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Bloomberg Audio Studios, Podcasts, radio news.

This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the Apec region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the Apec region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

Max Bonduri, Founder and CEO of SGMC Capital, for a closer look at the markets, we seem to have entered a risk off period here, Max, what do you think is the cause of that?

Max Bonduri, Founder and CEO of SGMC Capital, for a closer look at the markets, we seem to have entered a risk off period here, Max, what do you think is the cause of that?

Well, the main one, of course is the geopolitical tensions that we have seen in the Middle East unfortunately, and if you couple that with the fact that we have seen inflation numbers remaining higher than what most people anticipated, and the fact that again these tensions could create the create an appward spiral with respect to further pressures upside pressures to the inflation level, then of course this is why you're seeing quite a bit of risk of that we have experience over the last in days. And you couple that with the fact that we've had a strong start of the year, actually coming off a pretty strong year all of last year. Then it makes sense for global investors to start taking profit reducing risks and taking a look on what is going to happen next.

Well, the main one, of course is the geopolitical tensions that we have seen in the Middle East unfortunately, and if you couple that with the fact that we have seen inflation numbers remaining higher than what most people anticipated, and the fact that again these tensions could create the create an appward spiral with respect to further pressures upside pressures to the inflation level, then of course this is why you're seeing quite a bit of risk of that we have experience over the last in days. And you couple that with the fact that we've had a strong start of the year, actually coming off a pretty strong year all of last year. Then it makes sense for global investors to start taking profit reducing risks and taking a look on what is going to happen next.

Does it confound you a bit that inflation is proving to be as sticky as it is? I mean, and here we had one of the FED presidents last week was Austin Goolsby of Chicago saying that basically the story on inflation is stagnated. I mean, he's basically saying it's stalled.

Does it confound you a bit that inflation is proving to be as sticky as it is? I mean, and here we had one of the FED presidents last week was Austin Goolsby of Chicago saying that basically the story on inflation is stagnated. I mean, he's basically saying it's stalled.

Well, we're not surprised. Every time we spoke last November, last December, we always said that the FED was going to cut two maximum three times, so we were never in the seven to eighth camp. That's because again, going from an eight nine percent inflation to a four or five percent inflation is pretty easy. Going from four to five down to two, which is what the FED wants, that's a lot lot harder. So we're not surprised obviously. Now the main question is are we going to be floating around the current levels gradually declining or are we going to see a further spike because of everything that we have been seeing in terms of tension and just overall demand and supply scenarios, because in the latter case then that could be quite worrisome for markets because you know, some banks out there actually starting to talk about hikes. Now we're not in that camp. We still see about two cuts, like we've said last year, but clearly it's a whole difference scenario would respect to what most investors were expecting in Genuary.

Well, we're not surprised. Every time we spoke last November, last December, we always said that the FED was going to cut two maximum three times, so we were never in the seven to eighth camp. That's because again, going from an eight nine percent inflation to a four or five percent inflation is pretty easy. Going from four to five down to two, which is what the FED wants, that's a lot lot harder. So we're not surprised obviously. Now the main question is are we going to be floating around the current levels gradually declining or are we going to see a further spike because of everything that we have been seeing in terms of tension and just overall demand and supply scenarios, because in the latter case then that could be quite worrisome for markets because you know, some banks out there actually starting to talk about hikes. Now we're not in that camp. We still see about two cuts, like we've said last year, but clearly it's a whole difference scenario would respect to what most investors were expecting in Genuary.

So it's a dual mandate. The labor market is a lagging indicator, and it seems like the Fed is waiting to see you know, what happens with labor. If the Fed waits until it actually weakens, might that be too late? Is there a real risk that it waited too long?

So it's a dual mandate. The labor market is a lagging indicator, and it seems like the Fed is waiting to see you know, what happens with labor. If the Fed waits until it actually weakens, might that be too late? Is there a real risk that it waited too long?

That could be the risk. And to be honest, up until now, the market has managed to cope with the changes in expectations quite swiftly, because if you see again, we went from seven to eight cuts expectations to less than two by the end of the year and markets have fared quite decently up until again last week before the geopolitical tensions. In terms of macroeconomic risks, then yes, of course, if the FED waits too long, that could be a little too much. That is again why we do expect the FED to start doing something and at least again those one or two cuts this year, But a lot is going to be dependent on data. We're seeing growth remaining strong and robust, and that is why you know the FED is not in any particular rush, but they will eventually have to do something in order not to try and break something within the system.

That could be the risk. And to be honest, up until now, the market has managed to cope with the changes in expectations quite swiftly, because if you see again, we went from seven to eight cuts expectations to less than two by the end of the year and markets have fared quite decently up until again last week before the geopolitical tensions. In terms of macroeconomic risks, then yes, of course, if the FED waits too long, that could be a little too much. That is again why we do expect the FED to start doing something and at least again those one or two cuts this year, But a lot is going to be dependent on data. We're seeing growth remaining strong and robust, and that is why you know the FED is not in any particular rush, but they will eventually have to do something in order not to try and break something within the system.

So do you use this opportunity maybe to reduce your exposure to the US just a little bit. Maybe you look at Europe right now, we're talking about a potential rate cut from the ECB. Germany's shows a little sun line of maybe improvement. Do you maybe try to get exposure to underloved markets right now and sell the US.

So do you use this opportunity maybe to reduce your exposure to the US just a little bit. Maybe you look at Europe right now, we're talking about a potential rate cut from the ECB. Germany's shows a little sun line of maybe improvement. Do you maybe try to get exposure to underloved markets right now and sell the US.

Yes, a bit of a rotation makes a lot of sense from a monetary perspective. Like you've correctly mentioned, the ECB is going to be acting sooner. They're going to be more accumulative than the facts, so that could provide a little bit of support of the markets going forward. So a bit of rotation out of the US and into Europe does make a lot of sense, especially because getting out of the US would normally mean taking quite a bit of profits, So that is always something that makes a lot of sense. That being said, the growth remains a lot stronger in the Yes, if you're looking at longer term perspective, the US remains the more attractive market before we do stick with the core exposures within the US, But of course we have been trimming a bit of quite a bit over the last few weeks.

Yes, a bit of a rotation makes a lot of sense from a monetary perspective. Like you've correctly mentioned, the ECB is going to be acting sooner. They're going to be more accumulative than the facts, so that could provide a little bit of support of the markets going forward. So a bit of rotation out of the US and into Europe does make a lot of sense, especially because getting out of the US would normally mean taking quite a bit of profits, So that is always something that makes a lot of sense. That being said, the growth remains a lot stronger in the Yes, if you're looking at longer term perspective, the US remains the more attractive market before we do stick with the core exposures within the US, But of course we have been trimming a bit of quite a bit over the last few weeks.

Jeffries pointed out late last week something interesting that net interest payments for the US corporate sector have actually declined over this tightening cycle. And that's because the large cash balances of the big tech companies, combined with listed corporates refinancing or turning out their debt, and also households did sort of the same thing. Do you see that as a positive That maybe doesn't get as much discussion as it could.

Jeffries pointed out late last week something interesting that net interest payments for the US corporate sector have actually declined over this tightening cycle. And that's because the large cash balances of the big tech companies, combined with listed corporates refinancing or turning out their debt, and also households did sort of the same thing. Do you see that as a positive That maybe doesn't get as much discussion as it could.

Well.

Well.

Corporates in general have been a lot more prepared this time round for the current let's say slow down, even though slow down in growth is not exactly that, but in terms of environment with respect to interest rates, they have been cutting their expenses a lot earlier and a lot more proactively than it was in the past cycles. They've probably learned from the past, and even as you correctly pointed out, from an interest rate payment they have been doing what they had to. Of course, the large tech companies are going to be skewing the results a little bit on one side, but in general, corporates have been acting quite well and that is probably why you seeing growth and in general earnings come out pretty decently and pretty robustly, and that is what is keeping the economy afloat even though rates are remaining high.

Corporates in general have been a lot more prepared this time round for the current let's say slow down, even though slow down in growth is not exactly that, but in terms of environment with respect to interest rates, they have been cutting their expenses a lot earlier and a lot more proactively than it was in the past cycles. They've probably learned from the past, and even as you correctly pointed out, from an interest rate payment they have been doing what they had to. Of course, the large tech companies are going to be skewing the results a little bit on one side, but in general, corporates have been acting quite well and that is probably why you seeing growth and in general earnings come out pretty decently and pretty robustly, and that is what is keeping the economy afloat even though rates are remaining high.

So I'm curious to get your take on what you're seeing in China these days. I mean, we were talking last hour about how disappointing some of the monthly activity data was for the month of March. I'm thinking industrial output and retail sales. Yeah, there's a big question mark over the Chinese consumer. Yes, we know the property market is still in the process of de leveraging. Is there enough that would interest you in putting new money to work in China right now?

So I'm curious to get your take on what you're seeing in China these days. I mean, we were talking last hour about how disappointing some of the monthly activity data was for the month of March. I'm thinking industrial output and retail sales. Yeah, there's a big question mark over the Chinese consumer. Yes, we know the property market is still in the process of de leveraging. Is there enough that would interest you in putting new money to work in China right now?

At the moment, it's difficult to increase exposure to China because once again we know that it's weak and probably a lot of the negatives are out there. But from an economic perspective, we're not particularly worried. Yes, we are obviously in a weak environment and it's likely to remain that way. But what we need again before putting more money to work is having more visibility with respect to the business environment, with respect to the rules and regislations which are going to be taking place in China, and with respect to the overall support for the market that the government and the local authorities are going to be provided, because again this is the real risk when you have very little visibility with respect to what is going to be happening on that front, and that is when you're going to be then finding yourself holding an industry or sub names which on paper look very good and in terms of prospects look very good, but then because of changes again in the rules or legislations or requirements, then all of a sudden that play doesn't look so great.

At the moment, it's difficult to increase exposure to China because once again we know that it's weak and probably a lot of the negatives are out there. But from an economic perspective, we're not particularly worried. Yes, we are obviously in a weak environment and it's likely to remain that way. But what we need again before putting more money to work is having more visibility with respect to the business environment, with respect to the rules and regislations which are going to be taking place in China, and with respect to the overall support for the market that the government and the local authorities are going to be provided, because again this is the real risk when you have very little visibility with respect to what is going to be happening on that front, and that is when you're going to be then finding yourself holding an industry or sub names which on paper look very good and in terms of prospects look very good, but then because of changes again in the rules or legislations or requirements, then all of a sudden that play doesn't look so great.

Yeah, okay, Max, you talked a little bit about rotating into Europe. What would be your top conviction call at the moment?

Yeah, okay, Max, you talked a little bit about rotating into Europe. What would be your top conviction call at the moment?

Well, currently, obviously in the fixed income space, locking in some of the yields makes a lot of sense. Don't go too high on the duration risk, and don't go high actually on credit risk because the credit risk spread is not particularly interesting. But do look to add the fixed income exposure in the four to six years kind of maturity. That for us makes a lot of sense in terms of the equity we do after the current correction remain constructive because as mentioned again, growth and numbers remain decent and robust. But take exposure in a risk adjusted way before We do prefer long calls rather than outright purchases. That's because again you are exposed to the upside. We only have a limited downside should things decline, and do have a hedging mechanism in mind, whether that's called, whether that's oil, depending on how your portfoliosposition should and hopefully not, but should geopolitical tensions rise and.

Well, currently, obviously in the fixed income space, locking in some of the yields makes a lot of sense. Don't go too high on the duration risk, and don't go high actually on credit risk because the credit risk spread is not particularly interesting. But do look to add the fixed income exposure in the four to six years kind of maturity. That for us makes a lot of sense in terms of the equity we do after the current correction remain constructive because as mentioned again, growth and numbers remain decent and robust. But take exposure in a risk adjusted way before We do prefer long calls rather than outright purchases. That's because again you are exposed to the upside. We only have a limited downside should things decline, and do have a hedging mechanism in mind, whether that's called, whether that's oil, depending on how your portfoliosposition should and hopefully not, but should geopolitical tensions rise and.

Very quickly, Max thirty seconds walk about economics. How are things in the Lion City right now? How are they doing.

Very quickly, Max thirty seconds walk about economics. How are things in the Lion City right now? How are they doing.

Well?

Well?

They're doing well, And in terms of perspectives given the change in leaderships, there's a lot of optimism going around against Singapore with always a safe harbor in times of uncertain and that is likely to prove true again going forward given the environment that we're living.

They're doing well, And in terms of perspectives given the change in leaderships, there's a lot of optimism going around against Singapore with always a safe harbor in times of uncertain and that is likely to prove true again going forward given the environment that we're living.

Max, thank you very much for joining us. Max Bonduri, founder and CEO of SGMC Capital, chi Asian Equities portfolio manager at Rebecco. So Vicky one interesting idea here global supply chains are always in flux, and at the moment, moving out of China into other parts of the Asia Pacific, is that an area perhaps that can be exploited.

Max, thank you very much for joining us. Max Bonduri, founder and CEO of SGMC Capital, chi Asian Equities portfolio manager at Rebecco. So Vicky one interesting idea here global supply chains are always in flux, and at the moment, moving out of China into other parts of the Asia Pacific, is that an area perhaps that can be exploited.

If so, Rare, good morning, Brian Senas to be here in the studio. Yeah, so this is really what we observe, and I think a lot of stocks have done really well in Asia outside China in the manufacturing space. What we are noticing is that as manufacturing move out of China, the supply chain further relocates. We noticed that there is actually capacity shortage for manufacturing outside China. So in China there is oversupply, but outside China there is not enough supply. So this benefits a lot of companies in the manufacturing whether there's light manufacturing or heavy manufacturing space within Asia Pacific. And we're actually seeing very good share price performance. But this is obviously not a one thematic that people have grouped together. So compared to the attention that people have been paying on AI and on semiconductor supply chain relocating, I think this would be a very important opportunity for people to not to miss that there is so much a growing manufacturing power within Asia Pacific that is not to be overlooked and obviously very good out of opportunities for investers.

If so, Rare, good morning, Brian Senas to be here in the studio. Yeah, so this is really what we observe, and I think a lot of stocks have done really well in Asia outside China in the manufacturing space. What we are noticing is that as manufacturing move out of China, the supply chain further relocates. We noticed that there is actually capacity shortage for manufacturing outside China. So in China there is oversupply, but outside China there is not enough supply. So this benefits a lot of companies in the manufacturing whether there's light manufacturing or heavy manufacturing space within Asia Pacific. And we're actually seeing very good share price performance. But this is obviously not a one thematic that people have grouped together. So compared to the attention that people have been paying on AI and on semiconductor supply chain relocating, I think this would be a very important opportunity for people to not to miss that there is so much a growing manufacturing power within Asia Pacific that is not to be overlooked and obviously very good out of opportunities for investers.

So is that South Asia aussion and I'm thinking Vietnam, but I'm also thinking Indonesia. Are there opportunities for more manufacturing and Indonesia absolutely so.

So is that South Asia aussion and I'm thinking Vietnam, but I'm also thinking Indonesia. Are there opportunities for more manufacturing and Indonesia absolutely so.

There has been this very interesting data that came out last week that talks about FDI growth in Indonesia for electrical, industrial and machinery segments. So that number stood at thirty five percent year on air, and I think these kind of numbers typically don't get the headlines, but Indonesia as a manufacturing upgrade destination is definitely firmly in play. Also, I think not to forget that actually not large in terms of marketcap, but in terms of significance for Korea and Taiwan, there are still very interesting manufacturing opportunities and actually quite a lot of stocks have done really well in this space and people just probably paid less attention to them. And I think going forward, as it is becoming more of a consensus for more industries to start relocating outside the China supply chain, there would be opportunity.

There has been this very interesting data that came out last week that talks about FDI growth in Indonesia for electrical, industrial and machinery segments. So that number stood at thirty five percent year on air, and I think these kind of numbers typically don't get the headlines, but Indonesia as a manufacturing upgrade destination is definitely firmly in play. Also, I think not to forget that actually not large in terms of marketcap, but in terms of significance for Korea and Taiwan, there are still very interesting manufacturing opportunities and actually quite a lot of stocks have done really well in this space and people just probably paid less attention to them. And I think going forward, as it is becoming more of a consensus for more industries to start relocating outside the China supply chain, there would be opportunity.

We've always had a Korea discount for various reasons. Some geopolitical apparently you think that's changing. Now do you think why why is Korea undervalued at the moment.

We've always had a Korea discount for various reasons. Some geopolitical apparently you think that's changing. Now do you think why why is Korea undervalued at the moment.

That's a great question, Brian, so I think if we do nothing, just keep going the way it did, the career discount is highly unlikely to narrow. So what market has noticed is obviously this value of program in Korea, and the career market has responded with great enthusiasm into the announcement of the news because people recognize that in Japan we have seen this before. But knowing that in Japan this it took about eight years before improving corporate governance and shareholder returns become a sort of consensus in the Japanese corporate world, it's going to take a long time in Korem before this actually becomes a real consensus. This has been a top down drive in Korea, and what we're seeing is when we speak to companies, there is a very large difference between the management that are open and actively thinking about improving shareholder returns by taking concrete actions to increase payout or improve let's say, the corporate return profiles, whereas there are companies that basically don't really care about returns, and if you ask them, they would say, oh, we have our CAPEX programs, we're going to invest in one, two, three, and there's no change to us. So it's going to make a huge difference for investors whether you're buying those companies that are open to change and well show concrete actions versus those that are highly well stable and not changing their attitude. And we have seen that divergence in the Japanese stock market very very obviously, so I would expect the same to happen in Korea. And with the hype kind of going off a little bit from the from the stock market, I think there is great opportunity to.

That's a great question, Brian, so I think if we do nothing, just keep going the way it did, the career discount is highly unlikely to narrow. So what market has noticed is obviously this value of program in Korea, and the career market has responded with great enthusiasm into the announcement of the news because people recognize that in Japan we have seen this before. But knowing that in Japan this it took about eight years before improving corporate governance and shareholder returns become a sort of consensus in the Japanese corporate world, it's going to take a long time in Korem before this actually becomes a real consensus. This has been a top down drive in Korea, and what we're seeing is when we speak to companies, there is a very large difference between the management that are open and actively thinking about improving shareholder returns by taking concrete actions to increase payout or improve let's say, the corporate return profiles, whereas there are companies that basically don't really care about returns, and if you ask them, they would say, oh, we have our CAPEX programs, we're going to invest in one, two, three, and there's no change to us. So it's going to make a huge difference for investors whether you're buying those companies that are open to change and well show concrete actions versus those that are highly well stable and not changing their attitude. And we have seen that divergence in the Japanese stock market very very obviously, so I would expect the same to happen in Korea. And with the hype kind of going off a little bit from the from the stock market, I think there is great opportunity to.

Make you mentioned Japan, Vicky. I'm wondering if Japan in any way benefits from the move to diversify out of China, and if so, how does that manifest.

Make you mentioned Japan, Vicky. I'm wondering if Japan in any way benefits from the move to diversify out of China, and if so, how does that manifest.

It is definitely happening. So Japan has tremendous technology reserves in many of the manufacturing industries. Uh, it's all pretty well known. So there's there's machinery, there's obviously semiconductor supply chain. So I was in Japan in February this year, and there's obviously tremendous in susiasm for TSMC's new fab in Koshue, and a lot of related suppliers in Japan have responded very positively to be able to supply TSMC and this new fab from within Japan. So the whole supply chain is very enthusiastic about this development. And there's definitely a lot of investments going in and there is marketing share to be taken, so Japan is definitely one of these destinations.

It is definitely happening. So Japan has tremendous technology reserves in many of the manufacturing industries. Uh, it's all pretty well known. So there's there's machinery, there's obviously semiconductor supply chain. So I was in Japan in February this year, and there's obviously tremendous in susiasm for TSMC's new fab in Koshue, and a lot of related suppliers in Japan have responded very positively to be able to supply TSMC and this new fab from within Japan. So the whole supply chain is very enthusiastic about this development. And there's definitely a lot of investments going in and there is marketing share to be taken, so Japan is definitely one of these destinations.

All right, Vicky, thanks very much. We note for our audience that you're a little cautious on AI and we'll save that for our next discussion, which hopefully won't be too long. Vicki Chi with us age Equities portfolio manager at Rubeco Dana Doria Cocio invest Net to take a closer look at the market. It's always good on a Monday morning to have kind of a lofty discussion data. We can also get to the news flow as well, but I'll start off with how the Fed looks at its mandate, because there's been a lot of discussion of this of late. Of course, many say that the Fed waited too long to start raising interest rates, So one of the interesting questions now is will it also wait too long to start cutting to avoid a downturn or will it act early with the feeling of Christians. I'm curious about your tike.

All right, Vicky, thanks very much. We note for our audience that you're a little cautious on AI and we'll save that for our next discussion, which hopefully won't be too long. Vicki Chi with us age Equities portfolio manager at Rubeco Dana Doria Cocio invest Net to take a closer look at the market. It's always good on a Monday morning to have kind of a lofty discussion data. We can also get to the news flow as well, but I'll start off with how the Fed looks at its mandate, because there's been a lot of discussion of this of late. Of course, many say that the Fed waited too long to start raising interest rates, So one of the interesting questions now is will it also wait too long to start cutting to avoid a downturn or will it act early with the feeling of Christians. I'm curious about your tike.

Well, I think there's more danger of them waiting too long than the other way around. I think the FED is going to be more concerned about letting inflation tick up. Obviously they can't control what's going on in the global arena and causing oil prices energy to spike, you know, which is giving them some consternation around inflation. You do see wages kind of holding setting and you know growth there going down, so I think you know they're not You do hear people asking, hey, are they actually going to hike rates.

Well, I think there's more danger of them waiting too long than the other way around. I think the FED is going to be more concerned about letting inflation tick up. Obviously they can't control what's going on in the global arena and causing oil prices energy to spike, you know, which is giving them some consternation around inflation. You do see wages kind of holding setting and you know growth there going down, so I think you know they're not You do hear people asking, hey, are they actually going to hike rates.

I don't see that. I can't imagine that they really want to do that.

I don't see that. I can't imagine that they really want to do that.

I think that would demonstrate, you know, kind of a failure in the policy.

I think that would demonstrate, you know, kind of a failure in the policy.

But I do think they'll hold.

But I do think they'll hold.

For longer, and you know that may well mean that we court recession more than you know, higher inflation.

For longer, and you know that may well mean that we court recession more than you know, higher inflation.

Yeah, the notion of a hike, that's something that John Williams brought up last week, which I thought was interesting as well. And then you heard from Gules be Austin Goolsby, the head of the Chicago Fed last Friday, who was saying essentially that progress on inflation has stalled. That may have been a bit worries. So I guess we'll get some clarity this week with the PCE data for the for the month of March. Where do you see this fight in inflation right now? Do you personally think there is upside risk?

Yeah, the notion of a hike, that's something that John Williams brought up last week, which I thought was interesting as well. And then you heard from Gules be Austin Goolsby, the head of the Chicago Fed last Friday, who was saying essentially that progress on inflation has stalled. That may have been a bit worries. So I guess we'll get some clarity this week with the PCE data for the for the month of March. Where do you see this fight in inflation right now? Do you personally think there is upside risk?

Well, yes, I do.

Well, yes, I do.

I mean, just just always being a student of kind of what's happened historically, right and trying to put the context around it.

I mean, just just always being a student of kind of what's happened historically, right and trying to put the context around it.

I mean, you know, it did obviously.

I mean, you know, it did obviously.

We had inflation increased very fast and abruptly and then you know, kind of calmed down in the same way. But we know historically that inflation doesn't tend to get tamped down. It can kind of rear back up once it's once it's spiked. So I do think there's a danger that, you know, and especially too, as I say, we look at energy prices, right, so obviously commodities.

We had inflation increased very fast and abruptly and then you know, kind of calmed down in the same way. But we know historically that inflation doesn't tend to get tamped down. It can kind of rear back up once it's once it's spiked. So I do think there's a danger that, you know, and especially too, as I say, we look at energy prices, right, so obviously commodities.

You know, experiencing a spike. It's exogenous due to what's going on, you know, in war zones, and the.

You know, experiencing a spike. It's exogenous due to what's going on, you know, in war zones, and the.

Federally has no control over that obviously, right, they have control over the rate.

Federally has no control over that obviously, right, they have control over the rate.

So I do think there's you know, the.

So I do think there's you know, the.

Possibility that inflation remains stickier than we want it to and two percent, I think was always kind of a difficult target. Everybody sort of put that in the back of their heads. I think, you know, January, we're at a point where we're expecting six rate decreases this year, which I always thought was just kind of the market didn't seem to have a good rationalization for that though, because you were expecting a swoft landing and you are also expecting you know, rate costs.

Possibility that inflation remains stickier than we want it to and two percent, I think was always kind of a difficult target. Everybody sort of put that in the back of their heads. I think, you know, January, we're at a point where we're expecting six rate decreases this year, which I always thought was just kind of the market didn't seem to have a good rationalization for that though, because you were expecting a swoft landing and you are also expecting you know, rate costs.

Yeah, that's why I think you've had this development of these alternative scenarios that Ben Bernanki has recommended to the Bank of England, and it's because the FED has found itself on the back foot because it's putting out a sort of view that is based on one idea. And what Bernanki is saying is that since no one really knows what the economy will do, why not give investors scenarios and what you might do in those cases. Now I understand that, but I wonder if it's really all that different from saying you're data dependent.

Yeah, that's why I think you've had this development of these alternative scenarios that Ben Bernanki has recommended to the Bank of England, and it's because the FED has found itself on the back foot because it's putting out a sort of view that is based on one idea. And what Bernanki is saying is that since no one really knows what the economy will do, why not give investors scenarios and what you might do in those cases. Now I understand that, but I wonder if it's really all that different from saying you're data dependent.

Yeah, I think there's always attempts to shed light and you know, be as transparent as possible, will at the same time not actually trying to predict the future, right, So I mean, how many different ways can we give a different complexion on this question for the market to digest well at the same time saying exactly what you just said, We're going to be data dependent, We're going to be watching. You know, the employment picture really empowers the FED, I think, to hold I don't. I just don't see a good reason that they need to decrease. Obviously, it's not that there are no reasons.

Yeah, I think there's always attempts to shed light and you know, be as transparent as possible, will at the same time not actually trying to predict the future, right, So I mean, how many different ways can we give a different complexion on this question for the market to digest well at the same time saying exactly what you just said, We're going to be data dependent, We're going to be watching. You know, the employment picture really empowers the FED, I think, to hold I don't. I just don't see a good reason that they need to decrease. Obviously, it's not that there are no reasons.

Right.

Right.

We have a deficit and a debt problem that you know, certainly the government would love to see us, you know, maybe reduce that burden by lowering rates. You know, we have obviously politics an election year, not just in the US but globally, but certainly here. You know, the FED can't win when it comes to that, right, regardless of what direction they go, they'll be attacked from one side.

We have a deficit and a debt problem that you know, certainly the government would love to see us, you know, maybe reduce that burden by lowering rates. You know, we have obviously politics an election year, not just in the US but globally, but certainly here. You know, the FED can't win when it comes to that, right, regardless of what direction they go, they'll be attacked from one side.

Or the other.

Or the other.

So so really they do have these other pressure But at the end of the day, you started this conversation in the right place.

So so really they do have these other pressure But at the end of the day, you started this conversation in the right place.

What is their mandate? Their mandate isn't employment and inflation.

What is their mandate? Their mandate isn't employment and inflation.

Well, employment looks strong and inflation is not getting back down to this two percent target. It really didn't ever look great to get down to two percent, and now it's looking like it could be stickier. So you know they're going to be data dependent, but I think it's asymmetric.

Well, employment looks strong and inflation is not getting back down to this two percent target. It really didn't ever look great to get down to two percent, and now it's looking like it could be stickier. So you know they're going to be data dependent, but I think it's asymmetric.

They'll lean towards staying higher for longer.

They'll lean towards staying higher for longer.

Hey, data, Before we let you go, I think we have to talk a little bit about earnings. I mean, it's going to be a thick week this week, one hundred and seventy eight companies within the S and P report, Big tech is going to dominate. Do you think we're going to be disappointed here?

Hey, data, Before we let you go, I think we have to talk a little bit about earnings. I mean, it's going to be a thick week this week, one hundred and seventy eight companies within the S and P report, Big tech is going to dominate. Do you think we're going to be disappointed here?

I think it's hard.

I think it's hard.

It's really hard not to be disappointed when you're priced to perfection.

It's really hard not to be disappointed when you're priced to perfection.

And I'm sure I know you hear that. You know it's not revelatory.

And I'm sure I know you hear that. You know it's not revelatory.

But I also think the other thing, of course, hovering over all this has been the AI boom.

But I also think the other thing, of course, hovering over all this has been the AI boom.

And you know, my opinion on.

And you know, my opinion on.

This, and I've shared a lot, is that these makers of AI have been doing really well. But what's starting to surface is that the users of AI are going to need a little bit more time. You know that time is going to be measured in years, not quarters for actual productivity increases. So while the makers, you know, at some point their prospects start to have to be spread out a little bit too, right, because just look around you to talk to corporate players, everybody's sort of looking at each other saying, yeah, you know, we're looking at it, we're exploring it, we're trying to see how AI can help us. You're not hearing a lot of great stories about the users of AI suddenly becoming more productive or figuring out how to best use it.

This, and I've shared a lot, is that these makers of AI have been doing really well. But what's starting to surface is that the users of AI are going to need a little bit more time. You know that time is going to be measured in years, not quarters for actual productivity increases. So while the makers, you know, at some point their prospects start to have to be spread out a little bit too, right, because just look around you to talk to corporate players, everybody's sort of looking at each other saying, yeah, you know, we're looking at it, we're exploring it, we're trying to see how AI can help us. You're not hearing a lot of great stories about the users of AI suddenly becoming more productive or figuring out how to best use it.

