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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. This will be the third consecutive week of abbreviated trading in the US equity market will be closed Thursday for a national day of mourning for former President Jimmy Carter. Even so, there's been no shortage of FED speak and that will continue. And in a moment we'll be checking in with Matt Orton. He is the chief market strategist at Raymond James Investment Management. We'll get his thoughts on
the FED. But we begin in Sydney and a look at currencies. We're joined now by Peter Maguire, CEO of XM Australia. Peter, it's always a pleasure, Happy new year to you. Let's begin with your outlook for the dollar. I think it's fair to say that the market right now is expecting far fewer rate cuts from the FED in twenty twenty five, and I would imagine that in your view that equates to continued dollar strength. Am I right?
Yes?
Well, good morning Doug, and happy New Year, and thank you. Yes, I think so. I mean, you know, last week I think I took everyone by a bit of surprise. We had a one O nine nearly one O nine to fifty handle for the US dollar index sitting there at about one eight thirty five.
At the moment.
I feel as though, as you said, you know, do we get two rate cuts, one rate cut or no rate cuts in twenty five and the momentum is going to be to the upside. I feel as though you're going to see intervention from the likes of Japan shortly at nearly one sixty. For the end, You've got the euro sitting at one O three eighty. It's probably parodies on its radar, maybe even this month. So I feel, yeah, there's going to be continued up lift the US dollar
and its overall strength. There's been a standing over the last couple of months. It's been a great trade to be in, and I don't think it's going to disappoint moving forward.
One of the things we're also keeping a very close eye on the tariff story. Today the Washington Post indicated that President electroump Here aids at least we're exploring plans for limited tariffs apply to all countries, but only with respect to critical imports. Do you have a sense of
what the market right now is discounting. In the tariff story, is a lot of noise that has to do with really not understanding where Trump is at the moment, and maybe a lot of what we're hearing rhetorically has to do with a negotiating strategy, and it will be some time before we get clarity. And is the tariff story a part of this at all?
I think it is, Doug And I think you know when you're when you're looking at President Trump and the way he operates, and that's this is from an Australian looking in, certainly unorthodox. Certainly he presents the art of the deal and goes in hard to start with and then renegotiates, So that could be the storyline there.
We've got to be very patient.
Because there could be all sorts of in the sense of different countries will be responsible for different rates. So I feel as though that that will be if they don't play ball with him, and then how that moves forward to the interpretation from the market, what happens to the likes of China. It's going to be I think a very dynamic first sixty days in and I think he's going to hit the ground running.
Do you mean that there's going to be just broadly speaking, in terms of the foreign exchange, a lot more volatility.
Yes, I really do, because it creates a sense, as you know, from a trading perspective, you want a little bit of certainty. You like a from a risk the dynamics of risk and behavioral you want, but you want some certainty. And this can change through just a simple stroke of a pen or a comment by President Trump or his senior advisors. That can really change the perception to the market and sentiment quickly, and in turn that
creates that lovely word called volatility. And I think that that will be the frame moving forward, certainly for the first quarter.
I was trucked today by the rally and the Canadian dollar on news that prim mister Trudeau is going to be stepping down here as soon as a new leader can be agreed upon for the Liberal Party. What's your outlook on the Canadian dollar.
Well, I think that that's that's been interesting. I mean, it's been massively sold off as we know, over the last couple of months, and all the all the commodity currencies were similar. Fate Ossie's nearly at sixty cents there at one stage and keiw So if you're wrapper three of them up and then now you've had a leadership change, I wouldn't be surprised to take a little bit more uptick as far as.
Strength to the Canadian dollar.
Let's see who's elected and it's been massively sold off from you know that one thirty five hand or come mid September all the way through to you know the one forty five nearly, so possibly you're going to see a one forty two one point four one.
I just have to see where it goes.
But it's again, it's going to be volatile until we get some sort of I suppose indication who's going to take the leadership.
You mentioned a moment ago, you're looking at the Japanese yen where the possibility of intervention is concerned. We're a little bit on the strong side of one fifty nine against the greenback at the moment. At what point do you think it's not going to be about intervention but about boj policy and the fact that we've got to get a rate hike in here, perhaps as soon as this month.
Yeah, twenty fourth, I think is the day that everyone's got table. That's when the meeting's on and decision time. So I think though I looked at that last week, I'm holding that in memory. So if it's above one sixty, I think they'd wait. It'll be a wait and see game until the twenty fourth and do we see.
Twenty five basis points?
As far as a hike and how what's the retrick coming out naturally from Governor Uida and the overall I suppose again sentiment from the BOJ and policy moving forward, and I wouldn't be surprised. I mean, if rates go up, that's going to quickly change. I think the footprint as far as yen versus dollar from a from a market indication. So we'll just wait and see. But it's not long to wait, you know, two weeks and we'll get a decision.
I'm looking at a euro here, this is stunning. I mean a dollar three rate. Now are you looking at a world here in the near term where we see euro dollar parody?
I think so, I wouldn't be surprised, Doug. Do we even go lower.
Everyone's saying you might see a ninety eight or ninety nine handled sometime February, So that's what the traders are saying. We've just got to see because that US dollars got so much uptick. You know, as far as the ECB is concerned, you could see another one hundred and ten basis of points cut out by December. We've got structural weaknesses. We know in Germany, the euro Land is pretty tough. You've got CPI preliminary datak for December that's coming out.
So we've just got to see how all of that is interpreted from the market. And yeah, it's I think the euro will continue to be sold off and that's another great trade.
It's just been extraordinary over the last couple of weeks.
Talk to me a little bit, Peter about your home currency, the Aussie. How do things look for twenty twenty five.
It's a great peso at the moment, Dug. We've changed the name of it. I think it's the Aussi peso, not the Aussie dollar. It's been sold off. I said to your team, you know, if you haven't made Australia a visiting point with a dollar at sixty one or sixty cents, that's the Aussie versus the US. Now's the time to visit in February because of the buying power of your strong US dollar against US, of course, and I feel as though that we.
Could be sub sixty.
I'm worried about China. I take on board their situation. It's a little bit of a proxy as far as Ossie versus for the China, So I'm expecting more softness there and maybe a fifty eight handle is where we're heading to.
I'm wondering if there's a surprise right now that you're beginning to anticipate something on the horizon that maybe a few people are considering that could really create a lot more volatility in in the foreign exchange right now, something that you could share with us. Maybe that's different from the dollar story.
I think yes, I feel as possibly the China situation, what's going on there as far as their rates, is the stimulus going to be the action point that everyone thought was going to turn things around.
And I'm worried about China.
I've just I'm concerned naturally with their real estate market. You've got eighteen trillion. I was looking at a comment by Barclay. Since twenty twenty one, eighteen trillion in wealth has been evaporated or destroyed in property, So that worries me.
Who's holding the debt? And in turn, where does that play for Australia.
We're very reliant on a strong China and that's not necessarily the case at the moment.
Will that necessarily force Beijing to kind of do more in the way of intervention.
Well, it does, and I'm conscious of it. But when you've got your ten year running at what is an a rand about four point six two four point sixty three, investors can really get three hundred basis points risk free investment buying US treasuries versus Chinese treasuries. So who's going to choose those Chinese government bonds? That's a worry. And you know, with the way your ten years going, you might be running higher at you know, by end of month.
I wouldn't be surprised possibly even a four to seven five handle.
Wow, Peter, it's always a pleasure. Thanks so much for spending time with us. Peter maguire there, he is the CEO of XM Australia, joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. In the US equity market today, we had a rally in tech megacaps, helping to send the S and P to a gain of around six tens to one percent. Meta platforms up more than four percent today. That was after Jeffrey said that Meta could offer the
best AI play in the consumers this year. Let's take a closer look at the tech trade and markets more broadly with Matt Orton. He is the chief market strategist at Raymond James Investment Management, joining us from the firm's headquarters in Saint Petersburg, Florida. Matt, thanks for being with us. Happy New year too. You how things are going well for you? Talk to me about this theme of AI. It certainly provided a lot of oomph to the market
last year. Do you think the same will hold true in twenty twenty five?
And uncappy new year to you as well, and always great to join and I do. I think there's a lot of tailwinds to the artificial intelligence trade. I think the key difference this year versus what we've seen for the past two years is I think a lot of the games that we are likely to see are not going to be as concentrated in the handful of hyperscalers where you've seen a lot of the momentum already occur.
I talked to clients about this basket of AI two point zero companies, kind of who are the capex beneficiaries of the artificial intelligence spend on the part of these megacap tech names, and that leads me to electrical equipment head companies. It leads me even to some industrials that are involved in machinery or helping construct some of the data centers or the semiconductor fabs that we're moving back
to the country. Even within the tech space, you know, you have a number of other software companies that are helping to work to develop apps and enable artificial intelligence. And so I think the trade broadens out, which is a keyword for for twenty twenty five. We're not off to a great start for the past few trading days on the breast side of things, but I think there's a lot of tailwinds to go and it's all going to be backed by earnings and earnings momentum.
Over the last two years for the S and P, I think we had a gain of something around fifty percent. That seems stunning. What's the likelihood that we're going to remain positive, not necessarily to that extent, but positive for US equities and perhaps not ripe for a little bit of a pullback.
So I think we have to kind of disaggregate this idea of a pullback and the ability of US markets to continue to push higher. Now. I actually think we're going to see a higher volatility bull market in twenty twenty five. We're already getting a preview of what that looks like. Iven Some of the uncertainties are on tariffs, the path of rates, what's happening with inflation. But that doesn't mean the market can't continue to push higher. And
I think that's rooted in the big picture, Doug. It's rooted in the fact that earnings are going to continue to move higher. We're looking at thirteen percent or so EPs growth is consensus right now. I think we're going to see that and potentially better. Margins are near record
highs currently. I think we're going to be able to sustain that, and so as long as earnings are able to deliver, coupled with what I would argue is a very solid fundamental economic backdrop for the United States, along with hopefully some additional deregulation or clarity with respect to
taxes going forward. That sets up a very environment that makes me comfortable recommending to clients that when we have five ten percent pullbacks, which I think could be likely this year, use those opportunistically use those as buying opportunities to help better diversify your portfolio away from just the megacat names that have worked over the past few years.
So let's talk a little bit about the rates environment. Earlier today, Lisa Cooke, a FED governor, was saying that the FED can proceed a little bit more cautiously. The labor market seems to be sturdy, although there are lingering concerns about inflation, particularly when you begin to consider the potential inflationary impact of policies from the incoming Trump administration, And a lot of the FED speak over the last
several days is skewed more hawkish. We know now as a result of what we heard from the FED share at the end of the last FED meeting that maybe only two rate cuts are being predicted for the new year instead of four. How are you feeling about the outlook for interest rates right now? And how aggressive do you feel the FED will be in accommodating?
So I think the path for rates is certainly higher than it was, you know, even a month or especially a month or two ago. But I think the good news is the market has done a lot of adjusting already. The market is already pricing in only one to two rate cuts for twenty twenty five. So I think any surprises with respect to inflation continuing to make slow but consistent progress a little bit lower, I think that could certainly tip the scales to help rates start to come
down a little bit later in the year. I think there's risks, especially in the near term, to seeing you know, four seventy five five percent or so in the ten year. But for longer term investors, those maybe looking to move from cash and lock in longer term yields, I think those are good opportunities to perhaps lock in those yields because I don't think you're going to stay at those levels for very long. Because again, I do think inflation over the lone term is going to continue to come down.
It's just a matter of how slow that path is going to be.
The December employment report, it will be the main attraction on Friday. It's going to indicate a lot in terms of how well the labor market is performing, and by extension, how strong the consumer may be. What's your sense of the American consumer right now?
Yeah, dog, I think, and I've thought for a long time, but the American consumer isn't a good place. I think a lot of economists investors like it. People have missed
how strong the American consumer is. I guess. Being based in Florida, I have the luxury of kind of seeing vacationers on a steady basis and seeing them out at restaurants, continuing to spend money both at high end, medium and low end hotels, and I'll tell you I have not really seen a slowdown even after the hurricanes, people continue
to come down. And when I talk to management teams of consumer oriented companies, a lot of the big picture spending, especially on discretionary trips, kind of the experiences that stays in place. There is, however, a bifurcated consumer, and I think selectivity in the consumer space matters a lot. So I really discourage clients from trying to take a broad
approach to attacking the consumer. You have to be very specific about what consumer you have exposure to, and I'd much rather have exposure to consumers that are more lever towards the high end, towards discretionary experiential travel. Because you're still seeing that play out. You hear it from Visa, from American Express, you hear it from some of the companies that sell those goods or travel. I think that'll continue.
And what I would pay attention to in the labor report on Friday in particular is wage growth, because wage growth has improved across the board for the economy, but it's a double edged sword. If wage growth comes in higher than expect it, it's just another it's just another challenge for the FED and for the inflation overall to continue to come down, since so much of it is services based inflation.
So, man, if you're a reasonable optimistic about the domestic economy, do you want to be a little bit more exposed to small and mid cap names, let's say, as opposed to some of the big multinationals at this point, I do.
I mean I want to. I still want to have exposure to the multinationals because they're earning story is incredible by and large, but I think the market is really missing the growth that we're likely to see in small and mid cap companies. I certainly understand and appreciate the rate argument and the challenges that higher rates could pose to smaller companies, but higher quality small cap companies are
already benefiting from lower funding costs. Because rates have already come down one hundred basis points from from the peak of where we were last year. You're not seeing challenges for small cap companies with good balance sheets generating free cash flow. Those companies are very underappreciated by the market. They're under owned and investor portfolios, and we have near
historic valuation different between large and small cap companies. I think there's a very compelling case to be made, especially if you believe that there's going to be strong economic growth. I don't think there's a better way to play that than being selective in small caps, particularly with respect to the companies that are involved in the AI trade and also on the banks, the financials, the deregulatory side of things.
I think there's a lot of ways you can play small in midcaps, and once that part of the market starts to move, it can move very very quickly. I would use that pullback in December, we've had to really think about adding exposure to small and midcaps in your portfolio.
Well, I'm glad you mentioned the financials because today we had news that Michael Barr, the Fedzvice Chair of Supervision, plans to step down. We know he was instrumental in getting that plan to force some of the big banks to hold more capital. Obviously, the goal here is aspirational. You want to prevent bank failures and also prevent systemic financial crises. But he may have been potential target for
the incoming administration. We really don't know. What he did say is that he wanted to eliminate the risk.
Of a dispute.
But I was struck by the way in which bank stocks climbed on that news. The KBW Bank index was up today by around to eight tens one percent. Talk to me about the outlook that you see in the financials, maybe deal flow M and A activity as well as maybe easier regulations when it comes to the big banks.
Yeah, it's a really good point, Doug, and I think this deregulation theme for twenty twenty five is very, very real. We have a huge regulatory burden in this country. I mean we added over ninety thousand new pages in the Federal Register last year alone. It is. It is incredibly burdened sum It is a key reason why a lot of companies outside of just the fact that they're well financed, but it's a key reason why a lot of companies
don't want to go public. You have an over resource regional bank community banking sector in the United States, and there it's right for consolidation. When I talk to CFOs or CEOs or regional banks, all of them are very, very bullish and enthusiastic about consolidation in the industry. So I think that's going to help on the sea regulation front, and specifically with respect to financial regulations, that's also been
an incredible burden. So I think seeing tangible changes already takes place, I think that renews the enthusiasm that was there after the Trump election around the financial trade. So I still think there's a lot of legs to go there.
Matt will leave it there. Thank you so much for being with us. Matt Orton is the chief market strategist at Raymond James Investment Management, joining from Saint Petersburg, Florida. 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