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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. We're expecting a flurry of economic data points in the week ahead. In the Asia Pacific. The big numbers are due on Friday, when China will report on retail sales and industrial production. Now in the States, Tuesday's report on retail inflation will be a major focus. These numbers should help firm expectations on the timing of the next FED rate cut. Also Tuesday, we'll have a rate decision from
the Reserve Bank of Australia. And in a moment we'll hear from Swati Pondi, Bloomberg ECOGUV reporter in Sydney. But we begin here in the States. Joining me now is Eric Stirner. He is the chief investment officer at a Pollen Wealth Management. Eric, thank you so much for making time to chat with me. Quite up rally that we had in big cap tech Friday, Nasdaq comps a record
closing high twenty one four fifty. Are you continuing to buy into this thesis that you've got to be in big cap tech, particularly given the trade in artificial intelligence?
Yeah? Well, first, thanks for having me, And yeah, I mean it's interesting because so many have predicted that other sectors were going to take the leadership role from these mega techs, But here we are, the mega techs still leading away, and their earnings are just continued just to knock the ball out of the park. And I still think we're in the very early endings of this AI revolution.
And yes, you know some have not the make a touch for their rich valuations, but they continue to warnt them with the strong earnings and strong outlooks, so I think they'll continue to be the leaders in this market.
So I mentioned a moment ago that we have CPI data this week. Over the weekend, we heard from FED Governor Michelle Bowman. She's favoring three cuts this year and she's urging her fellow policymakers to begin making that type of move at the September meeting. What are your expectations right now for the Fed?
Well, what, you know, I believe that the Fed should have cut rates this last meeting. And of course, you know I'm saying that after the non farm non farm payroll report came out on Friday with those major revisions. But we've just even before those those revisions of the Junior Report, we've seen plenty of evidence of the labor
market moderating between elevated continued claims. We still are in this low higher, low fire environment where it's really hard for those unemployed individuals out there trying to get a job. And even the ADB Private Payrolls has really shown how
these restrictive rates are really choking smaller companies. In the last two months, you know, companies with over five hundred employees have added seventy eight thousand jobs, but smaller companies with less than fifty employees they've actually shed twenty nine
thousand jobs. So I think, you guys, the FED needs to be ahead of this because once that the labor market typically is the last economic indicator to fall before any economic downturn, and once that unemployment rate starts ticking higher,
it can quickly gain velocity. So I'm hoping that the FED and people like Waller and Bowman and everyone else gets on board looks at cut rates starting in September, and who knows, maybe we'll see three cuts, but of course that all depends on con how the rest of the inflation reports and labor market reports come in for the rest.
Of the year most definitely, And right now, I think we can agree that inflation remains a little stubborn here at around two seven. At the end of the week, we'll hear from the University of Michigan and one year inflation expectations that will be a keen number. Is there the risk that growth begins to kind of remain luggish
in the face of high inflation? And I know that the term stagflation has been thrown around a little bit lately, But is that a concern that we should kind of focus on a little bit.
It's something that certainly we we factor it into our portfolios and as we determine allocations. It's not my base case, but but certainly, you know, it's a risk that we need to account for. I mean, I think I'm not as concerned. I'm slightly concerned. Just just last month, or in the month of Junior, we saw import prices We're only up zero point one percent, and May import numbers were actually down zero point four percent. So I think what's that that's showing us is that foreign exporters are
eating some of these tariffs. So that's why I don't think we're going to see. Yes, we probably may see a few bumps in inflation between you the next few months, but I don't think it's I think it's going to be transitory in nature because we're in a much different macro environment. We see consumer spending still healthy but moderating, same with retail sales, So that's why I'm not as concerned about stagflation, but certainly not something we can all rule out.
Are you focused squarely on the equity market these days as a place to put capital to work or do you want to be maybe looking at portions of the fixed income markets.
Yeah, we know. We like at all markets, both on the public and private side, and I still think that there's great opportunities in the fixed income markets. I think the sweet spot still is in that short to intermediate range because I think we're still going to We've seen a lot of interest rate volatility between of course the tariff and inflation concerns, but also just our budget deficit concerns, so I think that volatility is still going to exist. So that's why I remain on the short and medium
part of the fixed income curve. And then because I think we are going to have us off landing I really like high yields, the high yield that the credit quality within the high yield market has improved tremendously. I mean pre GFC only forty percent of high yields were rated double B or higher. Today over fifty one percent or rated double B or higher and eighty five percent or B or higher. So I really like the fixed the income market, and then for clients that it's suitable for.
We're also when we put together portfolios, looking at private markets, between private credit, private equity, infrastructure. We know there's a lot of infrastructure spending needed in this country, so we're looking at all areas in the market because I do think volatility will remain elevated. So we're just looking at every asset class to build a more diversified portfolio for our clients these days.
Are you looking at markets offshore as well?
Yes, oh, absolutely. We've always maintained allocations to international well. Of course, that's really helped this year. I mean it's been a great story on the international front. I do think that the US may reassume leadership at least for the second half of this year. You know, of course, the dollar depreciating is going to help companies especially large
cat companies with a lot of revenues overseas. While it's going to be a head wind for European and other countries, and I think there was so much front running on the tariffs that that's as that fades, that's going to draw down on some of the profits from these European exporters.
So while I still will always be an advocate for having international allocation, especially as the world back pedals from globalization, I think that's going to lower the correlation between international markets and domestic markets, which will help build more diverse five portfolios. But because of those reasons, and I think I think the international equities are going to take breather well. On the US side, we've seen a lot of the
cloud of uncertainty start to dissipate. We have the one Beautiful Bill law signed in the place, so everyone knows that what's in that bill, and now we're starting to see trade agreements coming to place between with the EU, Japan, South Korea, and of course the White House administration still has some work to do, but as we remove more uncertainty and deregulation plans are probably on the horizon the second half of this year. I expect the US markets to continue to march higher.
So before I let you go speaking of the US, I want to get your sense of how the American consumer is holding up. At the end of the week, we'll get the reading on July retail sales. How do you think American consumers are doing right now?
At an aggregate level, I think the consumer remains healthy. We've seen the consumer networth increase over fifty trillion since the pandemic. But I do think it's becoming a very bifurcated story, especially with these higher rates. I mean, I think the higher end consumer benefit it more from the stock market appreciation, you know, two straight years of twenty plus percent returns, and the home equity are quickly rising. You know, the low rank consumer might not have as
much exposure there. And just looking at the consumer spending, I mean, fifty percent consumer spending comes from the top ten percent of income high income earners, and thirty years ago that ten percent of high income earners represented thirty six percent. So there is some concern that's becoming a little bit more bifurcated. But at an aggregate level, while we see reports of credit rising and loans rising, the household balance sheets are healthier right now than they were
pre pandemic. In fact, the household debt ratio is at eleven point two percent right now, and the nine years before the pandemic it was actually eleven point eight. So that tells me that, yes, some of the low rane consumers are feeling the strange from higher rates, but overall the consumer does remain healthy and that also helped warrants or feeds into my bullish outlook for the remainder of this year.
Okay, we'll leave it on that bullish outlook with Eric Sterner. Eric, thank you so much. Eric is chief investment officer at a Pollen Wealth Management. Joining here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner. Traders in the Asia Pacific will be watching tomorrow's rate decision from the Reserve Bank of Australia now. Back in July, Governor Michelle Bullock faced some tough questions after the RBA
held its policy rates steady. This time around, she's expected to stay with her cautious stance on the monetary policy outlook. Rebecca Jones is Bloomberg's managing editor for Australia and New Zealand.
We've got an unemployment rate that's not only trending high, but it's also above what our Central Bank has been projecting. So it does look like it's not going to be the curveball of last month. All twenty seven economists that we survey are predicting that we're going to get that twenty five basis pointcut.
That is Bloomberg's Rebecca Jones in Melbourne. For more, we heard from Swati Pondi, Bloomberg's Eco GUV reporter in Sydney. Swati spoke with Bloomberg TV host Avril Honk and Paul Allen on the Asia Trade.
Swati last meeting, we thought this is it, We're easing, but it didn't happen surely this time at a walk.
That's what a lot of people are saying as well. Economists expecting a cut, and one of the reasons is that they think the appetite to shock the market for the RBI is pretty small. Now markets are expecting fully pricing in a cut. Economists are ascribing a seventy five percent chance, seventy five eighty percent chance of a cut. We had inflation data which showed a cooling down in prices from the previous quarter, and unemployment data showed that
the jobless rate is going up a bit. So put together, it does look like the RBA could ease by twenty five basis points in August, but it's likely to be a hawkish cut.
Yeah, I was just gonna ask Swatty in terms of forward guidance, how much is the RBA going to realistically be letting on.
Governor Michelle Bullock has said in the past recent months that the RBA strategy is going to be gradual easing, going to be one of gradual easing, and that is the message that she's likely to read rate tomorrow at her press conference as well. So after tomorrow's cut, if that happens, markets are expecting one more and there's a fifty to fifty chance of a third, So there's not
a lot of easing that's being priced by markets. And it's the case is similar for economists as well, and I think Michelle Burdock is likely to either she will say that we are fine with that pricing or signal that they are fine with that pricing, it's just one or two cuts, or she will further push back against that against that pricing, saying signaling that the RBA is probably at neutral stands at the moment and they would likely to just be on a prolonged pause here.
Well, there was some strong expectation that we would get eating at the last meeting, and as I said, it didn't happen. But that did lead to some criticism of the ABA's communication. Was that warranted.
Yes, the RBAS communication has been a bit whiplashy this year. So when they met for the first time this year in February, they cut interest rates and they sounded quite hawkish, and then in April they sounded really dubbish. Remember this was the meeting just one day before Liberation Day. Uh So there was a lot of uncertainty in the market, there was a lot of volatility, and so they were
rightly extremely dubbish. And then the main meeting happened and they were again hawkish, and then July they did not cut. So it's people are saying that it's really hard to discern their signals. It's hard to understand what they would do.
Uh.
In RBA's defense, they have a new monetary policy board now and they have a new structure where they are voting, so it her defense, Michelle Bullock said that it's very hard for her to pre enpt what the board would do because she doesn't know how which way people would vote,
and that adds to the uncertainty. So I think through the course of this year, maybe next year, as the as votes are revealed, as we get more idea about how they are responding to data, how they are responding to the available information, then probably people will be able to better assess how the RBA would react.
And of course RBA policy so closely linked to the national sport of real estate, can we pretty much time our watch to easing from the RBA to another rise in house prices, which are already and have been in those bleed territories for.
A long time.
It's already happening. It's already happening. House prices are on a tear again and that is a big concern. There was a report from Rey White Group to David said that every single day, twenty four unaffordable houses are being added to the market, which basically is another way of saying that every single day the number of unaffordable housing in the country is rising by twenty four and that is a big number if you put it in perspective of the whole year, right, So we definitely have that
problem of unaffordability. Some economists are saying that is one of the reasons we will not see a huge spike in prices, but definitely easing monetary policy and easier borrowing costs to make housing more attractive for people who can afford it.
All right, Economy reporter Swatty Pandi theres we count down to the ABA decision on Tuesday.
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 it 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