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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. The government shutdown in the US,

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Speaker 1: combined with speculation on the FED cutting interest rates, push

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Speaker 1: the price of gold to roughly four thousand dollars. Announced

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Speaker 1: today in New York Trading, we heard from billionaire investor

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Speaker 1: Ray Daalio. He said gold is certainly more of a

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Speaker 1: safe haven than the US dollar.

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Speaker 2: Gold is a very excellent diversifier of the portfolio. So

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Speaker 2: if you would look at just from the strategic acid

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Speaker 2: allocation mixed perspective, you would probably have something like as

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Speaker 2: the optimal mix, something like fifteen percent of your portfolio

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Speaker 2: in gold because of the fact that if you didn't

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Speaker 2: even have a tactical because it is the one asset

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Speaker 2: that does very well when the typical parts of your

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Speaker 2: portfolio FOLEO go down.

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Speaker 1: Ray Dally are there speaking earlier to Bloomberg today. Goldman

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Speaker 1: Sachs raised its price forecast for gold in December twenty

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Speaker 1: twenty six to forty nine hundred dollars. Now that prior

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Speaker 1: estimate was forty three hundred. For a closer look, I'm

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Speaker 1: joined by Bill Adams. He is senior VP, also the

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Speaker 1: chief economist at Comerica Bank. Bill appreciate you taking time

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Speaker 1: to chat with me. Give me your take on what

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Speaker 1: you see happening in the gold market right now.

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Speaker 3: I think markets are buoyant and they are searching for

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Speaker 3: new diversifiers. And I think also markets are anticipating a

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Speaker 3: pretty significant pivot to lower interest rates from the FED.

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Speaker 3: When interest rates fall, the opportunity cost of holding assets

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Speaker 3: like gold that don't deliver a yield goes down, and

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Speaker 3: so that often is a boost to the price of gold.

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Speaker 1: We talk a lot about this debasement concern where the

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Speaker 1: US dollar is concerned. Do you share that that concern,

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Speaker 1: that worry over basement.

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Speaker 3: I think about debasement in terms of inflation, right that's

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Speaker 3: measuring whether the dollar is maintaining its purchasing power. And

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Speaker 3: I think inflation is likely to edge up a bit

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Speaker 3: into the turn of the year, but probably stay around

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Speaker 3: that three percent plus or minus zone by the CPI,

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Speaker 3: maybe a bit less by the PCE index. And so

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Speaker 3: that's inflation that's going to be frustrating for American consumers.

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Speaker 3: It's certainly above the Fed's target, but we're not talking

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Speaker 3: five percent inflation. We're definitely not talking one hundred percent inflation,

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Speaker 3: So this is not hyperinflation. This is merely inflation that

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Speaker 3: is over target. Now it's been over target for a while,

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Speaker 3: so I think it's it's fair for markets to start

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Speaker 3: becoming impatient for when inflation we'll get back to the

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Speaker 3: FEDS target. But I don't think that there is a

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Speaker 3: debasement crisis happening in the US right now.

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Speaker 1: It's interesting you make that point. It was kind of

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Speaker 1: mixed when it came to the day's FED space. Governor

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Speaker 1: Stephen Myron was saying that he expects limited tariff impact

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Speaker 1: on inflation and that means that the FED can keep easing. However,

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Speaker 1: we heard from Neil Kashkari, and he is the head

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Speaker 1: of the Minneapolis FED, and he was warning that any

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Speaker 1: drastic rade cuts would risk stoking prices. Does he have

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Speaker 1: a point, cash Car?

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Speaker 3: I think if the economy were growing robustly right now

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Speaker 3: and the unemployment rate we're still at four percent or

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Speaker 3: under four percent, then I would be more worried about

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Speaker 3: wage price pressures being sparked by rate cuts. But given

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Speaker 3: that the unemployment rate was four point three percent a

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Speaker 3: lifetime ago in August the last time we had a

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Speaker 3: jobser for it, and that it looks like the labor

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Speaker 3: market from the spotty data that we have in hand,

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Speaker 3: probably softened or at least stayed soft in September. I

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Speaker 3: think the risks of rate cuts pushing the US into

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Speaker 3: that sort of domestically of an inflation spiral seem less

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Speaker 3: than they did three or six months ago.

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Speaker 1: So you mentioned the absence of the latest jobs data

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Speaker 1: as a result of the government shutdown. There's a big

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Speaker 1: question mark over whether we're going to see the CPI

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Speaker 1: report on the fifteenth of the month. Give me a

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Speaker 1: sense of how you are flying blind right now without

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Speaker 1: government data.

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Speaker 3: We're not exactly flying blind, we certainly. I think it's

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Speaker 3: more that we're you know, we're playing with one hand.

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Speaker 3: We're boxing with one hand tied behind your back. To

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Speaker 3: choose your analogy. There are data sources for the US economy,

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Speaker 3: a variety of private sector price data and economic activity data,

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Speaker 3: labor market data. They're not real substitutes for what we

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Speaker 3: got from the government, but they are good compliments to it.

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Speaker 3: And so those data point to the economy being still

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Speaker 3: in this low higher low fire low gear mode code.

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Speaker 3: And certainly the AI sector is going gangbusters. There's investment

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Speaker 3: in software and computing equipment and data centers in the

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Speaker 3: electricity generation to fuel AI, but the rest of the

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Speaker 3: economy is softer, and I think that probably is what's

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Speaker 3: continuing to happen into early October. I think if we go,

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Speaker 3: the longer we go without official data, the further we

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Speaker 3: have walked with the blindfold on, and so the further

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Speaker 3: we may be from where we.

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Speaker 1: Think we are.

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Speaker 3: But right now, a week into the shutdown I think

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Speaker 3: the uncertainty created by it is still fairly manageable.

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Speaker 1: So Bill, today, we had the survey from the New

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Speaker 1: York Fed on consumer expectations, and there wasn't a lot

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Speaker 1: of movement when it came to the outlook for inflation or,

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Speaker 1: for that matter, the intention for household spending. I'm curious,

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Speaker 1: given the fact that we're talking about a government shut down.

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Speaker 1: If this becomes protracted, how might the consumer be affected.

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Speaker 3: Most macroeconomics shops that do estimates of the impact of

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Speaker 3: government shutdowns will tell you that it's a zero point

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Speaker 3: one to zero point two percentage point drag on annualized

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Speaker 3: real GDP growth in the quarter of the shutdown. When

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Speaker 3: you have a shutdown for every week that the government

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Speaker 3: is shut down, So to put in concrete terms, the

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Speaker 3: shutdown has lasted a week so far. That would shave

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Speaker 3: off about a tenth of a percent from your forecast

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Speaker 3: of annualized GDP if there hadn't been a shutdown in

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Speaker 3: the current quarter. And some of that activity will probably

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Speaker 3: be made up after the shutdown ends and government employees

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Speaker 3: get their salaries again, contractors get paid and catch up

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Speaker 3: on delayed work, etc. So I think the shutdown is

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Speaker 3: likely to translate into a softer fourth quarter of the

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Speaker 3: year then we would have seen otherwise in terms of

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Speaker 3: real GDP. But I think it's shutdowns they don't unless

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Speaker 3: there's some new, big shock to the economy. I don't

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Speaker 3: think the shutdown would necessarily make the difference between an

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Speaker 3: expansion or a contraction. I think this is another hiccup

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Speaker 3: in the road or a bump in the road. I

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Speaker 3: guess I should say on the way to an economy

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Speaker 3: that's likely to regain traction in twenty twenty six, given

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Speaker 3: lower interest rates and fiscal policy, that's going to turn

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Speaker 3: more expansion.

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Speaker 1: Are so if your belief is that the economy will

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Speaker 1: begin to recover given the benefit of lower rates. I'm

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Speaker 1: curious about how you read the bond market right now,

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Speaker 1: particularly at the longer end of the curve, when we've

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Speaker 1: got a ten year four to twelve Where do we

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Speaker 1: go from here.

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Speaker 3: I think the bond market is pricing in significant cuts

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Speaker 3: from the Fed over the next eighteen months, and also

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Speaker 3: pricing in the dollar retaining its purchasing power. To come

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Speaker 3: back to where we started our conversation, financial markets, despite

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Speaker 3: the run up in goal, financial markets do not price

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Speaker 3: a lot of direct concern about the credit worthiness of

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Speaker 3: the federal government or the soundness of the dollar. You

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Speaker 3: would not see the ten year Treasury bond trading at

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Speaker 3: a four point one percent yield if there were significant

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Speaker 3: concerns about that priced into market. So I think that's

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Speaker 3: a sign of confidence in the outlook for the US

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Speaker 3: economy over the longer run.

