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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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Speaker 2: So the equity market finished at record highs today at

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Speaker 2: the start of what will be a very busy week

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Speaker 2: for earnings. We also have a watchful eye on the

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Speaker 2: tariff story. That's because trade negotiators from the European Union

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Speaker 2: and the US are heading into another week of talks

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Speaker 2: as they seek to close a deal by August first.

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Speaker 2: And in a moment we'll look at markets from the

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Speaker 2: APAC perspective. We'll hear from Sean Darby. He is managing

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Speaker 2: director at Misoho Securities Asia. But we begin here in

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Speaker 2: the States. Joining me now is at Butowski. He is

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Speaker 2: managing partner at Chapwood Investments. It is on the line

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Speaker 2: from just outside Dallas, Texas. Ed, thank you so much

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Speaker 2: for joining us. I'd like to begin with the earning story.

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Speaker 2: So far, more than eighty percent of the companies in

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Speaker 2: the S and P five hundred have bet estimates on

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Speaker 2: sales and earnings for Q two and I'm wondering whether

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Speaker 2: you put a lot of stock in that since we

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Speaker 2: know that expectations have been lowered a bit.

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Speaker 3: Yeah, I do. I mean, you know, nowadays, with the

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Speaker 3: oversight by the SEC on the companies and what they're

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Speaker 3: able to say prior to earnings releases, they have to

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Speaker 3: be pretty exact, and if they're beating them, then they're

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Speaker 3: really doing.

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Speaker 4: A great job.

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Speaker 3: I think a lot of credit belongs to the CFOs

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Speaker 3: of most of these public companies because they're doing outstanding

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Speaker 3: job of bringing in really strong revenue numbers.

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Speaker 2: So I mentioned a moment ago that we're at record

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Speaker 2: highs for not only S and P, but for the

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Speaker 2: Nasdaq comp as well. Is there anything that makes you

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Speaker 2: a little uneasy at this point?

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Speaker 4: Well, not really.

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Speaker 3: I looked at the Magnificent seven forward pees because I

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Speaker 3: was going to put out a video message to my

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Speaker 3: clients about how overpriced they were, and I could not

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Speaker 3: support that. I mean, if you look at Amazon, they're

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Speaker 3: selling at a forward pe of thirty six. I think

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Speaker 3: Amazon can hit that number. You know, Apple is the

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Speaker 3: only one out of the Magnificent seven that doesn't look

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Speaker 3: really strong. But Meta looks really strong. And you know,

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Speaker 3: just about every one of the Magnificent seven which are

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Speaker 3: leading the SMP look very strong, with the exception of Apple,

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Speaker 3: And there's really nothing that scares me at this point,

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Speaker 3: with the exception of some of the conversation going on

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Speaker 3: around Powell and where Powell and his relationship with trumpets.

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Speaker 2: Well, it's interesting you make that point, because today the

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Speaker 2: White House was very clear that the President has no

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Speaker 2: plans to fire the FED chairman, but the rhetoric sometimes

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Speaker 2: has been a little hot. Obviously Trump would like to

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Speaker 2: see lower interest rates. Do you think there is a

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Speaker 2: chance that we could get a rate cut as soon

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Speaker 2: as this month's meeting.

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Speaker 3: I don't think it's going to be this month, but

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Speaker 3: I think next month there's a really good chance. Because

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Speaker 3: you have to focus in on the GDP number. That's

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Speaker 3: where all the attention needs to go to forget about inflation.

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Speaker 3: That's not a problem anymore. The problem is a slow

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Speaker 3: and wea US economy, and the US economy is the

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Speaker 3: pipe hiper of the world economy. You know, as the

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Speaker 3: US economy goes, goes the rest of the world. And

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Speaker 3: I think that we need to really focus in on

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Speaker 3: the week GDP number that was printed last.

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Speaker 2: Time, so we were talking about earnings a moment ago.

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Speaker 2: Alphabet will report results this week. I think the market's

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Speaker 2: going to be looking very closely at spending on artificial intelligence.

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Speaker 2: How are you playing the AI story right now?

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Speaker 4: I'll tell you.

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Speaker 3: I've I've been kind of a Nini on this, if

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Speaker 3: that's the appropriate word, because Nvidia has been, you know,

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Speaker 3: the only real play other than SoundHound, sou and are ways.

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Speaker 3: You know, I think that AI is going to be

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Speaker 3: sort of like nanotechnology. It's going to be infiltrated into companies,

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Speaker 3: but making money in those companies is going to be very,

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Speaker 3: very difficult. So I really believe that the AI play

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Speaker 3: is going to be you know, in Vidia or SoundHound

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Speaker 3: or Yeah, there's a couple of others. There's Gigacloud, which

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Speaker 3: is more of a tariff play at this point, but

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Speaker 3: could also get into the AI world.

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Speaker 2: Speaking of tariffs, tomorrow morning, before the opening bell, we're

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Speaker 2: going to hear from General Motors. I mean, this company

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Speaker 2: could be very much exposed to the tariff story. I mean,

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Speaker 2: are there other industries that you're particularly sensitive to away

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Speaker 2: from autos, that you're maybe avoiding right now because of

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Speaker 2: the exposure to tariffs.

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Speaker 3: Not really. I think that Trump is out there just

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Speaker 3: kind of, you know, whenever he wants to say he's

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Speaker 3: going after this country.

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Speaker 4: Or that country.

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Speaker 3: I think a lot of it has to do with negotiating,

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Speaker 3: and I don't think there's a lot of fear that

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Speaker 3: the tariffs are going to hold and be as strong

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Speaker 3: as they are. But I also believe that it's a

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Speaker 3: really smart move. It's a long term play. That's what

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Speaker 3: people have to realize is that the terriffs are very

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Speaker 3: long term play. They're not short term at all, and

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Speaker 3: that any kind of you know, disruption, disruption from the

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Speaker 3: tariffs is going to be short lived, but then also

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Speaker 3: very very long lived. So you know, getting these factories

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Speaker 3: into a situation where they're able to produce products like

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Speaker 3: they were able to do overseas, Like Nike is not

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Speaker 3: coming back to the United States. Nike is going to

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Speaker 3: remain doing a lot of business at Vietnam because of

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Speaker 3: the low cost and the tax structure that they're able

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Speaker 3: to get from Vietnam. So there's there's really a lot

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Speaker 3: of confusion about the tariffs, and I haven't made anything

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Speaker 3: more understandable I can tell.

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Speaker 2: I think the view on the street is that we

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Speaker 2: could have an effective tariff right somewhere in the low teens.

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Speaker 2: Does that feel to you like it has the ability

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Speaker 2: to contribute something more to inflation beyond just a one

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Speaker 2: time bump.

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Speaker 3: Yeah, but you have to remember that the tariffs are

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Speaker 3: paid for by the companies that import the goods, you know.

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Speaker 3: So if we're importing a washing machine from Mexico, Mexico

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Speaker 3: is not paying that tariff. Yes, rule who's paying that tariff? Right,

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Speaker 3: And a lot of people understand that, so they automatically

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Speaker 3: think that the Mexican government is writing a check to

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Speaker 3: the US government, and that's just not happening. The retrofitting

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Speaker 3: of factories is going to take quite a while. That's

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Speaker 3: why I said, in the short run, you're going to

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Speaker 3: have a bump, but in the long run, you're going

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Speaker 3: to have a lot of sensible trade going on that

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Speaker 3: should have been taking place over the last fifteen twenty years.

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Speaker 4: I get that.

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Speaker 2: But if I'm Whirlpool and I'm worried about my margins,

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Speaker 2: don't I want to pass some of that cost on

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Speaker 2: to the consumer if you can.

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Speaker 3: Absolutely, you want to pass it on everywhere you can.

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Speaker 3: I just don't know if you're going to be able to.

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Speaker 3: And there was kind of an interesting story and Business

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Speaker 3: Insider where this one company decided to go forward and

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Speaker 3: produce their shower heads using all US sources versus Chinese sources,

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Speaker 3: and the US sources had the showerhead go up to

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Speaker 3: two hundred and thirty nine dollars and used in the

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Speaker 3: Chinese sources it was one hundred and forty dollars and

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Speaker 3: they sold about eight hundred and they were all sourced

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Speaker 3: from the Chinese government. So I don't think people are

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Speaker 3: that quick and that easy to give up the profitability

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Speaker 3: to be pro American. I think Trump has that wrong.

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Speaker 2: Are you looking at opportunities offshore? Are you focused primarily

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Speaker 2: on opportunities in the US.

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Speaker 3: I look at my favorite stock in the world is

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Speaker 3: Macartera Libre EMYLI. I think that Macarter Libre is the

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Speaker 3: Amazon of Latin America, and I believe that they have

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Speaker 3: figured it all out and they're going to do very

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Speaker 3: very well. They're you know, they have some e commerce business,

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Speaker 3: they have some bank business, but mainly they're the just

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Speaker 3: you know, order something just like Amazon and have a

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Speaker 3: deliberty your home. And I believe Macarter Libre is selling

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Speaker 3: it around twenty three hundred. I think it's going to

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Speaker 3: go up to about four thousand.

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Speaker 4: Next year and a half.

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Speaker 2: So for clients that you deal with, it may be

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Speaker 2: a little more inclined to be conservative. If you had

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Speaker 2: to look at the bond market right now, are you

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Speaker 2: finding opportunity and if so, at what part of the curve?

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Speaker 3: Well, I'm looking at anything that is double B and

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Speaker 3: single B rated. I'm a little bit more of a

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Speaker 3: risk taker in terms of total return on bonds. But

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Speaker 3: I really like the BBC market, the business development company market,

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Speaker 3: and the senior rate floating note market. But my favorite

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Speaker 3: investments right now are utilities. I love utility stouts.

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Speaker 2: ED will leave it there, Thank you so very much

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Speaker 2: for joining us. Ed Butowski is managing partner at Chapwood Investments.

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Speaker 2: He joined us on the line from just outside Dallas,

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Speaker 2: Texas here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia podcast, Time dig Chrisner. We're seeing small

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Speaker 2: gains in equity trading in both Seul and Sydney this morning,

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Speaker 2: and Japan is back online after that national holiday and

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Speaker 2: this week's election in the Upper House. Investors are also

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Speaker 2: keeping a close eye on any thing TARAF for related

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Speaker 2: ahead of that August first deadline imposed by President Trump.

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Speaker 2: For a closer look at market action, we heard from

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Speaker 2: Sean Darby. He is managing director at Misahouse Securities Asia.

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Speaker 2: Sean spoke with Bloomberg TV host Sherry On and Paul

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Speaker 2: Allen on the Asia trade.

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Speaker 5: Sean, I want to start you off if I can,

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Speaker 5: with some of the reaction to what we're seeing in Japan.

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Speaker 5: I mean, we're back trading for the first time since

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Speaker 5: the election. How do you approach Japanese assets at the moment?

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Speaker 4: You know, we've got.

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Speaker 5: Uncharacteristic inflation, tariff uncertainty, and now political uncertainty as well.

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Speaker 5: What's your approach here?

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Speaker 6: Well, I think for the whole of North Asia, they're

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Speaker 6: still under this cloud of not having yet agreed a

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Speaker 6: trade deal, so it's still very difficult really to sort

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Speaker 6: of see any sort of bright light rightlining for these

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Speaker 6: equity markets. I think for Japan in particular, I think

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Speaker 6: Ishibasan had wanted to get a trade deal with that

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Speaker 6: he could have gone to the public and recognize the

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Speaker 6: fact that a lot of the uncertainty had been removed,

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Speaker 6: and then you would been able to see the central

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Speaker 6: back go back and start to raise rates to quell

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Speaker 6: some of the inflation. So unfortunately they're still in this

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Speaker 6: sort of vicious cycle in which there's no trade deal,

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Speaker 6: inflation continues to rise, and that's making the population unhappy.

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Speaker 6: So I guess in the short term he's going to

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Speaker 6: have to make perhaps some concessions in terms of tax

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Speaker 6: relief to again provide some stimulus to the economy and

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Speaker 6: then hope that there's a trade deal in the background

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Speaker 6: that can be signed for him to perhaps go back

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Speaker 6: and seek a.

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Speaker 4: Second second election.

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Speaker 6: So he's still in that spiral in which the trade

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Speaker 6: deals really is the core issued in terms of being

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Speaker 6: able to go back to the public and hopefully get

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Speaker 6: a better election outcome than perhaps the one that's just happened.

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Speaker 5: Well, Bloomberg, as you may have heard, has been speaking

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Speaker 5: to Kyle Bass of Fayman Capital and he's long head

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Speaker 5: views on Japan. He said some views on the yen

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Speaker 5: as well.

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Speaker 4: Let's take a quick.

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Speaker 7: Listen Japanese sovereign debt to GDPs north of two hundred

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Speaker 7: and sixty percent. It's kind of the world's most interesting

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Speaker 7: debt laboratory. I think they're in a precarious position, ie

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Speaker 7: they either have to let their currency go or their

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Speaker 7: bomb market go, and they'll never let their bomb market go.

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Speaker 7: So I would be aware of the en into the future.

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Speaker 5: So Sean with that in mind, what's your view on

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Speaker 5: where the floor could.

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Speaker 4: Be for the en?

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Speaker 6: Well, I'm not necessarily the currency expert for Mizuho, but

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Speaker 6: I would slightly take issue with mister Bass's comments on

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Speaker 6: the instability of Japan's bomb market. I think you have

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Speaker 6: to look at the other side of the balance sheet,

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Speaker 6: and Japan has been running record current account surplaces. It's

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Speaker 6: saving surplaces are huge, and there's no difficulty in Japan

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Speaker 6: being able to finance its debt, so that I think

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Speaker 6: is not an issue for Japan, nor necessarily the yen. Yes,

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Speaker 6: Japan's got a large debt to GDP ratio, but it's

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Speaker 6: all that debt is in yen, and they're running very,

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Speaker 6: very large saving surblaces. I think at the end of

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Speaker 6: last year the current account was the largest in history

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Speaker 6: for Japan as well as for China. So I think

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Speaker 6: in the short term, I think markets are probably not

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Speaker 6: going to be that.

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Speaker 4: Concerned with the level of debt.

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Speaker 6: I think what really matters in Japan at the moment

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Speaker 6: is getting the inflation normalized and getting essentially the central

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Speaker 6: bank being able to start to use monetary policy again

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Speaker 6: to ecquell some of that inflation. So I'm less concerned

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Speaker 6: than mister Bass on the outcome for the en and

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Speaker 6: for Japan's debt markets.

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Speaker 1: I think we have really been focusing on the debt

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Speaker 1: markets just because of the performance of previous auctions when

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Speaker 1: it comes to the ultra long here in Japan, right,

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Speaker 1: I mean, we have seen the vog perhaps pulling back

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Speaker 1: some of those reductions of purchases that we've seen. The

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Speaker 1: Finance Ministry has been talking about the auctions as well.

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Speaker 1: When it comes to these yields that continue to surge

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Speaker 1: in the long end to two decade highs at one

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Speaker 1: point become a problem for the stock market, that's a

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Speaker 1: good question.

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Speaker 6: I think at the moment it's less has been less

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Speaker 6: of an issue for the Japanese equity market, principally because

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Speaker 6: real interest rates, both at the short end and to

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Speaker 6: some extent at the long end if you look at

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Speaker 6: inflation swaps have been negative. So with real rates negative,

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Speaker 6: you tend to find that equity markets tend to be

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Speaker 6: well supported. So the move in yields has not come

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Speaker 6: about with such a vicious force that it's created a

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Speaker 6: downward spiral in asset markets as you would have seen

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Speaker 6: perhaps in Europe in twenty eleven or in the UK

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Speaker 6: bomb markets a couple of years ago, so so fast,

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Speaker 6: you haven't had that spillover effect harming Japanese equities. You

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Speaker 6: also have to bear in mind that there's a lot

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Speaker 6: of companies or a lot of financials in Japan that

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Speaker 6: tend to benefit from a steepening of the yield curve.

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Speaker 6: And again, Japan has quite a large weighting of banks

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Speaker 6: in its in disease, which means that again it's not

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Speaker 6: adversely hit by by higher long term rates.

