1
00:00:02,520 --> 00:00:07,040
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:11,039 --> 00:00:14,040
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast time Dog Prisner.

3
00:00:14,320 --> 00:00:17,360
Speaker 2: The town in markets across the Asia Pacific is somewhat

4
00:00:17,440 --> 00:00:20,800
Speaker 2: subdued in early trading. This is after record highs on

5
00:00:20,840 --> 00:00:23,080
Speaker 2: Wall Street. In a moment or two, we'll get to

6
00:00:23,079 --> 00:00:25,799
Speaker 2: Tokyo and get the views of Robert tipp He is

7
00:00:25,880 --> 00:00:29,160
Speaker 2: the chief investment strategist at Pigum. But we begin here

8
00:00:29,160 --> 00:00:32,480
Speaker 2: in the States, where US job growth was far less

9
00:00:32,600 --> 00:00:36,440
Speaker 2: robust in the year through March than previously reported. Here's

10
00:00:36,440 --> 00:00:37,760
Speaker 2: Bloomberg's Michael McKee.

11
00:00:37,800 --> 00:00:40,640
Speaker 3: There were nine hundred and eleven thousand fewer jobs in

12
00:00:40,680 --> 00:00:43,720
Speaker 3: America in March of last year, and that's for the

13
00:00:43,760 --> 00:00:46,920
Speaker 3: twelve months that go back from there to April of

14
00:00:47,000 --> 00:00:49,839
Speaker 3: twenty twenty four. Does it mean a lot, Well, it

15
00:00:49,880 --> 00:00:53,800
Speaker 3: would mean something if it really stayed that way. We

16
00:00:53,840 --> 00:00:57,680
Speaker 3: do anticipate some additional changes to it before we get

17
00:00:57,680 --> 00:01:00,840
Speaker 3: to the release of it in January, the final release

18
00:01:00,880 --> 00:01:01,640
Speaker 3: in January.

19
00:01:01,760 --> 00:01:05,000
Speaker 2: Now, beyond the issue of a slowing labor market, markets

20
00:01:05,040 --> 00:01:08,040
Speaker 2: in the States are gearing up for some key inflation data.

21
00:01:08,080 --> 00:01:12,399
Speaker 2: Wednesday the reading on producer prices, and then Thursday it's

22
00:01:12,440 --> 00:01:15,280
Speaker 2: the CPI Report. Joining us now for a closer look

23
00:01:15,760 --> 00:01:18,640
Speaker 2: is Zachary Hill. He is head of portfolio management at

24
00:01:18,680 --> 00:01:21,759
Speaker 2: Horizon Investments. Zach, thank you so much for making time

25
00:01:21,800 --> 00:01:23,760
Speaker 2: to chat with me. Let me get your take on

26
00:01:23,800 --> 00:01:26,959
Speaker 2: this BLS revision. That seems pretty drastic. I think, a

27
00:01:27,080 --> 00:01:27,880
Speaker 2: record revision.

28
00:01:28,600 --> 00:01:30,360
Speaker 4: Yeah, Doug, great to be with you. I mean, it

29
00:01:30,440 --> 00:01:33,399
Speaker 4: is a record preliminary revision, and on the face of it,

30
00:01:33,520 --> 00:01:37,840
Speaker 4: a very ugly looking number. I will say a couple

31
00:01:37,880 --> 00:01:40,240
Speaker 4: of caveats. I mean, one, it's very hard to measure

32
00:01:40,280 --> 00:01:42,959
Speaker 4: these data in real time, and so these numbers do

33
00:01:43,000 --> 00:01:45,160
Speaker 4: get revised quite a lot, and this is not the

34
00:01:45,280 --> 00:01:48,800
Speaker 4: last time these numbers will be revised, you know. The

35
00:01:48,800 --> 00:01:51,440
Speaker 4: second thing, I think, for markets, the rate of change

36
00:01:51,440 --> 00:01:54,680
Speaker 4: in job growth and things like the overall unemployment rate

37
00:01:55,040 --> 00:01:57,240
Speaker 4: matter a lot more than the level, and this was

38
00:01:57,240 --> 00:01:59,880
Speaker 4: a revision to the level, and so, you know, I

39
00:02:00,240 --> 00:02:02,320
Speaker 4: think the fact that we had a muted reaction in

40
00:02:02,440 --> 00:02:05,320
Speaker 4: markets today, you know, speaks to some of that. And

41
00:02:05,360 --> 00:02:07,320
Speaker 4: then the last thing I would say is, you know,

42
00:02:07,360 --> 00:02:10,520
Speaker 4: the period that this covered, in terms of you know,

43
00:02:10,520 --> 00:02:14,120
Speaker 4: what we had for economic growth, personal consumption averaged almost

44
00:02:14,120 --> 00:02:17,600
Speaker 4: three percent over those twelve months, and so you know,

45
00:02:17,600 --> 00:02:19,560
Speaker 4: it's hard to say, despite the fact that the number

46
00:02:19,560 --> 00:02:22,960
Speaker 4: looked fairly bad, that this materially changes our view of

47
00:02:23,000 --> 00:02:24,359
Speaker 4: the economy as we sit here today.

48
00:02:24,440 --> 00:02:26,360
Speaker 2: So what do you think it does to change the

49
00:02:26,440 --> 00:02:27,760
Speaker 2: FEDS thinking, if at all.

50
00:02:28,720 --> 00:02:30,120
Speaker 4: I don't really think this is going to change the

51
00:02:30,120 --> 00:02:33,360
Speaker 4: FEDS thinking that much. You know, Governor Waller has been

52
00:02:33,400 --> 00:02:37,400
Speaker 4: talking about expected revisions as a rationale for rate cuts

53
00:02:38,040 --> 00:02:40,280
Speaker 4: for months now, and so you know, I don't think

54
00:02:40,320 --> 00:02:42,840
Speaker 4: this is going to change the Fed's view. You know,

55
00:02:42,919 --> 00:02:46,799
Speaker 4: twenty five feels like a lock next week and then

56
00:02:46,880 --> 00:02:48,800
Speaker 4: you know, we'll see where we go from there, and

57
00:02:48,840 --> 00:02:51,000
Speaker 4: the market, you know, it is kind of coalescing around

58
00:02:51,000 --> 00:02:53,160
Speaker 4: the idea that we get back to neutral about three

59
00:02:53,200 --> 00:02:56,040
Speaker 4: percent pretty quickly with a series of twenty five bases

60
00:02:56,080 --> 00:02:59,880
Speaker 4: point rate cuts. You know, we'll see if the Fed

61
00:03:00,040 --> 00:03:02,160
Speaker 4: shares that view when they give us their dot plot projection.

62
00:03:02,320 --> 00:03:04,880
Speaker 2: Yeah, and I'm wondering whether the August price data could

63
00:03:04,880 --> 00:03:08,280
Speaker 2: in any way rattle those expectations even slightly. I mean,

64
00:03:08,400 --> 00:03:13,720
Speaker 2: PPI tomorrow, CPI on Thursday. Sticky inflation could dim the

65
00:03:13,760 --> 00:03:17,240
Speaker 2: outlook for rate cuts in October and December. Perhaps don't

66
00:03:17,240 --> 00:03:17,640
Speaker 2: you think.

67
00:03:18,960 --> 00:03:20,040
Speaker 5: I think that's right, Doug.

68
00:03:20,120 --> 00:03:21,960
Speaker 4: I mean, you know, there's been a lot of talk

69
00:03:22,000 --> 00:03:24,480
Speaker 4: about the labor market over the last couple of weeks

70
00:03:24,480 --> 00:03:29,160
Speaker 4: and it being you know, extraordinarily weak. I think we're

71
00:03:29,160 --> 00:03:32,400
Speaker 4: in a situation where the labor market has weakened and

72
00:03:32,639 --> 00:03:36,320
Speaker 4: it's more balanced between whether they're concerned about inflation or

73
00:03:36,320 --> 00:03:39,400
Speaker 4: they're concerned about growth. You know, the the inflation rate

74
00:03:39,440 --> 00:03:41,760
Speaker 4: has been above the FEDS target for four and a

75
00:03:41,800 --> 00:03:44,520
Speaker 4: half years now, so it's really hard to say that

76
00:03:44,560 --> 00:03:47,760
Speaker 4: they have a single focus on just jobs as we

77
00:03:47,800 --> 00:03:51,360
Speaker 4: sit here today, especially as we have a potential looming

78
00:03:51,400 --> 00:03:54,440
Speaker 4: price increase coming from tariffs. We've seen a little bit

79
00:03:54,480 --> 00:03:56,680
Speaker 4: of signs of that in the data, but by no

80
00:03:56,800 --> 00:04:00,560
Speaker 4: means a broad, you know, widespread increase, and so that's

81
00:04:00,560 --> 00:04:01,760
Speaker 4: something I think that the Fed is going to be

82
00:04:01,800 --> 00:04:04,760
Speaker 4: watching as we get data you know, coming in in

83
00:04:04,960 --> 00:04:07,200
Speaker 4: the next few days on inflation, and then just over

84
00:04:07,200 --> 00:04:10,080
Speaker 4: the next few months too, because this has certainly been

85
00:04:10,200 --> 00:04:14,400
Speaker 4: a very prolonged cycle of kind of boiling the frog

86
00:04:14,600 --> 00:04:16,200
Speaker 4: on tariff price increases.

87
00:04:16,480 --> 00:04:18,760
Speaker 2: But so does it surprise you in any way that

88
00:04:18,800 --> 00:04:21,240
Speaker 2: the equity market is trading at records? I mean, not

89
00:04:21,360 --> 00:04:23,880
Speaker 2: just the S and P, NASDAC, COMP, DOU even today

90
00:04:23,880 --> 00:04:25,279
Speaker 2: at a record high.

91
00:04:25,360 --> 00:04:25,600
Speaker 1: Yeah.

92
00:04:25,600 --> 00:04:27,480
Speaker 4: I mean this is a conversation we have with our

93
00:04:27,520 --> 00:04:30,240
Speaker 4: clients all the time. You know, the equity market is

94
00:04:30,279 --> 00:04:33,840
Speaker 4: not the same thing as the economy, and you know,

95
00:04:33,880 --> 00:04:36,040
Speaker 4: the equity market just does tend to be forward looking.

96
00:04:36,120 --> 00:04:40,239
Speaker 4: And despite all of you know, the slowing job growth

97
00:04:40,400 --> 00:04:43,200
Speaker 4: and you know, the concerns around inflation, corporate America has

98
00:04:43,240 --> 00:04:46,800
Speaker 4: really been able to deliver earning's power, especially if your

99
00:04:46,839 --> 00:04:50,040
Speaker 4: geared towards tech and AI and increasingly, you know, the

100
00:04:50,080 --> 00:04:53,360
Speaker 4: S and P five hundred is concentrated in those types

101
00:04:53,400 --> 00:04:55,520
Speaker 4: of stocks, and there's been you know, outside of a

102
00:04:55,520 --> 00:04:58,080
Speaker 4: few weeks in March and April, have been really powering

103
00:04:58,200 --> 00:05:01,599
Speaker 4: us higher, you know, throughout this time, and so you

104
00:05:01,600 --> 00:05:03,159
Speaker 4: know that I think that is something that we will

105
00:05:03,520 --> 00:05:07,560
Speaker 4: likely see continue, you know, And so that's that's how

106
00:05:07,560 --> 00:05:10,080
Speaker 4: we're thinking about kind of that disconnect between the market

107
00:05:10,120 --> 00:05:12,360
Speaker 4: and you know, what we see on the economy.

108
00:05:12,520 --> 00:05:14,960
Speaker 2: So, speaking of AI, after the bell, we heard from

109
00:05:14,960 --> 00:05:19,159
Speaker 2: Oracle the company with a significant increase in bookings and

110
00:05:19,160 --> 00:05:22,480
Speaker 2: and a very aggressive outlook in terms of cloud infrastructure.

111
00:05:22,480 --> 00:05:24,599
Speaker 2: The stock was up by more than twenty six percent

112
00:05:24,640 --> 00:05:28,240
Speaker 2: in late trading. But when I look at the many futures,

113
00:05:28,279 --> 00:05:29,880
Speaker 2: not just for the S and P, for for the

114
00:05:30,000 --> 00:05:32,600
Speaker 2: Nasdaq one hundred, I mean we're up only a tenth

115
00:05:32,600 --> 00:05:35,920
Speaker 2: of one percent. Tell me how you think Oracle fits

116
00:05:35,960 --> 00:05:39,159
Speaker 2: into this story on AI and whether it's a maybe

117
00:05:39,160 --> 00:05:40,640
Speaker 2: a reliable indicator or not.

118
00:05:41,760 --> 00:05:43,680
Speaker 4: Yeah, I mean, I think you know, as we said here,

119
00:05:44,240 --> 00:05:45,920
Speaker 4: you know, we've been talking about AI for a couple

120
00:05:45,960 --> 00:05:48,640
Speaker 4: of years now, and for a long time it was

121
00:05:48,680 --> 00:05:51,200
Speaker 4: just kind of a blanket by across you know, the

122
00:05:51,360 --> 00:05:53,760
Speaker 4: entirety of the space. And I do think we're starting

123
00:05:53,800 --> 00:05:55,640
Speaker 4: to get to the point where we're getting a little

124
00:05:55,640 --> 00:05:59,560
Speaker 4: more differentiation between names and different you know, sectors and

125
00:05:59,640 --> 00:06:02,320
Speaker 4: business lines. You know, we're not at a broad based

126
00:06:02,720 --> 00:06:06,960
Speaker 4: idea of what the monetization plan looks like, but there

127
00:06:06,960 --> 00:06:10,160
Speaker 4: certainly are some companies, you know that are that are

128
00:06:10,160 --> 00:06:13,279
Speaker 4: generating the material mount of revenue based on you know,

129
00:06:13,320 --> 00:06:15,480
Speaker 4: the trends that we've seen in tech spending and cap

130
00:06:15,680 --> 00:06:19,240
Speaker 4: X and you know, from the results that we saw, uh,

131
00:06:19,360 --> 00:06:21,760
Speaker 4: you know, after the bell today and certainly the stock reaction,

132
00:06:22,480 --> 00:06:24,400
Speaker 4: Oracle appears to be one of them. At the moment,

133
00:06:25,080 --> 00:06:27,279
Speaker 4: you know, we'll see if that spreads to the broader market.

