December 9, 2025 • 20 mins
Donald Trump's decision to allow Nvidia Corp. to sell advanced chips to China marks more than just a shift in US tech policy. It also raises questions about how far he'll go to steady ties with Xi Jinping. The Republican leader granted America's most-valuable company permission on Tuesday to export its high-end H200 chip to China, watering down years of US national security safeguards. While he pledged Nvidia's top products would remain off bounds, the move gives China access to semiconductors at least a generation ahead of its best technology. For more on the AI story and the overall outlook on the Chinese Economy, we spoke to Chi Lo, Global Market Strategist, BNP Paribas Asset Management.
Plus - Wall Street had a sluggish session as investors awaited clues on the Federal Reserve's policy path in its final interest rate policy of the year. Traders are anticipating a third consecutive Fed rate cut Wednesday, while the focus will be on the central bank's latest dot plot, economic projections and comments from Chair Jerome Powell. We spoke to JoAnne Bianco, Senior Investment Strategist at BondBloxx.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Krisner. Let's start today with the
AI race between the US and China. Now we know
that in Nvidia is being allowed to sell its H
(00:20):
two hundred AI chips into the Chinese market, and we
are learning at the same time that the Trump administration
felt this move carried a lower security risk, and that
in the administration's view is because China Squahwei Technologies already
offers AI systems that are comparable to those from Nvidia.
Let's take a closer look at all things markets that.
(00:43):
We'll begin with the AI story in China with our
guest Chi Lo. He is global market strategist at B
and P Periba Asset Management. Chi, it's always a pleasure.
Thank you so very much. Give me your sense of
where we are right now when you look at the
domestic chip companies in China and how they are succeeding
and producing products that are comparable with those of Nvidia.
Speaker 2 (01:06):
Well, if you look at the past three years development
of China's semi conductor chips production or manufacturing, the Chinese
companies have actually moved very fast and partly and ironically,
I would thank mister Trump's policy of export restriction of
high end chips to China because that actually produced a
(01:27):
force to push China to go faster than it actually
originally planned. So the China has managed to supply the
world a few times with the speed of production of
EI chips. Although at this point the quality of China's
semiconductors chips is still not as high as good as
(01:49):
those in the US and in Europe, they are moving
very fast. So yes, it's good news that mister Trump
is now allowing Nvidia to export the X two hundred
trips to China, which will help China to resolve the
need the short term need for high end chips, but
longer term, strategically, the Chinese government has decided to develop
(02:13):
their own without any reliance on any foreign producers in
the longer term. This is very clear from the new
circulation policy that Beijing announced in twenty twenty that in
particular it says that it wants to pursue import substitution
for the tech sector. I not really relying on foreign
(02:36):
technology anymore in the long term.
Speaker 1 (02:38):
So to what extent do you believe the tech sector
whether it's AI in terms of software and some of
the models that are being created by developers in China,
or whether it's more focused on the chip industry in China.
To what extent is this going to drive economic growth
overall in the new year.
Speaker 2 (02:58):
The manufacturing of the chips since the foundation for the
development of the tech sector, which in turn will go
a long way to affect or improve productivity, which in
turn will affect economic growth in the long term. So
China is going to go as fast as it can
to produce all those chips that it needs and doesn't
(03:19):
really want to rely on imports as I mentioned earlier.
But I think more importantly is the innovation of using
those chips. China has gone way faster than the US
than Europe in terms of innovation, the invention part. Chinese
is catching up innovation, but I think Chinese leading. So
from that perspective, I do believe that in the coming
(03:42):
years we will be seeing an increase in Chinese productivity
growth because of the tech development, which in turn will
go to bust economic growth in the longer term.
Speaker 1 (03:53):
So we're in Q four now, do you believe that
China will achieve the five percent growth target? For this
year that it's set previously.
Speaker 2 (04:02):
I think highly likely that China will get five percent
this year, because in even if the Q four growth
were around four five percent, which is what the market
consensus is, China will get five percent for fu. Yet
going into next year, I think we still are likely
to see between four and a half and five percent
growth for twenty twenty six.
Speaker 1 (04:24):
In terms of the export economy, one of the things
we learned from the recent trade data despite the tariffs,
that China's export economy is holding up very very well.
What other markets do you see China focused on, Let's
forget the US for a moment, to kind of make
up for the difficulties that the American market represents.
Speaker 2 (04:45):
Well, obviously it is all these developing world markets, especially
those in the Beltian Rowle initiative framework, because when you
look at the data scene is about four or five
years ago, dal exports to the Built and row Initiative
countries as a region has overtaken has overtaken the US
(05:09):
and Europe combined as the largest export destination for Chinese goods.
So I think this trend will continue because China is
putting more efforts into developing new markets in the developing world.
There's still you know, Africa, there's still Central Asia, there's
still you know, the Middle East, that China World War
will continue to expand, and all these countries are joining
(05:32):
many of these countries are joining the BUILDI and Role
Initiative framework. So this, I think this strategic move of
the Chinese government to sort of manage the trade tension
with the developed world is to focus on the developing world,
which you know, there's there's there's a lot of room
to grow.
Speaker 1 (05:52):
Let's look at another point of tension, that being between
Beijing and Tokyo. We know that the recent comments on
thai One from the Japanese Prime minister kind of rattled
the administration in China. How do you see this progressing
and what is the economic risk that kind of kind
of remains looming over this relationship.
Speaker 2 (06:15):
Well, I'm hoping that the corel between Japan and China
over the new Japanese Prime minister's comment on Taiwan will
be resolved soon. But when you look at the policy development,
the statements in both governments, it doesn't seem to be
that the tension will go away anytime soon. Now, if
(06:35):
you look at what happened last time. In twenty twelve,
China Japan went into a similar kind of political tensions,
war of words over some you know, East South China Sea,
a territorial dispute. It took a few years to get
the two countries' relationship normalized, and Japan's economy with affect
(07:00):
negatively by that. This built because exports from Japan to
China fell, especially those consumer goods, especially the auto and
related goods, and also because of the decline in Chinese
tourists going to Japan, that actually reduced a lot of
the Japanese export tourism exports to China, so that hurt
(07:23):
Japan back then. Now this is happening again this time
that we are seeing China stopped buying many Japanese exports
this time, especially seafood and stuff. But also we are
seeing less and less Chinese tourists going into Japan. But
there is difference this time from last time because last
(07:43):
time the Japanese exports of intermediary and capital goods to
China weren't affected much China needed them. But this time,
you know, thirteen years after the lastest spilled China has
gone up. The letter China has gone up the technology ladder,
so that means many of the Japanese capital goods exports
(08:06):
to China will be hit this time because China doesn't
need to buy from Japan and replace them with domestic production.
So that's point number one that there's going to be
a bigger hit on Japan's export to China if this
quarrel continues to go on for a little while longer.
(08:26):
And then on tourism the impact is even bigger because
today Chinese tourist spending in Japan it's ten times more
than Chinese tourist spending in Japan thirteen years ago, So
that hit on Japan's tourism exports to China is going
to be bigger. So when you put all these economic
(08:46):
input together, impact together, I think if the quorl drags on,
there will be some material negative impact on Chinese on
Japan's GDP growth, which in turn could even affect the
boj's plan to normalized policy by increasing industry.
Speaker 1 (09:03):
So that is a perfect segue into our next topic,
which is the BOJ meeting next week. The market right
now seems convinced that we could see a raid hike
after a period of inflation in Japan. That's been going
on for many, many years right now, and we know
that the weakness in the currency is persistent. If you
talk to people who live in Japan, they very much
(09:25):
feel the effects of higher inflation. What do you expect
the BOJ to do next week?
Speaker 2 (09:31):
I think it's likely that the BOG will do another
quarter point hike as the market expected, which will take
I think to take the BOJ policy to a policy
rate to zero point seventy five. But what I doubt
the BOJ can do is next year. The market is
pricing in I don't know two hikes by the BOG
and next I am not quite certain about that because
(09:55):
partly because of the economic impact on GDP growth that
we talk about earlier, due to the Japan China disbuilt UH,
and also when you look at Japanese JTB YUS, they've
gone up a lot on the concerns about the new
Prime Minister's physical expansion UH and on on top of
(10:16):
the United that burden that Japan has already built. So
that high bond news is to some extent doing a
tightening for the people, for the for the bo J,
which means that if you know, higher use with uh.
And in also political tensions do hurt Japanese growth and
(10:37):
and you know uh uh uh reduced GDB growth rate uh,
and inflation comes down a bit. I don't think next
year there will be very strong reasons for the bo
J to keep hiking rates, but time will tell. This
is my concern at this point that next year the
bo j's policy path is not as clear as the
(10:58):
market now expecting.
Speaker 1 (11:01):
She will leave it there. Thank you so very much.
Chi Lo is global market strategist at BNP Peraba Asset Management,
joining us here on the Daybreak Asia podcast. Welcome back
to the Daybreak Asia Podcast. Time Doug Chrisner. So, the
Fed's rate decision is Wednesday, and money markets are pricing
(11:23):
a likely quarter point cut, with around two rate cuts
in the new year. Now this is a bit of
a retreat from more optimistic forecast for rate cuts that
have been delivered in recent weeks. Now, at the same time,
President Trump will reportedly launch the last round of interviews
for FED share this week. The Financial Times is reporting
this will pit White House economic advisor Kevin Hassett against
(11:46):
a trio of other candidates. Now, President Trump was asked
to comment on the ft report.
Speaker 2 (11:52):
We're going to be looking at a couple of different people,
but I have a pretty good idea who I wanted.
Speaker 1 (11:57):
That was President Trump, speaking earlier to reporters board Air
Force One. Now, Hassett is considered to be the front runner,
and today he said that he sees plenty of room
for the FED to substantially lower rates, even more than
a quarter point. Hassett told a Wall Street Journal event
he would rely on his own judgment and not bow
a political pressure to decide on whether or not to
(12:18):
cut rates should he become the next FED chair.
Speaker 3 (12:21):
If the data suggests thing we could do it, then,
like right now, I think there's plenty.
Speaker 2 (12:25):
Of room to do it. Plenty of room, which plenty
is more than twenty five points correct?
Speaker 1 (12:29):
That is NEC director Kevin Hassett. For a closer look
at the outlook for rates, I am joined by Joanne Bianco.
She is partner also the senior investment strategist at Bond
Blocks Investment Management. Joanne, thank you for making time to chat.
Are you on board with this consensus call for a
quarter point cut?
Speaker 3 (12:47):
Yes, definitely, definitely expecting the quarter point cut it tomorrow's meeting.
You know, again, this is something that could be continued
to be one of their precautionary or risk management type
of cuts.
Speaker 1 (13:00):
So you would call it a hawk ish cut, then.
Speaker 3 (13:03):
Yeah, I mean I think that you know, to me,
it doesn't seem like I mean, first of all, there's
been a lack of data, but we need the data
to actually show that more rate cuts are warranted, to have,
you know, an environment where you see multiple rate cuts
next year. We're just we're really just not there yet
(13:25):
thinking that that's something that's going to be happening or warranted.
Speaker 1 (13:29):
So in the absence of the government data that obviously
as a result of the government shutdown, you've been forced
to look at a lot of the private surveys. What
is your takeaway when you look at those numbers.
Speaker 3 (13:41):
I mean, it still seems like they're softening trends overall
in the labor markets, but it's not dramatic. I think
the thing that we have found support of, you know,
just the resilient US economy is just how strong US
corporate earnings came in. And I'm I'm looking specifically at
(14:03):
high held corporate bond isshoers. We have a lot of
ETFs in the US high yield market, and earnings have
held up really well in the third quarter, and guidance
was increased for you know a number of companies. So
those are the kinds that things that make me think
that you know, this is this is not a US
(14:24):
economy headed towards a recession or headed towards an environment
where you would require where rate cuts would really be
something that could help prop up an economy.
Speaker 1 (14:36):
So how do you feel about inflation? We know, whether
you're looking at the PCE or even the CPI, the
core rate of the consumer price index, we're still above
the feds two percent target. Things appear to be on
the price side a little sticky here. What's your outlook
for inflation, Yeah.
Speaker 3 (14:53):
That's that's a wild card. That's a wildcard for next year.
You know. The thing there is that if we did
see some overeasing by the FED, that is something that
could cause inflation to re accelerate. So like all the
good work done to bring inflation down, it could come
back up. It's still above target, sticky around the three
(15:17):
percent level. And it's something that I think that that's
part of the reason why we've seen bond yields go
up in US treasuries, especially over the past week. You know,
we're up like ten or eleven basis points in the
ten year and I think that's because the traders are nervous.
They're jittery about like the potential for overeasing and reaccelerating inflation.
Speaker 1 (15:43):
What is your sense about the volatility that we're going
to see ahead for the bond market. I think there
was a little bit of chop certainly in the bond
market in twenty twenty five.
Speaker 3 (15:53):
Yeah, it depends on what you're talking about. You know,
the corporate credit markets have held up very well. Fundamentals
have held up really well. The returns for triple B
corporates here in the US and double B corporates and
a number of industries have been, you know, really strong
this year, supported by the strong fundamentals that we're seeing.
(16:15):
You know, where you see more volatility is in the
long end of US treasuries, and that's an area that
we still recommend to our investors to be underweight because
you know, there's just too many factors going on in
terms of fiscal spending, inflation, all that that makes the
(16:35):
long end or long duration sectors a lot more risky.
Speaker 1 (16:39):
What do you think about the level of debt issuance
that we're going to see going forward, particularly as it
relates to what appears to be an AI winner takes
all arms race.
Speaker 3 (16:52):
They're all coming to market, and they're very long term
projects and there's a lot of financing needed. There's definitely
this is something that can change the complexion of you know,
the credit markets in terms of a lot of these
deals as they come to market. So time is really
going to tell on that. You know, we just we
(17:14):
hope that there isn't a situation where there's massive overbuilding
because that you know, anytime there's real access that develops
in the markets, in credit sectors specifically, it doesn't seem
to end well.
Speaker 1 (17:30):
But these companies have very good balance sheets. I mean,
isn't that worth the risk?
Speaker 3 (17:36):
Well, I mean right now, you know they're definitely they're
investment great type of credits for sure. So it's just
really a factor of just making you know, at some
point the demand, the demand side of the equation really
catching up with what will be the supply.
Speaker 1 (17:53):
Where are you finding opportunities these days in the bond market.
You mentioned how certain areas of the corporate credit market
to interest you.
Speaker 3 (18:02):
Yeah, we still really like corporate credit sectors because of
the strong fundamentals that we're seeing and so you're getting
nice yields, not a lot of volatility, not we're not
expecting that we're headed into the next credit down cycle.
The faults have been lower than average, the level of
distress securities have been lower than lower than average. There's
(18:24):
been very healthy new issuance that's been focused on refinancing
debt as opposed to really speculative sources of new capital
in the high yield market. So we still really we
specifically really like triple B corporate's, double B corporate's private credit.
(18:45):
We also like emerging markets as well. So you know,
we've seen that's actually been our best performing fund in
twenty twenty five, a US dollar denominated sovereign debt fund,
and you know it's up over thirty and so it
has a nice yield. There's been price appreciation, still has
(19:06):
a nice yield, and we're seeing improvement and emerging economies
that warrants this.
Speaker 1 (19:13):
So as you look out, I mean, if we're right
in expecting multiple rate cuts in the new year, is
the strategy here to kind of lock in some capital
gains When you look at these positions that you're building
right now or do you hold to maturity.
Speaker 3 (19:29):
I think that we're not necessarily expecting multiple rate cuts. Okay,
so we expect December and maybe one or two rate
cuts next year. So at the you know, it's still
going to be it's elevated yields plus some price appreciation,
but it's not necessarily where we think we're going back
to the rates we saw before all the increases in
(19:54):
bad policy rates.
Speaker 1 (19:55):
Joanne, thank you so much. We'll leave it there. Johann
Bianco as partner also senior investment strategist at Bondblocks Investment Management,
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,
(20:16):
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 Prisner, and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Krisner. Let's start today with the
AI race between the US and China. Now we know
that in Nvidia is being allowed to sell its H
(00:20):
two hundred AI chips into the Chinese market, and we
are learning at the same time that the Trump administration
felt this move carried a lower security risk, and that
in the administration's view is because China Squahwei Technologies already
offers AI systems that are comparable to those from Nvidia.
Let's take a closer look at all things markets that.
(00:43):
We'll begin with the AI story in China with our
guest Chi Lo. He is global market strategist at B
and P Periba Asset Management. Chi, it's always a pleasure.
Thank you so very much. Give me your sense of
where we are right now when you look at the
domestic chip companies in China and how they are succeeding
and producing products that are comparable with those of Nvidia.
Speaker 2 (01:06):
Well, if you look at the past three years development
of China's semi conductor chips production or manufacturing, the Chinese
companies have actually moved very fast and partly and ironically,
I would thank mister Trump's policy of export restriction of
high end chips to China because that actually produced a
(01:27):
force to push China to go faster than it actually
originally planned. So the China has managed to supply the
world a few times with the speed of production of
EI chips. Although at this point the quality of China's
semiconductors chips is still not as high as good as
(01:49):
those in the US and in Europe, they are moving
very fast. So yes, it's good news that mister Trump
is now allowing Nvidia to export the X two hundred
trips to China, which will help China to resolve the
need the short term need for high end chips, but
longer term, strategically, the Chinese government has decided to develop
(02:13):
their own without any reliance on any foreign producers in
the longer term. This is very clear from the new
circulation policy that Beijing announced in twenty twenty that in
particular it says that it wants to pursue import substitution
for the tech sector. I not really relying on foreign
(02:36):
technology anymore in the long term.
Speaker 1 (02:38):
So to what extent do you believe the tech sector
whether it's AI in terms of software and some of
the models that are being created by developers in China,
or whether it's more focused on the chip industry in China.
To what extent is this going to drive economic growth
overall in the new year.
Speaker 2 (02:58):
The manufacturing of the chips since the foundation for the
development of the tech sector, which in turn will go
a long way to affect or improve productivity, which in
turn will affect economic growth in the long term. So
China is going to go as fast as it can
to produce all those chips that it needs and doesn't
(03:19):
really want to rely on imports as I mentioned earlier.
But I think more importantly is the innovation of using
those chips. China has gone way faster than the US
than Europe in terms of innovation, the invention part. Chinese
is catching up innovation, but I think Chinese leading. So
from that perspective, I do believe that in the coming
(03:42):
years we will be seeing an increase in Chinese productivity
growth because of the tech development, which in turn will
go to bust economic growth in the longer term.
Speaker 1 (03:53):
So we're in Q four now, do you believe that
China will achieve the five percent growth target? For this
year that it's set previously.
Speaker 2 (04:02):
I think highly likely that China will get five percent
this year, because in even if the Q four growth
were around four five percent, which is what the market
consensus is, China will get five percent for fu. Yet
going into next year, I think we still are likely
to see between four and a half and five percent
growth for twenty twenty six.
Speaker 1 (04:24):
In terms of the export economy, one of the things
we learned from the recent trade data despite the tariffs,
that China's export economy is holding up very very well.
What other markets do you see China focused on, Let's
forget the US for a moment, to kind of make
up for the difficulties that the American market represents.
Speaker 2 (04:45):
Well, obviously it is all these developing world markets, especially
those in the Beltian Rowle initiative framework, because when you
look at the data scene is about four or five
years ago, dal exports to the Built and row Initiative
countries as a region has overtaken has overtaken the US
(05:09):
and Europe combined as the largest export destination for Chinese goods.
So I think this trend will continue because China is
putting more efforts into developing new markets in the developing world.
There's still you know, Africa, there's still Central Asia, there's
still you know, the Middle East, that China World War
will continue to expand, and all these countries are joining
(05:32):
many of these countries are joining the BUILDI and Role
Initiative framework. So this, I think this strategic move of
the Chinese government to sort of manage the trade tension
with the developed world is to focus on the developing world,
which you know, there's there's there's a lot of room
to grow.
Speaker 1 (05:52):
Let's look at another point of tension, that being between
Beijing and Tokyo. We know that the recent comments on
thai One from the Japanese Prime minister kind of rattled
the administration in China. How do you see this progressing
and what is the economic risk that kind of kind
of remains looming over this relationship.
Speaker 2 (06:15):
Well, I'm hoping that the corel between Japan and China
over the new Japanese Prime minister's comment on Taiwan will
be resolved soon. But when you look at the policy development,
the statements in both governments, it doesn't seem to be
that the tension will go away anytime soon. Now, if
(06:35):
you look at what happened last time. In twenty twelve,
China Japan went into a similar kind of political tensions,
war of words over some you know, East South China Sea,
a territorial dispute. It took a few years to get
the two countries' relationship normalized, and Japan's economy with affect
(07:00):
negatively by that. This built because exports from Japan to
China fell, especially those consumer goods, especially the auto and
related goods, and also because of the decline in Chinese
tourists going to Japan, that actually reduced a lot of
the Japanese export tourism exports to China, so that hurt
(07:23):
Japan back then. Now this is happening again this time
that we are seeing China stopped buying many Japanese exports
this time, especially seafood and stuff. But also we are
seeing less and less Chinese tourists going into Japan. But
there is difference this time from last time because last
(07:43):
time the Japanese exports of intermediary and capital goods to
China weren't affected much China needed them. But this time,
you know, thirteen years after the lastest spilled China has
gone up. The letter China has gone up the technology ladder,
so that means many of the Japanese capital goods exports
(08:06):
to China will be hit this time because China doesn't
need to buy from Japan and replace them with domestic production.
So that's point number one that there's going to be
a bigger hit on Japan's export to China if this
quarrel continues to go on for a little while longer.
(08:26):
And then on tourism the impact is even bigger because
today Chinese tourist spending in Japan it's ten times more
than Chinese tourist spending in Japan thirteen years ago, So
that hit on Japan's tourism exports to China is going
to be bigger. So when you put all these economic
(08:46):
input together, impact together, I think if the quorl drags on,
there will be some material negative impact on Chinese on
Japan's GDP growth, which in turn could even affect the
boj's plan to normalized policy by increasing industry.
Speaker 1 (09:03):
So that is a perfect segue into our next topic,
which is the BOJ meeting next week. The market right
now seems convinced that we could see a raid hike
after a period of inflation in Japan. That's been going
on for many, many years right now, and we know
that the weakness in the currency is persistent. If you
talk to people who live in Japan, they very much
(09:25):
feel the effects of higher inflation. What do you expect
the BOJ to do next week?
Speaker 2 (09:31):
I think it's likely that the BOG will do another
quarter point hike as the market expected, which will take
I think to take the BOJ policy to a policy
rate to zero point seventy five. But what I doubt
the BOJ can do is next year. The market is
pricing in I don't know two hikes by the BOG
and next I am not quite certain about that because
(09:55):
partly because of the economic impact on GDP growth that
we talk about earlier, due to the Japan China disbuilt UH,
and also when you look at Japanese JTB YUS, they've
gone up a lot on the concerns about the new
Prime Minister's physical expansion UH and on on top of
(10:16):
the United that burden that Japan has already built. So
that high bond news is to some extent doing a
tightening for the people, for the for the bo J,
which means that if you know, higher use with uh.
And in also political tensions do hurt Japanese growth and
(10:37):
and you know uh uh uh reduced GDB growth rate uh,
and inflation comes down a bit. I don't think next
year there will be very strong reasons for the bo
J to keep hiking rates, but time will tell. This
is my concern at this point that next year the
bo j's policy path is not as clear as the
(10:58):
market now expecting.
Speaker 1 (11:01):
She will leave it there. Thank you so very much.
Chi Lo is global market strategist at BNP Peraba Asset Management,
joining us here on the Daybreak Asia podcast. Welcome back
to the Daybreak Asia Podcast. Time Doug Chrisner. So, the
Fed's rate decision is Wednesday, and money markets are pricing
(11:23):
a likely quarter point cut, with around two rate cuts
in the new year. Now this is a bit of
a retreat from more optimistic forecast for rate cuts that
have been delivered in recent weeks. Now, at the same time,
President Trump will reportedly launch the last round of interviews
for FED share this week. The Financial Times is reporting
this will pit White House economic advisor Kevin Hassett against
(11:46):
a trio of other candidates. Now, President Trump was asked
to comment on the ft report.
Speaker 2 (11:52):
We're going to be looking at a couple of different people,
but I have a pretty good idea who I wanted.
Speaker 1 (11:57):
That was President Trump, speaking earlier to reporters board Air
Force One. Now, Hassett is considered to be the front runner,
and today he said that he sees plenty of room
for the FED to substantially lower rates, even more than
a quarter point. Hassett told a Wall Street Journal event
he would rely on his own judgment and not bow
a political pressure to decide on whether or not to
(12:18):
cut rates should he become the next FED chair.
Speaker 3 (12:21):
If the data suggests thing we could do it, then,
like right now, I think there's plenty.
Speaker 2 (12:25):
Of room to do it. Plenty of room, which plenty
is more than twenty five points correct?
Speaker 1 (12:29):
That is NEC director Kevin Hassett. For a closer look
at the outlook for rates, I am joined by Joanne Bianco.
She is partner also the senior investment strategist at Bond
Blocks Investment Management. Joanne, thank you for making time to chat.
Are you on board with this consensus call for a
quarter point cut?
Speaker 3 (12:47):
Yes, definitely, definitely expecting the quarter point cut it tomorrow's meeting.
You know, again, this is something that could be continued
to be one of their precautionary or risk management type
of cuts.
Speaker 1 (13:00):
So you would call it a hawk ish cut, then.
Speaker 3 (13:03):
Yeah, I mean I think that you know, to me,
it doesn't seem like I mean, first of all, there's
been a lack of data, but we need the data
to actually show that more rate cuts are warranted, to have,
you know, an environment where you see multiple rate cuts
next year. We're just we're really just not there yet
(13:25):
thinking that that's something that's going to be happening or warranted.
Speaker 1 (13:29):
So in the absence of the government data that obviously
as a result of the government shutdown, you've been forced
to look at a lot of the private surveys. What
is your takeaway when you look at those numbers.
Speaker 3 (13:41):
I mean, it still seems like they're softening trends overall
in the labor markets, but it's not dramatic. I think
the thing that we have found support of, you know,
just the resilient US economy is just how strong US
corporate earnings came in. And I'm I'm looking specifically at
(14:03):
high held corporate bond isshoers. We have a lot of
ETFs in the US high yield market, and earnings have
held up really well in the third quarter, and guidance
was increased for you know a number of companies. So
those are the kinds that things that make me think
that you know, this is this is not a US
(14:24):
economy headed towards a recession or headed towards an environment
where you would require where rate cuts would really be
something that could help prop up an economy.
Speaker 1 (14:36):
So how do you feel about inflation? We know, whether
you're looking at the PCE or even the CPI, the
core rate of the consumer price index, we're still above
the feds two percent target. Things appear to be on
the price side a little sticky here. What's your outlook
for inflation, Yeah.
Speaker 3 (14:53):
That's that's a wild card. That's a wildcard for next year.
You know. The thing there is that if we did
see some overeasing by the FED, that is something that
could cause inflation to re accelerate. So like all the
good work done to bring inflation down, it could come
back up. It's still above target, sticky around the three
(15:17):
percent level. And it's something that I think that that's
part of the reason why we've seen bond yields go
up in US treasuries, especially over the past week. You know,
we're up like ten or eleven basis points in the
ten year and I think that's because the traders are nervous.
They're jittery about like the potential for overeasing and reaccelerating inflation.
Speaker 1 (15:43):
What is your sense about the volatility that we're going
to see ahead for the bond market. I think there
was a little bit of chop certainly in the bond
market in twenty twenty five.
Speaker 3 (15:53):
Yeah, it depends on what you're talking about. You know,
the corporate credit markets have held up very well. Fundamentals
have held up really well. The returns for triple B
corporates here in the US and double B corporates and
a number of industries have been, you know, really strong
this year, supported by the strong fundamentals that we're seeing.
(16:15):
You know, where you see more volatility is in the
long end of US treasuries, and that's an area that
we still recommend to our investors to be underweight because
you know, there's just too many factors going on in
terms of fiscal spending, inflation, all that that makes the
(16:35):
long end or long duration sectors a lot more risky.
Speaker 1 (16:39):
What do you think about the level of debt issuance
that we're going to see going forward, particularly as it
relates to what appears to be an AI winner takes
all arms race.
Speaker 3 (16:52):
They're all coming to market, and they're very long term
projects and there's a lot of financing needed. There's definitely
this is something that can change the complexion of you know,
the credit markets in terms of a lot of these
deals as they come to market. So time is really
going to tell on that. You know, we just we
(17:14):
hope that there isn't a situation where there's massive overbuilding
because that you know, anytime there's real access that develops
in the markets, in credit sectors specifically, it doesn't seem
to end well.
Speaker 1 (17:30):
But these companies have very good balance sheets. I mean,
isn't that worth the risk?
Speaker 3 (17:36):
Well, I mean right now, you know they're definitely they're
investment great type of credits for sure. So it's just
really a factor of just making you know, at some
point the demand, the demand side of the equation really
catching up with what will be the supply.
Speaker 1 (17:53):
Where are you finding opportunities these days in the bond market.
You mentioned how certain areas of the corporate credit market
to interest you.
Speaker 3 (18:02):
Yeah, we still really like corporate credit sectors because of
the strong fundamentals that we're seeing and so you're getting
nice yields, not a lot of volatility, not we're not
expecting that we're headed into the next credit down cycle.
The faults have been lower than average, the level of
distress securities have been lower than lower than average. There's
(18:24):
been very healthy new issuance that's been focused on refinancing
debt as opposed to really speculative sources of new capital
in the high yield market. So we still really we
specifically really like triple B corporate's, double B corporate's private credit.
(18:45):
We also like emerging markets as well. So you know,
we've seen that's actually been our best performing fund in
twenty twenty five, a US dollar denominated sovereign debt fund,
and you know it's up over thirty and so it
has a nice yield. There's been price appreciation, still has
(19:06):
a nice yield, and we're seeing improvement and emerging economies
that warrants this.
Speaker 1 (19:13):
So as you look out, I mean, if we're right
in expecting multiple rate cuts in the new year, is
the strategy here to kind of lock in some capital
gains When you look at these positions that you're building
right now or do you hold to maturity.
Speaker 3 (19:29):
I think that we're not necessarily expecting multiple rate cuts. Okay,
so we expect December and maybe one or two rate
cuts next year. So at the you know, it's still
going to be it's elevated yields plus some price appreciation,
but it's not necessarily where we think we're going back
to the rates we saw before all the increases in
(19:54):
bad policy rates.
Speaker 1 (19:55):
Joanne, thank you so much. We'll leave it there. Johann
Bianco as partner also senior investment strategist at Bondblocks Investment Management,
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,
(20:16):
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 Prisner, and this is Bloomberg
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