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Welcome to the Daybreak Asia podcast Time, Doug Krisner. We begin in Australia, where the country is reeling after a mass shooting at a Honka celebration on Sydney's Bandai Beach. Sixteen people were killed and dozens more injured. This attack has been officially designated as a terrorist attack. Bloomberg's Paul Allen is on the scene.
At the moment.
The overwhelming sense is one of grief. The mood down here very very somewhat. There was a floral tribute starting to build up. An Israeli flag has been draped around the flowers. An Australian flag visible in the background there as well, and you'd expect that that tribute's probably going to build up over the course of the day. Just a steady stream of people coming here to lay wreaths and pay their respects. Now, as to who was responsible for this, two people, a father and son, neither of
whom are on any security watch. The father of fifty year old as deceased. He was a licensed firearms holder. He held licenses and legally owned six guns. Police say all six of those weapons are now accounted for. There were also two rudimentary IEDs improvised explosive devices found on the scene. They were active but later disarmed by police bomb disposal. Now the other gunman, twenty four year old
Navid Akram. His identity became known after it was widely distributed on social media last night, so there was really no point in trying to keep that a secret anymore. He told his mother that he was headed down the coast. In reality, he was with his father at an Airbnb somewhere else in the city. That property now also the
target of heavy police presence. Amid all of the carnage at that Harneko events also notable acts of heroism, not the least of which from Armad al Amad, a forty three year old fruit shop owner who an extraordinary video jumped one of the gunmen from behind and disarmed him. Armad, al Armed was later shot in the US and in the hand. He's now recovering in the hospital. Like I said, an uneasy sense of calm here today, police calling for Kam saying that this is not a time to be seeking retribution.
That is Bloomberg's Paul Allen in Sydney. We turn next to markets. First in Japan, where the Bank of Japan reported confidence among Japan's large manufacturers rose in the month of November to its highest level in four years. This is the boj's large manufacturer, a ton Khan. It came in at a reading of fifteen, which was right in line with estimates. Now, the boj does have a rate decision later in the week, and money markets are betting
on a quarter point rate hike. Later this morning, we'll get the monthly activity data for China, and that's where we started the conversation with Sean Fenner. She is head of Business and Industry Economics at Westpac. Shaan spoke earlier with Bloomberg TV host Avril Hong and NML droolers, and we got Shawn's view on what the China data may indicate activity.
We know it's going to be soft. It's it's lost meant from the beginning of the year. What's going to be very important is that going forward, what kind of policy that we actually see to try and support growth, even if they go for a five percent but to get that we will need more policy.
Yeah, I think you really see that in the fixed asset investment numbers in particular that they're really showing that sign of deterioration or at least not picking up. But where do we go then for twenty twenty six and what's the outlook? Do you see any sort of significant changes around the inflation outlook?
For instance, I think inflation's going to remain sort of quite soft. If we think about sort of the pressures behind that domestic demand consumption, that's unlikely to pick up significantly. But on the fixed asset investment side, I think things are going to look a little bit brighter next year, notably on manufacturing investment and infrastructure, and that's going to be that big sort of fiscal push that we're expecting to provide support.
Yeah, is that fiscal push going to be enough to sort of fix the consumer sentiment to stir things in the Chinese economy?
That's going to be the big question. I think at the moment, the focus and the fiscal focus is very much on that supply side, probably less directly going to consumers. They're hoping that if they actually sort of boost the manufacturing investment that will provide support for corporate earnings, investment, and wages. That transmission looks a little bit sort of ify,
so we'll see actually how that sort of progresses. They may need to provide more support try and arrest this decline that we've been seeing in the property market.
Sean.
Has also been interesting is the rally we're seen in the room and be talk to us about how that is affecting maybe Chinese consumers being a bit more open to spending. And then at the same time, how does that affect the exports picture for the country.
Well, actually, if we think about the relative inflation for China versus its peers, the fact that's actually been supporting a real depreciation and effective turns so for export it's been very good because that means there's you know, it's contained, you know, continue to provide competition. It's very competitive for China.
For consumers, it very much that it depends on the domestic front and that yes, it could see some important price being being higher, but I think overall it's you know, the domestic pure pressures, demand pool pressures there are just still very very weak. Even if we have seen that sort of uptick that we did see in November.
It's interesting and you know, I see, yes, we've got that boj decision and most economists that we've surveyed are expecting them to hike. You're still looking at the risk though that are tilted perhaps in favor of them standing pad again.
Yeah, I mean our baseline is for them to cut, but it's the BOJ. We do know that they still want to get a lot of confidence about that sort of wage sustainability moving into inflation. I mean, positively, we did see the RENGO wage negotiations. It's another five percent. They're also looking for real wages to be up about one percent. So that's pointing in the right direction, but they may want to just wait a little bit more for some more data.
All Right, We've got BOJ, We've got China. That other one we're going to be watching is us RUNT as well, because we've got a couple of different data points that are out. Again, what are you expecting and how does it also feed into the trajectory for the FED moving into next year?
Yeah, so I think it's you know, I mean, this is sort of a tough lot of data that we're getting out in the sense that we know there's still a lot of distortions going on because we haven't had a full set you know, it's the first lot of data that we're getting out post the shutdown. To be honest, I don't think we're going to get a real clear picture until we sort of move into January we get the next lot of data, so it could be quite you know, sort of a bit messy, if you like.
We're probably seeing an increase in the non farm pay rolls with the unemployment rate about four point four. For inflation though it's still looking at about sort of three point one, so we're probably going to get a little bit of a lift on the goods front. That's a little bit on the tariffs for services. It's also going to be sort of quite firm outside, particularly outside of the shelter. So it's still that balancing act that the
Fed needs to undertake. Sort of this sort of overall probably that ongoing softness in the labor market confronted with the sort of upside a risk still to inflation, broader risk to inflation.
Yes, certainly that risk that we see reacceleration in next year as well. Sean, thanks so much for joining us this morning. That was Sean Fenna, the head of Business and Industry Economics at Westpac.
Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner. There are several key data points for the American economy due in the coming week. On Tuesday, we will get the delayed report on October and November employment. We'll also have retail inflation data for the month of November and on top of that October retail sales. So for a closer look at market action, I'm joined by Eric Teel. He is the chief investment officer at Comerica Wealth Management.
Eric joins from Charlotte, North Carolina. Thank you for being here. I think we can agree there's been a lot of volatility in markets lately, not just here in the US, but globally as well. I'm curious as to how you're reading the situation right now.
Well, we've seen I think a shift, Doug, from the first eight months of the year where we are high momentum, very concentrated in tech, which is a replay from the last two years. And I think beginning about two or three months ago, we saw a rotation of broadening out.
We anticipated that would begin.
In small cap and in the smallest companies like microcap stocks. That's continued to unfold. With that, you've seen some other sectors come back to life, like financials healthcare, which have been laggered over the past two or three years. So I think the conditions are ripe for markets to begin
to broaden more. A lot of that's due to valuations, but some of the areas that we thinkcent some really good opportunities for investers would be some of these value areas that I think are lining up good as we go into twenty twenty six.
So how much of that broadening would be due to expectations for much more in the way of FED easing.
I think that's an important ingredient, certainly for the financial sector. Getting lower rates steepening of the yield curve is important, So I think a lot shouldn't hang just in the balance of lower rates. It's important, but twenty five business points here there should not guide consumer centiment should not really pull the markets a lot further ahead. It's important backdrop, but there's much more things like growing earnings, getting confidence
back up higher. So we'll see how the monetary picture plays out, but we need some other things to improve, and I think that broadening out is going to happen, which will be good for overall sentiment.
So speaking, of consumer sentiment. At the end of the week, we're going to hear from the University of Michigan. We'll also get numbers this week on retail sales, and I'm curious, Eric, how you're thinking about the American consumer and the extent to which we've seen some bifurcation.
Yeah, I think there's a lot too that is certainly showing up in the sentiment numbers. When you think about the impact of tariffs that has been primarily felt on lower incomes, and so we're going to have to improve centiment. I think these readings that we're going to get later this week and really into January, it's going to take a while for that to begin to improve. There is a relief on the horizon, particularly as you get into tax cuts for next year, but it's going to take time.
But you know, some of the things like lower gas prices, retail sales, they do point to some improvement. But this is not something I think that's going to turn on a dime. We need this some fiscal stimulus to kick in here and I think will begin to shift those But right now, there's a lot of truth that there is this sort of K shaped economy. The wealth effect primarily benefiting the top ten to twenty percent.
Of the market.
So we need to get this broadening out not only of the stock market, but of the overall economy, and that's really going to be important to drive markets.
I think that seems to be clear with affordability becoming a hot button issue right now on the political front, which then takes us to this week's CPI reading. How do you view the US inflation story right now?
It's coming down and it's been I think a good way to approach getting inflation down the way we've have really tackled it. However, you look at historically there has been a second wave of inflation happened in the seventies. There's areas if you've seen, particularly those that have been in acted by terrors, that I think temporarily are slow
and not passing along to higher prices to consumers. But it's really a tight balancing act that we have right now between the soltening in the jobs market, ongoing sort of higher inflationary readings, not high, but higher, and so this is really in balance right now and it can tilt one way or the other. Again, done a good job bringing it down. Still much more work to do and can't take our eye out the ball as.
It comes into that.
So Eric, you can understand the Fed's dilemma and why we have FED presidents like Beth Hammock of Cleveland and Jeff Schmidt of Kansas City basically saying it's important to just kind of hang in here right now, not make another adjustment to the policy rate until the inflation story becomes a little clearer.
The inflation story is not going away. It's going to the back burner with the saltness that we've had in the labor market. But if you look at what gold is pointing to, and you look at some structural concerns that we have with deficit spending, and we know the ultimate impact of terrors is higher prices. Now, when you think about how all of that eventually gets cycled through, it could result in this second wave that we're talking about. So we can't get too focused on unemployment at this point.
Their saltness, but we have to balance that and that's the type that we're trying to deal with at this point.
We saw a little bit of a wabble in the equity market in the month of November on concern over some of these high valuations, particularly where big cap tech was concerned. A lot of head scratching when it came to the AI trade that seems to have, at least for the moment subsided. Are you surprised that we have not seen a meaningful pullback in the equity market?
Boy, it's been in fits and starts. I think we're beginning to see some rotation, Doug. You spoke to some of the things that have surfaced, certainly the amount of debt and credit associated with many of the AI companies, and then evaluations, So we've seen that rotation. I think it's going to be renewed. I've said, let's pay attention to a January effect when you have a momentum market of this magnitude taking place, and that has.
Often led to a reversal.
That reversal often comes in the first three or four trading days of January. I think it's being pulled forward right now, and we're seeing it in some of this rotation that's taking place. But a January effect has been pronounced when you see this high momental market and a high retail component to it like we have this time around.
So I think that story is something we're paying close attention to certainly looking at all the parallels that have taken place between the new Economy period and other sort of boom cycles. And the key is to watch the credit which tends to be the match that lights the fire, and that can lead to some really sobering results for investors, and so we have to be mindful of that as it relates to market returns here.
So if you're looking at maybe a little bit of risk at the early part of the year, are you expecting things to calm down to the extent that you would be bullish on twenty twenty six?
Cautiously optimistic and overused expression, but I don't think any expression can capture how we feel better than cautious optimism at this point. Is you look at markets now three years of a strong recovery bull market, A lot of fiscal and monetary stimulus has been put toward.
The markets right now.
As you look at twenty twenty six, you have to have a lot of things continue to go right, which.
I think they can.
But boy, some of these markets, particularly technology, dug price to perfection. So we need to be looked for opportunities outside a handful of technology companies.
That's why we focus back on.
Value some of these areas that have really not participated the last couple of years. You think about the small cap premium, which has been dormant. So there are opportunities in the market, but they're not going to be sort of this high momentum, high retail flavor that's embraced the market thus fall.
Well, I'm thinking about opportunities in fixed income. Are you seeing any some.
We look at being able to clip the coupon there where rates are as you get in this sort of this intermediate range. I think there's opportunity in fixed income. Sprints remain very tight, Doug, so I would look for traditional fixed income, maybe municipals, which I think are in
good shape for taxable portfolios. So I'm not seeing it in high yield and in credit in fixed income, looking at more traditional areas, I think where you can earn the five to six and a half percent return without sort of chasing it in some of the lower quality credit related issues because you're simply just not being paid to take that sort of risk at this.
Point, Eric, believe it there. Thank you so very much. Eric TiAl is the chief investment officer at Comerica Wealth Management, joining us from Charlotte, North Carolina 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, THEMBERG 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