:13,040 Speaker 7: Well, the Bank of Japan's policy is a combinative and 272 00:15:13,080 --> 00:15:16,120 Speaker 7: the Bank of Japan has said this many times, and 273 00:15:16,440 --> 00:15:19,680 Speaker 7: there are many signals in the market and in economic data. 274 00:15:19,720 --> 00:15:22,720 Speaker 7: For instance, inflation remains above target and has been above 275 00:15:22,760 --> 00:15:25,640 Speaker 7: target for quite some time. So even if the Banker 276 00:15:25,680 --> 00:15:29,080 Speaker 7: Japan has a luxury of waiting of timing the rate rises, 277 00:15:29,160 --> 00:15:33,240 Speaker 7: we're still on a rate high trajectory. So the Banker 278 00:15:33,280 --> 00:15:36,000 Speaker 7: Japan probably doesn't want to put it off forever because 279 00:15:36,040 --> 00:15:39,840 Speaker 7: we are above target and households are feeling the pinch 280 00:15:39,920 --> 00:15:44,600 Speaker 7: of inflation. So eventually, the inflation is the central bank's 281 00:15:44,600 --> 00:15:48,400 Speaker 7: bailiwick and the Bank of Japan's mission is going to 282 00:15:48,400 --> 00:15:50,680 Speaker 7: be to keep prices stable. So in order to do 283 00:15:50,760 --> 00:15:52,760 Speaker 7: that they at some point they need to high rates. 284 00:15:54,000 --> 00:15:57,000 Speaker 8: What are you make in terms of the relief rally 285 00:15:57,120 --> 00:15:59,920 Speaker 8: or the complacency rally that we're seeing in many other 286 00:16:00,080 --> 00:16:01,560 Speaker 8: markets but perhaps haven't played out. 287 00:16:01,560 --> 00:16:03,120 Speaker 6: When it comes to Europe, and Japan. 288 00:16:03,240 --> 00:16:07,160 Speaker 8: Despite these two countries or areas now having trade deals, 289 00:16:07,200 --> 00:16:10,120 Speaker 8: does that change the investing outlook at all when it 290 00:16:10,120 --> 00:16:12,840 Speaker 8: comes to having these deals now kind. 291 00:16:12,680 --> 00:16:14,119 Speaker 6: Of at least taking shape. 292 00:16:14,880 --> 00:16:19,920 Speaker 7: Well, I would probably de emphasize smaller, shorter term moves 293 00:16:19,960 --> 00:16:22,840 Speaker 7: at this moment because there can be some over extension 294 00:16:22,840 --> 00:16:26,720 Speaker 7: and correction in various markets. What I would say is 295 00:16:26,760 --> 00:16:29,200 Speaker 7: that if we take a look at valuation in US 296 00:16:29,320 --> 00:16:35,880 Speaker 7: markets that's palpably higher, it's very visibly higher than valuation 297 00:16:35,960 --> 00:16:38,880 Speaker 7: in Japan or in Europe. So if we're looking for 298 00:16:38,920 --> 00:16:41,880 Speaker 7: a vulnerability to some large catalysts, I don't know what 299 00:16:41,920 --> 00:16:44,680 Speaker 7: it is yet, then the US is probably more vulnerable 300 00:16:44,720 --> 00:16:48,080 Speaker 7: than Japan or Europe, which is valued a lot more 301 00:16:48,120 --> 00:16:52,000 Speaker 7: conservatively at the moment. I think that there are probably 302 00:16:52,040 --> 00:16:55,400 Speaker 7: some strong structural arguments in Japan and in Europe that 303 00:16:55,480 --> 00:16:59,520 Speaker 7: are not bearing as spectacular immediate fruit, as for instance, 304 00:16:59,640 --> 00:17:02,280 Speaker 7: some of the recent earnings in the US tech sector 305 00:17:02,600 --> 00:17:06,199 Speaker 7: that said we shouldn't discount that structural improvement over time, 306 00:17:06,520 --> 00:17:10,720 Speaker 7: and these markets might prove areas for valuable diversification. If 307 00:17:10,720 --> 00:17:15,480 Speaker 7: we do have US equity heavy portfolios, as most equity 308 00:17:15,600 --> 00:17:18,879 Speaker 7: investors probably do so, I wouldn't look at it as 309 00:17:18,880 --> 00:17:21,560 Speaker 7: a zero some gain type thing, but I would see 310 00:17:21,800 --> 00:17:25,040 Speaker 7: even in the less exciting markets in Japan and Europe, 311 00:17:25,160 --> 00:17:29,840 Speaker 7: some real structural improvement stories that's worthwhile participating in. 312 00:17:31,320 --> 00:17:35,720 Speaker 8: Does the US exceptionalism story kind of persist despite all 313 00:17:35,760 --> 00:17:38,879 Speaker 8: of the talk about its demise or tc perhaps some 314 00:17:39,000 --> 00:17:43,119 Speaker 8: further upside for some of the arguably undervalued markets like China. 315 00:17:44,160 --> 00:17:47,200 Speaker 7: Well, if we take a look at the I guess 316 00:17:47,240 --> 00:17:50,240 Speaker 7: the idea of exceptionalism. Yes, the US has been exceptional 317 00:17:50,280 --> 00:17:52,320 Speaker 7: in many ways, and part of that has been this 318 00:17:52,440 --> 00:17:55,920 Speaker 7: above trend growth post pandemic, and we've seen a lot 319 00:17:55,920 --> 00:17:58,280 Speaker 7: of investment into the US to compensate, and we have 320 00:17:58,359 --> 00:18:01,000 Speaker 7: seen that valuation rise. The only thing is that that 321 00:18:01,119 --> 00:18:04,000 Speaker 7: sort of already happened, So it's really more important what 322 00:18:04,160 --> 00:18:07,800 Speaker 7: happens in the future. And with valuations at current levels, 323 00:18:08,080 --> 00:18:11,080 Speaker 7: it's not for certain that we will see that follow 324 00:18:11,119 --> 00:18:14,200 Speaker 7: through the performance on all of these hopes for things 325 00:18:14,240 --> 00:18:17,320 Speaker 7: like the technology AI to come before, for example, a 326 00:18:17,480 --> 00:18:20,639 Speaker 7: US recession. It's possible and I think very probable that 327 00:18:21,240 --> 00:18:23,880 Speaker 7: the investments made to date in technology in the US 328 00:18:23,960 --> 00:18:26,440 Speaker 7: will bear fruit and productivity in the US will rise 329 00:18:26,480 --> 00:18:29,159 Speaker 7: more broadly, it's just that that hasn't happened yet, and 330 00:18:29,240 --> 00:18:31,760 Speaker 7: most likely economic cycles aren't dead. So it's a bit 331 00:18:31,800 --> 00:18:35,440 Speaker 7: of a horse race between what comes first, that broadening 332 00:18:35,480 --> 00:18:38,120 Speaker 7: of productivity in the US or recession. And if it's recession, 333 00:18:38,160 --> 00:18:41,000 Speaker 7: that doesn't mean that the productivity broadening won't happen. It's 334 00:18:41,040 --> 00:18:42,240 Speaker 7: just that it's going to be a bit of a 335 00:18:42,320 --> 00:18:43,640 Speaker 7: rockier path to get there. 336 00:18:43,840 --> 00:18:46,160 Speaker 1: We have seen a little bit more focused on Chinese 337 00:18:46,200 --> 00:18:49,400 Speaker 1: tech companies, but given of course talking about economic cycles 338 00:18:49,520 --> 00:18:52,960 Speaker 1: the downside, there is this a market that investors should 339 00:18:52,960 --> 00:18:54,639 Speaker 1: still be watching at the moment. 340 00:18:55,080 --> 00:18:58,920 Speaker 7: Well, I think China is too big an economy to ignore, 341 00:18:59,600 --> 00:19:01,800 Speaker 7: and I think at one point when investors were looking 342 00:19:01,840 --> 00:19:05,720 Speaker 7: at China's uninvestable that we had gone too far. China 343 00:19:05,840 --> 00:19:10,119 Speaker 7: does have some problems, for example deflation and weakness in 344 00:19:10,160 --> 00:19:16,200 Speaker 7: the consumer sector, and that's still deflating property markets. That said, 345 00:19:16,640 --> 00:19:20,919 Speaker 7: the China has some options, for example offering fiscal stimulus, 346 00:19:21,000 --> 00:19:23,639 Speaker 7: especially for consumption. I know that China has been reluctant 347 00:19:23,680 --> 00:19:26,040 Speaker 7: to do this, but that might be a good solution 348 00:19:26,200 --> 00:19:30,160 Speaker 7: going forward, especially given what's going on in the trade side. 349 00:19:30,400 --> 00:19:33,160 Speaker 7: Domestic consumption is a pretty good buffer when you do 350 00:19:33,240 --> 00:19:36,439 Speaker 7: have external uncertainty. So I think they still may go 351 00:19:36,560 --> 00:19:39,440 Speaker 7: there even despite the reluctance to date, and that would 352 00:19:39,480 --> 00:19:43,120 Speaker 7: be supportive for both Chinese, the Chinese economy and assets. 353 00:19:43,960 --> 00:19:45,359 Speaker 6: Yeah, I mean always great to have you with us. 354 00:19:45,400 --> 00:19:48,480 Speaker 8: Noami Think, chief Global Strategist at Nico Asset Management. 355 00:19:50,320 --> 00:19:53,680 Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak 356 00:19:53,840 --> 00:19:57,240 Speaker 2: Asia Edition podcast. Each weekday, we look at the story 357 00:19:57,280 --> 00:20:01,639 Speaker 2: shaping markets, finance, and geopolo in the Asia Pacific. You 358 00:20:01,680 --> 00:20:05,800 Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, 359 00:20:05,920 --> 00:20:08,919 Speaker 2: or anywhere else you listen. Join us again tomorrow for 360 00:20:09,040 --> 00:20:12,520 Speaker 2: insight on the market moves from Hong Kong to Singapore 361 00:20:12,960 --> 00:20:16,720 Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg