1
00:00:02,480 --> 00:00:06,800
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

2
00:00:09,640 --> 00:00:12,840
Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

3
00:00:12,920 --> 00:00:15,400
Speaker 2: You can join Brian Curtis and myself for the stories,

4
00:00:15,440 --> 00:00:18,560
Speaker 2: making news and moving markets in the Apac region. You

5
00:00:18,600 --> 00:00:21,439
Speaker 2: can subscribe to the show anywhere you get your podcast

6
00:00:21,520 --> 00:00:24,919
Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

7
00:00:24,920 --> 00:00:26,080
Speaker 2: Bloomberg Business App.

8
00:00:27,240 --> 00:00:31,280
Speaker 3: Joining us now, Christy tan Apak, investment strategists at Franklin

9
00:00:31,360 --> 00:00:36,000
Speaker 3: Templeton Institute. Christy, thank you for joining us. Well, this

10
00:00:36,040 --> 00:00:38,560
Speaker 3: is a time where there's been so much focus on

11
00:00:39,200 --> 00:00:42,559
Speaker 3: equity markets and the record highs we've seen in global

12
00:00:42,600 --> 00:00:45,280
Speaker 3: markets and the AI theme that it's kind of stolen

13
00:00:45,320 --> 00:00:49,080
Speaker 3: the thunder a little bit from bond markets. It's like

14
00:00:49,159 --> 00:00:52,120
Speaker 3: the Fed and how many rate cuts this year used

15
00:00:52,159 --> 00:00:54,400
Speaker 3: to be a daily discussion point a little bit less.

16
00:00:54,440 --> 00:00:57,680
Speaker 3: So now I'm curious on how you're responding to this

17
00:00:58,080 --> 00:01:01,800
Speaker 3: and what you think about the current economic backdrop in

18
00:01:01,880 --> 00:01:02,960
Speaker 3: global markets.

19
00:01:03,720 --> 00:01:07,520
Speaker 4: Hi, good morning or good evening. We are we are

20
00:01:07,560 --> 00:01:12,160
Speaker 4: definitely looking at you know, standing at the junction of pivots,

21
00:01:12,240 --> 00:01:14,920
Speaker 4: and we're not just talking about one or two, but

22
00:01:15,120 --> 00:01:19,959
Speaker 4: multiple pivots and that's related to US FED, US macro

23
00:01:20,080 --> 00:01:25,400
Speaker 4: data politics, China, and of course Japan's progress beyond corporate

24
00:01:25,440 --> 00:01:28,480
Speaker 4: reforms as well. So let me just get through this

25
00:01:29,080 --> 00:01:31,759
Speaker 4: a little bit. So the FATS just pivoted from three

26
00:01:31,840 --> 00:01:36,720
Speaker 4: rate cards to one, and I think what investors should

27
00:01:36,760 --> 00:01:39,839
Speaker 4: be looking at is beyond that, so beyond this year,

28
00:01:40,720 --> 00:01:45,000
Speaker 4: and we're looking at the similar endgame where the FAT is.

29
00:01:45,440 --> 00:01:48,480
Speaker 4: The dot plot is suggesting a three point one percent

30
00:01:48,960 --> 00:01:52,040
Speaker 4: FED funds rate at the end of twenty twenty six.

31
00:01:52,360 --> 00:01:57,640
Speaker 4: So this probably dovetails with the expectations that inflation will

32
00:01:57,640 --> 00:02:01,440
Speaker 4: only taper to US two percent in twenty twenty six,

33
00:02:01,800 --> 00:02:07,640
Speaker 4: and I think it's understandable. Then, you know, the focus

34
00:02:08,000 --> 00:02:13,080
Speaker 4: is probably more on the near term events, and that

35
00:02:13,639 --> 00:02:17,560
Speaker 4: is related to the US elections that's upcoming, and then

36
00:02:18,080 --> 00:02:20,600
Speaker 4: for the rest of the world, I think we do

37
00:02:21,120 --> 00:02:24,520
Speaker 4: think that, you know, China is currently taking steps to

38
00:02:24,600 --> 00:02:29,040
Speaker 4: close the distance between investor confidence and also macro recovery

39
00:02:29,480 --> 00:02:34,919
Speaker 4: and the other well thematic and hot topics that are

40
00:02:35,240 --> 00:02:39,400
Speaker 4: definitely gaining quite a bit of traction with investors outside

41
00:02:39,440 --> 00:02:43,600
Speaker 4: of the US. Is also Japan, which is navigating the

42
00:02:43,639 --> 00:02:48,480
Speaker 4: economy towards the positive real wages and that is one

43
00:02:48,560 --> 00:02:52,880
Speaker 4: of the conditions for the bullish prospects for Japanese equities

44
00:02:53,160 --> 00:02:53,920
Speaker 4: to sustain.

45
00:02:54,520 --> 00:02:56,280
Speaker 5: So in light of.

46
00:02:56,160 --> 00:02:59,840
Speaker 4: All these pivots, and we are right at the junction

47
00:03:00,080 --> 00:03:04,600
Speaker 4: of this, you know you can we would like to actually,

48
00:03:04,919 --> 00:03:11,840
Speaker 4: you know, look at investments that will deliver growth overvalue,

49
00:03:12,160 --> 00:03:14,840
Speaker 4: and we are looking at also, I think in the

50
00:03:14,880 --> 00:03:21,320
Speaker 4: equity space quality in terms of techka just broad ai.

51
00:03:21,760 --> 00:03:25,800
Speaker 2: So Christy, you're normally based in Singapore, but I imagine

52
00:03:25,840 --> 00:03:28,600
Speaker 2: you're in Tokyo talking to people. I'd like to get

53
00:03:28,639 --> 00:03:30,440
Speaker 2: your view on what you're seeing in Japan. That we

54
00:03:30,600 --> 00:03:32,600
Speaker 2: just had the inflation data up two and a half

55
00:03:32,680 --> 00:03:35,800
Speaker 2: percent in the core CPI. That was a little below

56
00:03:35,880 --> 00:03:38,560
Speaker 2: the mark in terms of what the market was expecting.

57
00:03:39,320 --> 00:03:42,000
Speaker 2: The equity market we know in Japan has been doing

58
00:03:42,120 --> 00:03:44,080
Speaker 2: very very well. I think the problem right now in

59
00:03:44,160 --> 00:03:46,960
Speaker 2: terms of policy has been with the persistent weakness of

60
00:03:47,000 --> 00:03:50,080
Speaker 2: the currency. You give me your assessmant assessment. What do

61
00:03:50,120 --> 00:03:52,640
Speaker 2: you see when you when you travel around Tokyo and

62
00:03:52,680 --> 00:03:53,320
Speaker 2: talk to people.

63
00:03:54,000 --> 00:03:57,800
Speaker 4: Yeah, so that's a great question because after talking to

64
00:03:58,440 --> 00:04:01,840
Speaker 4: you know, people in I think that the yen, of

65
00:04:01,880 --> 00:04:04,720
Speaker 4: course is one of the key talking points. And if

66
00:04:04,720 --> 00:04:07,400
Speaker 4: you look at the relationship between dot A yen and

67
00:04:07,560 --> 00:04:10,800
Speaker 4: the interest rate differentials with the US, we have already

68
00:04:10,840 --> 00:04:14,320
Speaker 4: observed some narrowing of these interest rate differentials given that

69
00:04:14,440 --> 00:04:20,160
Speaker 4: Japan's exhibited the zero interest negative interesting policy. So going forward,

70
00:04:20,600 --> 00:04:24,400
Speaker 4: we do see that the prospect of the Japanese yen

71
00:04:24,480 --> 00:04:29,440
Speaker 4: to strengthen has actually grown and the yen is significantly

72
00:04:29,480 --> 00:04:34,720
Speaker 4: undervalue relative to history, and one of the key drivers

73
00:04:35,160 --> 00:04:39,920
Speaker 4: will probably be the upward momentum in the Japanese equities

74
00:04:40,000 --> 00:04:43,040
Speaker 4: and also continue influws now.

75
00:04:43,279 --> 00:04:47,039
Speaker 3: Well, and maybe also if the BOJ takes another step

76
00:04:47,040 --> 00:04:49,839
Speaker 3: in normalizing. You know this reading that we got on

77
00:04:49,920 --> 00:04:52,800
Speaker 3: inflation today, while it was a little under the estimate,

78
00:04:52,920 --> 00:04:56,159
Speaker 3: was still pretty hot and also above the two percent

79
00:04:56,160 --> 00:04:58,680
Speaker 3: target for the twenty sixth month. I mean, you would

80
00:04:58,760 --> 00:05:01,279
Speaker 3: think that you're in a place now where the BOJ

81
00:05:01,440 --> 00:05:04,680
Speaker 3: can normalize and that could help the currency.

82
00:05:05,640 --> 00:05:08,560
Speaker 4: Well, that is where the pivot comes in, and I

83
00:05:08,600 --> 00:05:14,440
Speaker 4: think the BOJ will still be inclined to keep policy

84
00:05:14,600 --> 00:05:19,040
Speaker 4: accommodative at this point in time, and that is also

85
00:05:19,440 --> 00:05:24,560
Speaker 4: having a positive impact on Japanese equities. So I would

86
00:05:24,640 --> 00:05:28,760
Speaker 4: think that the yen's strength of recovery will have to

87
00:05:28,880 --> 00:05:34,440
Speaker 4: be will manifest when foreign investors are actually increasing their

88
00:05:34,480 --> 00:05:38,680
Speaker 4: allocation into Japanese assets and Japanese equities, and not just that.

89
00:05:38,800 --> 00:05:42,520
Speaker 4: I think we need the local confidence coming out of

90
00:05:42,640 --> 00:05:48,000
Speaker 4: three decades of deflation to adjust to that structurally. And

91
00:05:48,240 --> 00:05:51,680
Speaker 4: we see a boost in consumer spending and corporate investments

92
00:05:51,760 --> 00:05:57,920
Speaker 4: and business confidence, that will create a tailwind for earnings,

93
00:05:57,960 --> 00:06:02,120
Speaker 4: for consummer spending, and at the you know, at the

94
00:06:02,200 --> 00:06:04,320
Speaker 4: end of it, I think the yen strength will be

95
00:06:04,360 --> 00:06:05,440
Speaker 4: a derivative of all that.

96
00:06:05,760 --> 00:06:09,920
Speaker 2: So Brian started by mentioning this trend and artificial intelligence.

97
00:06:10,160 --> 00:06:13,159
Speaker 2: It's the semiconductor story. We know, well, what's happening with

98
00:06:13,640 --> 00:06:16,240
Speaker 2: in video? What has happened? How do you see the

99
00:06:16,279 --> 00:06:19,960
Speaker 2: AI story playing out in Japan right now? Particularly among

100
00:06:19,960 --> 00:06:21,320
Speaker 2: the chip makers there.

