WEBVTT - Harris-Walz Ticket Makes Debut, Global Markets Rebound 0:00:02.480 --> 0:00:10.440 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the Apec region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:27.880 the Bloomberg Terminal, and the Bloomberg Business App. Vice President 0:00:27.960 --> 0:00:31.360 Kamala Harris kicked off a critical stretch of her campaign 0:00:31.520 --> 0:00:34.640 earlier tonight in Philadelphia. That's where she took the stage 0:00:34.680 --> 0:00:36.919 for the first time with her new running mate, Minnesota 0:00:36.920 --> 0:00:39.880 Governor Tim Walls, joining us now for a closer look 0:00:39.920 --> 0:00:43.879 at the political story behind this. Amy Dacy, executive director 0:00:43.960 --> 0:00:49.200 at American University sign Institute of a Politics and a Policy. 0:00:49.600 --> 0:00:52.920 Good of you to drop by, Ms Dacy, Thanks so much. First, 0:00:52.960 --> 0:00:54.920 let me get your reaction. I'm sure you watched it 0:00:55.000 --> 0:00:56.520 on the television. What did you think? 0:00:57.640 --> 0:01:00.920 Yeah, this is definitely general election phase that we're in, 0:01:00.960 --> 0:01:04.120 and the enthusiasm you saw, you know in Philadelphia, I 0:01:04.160 --> 0:01:06.520 think is going to carry out. You know, in the campaign. 0:01:07.360 --> 0:01:10.759 It definitely was between you know, the speakers that were 0:01:10.800 --> 0:01:13.200 before them, but it was the first time you saw 0:01:13.240 --> 0:01:15.640 these two candidates together, and I think it was incredibly 0:01:15.640 --> 0:01:18.000 well received. You can feel the energy in the room, 0:01:18.040 --> 0:01:19.840 and I think they're ready to go on the road 0:01:20.200 --> 0:01:22.840 and really start talking about their ticket and what they 0:01:22.880 --> 0:01:23.520 planned to do. 0:01:23.880 --> 0:01:27.200 It was earlier in the rally that Pennsylvania Governor Josh 0:01:27.240 --> 0:01:30.720 Shapiro delivered what seemed to be a full throated endorsement 0:01:30.760 --> 0:01:34.080 of Governor Walls. Shapiro, as you know, had been in 0:01:34.080 --> 0:01:37.319 the running to join Vice President Harris on the ticket. 0:01:37.400 --> 0:01:42.160 In the end, she bypassed Shapiro for whatever reason. Although 0:01:42.200 --> 0:01:45.319 I think it's fair to say that Pennsylvania is a 0:01:45.360 --> 0:01:49.320 politically valuable state in this election. Do you have a 0:01:49.400 --> 0:01:52.560 sense of the strategy behind the scenes, why Walls and 0:01:52.680 --> 0:01:53.320 not Shapiro. 0:01:54.560 --> 0:01:57.080 Well, I think the Vice President had a very difficult 0:01:57.160 --> 0:01:58.840 choice in front of her simply because there were so 0:01:58.960 --> 0:02:01.240 many good Democrats to pick from, and I think that's 0:02:01.320 --> 0:02:03.080 one of the things that you see that is very 0:02:03.080 --> 0:02:06.440 different than the Republican bench out there. She had, you know, 0:02:06.480 --> 0:02:09.000 a dozen people to look at, but I think at 0:02:09.040 --> 0:02:11.360 the end of the day, some of the last names 0:02:11.360 --> 0:02:13.400 that you saw, whether it was Mark Kelly or Josh 0:02:13.440 --> 0:02:17.400 Shapiro or Tim Walls are all candidates that certainly get 0:02:17.520 --> 0:02:21.440 she you know, felt comfortable with that brought something to 0:02:21.480 --> 0:02:26.000 the ticket. I think, you know, in this situation, Tim Walls, 0:02:26.040 --> 0:02:30.320 Governor Walls, he brings a beautiful contrast to some of 0:02:30.360 --> 0:02:33.120 her profile. He also plays well into some of the 0:02:33.400 --> 0:02:36.200 the you know, communities that the Democrats need to reach 0:02:36.240 --> 0:02:38.920 out to. This is somebody from humble beginnings, was an 0:02:39.040 --> 0:02:42.760 Army National Guard, you know, really ran and won in 0:02:42.800 --> 0:02:46.360 a very rural conservative district in Minnesota. And you know 0:02:46.360 --> 0:02:48.880 he's a former NRA member, a teacher or high school 0:02:48.960 --> 0:02:52.320 football coach. You know, these are all things that played 0:02:52.360 --> 0:02:54.840 really well. And I think all the candidates brought something, 0:02:55.160 --> 0:02:57.600 you know, to the table. But you also saw them 0:02:57.600 --> 0:03:01.720 immediately co arrests around this take of Harris Well. So 0:03:01.880 --> 0:03:04.800 even Jos Shapiro sent out a very strong statement. He 0:03:04.919 --> 0:03:07.919 certainly gave an incredible speech at the rally. I think 0:03:07.960 --> 0:03:10.600 it's all hands on deck for the Democrats here and 0:03:10.760 --> 0:03:13.160 every single Saraga is going to be out there supporting 0:03:13.200 --> 0:03:13.760 this ticket. 0:03:14.000 --> 0:03:17.799 You are a former advisor not only to President Barack Obama, 0:03:17.840 --> 0:03:22.280 but Senator John Kerry as well now Vice President Harris 0:03:22.320 --> 0:03:25.800 and Governor Walls are on their way to a number 0:03:25.800 --> 0:03:31.120 of key cities in states like Wisconsin, Michigan, Arizona, Nevada. 0:03:31.560 --> 0:03:34.920 If you were advising this campaign, what would you say 0:03:34.960 --> 0:03:35.880 to them? 0:03:36.680 --> 0:03:39.040 Well, I think, you know, they've started out in an 0:03:39.040 --> 0:03:43.520 incredible way as this authentic individuals who are listening to Americans, 0:03:43.560 --> 0:03:46.520 who are saying that they won't turn back. They're putting 0:03:46.520 --> 0:03:50.320 a strong contrast, you know, with their opposition in the 0:03:50.400 --> 0:03:53.880 Trump you know, Vance ticket. I think in a good way. 0:03:53.960 --> 0:03:56.840 They're talking about their vision for America. They're not just 0:03:56.920 --> 0:04:00.840 against something therefore something I do think they're spending, you know, 0:04:00.880 --> 0:04:03.160 and looking for. You look at the swing through the 0:04:03.200 --> 0:04:05.480 next week, all the states that they'll be you know, 0:04:05.600 --> 0:04:08.520 going to, these are ones that really matter in that 0:04:08.600 --> 0:04:11.640 electoral map. But I think the bottom line is they're 0:04:11.720 --> 0:04:15.080 setting forth their vision for America. What this looks like, 0:04:15.680 --> 0:04:18.479 you know, especially talking to people whether they are in 0:04:18.560 --> 0:04:22.320 Wisconsin or New York, or California or Arizona or Nevada. 0:04:22.720 --> 0:04:25.520 But I think their clear vision that they're putting out 0:04:25.880 --> 0:04:28.520 is really important. And a sense of optimism. I think 0:04:28.800 --> 0:04:31.920 you saw, you know, a sense of energy and optimism 0:04:32.000 --> 0:04:34.200 that you haven't seen, you know, for a while with 0:04:34.240 --> 0:04:37.440 the Democratic ticket, So I think, you know, and if 0:04:37.440 --> 0:04:40.400 you're going to advise them, it's that keep the authenticity. 0:04:40.760 --> 0:04:44.159 Listen as well as you know, speak, make sure that 0:04:44.200 --> 0:04:48.680 you're out there and understanding people's pain. You know, not 0:04:48.839 --> 0:04:51.680 everybody feels like they've moved forward, Like what where are 0:04:51.720 --> 0:04:53.839 people at? What are the things they could do to 0:04:53.880 --> 0:04:56.159 make their lives better? And I think they're off to 0:04:56.200 --> 0:04:57.120 a good start with that. 0:04:57.440 --> 0:04:59.760 So we're less than two weeks away from the Democratic 0:04:59.839 --> 0:05:03.360 now national convention in Chicago. Did we pretty much hear 0:05:04.120 --> 0:05:07.000 the party platform tonight at this rally in Pennsylvania? 0:05:09.160 --> 0:05:09.359 You know? 0:05:09.480 --> 0:05:13.799 I mean I think that you know, everything is thought 0:05:13.800 --> 0:05:16.400 through in tactical I think starting this out in Pennsylvania 0:05:16.440 --> 0:05:20.400 is really important. I think that this move, you know, 0:05:20.440 --> 0:05:22.359 whether you knew it was going to be Shapiro or 0:05:22.400 --> 0:05:25.480 Walls or Kelly, I think Pennsylvania is going to be 0:05:25.520 --> 0:05:28.200 a battleground state no matter what. And so I think 0:05:28.400 --> 0:05:30.479 the time they're spending there, the fact they're starting the 0:05:30.520 --> 0:05:33.039 swing there, the fact that you have the governor of 0:05:33.120 --> 0:05:36.120 an important state like Pennsylvania doubling down, I think this 0:05:36.160 --> 0:05:38.880 is all coming together as they launch. And remember this 0:05:38.960 --> 0:05:42.160 week is in lead up to a convention. They haven't 0:05:42.160 --> 0:05:45.760 even done their Democratic Convention yet, and so Democrats have 0:05:45.800 --> 0:05:49.400 an opportunity to show who the Democratic Party is, share 0:05:49.480 --> 0:05:52.360 all those faces and voices of potential, you know, vice 0:05:52.400 --> 0:05:56.400 presidential nominees set forth their platform and their vision. So 0:05:56.480 --> 0:05:58.920 everything's tactical, and I think this is all moving into 0:05:58.920 --> 0:06:02.480 the direction to head into Chicago in a very strong position. 0:06:02.640 --> 0:06:04.919 It's hard to believe that it's been less roughly a 0:06:04.960 --> 0:06:08.479 month since President Biden stepped down, and I'm looking at 0:06:08.760 --> 0:06:12.560 some of the latest polling coming from NPR, PBS News 0:06:12.680 --> 0:06:16.800 marist Kamala Harris leading Trump fifty one forty eight. Are 0:06:16.839 --> 0:06:19.640 you surprised at the momentum? Has this been kind of 0:06:19.640 --> 0:06:22.240 a stunning development that no one could have predicted? 0:06:23.800 --> 0:06:25.840 Well, again, as you said, you know, you look back 0:06:25.880 --> 0:06:27.400 a month ago, and it's hard to believe that we're 0:06:27.400 --> 0:06:30.080 in this situation now. So much has changed in a month. 0:06:30.360 --> 0:06:32.120 But I do think one of the things that was 0:06:32.160 --> 0:06:35.320 a huge indicator, definitely, you know, to be full disclosure, 0:06:35.400 --> 0:06:37.599 was surprising to me right out of the gate just 0:06:37.720 --> 0:06:40.000 how strong it was, you know, in the first thirty 0:06:40.040 --> 0:06:43.320 six hours. Vice President Harris was able to coalesce the 0:06:43.360 --> 0:06:47.200 party you know, leadership around her, whether it was party chairs, 0:06:47.240 --> 0:06:49.359 whether it was leaders in the House and Senate and 0:06:49.440 --> 0:06:53.799 other governors. She also was able you know, to within 0:06:53.920 --> 0:06:57.680 mer you know, twenty four hours, have fifty six new 0:06:57.720 --> 0:07:02.080 thousand new volunteers sign up, you know, unbelievable amount of money, 0:07:02.120 --> 0:07:05.719 even as early as you know today, raising ten million 0:07:05.800 --> 0:07:08.960 dollars in the first hour after you've you know, picked 0:07:09.000 --> 0:07:12.920 a vice presidential nominee. I think everything that came out 0:07:12.960 --> 0:07:15.040 of the gate was really strong. So I do think 0:07:15.080 --> 0:07:18.240 that will start reflecting in the polling and not as 0:07:18.240 --> 0:07:20.920 surprised to see that they've been you know, flawless and 0:07:21.000 --> 0:07:24.760 executing this they brought forward in a very strong way, 0:07:25.880 --> 0:07:28.720 you know, a process that was respectful and still kept 0:07:28.760 --> 0:07:31.600 everybody together in the party as she picked her vice 0:07:31.640 --> 0:07:35.520 presidential nominee. So you know, polls are a snapshot in time. 0:07:35.680 --> 0:07:37.680 This is going to also if you look back a month, 0:07:38.040 --> 0:07:40.240 like look forward a month, there can be a lot 0:07:40.280 --> 0:07:42.760 of changes and a lot going on. But I do 0:07:42.800 --> 0:07:47.400 think she's her running mad a in well positioned going 0:07:47.520 --> 0:07:50.720 into the convention, and we'll even see if their opponents 0:07:50.720 --> 0:07:52.840 decide to debate them or not. There's still a lot 0:07:52.880 --> 0:07:56.720 of pieces moving forward. But I also caution and remind 0:07:56.760 --> 0:07:59.440 people that in less than sixty days people are voting 0:07:59.440 --> 0:08:01.720 in America. You know, we've got people voting in as 0:08:01.720 --> 0:08:04.400 early as September, So we keep saying in ninety some 0:08:04.560 --> 0:08:07.560 days till the election. The election is closer than we think, 0:08:07.640 --> 0:08:09.920 so they have a small amount of time to really 0:08:10.000 --> 0:08:11.760 reach those undecided voters. 0:08:12.240 --> 0:08:14.800 Most definitely, Amy, good of you to join us. Thanks 0:08:14.800 --> 0:08:17.800 so much. Enjoyed the conversation with Amy Dacy. She is 0:08:17.880 --> 0:08:24.920 executive director at American University sign Institute of Policy and Politics. 0:08:30.680 --> 0:08:34.200 Carlos Casanova is with us. Carlos is Senior Asia Economist 0:08:34.200 --> 0:08:37.920 at UBP. He joins us from our studios in Hong Kong. 0:08:38.360 --> 0:08:40.240 Good of you to drop by. I hope you're doing well. 0:08:40.480 --> 0:08:42.600 So I think we can agree maybe a semblance of 0:08:42.679 --> 0:08:46.520 calm in the market today, But the combination of events 0:08:46.559 --> 0:08:49.320 seems as though it's almost like a perfect storm. We 0:08:49.400 --> 0:08:52.520 had the weak US data on jobs last week, some 0:08:52.679 --> 0:08:57.120 under performing tech results, a crowded yen carry trade that 0:08:57.280 --> 0:09:00.760 may be tied to last week's decision from the Bank 0:09:00.800 --> 0:09:04.120 of Japan. How are you making sense of this and 0:09:04.160 --> 0:09:07.320 when clients come to you, how are you describing the 0:09:07.400 --> 0:09:09.280 unfolding of these events? 0:09:10.920 --> 0:09:14.520 Good morning, and certainly very tumultuous period for markets. I 0:09:14.559 --> 0:09:18.920 think you've missed the one factor, which is valuations in Japan. 0:09:19.400 --> 0:09:23.120 Those were averaging cyclical highs last week, although of course, 0:09:23.160 --> 0:09:26.480 following that massive correction, we are now looking at a 0:09:26.520 --> 0:09:28.760 twelve times on a four p basis, which is more 0:09:28.800 --> 0:09:33.120 in line with average levels for Japan. But we are 0:09:33.160 --> 0:09:36.040 explaining it to clients exactly in this context. We think 0:09:36.960 --> 0:09:40.360 the main trigger was this unwinding of the yen carried trade. 0:09:41.080 --> 0:09:44.120 If you look at the commodity trade in Future Commission, 0:09:44.200 --> 0:09:46.760 about fifty percent of that has been unwound over the 0:09:46.800 --> 0:09:49.719 past few weeks. And the reason for that it was 0:09:49.760 --> 0:09:52.560 a crowded trade. And now you have a very hawkish 0:09:52.600 --> 0:09:55.920 Bank of Japan potentially eroding the profitability of that trade 0:09:55.960 --> 0:10:00.760 in the months ahead. That coincided with fears around a 0:10:00.760 --> 0:10:03.080 potential slow than in the US economy, and of course 0:10:03.160 --> 0:10:06.640 you had a perfect storm for a correction. The selling 0:10:06.679 --> 0:10:09.240 pressure was quite in discriminate, even in Japan. You saw 0:10:09.280 --> 0:10:11.240 selling across all sectors, even one of some of the 0:10:11.240 --> 0:10:14.120 sectors that benefit from a more hawkish Bank of Japan, 0:10:14.800 --> 0:10:16.840 and so we have been telling clients that, you know, 0:10:16.920 --> 0:10:20.320 for those that were not able to, you know, lock 0:10:20.360 --> 0:10:22.120 in some profits, you know, ahead of the Bank of 0:10:22.200 --> 0:10:26.040 Japan meeting, there will be another opportunity. Because the market 0:10:26.120 --> 0:10:29.200 has been so volatile, it doesn't it looks overdone and oversold. 0:10:30.640 --> 0:10:32.520 But you know, if you do see that rebound, you 0:10:32.559 --> 0:10:35.920 have to start looking at fundamentals and try to reposition accordingly. 0:10:36.240 --> 0:10:39.120 And in the US we're also not expecting a recession, 0:10:39.120 --> 0:10:41.719 so we think the cell of is a little bit overdone, 0:10:42.280 --> 0:10:45.200 but we are monitoring this soft landing very closely and 0:10:45.240 --> 0:10:46.719 also repositioning accordingly. 0:10:47.120 --> 0:10:50.520 I'm well aware of the deflationary history in Japan, more 0:10:50.559 --> 0:10:53.920 than three decades worth, and I understand how that history 0:10:54.000 --> 0:10:56.680 is going to create a bit of a conservative bias 0:10:57.920 --> 0:11:00.720 within the policy making body of the Bank of Japan. 0:11:00.920 --> 0:11:03.160 Having said that, I think we have seen over the 0:11:03.240 --> 0:11:08.640 last well almost two years inflationary pressures building. The boj 0:11:08.920 --> 0:11:13.200 resisted the temptation to tighten. Is the Bank of Japan 0:11:13.280 --> 0:11:18.480 in any way complicit in maintaining a weaker currency and 0:11:18.559 --> 0:11:22.520 allowing for excessive leverage in global markets. 0:11:24.679 --> 0:11:29.400 To some extent, you can argue that there is no 0:11:29.440 --> 0:11:32.240 way that Bank of Japan wasn't aware of these risks 0:11:32.280 --> 0:11:35.839 in the global financial system. They are the only ones 0:11:35.840 --> 0:11:38.320 that may be able to answer the question how big 0:11:38.640 --> 0:11:40.600 was this carry trade? I think no one else has 0:11:40.640 --> 0:11:42.440 the data. We all look at proxies to try to 0:11:42.559 --> 0:11:46.240 estimate the size of the carried trade. And it's also, 0:11:46.640 --> 0:11:49.360 I would say reasonable to assume that the FED and 0:11:49.400 --> 0:11:53.120 the Bank of Japan to communicate to some extent. So 0:11:53.520 --> 0:11:55.559 in a sense, yes, I think Bank of Japan may 0:11:55.600 --> 0:12:00.839 have had pressures to deliver the hawkish pivot, perhaps before 0:12:00.840 --> 0:12:03.800 they had full visibility in terms of the data. We 0:12:03.880 --> 0:12:07.520 can go into that later. As a result of this 0:12:07.600 --> 0:12:11.480 imbalance that was building in the global financial sector and 0:12:11.679 --> 0:12:16.079 following many many months of them essentially sort of providing 0:12:16.720 --> 0:12:20.240 the conditions for one way expectations on the Japanese end 0:12:20.600 --> 0:12:22.679 so very crowded trade and at some point they had 0:12:22.679 --> 0:12:23.480 to pull the trigger. 0:12:24.000 --> 0:12:26.280 The other part of the story is obviously the story 0:12:26.320 --> 0:12:29.360 of dollar strength. Now we know that the inflation story 0:12:29.520 --> 0:12:31.920 in the US is very different from what it is 0:12:31.920 --> 0:12:35.319 in Japan, and the end or rather the FED has 0:12:35.320 --> 0:12:39.200 had a bias to keep things tight for some time now, 0:12:39.240 --> 0:12:41.400 So I guess if you are on the side of 0:12:41.400 --> 0:12:44.880 the boj pointing to the persistent weakness, some of the 0:12:44.920 --> 0:12:48.280 problem may stem from persistent dollar strength. 0:12:48.000 --> 0:12:53.199 Right, correct. So going back to the point on inflation 0:12:53.280 --> 0:12:56.240 in Japan, it has been significantly higher than the two 0:12:56.240 --> 0:12:59.240 percent target, but most of that has been driven by 0:12:59.320 --> 0:13:02.760 strong dollar yen, so a lot of that is imported inflation. 0:13:02.960 --> 0:13:07.440 Where there's whole case for tightening rates has been this 0:13:07.559 --> 0:13:12.559 virtuous cycle. So you first have weak yen triggering imported inflation. 0:13:13.000 --> 0:13:16.079 As a result of that, you instigate changes in corporate behavior, 0:13:16.160 --> 0:13:19.720 including increasing wages. For the first for the highest amount 0:13:20.040 --> 0:13:22.360 that increase was the highest than thirty years, So definitely 0:13:22.360 --> 0:13:26.320 that part of the cycles has materialized, and then down 0:13:26.360 --> 0:13:29.080 the line that should translate into stronger domestic consumption and 0:13:29.200 --> 0:13:33.480 endogenous inflation. The third part of that puzzle is what 0:13:33.559 --> 0:13:37.400 we haven't quite seen yet. Although data overnight did show 0:13:37.520 --> 0:13:40.120 real wages increasing by one point one percent for the 0:13:40.120 --> 0:13:42.720 first time since twenty twenty one, but in none of itself, 0:13:42.760 --> 0:13:47.160 that is not sufficient to justify the hawkish pivot. So 0:13:47.720 --> 0:13:50.800 I think inflation has been high, but it's predominantly driven 0:13:50.840 --> 0:13:53.920 by US dollars strength, to your point, and so Bank 0:13:53.920 --> 0:13:57.720 of Japan really really has taken a gamble here because 0:13:58.000 --> 0:14:01.600 the preliminary data does point towards this virtual cycle sort 0:14:01.600 --> 0:14:03.280 of taking hold in the second half of the year, 0:14:03.600 --> 0:14:07.040 but they moved ahead of having visibility on that front. 0:14:07.240 --> 0:14:09.079 So, Carlos, next week, as you know, we're going to 0:14:09.120 --> 0:14:11.880 get the quarterly GDP number for Japan, how are you 0:14:11.920 --> 0:14:13.479 assessing the overall economy. 0:14:14.559 --> 0:14:17.480 It's a backward looking indicator, so I think it's going 0:14:17.520 --> 0:14:21.400 to disappoint Remember that the economy was in a recession 0:14:21.440 --> 0:14:26.960 in the first quarter. Consumption and capital expenditure was contractionary 0:14:27.000 --> 0:14:32.000 as a result of high inflation, squeezing purchasing power of 0:14:32.040 --> 0:14:35.000 households in Japan because all of their imports net importer, 0:14:35.040 --> 0:14:37.760 and all of the imports are more expensive. But also 0:14:37.840 --> 0:14:41.400 companies have been adjusting to higher nominal wages by reducing 0:14:41.520 --> 0:14:46.000 the amounts that they spend on capital expenditures. So I 0:14:46.040 --> 0:14:49.120 think that trend is going to continue into the second quarter, 0:14:49.560 --> 0:14:51.960 and of course, if we see a disappointing GDP reading, 0:14:52.240 --> 0:14:55.480 that is going to be quite negative for markets. Against 0:14:55.480 --> 0:14:59.000 the backdrop of this of this, you know, concerns about 0:14:59.080 --> 0:15:02.120 global growth and BOJ being too hawkish even as the 0:15:02.160 --> 0:15:05.880 economy struggles a little bit. So I think that it 0:15:05.960 --> 0:15:09.040 will disappoint, But as I mentioned, it's a backward looking indicator, 0:15:09.160 --> 0:15:10.680 so you have to take it. 0:15:10.640 --> 0:15:11.480 With a pinch of salt. 0:15:11.880 --> 0:15:14.880 And the more important thing to monitor going forward is 0:15:15.200 --> 0:15:18.080 whether or not this one point one percent increase in 0:15:18.080 --> 0:15:21.120 real wages is sustainable, and then whether that is going 0:15:21.160 --> 0:15:23.080 to lead to a pickup in domestic consumption. 0:15:23.240 --> 0:15:26.840 To what extent is Japan being held back The economy 0:15:26.880 --> 0:15:29.080 in Japan being held back by a weak China. 0:15:30.640 --> 0:15:34.000 China is one of the largest export markets for Japan, 0:15:34.160 --> 0:15:36.800 so I think US demand picking up in the first 0:15:36.800 --> 0:15:40.120 half of this year was a factor that contributed to 0:15:40.160 --> 0:15:44.160 that outperformance for Japanese equities, especially some of the exporters. 0:15:45.160 --> 0:15:47.960 Heading into the second half, we now have a weaker 0:15:48.040 --> 0:15:51.800 consumer demand in the US, but also China very sluggish 0:15:52.040 --> 0:15:55.160 and it's proving very difficult to boost demand there. So 0:15:55.680 --> 0:15:59.160 the initial idea that as demand from the US would 0:15:59.160 --> 0:16:02.920 weekend demand from from China would pick up may not 0:16:02.960 --> 0:16:05.520 be sustainable. So we do think that exports will be 0:16:05.560 --> 0:16:07.280 a drag in the second half, even if they are 0:16:07.320 --> 0:16:11.960 helping in the first half for Japan. And yeah, not 0:16:12.000 --> 0:16:15.560 only there's the direct export channel, but also in terms 0:16:15.600 --> 0:16:19.280 of global investor sentiment, there is a concern around a 0:16:19.360 --> 0:16:22.080 slowing global economy and China is just not going to 0:16:22.120 --> 0:16:25.160 come to the rescue this time around very quickly. 