134
00:06:27,600 --> 00:06:30,479
Speaker 4: And you know, the caveat being this is after hours

135
00:06:30,480 --> 00:06:32,800
Speaker 4: price action, and we do want to wait for the

136
00:06:32,800 --> 00:06:35,280
Speaker 4: cash open tomorrow to get a better sense for what

137
00:06:35,320 --> 00:06:36,400
Speaker 4: the market is truly.

138
00:06:36,160 --> 00:06:38,760
Speaker 2: Think you that said, I think we can agree that

139
00:06:38,800 --> 00:06:41,280
Speaker 2: there has been powerful momentum, maybe a little bit of

140
00:06:41,360 --> 00:06:45,239
Speaker 2: volatility here, but it hasn't been extreme in in equity trading.

141
00:06:45,600 --> 00:06:48,000
Speaker 2: And I was struck by the fact that today JP

142
00:06:48,120 --> 00:06:51,160
Speaker 2: Morgan Chase said that its third quarter trading revenue could

143
00:06:51,160 --> 00:06:54,800
Speaker 2: climb by a percentage in the high teens, well above

144
00:06:55,000 --> 00:06:57,799
Speaker 2: what the street was looking for, something around eight percent.

145
00:06:58,640 --> 00:07:02,440
Speaker 2: So you look at the potential revenue creation that this

146
00:07:02,560 --> 00:07:05,120
Speaker 2: market is creating for some of the investment houses, some

147
00:07:05,160 --> 00:07:07,760
Speaker 2: of the investment banks. Do you want to be exposed

148
00:07:07,839 --> 00:07:09,840
Speaker 2: right now to banks or is that a cycle that

149
00:07:09,920 --> 00:07:12,880
Speaker 2: maybe has already passed us, No, Doug, That's.

150
00:07:12,720 --> 00:07:14,480
Speaker 4: An area the market that we've liked all year and

151
00:07:14,520 --> 00:07:17,200
Speaker 4: we continue to like. You know, we've talked a lot

152
00:07:17,240 --> 00:07:20,640
Speaker 4: about deregulation, and that's an that's a part of the

153
00:07:20,640 --> 00:07:25,400
Speaker 4: market where we're actually seeing deregulations start to show signs.

154
00:07:26,200 --> 00:07:29,400
Speaker 4: A small bank merger and an approval of a merger

155
00:07:29,480 --> 00:07:32,800
Speaker 4: that had a regulatory overhang and the prior administration or too.

156
00:07:33,000 --> 00:07:36,000
Speaker 4: Just concrete things you can point to that that are

157
00:07:36,120 --> 00:07:39,720
Speaker 4: a tailwind to the financial sector in general, into into

158
00:07:39,760 --> 00:07:43,480
Speaker 4: banks specifically, not to mention the deeper curve, and as

159
00:07:43,520 --> 00:07:46,880
Speaker 4: you said, the fact that capital markets are are certainly open,

160
00:07:47,320 --> 00:07:51,720
Speaker 4: and you know banks that have large investment banking franchises

161
00:07:51,880 --> 00:07:53,320
Speaker 4: are going to reap the benefits from that.

162
00:07:53,400 --> 00:07:56,280
Speaker 2: I'm wondering if you're looking at anything in the fintech space.

163
00:07:56,360 --> 00:07:59,200
Speaker 2: We have this Klarna I p o tomorrow. We're told

164
00:07:59,240 --> 00:08:01,800
Speaker 2: that it's priced to forty a share, that's above the

165
00:08:01,840 --> 00:08:05,840
Speaker 2: marketed range. This company kind of became popular during the

166
00:08:05,880 --> 00:08:09,000
Speaker 2: pandemic as a provider of those by now pay later

167
00:08:09,360 --> 00:08:11,960
Speaker 2: financing plans. Talk to me a little bit about the

168
00:08:12,000 --> 00:08:14,720
Speaker 2: fintech space and whether you take a flyer on a

169
00:08:14,760 --> 00:08:15,840
Speaker 2: company like Klarna.

170
00:08:16,560 --> 00:08:17,320
Speaker 5: Well, I'm not going to.

171
00:08:17,360 --> 00:08:20,760
Speaker 4: Talk specifically about about a single name like that, especially

172
00:08:20,760 --> 00:08:22,880
Speaker 4: one that's not even publicly traded at the moment, but

173
00:08:23,880 --> 00:08:26,280
Speaker 4: you know, I do think there are some interesting opportunities

174
00:08:26,840 --> 00:08:32,080
Speaker 4: in financial technology. Certainly, the regulatory landscape has been changing

175
00:08:32,160 --> 00:08:35,319
Speaker 4: quite dramatically there and you know, there's been a lot

176
00:08:35,360 --> 00:08:39,280
Speaker 4: of talk about potentially displacing the traditional banks, you know,

177
00:08:39,320 --> 00:08:41,320
Speaker 4: as we sit here today, and it's too early to

178
00:08:41,440 --> 00:08:44,000
Speaker 4: tell for sure, but from the looks of it, they're

