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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia podcast time Doug Chrisner. Financial markets are now being

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Speaker 1: forced to reconsider the magnitude of FED rate cuts later

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Speaker 1: in the year. This is after an unexpectedly strong US

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Speaker 1: employment report. The American economy added one hundred and thirty

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Speaker 1: thousand jobs in the month of January. That was double forecast,

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Speaker 1: and at the same time, the unemployment rate slid to

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Speaker 1: four point three percent. We got reaction from Pierre Yared.

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Speaker 1: He is a member of the White House National Economic Council.

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Speaker 2: We saw significant increases in construction over the past month,

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Speaker 2: especially if you look at non residential construction. That's consistent

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Speaker 2: with the President's economic policies. Because of these economic policies

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Speaker 2: that are there to drive investment and factories in the economy,

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Speaker 2: you saw an increase in construction jobs.

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Speaker 1: That is Pierre Yared, he is from the NEEC. For

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Speaker 1: a closer look at these jobs data, I'm joined by

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Speaker 1: Jeffrey Road. She is chief economist at LPL Financial. Jeffrey,

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Speaker 1: thank you so much for being here. What did you

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Speaker 1: make of the employment report?

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Speaker 3: Well, I think there are a couple things, so we

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Speaker 3: do have something I highlighted in my notes to my

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Speaker 3: clients here at LPL, so downward revision is no surprise there.

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Speaker 3: I think the big surprises were a fairly strong reading.

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Speaker 3: Of course, it was healthcare and social assistance construction. I

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Speaker 3: think the really interesting takeaway for me is this emerging

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Speaker 3: trend in hours worked. So you know, we've had this

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Speaker 3: low high or low fire environment for quite some time now.

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Speaker 3: Granted one hundred and sixty thousand that's not low at all,

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Speaker 3: so that's pretty strong. I don't know if this is

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Speaker 3: going to be a trend that that's going to continue

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Speaker 3: on the rest of the year, but it seems as

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Speaker 3: if employers are more interested in increasing hours worked rather

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Speaker 3: than and just outright going back to you know, one

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Speaker 3: seventy five one eighty k run rate. But we we

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Speaker 3: think this is we think this is indicative of the

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Speaker 3: fact that firms have had a very difficult time finding

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Speaker 3: qualified workers.

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Speaker 4: That was the problem.

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Speaker 3: Remember, and if I be surveys, several other surveys suggested

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Speaker 3: the same thing. Beijbook highlighted this. You know, during that

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Speaker 3: great reshuffling, firms couldn't find people. I think they're at

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Speaker 3: this point where they say, okay, we know the economy

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Speaker 3: has risk of slowing down, but we don't want to

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Speaker 3: give up the people we worked really hard to try

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Speaker 3: to find.

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Speaker 1: So these data seem to have forced the markets to

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Speaker 1: reconsider the magnitude of FED rate cuts later in the year.

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Speaker 1: How did the employment data impact your thinking in terms

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Speaker 1: of FED policy.

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Speaker 3: Well, it pushes things out a little bit. I don't

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Speaker 3: know if it changed too much, but it just confirmed

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Speaker 3: the fact that we think.

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Speaker 4: I think the FED.

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Speaker 3: Initiates cutting and easing of policy in the second half

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Speaker 3: of twenty twenty six. We think certainly with the role

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Speaker 3: of strong growth out of the last half of twenty

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Speaker 3: twenty five and inflation still running too high, it's that

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Speaker 3: it's pushing the Fed out toward later in the year.

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Speaker 4: I don't think.

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Speaker 3: You know, perhaps maybe some people were thinking an April timeframe.

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Speaker 3: Perhaps it's a little bit later, so the Fed has

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Speaker 3: to continue to focus on inflation. A strong January jobs

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Speaker 3: report with an unemployment downtech that certainly gives the FED

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Speaker 3: a lot more time to focus on the inflation side

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Speaker 3: of their mandate.

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Speaker 1: So speaking of inflation, Friday, we get the CPI data,

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Speaker 1: do you think that it's we have the risk here

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Speaker 1: of a hot rating, Well.

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Speaker 3: We're still running in the point three month on month

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Speaker 3: run rate. We really need to see point one and

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Speaker 3: point two type numbers these month and month run rates here,

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Speaker 3: So I think it is going to run hot even

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Speaker 3: before this non farm pay report.

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Speaker 4: I do expect this.

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Speaker 3: Latest CPI number to run on the hot side, and

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Speaker 3: that's partially due to the fact that the economy is

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Speaker 3: humming pretty well.

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Speaker 4: Who would have thought we had a.

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Speaker 3: Greater than four percent quarter on quarter number for Q

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Speaker 3: three and Q four is looking like above two and

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Speaker 3: a half percent.

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Speaker 1: One of the things that the equity market has been

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Speaker 1: struggling with recently the notion of disruption being unleashed by

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Speaker 1: artificial intelligence. Last week, obviously, we saw it hit many

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Speaker 1: different software stocks today. In fact, real estate services companies

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Speaker 1: were hit on the notion that they are vulnerable as

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Speaker 1: well to applications and tools of artificial intelligence. Do you

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Speaker 1: have a sense are you beginning to develop a sense

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Speaker 1: of how AI is going to impact the overall economy,

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Speaker 1: maybe more so in terms of the job market.

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Speaker 3: Well, I am most concerned with those that are coming

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Speaker 3: right out of college, those that don't have a long

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Speaker 3: lineup of experience. There on their resumes. That's certainly going

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Speaker 3: to be hurting those folks with the increased utilization of AI.

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Speaker 3: Interestingly enough, I think we're still a little bit of

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Speaker 3: we're still far out until we see real bonafide impacts

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Speaker 3: on productivity from AI, and that's because utilization rates are

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Speaker 3: still pretty low, particularly in sectors that would benefit from AI.

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Speaker 3: So think leisure and hospitality, think healthcare services, some of

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Speaker 3: those sectors I just mentioned very very low utilization rates.

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Speaker 3: So we're just in the very beginnings I think of

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Speaker 3: of AI usage that would actually flow into productivity numbers.

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Speaker 1: Tonight in Washington, the Republican led House pass legislation to

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Speaker 1: and President Trump's tariffs on Canada. This comes at a

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Speaker 1: time when affordability is really the hot button political issue,

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Speaker 1: and at the same time, today we learned that Trump

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Speaker 1: is privately weighing whether or not to quit the US

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Speaker 1: Mexico Canada trade agreement that he signed during his first term.

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Speaker 1: Talk to me about the way in which you see

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Speaker 1: tariffs impacting the economy and whether or not they are

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Speaker 1: indeed feeding into this problem of affordability.

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Speaker 3: Well, no doubt, tariff saraheadwind. You know, its attacks. Whether

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Speaker 3: you want to admit or not right. So the fact

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Speaker 3: is the economy could actually do even better if it

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Speaker 3: weren't for the uncertainty around trade policy. I think one

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Speaker 3: of the biggest things in my mind that is a

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Speaker 3: a real negative impact from these tariffs and just the

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Speaker 3: uncertainty of tariff negotiations is businesses are hesitant to make

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Speaker 3: a three year five year plan, right, So you think

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Speaker 3: about the capac that could be spent if businesses felt

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Speaker 3: more comfortable about the you know, the years ahead. There's

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Speaker 3: just still so much uncertainty. It's hampering cap X spend.

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Speaker 1: I think we've had four straight sessions of dollar weakness.

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Speaker 1: The flip side has given us a much stronger Japanese currency,

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Speaker 1: But if we stay focused on the dollar its weakness.

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Speaker 1: Is this something you think the administration is really angling

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Speaker 1: for as a way of supporting a lot of the

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Speaker 1: manufacturers in the States that rely on markets overseas. Is

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Speaker 1: this a big positive, the dollar weakness that we're seeing

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Speaker 1: right now.

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Speaker 3: Well, it relates to the administration. Interestingly enough, I think

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Speaker 3: the administration is more focused on the ten year where

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Speaker 3: yields are. I think it is fair to say that,

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Speaker 3: you know, there is this notion that a week dollar

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Speaker 3: would allow a little our exports to be a little

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Speaker 3: bit more competitive on the global scale, and and that's

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Speaker 3: a fair point. I just would would answer back to

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Speaker 3: those commons say, look, we still have global central banks

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Speaker 3: holding a lot of US dollars, so they don't want

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Speaker 3: to see their their portfolio value decline because they're they're

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Speaker 3: dollar holdings are becoming weaker and weaker. But I do

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Speaker 3: think there is there is a component of trade on this.

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Speaker 3: Interestingly enough, there is there does seem to be such

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Speaker 3: a focus from the administration on the trade deficit. And

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Speaker 3: I think, you know, I think, as we all know,

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Speaker 3: trade is inherently of vulnerability, but there's really nothing out

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Speaker 3: of the ordinary of a of a largely developed economy

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Speaker 3: having a trade deficit just means we're wealthy enough to

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Speaker 3: support one.

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Speaker 1: So you mentioned the ten year with a yield right

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Speaker 1: now around four seventeen. It seems as though the market

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Speaker 1: at the long end of the curve doesn't really show

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Speaker 1: much in the way of concern as it relates to inflation.

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Speaker 1: Could that change in a dramatic way? Is there the

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Speaker 1: risk that the tenure could let's say, move up beyond

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Speaker 1: four and a quarter percent.

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Speaker 3: Well, there certainly are some important levels to watch. I

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Speaker 3: think we're in a pretty comfortable range. When you think

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Speaker 3: about seeing the ten year between a four to ten

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Speaker 3: to four to twenty five.

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Speaker 4: The economy can handle that.

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Speaker 3: Markets, financial markets and derivative type markets that base contracts

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Speaker 3: off of that will feel comfortable. I think once you

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Speaker 3: start approaching four and a half on the ten year,

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Speaker 3: and of course we were talking about the risk of

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Speaker 3: approaching five percent sent just you know, a few quarters ago.

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Speaker 3: But I think we're in a pretty comfortable range and

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Speaker 3: Marcus can handle that, and we're seeing that even play

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Speaker 3: out now.

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Speaker 4: That's that's not a cause for concern.

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Speaker 1: So does this change if the FED begins to unwind

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Speaker 1: its balance sheet, let's say, between now and the end

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Speaker 1: of the year, in a slightly more aggressive fashion.

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Speaker 3: Well, I think, of course you're referencing Kevin worsh and

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Speaker 3: the nominee that most likely will pass. You know, by

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Speaker 3: the way, he's not a yes man, and he does

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Speaker 3: seem to have a pretty good history in his career

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Speaker 3: with crisis management, et cetera. But as it relates to

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Speaker 3: the unwinding of securities, letting security, the bond security is

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Speaker 3: mature that's certainly going to tighten financial conditions. In some ways,

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Speaker 3: you could say that that's okay, that at least will be

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Speaker 3: a little bit of a disinflationary impact on an economy

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Speaker 3: that needs that kind of influence right now. But I

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Speaker 3: think you think about how the markets are reacting to that,

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Speaker 3: there's still probably a little bit of a you know,

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Speaker 3: the the push pull is we try to understand what

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Speaker 3: a worst lead FED might look like, so you know,

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Speaker 3: maybe maybe we have a little bit more time and

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Speaker 3: to try to make our best guess on how that's

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Speaker 3: going to play out. In the end, though, I do

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Speaker 3: think this is this needs to happen. We do need

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Speaker 3: to see a balance sheet that's a little bit smaller

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Speaker 3: than where it is now. And if they do it

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Speaker 3: in a very measured fashion, I think they can shrink

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Speaker 3: the balance sheet without creating undo volatility.

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Speaker 1: Okay, Jeffrey, thank you so very much. We'll leave it there.

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Speaker 1: Jeffrey Roach is chief economist for LPL Financial, joining from Charlotte,

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Speaker 1: North Carolina here on the Daybreak as your podcast. Welcome

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Speaker 1: back to the Daybreak Asia podcast. I'm Doug Krisner in Japan.

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Speaker 1: The markets are back online after a holiday Wednesday today,

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Speaker 1: the reading on Japanese wholesale inflation was pretty much in

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Speaker 1: line with estimates. The producer price index was up last

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Speaker 1: month at an annual rate of two point three percent.

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Speaker 1: For a look at markets, I'm joined by Charu Chanana.

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Speaker 1: She is the chief investment strategist at Saxo Bank. Chau

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Speaker 1: joins us from Singapore. Thank you for being here. The

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Speaker 1: bullish momentum in Japanese equities has been undeniable. Obviously, much

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Speaker 1: of this is tied to Prime Minister Takeiichi's victory in

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Speaker 1: the recent snap election, and it seems as though this

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Speaker 1: so called Takeiichi trade still has power. Is that the

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Speaker 1: way you see.

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Speaker 5: It, very interesting election outcome that we've had in Japan,

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Speaker 5: with that two thirds majority for a single party, a

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Speaker 5: kind of victory that we haven't seen in a very

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Speaker 5: very long time. As you talk about, you know, yeah,

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Speaker 5: the Takaichi trade. Certainly a lot of focus on that

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Speaker 5: going into this election, I would say, because this election

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Speaker 5: was really a test of fiscal credibility. You know, there

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Speaker 5: were a lot of promises around suspension of the consumption tax,

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Speaker 5: you know, the consumption tax being you know, removed if

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Speaker 5: she was to get the kind of mandate that the

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Speaker 5: markets were expecting, and that kind of did lead the

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Speaker 5: markets to think about what that would mean, you know,

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Speaker 5: in terms of fiscal credibility, given that we know that

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Speaker 5: Japan's death is really high. It's about two D two

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Speaker 5: hundred plus percent of GDP, So I think with that

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Speaker 5: kind of victory, although the massive, you know, majority that

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Speaker 5: we've got there, I do think the Takaichi trade is

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Speaker 5: not going on as expected. Of course, on the equity

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Speaker 5: side it looks quite positive because of the fiscal impulse

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Speaker 5: that could come through, but the Takaichi trade also had

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Speaker 5: risks of a bond sell of and the weakness in

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Speaker 5: the Japanese yen, for instance, and those are not the

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Speaker 5: things that have really materialized, because I think the sense

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Speaker 5: here is that even though you get that fiscal impulse,

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Speaker 5: this kind of a majority also increases the chance of flexibility,

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Speaker 5: of policy coherence, and potentially less surprises. So the markets

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Speaker 5: actually really taking this in a positive sense. Equities are stronger,

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Speaker 5: the yen is turning out to be significantly stronger as well,

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Speaker 5: also a little bit helped by the weakness in the

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Speaker 5: US dollar. But certainly I think overall, the clarity the

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Speaker 5: strong mandate have really been a bigger positive, uh, compared

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Speaker 5: to any risks of you know, fiscals on the fiscal side.

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Speaker 1: Right now, what does that do in terms of the

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Speaker 1: thinking at the Bank of Japan that we know that

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Speaker 1: at least the bias seemed to be to raise infrast

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Speaker 1: rates again, does the BOJ have to take a break

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Speaker 1: for a while.

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Speaker 5: Again, that was I think the sense going into the

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Speaker 5: election that if she was going to get a strong mandate,

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Speaker 5: then you have fiscal losening. Then there is potentially going

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Speaker 5: to be some you know risks for the BOJ as

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Speaker 5: well to continue to normalize policy because you cannot have

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Speaker 5: that divergence play out in the fiscal and the monetary

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Speaker 5: policy sides. But I would say, you know, I think again,

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Speaker 5: given the kind of mandagies, god, I do think there

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Speaker 5: is actually room for that divergence to play out, because

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Speaker 5: certainly there will also be inflation risks in the Japanese economy.

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Speaker 5: We have seen those lingering for quite some time now,

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Speaker 5: and with this kind of a fiscal impulse that only

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Speaker 5: gets stronger and you know, cost of living pressures will

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Speaker 5: certainly be something that I think Takaiji continues to focus

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Speaker 5: on so restricting the hand of Bank of Japan in

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Speaker 5: that scenario does not seem to be the best option

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Speaker 5: to me. So I do think we could get other

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Speaker 5: normalization from the Bank of Japan even as we continue

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Speaker 5: to see that fiscal impulse coming through.

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Speaker 1: Charro, I'm curious as to whether you're still finding even

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Speaker 1: with the elevated levels of the nie ke, opportunities in

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Speaker 1: Japanese sequities.

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Speaker 5: That's totally fair that you asked that question. We've had

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Speaker 5: a strong support from say corporate governance reforms in the

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Speaker 5: last two years. The weakness of the yen has supported

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Speaker 5: the exporters in the economy. So certainly, I think has

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Speaker 5: been a very strong story. I do think the positivity continues,

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Speaker 5: it only gets better, but will also be I think

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Speaker 5: later this year and going into next year, it will

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Speaker 5: also be a lot about selectivity in the Japanese markets.

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Speaker 5: I think it does stop being that broad story that

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Speaker 5: it has been so far, because, like we talked about,

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Speaker 5: right the Japanese en, if we were to see some

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Speaker 5: strengthening of the end, and we know it has a

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Speaker 5: significant room to appreciate here given you know how the

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Speaker 5: shot positioning is so wild, and you know the evaluation

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Speaker 5: of the yen is so cheap, and if the yen

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Speaker 5: is going to strengthen the rate sensitive sectors, certainly the

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Speaker 5: en sensitive sectors exporters for example, start to have an

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Speaker 5: impact on that. But of course, you know, I mean

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Speaker 5: if we are to get the kind of physcal impulse

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Speaker 5: that looks like it's coming through at least those sectors

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Speaker 5: where the subsidies really get targeted, you know, say defense

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Speaker 5: or strategic keep Because there's been a lot of talk

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Speaker 5: about AI and semiconductors being in focus in terms of

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Speaker 5: that spending as well a lot of domestic investment themes.

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Speaker 5: I think they continue to still hold up significantly better

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Speaker 5: than probably those end link sectors.

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Speaker 1: So if the region is benefiting from this build out

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Speaker 1: of artificial intelligence that's primarily happening in the US, is

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Speaker 1: that essentially a trade on certain technology firms that have

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Speaker 1: proved indispensable to the supply chain, particularly in the semiconductor industry.

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Speaker 5: I mean, actually AI has been a big team in

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Speaker 5: Asia as well, and I think investors are slowly realizing

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Speaker 5: that the backbone of the manufacturing backbone off AI actually

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Speaker 5: sits in Asia. So uh, there has been of course,

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Speaker 5: uh you know, that realization of late and investors are

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Speaker 5: trying to position accordingly. Of course, you know, I mean

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Speaker 5: I think US firms still remain those innovation leaders, uh,

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Speaker 5: but since you know, towards the end of last year,

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Speaker 5: we have seen a lot of risks around concentration, around

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Speaker 5: circularity of those US the tech firms, around the KPEX

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Speaker 5: signals that we've been getting from them, and what kind

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Speaker 5: of ROI could they deliver. There's been questions around that.

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Speaker 5: There's been questions around whether or not the US really

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Speaker 5: has all of that infrastructure in place to kind of

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Speaker 5: really meet the growing electricity, the growing power demand that

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Speaker 5: this whole AI theme demands. And of course we've had,

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Speaker 5: you know, because of the massive run into the U

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Speaker 5: stops that has been you know, overpositioning or valuation fatigue,

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Speaker 5: so to say, And investors have been questioning, is too

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Speaker 5: if you do want to stay in that AI theme,

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Speaker 5: where does the story still have legs? And Asia has

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Speaker 5: been a top answered I would say on those fronts.

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Speaker 5: I mean, like I said, it's been the manufacturing backbone,

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Speaker 5: you know, Thai answer TSMC for example, which produces advanced

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Speaker 5: wafers which powers leading AI chips. That's been very much

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Speaker 5: in focus. We've been getting some strong numbers from Taiwan

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Speaker 5: even for January, you know, revenue growth focus. I mean,

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Speaker 5: we've gotten some really good numbers there. Korea's leaders like

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Speaker 5: you know, Samsung and sk Heinex, they are they hold

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Speaker 5: more than ninety percent of the global HbA market share,

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Speaker 5: so again a very very critical component of that entire

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Speaker 5: chip manufacturing story.

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Speaker 1: Charro, what is your assessment of the tech story on

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Speaker 1: the Chinese mainland, particularly as it relates to some of

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Speaker 1: these advanced semiconductors.

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Speaker 5: So there's obviously been a huge policy push in China

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Speaker 5: to you know, there's been two reasons for that. I

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Speaker 5: would say one, as we all know has you know,

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Speaker 5: because of the export controls that they faced from the US,

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Speaker 5: there was an increased need for self sufficiency on that

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Speaker 5: chip side, and that's why they've given a huge amount

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Speaker 5: of policy benefit to develop those chips domestically. So that's

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Speaker 5: obviously aided that sector in a big way. But we

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Speaker 5: also know that, you know, on a more on a

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Speaker 5: more macro front, China's economy has been facing multiple headwinds,

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Speaker 5: you know, from demographics and the property sector slowed down. Uh,

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Speaker 5: these are things they've been trying to reverse but have

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Speaker 5: not achieved a lot of success with so far. H So,

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Speaker 5: if you look at their AI plan, they are actually

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Speaker 5: starting to talk about the productivity gains from AI being

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Speaker 5: really the big drivers of growth going forward, especially as

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Speaker 5: these headwinds on the other sides continue. So both from

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Speaker 5: a growth perspective, but also from a self sufficiency and

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Speaker 5: a strategic priority perspective, China has been pushing a lot

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Speaker 5: of policy support towards the tech sector, and I think

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Speaker 5: that has really played out again and again. You bring

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Speaker 5: up the valuation differences that we've had between US and

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Speaker 5: China's tech place, the efficiency gains that we saw with

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Speaker 5: deep sea Class DA for example. I mean, the models

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Speaker 5: certainly seem far more able to justify the ROI versus

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Speaker 5: the cape expend you know, if you compare them to

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Speaker 5: their USPR. So those are stories that have certainly been

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Speaker 5: extremely helpful to the China tech side.

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Speaker 1: Okay, Charu, we'll leave it there. Thank you so much.

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Speaker 1: Charu Chanana, chief investment strategist at Saxo Bank, joining from

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Speaker 1: Singapore here on the Daybreak Asia podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia edition. Podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. Find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 1: and this is Bloomberg