October 15, 2025 • 20 mins
US Treasury Secretary Scott Bessent dangled the possibility of extending a pause of import duties on Chinese goods for longer than three months if China halts its plan for strict new export controls on rare-earth elements. The US and China have agreed to a series of 90-day truces since earlier this year, with the next deadline looming in November.
Australian Prime Minister Anthony Albanese is set to have his first sit down in the White House with President Trump next week. The meeting comes as the Trump administration's interest in critical mineral resources has fueled speculation the US government may take stakes in Australian miners as part of a broader strategic relationship. Also key for Albanese is the fate of the Aukus security agreement that the US signed with Australia and the UK in 2021 to counter China's military expansion in the Indo-Pacific region. Central to the deal is a project — expected to cost hundreds of billions of dollars — to help Australia develop a fleet of nuclear-powered submarines. To help us preview the meeting, we speak to Bloomberg's Paul Allen.
Plus - Wall Street was lashed with volatility as investors struggled to gauge the scope of trade tensions between the world's two largest economies. Stocks rallied, plunged, then rose anew amid optimism over earnings. As the earnings season got under way, Morgan Stanley and Bank of America Corp. jumped on solid results. We speak to Keith Buchanan, Senior Portfolio Manager at Globalt Investments.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak
Asia Podcast. I'm Doug Chrisner. Today, President Trump said the
US is in a trade war with China. Earlier in
the day, Treasury Secretary Scott Besson proposed extending the pause
(00:23):
on increased US tariffs on those Chinese goods. Betson said
it would be done in exchange for Beijing putting off
its recently announced plan to tighten limits on rare earth
elements and the exportation of those out of China. Now,
these minerals are critical to many industries as we know.
Here is Treasury Secretary Best right now.
Speaker 2 (00:44):
We are currently in a ninety day role on the tariffs,
So is it possible that we could go to a
longer role in return for a delay perhaps, But all
that's going to be negotiated in the coming weeks.
Speaker 1 (01:02):
Now, this week in Washington, G seven finance ministers will
consider a joint response to discourage Beijing's planned move to
control those rare earth minerals. And the timing is interesting too,
because next week Australian Prime Minister Anthony Albinizi is set
to meet with President Trump in Washington. Perhaps the most
important topic is critical minerals. For a closer look, now,
(01:25):
I'm joined by Bloomberg's Paul Allen, who is in Sydney. Paul,
thanks for making time. You and I have talked in
the past about Australia's vast supply of rare earths. So
if you had to kind of gauge what a deal
between the US and Australia would look like in terms
of rare earth minerals, give me a sense of what
that might look like.
Speaker 3 (01:45):
Well, there's certainly a lot of speculation around the stog
the prospect of a deal around critical minerals, because we've
heard President Trump talking in the past about ideas like
well maybe we could take over Greenland or involvement in Ukraine.
And at the core of a lot of the statements
is these countries and nations critical mineral reserves. In Australia,
(02:06):
depending on how you slice and dice, it has either
the largest or the second largest critical minerals deposits in
the world. But the limitation here is the refining of
those deposits. Australia's got the minds, It certainly has the
scope for plenty more critical minerals minds, but all of
the processing happens offshore, mostly in China. Some of it
(02:29):
happens in Korea as well, So any discussion around a
potential deal likely to focus in on how these minerals
get processed. And there's been some speculation in the media
that there could be some sort of deal with the
US and the range of seven to eight hundred million dollars,
but beyond that we don't know anything. The government's been
very tight lipped about this, which again leads to future
(02:51):
speculation that we very well could see something get announced
when Anthony Alberanezi meets President Trump.
Speaker 1 (02:57):
So what's holding Canberra from building up refining capacity in
Australia when it comes to the processing of these rare earths.
Speaker 3 (03:05):
Well, certainly the political will exists. I think the question
is more a commercial one. I can give you an
example of one company. It's a small company called Australian
Strategic Minerals. It's seen a very healthy run up in
its stock price on the ASX. So this is despite
the fact that it doesn't actually have a mine in Australia.
(03:26):
For as long as I can remember working for Bloomberg
and Australia, ASM has been talking about starting a mine
in a near a town called Dubbo in New South Wales.
It's still about to start its pre feasibility stage, so
it's taking a long long time. There's certainly a desire
to get this done, but critical minerals processing very energy intensive.
(03:50):
It generates a lot of toxic waste as well, so
putting together these things seems to be the major hiccup.
The biggest mineral critical mind Generals miner listed on the
ASX as Linus, but it does all the bits refining
in Malaysia, for example, but it does have a mine
here in Australia. So it does speak to this broader
(04:11):
problem of the cost, the pollution, the regulation of getting
processing underway in Australia.
Speaker 1 (04:19):
So how have these stocks and these Australian mining companies
been performing lately?
Speaker 3 (04:24):
Have they been advancing, Yes, they have been advancing without
I can't give you too many details on the movements
today because they're also volatile. They do shift around a lot.
But the overwhelming theme has been one of optimism, a
sense of opportunity for Australian critical minerals miners, and some
of the big players are involved in it as well.
(04:46):
Rio Tinto was a major miner of critical minerals. So
it was South thirty two which was spun out of
PHP some time ago. There was another company called a
Luca as well. They've all seen healthy rallies in their
stock price inspired by this need for critical minerals. But
as I say, this issue has been around for probably
(05:07):
a decade or more, the need to diversify where these
come from. It seems getting that diversification to happen that's
the difficult part.
Speaker 1 (05:15):
So I mentioned a moment ago that President Trump was
saying earlier that the US is in fact into trade
war with China. How is this being viewed in Australia
right now? The tension between Washington and Beijing.
Speaker 3 (05:27):
It has forever been a very very difficult type grope
for Australia to walk because on the one hand, China
is Australia's largest trade partner by some considerable distance, and
it was not that long ago when Scott Morrison was
Prime Minister that the country was reeling under trade strikes
from China for all sorts of things from coal to
(05:48):
wine to bali. And when the new government got elected
here four years ago, the Albanese government that was seen
as something of a reset and Moost trade strikes have
since been wound back in the relationship. Ship's improved again.
But it's well known that China is no fan of
the AUCAS agreement between the United States and the United Kingdom.
(06:10):
The United States is Australia's most important ally. The relationship
there is very very close as well on a diplomatic level.
We heard from the prior to Deputy Prime Minister Richard
Marles saying that no country is closer to the US
than Australia in terms of how we engage in the
level of trust that is there. So navigating that tightrope,
(06:31):
particularly when your closest ally is calling saying it'sn't a
trade war with your closest trading partner, it's a really
difficult foreign policy balancing act.
Speaker 1 (06:42):
So I know you talked daily about the weakness of
the Chinese economy, and I'm curious about the current trade
relation right now between Australia and China and the degree
to which Australia's exports, particularly of things like iron ore,
have been kind of steamied a bit by some of
the struggles that China is enduring right now.
Speaker 3 (07:02):
Yeah, somewhat, life has not been as great for Australia's
big miners as it has been in the past. And
you know, even though I mentioned those trade strikes have
been wound back, we still see evidence of tension bubbling
up from time to time. BHP the world's the biggest
of minor for example, that's one of the biggest well
often depending on the fluctuations of market cap, the biggest
(07:25):
listed company on the ASX at the moment having difficulty
getting its iron or into China over a pricing dispute.
So that's still getting ironed out. But we had another
listed company, Treasury Wine Estates, announcing not that long ago,
a few days ago, that it was abandoning its twenty
(07:46):
twenty six guidance against the backdrop of this tension. You know,
it's two biggest markets are the United States and China.
They're in a trade war and the word President Trump
at the moment. So Treasury Wine Estates said, look, we
can't give reliable guidance at the moment. And we saw
the stock price falling eleven percent this week and over
the course of this year it's values dropped by about half.
(08:08):
And if you're going to point the finger of blame,
what calls this the catalyst. It's that trade tension.
Speaker 1 (08:14):
Paul will leave it there. Thank you so very much.
Bloomberg's Paul Allen in Sydney joining us here on the
Daybreak Asia podcast. Welcome to the Daybreak Asia Podcast. I'm
Doug Krisner. In the US, the equity market closed mostly
higher in the last session, given upbeat signs on the
(08:36):
American economy. Factory activity in New York State unexpectedly expanded,
and at the same time, Bank of America reported third
quarter earnings and revenue above expectations. For closer look now
at the US price action, I'm joined by Keith Buchanan.
He is senior portfolio manager at Globalt. Keith is on
the line from Atlanta, Georgia. Keith, thank you so much.
(08:59):
Can we begin by kind of summarizing what you heard
from the big banks? Some record breaking numbers for the
fourth quarter, obviously a lot of deal activity, trading revenue
was very strong as well. What's your takeaway, Daren, thanks
again for having me that.
Speaker 4 (09:14):
What we our biggest takeaway thus far this earning season
when it comes to larger money center banks is you know,
things are really just telling along at the pace that honestly,
we feel like it's been somewhat not appreciated on the
larger scale of what the market's focused on. I think
the lack of data from the government from a macroecadomic
standpoint possibly could kind of clear the way for some
(09:35):
of the read through from the larger banks to really
hit home with the marketplace, and they're really hammering home
the fact that a the macroeconomic environment is really growing
at a clip that really doesn't you know, really doesn't
vibe with what some of the ngative record we've seen
in the in the labor market particularly, but also the
(09:56):
consumer environment and what they've seen as far as the
consuming behavior and the lack of deterioration on the consumer's
part in a way that also voves with the jobs
reports that we're seeing recently. Really has us focus on
the spending that the economy is in need at this moment,
and the consumer is pitching in.
Speaker 5 (10:14):
It's more than its fast air.
Speaker 1 (10:16):
So tomorrow we'll begin hearing from some of the regional
banks and a few analysts. We're saying today, if there
is trouble ahead beyond the shutdown or beyond the US
China trade tensions, the regionals really are the place to look.
I thought it was interesting today that the KBW Regional
Bank index was down about two point three percent. How
do you feel about the regional banks right now?
Speaker 4 (10:38):
Sure, and the larger scale, the larger modiicineer banks have
more levers of pull in order to drive earnings growth
just in a general sense, and the region is are
more more dependent on this net interest income and the
drivers of loan growth and being able to make that
spread of lending on the long end and boring on.
Speaker 5 (10:58):
The short end.
Speaker 4 (11:00):
Pure banking aspect of how banks traditionally made made earnings
is more you know, kind of focused with the larger
regional banks than it is with sort of money center
banks that have trading and other aspects and investment banking
that can really smooth out earnings. Regionals are more cyclical
and you kind of can have a better read through
as to the demand for money and demand from consumers
(11:21):
also a small businesses as well.
Speaker 1 (11:23):
It's interesting today too we heard some commentary from leadership
at some of the money center banks talking about the
exuberance in AI City Group CFO Mark Mason was saying
some sectors are likely frothy and overvalued, and David Solomon,
the CEO of Goldmen Sachs, alluded to the dot com bubble.
How is your shop viewing the AI trade right now?
Speaker 4 (11:48):
We felt like there's a while to go before we
can really put it up against what happened in the
late nineties. We don't think that that's impossible. But right now,
when we're on the cycle, we feel like the the
some of the stories of some of the pick accidents
and shovels of this new gold era of AI.
Speaker 5 (12:06):
Investing, that investing is real.
Speaker 4 (12:08):
It's hitting the top line and bottom line of so
of each corporation they're able to transfer that into cash flow.
We feel like the on the front end of that
investment phase is real and is hitting the ground right now.
But as far as what the market is pricing in
going forward, we really are conscious of how the exuberance
and the behavior of mechanisms of market participates, particularly since
(12:30):
our environment now is more a little more retail oriented.
As far as the day to day trading, how that
can get out of hand very quickly and almost you know,
have a circular logic as to the justification of valuations.
Speaker 5 (12:42):
Is the hype and the hype justifies.
Speaker 4 (12:44):
Evaluations, and that leads to a phase of investing and
sentiment that we feel like is not quite where we
are right now, but we're really conscious of the concentration
of hype and valuation and market cap and those names
that could potentially in that direction if ever hiccup in
the investment or ever a doubt as we saw a
(13:05):
couple of years ago, about how quickly those investments can
really turn the cash for some of these corporations.
Speaker 1 (13:12):
It's interesting that you make the point about the retail
crowd because today in the US the S and P
five hundred was in the red for less than thirty minutes,
and it really points to this idea that retail continued
to buy the dip. City Group was saying today that
retail investor trading volume increased to an all time high,
defying a typically week October when you look at things seasonally,
(13:36):
and I'm wondering whether or not this speaks to some
type of inherent risk in the overall market when you
have that type of retail psychology taking hold.
Speaker 4 (13:46):
Yes, And that's one of the things that we feel
like more kin to what we saw in the nineties
is just how pervasive it's become as well as the
flow into ETFs and how those trade on a day
to day basis also really causes a lot of changing
dynamics says as to what really drives day to day
movements as far as technicals and centiment as well.
Speaker 5 (14:08):
So we really are we think that's a fascinating.
Speaker 4 (14:11):
Part of how the market is evolving right now, and
we don't think it's necessarily something that will shift back
in any violent way. So we want to make sure
we get our arms around how the market perceived those
changes as well as how our class can benefit frankly
from some of those shifts and how markets move because
of what we feel like is driving markets, whether than
the institutional space really doing that.
Speaker 5 (14:31):
It's more than retail space, and it's almost inevitable at
this point.
Speaker 1 (14:33):
Keith, I'd like to get your take on this debasement trade.
We have both gold and silver trading at record levels.
Here are you participating in this at all? How do
you view this?
Speaker 4 (14:44):
Sure, we have our class with positions in silver and goal,
and we've come at it from a few different angles.
It captures a lot of risks that we felt like
we're clear and present more than a year ago, so
we've been there for a while now. We have before
it was coin debasement, the debasement trade.
Speaker 5 (15:02):
And what we're looking at now is that we're short underweight.
Speaker 4 (15:08):
Fixed income as well, kind of in the same theme
of the budget situation, not only here in the US
we globally cause us a lot of concern in our part,
but also we're looking at safe havens that are typical
of this type of cycle. Again, we've seen things shift
from how the consumers retailer of crowd is involved in
(15:30):
market conditions as well as you know, just how sovereign
governments have started to grapple with some of the concerns
that we are grappling with here as global investors. So
we participated there and we feel like that's a place
that we want to continue being.
Speaker 5 (15:43):
We've trimmed some very recently in gold.
Speaker 4 (15:46):
But we still feel like that offers a good risk
reward even these levels for our class portfolio.
Speaker 1 (15:50):
So we have a FED meeting around the corner. Market
is expecting right now, I think a twenty five basis
point right. Got a lot of concern about the weakness
in the labor market. A couple of FED officials have
really spoken to that quite succinctly, and there are maybe
some questions around the strength of the American consumer. I
know that's a big kind of category and there are
(16:11):
different segments along that spectrum. But today I was struck
by the fact that Edmunds dot Com reported the level
of underwater car loans now to four year high, so
just over twenty eight percent of trade ins toward the
purchase of a new vehicle carried negative equity. Are you
concerned about the strength of the American consumer?
Speaker 5 (16:34):
We're absolutely laser focus on the.
Speaker 4 (16:39):
Strength or like thereof in different parts of the spectrum
of the consumer experience as well. The higher income owners
have obviously driven spending more high proportion they have in
recent history, as well as the lower end of the
consumer has as weather a lot more layoffs in this
economic phase we're in, whether it's a driven or just
(17:02):
more productivity on the part of corporations as.
Speaker 5 (17:05):
Well, so we feel like they're there.
Speaker 4 (17:07):
If that gap is widening in a way that's concerning
us as far as the the balance of spending and
and and there and therefore an inherent risk of downturn
and markets affecting that spending more so than it has
in the past. We feel like that correlation or relationship
between those two shouldn't be discounted because of just how
(17:27):
how much of the earnings and the the stock returners
can benefit those with with those portfolios that they can
spend from and and those that don't have those those
means those more blue color wage earners don't have that luxury.
Speaker 5 (17:42):
So we're really.
Speaker 4 (17:43):
Concerned with just how that really manifests itself given the
labor environment that we feel like is started to soften
in different areas of our marketplace as well as you know, stock.
Speaker 5 (17:53):
Market that is training that evaluations that are.
Speaker 4 (17:55):
That are historically high, so that those two ends of
that conversation, you know, calls some risk in our pinion
of what the market can go from here.
Speaker 1 (18:03):
Keith, Before I let you go, I want to get
your view on the government shutdown. We are now at
day fifteen. Today, a federal judge in California paused what
the administration was attempting to do in terms of the
layoff of federal workers. To what extent is this noise
or do you think it represents something that the market
really needs to be focused on, maybe a little bit
(18:24):
more than it is.
Speaker 5 (18:27):
Well The most.
Speaker 4 (18:27):
Immediate impacts that we see are, of course, the spending
that stops, whether it's not only direct payments to those
employees that are in a wage but also the you know,
those ancilar businesses that are dependent on that spending from
those consultants and lobbyists and those employees as well. So
(18:48):
that's the most direct, very real time impact that this undernoborn,
and that will come.
Speaker 5 (18:53):
We feel like we'll come.
Speaker 4 (18:53):
Through the data as being somewhat looked through and somewhere transitory,
if I can use that word. But as we go forward,
how how much more often will these happen? I think
the political environment of less you know, less collaboration and
cooperation on Capitol Hill poses a risk that they just
(19:14):
don't get done in a way that appeases what the
market demands of the largest economy and the government that
controls largest economy in the world.
Speaker 5 (19:22):
So that that's one of.
Speaker 4 (19:23):
The larger concerns for us is just what does this
mean we're going from a from a nation and from
Capitol Hill. As for us being able to get things
done in a way that we can be rest easy
and that those decisions will be made in a way
that investors can invest with with clear conscious of you know,
the more of animal spirits driving those valuations and those
(19:44):
landscape of investing, rather than the puts and tastes of
each political week to week.
Speaker 1 (19:49):
Okay, Keith, we'll leave it there. Thank you so much.
Keith Buchanan. He is senior portfolio manager at Globalt, joining
from Atlanta, Georgia. 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,
(20:09):
and geopolitics in the Asia Pacific. You 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 Doug Chrisner. Today, President Trump said the
US is in a trade war with China. Earlier in
the day, Treasury Secretary Scott Besson proposed extending the pause
(00:23):
on increased US tariffs on those Chinese goods. Betson said
it would be done in exchange for Beijing putting off
its recently announced plan to tighten limits on rare earth
elements and the exportation of those out of China. Now,
these minerals are critical to many industries as we know.
Here is Treasury Secretary Best right now.
Speaker 2 (00:44):
We are currently in a ninety day role on the tariffs,
So is it possible that we could go to a
longer role in return for a delay perhaps, But all
that's going to be negotiated in the coming weeks.
Speaker 1 (01:02):
Now, this week in Washington, G seven finance ministers will
consider a joint response to discourage Beijing's planned move to
control those rare earth minerals. And the timing is interesting too,
because next week Australian Prime Minister Anthony Albinizi is set
to meet with President Trump in Washington. Perhaps the most
important topic is critical minerals. For a closer look, now,
(01:25):
I'm joined by Bloomberg's Paul Allen, who is in Sydney. Paul,
thanks for making time. You and I have talked in
the past about Australia's vast supply of rare earths. So
if you had to kind of gauge what a deal
between the US and Australia would look like in terms
of rare earth minerals, give me a sense of what
that might look like.
Speaker 3 (01:45):
Well, there's certainly a lot of speculation around the stog
the prospect of a deal around critical minerals, because we've
heard President Trump talking in the past about ideas like
well maybe we could take over Greenland or involvement in Ukraine.
And at the core of a lot of the statements
is these countries and nations critical mineral reserves. In Australia,
(02:06):
depending on how you slice and dice, it has either
the largest or the second largest critical minerals deposits in
the world. But the limitation here is the refining of
those deposits. Australia's got the minds, It certainly has the
scope for plenty more critical minerals minds, but all of
the processing happens offshore, mostly in China. Some of it
(02:29):
happens in Korea as well, So any discussion around a
potential deal likely to focus in on how these minerals
get processed. And there's been some speculation in the media
that there could be some sort of deal with the
US and the range of seven to eight hundred million dollars,
but beyond that we don't know anything. The government's been
very tight lipped about this, which again leads to future
(02:51):
speculation that we very well could see something get announced
when Anthony Alberanezi meets President Trump.
Speaker 1 (02:57):
So what's holding Canberra from building up refining capacity in
Australia when it comes to the processing of these rare earths.
Speaker 3 (03:05):
Well, certainly the political will exists. I think the question
is more a commercial one. I can give you an
example of one company. It's a small company called Australian
Strategic Minerals. It's seen a very healthy run up in
its stock price on the ASX. So this is despite
the fact that it doesn't actually have a mine in Australia.
(03:26):
For as long as I can remember working for Bloomberg
and Australia, ASM has been talking about starting a mine
in a near a town called Dubbo in New South Wales.
It's still about to start its pre feasibility stage, so
it's taking a long long time. There's certainly a desire
to get this done, but critical minerals processing very energy intensive.
(03:50):
It generates a lot of toxic waste as well, so
putting together these things seems to be the major hiccup.
The biggest mineral critical mind Generals miner listed on the
ASX as Linus, but it does all the bits refining
in Malaysia, for example, but it does have a mine
here in Australia. So it does speak to this broader
(04:11):
problem of the cost, the pollution, the regulation of getting
processing underway in Australia.
Speaker 1 (04:19):
So how have these stocks and these Australian mining companies
been performing lately?
Speaker 3 (04:24):
Have they been advancing, Yes, they have been advancing without
I can't give you too many details on the movements
today because they're also volatile. They do shift around a lot.
But the overwhelming theme has been one of optimism, a
sense of opportunity for Australian critical minerals miners, and some
of the big players are involved in it as well.
(04:46):
Rio Tinto was a major miner of critical minerals. So
it was South thirty two which was spun out of
PHP some time ago. There was another company called a
Luca as well. They've all seen healthy rallies in their
stock price inspired by this need for critical minerals. But
as I say, this issue has been around for probably
(05:07):
a decade or more, the need to diversify where these
come from. It seems getting that diversification to happen that's
the difficult part.
Speaker 1 (05:15):
So I mentioned a moment ago that President Trump was
saying earlier that the US is in fact into trade
war with China. How is this being viewed in Australia
right now? The tension between Washington and Beijing.
Speaker 3 (05:27):
It has forever been a very very difficult type grope
for Australia to walk because on the one hand, China
is Australia's largest trade partner by some considerable distance, and
it was not that long ago when Scott Morrison was
Prime Minister that the country was reeling under trade strikes
from China for all sorts of things from coal to
(05:48):
wine to bali. And when the new government got elected
here four years ago, the Albanese government that was seen
as something of a reset and Moost trade strikes have
since been wound back in the relationship. Ship's improved again.
But it's well known that China is no fan of
the AUCAS agreement between the United States and the United Kingdom.
(06:10):
The United States is Australia's most important ally. The relationship
there is very very close as well on a diplomatic level.
We heard from the prior to Deputy Prime Minister Richard
Marles saying that no country is closer to the US
than Australia in terms of how we engage in the
level of trust that is there. So navigating that tightrope,
(06:31):
particularly when your closest ally is calling saying it'sn't a
trade war with your closest trading partner, it's a really
difficult foreign policy balancing act.
Speaker 1 (06:42):
So I know you talked daily about the weakness of
the Chinese economy, and I'm curious about the current trade
relation right now between Australia and China and the degree
to which Australia's exports, particularly of things like iron ore,
have been kind of steamied a bit by some of
the struggles that China is enduring right now.
Speaker 3 (07:02):
Yeah, somewhat, life has not been as great for Australia's
big miners as it has been in the past. And
you know, even though I mentioned those trade strikes have
been wound back, we still see evidence of tension bubbling
up from time to time. BHP the world's the biggest
of minor for example, that's one of the biggest well
often depending on the fluctuations of market cap, the biggest
(07:25):
listed company on the ASX at the moment having difficulty
getting its iron or into China over a pricing dispute.
So that's still getting ironed out. But we had another
listed company, Treasury Wine Estates, announcing not that long ago,
a few days ago, that it was abandoning its twenty
(07:46):
twenty six guidance against the backdrop of this tension. You know,
it's two biggest markets are the United States and China.
They're in a trade war and the word President Trump
at the moment. So Treasury Wine Estates said, look, we
can't give reliable guidance at the moment. And we saw
the stock price falling eleven percent this week and over
the course of this year it's values dropped by about half.
(08:08):
And if you're going to point the finger of blame,
what calls this the catalyst. It's that trade tension.
Speaker 1 (08:14):
Paul will leave it there. Thank you so very much.
Bloomberg's Paul Allen in Sydney joining us here on the
Daybreak Asia podcast. Welcome to the Daybreak Asia Podcast. I'm
Doug Krisner. In the US, the equity market closed mostly
higher in the last session, given upbeat signs on the
(08:36):
American economy. Factory activity in New York State unexpectedly expanded,
and at the same time, Bank of America reported third
quarter earnings and revenue above expectations. For closer look now
at the US price action, I'm joined by Keith Buchanan.
He is senior portfolio manager at Globalt. Keith is on
the line from Atlanta, Georgia. Keith, thank you so much.
(08:59):
Can we begin by kind of summarizing what you heard
from the big banks? Some record breaking numbers for the
fourth quarter, obviously a lot of deal activity, trading revenue
was very strong as well. What's your takeaway, Daren, thanks
again for having me that.
Speaker 4 (09:14):
What we our biggest takeaway thus far this earning season
when it comes to larger money center banks is you know,
things are really just telling along at the pace that honestly,
we feel like it's been somewhat not appreciated on the
larger scale of what the market's focused on. I think
the lack of data from the government from a macroecadomic
standpoint possibly could kind of clear the way for some
(09:35):
of the read through from the larger banks to really
hit home with the marketplace, and they're really hammering home
the fact that a the macroeconomic environment is really growing
at a clip that really doesn't you know, really doesn't
vibe with what some of the ngative record we've seen
in the in the labor market particularly, but also the
(09:56):
consumer environment and what they've seen as far as the
consuming behavior and the lack of deterioration on the consumer's
part in a way that also voves with the jobs
reports that we're seeing recently. Really has us focus on
the spending that the economy is in need at this moment,
and the consumer is pitching in.
Speaker 5 (10:14):
It's more than its fast air.
Speaker 1 (10:16):
So tomorrow we'll begin hearing from some of the regional
banks and a few analysts. We're saying today, if there
is trouble ahead beyond the shutdown or beyond the US
China trade tensions, the regionals really are the place to look.
I thought it was interesting today that the KBW Regional
Bank index was down about two point three percent. How
do you feel about the regional banks right now?
Speaker 4 (10:38):
Sure, and the larger scale, the larger modiicineer banks have
more levers of pull in order to drive earnings growth
just in a general sense, and the region is are
more more dependent on this net interest income and the
drivers of loan growth and being able to make that
spread of lending on the long end and boring on.
Speaker 5 (10:58):
The short end.
Speaker 4 (11:00):
Pure banking aspect of how banks traditionally made made earnings
is more you know, kind of focused with the larger
regional banks than it is with sort of money center
banks that have trading and other aspects and investment banking
that can really smooth out earnings. Regionals are more cyclical
and you kind of can have a better read through
as to the demand for money and demand from consumers
(11:21):
also a small businesses as well.
Speaker 1 (11:23):
It's interesting today too we heard some commentary from leadership
at some of the money center banks talking about the
exuberance in AI City Group CFO Mark Mason was saying
some sectors are likely frothy and overvalued, and David Solomon,
the CEO of Goldmen Sachs, alluded to the dot com bubble.
How is your shop viewing the AI trade right now?
Speaker 4 (11:48):
We felt like there's a while to go before we
can really put it up against what happened in the
late nineties. We don't think that that's impossible. But right now,
when we're on the cycle, we feel like the the
some of the stories of some of the pick accidents
and shovels of this new gold era of AI.
Speaker 5 (12:06):
Investing, that investing is real.
Speaker 4 (12:08):
It's hitting the top line and bottom line of so
of each corporation they're able to transfer that into cash flow.
We feel like the on the front end of that
investment phase is real and is hitting the ground right now.
But as far as what the market is pricing in
going forward, we really are conscious of how the exuberance
and the behavior of mechanisms of market participates, particularly since
(12:30):
our environment now is more a little more retail oriented.
As far as the day to day trading, how that
can get out of hand very quickly and almost you know,
have a circular logic as to the justification of valuations.
Speaker 5 (12:42):
Is the hype and the hype justifies.
Speaker 4 (12:44):
Evaluations, and that leads to a phase of investing and
sentiment that we feel like is not quite where we
are right now, but we're really conscious of the concentration
of hype and valuation and market cap and those names
that could potentially in that direction if ever hiccup in
the investment or ever a doubt as we saw a
(13:05):
couple of years ago, about how quickly those investments can
really turn the cash for some of these corporations.
Speaker 1 (13:12):
It's interesting that you make the point about the retail
crowd because today in the US the S and P
five hundred was in the red for less than thirty minutes,
and it really points to this idea that retail continued
to buy the dip. City Group was saying today that
retail investor trading volume increased to an all time high,
defying a typically week October when you look at things seasonally,
(13:36):
and I'm wondering whether or not this speaks to some
type of inherent risk in the overall market when you
have that type of retail psychology taking hold.
Speaker 4 (13:46):
Yes, And that's one of the things that we feel
like more kin to what we saw in the nineties
is just how pervasive it's become as well as the
flow into ETFs and how those trade on a day
to day basis also really causes a lot of changing
dynamics says as to what really drives day to day
movements as far as technicals and centiment as well.
Speaker 5 (14:08):
So we really are we think that's a fascinating.
Speaker 4 (14:11):
Part of how the market is evolving right now, and
we don't think it's necessarily something that will shift back
in any violent way. So we want to make sure
we get our arms around how the market perceived those
changes as well as how our class can benefit frankly
from some of those shifts and how markets move because
of what we feel like is driving markets, whether than
the institutional space really doing that.
Speaker 5 (14:31):
It's more than retail space, and it's almost inevitable at
this point.
Speaker 1 (14:33):
Keith, I'd like to get your take on this debasement trade.
We have both gold and silver trading at record levels.
Here are you participating in this at all? How do
you view this?
Speaker 4 (14:44):
Sure, we have our class with positions in silver and goal,
and we've come at it from a few different angles.
It captures a lot of risks that we felt like
we're clear and present more than a year ago, so
we've been there for a while now. We have before
it was coin debasement, the debasement trade.
Speaker 5 (15:02):
And what we're looking at now is that we're short underweight.
Speaker 4 (15:08):
Fixed income as well, kind of in the same theme
of the budget situation, not only here in the US
we globally cause us a lot of concern in our part,
but also we're looking at safe havens that are typical
of this type of cycle. Again, we've seen things shift
from how the consumers retailer of crowd is involved in
(15:30):
market conditions as well as you know, just how sovereign
governments have started to grapple with some of the concerns
that we are grappling with here as global investors. So
we participated there and we feel like that's a place
that we want to continue being.
Speaker 5 (15:43):
We've trimmed some very recently in gold.
Speaker 4 (15:46):
But we still feel like that offers a good risk
reward even these levels for our class portfolio.
Speaker 1 (15:50):
So we have a FED meeting around the corner. Market
is expecting right now, I think a twenty five basis
point right. Got a lot of concern about the weakness
in the labor market. A couple of FED officials have
really spoken to that quite succinctly, and there are maybe
some questions around the strength of the American consumer. I
know that's a big kind of category and there are
(16:11):
different segments along that spectrum. But today I was struck
by the fact that Edmunds dot Com reported the level
of underwater car loans now to four year high, so
just over twenty eight percent of trade ins toward the
purchase of a new vehicle carried negative equity. Are you
concerned about the strength of the American consumer?
Speaker 5 (16:34):
We're absolutely laser focus on the.
Speaker 4 (16:39):
Strength or like thereof in different parts of the spectrum
of the consumer experience as well. The higher income owners
have obviously driven spending more high proportion they have in
recent history, as well as the lower end of the
consumer has as weather a lot more layoffs in this
economic phase we're in, whether it's a driven or just
(17:02):
more productivity on the part of corporations as.
Speaker 5 (17:05):
Well, so we feel like they're there.
Speaker 4 (17:07):
If that gap is widening in a way that's concerning
us as far as the the balance of spending and
and and there and therefore an inherent risk of downturn
and markets affecting that spending more so than it has
in the past. We feel like that correlation or relationship
between those two shouldn't be discounted because of just how
(17:27):
how much of the earnings and the the stock returners
can benefit those with with those portfolios that they can
spend from and and those that don't have those those
means those more blue color wage earners don't have that luxury.
Speaker 5 (17:42):
So we're really.
Speaker 4 (17:43):
Concerned with just how that really manifests itself given the
labor environment that we feel like is started to soften
in different areas of our marketplace as well as you know, stock.
Speaker 5 (17:53):
Market that is training that evaluations that are.
Speaker 4 (17:55):
That are historically high, so that those two ends of
that conversation, you know, calls some risk in our pinion
of what the market can go from here.
Speaker 1 (18:03):
Keith, Before I let you go, I want to get
your view on the government shutdown. We are now at
day fifteen. Today, a federal judge in California paused what
the administration was attempting to do in terms of the
layoff of federal workers. To what extent is this noise
or do you think it represents something that the market
really needs to be focused on, maybe a little bit
(18:24):
more than it is.
Speaker 5 (18:27):
Well The most.
Speaker 4 (18:27):
Immediate impacts that we see are, of course, the spending
that stops, whether it's not only direct payments to those
employees that are in a wage but also the you know,
those ancilar businesses that are dependent on that spending from
those consultants and lobbyists and those employees as well. So
(18:48):
that's the most direct, very real time impact that this undernoborn,
and that will come.
Speaker 5 (18:53):
We feel like we'll come.
Speaker 4 (18:53):
Through the data as being somewhat looked through and somewhere transitory,
if I can use that word. But as we go forward,
how how much more often will these happen? I think
the political environment of less you know, less collaboration and
cooperation on Capitol Hill poses a risk that they just
(19:14):
don't get done in a way that appeases what the
market demands of the largest economy and the government that
controls largest economy in the world.
Speaker 5 (19:22):
So that that's one of.
Speaker 4 (19:23):
The larger concerns for us is just what does this
mean we're going from a from a nation and from
Capitol Hill. As for us being able to get things
done in a way that we can be rest easy
and that those decisions will be made in a way
that investors can invest with with clear conscious of you know,
the more of animal spirits driving those valuations and those
(19:44):
landscape of investing, rather than the puts and tastes of
each political week to week.
Speaker 1 (19:49):
Okay, Keith, we'll leave it there. Thank you so much.
Keith Buchanan. He is senior portfolio manager at Globalt, joining
from Atlanta, Georgia. 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,
(20:09):
and geopolitics in the Asia Pacific. You 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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