December 3, 2025 • 18 mins
Asian stocks advanced at Thursday's open, tracking gains in US peers after more evidence of a slowing job market boosted the case for the Federal Reserve to lower interest rates next week. We speak to Mark Cranfield, Bloomberg MLIV Strategist.
In the states, data on Wednesday showed US companies shed payrolls in November by the most since early 2023, reinforcing concerns about a more pronounced labor market weakening. Swaps pricing indicated rising expectations for a December cut Wednesday, with traders assigning more than a 90% chance to a 25-basis-point reduction. Separately, US services activity expanded at a slightly faster pace, while a measure of prices paid dropped to a seven-month low. We speak to Adam Turnquist, Chief Technical Strategist at LPL Financial.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Daybreak
Asia podcast. I'm Dog Krisner. US Equities eked out another
game in the Wednesday session after a week reading on
private payrolls from ADP. The numbers helped to cement bets
(00:23):
of a FED rate cut next week. We also saw
a rotation out of information technology shares. Let's take a
closer look at what's happening in the Asia Pacific. Mark
Cranfield joins us from our studios in Singapore. Mark is
a Bloomberg Markets Live strategist. Mark, thank you so much
for being here. We're focused a lot on the FED
and the very high likelihood of a rate cut next week.
(00:46):
It's kind of interesting that in spite of market expectations
of that twenty five bases point rate cut, the dollar
is holding in relatively well against the majors. We were
a little weak today in New York, trading only by
around three tens of one percent. If you look at
the Bloomberg Dollars Spot Index, what are you seeing now
when you look at the currency markets.
Speaker 2 (01:08):
That's really a function of the other side of the story.
So although the dollar story is becoming relatively clear in
the sense that we're expecting lower interest rates, but yields
are still relatively high on a global basis. We haven't
yet got a very strong theme in favor of the
other currents. You need the Euro and the yen especially
(01:31):
to have a story of their own why people want
to buy those currencies as an alternative to the US dollar.
It's emerging, but it isn't something that people are willing
to bet a lot of money on yet. Until that happens,
the dollar will be able to retain a reasonable level.
It probably it is probably going to be a drawn out,
(01:52):
like a slow motion action as we go into twenty
twenty six, with the expectations that they're going to be
further interest rate declines in the United States. Gradually the
yield differentials will narrow between the US and other countries.
It will undermine the US dollar. But the real kicker
will only come when people are really bullish, for example,
on Europe, when they see the potential for the European
(02:14):
Central Bank to maybe start turning towards higher interest rates,
when they see the European economies outperforming. When that kind
of confidence comes in, then the Euro's story in itself
becomes very clear, very tangible. People want to put money
into the Europe and it will mostly be at the
expense of the US dollar. We haven't yet fully reached
that point yet yet.
Speaker 1 (02:34):
When we consider the end and the recent commands from BOJ,
Governor Will way to talking up the prospects of a
raid hike. I think right now money markets are implying
maybe eighty percent probability that the BOJ will raise its
policy rate on the nineteenth. Doesn't that do anything to
strengthen the currency.
Speaker 2 (02:54):
The trouble with the end situation is that the Bank
of Japan, even if they read twenty five basis points,
which as you say, looks pretty much a done deal
now in December, they are still way below the neutral rate.
And if you look at the time gap. Since Governor
Luada came in, it has been changing policy, which is
a good thing, but we've had CPI running inflation levels
(03:17):
around three percent for a long time. The target rate,
if they raise it will go up to zero point
seventy five. That's still deeply negative real rates in Japan.
That's what undermines the Japanese currency, and nobody is expecting
that gap to be narrowed in a quick basis, so
even if they raise interest rates, And if you look
(03:38):
at how long the time difference between the hikes under Auada,
it's been many months. So we had one in January
this year, We're likely to get one in December. That
kind of time gap. If there's going to be another
hike in twenty twenty sex it might not be intil
the second.
Speaker 1 (03:51):
Half of the year.
Speaker 2 (03:52):
If traders see that, then they're fairly confident that the
end will underperform. We might see Dolly Yen go a
bit lower because of the US side as well. They're
going to be lowering interest rates, but it's not going
to be accelerating at a fast pace because the bank
is still nowhere near the neutral rate.
