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Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. The American economy expanded faster than initially estimated in the second quarter, a three point three percent annualized rate. Now that reflects a pickup in business investment as well as an outside boost from trade, and this news helped us send the US equity market to record highs. However, those gains were to some extent held in check by caution in front of some key inflation data. We'll get the
July PCE Friday morning. Core PCE is expected to rise at a two point nine percent rate, that would be the fastest in five months. And in a moment we'll get some perspective from the Asia Pacific. We'll hear from Raj Singh, multi asset portfolio manager at Principal Asset Management. But we begin here in the States, where late Thursday we heard from Fed Governor Chris Waller. He supports cutting interest rates by a quarter point next month, with more
reductions likely over the next six months. Even so, Waller does think a half point cut next month isn't necessary. He spoke earlier at a conference hosted by the Economic Club of Miami.
I felt this way in July, and all the evidence since then has led me to feel more strongly.
About it today.
Based on what I know today, I would support a twenty five basis point cut at the committee's meeting on September sixteenth and seventeenth.
That is FED Governor Chris Waller. There By the way, he is seen as a potential successor to FED shair Jay Powell. Joining us now for a closer look at the FED story is Alonzo Munos. He is chief investment officer at Hamilton Capital Partners. The firm is based in Atlanta. Today, Alonzo joins us from here in New York City. Thanks for making time to chat with me. I want to begin with the comments that we're hearing this evening in
Miami from FED Governor Chris Waller. He seems to be diffusing the need for a larger cut, but he's not excluding the possibility of a fifty basis point move should the payrolls data come in on the week side. Does that seem to make sense to.
You, Well, dug it, eating you know, he really does have to thread a needle, and it's a tug of war for him. The FED is in a really difficult position because we're getting a mixed bag on economic data, and we're going into a really really important meeting here in the next couple of week SPED meeting, where the market expects a rate cut. So I think that he's
sort of pushing the envelope a little bit. And as you know, we get PC tomorrow, which is a big data point for the FED, and we're going to have to see how this plays out going into the next FED meeting. I think that you know, he's on the right track.
Well, the inflation story, I think is key. It's interesting that you mentioned that the PCEE data yes tomorrow morning for July. After the bell today, we had warnings from
both Catapillar and GAP. Kind of interesting, a big industrial powerhouse and a major retailer both talking about the headwinds from so this could filter through to the consumer, whether it's on the business end or on the retail side in the near term, which, as you're kind of addressing, could complicate the picture for the FED.
Well, I think there's even more complication, Doug. As you know, the deminimous exemption runs out tonight and so consumers potentially are looking at higher prices for all types of goods, and companies are struggling on how to address this tariff disruption issue, and it's something that we're going to continue to watch very closely. On the other hand, though, Doug, when you look at corporate earnings, things still look pretty good. We got a good GDP data, Personal consumption was up.
We'll see how personal incoming personal spending comes in tomorrow. But that's what makes this market so difficult, and that's why I refer to this some of war, if you will, where we're getting a mixed bag on economic data. The consumer is still strong, but businesses are saying we have to eventually pass these costs to consumers, potentially raising inflation. Putting the FED and fetch them and pal in a corner as they go this sext meeting.
Speaking of the next meeting, we've got this cloud hanging over it with the firing, the attempt at firing of FED Governor Lisa Cook. She filed a lawsuit today. Her lawyer is basically saying that the claims that she allegedly lied on mortgage applications really have to do with an unattentional clerical error, and the lawsuit does call this firing an illegal attempt by the president. He's using a phony pretext that doesn't amount to sufficient cause to remove her.
Do you have a sense of how this is going to play out? I know you're not a lawyer, but until we get some resolution, perhaps from the Supreme Court, this is going to be an issue for the market, will it not?
Well, it's exactly how you how you framed it. It's a dark cloud over the FED, specifically as they go into their next FED meeting. What we saw from the fixed income markets was not a lot of not a lot of fireworks. We didn't see big moves on the back end of the yield card of anything. We saw a little bit of a reprieve today and it has
shruged this off. It's another Trump administration moved to apply pressure from fall angles against a FED that has been unwilling to cut against his recommendations, and so something that's going to continue to hummer over and be very uncomfortable for the FED as we go to the FED making.
A lot of talk this week about the artificial intelligence trade. We had the earnings from in Nvidia this week, a forecast that basically indicates a little bit of deceleration in growth. And then today after the bell, Dell Technology has boosted its annual outlook. This company is seeing strong demand for AI servers. I'm curious about how you feel about the AI trade right now.
Well, with the market, Doug, it all time highs. It just makes you wonder how much this musket can power higher, specifically on AI enthusiasm. But when we dig through the numbers, it's remarkable. I know you spoke about Dell, but in Nvidia data center revenue was just absolutely astonishing and it's
something that's continuing to power this market. As we look back into the last couple of weeks and months, earnings from the Mac seven continue to highlight and really strong catbacks, and it's something that can continue to power this AI enthusiasm, this AI trade forward into the back half of this year and it's something that we're excited about. But again, there's a little bit of caution as we go into the back half of this year that some of these names local little bit overextended.
So are you expecting them maybe a pullback in the next quarter.
Well, Doug, I don't see why we would. In September is usually, at least over the last ten years, from a seasonality standpoint, not a great month for financial market, specifically US equities, and so we would have some pause and maybe keep a little bit of cash and draw powder on the sidelines to take advantage of the STIPs. But over the long term, we're still very optimistic about the AI trade and some of these names that are driving and leaders in the space.
Interesting development today from the European Union they're going to follow through with a demand from President Trump. They have adopted draft regulations to remove all terror on US industrial goods.
Now.
The block is also going to give some preferential treatment to a few US agricultural and seafood products, and in exchange, the European Commission is saying this is going to pave the way for the US to lower tariffs on European cars and auto parts to fifteen percent. I think that current tariff right is around twenty seven and a half percent. How are you feeling about the tariff story right now?
Do you think that the market is becoming a little bit more comfortable or is there still so much uncertainty in regard to how this is going to play out that you just want to maybe be a little bit more cautious.
Well, the market has become a little bit callous, if you will, to some of these tariff moves in terraf negotiations. We all remember April when we were scrambling to sort of predict what was going to happen next. But again we're not seeing huge, as you know that huge reactions to either these tariff announcements. Whether the present is being more aggress saver for nations are are they thank some
of the heat away from tariff. So something that we're going to continue to watch, but again we're cautious going into the accounts. We're keeping a little bit cash on the sidelines and seeing how this smunket slave that going into the back of the year.
Alonso, I'm curious as to whether you're finding opportunities outside of the US right now. Is that a focus for you offshore markets?
What we are right now with all the tariff disruptions and really keeping up with this administration, We're trying to keep our dry powder focused on dips in the US markets, but we are looking at Europe, and we are looking at Asia and maybe India is an interesting market. But right now we're concentrated here in the US.
Alonzo will leave it there, Thank you so very much. Alonzo Munos He is the chief investment officer at Hamilton Capital Partners. The firm is based in Atlanta. Alonso joining us today from here in New York City on the Daybreak Asia podcast. Come back to the Daybreak Asia podcast time Derek Prisner. So, as mentioned, all eyes will be on the PCE report here in the States Friday morning. For more, we heard from Raj Saying, multi asset portfolio
manager at Principal Asset Management. Raj spoke earlier with Bloomberg TV hosts Cherry On and April Honng on the Asia trade.
So, Raj, we did see really solid performance on Wall Street in terms of stocks. Are you looking ahead to the inflation data that's coming out later as something that could potentially derail this?
Yeah, First of all, on Good Morning, I would say that the inflation data, the today's PCIe reports, definitely we are not looking for big surprises because we know from the PPI and CPI that how it's going to look like. So in terms of what it means like for the Fed policy, I think the September base cases twenty five basis point cut. It's fully priced in into the market.
So what will be more for an innovur opinion is how the next Friday is labor market report looks like, and what will be the CPI reading for the August number, whether we see further signs of tariff inflation creeping into that that number. So that's what we'll be watching for. Any big downside surprises on the payroll sides specially can boost the case for a jumbo cut. Otherwise, I think
twenty five basis point is is the base case. However, what markets will be looking for will be basically beyond this September meeting, how the FED policy path folds out. People are looking for one d and twenty five basis point of cut in one ear so whether the time period really holds up is the big cushion, and the second beyond that, I would say the policy aspect. Market is really paying a lot of attention to the fat independence aspects, and any erosion of the fat independence can.
Spook the market.
I was just about to ask you how might the threat to FED independence, or the perceived threat actually play out in markets towards the end of the year and going into next year and might there muddy the waters.
Yeah, so I would say it's a twoache.
So definitely, as the composition of the fact keeps changing and the tilt goes towards the dowish side of the things, it will be good for the risk assets. So in general, I would say the risk assets are still looking in a pretty good, pretty good spot here despite some of the I would say fragility sewing up in the economic data, especially on the labor side, But where it can have bigger impact will be definitely on the bond side, and
that's where right now the action is happening. The US curve is steepening, but bear in mind the cove is steepening everywhere, so definitely it's a factor. Market is also hooked up, But in a long term I'm not sure how much impact it's going to have on the FED policy because ultimately the FED is going to driven by the data, which is labor and inflation, and that's going
to drive the policy action to large extent. And despite all the noise we see in the markets, it's highly underappreciated that when you look at the developed market curve, US thirty year is still on a relative basis is the best performing curve out there in the developed market. The German booms are up like thirty close to a sixty basis point, your jgb's thirty year up close to
ninety basis point. In fact, we have seen that movement in China as well, So it's a global phenomenon, that cheepening of the curve, but definitely, like like erosion of the faith in the FED policy can have longer term replications, and we'll see how that plays out in the market, but it would be mainly a bond market story at the beginning.
We're in China's a story of tech because we do have Ali Baba of course results out today as well. What are we expecting in terms of some opportunities that we could see in that market.
Yeah, so China is a very interesting market, and I would say we have been highlighting it for some time. What you see in China is basically that there are a lot of household savings, So the households are sitting close to let's say nineteen twenty three in US dollar, not kind of like the deposits of the So the household savings are in excess in China, especially after COVID that savings have built up. At the same time, the policy makers are definitely trying to guide that long term
institutional capital into the market. And the reason for that is that it can act as a catalyst for the economy because of the wealth effect. So in China, I think you may keep seeing this bifocation between the fundamentals and and and the market where the market keep may keep driven by the liquidity aspect because the deposit based that access savings are quite huge, the bond deals are roll low, so that rotation from aquities into equities from
fixed income will will be there. And and I think the opportunities lie structurally in the high divisend stocks and in some of these tech stocks, so that bible of tech and high dividends still makes sense to us. And uh, and we have to see what happens to this price war on the on the over capacity side, we see and and market will be definitely UH like passing through the earnings of some of these tech giants, like how that competition is looking like and what it means for
the deflation story at the macro site. And the second for the corporate earning story. And I would say that the earning so far are a little bit underwhelming and uh and some of the market thing is market rally is driven by the valuation aspects, because it's it's a liquid driven rally. But I think tech and dividend stock share definitely with their story in China.
And just before we let you go, credit spreads grinding lower across the world. Where are you seeing the opportunities?
Yeah, I think the credit spreads are quite tight globally, and the credit spreads credit curves are quite flat, so I think we still like the carry so definitely at the short end of the curve we are shifting more from the credit side, and at the longer end of the curve we are switching the duration to more to
the treasury duration. Preparing for some of them, maybe we say like the air pocket, which we may see given the uncertainty in the macro data we are expecting on the back of these uh uh, these tariffs and other policies we are seeing from the US administration, and also some of the front loading which has played out so far. Probably it will give back in next thirty six months.
That's Raj saying, multi asset portfolio manager at Principal Asset Management, speaking earlier with Bloomberg TV host chair and April Hong 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