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Welcome to the Daybreak Asia podcast. I'm Doug Prisner in Japan. The equity market is breaking to fresh record highs and these gains reflect expectations for more fiscal spending as well as a cut in the sales tax on food items. All of that comes after Prime Minister taki ICHI's snap election victory over the weekend seemed to give her a mandate to make economic change. Meantime, here in the States, equities recovered, especially those software stocks, following last week's sharp losses.
Now at the time, the spotlight was on how AI could undermine various software businesses, and not surprisingly, many of those shares were punished. Although last Friday the mood began to shift and it continued today. The IGV software ETF picked up six point eight percent over the last two sessions. For a closer look, I'm joined by Ross Mayfield. He is an investment strategist at Baird. Ross is on the
line from Milwaukee, Wisconsin. Thank you for being here. What did you make of the bounce in software shares today?
Well, I think generally I'm of the view that there might be some disruption and there probably will be. But I don't think that, you know, most large companies are going to rip their their tech stack out in favor of you know, AI tools overnight. I think I think the selling is overdone, and this is when I would I would be kind of legging into some of these names, even if the recovery could take some time. I mean, these charts are pretty beat up right now.
It was interesting today Goldman Saxon noted that hedge funds had piled into short positions on the notion that we were going to see AI disrupt various business models. And I'm wondering whether or not some of the positivity that we had today may have been tied to some short covering. What do you think about that?
Yeah, I think so. I mean this is, you know, the software names where by a lot of metrics at their most over sold as they've been in decades, probably since the dot com bubble. And so anytime you get that kind of you know, violent shift in the market, so you're going to get some some technical selling and some short covering, and I think that, you know, this
could be an over sold bounce here. I think you could see a resume or resumption downward or at least kind of some sideways training as these names carve out a new base. But again, if you're investing with a year plus timeline, I just think these that the selling is overdone and you've got a lot of babies thrown out with the bathwater. There are a lot of companies you know that are software adjacent that have been sold, but I have really diversified businesses with a big entrenched user basis.
We had a very interesting development today from Alphabet. The company is going global now is insofar as financing ambitions for AI. Alphabet is set to raise about twenty billion from a US dollar bond offering, and this offering was more than five times oversubscribed. At the same time, today, Alphabet began pitching what would be the company's first ever offerings. This is a debt offering, one in Switzerland, the other
in the UK. What does this speak to when you have one of the hyperscalers going into the credit markets to try to raise capital to build out AI infrastructure, Well, it changes.
The narrative on these companies entirely. I mean, for for decades, the story around you know, the big tech companies, you know, fang to mag seven to all the different acronyms in between was huge free cash flow load debt. You know, businesses that just print money and then you can, if you're Alphabet, you can plunge all that extra cash into into moonshots like weimo. These businesses are fundamentally changed. They
are now asset heavy, they are tapping debt markets. It doesn't mean that they're bad investments, but it requires basically a whole new way of thinking about the big tech companies at the top of the market, from asset light to asset heavy and what that requires and what that means. But it changes how investors who have leaned on these companies for decades a change and how you have to think about them.
So does it create anxiety for you to the extent that if you were long, let's say a name like Alphabet, that you would try to reduce your position slightly.
You know, I don't think I would take it that far. You know, I do think it raises the stakes a little bit. So, you know, we keep a really close eye on broader credit spreads and you know, make sure
the bond market is well behaved. But you know, I think there's an interesting dichotomy in the market right now, which is that if you look at the software sell off and you believe that even some of it is justified by the incredible potential of AI tools, whether it's you know, Anthropic or Gemini or you know, all of the above, then perhaps the level of spending that Amazon
and Alphabet laid out last week is justified. And I would be you know, buyers of the names that again are kind of selling the picks and shovels and building out the infrastructure to you know, keep this trend going. So it requires extra due diligence, but I would not be you know, selling a company like Alphabet at this point in time with what I think is an AI you know trend that's still in the early innings.
Quite frankly, so, we've seen enormous volatility recently in a number of asset classes, and that would include bitcoin. We saw a bit of a rebound from the recent cell off today and we kind of fluctuated on either side of seventy thousand. How are you feeling about the crypto space, Well, you know, crypto.
Is very narrative driven. I mean, like any asset that doesn't you know, produce cash flow or have like a real industrial use. I mean, it's it doesn't act as a currency, particularly in developed markets. It trades on narrative, and you know, over the last three four years some of the predominant narratives have been really beat up. It was not a good inflation hedge in twenty twenty two, and it has not really acted like a store of
value to hedge you know, geopolitical or debasement risk. It's not a good sign, if you know, as the digital gold for a modern era, it's going down while real gold and silver are going up into the right. And so the complete split of those two assets I think really hurts the narrative that crypto and bitcoin in particular is this store of value that can be counted on. Now, anyone who's who's watched the space for a while knows
that this sort of alatility is not uncommon. But every crypto bull and bear cycle we go through, as institutional adoption picks up and as these narratives get beat up, I think there's going to be more and more behind the demand for use case and for you know, what
is this And so I'm somewhat of a skeptic. You know, it's just kind of entrenched in me to be a little skeptical of this sort of stuff, But I do think that that narrative being so beat up over the last couple of months is concerning as we go forward.
We also had news today that the privately held firm Jump Trading is set to take some small stakes in both Calshi and polymarket. This would be done in exchange for providing liquidity on these prediction market platforms. How do you view the prediction markets overall.
You know, for financial markets for investors, I mean, I it could add some level of volatility to markets, you know, if these platforms really get up to scale. You know, I think it's probably not too big of an ise shoe for broad investors at this point. You know, it probably says more about you know, society than it is
an indicator for financial markets. But you know, anytime you have a lot of interest in leverage in you know, the kind of meme stocks, and I think that these kind of prediction markets and evan contracts start to fall under that umbrella of you know, retail getting really creative with ways to try and hit it big. You know, maybe even crypto falls under that umbrella. You know, it adds a level of volatility and a level of systemic risk that it's hard to price because they're so new.
But it's not a concern, you know. I think if you're just an investor in a sixty forty or or someone who has kind of a diversified portfolio, now what it says about the state of the world is maybe a different conversation.
Change hears very quickly here talk a little bit about Japan, because yesterday we had a pretty powerful rally in the equity market in Tokyo. That was after Prime Minister tuki Ichi managed that historic landslide win in this snap election on Sunday, and we've got as I speak to you, the NIEK trading at a record high. If you had to look at a market off shore, would you would you take notice of what's happening in Japan and maybe put a little cash to work.
Absolutely, Japan, Korea. There are a lot of stock markets around the world that are acting like leadership and leading this global market. I think of all the asset classes, US investors are probably the most underweight international. After fifteen years of underperformance. I think US investors should really consider adding to international here. I think the weaker dollar story has legs. There are structural drivers in not just Japan, although that's a great story and a great looking chart,
but in other markets around the world. I think international is a really interesting place to be right now. It's a kind of a natural hedge to the tech centric US markets. I think it's just frankly under owned in the US. So Japan looks great, but I would be adding the international more broadly as well.
All right, Ross, thank you so much. We'll leave it there. Ross Mayfield is investment strategist at Baird joining from Milwaukee, Wisconsin. Here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. The US employment report for the month of January is due on Wednesday, and today, the director of the National Economic Council, Kevin Hassett, said softer monthly jobs gains are likely in the coming months as labor force growth slows. Today, it was anxiety about
the jobs data that helped a weeken the dollar. We had the Bloomberg Dollar Spot Index falling six tens to one percent in New York trading. And that's where we begin our conversation with Carrie Lee. She is the global market strategist at DBS, Carrie spoke to Bloomberg TV host Cherry On and April Hong.
Where are we in these conversations debate around the dollar debasement trade.
Yeah, well, I think over the past two sessions the decline THESD dollar actually was driven mainly by the resumption of this debatement trade. But in a short term, on the tactical horizon, actually we think the dollar index may still find some support around ninety five to ninety six because, first of all, we've seen the latest data like sm Manufacturing and Services Index actually point to a still resilient
US economy. And then last night we've also seen the quite resilient US DOC market, And because of the solid, solid equity market and economy, it feels like the Federal Reserve self may not be as dolfish as expected. If this is the case, then the new advantage itself may also help to support the US dollar around ninety five to ninety sixth level at this moment.
How closely are you watching who becomes the next chair of the Federal Reserve. We just got the latest comments from Kevin Walsh talking about how he wanted to transform the institution.
Well, for the upcoming fet chair. Actually we think she is going to still protect the US the federal reserves independence, which is actually not a negative effector for the US dollar.
But however, at the end of the day, we've seen in the longer term the US dollar itself may still have a structural moderate down trend which has already formed since twenty twenty two the start of Russia Ukraine wal because this is not about the next fetch Chair, but more about the US policy uncertainty actually shakes the US led world order, and the market is also still concerned about the US fiscal sustainability in the long term, which probably the reason why we will see this on and
of the basement trade still weighing down the US dollar in the longer term.
Carrie, talk to us about the other side of the dollar trade in Asia, specifically for the Roman Bee. We saw about firmness following Bloomberg reports that China has told financial institutions or banks to reduce the exposure to treasuries, and this is not because of geopolitical maneuverings, to be clear, but more because of pairing back some of the risk in markets as investors rethink what the US assets are going to look like the cr What are you seeing in China?
Well, in China, we've seeing the PBOC always talk about roman Bee internationalization and they also try to transform the econ ME towards a growth consumption driven growth model, and this probably needs the realming Bee to strengthen a fair bit.
In the meantime, we've also seen quite a fair bit of capital inflows as well as the record high current account syl plus, all supporting the UN And more importantly, the PBOC has set the dollar CNY daily fixing rate lower and lower gradually, firstly below the seven mark and
now towards the six point nine to five level. It feels like the PBOC does allow some further strength in the reming Bee, and if we look at the realming Bee index, actually it's still below it's five year average, which means that the catch up play for the reming Bee still has some room to run. So we do expect the dollar cm H to fall fair bit towards the nine point six point nine level, and then for the next step, whether it will go to six point eight or even six point seven, it depends on the
next move of the US dollar. If the dollar index is trying lower towards ninety four, and if there is size that the China's economy is improving further than it's possible for the dollar c H or dollars CNY to try lower towards six point eight or even six point seven in the rest of this year.
Kerry, what about dollar Japanese yen? Is the verbal intervention we've been getting off le going to be enough to keep things down?
Well?
Actually, I think the yen strength over the past session is a bit surprising, but it's mainly driven by the rechacement in the US dollar as well as the verbal intervention. I think the market probably is still concerned about another round of coordinated ratecheck by the US and Japan. As long as there is only verbal intervention and there is no real intervention, then probably in the market's focus will shift back towards the concerns about the fiscal sustainability under
the Tachilogy government. If that is the case, then probably the Japanese yen is not yet out of the woods. The dollar yen will still find some support around one fifty four point five before one fifty two, and then the risk is still to the towards the upside. Probably towards the previous high around one fifty nine point four five.
Yeah, that was achieved around mid January, right, a twenty twenty four low against the Green Bank. What are we expecting in terms of the Bank of Japan. Could we see accelerated rate hikes given the weakness in the yen.
Well in terms of bog Actually, our expectation is for them to hike once more here towards one percent, but there is also scope for them to hike further in the later part of this year or the early twenty twenty seven. If the Takaichi government's upcoming fiscal expansion is going to support the economy and support the wage growth, and if that is the case, then probably for Japanese yen, they may also find some scope for further interest rate hikes.
That is carry Lee Global Market Strategistic DBS speaking to Bloomberg TV host Sharry On and April Hog giving you the conversation right here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg