Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 2: This will be the third consecutive week of abbreviated trading
Speaker 2: in the US equity market will be closed Thursday for
Speaker 2: a national day of mourning for former President Jimmy Carter.
Speaker 2: Even so, there's been no shortage of FED speak and
Speaker 2: that will continue. And in a moment we'll be checking
Speaker 2: in with Matt Orton. He is the chief market strategist
Speaker 2: at Raymond James Investment Management. We'll get his thoughts on
Speaker 2: the FED. But we begin in Sydney and a look
Speaker 2: at currencies. We're joined now by Peter Maguire, CEO of
Speaker 2: XM Australia. Peter, it's always a pleasure, Happy new year
Speaker 2: to you. Let's begin with your outlook for the dollar.
Speaker 2: I think it's fair to say that the market right
Speaker 2: now is expecting far fewer rate cuts from the FED
Speaker 2: in twenty twenty five, and I would imagine that in
Speaker 2: your view that equates to continued dollar strength. Am I right?
Speaker 3: Yes?
Speaker 4: Well, good morning Doug, and happy New Year, and thank you. Yes,
Speaker 4: I think so. I mean, you know, last week I
Speaker 4: think I took everyone by a bit of surprise. We
Speaker 4: had a one O nine nearly one O nine to
Speaker 4: fifty handle for the US dollar index sitting there at
Speaker 4: about one eight thirty five.
Speaker 3: At the moment.
Speaker 4: I feel as though, as you said, you know, do
Speaker 4: we get two rate cuts, one rate cut or no
Speaker 4: rate cuts in twenty five and the momentum is going
Speaker 4: to be to the upside. I feel as though you're
Speaker 4: going to see intervention from the likes of Japan shortly
Speaker 4: at nearly one sixty. For the end, You've got the
Speaker 4: euro sitting at one O three eighty. It's probably parodies
Speaker 4: on its radar, maybe even this month. So I feel, yeah,
Speaker 4: there's going to be continued up lift the US dollar
Speaker 4: and its overall strength. There's been a standing over the
Speaker 4: last couple of months. It's been a great trade to
Speaker 4: be in, and I don't think it's going to disappoint
Speaker 4: moving forward.
Speaker 2: One of the things we're also keeping a very close
Speaker 2: eye on the tariff story. Today the Washington Post indicated
Speaker 2: that President electroump Here aids at least we're exploring plans
Speaker 2: for limited tariffs apply to all countries, but only with
Speaker 2: respect to critical imports. Do you have a sense of
Speaker 2: what the market right now is discounting. In the tariff story,
Speaker 2: is a lot of noise that has to do with
Speaker 2: really not understanding where Trump is at the moment, and
Speaker 2: maybe a lot of what we're hearing rhetorically has to
Speaker 2: do with a negotiating strategy, and it will be some
Speaker 2: time before we get clarity. And is the tariff story
Speaker 2: a part of this at all?
Speaker 4: I think it is, Doug And I think you know
Speaker 4: when you're when you're looking at President Trump and the
Speaker 4: way he operates, and that's this is from an Australian
Speaker 4: looking in, certainly unorthodox. Certainly he presents the art of
Speaker 4: the deal and goes in hard to start with and
Speaker 4: then renegotiates, So that could be the storyline there.
Speaker 3: We've got to be very patient.
Speaker 4: Because there could be all sorts of in the sense
Speaker 4: of different countries will be responsible for different rates. So
Speaker 4: I feel as though that that will be if they
Speaker 4: don't play ball with him, and then how that moves
Speaker 4: forward to the interpretation from the market, what happens to
Speaker 4: the likes of China. It's going to be I think
Speaker 4: a very dynamic first sixty days in and I think
Speaker 4: he's going to hit the ground running.
Speaker 2: Do you mean that there's going to be just broadly speaking,
Speaker 2: in terms of the foreign exchange, a lot more volatility.
Speaker 4: Yes, I really do, because it creates a sense, as
Speaker 4: you know, from a trading perspective, you want a little
Speaker 4: bit of certainty. You like a from a risk the
Speaker 4: dynamics of risk and behavioral you want, but you want
Speaker 4: some certainty. And this can change through just a simple
Speaker 4: stroke of a pen or a comment by President Trump
Speaker 4: or his senior advisors. That can really change the perception
Speaker 4: to the market and sentiment quickly, and in turn that
Speaker 4: creates that lovely word called volatility. And I think that
Speaker 4: that will be the frame moving forward, certainly for the
Speaker 4: first quarter.
Speaker 2: I was trucked today by the rally and the Canadian
Speaker 2: dollar on news that prim mister Trudeau is going to
Speaker 2: be stepping down here as soon as a new leader
Speaker 2: can be agreed upon for the Liberal Party. What's your
Speaker 2: outlook on the Canadian dollar.
Speaker 4: Well, I think that that's that's been interesting. I mean,
Speaker 4: it's been massively sold off as we know, over the
Speaker 4: last couple of months, and all the all the commodity
Speaker 4: currencies were similar. Fate Ossie's nearly at sixty cents there
Speaker 4: at one stage and keiw So if you're wrapper three
Speaker 4: of them up and then now you've had a leadership change,
Speaker 4: I wouldn't be surprised to take a little bit more
Speaker 4: uptick as far as.
Speaker 3: Strength to the Canadian dollar.
Speaker 4: Let's see who's elected and it's been massively sold off
Speaker 4: from you know that one thirty five hand or come
Speaker 4: mid September all the way through to you know the
Speaker 4: one forty five nearly, so possibly you're going to see
Speaker 4: a one forty two one point four one.
Speaker 3: I just have to see where it goes.
Speaker 4: But it's again, it's going to be volatile until we
Speaker 4: get some sort of I suppose indication who's going to
Speaker 4: take the leadership.
Speaker 2: You mentioned a moment ago, you're looking at the Japanese
Speaker 2: yen where the possibility of intervention is concerned. We're a
Speaker 2: little bit on the strong side of one fifty nine
Speaker 2: against the greenback at the moment. At what point do
Speaker 2: you think it's not going to be about intervention but
Speaker 2: about boj policy and the fact that we've got to
Speaker 2: get a rate hike in here, perhaps as soon as
Speaker 2: this month.
Speaker 4: Yeah, twenty fourth, I think is the day that everyone's
Speaker 4: got table. That's when the meeting's on and decision time.
Speaker 4: So I think though I looked at that last week,
Speaker 4: I'm holding that in memory. So if it's above one sixty,
Speaker 4: I think they'd wait. It'll be a wait and see
Speaker 4: game until the twenty fourth and do we see.
Speaker 3: Twenty five basis points?
Speaker 4: As far as a hike and how what's the retrick
Speaker 4: coming out naturally from Governor Uida and the overall I
Speaker 4: suppose again sentiment from the BOJ and policy moving forward,
Speaker 4: and I wouldn't be surprised. I mean, if rates go up,
Speaker 4: that's going to quickly change. I think the footprint as
Speaker 4: far as yen versus dollar from a from a market indication.
Speaker 4: So we'll just wait and see. But it's not long
Speaker 4: to wait, you know, two weeks and we'll get a decision.
Speaker 2: I'm looking at a euro here, this is stunning. I
Speaker 2: mean a dollar three rate. Now are you looking at
Speaker 2: a world here in the near term where we see
Speaker 2: euro dollar parody?
Speaker 3: I think so, I wouldn't be surprised, Doug. Do we
Speaker 3: even go lower.
Speaker 4: Everyone's saying you might see a ninety eight or ninety
Speaker 4: nine handled sometime February, So that's what the traders are saying.
Speaker 4: We've just got to see because that US dollars got
Speaker 4: so much uptick. You know, as far as the ECB
Speaker 4: is concerned, you could see another one hundred and ten
Speaker 4: basis of points cut out by December. We've got structural weaknesses.
Speaker 4: We know in Germany, the euro Land is pretty tough.
Speaker 4: You've got CPI preliminary datak for December that's coming out.