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Speaker 1: So we know what the performance of the equity market

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Speaker 1: has been lately. Many large cap tech stocks have surged

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Speaker 1: by in some cases double digits, and this has happened

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Speaker 1: in pretty quick succession, and there has been some concern

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Speaker 1: expressed on the street that this could be assigned that

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Speaker 1: valuations have become disconnected from underlying fundamentals. I know you're

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Speaker 1: an economist, Bill, but I'm wondering what could happen if

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Speaker 1: there is some corrective behavior in the equity market, and

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Speaker 1: how that may filter through to the economy's performance.

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Speaker 3: So if we see a stock market correction, I think

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Speaker 3: a ten percent correction without other economic shocks is probably

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Speaker 3: something that the economy can take in stride. I think

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Speaker 3: if there's a twenty percent sell off and it's sustained,

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Speaker 3: then we might see those more affluent consumers who've been

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Speaker 3: driving consumer spending and growth of the domestic side of

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Speaker 3: the economy for most of the last two years, they

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Speaker 3: could start to pull back, and then we would see

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Speaker 3: some softening in the parts of the economy that really

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Speaker 3: have been in slow growth mode but have been growing

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Speaker 3: and supporting the demand for labor and kind of keeping

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Speaker 3: the flywheel of the economy moving forward. So it's a risk,

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Speaker 3: but I think it's an area where AI is this

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Speaker 3: new technology. It looks like there will be applications of

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Speaker 3: it that are very productive and profitable in the future

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Speaker 3: and create a lot of new innovation and advances. We

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Speaker 3: can't know precisely what they are today, and financial markets

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Speaker 3: are pricing in a lot of optimism, pricing, a lot

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Speaker 3: of exuberance about it. Is it is that exuberance irrational

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Speaker 3: or is it just exuberance and confidence about the future.

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Speaker 3: I think, well, we'll have to wait and see. But

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Speaker 3: the technology itself looks like it'll it'll be transformational for

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Speaker 3: at least sectors of the economy in years to come.

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Speaker 1: And I think we got to include banking and financial services.

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Speaker 1: We heard from Jamie Diamond today, they head of JP

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Speaker 1: Morgan Chase. He was saying the bank is spending two

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Speaker 1: billion dollars a year on developing AI technology and currently

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Speaker 1: the technology is saving the bank around the same amount

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Speaker 1: from that annual investment, and he went on to say

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Speaker 1: that this is basically the tip of the iceberg. So

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Speaker 1: if you track that what that trajectory seems to be,

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Speaker 1: they're going to get a lot more bang for the buck,

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Speaker 1: so to speak. Would you say that banking and financial

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Speaker 1: services is going to be one of the bigger beneficiaries

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Speaker 1: of AI.

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Speaker 3: Financial services has been a technology industry for I'd say

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Speaker 3: ten twenty years now, and that trend continues. There's so

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Speaker 3: much data in financial services that it is a really

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Speaker 3: ripe round for applications of technologies that process data more efficiently,

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Speaker 3: and so I think financial services is going to be

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Speaker 3: a big adopter of AI technology. I think real estate

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Speaker 3: as well, that's another industry where technology has a large rule.

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Speaker 3: And I think we'll also see AI technology applied to

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Speaker 3: the more labor intensive sides of the economy, like healthcare,

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Speaker 3: like food services, and I think that could help to

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Speaker 3: enhance productivity in the sectors that have been more resistant

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Speaker 3: to the penetration of technology over the last ten and

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Speaker 3: twenty years.

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Speaker 1: So I'm curious Bill, as a chief economist, how are

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Speaker 1: you using AI technology to help your forecasting?

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Speaker 3: A great question. I would say, we're using it gingerly.

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Speaker 3: We are looking at a lot of AI technologies, but

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Speaker 3: we are being very careful in how we apply them

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Speaker 3: so that we're not taking technology within the walls of

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Speaker 3: our institution that would create risks for our customers, their accounts,

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Speaker 3: or how our institutions run. So we're looking at a

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Speaker 3: lot of opportunities here, but we're being very careful in

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Speaker 3: our approach.

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Speaker 1: Bill will leave it there, always a pleasure with Bill Adams,

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Speaker 1: Senior VP, also chief economist at Comerica Bank, joining us

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Speaker 1: here on the Daybreak Asia podcast. Welcome back to the

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Speaker 1: Daybreak Asia podcast. I'm Doug Krisner, the new leader of

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Speaker 1: the ruling Liberal Democratic Party in Japan. So at Take

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Speaker 1: has been a critic of interest rate hikes from the

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Speaker 1: Bank of Japan. Well, now take Ichi is on track

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Speaker 1: to become the country's next prime minister. So the question

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Speaker 1: is whether BOJ Governor Uwaida will face a tougher political

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Speaker 1: environment and whether that will be at some point reflected

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Speaker 1: in BOJ monetary policy. For a closer look, I'm joined

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Speaker 1: by Bloomberg's Paul Jackson. Paul covers the economies and governments

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Speaker 1: of both Japan and South Korea, and he joins us

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Speaker 1: now from our studios in the Japanese capital. Paul, it's

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Speaker 1: always a pleasure. Give me your sense of where things

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Speaker 1: are right now. First, in the political environment before we

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Speaker 1: get to BOJ policy.

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Speaker 4: Well, we have the election of Sanaia Takaichi, as he's

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Speaker 4: mentioned as leader of the ruling party. The ruling party

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Speaker 4: has been in big trouble. It's been bleeding voters in

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Speaker 4: recent national elections. It's needing a kind of rebranding, a restart,

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Speaker 4: and they've chosen her. She's on the hawkish side diplomatically.

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Speaker 4: On the economic side, she's very much in the ebinomics mold,

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Speaker 4: which means easy money and flexible spending. So this is

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Speaker 4: going to be a bit of a change from the

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Speaker 4: administrations we've seen recently that have been kind of moving

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Speaker 4: more to the central ground and looking at pairing back

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Speaker 4: the stimulus, especially from a Bank of Japan and keeping

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Speaker 4: spending tight. But ultimately the voters are saying, look, we've

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Speaker 4: got inflation, we've got a cost of living crunch, and

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Speaker 4: you're not doing enough well.

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Speaker 1: Inflation is you, and I both know you better than

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Speaker 1: me been well above the target of two percent for

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Speaker 1: the Bank of Japan, and it appeared as though, at

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Speaker 1: least for a while there markets were anticipating a raid

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Speaker 1: hike this month. Is that somewhat endowed at this point.

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Speaker 4: Well, I think the governor of the ban Japan's in

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Speaker 4: a very awkward spot now because I think he'd been

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Speaker 4: teeing things up, kind of lining up the ducks for

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Speaker 4: a rate hike later this month. I mean, we've got

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Speaker 4: plenty of positives. You know, the economy has been growing

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Speaker 4: the last five quarters. As you've mentioned, the inflation, I mean,

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Speaker 4: we've been above target for three and a half years.

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Speaker 4: Those real wages have been going down most of that time.

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Speaker 4: So in terms of you know, orthodox policy, they should

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Speaker 4: raise they should raise interest rates and get on with it.

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Speaker 4: We've even had Scott Bess saying boj risks falling behind

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Speaker 4: the curve. But if you've got a new prime minister

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Speaker 4: coming in and she's very cautious about rate hikes, do

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Speaker 4: you go ahead with that without some initial consultation with

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Speaker 4: the government. We spoke with one of Takhi's advisors earlier

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Speaker 4: this week that sort of on who's one of the

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Speaker 4: architects of abinomics, and he said that an October rate

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Speaker 4: hike was too soon.

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Speaker 1: We like to think of governments and central banks as

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Speaker 1: being independent of one another. Give me a sense of

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Speaker 1: what that relationship is like in Japan.

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Speaker 4: Well, the Bank of Japan got its independence enshrined in

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Speaker 4: law in the late nineteen nineties, and it is independent

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Speaker 4: to a certain degree. I think what we saw in

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Speaker 4: the early part of abinomics in twenty thirteen was there

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Speaker 4: was a joint accord between the government and the Bank

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Speaker 4: of Japan issued which both sides agreed to target certain goals,

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Speaker 4: and that's where the two percent inflation target was put

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Speaker 4: in writing for the Bank of Japan. Now, the accord

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Speaker 4: says it's down to each side to decide how it

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Speaker 4: carries on with its policy goals, So you know, you've

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Speaker 4: got the independence of how you do it. Target is

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Speaker 4: pretty much agreed between the Bank of Japan and the government.

