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Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: On today's episode, we'll be looking at the week's rate decisions,

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Speaker 1: not only from the Fed, but the Bank of Japan

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Speaker 1: as well. And in a moment we'll be speaking with

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Speaker 1: Vishal Kanduja, head of broad Markets fixed Income at More

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Speaker 1: Constantly Investment Management. First stop is Singapore and a chat

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Speaker 1: with Bloomberg FX and rates strategist David Finnerdy. It's always

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Speaker 1: a pleasure to chat with you, David, particularly when we're

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Speaker 1: talking about central bank moves. This boj decision didn't really

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Speaker 1: come as a surprise, but boy, the reaction in the

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Speaker 1: end weakening to one fifty eight. Is this a little concerning?

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Speaker 1: Do you think for markets?

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Speaker 2: Oh? I think you said the fact that they didn't

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Speaker 2: change rates was not a surprise. What was the surprise

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Speaker 2: was the markets. We're looking for Basically, Governor of Aida

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Speaker 2: to throw at a rate hike in January of the table

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Speaker 2: and basically he didn't sound that hawkish at toy. In fact,

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Speaker 2: you could argue it's more like the May decision could

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Speaker 2: be because you kept referring to spring wage negotiations with

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Speaker 2: Central Waste negotiations. So given that and the expectations, therefore,

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Speaker 2: the market had to dial back rak expectations. You've seen

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Speaker 2: Dolly in Rady on that particularly good. Remember that FED

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Speaker 2: was very hawkish as well, and there's no surprise art

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Speaker 2: of that decision. Particularly after the press conference. A lot

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Speaker 2: of heads funds basically piled into option bets, particularly digital

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Speaker 2: or trom bets that Dollian could go to one sixty

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Speaker 2: to one sixty five in coming weeks. So I think,

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Speaker 2: because the iron is because of the Ivish rhetoric, Dollie

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Speaker 2: is weakening, which course ironically forces Boj's hands to actually

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Speaker 2: tighten them sooner.

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Speaker 1: So where is the level where the market really has

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Speaker 1: to be concerned about intervention? Is it well above one.

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Speaker 2: Sixty No, I think that's a good question. I would

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Speaker 2: say around the one sixty level is where you start

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Speaker 2: sunny hearing you'd expect the Ministry of Finance to come

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Speaker 2: out and start using the rhetoric that they may intervene.

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Speaker 2: But certainly around one sixty, certainly the recent high of

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Speaker 2: just under one sixty two that that would definitely be

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Speaker 2: certainly territory you be worried about intervention. But I would

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Speaker 2: say you know, be over the MOF and boj. They

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Speaker 2: don't want to make it two obvious weathery'll intervene. So

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Speaker 2: I think anything around one sixty plus is for them

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Speaker 2: certainly intentional territory, and definitely above one sixty two.

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Speaker 1: It doesn't make the bo jay's job any easier. If

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Speaker 1: you've got the FED adjusting gets out looked for rad

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Speaker 1: cuts in the new year. Right now we're expecting maybe

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Speaker 1: two in twenty twenty five. The prior projection from the

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Speaker 1: Fed was four. I guess in terms of the path

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Speaker 1: for the dollar over the next twelve months would be

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Speaker 1: that it's going to remain very firm. Am I right?

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Speaker 2: Well, certainly, I think at the moment the attitude would

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Speaker 2: be it's you know, ballish on the dollar. Our question,

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Speaker 2: I think it catches over you look at twelve months.

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Speaker 2: I mean, the market has been very hawkish in terms

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Speaker 2: of its pricing. He said, it's not even really priced

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Speaker 2: in two for next year. So the question is based

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Speaker 2: off if Donald Trump comes out and he does impost tariffs,

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Speaker 2: and you know what sort of policies do get passed,

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Speaker 2: because remember a lot of his policies do have to

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Speaker 2: go through the Senate and they have to go through

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Speaker 2: the House, so there's no guarantee that we passed. Look

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Speaker 2: at the problems that having passing the funding bill at

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Speaker 2: the moment. So I think the reality is what does

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Speaker 2: actually happen and is that as hawkish as markets expect.

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Speaker 2: If it's not and it doesn't have as big an

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Speaker 2: impact on inflation as perceived, but obviously the market price

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Speaker 2: then will go, look, we're a bit too hawkish, we

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Speaker 2: can be a bit more dubvish, and obviously that would

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Speaker 2: help curtail some of the dollar strength. But suddenly at

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Speaker 2: the moment, in the near term, he's had to go,

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Speaker 2: you know, the dollar is risk rescue to towards more

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Speaker 2: dollar strength, you know.

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Speaker 1: And as long as we're talking about the flip side

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Speaker 1: of dollar strength, we were talking about weakness in the

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Speaker 1: Japanese in a moment ago, but it was also the

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Speaker 1: offshore Chinese yuan that we can to a fresh one

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Speaker 1: year low yesterday in response to the Fed's change of heart,

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Speaker 1: and then in Beijing authorities were essentially forced to ramp

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Speaker 1: up support for the yuan. Is that going to be

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Speaker 1: something that we're going to see time and time again

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Speaker 1: now going forward?

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Speaker 2: Yeah, I would think so I mean you look at

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Speaker 2: the sixteen the bbocs sort of saying okay with it's sixteen.

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Speaker 2: Around seven to twenty that the moment that's the line

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Speaker 2: in the sand, which is really indicating they don't really

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Speaker 2: want dollar shore you want or dollar. I'm sure you

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Speaker 2: had to really go about seven thirty five. I do

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Speaker 2: think at the same time, though, is if this dollar

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Speaker 2: strength continues, then I think there will be pressure on

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Speaker 2: the off shore ye one two weekend because what happens,

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Speaker 2: ironically is if dollar strengthening gets other currencies and the

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Speaker 2: Yue stays where it's gets a dollar, then the Yue

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Speaker 2: is actually strengthening versus these other currencies. So I think

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Speaker 2: one thing to really look at is not just dollar

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Speaker 2: yu wan, but obviously the yu one against the seafet's basket,

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Speaker 2: so that trade weighted basket, how it's performing. Given that

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Speaker 2: at the end of the day, you know it won't

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Speaker 2: want too strong a currency too, because it will want

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Speaker 2: to support the economy. But as we see historically time

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Speaker 2: and time again, it doesn't like these one sided bets.

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Speaker 2: If he one is to depreciate, it wants it on

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Speaker 2: a slow, gradual manner. It doesn't want and a very

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Speaker 2: rapid depreciation. So even if it does get about the

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Speaker 2: seven thirty five handle, say against the dollar, I do

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Speaker 2: think it's could be a slow grind at best.

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Speaker 1: Do you think there's greater risk now, particularly with a

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Speaker 1: thread of US tariffs on Chinese exports, that Beijing would

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Speaker 1: favor gradual weakness in the currency.

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Speaker 2: I think as long as it's gradual with it, I

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Speaker 2: don't think they'll mind too much. Again, I think they'll

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Speaker 2: look at what other countries are doing versus a dollar

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Speaker 2: as well, So I do think you have to put

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Speaker 2: it in the big picture rather than just folcus purely

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Speaker 2: on a dollar. But if it's a gradual decline and

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Speaker 2: it's sort of warranted I hire interistrates and stuff, I

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Speaker 2: think to some degree they'll allow that. But again I

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Speaker 2: don't think they certainly won't want a rapid decline. That question,

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Speaker 2: And even if it's a gradual decline, I think the

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Speaker 2: question is to what level. I mean, there's seven thirty five,

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Speaker 2: seven thirty six becomes key level. They may let it

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Speaker 2: go towards seven fifty, but again, beyond that, I don't

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Speaker 2: think they'll want this one sided bet. So I think

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Speaker 2: you know it's going to be a grind lower for

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Speaker 2: you on but the PBC will make sure it's hard

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Speaker 2: that not everyone's just gaining up on it. Shall we say,

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Speaker 2: we have to.

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Speaker 1: Talk about South Korea. We know about the political turmoil

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Speaker 1: in the office of the Presidency. We've seen a lot

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Speaker 1: of volatility in the Korean one and the b okay.

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Speaker 1: The central Bank trying to create a little bit more

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Speaker 1: stability in markets. Give me your sense of what's happening

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Speaker 1: with South Korea's currency.

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Speaker 2: I think certainly the risks are still towards near term weakness.

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Speaker 2: It's one of the worst performations this year. Obviously, political

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Speaker 2: uncertainty is not going to go away anywhere soon, so

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Speaker 2: that's not a positive for the currency. And I think

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Speaker 2: just generally risk sentiment, I mean, it's all everything's stole

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Speaker 2: at the moment with the yue weekning. The Korean one

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Speaker 2: will be used some degree as a proxy of that

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Speaker 2: because it's trying is a major trade partner of it. Also,

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Speaker 2: if risk SAIDs on AI start to deteriorate, then that

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Speaker 2: would be positive to one. So I don'titely be looking

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Speaker 2: at what US equities do in the near term, particularly

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Speaker 2: stop with the funding bill not being passed. Do us

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Speaker 2: equity say, okay, let's take some profits off a table.

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Speaker 2: It's been a very good year there. Let's go to

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Speaker 2: you in locks and profits. If they do and start

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Speaker 2: to equity this weekend, then that risk segment will be

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Speaker 2: another headwind for the one. So I think near term

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Speaker 2: you had to be biased which direction we go, You'd

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Speaker 2: have to favor more weakness set in the near term.

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Speaker 1: Thank you so much, David, It's always a pleasure. David

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Speaker 1: Finnerity there, Bloomberg FX and rate strategist, joining us from

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Speaker 1: the Lion City here on the Daybreak Asia podcast. Welcome

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Speaker 1: back to the Daybreak Asia Podcast. I'm Doug Krisner. Joining

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Speaker 1: me now for a little bit more on this week's

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Speaker 1: Central Bank action is Vishal Conduja. He is head of

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Speaker 1: broad markets fixed Income at Morgan Stanley Investment Management. Vishal

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Speaker 1: joins us from Boston. Good of you to make time

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Speaker 1: to chat with us. Vishall, let's start with the Fed.

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Speaker 1: Did it come as a big surprise to you that

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Speaker 1: the Fed is now dialing back on expectations for rate

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Speaker 1: cuts in the new year?

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Speaker 3: Not really, Doug, Thanks for having me on. I think

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Speaker 3: the guidance was very clear prior to this meeting, over

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Speaker 3: the last three meetings that they're going to be data dependent.

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Speaker 3: Data was telling them very clearly three meetings back that

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Speaker 3: unemployment or labor market, which is one part of their mandate,

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Speaker 3: is weakening. So they needed to cut from the very

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Speaker 3: restrictive stance by fifty and they did over the three

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Speaker 3: meetings with one hundred basis points. And now clearly I

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Speaker 3: think the data is shifted towards a little bit more

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Speaker 3: meeting the dual mandate and then now focus a little

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Speaker 3: bit more on inflation. So the guidance coming into the

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Speaker 3: meeting was of pause into twenty twenty five from the

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Speaker 3: pace that they've been cutting, So it wasn't a surprise,

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Speaker 3: and eventually I think they took out one cut from

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Speaker 3: the market. The one thing that we wanted to be

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Speaker 3: very very clear Doug here is the nuancewers that they

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Speaker 3: this is not a pivot, This is not a stopping

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Speaker 3: of the grid cutting path that they're on. This is

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Speaker 3: slowing the pace of those rate cuts, is how we

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Speaker 3: took it.

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Speaker 1: Okay, slowing the pace. But one thing that Powell did

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Speaker 1: tease out here was that some members of the committee

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Speaker 1: are now factoring in the potential impact of higher tariffs

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Speaker 1: from the incoming Trump administration, and what I understand in

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Speaker 1: that is that there is the potential for even more inflation,

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Speaker 1: or at least stubborn inflation, beyond what we're already seeing.

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Speaker 1: Is that a fair statement?

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Speaker 3: Fair statement? I think we are penciling in that the

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Speaker 3: pace of decline of inflation that we have seen over

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Speaker 3: the last eighteen months in the US is tough to

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Speaker 3: replicate in twenty twenty five, even without thinking about the

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Speaker 3: pro cycucal policies that right now the market is over

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Speaker 3: exuberant about in our minds. So yes, it'll be tough

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Speaker 3: to replicate that. So in the last part, the last

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Speaker 3: bit towards their two percent men eight is going to

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Speaker 3: be tough and stubborn. So yes, I think we agree

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Speaker 3: with that statement. But we on the other side think

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Speaker 3: that the market is too positive on the new administration

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Speaker 3: being able to implement all the policy sort of genders

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Speaker 3: as we were talking about it during the election time frame,

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Speaker 3: with the amount of depthits that we're sitting on. The

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Speaker 3: debt that we're sitting on as a country in the

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Speaker 3: US is you know, the math is not sustainable longer term.

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Speaker 3: So we do think that the market is slightly ahead

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Speaker 3: of itself in terms of the inflation bodies. But yes,

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Speaker 3: there is a non zero chance that inflation could be

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Speaker 3: a little bit more stubborn than what we've seen over

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Speaker 3: twenty twenty four.

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Speaker 1: Michelle, I'm very curious to get your take on the

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Speaker 1: US economic situation right now. We had the third quarter

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Speaker 1: GDP number revised stronger than previously reported. Yes, consumer spending

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Speaker 1: remains robust, that was a factor deathfinitly, Applications for first

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Speaker 1: time jobless claims were down last week, and existing home

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Speaker 1: sales in the US up six percent. I think we

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Speaker 1: broke above the four million rate in November for the

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Speaker 1: first time in six months, so clearly in spite of

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Speaker 1: an environment where rates have been somewhat elevated. Yes, we've

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Speaker 1: had the FED adopted uneasing bias recently, but I think,

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Speaker 1: you know, historically we're still at much elevated rates. Historically

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Speaker 1: we're at very elevated rates right now, and still the

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Speaker 1: economy seems to be holding up reasonably well.

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Speaker 3: I agree with all those points, you know. I think

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Speaker 3: the way we think about the world from our vantage

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Speaker 3: point as fixed income investors, we are thinking about balance sheets.

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Speaker 3: So there are three big balance sheets that we constantly

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Speaker 3: focus on, the consumer, corporate, and then sovereigns for the government.

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Speaker 3: And we do think that corporate and consumer balance sheets

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Speaker 3: are very strong. But it was part of it is

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Speaker 3: pointing to the stimulus that the government showed up with

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Speaker 3: post covid OR during that time in twenty twenty the

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Speaker 3: low rates, the refinancings that happen in the both the

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Speaker 3: consumer and the corporate balance sheets, so I think those

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Speaker 3: are strong and the strength continues to show up in

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Speaker 3: economic data. I think the weaker part of the balance sheet,

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Speaker 3: as we touched on with the deficits, is the government

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Speaker 3: balance sheet on the US side, and I think that

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Speaker 3: is what is the cost for concern and that is

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Speaker 3: what is causing the steepness of the milk curve here

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Speaker 3: where the long end is demanding a lot more yield,

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Speaker 3: a lot more premium to be able to buy that

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Speaker 3: for our portfolio. So coming back to the first part,

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Speaker 3: we do believe that I think this twenty twenty five,

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Speaker 3: we will continue to see these two balance sheets exert

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Speaker 3: their power, meaning the growth being robust, growth being strong

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Speaker 3: from there in terms of data, and I think these

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Speaker 3: that's why these higher interest rates even now are restrictive,

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Speaker 3: but not as restrictive that they were probably at five

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Speaker 3: point fifty when we ended the cycle with.

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Speaker 1: The Fed vishal Let's pivot to Asian I think we

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Speaker 1: can begin with the Bank of Japan. Not a big

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Speaker 1: surprise that the BOJ yesterday left borrowing cost unchanged. I

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Speaker 1: think that that policy rate is at twenty five basis points,

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Speaker 1: which is just unbelievable that we're talking about a rate

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Speaker 1: that is still considered accommodative. Right the end gave back

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Speaker 1: a great deal in New York trading. I think we're

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Speaker 1: right now flirting with about one fifty eight against the dollar.

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Speaker 1: Is there the risk now that the BOJ is very

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Speaker 1: far behind the curve that it really needs to take

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Speaker 1: action and to begin to raise rates.

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Speaker 3: It should be raising rates, But I think this meeting

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Speaker 3: yesterday was very well telegraphed through the media outlets with

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Speaker 3: the speeches except that that were that were given out

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Speaker 3: from the administration, there were penciling in that they are

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Speaker 3: slightly behind the curve and the market is pricing in

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Speaker 3: likely below what we think that they could and should

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Speaker 3: be doing and will be doing. Probably in twenty twenty five,

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Speaker 3: so we are underweight that front end, so we are

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Speaker 3: short duration underweight, meaning we are in flatteners in that

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Speaker 3: region at the moment. And I think the only position

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Speaker 3: that we have on in the currency is versus euro

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Speaker 3: rather than taking it was the dollar given the volatility there.

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Speaker 3: So I think those are the positions that we hold on,

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Speaker 3: and I think fundamentally, to go back to your question,

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Speaker 3: we do think that inflation is taking a hold whether

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Speaker 3: and we'll get some more information I think later this

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Speaker 3: month and early probably early next year, in the first

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Speaker 3: week where you get some of these wage inflation indicators

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Speaker 3: from some of the insurance companies there that will report

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Speaker 3: on it, So some more information that they will have

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Speaker 3: on hand for the January meeting, which we think is

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Speaker 3: going to be the one that they will actually go

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Speaker 3: ahead and do the high king the end.

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Speaker 1: At around one point fifty eight against the greenback. I'm

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Speaker 1: wondering whether you see risk of some form of intervention,

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Speaker 1: let's say, from the Ministry of Finance in Japan, and

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Speaker 1: whether that would have the potential to create a lot

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Speaker 1: more in the way of volatility, even though it may

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Speaker 1: be kind of a temporary and short term event, is

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Speaker 1: that some kind of vulnerability that the market needs to

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Speaker 1: be on alert for.

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Speaker 3: I think definitely, and I think that Center Bank has

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Speaker 3: done actually a very good job in making sure that

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Speaker 3: the market knows it very clearly some of those level,

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Speaker 3: some of the technical levels that typically they like to

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Speaker 3: intervene with, the amount that they like to intervene with.

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Speaker 3: And I think this is the time in the last

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Speaker 3: week week and I have slightly slower trading, slightly less

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Speaker 3: liquidity in the market. I think these are the times

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Speaker 3: that I think the Central Bank will be on alert,

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Speaker 3: given that it's not just looking at yen and their

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Speaker 3: own policies, but then the interactions with the other central

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Speaker 3: banks Vishal.

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Speaker 1: Before I let you go, i'd like to get your

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Speaker 1: take on what's going on in China. We've been talking

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Speaker 1: a lot recently about the pollut Bureau and some of

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Speaker 1: the messaging that authorities in China have been putting out

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Speaker 1: in terms of a lot more in the way of stimulus.

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Speaker 1: We don't know yet what the details are, but one

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Speaker 1: of the things that seems clear is that Beijing wants

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Speaker 1: to kind of catalyze the domestic demand story in China.

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Speaker 1: How do you view the overall Chinese economy, and secondarily,

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Speaker 1: are you seeing any opportunity in the fixed income markets

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Speaker 1: in China right now?

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Speaker 3: I think the administration there is very clearly shown us

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Speaker 3: the path of what their intentions are, which is to

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Speaker 3: resuscitate the economy. And I think that resuscitation needs balance

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Speaker 3: sheet repair is part one, which needs stimulus, and then

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Speaker 3: the demand repair, which also will need stimulus. I think

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Speaker 3: the estimates there of stimulus could be different from what

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Speaker 3: the market expectations are versus what they've come out with,

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Speaker 3: but I can see very clearly that amount and effectuation

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Speaker 3: of that stimulus is also going to be very policy

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Speaker 3: dependent from the US. I think the US new administration

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Speaker 3: walks in January sixth, and I think we should be

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Speaker 3: looking for some policy pointers in the first like ninety

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Speaker 3: days here in the US, which will then also guide

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Speaker 3: that administration in China to come up with their programs

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Speaker 3: and sizes a little bit more publicly to defend and

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Speaker 3: to ressuscitate that economy. So I think that is definitely

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Speaker 3: a very clear path that they're setting, and that's what

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Speaker 3: they will be doing in the first half and probably

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Speaker 3: throughout twenty twenty five.

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Speaker 1: In our minds, so we've seen the bond markets in

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Speaker 1: China perform pretty well in the fourth quarter, and I'm

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Speaker 1: wondering whether or not the big moves have already happened,

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Speaker 1: and perhaps there are fewer opportunities right now in the

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Speaker 1: fixed income space for Chinese bonds.

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Speaker 2: I agree.

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Speaker 3: I think big moves have already happened. The hedges to

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Speaker 3: be placed with government yields and FX I think have

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Speaker 3: already gone through in the market, So we are finding

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Speaker 3: less opportunities at this point. And then I think the

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Speaker 3: stimulus and guidance from that will drive some of the

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Speaker 3: clarity that we need on the credit side of investing

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Speaker 3: on fixed income in the region.

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Speaker 1: We shall We'll leave it there. Thank you so much

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Speaker 1: for being with us. Vshall Conduja, head of broad Markets

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Speaker 1: Fixed Income at Morgan Stanley Investment Management, joining us from

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Speaker 1: Boston here on the Daybreak Asia Podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner, and this is Bloomberg

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Speaker 2: Two