Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Chrisner. Stocks in Asia got
Speaker 1: off to an uneven start earlier today after a rally
Speaker 1: in US megacap tech names. In a moment, we'll be
Speaker 1: talking with Larry Tantarelli of blue Chip Daily Trend Report.
Speaker 1: We'll take a closer look at some of the price
Speaker 1: action in the States, but we'll begin in Hong Kong
Speaker 1: for a look at some of the recent volatility that
Speaker 1: we've been seeing in the foreign exchange. Joining me now
Speaker 1: is Jiwong, head of Greater China FX and Rate Strategy
Speaker 1: at BNP Periba, joining us from Hong Kong. Jiuw Wong,
Speaker 1: thank you so much for making time to chat with us.
Speaker 1: I think we can agree that a lot of the
Speaker 1: volatility that we have seen recently in the foreign exchange
Speaker 1: is really a story of dollar strength, and that really
Speaker 1: has been driven by US trade policy from the incoming
Speaker 1: Trump administration.
Speaker 2: Absolutely, we've seen the expectation building up for potential tariff
Speaker 2: since the US elections, and we're already three four months
Speaker 2: into the traits and at the current level, I think
Speaker 2: a lot has been pricing given the fact that the
Speaker 2: president did not announce tariffs in day one. I mean,
Speaker 2: of course he's still see talking about potentially introduced twenty
Speaker 2: five percent teriff for Mexico and Canada and ten percent
Speaker 2: for China by Feberal first, but the market thinking maybe
Speaker 2: there's still some uncertainties, particularly given he has announced the
Speaker 2: seventy five days reprieve for tiktoks, and I think the
Speaker 2: market treated that as a sign they could be still
Speaker 2: underneath the table negotiation on that. So the uncertainty is
Speaker 2: quite high. Hence we've seen the effects market treated quite
Speaker 2: a volatile dollar lower on are the day after the inauguration,
Speaker 2: but yesterday there was some squeezing backup in dollar reminb.
Speaker 2: But I would say overall the volatility the noise is
Speaker 2: still quite high. Here.
Speaker 1: The other thing is very interesting. There is the understanding,
Speaker 1: or at least the interpretation from a number of economists
Speaker 1: in the US that tariffs would be inflationary, and I
Speaker 1: think for the people at the Federal Reserve that is
Speaker 1: a big question. And if US interest rates must remain
Speaker 1: elevated to guard against inflationary pressure, that's only going to
Speaker 1: add to a stronger dollar. Will it not?
Speaker 2: Yes, absolutely, That's in line with the BNP's view that
Speaker 2: FED may not be able to cut rates as the
Speaker 2: market originally thinks. And then we also hold the view
Speaker 2: that the dollar will stay relatively high for longer, the
Speaker 2: euro can potentially test the parity and dollar remb eventually
Speaker 2: can go to zero point five. But I have to
Speaker 2: say for the very very new term, the uncertainty is high,
Speaker 2: particularly given the positioning is already very long dollar and
Speaker 2: shot the US durations, and the Trump's decision of not
Speaker 2: making tariffs effective immediately. It does suggest that he also
Speaker 2: is highly aware that inflation is a bit concern in
Speaker 2: the US. So, if anything, market treated his inauguration speech
Speaker 2: as he put a lot of priority on immigration issues,
Speaker 2: but second to that would be inflation. So certainly with
Speaker 2: him paying a lot of attention to inflation, that has
Speaker 2: added to the uncertainty on the tariff front in the
Speaker 2: very near term.
Speaker 1: So if the dollar remains strong and tariffs do remain
Speaker 1: a threat, what will the policy response in China look like,
Speaker 1: particularly if you want remains under pressure, we.
Speaker 2: Do you think a median term once the tariffs become effective.
Speaker 2: The PVC, the Chinese Central Bank will allow the dollar
Speaker 2: remain be fixing to go higher, and once we get
Speaker 2: the signal of a dollar fixing go beyond seven twenty
Speaker 2: and then then the market will immediately push start and
Speaker 2: bispot towards seven forty seven fifty ish level. At the
Speaker 2: same time, China's domestic policy will probably turn more pro growth.
Speaker 2: Today we're waiting for this press conference out of the
Speaker 2: State Console where they're going to introduce measures to encourage
Speaker 2: long term funds i e. The pensions, the social securities
Speaker 2: to enter the equity market. So capital market and fiscal
Speaker 2: policy and montreal policy, these will all be used as
Speaker 2: measures to support growth and partially to counter the negative
Speaker 2: impact coming from the US teriff front.
Speaker 1: In terms of the risk of capital outflows, when it
Speaker 1: comes to the one, how would you evaluate that risk
Speaker 1: right now? Is it high?
Speaker 2: I think the expectation of a un depreciation is quite
Speaker 2: high because most market participants, including US, believe that if
Speaker 2: there's a terriff, China will allow certain amount of RMB depreciation.
Speaker 2: But in terms of the managing the flows, I do
Speaker 2: think previously has a lot of room to manage the flows,
Speaker 2: because after all, we're talking about China taking a record
Speaker 2: nearly one training US or trades of plus that year
Speaker 2: last year that put in any history context, that's an
Speaker 2: enormous number. So even though interest realdiffential between the dollar
Speaker 2: and the rimanbee is very wide, but with that trade
Speaker 2: of plus and the capital controls in the portfolio side,
Speaker 2: there's still room plenty of room for China to ensure
Speaker 2: this RMB depreciation will be very, very measured. But at
Speaker 2: the same time, we do think there's a lot of
Speaker 2: money to leaving the men in China and go to
Speaker 2: the overseas market. And the first priority, you know, go
Speaker 2: to place would be the Hong Kong market.
Speaker 1: I know your focus is mainly on Greater China, but
Speaker 1: I have to ask about Japan because we have a
Speaker 1: rate decision later in the week from the Bank of Japan.
Speaker 1: Expectations are that we're going to get a rate hike
Speaker 1: of twenty five basis points in the policy rate. How
Speaker 1: do you expect that to affect the foreign exchange? Hasn't
Speaker 1: a lot of this already been discounted when you look
Speaker 1: at the behavior of the end against the majors.
Speaker 2: Yes, absolutely, a lot has been pricing. I think the
Speaker 2: market is already pricing twenty one to twenty two basis
Speaker 2: points of rate hikes for this Friday's BUJ decision. Having
Speaker 2: said that, I mean it's a still diverging montary policy
Speaker 2: between BUJ and China. On top of that, with this
Speaker 2: terrorist more likely to hit China, Mexico, Canada, and Europe
Speaker 2: rather than Japan, we think you know, the valuation wise,
Speaker 2: the cnhyang is also at a relatively high level, so
Speaker 2: risk reward is quite good to sell the cnch versus Yang.
Speaker 2: We also have that trade on as as a median
Speaker 2: term recommendation.
Speaker 1: At the moment, Jiuwang will leave it there. Thank you
Speaker 1: so much for making time to chat with us. Jiuwang
Speaker 1: ahead of Greater China FX and rate strategy at BNP Parabad.
Speaker 1: Joining us here on the Bloomberg Daybreak Asia podcast. Welcome
Speaker 1: back to the Daybreak Asia podcast. I'm Doug Chrisner. The
Speaker 1: US equity market rose to near record highs today on
Speaker 1: the back of a rally in big cap tech. We
Speaker 1: had the S and P closing up about six tens
Speaker 1: of one percent to six thousand and eighty six. That's
Speaker 1: four point shive an all time high, but most stocks
Speaker 1: in the benchmark actually fell. Of the eleven industry groups
Speaker 1: within the S and P, only two were positive, information
Speaker 1: tech and Communications service. For a closer look, I'm joined
Speaker 1: now by Larry Tantarelli. He is the chief technical strategist
Speaker 1: at blue Chip Daily Trend Report. Larry, thanks for making
Speaker 1: time to chat with us. I think it's fair to
Speaker 1: say that poor breadth in the market has been a
Speaker 1: concern for a while now, especially among those who have
Speaker 1: been a bit nervous about elevated levels of valuation. Does
Speaker 1: that concern you right now?
Speaker 3: It doesn't right now.
Speaker 4: We actually just came off of a major breadth thrust
Speaker 4: where for six days in a row, over sixty eight
Speaker 4: percent of the stocks and the S and P five
Speaker 4: hundred were higher. That's the longest on record. So the
Speaker 4: market's got to be overbought as far as the internals go.
Speaker 4: So I think today's pullback under the surface is constructive.
Speaker 4: The index was higher, but as you said, only thirty
Speaker 4: four percent of the SMP stocks were higher today.
Speaker 1: What about the froth if I can use that term,
Speaker 1: that's been assigned to a lot of the these stocks that
Speaker 1: are related to artificial intelligence. Today we heard from the
Speaker 1: head of JP Morgan Chase Jamie Dimond. He was saying,
Speaker 1: there are signs that the market may be overheated, and
Speaker 1: I'm just imagining that he's kind of looking at the
Speaker 1: AI trade as an example.
Speaker 3: I don't see it.
Speaker 4: If we look at valuations and the companies today versus
Speaker 4: let's say two thousand in the dot com bubble, and
Speaker 4: I was actively in the markets back then. The companies
Speaker 4: that are leading today are very cash rich, so Apple, Amazon, Google,
Speaker 4: Their valuations aren't very high if you look at their
Speaker 4: historical valuations, and I think that the earnings growth is
Speaker 4: there to support the valuations overall.
Speaker 1: One of the things that the bond market has been debating,
Speaker 1: and I think you're well aware of this fact, is
Speaker 1: whether President Trump's plans on tariffs have the potential to
Speaker 1: kind of push inflation up a bit. Today we had
Speaker 1: a bit of a move higher across the treasury curve
Speaker 1: in yields. Are you concerned that maybe some of the
Speaker 1: economic policies that we're getting from the new administration could
Speaker 1: contribute to maybe a little bit of upward pressure on inflation.
Speaker 3: Yes, that is a concern. So bond yields.
Speaker 4: The ten year treasury yield recently broke out to about
Speaker 4: four point eight zero, and we got lucky last week.
Speaker 4: The CPI from November actually came in a lower four December,
Speaker 4: so month over month CPI came in a lower. After that,
Speaker 4: the ten year treasury yields pulled back twenty three basis points.
Speaker 4: They trade at about four sixty right now. But yes,
Speaker 4: that is one of my concerns is if we get
Speaker 4: a breakout in bond yields, then I think that that
Speaker 4: would create some negative headwinds for stalks.
Speaker 1: Is there a level in yield on the tenure that
Speaker 1: would be particularly alarming to you? Would that be five percent?
Speaker 4: It would be five percent, so five percent held when
Speaker 4: it was tested before over the past year or so,
Speaker 4: five percent is held. That is a major technical resistance level.
Speaker 4: And if for some reason we broke out over five percent,
Speaker 4: I think that the equity markets would have to adjust lower.
Speaker 1: So I know that you're a technical strategist, you focus
Speaker 1: a lot on the charts, But can I ask you
Speaker 1: about how Fed policy enters You're thinking sure.
Speaker 4: So I absolutely pay attention to Fed policy because the
Speaker 4: FED really drives everything. And what we saw after their
Speaker 4: last meeting in December is when Jerome Powell came in
Speaker 4: a little bit more hawkish, and when the dot plot
Speaker 4: was adjusted lower, we saw the equity markets pulled back
Speaker 4: and we saw bond yields break out. So I absolutely
Speaker 4: pay attention to what the FED has to say. I
Speaker 4: think the FED is in a a very good spot
Speaker 4: right now. The economy is strong, the labor market is strong,
Speaker 4: Inflation is still sticky, but it has been moderating, and
Speaker 4: I think the FED is in a position where they
Speaker 4: can really sit.
Speaker 3: They don't have to cut right now.
Speaker 4: Luckily, they don't have to raise, and I think that
Speaker 4: they can just sit wait to see how the economic
Speaker 4: data comes in. But what the markets know is if
Speaker 4: the labor market does get into trouble or if the
Speaker 4: economy starts to slow down, there is a FED put
Speaker 4: that's out there, but I don't think that they'll need
Speaker 4: to use it.
Speaker 1: I'm wondering how you're viewing markets offshore right now. Are
Speaker 1: there opportunities overseas that are particularly interesting.
Speaker 4: Europe is starting to show a lot of strength. The
Speaker 4: DAX has been breaking out to new highs. There's a
Speaker 4: lot of European banks that are breaking out. HSBC has
Speaker 4: been very strong in Asia. I see stocks like Taiwan
Speaker 4: semi breaking out to new all time highs see Limited
Speaker 4: in Singapore is near three year highs. But overall, where
Speaker 4: I'm seeing a lot of strength as a region is
Speaker 4: in Europe.
Speaker 1: When you look at some of the economic policies of
Speaker 1: the Trump administration, we were talking a moment ago about tariffs.
Speaker 1: I'm just wondering whether you're looking at maybe the reconfiguration
Speaker 1: of trade flows right now and whether that's entering your
Speaker 1: thinking at all.
Speaker 4: I think that the tariffs might be more of a
Speaker 4: bargaining chip than anything else. And the reason that I
Speaker 4: say that is these economies are so interconnected. China is
Speaker 4: our biggest trading partner and vice versa. And I don't
Speaker 4: think that either country or Canada. I really don't think
Speaker 4: that anyone.
Speaker 3: Wants to upset the apple carts.
Speaker 4: So I know that tariffs are out there as a
Speaker 4: potential bargaining chip, and if they start to get enacted,
Speaker 4: then it could put some pressure on profits. That could
Speaker 4: put some pressure on certain currencies. But I don't know
Speaker 4: if the bite is going to be as strong as
Speaker 4: the bark.
Speaker 1: What is the one theme, the investment theme that you're
Speaker 1: looking at this here that you expect will deliver the
Speaker 1: best return.
Speaker 4: I think right now it still has to be technology
Speaker 4: and AI, but not just the tech part of AI,
Speaker 4: but the industrial and the infrastructure build out. And obviously,
Speaker 4: yesterday the Stargate project was announced, and I think that's
Speaker 4: a major theme, at least for this year, but probably
Speaker 4: for the next few years because they've committed to five
Speaker 4: hundred billion dollars in AI data center spending and this
Speaker 4: was rolled out by the White House. They've got some
Speaker 4: very deep pocket investors, including the Abu Dhabi Sovereign Wealth Fund,
Speaker 4: So I think it's a very big commitment. And what
Speaker 4: we've seen over the past few days is not only
Speaker 4: has tech performed well, but a lot of industrial sector
Speaker 4: stocks have performed very well, power generation like nuclear. This
Speaker 4: data center infrastructure theme really permeates over quite a few sectors,
Speaker 4: and it's a long term secular theme. This is not
Speaker 4: going to be a six month or a one year window.
Speaker 1: Larry will leave it. There are interesting insights from Larry Tenterelli.
Speaker 1: He is the chief technical strategist at blue Chip Daily
Speaker 1: Trend Report. Joining us here on the Daybreak Asia podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 1: can find us on Apple, Spotifyoomberg Podcast YouTube channel, or
Speaker 1: anywhere else you listen. Join us again tomorrow for insight
Speaker 1: on the market moves from Hong Kong to Singapore and Australia.
Speaker 1: I'm Doug Prisoner and this is Bloomberg