WEBVTT - Examining FX Volatility, The AI Trade

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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<v Speaker 1>Daybreak Asia podcast. I'm Doug Chrisner. Stocks in Asia got

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<v Speaker 1>off to an uneven start earlier today after a rally

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<v Speaker 1>in US megacap tech names. In a moment, we'll be

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<v Speaker 1>talking with Larry Tantarelli of blue Chip Daily Trend Report.

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<v Speaker 1>We'll take a closer look at some of the price

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<v Speaker 1>action in the States, but we'll begin in Hong Kong

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<v Speaker 1>for a look at some of the recent volatility that

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<v Speaker 1>we've been seeing in the foreign exchange. Joining me now

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<v Speaker 1>is Jiwong, head of Greater China FX and Rate Strategy

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<v Speaker 1>at BNP Periba, joining us from Hong Kong. Jiuw Wong,

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<v Speaker 1>thank you so much for making time to chat with us.

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<v Speaker 1>I think we can agree that a lot of the

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<v Speaker 1>volatility that we have seen recently in the foreign exchange

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<v Speaker 1>is really a story of dollar strength, and that really

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<v Speaker 1>has been driven by US trade policy from the incoming

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<v Speaker 1>Trump administration.

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<v Speaker 2>Absolutely, we've seen the expectation building up for potential tariff

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<v Speaker 2>since the US elections, and we're already three four months

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<v Speaker 2>into the traits and at the current level, I think

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<v Speaker 2>a lot has been pricing given the fact that the

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<v Speaker 2>president did not announce tariffs in day one. I mean,

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<v Speaker 2>of course he's still see talking about potentially introduced twenty

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<v Speaker 2>five percent teriff for Mexico and Canada and ten percent

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<v Speaker 2>for China by Feberal first, but the market thinking maybe

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<v Speaker 2>there's still some uncertainties, particularly given he has announced the

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<v Speaker 2>seventy five days reprieve for tiktoks, and I think the

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<v Speaker 2>market treated that as a sign they could be still

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<v Speaker 2>underneath the table negotiation on that. So the uncertainty is

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<v Speaker 2>quite high. Hence we've seen the effects market treated quite

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<v Speaker 2>a volatile dollar lower on are the day after the inauguration,

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<v Speaker 2>but yesterday there was some squeezing backup in dollar reminb.

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<v Speaker 2>But I would say overall the volatility the noise is

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<v Speaker 2>still quite high. Here.

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<v Speaker 1>The other thing is very interesting. There is the understanding,

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<v Speaker 1>or at least the interpretation from a number of economists

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<v Speaker 1>in the US that tariffs would be inflationary, and I

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<v Speaker 1>think for the people at the Federal Reserve that is

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<v Speaker 1>a big question. And if US interest rates must remain

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<v Speaker 1>elevated to guard against inflationary pressure, that's only going to

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<v Speaker 1>add to a stronger dollar. Will it not?

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<v Speaker 2>Yes, absolutely, That's in line with the BNP's view that

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<v Speaker 2>FED may not be able to cut rates as the

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<v Speaker 2>market originally thinks. And then we also hold the view

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<v Speaker 2>that the dollar will stay relatively high for longer, the

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<v Speaker 2>euro can potentially test the parity and dollar remb eventually

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<v Speaker 2>can go to zero point five. But I have to

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<v Speaker 2>say for the very very new term, the uncertainty is high,

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<v Speaker 2>particularly given the positioning is already very long dollar and

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<v Speaker 2>shot the US durations, and the Trump's decision of not

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<v Speaker 2>making tariffs effective immediately. It does suggest that he also

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<v Speaker 2>is highly aware that inflation is a bit concern in

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<v Speaker 2>the US. So, if anything, market treated his inauguration speech

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<v Speaker 2>as he put a lot of priority on immigration issues,

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<v Speaker 2>but second to that would be inflation. So certainly with

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<v Speaker 2>him paying a lot of attention to inflation, that has

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<v Speaker 2>added to the uncertainty on the tariff front in the

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<v Speaker 2>very near term.

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<v Speaker 1>So if the dollar remains strong and tariffs do remain

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<v Speaker 1>a threat, what will the policy response in China look like,

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<v Speaker 1>particularly if you want remains under pressure, we.

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<v Speaker 2>Do you think a median term once the tariffs become effective.

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<v Speaker 2>The PVC, the Chinese Central Bank will allow the dollar

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<v Speaker 2>remain be fixing to go higher, and once we get

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<v Speaker 2>the signal of a dollar fixing go beyond seven twenty

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<v Speaker 2>and then then the market will immediately push start and

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<v Speaker 2>bispot towards seven forty seven fifty ish level. At the

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<v Speaker 2>same time, China's domestic policy will probably turn more pro growth.

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<v Speaker 2>Today we're waiting for this press conference out of the

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<v Speaker 2>State Console where they're going to introduce measures to encourage

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<v Speaker 2>long term funds i e. The pensions, the social securities

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<v Speaker 2>to enter the equity market. So capital market and fiscal

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<v Speaker 2>policy and montreal policy, these will all be used as

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<v Speaker 2>measures to support growth and partially to counter the negative

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<v Speaker 2>impact coming from the US teriff front.

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<v Speaker 1>In terms of the risk of capital outflows, when it

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<v Speaker 1>comes to the one, how would you evaluate that risk

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<v Speaker 1>right now? Is it high?

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<v Speaker 2>I think the expectation of a un depreciation is quite

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<v Speaker 2>high because most market participants, including US, believe that if

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<v Speaker 2>there's a terriff, China will allow certain amount of RMB depreciation.

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<v Speaker 2>But in terms of the managing the flows, I do

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<v Speaker 2>think previously has a lot of room to manage the flows,

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<v Speaker 2>because after all, we're talking about China taking a record

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<v Speaker 2>nearly one training US or trades of plus that year

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<v Speaker 2>last year that put in any history context, that's an

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<v Speaker 2>enormous number. So even though interest realdiffential between the dollar

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<v Speaker 2>and the rimanbee is very wide, but with that trade

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<v Speaker 2>of plus and the capital controls in the portfolio side,

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<v Speaker 2>there's still room plenty of room for China to ensure

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<v Speaker 2>this RMB depreciation will be very, very measured. But at

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<v Speaker 2>the same time, we do think there's a lot of

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<v Speaker 2>money to leaving the men in China and go to

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<v Speaker 2>the overseas market. And the first priority, you know, go

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<v Speaker 2>to place would be the Hong Kong market.

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<v Speaker 1>I know your focus is mainly on Greater China, but

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<v Speaker 1>I have to ask about Japan because we have a

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<v Speaker 1>rate decision later in the week from the Bank of Japan.

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<v Speaker 1>Expectations are that we're going to get a rate hike

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<v Speaker 1>of twenty five basis points in the policy rate. How

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<v Speaker 1>do you expect that to affect the foreign exchange? Hasn't

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<v Speaker 1>a lot of this already been discounted when you look

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<v Speaker 1>at the behavior of the end against the majors.

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<v Speaker 2>Yes, absolutely, a lot has been pricing. I think the

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<v Speaker 2>market is already pricing twenty one to twenty two basis

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<v Speaker 2>points of rate hikes for this Friday's BUJ decision. Having

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<v Speaker 2>said that, I mean it's a still diverging montary policy

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<v Speaker 2>between BUJ and China. On top of that, with this

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<v Speaker 2>terrorist more likely to hit China, Mexico, Canada, and Europe

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<v Speaker 2>rather than Japan, we think you know, the valuation wise,

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<v Speaker 2>the cnhyang is also at a relatively high level, so

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<v Speaker 2>risk reward is quite good to sell the cnch versus Yang.

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<v Speaker 2>We also have that trade on as as a median

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<v Speaker 2>term recommendation.

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<v Speaker 1>At the moment, Jiuwang will leave it there. Thank you

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<v Speaker 1>so much for making time to chat with us. Jiuwang

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<v Speaker 1>ahead of Greater China FX and rate strategy at BNP Parabad.

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<v Speaker 1>Joining us here on the Bloomberg Daybreak Asia podcast. Welcome

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<v Speaker 1>back to the Daybreak Asia podcast. I'm Doug Chrisner. The

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<v Speaker 1>US equity market rose to near record highs today on

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<v Speaker 1>the back of a rally in big cap tech. We

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<v Speaker 1>had the S and P closing up about six tens

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<v Speaker 1>of one percent to six thousand and eighty six. That's

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<v Speaker 1>four point shive an all time high, but most stocks

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<v Speaker 1>in the benchmark actually fell. Of the eleven industry groups

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<v Speaker 1>within the S and P, only two were positive, information

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<v Speaker 1>tech and Communications service. For a closer look, I'm joined

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<v Speaker 1>now by Larry Tantarelli. He is the chief technical strategist

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<v Speaker 1>at blue Chip Daily Trend Report. Larry, thanks for making

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<v Speaker 1>time to chat with us. I think it's fair to

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<v Speaker 1>say that poor breadth in the market has been a

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<v Speaker 1>concern for a while now, especially among those who have

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<v Speaker 1>been a bit nervous about elevated levels of valuation. Does

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<v Speaker 1>that concern you right now?

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<v Speaker 3>It doesn't right now.

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<v Speaker 4>We actually just came off of a major breadth thrust

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<v Speaker 4>where for six days in a row, over sixty eight

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<v Speaker 4>percent of the stocks and the S and P five

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<v Speaker 4>hundred were higher. That's the longest on record. So the

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<v Speaker 4>market's got to be overbought as far as the internals go.

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<v Speaker 4>So I think today's pullback under the surface is constructive.

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<v Speaker 4>The index was higher, but as you said, only thirty

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<v Speaker 4>four percent of the SMP stocks were higher today.

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<v Speaker 1>What about the froth if I can use that term,

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<v Speaker 1>that's been assigned to a lot of the these stocks that

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<v Speaker 1>are related to artificial intelligence. Today we heard from the

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<v Speaker 1>head of JP Morgan Chase Jamie Dimond. He was saying,

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<v Speaker 1>there are signs that the market may be overheated, and

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<v Speaker 1>I'm just imagining that he's kind of looking at the

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<v Speaker 1>AI trade as an example.

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<v Speaker 3>I don't see it.

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<v Speaker 4>If we look at valuations and the companies today versus

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<v Speaker 4>let's say two thousand in the dot com bubble, and

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<v Speaker 4>I was actively in the markets back then. The companies

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<v Speaker 4>that are leading today are very cash rich, so Apple, Amazon, Google,

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<v Speaker 4>Their valuations aren't very high if you look at their

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<v Speaker 4>historical valuations, and I think that the earnings growth is

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<v Speaker 4>there to support the valuations overall.

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<v Speaker 1>One of the things that the bond market has been debating,

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<v Speaker 1>and I think you're well aware of this fact, is

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<v Speaker 1>whether President Trump's plans on tariffs have the potential to

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<v Speaker 1>kind of push inflation up a bit. Today we had

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<v Speaker 1>a bit of a move higher across the treasury curve

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<v Speaker 1>in yields. Are you concerned that maybe some of the

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<v Speaker 1>economic policies that we're getting from the new administration could

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<v Speaker 1>contribute to maybe a little bit of upward pressure on inflation.

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<v Speaker 3>Yes, that is a concern. So bond yields.

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<v Speaker 4>The ten year treasury yield recently broke out to about

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<v Speaker 4>four point eight zero, and we got lucky last week.

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<v Speaker 4>The CPI from November actually came in a lower four December,

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<v Speaker 4>so month over month CPI came in a lower. After that,

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<v Speaker 4>the ten year treasury yields pulled back twenty three basis points.

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<v Speaker 4>They trade at about four sixty right now. But yes,

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<v Speaker 4>that is one of my concerns is if we get

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<v Speaker 4>a breakout in bond yields, then I think that that

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<v Speaker 4>would create some negative headwinds for stalks.

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<v Speaker 1>Is there a level in yield on the tenure that

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<v Speaker 1>would be particularly alarming to you? Would that be five percent?

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<v Speaker 4>It would be five percent, so five percent held when

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<v Speaker 4>it was tested before over the past year or so,

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<v Speaker 4>five percent is held. That is a major technical resistance level.

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<v Speaker 4>And if for some reason we broke out over five percent,

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<v Speaker 4>I think that the equity markets would have to adjust lower.

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<v Speaker 1>So I know that you're a technical strategist, you focus

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<v Speaker 1>a lot on the charts, But can I ask you

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<v Speaker 1>about how Fed policy enters You're thinking sure.

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<v Speaker 4>So I absolutely pay attention to Fed policy because the

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<v Speaker 4>FED really drives everything. And what we saw after their

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<v Speaker 4>last meeting in December is when Jerome Powell came in

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<v Speaker 4>a little bit more hawkish, and when the dot plot

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<v Speaker 4>was adjusted lower, we saw the equity markets pulled back

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<v Speaker 4>and we saw bond yields break out. So I absolutely

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<v Speaker 4>pay attention to what the FED has to say. I

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<v Speaker 4>think the FED is in a a very good spot

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<v Speaker 4>right now. The economy is strong, the labor market is strong,

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<v Speaker 4>Inflation is still sticky, but it has been moderating, and

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<v Speaker 4>I think the FED is in a position where they

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<v Speaker 4>can really sit.

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<v Speaker 3>They don't have to cut right now.

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<v Speaker 4>Luckily, they don't have to raise, and I think that

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<v Speaker 4>they can just sit wait to see how the economic

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<v Speaker 4>data comes in. But what the markets know is if

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<v Speaker 4>the labor market does get into trouble or if the

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<v Speaker 4>economy starts to slow down, there is a FED put

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<v Speaker 4>that's out there, but I don't think that they'll need

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<v Speaker 4>to use it.

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<v Speaker 1>I'm wondering how you're viewing markets offshore right now. Are

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<v Speaker 1>there opportunities overseas that are particularly interesting.

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<v Speaker 4>Europe is starting to show a lot of strength. The

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<v Speaker 4>DAX has been breaking out to new highs. There's a

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<v Speaker 4>lot of European banks that are breaking out. HSBC has

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<v Speaker 4>been very strong in Asia. I see stocks like Taiwan

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<v Speaker 4>semi breaking out to new all time highs see Limited

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<v Speaker 4>in Singapore is near three year highs. But overall, where

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<v Speaker 4>I'm seeing a lot of strength as a region is

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<v Speaker 4>in Europe.

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<v Speaker 1>When you look at some of the economic policies of

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<v Speaker 1>the Trump administration, we were talking a moment ago about tariffs.

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<v Speaker 1>I'm just wondering whether you're looking at maybe the reconfiguration

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<v Speaker 1>of trade flows right now and whether that's entering your

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<v Speaker 1>thinking at all.

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<v Speaker 4>I think that the tariffs might be more of a

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<v Speaker 4>bargaining chip than anything else. And the reason that I

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<v Speaker 4>say that is these economies are so interconnected. China is

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<v Speaker 4>our biggest trading partner and vice versa. And I don't

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<v Speaker 4>think that either country or Canada. I really don't think

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<v Speaker 4>that anyone.

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<v Speaker 3>Wants to upset the apple carts.

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<v Speaker 4>So I know that tariffs are out there as a

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<v Speaker 4>potential bargaining chip, and if they start to get enacted,

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<v Speaker 4>then it could put some pressure on profits. That could

0:14:07.240 --> 0:14:10.760
<v Speaker 4>put some pressure on certain currencies. But I don't know

0:14:11.120 --> 0:14:13.959
<v Speaker 4>if the bite is going to be as strong as

0:14:14.000 --> 0:14:14.400
<v Speaker 4>the bark.

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<v Speaker 1>What is the one theme, the investment theme that you're

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<v Speaker 1>looking at this here that you expect will deliver the

0:14:21.240 --> 0:14:21.920
<v Speaker 1>best return.

0:14:22.560 --> 0:14:26.040
<v Speaker 4>I think right now it still has to be technology

0:14:26.720 --> 0:14:30.920
<v Speaker 4>and AI, but not just the tech part of AI,

0:14:31.200 --> 0:14:35.360
<v Speaker 4>but the industrial and the infrastructure build out. And obviously,

0:14:35.480 --> 0:14:40.040
<v Speaker 4>yesterday the Stargate project was announced, and I think that's

0:14:40.120 --> 0:14:45.240
<v Speaker 4>a major theme, at least for this year, but probably

0:14:45.320 --> 0:14:48.200
<v Speaker 4>for the next few years because they've committed to five

0:14:48.320 --> 0:14:53.640
<v Speaker 4>hundred billion dollars in AI data center spending and this

0:14:53.840 --> 0:14:57.120
<v Speaker 4>was rolled out by the White House. They've got some

0:14:57.320 --> 0:15:02.800
<v Speaker 4>very deep pocket investors, including the Abu Dhabi Sovereign Wealth Fund,

0:15:03.240 --> 0:15:05.600
<v Speaker 4>So I think it's a very big commitment. And what

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<v Speaker 4>we've seen over the past few days is not only

0:15:09.760 --> 0:15:13.720
<v Speaker 4>has tech performed well, but a lot of industrial sector

0:15:13.840 --> 0:15:18.920
<v Speaker 4>stocks have performed very well, power generation like nuclear. This

0:15:19.840 --> 0:15:25.360
<v Speaker 4>data center infrastructure theme really permeates over quite a few sectors,

0:15:25.520 --> 0:15:29.480
<v Speaker 4>and it's a long term secular theme. This is not

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<v Speaker 4>going to be a six month or a one year window.

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<v Speaker 1>Larry will leave it. There are interesting insights from Larry Tenterelli.

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<v Speaker 1>He is the chief technical strategist at blue Chip Daily

0:15:40.680 --> 0:15:43.760
<v Speaker 1>Trend Report. Joining us here on the Daybreak Asia podcast.

0:15:46.320 --> 0:15:49.720
<v Speaker 1>Thanks for listening to today's episode of the Bloomberg Daybreak

0:15:49.840 --> 0:15:53.240
<v Speaker 1>Asia Edition podcast. Each weekday, we look at the story

0:15:53.280 --> 0:15:57.640
<v Speaker 1>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:15:57.680 --> 0:16:02.000
<v Speaker 1>can find us on Apple, Spotifyoomberg Podcast YouTube channel, or

0:16:02.040 --> 0:16:05.480
<v Speaker 1>anywhere else you listen. Join us again tomorrow for insight

0:16:05.560 --> 0:16:09.760
<v Speaker 1>on the market moves from Hong Kong to Singapore and Australia.

0:16:10.240 --> 0:16:12.720
<v Speaker 1>I'm Doug Prisoner and this is Bloomberg