101
00:06:22,200 --> 00:06:28,479
Speaker 4: Well, things that are I think earning expectations have been

102
00:06:28,640 --> 00:06:32,400
Speaker 4: very strong, and I think a large part of that

103
00:06:32,720 --> 00:06:35,719
Speaker 4: has contributed and a large part of the positive surprise

104
00:06:35,800 --> 00:06:39,440
Speaker 4: on earnings expectations that whether or not that will sustain,

105
00:06:39,520 --> 00:06:44,000
Speaker 4: I think that now is getting questionable. But I think

106
00:06:44,040 --> 00:06:47,920
Speaker 4: the digital transformation is definitely happening. So if we look

107
00:06:48,080 --> 00:06:53,600
Speaker 4: beyond just the Magnificent seven, there are there are companies

108
00:06:54,120 --> 00:06:58,680
Speaker 4: that you know will classify them as productivity enablers, will

109
00:06:58,680 --> 00:07:03,640
Speaker 4: classify them as enterprise tech. So companies that are having

110
00:07:03,680 --> 00:07:07,400
Speaker 4: a long runway in this technology and digital transformation journey,

111
00:07:07,920 --> 00:07:11,480
Speaker 4: and we think that they are, they're still value in

112
00:07:11,600 --> 00:07:15,440
Speaker 4: those companies and you know, a lot of opportunities in

113
00:07:15,480 --> 00:07:16,080
Speaker 4: that space.

114
00:07:16,640 --> 00:07:20,400
Speaker 3: Yeah. I started off by asking about the macro because

115
00:07:20,440 --> 00:07:22,920
Speaker 3: I wanted to see what you felt about, you know,

116
00:07:23,040 --> 00:07:26,720
Speaker 3: generally a globe global growth and you did. Actually in

117
00:07:27,480 --> 00:07:30,840
Speaker 3: your first answer there get to US equities where you

118
00:07:30,880 --> 00:07:32,920
Speaker 3: talked about quality. And the reason I bring it up

119
00:07:32,960 --> 00:07:35,880
Speaker 3: now is because you've just been talking about AI. Actually

120
00:07:35,880 --> 00:07:39,360
Speaker 3: those mag seven companies are sort of in that quality area,

121
00:07:39,480 --> 00:07:43,960
Speaker 3: right because you're talking about strong earnings, upward push in earnings,

122
00:07:44,400 --> 00:07:48,480
Speaker 3: good balance sheets, plenty of cash on hand. So it's

123
00:07:48,480 --> 00:07:50,680
Speaker 3: a dilemma that's where the quality is. You say, go

124
00:07:50,800 --> 00:07:52,920
Speaker 3: for quality? Do you want to go for them?

125
00:07:54,000 --> 00:07:56,320
Speaker 4: Well, if you look at the SMB five hundred is

126
00:07:56,640 --> 00:08:01,000
Speaker 4: five hundred stocks that probably over one hundred of them

127
00:08:01,240 --> 00:08:05,520
Speaker 4: are trading at you know, ten to forty percent below

128
00:08:05,600 --> 00:08:11,240
Speaker 4: the fifty two weeks average. So I think you know, broadly,

129
00:08:11,680 --> 00:08:14,720
Speaker 4: tech is such a broad term. But if you look

130
00:08:14,760 --> 00:08:19,720
Speaker 4: at you know, our earnings expectations from our latest global

131
00:08:19,760 --> 00:08:22,920
Speaker 4: Investment management survey is that we are pretty realistic in

132
00:08:23,000 --> 00:08:27,800
Speaker 4: expecting earnings to be around seven point four seven to

133
00:08:27,880 --> 00:08:32,080
Speaker 4: eight percent for this year, whereas market is probably over optimistic.

134
00:08:32,920 --> 00:08:35,800
Speaker 3: Okay, Christy, thank you for joining us. Christy Tan Asia

135
00:08:35,800 --> 00:08:48,120
Speaker 3: Pacific Investment Strategist Franklin, Templeton Institute. Selena Link, chief economist

136
00:08:48,200 --> 00:08:53,320
Speaker 3: and head of Global Markets Research and Strategy at OCBC. Well,

137
00:08:53,400 --> 00:08:56,560
Speaker 3: it's very interesting line here in your notes you say

138
00:08:56,600 --> 00:09:00,360
Speaker 3: that financial markets you're still calling the fed's bluff point.

139
00:09:01,840 --> 00:09:04,360
Speaker 5: Okay. Basically you've seen from the dogs plot, you know,

140
00:09:04,400 --> 00:09:07,280
Speaker 5: the FAT has gone from earlier pricing in you know,

141
00:09:07,400 --> 00:09:10,040
Speaker 5: three cuts this year to just one cut. But if

142
00:09:10,080 --> 00:09:12,079
Speaker 5: you look at the FAT funds futures, you know they're

143
00:09:12,120 --> 00:09:15,199
Speaker 5: still basically pricing in two cuts starting from around September.

144
00:09:15,600 --> 00:09:17,920
Speaker 5: And our house view also remains that, you know, two

145
00:09:18,000 --> 00:09:21,040
Speaker 5: cuts are likely this year mainly because we see economic

146
00:09:21,120 --> 00:09:24,160
Speaker 5: data actually softening. So if you look at the April

147
00:09:24,200 --> 00:09:27,240
Speaker 5: and March inflation data, so whether it's called PC deflator

148
00:09:27,360 --> 00:09:29,680
Speaker 5: or the CPI or the PPI, they have been softening

149
00:09:29,720 --> 00:09:32,760
Speaker 5: in recent prints and we also did get a fairly

150
00:09:32,800 --> 00:09:35,480
Speaker 5: weak retail sales number, so that does suggest that the

151
00:09:35,520 --> 00:09:37,880
Speaker 5: window is actually opening up for the FAT to cut rates.

152
00:09:38,640 --> 00:09:41,720
Speaker 5: And although they have only you know, put in one

153
00:09:41,760 --> 00:09:44,280
Speaker 5: cut this year, but generally, if you look out at

154
00:09:44,320 --> 00:09:46,839
Speaker 5: their dogs plot for twenty twenty five and twenty twenty

155
00:09:46,880 --> 00:09:49,480
Speaker 5: six cummult relatively, you know they're still looking at four

156
00:09:49,720 --> 00:09:53,240
Speaker 5: cuts per year. So in total you're still looking at

157
00:09:53,320 --> 00:09:56,640
Speaker 5: two and twenty five basis points. That means no change

158
00:09:57,080 --> 00:09:59,280
Speaker 5: in the total amount of cuts that the FAT is

159
00:09:59,600 --> 00:10:03,240
Speaker 5: seeing over you know, the two plus year horizon. So

160
00:10:03,320 --> 00:10:05,920
Speaker 5: although they have pushed by the timing, but generally, you know,

161
00:10:06,040 --> 00:10:08,600
Speaker 5: market things that you know it will come probably sooner

162
00:10:08,679 --> 00:10:09,360
Speaker 5: rather than later.

163
00:10:09,720 --> 00:10:11,680
Speaker 2: So, Lena, when you look at the rate of change

164
00:10:11,679 --> 00:10:14,400
Speaker 2: in the data and how it's softening, do you think

165
00:10:14,480 --> 00:10:16,920
Speaker 2: there's some urgency now that the FED needs to pay

166
00:10:16,960 --> 00:10:21,000
Speaker 2: attention to if it wants to be successful in engineering

167
00:10:21,000 --> 00:10:21,800
Speaker 2: a soft landing.

168
00:10:23,679 --> 00:10:26,360
Speaker 5: I don't think that the data suggests that there is

169
00:10:26,400 --> 00:10:29,160
Speaker 5: an urgency for them to move. I think, if anything,

170
00:10:29,760 --> 00:10:31,640
Speaker 5: you know, basically they are just keeping the option on

171
00:10:31,640 --> 00:10:34,080
Speaker 5: the table, but they are very much data dependent. So

172
00:10:34,120 --> 00:10:36,439
Speaker 5: if you recall earlier this year. In the first quarter,

173
00:10:36,520 --> 00:10:40,360
Speaker 5: we basically had a string of fairly strong data both

174
00:10:40,360 --> 00:10:42,600
Speaker 5: from the libor market side and also on the infliction side,

175
00:10:42,600 --> 00:10:45,200
Speaker 5: which is why they had you postpone the timing of

176
00:10:45,240 --> 00:10:48,000
Speaker 5: the rate cuts. I think we will probably need another

177
00:10:48,320 --> 00:10:52,760
Speaker 5: one to you know, possibly three months worth of softer

178
00:10:52,960 --> 00:10:57,280
Speaker 5: data before they feel the urgency to cut weights. So

179
00:10:57,320 --> 00:10:59,240
Speaker 5: we're kind of like in a holding pattern right now,

180
00:10:59,280 --> 00:11:03,000
Speaker 5: and it because reflected in the treasury bond market performance.

181
00:11:03,800 --> 00:11:06,079
Speaker 3: I know the macro is very important and everybody is

182
00:11:06,160 --> 00:11:09,240
Speaker 3: curious about when we might see rate cuts. But up

183
00:11:09,320 --> 00:11:12,000
Speaker 3: until very recently, until the end of the earning season,

184
00:11:12,040 --> 00:11:15,120
Speaker 3: the earnings were really kind of driving the bus, and

185
00:11:15,240 --> 00:11:17,760
Speaker 3: AI was a big part of that. And we saw

186
00:11:17,800 --> 00:11:20,680
Speaker 3: a little bit of a sell off today Nvidia and

187
00:11:20,760 --> 00:11:22,680
Speaker 3: broad Calm down more than three and a half percent

188
00:11:22,760 --> 00:11:25,280
Speaker 3: reach of them, and the Nastak one hundred was down.

189
00:11:25,559 --> 00:11:27,960
Speaker 3: And I made the point earlier just that the market

190
00:11:28,000 --> 00:11:30,160
Speaker 3: is finding ways to let a little bit of steam

191
00:11:30,720 --> 00:11:33,720
Speaker 3: out of the marketplace without causing a broad sell off.

192
00:11:33,960 --> 00:11:36,000
Speaker 3: Do you see a broad sell off coming in some

193
00:11:36,040 --> 00:11:38,720
Speaker 3: sort of correction or do you think we continue to

194
00:11:38,800 --> 00:11:41,160
Speaker 3: just sort of take two steps forward and one step back.

195
00:11:42,760 --> 00:11:44,880
Speaker 5: I would lean towards the two steps forward and one

196
00:11:44,880 --> 00:11:47,400
Speaker 5: step back. I mean, risk, appetite and market sentiments have

197
00:11:47,480 --> 00:11:50,480
Speaker 5: been very resilient for the year to date and a

198
00:11:50,520 --> 00:11:53,160
Speaker 5: lot of that is predicated in office on the story

199
00:11:53,240 --> 00:11:57,079
Speaker 5: that we're getting a global soft lending narrative taking route.

200
00:11:57,080 --> 00:11:59,320
Speaker 5: And then secondly, you know that RAE cuts are still

201
00:11:59,360 --> 00:12:01,679
Speaker 5: on the horizon and at least for the FED, and

202
00:12:01,720 --> 00:12:03,640
Speaker 5: in fact we just had the SMB cut for the

203
00:12:03,640 --> 00:12:06,280
Speaker 5: second meeting in a role so apart from that, we

204
00:12:06,320 --> 00:12:09,120
Speaker 5: also had the Bank of England recently, even though the

205
00:12:09,240 --> 00:12:11,719
Speaker 5: cap raids unchanged. But I think the signals going a

206
00:12:11,760 --> 00:12:14,960
Speaker 5: hit is fairly dubbish, so Marker is trying to angle

207
00:12:15,000 --> 00:12:18,600
Speaker 5: for August cut. So I think the expectations is that

208
00:12:18,640 --> 00:12:22,920
Speaker 5: the global monetary policy easing cycle will start, probably in

209
00:12:22,960 --> 00:12:24,760
Speaker 5: fits and starts and not depending on which band you're

210
00:12:24,760 --> 00:12:27,560
Speaker 5: talking about. Sure, well, essentially it's on the horizon.

