1 00:00:00,160 --> 00:00:06,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,680 --> 00:00:12,879 Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. 3 00:00:12,920 --> 00:00:15,440 Speaker 2: You can join Brian Curtis and myself for the stories, 4 00:00:15,480 --> 00:00:18,560 Speaker 2: making news and moving markets in the APAC region. You 5 00:00:18,640 --> 00:00:21,480 Speaker 2: can subscribe to the show anywhere you get your podcast 6 00:00:21,560 --> 00:00:24,919 Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the 7 00:00:24,960 --> 00:00:26,120 Speaker 2: Bloomberg Business App. 8 00:00:27,320 --> 00:00:31,000 Speaker 3: Jason Ley, who's head of Apac Equity and Derivative Strategy 9 00:00:31,480 --> 00:00:37,440 Speaker 3: at BNP Pariba, hope spring's eternal, except maybe in China 10 00:00:37,520 --> 00:00:40,319 Speaker 3: at the moment. You know, there's been a little bit 11 00:00:40,320 --> 00:00:43,080 Speaker 3: of skepticism because you've had a lot of false stones 12 00:00:43,080 --> 00:00:46,879 Speaker 3: and stimulus in China, even though this latest round of 13 00:00:46,920 --> 00:00:50,159 Speaker 3: stimulus seems to be really right across the board and 14 00:00:50,200 --> 00:00:53,600 Speaker 3: it did create a lot of enthusiasm. So was yesterday's 15 00:00:53,600 --> 00:00:57,680 Speaker 3: selling in the Hong Kong market a sort of alarm? 16 00:00:57,920 --> 00:01:00,560 Speaker 3: Was it a signal that investors are losing confidence or 17 00:01:00,600 --> 00:01:02,320 Speaker 3: do you think that confidence is still there? 18 00:01:03,320 --> 00:01:05,840 Speaker 1: I think that's a fair question, because indeed we did 19 00:01:05,920 --> 00:01:09,760 Speaker 1: experience one of the largest cell of in the index history. 20 00:01:10,200 --> 00:01:12,399 Speaker 1: But we'll also have to look a little bit back 21 00:01:12,520 --> 00:01:15,720 Speaker 1: just to put things into perspective as well, because during 22 00:01:15,720 --> 00:01:18,479 Speaker 1: the Golden Week, while China on Show was closed, Hong 23 00:01:18,600 --> 00:01:21,679 Speaker 1: Kong became this kind of placeholders for all of your 24 00:01:21,880 --> 00:01:26,040 Speaker 1: China optimism for about seven trading dates, sorry, seven calendar dates, 25 00:01:26,080 --> 00:01:28,160 Speaker 1: and so with that the market was up about ten 26 00:01:28,200 --> 00:01:31,280 Speaker 1: to fifteen percent. So what happened yesterday is that we've 27 00:01:31,360 --> 00:01:34,280 Speaker 1: unwound all of those rallied during the Golden Week, So 28 00:01:34,280 --> 00:01:38,119 Speaker 1: it's basically that we have a reset in terms of expectation. 29 00:01:38,760 --> 00:01:40,840 Speaker 1: It is true that, as you mentioned earlier, that the 30 00:01:40,880 --> 00:01:44,080 Speaker 1: market did get excited about this new round of stimulus, 31 00:01:44,160 --> 00:01:47,200 Speaker 1: given that there are a few innovative new policies being outlined, 32 00:01:47,840 --> 00:01:50,160 Speaker 1: but we still have yet to see the bulk of 33 00:01:50,240 --> 00:01:54,160 Speaker 1: it being implemented. So certainly the NDRC breething yesterday may 34 00:01:54,200 --> 00:01:56,320 Speaker 1: have delayed some of those optimism, at least in the 35 00:01:56,400 --> 00:01:57,000 Speaker 1: very near term. 36 00:01:57,160 --> 00:01:59,880 Speaker 2: I'm wondering whether a lot of this is new long 37 00:02:00,040 --> 00:02:03,200 Speaker 2: positions or just a big batch of short covering. Which 38 00:02:03,240 --> 00:02:03,480 Speaker 2: is it. 39 00:02:05,120 --> 00:02:08,120 Speaker 1: I would say probably a combination of a few things. 40 00:02:08,320 --> 00:02:10,440 Speaker 1: So first of all, I think initially, if we go 41 00:02:10,600 --> 00:02:14,080 Speaker 1: back to middle of September where the rally first started, 42 00:02:14,560 --> 00:02:16,800 Speaker 1: I would imagine that the first part of that feels 43 00:02:16,840 --> 00:02:19,200 Speaker 1: like a short covering. I think as we move closer 44 00:02:19,200 --> 00:02:21,639 Speaker 1: and closer to the latter half of September, especially after 45 00:02:22,080 --> 00:02:26,720 Speaker 1: the joint press briefing between this PBOC and the financial regulators, 46 00:02:27,040 --> 00:02:29,960 Speaker 1: what we observe is that there's a lot more genuine 47 00:02:30,040 --> 00:02:32,960 Speaker 1: money coming in to go along. And this is also 48 00:02:33,080 --> 00:02:36,519 Speaker 1: true if you look at the China ETF listed in 49 00:02:36,560 --> 