WEBVTT - Yellen China Visit, APAC Markets 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.880 This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.120 Bloomberg Business App. 0:00:28.920 --> 0:00:31.000 Joining us now in our studios in Hong Kong is 0:00:31.040 --> 0:00:35.320 Stephanielum who is CIO at Stashaway. For a closer look 0:00:35.640 --> 0:00:38.080 at markets, perhaps you can get to China in a moment. 0:00:38.440 --> 0:00:40.920 Let's take a quick look at what we see coming 0:00:40.960 --> 0:00:45.080 out of the United States. Very strong growth. The economy 0:00:45.120 --> 0:00:49.199 seems to be really firing on all cylinders here and 0:00:49.640 --> 0:00:51.919 it's causing a little bit of concern about those who 0:00:51.920 --> 0:00:56.240 are watching inflation carefully. Stephanie, do you think inflation is 0:00:56.280 --> 0:00:59.560 still coming down or should we worry about a reversal? 0:01:00.080 --> 0:01:02.200 Yeah, I think if you look at the latest kind 0:01:02.200 --> 0:01:05.880 of growth data, particularly in the jobs market, the US 0:01:05.880 --> 0:01:09.280 has been surprisingly strong to a lot of people. And 0:01:09.840 --> 0:01:11.880 just think back about three four months ago at the 0:01:11.880 --> 0:01:14.479 beginning of the year, the market is actually looking for 0:01:14.520 --> 0:01:17.320 the FED to start cutting interest rates in March by 0:01:17.400 --> 0:01:20.600 about five six times by the end of this year. Now, 0:01:20.600 --> 0:01:24.520 of course, those expectations have been dial back, and right now, 0:01:24.560 --> 0:01:26.920 I mean the market is looking at kind of the 0:01:26.959 --> 0:01:28.760 second half of the year for the first rate cut, 0:01:28.880 --> 0:01:33.520 and perhaps I mean some participants anticipate even later. The 0:01:33.560 --> 0:01:36.440 FED itself has signaled that they will do three rate cuts. 0:01:36.480 --> 0:01:40.360 Now the market is closer to what the FIL's expecting. However, 0:01:40.480 --> 0:01:43.800 we do see some risks that inflation could be kind 0:01:43.800 --> 0:01:46.480 of staying higher for longer. And this is something that 0:01:46.520 --> 0:01:50.120 we've flagged out in I guess since the past twelve months, 0:01:50.160 --> 0:01:52.120 in the sense that if you look at the labor market, 0:01:52.160 --> 0:01:55.200 the US labor market, there's reason why it's so strong. 0:01:56.080 --> 0:01:59.120 If you look at COVID, COVID actually took away a 0:01:59.160 --> 0:02:01.880 lot of jobs, a lot of people actually left their workforce. 0:02:02.040 --> 0:02:04.360 I mean those people actually never came back. So if 0:02:04.400 --> 0:02:07.640 you look at what the structural shortage of the US 0:02:07.760 --> 0:02:10.520 labor market, the US is still short of one million 0:02:10.800 --> 0:02:14.280 labor workers compared to pre COVID, and it takes time 0:02:14.720 --> 0:02:17.040 for these jobs to be filled or for these people 0:02:17.280 --> 0:02:20.240 to kind of move jobs, etc. So it's a structural 0:02:20.240 --> 0:02:22.320 problem that we see and this playing app So. 0:02:22.440 --> 0:02:25.600 Is this reacceleration of growth as you're describing it in 0:02:25.639 --> 0:02:28.320 the United States? Is that unique to the US. Are 0:02:28.360 --> 0:02:30.919 we seeing growth reaccelerate in other parts. 0:02:30.600 --> 0:02:31.120 Of the world. 0:02:31.840 --> 0:02:32.080 Yeah. 0:02:32.120 --> 0:02:36.639 Indeed, the job's tightness is not just particular for the US. 0:02:36.680 --> 0:02:39.800 We're seeing the same phenomenon in other developed markets, for 0:02:39.840 --> 0:02:43.720 example the UK or other European countries. However, if you 0:02:43.720 --> 0:02:47.400 look at the manufacturing cycle, the global manufacturing cycle has 0:02:47.440 --> 0:02:50.760 actually been in a downturn for the last eighteen months. 