Speaker 1 (04:09):
We've had a number of bond auctions for the Japanese
market in the last week. I think we have a
thirty year later today. How have things been performing. What's
the appetite for Jgb's been like.
Speaker 2 (04:21):
Pretty mixed overall. As we approach the auctions, people are
tending to price in higher yields, giving a concession. As
it happens, the tenure went reasonably well this week. Actual
demand at the auction itself was quite decent, and yet
yesterday in the regular Bank of Japan operations, investors were
quite willing to sell short dated bonds aggressively back to
(04:43):
the central bank, so they're clearly expecting the interest rate
hike to come. Jgbs are being pushed low again today
head of the thirty year auction which is coming. Yields
are at record higher levels in the thirty year They
started selling these bonds only in nineteen ninety nine, and
this week we reached the highest levels we a scene.
So again they're pricing in a worst case scenario, so
(05:03):
the auction itself may go okay. In the background, the
big picture is that ten year yield is approaching the
two percent area. Now that is where we may see
some long term investors in Japan start to come in,
but we haven't reached it yet. In the meantime, the
whole Japanese curve is under pressure. That's roiling markets across
the world. Until we see whether or not there is
(05:26):
real genuine support for Japanese yields and the ten uere
around two percent, people would assume that the Japanese market
is the place to avoid.
Speaker 1 (05:34):
I want to change gears. Talk a little bit about
what's been going on in South Korea today, notwithstanding where
I'm seeing the costs be down about nine tens of
one percent at the moment, but the South Korean equity
market overall has been outperforming so many markets in the
Asia Pacific, And in the last couple of days we
had that upward revision from the Bok on a third
(05:57):
quarter economic growth I think at one point thy percent
growth rate quarter on quarter, which seemed to be stunning.
What's happening here and is this kind of momentum likely
to continue?
Speaker 3 (06:08):
Do?
Speaker 2 (06:08):
You'd think probably getting a bit overdone in the short term.
But there are a few reasons why Koreas had an
exceptional year. And it is ironic that we're talking about
it now because it's a week to the year since
they had the military action when they imposed martial law
in Korea, and people thought, oh, that's the end of
(06:28):
a career, but that actually was a turning point. Since then,
they've got a new president, new policy is much more
aggressive intervention from the government that's helped to boost the economy.
Korean companies have proved themselves to be right at the
forefront of the AI boom and other parts of the
tech sector as well, and they've been keeping the currency
relatively cheap as well. So from an investor's point of view,
(06:52):
they know that exporters have an edge because the currency
is helping them. They see the government doing the right
moves and that's helped the Koreans, which are coming from
a low base, that's helped them to be some of
the best performers in Asia this year. They are starting
to get a little bit expensive relative to the rest
of Asia at this stage, so it will need some
(07:12):
new drivers. We or may not see those as we
go into twenty twenty six, but based on where we
are now, unless we see some new developments in tech
which really support Korean companies, we've probably seen the best
that we're going to see in the Korean markets for
a while.
Speaker 1 (07:28):
So have the US tariffs imposed on South Korea? Have
they provided any kind of limitation here? Or have South
Korean exporters been able to overcome them and kind of
build those tariffs into their price structure in a way
that has not been dad fremantle.
Speaker 2 (07:45):
They've found lots of ways around it, but the tariff
is a relative game within Asia, and the only person
that really seems to be outstandingly as a loser at
the moment is India. Everybody else has renegotiate thanks to
China and the way that China have stood up to
the United States on the tariffs to a certain extent,
that has helped everybody else be able to make adjustments.
(08:08):
At the moment, India is the outlier from that point
of view, even though it's not really hurting their stock
market too much. The currency is collapsing though, so everything.
If you look across whether Koreas being compared to Taiwan,
it's being compared to Hong Kong, to China, it's pretty
much in the same ballpark as all of those. So
it's not winning or losing to a greater or lesser degree.
(08:28):
So from that point of view, there's a kind of
a neutrality about how tariffs are being played out in Asia.
Speaker 1 (08:33):
Mark, Before I let you go, I have to get
your take on China. Next week we get the inflation data,
and we know the economy in China right now is
mired heavily in this deflationary trap. I think it may
be concerning some people more than others. Beijing seems to
be a little lax in addressing it, though can you
make sense of that.