00:02:39,160 Speaker 1: the US. So, for example, if you take a look 50 00:02:39,200 --> 00:02:43,120 Speaker 1: at ethics side between middle of September and early October, 51 00:02:43,520 --> 00:02:46,040 Speaker 1: I think yesterday, because today's number is not out yet, 52 00:02:46,360 --> 00:02:49,040 Speaker 1: we've actually seen more than four billion US dollars worth 53 00:02:49,080 --> 00:02:52,240 Speaker 1: of info. Just to contextualize that, that is greater than 54 00:02:52,520 --> 00:02:55,480 Speaker 1: the sum total of two of the largest India ETF 55 00:02:55,520 --> 00:02:57,800 Speaker 1: in the US year to date. So it shows that 56 00:02:57,880 --> 00:03:02,080 Speaker 1: there is this rapid shift when it comes to investors sentiment, 57 00:03:02,360 --> 00:03:05,160 Speaker 1: not just in Nasia, but also in US and globally. 58 00:03:05,760 --> 00:03:10,160 Speaker 3: Jason, a moment ago, you referred to innovative ideas, some 59 00:03:10,240 --> 00:03:13,200 Speaker 3: new innovative ideas in China. What are those to you? 60 00:03:14,320 --> 00:03:18,359 Speaker 1: Sure? I think the two came from the PBOC facilities. 61 00:03:18,480 --> 00:03:22,079 Speaker 1: So PBOC introduced two new things. First, one is a 62 00:03:22,240 --> 00:03:26,400 Speaker 1: five hundred billion remy be worth of security swap facility, 63 00:03:26,440 --> 00:03:30,519 Speaker 1: where financial institution can swap their holdings with the PBOC 64 00:03:30,960 --> 00:03:34,920 Speaker 1: in exchange for high quality and liquid asset where they 65 00:03:34,960 --> 00:03:39,000 Speaker 1: can use to finance their equity purchase. The second is 66 00:03:39,080 --> 00:03:43,840 Speaker 1: a fixed rate loan that will allow corporates to buy 67 00:03:43,920 --> 00:03:46,840 Speaker 1: back their shares, both of which are very new. We 68 00:03:46,880 --> 00:03:51,200 Speaker 1: have never seen anything like that in previous capitol market reform. 69 00:03:51,680 --> 00:03:54,360 Speaker 1: They are probably also borrowing the spirit from some of 70 00:03:54,360 --> 00:03:57,400 Speaker 1: the other corporate governance or captoal market reform that we 71 00:03:57,440 --> 00:03:59,880 Speaker 1: have seen in the past. So, for example, we know 72 00:04:00,120 --> 00:04:03,240 Speaker 1: that central banks like Bank of Japan has been buying 73 00:04:03,240 --> 00:04:07,280 Speaker 1: ETF during the economics era. The PBOC does not want 74 00:04:07,320 --> 00:04:11,000 Speaker 1: to buy ETF directly, but with this swap facility, they 75 00:04:11,000 --> 00:04:15,240 Speaker 1: are allowing the financial institutions to increase the equity exposures. 76 00:04:15,680 --> 00:04:20,200 Speaker 1: On the buybackside. We have seen Western companies opportunistically take 77 00:04:20,240 --> 00:04:22,919 Speaker 1: advantage of the low borrowing costs in the debt market 78 00:04:22,960 --> 00:04:24,680 Speaker 1: to buy equity, and they're trying to do the same 79 00:04:24,720 --> 00:04:25,039 Speaker 1: in China. 80 00:04:25,320 --> 00:04:27,560 Speaker 3: Just be briefly done before we go. We This is 81 00:04:27,640 --> 00:04:30,240 Speaker 3: mooted by the PBOC, but it's not confirmed yet. 82 00:04:30,320 --> 00:04:33,480 Speaker 1: Right in terms of the policy. They have confirmed because 83 00:04:33,520 --> 00:04:36,160 Speaker 1: the Governor of the PBOC announced it that the joint 84 00:04:36,160 --> 00:04:38,880 Speaker 1: press conference. What is not known nor the details, i e. 85 00:04:39,000 --> 00:04:42,120 Speaker 1: Who can borrow, what are the terms, what are the duration, 86 00:04:42,240 --> 00:04:42,960 Speaker 1: and things like that. 87 00:04:43,120 --> 00:04:45,920 Speaker 2: So I'm curious, Jason, in terms of what you're hearing 88 00:04:45,920 --> 00:04:48,680 Speaker 2: from clients, whether they have bought into this idea or 89 00:04:48,760 --> 00:04:53,520 Speaker 2: whether there is still a fair amount of healthy skepticism. 