July 30, 2025 • 20 mins
US equity-index futures climbed as strong earnings from megacap tech firms bolstered optimism that corporate profits remain resilient. The dollar steadied after gaining on Federal Reserve holding interest rates. Contracts for the Nasdaq 100 rose 1.2% and those for the S&P 500 advanced 0.8% as Microsoft and Meta Platforms surged in after-hours trading. We break down the day's market headlines with Dean Smith, Chief Strategist at FolioBeyond.
Plus - US President Donald Trump announced late Wednesday that he had reached a trade deal with South Korea that would impose a 15% tariff on its exports to the US, and see Seoul agree to $350 billion in US investments. We get reaction from Naomi Fink, Chief Global Strategist at Nikko Asset Management. She speaks with Bloomberg's Shery Ahn and Haidi Stroud-Watts on The Asia Trade.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Certainly will be a busy Thursday morning in the Asia Pacific.
US equity futures are higher. That's after strong earnings from
both Meta and Microsoft. Meantime, the equity market state side
finished mix. That was after the FED held its policy
rates steady, and then later in the day President Trump
(00:31):
announced a trade deal between the US and South Korea.
And in a moment we'll get some reaction from Naomi Fink,
she is the chief Global strategist at Nico Asset Management.
But we begin here in the States and FED officials
leaving interest rates unchanged, they also downgraded their view of
the American economy. Interestingly, the tone in Powell's press conference
(00:52):
skewed a bit hawkish.
Speaker 3 (00:54):
Despite elevated uncertainty, the economy is in a solid position.
The unemployment rate remains low, and the labor market is
at or near maximum employment. Inflation has been running somewhat
above our two percent longer run objective.
Speaker 2 (01:07):
Now, Powell went on to say that no decision has
been made with regard to a rate cut in September
and as he spoke, the market gradually reduced odds for
that cut. It's now seen as basically a fifty to
fifty event. Let's take a closer look at market action
now and reaction to the Fed's decision. Joining me is
Dean Smith. He is the chief strategist at Folio Beyond.
(01:28):
He's on the line from here in New York City. Dean,
thank you so much for making time to chat. This
is pretty much what the market had been expecting. Although
we did have two members of the committee dissenting, the
first time that's happened in over thirty years. We had
Governors Chris Waller and Michelle Bowman favoring a quarter point
rate cut. But overall it wasn't really a surprise. Is
(01:49):
that how you saw it?
Speaker 4 (01:51):
Yeah, the July rate cut went off to table at
the prior jobs report. This was exactly what the market
was expecting. I mean, Pal just said it himself in
the clip you just quoted. Economy's doing pretty well. I mean,
you know, financial market conditions are pretty good. People can
get access to credit. Inflation is a little in above
(02:14):
its target, and the official numbers probably are understating inflation.
So and we've got full employment of course, So given
that backdrop, there's not really any reason for the FED
to cut rates right now other than you know, the
political pressure that they're getting from the administration, which is
(02:35):
which is pretty severe, but so far they've managed to
mostly ignore it.
Speaker 2 (02:40):
But we're in the midst of these trade deals and
we just had a deal today which we will hear
more about momentarily with South Korea where a fifteen percent
tariff will be put in place, and at some point
that could trickle down and actually create inflationary pressure, could
it not.
Speaker 4 (02:57):
Well, yeah, I mean, the the thing with these tariffs
is we haven't really seen much of the effect. We're
starting to see it now. GM last week said that
they had a billion dollar hit for it. I think
it was today, so they had a two billion dollar hit.
So they're starting to bite. But we've got a couple
of things with the tariffs. First of all, we don't
(03:19):
actually have final agreements. We've got, you know, sort of
a statement of intentions, and there's a lot of uncertainty
about where these things are actually going to land, so
we don't really know what the trade deals are going
to be. Second of all, if these tariffs come in
as they're being advertised and announced right now, or if
(03:40):
they're increased that any further, it's going to start to
show up towards the end of this year and into
next year. These supply shocks and price increases take a
long time to work through the supply chain.
Speaker 5 (03:52):
There's a bunch of steps.
Speaker 4 (03:54):
It's not as if a tariff of fifteen percent gets
announced and all prices magically increase by fifty percent.
Speaker 5 (04:01):
You know, First it's the.
Speaker 4 (04:02):
Guy at the at the port, then it's the guy
down the line producing intermediate goods, and then it's the retailers,
and it has to work its way through, and that
takes quite a lot of time. So the FED is
watching that, and that's what they're supposed to.
Speaker 5 (04:14):
Be doing well.
Speaker 2 (04:14):
As part of the South Korean deal, President Trump said
that the country will be purchasing one hundred billion dollars
in liquefied natural gas and other energy products. There was
a similar story where the trade deal with the European
Union is concerned, and I'm wondering if we can talk
a little bit now about what these other countries are
willing to buy from the United States and maybe at
(04:35):
the same time to address this idea that we're going
to see some foreign direct investment flowing into the US.
Is this a net positive in both instances?
Speaker 4 (04:45):
Well, I have to tell you the liquid natural gas
is kind of interesting because they announced I think it
was one hundred and twenty five billion per year.
Speaker 5 (04:57):
To the EU and.
Speaker 4 (04:58):
Then another really large number here to Korea. Total exports
to the world of LNG by the US last year
was about fifty billion. There is not the capacity to produce, ship, store,
make use of anywhere near the amount of LNG that
(05:21):
is being talked about as the announced.
Speaker 5 (05:24):
These so called trade deals.
Speaker 4 (05:26):
So that is a bit of let's be generous and
call it puffery in these announcements. But when you get
back to the other question about direct investment, I mean,
if you're running a trade deficit, you're going to accumulate
dollars as a foreign country, right, what can you do
(05:49):
with dollars, Well, you can make investments in US dollar
denominated assets, and that's what countries have been doing. They've
been accumulating government bonds, they've been buying, in the case
of China, been buying farmland. So these announcements are basically
describing what's already happening in the economy. There's to think
(06:10):
that you're going to have entirely new net investment of
the magnitude that's been coming out of these announcements.
Speaker 5 (06:18):
It's just not real.
Speaker 2 (06:20):
Let's change gears. Talk about some of the earnings that
we had here in the US after the bell two
big ones. Microsoft up first with better than expected growth
in the cloud business Azure. I think sales in the
unit were up thirty four percent, and we're talking about
total revenue for the year that ended in June at
seventy five billion. This is all about AI. Is this,
(06:42):
in your view, still going to deliver the momentum that
we have seen over the last let's say, eighteen months,
or are we at a point now given all of
the investment that this company has made in AI infrastructure,
that we've got to be a little bit more careful
here about the return on investment.
Speaker 4 (06:58):
Well, when you talk about the AI explosion that we're
experiencing here, and you pointed to Microsoft and the Azure platform,
you've also got the Amazon.
Speaker 5 (07:10):
With their aws.
Speaker 4 (07:11):
These are the guys that are selling the pick axes
and the shovels to the gold miners. Okay, and that's
always been a great business, and so the ability of
these companies to continue to grow those cloud computing platforms
is pretty positive.
Speaker 5 (07:29):
I think that's a real bright spot.
Speaker 4 (07:32):
The biggest problem with AI and the valuations that are
on some of these companies is actually the energy generation
that is going to be the constraint and the amount
of energy that has to be generated and then transmitted
you're building these massive data centers. I haven't seen anybody
(07:54):
who's quite figured out how that's all going to work.
So I'm a little bit from Missouri when it comes to,
you know, some of the biggest AI valuations, You've got
to show me because it's not clear to me how
it's all going to get built out.
Speaker 2 (08:09):
If you're questioning AI, then Dean, I'm curious about other
areas of the market that you feel are attractive right now.
Would you put energy generation, power generation into that arena?
Speaker 5 (08:20):
Well, you know, I'm not questioning AI per se.
Speaker 4 (08:24):
I think AI has just an amazing potential to enhance business.
You know, individual life and the internet, all sorts of
things and medicine. There's all kinds of potential. But like anything,
it's going to be a big challenge logistically to get
(08:47):
from where we are to there. In addition, AI right
now is a little bit like the railroads. You know,
two hundred years ago or one hundred fifty years ago,
there were a lot of companies building a lot of
railroads that are only a handful really survived the shakeout.
Speaker 5 (09:05):
So I expect something similar is going to happen in AI.
Speaker 4 (09:09):
Energy generation is clearly something that has you know, it's
sort of generic.
Speaker 5 (09:15):
Anybody can use it.
Speaker 4 (09:16):
But when you talk about individual AI companies that are
actually building these models and deploying these models, I'd be
a lot more cautious there.
Speaker 2 (09:23):
Let's talk a little bit about the bond market. There's
been a pretty fair amount of volatility in US treasuries
and in some corporates lately. Today we had yields actually
pushing higher across the curve. I think the market's kind
of dialing back from the notion that September is a
done deal now in terms of a rake cut, We'll
have to wait and see what the data kind of
tell us about the strength of not only the economy
(09:46):
but the outlook for inflation. Are you looking at the
bond market for opportunity these days, or are you more
focused on the equity side.
Speaker 4 (09:53):
No, we're actually principally fixed income guys. The funds that
we manage are all invested in and fixed income assets,
so we're very keen to have a view on where
we think rates are going. The bottom line here is
that people are waiting for a return. Not everyone, but
(10:14):
a lot of folks are waiting for a return to
the extremely low interest rate levels that we saw in
the aftermath of the financial crisis and then through COVID.
That's we're not going back there. The interest rates that
we see today call it, you know, four and three
eighths to four and a half on tens and pushing
(10:36):
towards five on the thirty year bond. Those are kind
of normal rates historically if you go back and look,
you know, the anomaly was the one in two percent rates,
and the normal rate is about where we are right now.
We don't see any way barring some sort of, you know,
another crisis to get back to those really low rates.
(10:59):
People need to reorient their thinking and accept the fact
that we're going to be in this higher interest rate
environment for the foreseeable future.
Speaker 2 (11:08):
So is it the middle of the curve, then that
where you want to kind of hide out at least
for the near term.
Speaker 4 (11:14):
Well, what we think makes a lot of sense is
to not take on a lot.
Speaker 5 (11:20):
Of interest rate risk, a lot of duration as the
term of art is.
Speaker 4 (11:24):
We think that yeah, staying a little shorter, staying you know,
inside of ten years for sure. And we think that
also makes sense for most investors right now. To find
ways to generate income.
Speaker 5 (11:38):
Okay.
Speaker 4 (11:38):
We think that income is going to be the key
to making it through this rough patch here, as opposed
to you know, other sorts of sources of return, you know,
big finding the next n N VideA, you know, finding ways
to really swing for the fences. We think that it
makes much more sense to stay close to home, generate
(12:01):
income and let the power compound interest do its work
while we figure out sort of where we're headed with
in this new global economy.
Speaker 2 (12:09):
Okay, we'll leave it there. Good stuff, Dean, Thank you
so much, Dean Smith. He is the chief strategist at
Folio Beyond. On the line from here in New York
City on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia podcast. I'm deg Krisner. As mentioned, the US
(12:30):
has reached a trade deal with South Korea, a fifteen
percent tariff will be placed on South Korean goods being
imported into the US. In a post on truth Social
President Trump said Soul has also agreed to invest three
hundred and fifty billion dollars into the US, and Trump
said South Korea will purchase one hundred billion dollars of
liquefied natural gas and other energy products. Now from the
(12:53):
other side of this deal, President Lee ch A Mung
said the agreement eliminates uncertainty in South Korea's export environment.
Let's get some perspective now. We heard from Naomi Fanks.
She is the chief global strategist at Nico Asset Management.
She spoke with Bloomberg TV host Sherry On and Heidi
Stroud Watts on the Asia trade.
Speaker 6 (13:12):
Naomi, always good to have you with us.
Speaker 1 (13:14):
Can we expect the markets to take all of the
latest trade news positively and just final an excuse to
rally again.
Speaker 7 (13:21):
Well, at least if we take a look at better
than expected data out of the US and Japan, then
it does appear at least that some of the fears,
at least immediately aren't aren't manifesting. The only thing is
that markets have rallied quite a lot already after the
Japan trade deal, possibly in excess of the good news
(13:43):
presented by that deal, and what we've seen with Korea
is very similar. It seems like fifteen percent is the
level that signals not as bad as feared, So a
lot of that is priced into markets at the moment.
So right now, we probably maybe need new additional news
to go any further. And conversely, it's possible that we're
(14:04):
a little bit overstretched and we might be vulnerable to
corrections if we get bad news.
Speaker 1 (14:10):
Where would the catalysts potentially come from.
Speaker 7 (14:13):
Well, we do have economic data coming out from many directions.
We still have some out of the US later this
week as well, so I think we could still get
minor corrections if we do have disappointments. If, for instance,
the market decides that yes, we had strong data, but
(14:35):
that also disincentivizes the FED from cutting any time soon,
then the stock market can get a little bit wary.
That said, it's not as if we saw anything that
is really groundbreakingly bad news, So it's possible that just
supply and demand conditions and overstretched positioning.
Speaker 6 (14:51):
Might correct a little bit.
Speaker 7 (14:53):
But so far we haven't seen any large catalysts to
make any structural change the.
Speaker 1 (14:58):
Bank of Japan to use to normalize policy or hopes
to What sort of implication does that have for the
markets here, which, as you said, have already been pretty stretched.
Speaker 7 (15:09):
Well, the Bank of Japan's policy is a combinative and
the Bank of Japan has said this many times, and
there are many signals in the market and in economic data.
For instance, inflation remains above target and has been above
target for quite some time. So even if the Banker
Japan has a luxury of waiting of timing the rate rises,
we're still on a rate high trajectory. So the Banker
(15:33):
Japan probably doesn't want to put it off forever because
we are above target and households are feeling the pinch
of inflation. So eventually, the inflation is the central bank's
bailiwick and the Bank of Japan's mission is going to
be to keep prices stable. So in order to do
that they at some point they need to high rates.
Speaker 8 (15:54):
What are you make in terms of the relief rally
or the complacency rally that we're seeing in many other
markets but perhaps haven't played out.
Speaker 6 (16:01):
When it comes to Europe, and Japan.
Speaker 8 (16:03):
Despite these two countries or areas now having trade deals,
does that change the investing outlook at all when it
comes to having these deals now kind.
Speaker 6 (16:12):
Of at least taking shape.
Speaker 7 (16:14):
Well, I would probably de emphasize smaller, shorter term moves
at this moment because there can be some over extension
and correction in various markets. What I would say is
that if we take a look at valuation in US
markets that's palpably higher, it's very visibly higher than valuation
(16:35):
in Japan or in Europe. So if we're looking for
a vulnerability to some large catalysts, I don't know what
it is yet, then the US is probably more vulnerable
than Japan or Europe, which is valued a lot more
conservatively at the moment. I think that there are probably
some strong structural arguments in Japan and in Europe that
are not bearing as spectacular immediate fruit, as for instance,
(16:59):
some of the recent earnings in the US tech sector
that said we shouldn't discount that structural improvement over time,
and these markets might prove areas for valuable diversification. If
we do have US equity heavy portfolios, as most equity
investors probably do so, I wouldn't look at it as
a zero some gain type thing, but I would see
(17:21):
even in the less exciting markets in Japan and Europe,
some real structural improvement stories that's worthwhile participating in.
Speaker 8 (17:31):
Does the US exceptionalism story kind of persist despite all
of the talk about its demise or tc perhaps some
further upside for some of the arguably undervalued markets like China.
Speaker 7 (17:44):
Well, if we take a look at the I guess
the idea of exceptionalism. Yes, the US has been exceptional
in many ways, and part of that has been this
above trend growth post pandemic, and we've seen a lot
of investment into the US to compensate, and we have
seen that valuation rise. The only thing is that that
sort of already happened, So it's really more important what
happens in the future. And with valuations at current levels,
(18:08):
it's not for certain that we will see that follow
through the performance on all of these hopes for things
like the technology AI to come before, for example, a
US recession. It's possible and I think very probable that
the investments made to date in technology in the US
will bear fruit and productivity in the US will rise
more broadly, it's just that that hasn't happened yet, and
(18:29):
most likely economic cycles aren't dead. So it's a bit
of a horse race between what comes first, that broadening
of productivity in the US or recession. And if it's recession,
that doesn't mean that the productivity broadening won't happen. It's
just that it's going to be a bit of a
rockier path to get there.
Speaker 1 (18:43):
We have seen a little bit more focused on Chinese
tech companies, but given of course talking about economic cycles
the downside, there is this a market that investors should
still be watching at the moment.
Speaker 7 (18:55):
Well, I think China is too big an economy to ignore,
and I think at one point when investors were looking
at China's uninvestable that we had gone too far. China
does have some problems, for example deflation and weakness in
the consumer sector, and that's still deflating property markets. That said,
(19:16):
the China has some options, for example offering fiscal stimulus,
especially for consumption. I know that China has been reluctant
to do this, but that might be a good solution
going forward, especially given what's going on in the trade side.
Domestic consumption is a pretty good buffer when you do
have external uncertainty. So I think they still may go
there even despite the reluctance to date, and that would
(19:39):
be supportive for both Chinese, the Chinese economy and assets.
Speaker 6 (19:43):
Yeah, I mean always great to have you with us.
Speaker 8 (19:45):
Noami Think, chief Global Strategist at Nico Asset Management.
Speaker 2 (19:50):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolo 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
(20:12):
and Australia. I'm Doug Prisoner and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Certainly will be a busy Thursday morning in the Asia Pacific.
US equity futures are higher. That's after strong earnings from
both Meta and Microsoft. Meantime, the equity market state side
finished mix. That was after the FED held its policy
rates steady, and then later in the day President Trump
(00:31):
announced a trade deal between the US and South Korea.
And in a moment we'll get some reaction from Naomi Fink,
she is the chief Global strategist at Nico Asset Management.
But we begin here in the States and FED officials
leaving interest rates unchanged, they also downgraded their view of
the American economy. Interestingly, the tone in Powell's press conference
(00:52):
skewed a bit hawkish.
Speaker 3 (00:54):
Despite elevated uncertainty, the economy is in a solid position.
The unemployment rate remains low, and the labor market is
at or near maximum employment. Inflation has been running somewhat
above our two percent longer run objective.
Speaker 2 (01:07):
Now, Powell went on to say that no decision has
been made with regard to a rate cut in September
and as he spoke, the market gradually reduced odds for
that cut. It's now seen as basically a fifty to
fifty event. Let's take a closer look at market action
now and reaction to the Fed's decision. Joining me is
Dean Smith. He is the chief strategist at Folio Beyond.
(01:28):
He's on the line from here in New York City. Dean,
thank you so much for making time to chat. This
is pretty much what the market had been expecting. Although
we did have two members of the committee dissenting, the
first time that's happened in over thirty years. We had
Governors Chris Waller and Michelle Bowman favoring a quarter point
rate cut. But overall it wasn't really a surprise. Is
(01:49):
that how you saw it?
Speaker 4 (01:51):
Yeah, the July rate cut went off to table at
the prior jobs report. This was exactly what the market
was expecting. I mean, Pal just said it himself in
the clip you just quoted. Economy's doing pretty well. I mean,
you know, financial market conditions are pretty good. People can
get access to credit. Inflation is a little in above
(02:14):
its target, and the official numbers probably are understating inflation.
So and we've got full employment of course, So given
that backdrop, there's not really any reason for the FED
to cut rates right now other than you know, the
political pressure that they're getting from the administration, which is
(02:35):
which is pretty severe, but so far they've managed to
mostly ignore it.
Speaker 2 (02:40):
But we're in the midst of these trade deals and
we just had a deal today which we will hear
more about momentarily with South Korea where a fifteen percent
tariff will be put in place, and at some point
that could trickle down and actually create inflationary pressure, could
it not.
Speaker 4 (02:57):
Well, yeah, I mean, the the thing with these tariffs
is we haven't really seen much of the effect. We're
starting to see it now. GM last week said that
they had a billion dollar hit for it. I think
it was today, so they had a two billion dollar hit.
So they're starting to bite. But we've got a couple
of things with the tariffs. First of all, we don't
(03:19):
actually have final agreements. We've got, you know, sort of
a statement of intentions, and there's a lot of uncertainty
about where these things are actually going to land, so
we don't really know what the trade deals are going
to be. Second of all, if these tariffs come in
as they're being advertised and announced right now, or if
(03:40):
they're increased that any further, it's going to start to
show up towards the end of this year and into
next year. These supply shocks and price increases take a
long time to work through the supply chain.
Speaker 5 (03:52):
There's a bunch of steps.
Speaker 4 (03:54):
It's not as if a tariff of fifteen percent gets
announced and all prices magically increase by fifty percent.
Speaker 5 (04:01):
You know, First it's the.
Speaker 4 (04:02):
Guy at the at the port, then it's the guy
down the line producing intermediate goods, and then it's the retailers,
and it has to work its way through, and that
takes quite a lot of time. So the FED is
watching that, and that's what they're supposed to.
Speaker 5 (04:14):
Be doing well.
Speaker 2 (04:14):
As part of the South Korean deal, President Trump said
that the country will be purchasing one hundred billion dollars
in liquefied natural gas and other energy products. There was
a similar story where the trade deal with the European
Union is concerned, and I'm wondering if we can talk
a little bit now about what these other countries are
willing to buy from the United States and maybe at
(04:35):
the same time to address this idea that we're going
to see some foreign direct investment flowing into the US.
Is this a net positive in both instances?
Speaker 4 (04:45):
Well, I have to tell you the liquid natural gas
is kind of interesting because they announced I think it
was one hundred and twenty five billion per year.
Speaker 5 (04:57):
To the EU and.
Speaker 4 (04:58):
Then another really large number here to Korea. Total exports
to the world of LNG by the US last year
was about fifty billion. There is not the capacity to produce, ship, store,
make use of anywhere near the amount of LNG that
(05:21):
is being talked about as the announced.
Speaker 5 (05:24):
These so called trade deals.
Speaker 4 (05:26):
So that is a bit of let's be generous and
call it puffery in these announcements. But when you get
back to the other question about direct investment, I mean,
if you're running a trade deficit, you're going to accumulate
dollars as a foreign country, right, what can you do
(05:49):
with dollars, Well, you can make investments in US dollar
denominated assets, and that's what countries have been doing. They've
been accumulating government bonds, they've been buying, in the case
of China, been buying farmland. So these announcements are basically
describing what's already happening in the economy. There's to think
(06:10):
that you're going to have entirely new net investment of
the magnitude that's been coming out of these announcements.
Speaker 5 (06:18):
It's just not real.
Speaker 2 (06:20):
Let's change gears. Talk about some of the earnings that
we had here in the US after the bell two
big ones. Microsoft up first with better than expected growth
in the cloud business Azure. I think sales in the
unit were up thirty four percent, and we're talking about
total revenue for the year that ended in June at
seventy five billion. This is all about AI. Is this,
(06:42):
in your view, still going to deliver the momentum that
we have seen over the last let's say, eighteen months,
or are we at a point now given all of
the investment that this company has made in AI infrastructure,
that we've got to be a little bit more careful
here about the return on investment.
Speaker 4 (06:58):
Well, when you talk about the AI explosion that we're
experiencing here, and you pointed to Microsoft and the Azure platform,
you've also got the Amazon.
Speaker 5 (07:10):
With their aws.
Speaker 4 (07:11):
These are the guys that are selling the pick axes
and the shovels to the gold miners. Okay, and that's
always been a great business, and so the ability of
these companies to continue to grow those cloud computing platforms
is pretty positive.
Speaker 5 (07:29):
I think that's a real bright spot.
Speaker 4 (07:32):
The biggest problem with AI and the valuations that are
on some of these companies is actually the energy generation
that is going to be the constraint and the amount
of energy that has to be generated and then transmitted
you're building these massive data centers. I haven't seen anybody
(07:54):
who's quite figured out how that's all going to work.
So I'm a little bit from Missouri when it comes to,
you know, some of the biggest AI valuations, You've got
to show me because it's not clear to me how
it's all going to get built out.
Speaker 2 (08:09):
If you're questioning AI, then Dean, I'm curious about other
areas of the market that you feel are attractive right now.
Would you put energy generation, power generation into that arena?
Speaker 5 (08:20):
Well, you know, I'm not questioning AI per se.
Speaker 4 (08:24):
I think AI has just an amazing potential to enhance business.
You know, individual life and the internet, all sorts of
things and medicine. There's all kinds of potential. But like anything,
it's going to be a big challenge logistically to get
(08:47):
from where we are to there. In addition, AI right
now is a little bit like the railroads. You know,
two hundred years ago or one hundred fifty years ago,
there were a lot of companies building a lot of
railroads that are only a handful really survived the shakeout.
Speaker 5 (09:05):
So I expect something similar is going to happen in AI.
Speaker 4 (09:09):
Energy generation is clearly something that has you know, it's
sort of generic.
Speaker 5 (09:15):
Anybody can use it.
Speaker 4 (09:16):
But when you talk about individual AI companies that are
actually building these models and deploying these models, I'd be
a lot more cautious there.
Speaker 2 (09:23):
Let's talk a little bit about the bond market. There's
been a pretty fair amount of volatility in US treasuries
and in some corporates lately. Today we had yields actually
pushing higher across the curve. I think the market's kind
of dialing back from the notion that September is a
done deal now in terms of a rake cut, We'll
have to wait and see what the data kind of
tell us about the strength of not only the economy
(09:46):
but the outlook for inflation. Are you looking at the
bond market for opportunity these days, or are you more
focused on the equity side.
Speaker 4 (09:53):
No, we're actually principally fixed income guys. The funds that
we manage are all invested in and fixed income assets,
so we're very keen to have a view on where
we think rates are going. The bottom line here is
that people are waiting for a return. Not everyone, but
(10:14):
a lot of folks are waiting for a return to
the extremely low interest rate levels that we saw in
the aftermath of the financial crisis and then through COVID.
That's we're not going back there. The interest rates that
we see today call it, you know, four and three
eighths to four and a half on tens and pushing
(10:36):
towards five on the thirty year bond. Those are kind
of normal rates historically if you go back and look,
you know, the anomaly was the one in two percent rates,
and the normal rate is about where we are right now.
We don't see any way barring some sort of, you know,
another crisis to get back to those really low rates.
(10:59):
People need to reorient their thinking and accept the fact
that we're going to be in this higher interest rate
environment for the foreseeable future.
Speaker 2 (11:08):
So is it the middle of the curve, then that
where you want to kind of hide out at least
for the near term.
Speaker 4 (11:14):
Well, what we think makes a lot of sense is
to not take on a lot.
Speaker 5 (11:20):
Of interest rate risk, a lot of duration as the
term of art is.
Speaker 4 (11:24):
We think that yeah, staying a little shorter, staying you know,
inside of ten years for sure. And we think that
also makes sense for most investors right now. To find
ways to generate income.
Speaker 5 (11:38):
Okay.
Speaker 4 (11:38):
We think that income is going to be the key
to making it through this rough patch here, as opposed
to you know, other sorts of sources of return, you know,
big finding the next n N VideA, you know, finding ways
to really swing for the fences. We think that it
makes much more sense to stay close to home, generate
(12:01):
income and let the power compound interest do its work
while we figure out sort of where we're headed with
in this new global economy.
Speaker 2 (12:09):
Okay, we'll leave it there. Good stuff, Dean, Thank you
so much, Dean Smith. He is the chief strategist at
Folio Beyond. On the line from here in New York
City on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia podcast. I'm deg Krisner. As mentioned, the US
(12:30):
has reached a trade deal with South Korea, a fifteen
percent tariff will be placed on South Korean goods being
imported into the US. In a post on truth Social
President Trump said Soul has also agreed to invest three
hundred and fifty billion dollars into the US, and Trump
said South Korea will purchase one hundred billion dollars of
liquefied natural gas and other energy products. Now from the
(12:53):
other side of this deal, President Lee ch A Mung
said the agreement eliminates uncertainty in South Korea's export environment.
Let's get some perspective now. We heard from Naomi Fanks.
She is the chief global strategist at Nico Asset Management.
She spoke with Bloomberg TV host Sherry On and Heidi
Stroud Watts on the Asia trade.
Speaker 6 (13:12):
Naomi, always good to have you with us.
Speaker 1 (13:14):
Can we expect the markets to take all of the
latest trade news positively and just final an excuse to
rally again.
Speaker 7 (13:21):
Well, at least if we take a look at better
than expected data out of the US and Japan, then
it does appear at least that some of the fears,
at least immediately aren't aren't manifesting. The only thing is
that markets have rallied quite a lot already after the
Japan trade deal, possibly in excess of the good news
(13:43):
presented by that deal, and what we've seen with Korea
is very similar. It seems like fifteen percent is the
level that signals not as bad as feared, So a
lot of that is priced into markets at the moment.
So right now, we probably maybe need new additional news
to go any further. And conversely, it's possible that we're
(14:04):
a little bit overstretched and we might be vulnerable to
corrections if we get bad news.
Speaker 1 (14:10):
Where would the catalysts potentially come from.
Speaker 7 (14:13):
Well, we do have economic data coming out from many directions.
We still have some out of the US later this
week as well, so I think we could still get
minor corrections if we do have disappointments. If, for instance,
the market decides that yes, we had strong data, but
(14:35):
that also disincentivizes the FED from cutting any time soon,
then the stock market can get a little bit wary.
That said, it's not as if we saw anything that
is really groundbreakingly bad news, So it's possible that just
supply and demand conditions and overstretched positioning.
Speaker 6 (14:51):
Might correct a little bit.
Speaker 7 (14:53):
But so far we haven't seen any large catalysts to
make any structural change the.