0:16:25.200 --> 0:16:28.320 Fifteen seconds. Do we have to revise the growth target 0:16:28.360 --> 0:16:29.960 for China this year? Will they make. 0:16:29.800 --> 0:16:33.400 It five point zero? Very unlikely? So my target is 0:16:33.440 --> 0:16:35.840 four point eight. I think they will miss target the forecast. 0:16:35.920 --> 0:16:37.960 Carlos, It's always a pleasure. Thank you so much for 0:16:38.040 --> 0:16:41.640 joining us. Carlos Casanova, a senior Asia economist at UBP. 0:16:49.760 --> 0:16:53.240 Stephanie Jung joins us. Stephanie is the chief investment officer 0:16:53.320 --> 0:16:55.720 at Stashaway, and she joins us from our studios in 0:16:55.720 --> 0:16:58.480 Hong Kong. Good of you to drop by. I'm so 0:16:58.640 --> 0:17:01.720 interested in your market person inspective, particularly what we have 0:17:01.760 --> 0:17:04.480 seen over the last let's say, forty eight hours. How 0:17:04.520 --> 0:17:07.800 are you understanding the volatility and some of the moves 0:17:07.800 --> 0:17:08.800 that we have seen lately. 0:17:09.320 --> 0:17:11.879 Yeah, indeed, there was a pretty crazy forty eight hours. 0:17:11.960 --> 0:17:14.920 If you look at the market's favorite gauge of fear, 0:17:15.000 --> 0:17:18.399 which is the VEX index measures the kind of nearrors 0:17:18.440 --> 0:17:22.280 our volatility for US markets. It spiked it as high 0:17:22.280 --> 0:17:24.600 as sixty five, and the last time we saw that 0:17:24.720 --> 0:17:27.919 kind of spike was back in COVID or even before 0:17:28.080 --> 0:17:30.880 that was the GFC. So a lot of like kind 0:17:30.920 --> 0:17:34.360 of dislocation is happening in our view. It all started 0:17:34.359 --> 0:17:37.520 with then winding up the carry trade when boj actually 0:17:37.520 --> 0:17:41.160 started to hike interest rates out of kind of out 0:17:41.160 --> 0:17:44.879 of consensus, and that sparked some unwind unwinding of the 0:17:45.000 --> 0:17:47.880 carry trade of course for the end, but that also 0:17:48.040 --> 0:17:51.040 kind of spiraled into other momentum traits. I mean, to 0:17:51.080 --> 0:17:54.159 start with, I think there has been some concerns in 0:17:54.280 --> 0:17:57.520 terms of how far, for example, the AI bubble has gone, 0:17:57.880 --> 0:18:01.119 and there's been some debates as to, okay, whether all 0:18:01.160 --> 0:18:04.960 these capecs spent on these AI names are justified by returns, 0:18:05.320 --> 0:18:09.159 and as we've seen in the second quarter results, these 0:18:09.240 --> 0:18:11.560 I mean, these returns are yet to show, right For example, 0:18:11.640 --> 0:18:14.639 I think the big tags are saying, oh, we're seeing 0:18:14.680 --> 0:18:17.080 increasing demand, but it's yet to show in numbers. So 0:18:17.200 --> 0:18:19.560 investors were already a bit jettuary. I think at the 0:18:19.560 --> 0:18:22.880 beginning of the summer beginning of July. So that's why 0:18:22.920 --> 0:18:25.360 we saw some rotation out of these spectac names into 0:18:25.440 --> 0:18:28.560 smaller caps into kind of other cyclical assets. And I 0:18:28.560 --> 0:18:32.960 think just in terms of unwinding, a lot of CTAs 0:18:33.000 --> 0:18:36.879 or control funds have done very very significant kind of 0:18:36.920 --> 0:18:39.520 de risking in the past few days. There could be 0:18:39.600 --> 0:18:42.439 still somewhat to sell over the next few days, but 0:18:42.520 --> 0:18:44.920 I think a lot of the volatility or the peak 0:18:44.960 --> 0:18:47.720 of autility has been has happened already in the past 0:18:47.760 --> 0:18:48.720 forty eight hours. 0:18:49.040 --> 0:18:52.200 It sounds almost like bad timing. This confluence of fact 0:18:52.359 --> 0:18:55.199 is all happening in a span of a few sessions. 0:18:55.840 --> 0:18:59.560 But what are your thoughts on the recession risk how 0:18:59.600 --> 0:19:02.159 over own do you think they are out of the US? 0:19:02.480 --> 0:19:06.399 Yeah, I think basically we've seen some weaker data coming 0:19:06.400 --> 0:19:10.000 out from the US in the past week. So for example, 0:19:10.160 --> 0:19:12.240 you look at the jobs data. Of course on Friday, 0:19:13.240 --> 0:19:16.760 it miss consensus by quite a wide margin, and it 0:19:16.800 --> 0:19:19.720 was kind of the lowest non found payroll numbers what 0:19:19.760 --> 0:19:22.200 we've seen in the past six months or so. However, 0:19:22.600 --> 0:19:25.040 if you kind of look underneath, there has been some 0:19:25.119 --> 0:19:29.000 temporary kind of I guess impact in terms of the 0:19:29.080 --> 0:19:33.159 hurricane in terms of that affecting temporary workers. So in 0:19:33.240 --> 0:19:37.240 terms of kind of how significant this data point is, 0:19:37.359 --> 0:19:39.080 I think as yet to be seen. You need to 0:19:39.200 --> 0:19:41.919 kind of see the August data. Given that there's a 0:19:41.920 --> 0:19:45.280 lot of temporary workers that were on leave in July, 0:19:45.400 --> 0:19:47.480 I mean that number could come back in August, and 0:19:47.520 --> 0:19:49.960 I wouldn't be surprised if the August number actually surprises 0:19:50.000 --> 0:19:52.280 on the upside. On the other hand, of course, if 0:19:52.320 --> 0:19:56.280 you look at the ISM numbers or kind of the 0:19:56.400 --> 0:20:00.240 survey numbers, there is some weakness right the I think 0:20:00.240 --> 0:20:03.359 the ISM was quite weak, and also the smp PMI 0:20:03.520 --> 0:20:07.560 was also quite weak, below fifty for the manufacturing sector. Now, 0:20:08.000 --> 0:20:10.440 in the past few months, we've seen a recovery in 0:20:10.840 --> 0:20:13.440 terms of the manufacturing sector in the US and also globally, 0:20:13.640 --> 0:20:16.320 but that seem to have stalled in July. I think 0:20:16.760 --> 0:20:20.040 part of that is election related. If you look at 0:20:20.160 --> 0:20:23.280 kind of the commentary that companies are giving, they're saying that, oh, 0:20:23.680 --> 0:20:26.359 because of the uncertainty of who's going to win or 0:20:26.400 --> 0:20:29.840 what policies are going to be in place posted the 0:20:29.920 --> 0:20:33.000 US election, a lot of companies are actually holding back 0:20:33.359 --> 0:20:35.720 on their investment plans. Now, of course, I mean this 0:20:35.840 --> 0:20:38.840 then get reflected into these survey data. So I think, 0:20:38.840 --> 0:20:43.240 again some of this is actually quite temporary. But also 0:20:44.080 --> 0:20:46.560 I think that given that we still have ninety days 0:20:46.600 --> 0:20:50.280 into election and right now the election outcome is actually 0:20:50.359 --> 0:20:53.440 quite uncertain, that is going to be an overhang on 0:20:53.560 --> 0:20:56.440 fundamentals and also on markets for the next two to 0:20:56.480 --> 0:20:57.120 three months. 0:20:57.359 --> 0:21:00.080 But now that we have the Harris Wells ticket, do 0:21:00.080 --> 0:21:04.040 you think that changes Commala's odds to the White House? 0:21:04.080 --> 0:21:06.359 And you know, what do you make of the Trump trades? 0:21:06.400 --> 0:21:10.240 Then yeah, I think I mean, Pamela made a very 0:21:10.240 --> 0:21:13.040 good choice in terms of her VP in kind of 0:21:13.080 --> 0:21:18.480 balancing the I guess the the the attacket voters that 0:21:18.520 --> 0:21:21.720 I mean, she's she's sort of not covering. So I 0:21:21.760 --> 0:21:25.760 think that in any case, I mean, the poor VP 0:21:25.920 --> 0:21:29.520 that he actually had in terms of the final candidates 0:21:29.560 --> 0:21:30.919 were all very very strong. 0:21:31.520 --> 0:21:31.680 Uh. 0:21:31.720 --> 0:21:33.800 And if you look at kind of betting markets or 0:21:33.960 --> 0:21:37.200 kind of arts of who's gonna win, I mean, right 0:21:37.200 --> 0:21:39.600 now it's sort of a fifty to fifty split. And 0:21:40.080 --> 0:21:43.280 I think this is the worst outcome for markets because 0:21:43.320 --> 0:21:44.840