November 11, 2025 • 19 mins
China's Singles Day shopping festival is off to a record start. E-commerce giant JD.com says orders jumped nearly 60%, with shoppers up 40% from last year — defying concerns that deflation is weighing on consumer demand.
In the U.S., there's growing optimism the government shutdown will end soon. UBS Managing Director and Financial Advisor Xi Qiao tells Bloomberg's Shery Ahn and Avril Hong what that could mean for Asia.
Plus, the Dow Jones closed at a record high as investors piled into stocks beyond the AI giants. Merck was among the day's top gainers. We get perspective from Dean Smith, Chief Strategist and Marketing Officer at FolioBeyond.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm Doug Prisner. It's
Singles Day in China and parts of Southeast Asia and already.
E commerce giant JD dot Com said orders are up
nearly sixty percent, and JD also reported a forty percent
increase in the number of shoppers. Meantime, in the States,
the government shutdown is on a path to end as
(00:31):
soon as Wednesday. This is one reason why much of
the American equity market did move higher. We got some
perspective in Asia from Si Chow, financial advisor and managing
director at UBS Private Wealth. She spoke with Bloomberg TV
host Sherry On and April Hong.
Speaker 3 (00:48):
Now.
Speaker 2 (00:48):
The conversation began with a question on how Asia might
be impacted by a reopening of the US government and
the potential for more FED rate cuts.
Speaker 4 (00:57):
I mean, this is a very good day today. Hopefully
the government shutdown is over and uh, you know, equity
rally should continue. We feel strong about the market still
and we feel that, uh you know, a lot of
the market will continue to drive up as especially key
drivers additional the rate cuts. As uh you mentioned, the
(01:21):
robust corporate earnings providing fundamental support and just growing AI
spending in general. So and of course the continue robust
growth in the US uh and evaluations are are looking
good in Asia and also international, So we hope this
global AI spending will continue to push markets.
Speaker 1 (01:42):
Higher and which markets will benefit the most. It seems
these days the biggest two narratives are fed rate policy
at the moment and the tech rally that we continue
to see right exactly.
Speaker 4 (01:55):
I think US, of course still the makeup caps a
lot of the law tech companies, but we actually find
China very attractive at this point, specifically China's tech sector,
and that's expected to deliver high single digit returns over
the next twelve months, and a lot of that are
supported again by the AI adoption, just chip localization in China,
(02:18):
and just in general, the earnings growth is very strong
in Chinese equities, so that's definitely an area that investors
can look into outside of the US. European equities is
also improving earnings, reasonable valuations and again supportive by global policies.
So I would say, you know, China Europe are some
(02:40):
of our main sectors outside of the US.
Speaker 5 (02:45):
Just on Chinese tech it's become a bit of a
crowded trade after the valley. How diversified or how should
you be positioned perhaps to hedge against some of that.
Speaker 6 (02:58):
Yeah, and that's a great question.
Speaker 4 (03:00):
I think, uh, really the hedging would be not just
on the tech sector, but on the general markets, because
we do feel like there's you know, still a lot
of risk with the markets, especially geopolitical risk, uh, volatility,
and also just you know and hopefully rates does go
down as they expected. So a lot of the hedging
could just be you know, one of the asset classes
(03:23):
that we like is gold. Gold prices can continue to
climb further and the reason pullback and gold we feel
that just a pause and this ongoing bull run. So
I think, you know, you can still maintain cash on
the sides or maintain fixed income, but it's you know,
the payout on that, especially yields are going.
Speaker 6 (03:42):
To get lower.
Speaker 4 (03:43):
But if you can lock in higher yields with fixed
income right now, that's uh, you know, that's that's that's
probably another asset class that's probably more stable. But gold
would be a good hedge at this point. If you're
going to look outside of the equity markets, how.
Speaker 5 (03:59):
Are you viewing ems overall, given the expectations of these
fat rate cuts and the dollar having struggled to rebound so.
Speaker 4 (04:08):
Far right, And that's a good point, and it's especially
you know, with the geopolitical risk and volatility. We recommend
increasing tactical exposure to emerging market equities and specifically US
as I was mentioning China and also diversity find out
of China, India, Brazil, Indonesia. These are markets with strong
(04:32):
natural resources as well, which also drives into our themes
of AI power resources energy efficiency. I mean, so I
think em has has not been a market that has
been a focus, and this is a really good time
to start adding tactical exposure to emerging markets.
Speaker 1 (04:54):
It's been interesting the resilience that we've seen in the
emerging markets, especially when advanced economies are really dealing with
the concerns around their dead loads. You mentioned European equities
and some opportunities there. What I'm watching here in Japan
is also how jgvs are under pressure because the demand
looks pretty tepid on those fiscal concerns. What are some
(05:14):
of the big trends there that you're watching.
Speaker 4 (05:18):
I mean, I've seen some of the bigger trends, and
this is a great point, especially for emerging markets in Japan,
as you mentioned, are just kind of benefiting from the
structure and the drivers, including policy support. How strong is
the policy support for innovation and just technological self sufficiencies.
(05:38):
So again we feel that these emerging market regions are
getting a lot of support and they do want to
become technological self sufficient. So the overall theme is there
to drive growth in those markets.
Speaker 5 (05:57):
We saw the ADP now coming out this week, so
investors have kind of been relying on private data. What
is your sense of before we get to the December
decision from the Fed, the extent in which we will
have data that would support a rate cut.
Speaker 4 (06:17):
Yeah, I mean, I think we're most concerned with just
kind of the overall economy and the health of economy,
and you know, while the data is important, but we
really feel like the the you know, FED has resumed.
Speaker 6 (06:31):
The rate cutting cycle.
Speaker 4 (06:32):
And it's going to be still driven by a lot
of you know, concerns and especially concerns over a stoppling
labor market. So we're not too concerned with the rate
cut and expecting probably another fifty seventy five basis points
through the first quarter of twenty twenty six.
Speaker 2 (06:51):
That is, she Chow, financial advisor and managing director at
UBS Private Wealth, speaking with Bloomberg TV host Cherry On
and Avril Hon on the Asia Trade. Now, in the US,
the equity market saw some rotation out of tech and
into drug stocks as the marketwade concern over valuations. In
a moment, we'll have a conversation with Dean Smith, chief
(07:13):
strategist and marketing officer of Folio Beyond here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
I'm Doug Chrisner. In the US, the Dow Industrial Average
closed at a record high today thanks to a jump
(07:33):
in shares of Merk. The stock was up four point
eight percent, gaining for a sixth straight session, and in
that time, Merk shares are up ten percent. Drugstocks today
benefited from a rotation out of tech. For a closer
look at market action, I'm joined by Dean Smith of
Folio Beyond. The firm manages ETFs Dean as chief strategist
(07:53):
and marketing Officer. Folio Beyond is based in New York City. Dean,
thank you so much for making time to chat. I'd
like to begin by getting your thoughts on this rotation
and the degree to which you think high tech valuations
have become more of a concern.
Speaker 3 (08:10):
I think that the AI tech rally has really run
a long way. People are starting to get concerned about valuation.
We started talking about this, you know, six months ago.
It's finally starting to sync in that trees don't grow
to the sky, and so people are.
Speaker 6 (08:31):
Taking a harder look at it, and they're maybe taking
a little money off the table. I don't think that's
a bad thing to do.
Speaker 2 (08:37):
What's your biggest concern when you look at some of
the hyperscalers or any other company related to the AI trade.
Speaker 6 (08:45):
Oh gosh, where to start.
Speaker 3 (08:47):
You know, you've got the fact that the capital expended
your plans for these companies. The hyperscalers as well as
the AI companies and the chip companies. The whole street
are really enormous numbers. And now they've started to issue
some pretty big debt tranches, so we've seen some spread
(09:09):
widening there. I think that people are going to take
a step back here and look at the whole specter
and maybe start to rationalize a little bit how much
they've got allocated here and so the concern is that
the eyes are bigger than the stomach, so to speak,
(09:29):
that the reach for growth and expansion is just not
sustainable and people might have to start thinking about scaling
back some of these ambitions.
Speaker 2 (09:40):
We've seen tremendous focus on the equity side when we
look at the AI story, but increasingly a number of
companies in this space have started to use debt to
finance their projects. But there are companies that are using
debt to find a lot of the buildout in some
of this infrastructure. Is that a concern that you may share.
Speaker 6 (09:59):
Yeah.
Speaker 3 (10:00):
I mean I think that credit spreads are tight. I
mean they've they've been tight for quite some time. I
think there's probably time for a reevaluation there as well.
I think that as the economy starts to slow. I
don't think that we're in a recession. I mean, there
are pockets of weakness here and there. We can talk
(10:21):
about the labor market if you like. But I think
that a stagflationary period here. I think inflation is going
to go higher than it is right now. I think
that the FEDS two percent target is off the table,
is really three and they may be allowing it to
slip even higher. So if you've gotten that sort of environment,
(10:41):
slow in growth, slower labor markets embedded, and creeping higher inflation,
that's got to cause some reevaluation in both equities as
well as debt.
Speaker 2 (10:53):
So give me your probability of a rate cut in
December right now? Is it pretty much a coin toss?
Speaker 6 (11:02):
You know, the Fed is in a really tough spot here.
Speaker 3 (11:05):
Not only do they have the competing interests of a
softening labor market. We can talk a little bit about
some of the complications there and rising inflation.
Speaker 6 (11:14):
They've only got the one tool.
Speaker 3 (11:17):
My belief is that inflation is the greater risk. They
should not have cut last time. They probably it's probably
a coin toss for December, but they've got a lot
of political turmoil inside the board, and I think that j.
Powell has kind of lost control of the Fed and
(11:39):
he's going to be fighting internal battles to keep from
continuing to cut rates twenty five bases points in December.
Speaker 6 (11:47):
As I say, I don't think he should.
Speaker 2 (11:49):
It's interesting because obviously the government shutdown has left us
with a lack of economic data. We did have today
from ADP research indications that the labor market is shown
going further weakness in the second half of the month
of October. I'm wondering though, whether or not, given the
dynamics of what is happening in the labor market these days,
(12:10):
whether the prescription is lower interest rates, that seems to
be up for debate.
Speaker 6 (12:17):
I think that's a great point.
Speaker 3 (12:19):
If you look at the last numbers that we got
from the government, ADP is the only thing we've had
to work with. It's always been a very noisy kind
of signal. But if you go back to the last
numbers we got out the Labor Department, you'll see that
the biggest declines came from construction and to some extent, hospitality,
(12:43):
tech and the government. If you look at construction and
to lesser extent hospitality, that is very heavily populated with
undocumented workers. It just is now we've had a self
deportation bodies. Some people think it's a much as maybe
a million, two even a million and a half of
(13:04):
undocumented workers have left the United States, and that is
what has caused a lot of the dropping construction employment.
If you look at tech, we just talked about AI.
We know what's going on there, but the biggest decline
in job growth is actually coming from the government sector.
Speaker 6 (13:21):
That's federal, state, and local.
Speaker 3 (13:23):
At all levels, government hiring has slowed dramatically.
Speaker 6 (13:29):
None of those three.
Speaker 3 (13:30):
Sectors construction tech where government are going to be helped
by a twenty five or fifty basis point rate cut
in the Fed fund So the problems in the labor
market are more structural and not so much cyclical, not
amenable to changes in the Fed funds rate, which is
again why I say I really think they should need
(13:50):
to keep their eye on inflation rather than employment at
this point.
Speaker 2 (13:54):
So the bond market was closed for Veterans Day on
Tuesday in the US. We have trading underway now the
Tokyo session, and yields are down across the curve. Given
what we were talking about a moment ago, and you
identifying the risk of stagflation as being a possibility, I'm
wondering whether or not you're just if you have to
be invested in the bond market right now that it's
(14:16):
all about shorter term duration.
Speaker 3 (14:20):
Yeah, I mean, I think that buying duration here doesn't
make a lot of sense. We've been telling our investors
this for quite some time. If you look at when
the Fed stop raising rates. Go back to twenty twenty three,
we've had four rallies in the bond market, looking at
ten years and thirty years the longer.
Speaker 6 (14:41):
End of the bond market.
Speaker 3 (14:42):
Each of the rallies that we've had has been smaller
and shorter in duration than the one before it, So
there's less and less conviction about rates going lower. Inflation
is very sticky. It's well above the Fed's target. The
trend for interest rates, especially at the longer end of
(15:03):
the curve, is still the higher.
Speaker 6 (15:06):
Not lower.
Speaker 2 (15:06):
So the Bank of Japan has a rate decision in
the coming week, and these current dynamics are very interesting. Inflation,
as we know, has been above the boj's target for
over three years. The new Prime Minister would like to
see a lot more in the way of fiscal stimulus
given expectations of economic contraction. And now it seems the
(15:27):
level of public debt has become more of a concern
now we know in Japan public debt levels are more
than twice the size of the economy. I'm curious, Dean,
where you find yourself when you look at the level
of debt to GDP in the US.
Speaker 3 (15:42):
Oh, I'm very concerned about the level of debt to
GDP in the United States. I think that the so
called one Big Beautiful Bill that was passed earlier this
year is going to dramatically increase the deficits and debt
over time. I'm concerned about the Fed's balance sheet, that
(16:05):
they had been on track to reduce their holdings of
treasury debt. They've decided that they're going to stop doing
that right now. You've got the issue with the tariffs.
There's a whole lot of underlying uncertainty and risk related
to how big the federal government's balance sheet should be.
(16:30):
And frankly, it's way too big and getting bigger. This
is a problem that's not going to be solved in
the next quarters or even years. This has been growing
for decades and it's going to take decades to fix it.
Speaker 2 (16:40):
Indeed, before I let you go, when it comes to
corporate bonds, where are you finding opportunity? Is high yield
anything that you're playing with right now? Or are you
looking strictly at ig.
Speaker 3 (16:53):
We've actually seen some value in some of the shorter
term and floating rate field debt. We think there's some
value there. We have been exposed to some of the routs.
We think that there's some interesting trades in that space. Corporates,
(17:14):
as I said before, have been very very tight. I
think that's a tougher market to navigate. But I think
that if we do have some sort of a stagflationary
period over the next several quarters or into twenty twenty six,
I think it's going to be pretty treacherous in investment grades.
(17:36):
I think you're going to see some real stress in
those markets.
Speaker 2 (17:40):
What about the muni market right now?
Speaker 3 (17:44):
The muni market, I mean, I feel like the states
and local governments for the most part are in reasonably
good shape. Now let's carry out that by saying we
just had a crazy election in New York. New York
is a massive issuer of municipal debt. We've found out,
(18:05):
if you didn't know already, that the free bus ideas
going out the window because they've already pledged those cash
flows to some revenue bonds. So again, municipals, I think
you've got to be really careful about picking your names.
Speaker 6 (18:20):
I'd probably avoid New York right now if it was
up to me.
Speaker 2 (18:23):
Dean will leave it. There are always a pleasure, Thanks
so very much, Dean Smith. There of Folio Beyond. The
firm manages several ETFs. Folio Beyond is based here in
New York City. Dean Smith with us on the Daybreak
Asia Podcast. Thanks for listening to today's episode of the
Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
(18:44):
the story shaping markets, finance, 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 Single Poor and Australia. I'm Doug Prisoner and this
is Bloomberg
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm Doug Prisner. It's
Singles Day in China and parts of Southeast Asia and already.
E commerce giant JD dot Com said orders are up
nearly sixty percent, and JD also reported a forty percent
increase in the number of shoppers. Meantime, in the States,
the government shutdown is on a path to end as
(00:31):
soon as Wednesday. This is one reason why much of
the American equity market did move higher. We got some
perspective in Asia from Si Chow, financial advisor and managing
director at UBS Private Wealth. She spoke with Bloomberg TV
host Sherry On and April Hong.
Speaker 3 (00:48):
Now.
Speaker 2 (00:48):
The conversation began with a question on how Asia might
be impacted by a reopening of the US government and
the potential for more FED rate cuts.
Speaker 4 (00:57):
I mean, this is a very good day today. Hopefully
the government shutdown is over and uh, you know, equity
rally should continue. We feel strong about the market still
and we feel that, uh you know, a lot of
the market will continue to drive up as especially key
drivers additional the rate cuts. As uh you mentioned, the
(01:21):
robust corporate earnings providing fundamental support and just growing AI
spending in general. So and of course the continue robust
growth in the US uh and evaluations are are looking
good in Asia and also international, So we hope this
global AI spending will continue to push markets.
Speaker 1 (01:42):
Higher and which markets will benefit the most. It seems
these days the biggest two narratives are fed rate policy
at the moment and the tech rally that we continue
to see right exactly.
Speaker 4 (01:55):
I think US, of course still the makeup caps a
lot of the law tech companies, but we actually find
China very attractive at this point, specifically China's tech sector,
and that's expected to deliver high single digit returns over
the next twelve months, and a lot of that are
supported again by the AI adoption, just chip localization in China,
(02:18):
and just in general, the earnings growth is very strong
in Chinese equities, so that's definitely an area that investors
can look into outside of the US. European equities is
also improving earnings, reasonable valuations and again supportive by global policies.
So I would say, you know, China Europe are some
(02:40):
of our main sectors outside of the US.
Speaker 5 (02:45):
Just on Chinese tech it's become a bit of a
crowded trade after the valley. How diversified or how should
you be positioned perhaps to hedge against some of that.
Speaker 6 (02:58):
Yeah, and that's a great question.
Speaker 4 (03:00):
I think, uh, really the hedging would be not just
on the tech sector, but on the general markets, because
we do feel like there's you know, still a lot
of risk with the markets, especially geopolitical risk, uh, volatility,
and also just you know and hopefully rates does go
down as they expected. So a lot of the hedging
could just be you know, one of the asset classes
(03:23):
that we like is gold. Gold prices can continue to
climb further and the reason pullback and gold we feel
that just a pause and this ongoing bull run. So
I think, you know, you can still maintain cash on
the sides or maintain fixed income, but it's you know,
the payout on that, especially yields are going.
Speaker 6 (03:42):
To get lower.
Speaker 4 (03:43):
But if you can lock in higher yields with fixed
income right now, that's uh, you know, that's that's that's
probably another asset class that's probably more stable. But gold
would be a good hedge at this point. If you're
going to look outside of the equity markets, how.
Speaker 5 (03:59):
Are you viewing ems overall, given the expectations of these
fat rate cuts and the dollar having struggled to rebound so.
Speaker 4 (04:08):
Far right, And that's a good point, and it's especially
you know, with the geopolitical risk and volatility. We recommend
increasing tactical exposure to emerging market equities and specifically US
as I was mentioning China and also diversity find out
of China, India, Brazil, Indonesia. These are markets with strong
(04:32):
natural resources as well, which also drives into our themes
of AI power resources energy efficiency. I mean, so I
think em has has not been a market that has
been a focus, and this is a really good time
to start adding tactical exposure to emerging markets.
Speaker 1 (04:54):
It's been interesting the resilience that we've seen in the
emerging markets, especially when advanced economies are really dealing with
the concerns around their dead loads. You mentioned European equities
and some opportunities there. What I'm watching here in Japan
is also how jgvs are under pressure because the demand
looks pretty tepid on those fiscal concerns. What are some
(05:14):
of the big trends there that you're watching.
Speaker 4 (05:18):
I mean, I've seen some of the bigger trends, and
this is a great point, especially for emerging markets in Japan,
as you mentioned, are just kind of benefiting from the
structure and the drivers, including policy support. How strong is
the policy support for innovation and just technological self sufficiencies.
(05:38):
So again we feel that these emerging market regions are
getting a lot of support and they do want to
become technological self sufficient. So the overall theme is there
to drive growth in those markets.
Speaker 5 (05:57):
We saw the ADP now coming out this week, so
investors have kind of been relying on private data. What
is your sense of before we get to the December
decision from the Fed, the extent in which we will
have data that would support a rate cut.
Speaker 4 (06:17):
Yeah, I mean, I think we're most concerned with just
kind of the overall economy and the health of economy,
and you know, while the data is important, but we
really feel like the the you know, FED has resumed.
Speaker 6 (06:31):
The rate cutting cycle.
Speaker 4 (06:32):
And it's going to be still driven by a lot
of you know, concerns and especially concerns over a stoppling
labor market. So we're not too concerned with the rate
cut and expecting probably another fifty seventy five basis points
through the first quarter of twenty twenty six.
Speaker 2 (06:51):
That is, she Chow, financial advisor and managing director at
UBS Private Wealth, speaking with Bloomberg TV host Cherry On
and Avril Hon on the Asia Trade. Now, in the US,
the equity market saw some rotation out of tech and
into drug stocks as the marketwade concern over valuations. In
a moment, we'll have a conversation with Dean Smith, chief
(07:13):
strategist and marketing officer of Folio Beyond here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
I'm Doug Chrisner. In the US, the Dow Industrial Average
closed at a record high today thanks to a jump
(07:33):
in shares of Merk. The stock was up four point
eight percent, gaining for a sixth straight session, and in
that time, Merk shares are up ten percent. Drugstocks today
benefited from a rotation out of tech. For a closer
look at market action, I'm joined by Dean Smith of
Folio Beyond. The firm manages ETFs Dean as chief strategist
(07:53):
and marketing Officer. Folio Beyond is based in New York City. Dean,
thank you so much for making time to chat. I'd
like to begin by getting your thoughts on this rotation
and the degree to which you think high tech valuations
have become more of a concern.
Speaker 3 (08:10):
I think that the AI tech rally has really run
a long way. People are starting to get concerned about valuation.
We started talking about this, you know, six months ago.
It's finally starting to sync in that trees don't grow
to the sky, and so people are.
Speaker 6 (08:31):
Taking a harder look at it, and they're maybe taking
a little money off the table. I don't think that's
a bad thing to do.
Speaker 2 (08:37):
What's your biggest concern when you look at some of
the hyperscalers or any other company related to the AI trade.
Speaker 6 (08:45):
Oh gosh, where to start.
Speaker 3 (08:47):
You know, you've got the fact that the capital expended
your plans for these companies. The hyperscalers as well as
the AI companies and the chip companies. The whole street
are really enormous numbers. And now they've started to issue
some pretty big debt tranches, so we've seen some spread
(09:09):
widening there. I think that people are going to take
a step back here and look at the whole specter
and maybe start to rationalize a little bit how much
they've got allocated here and so the concern is that
the eyes are bigger than the stomach, so to speak,
(09:29):
that the reach for growth and expansion is just not
sustainable and people might have to start thinking about scaling
back some of these ambitions.
Speaker 2 (09:40):
We've seen tremendous focus on the equity side when we
look at the AI story, but increasingly a number of
companies in this space have started to use debt to
finance their projects. But there are companies that are using
debt to find a lot of the buildout in some
of this infrastructure. Is that a concern that you may share.
Speaker 6 (09:59):
Yeah.
Speaker 3 (10:00):
I mean I think that credit spreads are tight. I
mean they've they've been tight for quite some time. I
think there's probably time for a reevaluation there as well.
I think that as the economy starts to slow. I
don't think that we're in a recession. I mean, there
are pockets of weakness here and there. We can talk
(10:21):
about the labor market if you like. But I think
that a stagflationary period here. I think inflation is going
to go higher than it is right now. I think
that the FEDS two percent target is off the table,
is really three and they may be allowing it to
slip even higher. So if you've gotten that sort of environment,
(10:41):
slow in growth, slower labor markets embedded, and creeping higher inflation,
that's got to cause some reevaluation in both equities as
well as debt.
Speaker 2 (10:53):
So give me your probability of a rate cut in
December right now? Is it pretty much a coin toss?
Speaker 6 (11:02):
You know, the Fed is in a really tough spot here.
Speaker 3 (11:05):
Not only do they have the competing interests of a
softening labor market. We can talk a little bit about
some of the complications there and rising inflation.
Speaker 6 (11:14):
They've only got the one tool.
Speaker 3 (11:17):
My belief is that inflation is the greater risk. They
should not have cut last time. They probably it's probably
a coin toss for December, but they've got a lot
of political turmoil inside the board, and I think that j.
Powell has kind of lost control of the Fed and
(11:39):
he's going to be fighting internal battles to keep from
continuing to cut rates twenty five bases points in December.
Speaker 6 (11:47):
As I say, I don't think he should.
Speaker 2 (11:49):
It's interesting because obviously the government shutdown has left us
with a lack of economic data. We did have today
from ADP research indications that the labor market is shown
going further weakness in the second half of the month
of October. I'm wondering though, whether or not, given the
dynamics of what is happening in the labor market these days,
(12:10):
whether the prescription is lower interest rates, that seems to
be up for debate.
Speaker 6 (12:17):
I think that's a great point.
Speaker 3 (12:19):
If you look at the last numbers that we got
from the government, ADP is the only thing we've had
to work with. It's always been a very noisy kind
of signal. But if you go back to the last
numbers we got out the Labor Department, you'll see that
the biggest declines came from construction and to some extent, hospitality,
(12:43):
tech and the government. If you look at construction and
to lesser extent hospitality, that is very heavily populated with
undocumented workers. It just is now we've had a self
deportation bodies. Some people think it's a much as maybe
a million, two even a million and a half of
(13:04):
undocumented workers have left the United States, and that is
what has caused a lot of the dropping construction employment.
If you look at tech, we just talked about AI.
We know what's going on there, but the biggest decline
in job growth is actually coming from the government sector.
Speaker 6 (13:21):
That's federal, state, and local.
Speaker 3 (13:23):
At all levels, government hiring has slowed dramatically.
Speaker 6 (13:29):
None of those three.
Speaker 3 (13:30):
Sectors construction tech where government are going to be helped
by a twenty five or fifty basis point rate cut
in the Fed fund So the problems in the labor
market are more structural and not so much cyclical, not
amenable to changes in the Fed funds rate, which is
again why I say I really think they should need
(13:50):
to keep their eye on inflation rather than employment at
this point.
Speaker 2 (13:54):
So the bond market was closed for Veterans Day on
Tuesday in the US. We have trading underway now the
Tokyo session, and yields are down across the curve. Given
what we were talking about a moment ago, and you
identifying the risk of stagflation as being a possibility, I'm
wondering whether or not you're just if you have to
be invested in the bond market right now that it's
(14:16):
all about shorter term duration.
Speaker 3 (14:20):
Yeah, I mean, I think that buying duration here doesn't
make a lot of sense. We've been telling our investors
this for quite some time. If you look at when
the Fed stop raising rates. Go back to twenty twenty three,
we've had four rallies in the bond market, looking at
ten years and thirty years the longer.
Speaker 6 (14:41):
End of the bond market.
Speaker 3 (14:42):
Each of the rallies that we've had has been smaller
and shorter in duration than the one before it, So
there's less and less conviction about rates going lower. Inflation
is very sticky. It's well above the Fed's target. The
trend for interest rates, especially at the longer end of
(15:03):
the curve, is still the higher.
Speaker 6 (15:06):
Not lower.
Speaker 2 (15:06):
So the Bank of Japan has a rate decision in
the coming week, and these current dynamics are very interesting. Inflation,
as we know, has been above the boj's target for
over three years. The new Prime Minister would like to
see a lot more in the way of fiscal stimulus
given expectations of economic contraction. And now it seems the
(15:27):
level of public debt has become more of a concern
now we know in Japan public debt levels are more
than twice the size of the economy. I'm curious, Dean,
where you find yourself when you look at the level
of debt to GDP in the US.
Speaker 3 (15:42):
Oh, I'm very concerned about the level of debt to
GDP in the United States. I think that the so
called one Big Beautiful Bill that was passed earlier this
year is going to dramatically increase the deficits and debt
over time. I'm concerned about the Fed's balance sheet, that
(16:05):
they had been on track to reduce their holdings of
treasury debt. They've decided that they're going to stop doing
that right now. You've got the issue with the tariffs.
There's a whole lot of underlying uncertainty and risk related
to how big the federal government's balance sheet should be.
(16:30):
And frankly, it's way too big and getting bigger. This
is a problem that's not going to be solved in
the next quarters or even years. This has been growing
for decades and it's going to take decades to fix it.
Speaker 2 (16:40):
Indeed, before I let you go, when it comes to
corporate bonds, where are you finding opportunity? Is high yield
anything that you're playing with right now? Or are you
looking strictly at ig.
Speaker 3 (16:53):
We've actually seen some value in some of the shorter
term and floating rate field debt. We think there's some
value there. We have been exposed to some of the routs.
We think that there's some interesting trades in that space. Corporates,
(17:14):
as I said before, have been very very tight. I
think that's a tougher market to navigate. But I think
that if we do have some sort of a stagflationary
period over the next several quarters or into twenty twenty six,
I think it's going to be pretty treacherous in investment grades.
(17:36):
I think you're going to see some real stress in
those markets.
Speaker 2 (17:40):
What about the muni market right now?
Speaker 3 (17:44):
The muni market, I mean, I feel like the states
and local governments for the most part are in reasonably
good shape. Now let's carry out that by saying we
just had a crazy election in New York. New York
is a massive issuer of municipal debt. We've found out,
(18:05):
if you didn't know already, that the free bus ideas
going out the window because they've already pledged those cash
flows to some revenue bonds. So again, municipals, I think
you've got to be really careful about picking your names.
Speaker 6 (18:20):
I'd probably avoid New York right now if it was
up to me.
Speaker 2 (18:23):
Dean will leave it. There are always a pleasure, Thanks
so very much, Dean Smith. There of Folio Beyond. The
firm manages several ETFs. Folio Beyond is based here in
New York City. Dean Smith with us on the Daybreak
Asia Podcast. Thanks for listening to today's episode of the
Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
(18:44):
the story shaping markets, finance, 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 Single Poor and Australia. I'm Doug Prisoner and this
is Bloomberg
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