November 2, 2025 • 21 mins
China will effectively suspend implementation of additional export controls on rare earth metals and terminate investigations targeting US companies in the semiconductor supply chain, the White House announced. The White House issued a fact sheet on Saturday outlining some details of the trade pact agreed to earlier this week by President Donald Trump and Chinese leader Xi Jinping that aimed to ease tensions between the world's largest economies. Also, there were some PMI releases across Asia. That would include South Korea and Taiwan. For more on the US-China trade fallout and the latest eco data, we turn to Paul Dobson, Bloomberg's Executive Editor for Asia Markets.
Plus - More than half of S&P 500 companies have reported quarterly results and Uber Technologies and McDonald's earnings will likely underscore deteriorating consumer sentiment in the US. Meantime, last week Big Tech was in the spotlight for 5 key players. For more on what to look out for in the week ahead, we speak to Carol Schleif, Chief Investment Officer at BMO Private Wealth.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. It is Culture Day in Japan,
so a market holiday, and we will have no trading
in US treasuries until the London session Elsewhere over the weekend.
(00:23):
Opek Plus said it will make a modest increase in
oil production next month, but then the cartel will pause
hiking output during the first quarter of the new year.
Oil prices are trading higher this morning, and we're getting
some PMI releases across Asia that would include South Korea
and Taiwan. For a closer look at market action across
(00:44):
the APAC I'm joined by Paul Dobson. He is Bloomberg
Executive Editor for Asia Markets. Paul joins us from our
studios in Singapore. Thanks for making time. Can we start
with the PMI data. The South Korean number dips into
contraction if you look at the manufacturing PMI Taiwan a
bit stronger than the figure that we had in September.
(01:05):
I know that there are very different themes here across
these jurisdictions, but can we begin to paint with a
broad brush. What are we seeing in the PMI data.
Speaker 2 (01:15):
Hi there, Doug. I think that one thing to keep
in mind is the backward looking nature that we have
for some of the data compared to the agreements that
we've seen with Trump's visit over the past couple of weeks,
and I think that that will give people renewed confidence
in the outlook for the economy and particularly for exports
going forwards from here. So that might make everything a
(01:38):
little bit more more tricky to sort of cut through
the noise on the whole. If you look across the
Asia sector, PMI is mostly in positive territory, and exports
have been holding up relatively strongly as well, a lot
of it anchored by China, which has been, you know,
continuing to sort of set a path for that five
percent growth target too. At the moment, it seems, you know,
(02:00):
I guess you could wrap it up as being sort
of steady as she goes in some ways, nothing to
particularly worry about at this moment in time.
Speaker 1 (02:08):
So, Paul, I'm glad you mentioned last week's agreement between
Presidents Trump and She when it came to trade. So China,
we know, will terminate investigations targeting US companies in the
semiconductor of supply chain, and Beijing will also suspend implementation
of additional export controls on rare earth minerals. Now, for
the Trump side, it's a big win. Now from the
(02:29):
US side, the Trump administration is going to pause some
of those reciprocal tariffs on China for one year an
additional year, and at the same time, the US will
hold plans to implement that one hundred percent tariff that
was floated on imported Chinese goods. But I'm wondering, is
it too much to say that perhaps Beijing got the
(02:50):
better part of this deal.
Speaker 2 (02:53):
I guess you could probably sum it up that way.
I think that China was able to show the its
policy for escalating rather than backing down and negotiating immediately
with the US paid off to a certain extent. And
I think that the longer term view is that China
is in certainly in a much stronger position for these
(03:14):
trade negotiations this time around versus where it was in
the first US Trump presidency. And I think that you know,
they they're pretty cognizant of that. They know now that
the rare earths and the critical minerals can be a
pretty strong leverage point in the trade negotiations. There's also
(03:36):
some biotech and pharma related goods that haven't been brought
into the equation so far. That could also be another
lever that China could pull. But you know, on the
flip side of that, China wants stuff as well, it
wants more access to the US technology that it's being
shut out of at the moment. So I think both
(03:58):
sides were able to bear their teeth, but both of
them were able to come away with pretty much what
they wanted, which is that compromise that pushing things forwards
a year, both on some of the technology stuff and
on the rare earth stuff and you know, keep them
going on this path that this seems pretty clear to
everyone as best and we're describe it not decoupling exactly,
(04:21):
but de risking or you know, strategic sort of separation.
And so the US will be on the hunt for
rare earths and ways to get out of that China
supply chain, and China will be continuing to push its
own technological and industrial development to try to get away
from the US dependence as well.
Speaker 1 (04:39):
Well. I'm glad you refer to the best in comment
there of not wanting to decouple, but trying to de risk,
and I would argue that that's something that Beijing has
been doing for a while when it comes to the US, right.
Speaker 2 (04:50):
Yeah, I think so. I think so. I was trying
to characterize it the other day as a sort of
amicable divorce, you know, so long as there's not too
much disagreement, then they can kind of split up a
move their separate ways. And it's complicated because there's you know,
like like if you extend the metaphor a little bit,
there will be some arguments over who gets custody of
(05:11):
certain goods, certain ownerships and property rights and those kinds
of things. Certain relationships with our third parties as well,
you know, who stays friends with who and stuff like that.
But yes, China has definitely been on this route, but
also the US has been on this route for quite
a long time as well. It became kind of clearer
over the last five years that there's a need to
(05:32):
you know, reimagine all of the supply chains, and COVID
really threw that into very sharp relief, and ever since then,
that's been that sort of path that we've been on.
I think that what it looks like longer term isn't
just you know, China and US moving apart. But as
I said, you know who takes what with them, and
China is doing a lot of diplomacy in order to
try to you know, make sure that it has a
(05:53):
larger sort of zone of influence that sort of splits
off from the US or at least leans more wall
towards China. And so you know that's interesting and could
be troublesome economically or could you know, further sort of
fragment trade routes and trading as well, and so therefore
(06:14):
have some impacts on financial markets and the economic outlook
long term. But it's very hard to figure out exactly
what that course is going to look like from here.
Speaker 1 (06:21):
So help me understand what your team is going to
be focused on in the week ahead, the stories and
the APAC that will be particularly important for markets.
Speaker 2 (06:30):
Yeah, well, the stories in the APEC are not that
different from the global themes. I think more important than
anything else is still the tech story and whether that
rally can continue going. We saw, you know, the the
NASDAK had a good day on Friday, lifted by Apple Amazon,
so that set us up a little bit more positively
for the week ahead and No, Japan is on holiday today,
(06:51):
but the Nikki just had its best month in thirty
five years, so the text story they're flying ahead. But
also Takaichi seems, you know, the new lead in Japan
seems to have had a really good couple of weeks
of diplomacy, getting photographed with all of the leaders from
around the region and really sort of establishing herself and
her popularity ratings have shot up as a result, So
(07:12):
you know, giving Japan a little bit more of a
confident direction may be interesting. On the flip side of that, though,
the yen has been under a lot of pressure. That's
been one of the bigger movers as well for US
weakening against the US Dora is the sort of flip
side of the stocks are gaining in some ways. So
I think Japan is going to be an interesting one
to focus on this week, as well as keeping an
(07:33):
eye on China and then keeping keeping an eye on
what global central bank policy is going to look like
with the FED path a little bit less clear after
what we heard from Jerome Powell at the end of
or in the middle of last week.
Speaker 1 (07:46):
Yeah, he went on to say last week that it's
not a foregone conclusion that the FED is going to
cut at the December meeting, and we have the BOJ
still a little retican toward the idea of raising interest rates.
Is that pretty much the dynamic that we'll cantinue now
for the next or for the foreseeable future.
Speaker 2 (08:03):
Yes, yeah, I like to joke, you know, rather than
the always going on about the taco trade, it's the
BOJ that always chickens out. You know, whenever they get
that opportunity to raise interest rates, they seem to shirk it,
and so we're still waiting for them to move again.
The thinking is that, you know, wait until Takaichi is
in place. Don't move too fast. Give them. She wants
to think about what she's going to do in terms
(08:24):
of monitor of sorry, fiscal stimulus and economic stimulus. But
at some point the BJ should be raising rates and
that should give the EN a little bit more support.
It's just, you know, it seems to always be pushed
off into the long grass. And as you said, on
the FED side, you know, I think it's really interesting
because we heard them three policymakers at the end of
last week all telling us why they didn't want to
(08:45):
cut interest rates at the last meeting. I mean, they
did anyway, and they voted for it. But you know
the fact of the matter is that they're getting a
little bit more noisy in their complaints, and that split
among the FOMC is going to get wider. It seems
like we shall make make it very difficult for power
to kind of try to middle path.
Speaker 1 (09:04):
Okay, Paul, we'll leave it there. Thank you so much.
Paul Dobson, Bloomberg's executive editor for Asia Markets, joining us
here on the Daybreak Asia Podcast. Welcome back to the
Daybreak Asia Podcast. I'm Doug Krisner. Earnings are very much
in focus now. In the week ahead, we'll hear from
(09:26):
a few big US consumer names. Last week, of course,
big tech was in the spotlight. We heard from five
key players. Earnings growth outpaced estimates. Quarterly profit growth tracked
at around twenty seven percent for the entire group for
those five companies. For a closer look, now, I'm joined
by Carol Schleifs. She is the chief investment officer at
BMO Capital Management. Carol joins us from just outside Minneapolis.
(09:50):
Thank you for making time to chat with me. I'd
like to begin by getting you to break down for
me what you heard from Alphabet, from Microsoft, Meta Apple,
and Amazon, and what it tells you about the current
AI trade.
Speaker 3 (10:04):
No, I actually think if you step back and you
look at it, you've got companies, many of them forty
or fifty years old, that are still generating billions of
dollars in revenue, growing business twenty to forty percent. So
over arkingly, if you step out of the sort of
quarterly numbers and look at the trend, it's still very
(10:25):
much intact, with very vibrant companies contributing a lot to
the GDP and the economy. And it's tough because investors,
you could tell, and investors are very focused on short
term issues. You saw some volatility in the stocks, both
up and down, and even when companies met so called expectations,
if they didn't knock the cover off the ball, which
(10:47):
I think was a little unrealistic, and you know, the
stock prices moved in those directions. With these companies that
are still very much operating from position of strength, if
you will, and they're producing and they're producing it out
of legit businesses.
Speaker 1 (11:07):
When you look at the level of expenditures that these
AI companies are going about, right now and I'm wondering
whether there is enough evidence in your mind to justify
the valuation and to bet on a near term reward.
Speaker 3 (11:22):
Well, I'm not sure we're necessarily betting on near term rewards.
But I think the other thing is is that's where
you broaden it out in terms of our companies in general,
because we're in the process of another big shift, much
like as we introduced the Internet itself, and then it
took a while once the Internet was there, because you
(11:43):
think about the late nineties when we first started talking
about a lot of the dot com stocks and we
were doing the infrastructure build out, but it really wasn't
until almost a decade later when we had very cheap
when we had storage all of a sudden get very cheap,
and we had the iPhone invented and we all went mobile.
(12:04):
So it took a while to get all of the
use cases put together. And as long term investors, I
think that's what we're focused on. And you've seen companies
actually have been using AI internally and creating test cases
for use cases for it for a very long time,
a lot prior to the introduction of chat GPT, and
(12:27):
so you've had you had some companies. There was a
big logistics company here locally that this dock performed very
well because they were showing how they were using AI
in the ability to adapt supply chains. And so there's
a lot of that going on, and as investors, as
long term investors, the AI and the tech buildout is
(12:51):
one piece of it, but there's also a lot of
tangential stuff going on in terms of healthcare is using it,
financial services is using it and backing it. And you've
also got a whole variety of companies that will benefit
from it.
Speaker 1 (13:05):
So last week, Carol, as you know, in Vidia made
history when it became the first company ever to have
a market cap of five trillion dollars. Obviously, this company
is at the heart of the AI revolution. Interestingly, I
was reading a piece over the weekend researchers in China
have developed a new analog chip that they say is
(13:26):
one thousand times faster than the high end in Vidia GPU,
And I'm wondering whether I understand the influence that in
Nvidia has right now on the AI story. But the
question is whether there is some risk minor as it
may be, of a sort of complacency that we need
to be on alert for a potential threat to in
(13:46):
Vidia's dominance.
Speaker 3 (13:48):
Yeah, I definitely think that's the case in terms of
picking a horse to ride on our a single stock.
I mean, you've got mag seven participation just in a
passive index. You've got massive participation there, and so leaning
into some of these other things because the other thing
is in a lot of those companies as well as
(14:09):
the government and other entities are looking to invest in
quantum computing, and there's a lot of stuff in quantum
where if and when that breakthrough comes. You know, there's
estimates that it could come in five years, there's estimates
that might take thirty but who knows when it comes.
But when it does, that changes the game again and
shifts the trajectory. So I think the bigger theme is
(14:29):
to figure out which companies, no matter what industries they're in,
are leaning into being adaptive and being able to not
shift on a whim, but being cognizant enough of the
way technology is evolving because we are in a whole
new age here, and being able to lean into that
(14:51):
and not necessarily pick one particular company that's going to
be the harbinger of that, but understanding that there's going
to be a lot of different ways to play, and
there's all kinds of different ways to play it these
days in terms of different technology ETFs and things like that.
And you know, the one thing we haven't even talked
(15:12):
about is when you start talking about defense, there's lots
of overlays and defense there's overlays, and logistics, there's overlays
all it'll touch every single aspect, not unlike when we
all came off the farms and we're able to go
to the city because there was electrification and indoor plumbing.
It sort of changed everything.
Speaker 1 (15:32):
So I mentioned a moment ago that we'll hear from
a few US consumer companies this week to what extent
do you believe the strength of the American consumer is
really about the wealth effect?
Speaker 2 (15:44):
Right now?
Speaker 3 (15:46):
Yeah, there's a big piece of that. But the wealth
effect isn't just the market. It's a big components the market,
but it's also housing values and things like that. And
we wrote about it a couple of weeks ago in
terms of you know, everyone talking about you've got not
only the ke shaped economy with the top the top
ten percent generating fully a third of GDP and half
(16:08):
of consumer spending, but you've also got different demographic cohorts
and those are important to watch two in terms of
the way they plug in not only to investing and
participating in things, but the way they purchase and where
their sensibilities are and things like that. But that bears
a lot of watching, and I think a lot of
old line, traditional old line companies, particularly Staples, are having
(16:31):
trouble keeping up with some of that because you've got
the impact of the way consumers are spending. Yes, they're
feeling better about spending because of where markets are, but
you've also got that top tier that is less impacted,
if you will, by employment trends, and a lot more
impacted by the fact that even if you had a
(16:52):
pullback in markets, they've still made significant gains over the
last four or five years in their portfolios.
Speaker 1 (16:58):
So last week, Carol, we heard from FED share J. Powell.
He seemed to push back on this idea that a
December rate cut was a foregone conclusion. There are many
voices at the FED that seem to be a little
concerned about how sticky inflation has become. Its rising a
little bit, and inflation expectations are also picking up just
a bit, where are you right now and looking at
(17:20):
inflation and help me understand how that may influence your
thinking as to what the FED does next.
Speaker 3 (17:28):
You know, the interesting thing is is, like the Fed
so wedded to two percent, but the markets did you know,
the sort of average or typical rate of inflation posts
World War two was closer to three to three and
a half percent. And we're all arguing right now about
whether it's two percent or three you know, getting to
the Feds two percent or whether three percent is tolerable.
(17:49):
And the fact of the matter is these companies are
still generating some pretty great revenues with inflation as sticky
as it is, so you know, it remains to be
seen if they cut or not in December. You've got
you know, as much as they don't want it to
creep in, politics are creeping at the edges of it
in terms of some of the governors. And you saw
that it was the most adamant I've ever seen Shair
(18:12):
Paul Bee about the fact that there was a lot
of dissension in that meeting. Clearly that there was probably
more heated interaction, and you know, I'm sure it was respectful,
but just very strong opinions on both sides in terms
of whether they should cut or not, and we honestly
think that market's you know, the FED is important, but
(18:33):
it's also important to remember that something like eighty percent
of lending happens outside the regulated banking system. Now it's
really moved that we've disintermediated a lot out of the bank.
So well, the FED has important overtones psychologically to things.
The bond markets are moving very carefully in their own
(18:53):
in their own sphere, if you will, and they're watching
company dead. I think the bigger issue for us that
we're watching, especially as at really cific syncome markets, is
how does all the data center spending get funded? Because
a lot of it has been funded out of cash
flow now, but now you've got an increasing amount that's
being funded both debt on and off the balance sheet,
(19:15):
and so there's a lot more dynamics that will impact stuff.
And the faster we get access compute capacity out there,
the more deflationary impacts that has. And to the extent
that you know, if tariffs stays sticky, that has a
tendency to reduce demand somewhat, which would also have some
(19:36):
deflationary impact. So there's enough on both sides of the
ledgard I mean, you know, maybe we stay stuck around
three percent, and I'm not sure it really matters for
earnings and for the long term.
Speaker 1 (19:47):
So before I let you go, Carol, give me your
sense of what's happening in the private credit space right now.
Should we be worried?
Speaker 3 (19:54):
I think we should be watchful. We should be really
watchful because you've got a lot of companies out there
playing it. And in my mind, one of the things
I'm most watchful for is between a lot of the
big private credit companies funding the big important technology companies.
Do we create entities so big that in and of
(20:15):
themselves they're too big to fail? Because right now, the
advantage to all this spending has been, well, the taxpayer's
not going to have to bail anybody out because they're
all doing it out of their own cash flow. Well,
if banks are backing big private credit companies and the
private credit companies are in a circular manner funding technology now,
(20:37):
I think we're years away from that, but it's one
of those things where we're trying to watch it pretty
closely on the margin where we can and try to
pull numbers together and make sure that We're keeping an
eye on that because that, to me would be where
things could get funky.
Speaker 1 (20:51):
Okay, we'll leave it there with things could get funky, Carol,
Thank you so much. Carolschlife, a chief investment officer at
BMO Capital Management, joining from us outside Minneapolis here on
the Daybreak Asia Podcast. Thanks for listening to today's episode
of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we
(21:11):
look at 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 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 Chrisner. It is Culture Day in Japan,
so a market holiday, and we will have no trading
in US treasuries until the London session Elsewhere over the weekend.
(00:23):
Opek Plus said it will make a modest increase in
oil production next month, but then the cartel will pause
hiking output during the first quarter of the new year.
Oil prices are trading higher this morning, and we're getting
some PMI releases across Asia that would include South Korea
and Taiwan. For a closer look at market action across
(00:44):
the APAC I'm joined by Paul Dobson. He is Bloomberg
Executive Editor for Asia Markets. Paul joins us from our
studios in Singapore. Thanks for making time. Can we start
with the PMI data. The South Korean number dips into
contraction if you look at the manufacturing PMI Taiwan a
bit stronger than the figure that we had in September.
(01:05):
I know that there are very different themes here across
these jurisdictions, but can we begin to paint with a
broad brush. What are we seeing in the PMI data.
Speaker 2 (01:15):
Hi there, Doug. I think that one thing to keep
in mind is the backward looking nature that we have
for some of the data compared to the agreements that
we've seen with Trump's visit over the past couple of weeks,
and I think that that will give people renewed confidence
in the outlook for the economy and particularly for exports
going forwards from here. So that might make everything a
(01:38):
little bit more more tricky to sort of cut through
the noise on the whole. If you look across the
Asia sector, PMI is mostly in positive territory, and exports
have been holding up relatively strongly as well, a lot
of it anchored by China, which has been, you know,
continuing to sort of set a path for that five
percent growth target too. At the moment, it seems, you know,
(02:00):
I guess you could wrap it up as being sort
of steady as she goes in some ways, nothing to
particularly worry about at this moment in time.
Speaker 1 (02:08):
So, Paul, I'm glad you mentioned last week's agreement between
Presidents Trump and She when it came to trade. So China,
we know, will terminate investigations targeting US companies in the
semiconductor of supply chain, and Beijing will also suspend implementation
of additional export controls on rare earth minerals. Now, for
the Trump side, it's a big win. Now from the
(02:29):
US side, the Trump administration is going to pause some
of those reciprocal tariffs on China for one year an
additional year, and at the same time, the US will
hold plans to implement that one hundred percent tariff that
was floated on imported Chinese goods. But I'm wondering, is
it too much to say that perhaps Beijing got the
(02:50):
better part of this deal.
Speaker 2 (02:53):
I guess you could probably sum it up that way.
I think that China was able to show the its
policy for escalating rather than backing down and negotiating immediately
with the US paid off to a certain extent. And
I think that the longer term view is that China
is in certainly in a much stronger position for these
(03:14):
trade negotiations this time around versus where it was in
the first US Trump presidency. And I think that you know,
they they're pretty cognizant of that. They know now that
the rare earths and the critical minerals can be a
pretty strong leverage point in the trade negotiations. There's also
(03:36):
some biotech and pharma related goods that haven't been brought
into the equation so far. That could also be another
lever that China could pull. But you know, on the
flip side of that, China wants stuff as well, it
wants more access to the US technology that it's being
shut out of at the moment. So I think both
(03:58):
sides were able to bear their teeth, but both of
them were able to come away with pretty much what
they wanted, which is that compromise that pushing things forwards
a year, both on some of the technology stuff and
on the rare earth stuff and you know, keep them
going on this path that this seems pretty clear to
everyone as best and we're describe it not decoupling exactly,
(04:21):
but de risking or you know, strategic sort of separation.
And so the US will be on the hunt for
rare earths and ways to get out of that China
supply chain, and China will be continuing to push its
own technological and industrial development to try to get away
from the US dependence as well.
Speaker 1 (04:39):
Well. I'm glad you refer to the best in comment
there of not wanting to decouple, but trying to de risk,
and I would argue that that's something that Beijing has
been doing for a while when it comes to the US, right.
Speaker 2 (04:50):
Yeah, I think so. I think so. I was trying
to characterize it the other day as a sort of
amicable divorce, you know, so long as there's not too
much disagreement, then they can kind of split up a
move their separate ways. And it's complicated because there's you know,
like like if you extend the metaphor a little bit,
there will be some arguments over who gets custody of
(05:11):
certain goods, certain ownerships and property rights and those kinds
of things. Certain relationships with our third parties as well,
you know, who stays friends with who and stuff like that.
But yes, China has definitely been on this route, but
also the US has been on this route for quite
a long time as well. It became kind of clearer
over the last five years that there's a need to
(05:32):
you know, reimagine all of the supply chains, and COVID
really threw that into very sharp relief, and ever since then,
that's been that sort of path that we've been on.
I think that what it looks like longer term isn't
just you know, China and US moving apart. But as
I said, you know who takes what with them, and
China is doing a lot of diplomacy in order to
try to you know, make sure that it has a
(05:53):
larger sort of zone of influence that sort of splits
off from the US or at least leans more wall
towards China. And so you know that's interesting and could
be troublesome economically or could you know, further sort of
fragment trade routes and trading as well, and so therefore
(06:14):
have some impacts on financial markets and the economic outlook
long term. But it's very hard to figure out exactly
what that course is going to look like from here.
Speaker 1 (06:21):
So help me understand what your team is going to
be focused on in the week ahead, the stories and
the APAC that will be particularly important for markets.
Speaker 2 (06:30):
Yeah, well, the stories in the APEC are not that
different from the global themes. I think more important than
anything else is still the tech story and whether that
rally can continue going. We saw, you know, the the
NASDAK had a good day on Friday, lifted by Apple Amazon,
so that set us up a little bit more positively
for the week ahead and No, Japan is on holiday today,
(06:51):
but the Nikki just had its best month in thirty
five years, so the text story they're flying ahead. But
also Takaichi seems, you know, the new lead in Japan
seems to have had a really good couple of weeks
of diplomacy, getting photographed with all of the leaders from
around the region and really sort of establishing herself and
her popularity ratings have shot up as a result, So
(07:12):
you know, giving Japan a little bit more of a
confident direction may be interesting. On the flip side of that, though,
the yen has been under a lot of pressure. That's
been one of the bigger movers as well for US
weakening against the US Dora is the sort of flip
side of the stocks are gaining in some ways. So
I think Japan is going to be an interesting one
to focus on this week, as well as keeping an
(07:33):
eye on China and then keeping keeping an eye on
what global central bank policy is going to look like
with the FED path a little bit less clear after
what we heard from Jerome Powell at the end of
or in the middle of last week.
Speaker 1 (07:46):
Yeah, he went on to say last week that it's
not a foregone conclusion that the FED is going to
cut at the December meeting, and we have the BOJ
still a little retican toward the idea of raising interest rates.
Is that pretty much the dynamic that we'll cantinue now
for the next or for the foreseeable future.
Speaker 2 (08:03):
Yes, yeah, I like to joke, you know, rather than
the always going on about the taco trade, it's the
BOJ that always chickens out. You know, whenever they get
that opportunity to raise interest rates, they seem to shirk it,
and so we're still waiting for them to move again.
The thinking is that, you know, wait until Takaichi is
in place. Don't move too fast. Give them. She wants
to think about what she's going to do in terms
(08:24):
of monitor of sorry, fiscal stimulus and economic stimulus. But
at some point the BJ should be raising rates and
that should give the EN a little bit more support.
It's just, you know, it seems to always be pushed
off into the long grass. And as you said, on
the FED side, you know, I think it's really interesting
because we heard them three policymakers at the end of
last week all telling us why they didn't want to
(08:45):
cut interest rates at the last meeting. I mean, they
did anyway, and they voted for it. But you know
the fact of the matter is that they're getting a
little bit more noisy in their complaints, and that split
among the FOMC is going to get wider. It seems
like we shall make make it very difficult for power
to kind of try to middle path.
Speaker 1 (09:04):
Okay, Paul, we'll leave it there. Thank you so much.
Paul Dobson, Bloomberg's executive editor for Asia Markets, joining us
here on the Daybreak Asia Podcast. Welcome back to the
Daybreak Asia Podcast. I'm Doug Krisner. Earnings are very much
in focus now. In the week ahead, we'll hear from
(09:26):
a few big US consumer names. Last week, of course,
big tech was in the spotlight. We heard from five
key players. Earnings growth outpaced estimates. Quarterly profit growth tracked
at around twenty seven percent for the entire group for
those five companies. For a closer look, now, I'm joined
by Carol Schleifs. She is the chief investment officer at
BMO Capital Management. Carol joins us from just outside Minneapolis.
(09:50):
Thank you for making time to chat with me. I'd
like to begin by getting you to break down for
me what you heard from Alphabet, from Microsoft, Meta Apple,
and Amazon, and what it tells you about the current
AI trade.
Speaker 3 (10:04):
No, I actually think if you step back and you
look at it, you've got companies, many of them forty
or fifty years old, that are still generating billions of
dollars in revenue, growing business twenty to forty percent. So
over arkingly, if you step out of the sort of
quarterly numbers and look at the trend, it's still very
(10:25):
much intact, with very vibrant companies contributing a lot to
the GDP and the economy. And it's tough because investors,
you could tell, and investors are very focused on short
term issues. You saw some volatility in the stocks, both
up and down, and even when companies met so called expectations,
if they didn't knock the cover off the ball, which
(10:47):
I think was a little unrealistic, and you know, the
stock prices moved in those directions. With these companies that
are still very much operating from position of strength, if
you will, and they're producing and they're producing it out
of legit businesses.
Speaker 1 (11:07):
When you look at the level of expenditures that these
AI companies are going about, right now and I'm wondering
whether there is enough evidence in your mind to justify
the valuation and to bet on a near term reward.
Speaker 3 (11:22):
Well, I'm not sure we're necessarily betting on near term rewards.
But I think the other thing is is that's where
you broaden it out in terms of our companies in general,
because we're in the process of another big shift, much
like as we introduced the Internet itself, and then it
took a while once the Internet was there, because you
(11:43):
think about the late nineties when we first started talking
about a lot of the dot com stocks and we
were doing the infrastructure build out, but it really wasn't
until almost a decade later when we had very cheap
when we had storage all of a sudden get very cheap,
and we had the iPhone invented and we all went mobile.
(12:04):
So it took a while to get all of the
use cases put together. And as long term investors, I
think that's what we're focused on. And you've seen companies
actually have been using AI internally and creating test cases
for use cases for it for a very long time,
a lot prior to the introduction of chat GPT, and
(12:27):
so you've had you had some companies. There was a
big logistics company here locally that this dock performed very
well because they were showing how they were using AI
in the ability to adapt supply chains. And so there's
a lot of that going on, and as investors, as
long term investors, the AI and the tech buildout is
(12:51):
one piece of it, but there's also a lot of
tangential stuff going on in terms of healthcare is using it,
financial services is using it and backing it. And you've
also got a whole variety of companies that will benefit
from it.
Speaker 1 (13:05):
So last week, Carol, as you know, in Vidia made
history when it became the first company ever to have
a market cap of five trillion dollars. Obviously, this company
is at the heart of the AI revolution. Interestingly, I
was reading a piece over the weekend researchers in China
have developed a new analog chip that they say is
(13:26):
one thousand times faster than the high end in Vidia GPU,
And I'm wondering whether I understand the influence that in
Nvidia has right now on the AI story. But the
question is whether there is some risk minor as it
may be, of a sort of complacency that we need
to be on alert for a potential threat to in
(13:46):
Vidia's dominance.
Speaker 3 (13:48):
Yeah, I definitely think that's the case in terms of
picking a horse to ride on our a single stock.
I mean, you've got mag seven participation just in a
passive index. You've got massive participation there, and so leaning
into some of these other things because the other thing
is in a lot of those companies as well as
(14:09):
the government and other entities are looking to invest in
quantum computing, and there's a lot of stuff in quantum
where if and when that breakthrough comes. You know, there's
estimates that it could come in five years, there's estimates
that might take thirty but who knows when it comes.
But when it does, that changes the game again and
shifts the trajectory. So I think the bigger theme is
(14:29):
to figure out which companies, no matter what industries they're in,
are leaning into being adaptive and being able to not
shift on a whim, but being cognizant enough of the
way technology is evolving because we are in a whole
new age here, and being able to lean into that
(14:51):
and not necessarily pick one particular company that's going to
be the harbinger of that, but understanding that there's going
to be a lot of different ways to play, and
there's all kinds of different ways to play it these
days in terms of different technology ETFs and things like that.
And you know, the one thing we haven't even talked
(15:12):
about is when you start talking about defense, there's lots
of overlays and defense there's overlays, and logistics, there's overlays
all it'll touch every single aspect, not unlike when we
all came off the farms and we're able to go
to the city because there was electrification and indoor plumbing.
It sort of changed everything.
Speaker 1 (15:32):
So I mentioned a moment ago that we'll hear from
a few US consumer companies this week to what extent
do you believe the strength of the American consumer is
really about the wealth effect?
Speaker 2 (15:44):
Right now?
Speaker 3 (15:46):
Yeah, there's a big piece of that. But the wealth
effect isn't just the market. It's a big components the market,
but it's also housing values and things like that. And
we wrote about it a couple of weeks ago in
terms of you know, everyone talking about you've got not
only the ke shaped economy with the top the top
ten percent generating fully a third of GDP and half
(16:08):
of consumer spending, but you've also got different demographic cohorts
and those are important to watch two in terms of
the way they plug in not only to investing and
participating in things, but the way they purchase and where
their sensibilities are and things like that. But that bears
a lot of watching, and I think a lot of
old line, traditional old line companies, particularly Staples, are having
(16:31):
trouble keeping up with some of that because you've got
the impact of the way consumers are spending. Yes, they're
feeling better about spending because of where markets are, but
you've also got that top tier that is less impacted,
if you will, by employment trends, and a lot more
impacted by the fact that even if you had a
(16:52):
pullback in markets, they've still made significant gains over the
last four or five years in their portfolios.
Speaker 1 (16:58):
So last week, Carol, we heard from FED share J. Powell.
He seemed to push back on this idea that a
December rate cut was a foregone conclusion. There are many
voices at the FED that seem to be a little
concerned about how sticky inflation has become. Its rising a
little bit, and inflation expectations are also picking up just
a bit, where are you right now and looking at
(17:20):
inflation and help me understand how that may influence your
thinking as to what the FED does next.
Speaker 3 (17:28):
You know, the interesting thing is is, like the Fed
so wedded to two percent, but the markets did you know,
the sort of average or typical rate of inflation posts
World War two was closer to three to three and
a half percent. And we're all arguing right now about
whether it's two percent or three you know, getting to
the Feds two percent or whether three percent is tolerable.
(17:49):
And the fact of the matter is these companies are
still generating some pretty great revenues with inflation as sticky
as it is, so you know, it remains to be
seen if they cut or not in December. You've got
you know, as much as they don't want it to
creep in, politics are creeping at the edges of it
in terms of some of the governors. And you saw
that it was the most adamant I've ever seen Shair
(18:12):
Paul Bee about the fact that there was a lot
of dissension in that meeting. Clearly that there was probably
more heated interaction, and you know, I'm sure it was respectful,
but just very strong opinions on both sides in terms
of whether they should cut or not, and we honestly
think that market's you know, the FED is important, but
(18:33):
it's also important to remember that something like eighty percent
of lending happens outside the regulated banking system. Now it's
really moved that we've disintermediated a lot out of the bank.
So well, the FED has important overtones psychologically to things.
The bond markets are moving very carefully in their own
(18:53):
in their own sphere, if you will, and they're watching
company dead. I think the bigger issue for us that
we're watching, especially as at really cific syncome markets, is
how does all the data center spending get funded? Because
a lot of it has been funded out of cash
flow now, but now you've got an increasing amount that's
being funded both debt on and off the balance sheet,
(19:15):
and so there's a lot more dynamics that will impact stuff.
And the faster we get access compute capacity out there,
the more deflationary impacts that has. And to the extent
that you know, if tariffs stays sticky, that has a
tendency to reduce demand somewhat, which would also have some
(19:36):
deflationary impact. So there's enough on both sides of the
ledgard I mean, you know, maybe we stay stuck around
three percent, and I'm not sure it really matters for
earnings and for the long term.
Speaker 1 (19:47):
So before I let you go, Carol, give me your
sense of what's happening in the private credit space right now.
Should we be worried?
Speaker 3 (19:54):
I think we should be watchful. We should be really
watchful because you've got a lot of companies out there
playing it. And in my mind, one of the things
I'm most watchful for is between a lot of the
big private credit companies funding the big important technology companies.
Do we create entities so big that in and of
(20:15):
themselves they're too big to fail? Because right now, the
advantage to all this spending has been, well, the taxpayer's
not going to have to bail anybody out because they're
all doing it out of their own cash flow. Well,
if banks are backing big private credit companies and the
private credit companies are in a circular manner funding technology now,
(20:37):
I think we're years away from that, but it's one
of those things where we're trying to watch it pretty
closely on the margin where we can and try to
pull numbers together and make sure that We're keeping an
eye on that because that, to me would be where
things could get funky.
Speaker 1 (20:51):
Okay, we'll leave it there with things could get funky, Carol,
Thank you so much. Carolschlife, a chief investment officer at
BMO Capital Management, joining from us outside Minneapolis here on
the Daybreak Asia Podcast. Thanks for listening to today's episode
of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we
(21:11):
look at 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 Singapore and Australia. I'm Doug Prisner,
and this is Bloomberg
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