179
00:08:44,080 --> 00:08:47,719
Speaker 4: using the existing rails you know, within the system, and

180
00:08:48,200 --> 00:08:51,880
Speaker 4: banks just kind of philosophically are our public private partnerships,

181
00:08:51,920 --> 00:08:54,600
Speaker 4: and so we do think, you know, that that position,

182
00:08:54,760 --> 00:08:58,120
Speaker 4: the dominant position within financial service is going to continue

183
00:08:58,200 --> 00:09:01,320
Speaker 4: to be in the existing channel. But you know, as

184
00:09:01,320 --> 00:09:03,840
Speaker 4: you said, there have been new product innovations and ones

185
00:09:03,880 --> 00:09:07,000
Speaker 4: that have become quite popular, both from you know, a

186
00:09:07,040 --> 00:09:10,880
Speaker 4: revenue perspective and potentially from a macroeconomic perspective, just the

187
00:09:10,960 --> 00:09:15,079
Speaker 4: rise of available credit on small purchases of something that

188
00:09:15,320 --> 00:09:17,199
Speaker 4: you know, we haven't had to think about until the

189
00:09:17,280 --> 00:09:17,959
Speaker 4: last few years.

190
00:09:18,160 --> 00:09:18,360
Speaker 6: Zach.

191
00:09:18,400 --> 00:09:19,800
Speaker 2: Before I let you go, I got to get your

192
00:09:19,840 --> 00:09:21,840
Speaker 2: take on the news that we had today where the

193
00:09:21,920 --> 00:09:24,600
Speaker 2: Supreme Court is going to be hearing arguments in early

194
00:09:24,679 --> 00:09:28,640
Speaker 2: November as to whether or not the bulk of those

195
00:09:28,720 --> 00:09:31,640
Speaker 2: tariffs are legal. What do you think the risk is

196
00:09:31,720 --> 00:09:34,119
Speaker 2: right now as this case gets litigated.

197
00:09:34,720 --> 00:09:37,280
Speaker 4: Yeah, Doug, this has been something that you know, it's

198
00:09:37,280 --> 00:09:39,760
Speaker 4: been a little bit off the market's radar, and that's fast,

199
00:09:39,840 --> 00:09:42,360
Speaker 4: quite frankly faster. I think that most people thought in

200
00:09:42,440 --> 00:09:46,120
Speaker 4: terms of accelerated timeline to hear this case. You know,

201
00:09:46,160 --> 00:09:52,000
Speaker 4: Broadly speaking, I think the expectations are that, you know,

202
00:09:52,080 --> 00:09:55,200
Speaker 4: the it's about a fifty to fifty between these tariffs

203
00:09:55,280 --> 00:09:59,240
Speaker 4: day or these go. You know, I'm not I don't

204
00:09:59,240 --> 00:10:01,600
Speaker 4: really have a wrong view on that. Either way, it

205
00:10:01,600 --> 00:10:03,800
Speaker 4: does seem that tariff policy is something that is going

206
00:10:03,840 --> 00:10:06,760
Speaker 4: to be around for a while, you know, one way

207
00:10:06,840 --> 00:10:08,560
Speaker 4: or the other. And so you know, there are plenty

208
00:10:08,559 --> 00:10:10,959
Speaker 4: of other levers that the administration can pull if the

209
00:10:11,000 --> 00:10:14,480
Speaker 4: Supreme Court does strike this down in November. You know,

210
00:10:14,480 --> 00:10:17,600
Speaker 4: there's been some chatter about, you know, in that event

211
00:10:17,679 --> 00:10:20,160
Speaker 4: where they have to refund companies, how would that work.

212
00:10:21,000 --> 00:10:23,120
Speaker 4: That's something that we'll work through if we get there.

213
00:10:23,840 --> 00:10:25,920
Speaker 4: But as we sit here today, you know, I think,

214
00:10:25,960 --> 00:10:28,600
Speaker 4: broadly speaking, the view on tariffs is they're going to

215
00:10:28,640 --> 00:10:31,000
Speaker 4: be around for a while. But companies have shown an

216
00:10:31,040 --> 00:10:34,400
Speaker 4: ability to manage through them, and you know, we'll have

217
00:10:34,440 --> 00:10:36,400
Speaker 4: to just see if that continues. We're watching the data

218
00:10:36,520 --> 00:10:40,400
Speaker 4: just like everybody else in this very fast and ever

219
00:10:40,520 --> 00:10:42,880
Speaker 4: changing kind of environment that we find ourselves.

220
00:10:43,120 --> 00:10:46,240
Speaker 2: No doubt about that. Zach Thank you so much. Zachary

221
00:10:46,320 --> 00:10:49,959
Speaker 2: Hill there. He is head of portfolio management at Horizon Investments.

222
00:10:50,000 --> 00:11:01,600
Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back

223
00:11:01,640 --> 00:11:05,120
Speaker 2: to the Daybreak Asia Podcast. I'm deg Krisner. The Japanese

224
00:11:05,200 --> 00:11:08,199
Speaker 2: yen was a little changed in early Asian trading after

225
00:11:08,280 --> 00:11:11,680
Speaker 2: some volatility during the New York session, and that followed

226
00:11:11,720 --> 00:11:14,559
Speaker 2: a report on the Bank of Japan possibly raising interest

227
00:11:14,640 --> 00:11:19,000
Speaker 2: rates again this year, regardless of the domestic political instability

228
00:11:19,000 --> 00:11:22,440
Speaker 2: in Japan. Now, the timing of this report will make

229
00:11:22,640 --> 00:11:26,320
Speaker 2: JGB traders a bit nervous about today's five year auction.

230
00:11:26,800 --> 00:11:28,880
Speaker 2: We got the views of Robert tip He is the

231
00:11:28,960 --> 00:11:32,520
Speaker 2: chief investment strategist and head of Global bonds at Pigium

232
00:11:32,600 --> 00:11:36,360
Speaker 2: Fixed Income. Robert spoke earlier with Bloomberg TV host Sherry

233
00:11:36,360 --> 00:11:39,079
Speaker 2: On and April Hong on the Asia trade.

234
00:11:39,480 --> 00:11:41,720
Speaker 1: Robert, really great to have you here in the Tokyo studio.

235
00:11:41,800 --> 00:11:43,960
Speaker 1: Let's talk a little bit first about the five year

236
00:11:44,000 --> 00:11:46,280
Speaker 1: auction here in Japan that we have. Of course today

237
00:11:46,320 --> 00:11:48,760
Speaker 1: we do have twenty and forty yachts coming up. What

238
00:11:48,880 --> 00:11:49,840
Speaker 1: will you be watching?

239
00:11:50,800 --> 00:11:52,800
Speaker 6: Yeah, I think the markets are going to be digesting

240
00:11:52,800 --> 00:11:55,080
Speaker 6: this news from the Bank of Japan. It feels like

241
00:11:55,480 --> 00:11:58,240
Speaker 6: the bank have just really convinced everyone they're looking at

242
00:11:58,320 --> 00:12:02,359
Speaker 6: underlying service inflation, which is running in the one percent area,

243
00:12:02,600 --> 00:12:05,280
Speaker 6: and you know, now they're coming out with the notion

244
00:12:05,400 --> 00:12:07,480
Speaker 6: of there could be a hike this year. So in

245
00:12:07,480 --> 00:12:10,200
Speaker 6: some sense that's a surprise in some sense, not the

246
00:12:10,240 --> 00:12:14,920
Speaker 6: inflation numbers, you know, a good portion of it, if

247
00:12:14,920 --> 00:12:19,199
Speaker 6: you don't strip out various factors, are well above target.

248
00:12:19,840 --> 00:12:23,199
Speaker 6: And the end is weekend. It's weekend, not just along

249
00:12:23,240 --> 00:12:26,920
Speaker 6: with other world currencies, but more then, and we're looking

250
00:12:26,920 --> 00:12:29,240
Speaker 6: at a move pushing ten percent. So I think it's

251
00:12:29,240 --> 00:12:32,080
Speaker 6: going to be you know, still an environment where JGB

252
00:12:32,200 --> 00:12:35,240
Speaker 6: yields are fishing for that level that really brings in

253
00:12:35,320 --> 00:12:36,000
Speaker 6: strong demand.

254
00:12:36,240 --> 00:12:39,439
Speaker 1: And it's really interesting the timing of these BOG officials comments, right,

255
00:12:39,480 --> 00:12:41,479
Speaker 1: given that, of course there's been a lot of speculation

256
00:12:41,520 --> 00:12:44,280
Speaker 1: that the BOG will have to really delay that great

257
00:12:44,400 --> 00:12:48,240
Speaker 1: hike given the political instability here, how do you factor

258
00:12:48,280 --> 00:12:52,720
Speaker 1: in those dynamics given that we do continue to say,

259
00:12:52,960 --> 00:12:55,400
Speaker 1: see those inflationary pressures also in place.

260
00:12:55,760 --> 00:12:57,920
Speaker 6: Right, I don't know that this is orchestrated, but in

261
00:12:57,920 --> 00:13:01,600
Speaker 6: some respects if I wanted to stabilize the as an

262
00:13:01,640 --> 00:13:05,640
Speaker 6: inflation driver. After seeing the revisions in US payrolls and

263
00:13:05,679 --> 00:13:08,200
Speaker 6: the weaker data, that would be a good time to

264
00:13:08,240 --> 00:13:15,400
Speaker 6: come in and point out the contradirectionality of the policies,

265
00:13:15,800 --> 00:13:20,120
Speaker 6: to highlight, Japanese rates are going up, US rates are

266
00:13:20,160 --> 00:13:24,760
Speaker 6: going down. You should have a Stabler Firmer Yen suggest

267
00:13:24,800 --> 00:13:25,560
Speaker 6: that to the market.

268
00:13:27,520 --> 00:13:31,040
Speaker 7: Robert, some of our strategers have highlighted though for the

269
00:13:31,080 --> 00:13:35,640
Speaker 7: markets to take the BOJ seriously on the potential rate hype,

270
00:13:35,679 --> 00:13:38,319
Speaker 7: maybe October, maybe December, they're going to have to keep

271
00:13:38,360 --> 00:13:41,959
Speaker 7: reiterating that how seriously are you taking the odds of

272
00:13:42,000 --> 00:13:42,800
Speaker 7: a BOJ hike?

273
00:13:45,120 --> 00:13:46,800
Speaker 6: Right Well, I think we're gonna have to watch and

274
00:13:46,880 --> 00:13:50,199
Speaker 6: see how the data goes and how the markets behaved,

275
00:13:50,200 --> 00:13:52,720
Speaker 6: because the fact of the matter is the services inflation

276
00:13:52,880 --> 00:13:57,280
Speaker 6: is quite low at a deep core level, and if

277
00:13:57,320 --> 00:14:01,800
Speaker 6: you have US rates drop thing and the end firming already,

278
00:14:02,480 --> 00:14:06,160
Speaker 6: then they may become concerned that the inflation outlook is

279
00:14:06,559 --> 00:14:08,480
Speaker 6: not going to hold up, that that risk is there,

280
00:14:08,880 --> 00:14:10,760
Speaker 6: and that they would want to wait for the wage data.

281
00:14:11,160 --> 00:14:14,040
Speaker 6: The other moving part here are the tariffs and the

282
00:14:14,080 --> 00:14:17,920
Speaker 6: impact of the tariffs. Right now, there seems to be

283
00:14:19,280 --> 00:14:22,680
Speaker 6: you know, some of that that anxiety has attenuated. But

284
00:14:22,880 --> 00:14:25,520
Speaker 6: as we all know, it's a very dynamic environment. There's

285
00:14:25,520 --> 00:14:29,840
Speaker 6: a lot of discussion about what Japan's investment means, what

286
00:14:30,000 --> 00:14:32,240
Speaker 6: is the structure of that, And then that of course

287
00:14:32,360 --> 00:14:34,560
Speaker 6: brings into question. You know, given what's going on with

288
00:14:34,640 --> 00:14:37,920
Speaker 6: India and other places, you know, where are these tariffs

289
00:14:37,960 --> 00:14:39,960
Speaker 6: are really going to end up? So I think there

290
00:14:39,960 --> 00:14:43,720
Speaker 6: are a tremendous number of moving parts. I think, uh,

291
00:14:44,160 --> 00:14:47,640
Speaker 6: you know, if you get to April and everything is

292
00:14:47,960 --> 00:14:49,400
Speaker 6: going well, that you're going to have a hike.

293
00:14:49,800 --> 00:14:50,560
Speaker 5: But I think, as we.

294
00:14:50,520 --> 00:14:52,560
Speaker 6: Saw with the first hike, you can't rule out a

295
00:14:52,600 --> 00:14:55,600
Speaker 6: quick change in direction based on the market, based on

296
00:14:55,640 --> 00:14:57,760
Speaker 6: the economic data, in particular the yen.

297
00:14:58,720 --> 00:15:01,920
Speaker 7: Talk to us about US, it's how do you position?

298
00:15:03,520 --> 00:15:07,440
Speaker 6: So I think the positioning in the US is quite heavy.

299
00:15:08,320 --> 00:15:13,200
Speaker 6: There's been a notion among market participants that there would

300
00:15:13,280 --> 00:15:17,720
Speaker 6: be a bull steepener. The back end rates really haven't rallied.

301
00:15:17,760 --> 00:15:19,760
Speaker 6: I mean, if you think about it, the tenure got

302
00:15:19,760 --> 00:15:22,560
Speaker 6: to four and a quarter originally in late twenty twenty two,

303
00:15:23,120 --> 00:15:25,760
Speaker 6: and it's just you know, recently kind of shifted below that.

304
00:15:25,840 --> 00:15:28,760
Speaker 6: It's been in a range around those levels. The front end, though,

305
00:15:28,840 --> 00:15:31,400
Speaker 6: is doing very well at this point. You know, the

306
00:15:31,440 --> 00:15:36,640
Speaker 6: market is pricing in, you know, over one hundred basis

307
00:15:36,640 --> 00:15:40,720
Speaker 6: points of rate cuts, so some combination of soft growth

308
00:15:41,480 --> 00:15:45,160
Speaker 6: staff changes at the FED that would air on the

309
00:15:45,240 --> 00:15:48,400
Speaker 6: dutish side. Even though inflation looks like it's going to

310
00:15:48,440 --> 00:15:52,800
Speaker 6: continue to be above target, you really are at risk

311
00:15:52,880 --> 00:15:54,880
Speaker 6: of these kinds of movements where you get the good

312
00:15:55,000 --> 00:15:57,240
Speaker 6: news for the market and then you get a sell

313
00:15:57,280 --> 00:15:59,680
Speaker 6: off as everyone is already positioned for that. So I

314
00:15:59,680 --> 00:16:04,000
Speaker 6: think it's going to continue to be despite an overarchingly

315
00:16:04,600 --> 00:16:08,200
Speaker 6: good environment for fixed income, yields are high, especially on

316
00:16:08,360 --> 00:16:11,480
Speaker 6: spread product. Returns on the higher yielding sectors have been good.

317
00:16:12,000 --> 00:16:14,760
Speaker 6: If you're just looking at duration timing in the market,

318
00:16:14,760 --> 00:16:18,800
Speaker 6: it's going to continue to be a very tactical trading market.

319
00:16:19,280 --> 00:16:21,520
Speaker 1: How does the US compared to what's happening in Europe?

320
00:16:21,520 --> 00:16:24,400
Speaker 1: We just saw French yield spreads really topping Italy for

321
00:16:24,440 --> 00:16:26,680
Speaker 1: the first time ever. I mean they have their own

322
00:16:26,720 --> 00:16:28,120
Speaker 1: fiscal issues over there.

323
00:16:28,080 --> 00:16:31,320
Speaker 6: Right, Yeah, so in places like Japan the United States,

324
00:16:31,320 --> 00:16:34,400
Speaker 6: we have our swap spread and that's a tradable vehicle.

325
00:16:34,400 --> 00:16:35,880
Speaker 5: But obviously in Europe.

326
00:16:35,960 --> 00:16:39,000
Speaker 6: You have all of the countries trading on varying spreads

327
00:16:39,000 --> 00:16:42,680
Speaker 6: to swaps, and there's been a trend of the core weakening,

328
00:16:43,040 --> 00:16:45,360
Speaker 6: with Germany underperforming quite a bit.

329
00:16:45,760 --> 00:16:47,840
Speaker 5: France has been an outlier.

330
00:16:47,880 --> 00:16:49,880
Speaker 6: They've been on their own cycle since the middle of

331
00:16:49,960 --> 00:16:54,560
Speaker 6: twenty twenty four when the elections were called. In the end,

332
00:16:54,880 --> 00:16:56,840
Speaker 6: France is going to be a member of the Eurozone.

333
00:16:57,480 --> 00:16:59,320
Speaker 6: In the end, France is going to be a fairly

334
00:16:59,360 --> 00:17:03,120
Speaker 6: highly rated credit. But between now and then, there's going

335
00:17:03,160 --> 00:17:05,040
Speaker 6: to be quite a bit of volatility, So I think

336
00:17:05,080 --> 00:17:08,680
Speaker 6: it's an excellent vehicle for trading. I think the European

337
00:17:08,720 --> 00:17:14,159
Speaker 6: perio fol story has been a good one, basically, you know,

338
00:17:14,320 --> 00:17:15,560
Speaker 6: for thirteen years running.

339
00:17:17,000 --> 00:17:19,560
Speaker 5: But France has always stood.

340
00:17:19,280 --> 00:17:23,879
Speaker 6: Out as really a week credit week growth, weak fiscal

341
00:17:23,960 --> 00:17:27,200
Speaker 6: dynamics that were destined to come home to roost at

342
00:17:27,200 --> 00:17:29,719
Speaker 6: some point in time. And now we'll see if they

343
00:17:29,720 --> 00:17:31,919
Speaker 6: can turn the ship around, tighten things up enough to

344
00:17:31,960 --> 00:17:36,359
Speaker 6: stabilize the situation. But like with so many developed countries,

345
00:17:36,720 --> 00:17:37,879
Speaker 6: I don't think it's going to be easy.

346
00:17:38,640 --> 00:17:40,760
Speaker 1: Robert Tipper was really good to have you with us,

347
00:17:40,840 --> 00:17:43,679
Speaker 1: a chief investment strategist at PGM. Of course, with a

348
00:17:43,720 --> 00:17:46,359
Speaker 1: look at all of the big global bald moves that

349
00:17:46,400 --> 00:17:46,879
Speaker 1: we're seeing.

350
00:17:50,320 --> 00:17:53,680
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

351
00:17:53,840 --> 00:17:57,240
Speaker 2: Asia Edition podcast. Each weekday, we look at the story

352
00:17:57,280 --> 00:18:01,639
Speaker 2: shaping markets, finance, and geopolos in the Asia Pacific. You

353
00:18:01,680 --> 00:18:05,800
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

354
00:18:05,920 --> 00:18:08,919
Speaker 2: or anywhere else you listen. Join us again tomorrow for

355
00:18:09,040 --> 00:18:12,520
Speaker 2: insight on the market moves from Hong Kong to Singapore

356
00:18:12,960 --> 00:18:16,720
Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg