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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 Prisner in Japan.

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Speaker 2: The equity market is breaking to fresh record highs and

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Speaker 2: these gains reflect expectations for more fiscal spending as well

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Speaker 2: as a cut in the sales tax on food items.

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Speaker 2: All of that comes after Prime Minister taki ICHI's snap

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Speaker 2: election victory over the weekend seemed to give her a

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Speaker 2: mandate to make economic change. Meantime, here in the States,

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Speaker 2: equities recovered, especially those software stocks, following last week's sharp losses.

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Speaker 2: Now at the time, the spotlight was on how AI

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Speaker 2: could undermine various software businesses, and not surprisingly, many of

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Speaker 2: those shares were punished. Although last Friday the mood began

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Speaker 2: to shift and it continued today. The IGV software ETF

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Speaker 2: picked up six point eight percent over the last two sessions.

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Speaker 2: For a closer look, I'm joined by Ross Mayfield. He

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Speaker 2: is an investment strategist at Baird. Ross is on the

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Speaker 2: line from Milwaukee, Wisconsin. Thank you for being here. What

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Speaker 2: did you make of the bounce in software shares today?

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Speaker 3: Well, I think generally I'm of the view that there

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Speaker 3: might be some disruption and there probably will be. But

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Speaker 3: I don't think that, you know, most large companies are

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Speaker 3: going to rip their their tech stack out in favor

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Speaker 3: of you know, AI tools overnight. I think I think

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Speaker 3: the selling is overdone, and this is when I would

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Speaker 3: I would be kind of legging into some of these names,

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Speaker 3: even if the recovery could take some time. I mean,

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Speaker 3: these charts are pretty beat up right now.

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Speaker 2: It was interesting today Goldman Saxon noted that hedge funds

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Speaker 2: had piled into short positions on the notion that we

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Speaker 2: were going to see AI disrupt various business models. And

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Speaker 2: I'm wondering whether or not some of the positivity that

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Speaker 2: we had today may have been tied to some short covering.

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Speaker 2: What do you think about that?

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Speaker 3: Yeah, I think so. I mean this is, you know,

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Speaker 3: the software names where by a lot of metrics at

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Speaker 3: their most over sold as they've been in decades, probably

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Speaker 3: since the dot com bubble. And so anytime you get

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Speaker 3: that kind of you know, violent shift in the market,

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Speaker 3: so you're going to get some some technical selling and

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Speaker 3: some short covering, and I think that, you know, this

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Speaker 3: could be an over sold bounce here. I think you

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Speaker 3: could see a resume or resumption downward or at least

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Speaker 3: kind of some sideways training as these names carve out

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Speaker 3: a new base. But again, if you're investing with a

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Speaker 3: year plus timeline, I just think these that the selling

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Speaker 3: is overdone and you've got a lot of babies thrown

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Speaker 3: out with the bathwater. There are a lot of companies

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Speaker 3: you know that are software adjacent that have been sold,

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Speaker 3: but I have really diversified businesses with a big entrenched

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Speaker 3: user basis.

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Speaker 2: We had a very interesting development today from Alphabet. The

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Speaker 2: company is going global now is insofar as financing ambitions

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Speaker 2: for AI. Alphabet is set to raise about twenty billion

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Speaker 2: from a US dollar bond offering, and this offering was

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Speaker 2: more than five times oversubscribed. At the same time, today,

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Speaker 2: Alphabet began pitching what would be the company's first ever offerings.

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Speaker 2: This is a debt offering, one in Switzerland, the other

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Speaker 2: in the UK. What does this speak to when you

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Speaker 2: have one of the hyperscalers going into the credit markets

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Speaker 2: to try to raise capital to build out AI infrastructure, Well,

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Speaker 2: it changes.

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Speaker 3: The narrative on these companies entirely. I mean, for for decades,

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Speaker 3: the story around you know, the big tech companies, you know,

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Speaker 3: fang to mag seven to all the different acronyms in

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Speaker 3: between was huge free cash flow load debt. You know,

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Speaker 3: businesses that just print money and then you can, if

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Speaker 3: you're Alphabet, you can plunge all that extra cash into

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Speaker 3: into moonshots like weimo. These businesses are fundamentally changed. They

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Speaker 3: are now asset heavy, they are tapping debt markets. It

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Speaker 3: doesn't mean that they're bad investments, but it requires basically

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Speaker 3: a whole new way of thinking about the big tech

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Speaker 3: companies at the top of the market, from asset light

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Speaker 3: to asset heavy and what that requires and what that means.

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Speaker 3: But it changes how investors who have leaned on these

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Speaker 3: companies for decades a change and how you have to

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Speaker 3: think about them.

