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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. The

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Speaker 2: key event for markets in the week ahead will be

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Speaker 2: the earnings from Invidia. They are due on Wednesday, and

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Speaker 2: at the risk of stating the obvious, there has been

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Speaker 2: tremendous scrutiny over the AI trade lately, and in Vidia's

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Speaker 2: results could trigger further rotation out of the AI theme.

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Speaker 2: Even if the company does beat, I think the critical

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Speaker 2: question here is around sustainability of demand, and if guidance

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Speaker 2: fails to meet expectations, you can expect this stock to fall,

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Speaker 2: not just in the US, but in Asia as well.

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Speaker 2: In Nvidia is almost as closely correlated with Taiwan's tie

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Speaker 2: X as it is to the SMP five hundred. Remember

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Speaker 2: TSMC's waiting in the tai X is more than forty percent,

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Speaker 2: and of course TSMC is the foundry for the production

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Speaker 2: of those Nvidia chips. Now, at the same time, i'm

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Speaker 2: here in the States, the government is working to reschedule

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Speaker 2: economic data. Markets have been forced to rely on a

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Speaker 2: lot of private surveys for a closer look. Now I'm

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Speaker 2: joined by Chris Maxi. He is managing director also the

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Speaker 2: chief market strategist at Wealthspire Advisors. Chris is on the

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Speaker 2: line from just outside Washington, DC. Thank you, sir for

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Speaker 2: making time to chat. It seems like the two readings

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Speaker 2: on the labor market that we will get on Thursday

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Speaker 2: are the most critical, that being the weekly jobless claims

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Speaker 2: data and the numbers on September payrolls.

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Speaker 3: Wouldn't you agree with that, you know, Doug, I think

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Speaker 3: the job's data is going to be a very key

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Speaker 3: focus for participants. What we've seen in just the last

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Speaker 3: couple of weeks is a lot of irregularities, if you will,

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Speaker 3: on the labor market, whether it was the ADP report

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Speaker 3: or the Challenger layoffs. And for a lot of folks

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Speaker 3: right now they're saying, Okay, where is the job market

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Speaker 3: If the hiring's not there, but we're beginning to see

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Speaker 3: a pickup in layoffs. Is that an indication that perhaps

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Speaker 3: the Federal Reserve is balling a step or two behind

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Speaker 3: what they need to be doing. It doesn't necessarily look

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Speaker 3: like that's the case just yet. I would imagine that

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Speaker 3: we'll find out the labor report is going to suggest

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Speaker 3: some positive growth or not to the point where layoffs

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Speaker 3: are really accelerating to the state that would cause any

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Speaker 3: kind of consternation. But I do suspect there is going

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Speaker 3: to be a tremendous amount of focus on that report

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Speaker 3: because of what it leads to in potentially December. Are

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Speaker 3: we going to get the other rate cut or are

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Speaker 3: we not?

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Speaker 1: So?

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Speaker 2: A lot of the fedspig that we've been hearing recently

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Speaker 2: has focused more on the inflation side of the mandate

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Speaker 2: than on the labor market side of the mandate. Is

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Speaker 2: the Fed wrong to be a little concerned about inflation

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Speaker 2: in the way that we have heard it discussed.

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Speaker 3: I don't necessarily know that wrong is how I would characterize,

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Speaker 3: but I do think that what we're going to find

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Speaker 3: out is the labor market potentially weakens before we see

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Speaker 3: inflation rollover and come back down. It has been quite

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Speaker 3: a while since we've had inflation anywhere near that quote

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Speaker 3: unquote two percent target, and I can't imagine we're going

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Speaker 3: to be getting there in the near term. You know,

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Speaker 3: just as we look at the elections that happened in

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Speaker 3: America a couple of weeks ago, there was a ton

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Speaker 3: of focus on cost of living, on prices being too high,

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Speaker 3: on the voter base being unhappy with that, and I

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Speaker 3: think that's a big part of why we saw tariff

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Speaker 3: rollbacks that happened on Thursday and Friday of last week,

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Speaker 3: with a lot of food products in particular. So what

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Speaker 3: I would imagine is that the government is going to

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Speaker 3: work pretty aggressively to try and get cost of living

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Speaker 3: under control. We have midterm elections next year. They don't

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Speaker 3: want that to remain a focal point of the election cycle,

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Speaker 3: and so the FED focus on inflation. I get it,

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Speaker 3: I understand that. But more importantly, we have weakening in

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Speaker 3: the labor market that's showing up very presently right in

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Speaker 3: front of us.

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Speaker 2: So when you look at the kind of the weakness

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Speaker 2: and consumer sentiment, do you see that more as a

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Speaker 2: reflection of the choppiness of the jobs market or is

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Speaker 2: it an inflation story.

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Speaker 3: I think it's a bit of a mixed picture there.

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Speaker 3: The issue we have is that prices have gone up

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Speaker 3: and they have not come back down. We see certain pockets,

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Speaker 3: whether it's auto sales for instance, where the price of

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Speaker 3: a used auto has come down, but for the most part,

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Speaker 3: everything else has gone up after twenty twenty two and

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Speaker 3: just simply never went back down, and that's the part

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Speaker 3: that people are really wrestling with right now. Are they

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Speaker 3: feeling that their wages are growing quickly enough to offset

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Speaker 3: that cost of living that's going up. And I think

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Speaker 3: the answer that we're seeing from those consumer sentiment reports

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Speaker 3: is simply know, for the vast majority of people, they're

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Speaker 3: not feeling like their bank accounts are filling back up.

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Speaker 3: They're not feeling as though they have the opportunity to

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Speaker 3: succeed right now. But there is a bit of a

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Speaker 3: disconnect here, I think, as we all know, and a

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Speaker 3: lot of people have been talking about, there's the disconnect

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Speaker 3: of the top income households and those at the bottom.

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Speaker 3: Twenty twenty two was a story about wages rising for

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Speaker 3: lower income households. We haven't seen that be the case

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Speaker 3: over the past two years, and as you think about

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Speaker 3: consumer sentiment reports, I think it's reflecting that dichotomy beginning

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Speaker 3: to grow further and further. Apart as asset values have

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Speaker 3: gone up, home prices have gone up. We see the

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Speaker 3: stock market having been up quite a bit again this year,

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Speaker 3: and so that gap continues to widen from the top

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Speaker 3: and the bottom.

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Speaker 2: I understand that, but when you look at the problems

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Speaker 2: that we have been facing in the labor market. I'm

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Speaker 2: wondering whether you think there's a bit of structural kind

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Speaker 2: of redesign that's happened, and maybe immigration is a part

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Speaker 2: of that story. And the reason that I bring this

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Speaker 2: up is that is there not a debate over whether

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Speaker 2: or not lower interest rates is the right prescription to

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Speaker 2: address labor market weakness. Maybe we've entered an area where

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Speaker 2: lower rates really won't provide the juice that they have

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Speaker 2: in the past.

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Speaker 3: Yeah, I think you're right on point there. Immigration is

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Speaker 3: some thing that hasn't gotten as much conversation here recently,

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Speaker 3: but it's definitely impacting labor markets. And you know, when

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Speaker 3: we look at something like the wages of a native

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Speaker 3: born versus a foreign born employee, there's a pretty big

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Speaker 3: discrepancy where the average non native employee makes about eighty

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Speaker 3: seven cents on the dollar relative to somebody that was

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Speaker 3: born here. You know, as you think about the rotation

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Speaker 3: in the cycle that might be happening underneath the hood

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Speaker 3: of the labor market, that does place a bit of

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Speaker 3: pressure on the inflation side, and that could be why

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Speaker 3: the Federal Reserve is saying no, no, no, no, we still

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Speaker 3: need to focus on inflation, despite the fact that maybe

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Speaker 3: tariffs are getting rolled back and that will start to

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Speaker 3: roll over. But you do have to wonder if the

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Speaker 3: labor market starts to shrink or gets smaller because of

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Speaker 3: things like immigration, what does that do to economic growth?

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Speaker 3: You know, thus far in the year, I think we've

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Speaker 3: all seen that it's been okay, largely because of the

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Speaker 3: AI trade and the AI story and that boom and

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Speaker 3: cap X. But one has to wonder how long can

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Speaker 3: that persist and go on for.

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Speaker 2: Well, that's a great point, and it kind of goes

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Speaker 2: back to the point that you were talking about earlier

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Speaker 2: about the wealth effect in the equity market and how

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Speaker 2: that has helped to empower consumers, particularly at the upper

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Speaker 2: end of the income strata, those that have exposure to

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Speaker 2: the equity trade. So if there is some type of

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Speaker 2: faltering in the stock market that would maybe cause people

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Speaker 2: to spend less, is there the risk of a recession

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Speaker 2: in that scenario in your mind?

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Speaker 3: I don't know that we're there quite yet. You know,

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Speaker 3: even as much as we say perhaps the AI trade

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Speaker 3: could roll over, even what we're seeing in these last

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Speaker 3: couple of weeks is simply a reset of what was

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Speaker 3: a pretty concentrated set of positioning in the markets, and

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Speaker 3: you know, it would be hard to argue that that

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Speaker 3: wasn't the case. So I think what we're seeing these

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Speaker 3: last couple of weeks is simply a reset and positioning

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Speaker 3: before people get ready for this ramp up into the

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Speaker 3: end of the year. And at that point you can

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Speaker 3: start to look into twenty twenty six and say, Okay,

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Speaker 3: what's on the docket, what's on the When you start

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Speaker 3: to look at twenty twenty six, there are still a

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Speaker 3: number of positive tailwinds that are in place, whether we're

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Speaker 3: talking about the One Big Beautiful Bill Act and the

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Speaker 3: potential for that to really accelerate corporate spending, whether we're

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Speaker 3: talking about the asset values for top earning households being

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Speaker 3: high enough such that they're going to want to continue spending.

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Speaker 3: So you look at the real estate market is a

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Speaker 3: great example. The real estate market is still very tight,

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Speaker 3: and as much as people are talking about there's not

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Speaker 3: been a lot of activity in the real estate in

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Speaker 3: terms of transactions. The reality is that most people own

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Speaker 3: their house free and clear right now. The average carrying

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Speaker 3: cost of mortgage that does exist for those houses where

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Speaker 3: there's borrowing is still quite low, and so you've got

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Speaker 3: a different situation going in the housing market where it's

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Speaker 3: hard to imagine prices resetting all that that much lower.

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Speaker 3: And so I still think as you look into next year,

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Speaker 3: you've got these tailwinds that are in place that are

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Speaker 3: going to be supportive of the overall economy. It's just

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Speaker 3: a question of when we need to start rethinking the

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Speaker 3: AI trade and if that's going to begin to push

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Speaker 3: down economic growth. I think that's a ways off.

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Speaker 2: So as long as we're talking about the tolerance for risk,

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Speaker 2: maybe we can address what's going on in bitcoin in

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Speaker 2: Sunday trading in New York the price drop below the

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Speaker 2: closing level of twenty twenty four in early trading, and

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Speaker 2: with that decline the year to date gain for bitcoin

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Speaker 2: up thirty percent from the beginning of twenty twenty five.

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Speaker 2: That has evaporated, and I'm wondering whether you think that

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Speaker 2: it's any type of reliable indicator when it comes to

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Speaker 2: the tolerance for risk.

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Speaker 3: I don't know that it says anything about the broader economy,

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Speaker 3: but I think specifically to bitcoin itself, you have levered players,

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Speaker 3: and lever players come and go, there's a lot of

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Speaker 3: psychology and behavior that's involved there. Those behaviors can also

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Speaker 3: ebb and flow, and I think what we're seeing right

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Speaker 3: now is just one of those moments where the psychology

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Speaker 3: is stepping into reverse. So much of the conversation was

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Speaker 3: sec approving bitcoin ets and that's going to lead to

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Speaker 3: this massive adoption and growth and assets, and it has

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Speaker 3: done that to a certain degree. But when you have

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Speaker 3: levered players that are involved in a market like that,

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Speaker 3: particularly when there's only a single asset class, if you will,

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Speaker 3: they can flee very rapidly. And when you see drawdowns

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Speaker 3: that we had in the middle of October where bitcoin

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Speaker 3: was down ten percent in the course of five or

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Speaker 3: six hours, it gives you an indication that this event

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Speaker 3: was likely coming and you're going to have a recent

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Speaker 3: in positioning before it reaccelerates.

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Speaker 2: Right.

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Speaker 3: This is just the continuous cycle of cryptocurrencies and bitcoin.

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Speaker 3: We see this in speculative parts of the stock market too.

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Speaker 3: It's just human psychology. At the end of the day,

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Speaker 3: I don't know that I would ascribe a whole lot

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Speaker 3: more to it than that.

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

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Speaker 2: Chris Maxi is managing Director. He's also the chief market

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Speaker 2: strategist at Wealth Spire Advisors. Joining from Check Outside Washington,

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Speaker 2: d C here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Chrisner. Japan's economy

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Speaker 2: contracted in Q three for the first time in six

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Speaker 2: quarters on an annualized basis negative one point eight percent. Now,

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Speaker 2: contraction was not going to be a surprise at all.

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Speaker 2: In fact, this is better than what economists did forecast.

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Speaker 2: They were looking for a negative two point four percent.

