Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner. The latest data on US retail inflation supports the case for another FED rate cut next month. A bit later, we'll be joined by Chris Carey, portfolio manager at the Carnegie Investment Council. We'll begin by looking at today's price section with Mary Nicola, Bloomberg m Live strategist. She joins
us from our studios in Singapore. The bond market is still reacting to President Elect Trump's victory and the implication that we're going to see a lot more in the way of inflationary pressures building more so at the long end and than the short end. And what the backup and yield has done at the same time is strengthened the dollar quite a bit. The Bloomberg Dollar Spot Index was up today by four tenths of one percent, and I think the index has been up for five of
the past six trading days. Can you see any end in sight for this rally that we have seen in the dollar?
Yeah, you know, it's interesting. I was thinking about today what would trigger a reversal in the door, and I think one thing would come is likely. Let's say you get a weak labor market data, that could be one thing that could come through. But for now, it looks like everyone's so focused on the Trump administration, the potential policies tariffs, especially in this part of the world, and
what are the implications from tariffs here. Of course, last time, we still remember what happened in twenty eighteen nineteen and the implications on the CNY and how much it weakened and how much currencies across Asia Asia had weakened as a result. So there's still that overhang and that cloud
that's really overtaken the region of what happens next. And of course, because Trumps, the new Trump administration has come in with a lot of China hawks and fulfilling a lot of the promises, and that's the concern is will they fulfill some of the promises on tariffs.
So you saw today that the CPI print here in the US was pretty much smack in line with market forecast, and I think there's an eighty percent probability that we're going to get a twenty five bases point rate cut in December. But a number of Fed officials today we're saying there's a little bit of uncertainty over how far
the Fed will need to go in lowering rates. I think there's a real concern about overshooting whatever the neutral rate is right now, and perhaps if they were to overshoot, you could get a lot more in the way of inflation.
Yeah.
Absolutely, And of course now we have confirmation of the Republican trifecta, so essentially we know that any sort of passage of tax cuts further fiscal expansion is likely, and I think that's where the Fed is going to try and stay a little bit more cautious, even though, of course, as Jerome Powell said last week, it's not going to affect them in the near term, but it's obviously something that they're going to continually be thinking about, especially because
they're still just trying to get inflation down and it's moving in the right direction, and that's what the Fed officials are talking about, is it's moving in that right direction, but that last mile is just becoming a little bit more difficult.
So let's talk about something that's on the flip side of dollar strength, and that's the end weakness. We've got a one fifty five handle right now. I think we're waiting to hear something from officials in Japan about the degree to which we have seen this rapid weakening in the end, is intervention or risk at this point.
Yeah, the radio silence is quite interesting, but the thing is it's not only focused on the end, so nobody is everyone's been a victim of the dollar strength, right, So I think that there's sympathy because of the fact that everyone's everything is moving in tandem. Where you've got euro ausy, everyone is moving, just they're all weakening. So there's probably a little bit more of a reluctance to
really step in when it's happening across the board. But what it has been interesting is what we've seen from the Chinese authorities, and they're pushing back, trying to show that the CNY is not a one way bet. But I think for Japan it's just going to be a little bit more difficult, especially given how much it's dependent on what's happening in the US.
So you mentioned the CNY, let's talk about China next. The possibility that we're going to see pretty tough tariffs on Chinese imports into the United States. I would imagine that's a big concern if you're an exporter in China. I mean, to what extent is the currency going to begin to reflect it. I think we had a guest yesterday saying that she wouldn't be surprised if we went to seven to twenty seven on the offshore.
Is that possible?
Yeah, I think at this point, especially because we don't know the extent of how big the tariffs could be, I think that is a very very much a possibility of the yuani weakening considerably, and then of course the momentum of that just going even further. But of course for them, for authorities, not only in China but across the region, it's about this about at the pace of the depreciation, and so anytime they see some sort of rapid pace of depreciation, they will step in at least
to smooth out the volatility. We see that all the time in India. We're going to see it in China as well. So I think that's one thing that we should be expecting more in the coming months.
What are some of the other issues that your colleagues on the m Live blogger are highlighting this morning.
Yeah. I think some of the key things that we're focused on is, you know, is this rally in equity market sustainable. We've obviously had a few days of a drawback, but the fact is that there's been a really strong momentum behind equities, really strong momentum behind bitcoin as well. So does that continue? And it's all because of the Trump trades? So how long? What is the longevity of a lot of these Trump trades? And I think that's maybe the key focus of how does this play out?
I think for equity markets, the real test for them is going to be in Vidia next week, because that's going to be the big one yep. And of course it will lay out the Obviously we're so used to in Nvidia having skyrocket amazing results and if they don't deliver, the market gets upset, so they're going to have to exceed expectation.
It was interesting that you mentioned bitcoin there. I can remember years ago people saying that you could use this cryptocurrency as a hedge against inflation. Right, so today we break above ninety three grand Is any part of this trade reflecting concern about rising inflation? Do you think? Is it tracking what the long end of the bond market may be telling us just a bit or is it something completely different?
I don't think so I think a lot of that has to do with the fact that you've got a republican trifecta regulation is not likely to come in on a lot of the crypto side. I think there's just a lot of exuberance around crypto because of the new administration and its potential friendliness towards the sphere more so than an inflation hedge.
Let's talk a little bit about China before I let you go, and the degree to which the equity market is a gauge of positive sentiment. Are you seeing signs now that there is a little bit of upward bias in equity trading on the mainland and might that suggest that maybe the Chinese economy is bottoming and people are starting to feel a little bit better about some of the policies that the government's pushing out.
So to some degree, you know, when Chinese authorities came out with the share buybacks and the encouragement of share buybacks, they've put a floor under equities to some degree. And of course, when you have the national team coming in when they do, when there is a stark sell off, so there has been a bit of a floor in terms of the policies. I think the market has essentially been disappointed overall in how much in terms of we
haven't gotten anything really on pushing consumer demand. We haven't gotten anything in detail about what they will do on the property supply stuff. So I think they're talking about next year we'll get more forceful measures. But you and I know that the market tends to be impatient. So we've got a lot of foreign investors moved back into China, but if it doesn't deliver, I think they'll get impatient again and start pulling out.
Mary, thank you so much for playing along. It's always a pleasure to visit with you. Mary Nicola is Bloomberg m Live strategist joining us from Singapore here on the Daybreak Asia podcast. Joining us now is Chris Carey. He is portfolio manager at Carnegie Investment Council, joining us from Cleveland, Ohio. Chris, thanks for taking time. I'd like to get your take to begin with on what the incoming Trump administration means
from not only markets, but the economy as well. Now, one of the things that's been striking here since the election has been this rally in bitcoin. I think it is up about thirty five percent since the President elects victory. What do you make of of what Trump means right now for financial markets?
I definitely think that the Trump administration is is definitely welcome to financial markets, especially with regards to, you know, some of the the dampening effects we had over the last four years with the parcel Lena Kah and her tenure at the FTC. I think that the negative pressures of the wire in terms of the M and A environment, it's going to be good to be able to see those lifts, especially for for large cap tech. I think
that's definitely a benefit. And then also on the tax side of things too, I think the continuation of you know, the Tax Cut and Jobs Act potentially even lowering earnings sorry not earnings taxes even further for corporations, you know, it's definitely obviously going to support their bottom line. I
think that's reflected in the markets. It's going to be interesting to see, though, you know, kind of with everything when it come to when it comes to that whether you know he's going to actually go through on what actually you know he says.
But is it there some concern about the potential inflationary impact of some of these policies. I'm looking at the behavior of the bond market, just watching yields back up since the election, does that concern you?
Yeah, I mean I think there's definitely some concerns that his policies could be you know, inflationary. But I guess the other side of the coin is that when you're able to stimulate economic growth, you don't have to cut interest rates as much as you might have had to. So I really do think it's only going to be, you know, a matter of time until we see what really is going to be the you know, the reason
why rates rates are arising. If you're looking at inflation, I mean, what eighteen months ago we had nine percent CPI, Now we're down to two point six percent. That's a job well done, as is. I know the Fed targets two percent, but two point six for you know CPI that we've got today is still pretty damn good. I also think with regards to the threast of the tariffs, it's, you know, you say one thing, but is that actually
going to be what he follows through with. I think they're probably going to use more as a negotiating tool than actually seeing these you know, widespread twers being slapped on which would have inflationary effects. But there's definitely fears. You're definitely starting to see that.
Well, you were talking a moment ago or alluding to the fact that we may be seeing less regulatory risk when it comes to big cap tech, But I'm wondering about the financials as well. Could they perhaps benefit from less regulation.
Yeah, definitely, they definitely poist a benefit from a less regulated landscape. The economy still is strong. If we're able to avoid those, you know, significant loan losses, I think that's fantastic as well as you know, encouraging more consolidation within the banking space. You know, large cap banks still traded pretty appealing multiples. I think that the you know, and that's reflected in the chart, and it's not just
banks too. I think that, you know, the whole financial sector of the whole does stand to benefit as a result.
One of the things we were talking about yesterday was this Department of Government Efficiency that the President elect is putting in place. Elon Musk will be working in conjunction with Vivek Ramaswani, and the two are going to be task essentially with looking for ways to cut excess regulation to reduce wasteful expenditures and restructure some federal agencies. That's pretty ambitious. Do you think they're going to make a lot of headway with this?
It is definitely a remarkably ambitious thing that they are undertaking. I think they will probably be able to make some some headway. The fact now, though, is that you know, the federal budget has just ballooned and we're at a point now where interest payments are making up more of the budget than defenses. I think that it's great that we are finally paying attention to the deficit. It's really
going to be the case. Though we've had decades of complaining about a ballooning deficit, someone's going to try and do something about it. If they're successful, that's that's tremendous, and you know, being able to chip away at that. There are tons of inefficiencies and the fact that you know, the government pays you know, insane multiples for for for goods and services that you and I would pay as as business owners or consumers. So I definitely think there
is definitely some fact that can be chopped off. The magnitude of those cuts will only be able to see with time. But you know, as silly as the name is, and I think that it's definitely welcome and I'm going to be very interested to see what we're able to actually pull off, like a lot of the things that have been promised that you know, led to led to Trump getting elected. You know, you can talk the talk, but can you walk the walk.
Yeah, most definitely. Maybe we can talk a little bit about what you're seeing off shore. One of the things that's happening in China is the early, maybe green shoots of some sort of recovery. We know that government has applied a lot of stimulus, but I think there are a number of analysts that agree that the risk right now to a recovery in China is being a bit derailed by the possibility that these threats of tariffs from President elect Trump would be very real, targeting obviously those
Chinese shipments exports from China to the United States. Do you think this has the potential to hold China back in a very big way?
I definitely think so, you know, tarifs or not. You're already starting to see that companies are diversified in their supply chain away from China to begin with, you know, to to other places in Asia. I think that you know, the threat of tariffs will have a material impact on the Chinese economy. I think that unless are right to
be concerned about it. It's one reason another reason why at off and we prefer to favor US stocks VERSU international especially, you know, we only have an exposure to China just because you know, there's such a export driven economy and they rely so much on the United States. I think it's definitely a very big risk and I wouldn't want to be exposed to China at the moment.
So if you're favoring US markets right now, and assuming that we're going to see a continuation of economic growth, maybe a little bit stronger growth given a lot of what we're expecting from the incoming Trump administration, I'm wondering, Chris, whether you want to be more exposed to companies that are particularly economically sensitive in the small cap space.
Yeah, definitely. I mean small cups have definitely had a pretty tough time, you know, prior to the lasts a month or so, based on the fact that interest rates are high. I think that the fact that we're starting to see those cut we just saw that from based on the CPI figures that there was no upside surprise that the chance of another rate cut in December is now twenty percent. I think that's terrific. I think that
definitely provides some upward momentum for small caps. Overall, though, I think that you know, US is the best place in the business, a less place in the world to do business. It's why the vast purity of companies are founded here. We have great regulatory environment, legal environment. All
the best companies are set up here. I think that, especially with Trump coming to into office as well, you know, it's likely that US markets are going to outperform national markets like they did you know in Trump Trade one point zero if you will. We do have the strongest economy. I think history indicates stronger re terms for US aputies, at LEAs relative to their global counterparts.
Since the election, I think we can agree that there's been a pretty powerful rally in risk assets, and I'm curious to get your take as to whether or not there's some vulnerability here that maybe we've come pretty far in a short period of time and a pullback might be in order.
Is that possible? We definitely come pretty far. I would also say, though, that you know, even though we're twenty four to twenty five percent strength, but get strength. You know. It's I think over the last one hundred years, eighteen of those we've had a the S and P has ended up plus thirty percent. You take that down, you know, anything above twenty five, it's a quarter of you know, all years going back that period of time they've been
up there. And when you have the equity market up twenty five percent in a given year, typically the next year returns from there are still you know, plus eight plus ten percent. I definitely think that maybe in the short term we're a little bit overbought, and there definitely is some exuberance, but I think that we are rerating for potentially a much more favorable business environment, so it doesn't really affect our long term positioning in terms of being long US equities.
Chris will leave it there. Thanks for joining us. Chris Carey is portfolio manager at the Carnegie Investment Council, joining from Cleveland, Ohio. Here on the Daybreak Asia. This is Bloomberg day Break Asia, your morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every Day on Apple, Spotify, and anywhere else you get your podcast. Our flagship New York station is also available on your Amazon Alexa devices.
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