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Speaker 4: So yeah, it's it's independent, but it's to a certain degree.

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Speaker 1: So do we need to understand now that the boj

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Speaker 1: is likely going to be forced to consider a lot

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Speaker 1: more in the way of fiscal stimulus from this new government.

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Speaker 4: Well, I mean, I think it's going to be First

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Speaker 4: of all, is it's going to be a tougher political

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Speaker 4: environment for the Bank of Japan. It's had pretty much

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Speaker 4: free reign under the previous couple of administrations. If we

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Speaker 4: do have more fiscal spending or loosening of fiscal policy

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Speaker 4: under TAKH, that's going to kind of like, you know,

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Speaker 4: add to the inflation, which you know actually might mean

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Speaker 4: the Bank of Japan has going to raise rates more

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Speaker 4: quickly to kind of keep the inflation you know, under control.

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Speaker 4: So it's going to be very interesting dynamics to see

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Speaker 4: how things go, you know, looking for But the thing

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Speaker 4: that you know lies right in front of Ewada as

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Speaker 4: he starts the second half of his turn as governor,

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Speaker 4: is can he go this month or not?

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Speaker 3: So?

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Speaker 1: Since taki ICHI's win, we have seen dramatic weakness in

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Speaker 1: the Japanese currency. Right now, we're trading on the week

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Speaker 1: side of one point fifty two, and given the fact

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Speaker 1: that Japan and the US have yet to resolve their

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Speaker 1: trade deal, this is still an open question. Anytime you

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Speaker 1: have a week currency, obviously it's going to favor the exporters,

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Speaker 1: but at the same time it contributes to an importing

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Speaker 1: of inflation. Is there something that we need to discuss

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Speaker 1: here as it relates to the currency where taki ICHI's

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Speaker 1: win is concerned.

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Speaker 4: Yeah, I mean, I think the currency could be the

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Speaker 4: kind of deciding factor that makes the BOJ go later

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Speaker 4: this month. That it could be, because if they don't

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Speaker 4: move in October, we've got to wait until mid December

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Speaker 4: till the next meeting, So you've got, you know, like

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Speaker 4: two months of quite a long time. If the currentsy

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Speaker 4: is in that one five zero range against the dollar,

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Speaker 4: and remember that Japan has had to intervene multiple times

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Speaker 4: in recent years to prop up the yen, and I

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Speaker 4: would say that one sixty mark is certainly territory that

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Speaker 4: policymakers do not want to go in. And how is

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Speaker 4: it going to look for Donald Trump? Well, it's going

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Speaker 4: to feed into all his views that Japan is, you know,

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Speaker 4: weakening the currency to get some kind of favorable trade advantage.

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Speaker 4: Now that might not actually be the case. But is

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Speaker 4: Donald Trump going to avoid saying that? Well, I think

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Speaker 4: we know the answer to that one.

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Speaker 1: But at the same time, the equity market in Japan,

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Speaker 1: the Nike at least, is it a record high. Does

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Speaker 1: that give for anything that we can kind of call

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Speaker 1: maybe goodwill?

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Speaker 3: Yeah?

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Speaker 4: No, I think you know, from the investor's point of view,

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Speaker 4: they're thinking, hey, this probably means weakly and so that's

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Speaker 4: good for export profits, so that helps stocks. There also

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Speaker 4: the idea that there could be more spending, some kind

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Speaker 4: of help to consumers, maybe in tax rebates or some

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Speaker 4: kind of handout, so that that means that they'll be

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Speaker 4: spending more. They're going to spend more. Well, that's going

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Speaker 4: to lead to more sales, more profits. So I think

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Speaker 4: there's reasons there for the stocks to be going up.

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Speaker 4: The question is is whether that becomes a longer term

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Speaker 4: trend or whether we're just looking at the kind of

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Speaker 4: initial kneeja reaction to her election.

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Speaker 1: Paul will leave it there. It's always a pleasure. Thanks

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Speaker 1: so very much, Bloomberg's Paul Jackson. He covers the economies

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Speaker 1: and governments of Japan and South Korea. Joining us here

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Speaker 1: on the Daybreak Asia Podcast. Thanks for listening to today's

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Speaker 1: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast Tube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 1: and this is Bloomberg