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Speaker 2: And all of it comes as Japan's new Prime Minister

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Speaker 2: Takei Ichi is preparing some major stimulus. Bloomberg's Paul Jackson

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Speaker 2: covers the economies of Japan and South Korea.

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Speaker 1: The fall was expected. We knew there was going to

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Speaker 1: be a pullback from exports over the summer because we

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Speaker 1: had the bringing forward of exports in the previous quarters

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Speaker 1: companies tried to beat the tariffs of Donald Trump, so

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Speaker 1: that part was expected. We also knew there was going

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Speaker 1: to be a sharp drop off in spending on housing.

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Speaker 1: It's actually a third fall in the amount spent on

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Speaker 1: the property market, reflecting environmental changes regulations that came in

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Speaker 1: so there was again a flood of spending before the spring,

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Speaker 1: and then that's tailed off.

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Speaker 2: That is Bloomberg's Paul Jackson. So let's take a look

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Speaker 2: ahead now to the outlook for emerging markets in the

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Speaker 2: new year. That would include China. Trin Yuan is the

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Speaker 2: Emerging Market's Asia economist at the Texas. She spoke earlier

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Speaker 2: with Bloomberg TV host Paul Allen and April Honng. Now

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Speaker 2: Tren has a cautious outlook for the new year, and

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Speaker 2: the conversation began with a question about her trepidation.

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Speaker 4: We are starting this year with much more caution, just

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Speaker 4: because twenty five, despite the bark of tariffs, has been

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Speaker 4: quite great for em Asia experts pretty strong thanks to

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Speaker 4: front loading, thanks to the ICT cycle upturn, and of

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Speaker 4: course the big deployment of AI to helped the big

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Speaker 4: chippers and that has helped mitigate it a lot of

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Speaker 4: the drag and more importantly, Asia center bits had plenty

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Speaker 4: of room giving the soft dollar to cut right. So

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Speaker 4: we're looking into twenty twenty six with much more trepidation

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Speaker 4: because a lot of this is running out of sea.

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Speaker 4: We're looking at almost the end of the cutting cycle

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Speaker 4: for a lot of emerging Asian economies in raycut, there's

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Speaker 4: a very limited room for that. But at the same time,

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Speaker 4: exports are slowing right. Demand is decelerating in China very rapidly.

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Speaker 4: In the US demand is likely desilling also very rapidly.

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Speaker 4: So as a result, we're very cautious on the exports

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Speaker 4: for the next year. Exports outlook for the next year,

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Speaker 4: especially for Asian big traders and those more exposed to

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Speaker 4: the chip cycle that have performed extremely well this year.

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Speaker 5: Trin we've been seeing in the past two months or

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Speaker 5: so lots of central bank surprises. Increasingly hard to predict

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Speaker 5: what policymakers are going to do. I wonder though, going

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Speaker 5: into nixt year the risks we be talking not just

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Speaker 5: about rate cuts or holes, but about rate hikes given

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Speaker 5: the inflation trajectory.

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Speaker 4: Absolutely so. One of the big concerns when the China

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Speaker 4: data came out in October really is what is the

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Speaker 4: policy reaction function Given the fact that data has been

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Speaker 4: very underwhelming, and despite the fact that China has really

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Speaker 4: high real GDP growth, nominal GDP has been very underwhelming,

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Speaker 4: meaning real debt has risen for households, for corporate so

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Speaker 4: they find it easier to pay down debt. So the

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Speaker 4: move forward obviously is cutting rates, but it's not so

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Speaker 4: obvious as the dollar is quite uncertain, wey the direction

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Speaker 4: that we'll lead. So for Asian central banks, we're reaching

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Speaker 4: at the end of the traditional monetary support, so we

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Speaker 4: have to look into fiscal support. So when we are

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Speaker 4: looking at into a twenty twenty six where a monetary

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Speaker 4: tap is running dry and fiscal policy is getting much

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Speaker 4: more loose, there's a big question that who is going

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Speaker 4: to absorb a lot of this debt. Obviously, fiscal policy

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Speaker 4: is supp order for growth, especially for the pro growth agenda,

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Speaker 4: and we're looking at South Korea, China, Japan, Indonesia, many

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Speaker 4: countries easing fiscal policy, so that's a big concerned But

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Speaker 4: fundamentally we're not as concerned about inflation just yet given

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Speaker 4: where oil, given the fact that we fundamentally think the

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Speaker 4: output gap is quite a negative in Asia across the

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Speaker 4: board still, so demand, domestic demand is the weak link

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Speaker 4: of the equation for Asian growth. Exports have been strong,

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Speaker 4: so turning into the next year, fiscal policy we need

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Speaker 4: to support and oil is an important equation, and food

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Speaker 4: prices as well. Because oil we expect to be quite

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Speaker 4: subdued and food has been favoral So the risk factor

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Speaker 4: is that those factors will rise. We don't think that

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Speaker 4: is the case, so meaning inflation will remain manageable, But

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Speaker 4: we don't have a lot of space as we've already

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Speaker 4: front loaded a lot of these policy supports.

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Speaker 6: Yeah, Trind, we've got a case study today. In fact,

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Speaker 6: you mentioned Indonesia there. I mean, there is a case

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Speaker 6: in Indonesia for a cut, But to what degree do

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Speaker 6: your point? Is inflation standing in the way here? And

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Speaker 6: if you do see fiscal stimulus in Indonesia, that sounds

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Speaker 6: like it's hardly going to help the problem.

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Speaker 4: Absolutely, they've cut the most in Asia. One hundred and

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Speaker 4: fifty point basis points of cut really surprised markets when

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Speaker 4: they've been very dovish in front loading that cut to pause.

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Speaker 4: But the reason why the pause is very clear is

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Speaker 4: that the gap between the FED and Indonesia is really

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Speaker 4: very very narrow. If they were to cut this week,

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Speaker 4: that gap would narrow from seventy five basis point to

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Speaker 4: fifty And the market is uncertain where December is going

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Speaker 4: to be for the FED, right, will it cut the

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Speaker 4: upper bound from four percent to three point seventy five

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Speaker 4: in December. Given that is so in turn, a lot

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Speaker 4: of center branks am not going to take that risk,

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Speaker 4: particularly when their nominal policy rates are so low and

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Speaker 4: inflationary pressure is actually rising marginally for Indonesia, so real

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Speaker 4: rates are actually getting worse. Some other center branks have

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Speaker 4: much more space, like India, for example, inflation has been

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Speaker 4: very very low, they have a lot of space. But

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Speaker 4: given uncertainty again this elusive India trade deal putting a

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Speaker 4: lot of pressure on the rupee, the center rank also

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Speaker 4: is not really the one that with a lot of

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Speaker 4: space to cut, are not really cutting. So therefore this

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Speaker 4: caution is going to continue until we get clarity on

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Speaker 4: where the growth outlook for the US is. If the

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Speaker 4: growth outlook it is very very decent, and at the

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Speaker 4: same time we have a soft enough for the center

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Speaker 4: brank to cut and inflation is benign, then maybe we

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Speaker 4: can have a much more optimistic outlook for twenty twenty six.

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Speaker 4: For now, given the fact that we have the expert

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Speaker 4: cycle turning down and growth picture very weak, and big

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Speaker 4: question of course is China reflation trade right, will China

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Speaker 4: do enough fiscal to really reflate to this economy import

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Speaker 4: more for the rest of Asia versus this year where

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Speaker 4: imports have been quite weak.

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Speaker 6: Trim We've only got about thirty seconds remaining, But I

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Speaker 6: do you just want to quickly get your views on

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Speaker 6: the risk posed to some em Asian economies from the

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Speaker 6: potential correction in AI stocks, just very quickly.

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Speaker 4: So if you look at Korea, what the best stock

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Speaker 4: market in Asia, I'm not talked about much is really

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Speaker 4: ships have done really well. Autos have been very much down.

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Speaker 4: With the trade deal with the lower of tariffs. I

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Speaker 4: think autos would do next year much better. But the

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Speaker 4: questions will chips continue and the cyclical factor is fading

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Speaker 4: giving the cycle turning into here, so we may still

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Speaker 4: have very strong first quarter, but I think the risks

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Speaker 4: are really there that chips that have driven a lot

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Speaker 4: of this exceptional growth in Asia, it's going to decelerate.

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Speaker 4: So we looking at twenty twenty six with cyclical factors

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Speaker 4: risk rising, and at the same time fundamental growth is

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Speaker 4: looking very saggy globally. So the big question is how

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Speaker 4: big are we're going to get regarding the fiscal bazooka

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Speaker 4: into twenty twenty six so offset the external stress that

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Speaker 4: we're going to face.

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Speaker 2: That was trinun Emerging Markets Asia economists at the Texas

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Speaker 2: speaking earlier with Bloomberg TV hosts Paul Allen and April

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Speaker 2: Honk bringing it to you here on the Daybreak Asia Podcast.

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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 Chrisner, and this is Bloomberg