Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.
Joining us now for further discussion of the FED and markets is Vincent Signerella, Bloomberg macro strategist Vince. Great to have you with us here on the program. So the FED took a pretty dramatic step here in cutting by fifty basis points, but then it signaled that it's not in a hurry to do more. So that's a kind of balancing. It seems like their messages we're fine tuning here, we're not panicking, we're not doing anything too dramatic. Is that the message that the market is reading.
Yeah, I would say that's the best of the equity market is reading. I'm not so sure that market is taking it the same way the equity guys. It was a really volatile session. I have to say, I'm not sure if your listeners saw what happened after the or got a feel for what happened after two o'clock. But the volatility was extraordinary. We surged, we went read, we went back to the levels after the announcement, then went
read again. It was absolutely all over the place. But the one thing that stayed tried and true with that, Yale stayed higher. So I kind of always leaned towards the fixed income guys as a former FX trader, being smarter than we are, and I look to them for guidance. And the guidance I get from the fixed income market is We're going to wait and see what the data says, the same way Powell says, we'll wait to see what the data says.
Evin's One of the things that I was hearing during the day is that Poulll was essentially making up in going fifty today, making up for the fact that they decided to do nothing in July. Is that plausible, do you think?
Yeah?
I mean he mentioned that, he mentioned that they could have gone in July, but he passed over that very quickly and just said we could have gone, but we didn't, And he didn't really give a lot of color in that. I think you know, it would have been maybe a little bit better received from the fixed income market if they did twenty five basis points. In July did twenty
five basis points. Now, the good news is that the warry going into this about the last two weeks was that if he went fifty it would be perceived as a bit of a panic. But clearly that wasn't the case. It looked more like a catching up, which is fine. But then you go back to what you guys had mentioned earlier, just a few moments ago, and that he's not in a rush. This isn't a predetermined course. We're
still always saying the data dependent story. And the latest data we've seen is the Atlanta GDP FED printing three percent.
Wow.
Goldman updated their third quarter GDP at three percent, and we've seen an inflation is a little hotter than forecasts.
So I think the equity market, e Vince, I think the equity market, you know, the usually the first trades, not really the one that gets sustained. I'm seeing a lot of positivity here at the moment. Smpe me and E's are up now two thirds of a percent, some thirty seven points. The Nicks rallied seven hundred and ninety odd points. You're going to get a pretty solid rally
in Hong Kong today. I would think it seems like the market is reading this, the bond end stock markets as yeah, things are okay, They've got some room to cut here. It's not determined what the what the path will be going forward, but it's certainly not panic at this time.
No, no, not at all. And the good news for equity markets is, and it depends again on the data going forward, is that the quantitative titan cycle is clear over. We've moved at least temporarily into an easing cycle. We don't know the extent of that cycle or how far
it's going to go. One of the things I would always go harken to is Bostic's comments, which is the credibility issue, which is the worst thing we could possibly do is cut interest rates and then the data doesn't support it going forward, and then we have to turn
around and raise. So I think we're going to see a little bit more of a prudent, careful fed going forward, which showed in the dot plot where they just forecast twenty five basis points for November and December, which I think is reasonable, but also very cautious because it gives them the opportunity to go either way. They could easily go fifty basis points in November if the economy rolled over, or they could easily pull back to do absolutely nothing in November if the economy sort.
So, Powell talked about recalibrating policy to a more neutral level in your work. I mean, I know it's theoretical and debated. Where the neutral rate seems to be. Is three percent fair? Do you think?
I personally think so. I think the idea that we're going to get back to two percent is incredibly unreasonable. We have a thirty five trillion dollar national debt, and that you know, if you look at both parties and where they're going in the election in a couple of months, both are talking about increasing spending, so that is not likely to go lower. It's going to go higher. The idea that interest rates have a substantial downside is I
think a little bit unrealistic. Three percent is not unrealistic, but again it depends on inflation and how much either of these candidates, for instance, and their parties want to spend to get someplace, and what they will do when they get there.
So one of the things that we've seen in the past several weeks is some of these cyclicals and small caps outperform. They've they've they've been seen as a beneficiary in a in a rate cutting cycle like this.
Uh.
Would you put commodities and commodity currencies in there? And is this something that investors can can play here continue to play?
Yeah?
Well, I mean, uh, you know, look at gold, you know, record highs, looking at copper futures and doing very well. You know, across the board, commodities are trading well. I mean in a lower interest rate environment, commodities tend to
do well. Uh, they're easier to finance. But you know, again, it's when the one thing that that is positive for that space is the lower that you get us interest rates, the cheaper it is for emerging market currencies to finance their debt, which makes commodities a little bit cheaper across the board. So that gives them the opportunity to, if you will, finance exports, uh, and make those commodities cheaper, which makes them more affordable.
And well wanted you were talking about volatility earlier, or I saw the dollar bouncing around. I was looking at the pound. I was looking at the euro earlier, put on your old four x hat. Where's the dollar headed from here?
My personal feeling, I'm just going to look at dollar yen and I think that dollar yen has a lot of room to go lower. And this has more to do with boj policy going forward maybe than the Fed. The idea, obviously is the bojil stampad. This time around, we've got sort of LDP politics playing in, but there's a reasonable possibility they go fifty basis points at the meeting that follows, if not the meeting that follows that, and you're going to see this divergence in monetary policy.
And the interesting thing is does that play into a substantially stronger yen which unwinds the carry trade, which then unwinds the equity trade. So that's going to be something equity traders need to keep in focus. That something that the fixed income market doesn't necessarily have to worry about.
Yeah, that's something something that we've been musing over here, but it's not happening currently. I mean, the Nike has been pretty choppy, but today up up. Yeah. Yeah, it's been a very interesting time for Japan. The Bank of Japan meeting will be interesting and then the election next week. Well, just finally, I mean, do you feel good about I mean, how are the kids doing? The kids?
Okay, Yeah, everything's good.
Everything's good. I'm you know, a little a little chubbier, but otherwise do it fine.
It's you're talking, You're you're eating and drinking well and we love to see that.
Wow.
Anything else, Doug A.
Quick no, no, just don't be a stranger.
Vinny, Yeah, call on this program. Yeah. I was going to get you in here. We can't pay you, but yeah, it's not a nice to have your time. Vince Signorella. There Bloomberg macro strategist with some keen insights on the FED. Helen ju joins us here in our studios in Hong Kong, Managing Directorates and CIO at NF Trinity. Helen, thank you very much for coming in. So it seems like this is just a little insurance policy taken out by the FED on the soft landing thesis. They're urging caution, they're
saying there's no there's no panic here. They have room to cut and they're doing so. Do you think that this is a message that investors in Asia will embrace.
Look, I think the message is quite clear. The message is, first of all, we don't want to look like we're falling behind the curve, as many people have been accusing them of recently, but that you know, it's too early to say that they're going to go all out dubvish, mainly because they said twelve times during the meeting that things are still pretty solid.
So I think it's good. It's a good message.
Right, So things are still good, but we're also fairly supportive.
And you know, we're mindful of the risks, et cetera.
So I think in combination, you've seen you know, Japan's opening up, and I think in the short term there's going to be a little bit more of a risk on attitude, not just because of the FED, but also because the data earlier this week was quite strong.
So we talk a lot about long and variable legs when it comes to monetary policy. Maybe things, as a result of what have been very high rates start to slow down even more from here. Do you think the US manages a soft landing and we avoid recession? Is that the way you see it.
We do think that the soft landing is the base case assumption. At the moment, I mean, we see.
The bigger risk.
However, is really a meaningful slenoun in terms of the jobs market. As you know, the US is a very consumption oriented market, and people the way that they spend is but depending on whether they feel secure in their employment and whether they have that wealth effect, and both of these factors have been full on positive after COVID, whereas in most other markets they've reversed. So the jobs
market is really critical. If jobs market starts the weekend in the stock market will come down and everything's kind of interlinked, right.
If that were to happen.
Then we go into vicious feedback loop, in which case I do think that growth will slow down much more than expected, So we have to watch very carefully.
I think we're not completely out of the woods.
So what's the smart way to play this in markets at the moment?
Well, I think it's quite interesting because the market's basically saying two totally different things to you, right, So the credit spread, the share price performance of FAG US equities in general, US financials, US industrials, they're basically telling you
there is barely any landing. Things are completely fine. On the other hand, if you look at some other sectors like consumer discretionary, tech, hardware, you know, a lot of areas outside the US and maybe commodities recently, these areas are telling you that things are not so fine, and
actually treasury yields as well. Right, So I would say, you know, if we do have a decent soft landing scenario, I would be more interested in looking at a gradual recovery of those areas that have priced in more of a landing scenario and being underweight some of the areas that really hasn't priced in any kind of landing at all.
So we've arrived, the easing cycle has has begun. Maybe we get another fifty basis points between now and the end of the year. What does that mean for central bankers and your neck of the woods. I'm thinking primarily of the BOJ at the moment.
Well, I think the BOJ is a slightly different case from elsewhere just because of their starting point being so
incredibly low versus all the other major central banks. But I would say elsewhere in Asia and in emerging markets anywhere, even in DM for for sure, other than the Japan special case, it definitely opens up the window right for people to do a bit more if they need to, because what people had been suffering throughout most of last year and end of the year before was basically that you don't have too much flexibility because you don't want
your currency to endlessly depreciate against the dollar, which has been so strong for so long. So I think this is definitely a positive for non US markets and non US central banks.
Can we connect the dots from the cut by the FED to the housing market in China and to the mood among the average the average mister and missus Wong in China, I mean, how are they feeling these days?
There's not much of a direct linkage between the FED and the property owners in China. I would say the indirect linkage is that if there's less pressure on the R and B from the dollar strengthening, then the PBOC has more room to cut. But the PBOC has already been very proactive in terms of dropping mortgage rates as well as overall interest rates. So I think that's not the most important thing. The thing is about price expectation and confidence in the market.
Even if rates are zero.
You know, if you think prices are going to go down continuously year after year, you're not going to go out and buy a property. So I think that's the thing that they have to wrestle with at the moment. The expectation within the market has really weakened substantially, and you have to stabilize the expectation, if not reverse it
before the market could possibly potentially pick up. So right now, all you've seen is secondary market is more active because there's more supply available as people who were previously hoarding or putting their properties on the market. The primary market has really suffered because of you know, developers not taking a lot of land the past few years and just you know, lack of a less of a price advantage for the primary market.
So I think it's going to be challenging.
Are your clients asking you about what the stakes are in the US presidential election.
I think everybody's watching the election very very closely. Right a couple of months ago that the default assumption was that Trump was going to win for sure. You saw that in everything from you know, financials and tech, you know, which are the more regulated risk sectors, as well as the market overall, as well as you know, people basically thinking that muals should go up and corporate tax rates, tax cuts will get extended. Now.
I think a lot of that is kind of unclear.
And if Kamala actually wins, it's probably going to be better for the rest of the world because of the much lower Trump's specific Trump specific tariff risks. But for the US, I think it's probably a little bit of a challenge the exceptionalism thesis.
Can I just get thirty seconds from you? On consumption in China, we touched on that briefly. The consumption picked up a little bit here during the holiday, but it's still away from better levels. How do you see things over the next couple of months.
It's lukewarm at the moment.
I don't think it's getting substantially worse than before, but we don't see much room for dramatic pickup either, precisely because of the property price expectation issue we talked about earlier, and the very significant impact is having unwealth effects in China, and that's the total opposite of what's happening in the US, where property crises are still boyant, stock market is still boyant, and people are going on and spending a lot despite the.
Inflation we talked about Japan. I mentioned the fact that with the FED doing what it is, maybe it takes a little bit of pressure off the BOJ. But obviously the Japanese situation is very different. Here, we're seeing quite the rally going on in the Japanese equity market. It seems to be a pretty robust debate on whether or not we're going to get another rate hike between now and the end of the year from the BOJ. Do you want to weigh in on that? Is that likely.
Possible?
But I don't think that it's necessarily for sure. I think that there was obviously a pretty significant reaction to the last one and more volatility resulting versus what always expected. So I think, and you know, I think it really depends on the data, right and whether they really see a meaningful evidence of continued, you know, robust growth and more inflationary pressures in the economy.
Yeah.
So you and I live in Hong Kong, and Hong Kong is an important place. Hong Kong will no doubt benefit from rates moving down by the FED. Again, we don't know how much, but fifty basis points here, can you see a little bit of a pickup in activity in Hong Kong or Is it wholly dependent on the Chinese economy rebounding.
It's not wholly dependent on the Chinese economy rebounding, but I think it's very important because the Chinese economy really drives consumption here in Hong Kong, the financial markets here in Hong Kong and the property market and the you know, buying demand coming from North.
But that said, leaving China aside, I.
Do think that you're right, Hong Kong will benefit hugely from the rate cut cycle in the US because of the you know, pegged currency, et cetera, and the fact that the property market's been under a significant amount of pressure. So I think at least this alleviates some of the pressures on the mortgages et cetera over time, and we'll start to stabilize, if not start to potentially boost confidence towards price expectation on Hong Kong's own property market in the residential space.
Are we going to get more stimulus out of beychain, either on the fiscal side or or the monetary side. Do you think.
It's difficult. We've been trying to hope for more stimulus for a while. We have gotten a great deal of stimulus already.
Right, if you think about the rate.
Cuts, the mortgage reset, the mortgage cuts overall, the infrastructure spend, the local government financing vehicle fixes, and the fiscal side. A lot of these things have come together with consumption policies like ev trade in and incentives, etc.
But all of that has struggled.
Against the face of the declining property price. So I think we will get more to answer your question, but is it going to be super effective if property price continues to slip.
I think it's going to be an uphill battle.
We've got about thirty seconds for this. I just want to ask you what is your number one pick right now? What's your big conviction trade at the moment.
I think the big convention trade is basically to be more positive on Asia rather than just develop market. I think that all of Asia has actually suffered pretty significantly as a result of the very very strong dollar, and I think that reversal is going to give a lot more breathing room here in terms of the property market.
As you talked about in terms of consumption.
If Kamala Harri swins and we don't have as much tariffs, that's going to be a positive as well. And I think that some of the semi related stuff in Korea, Taiwan, etc. Has been pressured and is better value and less crowded.
All right, we've seen money flow into Southeast Asia, the Singapore stock market, for instance, of about six and a half percent in the past month. Helen, Thank you. Helen Ju from NF Trining.
Naomi Fink, Chief Global strategistic NICO Asset Management, joining us live here on daybreak asient. Naomi, thanks for making time to chat with us. Obviously it's about the FED today. We can talk about what it may mean for the Bank of Japan and going into the decision today, this debate is it going to be twenty five? Is it going to be fifty? We got fifty? What do you make of that?
Well, I personally thought that twenty five would have been more appropriate given the economic data out of the US. Although the labor market picture is softening, it's not softening to the extent that we should really be worried about growth right now. I still expect growth to remain positive, although potentially slower. I think it was more about the fact that the FED had room to cut given wherever
neutral is, it's below where we are now. And also market expectations had already priced it in, so there wasn't the worry that delivering a fifty basis point cut would send a message that there was some sort of undetected weakness in the economy and then perhaps cause the opposite effect to what happened, that markets would see it as a surprise and react poorly to it.
So, with bond yields edging up a little bit, does that send a message that the bond market is a little concerned that inflation may tick back up again, or is that just an indication of a slightly better reading of the US economy.
Well, if the bond market yields are ticking up because of expectations that inflation may come back, I think that's a reasonable concern. Given we're not at the target yet even per the Fed's own guidance, we don't expect to reach target until sometime in twenty twenty six. Plus we've got some potential inflationary events depending on what happens with the election and beyond the election, things like the dead limit,
the US dead limit. If we do have, for example, tariffs or some sort of protectionist measures put in place, that could be inflationary. Similarly, if we have expectations for fiscal easing, then that could also mean inflationary expectations by households that the FED will have to react to. Plus it may make those negotiations that aren't going well already over the debt ceiling that much harder.
So maybe we have another fifty basis points sin FED easing between now and the end of the year. What does that mean for the Bank of Japan. Does this take a lot of pressure off the BOJ or just a little bit?
So I don't expect that the Bank of Japan is really going to change its trajectory, which is for hikes in the future. However, the Bank of Japan also has the luxury of delivering those hikes at a pretty slow pace, given inflation is not really running away. In fact, it's pretty well behaved. Bank of Japan is also far from neutral, but on the downside, so it makes sense that it will continue to deliver hikes, but I think that it's
going to do so at a very measured pace. So I don't think that we should be pricing in a rate hike every meeting, or even every other meeting, potentially once a quarter for now until we really start seeing signals that consumption domestically in Japan is speeding up.
The dot plot suggests a full one percentage point of cuts next year, so call it one hundred bases points. Is it too hard to look out into next year? Is this really just kind of speculating or do you see trouble next year?
I think the FED has to work with what it has so far, and for example, there are a lot of unknowns. We don't know the outcome of the election. We don't know what's going to happen with the debt ceiling. We don't know what's going to happen with what appears to be escalating tensions in the Middle East. There are a lot of unknowns there, and the FED will have to react to them as they happen, but they can't, I guess, speculate too much about them before they do.
I'm going to throw you a curveball. I hope you don't get upset with me. We've on September twenty seventh, we have the leadership race for the LDP in Japan. Can you weigh in on what's happening right now politically in the country.
Yes, I'm not too upset with that. I think that's a fair question. I think that the upcoming LDP election does bring emphasis on politics in a market where emphasis doesn't tend to be placed too much on politics because a lot of times, for example, the UH the LDP premiership is is not as influential, for example, as US leadership, just because of the different structure of the political systems. However, I think that there is some potential in the future
to influence future elections. So we have I think three leading candidates, and of those I don't anticipate any big changes in the near term, but the winning candidates' ability to then win future elections will probably matter, and it will matter for the longer term continuity of the policies that have been put in place, and so far, apart from the scandals of course that nobody liked, the policy hasn't really been too bad for Japan. It's been quite supportive.
We've seen some tax exemptions for investment, We've seen some corporate governance strengthening. It's it's generally been quite good.
Naomi. Will we leave it there. Thank you so much for taking time to chat with us. Please come back again, Naomi Think Chief Global strategist at Nico Asset Management, joining us from the Japanese capital.
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 App.