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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm deg Chrisner.

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Speaker 2: So the appetite for risk gained some fresh vigor today

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Speaker 2: thanks to data showing the American economy is holding up

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Speaker 2: despite those concerns over the harm the tariffs may inflict.

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Speaker 2: Also today, some reaction to the latest print on consumer

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Speaker 2: prices out of Japan. In a moment, we'll hear from

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Speaker 2: Soyuri Sharai, professor of economics at Kyo University in Tokyo.

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Speaker 2: But we begin here in the States. Joining me now

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Speaker 2: is Brian Vendigg. He is the chief investment officer at

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Speaker 2: MJP Wealth Advisors. Brian is on the line from Westport, Connecticut.

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Speaker 2: Good of you to make time to chat with me.

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Speaker 2: So pretty impressive strength and equities today We had records

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Speaker 2: for both the S and P and the NASDAC comp

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Speaker 2: How did you make sense of the price section today?

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Speaker 2: What did you learn?

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Speaker 3: Thanks DOEG.

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Speaker 4: I think investors are reacting to retail sales numbers coming

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Speaker 4: in higher than expected, rebounding off of the decline of May.

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Speaker 4: Retail sales growing about point six percent month over month,

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Speaker 4: which was higher than expectation of about point two, and

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Speaker 4: I think it gave signs to investors that the consumer

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Speaker 4: is still healthy and that spending is still incurring, even

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Speaker 4: though there's this concern of price increases from tariffs. Now

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Speaker 4: under the hood, we have seen increases in price evidenced

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Speaker 4: by these numbers in both the electronics and furniture and

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Speaker 4: other type of capital goods areas. So it's definitely something

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Speaker 4: to keep a watchful eye on. But with earnings starting

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Speaker 4: to come in a little bit above expectations at a

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Speaker 4: healthy consumer, I think investors are still looking ahead and

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Speaker 4: thinking about where the economy can go and that profits

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Speaker 4: can take us a little bit higher.

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Speaker 2: We heard earlier today from Mike Wilson over at Morgan Stanley,

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Speaker 2: and he said that he still sees this bull market

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Speaker 2: building in US equities. However, first the S and P

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Speaker 2: five hundred may have to take a hit in his view,

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Speaker 2: anywhere between five to ten percent. How does that sit

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Speaker 2: with you.

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Speaker 4: I think in this type of market, with the conflicting variables,

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Speaker 4: it's really hard to quantify what that downside might be.

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Speaker 4: Because I think a lot of people have been calling

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Speaker 4: for a pullback over the last couple of months, as

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Speaker 4: we ripped off of those April lows, and.

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Speaker 3: The timing and the sequence has been off.

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Speaker 4: I would say this though, when I look back academically

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Speaker 4: with markets coming back and we're like sixty five plus

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Speaker 4: trading days since those lows, DOUG you usually see a

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Speaker 4: consolidation in the first month after you get such an

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Speaker 4: aggressive bounce back, But when you look out the next

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Speaker 4: three and six months, market returns have actually been quite favorable.

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Speaker 3: So when I think about.

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Speaker 4: The summer months, we're still going through a transition, a

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Speaker 4: digestion period around policy uncertainty with tariffs, that back and

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Speaker 4: forth about rate cuts from the FED and what policy

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Speaker 4: might be there. But at the end of the day,

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Speaker 4: are coming back to earnings, and I think if the

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Speaker 4: job market's stable earnings out looks hold, we'll get through

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Speaker 4: this pullback and then we should see, hopefully a good

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Speaker 4: investor start looking ahead to twenty twenty six, and that's

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Speaker 4: where I see the earnings forecast improving.

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Speaker 2: So you mentioned the FED there. We heard from Mary

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Speaker 2: Daily today, she's the head of the San Francisco FED.