0:02:51.400 --> 0:02:55.000 Even that we're seeing signs of bottoming out. So when 0:02:55.000 --> 0:02:57.840 you look at the manufacturing sector, which has been relatively 0:02:57.960 --> 0:03:00.359 we compared to the service sector, the man of factoring 0:03:00.400 --> 0:03:02.959 sector is rebounding, and we see it in the latest 0:03:02.960 --> 0:03:06.519 PMI data, not just from the US, from a global perspective. 0:03:06.800 --> 0:03:08.840 And also, I think if you look at China data, 0:03:09.240 --> 0:03:11.680 China data seems to be bottoming as well. Right if 0:03:11.680 --> 0:03:13.640 you look at CPI that has turned past it for 0:03:13.680 --> 0:03:15.919 the first time in the last sort of like twelve 0:03:15.960 --> 0:03:18.320 to eighteen months. If you look at the China PMI 0:03:18.440 --> 0:03:22.799 that has also surpassed expectations. Now atbove fifty again, So. 0:03:22.800 --> 0:03:26.960 This has very wide implications for risk assets. I would 0:03:26.960 --> 0:03:29.960 think in the sense that you know, we have discounted 0:03:30.000 --> 0:03:31.560 a lot in the gains that we've seen in the 0:03:31.639 --> 0:03:34.720 US market AI and perhaps you know the FED cutting 0:03:34.760 --> 0:03:37.680 interest rates. I'm not sure we've really discounted you know, 0:03:37.800 --> 0:03:40.160 concerted global growth reigniting here. 0:03:40.640 --> 0:03:42.800 Yeah, And I mean this is not where funds are 0:03:42.800 --> 0:03:45.800 position If you look at like where the crowded possessions are, 0:03:46.040 --> 0:03:49.320 I mean those are off in technology AI kind of 0:03:50.480 --> 0:03:53.800 acceectors that are not as leverage to the global cycle. 0:03:54.200 --> 0:03:56.000 And I think what you've seen in the past two 0:03:56.040 --> 0:03:57.720 weeks or so in the price action of a lot 0:03:57.760 --> 0:04:00.960 of commodities, a lot of cyclicals, is that there's been 0:04:01.320 --> 0:04:04.000 a very very fast catch up to this kind of 0:04:04.040 --> 0:04:07.520 imbalanced in terms of positioning. Now, of course, from a 0:04:07.560 --> 0:04:10.640 market perspective, from a risk asset perspective, we think that 0:04:10.680 --> 0:04:13.360 this kind of high for longer environment may not be 0:04:13.480 --> 0:04:18.000 necessarily bad for equities per se, because companies actually do 0:04:18.160 --> 0:04:21.359 pretty well in this kind of inflationary growth environment that 0:04:21.400 --> 0:04:26.840 we identify. However, the leadership is going to be a 0:04:26.839 --> 0:04:29.159 bit more spread out, not just focused on the AI 0:04:29.200 --> 0:04:32.880 companies not just focus on Magnificent seven, but it's spreading 0:04:32.880 --> 0:04:35.360 out to cyclicals. So we think there's still i mean 0:04:35.440 --> 0:04:38.960 opportunity for its ketchup to go give it a low positioning. 0:04:39.200 --> 0:04:42.200 What about the Japanese equity market. We've got the nie 0:04:42.279 --> 0:04:45.279 k today up about four hundred points. We broke about 0:04:45.279 --> 0:04:48.720 forty grand last week. We're very close to that now 0:04:48.800 --> 0:04:51.839 six hundred points shy of that level. Is there still 0:04:51.839 --> 0:04:54.240 opportunity in Japan? Do you think? Yeah? 0:04:54.240 --> 0:04:56.560 I think from a short term perspective, I mean, things 0:04:56.560 --> 0:04:59.640 are a bit overbought, and there's kind of concern about 0:04:59.680 --> 0:05:04.520 the yeah and potentially getting intervention from the boj However, 0:05:04.600 --> 0:05:06.520 if you look at a longer time frame, we're actually 0:05:06.520 --> 0:05:09.479 structurally a lot more possile in Japan compared to other 0:05:09.600 --> 0:05:15.719 Asia Pacific kind of economies, because there are signs that 0:05:15.960 --> 0:05:19.960 Japan is finally getting of deflation, and deflation has been 0:05:20.160 --> 0:05:22.520 kind of the worry about central bank, the worry of 0:05:22.600 --> 0:05:24.159 Japan for the last thirty years. 0:05:24.320 --> 0:05:25.840 So if you look at Nikki. 0:05:25.920 --> 0:05:29.840 Itself, for example, it has just surpassed the high that 0:05:29.880 --> 0:05:33.800 it made in the early eighties. So this deflationary kind 0:05:33.800 --> 0:05:36.320 of end of deflationary era is going to play out 0:05:36.360 --> 0:05:38.800 over the next few years. So I think if there's 0:05:38.839 --> 0:05:40.840 a correction in Japan, it would be a good time 0:05:40.880 --> 0:05:44.400 for investors to accumulate, if they're not exposed already. 0:05:44.800 --> 0:05:46.760 So there are a lot of aspects of the current 0:05:46.839 --> 0:05:51.360 environment that look very positive, particularly for investing in risk assets. 0:05:51.600 --> 0:05:56.160 You have inflation arguably coming down in the US, and 0:05:56.200 --> 0:05:58.760 you have wages that are at four point one percent 0:05:59.160 --> 0:06:03.239 higher than inflation, protecting workers there to a certain degree. 0:06:03.400 --> 0:06:05.400 And yet the Fed funds rate is well above that 0:06:05.560 --> 0:06:08.840 rate at five and a half percent or so. But 0:06:08.880 --> 0:06:11.560 that worries some people when things look too good, you know, 0:06:11.640 --> 0:06:13.880 it makes you nervous. Should we be nervous? 0:06:14.200 --> 0:06:17.120 Yes, I am. I'm actually I think if we think 0:06:17.120 --> 0:06:20.599 about where which as a classes we're worried about, we're 0:06:20.640 --> 0:06:26.320 actually worry about government bonds duration. Given that the narrative 0:06:26.360 --> 0:06:29.160 of high for longer may be here to stay with 0:06:29.240 --> 0:06:32.480 us for the next few years. I think bonds actually 0:06:33.480 --> 0:06:36.920 have less become less attractive in this environment. 0:06:37.360 --> 0:06:38.280 And you're seeing it in. 0:06:38.360 --> 0:06:41.080 Sort of the breakout of goal as well. So gold 0:06:41.200 --> 0:06:43.440 actually had a breakout in March and a lot of 0:06:43.480 --> 0:06:45.800 people wondering, I mean, why is goal breaking out. There's 0:06:45.839 --> 0:06:48.840 no kind of snic the news, there's no actually large 0:06:48.880 --> 0:06:51.680 buying actions. I think what the market is sniffing out 0:06:51.920 --> 0:06:54.840 is that in March we had a very very strong 0:06:55.200 --> 0:06:59.120 US data coming out, which surprised everybody. However, the FED 0:06:59.200 --> 0:07:02.159 is still sticking to is a rate cut of three 0:07:02.160 --> 0:07:05.200 times this year. So the fat is telling you that, 0:07:05.279 --> 0:07:07.760 I mean, they're willing to sustain. They're willing to kind 0:07:07.760 --> 0:07:11.960 of stomach higher inflation in the future compared to what 0:07:11.960 --> 0:07:13.760 they've done in the past. And I think that's what 0:07:13.800 --> 0:07:16.680 the goal market is telling us, is that in this 0:07:16.760 --> 0:07:21.880 kind of high inflation environment, bond investors should be thinking 0:07:21.920 --> 0:07:25.440 about I mean goal instead or other kind of commodities instead. 0:07:25.480 --> 0:07:27.520 So I think that is the reason. 0:07:27.720 --> 0:07:30.240 Last question. You know, we had a US based investor 0:07:30.320 --> 0:07:32.560 visiting Hong Kong last week and when I asked her, 0:07:32.640 --> 0:07:35.920 one of the things that was most surprising, she said 0:07:35.960 --> 0:07:38.559 that most people in Hong Kong feel as though Donald 0:07:38.600 --> 0:07:41.440 Trump would be elected president. I mean, if that's the case, 0:07:41.680 --> 0:07:44.080 what does a Trump presidency do to your thesis on 0:07:44.120 --> 0:07:45.080 putting money to work. 0:07:45.920 --> 0:07:48.920 Yeah, I think we put out a piece looking at 0:07:49.040 --> 0:07:51.280 kind of like, what are the policy implications of buy 0:07:51.360 --> 0:07:53.480 the versus Trump. I think, of course, right now is 0:07:53.520 --> 0:07:57.200 still way too early. We've still got a few months ago. However, 0:07:57.320 --> 0:07:59.320 I think one of the things that we're looking at 0:07:59.520 --> 0:08:04.400 is sort of the historical precedence of this, and we 0:08:04.440 --> 0:08:08.360 think that actually the correct situation still favors Biden. 0:08:08.480 --> 0:08:10.960 So we'll see, I mean a few months later. 0:08:11.960 --> 0:08:14.680 All right, Stephanie, thank you very much for joining us. 0:08:14.680 --> 0:08:16.280 I'm sure we'll have you in our studios a few 0:08:16.320 --> 0:08:20.320 times between now and then. Stephanie lynge cio. 0:08:20.000 --> 0:08:44.040 At Stashaway. 0:08:37.720 --> 0:08:41.040 Joining us now for some discussion of markets is Nancy Davis, 0:08:41.120 --> 0:08:45.679 founder and portfolio manager at Quadratic Capital Management. Well, we 0:08:45.760 --> 0:08:50.199 had that strong jobs month of job creation during the 0:08:50.280 --> 0:08:53.640 last month, Nancy, and I wonder whether or not, since 0:08:53.679 --> 0:08:56.000 this may not sit so well with the Fed, whether 0:08:56.080 --> 0:08:59.040 we'll see a lot more hawkish commentary coming from the Fed. 0:09:00.480 --> 0:09:04.199 Well, you know this payroll report, it was the fourth 0:09:04.280 --> 0:09:08.680 consecutive upside surprise, and now most of the job gains 0:09:08.679 --> 0:09:12.120 were in healthcare and government. But you know, definitely the 0:09:12.120 --> 0:09:16.200 market expectations for the rate cuts have fallen dramatically in 0:09:16.280 --> 0:09:19.199 twenty twenty four, We're now pricing about two and a 0:09:19.240 --> 0:09:21.959 half rate cuts, as you can see on your Bloomberg terminal, 0:09:22.400 --> 0:09:24.559 and that's a lot less than where we started the 0:09:24.640 --> 0:09:27.559 year at about six cuts. But there is still room 0:09:28.360 --> 0:09:30.880 if the job's data continues to be so hot. I 0:09:30.880 --> 0:09:34.720 guess we'll see what the CPI print brings this week. 0:09:34.760 --> 0:09:36.200 In the US, we. 0:09:36.040 --> 0:09:38.360 Were talking a moment ago about the oil price. I mean, 0:09:38.400 --> 0:09:40.880 we have a brent just under ninety one bucks at 0:09:40.880 --> 0:09:43.240 the moment. There's a lot of talk on the straight 0:09:43.280 --> 0:09:46.760 about the possibility of a resurgence and commodity driven inflation. 0:09:47.000 --> 0:09:50.439 Are you concerned about that at all and how that 0:09:50.520 --> 0:09:53.880 may force the Fed to really do nothing in terms 0:09:53.880 --> 0:09:54.920 of changing policy. 0:09:56.200 --> 0:09:57.680 You know, it's definitely a concern. 0:09:58.360 --> 0:10:02.240 There's so many all so climate as well as other 0:10:02.360 --> 0:10:05.440 things going on around the world, whether it's the droughts 0:10:05.559 --> 0:10:08.880 or even the bridge that just broke down, that's really 0:10:08.920 --> 0:10:12.280 going to probably be driving the price of oil specifically. 0:10:12.360 --> 0:10:15.040 But if you look at the commodities index, a lot 0:10:15.080 --> 0:10:19.760 of the rally is actually cocoa like chocolate. So I 0:10:19.800 --> 0:10:22.920 think the index overall for the commodities market is a 0:10:22.960 --> 0:10:27.559 little kind of distorted because of that huge spike in cocoa. 0:10:27.600 --> 0:10:30.840 But I definitely think the FED is keeping an eye 0:10:30.920 --> 0:10:35.640 on that because you know, it's tricky. The battle for 0:10:35.800 --> 0:10:41.200 inflation has kind of been declared a victory, and they're 0:10:41.720 --> 0:10:44.040 easing now or saying they're going to be easing. I 0:10:44.040 --> 0:10:46.960 think it's a question of whether easing is appropriate or 0:10:47.000 --> 0:10:49.960 whether whether inflation is going to be more sticky. 0:10:51.280 --> 0:10:55.240 Nancy, would you not say, though, that inflation still appears 0:10:55.280 --> 0:10:59.120 to be on a downward trajectory, we may see higher 0:10:59.240 --> 0:11:01.240 energy prices. This is one of the reasons the FED 0:11:01.600 --> 0:11:05.760 kind of separates that when it looks at core, but 0:11:05.800 --> 0:11:08.760 then you also have shelter that is expected to be 0:11:08.760 --> 0:11:11.920 coming down, and shelter is such a huge part of 0:11:11.960 --> 0:11:15.840 the CPI thirty odd percent or so. Isn't it likely 0:11:15.880 --> 0:11:17.520 that we'll still see it. It's just that we won't 0:11:17.520 --> 0:11:21.920 see it happen as fast as we had thought or hoped. Well. 0:11:22.120 --> 0:11:25.360 I think you bring up a great point because CPI 0:11:25.559 --> 0:11:28.600 is just an index, right, the consumer price index. It's 0:11:28.600 --> 0:11:31.160 like any other index out there. It's probably not the 0:11:31.200 --> 0:11:34.040 only way to measure inflation. It's even an index that 0:11:34.120 --> 0:11:37.679 the FED sort of discounts, right. They use survey data 0:11:37.720 --> 0:11:41.120 more or the PCE, and CPI is also the year 0:11:41.160 --> 0:11:43.640 of a year change. So I think the tricky thing 0:11:43.800 --> 0:11:47.400 is CPI has been coming down and people expect Shelter 0:11:47.600 --> 0:11:50.880 to really drive sort of the downward trajectory. But I 0:11:50.880 --> 0:11:54.720 think if you look at average Americans and their real 0:11:54.760 --> 0:11:58.000 life cost a living, it's not really come down, like 0:11:58.080 --> 0:12:02.520 things are quite still expensive. Of lots of things are 0:12:02.960 --> 0:12:06.200 feeling quite inflationary in the day to day wives. So 0:12:06.240 --> 0:12:09.160 you have CPI saying one thing, and then it's also 0:12:09.280 --> 0:12:12.880 so sorted from the as you point out the rent component, 0:12:12.920 --> 0:12:13.880 which is about a third. 0:12:14.400 --> 0:12:17.920 So earning season kicks off Friday, we get the big banks, 0:12:17.960 --> 0:12:21.160 JP Morgan Wells City Group. I mean, how do you 0:12:21.200 --> 0:12:23.680 think earning season is going to shape up this year 0:12:23.720 --> 0:12:25.560 for the first quarter. 0:12:26.880 --> 0:12:29.640 Well, it's tricky with the banks because the US yield 0:12:29.640 --> 0:12:33.840 curve is still massively inverted. So what that means is 0:12:34.200 --> 0:12:37.560 long dated yields in the US are lower than short 0:12:37.600 --> 0:12:41.959 dated yields, and that's really tricky for a bank. Also, 0:12:42.040 --> 0:12:46.880 trading volumes haven't been tremendous. Everything is sort of going 0:12:47.000 --> 0:12:49.600 up this year, right, twenty twenty four has been sort 0:12:49.600 --> 0:12:53.679 of the everything is amazing. Everything is rallying. I think 0:12:53.720 --> 0:12:56.480 the one thing that is falling is inflation expectations, but 0:12:56.640 --> 0:13:01.480 besides that, everything else is up, So it's it's definitely 0:13:02.320 --> 0:13:06.480 a tricky time for earnings. And I i'm you know, 0:13:06.520 --> 0:13:09.320 I'm I think the yield curve being so inverted in 0:13:09.360 --> 0:13:11.760 the US is also a pain point for the banks. 0:13:13.800 --> 0:13:16.360 I know that the appearance is that everything goes up 0:13:16.600 --> 0:13:20.960 and the indexes have but individual stocks, I mean, plenty 0:13:21.000 --> 0:13:23.199 are getting really punished. I mean, you just look at 0:13:23.320 --> 0:13:26.840 a company like Lululemon, came out with its earnings, wasn't 0:13:26.880 --> 0:13:29.320 really all that bad, didn't give a strong forecast, and 0:13:29.480 --> 0:13:32.200 was slammed. So I mean, I don't think that's a 0:13:32.200 --> 0:13:34.640 good thing or a bad thing, but I do think 0:13:34.679 --> 0:13:38.480 it makes for an interesting time for you know, stock. 0:13:38.200 --> 0:13:42.679 Picking, definitely. I mean, the market is quite complacent right now. 0:13:42.720 --> 0:13:46.480 If you think back to twenty twenty two, when everything 0:13:46.559 --> 0:13:50.440 was going down, the you know, sentiment was really terrible. 0:13:50.559 --> 0:13:53.199 Right now, it's kind of opposite day where everybody is 0:13:53.360 --> 0:13:56.800 very soft landing. Everything's fine, the Fed's going to cut 0:13:56.880 --> 0:14:01.240 Inflation's not a problem. Everyone is super complacent that things 0:14:01.280 --> 0:14:03.360 are going to be okay. And I think that's the 0:14:03.400 --> 0:14:07.200 time that investors should really prick up and be worried. 0:14:07.360 --> 0:14:10.400 Right when everyone gets very complacent, that's kind of when 0:14:10.520 --> 0:14:11.800 surprises can happen. 0:14:12.200 --> 0:14:14.840 Are you more exposed to the US right now than 0:14:14.880 --> 0:14:16.240 you are to markets offshore? 0:14:18.000 --> 0:14:20.800 So I manage two fixed income funds that are both 0:14:21.320 --> 0:14:26.280 treasury funds, So for my my portfolio management is very 0:14:26.360 --> 0:14:29.800 focused on the US. But that's by perspectus. So, but 0:14:29.880 --> 0:14:31.840 I do think there are a lot of great opportunities 0:14:31.880 --> 0:14:36.680 out there in emerging markets, in fixing everyone in fixed 0:14:36.720 --> 0:14:40.240 income and even equities, you know, going talking about complacency, 0:14:40.320 --> 0:14:43.760 you know, there are certain markets that everyone hates, you know, 0:14:43.880 --> 0:14:47.920 like it's I guess being a contrarian. I think it's 0:14:47.920 --> 0:14:50.480 always interesting to look at the things that are out 0:14:50.480 --> 0:14:53.240 of favor or the things that people don't expect. 0:14:54.680 --> 0:14:56.840 Where do you see some of the best value in 0:14:57.040 --> 0:14:59.960 local currency em fixed in. 0:15:02.400 --> 0:15:06.720 Well, everyone's really excited about Japan right now. They've just 0:15:06.880 --> 0:15:11.320 changed their yield curve control ended that it's a new 0:15:11.400 --> 0:15:14.440 kind of regime, a new governor, and so I think 0:15:14.440 --> 0:15:16.680 a lot of people are looking at Japan to say, hey, 0:15:16.720 --> 0:15:18.960 are we going to have a new you know, kind 0:15:18.960 --> 0:15:21.360 of a new era to get out of this this 0:15:21.480 --> 0:15:26.320 decade long deflation and have more interesting markets. But Japan 0:15:26.320 --> 0:15:28.720 has always been the widow maker with people trying to 0:15:28.720 --> 0:15:33.440 play for higher yields. So it's also, you know, it's 0:15:33.480 --> 0:15:37.320 so you know, betting that bonds jgb's sell off has 0:15:37.520 --> 0:15:42.360 really been a really really tricky and bad thing to play. 0:15:42.760 --> 0:15:45.240 So to play to your strength. I mean, if you're 0:15:45.360 --> 0:15:48.600 focused on US treasuries, let's talk about the shorter end 0:15:48.600 --> 0:15:50.840 of the curve. Here is the two year of screaming 0:15:50.840 --> 0:15:52.080 by at four seventy five. 0:15:53.360 --> 0:15:57.240 I don't think so the you know, it's really I 0:15:57.520 --> 0:16:00.440 think two year yields probably will be going low. But 0:16:00.480 --> 0:16:02.520 I think if you're going to look at the front end, 0:16:02.560 --> 0:16:04.360 you know, if you pull up your Bloomberg terminal and 0:16:04.400 --> 0:16:07.240 you tape p X one, that's the code to look 0:16:07.240 --> 0:16:09.600 at the t bill market, and you can see you 0:16:09.600 --> 0:16:12.080 can buy a one year, one month te bill and 0:16:12.120 --> 0:16:16.520 get paid five point three percent, right, So why you know, 0:16:16.560 --> 0:16:18.240 I feel like, if you're going to stay in the 0:16:18.240 --> 0:16:20.800 short end, don't really make a bet about whether the 0:16:20.880 --> 0:16:23.080 Fed how many times they're going to cut, because that's 0:16:23.080 --> 0:16:23.800 what you're getting. 0:16:24.920 --> 0:16:26.080 Whereas I think. 0:16:25.920 --> 0:16:27.840 The long end of the curve. You know you're not. 0:16:28.120 --> 0:16:30.880 That's a negative term premium, so you're really not getting 0:16:30.920 --> 0:16:32.040 paid to take that risk. 0:16:32.960 --> 0:16:35.680 All right, Nancy, thanks very much for joining us. Nancy Davis, 0:16:35.720 --> 0:16:39.320 founder and portfolio manager at Quadratic Capital Management. 0:16:56.440 --> 0:16:59.120 Let's get to our guests. Stephen Schoenfeld is with us. 0:16:59.160 --> 0:17:03.880 Stephen is the CEO at market Vector's Indexes. He joins 0:17:03.960 --> 0:17:06.320 us from here in New York City. Good of you 0:17:06.359 --> 0:17:08.760 to stop by. I want to begin by what appears 0:17:08.800 --> 0:17:10.720 to be, if you look at the jobs data, a 0:17:10.840 --> 0:17:13.960 reacceleration of the American economy, and I think it's fair 0:17:14.000 --> 0:17:18.320 to say a real risk that interest rates may need 0:17:18.359 --> 0:17:21.560 to remain elevated for much longer than the market had 0:17:21.600 --> 0:17:24.400 been predicting, or at least the FED had been guiding. 0:17:24.440 --> 0:17:24.520 On. 0:17:25.080 --> 0:17:27.200 Last week, we heard from Neil Keshgard, the head of 0:17:27.240 --> 0:17:30.480 the Minneapolis FED, saying, maybe we don't get any rate 0:17:30.520 --> 0:17:33.080 cuts this year. Are you prepared for that possibility? 0:17:34.560 --> 0:17:39.640 Well, certainly the economy keeps on humming. It seems quite 0:17:39.680 --> 0:17:43.600 impervious to a slowdown, and the FED speak toward the 0:17:43.680 --> 0:17:46.480 end of last week, after Chairman Powell was a little 0:17:46.480 --> 0:17:51.120 bit more hawkish, but there's no clear signs yet that 0:17:51.680 --> 0:17:56.240 the voting, when it happens again, will will choose to postpone. 0:17:56.400 --> 0:18:00.040 But even if it does, we've now entered April, and 0:18:00.560 --> 0:18:02.920 to me, if the US equity markets are going to 0:18:03.000 --> 0:18:06.400 keep moving higher, it's a little bit less about interest rates. 0:18:06.480 --> 0:18:09.439 It's more about earnings, and we're going to start to 0:18:09.480 --> 0:18:13.440 see earnings this week, and so we're going to need earnings. 0:18:13.480 --> 0:18:17.320 Growth expectations are around three to three and a half 0:18:17.400 --> 0:18:19.720 percent for the S and P five hundred as a whole. 0:18:20.960 --> 0:18:25.639 If companies deliver, it could actually further insulate the market 0:18:25.760 --> 0:18:31.040 from let's call it non loosening fears, right or a 0:18:32.440 --> 0:18:36.480 longer pace before we see some interest rate cuts. 0:18:36.840 --> 0:18:39.040 I think if you just use good old common sense, 0:18:39.080 --> 0:18:41.760 with the economy this strong, and the fact that the 0:18:41.880 --> 0:18:45.399 recent earnings were already pretty strong, you could get some 0:18:45.440 --> 0:18:50.520 blowout stock gains in this next earning season because some 0:18:50.560 --> 0:18:54.680 of these companies, particularly the in the AI related space, 0:18:55.600 --> 0:19:00.359 are perhaps bound to have some very strong numbers'll just 0:19:01.040 --> 0:19:03.800 and that'll just you know, spike up the denominator and 0:19:03.840 --> 0:19:06.920 bring the pees down, and you know, and investors will 0:19:06.920 --> 0:19:09.880 be seduced by that. That's a kind of prediction from 0:19:10.119 --> 0:19:13.560 a journalist. As journalists covering this stuff, we're all sort 0:19:13.560 --> 0:19:15.880 of Monday morning strategists, as it were. 0:19:16.920 --> 0:19:20.959 Well, certainly in big tech, in financials, in the areas 0:19:21.000 --> 0:19:23.919 that have been leading and are the biggest weights in 0:19:24.000 --> 0:19:27.360 the main market cap indexes, you are going to need 0:19:27.440 --> 0:19:32.480 some blowout earnings to to make these valuations reasonable. I 0:19:32.520 --> 0:19:35.439 think where we might see the real surprises could be 0:19:35.720 --> 0:19:39.840 in energy materials, the sectors that have not been in 0:19:39.880 --> 0:19:45.919 favor and yet fundamentals are supporting them. It's hard to 0:19:45.960 --> 0:19:49.040 do technical analysis on radio, but if you look at 0:19:49.040 --> 0:19:53.840 the SMP energy sector, it actually made all time highs 0:19:54.320 --> 0:19:57.199 last week and seems poised to go higher. So I 0:19:57.240 --> 0:20:01.840 do think they'll be earning surprises. We've been generally surprised 0:20:01.840 --> 0:20:05.399 on the upside on all the other economic statistics. The 0:20:05.520 --> 0:20:09.240 question we still will see, and which will make April interesting, 0:20:09.359 --> 0:20:13.200 is where those positive earnings are going to be surprising 0:20:13.200 --> 0:20:13.679 the market. 0:20:13.800 --> 0:20:15.479 Well assume for the moment that some of that has 0:20:15.480 --> 0:20:18.080 already been discounted. I mean, witness the advance that we 0:20:18.119 --> 0:20:20.480 had in stocks Friday. I'm wondering whether or not it's 0:20:20.480 --> 0:20:23.520 the forecast part of the story that's even more important. 0:20:25.720 --> 0:20:29.240 Yeah. I mean, look, I think analysts have been adjusting 0:20:29.280 --> 0:20:34.399 their estimates coming in. We've seen x post reduction of 0:20:34.920 --> 0:20:40.320 estimates for you former high flyers like Tesla, and I 0:20:40.359 --> 0:20:44.680 think you know, people are getting a little less excited 0:20:44.720 --> 0:20:50.000 about another one of the Magnificent seven Apple, but there's 0:20:50.040 --> 0:20:54.000 still plenty of room. I would be very surprised if 0:20:54.400 --> 0:20:57.080 in Nvidia doesn't surprise again on the upside, which seems 0:20:57.080 --> 0:21:00.239 hard to believe given how consistently it's been doing it. 0:21:00.280 --> 0:21:04.080 But they're right there in the center of the AI story. 0:21:05.000 --> 0:21:07.760 And just for fun, let me take the opposite side 0:21:07.760 --> 0:21:09.800 of a point you made a few moments ago about 0:21:10.560 --> 0:21:14.880 about the rotation may may benefit even more. I would 0:21:14.960 --> 0:21:17.560 say that there's a chance that rotation takes a pause 0:21:17.640 --> 0:21:20.480 here because the earnings could be so strong for those 0:21:20.520 --> 0:21:23.560 AI related companies and it's not just AI, but it's 0:21:23.640 --> 0:21:26.480 it's also you know, the momentum place like Eli, Lilly 0:21:26.560 --> 0:21:29.360 and Novo nor Disc and those those types of companies 0:21:29.520 --> 0:21:32.520 just not just AI, but the money may flow back 0:21:32.560 --> 0:21:38.479 into them and put rotation on hold. Can you count that? 0:21:38.560 --> 0:21:43.080 Yeah, I mean, the whole notion of rotation and rotation 0:21:43.240 --> 0:21:46.760 tends to happen in a healthy and bullish market, is 0:21:46.760 --> 0:21:50.280 that the high paying sectors take a pause. They don't 0:21:50.280 --> 0:21:55.000 always fall. Pharma definitely can still go further, but you 0:21:55.119 --> 0:21:59.359 get new leadership. And it wouldn't be in Congress for 0:21:59.400 --> 0:22:03.359 there to be positive earnings on the momentum on the 0:22:03.400 --> 0:22:06.119 companies that led the market in the fourth quarter, but 0:22:06.280 --> 0:22:10.359 still have the areas that have been out of favor, 0:22:10.480 --> 0:22:15.680 like materials and energy continuing to go up. And I 0:22:15.720 --> 0:22:19.840 certainly expect that it's hard to ignore what we saw 0:22:19.880 --> 0:22:24.440 with energy prices and with the main oil and gas companies, 0:22:25.040 --> 0:22:27.240 as well as what we're beginning to see, in my opinion, 0:22:27.240 --> 0:22:28.600 in precious metal minors. 0:22:28.920 --> 0:22:30.800 Yeah, no doubt about that, with gold and an all 0:22:30.880 --> 0:22:32.840 time high. Stephen, thank you so much for making time 0:22:32.840 --> 0:22:35.439 to chat with us. Stephen Schoenfeld as the CEO of 0:22:35.680 --> 0:22:46.400 Market Vector Indexes. This has been the Bloomberg Daybreak Asia podcast, 0:22:46.560 --> 0:22:49.240 bringing you the stories making news and moving markets in 0:22:49.280 --> 0:22:53.160