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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast time Doug Chrisner.

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Speaker 2: A myriad of markets in the Asia Pacific are offline

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Speaker 2: this morning for the Lunar New Year holiday. China, Hong Kong, Korea,

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Speaker 2: Singapore and Taiwan are all closed. And in the States,

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Speaker 2: we had a recovery in stocks after that sell off Monday,

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Speaker 2: a bit of a rebounded megacap tech in front of

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Speaker 2: some key earnings. And in a moment we'll be speaking

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Speaker 2: with Tom Bruce from Tanglewood Total Wealth Management. But we

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Speaker 2: begin in Sydney. Joining us now is Garfield Reynolds. He

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Speaker 2: is Bloomberg m Live team leader for Asia. Joining us

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Speaker 2: from our studios in Sydney. Can we talk first about

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Speaker 2: the dollar. So much of what we have heard lately

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Speaker 2: from the Fed has kept the dollar strong, and I'm

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Speaker 2: wondering whether you expect that to continue, even though as

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Speaker 2: the market expects we're likely to get a dubbish hold tomorrow.

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Speaker 1: Well, just how dubbish the hold ends up being if

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Speaker 1: it does, is one of the key factors that traders

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Speaker 1: are looking at. We have had some signs that should

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Speaker 1: be positive for the Fed when it comes to the

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Speaker 1: progress on inflation. Governor Waller, before the quiet period came along,

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Speaker 1: he was the sort of cheerleader for that view, the

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Speaker 1: view being that the Fed still has what it needs

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Speaker 1: out of the economic readings to stick with plans to

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Speaker 1: cut rates twice this year. Now, if they're going to

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Speaker 1: cut rates twice this year, then you would think that

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Speaker 1: just about any meeting going forward from this one. This one,

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Speaker 1: it's obvious they're not going to move, but any meeting

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Speaker 1: going forward from here could be a live one. And

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Speaker 1: we already have a number of bond traders who overnight

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Speaker 1: were increasing their expectations that March could be. A week

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Speaker 1: or so ago, we were looking at almost no chance

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Speaker 1: for a March rate cut. Now it's sitting at sort

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Speaker 1: of twenty five to thirty percent, And yeah, traders are

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Speaker 1: looking at what does poal say, how does the statement sound,

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Speaker 1: how much emphasis is there on the potential that some

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Speaker 1: of those stronger jobs data reads have been outliers, and

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Speaker 1: how much stress is there on the recent better inflationary data.

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Speaker 1: If they get enough, then those March bets will go

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Speaker 1: to fifty percent in the blink of an eye.

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Speaker 2: You know, it was interesting because after the December meeting,

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Speaker 2: Powell came out and basically indicated there was a little

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Speaker 2: bit of concern among a few FED members about the

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Speaker 2: potential inflationary impact of economic policies from what was then

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Speaker 2: the incoming Trump administration. Now we've heard a lot of

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Speaker 2: rhetoric lately about tariffs. Do you think this is concerning

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Speaker 2: for the FED? Will tariffs necessarily produce higher inflation? Or

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Speaker 2: is that a big question mark?

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Speaker 1: They did say they were concerned about it, but they

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Speaker 1: also said that they weren't about to rush the conclusions.

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Speaker 1: We've had a confusing myriad of announcements which have still

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Speaker 1: you could say, been less aggressive than what President Trump

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Speaker 1: had promised when he was on the campaign trailer at

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Speaker 1: least had flagged the idea that he would impose tariffs

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Speaker 1: from day one, at the very least on Mexico, Canada,

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Speaker 1: and China. He hasn't. He does have this possible deadline

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Speaker 1: for Feb one, when he thought that that might be

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Speaker 1: when he would impose tariffs on Mexico and Canada. The

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Speaker 1: FED most likely is going to look at that as well. Yeah,

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Speaker 1: this is a risk we have to take into account.

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Speaker 1: Once there are concrete actions that have been taken and

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Speaker 1: we can assess what those are doing.

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Speaker 2: The threat of tariffs has also kept the dollar well buid.

