August 13, 2025 • 21 mins
Asian stocks were poised for a mainly positive open Thursday as investors continued to ramp up bets that the Federal Reserve will cut interest rates next month. Meantime, Bloomberg Economics says China's July activity data due Friday will likely show signs growth softened heading into the second half, echoing early indications in business surveys and tracking its full-year outlook. We get more on the state of China's economy from Helen Zhu, Managing Partner and Chief Investment Officer at NF Trinity.
Plus - stocks have soared to record levels and volatility has slumped to multi-year lows as traders now fully expect a quarter-point move by the Fed after an inflation print earlier this week was seen as benign. External pressure is also coming from President Donald Trump's administration with Treasury Secretary Scott Bessent making his most explicit demand yet for the central bank to execute a cycle of cuts. We discuss what the Fed's path ahead may look like with Ross Mayfield, Investment Strategist at Baird Private Wealth Management.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Markets in Asia are gearing up to follow an update
for Wall Street. US markets rallied on the bet for
an imminent rate cut by way of the FED. Equities
at all time highs in the States and yields were
down across the Treasury curve. Meantime, Treasury Secretary Scott Bessont
is calling on the FED to cut the policy rate
(00:31):
by fifty basis points after this week's report on consumer prices.
Speaking earlier to Bloomberg Surveillance, Besson said that could be
the beginning of a new rate cutting cycle.
Speaker 3 (00:43):
The rates are too constrictive if you look at any model.
Speaker 1 (00:48):
That the.
Speaker 3 (00:50):
We should probably be one hundred and fifty one hundred
and seventy five basis points lower. So I think the
committee needs to step back.
Speaker 2 (00:59):
That is Treasury Secretary Scott Besson speaking earlier to Bloomberg.
In a moment or two, we'll get some reaction from
Ross Mayfield, investment strategist at Baird. But we begin this
morning in Hong Kong. Joining me now is Helen Ju,
managing partner and CIO at NF Trinity. Helen joins us
from our studios in Hong Kong. It's always a pleasure
to visit with you, Helen. Can we begin by talking
(01:21):
about the Chinese economy and the big reveal that we'll
get at the end of the week monthly activity data
for July, and I want to focus first on industrial
production and retail sales, two big components here. Give me
a sense of what you're expecting to see.
Speaker 4 (01:37):
Well, I think the overall economy has been lackluster for
quite some time, and so we don't expect to see
any major pickup in either of those two items. Industrial
production in particular, I would say obviously a lot of
that relies on global pmis and orderers as well as
the trade expectations, and even pmis outside of China have
(01:57):
been pretty lackluster for a couple of years already, So
to start off with the export demand is not great,
and then at on top of that the fact that
you've got trade uncertainty. There may have been some frontloading
of activity in the first half of the year or
beginning of the year before the tariffs were supposed to
kick off, But I think as we go into the
(02:18):
second part of the year, it's going to be hard
to see major impetus for significant v shape recovery in
that regard.
Speaker 2 (02:25):
So if the export economy has been a little sluggish,
where would things be if this tariff truce did not
exist and domestic demand being as weak as it is
on the mainline, what would the overall economy look like?
Speaker 4 (02:38):
Look, I think the Chinese government are trying very hard
to boost the domestic consumption and domestic demand. So that
comes partly from some of the supportive policies we've seen
on you know, let's say fixed asset investment, infrastructure stuff
that's government related. Spending has actually picked up to try
to buffer the slow down in the external demain and
(03:00):
manufacturing industries and property sector. We see that the government
has passed a number of consumption related supports, although consumption
is very difficult to get a meaningful change in behavior
in the short term, especially if you're feeling not so
great about your wealth effects from your property price you know, stagnating.
But that said, you know, the a share market has
been stronger recently and has performed relatively well, so that
(03:23):
helps the buffer it to some extent. So you know,
I would say the domestic side is a little bit
more visible and more stable versus the external demand, where
things were starting to look a little bit choppy even before.
Speaker 2 (03:38):
The trade war. So you mentioned the property market. Where
are we in this process of healing and getting rid
of some of the bad debt that is kind of
tied to the problems with the property market.
Speaker 4 (03:48):
We're actually pretty far along in that regard, So probably
the vast majority of companies that had the significant leverage
and concerns about their ability to deliver what they've sold.
I think that's pretty much, you know, eighty percent ninety
percent cleaned up at this point. But the concern is that,
you know, China's market on housing used to be eighty
(04:09):
percent new homes and twenty percent existing sales, and then
that shifted meaningfully more towards existing secondhand homes. When people's
expectation about price appreciation forever ended, they started to put
their existing homes up for sale. So now the volume
of sales is very skewed or much more skewed versus
before to existing homes rather than new, which basically means
(04:31):
that all the fixed asset investment activity on the new
homes has meaningfully slowed down for the last couple of years, right,
and then that's with the increase in supply of the
secondary market. Then it's actually pressured overall prices in the
market as well, And that's actually the more important thing
to look at for consumer confidence.
Speaker 2 (04:47):
So maybe we can talk about one of the bright
spots high tech, particularly the artificial intelligence trade. Big news
in the last week was that President Trump struck a deal,
an unusual deal with US chip makers and video and AMD,
and they're going to be allowed to sell some of
their less advanced AI chips into the Chinese markets if
these companies pay fifteen percent of the revenue from those
(05:10):
Chinese sales to the US government.
Speaker 4 (05:12):
Kind of a.
Speaker 2 (05:12):
Creative bit of enterprise here. What is this going to
mean for China do you think?
Speaker 4 (05:17):
I think the fifteen percent will be partly absorbed by
the chip makers and partly absorbed, probably by the customer.
I think that China is very keen to develop its
AI landscape, but that Chinese manufacturers themselves are certainly short
of the capacity to produce in the order of magnitude
that they actually need. Therefore, I believe that the Chinese
(05:39):
side are very eager for continued GPU exports at China,
and that this H twenty deal that's been inked by
Jensen and President Trump will be very much welcomed by
the Chinese. Of course, in the recent days, there's been
a little bit of newsflow regarding whether China is discouraging
the use of this, but I actually think that the
discouragement is probably only towards very sensitive customers, including military
(06:02):
and other type of specific usage. But for the broader
AI landscape as a whole, I do believe that there
is going to be sizeable imports that the Chinese government
wants to bring in in order to continue to grow
its AI ecosystem.
Speaker 2 (06:18):
To what extent is this deal opening up less advanced
AI chips to the Chinese market going to be critical
if the US and China were to kind of find
a way out of this trade war.
Speaker 4 (06:29):
Oh, I think it's a huge ask, a huge important
ask by the Chinese, and the negotiation it's probably way
more important versus whether the tariffs on other stuff is
five percent or ten percent higher or lower. I think
that's been part of the critical negotiation all along. And
keep in mind that H twent t is not a
new incremental supply to China. It was supplied to China
(06:52):
for quite some time and just recently suspended earlier because
of the trade war. So now it's just a resumption
of the export supplied to China. It's not necessarily, you know,
all new incremental supply to China.
Speaker 2 (07:06):
So we're dealing a lot with predictions on FED policy here.
Maybe we get a twenty five basis point rate cut
at the September meeting, although the Treasury Secretary was saying
after the CPI printed, maybe the FED could go as
much as fifty basis points. Where are you in terms
of factoring in US monetary policy into your thinking about
putting money to work well?
Speaker 4 (07:27):
US monetary policy is obviously the most important policy decision
in the world that one has to watch for ASA classes.
I think Scott Bessen's rationale was that because the NFP
was revised down so dramatically for the prior two months,
you know, the reported numbers were one hundred something thousand,
but the post revision numbers were like ten percent of
(07:48):
the original reported numbers. So his point was, were the
accurate numbers reported in the last couple of months. The
FED may have already cut once and therefore, should it
just catch up by cutting twice in September.
Speaker 5 (07:59):
My view is that they're probably.
Speaker 4 (08:02):
Just going to do twenty five basis points, because unless,
of course, the beginning of September NFP number four August
ends up being absolutely disastrous, in which case they might
want to accelerate to fifty basis points. But if not,
I think it's twenty five basis points. We're looking at
consensus expectations of five to six cuts before the end
of next year. Whether that's spaced out as three this
(08:23):
year or two this year, it's not necessarily that important.
But you know, the consensus terminal rate now is around
three percent at the end of the cut cycle. We
think actually, if anything, it could be a little bit
lower than that and back to like the two handle.
Speaker 2 (08:37):
So is that already reflected in the dollar right now
in terms of its value, let's say, against the end
and the offshore you on.
Speaker 4 (08:44):
I think it's partially reflected, but probably not entirely reflected,
because if you look at the upcoming data, I don't
think that the CPI really matters that much. I think
what the government cares about, what the Fed cares about,
what the markets care about is really employment numbers, right,
because employment numbers determine everything. So it's the NFP, it's
the unemployment rate. If those numbers are good in the
(09:06):
next month, people will have a sigh of relief. But
I don't think that it means that rates are going
to rally dramatically or the dollar is going to dramatically strengthen.
But if those numbers are bad yet again for the
third fourth month, then I think the market is going
to really get stressed out and you'll see that the
long end is going to come down, and actually the
pressure on the dollar will be bigger and bigger. So
(09:28):
and by the way, and the Trump government wants the
dollar to be weaker anyway, so all of that is
online for a weaker dollar and better performance outside of
the US.
Speaker 2 (09:36):
So as we're talking the Japanese equity market, is it
record highs and on Friday will get the preliminary estimate
on second quarter GDP for Japan. How are you viewing
the Japanese economy right now, and maybe more broadly, what
is being reflected in Japanese stocks at the moment.
Speaker 4 (09:54):
The economy is doing okay from a headline perspective, but
nothing spectacular and actually, if you look at the economic
surprise Index, which is how it's come in versus expectations,
it's actually been a little bit losing momentum recently versus
what had become slightly higher expectations. And I always say
the post COVID kind of tourism and consumption wave when
(10:15):
the dollar, when the dollar was super strong and the
end was like super weak, that has kind of started
to wear off a little bit this year. Recently we
have a little bit of a boost from the World Expo,
which definitely drew some activity in the second quarter of
the year, But going into the rest of the year,
we think probably just in line with expectations. We're not
seeing any major upside surprises from Japan in particular.
Speaker 2 (10:37):
Helen will leave it there. It's always a pleasure. Thank
you so very much. Helenge you managing partner and CIO
atf Trenditdy joining us from a Home Kong studio here
on the Daybreak Asia podcast. Welcome back to the Daybreak
Asia Podcast. I'm deg Krisner. Two weeks ago, market saw
(10:58):
the chance of a rate cut in September at less
than fifty percent. Well, now a quarter point cut is
fully priced in and some are even betting on a
larger reduction. Speaking earlier to Bloomberg, Treasury Secretary Scott Bessen
hinted at a series of radcuts beginning with a fifty
basis point move at the Fed's next meeting next month.
(11:20):
Joining me now for a closer look is Ross Mayfield
is investment strategist at Baird Ross. Always a pleasure, Thanks
for making time. This is kind of an unusual situation.
I can't recall the last time a Treasury secretary is
kind of leaned in to the conversation on FED rate cuts.
Is that a little concerning to you?
Speaker 1 (11:40):
I think the whole thing is a little concerning. Obviously,
they've kind of backed away from intentions or directly firing Pal,
at least for now, but the public pressure definitely kind
of just gives an air of questioning whether that independence
is still going to be there now again, you know,
(12:03):
the Treasury secretary doing it might be new, but it
won't be the first time that we've had a president
over the years want breatcats want you know, a hotter
economy heading into a midterm election year. But it certainly
makes the job harder on share Pal and puts the
Central Bank in a pretty tough position here, especially with
(12:25):
tariffs kind of ramping up.
Speaker 2 (12:27):
So Besen said that the Fed may have already cut
interest rates, or they would have done so at the
last meeting if they had been aware of the revised
jobs data kind of indicating the weakness in the labor market.
How do you understand the labor market right now? Are
things kind of increasing in dynamism, perhaps as a result
of the tariff story and maybe even the artificial intelligence story.
Speaker 1 (12:50):
Yeah, I mean the way I see the job marketing
right now is cooling, weakening, but not recessionary. Nothing to
outrrite panic over. I mean, we're still adding jobs a
month on month despite that big revision downwhard. You know,
we still have those weekly initial claims numbers, you know,
hovering at cycle lows. And those cycle lows also happened
(13:11):
to be you know, fifty year lows for the data set.
So we still have, you know, a labor market where
people really aren't getting fired and people in the workforce
are working. We have you know, prime age employment to
population still at near cycle has. So it's a labor
market that is not growing. There's not a lot that's
(13:33):
kind of boosting job growth, especially outside of healthcare. But
it's not a labor market that's that's in a ton
of trouble in my view. Now, all that said, I
do think the Fed would have cut if they had
had that non farm perils number. So I don't think
that Treasury Secretary Vessett is out of line for calling
for a fifty basis point rate kid in September. I
(13:53):
think it kind of mirrors closely this time last year,
where the Fed went ahead and did a fifty basis
point ket to start things off because they felt a
bit behind the curve. So I think that's a reasonable
place to be. You know, the market is more expecting
one cut. We'll get another CPI report before then, so
that'll be obviously critical. But I don't think fifty bases
whence should be off the table. I think that should
(14:14):
be a live decision for the Fed in September.
Speaker 2 (14:16):
So we had record highs today for the S and
P five hundred NASDAK composite, all time highs here. How
are you feeling about the equity trade?
Speaker 5 (14:25):
Yeah? Really strong.
Speaker 1 (14:26):
I mean I would I be surprised if the market
consolidated a bit here in August or September or October.
I mean these are seasonally week months. We've been on
such a strong run. No, I wouldn't, But everything else
about the setup I love. You know, we're talking raycats,
which is obviously risk on. The fundamental story is incredibly strong.
Despite all the headwinds that we talk about all day,
(14:48):
this earning season has just been incredibly resilient, and guidance
is actually pretty good as well. You know, you look
underneath the hood of the equity market and you see
things like today the S and P five hundred equal
weight discretionary made in all time high. I mean, that's
full of sub sectors, sub industries like autos and luxury
(15:09):
retail and home builders. The home builders on fire. So
it's not just a big tech story, although that you know,
sucks up a lot of air in the room, the
AI trade. But things look pretty healthy. And you know,
if you even wanted to look outside of the US,
this rally has a global tilt to it. Japan looks great,
Europe has had a nice year, is consolidating a bit.
(15:30):
But there's a lot to like about this equity market.
So even if things need to take a breather and
continue to let the fundamentals catch.
Speaker 5 (15:36):
Up to price, I would view it as very much
biable here.
Speaker 2 (15:39):
So one of the things we learned this week the
cost of tariff exposed goods really didn't rise as much
as feared. In July. Tomorrow we're going to get the
wholesale inflation report, the PPI data. Some companies have been
holding off on increasing prices. Maybe there's a little bit
of fear that consumers would then pull back on. How
(16:01):
are you feeling about corporate margins right now as companies
try to deal with the effect of tariffs.
Speaker 1 (16:08):
Yeah, I mean it's been a pretty incredible story. You've
got next twelve month profit margins have actually hooked higher
this earning season despite what we know is coming down the.
Speaker 5 (16:18):
Pipe as far as tariffs.
Speaker 1 (16:21):
So you know, ultimately it's it's I think it's going
to be divided up in three ways. I think suppliers
are going to eat some of the costs. I think
that margins are going to get hit in some of
these goods important countries. And I think ultimately consumers you know,
in those sectors will will pay a higher price. Whether
they balk at that, you know, I don't know. Obviously,
(16:41):
the consumer is doing okay, but is in a weaker
position today than they were in say twenty twenty two,
when the inflation story and the corporate profit you know,
greed inflation story was really ramping up. So I think
companies will do everything they've can. I think they've probably
tried to you know, run these tariffs as best as
possible during the pause here. Obviously, the China pause helps
(17:05):
a lot. A lot of the you know, imported goods
from China will have another ninety days, so you might
see a lot more you know, inventory stocking, so that
companies can hold off on making that hard decision. But
ultimately it's a boring answer, but I think it's going
to be spread out amongst the three players here. I mean,
a tariff as attacked and somebody pays it, so it'll
(17:25):
probably end up being a combination of supplier, importer, and
ultimately end consumer in those sectors.
Speaker 2 (17:31):
We had a big move today among small cap stocks.
I think the Russell was up about two percent. How
are you feeling about that end of the market, the
small cap space.
Speaker 5 (17:42):
I'm not inclined to chase a small cap rally here.
Speaker 1 (17:44):
Obviously, you know, rate cat hype is going to be
good for small caps.
Speaker 5 (17:48):
They have a lot more debt, a lot more variable
rate debt in the books.
Speaker 1 (17:52):
But regardless of what the FED does in September, regardless
of what the FED does in twenty twenty six, I
think that because of the more structure inflation dynamics, because
of the debt.
Speaker 5 (18:02):
And deficit, because of some issues.
Speaker 1 (18:05):
That are more structural in nature, I think that we're
in a higher, for longer great environment, especially compared to
the twenty tens. And I think that is just a
really difficult operating environment for small caps. And then you
think about what is driving the market today in this
AI trade, and you know, it's not something that small
caps can just tap into right away. They don't have
(18:27):
the capital, they don't have the capacity. And then when
these large caps and megacaps need something new, they go
out and you know, they gobble up a smaller name
that has what they need. So I think it's a
really tough environment for small caps. I'm not inclined to
chase the rally here, and if we have a nice
small cap pop on some ray kind enthusiasm, I'm okay
missing out on that and kind of hiding out in
(18:49):
high quality large caps but you know, staying invested, staying
risk on with kind of a cyclical tilt, but just
not going to chase that small cap move.
Speaker 2 (18:58):
So we had yields down today across to curve the
two and the ten, each by about five basis points.
And with those lower yields, some dollar weakness crept in
Bloomberg dollar spot was down about two tens to one percent.
Is dollar weakness going to be the narrative going forward?
You seem to be questioning the degree to which rates
can move lower, But I'm wondering what all of this
(19:19):
means for the dollar and then by extension, offshore markets.
Speaker 1 (19:23):
Yeah, I mean, we have anecdotally a lot of clients
asking about the dollar for the first time in a while.
I think the weakness is generally a good thing. We
have a lot of multinationals here that will really benefit
from a week dollar, especially as they try to digest,
you know, other new input costs. Getting a break on
(19:44):
currency exchange for foreign profits will be huge for international markets.
I mean, you're seeing the result. Obviously these markets are
doing well in local terms, but in dollar terms, the
all world xus is lap in the field, and a
big part of that is dollar weakness, so I don't
know that it can continue into perpetuity. You know, interest
(20:06):
rate differentials would still suggest, you know, the US has
higher rates than a lot of our kind of contemporaries
in developed markets. So I don't think the dollar is
in free fall. I don't think that the quote unquote
sell America trade is.
Speaker 5 (20:21):
All that real, you know.
Speaker 1 (20:22):
I do think there's maybe a little bit of diversification
going on, but international investors still want to own the
best companies, the safest assets, and they'll still reside in
the US for now. So I think the dollar weakness
has been a positive, but I don't think it's going
to extend into perpetuity, and I don't think that it's
something for investors to worry about too much.
Speaker 2 (20:39):
Ross will leave it there. It's always a pleasure. Thanks
so very much. Ross Mayfield there. He is investment strategist
at Baird Joining 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 geopolos in the Asia Pacific. You can find us
(21:02):
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 Prisoner and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Markets in Asia are gearing up to follow an update
for Wall Street. US markets rallied on the bet for
an imminent rate cut by way of the FED. Equities
at all time highs in the States and yields were
down across the Treasury curve. Meantime, Treasury Secretary Scott Bessont
is calling on the FED to cut the policy rate
(00:31):
by fifty basis points after this week's report on consumer prices.
Speaking earlier to Bloomberg Surveillance, Besson said that could be
the beginning of a new rate cutting cycle.
Speaker 3 (00:43):
The rates are too constrictive if you look at any model.
Speaker 1 (00:48):
That the.
Speaker 3 (00:50):
We should probably be one hundred and fifty one hundred
and seventy five basis points lower. So I think the
committee needs to step back.
Speaker 2 (00:59):
That is Treasury Secretary Scott Besson speaking earlier to Bloomberg.
In a moment or two, we'll get some reaction from
Ross Mayfield, investment strategist at Baird. But we begin this
morning in Hong Kong. Joining me now is Helen Ju,
managing partner and CIO at NF Trinity. Helen joins us
from our studios in Hong Kong. It's always a pleasure
to visit with you, Helen. Can we begin by talking
(01:21):
about the Chinese economy and the big reveal that we'll
get at the end of the week monthly activity data
for July, and I want to focus first on industrial
production and retail sales, two big components here. Give me
a sense of what you're expecting to see.
Speaker 4 (01:37):
Well, I think the overall economy has been lackluster for
quite some time, and so we don't expect to see
any major pickup in either of those two items. Industrial
production in particular, I would say obviously a lot of
that relies on global pmis and orderers as well as
the trade expectations, and even pmis outside of China have
(01:57):
been pretty lackluster for a couple of years already, So
to start off with the export demand is not great,
and then at on top of that the fact that
you've got trade uncertainty. There may have been some frontloading
of activity in the first half of the year or
beginning of the year before the tariffs were supposed to
kick off, But I think as we go into the
(02:18):
second part of the year, it's going to be hard
to see major impetus for significant v shape recovery in
that regard.
Speaker 2 (02:25):
So if the export economy has been a little sluggish,
where would things be if this tariff truce did not
exist and domestic demand being as weak as it is
on the mainline, what would the overall economy look like?
Speaker 4 (02:38):
Look, I think the Chinese government are trying very hard
to boost the domestic consumption and domestic demand. So that
comes partly from some of the supportive policies we've seen
on you know, let's say fixed asset investment, infrastructure stuff
that's government related. Spending has actually picked up to try
to buffer the slow down in the external demain and
(03:00):
manufacturing industries and property sector. We see that the government
has passed a number of consumption related supports, although consumption
is very difficult to get a meaningful change in behavior
in the short term, especially if you're feeling not so
great about your wealth effects from your property price you know, stagnating.
But that said, you know, the a share market has
been stronger recently and has performed relatively well, so that
(03:23):
helps the buffer it to some extent. So you know,
I would say the domestic side is a little bit
more visible and more stable versus the external demand, where
things were starting to look a little bit choppy even before.
Speaker 2 (03:38):
The trade war. So you mentioned the property market. Where
are we in this process of healing and getting rid
of some of the bad debt that is kind of
tied to the problems with the property market.
Speaker 4 (03:48):
We're actually pretty far along in that regard, So probably
the vast majority of companies that had the significant leverage
and concerns about their ability to deliver what they've sold.
I think that's pretty much, you know, eighty percent ninety
percent cleaned up at this point. But the concern is that,
you know, China's market on housing used to be eighty
(04:09):
percent new homes and twenty percent existing sales, and then
that shifted meaningfully more towards existing secondhand homes. When people's
expectation about price appreciation forever ended, they started to put
their existing homes up for sale. So now the volume
of sales is very skewed or much more skewed versus
before to existing homes rather than new, which basically means
(04:31):
that all the fixed asset investment activity on the new
homes has meaningfully slowed down for the last couple of years, right,
and then that's with the increase in supply of the
secondary market. Then it's actually pressured overall prices in the
market as well, And that's actually the more important thing
to look at for consumer confidence.
Speaker 2 (04:47):
So maybe we can talk about one of the bright
spots high tech, particularly the artificial intelligence trade. Big news
in the last week was that President Trump struck a deal,
an unusual deal with US chip makers and video and AMD,
and they're going to be allowed to sell some of
their less advanced AI chips into the Chinese markets if
these companies pay fifteen percent of the revenue from those
(05:10):
Chinese sales to the US government.
Speaker 4 (05:12):
Kind of a.
Speaker 2 (05:12):
Creative bit of enterprise here. What is this going to
mean for China do you think?
Speaker 4 (05:17):
I think the fifteen percent will be partly absorbed by
the chip makers and partly absorbed, probably by the customer.
I think that China is very keen to develop its
AI landscape, but that Chinese manufacturers themselves are certainly short
of the capacity to produce in the order of magnitude
that they actually need. Therefore, I believe that the Chinese
(05:39):
side are very eager for continued GPU exports at China,
and that this H twenty deal that's been inked by
Jensen and President Trump will be very much welcomed by
the Chinese. Of course, in the recent days, there's been
a little bit of newsflow regarding whether China is discouraging
the use of this, but I actually think that the
discouragement is probably only towards very sensitive customers, including military
(06:02):
and other type of specific usage. But for the broader
AI landscape as a whole, I do believe that there
is going to be sizeable imports that the Chinese government
wants to bring in in order to continue to grow
its AI ecosystem.
Speaker 2 (06:18):
To what extent is this deal opening up less advanced
AI chips to the Chinese market going to be critical
if the US and China were to kind of find
a way out of this trade war.
Speaker 4 (06:29):
Oh, I think it's a huge ask, a huge important
ask by the Chinese, and the negotiation it's probably way
more important versus whether the tariffs on other stuff is
five percent or ten percent higher or lower. I think
that's been part of the critical negotiation all along. And
keep in mind that H twent t is not a
new incremental supply to China. It was supplied to China
(06:52):
for quite some time and just recently suspended earlier because
of the trade war. So now it's just a resumption
of the export supplied to China. It's not necessarily, you know,
all new incremental supply to China.
Speaker 2 (07:06):
So we're dealing a lot with predictions on FED policy here.
Maybe we get a twenty five basis point rate cut
at the September meeting, although the Treasury Secretary was saying
after the CPI printed, maybe the FED could go as
much as fifty basis points. Where are you in terms
of factoring in US monetary policy into your thinking about
putting money to work well?
Speaker 4 (07:27):
US monetary policy is obviously the most important policy decision
in the world that one has to watch for ASA classes.
I think Scott Bessen's rationale was that because the NFP
was revised down so dramatically for the prior two months,
you know, the reported numbers were one hundred something thousand,
but the post revision numbers were like ten percent of
(07:48):
the original reported numbers. So his point was, were the
accurate numbers reported in the last couple of months. The
FED may have already cut once and therefore, should it
just catch up by cutting twice in September.
Speaker 5 (07:59):
My view is that they're probably.
Speaker 4 (08:02):
Just going to do twenty five basis points, because unless,
of course, the beginning of September NFP number four August
ends up being absolutely disastrous, in which case they might
want to accelerate to fifty basis points. But if not,
I think it's twenty five basis points. We're looking at
consensus expectations of five to six cuts before the end
of next year. Whether that's spaced out as three this
(08:23):
year or two this year, it's not necessarily that important.
But you know, the consensus terminal rate now is around
three percent at the end of the cut cycle. We
think actually, if anything, it could be a little bit
lower than that and back to like the two handle.
Speaker 2 (08:37):
So is that already reflected in the dollar right now
in terms of its value, let's say, against the end
and the offshore you on.
Speaker 4 (08:44):
I think it's partially reflected, but probably not entirely reflected,
because if you look at the upcoming data, I don't
think that the CPI really matters that much. I think
what the government cares about, what the Fed cares about,
what the markets care about is really employment numbers, right,
because employment numbers determine everything. So it's the NFP, it's
the unemployment rate. If those numbers are good in the
(09:06):
next month, people will have a sigh of relief. But
I don't think that it means that rates are going
to rally dramatically or the dollar is going to dramatically strengthen.
But if those numbers are bad yet again for the
third fourth month, then I think the market is going
to really get stressed out and you'll see that the
long end is going to come down, and actually the
pressure on the dollar will be bigger and bigger. So
(09:28):
and by the way, and the Trump government wants the
dollar to be weaker anyway, so all of that is
online for a weaker dollar and better performance outside of
the US.
Speaker 2 (09:36):
So as we're talking the Japanese equity market, is it
record highs and on Friday will get the preliminary estimate
on second quarter GDP for Japan. How are you viewing
the Japanese economy right now, and maybe more broadly, what
is being reflected in Japanese stocks at the moment.
Speaker 4 (09:54):
The economy is doing okay from a headline perspective, but
nothing spectacular and actually, if you look at the economic
surprise Index, which is how it's come in versus expectations,
it's actually been a little bit losing momentum recently versus
what had become slightly higher expectations. And I always say
the post COVID kind of tourism and consumption wave when
(10:15):
the dollar, when the dollar was super strong and the
end was like super weak, that has kind of started
to wear off a little bit this year. Recently we
have a little bit of a boost from the World Expo,
which definitely drew some activity in the second quarter of
the year, But going into the rest of the year,
we think probably just in line with expectations. We're not
seeing any major upside surprises from Japan in particular.
Speaker 2 (10:37):
Helen will leave it there. It's always a pleasure. Thank
you so very much. Helenge you managing partner and CIO
atf Trenditdy joining us from a Home Kong studio here
on the Daybreak Asia podcast. Welcome back to the Daybreak
Asia Podcast. I'm deg Krisner. Two weeks ago, market saw
(10:58):
the chance of a rate cut in September at less
than fifty percent. Well, now a quarter point cut is
fully priced in and some are even betting on a
larger reduction. Speaking earlier to Bloomberg, Treasury Secretary Scott Bessen
hinted at a series of radcuts beginning with a fifty
basis point move at the Fed's next meeting next month.
(11:20):
Joining me now for a closer look is Ross Mayfield
is investment strategist at Baird Ross. Always a pleasure, Thanks
for making time. This is kind of an unusual situation.
I can't recall the last time a Treasury secretary is
kind of leaned in to the conversation on FED rate cuts.
Is that a little concerning to you?
Speaker 1 (11:40):
I think the whole thing is a little concerning. Obviously,
they've kind of backed away from intentions or directly firing Pal,
at least for now, but the public pressure definitely kind
of just gives an air of questioning whether that independence
is still going to be there now again, you know,
(12:03):
the Treasury secretary doing it might be new, but it
won't be the first time that we've had a president
over the years want breatcats want you know, a hotter
economy heading into a midterm election year. But it certainly
makes the job harder on share Pal and puts the
Central Bank in a pretty tough position here, especially with
(12:25):
tariffs kind of ramping up.
Speaker 2 (12:27):
So Besen said that the Fed may have already cut
interest rates, or they would have done so at the
last meeting if they had been aware of the revised
jobs data kind of indicating the weakness in the labor market.
How do you understand the labor market right now? Are
things kind of increasing in dynamism, perhaps as a result
of the tariff story and maybe even the artificial intelligence story.
Speaker 1 (12:50):
Yeah, I mean the way I see the job marketing
right now is cooling, weakening, but not recessionary. Nothing to
outrrite panic over. I mean, we're still adding jobs a
month on month despite that big revision downwhard. You know,
we still have those weekly initial claims numbers, you know,
hovering at cycle lows. And those cycle lows also happened
(13:11):
to be you know, fifty year lows for the data set.
So we still have, you know, a labor market where
people really aren't getting fired and people in the workforce
are working. We have you know, prime age employment to
population still at near cycle has. So it's a labor
market that is not growing. There's not a lot that's
(13:33):
kind of boosting job growth, especially outside of healthcare. But
it's not a labor market that's that's in a ton
of trouble in my view. Now, all that said, I
do think the Fed would have cut if they had
had that non farm perils number. So I don't think
that Treasury Secretary Vessett is out of line for calling
for a fifty basis point rate kid in September. I
(13:53):
think it kind of mirrors closely this time last year,
where the Fed went ahead and did a fifty basis
point ket to start things off because they felt a
bit behind the curve. So I think that's a reasonable
place to be. You know, the market is more expecting
one cut. We'll get another CPI report before then, so
that'll be obviously critical. But I don't think fifty bases
whence should be off the table. I think that should
(14:14):
be a live decision for the Fed in September.
Speaker 2 (14:16):
So we had record highs today for the S and
P five hundred NASDAK composite, all time highs here. How
are you feeling about the equity trade?
Speaker 5 (14:25):
Yeah? Really strong.
Speaker 1 (14:26):
I mean I would I be surprised if the market
consolidated a bit here in August or September or October.
I mean these are seasonally week months. We've been on
such a strong run. No, I wouldn't, But everything else
about the setup I love. You know, we're talking raycats,
which is obviously risk on. The fundamental story is incredibly strong.
Despite all the headwinds that we talk about all day,
(14:48):
this earning season has just been incredibly resilient, and guidance
is actually pretty good as well. You know, you look
underneath the hood of the equity market and you see
things like today the S and P five hundred equal
weight discretionary made in all time high. I mean, that's
full of sub sectors, sub industries like autos and luxury
(15:09):
retail and home builders. The home builders on fire. So
it's not just a big tech story, although that you know,
sucks up a lot of air in the room, the
AI trade. But things look pretty healthy. And you know,
if you even wanted to look outside of the US,
this rally has a global tilt to it. Japan looks great,
Europe has had a nice year, is consolidating a bit.
(15:30):
But there's a lot to like about this equity market.
So even if things need to take a breather and
continue to let the fundamentals catch.
Speaker 5 (15:36):
Up to price, I would view it as very much
biable here.
Speaker 2 (15:39):
So one of the things we learned this week the
cost of tariff exposed goods really didn't rise as much
as feared. In July. Tomorrow we're going to get the
wholesale inflation report, the PPI data. Some companies have been
holding off on increasing prices. Maybe there's a little bit
of fear that consumers would then pull back on. How
(16:01):
are you feeling about corporate margins right now as companies
try to deal with the effect of tariffs.
Speaker 1 (16:08):
Yeah, I mean it's been a pretty incredible story. You've
got next twelve month profit margins have actually hooked higher
this earning season despite what we know is coming down the.
Speaker 5 (16:18):
Pipe as far as tariffs.
Speaker 1 (16:21):
So you know, ultimately it's it's I think it's going
to be divided up in three ways. I think suppliers
are going to eat some of the costs. I think
that margins are going to get hit in some of
these goods important countries. And I think ultimately consumers you know,
in those sectors will will pay a higher price. Whether
they balk at that, you know, I don't know. Obviously,
(16:41):
the consumer is doing okay, but is in a weaker
position today than they were in say twenty twenty two,
when the inflation story and the corporate profit you know,
greed inflation story was really ramping up. So I think
companies will do everything they've can. I think they've probably
tried to you know, run these tariffs as best as
possible during the pause here. Obviously, the China pause helps
(17:05):
a lot. A lot of the you know, imported goods
from China will have another ninety days, so you might
see a lot more you know, inventory stocking, so that
companies can hold off on making that hard decision. But
ultimately it's a boring answer, but I think it's going
to be spread out amongst the three players here. I mean,
a tariff as attacked and somebody pays it, so it'll
(17:25):
probably end up being a combination of supplier, importer, and
ultimately end consumer in those sectors.
Speaker 2 (17:31):
We had a big move today among small cap stocks.
I think the Russell was up about two percent. How
are you feeling about that end of the market, the
small cap space.
Speaker 5 (17:42):
I'm not inclined to chase a small cap rally here.
Speaker 1 (17:44):
Obviously, you know, rate cat hype is going to be
good for small caps.
Speaker 5 (17:48):
They have a lot more debt, a lot more variable
rate debt in the books.
Speaker 1 (17:52):
But regardless of what the FED does in September, regardless
of what the FED does in twenty twenty six, I
think that because of the more structure inflation dynamics, because
of the debt.
Speaker 5 (18:02):
And deficit, because of some issues.
Speaker 1 (18:05):
That are more structural in nature, I think that we're
in a higher, for longer great environment, especially compared to
the twenty tens. And I think that is just a
really difficult operating environment for small caps. And then you
think about what is driving the market today in this
AI trade, and you know, it's not something that small
caps can just tap into right away. They don't have
(18:27):
the capital, they don't have the capacity. And then when
these large caps and megacaps need something new, they go
out and you know, they gobble up a smaller name
that has what they need. So I think it's a
really tough environment for small caps. I'm not inclined to
chase the rally here, and if we have a nice
small cap pop on some ray kind enthusiasm, I'm okay
missing out on that and kind of hiding out in
(18:49):
high quality large caps but you know, staying invested, staying
risk on with kind of a cyclical tilt, but just
not going to chase that small cap move.
Speaker 2 (18:58):
So we had yields down today across to curve the
two and the ten, each by about five basis points.
And with those lower yields, some dollar weakness crept in
Bloomberg dollar spot was down about two tens to one percent.
Is dollar weakness going to be the narrative going forward?
You seem to be questioning the degree to which rates
can move lower, But I'm wondering what all of this
(19:19):
means for the dollar and then by extension, offshore markets.
Speaker 1 (19:23):
Yeah, I mean, we have anecdotally a lot of clients
asking about the dollar for the first time in a while.
I think the weakness is generally a good thing. We
have a lot of multinationals here that will really benefit
from a week dollar, especially as they try to digest,
you know, other new input costs. Getting a break on
(19:44):
currency exchange for foreign profits will be huge for international markets.
I mean, you're seeing the result. Obviously these markets are
doing well in local terms, but in dollar terms, the
all world xus is lap in the field, and a
big part of that is dollar weakness, so I don't
know that it can continue into perpetuity. You know, interest
(20:06):
rate differentials would still suggest, you know, the US has
higher rates than a lot of our kind of contemporaries
in developed markets. So I don't think the dollar is
in free fall. I don't think that the quote unquote
sell America trade is.
Speaker 5 (20:21):
All that real, you know.
Speaker 1 (20:22):
I do think there's maybe a little bit of diversification
going on, but international investors still want to own the
best companies, the safest assets, and they'll still reside in
the US for now. So I think the dollar weakness
has been a positive, but I don't think it's going
to extend into perpetuity, and I don't think that it's
something for investors to worry about too much.
Speaker 2 (20:39):
Ross will leave it there. It's always a pleasure. Thanks
so very much. Ross Mayfield there. He is investment strategist
at Baird Joining 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 geopolos in the Asia Pacific. You can find us
(21:02):
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 Prisoner and this is Bloomberg
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