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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 APAC 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 APAC 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 get to our guest. It's Melissa Auto, head of TMT Research SMP Global Visible Alpha. Melissa, thank you for joining us. Well, markets are showing that they're pretty jittery here at the moment. We did have jobless claims rising fourteen thousand to two hundred and forty nine thousand. That in itself is probably not enough, and maybe even the manufacturing numbers not enough. It seems like it might be more thinking that these are examples that the FED could be falling behind the curve on cutting interest rates.

Let's get to our guest. It's Melissa Auto, head of TMT Research SMP Global Visible Alpha. Melissa, thank you for joining us. Well, markets are showing that they're pretty jittery here at the moment. We did have jobless claims rising fourteen thousand to two hundred and forty nine thousand. That in itself is probably not enough, and maybe even the manufacturing numbers not enough. It seems like it might be more thinking that these are examples that the FED could be falling behind the curve on cutting interest rates.

How do you see the balance of risk here?

How do you see the balance of risk here?

Thank you.

Thank you.

Indeed, it's been a tumultuous earning season so far, particularly for the megacat tech stocks. I mean, tonight we saw really a tale of two cities. But even for Apple, who put up you know, an inline quarter gave a decent outlook, both in line with expectations, with the stock flat. Then Amazon stocked down over five percent revenue and operating profit, beating expectations in the quarter, but that guidance a little bit light of expectations took the stock down. You know, I think in terms of where the FED comes out on this, it's a close call. SMP Global Market Intelligence had been calling for a December rate cut, but you know, looking at the data, you know acknowledges that you know, maybe September is starting to look a little bit like it's coming on the table. Hard to call at this point.

Indeed, it's been a tumultuous earning season so far, particularly for the megacat tech stocks. I mean, tonight we saw really a tale of two cities. But even for Apple, who put up you know, an inline quarter gave a decent outlook, both in line with expectations, with the stock flat. Then Amazon stocked down over five percent revenue and operating profit, beating expectations in the quarter, but that guidance a little bit light of expectations took the stock down. You know, I think in terms of where the FED comes out on this, it's a close call. SMP Global Market Intelligence had been calling for a December rate cut, but you know, looking at the data, you know acknowledges that you know, maybe September is starting to look a little bit like it's coming on the table. Hard to call at this point.

So when you look at the themes here, I mean, what jumps off the pages are official intelligence? How do you see this bet right now? I mean, is it something where we can expect more air to come out of a I don't want to call it a bubble necessarily, but a pocket enthusiasm.

So when you look at the themes here, I mean, what jumps off the pages are official intelligence? How do you see this bet right now? I mean, is it something where we can expect more air to come out of a I don't want to call it a bubble necessarily, but a pocket enthusiasm.

It's a long term secular trend, and I think a lot of the growth we saw it really come into earnings revisions pretty aggressively because what happened earlier this year was cloud service providers started to really ratchet up their capex. That capex ultimately led to earnings revisions at Nvidia, and investors started to say, well, who else is going to benefit from generative AI? Where else? Maybe where may we see these sorts of earnings revisions and especially to the magnitude that we've seen it in Vidia. And so I think those revisions started to get put into the market, started to come into some of these megacap stocks, and I think, what's starting to happen. But now as we're seeing a normalization of those expectations, as the realities of what the market is actually going to do, what it's going to deliver, is starting to come to fruition.

It's a long term secular trend, and I think a lot of the growth we saw it really come into earnings revisions pretty aggressively because what happened earlier this year was cloud service providers started to really ratchet up their capex. That capex ultimately led to earnings revisions at Nvidia, and investors started to say, well, who else is going to benefit from generative AI? Where else? Maybe where may we see these sorts of earnings revisions and especially to the magnitude that we've seen it in Vidia. And so I think those revisions started to get put into the market, started to come into some of these megacap stocks, and I think, what's starting to happen. But now as we're seeing a normalization of those expectations, as the realities of what the market is actually going to do, what it's going to deliver, is starting to come to fruition.

Yeah, when you think about it, the valuations are pretty high on these companies, and the hopium is pretty high too.

Yeah, when you think about it, the valuations are pretty high on these companies, and the hopium is pretty high too.

That's tied to AI, as Doug.

That's tied to AI, as Doug.

Mentioned, And then you know, you look at some of these statements like out of Amazon, the earnings actually wasn't so bad, but Amazon is saying that profits will take a back seat for now too heavy spending on AI. So you also have spending levels that investors are fretting with, and you add it all up and it's just kind of like, well, let's trim here.

Mentioned, And then you know, you look at some of these statements like out of Amazon, the earnings actually wasn't so bad, but Amazon is saying that profits will take a back seat for now too heavy spending on AI. So you also have spending levels that investors are fretting with, and you add it all up and it's just kind of like, well, let's trim here.

Yeah, I think that's a fair assessment. We've seen capex ratcheting up across the board for all of the megacap stocks you particularly in the cloud service providers. Meta was probably the rare example that didn't exceed expectations in terms of their CAPEX, but speaking, they're still spending a lot, and the overall space is spending a lot. So I think the one beneficiary of this is probably in Nvidia. At the end of the day, that is probably not going to slow down.

Yeah, I think that's a fair assessment. We've seen capex ratcheting up across the board for all of the megacap stocks you particularly in the cloud service providers. Meta was probably the rare example that didn't exceed expectations in terms of their CAPEX, but speaking, they're still spending a lot, and the overall space is spending a lot. So I think the one beneficiary of this is probably in Nvidia. At the end of the day, that is probably not going to slow down.

So when you look at the content that's being created by companies in the media space using technology, telecom providers as well, that may benefit a little bit from this. I'm wondering about the degree to which there's going to be pressure on AD sales going forward. And maybe you can take us back to what we learned this week from Meta platforms. What do you see when you look at the AD spending business.

So when you look at the content that's being created by companies in the media space using technology, telecom providers as well, that may benefit a little bit from this. I'm wondering about the degree to which there's going to be pressure on AD sales going forward. And maybe you can take us back to what we learned this week from Meta platforms. What do you see when you look at the AD spending business.

Yeah, ads are It's it's an interesting backdrop because we saw softness in YouTube. Those numbers came in lower than expectations. Netflix is saying that their ADS business is off to a slow start, but then Meta actually had a pretty good quarter. They're actually doing pretty well, and I think it you know, there is they are very different business models. So the businesses that are aligning and adhering to certain aspects of what a customer wants, they're curating it. They're leveraging their AI in a way that's aligning ads in a way that's creating better curation. Seems to be resonating, you know, we're seeing that in the numbers.

Yeah, ads are It's it's an interesting backdrop because we saw softness in YouTube. Those numbers came in lower than expectations. Netflix is saying that their ADS business is off to a slow start, but then Meta actually had a pretty good quarter. They're actually doing pretty well, and I think it you know, there is they are very different business models. So the businesses that are aligning and adhering to certain aspects of what a customer wants, they're curating it. They're leveraging their AI in a way that's aligning ads in a way that's creating better curation. Seems to be resonating, you know, we're seeing that in the numbers.

So I want to swing it around to the jobs data because we've seen a lot of volatility here.

So I want to swing it around to the jobs data because we've seen a lot of volatility here.

I mean, it might very well.

I mean, it might very well.

See volatility the upside if you get a solid number. One of the first questions I asked yesterday after the FED meeting to our multiple guests on the program was didn't jer own Pals sound pretty positive to me? That was a key thing. He was like, this economy is humming. It is not anywhere close to falling off the table. And now we get some disappointing news and investors react as though it is falling off the table. So what are you expecting with jobs?

See volatility the upside if you get a solid number. One of the first questions I asked yesterday after the FED meeting to our multiple guests on the program was didn't jer own Pals sound pretty positive to me? That was a key thing. He was like, this economy is humming. It is not anywhere close to falling off the table. And now we get some disappointing news and investors react as though it is falling off the table. So what are you expecting with jobs?

It's hard to call it this at this point, you know, I think there is some seasonality and we will just really need to look at the sequential data as it comes out and hear the further commentary that he gives, you know, and I think, you know, it'll be it'll be interesting to see how they position over the next couple of weeks and what sort of additional feedback we get. But yeah, I mean, it wasn't a bright spot today for sure, and it certainly spooked the market clearly.

It's hard to call it this at this point, you know, I think there is some seasonality and we will just really need to look at the sequential data as it comes out and hear the further commentary that he gives, you know, and I think, you know, it'll be it'll be interesting to see how they position over the next couple of weeks and what sort of additional feedback we get. But yeah, I mean, it wasn't a bright spot today for sure, and it certainly spooked the market clearly.

When you look at the Intel news after the bell fifteen thousand workers, that's fifteen percent of Intel's global workforce. What do you think of a company like Intel in an environment where semiconductors have really been kind of at the front end of this trade in artificial intelligence, Intel is in.

When you look at the Intel news after the bell fifteen thousand workers, that's fifteen percent of Intel's global workforce. What do you think of a company like Intel in an environment where semiconductors have really been kind of at the front end of this trade in artificial intelligence, Intel is in.

An unusual position. They have probably not innovated in the same way or invested in the same way that we've seen at the at the megacap companies, and may have fallen behind in a couple of key areas, and we're seeing that come to roosts, particularly in the quarter today. You know, one of the other things that I'll go back to your earlier question about the jobs number and about the consumer. You know, one of the things that Tim Cook did call out is how consumers are just incredibly deal sensitive. You know that they are really looking at promotions, They're very price sensitive, They're avoiding some of the higher ticket items. There is some indications of that, so there does seem to be some sensitivity at the consumer level.

An unusual position. They have probably not innovated in the same way or invested in the same way that we've seen at the at the megacap companies, and may have fallen behind in a couple of key areas, and we're seeing that come to roosts, particularly in the quarter today. You know, one of the other things that I'll go back to your earlier question about the jobs number and about the consumer. You know, one of the things that Tim Cook did call out is how consumers are just incredibly deal sensitive. You know that they are really looking at promotions, They're very price sensitive, They're avoiding some of the higher ticket items. There is some indications of that, so there does seem to be some sensitivity at the consumer level.

All right, Melissa, thanks so much for joining us. Back to Intel for a moment the previous question. At stock is now down more than fifty.

All right, Melissa, thanks so much for joining us. Back to Intel for a moment the previous question. At stock is now down more than fifty.

Percent year to date.

Percent year to date.

It's a really interesting story because trying to reshore in the United States and that elevates the cost level for sure, and now all of a sudden they're having to try to really cut costs. So it's one that we'll be watching closely. Melissa Otto has been with us here. She's with S and P Global Visible Alpha. This is Bloomberg. We're joined by Mark German, now Bloomberg Chief correspondent on Global Technology, for a closer look at Apple earnings. So we focus on China because this is Bloomberg Daybreak Asia. We had revenue down six and a half percent to fourteen point seven billion in the third quarter. That was short of the fifteen point three billion, So in all, it sounds like a lot, but it's not very much when you compare it to overall sales of eighty five point eight billion, almost a rounding error. Things are looking pretty good for Apple. Is that fair to say or is China a major drag?

It's a really interesting story because trying to reshore in the United States and that elevates the cost level for sure, and now all of a sudden they're having to try to really cut costs. So it's one that we'll be watching closely. Melissa Otto has been with us here. She's with S and P Global Visible Alpha. This is Bloomberg. We're joined by Mark German, now Bloomberg Chief correspondent on Global Technology, for a closer look at Apple earnings. So we focus on China because this is Bloomberg Daybreak Asia. We had revenue down six and a half percent to fourteen point seven billion in the third quarter. That was short of the fifteen point three billion, So in all, it sounds like a lot, but it's not very much when you compare it to overall sales of eighty five point eight billion, almost a rounding error. Things are looking pretty good for Apple. Is that fair to say or is China a major drag?

I mean, obviously the third quarter that's finished, and you know, the results we got today are a picture in time of how Apple is doing financially. So if you look at that ninety day period, I think they did really good. China side. That is still a billion dollar annual decline, it's a little bit better than they did in the first half of the year in China, so you are seeing some improvement there. The iPhone did decline about one percent. Could have been worse, certainly should have and could have been better. The one thing they didn't talk about was guidance for the fourth quarter in terms of the iPhone. The new iPhone is going to go on sale at the tail end of Q four, sometime in the second half of September, and they didn't say if the iPhone revenue is going to accelerate, decelerate, be in line. So that makes me think that it's going to basically be stagnant on an annual basis, which of course is not the end of the world. But here they are hyping Apple intelligence and how this is going to drive iPhone sales and a new supercycle and such but I don't believe that is going to happen. My other takeaway is not much talk about the Vision pro. This just launched internationally. This is their first new product category in a decade. Way overpriced, It's a cumbersome product. It takes a lot of energy to actually use it. I was actually using it last night. It was kind of painful, and that's something that they need to address. Where is the innovation, Where is the future of this company? Because I certainly think they're lagging an AI and I certainly think that their first take at VR is simply not it.

I mean, obviously the third quarter that's finished, and you know, the results we got today are a picture in time of how Apple is doing financially. So if you look at that ninety day period, I think they did really good. China side. That is still a billion dollar annual decline, it's a little bit better than they did in the first half of the year in China, so you are seeing some improvement there. The iPhone did decline about one percent. Could have been worse, certainly should have and could have been better. The one thing they didn't talk about was guidance for the fourth quarter in terms of the iPhone. The new iPhone is going to go on sale at the tail end of Q four, sometime in the second half of September, and they didn't say if the iPhone revenue is going to accelerate, decelerate, be in line. So that makes me think that it's going to basically be stagnant on an annual basis, which of course is not the end of the world. But here they are hyping Apple intelligence and how this is going to drive iPhone sales and a new supercycle and such but I don't believe that is going to happen. My other takeaway is not much talk about the Vision pro. This just launched internationally. This is their first new product category in a decade. Way overpriced, It's a cumbersome product. It takes a lot of energy to actually use it. I was actually using it last night. It was kind of painful, and that's something that they need to address. Where is the innovation, Where is the future of this company? Because I certainly think they're lagging an AI and I certainly think that their first take at VR is simply not it.

Do you think there's a danger that Apple is overly optimistic about it's future in China, particularly when you look at the competition there, and you also look at the fact that Apple Intelligence will not be available in China at least immediately. Are they is cook overly optimistic?

Do you think there's a danger that Apple is overly optimistic about it's future in China, particularly when you look at the competition there, and you also look at the fact that Apple Intelligence will not be available in China at least immediately. Are they is cook overly optimistic?

I think that there's what they say publicly and there's what they feel in their private time right at the office, And I think there is quite a bit big of a difference.

I think that there's what they say publicly and there's what they feel in their private time right at the office, And I think there is quite a bit big of a difference.

Right.

Right.

I mean, publicly, he's going to say all the right things, They're incredibly reliant on China. He needs to say that they have a very strong relationship with China. From a production standpoint, still, the vast majority of products are produced at box Con across the Greater China area. At the same time, their actions tell a different story, opening new retail stores in Southeast Asia, putting a lot of prominence on moving production to Malaysia, Vietnam, and most notably India. Right, and so, like I said, there's what they say, and there's how they feel. And if you go by their actions, we actually know how they feel, which is, you know, this China thing could be running into a wall at some point.

I mean, publicly, he's going to say all the right things, They're incredibly reliant on China. He needs to say that they have a very strong relationship with China. From a production standpoint, still, the vast majority of products are produced at box Con across the Greater China area. At the same time, their actions tell a different story, opening new retail stores in Southeast Asia, putting a lot of prominence on moving production to Malaysia, Vietnam, and most notably India. Right, and so, like I said, there's what they say, and there's how they feel. And if you go by their actions, we actually know how they feel, which is, you know, this China thing could be running into a wall at some point.

Yeah, they talked up Malaysia, and then when I saw that, I thought, oh boy, you're talking about Malaysia. That's kind of interesting. Small country. Anyway, we talked about overconfidence. The market itself seems a bit overconfident on Apple. If you look at profit up eight percent in this last quarter, it's tough to match that up against a forward pe of thirty. It means that there's a lot of hope that Apple will sell a lot more phones because of AI. So we need to ask you, is AI that great in Apple intelligence that people will buy a lot of phones?

Yeah, they talked up Malaysia, and then when I saw that, I thought, oh boy, you're talking about Malaysia. That's kind of interesting. Small country. Anyway, we talked about overconfidence. The market itself seems a bit overconfident on Apple. If you look at profit up eight percent in this last quarter, it's tough to match that up against a forward pe of thirty. It means that there's a lot of hope that Apple will sell a lot more phones because of AI. So we need to ask you, is AI that great in Apple intelligence that people will buy a lot of phones?

No, no, no, I've been playing with Apple intelligence. The initial beta version for developers over the last week or so. There's nothing that I'm seeing here that provides a compelling reasons to update. And I truly mean that. I think if you're going to see AI induced upgrades, that's something that's going to happen in the second half of next year when you have sort of the full scope of those changes. Right based on the earnings call and the questions that were being asked by analysts, one, I don't believe they understand how and when Apple Intelligence is actually rolling out, and I don't believe they've actually used it. So maybe if you're going to get on an Apple earnings call, you probably want to do that to me. You have really nice writing tools, so it can rewrite paragraphs and essays for you make things either sound more friendly or more professional, So that's new. There's proofreading, which we've had in Microsoft Word and Apple Zone iWork pages for multiple decades. The best feature of Apple Intelligence is being able to record phone calls, whether or not you're allowed to do that, and whatever country or state you're in as another question, and then at the end it can pop out a summary of everything that was discussed. So that's pretty nifty. But the other stuff is very much par for the course, not a lot of reason to buy a new phone if you ask me.

No, no, no, I've been playing with Apple intelligence. The initial beta version for developers over the last week or so. There's nothing that I'm seeing here that provides a compelling reasons to update. And I truly mean that. I think if you're going to see AI induced upgrades, that's something that's going to happen in the second half of next year when you have sort of the full scope of those changes. Right based on the earnings call and the questions that were being asked by analysts, one, I don't believe they understand how and when Apple Intelligence is actually rolling out, and I don't believe they've actually used it. So maybe if you're going to get on an Apple earnings call, you probably want to do that to me. You have really nice writing tools, so it can rewrite paragraphs and essays for you make things either sound more friendly or more professional, So that's new. There's proofreading, which we've had in Microsoft Word and Apple Zone iWork pages for multiple decades. The best feature of Apple Intelligence is being able to record phone calls, whether or not you're allowed to do that, and whatever country or state you're in as another question, and then at the end it can pop out a summary of everything that was discussed. So that's pretty nifty. But the other stuff is very much par for the course, not a lot of reason to buy a new phone if you ask me.

So, you make an interesting point where you were able to access the beta version of Apple Intelligence. I think a lot of the other software developers were able to get a peek at this too. Talk to us about the degree to which Apple is really banking on those relationships to drive innovation in Apple Intelligence. It's the app developers, right.

So, you make an interesting point where you were able to access the beta version of Apple Intelligence. I think a lot of the other software developers were able to get a peek at this too. Talk to us about the degree to which Apple is really banking on those relationships to drive innovation in Apple Intelligence. It's the app developers, right.

They are banking heavily on this app ecosystem, in this app paradigm, and why wouldn't they. They made twenty four billion dollars in the third quarter, mostly due to the App Store, and that's the services number. I have to tell you, though, I really think the industry is shifting away from this app paradigm where you go into an app, you launch the app, and I think it's moving way more towards deeply integrated AI and cloud, and I think over time they're gonna have to move away from this paradigm. So they're banking on I think an an an aging idea. It's interesting because Tim Cook said it's now in the hands of developers, which is true, and he wants to see what developers make with it. But in order for developers to integrate AI and Apple Intelligence into their applications, there have to be frameworks and developer tools available to do so, and to date they haven't released any of those frameworks as developers.

They are banking heavily on this app ecosystem, in this app paradigm, and why wouldn't they. They made twenty four billion dollars in the third quarter, mostly due to the App Store, and that's the services number. I have to tell you, though, I really think the industry is shifting away from this app paradigm where you go into an app, you launch the app, and I think it's moving way more towards deeply integrated AI and cloud, and I think over time they're gonna have to move away from this paradigm. So they're banking on I think an an an aging idea. It's interesting because Tim Cook said it's now in the hands of developers, which is true, and he wants to see what developers make with it. But in order for developers to integrate AI and Apple Intelligence into their applications, there have to be frameworks and developer tools available to do so, and to date they haven't released any of those frameworks as developers.

All right, Mark, thank you for joining us.

All right, Mark, thank you for joining us.

Mark German and Bloomberg chief correspondent on global technology.

Mark German and Bloomberg chief correspondent on global technology.

After the bell, we heard from Amazon and the company reported quarterly sales pretty much in line with estimates. However, at the same time, Amazon projected profit for the current quarter well below estimates. The message seems to be profits are going to take a back seat while the company spends heavily on artificial intelligence. Let's take a closer look now with Bloomberg Spencer Soper. He is our e commerce reporter joining us from Seattle. Good of you to join a spencer. I'm sure it's been a busy day for you. This seems slightly reminiscent of the best Jeff Bezos days in the early days, right where you spend at the expensive profits. Is that the way you see it?

After the bell, we heard from Amazon and the company reported quarterly sales pretty much in line with estimates. However, at the same time, Amazon projected profit for the current quarter well below estimates. The message seems to be profits are going to take a back seat while the company spends heavily on artificial intelligence. Let's take a closer look now with Bloomberg Spencer Soper. He is our e commerce reporter joining us from Seattle. Good of you to join a spencer. I'm sure it's been a busy day for you. This seems slightly reminiscent of the best Jeff Bezos days in the early days, right where you spend at the expensive profits. Is that the way you see it?

Yeah, that's That's pretty much been the constant push and pull between Amazon and the investment community. It's just now it's happening under Jasse instead of you know, current CEO Andy Jassey instead of founder Jeff Bezos, and Jasse made the case to investors on the earnings call why he thinks this is such a big opportunity and why Amazon needs to spend now so that it could meet demand down the road. And the CFO even said, look, this is a this is a good indicator. You know, it's good that we expect our business to grow this much and that we're investing in it now. But yeah, there's there's still just some skepticism in the investment community about all of this artificial intelligence infrastructure investment and when it could.

Yeah, that's That's pretty much been the constant push and pull between Amazon and the investment community. It's just now it's happening under Jasse instead of you know, current CEO Andy Jassey instead of founder Jeff Bezos, and Jasse made the case to investors on the earnings call why he thinks this is such a big opportunity and why Amazon needs to spend now so that it could meet demand down the road. And the CFO even said, look, this is a this is a good indicator. You know, it's good that we expect our business to grow this much and that we're investing in it now. But yeah, there's there's still just some skepticism in the investment community about all of this artificial intelligence infrastructure investment and when it could.

Pay off, and to a degree it's already paying off, because you did have a beat on AWS, which I think a lot of analysts and really focusing on that issue, maybe up more than the seventeen and change percent that was expected, so you get it up nineteen percent, but just that it was overshadowed.

Pay off, and to a degree it's already paying off, because you did have a beat on AWS, which I think a lot of analysts and really focusing on that issue, maybe up more than the seventeen and change percent that was expected, so you get it up nineteen percent, but just that it was overshadowed.

Yeah, and you have to peel apart aws's performance from you know, artificial intelligence investments and future growth and its core business of just cloud computing and you know, data centers that are accessed by via the Internet, because that's still a very big business as well, And what they were saying is that you know, folks that had kindkind of hit the pause on those migrations, you know, from from having their own data centers to to using Amazon Web Services data centers, that that folks kind of stepped that back up, that their customers were back in an investment mode and and doing that after after a pause. So that was part of the part of the AWS B And then on the miss you have to look at some softness and some concerns around the consumer. For Amazon's core e commerce business. Let's not forget they make most of their money, you know, selling things online, and that's uh, that's showing some signs of weakness from the consumer. People are trading down, buying cheaper things, and so that is affecting their outlook and profitability.

Yeah, and you have to peel apart aws's performance from you know, artificial intelligence investments and future growth and its core business of just cloud computing and you know, data centers that are accessed by via the Internet, because that's still a very big business as well, And what they were saying is that you know, folks that had kindkind of hit the pause on those migrations, you know, from from having their own data centers to to using Amazon Web Services data centers, that that folks kind of stepped that back up, that their customers were back in an investment mode and and doing that after after a pause. So that was part of the part of the AWS B And then on the miss you have to look at some softness and some concerns around the consumer. For Amazon's core e commerce business. Let's not forget they make most of their money, you know, selling things online, and that's uh, that's showing some signs of weakness from the consumer. People are trading down, buying cheaper things, and so that is affecting their outlook and profitability.

I go back to Bezos again, one of his great sayings, your margin is my opportunity. How are the margins holding up for Amazon right now? On the retail side. The online retail business that they're.

I go back to Bezos again, one of his great sayings, your margin is my opportunity. How are the margins holding up for Amazon right now? On the retail side. The online retail business that they're.

Saying is is doing is doing hey, and the danger so they're they're making they're they're making improvements in efficiency, which is helping the margins. But then when you have people trading down and buying cheaper goods. Generally, a cheaper product that the same size as a more expensive product is still cost the cost the same amount to put it in a box and get it to your house, you know. So so that's the that's the margin pressure there, that's kind of offsetting the progress they're making on on improving efficiency. So there there's some push and pull there as as well. And I think investors are probably just worried that the consumer sentiment that that that could last. And Amazon even hinted at that, saying it's it's just very difficult to forecast right now, and they mentioned just a lot of what they described as distractions with like the election in the US and UH and the Summer Olympics.

Saying is is doing is doing hey, and the danger so they're they're making they're they're making improvements in efficiency, which is helping the margins. But then when you have people trading down and buying cheaper goods. Generally, a cheaper product that the same size as a more expensive product is still cost the cost the same amount to put it in a box and get it to your house, you know. So so that's the that's the margin pressure there, that's kind of offsetting the progress they're making on on improving efficiency. So there there's some push and pull there as as well. And I think investors are probably just worried that the consumer sentiment that that that could last. And Amazon even hinted at that, saying it's it's just very difficult to forecast right now, and they mentioned just a lot of what they described as distractions with like the election in the US and UH and the Summer Olympics.

On e commerce, a lot of competition from Ali Express and some of the other Chinese players like Shean.

On e commerce, a lot of competition from Ali Express and some of the other Chinese players like Shean.

Yeah, you're definitely seeing step the competition, you know, domestically from the likes of Walmart, it has a better e commerce game and is offering Amazon like subscriptions. And then yeah, you're also seeing this factory direct model from companies like Timu and she In that's really making inroads because it's a it can be a quite staggering price difference. If you find just some kind of generic product on Amazon and then cross reference and find the same thing on Timu, you might you might wait a few more days to get it, but you can save a lot of money. I mean, the difference can be like fifty seventy five percent in price.

Yeah, you're definitely seeing step the competition, you know, domestically from the likes of Walmart, it has a better e commerce game and is offering Amazon like subscriptions. And then yeah, you're also seeing this factory direct model from companies like Timu and she In that's really making inroads because it's a it can be a quite staggering price difference. If you find just some kind of generic product on Amazon and then cross reference and find the same thing on Timu, you might you might wait a few more days to get it, but you can save a lot of money. I mean, the difference can be like fifty seventy five percent in price.

Hey, Spencer, thank you so much for making time to chat with us about Amazon. Spencer Sober there Bloomberg e commerce reporter joining us from Seattle here on Daybreak Asia.

Hey, Spencer, thank you so much for making time to chat with us about Amazon. Spencer Sober there Bloomberg e commerce reporter joining us from Seattle here on Daybreak Asia.

Well.

Well.

Joining us now on the program is Mark Matthews, head of Asia Research at Julius Bear to talk about markets, Mark, the markets are pretty jittery here.

Joining us now on the program is Mark Matthews, head of Asia Research at Julius Bear to talk about markets, Mark, the markets are pretty jittery here.

At the moment.

At the moment.

More we've seen some pretty big sell offs on stocks. You see that as tied to valuation more or to maybe now fears that growth is slowing, not only in the US but elsewhere.

More we've seen some pretty big sell offs on stocks. You see that as tied to valuation more or to maybe now fears that growth is slowing, not only in the US but elsewhere.

Brian, I think it's very much the first one, and it's very much concentrated in the technology sector, and a big story has emerged around the investments that big technology companies are making to get ready for the new AI world. And I think they're kind of darned if they do and darned if they don't, because On the one hand, if they don't make these investments in AI, they'll be seen as failing to innovate and on their way to becoming like a Kodak or a Blockbuster. On the other hand, if they do make these big investments, then they'll be seen as putting capital at risk for something that's a big unknown, and that I think is what's causing the volatility. If you exclude technology, the rest of the market, in my mind, is pretty solid.

Brian, I think it's very much the first one, and it's very much concentrated in the technology sector, and a big story has emerged around the investments that big technology companies are making to get ready for the new AI world. And I think they're kind of darned if they do and darned if they don't, because On the one hand, if they don't make these investments in AI, they'll be seen as failing to innovate and on their way to becoming like a Kodak or a Blockbuster. On the other hand, if they do make these big investments, then they'll be seen as putting capital at risk for something that's a big unknown, and that I think is what's causing the volatility. If you exclude technology, the rest of the market, in my mind, is pretty solid.

Yeah, it held up remarkably well, and I'm wondering if this narrative having to do with the FED being behind the curve potentially is a little overblown. Would you say that's possible.

Yeah, it held up remarkably well, and I'm wondering if this narrative having to do with the FED being behind the curve potentially is a little overblown. Would you say that's possible.

I would.

I would.

I mean, the first thing I would say is there are many recessions that were forecasts that never happened, But there were equally as many recessions that did have forecast did happen. They weren't forecasts, So we're notoriously bad at predicting recessions. But to the best of my ability, I don't see one on the horizon. We're looking at GDP growth above two percent in the US next year. I know there was a lot of noise around that ism manufacturing PMI number for July that came out last night at forty six point eight. But I just point out that number was around forty six all of last year. We didn't have a recession this year. Manufacturing has not been the driver of the economy for the last few years. It's less than ten percent of GDP, eight percent of employment. From what I can see, the economy is still strong.

I mean, the first thing I would say is there are many recessions that were forecasts that never happened, But there were equally as many recessions that did have forecast did happen. They weren't forecasts, So we're notoriously bad at predicting recessions. But to the best of my ability, I don't see one on the horizon. We're looking at GDP growth above two percent in the US next year. I know there was a lot of noise around that ism manufacturing PMI number for July that came out last night at forty six point eight. But I just point out that number was around forty six all of last year. We didn't have a recession this year. Manufacturing has not been the driver of the economy for the last few years. It's less than ten percent of GDP, eight percent of employment. From what I can see, the economy is still strong.

Yeah, and that's what we heard from the Fed chief yesterday.

Yeah, and that's what we heard from the Fed chief yesterday.

He was actually quite strident in talking about how growth was pretty solid. I'm imagining that you're somebody who really likes the breadth that we've seen of late in markets. Do you think that that is maybe questioned a little bit here, given that the market seems to be suggesting that growth is falling off.

He was actually quite strident in talking about how growth was pretty solid. I'm imagining that you're somebody who really likes the breadth that we've seen of late in markets. Do you think that that is maybe questioned a little bit here, given that the market seems to be suggesting that growth is falling off.

Brian, We've done studies on breadth and it doesn't appear to be a leading indicator for the end of bull markets. And so I know it sounds counterintuitive when you have less and less stocks driving the market higher, that should be a signal the bull market's coming to an end. In fact, it's not true. But now we're getting a broadening in the stocks participating. I mean, you can't say it's a bad thing. I think it probably is telling you something about the economy in the sense that they're more cyclical stocks like the home builders that are starting to break higher. So the S and P did tremendously well up until July. In fact, in the last thirty years, there were only three years that did better until in the middle of July. And what I noticed is that each of those three years then had a pullback throughout the remainder of July at August. One of them, actually the pullback lasted up until October, and then they rallied into the end of the year. So we think that we're in a bull market, but of course they don't go up in a straight line. We are in the midst of a correction.

Brian, We've done studies on breadth and it doesn't appear to be a leading indicator for the end of bull markets. And so I know it sounds counterintuitive when you have less and less stocks driving the market higher, that should be a signal the bull market's coming to an end. In fact, it's not true. But now we're getting a broadening in the stocks participating. I mean, you can't say it's a bad thing. I think it probably is telling you something about the economy in the sense that they're more cyclical stocks like the home builders that are starting to break higher. So the S and P did tremendously well up until July. In fact, in the last thirty years, there were only three years that did better until in the middle of July. And what I noticed is that each of those three years then had a pullback throughout the remainder of July at August. One of them, actually the pullback lasted up until October, and then they rallied into the end of the year. So we think that we're in a bull market, but of course they don't go up in a straight line. We are in the midst of a correction.

Now.

Now.

I would be surprised if the correction's over. Hard to predict these things, but I'd be surprised.

I would be surprised if the correction's over. Hard to predict these things, but I'd be surprised.

I'm wondering if you could say the same thing about the Japanese equity market. We're seeing the nie K take it on the chin today. We're down about four point eight percent at the moment I ran the chart for the end against the greenback. For the last four trading days in New York, we're down about three percent. Or so against the dollar. What's happening here? I mean, is this a delayed reaction, something that was inevitable when the boj began to tighten.

I'm wondering if you could say the same thing about the Japanese equity market. We're seeing the nie K take it on the chin today. We're down about four point eight percent at the moment I ran the chart for the end against the greenback. For the last four trading days in New York, we're down about three percent. Or so against the dollar. What's happening here? I mean, is this a delayed reaction, something that was inevitable when the boj began to tighten.