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Speaker 2: Talk to me Garfield about the second order impact on

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Speaker 2: currencies across the Asia Pacific, including the Aussie dollar.

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Speaker 1: Yeah. One of the things that does is actually make

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Speaker 1: it harder for central banks here if they are considering

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Speaker 1: cutting rates to go ahead with rate cuts. You know,

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Speaker 1: it creates an air of caution when the dollar is strong,

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Speaker 1: because that means their currency is are weak, and that

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Speaker 1: increases the potential for imported inflation, in particular more develop

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Speaker 1: markets like Australia and New Zealand. And one of the

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Speaker 1: things that very much drives in particular austrain and inflation

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Speaker 1: expectations is what's going on with gasoline prices at the pump,

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Speaker 1: and a lower Aussie dollar means a higher gasoline price.

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Speaker 1: So that's one of the things that can have you know,

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Speaker 1: consumers expect stickier inflation and that can be a concern

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Speaker 1: for the RBA. It also it creates a bit of

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Speaker 1: a devil's dilemma because a stronger dollar also tends to

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Speaker 1: hurt risk sentiment here in Asia, make people households gloomier,

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Speaker 1: so that's potential demand downer, which then would push you

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Speaker 1: towards raycuts. So it really it clouds the policy spectrum. Now.

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Speaker 2: During the equity market selloff that we had in the

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Speaker 2: States on Monday, one of the things I noticed was

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Speaker 2: a tremendous rally in the end. I'm wondering how much

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Speaker 2: of that move may have been tied to a bit

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Speaker 2: of an unwind of the carry trade. Is the end

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Speaker 2: still being used as a big funding currency for carry.

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Speaker 1: Yeah, very much. So. The positioning is not as extreme

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Speaker 1: as it was. You're back in the middle of last year,

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Speaker 1: just before that your meltdown that we saw which hit

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Speaker 1: global risk assets, but it is it's it's sitting at

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Speaker 1: about you know, a third to a half as large

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Speaker 1: from the data that we can see, which is mostly

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Speaker 1: CFTC data on speculators, and that's kind of tip of

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Speaker 1: the iceberg stuff, but it's it's an indication. So those

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Speaker 1: carry trades are still there. I mean, after all, even

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Speaker 1: after the BOJ raised rates to zero point five percent

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Speaker 1: and that sent you know, Japanese bond yields for the

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Speaker 1: ten year up to sort of one point two percent

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Speaker 1: or so, that's still a long way below the interest

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Speaker 1: rates that are available in a whole range of other currencies,

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Speaker 1: including the US dollars, so those carry trades are there.

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Speaker 1: Then again, conversely, part of that yen rally was driven

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Speaker 1: by the big tech equity sell off in the US

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Speaker 1: was accompanied by a massive rally in US treasuries. You

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Speaker 1: had bond yields dropping by ten basis points there, So,

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Speaker 1: following on from last week's BOJ rate hike, that helped

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Speaker 1: to narrow the still wide differentially in rates between the

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Speaker 1: US and Japan. So that was part of what helped

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Speaker 1: to make those yen gains so strong, and it helps

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Speaker 1: to explain by the yen has fallen back as the

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Speaker 1: tech rally unwound and US treasury yields ticked back up.

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Speaker 1: So there are a lot of moving parts there. Yes,

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Speaker 1: the carry trade is still there. Yes, it is still

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Speaker 1: a threat, although it's a smaller one than it used

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Speaker 1: to be.

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Speaker 2: Garfield will leave it there. Thank you so much for

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Speaker 2: joining us. Garfield Reynolds there Bloomberg's m Live team leader

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Speaker 2: for Asia, joining from Sydney here on the Debreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Krisner,

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Speaker 2: US Docks recover from that selloff on Monday, given a

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Speaker 2: rebound in megacap tech. Even so, a number of participants

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Speaker 2: are still grappling with the impact of deep Seek, that

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Speaker 2: AI model from a Chinese startup. They're asking about what

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Speaker 2: it means for the valuations of certain AI tech companies.

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Speaker 2: Joining us now for a closer look as Tom Bruce,

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Speaker 2: he is macro investment strategist at Tangle with Total Wealth Management. Tom,

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Speaker 2: thanks for making time to chat with us. Give me

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Speaker 2: your sense of yesterday's price action, and then I'll call

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Speaker 2: it the mild recovery that we got today.

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Speaker 3: Well, my overall take on it is when you have

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Speaker 3: this kind of new disruptive technology come out, is a

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Speaker 3: total game changer. Yesterdays reactually makes a lot of sense.

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Speaker 3: You know, semiconductors could be on a lot of pressure

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Speaker 3: if if less resources are required than going forward for AI.

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Speaker 3: So I think the scope of this, the scope of

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Speaker 3: the negativity can be somewhat narrow towards semis and towards

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Speaker 3: maybe energy as well, because if you don't need is

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Speaker 3: many is much computing power, then you don't have as much energy.

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Speaker 3: Outside of that, though, I think it's a great news overall,

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Speaker 3: for AI and for the rest of the market. If

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Speaker 3: you look at being able to produce this cheaper, then

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Speaker 3: you can raw AI quicker and it has that ability

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Speaker 3: to enhance paractivity that much quicker. So as a whole,

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Speaker 3: I do this is a very positive development.

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Speaker 2: One of the things that we heard today the commentary

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Speaker 2: of David Sach's White House AI zar, and he was

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Speaker 2: talking about the fact that this event really is going

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Speaker 2: to refocus America's AI industry. Clearly, there's a lot of

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Speaker 2: competition that's happening between the US and China, and it's

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Speaker 2: a very strained relationship right now with the thread of

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Speaker 2: tariffs looming. We know that during the Biden administration there

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Speaker 2: were export controls placed on certain high technolog components, and

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Speaker 2: whether or not the Chinese would be restricted from using

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Speaker 2: that maybe a big question as to whether or not

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Speaker 2: this particular AI model was developed without advanced US technology.

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Speaker 2: But do you think that this situation with deep seek

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Speaker 2: has the potential to worsen US China relations, Well.

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Speaker 3: I think that's unlikely if you look at the bigger

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Speaker 3: picture of it. To me, it's just a beautiful thing overall,

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Speaker 3: because I think as a lot of tech entrepreneurs have

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Speaker 3: come out in over the last twenty four hours and

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Speaker 3: talked about this. They've offered congratulations for it. You know,

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Speaker 3: it's it's great news for the industry as a whole,

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Speaker 3: where whether it's much more efficiently now now it's bad

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Speaker 3: news for certain companies, for the semiconductors, and I think

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Speaker 3: even for the Megata Tech that have led the way

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Speaker 3: for such a long time. You know, the most that

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Speaker 3: they had of the Cosset took to produce one of

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Speaker 3: the AI models that mote appears to have shrunk considerably

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Speaker 3: now that we know that they've successfully engineered something that

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Speaker 3: can produce similar results for a far lower cost. So

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Speaker 3: there could be some issues there with the markets. You know,

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Speaker 3: it could be some difficulty with with an adjustment, I

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Speaker 3: think with cap weighted indexes being so popular, you know,

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Speaker 3: in the Magnificent Seven taking such a large weight in them,

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Speaker 3: something disruptive like this can certainly have at least a

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Speaker 3: temporary impact, even if the news is positive overall, it

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Speaker 3: could dig a few of these companies. I don't want

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Speaker 3: to get barished on them quite yet, because I think

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Speaker 3: they have some phenomenal leaders. But you know, the video

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Speaker 3: in particular but you know, there could be some pain

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Speaker 3: over the year term.

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Speaker 2: Earning season begins tomorrow, as we know, we're going to

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Speaker 2: be hearing after the bell from Tesla, Meta and Microsoft.

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Speaker 2: Then on Thursday it's Apple's turn. I think it's fair

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Speaker 2: to say that when you look at earnings, they are

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Speaker 2: still rising for megacap Tech and far outpacing the rest

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Speaker 2: of the market. Even so, profit growth is projected to

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Speaker 2: come in maybe at the slowest pace in nearly two years,

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Speaker 2: And I'm curious, is that a concern for.

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Speaker 3: You within the context of the latest development. I feel

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Speaker 3: like it's it's such a game changer going forward, it's

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Speaker 3: really hard to say, you know, what to what to

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Speaker 3: expect within within the greater context of it all. Mega

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Speaker 3: tap Tech has been under such scrutiny recently. It can't

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Speaker 3: blow out earnings, and in some cases it just hasn't

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Speaker 3: been enough. Even even with phenomenal earnings growth, the markets

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Speaker 3: still punish them after earnings are released. And now that

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Speaker 3: we know the same versuses aren't needed, it may you know,

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Speaker 3: it could be difficult for them.

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Speaker 2: We have the FED meeting that will wrap tomorrow as well,

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Speaker 2: and most market participants are expecting a dubvish hold. Does

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Speaker 2: that sit with your view exactly?

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Speaker 3: I think this will be the least I ventfal meeting

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Speaker 3: of the year. I'd be very surprised that they did anything.

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Speaker 3: There's no some of your going off of dresses coming out,

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Speaker 3: so I think they just pick a can until March.

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Speaker 2: As we know, one of the things expressed at the

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Speaker 2: end of the Fed's December meeting was this idea that

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Speaker 2: there was a big unknown about the potential inflationary implications

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Speaker 2: of economic policy from what was at the time the

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Speaker 2: incoming Trump administration. Now we've been hearing the word tariff

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Speaker 2: mentioned quite a bit, and I'm wondering how you feel

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Speaker 2: about the use of tariff policy, first of all, and

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Speaker 2: whether that's creating inflationary risk for the markets.

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Speaker 3: I'm not overly concerned about it. Yes, it's something we're

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Speaker 3: watching closely. I think the first week we've seen here

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Speaker 3: has been encouraging that there have been substantial tariffs right

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Speaker 3: off the bat, So in that sense, it's probably a

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Speaker 3: little and better than a lot of fear. But as

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Speaker 3: a whole, it's really just too early to know on this,

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Speaker 3: and even after tariff's are announced, when they're announced, it

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Speaker 3: will takes some time to actually filter into our CPI

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Speaker 3: and pc data, so it's going to be hard to

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Speaker 3: gauge just for a while. From the Fed, what is your.

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Speaker 2: Biggest concern when you look at the American economy.

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Speaker 3: Well as a whole. I'm very positive on the American economy.

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Speaker 3: I think there's a lot of tailwinds we had going

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Speaker 3: into this year, and with the new administration it seemed

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Speaker 3: more positive and a lot of ways through deregulation and

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Speaker 3: the prospect of text cuts. But if I had to

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Speaker 3: point to one issue, it's it's that if rates stay

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Speaker 3: in approximate where they're at, or say, if they longen

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Speaker 3: the curve rises, the ten year stays at four point

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Speaker 3: five or goes up to stay five percent, well that's

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Speaker 3: probably going to translate into mortgage mortgages staying around the

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Speaker 3: seven percent level or maybe going a little higher. And

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Speaker 3: what does that do to the housing market? You know,

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Speaker 3: it's it's not been as strong lately actually coming off

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Speaker 3: I want to say, the last eighteen months or so

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Speaker 3: in markets like Florida, it's not really been seeing any appreciations.

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Speaker 3: It's been going the other direction for a while. So

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Speaker 3: how long will interest rate sensitive areas of economy be

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Speaker 3: able to weather these higher rates. I don't think that's

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Speaker 3: a problem in the first quarter and probably not the

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Speaker 3: first half, but it could weigh on on things going

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Speaker 3: in towards the second half of the year.

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Speaker 2: Tom will leave it there. Thank you so much for

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Speaker 2: making time to chat with us. Tom Bruce there. He

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Speaker 2: is macro investment strategist at Tanglewood Total Wealth Management. Joining

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Speaker 2: us on the Daybreak Asia Podcast. Thanks for listening to

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Speaker 2: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 2: and this is Bloomberg