So we've had this pretty strong pullback, and earnings really has been a part of it, because, as you say, the bar has been set pretty high, but now you've got really you've got a six percent pullback. So we are up ten percent in the first quarter, So that puts us up four percent over about the first four months of the year for the S and P five hundred. Does that still feel like lofty valuations and that we've gone too far too fast? Annualize that would be around twelve percent gain for the year, right, And that's not all that far from normal, is it?

So we've had this pretty strong pullback, and earnings really has been a part of it, because, as you say, the bar has been set pretty high, but now you've got really you've got a six percent pullback. So we are up ten percent in the first quarter, So that puts us up four percent over about the first four months of the year for the S and P five hundred. Does that still feel like lofty valuations and that we've gone too far too fast? Annualize that would be around twelve percent gain for the year, right, And that's not all that far from normal, is it?

No? It isn't. And I think your your points are valid.

No? It isn't. And I think your your points are valid.

And if we think that multiples increased dramatically on the back of the AI story, and then we have some you know, recognition that that story is going to take much longer to play out, which is with sort of where I stand on it. You know, I do think it's reasonable to think that the market progresses at maybe a little bit steadier of a pace and not you know, this jump up. All that being said, it's you know, one fantastic uh return, a series of returns from one of these AI makers. I think I think this market, you know, would eat it up and you'll see an immediate term kind of positive impact because there is the promise, right, it's just when does that promise kind of come through? But you know, with with the volatility that we'll be coming this year, likely because of the election. And you know that's not to say whoever wins, right, the returns generally speaking don't correlate that well. But volatility, you know, volatility does beget volatility. So with what we have ahead and annualizing that for and saying, hey, twelve, that wouldn't be a bad year from my perspective.

And if we think that multiples increased dramatically on the back of the AI story, and then we have some you know, recognition that that story is going to take much longer to play out, which is with sort of where I stand on it. You know, I do think it's reasonable to think that the market progresses at maybe a little bit steadier of a pace and not you know, this jump up. All that being said, it's you know, one fantastic uh return, a series of returns from one of these AI makers. I think I think this market, you know, would eat it up and you'll see an immediate term kind of positive impact because there is the promise, right, it's just when does that promise kind of come through? But you know, with with the volatility that we'll be coming this year, likely because of the election. And you know that's not to say whoever wins, right, the returns generally speaking don't correlate that well. But volatility, you know, volatility does beget volatility. So with what we have ahead and annualizing that for and saying, hey, twelve, that wouldn't be a bad year from my perspective.

Well, speaking of AI darlings, in Vidia was hard hit last week. I think the stock was down about thirteen and a half percent for the week. We don't get earnings from in Nvidia for another month. I think the trading desk over at Goldmann, Sachs was describing in Vidia as the most important stock on planet Earth. Are you thinking maybe that this has been a significant break here in the stock or maybe it's a buying opportunity in the view of many that are still disciples of the AI trade.

Well, speaking of AI darlings, in Vidia was hard hit last week. I think the stock was down about thirteen and a half percent for the week. We don't get earnings from in Nvidia for another month. I think the trading desk over at Goldmann, Sachs was describing in Vidia as the most important stock on planet Earth. Are you thinking maybe that this has been a significant break here in the stock or maybe it's a buying opportunity in the view of many that are still disciples of the AI trade.

I think AI is hard for folks to model, and so these prices you're seeing in these companies that produce AI components are you know, a lot of it is based on very forward looking terminal value. These are the growthiest growth and so that means that the models, you know, when there's any kind of volatility in the expectation that it almost gets I won't say they're a lotto ticket. I think you have to go a little bit into smaller cap range or what have you. But there's a flavor of that because the models are not who's modeling AI used.

I think AI is hard for folks to model, and so these prices you're seeing in these companies that produce AI components are you know, a lot of it is based on very forward looking terminal value. These are the growthiest growth and so that means that the models, you know, when there's any kind of volatility in the expectation that it almost gets I won't say they're a lotto ticket. I think you have to go a little bit into smaller cap range or what have you. But there's a flavor of that because the models are not who's modeling AI used.

Yeah, that's a good question. Dana, Thanks so much, Dana Doria, co c Iowa Vestnet.

Yeah, that's a good question. Dana, Thanks so much, Dana Doria, co c Iowa Vestnet.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.