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Speaker 2: She was speaking at the Rocky Mountain Economic Summit, and

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Speaker 2: she told us that the FED should not wait too

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Speaker 2: long before moving ostensibly to lower interest rates, because if

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Speaker 2: it were to wait until inflation is around two percent,

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Speaker 2: maybe you could see some injury to the economy in

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Speaker 2: a way that was maybe unnecessary. And also today late

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Speaker 2: in the day, we heard from FED Governor Chris Waller. Now,

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Speaker 2: to be fair, he is campaigning to be the next

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Speaker 2: FED chair. That said, he went on to say that

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Speaker 2: the FED should probably cut rates to support the labor market,

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Speaker 2: which is showing some signs of weakness. Now he said

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Speaker 2: that on a day when weekly jobless claims were down

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Speaker 2: for a fifth straight week to the lower level since

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Speaker 2: mid April. So I'm struggling to make sense of that remark.

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Speaker 2: But how do you make sense of what we're hearing

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Speaker 2: from FED officials.

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Speaker 4: Well, I think it's clear that FED officials are starting

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Speaker 4: to become more and more divided between the growth debate

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Speaker 4: of the economy exemplified by the jobs market, or the

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Speaker 4: inflation debate around tariffs, and what really is the flow

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Speaker 4: through and the impact. And I think from the comments

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Speaker 4: that we got today late in the day from Waller,

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Speaker 4: he was speaking more to the point that he saw

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Speaker 4: the price increased from tariffs as a temporary tax, a

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Speaker 4: one time impact, which then we'll kind of flow through

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Speaker 4: the system. And I think as comments were also more

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Speaker 4: geared of let's take action now just to be preventative,

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Speaker 4: and if we see that there isn't this slowdown, or

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Speaker 4: we're supporting the economy inflation's not spiking, then he would

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Speaker 4: actually say let's do the second cut a little bit

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Speaker 4: later on. I think right now, because of the conflicting

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Speaker 4: very of all the economic data and also dug a

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Speaker 4: lot of things being so distorted this year with the

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Speaker 4: pull forward of demand with the economy, I think it's

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Speaker 4: very hard to make that call on these data points

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Speaker 4: that they keep contradicting themselves month over month, kind of

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Speaker 4: like retail sales. So I think I think the I

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Speaker 4: think the FED is making the right decision or pals

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Speaker 4: comments the other the other day, and other voting members

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Speaker 4: is saying let's let's play the wait and see in September.

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Speaker 3: But it's pretty clear the derivatives.

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Speaker 4: Markets are also looking the same same way, so that

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Speaker 4: we're really not expecting a rate cut this month and

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Speaker 4: probably more to follow from September on.

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Speaker 2: Yeah, it's particularly interesting because two separate FED reports in

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Speaker 2: the recent week. These are numbers for early July kind

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Speaker 2: of show intensifying price pressure. I'm thinking of the Philly

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Speaker 2: FED Manufacturing report. It showed that input prices are on

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Speaker 2: the rise. That was a number that we got today,

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Speaker 2: and then earlier in the week we heard from the

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Speaker 2: New York Fed the Empire report show future expectations for

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Speaker 2: higher prices. That's been building and I'm wondering whether or

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Speaker 2: not to your point about there being a divide at

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Speaker 2: the FED really argues for just a wait and see

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Speaker 2: for a while longer, maybe until after the first of

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Speaker 2: the year. Is that saying too much.

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Speaker 4: I think waiting until the first of the year probably

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Speaker 4: would be detrimental to the economy if you start to

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Speaker 4: see a slowdown in consumer aggregate demand due to price,

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Speaker 4: because the offset of that is it could cause companies

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Speaker 4: wanting to protect margins with jobs. And I think in America,

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Speaker 4: you know, people feel good about spending when they feel

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Speaker 4: confident about their job. And I think the shift that

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Speaker 4: I agree with you, Doug, that you know we are

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Speaker 4: seeing capital good prices go up and it's coming at

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Speaker 4: a cost to some spending in the services area of

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Speaker 4: the marketplace, which has also increased in price month over

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Speaker 4: a month recently when we looked at the most recent

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Speaker 4: inflation report. So I think that mix is the issue

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Speaker 4: that our country is dealing with economically, and that's why

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Speaker 4: I think if you wait too long and you see

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Speaker 4: the prices increase, but if demand comes down on the

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Speaker 4: services side, that's the way we're thinking about it, and

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Speaker 4: that might smooth out the concern of runaway inflation, and

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Speaker 4: thus then you need to be supportive of the economy.

