Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
Speaker 2: The FED wrapped up its annual Jackson Holl Symposium on Saturday,
Speaker 2: but it was on Friday. In that keynote address that
Speaker 2: FED Shair J. Powell signaled a rate cut could happen
Speaker 2: as soon as September.
Speaker 3: With policy and restrictive territory. The baseline outlook and the
Speaker 3: shifting balance of risks may warrant adjusting our policy stance, Marjorie.
Speaker 3: Policy is not on a preset course. FMC members will
Speaker 3: make these decisions based solely on their assessment of the
Speaker 3: data and its implications for the economic outlook and the
Speaker 3: balance of risks.
Speaker 2: Jay Powell. There now, at the end of this week,
Speaker 2: we're going to get the Fed's preferred measure of inflation,
Speaker 2: the personal consumption expenditures price indexes do on Friday. Also
Speaker 2: do this week Chinese industrial profits for the month of July.
Speaker 2: And in a moment we'll talk with Qing Wong, chief
Speaker 2: apack economist at Vanguard Group. But we begin here in
Speaker 2: the States. Joining me now is Matt Orton. He is
Speaker 2: head of Advisory Solutions and market strategy at Raymond James'
Speaker 2: Investment Management. Matt, thanks for making time to chat with me.
Speaker 2: I want to begin with the Powell speech. What did
Speaker 2: you think? What did you make of what Powell had
Speaker 2: to say?
Speaker 4: So, you know, Doug, I think the Powell speech was
Speaker 4: more Dubvish than a lot of folks were expecting, myself included,
Speaker 4: and it certainly I think changes the narrative in the
Speaker 4: market a little bit. I think rather than being focused
Speaker 4: on inflation as much, we're really going to be keenly
Speaker 4: focused on the employment data that comes. So PCE matters
Speaker 4: this week, but nowhere near as much as payrolls are
Speaker 4: going to matter on September fifth, and so given the
Speaker 4: massive rally that happened after the duvish tilt that Powell took,
Speaker 4: I think the earnings we get from some of the
Speaker 4: tech companies in Nvidia first and foremost on Wednesday of
Speaker 4: this week are going to be really important for sustaining
Speaker 4: the rally, especially and I'll call it, you know, higher
Speaker 4: beta parts of the market. And then we'll see whether
Speaker 4: or not the data we get continues this very very
Speaker 4: optimistic outlook on the case for not only just a
Speaker 4: September cut, but increasing the chances of cuts going into
Speaker 4: the end of the year.
Speaker 2: We can talk about Nvidia in a moment, but I
Speaker 2: want to get your sense on the degree to which
Speaker 2: there may have been a bit of short covering that
Speaker 2: was a part of that rally on Friday.
Speaker 4: Oh, there absolutely was. When you look at some of
Speaker 4: the biggest outperformers on Friday, a lot of names with
Speaker 4: higher short interest were squeezed higher. I think this whole
Speaker 4: small cap complex in particular, you know, had one of
Speaker 4: its best days in quite a long time, and a
Speaker 4: part of that was just very extended leveraged short futures
Speaker 4: positioning and a number of the small cap indices. And
Speaker 4: then you look at the home billers that also had
Speaker 4: a massive rally. Banks, smaller cap banks. You really saw
Speaker 4: I think not only just a squeeze, but anything that
Speaker 4: could be supported by the prospect of lower interest rates
Speaker 4: really caught quite a bid on on Friday.
Speaker 2: So after the bell on Wednesday, we'll get the numbers
Speaker 2: from in Vidia. Clearly this company is at the center
Speaker 2: of artificial intelligence development, and the whole story around AI
Speaker 2: and in Nvidia now really is I think a bell
Speaker 2: weather for not only AI, but the broader market as well.
Speaker 2: When you look at the weight of Nvidia within the
Speaker 2: S and P five hundred being at nearly eight percent,
Speaker 2: that's a pretty powerful force. So there's a lot riding
Speaker 2: on this number. What are you going to be looking
Speaker 2: at critically for the Nvidia story? Is it more the outlook?
Speaker 4: You know, I don't think Nvidia is going to miss
Speaker 4: numbers that would be quite a shock. It's how much
Speaker 4: does Nvidia beat by? And then really critically is what
Speaker 4: are the expectations going forward? Because just to break down
Speaker 4: the importance of Nvidia earnings, Nvidia alone has contributed just
Speaker 4: about twenty percent of the earnings growth of the S
Speaker 4: and P five hundred this year. I mean, that's a
Speaker 4: staggering number. And if you just add in the entire
Speaker 4: AI complex I call that information technology broadly speaking, some
Speaker 4: of the other ancillary AI trades, like the electric equipment company,
Speaker 4: some of the utilities, those collectively have contributed north of
Speaker 4: eighty percent of the earnings growth of the S and
Speaker 4: P five hundred. So the degree of how much this
Speaker 4: trade continues absolutely matters. We got good data and really
Speaker 4: good cap X numbers coming out of the hyperscalers So
Speaker 4: the hope is is that Innvidia's guidance is going to
Speaker 4: project strength with respect to the read through from that.
Speaker 4: And I think it's even more critical because we've seen
Speaker 4: a recent pretty aggressive rotation out of momentum technology into
Speaker 4: values and cyclicals over the past two weeks or so
Speaker 4: that's really left a lot of investors in these trades
Speaker 4: feeling pretty whipsod. So I think being able to see
Speaker 4: strength from Nvidia is going to be critical to getting
Speaker 4: this AI trade on a sustainable path going forward to
Speaker 4: to help I guess lean out of that rotation and
Speaker 4: see the bellweathers and hopefully broader market forces really lead
Speaker 4: the market higher. So there is a lot of importance
Speaker 4: put on Wednesday and then by extension Thursday where you
Speaker 4: get Dell and Marvel, which will be almost a continuation
Speaker 4: on the semispace.
Speaker 2: So to your point about the hyperscalers, if you look
Speaker 2: at companies like Meta, Microsoft, Alphabet, Amazon, those companies equate
Speaker 2: to about forty percent of the revenue for in Vidia.
Speaker 2: Is this stock kind of the situation where we like
Speaker 2: to use the term price to perfection.
Speaker 4: Anyone who's set in vidious price to perfection in the
Speaker 4: past has been wrong just because the stock continues to
Speaker 4: go higher. But I think Doug your point is taken
Speaker 4: because I don't often love to see stocks run up
Speaker 4: into the earnings report, where there's so much importance put
Speaker 4: on what it is the company is going to report
Speaker 4: and guide in particular, So the bar is just set
Speaker 4: incredibly high for Nvidia, So I think valuation wise, the
Speaker 4: earnings number could be spectacular. You could continue to see
Speaker 4: multiple contraction on a stock like Nvidia supported by strong earnings.
Speaker 4: But it's really all about the guide going forward and
Speaker 4: how much strength and read through you're going to get
Speaker 4: from those hyperscalers that you just mentioned going into their
Speaker 4: outlook over the rest of this year and forward into
Speaker 4: twenty twenty six.
Speaker 2: So at the end of the week, it's the Fed's
Speaker 2: preferred measure of inflation PCE. I think the core rate
Speaker 2: is expected to be a kind of a an uncomfortable
Speaker 2: level annually, a two point nine percent from a year ago.
Speaker 2: Do you think that that would dissuade the FED from
Speaker 2: kind of the course that we seem to be on
Speaker 2: right now, with Powell articulating that concern about a weaker
Speaker 2: labor market may carry the day rather than a little
Speaker 2: bit of worry about inflation.
Speaker 4: Yeah, I don't think it's going to change the outlook
Speaker 4: that much because I think expectations have been pretty accurate
Speaker 4: going forward and we've kind of seen all the components
Speaker 4: that are going to feed to PCE. So I can't
Speaker 4: imagine it's going to be a big deviation one way
Speaker 4: or the other on the numbers that we get this week,
Speaker 4: and especially with Powell talking about this curious balance during
Speaker 4: his speech, where really we're the emphasis is going to
Speaker 4: be on employment, and so I think all of that
Speaker 4: just minimizes the importance of what we're going to get
Speaker 4: with respect to the inflation numbers and really will emphasize
Speaker 4: the importance of the NFP that we're going to get
Speaker 4: on Friday the fifth.
Speaker 2: So we're talking a lot about the US market. I'm
Speaker 2: curious if you look offshore right now, are you finding value?
Speaker 4: Absolutely? You know. One of my key themes Doug heading
Speaker 4: into this year for clients and especially the back half
Speaker 4: of this year was building balance, and to me, balances
Speaker 4: across asset classes. It's across geographies, across sectors, industries, market capitalizations.
Speaker 4: So in addition to looking more at small caps and
Speaker 4: opportunities in higher quality small caps. I've really been trying
Speaker 4: to find opportunities across international markets and emerging markets, in
Speaker 4: particular the two big You know, China has had a
Speaker 4: lot of strength recently despite some of the economic challenges
Speaker 4: that the country faces. The strength being projected by the
Speaker 4: large internet companies, and in some of the actions the
Speaker 4: government is taking with respect to semiconductors and building more
Speaker 4: within China, I think that provides a boost for the
Speaker 4: strength in China to continue. And you're seeing risk taking
Speaker 4: increase on shore, so all of that I think can
Speaker 4: continue the trend that you've had. So China looks very
Speaker 4: interesting to me. And also in the EM complex, India
Speaker 4: has really been the big underperformer. You've seen a lot
Speaker 4: of weakness over the past few months. A decent chunk
Speaker 4: of that has been disappointing earnings. But after some of
Speaker 4: the changes the government is making with respect to tax reform,
Speaker 4: that should help incentivize consumption to really get the economic
Speaker 4: growth numbers, which by the way, are probably going to
Speaker 4: be around seven percent of GDP growth. I think that
Speaker 4: should turn around some of the weakness and earnings, and
Speaker 4: that to me also looks very interesting. Not only from
Speaker 4: a relative valuation standpoint, but also just from a long
Speaker 4: term secular investment theme of a country with one point
Speaker 4: four billion people and a massive growing consumer class.
Speaker 2: So if we had to identify themes, then the sense
Speaker 2: that I'm getting let's talk China and then I'll let
Speaker 2: you go. Is it more tech driven than being consumption driven?
Speaker 4: Is that the thesis it is the consumer in China
Speaker 4: has been weak. I don't know when and if that's
Speaker 4: ever going to turn. Maybe it terms that the government
Speaker 4: actually takes some of the massiveiscal action that I think
Speaker 4: is going to be necessary in a country where there's
Speaker 4: just increased savers. So a lot of the growth and
Speaker 4: a lot of the earnings to me are coming from
Speaker 4: the technology complex, and you've seen really strong earnings from
Speaker 4: the Big four. In addition, you're seeing strength in some
Speaker 4: of those semiconductor names where I think the government's moving
Speaker 4: industrial policy to help support them, especially as the US
Speaker 4: and China continue while maybe not explicitly in the news,
Speaker 4: but there's certainly a continuing i'll say war for Ai
Speaker 4: dominance that's happening in China's going to invest heavily there,
Speaker 4: so there's certainly room for that trade to also continue
Speaker 4: and add into the market, and those are just bigger
Speaker 4: weights within the market as well.
Speaker 2: Okay, Matt, We'll leave it there. Thanks so much. Matt
Speaker 2: Orton there. He is head of Advisory Solutions and Market
Speaker 2: Strategy at Raymond James Investment Management. Joining us here on
Speaker 2: the Daybreak Asia Podcast. Welcome back to the Daybreak Asia Podcast.
Speaker 2: I'm Doug Chrisner. Equity markets across the Asia Pacific are
Speaker 2: following in the footsteps of last Friday's rally on Wall
Speaker 2: Street and Chair J. Powell opening the door to a
Speaker 2: resumption in rate cuts, maybe as soon as next month.
Speaker 2: For more, we heard from Chen Wang chief Apaka Khan
Speaker 2: missed at the Vanguard Group. She spoke with Bloomberg TV
Speaker 2: host Sherry On and April Hong on the Asia trade.
Speaker 5: So we are still unpacking some of these Powell comments.
Speaker 4: The read through is that it.
Speaker 5: Was very dubvish. How much cover does this provide Asian
Speaker 5: central banks, including the Bank of Korea that has a
Speaker 5: decision due this week.
Speaker 6: Thanks for reminding me today. Good morning. You know, to
Speaker 6: a certain extent, I would encourage rite the tone of
Speaker 6: power to be very dolish. I think it's actually a
Speaker 6: pretty balanced tone. It does recognize that the balance of
Speaker 6: risk is shifting, so that makes us September clot to
Speaker 6: be the baseline. At this moment, we have been expecting
Speaker 6: two cuts this year, September and December. That seems to
Speaker 6: be still appropriate. After Power's comments on Friday, however, I
Speaker 6: think when you listen to his fish and comments, you
Speaker 6: know he continued to emphasize the risk of inflation. So
Speaker 6: to that extent, even if we get a cut in September,
Speaker 6: I would more characterize as a more hookish cut, And
Speaker 6: I think you still I think the decision of FAT
Speaker 6: will be very much depend on our data, especially how
Speaker 6: weak the labor market will be when they actually make
Speaker 6: that decision in September. In terms of the Asia central banks, now,
Speaker 6: of course everybody is watching FAT what they will do,
Speaker 6: but I think ultimately for Easia central banks, their decision
Speaker 6: will still very much depend on the domestic situation as
Speaker 6: well as their reaction function. Right, especially the weaker dollars
Speaker 6: about this year is providing central banks some you know,
Speaker 6: flexibility right to make their decision. You mentioned about bankok Korea,
Speaker 6: I would say they probably want to stay on hold
Speaker 6: this week to be in rather a wead and see mode, right.
Speaker 6: You know, on one hand, we always know that bankok
Speaker 6: and cares a lot about financial stability, risk, housing prices,
Speaker 6: household dett and at the same time we do know
Speaker 6: Korean growth all look actually has improved slightly recently. So
Speaker 6: I think they would just want to you know, wait
Speaker 6: a little bit and then you know, probably right until
Speaker 6: October to see what the FED will do.
Speaker 1: But on that FED rate decision coming on September, what
Speaker 1: are you seeing in terms of the economic data that
Speaker 1: has share power leaning towards a cut because we continue
Speaker 1: to see inflationary pressures high in the United States, and
Speaker 1: of course more fiscal policy perhaps opening the tabs for
Speaker 1: more overheated economy there.
Speaker 6: Yeah, I mean totally. I think at this moment what
Speaker 6: is clear in powers comments is that FED is willing
Speaker 6: to look through the tariff related inflation as long as
Speaker 6: inflation expectation is well anchored in the long term. Right.
Speaker 6: So given that, I think in terms of the reaction function,
Speaker 6: you clearly see the focus is shifting towards the labor
Speaker 6: market strands. So I think the question here is that
Speaker 6: how weak the labor you know market is especially I
Speaker 6: would say, whether the weakening in the labor demand you know,
Speaker 6: versus the decline in labor supply. So I think the
Speaker 6: critical data to watch obviously inflation will be the one.
Speaker 6: But unless there are significant junk inflation data, then I
Speaker 6: think the key is uh see, you know, what is
Speaker 6: a non found payroll you know number? And also where
Speaker 6: the unemployment rate goes. I think that would be something
Speaker 6: to be critically watched by FAD. Now that said, I
Speaker 6: would say, even though power set, there should be adjustment
Speaker 6: in term monitrey policy. I would say that adjustment will
Speaker 6: be very gradual and also to certain stam be rather limited.
Speaker 6: One is, as you were saying that the leasi risk,
Speaker 6: it's definitely on the outside, especially when the economy seems
Speaker 6: to be running, you know, pretty hard with the Cisco policy,
Speaker 6: stimulus that's coming. And the other one is also the
Speaker 6: neutral rate in the economy is higher. So even though
Speaker 6: we do except that to continue to cut into twenty
Speaker 6: twenty six, we see them stop at three point five percent,
Speaker 6: you know, by end of next year.
Speaker 5: What about what else we heard from jackson Hole, including
Speaker 5: from boj Governor Kazua, talking about how the tight labor
Speaker 5: market exerts upward pressure on wages. Is that Holcus enough
Speaker 5: read through to you that maybe coalesces expectations around an
Speaker 5: October rate type.
Speaker 6: Yes, I think BOG is really the outlier among global
Speaker 6: central banks. So I think, you know, Japan's situation is
Speaker 6: a bit different from you know, other countries. You know,
Speaker 6: at this moment, we see that japan growth at this
Speaker 6: moment is uh really sustained by domestic demands. We do
Speaker 6: see some structural turnaround in domestic you know, both consumption
Speaker 6: and investment. And also we do see that there is
Speaker 6: a structural change in the price setting and which setting
Speaker 6: behavior sustained by very like a tight labor market. Right,
Speaker 6: So given that, I would say, you know, we do
Speaker 6: see a good chance that inflation will continue to pass
Speaker 6: through from wage to price and then inflation core inflation
Speaker 6: should be able to sustain you know, around two percent,
Speaker 6: and that actually provide enough support for BOJ to hike
Speaker 6: you know, interest rate later this year, especially when the
Speaker 6: trade external uncertainty actually has reduced quite a bit after
Speaker 6: the trade agreement has been achieved. So this is where
Speaker 6: we actually see BOJ to hike once this year and
Speaker 6: then continue to do so and gradually bring the interest
Speaker 6: rate to neutral income years.
Speaker 1: Deflationary pressure is, on the other hand, affecting the Chinese economy.
Speaker 1: As we continue to get data that doesn't look too positive,
Speaker 1: Will we see the PVOC moving at any point? Does
Speaker 1: more easy money make sense for this economy at this point?
Speaker 6: Well, I think when you look at China, China is
Speaker 6: totally the opposite story. The weakness is really on the
Speaker 6: domestic side, right, I mean, expert has been holding up
Speaker 6: as so well, you know, so far this year, but
Speaker 6: you know, we do see actually more signs of domestic
Speaker 6: slow down and also this kind of significant demand supply
Speaker 6: imbalance is really driving this deflation and re pressure. That's
Speaker 6: I think exactly why the government is actually trying to
Speaker 6: address this more structural issue with the anti evolution you
Speaker 6: know campaign. But I would say, you know, to deal
Speaker 6: with this deflation challenge, the key is really on, you know,
Speaker 6: boosting up the demand. On the other hand, I think
Speaker 6: the anti anti evolution campaign is likely to be rather
Speaker 6: gradual and sector specific, so the impact on you know,
Speaker 6: addressing the deflation challenge is likely to be limited. Now
Speaker 6: in terms of central bank I would say, yes, I
Speaker 6: do think there's room to cut interest rate you know
Speaker 6: when the economy is stucking into this kind of persistent
Speaker 6: deflationary pressure. But we always know that central bank in
Speaker 6: China is always reluctant to cut interest rate, so we
Speaker 6: expect only a very modest ten based point cut later
Speaker 6: this year. But even that, I would say it's probably
Speaker 6: only later this year when the policy makers see more
Speaker 6: concrete evidence of a of a downturn in the economy.
Speaker 6: That is when they're going to step up with more policystems,
Speaker 6: both monetary and the cisco.
Speaker 1: Right, Chiang Wang. Good to have you with LA's chief
Speaker 1: Asia Pacific economist at Vanguard Group.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg