Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So we have three key central bank decisions on the horizon. The Bank of Japan is up first. No change from the BOJ is expected. We'll also hear from the FED this week, as well as the Bank of England. But it's the Fed's decision
that markets are eagerly awaiting. Since the statement will be parsed for any assessment as to how President Trump's trade policies are affecting the outlook, Let's take a closer look now with our guest Peter McGuire. He is the CEO of Trading dot Com Australia, joining us from Sydney. Peter, thank you so much. It's always a pleasure. No one is expecting the Fed to do anything, but I think the devil is going to be in the details in
the statement. What are you expecting the Fed to kind of lay out there?
Well, good morning dog think Greening's from Sydney.
I'm not expecting any real great surprises, But as you said, devil's in the detail, it's going to be the commentary.
I don't you know. The market is very much.
You know, we're going to see everyone's anticipating to stand pat at this meeting, investors a penciling seventy five basis points worth of reductions this year, and that was at some point last week, you know, twenty five basis points worth of reductions to projected by the fed's latest dot plot.
I want to see where the dot plot is. I also want to take on board the commentary, the interpretation from retail sales perspective, what's happening from an employment front, all of these factors naturally from FED chair power, and then the great uncertainty as far as the President Trump effect and the avalanche of news that that presents on a daily basis, that changes I think the footprint of so many interpretations.
As far as market expectation.
So are you expecting, given the FEDS announcement, a big dollar move subsequent to that, Well.
It's currently sitting. I think we've seen the move in a lot of ways. We're running at one O three twenty five for the US dollar index, Euro's nudging closer to that one ten yen, you know, one for nine pound broken one point thirty. So I feel as though you could see a little bit further move for the US dollar index. You've got the ten year running at four twenty four point two eight. I just I'll wait and see, Doug. It's so difficult to see any further softness as far as US dollar index.
I'm not going to be surprised.
But what we've seen over the last couple of weeks has been dramatic. It's been a huge sell off, and I'm just observing at all and inhaling all of this current.
Yeah, the circumstances of the play.
A lot of that sell off. The flip side of it seems to be this rally that we have seen in the euro right.
You bet you you know what we were we were nudging just you know, in January, everyone's saying we're going to see sub parody running you know that one o one, one o two sort of handle.
You're now nudging one ten. Who could have believed that? How it's played out in.
That quick six or seven week time frame. So if it breaks one ten, maybe a one eleven is the new handle. And also you can't take your eyes off the en so you know, all of those considerations. The currency markets have been electric over the last you know, six to eight weeks.
We also have a rate decision this week from the Bank of England. What are your expectations there. How do you feel about the UK economy right now?
Well, you've got to be conscious of it.
I'm not expecting a rate cut, expect that tomorrow they're experiencing a soft patch when you know you're determining high inflation elevated risks of a split those on Thursday. So I'm conscious as far as you know. Again, retoric coming from coming from the Governor and from the decision makers.
Governor Bailey mentioned after the February sixth meeting the consumers are more priced conscious and holding back on spending dug and there's a twelve percent probability of a rate cup with the next twenty five basis points there that'll be probably more to like.
You know, the June meetings.
So I'm not expecting anything from a rate cup perspective, but I think again you've just got to listen to the retoric and listen to the announcement and take on board the commentary.
You mentioned the end a moment ago. Expectations are that the VOJ is going to be on hold, but there is certainly a lot of inflationary pressure building in that economy that would push the Bank of Japan to raise rates in the near term here right.
Yeah, you bet, you know, fifty percent probability of a twenty five basis point to be that'll be materialized by June.
They'll stay on hold this week.
As you mentioned, Doug, you've got an acceleration of economic activity, hawkish remarks by the policy makers, and you know that agreement. What's got to be very conscious of that historic pay rise that you've seen, or pay height between companies and unions. So the next tiger is nearly fully priced in for September. If that doesn't, you've got a round about as I said, about an eighty percent probability for the Baja or maybe sixty percent by.
By June. So that seems to be the state of play.
And you know, when you're looking at consumer inflation, dug expectations have jumped.
So yeah, that's the whole storyline there.
We've talked a lot about the tariff policy from the Trump administration and a lot of the volatility that it has created. Certainly when you look at currencies like the Mexican peso, the Canadian dollar, no shortage of volatility. Are there currencies that you're monitoring closely when you look at this trade war?
Oh, you've got to keep I think the you can't take your focus certainly off the Euro and that seems to be the trade. I think that the retail market have been really wrapped in because of the huge move you've seen and the pound. But really I think it's been eurocentric and we're keeping a mind's eye as far as as you said Canada and Mexico when you're looking at the big picture. Canada seventy six percent of its exports do go to the USA and that accounts for
nine eight percent of jr DP. Mexico seventy eight percent of its exports go to the USA and accounts for thirty seven percent of its GDP. So naturally those two currencies are very closely looked at from a cross rate and trade perspective. And that's really a great attraction again to currency trade is because of the I think the big blowouts that you see as far as move.
So what have you been seeing with the Aussie dollar and your neck of the woods.
That's a sleep at the wheel. I can't.
I said it to you the last time we spake, I said, the Aussie pace out, it's still running at sixty three and a half. It's just got you know, it just doesn't seem to it's a lagger at sixty three sixty one, Doug, you know it just we're going to have employment numbers coming out this week. Nothing seems to be shifting the Aussie at all. Maybe we're going to see another rate cut in the not too distant future, which would certainly take more wind out of the sales
from a US Aussie perspective. So I just don't see a lot happening in the short term. You know, we used to be closer to that seventy to seventy five handle and now you're closer to sixty. So it's a great time to visit Australia with a strong US dollar.
Let me tell you, so, give me your best cross right now. Long short, what is it?
Well, it's been over the last couple of weeks has been very much euro so you know one O nine fifty is maybe it's to the tail.
End of it, but maybe you're going to see a one eleven. Let's just see.
As far as commentary coming from the FED this week really tells the story and Yan and Pound. You've got those three markets because of the three central bank meetings in the next thirty six hours. So keep an eye on Pan, keeping oil on Japanes Jinn and certainly don't take your focus away from Europe.
We'll leave it there, Peter, it's always a pleasure. Thank you so much. Peena McGuire. He is the CEO at Trading dot Com Australia, joining us from Sydney. Here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. So, the US equity market declined today on signs investors are reducing their exposure to US risk assets. The latest survey from Bank of America shows investors have cut their holdings of US equities by the most on record,
while at the same time cash levels have jumped. Seems like worries over tariffs and a possible economic slowdown are the big part of the story. Let's take a closer look now with our guest Rob Williams. He is the chief investment strategist at Sage Advisory, joining us from Austin, Texas. Rob, thanks for being with us. Talk to me a little bit about how you see the macro story unfolding right now, particularly given the thread of even more tariffs.
Yeah, I mean that's been the dominant factor. Sort of, the catalyst has been the the insane level of uncertainty, right, and that is certain that's built into the soft data anything survey confidence base will get hit by uncertainty and the tarifs for doing that. But it's also you know, it's just created a lot of fears that growth is
going to be revised down right. We were going to trough out here the second quarter sometime, you know, somewhere around two percent, and now people are going to have to reevaluate that or we're going to hit one percent,
or were going to hit sub one percent. So it's kind of we've gone into the year thinking we were all, you know, very bullish and the growth was going to be so strong that the Fed was not going to be able to cut rates, and now we're we've had to reevaluate that whole thing, and the market has had to reprice for that, and it's and it struggles to find that pricing still.
So what is your sense are we going to have a recession?
You know, our official call has not moved, you know, shifted to recession, but we do believe growth forecasts are going to have to be reduced.
Right.
You'll probably see the FED, you know, go that way tomorrow. Right, So I think you don't have to hit recession to continue to rattle the markets and cause problems here and sort of self feed some more slow down you get you get sub one percent, and I don't know, you still consider that a soft thing. I don't know, but if the plane is certainly going to get closer to
the ground and make us all very uncomfortable. So I think we may get that one percent or sub one percent and just get a lot closer to that negative growth than we thought we were going to get, and that will be enough to uh to keep this risk averse sort of tone in the market and keep the FED on the table for a couple of cuts later in the year.
So at the long end of the curve, I'm seeing a tenure at about four point two eight percent. How far can yields move down at this point on the long end of the curve?
Yeah, I mean they've adjusted quite a bit, you know, from the fourth quarter sort of repricing. And the problem is a FED has got you know, it's a growth problem. But inflation is gonna you know, don't We don't think it's going to pick back up meaningfully at the moment,
but it's certainly stalling out a little bit. So there's less room at the back end of the curve, and probably more room and more value at the front end of the curve because that'll be driven more of what the Fed is going to have to do later this year. So we're back into kind of fair value territory for the longer end of the curve. But you know, investors shouldn't get tied up in the in the real short
term interest rate volatility. Bonds are going to do their job because you're getting you know, four and a half five percent yield in high quality fixed income, So you're gonna get you that's a good basis for returns right there. So don't get too you know, caught up in the week to week, month to month interest rate fair value and volatility of rates.
Right So we're talking about the possibility of weaker growth, okay, But if inflation remains stubborn or perhaps has a push higher, are we talking about a scenario that could resemble stagflation?
I mean, that's certainly been tossed around. You know, we we lean to more of the growth weakness side at the moment. You know, some of the things that's happening. You know, the fiscal constraint hasn't really fully hit the job market, so we expect to see some deterioration there
in the coming months, right. I mean, the government sector's made up a third of the job growth over the last couple of years, and you throw in, you know, certain parts of healthcare and social assistance and it becomes fifty sixty to seventy percent.
So we know the growth story is.
Going to weaken.
Inflation is a little harder because we don't know what terriffs we're going to end up with, we don't know how substitution effects play in there. And really the sticky inflation story has been a service story, right, and that is starting to go the other way because consumer spending in the service sector is being hit by tariffs. So it's sort of there's some elements that will offset the terror story and the inflation story, and for us, it's a little more clear of the growth slowdown story.
So a lot of the European bond markets have been rallying lately, particularly in Germany where it looks as though lawmakers have just passed a landmark package to increase defense spending. Is that where you want to have exposure right now? Fixed income markets that are offshore.
Yeah, both equity and fixed income. I think diversification has been a good move so far, especially on the equity side, and also kind of non dollar emerging market debt has done very well recently.
I think you want to be safe, becaulse.
Spreads are tight and there is some economic risks, so you don't want to reach, you know, quote unquote reach to aggressively for yield, but I think you do want to spread yourself out a little bit more. We see opportunities in sort of non core markets and then big opportunity in the in the mortgage back market here in the US.
Let's assume you're being forced to chase yield in the US right now with a risk of slower growth. How does the high yield market look to you right now?
Yeah?
I mean, you know, you know, yield usually and technical is usually trump spreads, so right, we know spreads are tight, but yields are attractive, So it's still going to draw money in and hopefully keep it somewhat range bound. But we were not buyers of adding high yield at this level. We're looking for ways to spread out, right. Bank loans have have a modestation that their valuations and bank loans
have been a little bit better than high yield. So there's other areas that diversify your high yield and could spread yourself out. Like I said, em debt owns even a little bit preferred stocks, and I think it's a better way than to put all your eggs in one basket.
On the US spread side, what is your predominant concern? Yeah, I mean we kind.
Of hit on the growth aspect of it, and the volatility and the uncertainty sort of feeding into itself and getting much worse. And you know, the worst scenario for investor is that stagflation one you mentioned, right, because then we saw that correlations stocks and bonds are correlated. You know when you have an inflation problem, right, So if and a low growth problem, so that would hit both
the equity and the fixed income side. We're less worried about a growth slowdown on the fixed income side.
That'll help you.
That'll be okay on the fixed income.
Side and hurt the equity side more.
But stagflation scenario, which is not our call right now, that would be most painful for all asset.
Classes, no doubt about that. And at the end of last week we had data from the University of Michigan and a big jump in consumer expectations for and that's got to be problematic for the FED. I would imagine, yeah, that's it is problematic.
They're going to have to if the equity market's looking for, you know, a douvish help or a put to help the equity market. I don't know if they're going to get it, because they do have to balance They're going to have to acknowledge that we're getting weaker growth, and they also have to acknowledge that inflation is stalling a bit here and with tariffs and some of the uncertainty, it could be more of a problem than they thought. So they really got to balance it out here on
the growth and inflation issue. And so I don't I think it's if anything, it'll be okay for bonds and I don't think it's going to be helpful for equities.
You mentioned bank credit a short while ago. Yesterday we had news that Michelle Bowman, the Fed governor has been tapped to serve as vice chair for Supervision. We know that she's been critical of a plan to require banks to hold more capital, so maybe she, if she's confirmed, she brings a lighter touch to regulation. Does that cause you to become a little bit more interested in bank credit?
I mean, look, the banking sector is one of the fundamentally most solid parts of the credit market. So even though spreads are tight, there's opportunity in banks, and anything that's supported by sort of AI infrastructures there's opportunities, and energy, there's opportunities in some of the utilities.
So yeah, we're.
Already like the bank and finance sector in credit, and you know, less regulation only sort of bolsters that near term, right. I don't know if it's a great thing long term, but it certainly will probably help spread short term.
So as long as we're talking about industries, when you look at credit markets, are there industries that you want to avoid at all costs these days?
You know, probably the things that are in the most kind of consumer discretionary areas of the market, the most consumer cyclical areas of the market, and some of the communication areas of the market where spreads are still very tight, and they're more you know, they have a higher beta or attachment to if the consumer retrenches a little bit.
So that's kind of what you kind of you can actually keep a full allocation to investment grade credit and a bond portfolio and be set up to be defensive because you can have a shorter sort of interest rate risk in that credit exposure, and then you can also have lower beta sectors and names. So if you get spread widening, you you know, you get hurt, but you outperform the index a little bit, and then you can you know, use some dry powder to take advantage of wider spreads.
What about the margage I'm sorry, what about them? Let me say that again. What about the mortgage market?
Yeah, I mean that's been a good story for a while now, right, you know, usually you have to give up yield to be in in high quality government backed agency mortgage versus credit. Right and right now you're picking up a little bit of yield. So you're picking up quality and you have good liquidity, and you're actually picking up a little yield. You know, you're you're getting similar yields are like a triple B corporate bond So that's
a great that's a great trade. Right now you have to be somewhat have active management and do your coupon selection and things like that. But it's a great place to be because you're you're literally lowering your risk a little bit and you're adding a little bit of yield and in spreads don't have to tighten. If you go sideways, you're still winning.
So it's so it's okay. So that's been a.
Good place to be in the in the US market for sure, and probably where our largest overweight.
Is before I let you go, Rob, in terms of if you're right and we do get easing from the FED at some point this year, what is the magnitude of that cut?
You know, I think the pricing is two and a half or three kind of area you know, from now to the end of the year. That's certainly feels right to what we see in the growth fundamentals in the job market. That might hit us is two cuts to twenty five basis point cuts. You know, this is all subject to change as data evolves. With that. Right now, the pricing feels fair in kind of that level.
Rob will leave it there, thank you so much. Always a pleasure. Rob Williams. There. He is the chief investment strategist at Sage Advisory. Joining from Austin, Texas 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 two