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Speaker 4: And that's why we're in the camp that some cuts,

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Speaker 4: one or two cuts in the fourth quarter probably would

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Speaker 4: make sense so that the FED doesn't get too far

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Speaker 4: behind the rear view mirror that we all know that

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Speaker 4: they're looking at, because they've decided to be data dependent

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Speaker 4: and not provide those forwardlooking expectations as they did erroneously

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Speaker 4: in the past, and they're just going to fall back

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Speaker 4: and see how the data plays out over the summer.

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Speaker 2: How do you evaluate the risk that these trade tensions

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Speaker 2: will drag on past August?

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Speaker 3: First, Well, I think that's a great question.

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Speaker 4: We've accepted that the US effective terriffrey will probably be

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Speaker 4: somewhere between fifteen to sixteen percent on an overall basis,

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Speaker 4: which is significantly up from where we ended the year

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Speaker 4: last year two and a half percent for the country.

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Speaker 4: And I think what we're searching for is the fact

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Speaker 4: that the companies that can you know, you know, eat

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Speaker 4: some of that cost now, but recognizing they're going to

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Speaker 4: pass them on to the consumer, I think is going

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Speaker 4: to be evident. I think that's going to happen. But

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Speaker 4: at the same point in time, as long as we

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Speaker 4: still see I think a stable labor market, that's the

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Speaker 4: tipping point to say the economy has a tolerance for that,

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Speaker 4: because wages are still up year over year, spending is

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Speaker 4: still happening with the upper income bracket in the United States,

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Speaker 4: and so I think this all kind of comes together

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Speaker 4: to say that, look, profits, can they work through and

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Speaker 4: get through this environment with a higher price environment.

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Speaker 3: The answer is yes, but it takes several years.

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Speaker 4: For supply chains to adjust, and I think that's something

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Speaker 4: that businesses are trying to adjust to, depending on if

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Speaker 4: you're a capital's good business or if you're in the

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Speaker 4: service space.

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Speaker 2: We heard from Netflix after the bell very impressive forecast

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Speaker 2: for full year sales and profit margins, and a lot

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Speaker 2: of this is being driven by markets offshore. The international

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Speaker 2: market for Netflix. How do you feel about the story

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Speaker 2: in Netflix or whether it's still something that's interesting. Do

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Speaker 2: you see it being fully intact.

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Speaker 4: Still, Yeah, I think the story for Netflix is really interesting,

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Speaker 4: and I'll make one comment or two about the quality

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Speaker 4: of earnings as well. I mean, I think the transformation

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Speaker 4: point about the platform I think moving forward is how

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Speaker 4: consumers are going to think about TV and when you

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Speaker 4: think about YouTube or Netflix, these are platforms that can

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Speaker 4: continue to evolve to add content, whether it's in sports

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Speaker 4: or entertainment, or purchasing other broadcast companies and integrating that

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Speaker 4: on that international basis, and their quality of earnings definitely

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Speaker 4: was impacted by currency translation with a weaker dollar coming back,

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Speaker 4: which helped, but I think analysts were a little bit

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Speaker 4: disappointed Doug on the outlook, and they were probably hedging

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Speaker 4: a little bit about that international growth story, subscriber based story.

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Speaker 4: But I really still see them being innovative and pushing

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Speaker 4: out on what TV or content management is going to

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Speaker 4: be in the future.

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Speaker 3: And also just to remember, a big part.

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Speaker 4: Of their growth is also ad business and growing that

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Speaker 4: through their platform, and so as the platform continues to

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Speaker 4: grow and diversify, I think there's an opportunity as well.

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Speaker 4: But don't get me wrong. For price earnings ratio, it

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Speaker 4: was pretty high over forty in this environment. And going

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Speaker 4: back to our earlier comments, I think when you think

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Speaker 4: about equities in this environment, if you're looking for an

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Speaker 4: opportunity to jump into some of these higher growth names

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Speaker 4: that might be around the corner. But I think Netflix

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Speaker 4: story is still there from a longer term perspective.

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Speaker 2: Okay, Brian, we'll leave it there. Good stuff, Thank you

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Speaker 2: so much for being with us. Brian Vendiggie is Chief

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Speaker 2: Investment off sir at MJP Wealth Advisors. He's on the

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Speaker 2: line from Westport, Connecticut here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm dek Chrisner.

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Speaker 2: We got some key inflation data for Japan this morning.

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Speaker 2: CPI cool to TAD more than expected in June, although

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Speaker 2: it's still well above the boj's two percent target. Consumer

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Speaker 2: prices excluding fresh food rose by three point three percent

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Speaker 2: from last year, and that in turn is keeping pressure

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Speaker 2: on Prime Minister Shigudu Ishiba to play kate voters ahead

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Speaker 2: of this week's national election. For more on the inflation story,

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Speaker 2: we heard from former BOJ board member, so Yuri Sharai,

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Speaker 2: now professor of economics at Kyo University. She spoke with

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Speaker 2: Bloomberg's Heidi Stroud, Watts and Cherry.

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Speaker 1: On Always great to get your insights, say, youty So,

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Speaker 1: tell us a little bit about first your reaction to

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Speaker 1: the CPI numbers, because it was decelerating from the previous

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Speaker 1: Also course IPI coming in below estimates. Could it be

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Speaker 1: a sustained down trend or is this one off?

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Speaker 5: I think this is all you know related to the

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Speaker 5: energy inflation desideration. It's partly because of the sub subsidy

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Speaker 5: or energy studied again and made data. It was a

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Speaker 5: base effect, so inflation looked much bigger than it's.

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Speaker 6: Supposed to be.

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Speaker 5: So once you exclude all that, inflation still remain high.

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Speaker 5: So it doesn't mean information is desilerating. But over time

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Speaker 5: important information prices started to come down. So I think

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Speaker 5: over time inflation starts.

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Speaker 6: To come down. What's going on with rice though?

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Speaker 5: Yeah, still one hundred percent increase in last years. You know,

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Speaker 5: like video said, you know agricultural farmers they need higher prices,

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Speaker 5: but you know one hundred percent increases, you know beyond

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Speaker 5: you know all these factors, so it must be something

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Speaker 5: to do with distribution, and a lot of people think

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Speaker 5: this is something to do with agricultural cooperatives, you know,

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Speaker 5: sort of controlling prices. So I think when prices is

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Speaker 5: very high, leg chase, you know, plemister Sida does not

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Speaker 5: want to change import prices, so I think this frust

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Speaker 5: rate a lot of people in a Tokyo area.

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Speaker 1: Right, which could have implications for the Upper House elections.

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Speaker 1: What are the economic implications for Japan if Prime Minister

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Speaker 1: Issueva loses the majority in.

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Speaker 5: The Upper House, So it means a lot of consumption

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Speaker 5: tax cuts will happen. Because the only doing parties was

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Speaker 5: suggesting just the provision at one.

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Speaker 6: Time for all small increase in.

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Speaker 5: Cash transfers or about the one hundred and thirty daras

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Speaker 5: it's just so tiny, but all opposition parties talking about

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Speaker 5: consumption tax cuts, you know, zero percent consumption tax rate

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Speaker 5: on the food or income tax cuts, so of course

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Speaker 5: everybody wanted. But in terms of physical consideration, it's quite

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Speaker 5: a big impact. So it might lead to the higher

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Speaker 5: you know, it's a high in a thirty for the

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Speaker 5: year yield, so that could create difficulty.