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Speaker 4: So provided real rates remain.

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Speaker 6: Relatively negative where we are at the moment, I'm not

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Speaker 6: so sure we're going to get the very bad spillover

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Speaker 6: effects harming Japanese equities or North Asian equities in the

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Speaker 6: same manner.

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Speaker 1: Also, I yeaes Sean is a period of time right

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Speaker 1: now when we're seeing the stock markets look for any

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Speaker 1: excuse to continue its trajectory upwards. Right we do have

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Speaker 1: earning season in the mix. We are going to get

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Speaker 1: the lights of tech giants reporting alphabet this week as

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Speaker 1: well when it comes to that semiconductor cycle. When it

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Speaker 1: comes to that tech cycle here in Asia. How durable

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Speaker 1: has it been and can it continue to be this resilient.

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Speaker 4: That's a really good question.

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Speaker 6: I think the way I would look at it at

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Speaker 6: the moment is that ironically the over or One Big

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Speaker 6: Beautiful Bill Act that mister Trump got signed off a

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Speaker 6: couple of a week or so ago actually encouraged a

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Speaker 6: front loading of investment, particularly into data centers and also

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Speaker 6: into tech equipment. He's allowed purchases of equipment to write

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Speaker 6: that off within one year or depreciate it by one

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Speaker 6: hundred percent. That's an enormous as incentive to go out

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Speaker 6: and spend on tech equipment, everything from servers all the

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Speaker 6: way down.

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Speaker 4: To PC peripherals.

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Speaker 6: So ironically, for Asia, we're going to get an added

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Speaker 6: boost from those measures coming through. And as I said,

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Speaker 6: I think it's going to be still relatively good news

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Speaker 6: for the tech industry in Taiwan and career and certainly

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Speaker 6: when we've looked at the PMI for Taiwan for electronics,

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Speaker 6: it's remained in a expansion phase for the best part

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Speaker 6: of this year, and as well as backlog of orders

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Speaker 6: as well have.

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Speaker 4: Also remained firm.

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Speaker 6: So I don't think we're going to see any bad

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Speaker 6: earnings numbers necessarily from the US TECH or from Asia

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Speaker 6: TECH for the next or so.

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Speaker 5: Sure, I just want to get your views on what

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Speaker 5: we're seeing in the commodity space as well. We've got

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Speaker 5: iron ore right now the most active traded contract, and

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Speaker 5: Singapore copper's hovering around a two year high, and silver

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Speaker 5: has been the quiet bolt of the year as well.

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Speaker 5: How sustainable for some of.

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Speaker 6: These gains, that's also good question. I think the commodity

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Speaker 6: equity class has been very under owned.

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Speaker 4: It's been a very.

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Speaker 6: Big underperformer after the big booster from post COVID. From

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Speaker 6: my perspective, the whole electricity and grid electrification theme is

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Speaker 6: going to underwrite the copper and aluminium metal prices, and

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Speaker 6: certainly the evidence that we're seeing from the build out

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Speaker 6: of the dam in Tibet as well as also the

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Speaker 6: infrastructure that's going on in the United States for nuclear

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Speaker 6: power is going to be very very bullish for those

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Speaker 6: copper and aluminium metal prices. But overall, if you look

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Speaker 6: at the commodity indices should be actually doing a lot

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Speaker 6: better if it were not for the weakness in oil prices.

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Speaker 6: Food prices remain very elevated compared to where we've been

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Speaker 6: in history, and as I've alluded to in the metal markets,

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Speaker 6: the fiscal stimulus that's come through from the United States

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Speaker 6: and in China over the last twelve months is going

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Speaker 6: to be very bullish for fixed acid investment. So I

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Speaker 6: would expect with the week the week dollar and fiscal

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Speaker 6: expenditure that metal prices can hold their gains and probably

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Speaker 6: do pretty well for the rest of the year.

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Speaker 7: Yeah.

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Speaker 1: The Bloomberg Commandery Index up for three consecutive weeks. Alrighty,

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Speaker 1: Sean d Army. Always good to have you with us,

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Speaker 1: Managing Director at Mizuho Securities Asia.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg