Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisner in Japan.
Speaker 2: The equity market is breaking to fresh record highs and
Speaker 2: these gains reflect expectations for more fiscal spending as well
Speaker 2: as a cut in the sales tax on food items.
Speaker 2: All of that comes after Prime Minister taki ICHI's snap
Speaker 2: election victory over the weekend seemed to give her a
Speaker 2: mandate to make economic change. Meantime, here in the States,
Speaker 2: equities recovered, especially those software stocks, following last week's sharp losses.
Speaker 2: Now at the time, the spotlight was on how AI
Speaker 2: could undermine various software businesses, and not surprisingly, many of
Speaker 2: those shares were punished. Although last Friday the mood began
Speaker 2: to shift and it continued today. The IGV software ETF
Speaker 2: picked up six point eight percent over the last two sessions.
Speaker 2: For a closer look, I'm joined by Ross Mayfield. He
Speaker 2: is an investment strategist at Baird. Ross is on the
Speaker 2: line from Milwaukee, Wisconsin. Thank you for being here. What
Speaker 2: did you make of the bounce in software shares today?
Speaker 3: Well, I think generally I'm of the view that there
Speaker 3: might be some disruption and there probably will be. But
Speaker 3: I don't think that, you know, most large companies are
Speaker 3: going to rip their their tech stack out in favor
Speaker 3: of you know, AI tools overnight. I think I think
Speaker 3: the selling is overdone, and this is when I would
Speaker 3: I would be kind of legging into some of these names,
Speaker 3: even if the recovery could take some time. I mean,
Speaker 3: these charts are pretty beat up right now.
Speaker 2: It was interesting today Goldman Saxon noted that hedge funds
Speaker 2: had piled into short positions on the notion that we
Speaker 2: were going to see AI disrupt various business models. And
Speaker 2: I'm wondering whether or not some of the positivity that
Speaker 2: we had today may have been tied to some short covering.
Speaker 2: What do you think about that?
Speaker 3: Yeah, I think so. I mean this is, you know,
Speaker 3: the software names where by a lot of metrics at
Speaker 3: their most over sold as they've been in decades, probably
Speaker 3: since the dot com bubble. And so anytime you get
Speaker 3: that kind of you know, violent shift in the market,
Speaker 3: so you're going to get some some technical selling and
Speaker 3: some short covering, and I think that, you know, this
Speaker 3: could be an over sold bounce here. I think you
Speaker 3: could see a resume or resumption downward or at least
Speaker 3: kind of some sideways training as these names carve out
Speaker 3: a new base. But again, if you're investing with a
Speaker 3: year plus timeline, I just think these that the selling
Speaker 3: is overdone and you've got a lot of babies thrown
Speaker 3: out with the bathwater. There are a lot of companies
Speaker 3: you know that are software adjacent that have been sold,
Speaker 3: but I have really diversified businesses with a big entrenched
Speaker 3: user basis.
Speaker 2: We had a very interesting development today from Alphabet. The
Speaker 2: company is going global now is insofar as financing ambitions
Speaker 2: for AI. Alphabet is set to raise about twenty billion
Speaker 2: from a US dollar bond offering, and this offering was
Speaker 2: more than five times oversubscribed. At the same time, today,
Speaker 2: Alphabet began pitching what would be the company's first ever offerings.
Speaker 2: This is a debt offering, one in Switzerland, the other
Speaker 2: in the UK. What does this speak to when you
Speaker 2: have one of the hyperscalers going into the credit markets
Speaker 2: to try to raise capital to build out AI infrastructure, Well,
Speaker 2: it changes.
Speaker 3: The narrative on these companies entirely. I mean, for for decades,
Speaker 3: the story around you know, the big tech companies, you know,
Speaker 3: fang to mag seven to all the different acronyms in
Speaker 3: between was huge free cash flow load debt. You know,
Speaker 3: businesses that just print money and then you can, if
Speaker 3: you're Alphabet, you can plunge all that extra cash into
Speaker 3: into moonshots like weimo. These businesses are fundamentally changed. They
Speaker 3: are now asset heavy, they are tapping debt markets. It
Speaker 3: doesn't mean that they're bad investments, but it requires basically
Speaker 3: a whole new way of thinking about the big tech
Speaker 3: companies at the top of the market, from asset light
Speaker 3: to asset heavy and what that requires and what that means.
Speaker 3: But it changes how investors who have leaned on these
Speaker 3: companies for decades a change and how you have to
Speaker 3: think about them.
Speaker 2: So does it create anxiety for you to the extent
Speaker 2: that if you were long, let's say a name like Alphabet,
Speaker 2: that you would try to reduce your position slightly.
Speaker 3: You know, I don't think I would take it that far.
Speaker 3: You know, I do think it raises the stakes a
Speaker 3: little bit. So, you know, we keep a really close
Speaker 3: eye on broader credit spreads and you know, make sure
Speaker 3: the bond market is well behaved. But you know, I
Speaker 3: think there's an interesting dichotomy in the market right now,
Speaker 3: which is that if you look at the software sell
Speaker 3: off and you believe that even some of it is
Speaker 3: justified by the incredible potential of AI tools, whether it's
Speaker 3: you know, Anthropic or Gemini or you know, all of
Speaker 3: the above, then perhaps the level of spending that Amazon
Speaker 3: and Alphabet laid out last week is justified. And I
Speaker 3: would be you know, buyers of the names that again
Speaker 3: are kind of selling the picks and shovels and building
Speaker 3: out the infrastructure to you know, keep this trend going.
Speaker 3: So it requires extra due diligence, but I would not
Speaker 3: be you know, selling a company like Alphabet at this
Speaker 3: point in time with what I think is an AI
Speaker 3: you know trend that's still in the early innings.
Speaker 2: Quite frankly, so, we've seen enormous volatility recently in a
Speaker 2: number of asset classes, and that would include bitcoin. We
Speaker 2: saw a bit of a rebound from the recent cell
Speaker 2: off today and we kind of fluctuated on either side
Speaker 2: of seventy thousand. How are you feeling about the crypto space, Well,
Speaker 2: you know, crypto.
Speaker 3: Is very narrative driven. I mean, like any asset that
Speaker 3: doesn't you know, produce cash flow or have like a
Speaker 3: real industrial use. I mean, it's it doesn't act as
Speaker 3: a currency, particularly in developed markets. It trades on narrative,
Speaker 3: and you know, over the last three four years some
Speaker 3: of the predominant narratives have been really beat up. It
Speaker 3: was not a good inflation hedge in twenty twenty two,
Speaker 3: and it has not really acted like a store of
Speaker 3: value to hedge you know, geopolitical or debasement risk. It's
Speaker 3: not a good sign, if you know, as the digital
Speaker 3: gold for a modern era, it's going down while real
Speaker 3: gold and silver are going up into the right. And
Speaker 3: so the complete split of those two assets I think
Speaker 3: really hurts the narrative that crypto and bitcoin in particular
Speaker 3: is this store of value that can be counted on. Now,
Speaker 3: anyone who's who's watched the space for a while knows
Speaker 3: that this sort of alatility is not uncommon. But every
Speaker 3: crypto bull and bear cycle we go through, as institutional
Speaker 3: adoption picks up and as these narratives get beat up,
Speaker 3: I think there's going to be more and more behind
Speaker 3: the demand for use case and for you know, what
Speaker 3: is this And so I'm somewhat of a skeptic. You know,
Speaker 3: it's just kind of entrenched in me to be a
Speaker 3: little skeptical of this sort of stuff, But I do
Speaker 3: think that that narrative being so beat up over the
Speaker 3: last couple of months is concerning as we go forward.
Speaker 2: We also had news today that the privately held firm
Speaker 2: Jump Trading is set to take some small stakes in
Speaker 2: both Calshi and polymarket. This would be done in exchange
Speaker 2: for providing liquidity on these prediction market platforms. How do
Speaker 2: you view the prediction markets overall.
Speaker 3: You know, for financial markets for investors, I mean, I
Speaker 3: it could add some level of volatility to markets, you know,
Speaker 3: if these platforms really get up to scale. You know,
Speaker 3: I think it's probably not too big of an ise
Speaker 3: shoe for broad investors at this point. You know, it
Speaker 3: probably says more about you know, society than it is
Speaker 3: an indicator for financial markets. But you know, anytime you
Speaker 3: have a lot of interest in leverage in you know,
Speaker 3: the kind of meme stocks, and I think that these
Speaker 3: kind of prediction markets and evan contracts start to fall
Speaker 3: under that umbrella of you know, retail getting really creative
Speaker 3: with ways to try and hit it big. You know,
Speaker 3: maybe even crypto falls under that umbrella. You know, it
Speaker 3: adds a level of volatility and a level of systemic
Speaker 3: risk that it's hard to price because they're so new.
Speaker 3: But it's not a concern, you know. I think if
Speaker 3: you're just an investor in a sixty forty or or
Speaker 3: someone who has kind of a diversified portfolio, now what
Speaker 3: it says about the state of the world is maybe
Speaker 3: a different conversation.
Speaker 2: Change hears very quickly here talk a little bit about Japan,
Speaker 2: because yesterday we had a pretty powerful rally in the
Speaker 2: equity market in Tokyo. That was after Prime Minister tuki
Speaker 2: Ichi managed that historic landslide win in this snap election
Speaker 2: on Sunday, and we've got as I speak to you,
Speaker 2: the NIEK trading at a record high. If you had
Speaker 2: to look at a market off shore, would you would
Speaker 2: you take notice of what's happening in Japan and maybe
Speaker 2: put a little cash to work.
Speaker 3: Absolutely, Japan, Korea. There are a lot of stock markets
Speaker 3: around the world that are acting like leadership and leading
Speaker 3: this global market. I think of all the asset classes,
Speaker 3: US investors are probably the most underweight international. After fifteen
Speaker 3: years of underperformance. I think US investors should really consider
Speaker 3: adding to international here. I think the weaker dollar story
Speaker 3: has legs. There are structural drivers in not just Japan,
Speaker 3: although that's a great story and a great looking chart,
Speaker 3: but in other markets around the world. I think international
Speaker 3: is a really interesting place to be right now. It's
Speaker 3: a kind of a natural hedge to the tech centric
Speaker 3: US markets. I think it's just frankly under owned in
Speaker 3: the US. So Japan looks great, but I would be
Speaker 3: adding the international more broadly as well.
Speaker 2: All right, Ross, thank you so much. We'll leave it there.
Speaker 2: Ross Mayfield is investment strategist at Baird joining from Milwaukee, Wisconsin.
Speaker 2: Here on the Daybreak Asia podcast. Welcome back to the
Speaker 2: Daybreak Asia Podcast. I'm Doug Krisner. The US employment report
Speaker 2: for the month of January is due on Wednesday, and today,
Speaker 2: the director of the National Economic Council, Kevin Hassett, said
Speaker 2: softer monthly jobs gains are likely in the coming months
Speaker 2: as labor force growth slows. Today, it was anxiety about
Speaker 2: the jobs data that helped a weeken the dollar. We
Speaker 2: had the Bloomberg Dollar Spot Index falling six tens to
Speaker 2: one percent in New York trading. And that's where we
Speaker 2: begin our conversation with Carrie Lee. She is the global
Speaker 2: market strategist at DBS, Carrie spoke to Bloomberg TV host
Speaker 2: Cherry On and April Hong.
Speaker 1: Where are we in these conversations debate around the dollar
Speaker 1: debasement trade.
Speaker 4: Yeah, well, I think over the past two sessions the
Speaker 4: decline THESD dollar actually was driven mainly by the resumption
Speaker 4: of this debatement trade. But in a short term, on
Speaker 4: the tactical horizon, actually we think the dollar index may
Speaker 4: still find some support around ninety five to ninety six because,
Speaker 4: first of all, we've seen the latest data like sm
Speaker 4: Manufacturing and Services Index actually point to a still resilient
Speaker 4: US economy. And then last night we've also seen the
Speaker 4: quite resilient US DOC market, And because of the solid,
Speaker 4: solid equity market and economy, it feels like the Federal
Speaker 4: Reserve self may not be as dolfish as expected. If
Speaker 4: this is the case, then the new advantage itself may
Speaker 4: also help to support the US dollar around ninety five
Speaker 4: to ninety sixth level at this moment.
Speaker 1: How closely are you watching who becomes the next chair
Speaker 1: of the Federal Reserve. We just got the latest comments
Speaker 1: from Kevin Walsh talking about how he wanted to transform
Speaker 1: the institution.
Speaker 4: Well, for the upcoming fet chair. Actually we think she
Speaker 4: is going to still protect the US the federal reserves independence,
Speaker 4: which is actually not a negative effector for the US dollar.
Speaker 4: But however, at the end of the day, we've seen
Speaker 4: in the longer term the US dollar itself may still
Speaker 4: have a structural moderate down trend which has already formed
Speaker 4: since twenty twenty two the start of Russia Ukraine wal
Speaker 4: because this is not about the next fetch Chair, but
Speaker 4: more about the US policy uncertainty actually shakes the US
Speaker 4: led world order, and the market is also still concerned
Speaker 4: about the US fiscal sustainability in the long term, which
Speaker 4: probably the reason why we will see this on and
Speaker 4: of the basement trade still weighing down the US dollar
Speaker 4: in the longer term.
Speaker 5: Carrie, talk to us about the other side of the
Speaker 5: dollar trade in Asia, specifically for the Roman Bee. We
Speaker 5: saw about firmness following Bloomberg reports that China has told
Speaker 5: financial institutions or banks to reduce the exposure to treasuries,
Speaker 5: and this is not because of geopolitical maneuverings, to be clear,
Speaker 5: but more because of pairing back some of the risk
Speaker 5: in markets as investors rethink what the US assets are
Speaker 5: going to look like the cr What are you seeing
Speaker 5: in China?
Speaker 4: Well, in China, we've seeing the PBOC always talk about
Speaker 4: roman Bee internationalization and they also try to transform the
Speaker 4: econ ME towards a growth consumption driven growth model, and
Speaker 4: this probably needs the realming Bee to strengthen a fair bit.
Speaker 4: In the meantime, we've also seen quite a fair bit
Speaker 4: of capital inflows as well as the record high current
Speaker 4: account syl plus, all supporting the UN And more importantly,
Speaker 4: the PBOC has set the dollar CNY daily fixing rate
Speaker 4: lower and lower gradually, firstly below the seven mark and
Speaker 4: now towards the six point nine to five level. It
Speaker 4: feels like the PBOC does allow some further strength in
Speaker 4: the reming Bee, and if we look at the realming
Speaker 4: Bee index, actually it's still below it's five year average,
Speaker 4: which means that the catch up play for the reming
Speaker 4: Bee still has some room to run. So we do
Speaker 4: expect the dollar cm H to fall fair bit towards
Speaker 4: the nine point six point nine level, and then for
Speaker 4: the next step, whether it will go to six point
Speaker 4: eight or even six point seven, it depends on the
Speaker 4: next move of the US dollar. If the dollar index
Speaker 4: is trying lower towards ninety four, and if there is
Speaker 4: size that the China's economy is improving further than it's
Speaker 4: possible for the dollar c H or dollars CNY to
Speaker 4: try lower towards six point eight or even six point
Speaker 4: seven in the rest of this year.
Speaker 5: Kerry, what about dollar Japanese yen? Is the verbal intervention
Speaker 5: we've been getting off le going to be enough to
Speaker 5: keep things down?
Speaker 2: Well?
Speaker 4: Actually, I think the yen strength over the past session
Speaker 4: is a bit surprising, but it's mainly driven by the
Speaker 4: rechacement in the US dollar as well as the verbal intervention.
Speaker 4: I think the market probably is still concerned about another
Speaker 4: round of coordinated ratecheck by the US and Japan. As
Speaker 4: long as there is only verbal intervention and there is
Speaker 4: no real intervention, then probably in the market's focus will
Speaker 4: shift back towards the concerns about the fiscal sustainability under
Speaker 4: the Tachilogy government. If that is the case, then probably
Speaker 4: the Japanese yen is not yet out of the woods.
Speaker 4: The dollar yen will still find some support around one
Speaker 4: fifty four point five before one fifty two, and then
Speaker 4: the risk is still to the towards the upside. Probably
Speaker 4: towards the previous high around one fifty nine point four five.
Speaker 1: Yeah, that was achieved around mid January, right, a twenty
Speaker 1: twenty four low against the Green Bank. What are we
Speaker 1: expecting in terms of the Bank of Japan. Could we
Speaker 1: see accelerated rate hikes given the weakness in the yen.
Speaker 4: Well in terms of bog Actually, our expectation is for
Speaker 4: them to hike once more here towards one percent, but
Speaker 4: there is also scope for them to hike further in
Speaker 4: the later part of this year or the early twenty
Speaker 4: twenty seven. If the Takaichi government's upcoming fiscal expansion is
Speaker 4: going to support the economy and support the wage growth,
Speaker 4: and if that is the case, then probably for Japanese yen,
Speaker 4: they may also find some scope for further interest rate hikes.
Speaker 2: That is carry Lee Global Market Strategistic DBS speaking to
Speaker 2: Bloomberg TV host Sharry On and April Hog giving you
Speaker 2: the conversation right here on the Daybreak Asia podcast. Thanks
Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Prisoner and this is Bloomberg