211
00:12:27,720 --> 00:12:29,840
Speaker 2: I'm sorry about that, Selenda. A short while ago we

212
00:12:29,920 --> 00:12:33,920
Speaker 2: learned that core consumer prices in Japan rosen may at

213
00:12:33,920 --> 00:12:35,960
Speaker 2: an annual rate of around two and a half percent.

214
00:12:36,040 --> 00:12:39,480
Speaker 2: I think this brings into sharp focus the need for

215
00:12:39,559 --> 00:12:42,200
Speaker 2: the BOJ to act. Maybe as soon as July. Do

216
00:12:42,240 --> 00:12:43,439
Speaker 2: you think that's likely.

217
00:12:45,120 --> 00:12:47,920
Speaker 5: Well, the BOG has been quite clear about the policy

218
00:12:47,960 --> 00:12:52,160
Speaker 5: normalization path, so they really started on the initial or

219
00:12:52,240 --> 00:12:55,720
Speaker 5: rate high. I think going forward, the market expectations and

220
00:12:55,760 --> 00:12:57,880
Speaker 5: the market pressure obviously is there because of the new

221
00:12:57,960 --> 00:13:00,000
Speaker 5: differential story against the US. I mean, just look at

222
00:13:00,080 --> 00:13:02,880
Speaker 5: where dollar yen is trading right now. So I think

223
00:13:02,920 --> 00:13:06,840
Speaker 5: the houseview really is that they will probably continue to

224
00:13:07,440 --> 00:13:10,600
Speaker 5: hide rates. In fact, we see at least another twenty

225
00:13:10,920 --> 00:13:15,560
Speaker 5: basis points minimally on rate heights on the near term,

226
00:13:16,040 --> 00:13:18,439
Speaker 5: so it is very likely as long as the inflation

227
00:13:18,559 --> 00:13:22,720
Speaker 5: data remains supportive, they will probably want to narrow the

228
00:13:22,760 --> 00:13:24,120
Speaker 5: hew differential with the rest of the wall.

229
00:13:25,080 --> 00:13:27,800
Speaker 3: I'm interested in your thoughts of the US adding Japan

230
00:13:27,880 --> 00:13:32,800
Speaker 3: to the monitoring list for FX practice. It did stop

231
00:13:32,840 --> 00:13:36,920
Speaker 3: short of calling Japan a currency manipulator, But for somebody

232
00:13:36,960 --> 00:13:40,080
Speaker 3: who doesn't really watch the FX markets really closely, they

233
00:13:40,160 --> 00:13:42,880
Speaker 3: might be a little curious as to what sort of

234
00:13:43,880 --> 00:13:48,000
Speaker 3: practice they would be unhappy with because you've had this

235
00:13:48,559 --> 00:13:51,839
Speaker 3: very gradual weakening. But then you also hear that the

236
00:13:51,840 --> 00:13:54,200
Speaker 3: BOJ wants to kind of come in. Perhaps or not

237
00:13:54,240 --> 00:13:56,760
Speaker 3: the BOG, but the Ministry finance might come in around

238
00:13:56,800 --> 00:14:00,280
Speaker 3: one six years, So are they intervening to the or

239
00:14:00,320 --> 00:14:01,600
Speaker 3: to the short side for the end?

240
00:14:03,800 --> 00:14:07,160
Speaker 5: Well, I mean if you look at the Treasury Department's

241
00:14:07,440 --> 00:14:10,760
Speaker 5: Effects Monitoring report, I would say that over the years,

242
00:14:11,240 --> 00:14:14,360
Speaker 5: the amount of importance that the financial markets have attached

243
00:14:14,360 --> 00:14:18,160
Speaker 5: to it have kind of subsided a little bit. So

244
00:14:18,280 --> 00:14:20,560
Speaker 5: while there is interest on who is on the list

245
00:14:20,720 --> 00:14:25,240
Speaker 5: and for what reasons, I think effectively there is no

246
00:14:25,480 --> 00:14:29,480
Speaker 5: real economic impact in a sense that there is no

247
00:14:29,600 --> 00:14:32,240
Speaker 5: real measures that will be undertaken against some of these countries.

248
00:14:32,240 --> 00:14:35,560
Speaker 5: But it's really very much a more medium term you know,

249
00:14:35,600 --> 00:14:37,960
Speaker 5: we are looking at you kind of a policy angle,

250
00:14:38,560 --> 00:14:40,720
Speaker 5: so I suspect that, you know, you may have some

251
00:14:40,840 --> 00:14:44,280
Speaker 5: ned reactions in the short term, but over the longer term,

252
00:14:44,480 --> 00:14:49,360
Speaker 5: short of falling into the currency manipulated list, Apart from that,

253
00:14:49,440 --> 00:14:52,680
Speaker 5: I think there would be very very little actual, you know,

254
00:14:52,880 --> 00:14:56,480
Speaker 5: real implications. That's not to say that there won't be

255
00:14:56,560 --> 00:15:00,360
Speaker 5: pressure I think on the Japanese policy makers, you know,

256
00:15:00,400 --> 00:15:03,640
Speaker 5: to try and ring in some of the excessive moves

257
00:15:03,640 --> 00:15:04,920
Speaker 5: in the short term. But I mean, if you look

258
00:15:04,960 --> 00:15:07,160
Speaker 5: at what is happening to the end, a lot of

259
00:15:07,240 --> 00:15:11,040
Speaker 5: it is just simply due to yield differentials. Yeah, they

260
00:15:11,080 --> 00:15:13,640
Speaker 5: are setting from a very very low interest rate base

261
00:15:13,680 --> 00:15:15,840
Speaker 5: when the rest of the world have been on this

262
00:15:15,960 --> 00:15:18,560
Speaker 5: aggressive rate high cycle over the last couple of years,

263
00:15:18,760 --> 00:15:21,880
Speaker 5: and they are actually trying to normalize policy, although it's

264
00:15:22,000 --> 00:15:23,360
Speaker 5: very much baby steps at the moment.

