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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybak you At podcast, available every

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Speaker 2: morning on Apple, Spotify, or wherever you listen. It's Tuesday,

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Speaker 2: the sixth of August here in London. I'm Caroline Hepki and.

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Speaker 3: I'm Stephen Carroll. Coming up today. Bouncing back. Japanese stocks

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Speaker 3: recoup much of yesterday's losses as markets rebound from the

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Speaker 3: global route.

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Speaker 2: Kamala Harris secures the Democratic presidential nomination in the US,

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Speaker 2: the first woman of color to do so.

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Speaker 3: Plus the Chancellor Rachel Reeves refuses to rule out a

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Speaker 3: capital gains tax rise as she speaks exclusively to Bloomberg

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Speaker 3: while on a trip to North America.

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Speaker 2: Let's start with a roundup of our top stories.

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Speaker 3: Japanese stocks are rebounding as markets regained some of the

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Speaker 3: losses from the global route. The S and P five

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Speaker 3: hundred X on Wall Street sank by three percent yesterday,

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Speaker 3: its biggest one day drops in September twenty twenty two.

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Speaker 3: Speculation about a potential US recession and unwinding of AI

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Speaker 3: hype and assurgeing yen hitting carry trades led to a

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Speaker 3: selling spree across global equities. Chicai Chen from BMP parwabout

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Speaker 3: asset Management, says it's good to see rebound.

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Speaker 4: Hopefully this bricks the fever, but I think they're student

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Speaker 4: fairly uncertain terms at this point time, given there are

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Speaker 4: in some of the regional markets, We're actually still doing

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Speaker 4: quite well on a utity basis, and investors are sitting

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Speaker 4: on profits. Might be taken to tick some off.

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Speaker 3: BNP piribout Asset Management's head of Asian and Global em equities,

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Speaker 3: Chicai zen Chen there ustoc features are also up on

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Speaker 3: a wave of optimism. Well.

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Speaker 2: Two fedro Reserve officials have tried to reassure the markets

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Speaker 2: amid that turmoil. Both Chicago's Austin Goulsby and San Francisco's

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Speaker 2: Mary Daily said that last week's bad jobs numbers were

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Speaker 2: only one data point. Daily also indicated that interest rate

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Speaker 2: cuts are coming.

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Speaker 5: We will make policy adjustments as the economy deliver the

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Speaker 5: data so that we know what is required. If we

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Speaker 5: reacted on one data point, we would almost always be wrong.

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Speaker 2: The San Francisco Fed president added that she still sees

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Speaker 2: the labor market as quote reasonably solid, as most employers

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Speaker 2: aren't cutting jobs, markets are still pricing in almost fifty

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Speaker 2: basis points of cuts at the FED September meeting.

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Speaker 3: Meanwhile, Australia Central Bank has kept interest rates at a

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Speaker 3: twelve year high for the sixth meeting in a row.

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Speaker 3: The RBA says it quote isn't ruling anything out on policy,

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Speaker 3: as core inflation remains well above target at three point

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Speaker 3: nine percent. Australian stocks fell immediately after the decision, but

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Speaker 3: have recovered slightly.

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Speaker 2: Demand for protection against black swan events has surged as

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Speaker 2: traders rush to ensure their portfolios against an extreme market crash.

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Speaker 2: The cost of options, which pay out when the S

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Speaker 2: and P five hundred falls by thirty percent three deviations,

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Speaker 2: are at their highest since the start of the pandemic.

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Speaker 2: Until recently, the popular trade was to use options to

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Speaker 2: bet on calm in equities markets or to chase gains

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Speaker 2: in technology shares. The dash for protection came as then

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Speaker 2: as that fell three percent on Monday and the Vicks

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Speaker 2: fear gauge spike to the highest level since the coronavirus outbreak.

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Speaker 3: To the US presidential race, Kamala Harris is now officially

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Speaker 3: the Democratic nominee in the first woman of color to

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Speaker 3: lead a major US political Party. The Vice President won

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Speaker 3: a virtual role call vote to get the formal Nodge

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Speaker 3: run against Donald Trump. She's reportedly narrowed the search for

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Speaker 3: her running mate to Pennsylvania Governor Josh Shapiro and Minnesota

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Speaker 3: Governor Tim Waltz.

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Speaker 2: The US and its allies are working to a possible

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Speaker 2: war in the Middle East. Concerns are growing that a

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Speaker 2: retaliatory strike on Israel for the killing of top Hamas

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Speaker 2: political leader Ismailhania may come from Iran at any times.

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Speaker 2: The State Department spokesman Matthew Miller says that the US

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Speaker 2: Sector of State Anthony Blincoln is encouraging regional leaders to

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Speaker 2: pursue peace.

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Speaker 6: The Secretary has delivered a consistent message in all of

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Speaker 6: these engagements. We're at a critical moment for the region,

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Speaker 6: and it is important that all parties take steps over

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Speaker 6: the coming days to refrain from escalation and calm tensions.

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Speaker 6: Escalation is in no one's interest. It's not in the

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Speaker 6: interest of the region, and it's certainly not in the

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Speaker 6: interest of the millions of civilians who just want to

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Speaker 6: live their lives free from violence and conflict.

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Speaker 2: Matthew Miller from the US State Department, speaking there. Bloomberg

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Speaker 2: understands that other interventions include Jordan's foreign minister making a

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Speaker 2: rare trip to Iran for peace talks, whilst Kutta has

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Speaker 2: also been in contact with the Islamic Republic. Meanwhile, the

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Speaker 2: head of Israel's parliamentary Foreign Affairs and Defense Committee suggested

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Speaker 2: the country should quote take the initiative instead of waiting

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Speaker 2: for an expected Iranian attack.

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Speaker 3: Braterl Reeves says she can't rule out an increase to

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Speaker 3: capital gains tax. In an interview with Bloomberg, the Chancellor

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Speaker 3: has said changes to the wider system are a delicate matter.

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Speaker 7: It's always important when you're deciding tax policy to strike

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Speaker 7: the right balance. Of course, you need to bring in

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Speaker 7: the revenue to funds vital public services, but we've also

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Speaker 7: got to grow the economy, and I won't do anything

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Speaker 7: that makes it harder to achieve that economic growth and prosperity.

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Speaker 3: Rater Reeves are speaking during a trip to New York

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Speaker 3: and Toronto designed to foreign investment. Economists have speculated that

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Speaker 3: she may up to bring capital gains tax rates in

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Speaker 3: line with income tax in a bid to generate revenue

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Speaker 3: and boost Britain's public services. Reeves also suggested that private

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Speaker 3: equity firms who co invest on deals might receive more

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Speaker 3: favorable tax treatment, a move which could lure a foreign

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Speaker 3: investment to the UK.

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Speaker 2: And lastly, kiss Darmer has promised an army of police

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Speaker 2: to deal with ongoing riots across the UK. The Prime

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Speaker 2: Minister held a meeting of senior ministers, police and prison

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Speaker 2: chiefs yesterday. He says that the unrest is unacceptable.

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Speaker 8: Whatever the apparent motivation that she's not pro test, it

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Speaker 8: is pure violence and we will not tolerate attacks on

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Speaker 8: mosques or our Muslim communities kirs.

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Speaker 2: Starmer's spokesman Dave Pairs also slammed a post by ex

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Speaker 2: owner Elon Musk stating that quote civil war is inevitable

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Speaker 2: in the UK in response to video footage of the rioting.

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Speaker 2: Police say that nearly four hundred people have been arrested

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Speaker 2: after six days of disturbances in England and Northern Ireland. Now,

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Speaker 2: in a moment, we're going to examine all the angles

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Speaker 2: of the market meltdown and today's rebound with two of

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Speaker 2: our best market reporters. But first, just a brief word

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Speaker 2: on the UK riots. The Prime Minister there you heard

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Speaker 2: he held this Cobra security meeting yesterday. He told broadcasters

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Speaker 2: about mobilizing as quote standing army of police officers to

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Speaker 2: deal with the disorder. There are of course concerns about

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Speaker 2: you know, the numbers and the ability of police to

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Speaker 2: deal with so many flare ups in so many different

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Speaker 2: parts of England. Also the writers were but in course

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Speaker 2: at least some of them know some of that initial

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Speaker 2: processing beginning. The UK Prime Minister, though also extraordinarily now

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Speaker 2: involved in an exchange with Elon Musk after his provocative

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Speaker 2: comments Yeah.

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Speaker 3: Alamosk writing on his social media platform that civil war

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Speaker 3: is inevitable in the UK in response to a video

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Speaker 3: showing footage of rioting and remarks an other poster that

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Speaker 3: it was a result of quote migration and open borders.

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Speaker 3: The Primatist spokesman had to respond to this, saying that

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Speaker 3: the post there was no justification for the billionaire's remarks.

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Speaker 3: So interesting to see the government responding. The spokesperson also

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Speaker 3: saying that police and government had seen some evidence of

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Speaker 3: foreign state involvement in online bart activity driving the fire

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Speaker 3: right sentiment online.

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Speaker 2: Yeah okay, so one of the issues that we are

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Speaker 2: watching for you here. Of course, in the UK Let's

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Speaker 2: turn our attention though to the markets now, shall we.

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Speaker 2: Japanese stocks are surging today along with US and European

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Speaker 2: equity futures after Yes, today is stunning route, but investor

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Speaker 2: sentiment remains fratire with trade is still pricing in full

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Speaker 2: rate cuts on the FED this year. Joining us now

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Speaker 2: to discuss Blue Bag tv Anka Critty Group to and

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Speaker 2: our Markets Live Asia team Leader Garfield Reynolds. Welcome to

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Speaker 2: both of you. Thank you for your time. Critty, What

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Speaker 2: does sentiment around stocks look like now today after the

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Speaker 2: extraordinary trading days we've had.

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Speaker 1: Well, you're seeing green on the screen and across Asia,

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Speaker 1: but you're also seeing in a future's action right here

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Speaker 1: in Europe as well. I think the takeaway here is

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Speaker 1: that it's not necessarily one that's related to the fundamentals.

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Speaker 1: When you see an extreme reaction in either side, whether

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Speaker 1: it's to the upside or the downside, you are due

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Speaker 1: for some sort of reversal, and I think that's exactly

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Speaker 1: what we're getting today. You also have to be careful

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Speaker 1: of the margin of the move. Just because you're seeing

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Speaker 1: swings of say ten and a half percent in positive

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Speaker 1: territory does not yield of course reason and to be

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Speaker 1: confident to the extent of ten and a half percent.

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Speaker 1: So I think the one thing we can be sure

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Speaker 1: of when it comes to sentiment of stocks is just

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Speaker 1: that volatility is going to be the name of the game.

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Speaker 1: It's going to abate. You're not going to see as

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Speaker 1: big moves as the week goes on, depending on the

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Speaker 1: news fall, of course, But for now this is really

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Speaker 1: just a matter of reversing what we saw yesterday.

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Speaker 3: Yeah, crazy, We heard a little from Mary Daily there

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Speaker 3: and we had, of course the Ism Services report out yesterday.

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Speaker 3: How much did that go to sort of reassure markets

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Speaker 3: that you know they first of all, the FED is

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Speaker 3: things under control.

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Speaker 1: Very very little, because off the back of it you

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Speaker 1: have calls out of JP, Morgan City, Bank of America,

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Speaker 1: even our very own Bloomber Economics that are saying fifty

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Speaker 1: basis points of a cut in September is a must

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Speaker 1: have at this point because the markets have basically forced

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Speaker 1: the FED into a corner. At least that's the argument

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Speaker 1: that they're making, especially when it comes off that payers report.

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Speaker 1: Remember the read through the ripple effect that the Federal

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Speaker 1: Reserve can no longer just be sensitive to what you're

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Speaker 1: seeing in the data anymore so, things like ism services.

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Speaker 1: They now have to keep an eye on what's going

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Speaker 1: on with financial conditions and markets, the stock market, the

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Speaker 1: currency market, and of course credit spreads, all of which

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Speaker 1: taked yesterday are going to be a big part of that,

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Speaker 1: especially if you see continued panic.

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Speaker 2: Okay, Christy, very interesting, Golferd. Let's bring you in at

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Speaker 2: this point. I mean, you were speaking to us on

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Speaker 2: yesterday's program about the possibility that the market moves maybe

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Speaker 2: an overshit. Is the panic selling over? Firstly, how would

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Speaker 2: you describe the rally today?

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Speaker 9: Well, the rally today is in many ways what you

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Speaker 9: would expect, given there was such a huge sell off

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Speaker 9: and there was no obvious immediate existential trigger. There was

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Speaker 9: no COVID pandemic, there was no Lehman Brothers bankruptcy, and

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Speaker 9: yet equities moved just about as if there were, or

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Speaker 9: even further than they did back in those days. So,

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Speaker 9: given that lack of an obvious immediate trigger, a rebound

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Speaker 9: was likely. But that doesn't get us out of the woods.

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Speaker 2: Now.

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Speaker 9: The question is how sustainable is that rebound? What's going

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Speaker 9: to be the longer term impact? You have to assume

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Speaker 9: that global portfolio managers, for example, are going to be

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Speaker 9: drastically reducing their allocations to Japan because of the volatility.

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Speaker 9: It's just not worth going into a market that where

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Speaker 9: you don't know if you're going to turn around a

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Speaker 9: couple of days and find you down twenty percent, so

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Speaker 9: you'll reduce your allocations to that. That means there will

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Speaker 9: be measured selling still to come, and there will be

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Speaker 9: pressure on other parts of people's portfolios as to you know,

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Speaker 9: whether these now look robust enough amid what is obviously

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Speaker 9: a more challenging environment, especially with geopolitical and US political risks.

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Speaker 9: You're lingering in the background.

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Speaker 3: At the same time, we have this meeting happening today

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Speaker 3: with in Japan the Ministry of Finance, the Bank of

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Speaker 3: Japan and regulators holding this meeting to discuss what's happening

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Speaker 3: in financial markets. What should we be thinking about when

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Speaker 3: when monitoring that meeting.

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Speaker 9: Well, we'd be thinking about what they might say as

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Speaker 9: regards to you, if they want to affirm that BOJ

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Speaker 9: policy is moving in the right direction, if they if

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Speaker 9: they want to simply say, oh, you know, look, markets

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Speaker 9: have taken this, you know, the wrong way. We're confident

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Speaker 9: that we're heading in the right direction. You the alternative

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Speaker 9: would be that they directly address the idea that they

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Speaker 9: want to reduce volatility across markets. It's a tough situation

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Speaker 9: because in many ways the Bank of Japan had been

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Speaker 9: excoriated and a lot of quarters for not moving more

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Speaker 9: rapidly towards a tightening cycle. Then finally when it does tighten,

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Speaker 9: it gets hit with a truly extraordinary sell off in

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Speaker 9: Japanese stocks. That's partly also because of what's been going

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Speaker 9: on in the US, not because of what's been going

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Speaker 9: on in Japan.

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Speaker 2: Yeah, absolutely, the criticism of the BAJA. What do you

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Speaker 2: think the RBA decision in Australia adds then to the

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Speaker 2: picture this morning. I mean, okay, it was a hold,

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Speaker 2: but that was also something that we were factoring in

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Speaker 2: as potentially playing into markets as we think about the FED.

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Speaker 9: Too, well, yes, it was a hole in it. So far,

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Speaker 9: still waiting for the presser, but so far the statement

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Speaker 9: looks a little bit more hawkish than might have been

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Speaker 9: expected immediately after the weak inflation print or soft inflation

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Speaker 9: print that Australia had last week. So that's a reminder

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Speaker 9: that even if the markets are going to get very

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Speaker 9: excited about how economies are in trouble. Central banks will

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Speaker 9: be more deliberate. One of the questions is will the

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Speaker 9: Fed really meet those bets for a fifty basis point

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Speaker 9: rate cut in September? And the RBA at least is

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Speaker 9: you're pointing you to the idea that it won't and

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Speaker 9: that could be the next volatility trigger if we get

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Speaker 9: some data. We don't get much more in the way

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Speaker 9: of data or even fedspeak this week, but next week

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Speaker 9: we get us CPI, we get more Fed speak, if

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Speaker 9: we get data and or rhetoric that pushes back against

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Speaker 9: people who are locking in twenty five to fifty basis

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Speaker 9: points in September and the central banks saying well, we're

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Speaker 9: still not sure, we're still not fully confident. That could

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Speaker 9: be a trigger for another wave of concern.

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Speaker 3: Are we now looking then at the dust being allowed

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Speaker 3: to settle for a couple of days on markets before

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Speaker 3: those data points that you're talking about coming next week.

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Speaker 9: Well, that would be the hope I think out there.

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Speaker 9: And indeed, you know, there are signs already that the

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Speaker 9: selling is settling down, the sorry of the buying is

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Speaker 9: settling down a little bit in Japanese stocks, they've paired

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Speaker 9: some of those gains, which I would argue is is

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Speaker 9: somewhat healthy. What you really want is for markets to

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Speaker 9: settle down for any rally that comes from here, for

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Speaker 9: equities to be built around something sustainable, not simply oh,

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Speaker 9: look these stocks that were a bit too expensive two

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Speaker 9: weeks ago are now suddenly very cheap, and so we're

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Speaker 9: going to buy them. Hope that things go back to

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Speaker 9: being the way they were before the milkdown. That's day

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Speaker 9: trading rather than sustainable training. So you want to look

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Speaker 9: for two or three boring days in markets before you

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Speaker 9: hope that we get sustained improvement in the artlock for

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Speaker 9: risk ausets.

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Speaker 9: He