Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner. 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.

Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner. 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.

Let's turn out to Homan Lee, senior macro strategist at Lombard Odier with a little bit of a closer look here at China. So you're neutral on the market with kind of a cautious view.

Let's turn out to Homan Lee, senior macro strategist at Lombard Odier with a little bit of a closer look here at China. So you're neutral on the market with kind of a cautious view.

Why, well, I guess the economy has, especially the manufacturing sector has done pretty well due to robust demand overseas and this increasing success at getting more market share overseas. So the combination of this will definitely create a bit of offside for twenty twenty four, so you know, the growth will be closer to five percent target. But can the economy do better? You know next year and the year after. We still have some structural issues that have not been resolved. The real estate sector continues to struggle despite you know, many easing measures from basing. It's also pretty clear that with their main asset class struggling, the domestic consumers are still relatively cautious. If you look at the bank loans for instance, four households, it's actually pretty weak.

Why, well, I guess the economy has, especially the manufacturing sector has done pretty well due to robust demand overseas and this increasing success at getting more market share overseas. So the combination of this will definitely create a bit of offside for twenty twenty four, so you know, the growth will be closer to five percent target. But can the economy do better? You know next year and the year after. We still have some structural issues that have not been resolved. The real estate sector continues to struggle despite you know, many easing measures from basing. It's also pretty clear that with their main asset class struggling, the domestic consumers are still relatively cautious. If you look at the bank loans for instance, four households, it's actually pretty weak.

It was pretty weak in May.

It was pretty weak in May.

At the sentiment indicators is still pretty depressed, so and the prices.

At the sentiment indicators is still pretty depressed, so and the prices.

Are still pretty low.

Are still pretty low.

So the domestic you know, manufacturers and supplies are still struggling to get the secure margins for their own businesses. And the share of loss making business for the industrial sectors about a third. So in this kind of combination, it's very difficult to get the enthusiasm up well the medium to long term. But it's also true that the leadership is aware of this situation, so in.

So the domestic you know, manufacturers and supplies are still struggling to get the secure margins for their own businesses. And the share of loss making business for the industrial sectors about a third. So in this kind of combination, it's very difficult to get the enthusiasm up well the medium to long term. But it's also true that the leadership is aware of this situation, so in.

July it's possible to try to deliver.

July it's possible to try to deliver.

Some new reform measures for the real estate. So you know, these two factors basically, you know, cancel each other out, and that's the reason why we are still comfortable to maintain a neutral position on the market.

Some new reform measures for the real estate. So you know, these two factors basically, you know, cancel each other out, and that's the reason why we are still comfortable to maintain a neutral position on the market.

That's an interesting point. It's kind of consistent with what the government is saying about really making sure that the manufacturing economy is doing well so that you know, the real estate segment can heal if that's the right word to use. I guess it's fair to say that China has really perfected the manufacturing economy. I mean, the efficiency, the modernization, automation, robotics, everything that's being deployed right now and has been for a number of years is really kind of you know, unmatched globally. But are you concerned now that we're talking about trade wars potentially in geopolitical risk that may be shifting slightly?

That's an interesting point. It's kind of consistent with what the government is saying about really making sure that the manufacturing economy is doing well so that you know, the real estate segment can heal if that's the right word to use. I guess it's fair to say that China has really perfected the manufacturing economy. I mean, the efficiency, the modernization, automation, robotics, everything that's being deployed right now and has been for a number of years is really kind of you know, unmatched globally. But are you concerned now that we're talking about trade wars potentially in geopolitical risk that may be shifting slightly?

That's exactly right. The part of this development is actually not sustainable in the long run because it will you know, definitely intensify frictions with the trading partners. We already had you know, reaction from European Union for the EV sector. But that dispute, even though the recent announcement was a bit mild and I will expect it so uh, that's that was slightly encouraging. But the thing is that dispute will spread to the other sectors as well, like solar panels, you know, wind turbines, semiconductors and uh and the other sectors.

That's exactly right. The part of this development is actually not sustainable in the long run because it will you know, definitely intensify frictions with the trading partners. We already had you know, reaction from European Union for the EV sector. But that dispute, even though the recent announcement was a bit mild and I will expect it so uh, that's that was slightly encouraging. But the thing is that dispute will spread to the other sectors as well, like solar panels, you know, wind turbines, semiconductors and uh and the other sectors.

So and and you know, you you're aware that you know.

So and and you know, you you're aware that you know.

Canada is beginning to think about the e V related tariff. UH. You know, Japan is now beginning to increase restrictions for a trade related to maybe you know, Russia and Ukraine. So so these issues are as set to worsen. So the fact that China is genny gain in the market.

Canada is beginning to think about the e V related tariff. UH. You know, Japan is now beginning to increase restrictions for a trade related to maybe you know, Russia and Ukraine. So so these issues are as set to worsen. So the fact that China is genny gain in the market.

Share is partly in the near term.

Share is partly in the near term.

But that tension is definitely there and it will be it will be even more.

But that tension is definitely there and it will be it will be even more.

Difficult for the exporters are going forward the medium to long term.

Difficult for the exporters are going forward the medium to long term.

It's the first time in a long time that China seems to be a little bit more concerned about this than Europe and the United States. I mean, you look at the speech from Chinese Premier Li Chiang yesterday at the World Economic Forum, and basically he's talking about the regressive actions of decoupling and that there would be negative consequences. He thinks that it would drag the world into a destructive spiral. You're not hearing Europe and the United States talk about, you know, losing a bit of contact with China as being that big of a thing on the global front, but China is. Does that show you that they're quite significantly nervous about this.

It's the first time in a long time that China seems to be a little bit more concerned about this than Europe and the United States. I mean, you look at the speech from Chinese Premier Li Chiang yesterday at the World Economic Forum, and basically he's talking about the regressive actions of decoupling and that there would be negative consequences. He thinks that it would drag the world into a destructive spiral. You're not hearing Europe and the United States talk about, you know, losing a bit of contact with China as being that big of a thing on the global front, but China is. Does that show you that they're quite significantly nervous about this.

This decoupling, the decompanying is real, and it's already happening, and it'd be very difficult to reverse it given the political sensitivities and different capitals around the world, you know, including Beijing. So the loss of trust here in the system is really sad thing to watch, and you will definitely reduce efficiency at the global economic level, at the global level going forward.

This decoupling, the decompanying is real, and it's already happening, and it'd be very difficult to reverse it given the political sensitivities and different capitals around the world, you know, including Beijing. So the loss of trust here in the system is really sad thing to watch, and you will definitely reduce efficiency at the global economic level, at the global level going forward.

So it's really you know, a setback, you know for a long term outlook.

So it's really you know, a setback, you know for a long term outlook.

But you're absolutely right, you know this, Uh, you know, loss of trust is going to stay.

But you're absolutely right, you know this, Uh, you know, loss of trust is going to stay.

And you know, especially with the you know, the political you know event coming up in the US.

And you know, especially with the you know, the political you know event coming up in the US.

You know the dialogue will likely worse. And and you know, as far as the Chinese exporters outlook is concerned, uh, you know, they're doing well.

You know the dialogue will likely worse. And and you know, as far as the Chinese exporters outlook is concerned, uh, you know, they're doing well.

Uh.

Uh.

And and you know part of this is in fact, you.

And and you know part of this is in fact, you.

Know, the actual innovation happening in China, but the reaction to it will will definitely get stronger.

Know, the actual innovation happening in China, but the reaction to it will will definitely get stronger.

So we know that because I'm sorry home and the challenges in China typically create rippel effects across the apex. You're in South Korea, can you give us a sense of how you're seeing what China is going through kind of resonate through the South Korean economy.

So we know that because I'm sorry home and the challenges in China typically create rippel effects across the apex. You're in South Korea, can you give us a sense of how you're seeing what China is going through kind of resonate through the South Korean economy.

So for sure, one of the successes of you know, the factors that drove the success of South Korea in past twenty years was the globalization and the collaboration with China. So the fact that the coupling is happening, you will create some ramifications for.

So for sure, one of the successes of you know, the factors that drove the success of South Korea in past twenty years was the globalization and the collaboration with China. So the fact that the coupling is happening, you will create some ramifications for.

The business sector. Here.

The business sector. Here.

For instance, if you think think about the memory sector in South Korea, a huge chunk of the instaal capacity is still in China, and you know, the leading manufacturers need to figure out how to you know, manage that the exposure going forward, especially because they're not beginning to build facilities in the US under the US conditions. So these are the issues that they need to deal with. But at the same time, some businesses, you know, feeling a bit more optimistic because you know, there is this expectation that may be the greater restrictions from the US in Europe could create opportunities. But South Korea a battery sector, for instance, the leading battery manufacturers in South Korea, they were losing market share to China, so potentially this new tariff that's coming up could open the door for them. So it cuts both ways. But definitely the navigation devigating this is not going to be easy so.

For instance, if you think think about the memory sector in South Korea, a huge chunk of the instaal capacity is still in China, and you know, the leading manufacturers need to figure out how to you know, manage that the exposure going forward, especially because they're not beginning to build facilities in the US under the US conditions. So these are the issues that they need to deal with. But at the same time, some businesses, you know, feeling a bit more optimistic because you know, there is this expectation that may be the greater restrictions from the US in Europe could create opportunities. But South Korea a battery sector, for instance, the leading battery manufacturers in South Korea, they were losing market share to China, so potentially this new tariff that's coming up could open the door for them. So it cuts both ways. But definitely the navigation devigating this is not going to be easy so.

Put that all together, like, for instance, this morning, we're seeing a rebound in in Tokyo Electron and ske Heinex is some more than three percent. What's your number one call at the moment, Well.

Put that all together, like, for instance, this morning, we're seeing a rebound in in Tokyo Electron and ske Heinex is some more than three percent. What's your number one call at the moment, Well.

The number one call in Asia is that we are still long dollar against the select Asian currencies.

The number one call in Asia is that we are still long dollar against the select Asian currencies.

We do think yen yuen.

We do think yen yuen.

Will soften a bit against dollar going forward given the macro challenges there, and for Japan, we do think the adjustments by Banko Japan will come up in the July policy meeting.

Will soften a bit against dollar going forward given the macro challenges there, and for Japan, we do think the adjustments by Banko Japan will come up in the July policy meeting.

All right, well, we've got weakness in the end. This morning, dollar yen's at one fifte seventy eight. Homan, thank you for joining us. Homan Lee, senior macro strategist at Lombard Odier. Well joining us now on the program to take a closer look at markets. Is Jeff you, senior EMEA market strategist to at B and why Jeff, thanks very much for being with us inequities. We've actually had considerably more volatility in some of the individual stock performance than we have seen at the index level. So in some ways, I suppose you could say that what that translates to is it's a good time to be a stock picker, are you that, dude?

All right, well, we've got weakness in the end. This morning, dollar yen's at one fifte seventy eight. Homan, thank you for joining us. Homan Lee, senior macro strategist at Lombard Odier. Well joining us now on the program to take a closer look at markets. Is Jeff you, senior EMEA market strategist to at B and why Jeff, thanks very much for being with us inequities. We've actually had considerably more volatility in some of the individual stock performance than we have seen at the index level. So in some ways, I suppose you could say that what that translates to is it's a good time to be a stock picker, are you that, dude?

Well, at this point, I think with respect to stock markets, we've got to take into account seasonality. You know, there's month ender, so somebody balancing going on as course to rend as well, so it amplifies things. But I think it's not just in equity markets where you want to be a stock picker. I want to be a quote unquote stockpicker in currency markets as well, and bond markets. To idiosyncratic risk and countries are the same as looking at company fundamentals as well. So to your point, broadbrush risk on environment that certainly doesn't really apply, and more especially with effet common so that you've just played, especially if it's a high for longer environment, then you've got to be very careful in ass allocation where you want to own, who you want to own, and how you deploy money.

Well, at this point, I think with respect to stock markets, we've got to take into account seasonality. You know, there's month ender, so somebody balancing going on as course to rend as well, so it amplifies things. But I think it's not just in equity markets where you want to be a stock picker. I want to be a quote unquote stockpicker in currency markets as well, and bond markets. To idiosyncratic risk and countries are the same as looking at company fundamentals as well. So to your point, broadbrush risk on environment that certainly doesn't really apply, and more especially with effet common so that you've just played, especially if it's a high for longer environment, then you've got to be very careful in ass allocation where you want to own, who you want to own, and how you deploy money.

Yeah, we're fortunate to be speaking with you from Beijing, so i'd like to get your take on the overall economy in China, But talk to me about some of the geopolitical risks that you see right now. Yesterday we were talking about Canada imposing terrorff sun Chinese evs. We know the state, what the situation here in terms of the terror of situation is with the US also Europe, and then a moment ago we were talking about open AI taking additional steps to curb Chinese access to AI software. How do you view the geopolitical environment right now, the US versus China.

Yeah, we're fortunate to be speaking with you from Beijing, so i'd like to get your take on the overall economy in China, But talk to me about some of the geopolitical risks that you see right now. Yesterday we were talking about Canada imposing terrorff sun Chinese evs. We know the state, what the situation here in terms of the terror of situation is with the US also Europe, and then a moment ago we were talking about open AI taking additional steps to curb Chinese access to AI software. How do you view the geopolitical environment right now, the US versus China.

Well, I think, you know, broadly, all of this is being factored into ass allocation, right so, you know, to the point we're regarding the last question about you know, stop picking, and I think these premiums or discounts are being factored in as well, you know, but all sides are talking at this point, you know, China, EU discussing the situation with you know, tariffs up ahead, how that's going to impact industry. But broadly speaking, when it comes to the domestic economy, I think that still is going to be the focus. How to continue to a lift sentiment and an asse allocation terms for much of Asia where we see significant underweights from our own client flow, there is an opportunity there. But at the same time we need to see policies follow up as well. So let's not get too distracted on the international side of things, and let's see if Asia as a whole can pick itself up in terms of generating growth and a challenging environment.

Well, I think, you know, broadly, all of this is being factored into ass allocation, right so, you know, to the point we're regarding the last question about you know, stop picking, and I think these premiums or discounts are being factored in as well, you know, but all sides are talking at this point, you know, China, EU discussing the situation with you know, tariffs up ahead, how that's going to impact industry. But broadly speaking, when it comes to the domestic economy, I think that still is going to be the focus. How to continue to a lift sentiment and an asse allocation terms for much of Asia where we see significant underweights from our own client flow, there is an opportunity there. But at the same time we need to see policies follow up as well. So let's not get too distracted on the international side of things, and let's see if Asia as a whole can pick itself up in terms of generating growth and a challenging environment.

I like ad One of the things about stock picking that I think resonates is it's about the stories. And I think you could apply that to all asset classes, including your specialties the bond market and currencies for instance. You know, these are these are comments that play out pretty well within video. It's probably, you know, a difficult thing to short at this time, to get your head handed back to you basically just because of valuation. You know, it's a story that seemingly is still intact. Don't overthink it. Are there some parallel stories that you see with other asset classes?

I like ad One of the things about stock picking that I think resonates is it's about the stories. And I think you could apply that to all asset classes, including your specialties the bond market and currencies for instance. You know, these are these are comments that play out pretty well within video. It's probably, you know, a difficult thing to short at this time, to get your head handed back to you basically just because of valuation. You know, it's a story that seemingly is still intact. Don't overthink it. Are there some parallel stories that you see with other asset classes?

Well to one or two weeks ago, when we're talking about the situation in France and we're asked about safe havens, right, so, what would you consider as a safer asset right now? The European government dead or tech stocks in the US. And I suppose a lot of asset allocators would pivot towards the latter right now, which does sound counterintuitive to some extent, but many times now I would say clients take the approach, if it ain't broke, don't fix it, right and being in tech being invested in the US has worked. You know, we actually have to acknowledge that. So rather you know, think about valuations in the US, let's think about the discounts in Europe. Why European companies are why you're bonds struggling to attract the kind of flows that US tech is generating right now on a volatility adjusted basis as well. I look at real rates in the US, and then I look at real rates south.

Well to one or two weeks ago, when we're talking about the situation in France and we're asked about safe havens, right, so, what would you consider as a safer asset right now? The European government dead or tech stocks in the US. And I suppose a lot of asset allocators would pivot towards the latter right now, which does sound counterintuitive to some extent, but many times now I would say clients take the approach, if it ain't broke, don't fix it, right and being in tech being invested in the US has worked. You know, we actually have to acknowledge that. So rather you know, think about valuations in the US, let's think about the discounts in Europe. Why European companies are why you're bonds struggling to attract the kind of flows that US tech is generating right now on a volatility adjusted basis as well. I look at real rates in the US, and then I look at real rates south.

Of the border in Mexico.

Of the border in Mexico.

We're talking one percent in the US compared to four or five percent for a Mexican equivalent. You know, Yet over the last few weeks or so, we've seen the dollar outperformer as well. So is it too much of a premium in US assets or a discount elsewhere? That's worthy of discussion. But time and time again US stocks have shown their worth and so I think that is basically cornering market investments right now.

We're talking one percent in the US compared to four or five percent for a Mexican equivalent. You know, Yet over the last few weeks or so, we've seen the dollar outperformer as well. So is it too much of a premium in US assets or a discount elsewhere? That's worthy of discussion. But time and time again US stocks have shown their worth and so I think that is basically cornering market investments right now.

So what is the level of risk in Europe? Even if the ECB begins to accommodate and apply a few more rate cuts here, is that enough to assuage your concerns at all?

So what is the level of risk in Europe? Even if the ECB begins to accommodate and apply a few more rate cuts here, is that enough to assuage your concerns at all?

Actually, if I look at the euro where it's some trading, what I am concerned about somewhat counter into is the ECB. And if there are many, many reasons and to be bearish on the Euro right now, and perhaps the European economy politics, oddly enough, is actually not one of them. So the French debt reaction, I think that was more due to overpositioning ahead of time, ahead of the election announcement, rather than fundamentals itself. I look at manufacturing PMI in Europe, the cornerstone of European industry, the car industry in particular, that has been contracting for god knows how long now, Yet the ECB's focused on the more narrowly defined services inflation. So I do think that the PO will need to cut a lot what that would assuage my concerns. So, if anything, ECB is not cutting enough right now.

Actually, if I look at the euro where it's some trading, what I am concerned about somewhat counter into is the ECB. And if there are many, many reasons and to be bearish on the Euro right now, and perhaps the European economy politics, oddly enough, is actually not one of them. So the French debt reaction, I think that was more due to overpositioning ahead of time, ahead of the election announcement, rather than fundamentals itself. I look at manufacturing PMI in Europe, the cornerstone of European industry, the car industry in particular, that has been contracting for god knows how long now, Yet the ECB's focused on the more narrowly defined services inflation. So I do think that the PO will need to cut a lot what that would assuage my concerns. So, if anything, ECB is not cutting enough right now.

Yeah, and that wouldn't even strengthen a dollar more. Yeah, I'm curious what you think about this. I've listened to so many sessions with you and Tom Keane on surveillance. I feel like I know you and.

Yeah, and that wouldn't even strengthen a dollar more. Yeah, I'm curious what you think about this. I've listened to so many sessions with you and Tom Keane on surveillance. I feel like I know you and.

I know you.

I know you.

Look at the US, I think most people would probably think that the neutral rate on the economy in the US is somewhere between two and a half and three percent, the funds rates at five thirty seven and a half. How long can that go on without doing some damage?

Look at the US, I think most people would probably think that the neutral rate on the economy in the US is somewhere between two and a half and three percent, the funds rates at five thirty seven and a half. How long can that go on without doing some damage?

Well, how can that go on, you know in terms of you tightening financial conditions. But we just have to go back to the data and the data right now as many FED members of highlighters just not showing signs are slowing down. So there may be an argument that for high for longer or long term equilibrium rates are being.

Well, how can that go on, you know in terms of you tightening financial conditions. But we just have to go back to the data and the data right now as many FED members of highlighters just not showing signs are slowing down. So there may be an argument that for high for longer or long term equilibrium rates are being.

Pushed higher now.

Pushed higher now.

A recent speech by the Swiss National Banks President Thomas Jordan also highlighted that equilibrim rates in the in Switzerland, known for low inflation in the past, may be a bit harder than expected. So to your point about a structural level of rates and the level at which they need need to be to do some damage, maybe higher across the board than we previously expected. So I think now that is a really supportive of the dollar right now. And to be frank, apart from the Swiss and the Yen, you know, maybe dollar downside is going to be quite limited at this point.

A recent speech by the Swiss National Banks President Thomas Jordan also highlighted that equilibrim rates in the in Switzerland, known for low inflation in the past, may be a bit harder than expected. So to your point about a structural level of rates and the level at which they need need to be to do some damage, maybe higher across the board than we previously expected. So I think now that is a really supportive of the dollar right now. And to be frank, apart from the Swiss and the Yen, you know, maybe dollar downside is going to be quite limited at this point.

Jeff, very quickly, before we let you go, since you're in China, let's do a little bit of walk about economics. What is the situation there on the ground.

Jeff, very quickly, before we let you go, since you're in China, let's do a little bit of walk about economics. What is the situation there on the ground.

So you know, right now, you know, we always say this can be a stronger, you know than we would like it to be. But there is an effort scene to try to support the economy. And also the PBOC comments I think throughout the yeah, they are redoubling efforts to do so, you know, what are the castalysts And for some I just don't think with my international hat on, there is enough focus and on some of the opportunities.

So you know, right now, you know, we always say this can be a stronger, you know than we would like it to be. But there is an effort scene to try to support the economy. And also the PBOC comments I think throughout the yeah, they are redoubling efforts to do so, you know, what are the castalysts And for some I just don't think with my international hat on, there is enough focus and on some of the opportunities.

I'm here at this point.

I'm here at this point.

So we remain positive on ass allocation in China, mostly because the extent of waitings is actually quite soft. Okay, so you know sometimes you think about price action. No one owns China at this point, you know, that's the point I look at our flows. No one owns emerging markets in general. Yeah, that's where the opportunities are.

So we remain positive on ass allocation in China, mostly because the extent of waitings is actually quite soft. Okay, so you know sometimes you think about price action. No one owns China at this point, you know, that's the point I look at our flows. No one owns emerging markets in general. Yeah, that's where the opportunities are.

We got to go, Jeff. But that's why I was wow, you know, it's it's it's it's it's interesting to hear. We'll say that for the next time. Details Jeff, you from BN one. Let's get to our guest, Mark Machini, chief investment strategist Jenny Montgomery Scott, Mark, thank you for coming on the program. We had the FED Governor Michelle Bowman, actually, I'm worried about upside risk on inflation. It's a little counter to what we've seen in the past couple of months. And the FED Governor Lisa Cook went the other direction, saying that she sees inflation gradually improving this year. We had Steve Eisman on surveillance last night, my time, and he said, it doesn't matter. You know, five hundred and fifty basis points of upside one move here, one or two, It just doesn't matter. How do you see this?

We got to go, Jeff. But that's why I was wow, you know, it's it's it's it's it's interesting to hear. We'll say that for the next time. Details Jeff, you from BN one. Let's get to our guest, Mark Machini, chief investment strategist Jenny Montgomery Scott, Mark, thank you for coming on the program. We had the FED Governor Michelle Bowman, actually, I'm worried about upside risk on inflation. It's a little counter to what we've seen in the past couple of months. And the FED Governor Lisa Cook went the other direction, saying that she sees inflation gradually improving this year. We had Steve Eisman on surveillance last night, my time, and he said, it doesn't matter. You know, five hundred and fifty basis points of upside one move here, one or two, It just doesn't matter. How do you see this?

Well, I think there's a case be made that could probably defend both Fed Governor's positions. At the same time, though several of the leading indicators that we consider in factoring in the somewhat guesstimate work that goes into ascertaining the likely direction of inflation suggests it's more likely to continue to cool than necessarily reh Now, maybe in the case of Governor Bowman, there was an acknowledgement of the earlier in the year readings that came in a little bit hotter than expected. That can't obviously be dismissed at this juncture just because we've stacked a couple of good inflation readings subsequent to that. So again it's a heavy reliance and data and lack of commitment or conviction on the part of the Federal Reserve members with regard to what their next move might be, allowing for the data to serve their reaction function as opposed to speculating.

Well, I think there's a case be made that could probably defend both Fed Governor's positions. At the same time, though several of the leading indicators that we consider in factoring in the somewhat guesstimate work that goes into ascertaining the likely direction of inflation suggests it's more likely to continue to cool than necessarily reh Now, maybe in the case of Governor Bowman, there was an acknowledgement of the earlier in the year readings that came in a little bit hotter than expected. That can't obviously be dismissed at this juncture just because we've stacked a couple of good inflation readings subsequent to that. So again it's a heavy reliance and data and lack of commitment or conviction on the part of the Federal Reserve members with regard to what their next move might be, allowing for the data to serve their reaction function as opposed to speculating.

So, if you're right and we do see evidence of cooling, it may manifest Friday with that PCEE data. If we know it's the feds preferred measure, will that change consumer behavior? I mean, if we start to see inflation come down. I noted today that the Conference Board's consumer sentiment index eased a bit. I mean, the survey also pointed to a more muted outlook for business conditions and some softness in the labor mard and an incomes as well. I mean, so I'm wondering whether if inflation comes down, that the consumer may react in a way that suggests a little bit of positivity.

So, if you're right and we do see evidence of cooling, it may manifest Friday with that PCEE data. If we know it's the feds preferred measure, will that change consumer behavior? I mean, if we start to see inflation come down. I noted today that the Conference Board's consumer sentiment index eased a bit. I mean, the survey also pointed to a more muted outlook for business conditions and some softness in the labor mard and an incomes as well. I mean, so I'm wondering whether if inflation comes down, that the consumer may react in a way that suggests a little bit of positivity.

Perhaps ultimately, certainly, the University of Michigan survey is tied more closely to inflation readings, and is that of the Conference Board, which tends to be a little bit more waged and job market driven, but nonetheless you know, I think the angst in the consumer at the moment is not so much the fact that they don't recognize that inflation has been cut by two thirds from its peak back in June to twenty two of nine point one percent. Is that prices in general aren't falling, and so is the elevation of prices rather than the rate of change in inflation that is causing some anxiety on the part of the consumer that you're seeing by way of perhaps some modest slowdown weakness and spending. That evidence in the most recent retail sales figures. So you know, it's always the function to watch what they do, not what they say. But at the same time, you can't ignore those confidence ratings that do suggest, particularly as it relates to their responses to their intentions to buy durable goods items or take vacations or what have you, are still really weak.

Perhaps ultimately, certainly, the University of Michigan survey is tied more closely to inflation readings, and is that of the Conference Board, which tends to be a little bit more waged and job market driven, but nonetheless you know, I think the angst in the consumer at the moment is not so much the fact that they don't recognize that inflation has been cut by two thirds from its peak back in June to twenty two of nine point one percent. Is that prices in general aren't falling, and so is the elevation of prices rather than the rate of change in inflation that is causing some anxiety on the part of the consumer that you're seeing by way of perhaps some modest slowdown weakness and spending. That evidence in the most recent retail sales figures. So you know, it's always the function to watch what they do, not what they say. But at the same time, you can't ignore those confidence ratings that do suggest, particularly as it relates to their responses to their intentions to buy durable goods items or take vacations or what have you, are still really weak.

But you know, that's where time figures in, because in time people would get used to the current rates as long as they're not going up. But I think it's kind of interesting when you think about, Okay, if you have growth faltering a little and you have inflation coming down, it's kind of a no brainer that the FED might want to cut. You still don't know when. But what's interesting is what if you have inflation come down but growth remains firm. Could the Fed stay higher for longer in that environment?

But you know, that's where time figures in, because in time people would get used to the current rates as long as they're not going up. But I think it's kind of interesting when you think about, Okay, if you have growth faltering a little and you have inflation coming down, it's kind of a no brainer that the FED might want to cut. You still don't know when. But what's interesting is what if you have inflation come down but growth remains firm. Could the Fed stay higher for longer in that environment?

I think they could if inflation would come down, though they'd have no reason to. I mean, their battle right now seems to be solely focused on inflation, since they're still at or maybe even slightly below what they deem to be all employment in the country, so that side of their dual mandate is still in line with their goal. So if they've in fact feel increasingly confident they can declare victory over stamping out the ravages of rapidly rising inflation, then there's no reason for them to continue to hold interest rates high. If in fact, the economy seems to be motoring along at a trend or above trend base and at the same time concurrent with falling inflation that is on a slide path that they have a high degree of certainty is going to land adder near their two percent target.

I think they could if inflation would come down, though they'd have no reason to. I mean, their battle right now seems to be solely focused on inflation, since they're still at or maybe even slightly below what they deem to be all employment in the country, so that side of their dual mandate is still in line with their goal. So if they've in fact feel increasingly confident they can declare victory over stamping out the ravages of rapidly rising inflation, then there's no reason for them to continue to hold interest rates high. If in fact, the economy seems to be motoring along at a trend or above trend base and at the same time concurrent with falling inflation that is on a slide path that they have a high degree of certainty is going to land adder near their two percent target.

So, Mark, I'd like to apply everything that you've been saying into an investment strategy. What would that look like at this point?

So, Mark, I'd like to apply everything that you've been saying into an investment strategy. What would that look like at this point?

Well, I think you know, for me, it tends to be that you know, your bias should be at worse to be you know, market weight whatever that is congluned with one's target weighting for equities in a portfolio, sent or balanced in a sixty forty allocation, whatever might be appropriate, and go overweight at times in which we've seen a deep enough pullback that would weren't, you know, either shifting money into equities from bonds or adding new moneys to the equity market. I think the only time you'd want to consider underweighting equities is when we're in the midst of a condition that, by all accounts, appears that a recession is inevitable, because that's where you experience the bear market drawdowns of significant orders of magnitude, and for the moment, that doesn't seem to be an imminent threat. So I think the window for equity prices to continue to advance, perhaps not quite at the same pace as we've seen over the first call it half of twenty twenty four, but nonetheless advance is still open, and I think investors therefore should stay committed to their equity positions.

Well, I think you know, for me, it tends to be that you know, your bias should be at worse to be you know, market weight whatever that is congluned with one's target weighting for equities in a portfolio, sent or balanced in a sixty forty allocation, whatever might be appropriate, and go overweight at times in which we've seen a deep enough pullback that would weren't, you know, either shifting money into equities from bonds or adding new moneys to the equity market. I think the only time you'd want to consider underweighting equities is when we're in the midst of a condition that, by all accounts, appears that a recession is inevitable, because that's where you experience the bear market drawdowns of significant orders of magnitude, and for the moment, that doesn't seem to be an imminent threat. So I think the window for equity prices to continue to advance, perhaps not quite at the same pace as we've seen over the first call it half of twenty twenty four, but nonetheless advance is still open, and I think investors therefore should stay committed to their equity positions.

But mark is this a better time for stock pickers than index buyers?

But mark is this a better time for stock pickers than index buyers?

Well, the index buyer has been rewarded by the fact that the disproportion or represents of tech and tech related companies have really done all the heavy lifting. If you consider the Magnificent seven's return of call it thirty six percent year to date versus the fifteen percent of return for the even cap weighted s and P five hundred, you've benefited from being an index or if you will, in that respect. At the same time, though, I can't help but think going forward, it may be more rewarding to spread bets around because valuations are extremely demanding.

Well, the index buyer has been rewarded by the fact that the disproportion or represents of tech and tech related companies have really done all the heavy lifting. If you consider the Magnificent seven's return of call it thirty six percent year to date versus the fifteen percent of return for the even cap weighted s and P five hundred, you've benefited from being an index or if you will, in that respect. At the same time, though, I can't help but think going forward, it may be more rewarding to spread bets around because valuations are extremely demanding.

All right, Mark, thank you so much, Mark Luceini. There from Jenny Montgomery.

All right, Mark, thank you so much, Mark Luceini. There from Jenny Montgomery.

S God.

S God.

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.