Speaker 4: So we've just got to see how all of that
Speaker 4: is interpreted from the market. And yeah, it's I think
Speaker 4: the euro will continue to be sold off and that's
Speaker 4: another great trade.
Speaker 3: It's just been extraordinary over the last couple of weeks.
Speaker 2: Talk to me a little bit, Peter about your home currency,
Speaker 2: the Aussie. How do things look for twenty twenty five.
Speaker 4: It's a great peso at the moment, Dug. We've changed
Speaker 4: the name of it. I think it's the Aussi peso,
Speaker 4: not the Aussie dollar. It's been sold off. I said
Speaker 4: to your team, you know, if you haven't made Australia
Speaker 4: a visiting point with a dollar at sixty one or
Speaker 4: sixty cents, that's the Aussie versus the US. Now's the
Speaker 4: time to visit in February because of the buying power
Speaker 4: of your strong US dollar against US, of course, and
Speaker 4: I feel as though that we.
Speaker 3: Could be sub sixty.
Speaker 4: I'm worried about China. I take on board their situation.
Speaker 4: It's a little bit of a proxy as far as
Speaker 4: Ossie versus for the China, So I'm expecting more softness
Speaker 4: there and maybe a fifty eight handle is where we're
Speaker 4: heading to.
Speaker 2: I'm wondering if there's a surprise right now that you're
Speaker 2: beginning to anticipate something on the horizon that maybe a
Speaker 2: few people are considering that could really create a lot
Speaker 2: more volatility in in the foreign exchange right now, something
Speaker 2: that you could share with us. Maybe that's different from
Speaker 2: the dollar story.
Speaker 4: I think yes, I feel as possibly the China situation,
Speaker 4: what's going on there as far as their rates, is
Speaker 4: the stimulus going to be the action point that everyone
Speaker 4: thought was going to turn things around.
Speaker 3: And I'm worried about China.
Speaker 4: I've just I'm concerned naturally with their real estate market.
Speaker 4: You've got eighteen trillion. I was looking at a comment
Speaker 4: by Barclay. Since twenty twenty one, eighteen trillion in wealth
Speaker 4: has been evaporated or destroyed in property, So that worries me.
Speaker 3: Who's holding the debt? And in turn, where does that
Speaker 3: play for Australia.
Speaker 4: We're very reliant on a strong China and that's not
Speaker 4: necessarily the case at the moment.
Speaker 2: Will that necessarily force Beijing to kind of do more
Speaker 2: in the way of intervention.
Speaker 4: Well, it does, and I'm conscious of it. But when
Speaker 4: you've got your ten year running at what is an
Speaker 4: a rand about four point six two four point sixty three,
Speaker 4: investors can really get three hundred basis points risk free
Speaker 4: investment buying US treasuries versus Chinese treasuries. So who's going
Speaker 4: to choose those Chinese government bonds? That's a worry. And
Speaker 4: you know, with the way your ten years going, you
Speaker 4: might be running higher at you know, by end of month.
Speaker 4: I wouldn't be surprised possibly even a four to seven
Speaker 4: five handle.
Speaker 2: Wow, Peter, it's always a pleasure. Thanks so much for
Speaker 2: spending time with us. Peter maguire there, he is the
Speaker 2: CEO of XM Australia, joining us here on the Daybreak
Speaker 2: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Speaker 2: Doug Krisner. In the US equity market today, we had
Speaker 2: a rally in tech megacaps, helping to send the S
Speaker 2: and P to a gain of around six tens to
Speaker 2: one percent. Meta platforms up more than four percent today.
Speaker 2: That was after Jeffrey said that Meta could offer the
Speaker 2: best AI play in the consumers this year. Let's take
Speaker 2: a closer look at the tech trade and markets more
Speaker 2: broadly with Matt Orton. He is the chief market strategist
Speaker 2: at Raymond James Investment Management, joining us from the firm's
Speaker 2: headquarters in Saint Petersburg, Florida. Matt, thanks for being with us.
Speaker 2: Happy New year too. You how things are going well
Speaker 2: for you? Talk to me about this theme of AI.
Speaker 2: It certainly provided a lot of oomph to the market
Speaker 2: last year. Do you think the same will hold true
Speaker 2: in twenty twenty five?
Speaker 1: And uncappy new year to you as well, and always
Speaker 1: great to join and I do. I think there's a
Speaker 1: lot of tailwinds to the artificial intelligence trade. I think
Speaker 1: the key difference this year versus what we've seen for
Speaker 1: the past two years is I think a lot of
Speaker 1: the games that we are likely to see are not
Speaker 1: going to be as concentrated in the handful of hyperscalers
Speaker 1: where you've seen a lot of the momentum already occur.
Speaker 1: I talked to clients about this basket of AI two
Speaker 1: point zero companies, kind of who are the capex beneficiaries
Speaker 1: of the artificial intelligence spend on the part of these
Speaker 1: megacap tech names, and that leads me to electrical equipment
Speaker 1: head companies. It leads me even to some industrials that
Speaker 1: are involved in machinery or helping construct some of the
Speaker 1: data centers or the semiconductor fabs that we're moving back
Speaker 1: to the country. Even within the tech space, you know,
Speaker 1: you have a number of other software companies that are
Speaker 1: helping to work to develop apps and enable artificial intelligence.
Speaker 1: And so I think the trade broadens out, which is
Speaker 1: a keyword for for twenty twenty five. We're not off
Speaker 1: to a great start for the past few trading days
Speaker 1: on the breast side of things, but I think there's
Speaker 1: a lot of tailwinds to go and it's all going
Speaker 1: to be backed by earnings and earnings momentum.
Speaker 2: Over the last two years for the S and P,
Speaker 2: I think we had a gain of something around fifty percent.
Speaker 2: That seems stunning. What's the likelihood that we're going to
Speaker 2: remain positive, not necessarily to that extent, but positive for
Speaker 2: US equities and perhaps not ripe for a little bit
Speaker 2: of a pullback.
Speaker 1: So I think we have to kind of disaggregate this
Speaker 1: idea of a pullback and the ability of US markets
Speaker 1: to continue to push higher. Now. I actually think we're
Speaker 1: going to see a higher volatility bull market in twenty
Speaker 1: twenty five. We're already getting a preview of what that
Speaker 1: looks like. Iven Some of the uncertainties are on tariffs,
Speaker 1: the path of rates, what's happening with inflation. But that
Speaker 1: doesn't mean the market can't continue to push higher. And
Speaker 1: I think that's rooted in the big picture, Doug. It's
Speaker 1: rooted in the fact that earnings are going to continue
Speaker 1: to move higher. We're looking at thirteen percent or so
Speaker 1: EPs growth is consensus right now. I think we're going
Speaker 1: to see that and potentially better. Margins are near record
Speaker 1: highs currently. I think we're going to be able to
Speaker 1: sustain that, and so as long as earnings are able
Speaker 1: to deliver, coupled with what I would argue is a
Speaker 1: very solid fundamental economic backdrop for the United States, along
Speaker 1: with hopefully some additional deregulation or clarity with respect to
Speaker 1: taxes going forward. That sets up a very environment that
Speaker 1: makes me comfortable recommending to clients that when we have
Speaker 1: five ten percent pullbacks, which I think could be likely
Speaker 1: this year, use those opportunistically use those as buying opportunities
Speaker 1: to help better diversify your portfolio away from just the
Speaker 1: megacat names that have worked over the past few years.
Speaker 2: So let's talk a little bit about the rates environment.
Speaker 2: Earlier today, Lisa Cooke, a FED governor, was saying that
Speaker 2: the FED can proceed a little bit more cautiously. The
Speaker 2: labor market seems to be sturdy, although there are lingering
Speaker 2: concerns about inflation, particularly when you begin to consider the
Speaker 2: potential inflationary impact of policies from the incoming Trump administration,
Speaker 2: And a lot of the FED speak over the last
Speaker 2: several days is skewed more hawkish. We know now as
Speaker 2: a result of what we heard from the FED share
Speaker 2: at the end of the last FED meeting that maybe
Speaker 2: only two rate cuts are being predicted for the new
Speaker 2: year instead of four. How are you feeling about the
Speaker 2: outlook for interest rates right now? And how aggressive do
Speaker 2: you feel the FED will be in accommodating?
Speaker 1: So I think the path for rates is certainly higher
Speaker 1: than it was, you know, even a month or especially
Speaker 1: a month or two ago. But I think the good
Speaker 1: news is the market has done a lot of adjusting already.
Speaker 1: The market is already pricing in only one to two
Speaker 1: rate cuts for twenty twenty five. So I think any
Speaker 1: surprises with respect to inflation continuing to make slow but
Speaker 1: consistent progress a little bit lower, I think that could
Speaker 1: certainly tip the scales to help rates start to come
Speaker 1: down a little bit later in the year. I think
Speaker 1: there's risks, especially in the near term, to seeing you know,
Speaker 1: four seventy five five percent or so in the ten year.
Speaker 1: But for longer term investors, those maybe looking to move
Speaker 1: from cash and lock in longer term yields, I think
Speaker 1: those are good opportunities to perhaps lock in those yields
Speaker 1: because I don't think you're going to stay at those
Speaker 1: levels for very long. Because again, I do think inflation
Speaker 1: over the lone term is going to continue to come down.
Speaker 1: It's just a matter of how slow that path is
Speaker 1: going to be.
Speaker 2: The December employment report, it will be the main attraction
Speaker 2: on Friday. It's going to indicate a lot in terms
Speaker 2: of how well the labor market is performing, and by extension,
Speaker 2: how strong the consumer may be. What's your sense of
Speaker 2: the American consumer right now?
Speaker 1: Yeah, dog, I think, and I've thought for a long time,
Speaker 1: but the American consumer isn't a good place. I think
Speaker 1: a lot of economists investors like it. People have missed
Speaker 1: how strong the American consumer is. I guess. Being based
Speaker 1: in Florida, I have the luxury of kind of seeing
Speaker 1: vacationers on a steady basis and seeing them out at restaurants,
Speaker 1: continuing to spend money both at high end, medium and
Speaker 1: low end hotels, and I'll tell you I have not
Speaker 1: really seen a slowdown even after the hurricanes, people continue
Speaker 1: to come down. And when I talk to management teams
Speaker 1: of consumer oriented companies, a lot of the big picture spending,
Speaker 1: especially on discretionary trips, kind of the experiences that stays
Speaker 1: in place. There is, however, a bifurcated consumer, and I
Speaker 1: think selectivity in the consumer space matters a lot. So
Speaker 1: I really discourage clients from trying to take a broad
Speaker 1: approach to attacking the consumer. You have to be very
Speaker 1: specific about what consumer you have exposure to, and I'd
Speaker 1: much rather have exposure to consumers that are more lever
Speaker 1: towards the high end, towards discretionary experiential travel. Because you're
Speaker 1: still seeing that play out. You hear it from Visa,
Speaker 1: from American Express, you hear it from some of the
Speaker 1: companies that sell those goods or travel. I think that'll continue.
Speaker 1: And what I would pay attention to in the labor
Speaker 1: report on Friday in particular is wage growth, because wage
Speaker 1: growth has improved across the board for the economy, but
Speaker 1: it's a double edged sword. If wage growth comes in
Speaker 1: higher than expect it, it's just another it's just another
Speaker 1: challenge for the FED and for the inflation overall to
Speaker 1: continue to come down, since so much of it is
Speaker 1: services based inflation.
Speaker 2: So, man, if you're a reasonable optimistic about the domestic economy,
Speaker 2: do you want to be a little bit more exposed
Speaker 2: to small and mid cap names, let's say, as opposed
Speaker 2: to some of the big multinationals at this point, I do.
Speaker 1: I mean I want to. I still want to have
Speaker 1: exposure to the multinationals because they're earning story is incredible
Speaker 1: by and large, but I think the market is really
Speaker 1: missing the growth that we're likely to see in small
Speaker 1: and mid cap companies. I certainly understand and appreciate the
Speaker 1: rate argument and the challenges that higher rates could pose
Speaker 1: to smaller companies, but higher quality small cap companies are
Speaker 1: already benefiting from lower funding costs. Because rates have already
Speaker 1: come down one hundred basis points from from the peak
Speaker 1: of where we were last year. You're not seeing challenges
Speaker 1: for small cap companies with good balance sheets generating free
Speaker 1: cash flow. Those companies are very underappreciated by the market.
Speaker 1: They're under owned and investor portfolios, and we have near
Speaker 1: historic valuation different between large and small cap companies. I
Speaker 1: think there's a very compelling case to be made, especially
Speaker 1: if you believe that there's going to be strong economic growth.
Speaker 1: I don't think there's a better way to play that
Speaker 1: than being selective in small caps, particularly with respect to
Speaker 1: the companies that are involved in the AI trade and
Speaker 1: also on the banks, the financials, the deregulatory side of things.
Speaker 1: I think there's a lot of ways you can play
Speaker 1: small in midcaps, and once that part of the market
Speaker 1: starts to move, it can move very very quickly. I
Speaker 1: would use that pullback in December, we've had to really
Speaker 1: think about adding exposure to small and midcaps in your portfolio.
Speaker 2: Well, I'm glad you mentioned the financials because today we
Speaker 2: had news that Michael Barr, the Fedzvice Chair of Supervision,
Speaker 2: plans to step down. We know he was instrumental in
Speaker 2: getting that plan to force some of the big banks
Speaker 2: to hold more capital. Obviously, the goal here is aspirational.
Speaker 2: You want to prevent bank failures and also prevent systemic
Speaker 2: financial crises. But he may have been potential target for
Speaker 2: the incoming administration. We really don't know. What he did
Speaker 2: say is that he wanted to eliminate the risk.
Speaker 3: Of a dispute.
Speaker 2: But I was struck by the way in which bank
Speaker 2: stocks climbed on that news. The KBW Bank index was
Speaker 2: up today by around to eight tens one percent. Talk
Speaker 2: to me about the outlook that you see in the financials,
Speaker 2: maybe deal flow M and A activity as well as
Speaker 2: maybe easier regulations when it comes to the big banks.
Speaker 1: Yeah, it's a really good point, Doug, and I think
Speaker 1: this deregulation theme for twenty twenty five is very, very real.
Speaker 1: We have a huge regulatory burden in this country. I
Speaker 1: mean we added over ninety thousand new pages in the
Speaker 1: Federal Register last year alone. It is. It is incredibly
Speaker 1: burdened sum It is a key reason why a lot
Speaker 1: of companies outside of just the fact that they're well financed,
Speaker 1: but it's a key reason why a lot of companies
Speaker 1: don't want to go public. You have an over resource
Speaker 1: regional bank community banking sector in the United States, and
Speaker 1: there it's right for consolidation. When I talk to CFOs
Speaker 1: or CEOs or regional banks, all of them are very,
Speaker 1: very bullish and enthusiastic about consolidation in the industry. So
Speaker 1: I think that's going to help on the sea regulation front,
Speaker 1: and specifically with respect to financial regulations, that's also been
Speaker 1: an incredible burden. So I think seeing tangible changes already
Speaker 1: takes place, I think that renews the enthusiasm that was
Speaker 1: there after the Trump election around the financial trade. So
Speaker 1: I still think there's a lot of legs to go there.
Speaker 2: Matt will leave it there. Thank you so much for
Speaker 2: being with us. Matt Orton is the chief market strategist
Speaker 2: at Raymond James Investment Management, joining from Saint Petersburg, Florida.
Speaker 2: Here on the Daybreak Asia podcast. Thanks for listening to
Speaker 2: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
Speaker 2: we look at the story shaping markets, finance, and geopolitics
Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 2: Join us again tomorrow for insight on the market moves
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner
Speaker 2: and this is Bloomberg