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This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis along with Doug Krisner, join us each day for the stories making news and moving markets in the Asia Pacific. You can subscribe to the show anywhere you get your podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. Well, with that DNC underway, Vonnie Quinn joins us Bloomberg US TV correspondent who has been
taking a closer look. So it's fair to say I think that the Democrats appear pretty rejuvenated here and pretty excited about the prospects of Kamala Harris. But you also hear a lot of mention of Donald Trump. It seems that they're definitely looking at using that as a lever to get people to vote for Kamala Harris. What have you noticed today that stands.
Out, I'm sure, Brian. Well, we actually had a surprise appearance from Kamala Harris tonight. We weren't expecting her to take to the DNC stage until Thursday when she formally accepts the nomination, but she did speak for about two minutes, really just pressing ahead to President Joe Biden. Speaking later, she made some remarks and obviously gave her campaign cry,
When we fight, we win. But it was interesting to see who has been taking to the stage because we had union representatives, politicians including right now, progressive Alexandria Ocasio Cortes is on the stage, and we also expect to hear from Secretary of State formerly Hillary Clinton. Alexandra Ocasio Cortes made mention of Gaza, which was interesting because this is one of the areas where Kamala Harris is really
hoping to bring back voters to the Democratic Party. AOC said that she was working tirelessly for a ceasefire and to bring back the hostages. Now she didn't go beyond that. And we know that there are thousands of demonstrators in Chicago right now, some of them trying to disrupt the convention because they want to know what exactly Kamala Harris would do differently from President Joe Biden, given that so far all she has done is offer a sympathetic ear
to pro Palestinian protesters and that vote. So that's one of the things that stood out to me for sure.
Well as you mentioned we are waiting to hear from President Biden. Interesting that we're hearing from a sitting president on day one of the convention, and also that as advisors a pushing back pretty strongly that this speech is not a Swan song.
What is it? Yes, it's definitely going to push forward as well. Right, Biden wants to keep the emphasis on what comes next. He also doesn't want to write himself off THEUS five more months in which he wants to do some important work, including hopefully getting a ceasefire in Gaza,
and also continuing to campaign. So the theme for Monday Night is for the people, and that will jive very nicely with what he intends to speak about, which is likely how he and his administration, including Kamala Harris, brought the US economy back from the pandemic. Also past legislation
on infrastructure and climate and protected democracy. Now, this last has been so important to Biden during his own campaigning for several months and even post him dropping off the tickets, So we expect to hear a lot of comments about democracy.
And then it's interesting to note that Biden will then leave, He'll have passed the baton to Kamala Harris, and he leave to go on vacation just for a short period, going to the West coast, California where you are, I believe Brian right now, and he will leave the stage to Kamala Harris. Of course, he will be getting back to his own important work as president of the United States following that vacation.
We should talk a little bit about some of the key policy points that will eventually come from Kamala Harris. She wants to expand child tax credits, and she wants to offer more incentives for home buyers, trying to reduce the cost of food and prescription drugs, and she's made a really big point about cracking down on price gouging. And what some investors in some critics are saying is that that really what she's talking about is fixing prices, and that doesn't ring too well with people who are
perhaps independence or in the middle. And then she also, quite closely with the Donald Trump, wants to exempt tips from federal taxes. So far today, have we heard a lot about issues or is it more about the difference between a Kamala Harris presidency and a Donald Trump.
Want Actually, so far today we've just heard a lot of rallying cries, right, and the idea that you know, we all love our country, we need to fight for our values and you know, if we know what to fight for, we can fight. So there's been a lot of you know, tonal rhetoric, let's say, but not a lot on policy. Now, outside the convention, in various ways, we have been hearing a little bit more about policy.
For example, Reuters did an interview with Donald Trump, who's been on the campaign fail in the Swing States, and managed to get from him that he would consider doing something on housing as well. It was seemingly a response to what Kamala Harris has said you will do on housing, and NBC also reporting the Kamala Harris will propose a corporate tax of twenty eight percent, So that would be the first revenue raising policy that we've heard from the
Harris campaign. But yes, certainly on the stage, I would expect less policy and more celebratory rhetoric and rallying cries, and we should hear a little bit more about policy perhaps off the stage.
Yeah, at that point, Funny, the convention does suck up a lot of oxygen around the user gender. What is the Trump campaign doing While this is going on, the.
Drump campaign has been trying to suck some of that oxygen away actually from the Harris DNC. President Trump has been touring a factory in Pennsylvania, has been offering interviews writers reporting that he's been talking about Elon Musk, for example, that he would be happy to offer him the cabinet post if he were to be elected, or indeed an advisory role in the White House, and that he's also considering ending seven and a half thousand dollars tax credits
for EV purchases. Not sure how the two fit together, but that he hasn't made a decision on it. So Donald Trump is definitely trying to keep him, at least in the headlines. He goes to Michigan tomorrow, and of course on Thursday, the day that is really Kamala Harris is to accept the nomination, he will be at the border in Arizona, and you know he's going to be hammering home the fact that that's one of her frailties.
All Right, Bonnie, as usual, quite professional and nice to have you with us here on the program. We always love to have you with us. Monty Quinn Bloomberg USTv correspondent Jay Hatfield, CIO at Infrastructure Capital Management for a closer look at markets. So, Jay, is this a grind higher in risk assets or a breakout?
Thanks Brian for having me on. Well, we actually so we've been hyper bullish really all year. We start with a fifty five hundred target on the S and P. Now we have a six thousand target. And we actually became incrementally bullish when there was the growth scare combined with the blow up in Japan, because what was bullish
is that rates drop significantly. There's still below three ninety and that was the part of our call that was at risk because there's a lot of bond bears who focus, we think too much on the US budget deficit and not enough on monetary policy. So it became clear that if the Fed cuts, rates are going lower, and that's really required to help us justify six thousand target, you really need rates at three point fifty or below. So that's a twenty one multiple that implies really three point
fifty to three and a quarter on the tenure. So we're not surprised we're grinding higher. We have a lot of positive catalysts. We don't normally have during the fall. You know, whether there's another freak out, we can't really predict, but we're sticking to our six thousand target.
Clearly, investors see a lot of positivity, but so many things could go wrong. You know, Pal could surprise us. He may not feel comfortable with the rally in risk assets, and Vidia could stumble, you know, that's coming up on August twenty eighth. Hamas might not accept a cease fire deal, and Iran could launch a major strike on Israel. I mean, I know you know this, everybody knows it, but doesn't it paid a hedge here?
Well, certainly. I mean, we're getting close to all time hunts, so it's a good time of year to be a little bit cautious where our call is for a fourth quarter rally, So we're not saying we're going to get to six thousand, you know, by the end of the week, and we normally you pull back. We already did it once. We could easily go down to five thousand. We think
there's good support there and we concur that. You know, with your skepticism about the FED, they operate as if their third mandate is to be behind the curve, and so it would not be totally shocking if they pause yet again, but they certainly shouldn't. There's evidence of a slowdown. Our forecast is if they don't cut, we'll have a recession in twenty five.
Yeah, and I suppose if you don't overthink it, you just look at this kind of situation where you have a FED cutting interest rates into an economy that does not seem to be stumbling. That's kind of a winning formula.
Absolutely, And we also think that there'll be a rally when the election is resolved. Our call is for divided government. It seems that the Senate is going to go to the Republicans just because the math is overwhelming for them, probably the House the Democrats virtually impossible to call the presidential but divided government is really good for the market
as well. So we see all the inflection points, even the ones you mentioned, as ultimately ending up positive, and that's why we're comfortable with our six thousand target.
If there were to be a sweep, many think that it might be more likely to be a Republican sweep, but in any case, in either direction, if there was a sweep, does that bring that deficit blowout that you talked about as somewhat fictitious into more of a reality.
No question, that divided government means that the opposing party opposes all spending proposed by the dominant party, and we've seen that over the last although for two years technically the republic I mean sorry, Democrats are in charge, but mansion and cinema blocked excessive spending. So that's a concern.
There's also another concern that's unique to this year or next year, really, and that is if there's a Democratic sweep, there almost certainly will be a significant corporate tax increase, and regardless of your political outlook, that is unambiguously bad for the stock market. So we would drop our target by about twenty percent if that occurred, if we really got a twenty eight percent tox rate, which seemed likely.
So we see that as a risk, and we also, as you're implying, it's not really that great if we have a Republican sweep and we spend too much money on defense and just cut taxes and run huge deficits.
Yeah, Democrats, shapiir pretty rejuvenated here and seem to be rather excited about the prospects of Kamala Harris, but it'll be today. I think that President Biden looks back and looks to his own legacy, and we'll talk a lot about that, and it might suggest there's a little bit of discord over the way the president was sidelined by
some of the heavyweights like Barack Obama, Nancy Pelosians. I got to ask you a little bit about politics, given the day and the fact that President Biden will be speaking, and by the way, we'll be carrying that and wrapping up the speech a little bit later on here on the network. But I want to get your take on whether or not you think that Democrats are united or divided.
Well, they have one element that really kind of argues against all the divided arguments. And I don't know if you've heard of him. His name is Donald Trump. So that absolutely is going to and already has really unified the Democratic Party. They did what they had to do to get a more credible candidate. Seems like so far
it's working. And the Trump administration so far, or Trump really himself, seems to be situation normal, completely disorganized campaign, off message, picta a vice presidential candidate that does not broaden the base if anything, and narrows it. So you know, we're we just look at the gambling odds, favors come all up. That's kind of our base case. Yeah, but it's a turnout elections. We won't know till we now.
Yeah, absolutely, well, I should stay in my lane here and get you back to markets. You know, give me your number one theme to play at the moment.
Well, we do think the rates are going lower, which is less of a non consensus call than it was at the beginning of the year. And if that occurs, that favors the intersensitive sectors, and these are sectors that have been beaten down during the FED tidening cycle. So we're strongly recommending financials and reads, and that also includes small caps because they're dominated by financial routs.
Yeah all right, Jay, very good, Thank you very much for owning us here. Jay Hatfield there, CIO at Infrastructure Capital Management, Mary Nicola and live strategists with us live here on the program. So a lot of deals here of late Mary, a softer tone at the FED. You've got a rebound of some of the megacap tech stocks and also a broadening out of the marketplace and a weaker dollar. So there's a lot to like. But does it continue?
Yeah? I think for now it does, and largely has to do with the fact that you've got a soft landing narrative that's really come through. So the data has shown that the US economy is actually holding up. It's not doing as bad as what was initially thought of when we saw the jobs report in early August, So
the narrative has changed. It has shown that the US economy is resilient, inflation is softening, so playing feeding into that soft landing narrative, So giving the likes of the equity rally a little bit more of a boost and giving you know, things like Asian currencies another strong rebound and another lift higher as a result. So for now, and then obviously once the FED reconfirms that the easing is on its way, that should really continue.
Yeah.
Does soft landing necessarily mean easing though, because how is growth looking? And is there this disconnect again between what the markets are expecting and what JPAL might end up delivering.
I mean, the fact is the market is pricing in something very aggressive in my view, in terms of highlighting the fact that there is going to be a cut almost every meeting from then on, I think what the FED is likely to take where the approach that they're likely to take is more of what we've been hearing from global central pangs, which they start cutting or they do their first cut and they become more data dependent.
So right now, and one of the key things that some of the FED officials have highlighted is that keeping greats at the current level means that the economy is overheating. Obviously, we know that the economy is not overheating. We're seeing some softness coming through that takes them out of restrictive policy, so you move more towards normalizing rather than easing. And I think that message is likely to be emphasized at Jackson Hall.
Interesting to see what he hints about in terms of the pace of additional cuts. I think everybody kind of feels now that September is likely on the way. That would surprise the markets and you'd probably see a negative reaction, but there's enough other good things happening that you know, perhaps it would pass, but people will calibrate. You know what's coming up next? What do you see as the natural pace into twenty twenty five?
Yeah, I think what you do see is a gradual pace, So you see a start of a cut in September, then you sort of But I don't think a twenty five basis point cut is guaranteed for every consecutive meeting thereafter, and even to a jumbo rate cut unless you see a deterioration in the market, and so that emphasis on data dependency is likely to linger. It's something that we've heard from the ECB, from the Bank of England and
that's unlikely to change with the FED as well. So you're likely to see some of the what the swap market is pricing in and some what traders are pricing in to be repealed a little bit and paired back, and that will set bring some upset into the market.
But at the same time, we've seen large sways in FED pricing over the past year, where we've gone from starting the year with almost seven basis points of cuts heading into twenty twenty four, then we went down to almost two and even closer to one at one point.
So I think these sways will remain, especially if the FED doesn't give some clear forward guidance of you know, what is the pace likely to do, and that's that's going to and that's going to resonate is the fact that we don't get clear forward guidance and we still rely on data dependence.
Well, dollar weakness in this environment seems to be emerging as a theme. We've got the Bloomberg Dollar Spot index off about two percent in the past month, and that's causing some interesting moves in the yen. It went on quite the journey yesterday, didn't it. We broke through one forty eight now just above one forty six. Is yen strength now an entrenched narrative or is that too early to say?
Yeah? Absolutely. I think that's one of the things is that every day it becomes all eyes on the end and that's not likely to change. So obviously the FED soft landing narrative helps assuage some of the concerns in the market. So let's say you don't get as much of a ruckus or disruption with a yen with a yen strength as you did for as a result. But I think the BOJ has let that normalizing genie out of the bottle, and so we're looking for more further
normalization of rates. But I think one of the key things that Yuwaita will say when he speaks to the diet on Friday is the fact that when he continues with his path towards normalization that obviously market conditions will matter, and I think that's going to placate a lot of the nerves that in the far in the market. So you still see continued yen strength, but just not as at the accelerated pace that we've seen over the last month.
So Doll again not unnerving markets. Now we have a few other negative developments that could emerge. We mentioned that Pal might surprise us in Nvidia could stumble, Hamas might not even sniff at that ceasefire that at Israel has agreed to, and Oran of course could could get pretty aggressive against Israel. Any of those do you think potential major stumbling points for the market.
I think the major one will probably be in Vidia, especially because we've seen such a strong rally in equity markets and that equity market comeback, and so Nvidia is probably the key thing that's going to especially since the Magnificent seven companies, we've seen that the results the earnings so far for this quarter have been mixed. So it's really up to Nvidia to carry through and justify those high valuations. Even though we've seen a market improvement in
company earnings x magnificent seven. But it really will come down to Nvidia showing us that, you know, the valuations and the expensive valuations for equity markets makes sense. So it's really going to be all about Nvidia.
In terms of magots. Let's take a look at thenk rallying pretty hard despite the yen strengthening. What's going on with the carry trade?
Now?
Can we even unpick that?
Yeah? I think that carry trade there's obviously a lot of we've seen such an aggressive unwind in the carry trade over the last few over the last month, and I think a lot of it was really snowballed by the fears of a recession. When you have a combination of weak US growth, slow China economy, you wonder where is emerging market growth going to come from? And that really becomes the key sticking point for emerging markets and why would you even hold a carry trade if that
environment continues. The key thing, you know, what we've seen it for carry trades is the fact that equity markets make a comeback.
Yeah, all right, Mary, thank you for joining us. Mary Nicola, m Live Strategist. This is the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business opp