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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Dog Krisner,

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Speaker 2: so Wall Straight is looking ahead to tomorrow's speech from

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Speaker 2: FED share Jay Powell at the Jackson Hole Symposium. We

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Speaker 2: heard earlier today from liz Anne Saunders. She is the

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Speaker 2: chief investment strategistic Charles Schwab.

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Speaker 3: I'd be surprised if Powell was explicit. This is a

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Speaker 3: pre planned speech. It's about the framework that the FED

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Speaker 3: operates under, and I think his formal comments will largely

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Speaker 3: be about that. With any kind of signaling, that doesn't

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Speaker 3: mean the attention is not going to be on that.

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Speaker 3: But I do think it's the labor market that holds

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Speaker 3: the key.

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Speaker 2: Lizenne Sonder's there. From Charles Schwab. In a moment or two,

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Speaker 2: we'll have a little more on what we can expect

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Speaker 2: from the fed's Jackson Hole Symposium. Will bring you part

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Speaker 2: of our interview with Chicago Fedbank President Austin Goolsby. But

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Speaker 2: we begin this morning in Hong Kong. Joining me now

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Speaker 2: is Ian Samson. He is multi asset portfolio manager at

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Speaker 2: Fidelity International, and Ian joins us from our studios in

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Speaker 2: Hong Kong. Thank you so much for making time to

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Speaker 2: chat with me. I know that you manage a dynamic

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Speaker 2: inflation fund. What a perfect topic. This is such an

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Speaker 2: interesting situation that we're seeing across the globe right now.

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Speaker 2: Different jurisdictions have different dynamics. We know what the story

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Speaker 2: in Japan is inflation there has been well above target.

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Speaker 2: Completely different story on the mainland in China. What is

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Speaker 2: your position right now? Or put it in another way,

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Speaker 2: how are you positioned right now?

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Speaker 4: So I think there's two things to focus on. One

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Speaker 4: is the outlook for Federal Reserve policy over the next year,

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Speaker 4: and it seems pretty clear for a variety of reasons

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Speaker 4: that the doves, the balance of the committee will shift

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Speaker 4: in favor of the Doves, and we will see meaningfully

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Speaker 4: looser montre policy over the next year in the US,

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Speaker 4: and I think I think that comes with looking through

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Speaker 4: tariffs to some degree as if they were a tax hike.

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Speaker 4: So that's lower interest rates in the US despite quite

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Speaker 4: sticky inflation. Then I look at emerging markets, this is

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Speaker 4: where are the opportunities. There's a lot of places where

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Speaker 4: you still got very high yields, whether it's in Latin America,

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Speaker 4: whether it's in this part of the world, in Asia

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Speaker 4: South Africa, where inflation is actually quite low, almost near target,

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Speaker 4: and you're getting really really high yeels on the fixed

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Speaker 4: income side, on the currency side. So you combine that

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Speaker 4: with a looser FED policy, and we're finding some really

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Speaker 4: exciting opportunities within emerging markets.

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Speaker 2: So I'm glad you mentioned the FED, But we just

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Speaker 2: had recently the minutes from the last meeting, and I

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Speaker 2: think many on the committee see the risk of upside

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Speaker 2: risk to inflation as being greater than the overall weakness

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Speaker 2: of the labor market right now. So if your inclination

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Speaker 2: is to say, well, maybe the FED is going to

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Speaker 2: adopt a dubvish stance. We're looking at easy go going forward.

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Speaker 2: Is there a bit of danger here if inflation proves

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Speaker 2: to be more stubborn or sticky than the market right

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Speaker 2: now is prepared for.

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Speaker 4: I think in the short term yes, So over the

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Speaker 4: next few months they'll be definitely a live debate, even

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Speaker 4: though employment numbers are in our view, going to continue

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Speaker 4: to remain soft, whether it's two cuts they should do

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Speaker 4: this year or zero cuts. You see the dots where

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Speaker 4: the FED, each FED member lasa what they think is

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Speaker 4: the appropriate policy path. They're very split over the next year,

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Speaker 4: sorry to the end of the year, whether there should

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Speaker 4: be no cuts or two cuts. But again I think

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Speaker 4: as we go into next year, we will have had

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Speaker 4: a period of slower growth in the US, we will

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Speaker 4: get a replacement for Chair Powell, We'll get a rotation

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Speaker 4: and who actually votes on policy, and that's going to

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Speaker 4: favor the Doves, who, as I say, they would if

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Speaker 4: they were in this tendency, give us two cuts this year,

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Speaker 4: and they think that they appropriate for policy. The end

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Speaker 4: of next year will be close to three percent, So

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Speaker 4: I think they're going to look through the slightly stickier

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Speaker 4: inflation as if it was just the result of a

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Speaker 4: tax hike, which it is because it's most likely to

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Speaker 4: come through tariffs.

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Speaker 2: What about the situation in Japan where inflation we know

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Speaker 2: has been well above target for quite some time and

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Speaker 2: the boj has been very, very careful about raising infrast rates.

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Speaker 2: Are we going to see a shift here maybe as

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Speaker 2: soon as the October meeting? Are they behind the curve?

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Speaker 2: Maybe that's another way of phrasing the question.

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Speaker 4: Yes, careful is one way to put the how slow

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Speaker 4: they've been to react to higher inflation. So currently the

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Speaker 4: headline numbers in Japan I think is three percent or so.

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Speaker 4: A lot of that, frankly is food inflation, is rice inflation.

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Speaker 4: But still for Japan, when you strip that all out,

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Speaker 4: you've got about one and a half percent inflation, which

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Speaker 4: for Japan is very high, almost at target. And now

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Speaker 4: that you've got a reasonably acceptable equilibrium on US Japan trades,

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Speaker 4: I think that's a green light for the Bank of

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Speaker 4: Japan to continue hiking interest rates, because right now you've

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Speaker 4: got a deeply negative real interest rate with inflation clearly

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Speaker 4: well entrenched. And so the way that we play that

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Speaker 4: from an investment perspective, there's a few ways. We don't

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Speaker 4: like the short end of the Japanese yield curve, and

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Speaker 4: we do real like Japanese bank equities because the more

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Speaker 4: the Bank of Japan hikes, the more they benefit. It's

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Speaker 4: great for their profits, and there's still at a very

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Speaker 4: reasonable valuation.

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Speaker 2: It's amazing to think that there is at least one

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Speaker 2: generation in Japan that has never known higher prices, and

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Speaker 2: so this is a seismic shift. It's been going on

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Speaker 2: for a while, clearly emerging from a deflationary trap. After

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Speaker 2: three decades, and that brings me to China because they've

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Speaker 2: been struggling right now with the deflationary forces, particularly at

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Speaker 2: the whole sale level. Demand we know has been very sluggish.

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Speaker 2: The government again here is another situation where things have

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Speaker 2: been very careful. Is there danger here too on the

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Speaker 2: deflationary side at the wholesale level in China and maybe

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Speaker 2: to a lesser extent that disinflationary side at the retail

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Speaker 2: level in China? Sure?

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Speaker 4: I mean, it is interesting about the only place in

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Speaker 4: Asia with inflation is Japan. You know, it's not just China.

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Speaker 4: China's potentially even exporting disinflation to the whole region, and

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Speaker 4: that's a big theme within the funds. But thinking about

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Speaker 4: China specifically, I believe the reason that we've got this

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Speaker 4: very low inflation environment partly its demands. But the way

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Speaker 4: that the Chinese government has managed this economy for well

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Speaker 4: over the past decade is it always stimulates the supply side,

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Speaker 4: and that leads to over capacity. A lot of supply

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Speaker 4: very low profit margins. And whether it's you know, solar

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Speaker 4: panels or evs, that supply side stimulus just creates distant

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Speaker 4: inflation and overcapacity. There has been under the slightly strange

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Speaker 4: name involution a campaign. It's been about a couple of

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Speaker 4: months now from from from Beijing trying to get companies

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Speaker 4: to stop this fierce competition and this this oversupply. I

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Speaker 4: think that's probably easier to say than to actually achieve,

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Speaker 4: So we expect more of the same. Really an in China,

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Speaker 4: subdued demand, weak pricing, and so when I think about

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Speaker 4: investing in China, it's really finding the sectors where that

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Speaker 4: dynamic of oversupply, government stimulus is less of a factor.

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Speaker 4: And of course for the story to really change, the

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Speaker 4: government will have to move from supply side policy. You

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Speaker 4: will have to have an effective anti involution policy shift

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Speaker 4: and hopefully get demand going again. I wouldn't bet too

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Speaker 4: heavily on that quite yet. It's something that we're watching for.

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Speaker 2: As long as we're talking about the influence of trade,

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Speaker 2: I mean, the South Korean economy is very vulnerable to

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Speaker 2: trade policy, a big exporter. At the July meeting, the

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Speaker 2: Bank of Korea seemed to indicate the door was opened

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Speaker 2: for a rate cut. The last reading I believe that

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Speaker 2: we had on PPI in South Korea was pretty hot.

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Speaker 2: I would think a half of one percent at an

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Speaker 2: annual rate. Do you think the opportunity is now when

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Speaker 2: the South Korean needs to, let's say, move rateslower even

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Speaker 2: though consumer debt levels are high right now, is it

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Speaker 2: incumbent upon the BOKA to deliver with a rate cut.

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Speaker 4: So there's the Korean export story, and there's the Korean

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Speaker 4: domestics story. The export side, we had some more TASA overnight,

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Speaker 4: the export side remains very strong, particularly semi conductors, and

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Speaker 4: the semi conductor cycle might even be broadening out further.

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Speaker 4: So there's bits of the Korean economy, particularly external side,

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Speaker 4: that despite tariffs, continue to do really well, and from

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Speaker 4: an ext investor perspective that's actually quite exciting given that

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Speaker 4: the administration is also quite focused on boosting valuations. And

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Speaker 4: then there's the domestic side of things, where inflation is

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Speaker 4: very contained, demands quite low. And also I like to

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Speaker 4: sort of look out ten to twenty years, and the

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Speaker 4: worst demographics in the world are arguably in Korea. Right

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Speaker 4: It's going to be hard to see a very inflationary

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Speaker 4: environment in a country with a contracting labor supply and

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Speaker 4: weak demand. So generally speaking, I'm biased to be overweight

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Speaker 4: Korean rates and to expect continued dubbish policy from the

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Speaker 4: Bank of Korea. There's just one little factor, which is

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Speaker 4: we do expect a decent fiscal impulse from the new

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Speaker 4: Korean administration, which might stop the bondes writing too much.

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Speaker 4: Be In general, I'd be looking to be long both

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Speaker 4: Korean bonds and Korean equities, but for very different reasons.

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Speaker 2: Ian, great stuff. We'll leave it there, Thank you so

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Speaker 2: very much. Ian Sampson is multi asset portfolio manager at

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Speaker 2: Fidelity International. Joining from our studios in Hong Kong here

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

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Speaker 2: Asia Podcast. I'm deg Chrisner. A bit of anxiety in

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Speaker 2: markets today ahead of the speech from fed share J.

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Speaker 2: Powell at the Jackson Hole Symposium, stocks pulled back, bond

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Speaker 2: yields rose, the outlook for rate cuts dimmed a bit,

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Speaker 2: with signs that inflationary pressures may be building. Walmart is

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Speaker 2: seeing cost increasing each week, noting those costs will continue

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Speaker 2: rising in the second half of the year, and the

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Speaker 2: Philly Fed's price indexes rose further above their long run averages,

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Speaker 2: even though the overall level of manufacturing in the Philadelphia

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Speaker 2: area contracted Earlier today, we heard from Austin Goulsby, the

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Speaker 2: head of the Chicago FED. He spoke with Bloomberg's Michael

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Speaker 2: McKee and Jackson Hall and Michael Sheppard in Washington.

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Speaker 5: We're talking about interest rates. What's going to happen September seventeenth.

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Speaker 1: Well, it depends, for sure. It feels to me like

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Speaker 1: it's a live meeting. As you know, before April second,

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Speaker 1: before we got some uncertainties coming on the policy side,

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Speaker 1: I believed that we had pretty stable full employment, that

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Speaker 1: inflation's coming down to target, the economy's looking relatively solid,

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Speaker 1: and that it made sense for rates to come down

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Speaker 1: a fair bit more from where they are right now.

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Speaker 1: In the interim, we've had mixed messages. We've had some

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Speaker 1: inflation reports that came in milder than we expect. And

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Speaker 1: I was feeling good because I thought, if the tariffs

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Speaker 1: kind of stay in their lane and imported goods, they

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Speaker 1: are only eleven percent of the economy. There is a

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Speaker 1: real sense in which maybe we never left the golden path.

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Speaker 1: We threw a bunch of dirt in the air, as

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Speaker 1: I described, so you couldn't see the road there for bid,

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Speaker 1: But maybe we're still on it and it'll be fine.

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Speaker 1: The last inflation report that came in, where you saw

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Speaker 1: services inflation, which is probably not driven by the tariffs,

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Speaker 1: really start shooting up, is a danger. That's a dangerous

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Speaker 1: data point. I'm hoping that that's a bit of a blip.

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Speaker 1: So I think we still have a fair bit of

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Speaker 1: information that we're going to get before September or the

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Speaker 1: whole fall to determine what path we're going to be on.

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Speaker 5: Well, live meeting implies that you could perhaps cut interest rates.

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Speaker 2: Are you leaning in that direction?

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Speaker 1: Look, as you know, I don't like tie in our

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Speaker 1: hands ahead of time. I like to get I want

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Speaker 1: to get all this information. It's particularly important given that

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Speaker 1: we've been getting some mixed signals, and I want to

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Speaker 1: hear what my colleagues have to say going into September

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Speaker 1: or November December, going into next year. The most important

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Speaker 1: things figure out the through line, and the through line

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Speaker 1: is either we're still on path to get rates down

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Speaker 1: a fair amount. You know, let's say the sep dot

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Speaker 1: plot where they ask all the members of the FMC,

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Speaker 1: where do you think rates will settle eventually? That's one

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Speaker 1: hundred basis points plus below where we are now at

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Speaker 1: the median, and what will determine whether we can get

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Speaker 1: back on that path of rates coming down is going

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Speaker 1: to be Do we think inflation is under control? We've

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Speaker 1: been four and a half years above the inflation target,

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Speaker 1: I thought, and we made a lot of progress, and

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Speaker 1: I coming into this year we were in a decent

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Speaker 1: spot that you can make the case we're headed back

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Speaker 1: to two percent. I'm still hopeful that that's true, but

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Speaker 1: I'm a little As I say in the last report,

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Speaker 1: there are a couple of little warning signs and how

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Speaker 1: we are going to react to a stagflationary direction shock

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Speaker 1: that is something that is driving down employment and up

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Speaker 1: prices at the same time. That's always a very difficult

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Speaker 1: spot for the.

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Speaker 6: Central President Goolsby, I wanted to come back to the

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Speaker 6: broader question of the economy and inflation too, because earlier

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Speaker 6: this month we saw tariffs start to actually take effect

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Speaker 6: and be enforced, and we may have more coming still

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Speaker 6: on drugs and semiconductors. Where do you see this impact

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Speaker 6: playing out across the economy and how soon do you

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Speaker 6: expect to see businesses start to pay as these costs

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Speaker 6: along to consumers.

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Speaker 1: That's kind of the critical two questions about tariffs are

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Speaker 1: how much are they going to drive up prices and

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Speaker 1: how long is that price increase going to last. So

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Speaker 1: there is an argument that in pure theory, if it

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Speaker 1: was a one and done tariff, that'd be a one

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Speaker 1: time increase in the price level, and then as an

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Speaker 1: inflationary impetus, it would be transitory. But as soon as

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Speaker 1: you use the word transitory, you want to be a

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Speaker 1: little careful. That's only for a one and done tariff,

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Speaker 1: and this hasn't been one and it doesn't seem like

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Speaker 1: it's close to done, so we can get on a

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Speaker 1: cycle that is inflationary. And if the tariffs are applying

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Speaker 1: to intermedia goods that is parts, components, supplies, things like

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Speaker 1: primary metals, semiconductors, things that go into the cost of

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Speaker 1: production for US manufacturing, that is one way that tariffs

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Speaker 1: up out of their eleven percent of GDP lane and

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Speaker 1: start making me more nervous because now it ceases to

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Speaker 1: just be an increase in the prices of the tariff

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Speaker 1: affected goods. Now those tariffs are raising prices in the

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Speaker 1: goods the industries that are using the tariff of affected goods.

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Speaker 1: And we saw in COVID the bigger that is, the

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Speaker 1: more it's affecting the supply chain and disrupting it, the

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Speaker 1: longer and more persistent that can last. So those are

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Speaker 1: kind of the questions floating around we're that we're grappling

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Speaker 1: with Austin.

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Speaker 5: I want to go back to the White House versus

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Speaker 5: FED situation for a moment. The administration has alleged mortgage

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Speaker 5: fraud against three people. Democratic Senator Adam Schiff, Democratic Attorney

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Speaker 5: General of New York, Letitia and then now Lisa Cook.

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Speaker 5: You were the chairman of the Economic Advisor's Council to

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Speaker 5: President Obama, a Democrat. Are you worried that they might

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Speaker 5: come after you?

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Speaker 1: I didn't know where you were going with that. As

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Speaker 1: I say, I'm here member of the FOMC. The law

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Speaker 1: is quite clear of what should determine interest rates. It's

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Speaker 1: the FOMC, and we're supposed to be looking at stabilizing

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Speaker 1: prices and maximizing employment. You become a sworn member of

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Speaker 1: the Federal Reserve, you're out of the politics business. You're

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Speaker 1: out of the elections business. So I'm trying not to

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Speaker 1: get distracted from the basic thread of we must figure

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Speaker 1: out where we are on those dual mandate grounds when

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Speaker 1: setting the interest rates, and that is what we should

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Speaker 1: be basing the interest rate decisions on. It shouldn't be

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Speaker 1: about power politics, It shouldn't be about what somebody said

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Speaker 1: about somebody else on Twitter. We go into that room

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Speaker 1: and we take the job very seriously.

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Speaker 2: That is Austin Goulesby, the head of the Chicago Fed,

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Speaker 2: speaking with Bloomberg's Michael McKee and Michael Sheppard right here

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Speaker 2: on the Daybreak podcast. Thanks for listening to today's episode

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Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 2: look at the story shaping markets, finance, and geopolitics in

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Speaker 2: the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg