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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. Global markets are very much focused on the Federal Reserve. The fed's newest governor, Stephen Myron, was sworn in Tuesday, just in time for this critical two day policy meeting. Nominated by President Trump. Myron is the chair of the White House Council of Economic Advisors. Now he's taken lead from that role, but he hasn't resigned. Here's Bloomberg's Michael McKee.
We're not going to feel the imprint of his presence either, except that he might dissent if the FED does a twenty five basis point cut, and he might call for a fifty basis point cut, because that seems to be the reason he's been sent over to the FED.
By Donald Trump.
In a moment or two, we'll get the views of Sean Darby. He is managing director at Misaho Securities Asia. But we begin here in the States. Joining me now is Bob Dahl. He is President CEO also the CIO at cross Mark Investments. Bob, thank you so much for making time to chat with me. Are you in the camp for a twenty five basis point rate cut.
I am as most of the rest of the world is doug a very important meeting because of what's going to be said around it. I think much less about what the decision is people are expecting twenty five.
There has been some speculation, maybe you've heard of it, kind of the sell the news theme after the Fed's decision, maybe a gap down for the equity market, given the fact that this rate cut is pretty much widely priced in.
As you just.
Said, yeah, I think that a lot will depend on what the verbiage is around it. In particular, what does the chairman say in the press conference that follows. If he indicates that there are more coming, that is more cuts, and the market might like that. If he says we're really worried about inflation is going to have to watch the data, the market may not particularly take a shine on that. So will depend on what is said in the conference.
So I saw the latest survey from Bank of America Fund Manager Survey net twenty eight percent still overweight equities. With what we're talking about in terms of FED policy, the likelihood for subsequent rate cuts, are you still constructive on stocks reasonably?
So?
I've sort of hedged by saying we are in a high risk bull market. Bull market obviously means the path of least resistance is updug, but the high risk means, but be careful. Stocks are very expensive relative to history, and you know, we have some question marks. We just talked about the question mark around the jobs market, a little bit about inflation. It's not anywhere near the fed's
two percent target, so lot could go wrong. But till now, the market has said earnings are fine, leave me alone with all that other disturbing and in set of issues that don't make a difference quote unquote.
So, Bob, if you do have questions, I'm curious about the strategy that you're using. Are you taking money off the table where it relates to equities maybe, are you looking at the bond market at all?
So, yes, we have some money in the bond market now that has run as well as you know, with a ten year treasury yield approaching four percent from being higher not that long ago. So the bonds are not all that attractive either. Now we'll say this if the FED or when the FED lowers rates, and if they hint at more shorter maturities probably will do well as interest rates come down the front end of the curve
out past ten years, they may worry about inflation. If the Fed is threatening to reduce rates more so, we could end up with a steeper yield curve, if you will.
So I know that a lot of the expectations here on this rate CUD are perhaps founded on this notion that we have seen deterioration in the labor market. But if you look at the day's economic news today, the retail sales number that was pretty upbeat, I mean, a rate of six tens to one percent in August. And if you look at the control group sales that's obviously a part of the calculation for GDP, we saw an increase of seven tents of one percent. That suggests a
pretty healthy quarter. So net net, I mean, the American economy looks like it's still pretty strong right now.
It certainly does. The contemporaneous numbers are generally been pretty good, and of course earnings for the first two quarters of the year we're brilliant, and many are expecting that again in the third quarter. The question is will jobs being weaker, will inflation being higher get in the way of all that so far, so good, But we'll have to watch both of those carefully. And that's, of course the balancing act that the fit has. Their job's never easy, but
they're between a rock and a art place. Labor market seems to be weakening, inflation seems to be firm.
What are they going to do When it comes to a lot of the power that we have seen in the equity market, you have to look no further than artificial intelligence. That trade kaptech has been a big theme for much of the year. How are you feeling about that right now?
Constructive? It's for real. AI is for real. Now that's come into the price of stocks in a pretty big way, So we could debate is it too much too soon? Often Wall Street gets a hold of these new if I can call AI new new concepts, and they get it right in terms of direction, but they overdo it and do it too quickly. Are we going to have
a so off time? We'll tell. Obviously in the first quarter the so called mag seven and other AI stocks struggled, but they came back with a vengeance off those aprilows.
So we're talking about the TikTok deal earlier. It looks like We've got a new entity here in the US that will take ownership of the US assets of that platform. So maybe a little bit of positivity in US China trade relations. We also have news coming out of the UK that the British government essentially is accepting fact that this twenty five percent US tariff on British steel will remain in place.
Now.
I know that the Prime Minister was hoping to address that, maybe getting the Levey removed out right, How do you understand US trade relations globally right now? If we can focus a little bit about China, maybe to a lesser extent Europe and include the UK in that.
So, I would say the trade relationships and the tariff implementations have gone generally better than many of us feared. Now China, we're not done there. We got to dot some ies across some te's and we're not ready to do that yet. A lot of basics to be decided. Getting China done is going to be really important. Europe is they've groused along the way, but they've gone along
with it. The UK the same. Look, you wonder at any point in time will one of these countries there's or a block of them saying, you know, the deal is not a good deal for us, We're not going to observe it anymore. What are the consequences of that? We're not sure. So so far, so good, but a lot of tough days coming.
I'm wondering whether you're finding opportunity offshore right now in the midst of everything that we're talking about that's terrif related, where other jurisdictions are involved, and maybe a little bit of question as to whether or not that would be a headwind for some of those economies.
Certainly it will be a headwind, there's no question about it for most of them. And yet we think a lot of that is in the price of those stocks. As you know, generally speaking, non US markets are a lot less expensive than US markets, and for some good reasons. But we find a lot of Americans have almost nothing outside the US and they're looking there to do some buying. So I think that will create some upward momentum over the months to come in non US markets.
One of the big reversals that we have seen this year has been in the US dollar, and there was some weakness in the New York session. I think the Bloomberg dollar spot index was down by more than a half of one percent. That's a pretty big move. How are you feeling about the dollar in the path that it is on right now?
So a bit oversold at the moment, and as you probably know, the consensus, almost to a man and a woman, is a long term negative on the dollar. I find myself there too, particularly his interest rates in the US come down, perhaps more than outside the US. As rates come down, that usually hurts a currency, So watch it carefully, but I would not be surprised to see some more weakness in the months to come.
So you mentioned a moment ago that there are opportunities that you are seeing in the bond market right now. And I'm wondering what part of the curve interest you the most.
The shorter end of the curve, call it two to five years, maybe out to eight, but certainly not past ten because of that concern we have about steepening and about the fact that the inflation rate seems to be ticking higher, not lower.
Bob, believe it there. Thank you so very much. Bob dol He is President's CEO, also the CIO at Cross Market Vestment's joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner. Equity markets across the Asia Pacific are showing some weakness after a down day in the US, where the S and P five hundred and the Nasdaq composits slipped from
record highs. American markets appear to refrain from making any big bets in front of tomorrow's FED decision on interest rates. Let's get the views now of Sean Darby. He is managing director at Misoho Securities Asia. He spoke earlier with Bloomberg TV host Cherry On and Annabel Droolers on the Asia trade.
I think it's interesting because the stage sort of seems set for this cut, and it's that big focus on the projections. Now you've got Stephen Myron in there as well. It's going to be that big focus on the descenders as well, the ones that are agitating for larger cuts. And again it just seems like this is all kind of positive for equities.
Well it is really.
I mean, we're in one big reflation trade and oil prices remain low, the dollars drop nearly twelve percent from its peak. You've got steep yield curse, particularly in the United States, and you've got this on running loosening of financial conditions where credit spreads are also very tight. So almost anything that you throw at the equity markets, it's
bouncing back. I think the irony maybe is that three to four months from now, as we go into the year end, the economic data points are going to come really important because this has all got to have some follow through it later on in terms of some earnings changes, and although economic forecasts have been marginally upgraded, it's nowhere near enough to sort of meet the expectations that the equity markets have priced in over the last three to four months.
So then how long does the good run continue and when does that sort of reality check set in, I mean markets move ahead of of those economic projections or results.
Well, the paradox is that the bond market's going to do a lot of the work for you. If we do get a real slow down and are not a soft landing, then that's going to be lower bond yields
bad for equities. If we're going to get a reacceleration of growth, which is what our case is, then bond yields will sell off and that's going to be very difficult for equity markets, so in terms of valuations, so the actual As the further we go on this rally, the narrower narrower, the ability for equity markets to manage around bond yields, I think is going to be the main constraint.
Despite the fact that we continue to see a solid economy Sean, especially in the US, earnings estimates continue to move higher, and we just saw consumer spending also remaining strong.
Well, that's really the paradox.
It's not just the United States seeing these better earnings numbers. Most of the equity markets we cover at the moment. Earning revisions have been actually quite positive over the last three months, so you are getting some upgrade which is
allowing this rally to continue. I think one very important point is that for the best part of the last eighteen to twenty four months, bonds and equities have been positively correlated the prices, which is very sort of rare in the last twenty years, and we're going back to a period where bond and equity prices are negatively correlated, which is what I think is really producing this big,
big tailwind for equity market. So maybe any change in the inflation data might actually upset that apple cart going forward, But you're right, you know, earnings numbers have been relatively better than expected, and certainly when we look at the NASDA K earnings revisions, they're melting up at the moment. So again it's I think investors are really more focused on the fact that there are you know, these big growth areas and that that's really what's driving the rally.
Bond deals, I think are going to be perhaps a later story, but they're actually using a fantastic tailwind for equity markets.
How much of that dynamic with BONNYARLDS is at play here in the Japanese market that has also other idiosyncratic stories like the BOJ normalizing and hiking rates, and at the same time we're seeing this uncertainty over the LDP leadership election.
Well, I think the way to describe Japanese monetary policy is that it's ultra loose. At the moment. Real interest rates are very deeply negative, so the economy and the equity marketer responding responding to that. In fact, if you look at the best part of the JGB, you'll curve up to ten years that whole yel curve is in negative. Real rates so highly stimulative even without any other additions
to it. I think for Japan, the story really is that you're going to get a very strong set of nominal GDP numbers and that's going to continue to uplift earnings. And if you look at the small cap in deb in Japan as well as looking at the Russell when you get these big bouts of nominal GDP growth, it's small cap stocks that tend to do very well, and Japan is no different from that.
One of the names that's doing well so far as the open in Tokyo is Tokyo Electron that's had an upgrade from Bank of America. It's still that broader tech story. The resilience we see in terms of AI spending as well. This is very much the mainstream view. So how do you find value right now?
Well, I think the mainstream view is, as you said, it's very much on the AI spending by the four big megateech. What we're finding is actually that spending is broadening out, so everything from computer peripherals all the way through the supply chain. So the real story maybe is that what you saw from Oracle last week, which was sort of a non AI player in the sense that it wasn't part of the mega tech story is probably going to get replicated in large parts of the Nasdaq.
So from our point of view, you've seen with some of these AI stocks like Navidia, that story seems to be well priced in. It's going to be all of the relative other part of the chain of tech spending that's actually going to do quite well. And we think again this has probably got a three to six nine month story. A lot of it focused on the tax the tax benefits from the depreciation changes from one big bill at three months ago.
Yeah, yeah, that certainly has played into it. What about ben for career, because I know you just upgraded your view on that. Is that the tech story or is that sort of all sort of the value up program as well starting to take more effect and more investors also paying attention to it.
I think the value up story has been one part of the move. I think the economics story has been that the semiconductor companies in career, as you've seen in elsewhere, it's got pricing power. This is an industry that very very rarely you see companies being able to raise prices, and flash and memory prices have been surging, so the big constituents in the Cosby that's been a very big boost.
The second is that following the elections, now you've got to consumer confidence starting to improve, and we've actually seen retail sales numbers both by value and volume all picking up. So stories outside of the tech sector and career are also got some sort of franchise value. So I think the Cosby, as you've seen with most of the North Asian markets at the moment, still got room to room to rally.
Bet Sean Darby, he is Managing director of Misoho Securities Asia. In conversation with Bloomberg TV host Cherry On and Annabel Droolers 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