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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 Doug Chrisner.

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Speaker 2: Global markets are very much focused on the Federal Reserve.

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Speaker 2: The fed's newest governor, Stephen Myron, was sworn in Tuesday,

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Speaker 2: just in time for this critical two day policy meeting.

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Speaker 2: Nominated by President Trump. Myron is the chair of the

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Speaker 2: White House Council of Economic Advisors. Now he's taken lead

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Speaker 2: from that role, but he hasn't resigned. Here's Bloomberg's Michael McKee.

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Speaker 3: We're not going to feel the imprint of his presence either,

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Speaker 3: except that he might dissent if the FED does a

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Speaker 3: twenty five basis point cut, and he might call for

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Speaker 3: a fifty basis point cut, because that seems to be

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Speaker 3: the reason he's been sent over to the FED.

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Speaker 4: By Donald Trump.

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Speaker 2: In a moment or two, we'll get the views of

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Speaker 2: Sean Darby. He is managing director at Misaho Securities Asia.

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Speaker 2: But we begin here in the States. Joining me now

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Speaker 2: is Bob Dahl. He is President CEO also the CIO

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Speaker 2: at cross Mark Investments. Bob, thank you so much for

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Speaker 2: making time to chat with me. Are you in the

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Speaker 2: camp for a twenty five basis point rate cut.

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Speaker 4: I am as most of the rest of the world

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Speaker 4: is doug a very important meeting because of what's going

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Speaker 4: to be said around it. I think much less about

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Speaker 4: what the decision is people are expecting twenty five.

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Speaker 2: There has been some speculation, maybe you've heard of it,

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Speaker 2: kind of the sell the news theme after the Fed's decision,

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Speaker 2: maybe a gap down for the equity market, given the

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Speaker 2: fact that this rate cut is pretty much widely priced in.

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Speaker 5: As you just.

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Speaker 4: Said, yeah, I think that a lot will depend on

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Speaker 4: what the verbiage is around it. In particular, what does

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Speaker 4: the chairman say in the press conference that follows. If

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Speaker 4: he indicates that there are more coming, that is more cuts,

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Speaker 4: and the market might like that. If he says we're

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Speaker 4: really worried about inflation is going to have to watch

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Speaker 4: the data, the market may not particularly take a shine

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Speaker 4: on that. So will depend on what is said in

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Speaker 4: the conference.

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Speaker 2: So I saw the latest survey from Bank of America

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Speaker 2: Fund Manager Survey net twenty eight percent still overweight equities.

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Speaker 2: With what we're talking about in terms of FED policy,

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Speaker 2: the likelihood for subsequent rate cuts, are you still constructive

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Speaker 2: on stocks reasonably?

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Speaker 1: So?

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Speaker 4: I've sort of hedged by saying we are in a

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Speaker 4: high risk bull market. Bull market obviously means the path

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Speaker 4: of least resistance is updug, but the high risk means,

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Speaker 4: but be careful. Stocks are very expensive relative to history,

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Speaker 4: and you know, we have some question marks. We just

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Speaker 4: talked about the question mark around the jobs market, a

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Speaker 4: little bit about inflation. It's not anywhere near the fed's

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Speaker 4: two percent target, so lot could go wrong. But till now,

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Speaker 4: the market has said earnings are fine, leave me alone

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Speaker 4: with all that other disturbing and in set of issues

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Speaker 4: that don't make a difference quote unquote.

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Speaker 2: So, Bob, if you do have questions, I'm curious about

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Speaker 2: the strategy that you're using. Are you taking money off

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Speaker 2: the table where it relates to equities maybe, are you

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Speaker 2: looking at the bond market at all?

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Speaker 4: So, yes, we have some money in the bond market

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Speaker 4: now that has run as well as you know, with

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Speaker 4: a ten year treasury yield approaching four percent from being

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Speaker 4: higher not that long ago. So the bonds are not

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Speaker 4: all that attractive either. Now we'll say this if the

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Speaker 4: FED or when the FED lowers rates, and if they

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Speaker 4: hint at more shorter maturities probably will do well as

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Speaker 4: interest rates come down the front end of the curve

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Speaker 4: out past ten years, they may worry about inflation. If

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Speaker 4: the Fed is threatening to reduce rates more so, we

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Speaker 4: could end up with a steeper yield curve, if you will.

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Speaker 2: So I know that a lot of the expectations here

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Speaker 2: on this rate CUD are perhaps founded on this notion

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Speaker 2: that we have seen deterioration in the labor market. But

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Speaker 2: if you look at the day's economic news today, the

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Speaker 2: retail sales number that was pretty upbeat, I mean, a

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Speaker 2: rate of six tens to one percent in August. And

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Speaker 2: if you look at the control group sales that's obviously

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Speaker 2: a part of the calculation for GDP, we saw an

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Speaker 2: increase of seven tents of one percent. That suggests a

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Speaker 2: pretty healthy quarter. So net net, I mean, the American

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Speaker 2: economy looks like it's still pretty strong right now.

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Speaker 4: It certainly does. The contemporaneous numbers are generally been pretty good,

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Speaker 4: and of course earnings for the first two quarters of

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Speaker 4: the year we're brilliant, and many are expecting that again

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Speaker 4: in the third quarter. The question is will jobs being weaker,

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Speaker 4: will inflation being higher get in the way of all

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Speaker 4: that so far, so good, But we'll have to watch

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Speaker 4: both of those carefully. And that's, of course the balancing

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Speaker 4: act that the fit has. Their job's never easy, but

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Speaker 4: they're between a rock and a art place. Labor market

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Speaker 4: seems to be weakening, inflation seems to be firm.

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Speaker 2: What are they going to do When it comes to

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Speaker 2: a lot of the power that we have seen in

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Speaker 2: the equity market, you have to look no further than

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Speaker 2: artificial intelligence. That trade kaptech has been a big theme

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Speaker 2: for much of the year. How are you feeling about

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Speaker 2: that right now?

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Speaker 4: Constructive? It's for real. AI is for real. Now that's

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Speaker 4: come into the price of stocks in a pretty big way,

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Speaker 4: So we could debate is it too much too soon?

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Speaker 4: Often Wall Street gets a hold of these new if

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Speaker 4: I can call AI new new concepts, and they get

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Speaker 4: it right in terms of direction, but they overdo it

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Speaker 4: and do it too quickly. Are we going to have

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Speaker 4: a so off time? We'll tell. Obviously in the first

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Speaker 4: quarter the so called mag seven and other AI stocks struggled,

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Speaker 4: but they came back with a vengeance off those aprilows.

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Speaker 2: So we're talking about the TikTok deal earlier. It looks

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Speaker 2: like We've got a new entity here in the US

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Speaker 2: that will take ownership of the US assets of that platform.

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Speaker 2: So maybe a little bit of positivity in US China

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Speaker 2: trade relations. We also have news coming out of the

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Speaker 2: UK that the British government essentially is accepting fact that

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Speaker 2: this twenty five percent US tariff on British steel will

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Speaker 2: remain in place.

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Speaker 3: Now.

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Speaker 2: I know that the Prime Minister was hoping to address that,

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Speaker 2: maybe getting the Levey removed out right, How do you

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Speaker 2: understand US trade relations globally right now? If we can

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Speaker 2: focus a little bit about China, maybe to a lesser

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Speaker 2: extent Europe and include the UK in that.

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Speaker 4: So, I would say the trade relationships and the tariff

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Speaker 4: implementations have gone generally better than many of us feared.

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Speaker 4: Now China, we're not done there. We got to dot

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Speaker 4: some ies across some te's and we're not ready to

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Speaker 4: do that yet. A lot of basics to be decided.

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Speaker 4: Getting China done is going to be really important. Europe

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Speaker 4: is they've groused along the way, but they've gone along

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Speaker 4: with it. The UK the same. Look, you wonder at

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Speaker 4: any point in time will one of these countries there's

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Speaker 4: or a block of them saying, you know, the deal

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Speaker 4: is not a good deal for us, We're not going

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Speaker 4: to observe it anymore. What are the consequences of that?

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Speaker 4: We're not sure. So so far, so good, but a

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Speaker 4: lot of tough days coming.

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Speaker 2: I'm wondering whether you're finding opportunity offshore right now in

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Speaker 2: the midst of everything that we're talking about that's terrif related,

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Speaker 2: where other jurisdictions are involved, and maybe a little bit

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Speaker 2: of question as to whether or not that would be

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Speaker 2: a headwind for some of those economies.

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Speaker 4: Certainly it will be a headwind, there's no question about

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Speaker 4: it for most of them. And yet we think a

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Speaker 4: lot of that is in the price of those stocks.

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Speaker 4: As you know, generally speaking, non US markets are a

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Speaker 4: lot less expensive than US markets, and for some good reasons.

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Speaker 4: But we find a lot of Americans have almost nothing

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Speaker 4: outside the US and they're looking there to do some buying.

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Speaker 4: So I think that will create some upward momentum over

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Speaker 4: the months to come in non US markets.

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Speaker 2: One of the big reversals that we have seen this

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Speaker 2: year has been in the US dollar, and there was

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Speaker 2: some weakness in the New York session. I think the

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Speaker 2: Bloomberg dollar spot index was down by more than a

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Speaker 2: half of one percent. That's a pretty big move. How

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Speaker 2: are you feeling about the dollar in the path that

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Speaker 2: it is on right now?

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Speaker 4: So a bit oversold at the moment, and as you

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Speaker 4: probably know, the consensus, almost to a man and a woman,

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Speaker 4: is a long term negative on the dollar. I find

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Speaker 4: myself there too, particularly his interest rates in the US

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Speaker 4: come down, perhaps more than outside the US. As rates

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Speaker 4: come down, that usually hurts a currency, So watch it carefully,

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Speaker 4: but I would not be surprised to see some more

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Speaker 4: weakness in the months to come.

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Speaker 2: So you mentioned a moment ago that there are opportunities

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Speaker 2: that you are seeing in the bond market right now.

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Speaker 2: And I'm wondering what part of the curve interest you

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Speaker 2: the most.

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Speaker 4: The shorter end of the curve, call it two to

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Speaker 4: five years, maybe out to eight, but certainly not past

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Speaker 4: ten because of that concern we have about steepening and

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Speaker 4: about the fact that the inflation rate seems to be

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Speaker 4: ticking higher, not lower.

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Speaker 2: Bob, believe it there. Thank you so very much. Bob

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Speaker 2: dol He is President's CEO, also the CIO at Cross

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Speaker 2: Market Vestment's joining us here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 2: Equity markets across the Asia Pacific are showing some weakness

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Speaker 2: after a down day in the US, where the S

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Speaker 2: and P five hundred and the Nasdaq composits slipped from

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Speaker 2: record highs. American markets appear to refrain from making any

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Speaker 2: big bets in front of tomorrow's FED decision on interest rates.

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Speaker 2: Let's get the views now of Sean Darby. He is

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Speaker 2: managing director at Misoho Securities Asia. He spoke earlier with

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Speaker 2: Bloomberg TV host Cherry On and Annabel Droolers on the

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Speaker 2: Asia trade.

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Speaker 5: I think it's interesting because the stage sort of seems

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Speaker 5: set for this cut, and it's that big focus on

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Speaker 5: the projections. Now you've got Stephen Myron in there as well.

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Speaker 5: It's going to be that big focus on the descenders

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Speaker 5: as well, the ones that are agitating for larger cuts.

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Speaker 5: And again it just seems like this is all kind

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Speaker 5: of positive for equities.

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Speaker 4: Well it is really.

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Speaker 6: I mean, we're in one big reflation trade and oil

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Speaker 6: prices remain low, the dollars drop nearly twelve percent from

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Speaker 6: its peak. You've got steep yield curse, particularly in the

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Speaker 6: United States, and you've got this on running loosening of

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Speaker 6: financial conditions where credit spreads are also very tight. So

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Speaker 6: almost anything that you throw at the equity markets, it's

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Speaker 6: bouncing back. I think the irony maybe is that three

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Speaker 6: to four months from now, as we go into the

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Speaker 6: year end, the economic data points are going to come

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Speaker 6: really important because this has all got to have some

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Speaker 6: follow through it later on in terms of some earnings changes,

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Speaker 6: and although economic forecasts have been marginally upgraded, it's nowhere

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Speaker 6: near enough to sort of meet the expectations that the

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Speaker 6: equity markets have priced in over the last three to

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Speaker 6: four months.

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Speaker 5: So then how long does the good run continue and

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Speaker 5: when does that sort of reality check set in, I

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Speaker 5: mean markets move ahead of of those economic projections or results.

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Speaker 6: Well, the paradox is that the bond market's going to

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Speaker 6: do a lot of the work for you. If we

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Speaker 6: do get a real slow down and are not a

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Speaker 6: soft landing, then that's going to be lower bond yields

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Speaker 6: bad for equities. If we're going to get a reacceleration

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Speaker 6: of growth, which is what our case is, then bond

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Speaker 6: yields will sell off and that's going to be very

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Speaker 6: difficult for equity markets, so in terms of valuations, so

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Speaker 6: the actual As the further we go on this rally,

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Speaker 6: the narrower narrower, the ability for equity markets to manage

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Speaker 6: around bond yields, I think is going to be the

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Speaker 6: main constraint.

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Speaker 1: Despite the fact that we continue to see a solid

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Speaker 1: economy Sean, especially in the US, earnings estimates continue to

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Speaker 1: move higher, and we just saw consumer spending also remaining strong.

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Speaker 4: Well, that's really the paradox.

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Speaker 6: It's not just the United States seeing these better earnings numbers.

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Speaker 6: Most of the equity markets we cover at the moment.

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Speaker 6: Earning revisions have been actually quite positive over the last

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Speaker 6: three months, so you are getting some upgrade which is

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Speaker 6: allowing this rally to continue. I think one very important

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Speaker 6: point is that for the best part of the last

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Speaker 6: eighteen to twenty four months, bonds and equities have been

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Speaker 6: positively correlated the prices, which is very sort of rare

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Speaker 6: in the last twenty years, and we're going back to

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Speaker 6: a period where bond and equity prices are negatively correlated,

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Speaker 6: which is what I think is really producing this big,

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Speaker 6: big tailwind for equity market. So maybe any change in

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Speaker 6: the inflation data might actually upset that apple cart going forward,

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Speaker 6: But you're right, you know, earnings numbers have been relatively

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Speaker 6: better than expected, and certainly when we look at the

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Speaker 6: NASDA K earnings revisions, they're melting up at the moment.

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Speaker 6: So again it's I think investors are really more focused

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Speaker 6: on the fact that there are you know, these big

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Speaker 6: growth areas and that that's really what's driving the rally.

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Speaker 6: Bond deals, I think are going to be perhaps a

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Speaker 6: later story, but they're actually using a fantastic tailwind for

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Speaker 6: equity markets.

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Speaker 1: How much of that dynamic with BONNYARLDS is at play

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Speaker 1: here in the Japanese market that has also other idiosyncratic

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Speaker 1: stories like the BOJ normalizing and hiking rates, and at

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Speaker 1: the same time we're seeing this uncertainty over the LDP

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Speaker 1: leadership election.

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Speaker 6: Well, I think the way to describe Japanese monetary policy

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Speaker 6: is that it's ultra loose. At the moment. Real interest

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Speaker 6: rates are very deeply negative, so the economy and the

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Speaker 6: equity marketer responding responding to that. In fact, if you

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Speaker 6: look at the best part of the JGB, you'll curve

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Speaker 6: up to ten years that whole yel curve is in negative.

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Speaker 6: Real rates so highly stimulative even without any other additions

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Speaker 6: to it. I think for Japan, the story really is

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Speaker 6: that you're going to get a very strong set of

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Speaker 6: nominal GDP numbers and that's going to continue to uplift earnings.

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Speaker 6: And if you look at the small cap in deb

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Speaker 6: in Japan as well as looking at the Russell when

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Speaker 6: you get these big bouts of nominal GDP growth, it's

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Speaker 6: small cap stocks that tend to do very well, and

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Speaker 6: Japan is no different from that.

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Speaker 5: One of the names that's doing well so far as

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Speaker 5: the open in Tokyo is Tokyo Electron that's had an

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Speaker 5: upgrade from Bank of America. It's still that broader tech story.

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Speaker 5: The resilience we see in terms of AI spending as well.

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Speaker 5: This is very much the mainstream view. So how do

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Speaker 5: you find value right now?

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Speaker 6: Well, I think the mainstream view is, as you said,

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Speaker 6: it's very much on the AI spending by the four

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Speaker 6: big megateech. What we're finding is actually that spending is

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Speaker 6: broadening out, so everything from computer peripherals all the way

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Speaker 6: through the supply chain. So the real story maybe is

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Speaker 6: that what you saw from Oracle last week, which was

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Speaker 6: sort of a non AI player in the sense that

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Speaker 6: it wasn't part of the mega tech story is probably

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Speaker 6: going to get replicated in large parts of the Nasdaq.

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Speaker 6: So from our point of view, you've seen with some

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Speaker 6: of these AI stocks like Navidia, that story seems to

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Speaker 6: be well priced in. It's going to be all of

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Speaker 6: the relative other part of the chain of tech spending

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Speaker 6: that's actually going to do quite well. And we think

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Speaker 6: again this has probably got a three to six nine

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Speaker 6: month story. A lot of it focused on the tax

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Speaker 6: the tax benefits from the depreciation changes from one big

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Speaker 6: bill at three months ago.

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Speaker 5: Yeah, yeah, that certainly has played into it. What about

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Speaker 5: ben for career, because I know you just upgraded your

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Speaker 5: view on that. Is that the tech story or is

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Speaker 5: that sort of all sort of the value up program

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Speaker 5: as well starting to take more effect and more investors

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Speaker 5: also paying attention to it.

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Speaker 6: I think the value up story has been one part

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Speaker 6: of the move. I think the economics story has been

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Speaker 6: that the semiconductor companies in career, as you've seen in elsewhere,

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Speaker 6: it's got pricing power. This is an industry that very

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Speaker 6: very rarely you see companies being able to raise prices,

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Speaker 6: and flash and memory prices have been surging, so the

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Speaker 6: big constituents in the Cosby that's been a very big boost.

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Speaker 6: The second is that following the elections, now you've got

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Speaker 6: to consumer confidence starting to improve, and we've actually seen

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Speaker 6: retail sales numbers both by value and volume all picking up.

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Speaker 6: So stories outside of the tech sector and career are

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Speaker 6: also got some sort of franchise value. So I think

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Speaker 6: the Cosby, as you've seen with most of the North

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Speaker 6: Asian markets at the moment, still got room to room

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Speaker 6: to rally.

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Speaker 2: Bet Sean Darby, he is Managing director of Misoho Securities Asia.

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Speaker 2: In conversation with Bloomberg TV host Cherry On and Annabel

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Speaker 2: Droolers here on the Daybreak Asia podcast. Thanks for listening

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Speaker 2: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: 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