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Speaker 2: So does it create anxiety for you to the extent

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Speaker 2: that if you were long, let's say a name like Alphabet,

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Speaker 2: that you would try to reduce your position slightly.

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Speaker 3: You know, I don't think I would take it that far.

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Speaker 3: You know, I do think it raises the stakes a

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Speaker 3: little bit. So, you know, we keep a really close

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Speaker 3: eye on broader credit spreads and you know, make sure

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Speaker 3: the bond market is well behaved. But you know, I

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Speaker 3: think there's an interesting dichotomy in the market right now,

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Speaker 3: which is that if you look at the software sell

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Speaker 3: off and you believe that even some of it is

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Speaker 3: justified by the incredible potential of AI tools, whether it's

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Speaker 3: you know, Anthropic or Gemini or you know, all of

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Speaker 3: the above, then perhaps the level of spending that Amazon

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Speaker 3: and Alphabet laid out last week is justified. And I

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Speaker 3: would be you know, buyers of the names that again

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Speaker 3: are kind of selling the picks and shovels and building

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Speaker 3: out the infrastructure to you know, keep this trend going.

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Speaker 3: So it requires extra due diligence, but I would not

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Speaker 3: be you know, selling a company like Alphabet at this

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Speaker 3: point in time with what I think is an AI

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Speaker 3: you know trend that's still in the early innings.

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Speaker 2: Quite frankly, so, we've seen enormous volatility recently in a

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Speaker 2: number of asset classes, and that would include bitcoin. We

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Speaker 2: saw a bit of a rebound from the recent cell

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Speaker 2: off today and we kind of fluctuated on either side

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Speaker 2: of seventy thousand. How are you feeling about the crypto space, Well,

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Speaker 2: you know, crypto.

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Speaker 3: Is very narrative driven. I mean, like any asset that

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Speaker 3: doesn't you know, produce cash flow or have like a

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Speaker 3: real industrial use. I mean, it's it doesn't act as

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Speaker 3: a currency, particularly in developed markets. It trades on narrative,

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Speaker 3: and you know, over the last three four years some

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Speaker 3: of the predominant narratives have been really beat up. It

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Speaker 3: was not a good inflation hedge in twenty twenty two,

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Speaker 3: and it has not really acted like a store of

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Speaker 3: value to hedge you know, geopolitical or debasement risk. It's

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Speaker 3: not a good sign, if you know, as the digital

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Speaker 3: gold for a modern era, it's going down while real

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Speaker 3: gold and silver are going up into the right. And

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Speaker 3: so the complete split of those two assets I think

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Speaker 3: really hurts the narrative that crypto and bitcoin in particular

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Speaker 3: is this store of value that can be counted on. Now,

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Speaker 3: anyone who's who's watched the space for a while knows

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Speaker 3: that this sort of alatility is not uncommon. But every

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Speaker 3: crypto bull and bear cycle we go through, as institutional

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Speaker 3: adoption picks up and as these narratives get beat up,

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Speaker 3: I think there's going to be more and more behind

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Speaker 3: the demand for use case and for you know, what

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Speaker 3: is this And so I'm somewhat of a skeptic. You know,

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Speaker 3: it's just kind of entrenched in me to be a

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Speaker 3: little skeptical of this sort of stuff, But I do

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Speaker 3: think that that narrative being so beat up over the

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Speaker 3: last couple of months is concerning as we go forward.

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Speaker 2: We also had news today that the privately held firm

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Speaker 2: Jump Trading is set to take some small stakes in

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Speaker 2: both Calshi and polymarket. This would be done in exchange

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Speaker 2: for providing liquidity on these prediction market platforms. How do

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Speaker 2: you view the prediction markets overall.

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Speaker 3: You know, for financial markets for investors, I mean, I

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Speaker 3: it could add some level of volatility to markets, you know,

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Speaker 3: if these platforms really get up to scale. You know,

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Speaker 3: I think it's probably not too big of an ise

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Speaker 3: shoe for broad investors at this point. You know, it

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Speaker 3: probably says more about you know, society than it is

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Speaker 3: an indicator for financial markets. But you know, anytime you

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Speaker 3: have a lot of interest in leverage in you know,

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Speaker 3: the kind of meme stocks, and I think that these

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Speaker 3: kind of prediction markets and evan contracts start to fall

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Speaker 3: under that umbrella of you know, retail getting really creative

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Speaker 3: with ways to try and hit it big. You know,

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Speaker 3: maybe even crypto falls under that umbrella. You know, it

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Speaker 3: adds a level of volatility and a level of systemic

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Speaker 3: risk that it's hard to price because they're so new.

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Speaker 3: But it's not a concern, you know. I think if

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Speaker 3: you're just an investor in a sixty forty or or

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Speaker 3: someone who has kind of a diversified portfolio, now what

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Speaker 3: it says about the state of the world is maybe

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Speaker 3: a different conversation.

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Speaker 2: Change hears very quickly here talk a little bit about Japan,

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Speaker 2: because yesterday we had a pretty powerful rally in the

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Speaker 2: equity market in Tokyo. That was after Prime Minister tuki

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Speaker 2: Ichi managed that historic landslide win in this snap election

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Speaker 2: on Sunday, and we've got as I speak to you,

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Speaker 2: the NIEK trading at a record high. If you had

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Speaker 2: to look at a market off shore, would you would

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Speaker 2: you take notice of what's happening in Japan and maybe

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Speaker 2: put a little cash to work.

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Speaker 3: Absolutely, Japan, Korea. There are a lot of stock markets

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Speaker 3: around the world that are acting like leadership and leading

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Speaker 3: this global market. I think of all the asset classes,

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Speaker 3: US investors are probably the most underweight international. After fifteen

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Speaker 3: years of underperformance. I think US investors should really consider

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Speaker 3: adding to international here. I think the weaker dollar story

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Speaker 3: has legs. There are structural drivers in not just Japan,

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Speaker 3: although that's a great story and a great looking chart,

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Speaker 3: but in other markets around the world. I think international

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Speaker 3: is a really interesting place to be right now. It's

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Speaker 3: a kind of a natural hedge to the tech centric

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Speaker 3: US markets. I think it's just frankly under owned in

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Speaker 3: the US. So Japan looks great, but I would be

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Speaker 3: adding the international more broadly as well.

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Speaker 2: All right, Ross, thank you so much. We'll leave it there.

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Speaker 2: Ross Mayfield is investment strategist at Baird joining from Milwaukee, Wisconsin.

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Speaker 2: Here on the Daybreak Asia podcast. Welcome back to the

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Speaker 2: Daybreak Asia Podcast. I'm Doug Krisner. The US employment report

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Speaker 2: for the month of January is due on Wednesday, and today,

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Speaker 2: the director of the National Economic Council, Kevin Hassett, said

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Speaker 2: softer monthly jobs gains are likely in the coming months

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Speaker 2: as labor force growth slows. Today, it was anxiety about

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Speaker 2: the jobs data that helped a weeken the dollar. We

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Speaker 2: had the Bloomberg Dollar Spot Index falling six tens to

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Speaker 2: one percent in New York trading. And that's where we

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Speaker 2: begin our conversation with Carrie Lee. She is the global

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Speaker 2: market strategist at DBS, Carrie spoke to Bloomberg TV host

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Speaker 2: Cherry On and April Hong.

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Speaker 1: Where are we in these conversations debate around the dollar

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Speaker 1: debasement trade.

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Speaker 4: Yeah, well, I think over the past two sessions the

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Speaker 4: decline THESD dollar actually was driven mainly by the resumption

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Speaker 4: of this debatement trade. But in a short term, on

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Speaker 4: the tactical horizon, actually we think the dollar index may

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Speaker 4: still find some support around ninety five to ninety six because,

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Speaker 4: first of all, we've seen the latest data like sm

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Speaker 4: Manufacturing and Services Index actually point to a still resilient

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Speaker 4: US economy. And then last night we've also seen the

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Speaker 4: quite resilient US DOC market, And because of the solid,

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Speaker 4: solid equity market and economy, it feels like the Federal

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Speaker 4: Reserve self may not be as dolfish as expected. If

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Speaker 4: this is the case, then the new advantage itself may

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Speaker 4: also help to support the US dollar around ninety five

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Speaker 4: to ninety sixth level at this moment.

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Speaker 1: How closely are you watching who becomes the next chair

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Speaker 1: of the Federal Reserve. We just got the latest comments

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Speaker 1: from Kevin Walsh talking about how he wanted to transform

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Speaker 1: the institution.

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Speaker 4: Well, for the upcoming fet chair. Actually we think she

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Speaker 4: is going to still protect the US the federal reserves independence,

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Speaker 4: which is actually not a negative effector for the US dollar.

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Speaker 4: But however, at the end of the day, we've seen

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Speaker 4: in the longer term the US dollar itself may still

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Speaker 4: have a structural moderate down trend which has already formed

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Speaker 4: since twenty twenty two the start of Russia Ukraine wal

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Speaker 4: because this is not about the next fetch Chair, but

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Speaker 4: more about the US policy uncertainty actually shakes the US

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Speaker 4: led world order, and the market is also still concerned

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Speaker 4: about the US fiscal sustainability in the long term, which

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Speaker 4: probably the reason why we will see this on and

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Speaker 4: of the basement trade still weighing down the US dollar

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Speaker 4: in the longer term.

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Speaker 5: Carrie, talk to us about the other side of the

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Speaker 5: dollar trade in Asia, specifically for the Roman Bee. We

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Speaker 5: saw about firmness following Bloomberg reports that China has told

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Speaker 5: financial institutions or banks to reduce the exposure to treasuries,

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Speaker 5: and this is not because of geopolitical maneuverings, to be clear,

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Speaker 5: but more because of pairing back some of the risk

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Speaker 5: in markets as investors rethink what the US assets are

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Speaker 5: going to look like the cr What are you seeing

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Speaker 5: in China?

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Speaker 4: Well, in China, we've seeing the PBOC always talk about

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Speaker 4: roman Bee internationalization and they also try to transform the

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Speaker 4: econ ME towards a growth consumption driven growth model, and

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Speaker 4: this probably needs the realming Bee to strengthen a fair bit.

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Speaker 4: In the meantime, we've also seen quite a fair bit

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Speaker 4: of capital inflows as well as the record high current

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Speaker 4: account syl plus, all supporting the UN And more importantly,

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Speaker 4: the PBOC has set the dollar CNY daily fixing rate

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Speaker 4: lower and lower gradually, firstly below the seven mark and

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Speaker 4: now towards the six point nine to five level. It

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Speaker 4: feels like the PBOC does allow some further strength in

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Speaker 4: the reming Bee, and if we look at the realming

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Speaker 4: Bee index, actually it's still below it's five year average,

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Speaker 4: which means that the catch up play for the reming

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Speaker 4: Bee still has some room to run. So we do

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Speaker 4: expect the dollar cm H to fall fair bit towards

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Speaker 4: the nine point six point nine level, and then for

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Speaker 4: the next step, whether it will go to six point

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Speaker 4: eight or even six point seven, it depends on the

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Speaker 4: next move of the US dollar. If the dollar index

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Speaker 4: is trying lower towards ninety four, and if there is

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Speaker 4: size that the China's economy is improving further than it's

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Speaker 4: possible for the dollar c H or dollars CNY to

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Speaker 4: try lower towards six point eight or even six point

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Speaker 4: seven in the rest of this year.

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Speaker 5: Kerry, what about dollar Japanese yen? Is the verbal intervention

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Speaker 5: we've been getting off le going to be enough to

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Speaker 5: keep things down?

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Speaker 2: Well?

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Speaker 4: Actually, I think the yen strength over the past session

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Speaker 4: is a bit surprising, but it's mainly driven by the

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Speaker 4: rechacement in the US dollar as well as the verbal intervention.

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Speaker 4: I think the market probably is still concerned about another

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Speaker 4: round of coordinated ratecheck by the US and Japan. As

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Speaker 4: long as there is only verbal intervention and there is

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Speaker 4: no real intervention, then probably in the market's focus will

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Speaker 4: shift back towards the concerns about the fiscal sustainability under

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Speaker 4: the Tachilogy government. If that is the case, then probably

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Speaker 4: the Japanese yen is not yet out of the woods.

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Speaker 4: The dollar yen will still find some support around one

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Speaker 4: fifty four point five before one fifty two, and then

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Speaker 4: the risk is still to the towards the upside. Probably

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Speaker 4: towards the previous high around one fifty nine point four five.

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Speaker 1: Yeah, that was achieved around mid January, right, a twenty

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Speaker 1: twenty four low against the Green Bank. What are we

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Speaker 1: expecting in terms of the Bank of Japan. Could we

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Speaker 1: see accelerated rate hikes given the weakness in the yen.

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Speaker 4: Well in terms of bog Actually, our expectation is for

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Speaker 4: them to hike once more here towards one percent, but

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Speaker 4: there is also scope for them to hike further in

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Speaker 4: the later part of this year or the early twenty

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Speaker 4: twenty seven. If the Takaichi government's upcoming fiscal expansion is

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Speaker 4: going to support the economy and support the wage growth,

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Speaker 4: and if that is the case, then probably for Japanese yen,

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Speaker 4: they may also find some scope for further interest rate hikes.

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Speaker 2: That is carry Lee Global Market Strategistic DBS speaking to

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Speaker 2: Bloomberg TV host Sharry On and April Hog giving you

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Speaker 2: the conversation right here on the Daybreak Asia podcast. Thanks

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

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Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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