Speaker 1 (14:58):
Bank of Japan to use to normalize policy or hopes
to What sort of implication does that have for the
markets here, which, as you said, have already been pretty stretched.
Speaker 7 (15:09):
Well, the Bank of Japan's policy is a combinative and
the Bank of Japan has said this many times, and
there are many signals in the market and in economic data.
For instance, inflation remains above target and has been above
target for quite some time. So even if the Banker
Japan has a luxury of waiting of timing the rate rises,
we're still on a rate high trajectory. So the Banker
(15:33):
Japan probably doesn't want to put it off forever because
we are above target and households are feeling the pinch
of inflation. So eventually, the inflation is the central bank's
bailiwick and the Bank of Japan's mission is going to
be to keep prices stable. So in order to do
that they at some point they need to high rates.
Speaker 8 (15:54):
What are you make in terms of the relief rally
or the complacency rally that we're seeing in many other
markets but perhaps haven't played out.
Speaker 6 (16:01):
When it comes to Europe, and Japan.
Speaker 8 (16:03):
Despite these two countries or areas now having trade deals,
does that change the investing outlook at all when it
comes to having these deals now kind.
Speaker 6 (16:12):
Of at least taking shape.
Speaker 7 (16:14):
Well, I would probably de emphasize smaller, shorter term moves
at this moment because there can be some over extension
and correction in various markets. What I would say is
that if we take a look at valuation in US
markets that's palpably higher, it's very visibly higher than valuation
(16:35):
in Japan or in Europe. So if we're looking for
a vulnerability to some large catalysts, I don't know what
it is yet, then the US is probably more vulnerable
than Japan or Europe, which is valued a lot more
conservatively at the moment. I think that there are probably
some strong structural arguments in Japan and in Europe that
are not bearing as spectacular immediate fruit, as for instance,
(16:59):
some of the recent earnings in the US tech sector
that said we shouldn't discount that structural improvement over time,
and these markets might prove areas for valuable diversification. If
we do have US equity heavy portfolios, as most equity
investors probably do so, I wouldn't look at it as
a zero some gain type thing, but I would see
(17:21):
even in the less exciting markets in Japan and Europe,
some real structural improvement stories that's worthwhile participating in.
Speaker 8 (17:31):
Does the US exceptionalism story kind of persist despite all
of the talk about its demise or tc perhaps some
further upside for some of the arguably undervalued markets like China.
Speaker 7 (17:44):
Well, if we take a look at the I guess
the idea of exceptionalism. Yes, the US has been exceptional
in many ways, and part of that has been this
above trend growth post pandemic, and we've seen a lot
of investment into the US to compensate, and we have
seen that valuation rise. The only thing is that that
sort of already happened, So it's really more important what
happens in the future. And with valuations at current levels,
(18:08):
it's not for certain that we will see that follow
through the performance on all of these hopes for things
like the technology AI to come before, for example, a
US recession. It's possible and I think very probable that
the investments made to date in technology in the US
will bear fruit and productivity in the US will rise
more broadly, it's just that that hasn't happened yet, and
(18:29):
most likely economic cycles aren't dead. So it's a bit
of a horse race between what comes first, that broadening
of productivity in the US or recession. And if it's recession,
that doesn't mean that the productivity broadening won't happen. It's
just that it's going to be a bit of a
rockier path to get there.
Speaker 1 (18:43):
We have seen a little bit more focused on Chinese
tech companies, but given of course talking about economic cycles
the downside, there is this a market that investors should
still be watching at the moment.
Speaker 7 (18:55):
Well, I think China is too big an economy to ignore,
and I think at one point when investors were looking
at China's uninvestable that we had gone too far. China
does have some problems, for example deflation and weakness in
the consumer sector, and that's still deflating property markets. That said,
(19:16):
the China has some options, for example offering fiscal stimulus,
especially for consumption. I know that China has been reluctant
to do this, but that might be a good solution
going forward, especially given what's going on in the trade side.
Domestic consumption is a pretty good buffer when you do
have external uncertainty. So I think they still may go
there even despite the reluctance to date, and that would
(19:39):
be supportive for both Chinese, the Chinese economy and assets.
Speaker 6 (19:43):
Yeah, I mean always great to have you with us.
Speaker 8 (19:45):
Noami Think, chief Global Strategist at Nico Asset Management.
Speaker 2 (19:50):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolo 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
(20:12):
and Australia. I'm Doug Prisoner and this is Bloomberg
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