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Speaker 1: What are you saying when it comes to the gap

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Speaker 1: between real household wealth, real wage growth and increasing inflation.

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Speaker 1: Is that something that still has to be closed, particularly

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Speaker 1: if it's going to increase household and consumer confidence.

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Speaker 5: Yeah, so, you know, everybody remember the Spring wage negotiation,

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Speaker 5: you know, besout it very successfully, like five percent, but

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Speaker 5: once we include small medium enterprises, you know, wages are

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Speaker 5: not growing that much. So May data is very bad,

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Speaker 5: just a one percent increase in wages, so real wages

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Speaker 5: you know, dropping by two percent and so so a

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Speaker 5: lot of people do not feel wages are picking up,

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Speaker 5: you know, despite the Spring successful negotiation, So people are

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Speaker 5: really suffering and then wage not growing.

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Speaker 6: So consumption in May.

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Speaker 5: Data on household looked good, but it must be temporary.

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Speaker 5: I think people still have a very feel uncomfortable with

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Speaker 5: this lising costs.

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Speaker 1: How much risk can and also support the satisfaction is

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Speaker 1: there over the state of play when it comes to

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Speaker 1: trade negotiations and TIA risks.

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Speaker 6: Yeah, this is very unfortunate.

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Speaker 5: The Japanese government made a seventh negotiations in addition to that,

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Speaker 5: lots of telephone call and conferences, right, but nothing really happening.

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Speaker 5: I think because over forty years the Japan already did

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Speaker 5: a lot of concession to the US and so there

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Speaker 5: are not much to do for negotiations, so only the

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Speaker 5: one thing left is rise but that lies the Japanese

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Speaker 5: government want to support with minimum import quota, so that is.

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Speaker 6: On the area as an area.

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Speaker 5: You know, most of them are kind of liberal rized,

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Speaker 5: and it's very difficult for Japan to increase US cars.

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Speaker 5: It doesn't fit into Japanese road so it's not much

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Speaker 5: negotiation left.

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Speaker 6: So that's why it's very difficult.

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Speaker 5: And of course Japan want to get to rid of

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Speaker 5: this twenty five percent tariff on cars and fifty percent

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Speaker 5: tariff on the steal and you know, they want to

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Speaker 5: get to rid of it.

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Speaker 6: So it's very challenged.

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Speaker 1: But I guess the calculation could completely change for the

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Speaker 1: Bank of Japan if you're do in fact get some

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Speaker 1: sort of tariff deal. I mean, because the economy has

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Speaker 1: been pretty resilient, why aren't they normalizing policy quicker?

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Speaker 6: Right?

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Speaker 1: And it's all of them over tariffs.

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Speaker 5: Okay, so right now export dropping productions are dropping because

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Speaker 5: of the tariff, right, But if you know they can

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Speaker 5: deal come up with still these things might change.

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Speaker 6: But at this moment, when Japan.

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Speaker 5: Doesn't have a room as a tax increase is not

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Speaker 5: really doing well.

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Speaker 1: Especially when we're looking at for example, JGB yields as

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Speaker 1: well continuing to run right because of the balance reductions

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Speaker 1: from the BOG How does that also sort of restrict

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Speaker 1: the movements of what the Bank of Japan can do.

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Speaker 5: Yeah, so right now satil is very very high, you know,

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Speaker 5: exceptionally high. So I think BOJ is very careful. You know,

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Speaker 5: that's that's the one of the reason why they started

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Speaker 5: to slow down QT. Right, So I think, you know,

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Speaker 5: that's another reason why BOJ be careful in terms of

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Speaker 5: you know, laisy into interested. Although they may want to normalize,

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Speaker 5: but at the stage economy is not doing well and

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Speaker 5: study and studies what the eel is going up, So

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Speaker 5: it's very difficult.

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Speaker 1: Yeah, sayo Rishi, I always good to have you with us,

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Speaker 1: professor of economics at Ko University. Of course, Heili will

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Speaker 1: be watching that Upper House election this weekend here in Japan.

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

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

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

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

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

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

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