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Speaker 3: The Japanese yen weakening to the lowest level against the
Speaker 3: dollars since way back in December of nineteen eighty six,
Speaker 3: it's raising the risk of intervention less than a couple
Speaker 3: of months after the boj stepped in to prop up
Speaker 3: the currency. Dominic Constam, head of Macro's strategy at Mizuho Americas,
Speaker 3: says the weekend is hurting Japanese consumers.
Speaker 4: When the currency is weakening. There's obviously terms of trade effect,
Speaker 4: which means the real income of the Japanese people in
Speaker 4: some sense will be less global terms, So there's definitely
Speaker 4: a depreciation from that side of things. But at the
Speaker 4: same time, I mean, at the end of the day,
Speaker 4: you know their potential growth is very low. There's a
Speaker 4: lot of damage has been done with very low negative
Speaker 4: inflation over the years.
Speaker 3: Dominant constem of Mizuho America is there. The Japanese currency
Speaker 3: at the moment is training or dollar yen is at
Speaker 3: one sixty fifty three. That blows past the figure when
Speaker 3: officials intervened Back in April, Japan's Vice Minister of Finance,
Speaker 3: Masanto Kanda said that officials are watching with a high
Speaker 3: degree of urgency, and he said that they would take
Speaker 3: appropriate steps as needed. We've got our guest coming up,
Speaker 3: Stephanie Lung, chief investment officer at Stashaway. Hopefully we'll get
Speaker 3: some broad discussion about all of these factors. Stephanie, thank
Speaker 3: you for coming into our studios with us. Let's start
Speaker 3: off with the end. Well, we mentioned the possibility of
Speaker 3: intervention by Japanese authorities, but we're running a piece that
Speaker 3: says it's kind of a grim reality that's setting in
Speaker 3: that the yen is not really going to stop weakening
Speaker 3: until the FED pulls the plug on the higher for
Speaker 3: Longer policy. I wonder if you see it that way,
Speaker 3: it seems like that angle means the boj has to
Speaker 3: stay patient even if the market is not.
Speaker 1: Yeah, absolutely, I think.
Speaker 5: I mean, we've seen some intervention in the Japanese and
Speaker 5: market by the BOJ. However, I think the force is
Speaker 5: that the overarching micro kind of reality is that US
Speaker 5: inflation or developed markets inflations are not coming down as
Speaker 5: quickly as expected. Therefore, would expect the Fed to have
Speaker 5: to kind of keep interest rates higher for longer. And obviously,
Speaker 5: I mean the last CPI number was quite encouraging in
Speaker 5: the direction that this inflation started seems to have started
Speaker 5: reaccelerating again. But again it's only one month of figure,
Speaker 5: and we all know that inflation data tends to be
Speaker 5: actually quite volatile, So a lot of attention now comes
Speaker 5: down to this Friday, Actually the PCE number will be
Speaker 5: coming out, and Pocket generally expects I mean PCE to
Speaker 5: be quite in line with the CPI. However, if I
Speaker 5: mean the CPI, the PCE actually comes out kind of
Speaker 5: stronger than what the market is looking for. That means
Speaker 5: that we may actually not get the turn or get
Speaker 5: the acceleration in this inflation as of yet, and that
Speaker 5: puts a lot more pressure on the end.
Speaker 2: Speaking of pressure, the BOJ has got to be feeling
Speaker 2: a little bit of it. We had a Bloomberg survey
Speaker 2: recently showing about a third of the economists that we
Speaker 2: spoke with believe the BOJ will raise interest rates in July,
Speaker 2: and they also expect the BOJ to unveil a roadmap
Speaker 2: for quantitative tightening, buying far fewer of those jgbs.
Speaker 5: What is your.
Speaker 2: Expectation right now? What are we going to get from
Speaker 2: the BOJ that is really going to convince the market
Speaker 2: that the era, the three decades really of easy money
Speaker 2: is over.
Speaker 1: Yeah, I think it.
Speaker 5: If you put yourself into a BOJ kind of official,
Speaker 5: you haven't had to do this kind of tightening before, right,
Speaker 5: because I think for the last three decades there was
Speaker 5: consistent perissure of deflation, and they were very very good
Speaker 5: at coming up with policies to actually flight fight deflation.
Speaker 5: Now the direction is kind of the other way, in
Speaker 5: the sense that they have this kind of early on
Speaker 5: inflation force that is setting in in the economy.
Speaker 1: Wavetrove is surprising on the webside.
Speaker 5: And more importantly, I think the overall kind of macro
Speaker 5: environment for the US and other develop markets support a
Speaker 5: high inflation environment for the Japan economy. And I think
Speaker 5: if you are a BOJ official, you will be very
Speaker 5: very careful in not trying to extinguish what they've actually
Speaker 5: hoped for the last three decades. So I think even
Speaker 5: though they are set to kind of start to tighten policy,
Speaker 5: they would do it actually in a very very cautious way.
Speaker 5: And I mean coming back to the end, right, the
Speaker 5: other consideration that they need to take into account, it's
Speaker 5: what's happening in the neighbor. Actually, the biggest neighbor was
Speaker 5: is China. Obviously, I think we all have seen some
Speaker 5: turning around of Chinese data. However, it's also been quite slow, right,
Speaker 5: so there's still somewhat of a deflation pressure going on
Speaker 5: in China, which pressures a currency, which of course translates
Speaker 5: into how to think about the Japanese zen as well.
Speaker 3: Yeah, I think a lot of investors think that the
Speaker 3: BOJ and the PBOC are kind of in the same
Speaker 3: spot that they're waiting for the for the FED to
Speaker 3: act first. So that probably takes July off the table.
Speaker 3: But I'm curious about the FED meeting in July whether
Speaker 3: or not. Well, let's back up and let's let's say,
Speaker 3: is it possible that the PCE this week is enough
Speaker 3: for the July meeting to become live. Many think no.
Speaker 3: But would it be enough maybe then to get the
Speaker 3: Fed speakers to change the forward guidance.
Speaker 5: I think, I mean, perhaps they could become a bit
Speaker 5: less less hawkish, because I mean the last policy meeting
Speaker 5: was actually quite hawkish in the direction of kind of
Speaker 5: the decision itself. Now, of course, Powell said during the
Speaker 5: press conference that the committee members actually had the chance
Speaker 5: to change their projections, given that they knew that the
Speaker 5: CPI number would have come out kind of below expectations.
Speaker 5: They chose not to. I think partly that's because it's
Speaker 5: only one month of data. And I mean when the
Speaker 5: Fed kind of make decisions typically, I mean they look
Speaker 5: at at least kind of a three month average. So
Speaker 5: if like committee members look at a three month average,
Speaker 5: things haven't like really turn so I think, unless I
Speaker 5: mean the pc number have surprised a lot of the downside,
Speaker 5: there's not a room for a lot of room for
Speaker 5: them to support a set of can change direction. However,
Speaker 5: some members could come out with kind of softer language.
Speaker 1: I think that's what Powell actually signaled as well.
Speaker 5: Right at at the press conference, he did say that
Speaker 5: everything is kind of up to the data and it's
Speaker 5: very very much data dependent.
Speaker 2: Stephanie, before we let you go, you are an expert
Speaker 2: in computer science, especially artificial intelligence, and I want you
Speaker 2: to weigh in on this phenomenon that's been happening right
Speaker 2: now across developed markets, mostly the US in particular, this
Speaker 2: enthusiasm around AI and the computing boom that we will
Speaker 2: derive as a result of it. I mean, where do
Speaker 2: you stand. How do you see this right now playing out?
Speaker 4: Yeah?
Speaker 5: I think it's As a computer scientist myself, it's actually
Speaker 5: very very exciting times. I would actually compare the impact
Speaker 5: to society or kind of everyday life and work with
Speaker 5: the invention or revolution of kind of popularization of the
Speaker 5: Internet during the two thousands. So what happened in the
Speaker 5: two thousands We had a real change, real improve intel technology. However,
Speaker 5: we also had the dot com bubble, so we're see
Speaker 5: a bit of that today right with names I and Vidiot.
Speaker 1: Arguably there's a bit of a bubble.
Speaker 5: When I saw Jensen Huang kind of being a pop
Speaker 5: starle on headlines and my mom started talking about it,
Speaker 5: I knew this is kind of history repeat ticket Solf.
Speaker 1: So there's a bit of bubble that.
Speaker 5: However, if you look kind of beyond that, I think
Speaker 5: I love the rest of my market actually looks quite reasonable,
Speaker 5: and you're seeing kind of rotation as well. Right names
Speaker 5: like Amazon, Google, which habit laggards, are starting to catch up.
Speaker 5: So there's definitely a lot more to play that.
Speaker 3: Yeah, in that same theme, I think it was really
Speaker 3: about the time that Nvidia became the most valuable company
Speaker 3: in the whole world that we saw that fifteen percent
Speaker 3: pullback in a matter of five days. So Stephanie, thank you.
Speaker 3: Stephanie Lung, chief investment officer at Stastaway formerly of Golden Self.
Speaker 3: Joining us on the program is Charo Shanana, Global market
Speaker 3: strategist and head of FX strategy at Sagzo. Charro, thank
Speaker 3: you so much for joining us. I'm going to find
Speaker 3: a way to blend the two hats that you wear
Speaker 3: as a general market strategist and then also the FX
Speaker 3: side of things by just asking you point blank, is
Speaker 3: the weakening year in killing the long the long equity
Speaker 3: story in Japan?
Speaker 6: Hi Goodmaning, thank you for having me. No, totally, I am,
Speaker 6: and I think for now it has been obviously seen
Speaker 6: that a weaker yen has been helping the Japanese exporters
Speaker 6: and those blue chip names continue to push the equity
Speaker 6: markets in Japan higher. And you know, in the case
Speaker 6: for Japanese equities is a very structural case. It's driven
Speaker 6: by corporate reforms that are happening in Japan. It's driven
Speaker 6: by that exit from deflationary trends in Japan. So I
Speaker 6: would I would not be worried about excessive weakness in
Speaker 6: the yen and how that can fuel a little bit
Speaker 6: of a pullback in probably consumption in the in the
Speaker 6: short term. Of course, the weakness in the yen is
Speaker 6: going to continue for now as it appears, you know,
Speaker 6: with the FED delaying it's rate cuts. But if you're
Speaker 6: in Japan markets, in japan equities, from a very structural perspective,
Speaker 6: this weakness in the end is potentially bound to turn
Speaker 6: around once we get to that, you know, the FED
Speaker 6: rate cut cycle. But it certainly is a point in
Speaker 6: time where we should be looking at our Japanese equity
Speaker 6: exposures and potentially turning a little bit more selective there.
Speaker 6: I mean, certainly there are some great dividend place in
Speaker 6: that market. Geopolitical risk has also obviously helped Japanese equities
Speaker 6: in some way or the other, as investors have been
Speaker 6: trying to diversify out of China. So I think those
Speaker 6: sections of the Japanese equity markets still remain quite attraction.
Speaker 2: So, Charu, how would you handicap the risk of intervention
Speaker 2: from the monetary authority in Japan right now? I mean
Speaker 2: you mentioned the FED, and we're waiting for that pivot.
Speaker 2: We haven't received it yet. The first rate cut may
Speaker 2: be likely to create a shockwave through the foreign exchange,
Speaker 2: But how are you assessing the risk of intervention from
Speaker 2: the monetary authority?
Speaker 6: Having seen how miserably this intervention potential intervention we saw
Speaker 6: in April has failed and we're back at these one
Speaker 6: sixty plus levers, I would think that Japanese authorities want
Speaker 6: to really see a strong case of intervention, and I
Speaker 6: don't see that right now. They certainly more worried about
Speaker 6: the base at which the end decline is not so
Speaker 6: much about the levels it's trading at. And what we've
Speaker 6: heard from the FX chief in Japan Kanda earlier is
Speaker 6: that they usually get worried when there is a move
Speaker 6: of about ten per US dollars within one month, or
Speaker 6: even a four percent depreciation in the end in two weeks,
Speaker 6: and none of those two conditions seem to have been
Speaker 6: met yet. So the pace of decline is something that
Speaker 6: would not be potentially worrying Japanese authorities. Now, we might
Speaker 6: obviously see some verbal job owning here and there, but
Speaker 6: I don't see any reason why they should be wasting
Speaker 6: tons of money again to really get them nowhere while
Speaker 6: they wait for those federate cuts to begin.
Speaker 3: Yeah, we we ran a story on the Bloomberg terminal
Speaker 3: getting just at that point that that the Japanese authorities
Speaker 3: will probably have to wait to see what happens with
Speaker 3: the PCE this week and then later with the FED
Speaker 3: at the July meeting. The reason I brought up stocks
Speaker 3: was that obviously, you know, the Japan market was one
Speaker 3: of the real favorites, so one of the real darlings
Speaker 3: for investors for a period of time. Now you have
Speaker 3: to go you know, since March, we've we've traded lower.
Speaker 3: So it's it's been you know a number of months
Speaker 3: now that we've traded lower, and I guess part of
Speaker 3: that could be the reaction to the rapid gains that
Speaker 3: we saw from December. Over those couple of months. So
Speaker 3: if we think that that story is intact, what's the
Speaker 3: what's the key component for it?
Speaker 6: Certainly, I mean, we've seen some amount of pullback, some
Speaker 6: amount of sideways trading in the Japanese equity markets, and
Speaker 6: that's obviously potentially coming from some of those investors who
Speaker 6: were more like tactical and short term investors, obviously locking
Speaker 6: in their games after the rapid run that we've seen
Speaker 6: in the last year or so. Uh But like I said,
Speaker 6: you know, I mean, for me, Japan is a story
Speaker 6: about exit from deflation. Japan is a story about corporate
Speaker 6: reforms and more dividend payouts, more buybacks. For me, Japan
Speaker 6: is a story about higher geopolitical risk in the global economy,
Speaker 6: which means japan equity has become a little bit of
Speaker 6: a safe hayn in that sense. Uh So, I'm still
Speaker 6: looking at it from a very selective lens. Of course,
Speaker 6: the pullback in uh, you know, the Japanese end has
Speaker 6: been helping once again in recent weeks. But if we
Speaker 6: were to continue to position for the strengthening of the
Speaker 6: year and the eventual start of the federate cut cycle,
Speaker 6: that means the index level can obviously see a deeper
Speaker 6: pullback as well, because you know, all those high market
Speaker 6: cap names are potentially those that are exporters and dependent
Speaker 6: on the weakness of the end to really continue to
Speaker 6: gain as well.
Speaker 2: Charro, very quickly thirty seconds. What would cause you to
Speaker 2: change your opinion on Japanese equities?
Speaker 6: I mean, on a very positive note, if we were
Speaker 6: to see geopolitical tensions and and US China on a
Speaker 6: very you know, coordial happy note, then I think Japan
Speaker 6: would face outflows as far as investors would rush back
Speaker 6: into the China markets. I think that would be one
Speaker 6: downside risk.
Speaker 3: Charo, thank you for joining us. Charo Chanana, global market
Speaker 3: strategist and head of X Strategy. Let's get to our guests.
Speaker 3: Terry Spath, founder and CIO at Zuma Wealth. Terry, one
Speaker 3: of the markers of what's been happening in the US
Speaker 3: equity market of late has been that you've had quite
Speaker 3: a lot of volatility in individual stocks, not so much
Speaker 3: at the index level. The indexes have managed to hold
Speaker 3: pretty close to all time highs, even with some pretty
Speaker 3: torred selling in even the high flyers, like in video
Speaker 3: last week, trading down thirteen to fifteen percent in the
Speaker 3: number of days, and yet the indexes were Okay, you
Speaker 3: think that continues or is that about to change?
Speaker 7: Yeah, Hi, Brian, I'm glad you brought that up.
Speaker 8: You know, it is an interesting divergence between individual stock
Speaker 8: volatility and the relative calm of the broader benchmarks, and
Speaker 8: that calm really strikes us.
Speaker 7: I mean, we were taking a look, it's been.
Speaker 8: Sixteen months since the S and P five hundred had
Speaker 8: a two percent down day. I've there were months during
Speaker 8: COVID where we had multiple five percent down dates, So
Speaker 8: that's you know, it's very calm. The max draw downs
Speaker 8: this year only five percent for the S and P
Speaker 8: five hundred, seven percent for the NASDACK. So our view
Speaker 8: and our recommendation is, you know, don't step in front
Speaker 8: of a strong market. We're in a Cinderella moment. It's
Speaker 8: not too hot, it's not too cold, and the trend
Speaker 8: is really your friend, so keep exposed to those broad benchmarks.
Speaker 2: At this stage, that said, if you had to put
Speaker 2: on a hedge, what would your strategy be.
Speaker 7: Heads for the US equity market down.
Speaker 2: To the downside. I mean putting in a put so
Speaker 2: to speak, so that you could protect everything that you've
Speaker 2: enjoyed so far this year, if there is some kind
Speaker 2: of corrective behavior.
Speaker 8: Yeah, I mean, I think you know, that's an interesting question.
Speaker 8: It's a two pronged answer that we would give for
Speaker 8: how do you protect the profits that you may have
Speaker 8: made over the past year, year and a half, because
Speaker 8: you do want to protect those, you know one the
Speaker 8: symbol one is that market have drawdowns and that happens,
Speaker 8: and timing exactly, you know, when you get out and
Speaker 8: when you get back in can be pretty tricky. In fact,
Speaker 8: if you tried to do that this year, you missed
Speaker 8: out on some potential profits. So just bearing in mind
Speaker 8: that you know there can be declines in the markets
Speaker 8: and just you know, don't get too panicky over that.
Speaker 7: And then on the flip side, what we also do
Speaker 7: as a barbell.
Speaker 8: To the equity markets is just plain old treasuries. We
Speaker 8: keep investing over and over again in treasuries earning five percent.
Speaker 7: It's a really nice, steady.
Speaker 8: Zero downside, you know, five plus percent upside. So that's
Speaker 8: that's our recommendation.
Speaker 3: One of the things that struck me last week with
Speaker 3: what happened with Nvidia and Broadcom and some of the
Speaker 3: other AI plays is that you know, you had in
Speaker 3: Nvidia down fifteen percent on no bad news. What happens
Speaker 3: when you actually get some bad news, you know that
Speaker 3: that's the thing. We haven't had a warning yet. We
Speaker 3: haven't really had anything that tells us that, oh, that's
Speaker 3: a setback when you get it, I don't know, you know.
Speaker 3: So that's one of the reasons why people probably are
Speaker 3: looking at hedges. And if you look at like the
Speaker 3: power producers and the HVAC companies and everything, they're not
Speaker 3: going to help you because they're training pretty much in
Speaker 3: lockstep with.
Speaker 7: Nvideo they are.
Speaker 8: And you know, and if we're talking about how do
Speaker 8: you put a hedge on Nvidium particular, you know, the
Speaker 8: answer issue is you buy a put for something like that.
Speaker 8: But we don't think you want to put like a
Speaker 8: big allocation of your portfolio into an individual stock, especially
Speaker 8: one that's had the type of, you know, really outsized
Speaker 8: performance in a very short period of time. We like
Speaker 8: the tech sector definitely, we think you want to keep
Speaker 8: exposure to that, but you can look to other sectors
Speaker 8: as well. Energy, for example, doesn't always move in the
Speaker 8: same lockstep with the tech sector, and energy stocks are
Speaker 8: doing really well due to high oil prices, they have
Speaker 8: really high quality earnings, they have good interest coverage ratios,
Speaker 8: they have great dividends.
Speaker 7: Still, like I said, earnings, and so making sure.
Speaker 8: That you have you know, some sector exposure that can
Speaker 8: be a little bit different than just you know, what
Speaker 8: is driving an individual stock is makes sense to us.
Speaker 2: So we're wrapping up the second quarter. If I was
Speaker 2: one of your clients and I had to maybe raise
Speaker 2: capital to pay estimated taxes based on the gains that
Speaker 2: I've had, you know in Q two, what would you
Speaker 2: tell me to do? How would I raise that money?
Speaker 8: Well, I mean that's going to be an individual as
Speaker 8: you know, an individual response to any particular.
Speaker 7: Person. But there are certain rules of thumb that you
Speaker 7: want to follow.
Speaker 8: You want to you know, you can definitely look at
Speaker 8: your portfolio and see where you have too much exposure.
Speaker 8: And if you are going to have a fifteen percent
Speaker 8: decline in an individual stock, you know, is that going
Speaker 8: to be too painful in your portfolio?
Speaker 7: So that would be something to trim. But you know,
Speaker 7: making sure that you've got a great allocation.
Speaker 8: And one again, we think it makes sense to have
Speaker 8: exposure to US stocks and to continue to hold that
Speaker 8: right now. So if you have a little bit of
Speaker 8: liquidity on your bond side or if you have some
Speaker 8: in cash, that's where we think you want to, you know,
Speaker 8: pay and pay those.
Speaker 7: Taxes so quickly.
Speaker 3: On the FED, we had a bad January in terms
Speaker 3: of inflation and then kind of warm in February March,
Speaker 3: and we've had a little bit of weakness in the
Speaker 3: coming months the last couple of months. Is it time
Speaker 3: for them to take a little uh, you know, to
Speaker 3: to maybe start hinting at cutting rates or do you
Speaker 3: think they just stay higher for longer?
Speaker 8: Yeah, I mean the FED has been really frustrating for
Speaker 8: us and probably for some other people too. I mean
Speaker 8: they've really gotten I think cold feed about cutting rates. Obviously,
Speaker 8: the market was over at skis earlier this year when
Speaker 8: they were, you know, cheering on six to seven cuts
Speaker 8: this year.
Speaker 7: I think the market and the FED are a little
Speaker 7: bit better aligned now than they were.
Speaker 8: But this, you know, this concept that the FED needs
Speaker 8: to be confident that they're going to see a two
Speaker 8: percent level.
Speaker 7: I don't know how you quonify something like that.
Speaker 8: So we're looking at things like Friday's core PCE number
Speaker 8: that's going to be coming out jobs, jobless claims. Those
Speaker 8: are the two big ones that I think we can
Speaker 8: closely watch. That core PCE inflation is expected to come
Speaker 8: down on Friday to its lowest level in a couple
Speaker 8: of years. That'll be good jobless claims, all right, or
Speaker 8: something we're watching as well, so we hope to see
Speaker 8: them pivot in the fall.
Speaker 3: Thanks Terry, Thanks so much, Terry Spath, Founder in CIO
Speaker 3: at Zuma Wealth.
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