I kind of think it was inevitable because you might be aware of that famous big Mac index that measures the cost of a McDonald's hamburger around the world, and all the rich countries, obviously the big macs are expensive, and then in the poorer countries, big macs are cheap. Well, there was one country for the last couple of years that was just sticking out like a sore thumb because right at the bottom, you know, with Vietnam and China, was Japan. And it didn't make any sense that a big max should cost the same in Tokyo as it does in ho Chimen City because people in Japan make ten times more than people in Vietnam. So I feel it's inevitable. And when you look at the short positions in the end on the CME, the last time they were this big was in the summer of two thousand and seven. There was in fact no change in Bank of Japan policy in the summer of two thousand and seven, but there was an unwind because the shorts just got so extreme, and that became like a snowball effect, and then dollar end started going down. In other words, the end went up. Well, what we've had this time is a big policy change. Nobody expected boj hiking by twenty basis points. I'm not surprised the equity markets reacting negatively, because even if Japanese corporates do hedge, they don't hedge for you know, ten years. They probably hedge two or three years forward.

I kind of think it was inevitable because you might be aware of that famous big Mac index that measures the cost of a McDonald's hamburger around the world, and all the rich countries, obviously the big macs are expensive, and then in the poorer countries, big macs are cheap. Well, there was one country for the last couple of years that was just sticking out like a sore thumb because right at the bottom, you know, with Vietnam and China, was Japan. And it didn't make any sense that a big max should cost the same in Tokyo as it does in ho Chimen City because people in Japan make ten times more than people in Vietnam. So I feel it's inevitable. And when you look at the short positions in the end on the CME, the last time they were this big was in the summer of two thousand and seven. There was in fact no change in Bank of Japan policy in the summer of two thousand and seven, but there was an unwind because the shorts just got so extreme, and that became like a snowball effect, and then dollar end started going down. In other words, the end went up. Well, what we've had this time is a big policy change. Nobody expected boj hiking by twenty basis points. I'm not surprised the equity markets reacting negatively, because even if Japanese corporates do hedge, they don't hedge for you know, ten years. They probably hedge two or three years forward.

But it's a bit formulaic, isn't it to yen strength? So sell down equity, I know, And we had the end here in early April, and you know we also had the Nike pushing up over forty one thousand. So ultimately, I suppose in time these things get corrected and there's a bit of mean reversion. Whatever. Would you be a buyer of Japanese equities here or cautious?

But it's a bit formulaic, isn't it to yen strength? So sell down equity, I know, And we had the end here in early April, and you know we also had the Nike pushing up over forty one thousand. So ultimately, I suppose in time these things get corrected and there's a bit of mean reversion. Whatever. Would you be a buyer of Japanese equities here or cautious?

I would be a buyer.

I would be a buyer.

I do think that, you know, we need to see some fresh forecasts for the dollar yen. I mean most of them are kind of around one sixty one sixty five. We need to see the market pricing in a yen that is no longer just going down and down. And down, and I think that's what's that sort of understood, and I think then the stock market can start to go higher. But the reason that correlation exists is because around forty percent of nick A revenues are from overseas. But I think, you know, the Bank of Japan probably is pretty happy with the end around where it is now. They've done what they wanted to do. I don't see them raising rates a whole bunch more going forward.

I do think that, you know, we need to see some fresh forecasts for the dollar yen. I mean most of them are kind of around one sixty one sixty five. We need to see the market pricing in a yen that is no longer just going down and down. And down, and I think that's what's that sort of understood, and I think then the stock market can start to go higher. But the reason that correlation exists is because around forty percent of nick A revenues are from overseas. But I think, you know, the Bank of Japan probably is pretty happy with the end around where it is now. They've done what they wanted to do. I don't see them raising rates a whole bunch more going forward.

So let's flip it around very quickly. Last question, Mark, I can give you about thirty seconds the dollar its strength. I mean, is are the best days for the greenback over? Particularly if you're talking about a FED that is poised to cut.

So let's flip it around very quickly. Last question, Mark, I can give you about thirty seconds the dollar its strength. I mean, is are the best days for the greenback over? Particularly if you're talking about a FED that is poised to cut.

Well, the opposite side of the coin is once the FED cuts, that's the green light for all the other central banks to cut too. All the other central banks have been waiting for this to happen, and of course a couple have gone before, like the Bank of Canada ECB. And I would say that on balance, if everybody's going to be bringing their rates down, then I don't see why the dollars.

Well, the opposite side of the coin is once the FED cuts, that's the green light for all the other central banks to cut too. All the other central banks have been waiting for this to happen, and of course a couple have gone before, like the Bank of Canada ECB. And I would say that on balance, if everybody's going to be bringing their rates down, then I don't see why the dollars.

Should just not trade sideways.

Should just not trade sideways.

All right, Mark, thank you for coming into our studios in Singapore and joining us here live on the program. Mark Matthews, head of Asia Research at Julius Bear.

All right, Mark, thank you for coming into our studios in Singapore and joining us here live on the program. Mark Matthews, head of Asia Research at Julius Bear.

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 he's 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 he's on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.