265
00:15:23,480 --> 00:15:27,360
Speaker 2: Yeah, King dollar two, given those yields. Right before we

266
00:15:27,440 --> 00:15:29,520
Speaker 2: let you go, Selena, let's talk a little bit about

267
00:15:29,560 --> 00:15:32,920
Speaker 2: what you're seeing in China. Yesterday, the loan prime rates,

268
00:15:33,120 --> 00:15:35,760
Speaker 2: both the one year and the five year left unchanged.

269
00:15:35,920 --> 00:15:38,200
Speaker 2: Do you think that was a prudent move? Does China

270
00:15:38,280 --> 00:15:41,760
Speaker 2: need to see maybe easier credit conditions still?

271
00:15:43,280 --> 00:15:45,720
Speaker 5: I think China has a lot of cards on the

272
00:15:45,720 --> 00:15:48,040
Speaker 5: table right now, a lot of challenges, you know, whether

273
00:15:48,040 --> 00:15:52,960
Speaker 5: it's the housing market or the credit market, et cetera.

274
00:15:53,680 --> 00:15:55,600
Speaker 5: It's not a surprise that they kept the loan prime

275
00:15:55,680 --> 00:15:59,040
Speaker 5: rates unchanged, but I think the general policy signals is

276
00:15:59,080 --> 00:16:02,680
Speaker 5: that they are still trying to provide holistic support to

277
00:16:02,760 --> 00:16:06,080
Speaker 5: the Chinese economy. I think their term, the pressure will

278
00:16:06,080 --> 00:16:08,480
Speaker 5: still be on the reming pee, mainly because of the

279
00:16:08,520 --> 00:16:12,880
Speaker 5: current interest rate differentials, which obviously favor King Dollar. As

280
00:16:12,880 --> 00:16:15,080
Speaker 5: long as the fat remains reluctant to cut rates soon,

281
00:16:15,200 --> 00:16:19,920
Speaker 5: and all Chinese interest rates also look fairly modest compared

282
00:16:19,960 --> 00:16:22,160
Speaker 5: to the US. So for now, the current stability that

283
00:16:22,160 --> 00:16:24,400
Speaker 5: we see in the Rimming pee basically reflects the Chinese

284
00:16:24,520 --> 00:16:28,000
Speaker 5: Central Bank's preference for affects stability. But that also means

285
00:16:28,000 --> 00:16:30,680
Speaker 5: that the reming bee may actually join the Japanese and

286
00:16:30,720 --> 00:16:33,560
Speaker 5: as a funding currency if we see this situation persisting.

287
00:16:34,040 --> 00:16:38,360
Speaker 5: So whether they want to prioritize exchange rates stability or deflation,

288
00:16:38,480 --> 00:16:40,800
Speaker 5: I think that's the key challenge dilemma going ahead.

289
00:16:41,000 --> 00:16:43,480
Speaker 3: Selena, thanks very much for joining us here on the program.

290
00:16:43,600 --> 00:16:46,840
Speaker 3: Selena Ling, chief economist and head of Global Markets Research

291
00:16:47,240 --> 00:16:56,480
Speaker 3: and Strategy. A lot of hats they're at OCBC. We

292
00:16:56,480 --> 00:16:58,840
Speaker 3: take a closer look at markets now with Mary Nicola,

293
00:16:58,880 --> 00:17:03,920
Speaker 3: Bloomberg m Lives Strategists with us in our Singapore studios. Mary,

294
00:17:04,040 --> 00:17:07,240
Speaker 3: it's been an interesting year in equity market so far,

295
00:17:08,000 --> 00:17:11,320
Speaker 3: but a tale of two quarters. In the first quarter

296
00:17:11,480 --> 00:17:14,600
Speaker 3: it paid to be diversified. You not only had gains

297
00:17:14,640 --> 00:17:18,080
Speaker 3: in technology, but you had a notable broadening in the market,

298
00:17:18,080 --> 00:17:22,800
Speaker 3: Industrials and materials and other sectors doing pretty well. In

299
00:17:23,000 --> 00:17:27,520
Speaker 3: Q two, it's been mainly the AI breadwinners companies like

300
00:17:27,640 --> 00:17:33,480
Speaker 3: Nvidia and TSMC and ASML and Broadcom. But the gains

301
00:17:33,480 --> 00:17:36,919
Speaker 3: have been so dramatic that one thinks that perhaps, now

302
00:17:37,040 --> 00:17:39,720
Speaker 3: you know, we might be right for another broadening. I

303
00:17:39,720 --> 00:17:41,399
Speaker 3: don't know if you see it that way, But how

304
00:17:41,440 --> 00:17:43,200
Speaker 3: are you looking at markets and the trends.

305
00:17:42,960 --> 00:17:43,440
Speaker 5: At the moment?

306
00:17:44,119 --> 00:17:48,720
Speaker 1: Yeah, I think also we're approaching into quarter ends, so

307
00:17:48,840 --> 00:17:50,800
Speaker 1: you could see a little bit of profit taking to

308
00:17:50,960 --> 00:17:53,520
Speaker 1: come through, especially because it looks like there's been a

309
00:17:53,520 --> 00:17:56,440
Speaker 1: little bit of frothiness in the market, so of course

310
00:17:56,480 --> 00:17:58,560
Speaker 1: people are going to want to take some bring in

311
00:17:58,760 --> 00:18:01,360
Speaker 1: lock in some of those gains. So I think it's

312
00:18:01,480 --> 00:18:04,480
Speaker 1: hard to really consider what the trend is from now

313
00:18:04,520 --> 00:18:09,560
Speaker 1: to month end, and really how we head into and

314
00:18:09,600 --> 00:18:12,879
Speaker 1: the start of Q three will be absolutely crucial in

315
00:18:12,960 --> 00:18:15,720
Speaker 1: terms of saying where is the trajectory. But so far

316
00:18:15,880 --> 00:18:19,840
Speaker 1: it looks like there's still a strong tailwind for equities.