Speaker 2 (08:53):
It's a big complicated picture. They probably have already done
a lot of stimus issues. They probably don't want to
be seen to be the only person providing help to
the economy. They'd like to see the stock market take
care of itself. More private investment coming as well. It's
likely that there will be more government support to market.
(09:14):
You may have to wait till an early part of
next year before we see that, but clearly they've done
so much they want to stand back a bit and
see how does that really play out. So far, it's
been a little bit underwhelming, but it is early stages
and they will get help if the rest of the
world economy continues to do okay, China will benefit as well.
Speaker 1 (09:31):
Okay, great stuff, Mark, always a pleasure, Thank you so
very much. Mark Cranfield, Bloomberg Markets Live Strategist, joining from
Singapore here on the Daybreak Asia podcast. Welcome back to
the Detbreak Asia podcast. I'm deg Prisner. Financial markets are
(09:51):
widely expecting the Fed to lower interest rates next week.
Even so, policymakers, i think it's fair to say, have
been torn as they attempt balance the slowdown that we
have seen in the American labor market with still elevated inflation. Today,
the ISM reported activity among services expanded at a slightly
(10:11):
faster pace in the month of November. Perhaps more importantly,
the index of prices paid for services and materials showed
the slowest growth in seven months. Now, that could suggest
some easing in inflationary pressures. Now, on Friday markets, we'll
get a delayed reading on the Fed's preferred measure of inflation.
The PCE. Economists are projecting a third straight increase in
(10:35):
the core PCE by two tenths of one percent. If so,
that would keep the year over year figure hovering just
around three percent, and it would suggest that inflationary pressures
are stable yet still sticky. Let's bring Adam Turnquist into
the conversation. Adam is chief technical strategist at LPL Financial. Adam,
(10:56):
thank you so much for taking time to chat with us.
What did you make of this ISM print, particularly on
the prices paid side.
Speaker 3 (11:05):
Well, it certainly came at a good time after the
ADP report, because the market was trading a little bit
lower on that news than the ISM came out.
Speaker 4 (11:14):
We'll call it save the day, at least for price action. Today.
Speaker 3 (11:17):
You had As you mentioned, the price is paid component
coming down, new orders holding above fifty a little bit
slower than last month, but still in positive territory or
expansionary territory. And then employment ticked up month over month,
another good sign that I think helped offset some of
the weakness that we've seen in the labor market data.
Speaker 1 (11:36):
There was a very interesting report to my mind in
the FT today talking about the Treasury Department soliciting feedback
on the nomination the potential nomination here of Kevin Hassett
as FED chair. Other candidates were also evaluated in this
one on one conversation format with a number of executives
(11:56):
at major Wall Street firms and big players in the bondmark.
I need to point out a number. We're worried about
Hasset's alignment with Trump, and they said that Hasset could
agitate for indiscriminate rate cuts even if inflation continues to
run above that two percent target. It's there right now,
but I'm wondering whether we still need to consider this
(12:17):
idea of FED independence. Is that something that concerns you?
Speaker 4 (12:22):
It could for right now.
Speaker 3 (12:24):
I don't think it's part of the conversation in a
big way, it's maybe on the back burner when you
look at the market reaction to some of the news
and just the betting markets. When you look at the
Kevin Hasset odds of getting the nod for the FED chair,
the market seems to like that. I know, Kevin Hassets
mentioned it himself to the media, and that goes back
(12:44):
to your point about him being too closely aligned with
maybe the president or the president's objectives. But at the
end of the day, it's still the Fed, right, There's
policies in place that protect one member from completely running
the table in terms of where monetary policy goes. It's
really going to take him to convince the other members
(13:04):
to lean more dubbish. If that is the case next year, how.
Speaker 1 (13:08):
Many more rate cuts are you expecting? I mean, if
we do indeed get twenty five basis points in easing
next week on the tenth, I mean, are you expecting
a lot more in the way of Fed rate cuts?
Speaker 3 (13:21):
So the easy question, or the easy part of that question,
next next week I think is a done deal, especially
after the ADAP report, but even before that, very high
odds and the FED funds futures market for a rate
cut it's really going to boil down to the commentary
and the summary of economic projections. The labor market clearly
trendy lower, we'll call it stall speed. That's probably front
(13:43):
and center on the Fed's mind and keeping them up
at night. But I do think we have to be
cognizant of inflation. Right we have commodities moving higher and
in fact, the Bloomberg Commodity Index breaking out to new
multi year highs. Think of that as an input cost
and a leading indicator for inflation. I think it could
complicate the overall inflation story for the FED and potentially
(14:04):
leave the FED in a tough position next year. We
do think the rate cutting cycle will continue. I think
maybe on a nearturn basis, though the market expectations are
getting a little a bit of ahead of themselves in
terms of what to expect next week from the Fed
in terms of how dubblish they're going to come out.
Speaker 1 (14:21):
So where does that leave you? Then that thinking, where
does that lead you in terms of evaluating opportunities in
the equity market.
Speaker 3 (14:29):
So for the equity market, we're bullish going into twenty
twenty six. We do think there could be some near
term volatility, especially With this latest pullback and some of
the leadership trends that we've seen take place over the
last month, the market has turned a little bit more defensive.
Speaker 4 (14:45):
There's been some risk aversion in.
Speaker 3 (14:47):
Overall retail participation in US equities. That's a new development
we haven't seen in seven months. So on a near term.
Speaker 4 (14:54):
Basis, we'll call it mildly cautious if we can go there.
Speaker 3 (14:59):
But I think the playbook for next year is really
going to be by the dip, the bull market will continue.
We have our base case no recession. We think there'll
be stimulative measures from the One Big Beautiful Bill Act
that will support not only Corporate America but also the
lower end of the consumer with some of these tax
incentives and higher rebate checks coming in the first half.
(15:22):
We also have our expectation for continued cutting from the Fed,
although maybe two to three rate cuts next year's is
probably probably the most likely scenario as it stands now,
and look at Corporate America's doing quite well. We learned
how resilient they are in the wake of higher effective
teriff rates. Earning's power remains strong. The AI team we
think will continue, so a pretty good backdrop as we
(15:44):
look ahead to twenty twenty six.
Speaker 1 (15:46):
To what extent do you expect the AI theme to continue.
I mean, we're three years into this right now, and
it seems as though there is no end in sight.
There have been maybe a few moments, particularly in the
month of November, some naval gazing that allow the market
to consider the fact that some of these evaluations are stretched.
But are you still optimistic that the momentum here is
(16:07):
positive for the foreseeable future?
Speaker 4 (16:10):
Yeah? Absolutely.
Speaker 3 (16:11):
When you look at the capex spending rates among the
hyperscalers that's continuing to grow over twenty percent on a
compounded annual growth rate, we don't really see that slowing
down in this AI arms race. I think the big
story for next year it's going to be a show
me story. Right when you think about the return on investment.
We started to see that when Meta reported earnings. There's
(16:33):
more scrutiny because a lot of the hyperscalers they've been
blowing through their free cash flow and now they've turned
to the debt market in a big way.
Speaker 4 (16:41):
So you're adding debt to the balance sheet.
Speaker 3 (16:43):
That brings in added risk, added volatility, and of course
added scrutiny. In terms of what's the actual return on
all of this spending. I think that's going to be
the big story next year.
Speaker 1 (16:54):
Are you tempted to look for opportunities offshore right now?
If you're concerned about devaluation and maybe there's a question
mark about the degree to which the American economy can
still grow and drive a lot of these corporate earnings.
Are you tempted maybe to look at a place like
Europe or even markets in Asia.
Speaker 4 (17:15):
The emerging markets look really strong.
Speaker 3 (17:17):
They've had a surprising year in terms of out performance
even in international developed so a lot of countries in
Europe have done quite well, especially on a relative basis.
I think the big question is going to be the
dollar on that trade or investment. The dollars still in
this what we call a secular up trend. If we
start to see the dollar index roll over, that's our
(17:37):
queue to start kicking the tires on some of these
I would say emerging market countries. Look at Brazil, look
at Mexico, and some countries in Latin America. There's some
other countries in the Asian part of the world that
have done quite well. We think those trends could accelerate
especially if the dollar breaks down a little bit.
Speaker 1 (17:55):
Here, Adam, always a pleasure. Thank you so very much.
Adam turnquiz there. He is the chief tech strategist at
LPL Financial. Joining us here on the Daybreak Asia Podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
(18:17):
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
and Australia. I'm Doug Chrisner, and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Daybreak
Asia podcast. I'm Dog Krisner. US Equities eked out another
game in the Wednesday session after a week reading on
private payrolls from ADP. The numbers helped to cement bets
(00:23):
of a FED rate cut next week. We also saw
a rotation out of information technology shares. Let's take a
closer look at what's happening in the Asia Pacific. Mark
Cranfield joins us from our studios in Singapore. Mark is
a Bloomberg Markets Live strategist. Mark, thank you so much
for being here. We're focused a lot on the FED
and the very high likelihood of a rate cut next week.
(00:46):
It's kind of interesting that in spite of market expectations
of that twenty five bases point rate cut, the dollar
is holding in relatively well against the majors. We were
a little weak today in New York, trading only by
around three tens of one percent. If you look at
the Bloomberg Dollars Spot Index, what are you seeing now
when you look at the currency markets.
Speaker 2 (01:08):
That's really a function of the other side of the story.
So although the dollar story is becoming relatively clear in
the sense that we're expecting lower interest rates, but yields
are still relatively high on a global basis. We haven't
yet got a very strong theme in favor of the
other currents. You need the Euro and the yen especially
(01:31):
to have a story of their own why people want
to buy those currencies as an alternative to the US dollar.
It's emerging, but it isn't something that people are willing
to bet a lot of money on yet. Until that happens,
the dollar will be able to retain a reasonable level.
It probably it is probably going to be a drawn out,
(01:52):
like a slow motion action as we go into twenty
twenty six, with the expectations that they're going to be
further interest rate declines in the United States. Gradually the
yield differentials will narrow between the US and other countries.
It will undermine the US dollar. But the real kicker
will only come when people are really bullish, for example,
on Europe, when they see the potential for the European
(02:14):
Central Bank to maybe start turning towards higher interest rates,
when they see the European economies outperforming. When that kind
of confidence comes in, then the Euro's story in itself
becomes very clear, very tangible. People want to put money
into the Europe and it will mostly be at the
expense of the US dollar. We haven't yet fully reached
that point yet yet.
Speaker 1 (02:34):
When we consider the end and the recent commands from BOJ,
Governor Will way to talking up the prospects of a
raid hike. I think right now money markets are implying
maybe eighty percent probability that the BOJ will raise its
policy rate on the nineteenth. Doesn't that do anything to
strengthen the currency.
Speaker 2 (02:54):
The trouble with the end situation is that the Bank
of Japan, even if they read twenty five basis points,
which as you say, looks pretty much a done deal
now in December, they are still way below the neutral rate.
And if you look at the time gap. Since Governor
Luada came in, it has been changing policy, which is
a good thing, but we've had CPI running inflation levels
(03:17):
around three percent for a long time. The target rate,
if they raise it will go up to zero point
seventy five. That's still deeply negative real rates in Japan.
That's what undermines the Japanese currency, and nobody is expecting
that gap to be narrowed in a quick basis, so
even if they raise interest rates, And if you look
(03:38):
at how long the time difference between the hikes under Auada,
it's been many months. So we had one in January
this year, We're likely to get one in December. That
kind of time gap. If there's going to be another
hike in twenty twenty sex it might not be intil
the second.
Speaker 1 (03:51):
Half of the year.
Speaker 2 (03:52):
If traders see that, then they're fairly confident that the
end will underperform. We might see Dolly Yen go a
bit lower because of the US side as well. They're
going to be lowering interest rates, but it's not going
to be accelerating at a fast pace because the bank
is still nowhere near the neutral rate.
Speaker 1 (04:09):
We've had a number of bond auctions for the Japanese
market in the last week. I think we have a
thirty year later today. How have things been performing. What's
the appetite for Jgb's been like.
Speaker 2 (04:21):
Pretty mixed overall. As we approach the auctions, people are
tending to price in higher yields, giving a concession. As
it happens, the tenure went reasonably well this week. Actual
demand at the auction itself was quite decent, and yet
yesterday in the regular Bank of Japan operations, investors were
quite willing to sell short dated bonds aggressively back to
(04:43):
the central bank, so they're clearly expecting the interest rate
hike to come. Jgbs are being pushed low again today
head of the thirty year auction which is coming. Yields
are at record higher levels in the thirty year They
started selling these bonds only in nineteen ninety nine, and
this week we reached the highest levels we a scene.
So again they're pricing in a worst case scenario, so
(05:03):
the auction itself may go okay. In the background, the
big picture is that ten year yield is approaching the
two percent area. Now that is where we may see
some long term investors in Japan start to come in,
but we haven't reached it yet. In the meantime, the
whole Japanese curve is under pressure. That's roiling markets across
the world. Until we see whether or not there is
(05:26):
real genuine support for Japanese yields and the ten uere
around two percent, people would assume that the Japanese market
is the place to avoid.
Speaker 1 (05:34):
I want to change gears. Talk a little bit about
what's been going on in South Korea today, notwithstanding where
I'm seeing the costs be down about nine tens of
one percent at the moment, but the South Korean equity
market overall has been outperforming so many markets in the
Asia Pacific, And in the last couple of days we
had that upward revision from the Bok on a third
(05:57):
quarter economic growth I think at one point thy percent
growth rate quarter on quarter, which seemed to be stunning.
What's happening here and is this kind of momentum likely
to continue?
Speaker 3 (06:08):
Do?
Speaker 2 (06:08):
You'd think probably getting a bit overdone in the short term.
But there are a few reasons why Koreas had an
exceptional year. And it is ironic that we're talking about
it now because it's a week to the year since
they had the military action when they imposed martial law
in Korea, and people thought, oh, that's the end of
(06:28):
a career, but that actually was a turning point. Since then,
they've got a new president, new policy is much more
aggressive intervention from the government that's helped to boost the economy.
Korean companies have proved themselves to be right at the
forefront of the AI boom and other parts of the
tech sector as well, and they've been keeping the currency
relatively cheap as well. So from an investor's point of view,
(06:52):
they know that exporters have an edge because the currency
is helping them. They see the government doing the right
moves and that's helped the Koreans, which are coming from
a low base, that's helped them to be some of
the best performers in Asia this year. They are starting
to get a little bit expensive relative to the rest
of Asia at this stage, so it will need some
(07:12):
new drivers. We or may not see those as we
go into twenty twenty six, but based on where we
are now, unless we see some new developments in tech
which really support Korean companies, we've probably seen the best
that we're going to see in the Korean markets for
a while.
Speaker 1 (07:28):
So have the US tariffs imposed on South Korea? Have
they provided any kind of limitation here? Or have South
Korean exporters been able to overcome them and kind of
build those tariffs into their price structure in a way
that has not been dad fremantle.
Speaker 2 (07:45):
They've found lots of ways around it, but the tariff
is a relative game within Asia, and the only person
that really seems to be outstandingly as a loser at
the moment is India. Everybody else has renegotiate thanks to
China and the way that China have stood up to
the United States on the tariffs to a certain extent,
that has helped everybody else be able to make adjustments.
(08:08):
At the moment, India is the outlier from that point
of view, even though it's not really hurting their stock
market too much. The currency is collapsing though, so everything.
If you look across whether Koreas being compared to Taiwan,
it's being compared to Hong Kong, to China, it's pretty
much in the same ballpark as all of those. So
it's not winning or losing to a greater or lesser degree.
(08:28):
So from that point of view, there's a kind of
a neutrality about how tariffs are being played out in Asia.
Speaker 1 (08:33):
Mark, Before I let you go, I have to get
your take on China. Next week we get the inflation data,
and we know the economy in China right now is
mired heavily in this deflationary trap. I think it may
be concerning some people more than others. Beijing seems to
be a little lax in addressing it, though can you
make sense of that.
Speaker 2 (08:53):
It's a big complicated picture. They probably have already done
a lot of stimus issues. They probably don't want to
be seen to be the only person providing help to
the economy. They'd like to see the stock market take
care of itself. More private investment coming as well. It's
likely that there will be more government support to market.
(09:14):
You may have to wait till an early part of
next year before we see that, but clearly they've done
so much they want to stand back a bit and
see how does that really play out. So far, it's
been a little bit underwhelming, but it is early stages
and they will get help if the rest of the
world economy continues to do okay, China will benefit as well.
Speaker 1 (09:31):
Okay, great stuff, Mark, always a pleasure, Thank you so
very much. Mark Cranfield, Bloomberg Markets Live Strategist, joining from
Singapore here on the Daybreak Asia podcast. Welcome back to
the Detbreak Asia podcast. I'm deg Prisner. Financial markets are
(09:51):
widely expecting the Fed to lower interest rates next week.
Even so, policymakers, i think it's fair to say, have
been torn as they attempt balance the slowdown that we
have seen in the American labor market with still elevated inflation. Today,
the ISM reported activity among services expanded at a slightly
(10:11):
faster pace in the month of November. Perhaps more importantly,
the index of prices paid for services and materials showed
the slowest growth in seven months. Now, that could suggest
some easing in inflationary pressures. Now, on Friday markets, we'll
get a delayed reading on the Fed's preferred measure of inflation.
The PCE. Economists are projecting a third straight increase in
(10:35):
the core PCE by two tenths of one percent. If so,
that would keep the year over year figure hovering just
around three percent, and it would suggest that inflationary pressures
are stable yet still sticky. Let's bring Adam Turnquist into
the conversation. Adam is chief technical strategist at LPL Financial. Adam,
(10:56):
thank you so much for taking time to chat with us.
What did you make of this ISM print, particularly on
the prices paid side.
Speaker 3 (11:05):
Well, it certainly came at a good time after the
ADP report, because the market was trading a little bit
lower on that news than the ISM came out.
Speaker 4 (11:14):
We'll call it save the day, at least for price action. Today.
Speaker 3 (11:17):
You had As you mentioned, the price is paid component
coming down, new orders holding above fifty a little bit
slower than last month, but still in positive territory or
expansionary territory. And then employment ticked up month over month,
another good sign that I think helped offset some of
the weakness that we've seen in the labor market data.
Speaker 1 (11:36):
There was a very interesting report to my mind in
the FT today talking about the Treasury Department soliciting feedback
on the nomination the potential nomination here of Kevin Hassett
as FED chair. Other candidates were also evaluated in this
one on one conversation format with a number of executives
(11:56):
at major Wall Street firms and big players in the bondmark.
I need to point out a number. We're worried about
Hasset's alignment with Trump, and they said that Hasset could
agitate for indiscriminate rate cuts even if inflation continues to
run above that two percent target. It's there right now,
but I'm wondering whether we still need to consider this
(12:17):
idea of FED independence. Is that something that concerns you?
Speaker 4 (12:22):
It could for right now.
Speaker 3 (12:24):
I don't think it's part of the conversation in a
big way, it's maybe on the back burner when you
look at the market reaction to some of the news
and just the betting markets. When you look at the
Kevin Hasset odds of getting the nod for the FED chair,
the market seems to like that. I know, Kevin Hassets
mentioned it himself to the media, and that goes back
(12:44):
to your point about him being too closely aligned with
maybe the president or the president's objectives. But at the
end of the day, it's still the Fed, right, There's
policies in place that protect one member from completely running
the table in terms of where monetary policy goes. It's
really going to take him to convince the other members
(13:04):
to lean more dubbish. If that is the case next year, how.
Speaker 1 (13:08):
Many more rate cuts are you expecting? I mean, if
we do indeed get twenty five basis points in easing
next week on the tenth, I mean, are you expecting
a lot more in the way of Fed rate cuts?
Speaker 3 (13:21):
So the easy question, or the easy part of that question,
next next week I think is a done deal, especially
after the ADAP report, but even before that, very high
odds and the FED funds futures market for a rate
cut it's really going to boil down to the commentary
and the summary of economic projections. The labor market clearly
trendy lower, we'll call it stall speed. That's probably front
(13:43):
and center on the Fed's mind and keeping them up
at night. But I do think we have to be
cognizant of inflation. Right we have commodities moving higher and
in fact, the Bloomberg Commodity Index breaking out to new
multi year highs. Think of that as an input cost
and a leading indicator for inflation. I think it could
complicate the overall inflation story for the FED and potentially
(14:04):
leave the FED in a tough position next year. We
do think the rate cutting cycle will continue. I think
maybe on a nearturn basis, though the market expectations are
getting a little a bit of ahead of themselves in
terms of what to expect next week from the Fed
in terms of how dubblish they're going to come out.
Speaker 1 (14:21):
So where does that leave you? Then that thinking, where
does that lead you in terms of evaluating opportunities in
the equity market.
Speaker 3 (14:29):
So for the equity market, we're bullish going into twenty
twenty six. We do think there could be some near
term volatility, especially With this latest pullback and some of
the leadership trends that we've seen take place over the
last month, the market has turned a little bit more defensive.
Speaker 4 (14:45):
There's been some risk aversion in.
Speaker 3 (14:47):
Overall retail participation in US equities. That's a new development
we haven't seen in seven months. So on a near term.
Speaker 4 (14:54):
Basis, we'll call it mildly cautious if we can go there.
Speaker 3 (14:59):
But I think the playbook for next year is really
going to be by the dip, the bull market will continue.
We have our base case no recession. We think there'll
be stimulative measures from the One Big Beautiful Bill Act
that will support not only Corporate America but also the
lower end of the consumer with some of these tax
incentives and higher rebate checks coming in the first half.
(15:22):
We also have our expectation for continued cutting from the Fed,
although maybe two to three rate cuts next year's is
probably probably the most likely scenario as it stands now,
and look at Corporate America's doing quite well. We learned
how resilient they are in the wake of higher effective
teriff rates. Earning's power remains strong. The AI team we
think will continue, so a pretty good backdrop as we
(15:44):
look ahead to twenty twenty six.
Speaker 1 (15:46):
To what extent do you expect the AI theme to continue.
I mean, we're three years into this right now, and
it seems as though there is no end in sight.
There have been maybe a few moments, particularly in the
month of November, some naval gazing that allow the market
to consider the fact that some of these evaluations are stretched.
But are you still optimistic that the momentum here is
(16:07):
positive for the foreseeable future?
Speaker 4 (16:10):
Yeah? Absolutely.
Speaker 3 (16:11):
When you look at the capex spending rates among the
hyperscalers that's continuing to grow over twenty percent on a
compounded annual growth rate, we don't really see that slowing
down in this AI arms race. I think the big
story for next year it's going to be a show
me story. Right when you think about the return on investment.
We started to see that when Meta reported earnings. There's
(16:33):
more scrutiny because a lot of the hyperscalers they've been
blowing through their free cash flow and now they've turned
to the debt market in a big way.
Speaker 4 (16:41):
So you're adding debt to the balance sheet.
Speaker 3 (16:43):
That brings in added risk, added volatility, and of course
added scrutiny. In terms of what's the actual return on
all of this spending. I think that's going to be
the big story next year.
Speaker 1 (16:54):
Are you tempted to look for opportunities offshore right now?
If you're concerned about devaluation and maybe there's a question
mark about the degree to which the American economy can
still grow and drive a lot of these corporate earnings.
Are you tempted maybe to look at a place like
Europe or even markets in Asia.
Speaker 4 (17:15):
The emerging markets look really strong.
Speaker 3 (17:17):
They've had a surprising year in terms of out performance
even in international developed so a lot of countries in
Europe have done quite well, especially on a relative basis.
I think the big question is going to be the
dollar on that trade or investment. The dollars still in
this what we call a secular up trend. If we
start to see the dollar index roll over, that's our
(17:37):
queue to start kicking the tires on some of these
I would say emerging market countries. Look at Brazil, look
at Mexico, and some countries in Latin America. There's some
other countries in the Asian part of the world that
have done quite well. We think those trends could accelerate
especially if the dollar breaks down a little bit.
Speaker 1 (17:55):
Here, Adam, always a pleasure. Thank you so very much.
Adam turnquiz there. He is the chief tech strategist at
LPL Financial. Joining us here on the Daybreak Asia Podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
(18:17):
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
and Australia. I'm Doug Chrisner, and this is Bloomberg
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