90 00:04:54,080 --> 00:04:57,160 Speaker 1: I think, based on a client conversation, clients do believe 91 00:04:57,200 --> 00:05:00,800 Speaker 1: that the government is committed to stimulate between now and 92 00:05:00,920 --> 00:05:04,279 Speaker 1: your end, and this is actually reaffirmed by the NDRC 93 00:05:04,400 --> 00:05:07,440 Speaker 1: press briefing. What is still a little bit unclear to 94 00:05:07,560 --> 00:05:10,479 Speaker 1: us is what about twenty twenty five Because part of 95 00:05:10,520 --> 00:05:14,040 Speaker 1: the reason why investors get very i would say pesstimistics 96 00:05:14,480 --> 00:05:18,559 Speaker 1: heading into September is because the Chinese policy maker seems 97 00:05:18,600 --> 00:05:23,479 Speaker 1: to be prioritizing national security overgrowth, and so until they 98 00:05:23,560 --> 00:05:26,800 Speaker 1: see a meaningful shift in the narrative or the language 99 00:05:27,040 --> 00:05:29,839 Speaker 1: from the policymaker on the medium term go perhaps there's 100 00:05:29,880 --> 00:05:32,360 Speaker 1: still a segment of the investor base that are still 101 00:05:32,360 --> 00:05:34,880 Speaker 1: a little bit skeptical regarding twenty twenty five. But I 102 00:05:34,920 --> 00:05:36,960 Speaker 1: think for the rest of the year it certainly they 103 00:05:37,040 --> 00:05:39,039 Speaker 1: feel that the government will try their best to meet 104 00:05:39,040 --> 00:05:39,880 Speaker 1: that official target. 105 00:05:40,160 --> 00:05:43,080 Speaker 3: Yeah, so that's quite critical what you mentioned there, because 106 00:05:43,480 --> 00:05:46,800 Speaker 3: you know, you've got to believe that Hijinping believes that 107 00:05:46,880 --> 00:05:49,160 Speaker 3: this is important, this is the new direction. So are 108 00:05:49,160 --> 00:05:51,160 Speaker 3: you a buyer here or are you gausious? 109 00:05:51,600 --> 00:05:54,000 Speaker 1: I think depends on which market we are looking at. 110 00:05:54,080 --> 00:05:56,719 Speaker 1: So right now, if you look at the China onshore market, 111 00:05:57,040 --> 00:06:00,000 Speaker 1: despite that, I think we had a roughly eighteen percent 112 00:06:00,120 --> 00:06:03,520 Speaker 1: reversal between Hong Kong and China Asia yesterday, the onshore 113 00:06:03,560 --> 00:06:06,160 Speaker 1: market is still underperform Hong Kong by about six seven 114 00:06:06,160 --> 00:06:08,080 Speaker 1: percent year to date. So I think in the near 115 00:06:08,160 --> 00:06:10,800 Speaker 1: term that gap will likely close as we see more 116 00:06:10,839 --> 00:06:13,880 Speaker 1: and more domestic investors shifting away from cash and bond 117 00:06:13,920 --> 00:06:16,839 Speaker 1: into the equity market. I think into twenty twenty five. 118 00:06:16,880 --> 00:06:19,919 Speaker 1: Than it requires a fundamental shift in terms of the 119 00:06:19,960 --> 00:06:23,760 Speaker 1: broader growth, which we'll learn from the an New Economic 120 00:06:23,760 --> 00:06:25,279 Speaker 1: Work conference in mid December. 121 00:06:25,520 --> 00:06:27,640 Speaker 3: All right, Jason, very good stuff. Thank you so much 122 00:06:27,680 --> 00:06:30,400 Speaker 3: for coming into our studios. Jason Loy there, head of 123 00:06:30,440 --> 00:06:34,360 Speaker 3: APAK Equity and Derivative Strategy over at BNP, part of Bond. 124 00:06:37,920 --> 00:06:43,160 Speaker 2: Bloomberg Opinion informed perspectives and expert data driven commentary on 125 00:06:43,279 --> 00:06:44,240 Speaker 2: breaking news. 126 00:06:46,680 --> 00:06:49,680 Speaker 3: We're joined by opinion Columbus Shulely Reren, who is writing 127 00:06:49,680 --> 00:06:54,040 Speaker 3: about China's recent round of economic stimulus. Shuly, thank you 128 00:06:54,279 --> 00:06:57,040 Speaker 3: very much. You can just sort of say here, shule 129 00:06:57,160 --> 00:06:59,920 Speaker 3: Ren t Shijinping, don't get cold feet. 130 00:07:00,080 --> 00:07:05,440 Speaker 4: Now explain well, the market was very disappointed by this 131 00:07:06,080 --> 00:07:11,400 Speaker 4: very high profile media briefing from the national The n 132 00:07:11,440 --> 00:07:15,600 Speaker 4: d r C basically is the China's National Economic planner. 133 00:07:16,000 --> 00:07:16,480 Speaker 3: Uh. 134 00:07:16,720 --> 00:07:19,920 Speaker 4: I don't know what some traders were expecting because it's 135 00:07:19,960 --> 00:07:22,080 Speaker 4: it's really not nd r c's job, but they were 136 00:07:22,120 --> 00:07:26,000 Speaker 4: hoping that at that briefing there will be uh like 137 00:07:26,680 --> 00:07:32,360 Speaker 4: trillion dollar uh stimulus physical stimulus numbers being floated out, 138 00:07:32,400 --> 00:07:33,400 Speaker 4: and they didn't see that. 139 00:07:34,280 --> 00:07:36,200 Speaker 2: So does this really pave the way for a lot 140 00:07:36,280 --> 00:07:38,360 Speaker 2: more from the government, I mean in the near term? 141 00:07:38,400 --> 00:07:41,520 Speaker 2: Here is it kind of reached a critical situation where 142 00:07:41,960 --> 00:07:45,040 Speaker 2: if authorities don't do more, the market is going to 143 00:07:46,320 --> 00:07:48,080 Speaker 2: kind of take them to task, as it were. 144 00:07:49,040 --> 00:07:51,680 Speaker 4: I think that the authorities have to follow up at 145 00:07:51,680 --> 00:07:54,280 Speaker 4: this point. I mean nd r C, granted it's not 146 00:07:54,360 --> 00:07:58,200 Speaker 4: their job to throw out those big stimulus numbers. But 147 00:07:58,680 --> 00:08:02,200 Speaker 4: you know, like the industry Finance is expected to hold 148 00:08:02,200 --> 00:08:06,239 Speaker 4: a press a press conference, and then the State Council 149 00:08:06,720 --> 00:08:09,480 Speaker 4: as well. And the recall when China had a big 150 00:08:09,600 --> 00:08:15,000 Speaker 4: stimulus measure in two thousand and eight after the global 151 00:08:15,000 --> 00:08:19,600 Speaker 4: financial crisis, it was one job out the premiere of 152 00:08:19,680 --> 00:08:23,640 Speaker 4: China back then floating the four trillion un number. So 153 00:08:24,240 --> 00:08:27,640 Speaker 4: people are actually expecting that sometime this month, I mean 154 00:08:27,800 --> 00:08:30,920 Speaker 4: by the end of this month, and if it's not happening, 155 00:08:31,200 --> 00:08:33,800 Speaker 4: this rally will completely fizzle out. 156 00:08:34,360 --> 00:08:37,240 Speaker 3: We did get some innovative ideas that were rolled out 157 00:08:37,280 --> 00:08:41,719 Speaker 3: before the announcement by the PBOC of that swamp facility 158 00:08:42,280 --> 00:08:45,160 Speaker 3: for five hundred billion dollars and then also another one 159 00:08:45,160 --> 00:08:49,400 Speaker 3: for three hundred billion where companies could borrow could borrow 160 00:08:49,440 --> 00:08:52,040 Speaker 3: to buy back shares. This got a lot of attention 161 00:08:52,520 --> 00:08:56,839 Speaker 3: from investors. Is that in your mind? Is that an 162 00:08:56,880 --> 00:09:00,160 Speaker 3: idea of innovation and do you think that there's more 163 00:09:00,000 --> 00:09:00,880 Speaker 3: where that came from? 164 00:09:01,280 --> 00:09:04,600 Speaker 4: I think it's interesting right that. I mean, PBOC entering 165 00:09:05,320 --> 00:09:09,280 Speaker 4: the bound market just a month ago was already considered innovative, 166 00:09:09,400 --> 00:09:14,440 Speaker 4: and now it's considering providing infrastructure to help their own 167 00:09:14,600 --> 00:09:18,240 Speaker 4: entities to prop up the star market. That's definitely very innovative, 168 00:09:18,280 --> 00:09:21,440 Speaker 4: and that's why investors are so excited because they think 169 00:09:21,600 --> 00:09:24,199 Speaker 4: China is really bring the big guns out. I mean, 170 00:09:24,400 --> 00:09:28,520 Speaker 4: it's not just simple raycuts or reserve racial cuts. And 171 00:09:30,000 --> 00:09:34,080 Speaker 4: that announcement itself like they haven't set up the mechanism 172 00:09:34,200 --> 00:09:37,199 Speaker 4: yet and we don't have the details as to who 173 00:09:37,400 --> 00:09:40,760 Speaker 4: can tap onto those swaps facilities. But the fact that 174 00:09:40,800 --> 00:09:43,720 Speaker 4: they talked about it at all, it shows that this 175 00:09:43,840 --> 00:09:49,160 Speaker 4: time the government is serious. They are trying to, you know, 176 00:09:49,880 --> 00:09:50,880 Speaker 4: reboot the economy. 177 00:09:51,000 --> 00:09:53,120 Speaker 2: Yeah, but they're in a very tough situation. I mean, 178 00:09:53,200 --> 00:09:55,920 Speaker 2: you reboot the economy by borrowing a lot of money, 179 00:09:56,000 --> 00:09:58,960 Speaker 2: and at some point the credit markets are going to 180 00:09:59,000 --> 00:10:03,840 Speaker 2: have something to say about that fact as well. Right, Well, we. 181 00:10:03,760 --> 00:10:08,120 Speaker 4: All know China's credit market is not that real, uh 182 00:10:08,200 --> 00:10:12,160 Speaker 4: They A lot of the credit is actually held by 183 00:10:12,280 --> 00:10:16,800 Speaker 4: the big stay owned banks. And let's be frank, these 184 00:10:16,840 --> 00:10:19,640 Speaker 4: are now commercial banks that these are policy banks, and 185 00:10:19,760 --> 00:10:23,800 Speaker 4: China is talking about We heard the announcement. China was 186 00:10:23,840 --> 00:10:27,280 Speaker 4: talking about recapitalizing the big banks. Again, it was a 187 00:10:27,320 --> 00:10:28,160 Speaker 4: big gun out. 188 00:10:28,920 --> 00:10:32,720 Speaker 3: Back to the original point, investors are skeptical about these 189 00:10:32,920 --> 00:10:35,640 Speaker 3: types of developments in China because you know, they've had 190 00:10:35,679 --> 00:10:39,920 Speaker 3: their fingers burned many times before. So you know you're saying, 191 00:10:39,960 --> 00:10:43,000 Speaker 3: don't get cold feet to the president. Do we see 192 00:10:43,040 --> 00:10:45,760 Speaker 3: a real buy in from him on this? I mean, 193 00:10:45,760 --> 00:10:48,440 Speaker 3: did they reach that sort of pain threshold that Goldman 194 00:10:48,480 --> 00:10:48,960 Speaker 3: referred to. 195 00:10:49,600 --> 00:10:55,200 Speaker 4: It seems like it because they had the top policy makers. 196 00:10:55,240 --> 00:10:58,720 Speaker 4: They have four meetings, the politicoral meetings a year, and 197 00:10:58,760 --> 00:11:03,000 Speaker 4: then in September they usually talk about other stuff like politics, 198 00:11:03,040 --> 00:11:06,960 Speaker 4: social affairs, and etc. But in September they actually discuss 199 00:11:07,040 --> 00:11:11,240 Speaker 4: the economic situation. And then after the meeting in the 200 00:11:11,280 --> 00:11:15,440 Speaker 4: readout they talked about boosting fiscal spending. That is very 201 00:11:15,520 --> 00:11:18,400 Speaker 4: very unusual, and that meeting is cheered by presence. 202 00:11:19,240 --> 00:11:22,280 Speaker 2: So is it possible that this really does kind of 203 00:11:22,320 --> 00:11:26,080 Speaker 2: shock consumer sentiment, a small business sentiment in China in 204 00:11:26,120 --> 00:11:28,839 Speaker 2: a positive direction or might that also fail? 205 00:11:29,920 --> 00:11:33,240 Speaker 4: I think having anything at all, like the fact that 206 00:11:33,280 --> 00:11:36,000 Speaker 4: the store market is responding at all, is good news. 207 00:11:36,280 --> 00:11:39,160 Speaker 4: I mean, really, reflating the economy is going to take 208 00:11:39,200 --> 00:11:42,600 Speaker 4: a lot longer than the store market rally, but at 209 00:11:42,679 --> 00:11:47,520 Speaker 4: least like basically, the Chinese economy has been very sleepy 210 00:11:47,559 --> 00:11:50,240 Speaker 4: fo a year, and if they don't do anything now. 211 00:11:50,800 --> 00:11:54,200 Speaker 4: The government is literally sleepwalking China into the next Japan. 212 00:11:55,080 --> 00:11:58,280 Speaker 4: The animal spirit will be out, will have decades of deflation. 213 00:11:58,360 --> 00:11:59,560 Speaker 4: They really have to do it now. 214 00:12:00,800 --> 00:12:03,520 Speaker 3: All right, Well, we could go on, but we'll have 215 00:12:03,559 --> 00:12:06,720 Speaker 3: to save it for another day. Opinion Colin mess Shuley 216 00:12:06,800 --> 00:12:09,920 Speaker 3: ren with us here in our studios because I did 217 00:12:09,960 --> 00:12:13,679 Speaker 3: want to get some ideas from you about Lee Chiang 218 00:12:13,840 --> 00:12:17,120 Speaker 3: reaching out to the experts and academics. We'll do that 219 00:12:17,480 --> 00:12:20,640 Speaker 3: on another day. You can read more on Shuley's piece 220 00:12:20,720 --> 00:12:23,840 Speaker 3: and other pieces from Bloomberg Opinion at Bloomberg dot com, 221 00:12:23,840 --> 00:12:27,599 Speaker 3: slash opinion and on the terminal by typing OPI n go. 222 00:12:35,240 --> 00:12:38,120 Speaker 3: Joining us now on the program is Noel Dixon, Global 223 00:12:38,160 --> 00:12:42,520 Speaker 3: Markets macro strategist at State Street. For a closer look, Noel, 224 00:12:42,559 --> 00:12:44,439 Speaker 3: thank you very much for coming in. I wanted to 225 00:12:44,480 --> 00:12:46,400 Speaker 3: ask you first about the US economy. We can circle 226 00:12:46,440 --> 00:12:51,200 Speaker 3: back to China in a few moments. The non interest 227 00:12:51,280 --> 00:12:54,560 Speaker 3: rate drivers in the US economy are multiple here at 228 00:12:54,600 --> 00:12:56,680 Speaker 3: the moment we mentioned that we just saw the cut 229 00:12:56,760 --> 00:13:00,400 Speaker 3: in New Zealand. Are those drivers in the US economy? 230 00:13:00,480 --> 00:13:04,560 Speaker 3: The tailwinds there is that almost enough to make it 231 00:13:04,559 --> 00:13:06,520 Speaker 3: sure of not matter too much about whether the FED 232 00:13:06,559 --> 00:13:07,959 Speaker 3: cuts interest rates from here. 233 00:13:08,640 --> 00:13:10,920 Speaker 5: Yeah, no, I think I think the Fed cutting rates 234 00:13:11,000 --> 00:13:14,640 Speaker 5: is still going to be important for the US economy, 235 00:13:15,800 --> 00:13:18,559 Speaker 5: you know, I think there it's it's interesting. I mean, 236 00:13:18,679 --> 00:13:21,199 Speaker 5: it's quite unusual for them to be cutting into strength. 237 00:13:22,360 --> 00:13:24,480 Speaker 5: You know, the only analog you could probably think of 238 00:13:24,600 --> 00:13:28,160 Speaker 5: is ninety five, and you know, that was actually a 239 00:13:28,160 --> 00:13:31,160 Speaker 5: pretty decent time for risks. So I think I think, uh, 240 00:13:31,520 --> 00:13:36,000 Speaker 5: you know, interest rate cuts is definitely meaningful for the 241 00:13:36,080 --> 00:13:36,880 Speaker 5: US economy. 242 00:13:37,040 --> 00:13:39,319 Speaker 2: Yeah, but I remember the bond market doing a lot 243 00:13:39,320 --> 00:13:41,400 Speaker 2: of work for the FED back then, right, could you 244 00:13:41,440 --> 00:13:43,880 Speaker 2: make the same case now that the market rates have 245 00:13:43,960 --> 00:13:45,480 Speaker 2: really done a lot of the heavy lifting. 246 00:13:46,720 --> 00:13:50,040 Speaker 5: Yeah, you know, I think I think, you know, definitely 247 00:13:50,120 --> 00:13:54,720 Speaker 5: the market front ran the FED, you know, as they 248 00:13:54,720 --> 00:13:58,760 Speaker 5: were signaling in their guidance in the SEP. You know, 249 00:13:58,840 --> 00:14:01,880 Speaker 5: now things are probably be different. And I think the 250 00:14:01,960 --> 00:14:04,480 Speaker 5: next question UH investors are going to have to answer 251 00:14:04,559 --> 00:14:07,160 Speaker 5: is where's the terminal rate? And I think that's uh 252 00:14:07,320 --> 00:14:11,240 Speaker 5: basically where we're headed in the next, uh, next couple 253 00:14:11,280 --> 00:14:11,720 Speaker 5: of months. 254 00:14:12,320 --> 00:14:14,160 Speaker 3: So I mentioned the tailwinds, but we have a lot 255 00:14:14,160 --> 00:14:19,400 Speaker 3: of headwinds too, particularly with geopolitical tensions, with kind of 256 00:14:19,480 --> 00:14:23,520 Speaker 3: instability to a certain degree in and around China, both 257 00:14:23,560 --> 00:14:26,840 Speaker 3: with the economy and also relations with the West, UH, 258 00:14:26,880 --> 00:14:29,720 Speaker 3: and obviously the Middle East and the possibility of a 259 00:14:29,800 --> 00:14:32,080 Speaker 3: of a bigger war. When you weigh up that the 260 00:14:32,160 --> 00:14:35,760 Speaker 3: headwinds and the tailwinds, Uh, does it come out you know, 261 00:14:35,840 --> 00:14:39,560 Speaker 3: are you positive or are you concerned and worried? Uh? 262 00:14:39,720 --> 00:14:42,880 Speaker 5: I would say I'm a little worried, but but you know, 263 00:14:43,400 --> 00:14:47,000 Speaker 5: I think the biggest concern, of course, is if it 264 00:14:47,200 --> 00:14:50,880 Speaker 5: if the situation in the Middle East really continues to 265 00:14:51,000 --> 00:14:54,880 Speaker 5: escalate from here. We already got a pretty big move 266 00:14:54,960 --> 00:14:58,840 Speaker 5: in energy prices, and you know, if that continues to 267 00:14:58,920 --> 00:15:03,200 Speaker 5: be Uh, if we get a nonlinear, aggressive move in 268 00:15:04,640 --> 00:15:09,920 Speaker 5: some commodity prices, that can that can definitely offset some 269 00:15:10,000 --> 00:15:13,680 Speaker 5: of the progress on we've made. I would say, not 270 00:15:13,720 --> 00:15:16,880 Speaker 5: just US inflation, but global inflation. I think a lot 271 00:15:16,880 --> 00:15:19,880 Speaker 5: of the progress has been from the acyclical side of inflation. 272 00:15:20,000 --> 00:15:23,920 Speaker 5: So that's the part central banks basically don't control. And 273 00:15:23,960 --> 00:15:26,440 Speaker 5: if you get a reversal in that that could be problematic. 274 00:15:26,600 --> 00:15:29,040 Speaker 2: What is the probability of something like that occurring? In 275 00:15:29,080 --> 00:15:31,360 Speaker 2: your work, I mean, do you do you think that 276 00:15:31,480 --> 00:15:35,040 Speaker 2: we could see kind of a resumption of inflationary pressure building. 277 00:15:36,000 --> 00:15:40,480 Speaker 5: It's possible again the Middle East, of course, that can 278 00:15:40,600 --> 00:15:44,320 Speaker 5: drive energy prices. I think, like I said, the Fed's 279 00:15:44,360 --> 00:15:47,080 Speaker 5: cutting into strength, and then you have China on the 280 00:15:47,120 --> 00:15:51,560 Speaker 5: other end implementing stimulus. So across the board, I think 281 00:15:51,600 --> 00:15:55,960 Speaker 5: you get in this liquidity injection in that being augmented 282 00:15:56,040 --> 00:16:00,480 Speaker 5: by higher energy prices could certainly revert some of the 283 00:16:00,480 --> 00:16:01,560 Speaker 5: progress on inflation. 284 00:16:02,720 --> 00:16:06,360 Speaker 3: Noel, when we talk about headwinds, we haven't mentioned the 285 00:16:06,400 --> 00:16:10,520 Speaker 3: election yet, and I suppose in asking the question, obviously 286 00:16:10,560 --> 00:16:12,480 Speaker 3: there are a lot of people that feel very strongly 287 00:16:12,680 --> 00:16:16,239 Speaker 3: about this, but for people like US journalists and strategist, 288 00:16:16,320 --> 00:16:19,840 Speaker 3: you're trying to take a more neutral or nuanced look 289 00:16:19,880 --> 00:16:22,720 Speaker 3: at things. Do you see the election as a potential 290 00:16:22,800 --> 00:16:25,520 Speaker 3: challenge for markets or perhaps as a boon. 291 00:16:26,080 --> 00:16:28,600 Speaker 5: I think it could be in the near term. If 292 00:16:28,600 --> 00:16:31,720 Speaker 5: you look since the eighties, you always get a risk 293 00:16:31,760 --> 00:16:35,080 Speaker 5: premium baked into two markets. You look at the seven 294 00:16:35,160 --> 00:16:37,720 Speaker 5: day moving average of the VICS or the move index, 295 00:16:39,040 --> 00:16:41,800 Speaker 5: you know, we always get this sort of spike into 296 00:16:41,840 --> 00:16:44,680 Speaker 5: the election. I think the results are going to be 297 00:16:44,840 --> 00:16:48,120 Speaker 5: important if we get a split Congress, regardless of who 298 00:16:48,160 --> 00:16:51,160 Speaker 5: wins I think we're in good shape. But if you 299 00:16:51,200 --> 00:16:54,160 Speaker 5: get you know, say like a red wave, I think 300 00:16:54,200 --> 00:16:57,800 Speaker 5: you could start to get questions about the US fiscal position. 301 00:16:58,440 --> 00:17:01,760 Speaker 5: And then regardless of who wins, I think they both 302 00:17:01,800 --> 00:17:04,560 Speaker 5: plan to spend quite a bit of money. So it's 303 00:17:04,600 --> 00:17:08,040 Speaker 5: it's difficult for me to see how there's not a 304 00:17:08,080 --> 00:17:10,479 Speaker 5: floor under the long end of the US curve and 305 00:17:10,480 --> 00:17:12,359 Speaker 5: that could have implications. 306 00:17:12,800 --> 00:17:16,160 Speaker 2: So, Noel, you're normally based in Boston. From what I understand, 307 00:17:16,160 --> 00:17:18,600 Speaker 2: what's the mission there in Hong Kong on this trip? 308 00:17:19,960 --> 00:17:22,160 Speaker 5: Yeah, so in Hong Kong, you know, the the main 309 00:17:22,240 --> 00:17:27,439 Speaker 5: mission is basically to communicate uh here our sort of 310 00:17:27,520 --> 00:17:30,800 Speaker 5: viewpoint from the US as as it relates to the election. 311 00:17:31,560 --> 00:17:34,040 Speaker 5: A lot of you know, a lot of investors out 312 00:17:34,080 --> 00:17:38,960 Speaker 5: here are interested in in you know, the US growth 313 00:17:39,680 --> 00:17:42,760 Speaker 5: forecast and is it a soft landing, is it a 314 00:17:42,800 --> 00:17:46,600 Speaker 5: no landing? You know, are we I think there was 315 00:17:46,640 --> 00:17:48,800 Speaker 5: a little bit of concern with when we had the 316 00:17:48,840 --> 00:17:51,280 Speaker 5: tick up and we triggered the some rule, is it 317 00:17:51,320 --> 00:17:54,240 Speaker 5: actually different this time? So I think, you know, so 318 00:17:54,320 --> 00:17:57,680 Speaker 5: it's basically the you know, the US economy, what what 319 00:17:57,680 --> 00:18:00,760 Speaker 5: what do we expect from from the elect the election 320 00:18:00,840 --> 00:18:02,359 Speaker 5: and what are the risky outcomes. 321 00:18:02,760 --> 00:18:06,320 Speaker 3: I'm curious what you're hearing from clients and from people 322 00:18:06,320 --> 00:18:09,200 Speaker 3: that you talk to, and whether or not they're confident 323 00:18:09,320 --> 00:18:13,480 Speaker 3: themselves in Hong Kong and China, or if they're not 324 00:18:13,560 --> 00:18:16,920 Speaker 3: so confident and they're really looking to leadership from the US. 325 00:18:17,680 --> 00:18:20,840 Speaker 5: Yeah. I think the confidence level in China, I think 326 00:18:20,960 --> 00:18:27,560 Speaker 5: is precarious at best. I think there's you know, the PBOC, 327 00:18:28,440 --> 00:18:31,160 Speaker 5: the Chinese government. They did a lot on the monetaries 328 00:18:31,960 --> 00:18:36,000 Speaker 5: supply side of things. Now the question is about fiscal policy. 329 00:18:36,400 --> 00:18:40,320 Speaker 5: So I think we got a lot of high expectations 330 00:18:40,359 --> 00:18:43,919 Speaker 5: as it relates to fiscal policy. So if you know, 331 00:18:44,400 --> 00:18:47,480 Speaker 5: if they don't deliver, then I think there could be 332 00:18:47,520 --> 00:18:50,320 Speaker 5: some room for disappointment in Asia markets. 333 00:18:50,440 --> 00:18:52,639 Speaker 2: Yeah, we just got word today that the US federal 334 00:18:52,680 --> 00:18:55,640 Speaker 2: budget deficit is at one point eight trillion, up about 335 00:18:55,680 --> 00:18:59,520 Speaker 2: one hundred billion dollars from last year. Is anyone asking 336 00:18:59,600 --> 00:19:02,240 Speaker 2: for your you on the path of the dollar going forward? 337 00:19:02,240 --> 00:19:05,479 Speaker 2: And if that's the case, what are you telling them? 338 00:19:05,800 --> 00:19:06,080 Speaker 4: Yeah? 339 00:19:06,080 --> 00:19:10,680 Speaker 5: Absolutely, I think the dollar obviously is critical to Asia 340 00:19:10,760 --> 00:19:15,919 Speaker 5: and em Carrie, I think you know, our perspective is, 341 00:19:16,080 --> 00:19:20,040 Speaker 5: you know, we actually are constructive on the dollar. Fundamentally, 342 00:19:21,000 --> 00:19:23,480 Speaker 5: you know, if you look at the one year change 343 00:19:23,480 --> 00:19:27,719 Speaker 5: of one year forwards, you graft that against US growth. 344 00:19:28,160 --> 00:19:30,200 Speaker 5: For US, it doesn't make sense that the US has 345 00:19:30,240 --> 00:19:33,760 Speaker 5: some of the highest growth forecasts but they have the 346 00:19:33,800 --> 00:19:37,640 Speaker 5: most amount of cuts priced in. So we think obviously 347 00:19:37,760 --> 00:19:42,040 Speaker 5: to be fear that's because of the FEDS forward guidance, 348 00:19:42,119 --> 00:19:44,800 Speaker 5: but we think there'll be a convergence and that in 349 00:19:44,840 --> 00:19:47,720 Speaker 5: itself could could be supportive of the dollar. And then also, 350 00:19:48,680 --> 00:19:52,040 Speaker 5: you know, we think terminal is probably or the neutral 351 00:19:52,080 --> 00:19:54,280 Speaker 5: rate is closer to three and a half of four percent, 352 00:19:54,400 --> 00:19:57,680 Speaker 5: that that should also impact the dollar as well. 353 00:19:58,480 --> 00:20:01,480 Speaker 3: So we talked a little bit about your caution over 354 00:20:01,600 --> 00:20:04,159 Speaker 3: the tensions in the Middle East and also with the 355 00:20:04,200 --> 00:20:07,679 Speaker 3: election approaching. So I'm curious if if there is anything 356 00:20:07,720 --> 00:20:11,919 Speaker 3: that's getting nol Dixon excited here, Is there anything that 357 00:20:11,960 --> 00:20:14,359 Speaker 3: you like, any corner of the market that looks good 358 00:20:14,640 --> 00:20:18,360 Speaker 3: and almost impervious to some of these hurdles. 359 00:20:18,480 --> 00:20:22,639 Speaker 5: Yeah, sure, So I definitely. I still like, you know, 360 00:20:22,760 --> 00:20:27,720 Speaker 5: tech I think is gonna benefit regardless of who wins. 361 00:20:27,800 --> 00:20:30,639 Speaker 5: Like I said before, I think it's you know, I 362 00:20:30,720 --> 00:20:33,840 Speaker 5: think it's a good opportunity to start to nibble on 363 00:20:33,960 --> 00:20:37,200 Speaker 5: some dollar longs. You know, I like probably going long 364 00:20:37,280 --> 00:20:42,560 Speaker 5: dollar dollars, swissy, I think, you know. I also think 365 00:20:42,600 --> 00:20:47,280 Speaker 5: there's an opportunity eventually to probably start to look at 366 00:20:47,640 --> 00:20:51,480 Speaker 5: some short dollar yen trades as I think the Bank 367 00:20:51,520 --> 00:20:54,520 Speaker 5: of Bank of Japan ultimately they're gonna have to get 368 00:20:54,560 --> 00:20:57,360 Speaker 5: to neutral, which I think is probably one percent. So 369 00:20:57,920 --> 00:21:00,680 Speaker 5: those are those are some of the opportunity I've been 370 00:21:01,320 --> 00:21:04,320 Speaker 5: sort of looking at. So those are some of the 371 00:21:04,800 --> 00:21:07,400 Speaker 5: opportunities I've been sort of looking at. 372 00:21:07,640 --> 00:21:11,480 Speaker 3: Noel Dixon, Global Market macro strategist at State Street. 373 00:21:14,080 --> 00:21:17,040 Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you 374 00:21:17,080 --> 00:21:20,200 Speaker 2: the stories making news and moving markets in the Asia Pacific. 375 00:21:20,720 --> 00:21:23,840 Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more 376 00:21:23,880 --> 00:21:27,480 Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to 377 00:21:27,520 --> 00:21:31,280 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen 378 00:21:31,400 --> 00:21:34,520 Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the 379 00:21:34,520 --> 00:21:35,600 Speaker 2: Bloomberg Business app.