317
00:18:20,560 --> 00:18:23,879
Speaker 2: It's first day of summer in the Northern Hemisphere today Thursday.

318
00:18:24,240 --> 00:18:26,640
Speaker 2: I'm looking at the foreign exchange market and I'm thinking

319
00:18:26,640 --> 00:18:28,480
Speaker 2: where do I want to go on vacation. Is it

320
00:18:28,560 --> 00:18:31,400
Speaker 2: Europe or is it Japan? I mean, you know, it's unbelievable.

321
00:18:31,440 --> 00:18:33,399
Speaker 2: Right now, we're talking about a yen that's flirting with

322
00:18:33,440 --> 00:18:38,080
Speaker 2: one sixty. How problematic is this for the BOJ right now?

323
00:18:38,119 --> 00:18:40,639
Speaker 2: Do you think there's a cential urgency in Japan that

324
00:18:40,640 --> 00:18:41,679
Speaker 2: they've got to do something?

325
00:18:43,000 --> 00:18:45,760
Speaker 1: I mean, as with king dollar, you do have a

326
00:18:45,800 --> 00:18:48,440
Speaker 1: litany of choices whether you put the end or the euro,

327
00:18:48,880 --> 00:18:51,840
Speaker 1: so it's on your side. But at the same time,

328
00:18:52,640 --> 00:18:56,119
Speaker 1: the BOJ is still backed into a corner because at

329
00:18:56,119 --> 00:18:57,679
Speaker 1: the end of the day, the dollar is going to

330
00:18:57,680 --> 00:19:02,440
Speaker 1: remain strong. The US Fed officials continue to double down

331
00:19:02,720 --> 00:19:05,000
Speaker 1: on the fact that they're going to be patient when

332
00:19:05,000 --> 00:19:08,119
Speaker 1: it comes to when it comes to the easing cycle.

333
00:19:08,440 --> 00:19:11,320
Speaker 1: That doesn't put the BOJ in a very that puts

334
00:19:11,320 --> 00:19:15,359
Speaker 1: the BOJ in difficult position, especially since their recent meeting.

335
00:19:15,400 --> 00:19:20,280
Speaker 1: They just kicked the tightening cycle down the road, leaving

336
00:19:20,880 --> 00:19:24,520
Speaker 1: investors very disappointed in the fact that they didn't announce

337
00:19:24,560 --> 00:19:27,680
Speaker 1: anything on the tightening of the balance sheet. So obviously

338
00:19:27,720 --> 00:19:32,160
Speaker 1: you're going to see a move higher towards one sixty,

339
00:19:33,000 --> 00:19:35,720
Speaker 1: and that doesn't look unreasonable at the way this is,

340
00:19:36,000 --> 00:19:38,560
Speaker 1: at the way the dollar strength is going, so the

341
00:19:38,560 --> 00:19:40,560
Speaker 1: pressure is still going to be on the end. But

342
00:19:40,680 --> 00:19:43,800
Speaker 1: this time, this volatility is a little bit subdued, which

343
00:19:43,880 --> 00:19:46,520
Speaker 1: suggests that there is no real urgency for them to

344
00:19:46,560 --> 00:19:47,040
Speaker 1: step in.

345
00:19:48,080 --> 00:19:52,160
Speaker 3: I've draw some comparisons between the BOJ and the FED

346
00:19:52,359 --> 00:19:55,520
Speaker 3: in that they're both pretty conservative, it seems, and the

347
00:19:55,520 --> 00:19:59,080
Speaker 3: BOJ is is conservative from the aspect that it wants

348
00:19:59,080 --> 00:20:01,960
Speaker 3: to normalize, but it's just finding it difficult to really

349
00:20:01,960 --> 00:20:05,119
Speaker 3: pull the trigger and going the other direction. For the FED,

350
00:20:05,760 --> 00:20:07,920
Speaker 3: it wants to cut, but you know, it's just sort

351
00:20:07,960 --> 00:20:12,560
Speaker 3: of stuck in neutral. Which of the two do you

352
00:20:12,600 --> 00:20:13,679
Speaker 3: see moving first?

353
00:20:14,440 --> 00:20:17,440
Speaker 1: Well, it's all about inflation, right, and it's all about

354
00:20:17,480 --> 00:20:21,440
Speaker 1: the sustainability of inflation. One wants to see inflation sustainably

355
00:20:21,920 --> 00:20:25,840
Speaker 1: above two percent, and for Japan and for the US,

356
00:20:25,880 --> 00:20:29,679
Speaker 1: they want to see inflation heading towards declining towards that

357
00:20:29,720 --> 00:20:32,760
Speaker 1: two percent target. So there is that dichotomy where one

358
00:20:32,800 --> 00:20:35,199
Speaker 1: is dealing with high inflation and wants to see a

359
00:20:35,240 --> 00:20:40,920
Speaker 1: persistent move towards their target. So essentially it will come

360
00:20:40,960 --> 00:20:45,240
Speaker 1: down to Japan, we'll have to start normalizing. I think

361
00:20:45,280 --> 00:20:49,280
Speaker 1: there's especially because they're moving towards two percent. Yes, if

362
00:20:49,280 --> 00:20:52,280
Speaker 1: you look at core core inflation, which is inflation x

363
00:20:52,320 --> 00:20:55,760
Speaker 1: food and energy, it was around two percent. It was

364
00:20:55,840 --> 00:20:58,480
Speaker 1: just above two point one percent. It doesn't bode well

365
00:20:58,520 --> 00:21:02,000
Speaker 1: when it's looking like it's slipping, but at the end

366
00:21:02,040 --> 00:21:04,560
Speaker 1: of the day, you're still near that target, which suggests

367
00:21:04,560 --> 00:21:09,240
Speaker 1: that you should start taking your foot off that accelerator

368
00:21:09,320 --> 00:21:12,160
Speaker 1: that you've had on for so long. So my guess

369
00:21:12,160 --> 00:21:14,119
Speaker 1: would be that Japan would have to start first.

370
00:21:14,440 --> 00:21:17,320
Speaker 2: We just heard a conversation that the team on Bloomberg

371
00:21:17,359 --> 00:21:21,560
Speaker 2: Surveillance had with Torsten Slock of Apollo, and he's not

372
00:21:21,600 --> 00:21:23,919
Speaker 2: expecting any FED rate cuts this year. Do you think

373
00:21:23,960 --> 00:21:27,679
Speaker 2: that's a possibility. I mean that that growth remains so

374
00:21:27,880 --> 00:21:30,719
Speaker 2: strong that there's no reason for the FED to consider

375
00:21:30,800 --> 00:21:33,040
Speaker 2: lowering interest rates at.

376
00:21:32,880 --> 00:21:35,679
Speaker 1: The rate that at the rate that a lot of

377
00:21:35,720 --> 00:21:39,280
Speaker 1: the data is showing, it doesn't suggest that there's an urgency.

378
00:21:39,640 --> 00:21:41,880
Speaker 1: At the same time, if you look at some financial

379
00:21:41,880 --> 00:21:45,840
Speaker 1: conditions index, financial conditions are loose enough that it doesn't

380
00:21:45,880 --> 00:21:49,360
Speaker 1: warrant that urgency for the FED to cut. So there's

381
00:21:49,400 --> 00:21:51,400
Speaker 1: a little bit of both. And then and of course

382
00:21:51,440 --> 00:21:54,159
Speaker 1: you're seeing some pockets of weakness with the US economy,

383
00:21:54,400 --> 00:21:57,600
Speaker 1: and of course that's to be expected because of obviously

384
00:21:57,640 --> 00:22:00,920
Speaker 1: there's going to be some effect that's coming through from

385
00:22:01,000 --> 00:22:04,879
Speaker 1: higher for longer. But you're also seeing the resilience of

386
00:22:04,920 --> 00:22:08,439
Speaker 1: the US economy, especially in comparison to other parts of

387
00:22:08,480 --> 00:22:11,640
Speaker 1: the world, whether it's the Eurozone or the UK. It's

388
00:22:11,680 --> 00:22:14,960
Speaker 1: still that the US is holding up relatively well, which

389
00:22:15,160 --> 00:22:18,760
Speaker 1: also it doesn't bode well for the FED to start

390
00:22:18,800 --> 00:22:22,440
Speaker 1: cutting and then having to reverse, especially when we saw

391
00:22:22,480 --> 00:22:26,320
Speaker 1: already that the inflation trajectory was actually heading lower and

392
00:22:26,359 --> 00:22:28,520
Speaker 1: then it came back up. So they do want to

393
00:22:28,560 --> 00:22:31,400
Speaker 1: see that inflation is heading in the right direction before

394
00:22:31,480 --> 00:22:32,280
Speaker 1: they start easing.

395
00:22:32,920 --> 00:22:35,040
Speaker 3: Is there a trend you see in markets that's not

396
00:22:35,080 --> 00:22:37,600
Speaker 3: getting too much attention but that you find interesting.

397
00:22:39,400 --> 00:22:43,200
Speaker 1: Oh, I think the key thing that you know, especially

398
00:22:43,359 --> 00:22:45,800
Speaker 1: in this part of the world, is just what's happening

399
00:22:45,800 --> 00:22:50,680
Speaker 1: with the CNY. Obviously it's getting more attention when there's

400
00:22:50,760 --> 00:22:53,640
Speaker 1: more things happening with the CNY, but we're going to

401
00:22:53,680 --> 00:22:58,000
Speaker 1: see that continued drift in CNY weakness, and that's going

402
00:22:58,040 --> 00:23:02,440
Speaker 1: to be ongoing, like because of the fact that there

403
00:23:03,760 --> 00:23:06,720
Speaker 1: is that Greek differential that's going to continue to weigh

404
00:23:06,720 --> 00:23:09,880
Speaker 1: on the yuan, but also on the premise of they

405
00:23:10,160 --> 00:23:13,840
Speaker 1: still need a weaker currency to support their economy.

406
00:23:14,119 --> 00:23:17,359
Speaker 3: Yeah, just not two week, which is something that comes

407
00:23:17,440 --> 00:23:21,000
Speaker 3: up a lot because they are waiting really probably for

408
00:23:21,080 --> 00:23:22,879
Speaker 3: the Fed to cut interest rates before they can do

409
00:23:22,960 --> 00:23:25,280
Speaker 3: more on the interest rate front. Mary, thanks for joining us.

410
00:23:25,320 --> 00:23:27,520
Speaker 3: Mary Nicola, Bloomberg Mlarve Strategist.

411
00:23:30,320 --> 00:23:33,240
Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you

412
00:23:33,320 --> 00:23:36,400
Speaker 2: the stories making news and moving markets in the Asia Pacific.

413
00:23:36,920 --> 00:23:40,040
Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more

414
00:23:40,080 --> 00:23:43,679
Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

415
00:23:43,720 --> 00:23:47,480
Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen,

416
00:23:47,600 --> 00:23:50,720
Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

417
00:23:50,720 --> 00:23:51,800
Speaker 2: Bloomberg Business app