Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Officials in China are signaling a shift in spending for the next year, focusing now on consumption, and in a moment we'll take a look at what that means for markets with our very own Mary Nicola, m Live Strategist. But first to us inflation and whether it's proving to be a little stubborn and how that could lead the FED to soon hit pause when it comes to raid cuts. Today headline PPI came in much above forecast with an
annual gain of three percent. Joining us now is Shana Sissel. She is the founder and CEO at Banery on Capital Management in Chicago. Shana, thanks for joining us today. It appears as though markets are really becoming a little cautious on the notion of FED raid cuts in the new year. I'm curious as to how you're viewing the Fed's work in the months ahead.
The market is fairly convinced that the FED is going to cut in the Demimber meeting, and the market is typically correct on these things. I think if they do, it's probably not the right move. To your point, inflation has proven to be quite sticky. But more importantly, the economy continues to be quite strong in the US, and so you have to ask yourself, like, are you cutting for the correct reasons? You know, a strong economy with stubborn inflation is not the worst scenario to be in.
Slightly higher inflation is not a bad thing, you know. Obviously you don't want it to be double digits like when we started. But I think we're in a really good place right now. And my biggest concern is that if the FED continues to be as aggressive as they are and continues to cut, they're really positioning the economy to get overheated very quickly, and there's unintended consequences to that, for sure.
One of the things I think that's going to be interesting when the FED meets next week is the indication we may get on whether we're close to a neutral rate or still well above it. Do you have a sense of that. I know it's kind of a theoretical notion. Where is neutral right now in your view?
So it's funny. I watched an interview with one of the former FED members on one of the other networks yesterday, and he was saying that we're not at neutral, and then the question was asked, well, what's neutral, and he didn't answer it. So if former FED insiders can't tell you what neutral is, I'm not sure I can either. But what I do know is that it's not where we're at today. And so the belief is that the FED will cut until they get to what they feel
is neutral. And the problem is is like the economy and inflation doesn't necessarily support that decision. So it's really going to be interesting to see what the FED does from here. I thought they would pause in December, but it's not looking like that's going to be the case. But I do believe that if they do cut in December, they will definitely start twenty twenty five off in a pause.
We're going to have a new administration in January. From what you have heard so far as it relates to economic policy from the incoming Trump administration, are you encouraged in a way that would make you bullish on risk assets in the US.
Yes, I am encouraged.
We have a one party.
Majority coming in, so we have a Republican Congress, a Republican in the White House, and typically having a single party kind of making the fiscal or the policy decisions is not always a good thing in the fiscal side. However, if it's going to be one party, having it be Republican tends to be better for markets. The Trump administration is a business friendly administration, it's a crypto friendly administration, and these things are all really positive and bullish for
markets as a whole. Now that said, we've had two years where we've seen twenty plus percent returns of the S and P five hundred, and then the question becomes is sustainable in our valuations stretched? But just because valuations are stretched doesn't mean that the market's going to turn. So it's a really hard judgment call. But there's certainly nothing that seems to be a headwind with the new administration.
I remember talking to you recently about artificial intelligence at the time in video was a big key at least where you were concerned in putting money to work. After the bell today we heard from Broadcom and the numbers for the latest quarter on the profit side beat estimates. But I think more encouraging for the market was the news that we had after the bell when the company predicted on the call with analysts sixty five percent growth
in AI Chip sales in the current quarter. It seems as though there's just this very, very robust demand from data center operators. Where are we right now in this cycle? Are we near the end or is this still have some legs?
Oh?
I actually think we're like very early in this cycle. I know it's done so well, it's hard to believe that, but we are so so early and understanding and the application of AI. So a lot of what's happening right now is a ramp up to try to prepare for the application of AI and the needs of AI related technology in terms of data centers and you know, cooling systems, all that kind of stuff. The infrastructure has to be
there first. But I think that we're really in the early stages of building the infrastructure so that we can actually start to have application of the technology. And and for that reason, I think, you know, we're going to see kind of a cycle of where you know, this infrastructure plays of the things that need to happen for AI to be broadly applied has to happen before we'll
start to see the actual broad applications. And when that happens, there will be other players that will win in that environment.
So is there a risk though that maybe that doesn't happen immediately, that the return on investment is not apparent at least right away.
Well, when we got earnings from Alphabet last month and some of the other technology companies, and in those earnings calls, their management teams noted that they were starting to see ways to monetize AI, which is sooner than I expected. So I actually think that we're already seeing practical application and monetization of AI technology with the players you would expect it from, like Meta and Apple, and that as you have a broader application of it, it starts to
be implemented in other industries. I think the opportunities quite large, and the monetization proof is there, So you know, the tech guys are kind of the experiment, and you're going to see financial companies, healthcare companies and more start to use AI and broader application and be able to monetize that tool.
When you speak with your clients, is there a worry that they have right now given the current environment? Maybe valuation concern, maybe the fact that inflation could be persistent. Is there something that you are willing to share with me about what your clients are saying they're most concerned about.
It's definitely valuation. The market does appear stretched, and that really is the main bear case for the markets is how sustainable is it with valuations where they're at. I think that's a valid concern, but I think it's a concern only in certain to the market. The problem is the place is of concern is the places that are driving returns right now, so like the tech space. So I think you have to kind of think about how far the market can go and stay stretched at these
premium valuations before we see a significant pullback. I don't think it's in the next month or so, but I do think it is caused for concern and a reason to position more defensively in your portfolio for sure.
So if you're looking at valuations, are there evaluations offshore that are attractive right now? Are you perhaps dipping your toe into the water in markets in the Asia Pacific?
Yeah, So if you look at other markets, the European markets have some structural headwinds that are concerning, but I do think the Asian markets are a little more interesting. They tend to be a little more innovative. Obviously, China is a place that we're starting to see a resurgence there, those valuations are more attractive. I think overseas are definitely
more attractive. The momentum isn't there, and so you kind of have to It's a delicate balance of finding attractive valuations with improving momentum, and you want to stay away from the places where you're going to fall into value traps where you have really cheap stocks but also negative momentum.
We'll leave it there, Shane, It's always a pleasure. Thanks for taking time to chat with us. Shane Assisil is founder and CEO at Banery on Capital Management, joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Prisner. In Beijing. The two day Central Economic Work Conference has wrapped up, and for only the second time in the last decade, Chinese officials made lifting consumption vigorously and stimulating overall domestic demand their
top priorities. For a closer look, now, let's bring in Bloomberg's Mary Nicola, one of or En Live strategist. She joins from Singapore. Mary, thanks for taking time to chat with us. I'm curious about getting your take on the messaging that's coming from Chinese officials who are now focused on this notion of consumption. What does that say to you?
What I mean, we've heard a lot of great messaging coming from Beijing. The key thing, though, especially for equity markets, is the follow through. I think there's been just a lot of announcement fatigue in the sense of we've heard a lot of big, bold statements, but nothing coming through
in terms of concrete action. And I think that's why the market hasn't been as exuberant in their response to some of the shift and tone that we've gotten from Beijing, especially during this round, whether they were talking about more aggressive monetary policy and fiscal stimulus. The market hasn't responded in kind because of the fact that it's just it's been a little bit disappointing in terms of the follow through so far. So now we just need something, some real action to come.
So, even if we do get greater clarity on this, is it a foregone conclusion that the equity market is going to move higher on that news or is there a lot of good news that's already been somewhat baked into the pie here.
I mean, it's moved a lot since September. If we think about where it's come. It's come a long long way, and so if we're going to get that extra spice and that extra move up in the equity market, you need something very strong to come through. One of the key things is that they need to avoid this Japanification of the equity markets, and that means, you know, stagnation,
lackluster returns over the next few years. But the key thing to do that is to ensure that there's an improvement in consumer confidence and a turnaround in what we've
seen in disinflation and deflation producer prices. So the whole focus needs to be on how does China avoid Japanification of their equity markets, and for that they need to really focus on consumer confidence as well as turning around that disinflation momentum that we've been seeing in consumer prices as well as the deflation that we're seeing in producer prices. As long as you target those two, then we can
see a really sharp turnaround in the equity markets. But until then you're not going to see the same sort of enthusiasm that we got in September.
So if there's a question mark over what has been a very strong aspect of the Chinese economy, and I'm thinking here of exports, and if that's maybe a little at risk, given the fact that there may be looming US tariffs threatening the export economy in China, then it's reasonable that Beijing would try to resuscitate the domestic story, right.
They would have to, especially if equity, if exports are going to start slipping, if the pressure from the US in terms of on tariffs is going to really heat up, I think they don't have They don't have much of a choice. We saw the numbers from exports for this month. It wasn't that great, and then of course imports were much much weaker, and as a result, we're seeing that the impact of domestic demand is really coming through from
the on the import side. So if exports aren't picking up the slack like let's say they were prior and in the first half of the year, or in the back end of last year as well, then you're really going to need a push through on the domestic demand side. The key thing, though, is that their old playbook of stimulating investment has always been their go to, So how do they move and shift to consumption is going to be something that the markets are watching for Yeah.
We get some key data next week, I think the monthly activity data for the month of December, and I think much of the focus will be not only on industrial production, but critically that retail sayes data. Can we pivot to Japan? I was looking at the ton Khan Survey, the large Manufacturing Index from the Bank of Japan coming in at a reading of fourteen, a little above forecast. What's going on here?
Yeah, you know, it's all about I feel like with the boj it's about it's waiting for Goodoh you're just waiting for the next hike? Is it ever going to come through? And the markets have just been waiting. So a lot of the data that we've seen, whether it's the ten Can survey, whether it's inflation wages, they're pointing that there should be some move towards normalization from the Bank of Japan. But then you get reports over the past week that are saying that, you know, they could
afford to take their time. So the market is really stuck where yen bulls just get really excited with news that you know, this is it, this is going to be the likelihood of a hike coming soon, and then they regress because of some leak that comes out, that comes out. So I think what we're looking for, especially
coming into next week from the BOJ. They're not going to hike next week, but I think the end bulls out there are looking from for a strong signal from the BOJ that March, or even January or even March will be when the next hike comes.
That kind of takes us to the Fed. And if yield differentials contract just a little bit on the notion that the Fed is going to cut rates next week, there's a big question mark is to what happens with the Fed in twenty twenty five. But if we can accept the fact, at least for the moment that US rates are coming in, that does in fact take a little bit of pressure off the BOJ, doesn't not.
Well, the thing is with the Fed is that yes, next week is probably a done deal. The Fed isn't going to disappoint the market, But it's what's happening in twenty twenty five. PPI yesterday didn't help very much. We're realizing that that last mile of inflation is quite sticky, and the labor market is holding up. Okay, it's not causing or triggering any cost for concern. And then of course they've got issues with fiscal policy that they need
to think about. They've got to think about potential tax cuts, they have to think about the implications of tariffs. So I think what ends up happening is, yes, the FED cuts. Yes, it probably takes on a cautious tone, but that doesn't really help whether it's Japan or other Asian currencies, because the outlook for the FED is a lot cloudier and a lot murkier.
All right, so you mentioned currencies, give me your take before I let you go on the path of the dollar as you see it for the foreseeable future, maybe just the near term, and then what it means for the end.
On the flip side, yeah, I think the path for the dollar is still some strength, even though it's done extremely well this year. I think the path forwards still it's hard to It's hard to turn against a dollar when the FED isn't likely to cut very aggressively, when growth differentials are in favor of it. If you're looking out there to seeing where growth is coming from, it's not coming from China, it's not coming from Europe. It
still really is coming from the US. Earnings from on equity markets are still much better in the US than the rest of the world, so it really bodes a better picture and a brighter picture for the dollar than other currencies. And that also means for the yen is going to remain under pressure unless we get a strong move from the BOJ just even words, some sort of strong signal from the BOJ because the Fed isn't going to help it.
Mary, thanks for talking with us. By the way, you can read what Mary is writing about today if you have a Bloomberg terminal. The function is mliv than the Green go key. Mary Nicola is one of our m live strategists. Joining us 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 Chrisner and this is Bloomberg