Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak
Speaker 1: Asia podcast time Doug Chrisner. Financial markets are now being
Speaker 1: forced to reconsider the magnitude of FED rate cuts later
Speaker 1: in the year. This is after an unexpectedly strong US
Speaker 1: employment report. The American economy added one hundred and thirty
Speaker 1: thousand jobs in the month of January. That was double forecast,
Speaker 1: and at the same time, the unemployment rate slid to
Speaker 1: four point three percent. We got reaction from Pierre Yared.
Speaker 1: He is a member of the White House National Economic Council.
Speaker 2: We saw significant increases in construction over the past month,
Speaker 2: especially if you look at non residential construction. That's consistent
Speaker 2: with the President's economic policies. Because of these economic policies
Speaker 2: that are there to drive investment and factories in the economy,
Speaker 2: you saw an increase in construction jobs.
Speaker 1: That is Pierre Yared, he is from the NEEC. For
Speaker 1: a closer look at these jobs data, I'm joined by
Speaker 1: Jeffrey Road. She is chief economist at LPL Financial. Jeffrey,
Speaker 1: thank you so much for being here. What did you
Speaker 1: make of the employment report?
Speaker 3: Well, I think there are a couple things, so we
Speaker 3: do have something I highlighted in my notes to my
Speaker 3: clients here at LPL, so downward revision is no surprise there.
Speaker 3: I think the big surprises were a fairly strong reading.
Speaker 3: Of course, it was healthcare and social assistance construction. I
Speaker 3: think the really interesting takeaway for me is this emerging
Speaker 3: trend in hours worked. So you know, we've had this
Speaker 3: low high or low fire environment for quite some time now.
Speaker 3: Granted one hundred and sixty thousand that's not low at all,
Speaker 3: so that's pretty strong. I don't know if this is
Speaker 3: going to be a trend that that's going to continue
Speaker 3: on the rest of the year, but it seems as
Speaker 3: if employers are more interested in increasing hours worked rather
Speaker 3: than and just outright going back to you know, one
Speaker 3: seventy five one eighty k run rate. But we we
Speaker 3: think this is we think this is indicative of the
Speaker 3: fact that firms have had a very difficult time finding
Speaker 3: qualified workers.
Speaker 4: That was the problem.
Speaker 3: Remember, and if I be surveys, several other surveys suggested
Speaker 3: the same thing. Beijbook highlighted this. You know, during that
Speaker 3: great reshuffling, firms couldn't find people. I think they're at
Speaker 3: this point where they say, okay, we know the economy
Speaker 3: has risk of slowing down, but we don't want to
Speaker 3: give up the people we worked really hard to try
Speaker 3: to find.
Speaker 1: So these data seem to have forced the markets to
Speaker 1: reconsider the magnitude of FED rate cuts later in the year.
Speaker 1: How did the employment data impact your thinking in terms
Speaker 1: of FED policy.
Speaker 3: Well, it pushes things out a little bit. I don't
Speaker 3: know if it changed too much, but it just confirmed
Speaker 3: the fact that we think.
Speaker 4: I think the FED.
Speaker 3: Initiates cutting and easing of policy in the second half
Speaker 3: of twenty twenty six. We think certainly with the role
Speaker 3: of strong growth out of the last half of twenty
Speaker 3: twenty five and inflation still running too high, it's that
Speaker 3: it's pushing the Fed out toward later in the year.
Speaker 4: I don't think.
Speaker 3: You know, perhaps maybe some people were thinking an April timeframe.
Speaker 3: Perhaps it's a little bit later, so the Fed has
Speaker 3: to continue to focus on inflation. A strong January jobs
Speaker 3: report with an unemployment downtech that certainly gives the FED
Speaker 3: a lot more time to focus on the inflation side
Speaker 3: of their mandate.
Speaker 1: So speaking of inflation, Friday, we get the CPI data,
Speaker 1: do you think that it's we have the risk here
Speaker 1: of a hot rating, Well.
Speaker 3: We're still running in the point three month on month
Speaker 3: run rate. We really need to see point one and
Speaker 3: point two type numbers these month and month run rates here,
Speaker 3: So I think it is going to run hot even
Speaker 3: before this non farm pay report.
Speaker 4: I do expect this.
Speaker 3: Latest CPI number to run on the hot side, and
Speaker 3: that's partially due to the fact that the economy is
Speaker 3: humming pretty well.
Speaker 4: Who would have thought we had a.
Speaker 3: Greater than four percent quarter on quarter number for Q
Speaker 3: three and Q four is looking like above two and
Speaker 3: a half percent.
Speaker 1: One of the things that the equity market has been
Speaker 1: struggling with recently the notion of disruption being unleashed by
Speaker 1: artificial intelligence. Last week, obviously, we saw it hit many
Speaker 1: different software stocks today. In fact, real estate services companies
Speaker 1: were hit on the notion that they are vulnerable as
Speaker 1: well to applications and tools of artificial intelligence. Do you
Speaker 1: have a sense are you beginning to develop a sense
Speaker 1: of how AI is going to impact the overall economy,
Speaker 1: maybe more so in terms of the job market.
Speaker 3: Well, I am most concerned with those that are coming
Speaker 3: right out of college, those that don't have a long
Speaker 3: lineup of experience. There on their resumes. That's certainly going
Speaker 3: to be hurting those folks with the increased utilization of AI.
Speaker 3: Interestingly enough, I think we're still a little bit of
Speaker 3: we're still far out until we see real bonafide impacts
Speaker 3: on productivity from AI, and that's because utilization rates are
Speaker 3: still pretty low, particularly in sectors that would benefit from AI.
Speaker 3: So think leisure and hospitality, think healthcare services, some of
Speaker 3: those sectors I just mentioned very very low utilization rates.
Speaker 3: So we're just in the very beginnings I think of
Speaker 3: of AI usage that would actually flow into productivity numbers.
Speaker 1: Tonight in Washington, the Republican led House pass legislation to
Speaker 1: and President Trump's tariffs on Canada. This comes at a
Speaker 1: time when affordability is really the hot button political issue,
Speaker 1: and at the same time, today we learned that Trump
Speaker 1: is privately weighing whether or not to quit the US
Speaker 1: Mexico Canada trade agreement that he signed during his first term.
Speaker 1: Talk to me about the way in which you see
Speaker 1: tariffs impacting the economy and whether or not they are
Speaker 1: indeed feeding into this problem of affordability.
Speaker 3: Well, no doubt, tariff saraheadwind. You know, its attacks. Whether
Speaker 3: you want to admit or not right. So the fact
Speaker 3: is the economy could actually do even better if it
Speaker 3: weren't for the uncertainty around trade policy. I think one
Speaker 3: of the biggest things in my mind that is a
Speaker 3: a real negative impact from these tariffs and just the
Speaker 3: uncertainty of tariff negotiations is businesses are hesitant to make
Speaker 3: a three year five year plan, right, So you think
Speaker 3: about the capac that could be spent if businesses felt
Speaker 3: more comfortable about the you know, the years ahead. There's
Speaker 3: just still so much uncertainty. It's hampering cap X spend.
Speaker 1: I think we've had four straight sessions of dollar weakness.
Speaker 1: The flip side has given us a much stronger Japanese currency,
Speaker 1: But if we stay focused on the dollar its weakness.
Speaker 1: Is this something you think the administration is really angling
Speaker 1: for as a way of supporting a lot of the
Speaker 1: manufacturers in the States that rely on markets overseas. Is
Speaker 1: this a big positive, the dollar weakness that we're seeing
Speaker 1: right now.
Speaker 3: Well, it relates to the administration. Interestingly enough, I think
Speaker 3: the administration is more focused on the ten year where
Speaker 3: yields are. I think it is fair to say that,
Speaker 3: you know, there is this notion that a week dollar
Speaker 3: would allow a little our exports to be a little
Speaker 3: bit more competitive on the global scale, and and that's
Speaker 3: a fair point. I just would would answer back to
Speaker 3: those commons say, look, we still have global central banks
Speaker 3: holding a lot of US dollars, so they don't want
Speaker 3: to see their their portfolio value decline because they're they're
Speaker 3: dollar holdings are becoming weaker and weaker. But I do
Speaker 3: think there is there is a component of trade on this.
Speaker 3: Interestingly enough, there is there does seem to be such
Speaker 3: a focus from the administration on the trade deficit. And
Speaker 3: I think, you know, I think, as we all know,
Speaker 3: trade is inherently of vulnerability, but there's really nothing out
Speaker 3: of the ordinary of a of a largely developed economy
Speaker 3: having a trade deficit just means we're wealthy enough to
Speaker 3: support one.
Speaker 1: So you mentioned the ten year with a yield right
Speaker 1: now around four seventeen. It seems as though the market
Speaker 1: at the long end of the curve doesn't really show
Speaker 1: much in the way of concern as it relates to inflation.
Speaker 1: Could that change in a dramatic way? Is there the
Speaker 1: risk that the tenure could let's say, move up beyond
Speaker 1: four and a quarter percent.
Speaker 3: Well, there certainly are some important levels to watch. I
Speaker 3: think we're in a pretty comfortable range. When you think
Speaker 3: about seeing the ten year between a four to ten
Speaker 3: to four to twenty five.
Speaker 4: The economy can handle that.
Speaker 3: Markets, financial markets and derivative type markets that base contracts
Speaker 3: off of that will feel comfortable. I think once you
Speaker 3: start approaching four and a half on the ten year,
Speaker 3: and of course we were talking about the risk of
Speaker 3: approaching five percent sent just you know, a few quarters ago.
Speaker 3: But I think we're in a pretty comfortable range and
Speaker 3: Marcus can handle that, and we're seeing that even play
Speaker 3: out now.
Speaker 4: That's that's not a cause for concern.
Speaker 1: So does this change if the FED begins to unwind
Speaker 1: its balance sheet, let's say, between now and the end
Speaker 1: of the year, in a slightly more aggressive fashion.
Speaker 3: Well, I think, of course you're referencing Kevin worsh and
Speaker 3: the nominee that most likely will pass. You know, by
Speaker 3: the way, he's not a yes man, and he does
Speaker 3: seem to have a pretty good history in his career
Speaker 3: with crisis management, et cetera. But as it relates to
Speaker 3: the unwinding of securities, letting security, the bond security is
Speaker 3: mature that's certainly going to tighten financial conditions. In some ways,
Speaker 3: you could say that that's okay, that at least will be
Speaker 3: a little bit of a disinflationary impact on an economy
Speaker 3: that needs that kind of influence right now. But I
Speaker 3: think you think about how the markets are reacting to that,
Speaker 3: there's still probably a little bit of a you know,
Speaker 3: the the push pull is we try to understand what
Speaker 3: a worst lead FED might look like, so you know,
Speaker 3: maybe maybe we have a little bit more time and
Speaker 3: to try to make our best guess on how that's
Speaker 3: going to play out. In the end, though, I do
Speaker 3: think this is this needs to happen. We do need
Speaker 3: to see a balance sheet that's a little bit smaller
Speaker 3: than where it is now. And if they do it
Speaker 3: in a very measured fashion, I think they can shrink
Speaker 3: the balance sheet without creating undo volatility.
Speaker 1: Okay, Jeffrey, thank you so very much. We'll leave it there.
Speaker 1: Jeffrey Roach is chief economist for LPL Financial, joining from Charlotte,
Speaker 1: North Carolina here on the Daybreak as your podcast. Welcome
Speaker 1: back to the Daybreak Asia podcast. I'm Doug Krisner in Japan.
Speaker 1: The markets are back online after a holiday Wednesday today,
Speaker 1: the reading on Japanese wholesale inflation was pretty much in
Speaker 1: line with estimates. The producer price index was up last
Speaker 1: month at an annual rate of two point three percent.
Speaker 1: For a look at markets, I'm joined by Charu Chanana.
Speaker 1: She is the chief investment strategist at Saxo Bank. Chau
Speaker 1: joins us from Singapore. Thank you for being here. The
Speaker 1: bullish momentum in Japanese equities has been undeniable. Obviously, much
Speaker 1: of this is tied to Prime Minister Takeiichi's victory in
Speaker 1: the recent snap election, and it seems as though this
Speaker 1: so called Takeiichi trade still has power. Is that the
Speaker 1: way you see.
Speaker 5: It, very interesting election outcome that we've had in Japan,
Speaker 5: with that two thirds majority for a single party, a
Speaker 5: kind of victory that we haven't seen in a very
Speaker 5: very long time. As you talk about, you know, yeah,
Speaker 5: the Takaichi trade. Certainly a lot of focus on that
Speaker 5: going into this election, I would say, because this election
Speaker 5: was really a test of fiscal credibility. You know, there
Speaker 5: were a lot of promises around suspension of the consumption tax,
Speaker 5: you know, the consumption tax being you know, removed if
Speaker 5: she was to get the kind of mandate that the
Speaker 5: markets were expecting, and that kind of did lead the
Speaker 5: markets to think about what that would mean, you know,
Speaker 5: in terms of fiscal credibility, given that we know that
Speaker 5: Japan's death is really high. It's about two D two
Speaker 5: hundred plus percent of GDP, So I think with that
Speaker 5: kind of victory, although the massive, you know, majority that
Speaker 5: we've got there, I do think the Takaichi trade is
Speaker 5: not going on as expected. Of course, on the equity
Speaker 5: side it looks quite positive because of the fiscal impulse
Speaker 5: that could come through, but the Takaichi trade also had
Speaker 5: risks of a bond sell of and the weakness in
Speaker 5: the Japanese yen, for instance, and those are not the
Speaker 5: things that have really materialized, because I think the sense
Speaker 5: here is that even though you get that fiscal impulse,
Speaker 5: this kind of a majority also increases the chance of flexibility,
Speaker 5: of policy coherence, and potentially less surprises. So the markets
Speaker 5: actually really taking this in a positive sense. Equities are stronger,
Speaker 5: the yen is turning out to be significantly stronger as well,
Speaker 5: also a little bit helped by the weakness in the
Speaker 5: US dollar. But certainly I think overall, the clarity the
Speaker 5: strong mandate have really been a bigger positive, uh, compared
Speaker 5: to any risks of you know, fiscals on the fiscal side.
Speaker 1: Right now, what does that do in terms of the
Speaker 1: thinking at the Bank of Japan that we know that
Speaker 1: at least the bias seemed to be to raise infrast
Speaker 1: rates again, does the BOJ have to take a break
Speaker 1: for a while.
Speaker 5: Again, that was I think the sense going into the
Speaker 5: election that if she was going to get a strong mandate,
Speaker 5: then you have fiscal losening. Then there is potentially going
Speaker 5: to be some you know risks for the BOJ as
Speaker 5: well to continue to normalize policy because you cannot have
Speaker 5: that divergence play out in the fiscal and the monetary
Speaker 5: policy sides. But I would say, you know, I think again,
Speaker 5: given the kind of mandagies, god, I do think there
Speaker 5: is actually room for that divergence to play out, because
Speaker 5: certainly there will also be inflation risks in the Japanese economy.
Speaker 5: We have seen those lingering for quite some time now,
Speaker 5: and with this kind of a fiscal impulse that only
Speaker 5: gets stronger and you know, cost of living pressures will
Speaker 5: certainly be something that I think Takaiji continues to focus
Speaker 5: on so restricting the hand of Bank of Japan in
Speaker 5: that scenario does not seem to be the best option
Speaker 5: to me. So I do think we could get other
Speaker 5: normalization from the Bank of Japan even as we continue
Speaker 5: to see that fiscal impulse coming through.
Speaker 1: Charro, I'm curious as to whether you're still finding even
Speaker 1: with the elevated levels of the nie ke, opportunities in
Speaker 1: Japanese sequities.
Speaker 5: That's totally fair that you asked that question. We've had
Speaker 5: a strong support from say corporate governance reforms in the
Speaker 5: last two years. The weakness of the yen has supported
Speaker 5: the exporters in the economy. So certainly, I think has
Speaker 5: been a very strong story. I do think the positivity continues,
Speaker 5: it only gets better, but will also be I think
Speaker 5: later this year and going into next year, it will
Speaker 5: also be a lot about selectivity in the Japanese markets.
Speaker 5: I think it does stop being that broad story that
Speaker 5: it has been so far, because, like we talked about,
Speaker 5: right the Japanese en, if we were to see some
Speaker 5: strengthening of the end, and we know it has a
Speaker 5: significant room to appreciate here given you know how the
Speaker 5: shot positioning is so wild, and you know the evaluation
Speaker 5: of the yen is so cheap, and if the yen
Speaker 5: is going to strengthen the rate sensitive sectors, certainly the
Speaker 5: en sensitive sectors exporters for example, start to have an
Speaker 5: impact on that. But of course, you know, I mean
Speaker 5: if we are to get the kind of physcal impulse
Speaker 5: that looks like it's coming through at least those sectors
Speaker 5: where the subsidies really get targeted, you know, say defense
Speaker 5: or strategic keep Because there's been a lot of talk
Speaker 5: about AI and semiconductors being in focus in terms of
Speaker 5: that spending as well a lot of domestic investment themes.
Speaker 5: I think they continue to still hold up significantly better
Speaker 5: than probably those end link sectors.
Speaker 1: So if the region is benefiting from this build out
Speaker 1: of artificial intelligence that's primarily happening in the US, is
Speaker 1: that essentially a trade on certain technology firms that have
Speaker 1: proved indispensable to the supply chain, particularly in the semiconductor industry.
Speaker 5: I mean, actually AI has been a big team in
Speaker 5: Asia as well, and I think investors are slowly realizing
Speaker 5: that the backbone of the manufacturing backbone off AI actually
Speaker 5: sits in Asia. So uh, there has been of course,
Speaker 5: uh you know, that realization of late and investors are
Speaker 5: trying to position accordingly. Of course, you know, I mean
Speaker 5: I think US firms still remain those innovation leaders, uh,
Speaker 5: but since you know, towards the end of last year,
Speaker 5: we have seen a lot of risks around concentration, around
Speaker 5: circularity of those US the tech firms, around the KPEX
Speaker 5: signals that we've been getting from them, and what kind
Speaker 5: of ROI could they deliver. There's been questions around that.
Speaker 5: There's been questions around whether or not the US really
Speaker 5: has all of that infrastructure in place to kind of
Speaker 5: really meet the growing electricity, the growing power demand that
Speaker 5: this whole AI theme demands. And of course we've had,
Speaker 5: you know, because of the massive run into the U
Speaker 5: stops that has been you know, overpositioning or valuation fatigue,
Speaker 5: so to say, And investors have been questioning, is too
Speaker 5: if you do want to stay in that AI theme,
Speaker 5: where does the story still have legs? And Asia has
Speaker 5: been a top answered I would say on those fronts.
Speaker 5: I mean, like I said, it's been the manufacturing backbone,
Speaker 5: you know, Thai answer TSMC for example, which produces advanced
Speaker 5: wafers which powers leading AI chips. That's been very much
Speaker 5: in focus. We've been getting some strong numbers from Taiwan
Speaker 5: even for January, you know, revenue growth focus. I mean,
Speaker 5: we've gotten some really good numbers there. Korea's leaders like
Speaker 5: you know, Samsung and sk Heinex, they are they hold
Speaker 5: more than ninety percent of the global HbA market share,
Speaker 5: so again a very very critical component of that entire
Speaker 5: chip manufacturing story.
Speaker 1: Charro, what is your assessment of the tech story on
Speaker 1: the Chinese mainland, particularly as it relates to some of
Speaker 1: these advanced semiconductors.
Speaker 5: So there's obviously been a huge policy push in China
Speaker 5: to you know, there's been two reasons for that. I
Speaker 5: would say one, as we all know has you know,
Speaker 5: because of the export controls that they faced from the US,
Speaker 5: there was an increased need for self sufficiency on that
Speaker 5: chip side, and that's why they've given a huge amount
Speaker 5: of policy benefit to develop those chips domestically. So that's
Speaker 5: obviously aided that sector in a big way. But we
Speaker 5: also know that, you know, on a more on a
Speaker 5: more macro front, China's economy has been facing multiple headwinds,
Speaker 5: you know, from demographics and the property sector slowed down. Uh,
Speaker 5: these are things they've been trying to reverse but have
Speaker 5: not achieved a lot of success with so far. H So,
Speaker 5: if you look at their AI plan, they are actually
Speaker 5: starting to talk about the productivity gains from AI being
Speaker 5: really the big drivers of growth going forward, especially as
Speaker 5: these headwinds on the other sides continue. So both from
Speaker 5: a growth perspective, but also from a self sufficiency and
Speaker 5: a strategic priority perspective, China has been pushing a lot
Speaker 5: of policy support towards the tech sector, and I think
Speaker 5: that has really played out again and again. You bring
Speaker 5: up the valuation differences that we've had between US and
Speaker 5: China's tech place, the efficiency gains that we saw with
Speaker 5: deep sea Class DA for example. I mean, the models
Speaker 5: certainly seem far more able to justify the ROI versus
Speaker 5: the cape expend you know, if you compare them to
Speaker 5: their USPR. So those are stories that have certainly been
Speaker 5: extremely helpful to the China tech side.
Speaker 1: Okay, Charu, we'll leave it there. Thank you so much.
Speaker 1: Charu Chanana, chief investment strategist at Saxo Bank, joining from
Speaker 1: Singapore here on the Daybreak Asia podcast. Thanks for listening
Speaker 1: to today's episode of the Bloomberg Daybreak Asia edition. Podcast.
Speaker 1: Each weekday, we look at the story shaping markets, finance,
Speaker 1: and geopolitics in the Asia Pacific. Find us on Apple, Spotify,
Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 1: Join us again tomorrow for insight on the market moves
Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
Speaker 1: and this is Bloomberg