September 28, 2025 • 20 mins
In the US, top congressional leaders plan to meet with President Donald Trump on Monday, a day before federal funding would expire if an agreement on a short-term spending bill can't be reached. A shutdown would threaten the release of key data including Friday's payrolls report, key to assessing whether the Federal Reserve will continue cutting interest rates next month. We heard from James Abate, Managing Director, Head of Fundamental Strategies at Horizon Investments.
And - Asian stocks moved in a tight range at the open. Over the weekend, Chinese Industrial profits in August climbed 20.4% from a year earlier, the first increase in four months, according to data released Saturday by the National Bureau of Statistics. Factory deflation eased for the first time in six months. For more, we heard from Sian Fenner, Westpac Head of Business and Industry Economics. She spoke to Bloomberg's Avril Hong.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug. Prisoner. Markets
in the Asia Pacific are finding some support from a
key data point for China released over the weekend. Industrial
profits climbed in August by twenty point four percent compared
to last year. Now, this suggests that those national campaigns
to tackle things like over capacity and excessive competition are
(00:33):
beginning to bear fruit. In a moment, we'll hear from
Sean Fenner, head of Business and Industry Economics at Westpac.
But we begin here in the States, where the government
is facing a funding deadline of October first. Now, tomorrow,
top congressional leaders will be at the White House meeting
with President Trump. They'll discuss a short term spending bill.
This is necessary in order to avert a government shutdown,
(00:56):
and if a shutdown were to occur, that would likely
delay the release of the September jobs report. It's due Friday.
Bloomberg Economics is expecting non farm payroll growth of fifty
four thousand. The unemployment rate is seen holding steady at
four point three percent. For more, let's bring in James Abat.
He is managing director also the head of Fundamental Strategies
(01:17):
at Horizon Investments. James is on the line from here
in New York City. James, it's always a pleasure. Thank
you so very much. We can talk about the labor
market in a moment. You and I were speaking just
a moment ago about the change in leadership for the
equity market. I'd like to hear more on that. Talk
to me about what you're seeing right now in equities,
you know, in a.
Speaker 3 (01:37):
Market that's richly priced and speculation rampid. I think it's
always good to go back to basics and remain discipline.
If you're sitting here trying to make sense of logic
and friendship. You read Aristotle. I think for me, when
you're sitting here trying to make sense of what's happening
in the market, it's always helpful to go back to
(01:59):
the long term legendary chief market strategies for Merrill Lynch,
Bob Farrell and his market rules. And you know, one
of the key things that File emphasized was investment styles.
You know, essentially you had growth, you have value or
cyclical stocks, you had small cap stocks and defensive stocks,
(02:21):
and markets tend to rotate between styles depend upon the
stage of economic or the market cycle. I think the
uniqueness of this cycle is that we have a confluence
of growth and defenses. If you look at most high
growth funds or defensively oriented funds, they own the same things.
(02:45):
Right now, they both look like Nasdaq one hundred portfolios
basically because you know, healthcare staples have been disappointed. They're
absent in many of the low volatility portfolios and defensive portfolios. So,
you know, File always talked about the style distortions and
they tend to overshoot, and I think we're at a
point potentially that we're seeing excesses and exhaustion. The Magnificent
(03:12):
Seven have become the de facto new defensive stocks and
safe havens as well as the high growth leadership. So
all this, you know, leadership is emerging, you know, in
terms of potential for change, because we're at a point
in time where you look at kind of the economic cycle,
(03:32):
we're at a stage where growth is actually firming, inflation
is stable, if not coming down. All that modes exceptionally
well or a very positive economic backdrop in the United
States for twenty twenty six. And from that perspective, we
think we can see, you know, a significant change in
(03:55):
leadership in the stock market. But because we have this
you know, so called style distortion, you know, it's the
potential for volatility and I would say very violent kind
of market action because everybody's on one side of the
boat to really lead to you know, some outside gains
when you see, you know, that genuine inflection in terms
(04:18):
of economic activity and economic growth. At the exact same time,
they were finally starting to see chinks in the armor
of the return on an investment. The AI trade and
a lot of the shenanigans with regard to vendor financing
transactions that were reminiscent of you know, lucent Nortel, Alcatel,
(04:40):
and Cisco back in nineteen ninety nine and two thousand,
happening again with Nvidia, core Weave, and a bunch of
other companies that are kind of paying to play in
this type of environment.
Speaker 2 (04:52):
So I'm glad you brought up the AI trade because
it was last week that hedge fund manager David Einhorn
said the amount of spending on AI infrastructure may destroy
vast amounts of capital. He said, the numbers being thrown
around today are so extreme that eventual returns are highly uncertain.
I mean, this kind of dovetails with what you're talking
(05:13):
about here, but do you have a sense of the
vulnerability and the potential downside should markets begin to question
this thesis a little bit?
Speaker 3 (05:24):
And this is a great point because you know, I
very much agree with what he said. I've probably been
a little bit earlier in saying it than he has
been because one of the things that we pointed out
in the most recent earnings results or alphabet was that
for the very first time in a number of orders,
we saw return on capital and return on assets actually
(05:45):
trend or inflect lower, meaning that despite you know, pretty
healthy sales gains, we started to see act efficiency diminish
quite greatly, leading to a negative inflection in return on capital,
which for a growth stock that's that usually spells a
very difficult environment and the de rating I think the
(06:05):
real case to see, you know, how damaging this could be.
And I think if you just look at some of
the numbers. I mean, there's been a bunch of studies
that have come out, whether it's Morgan Stanley or Bane
or even some of the other consulting firms that the
volume of revenue to justify the spend that needs to
(06:26):
be made by many of these companies is just is gargantuan.
And you know the fact that chat GBT is making
promises or capital expenditure promises that are vast above or
multiples of what their potential revenue could be over those
years highlights the cash flow shortage that they're going to have.
(06:47):
And we'll see where that goes. But for now, you know,
people are willing to look the other way, and you know,
these hyper scalers alone are expected to spend you know,
four hundred billion dollars in capital investment next year. I
think what you have to wait and see, though, is
when you see a company announce that it's increasing its
(07:08):
capital investment on AI and the stock price has a
negative reaction. We haven't seen that yet. When that happens,
that's when the light bulb overhere, every cfo's head is
going to go off and rethink what they're doing in
terms of capital expenditure in the AI space.
Speaker 2 (07:25):
So beyond AI, I think a lot of what the
market has been hoping for is aggressive easing. Maybe we
get two more rate cuts this year. I guess critical
to that story is going to be the non farm
payrolls day that we get on Friday. But you made
the point a moment ago that inflation is trending lower.
Is there the risk though, that maybe it becomes a
(07:47):
little sticky here and the long end of the curve
may be a little vulnerable.
Speaker 3 (07:54):
That's a potential. Yes, Clearly, what we're seeing is an
economy that's firm. It's not stalling, which is basically what
the consensus has been. Let's remember we basically have been
in a recession or a stall type procession, not a
kind of V shaped downdraft, but a stall type procession
(08:16):
four years. So we're really coming out of that, and
the tax bill has a lot of stimuli that's embedded
in it. They will allow us to actually grow out
of basically this environment that we've been in. However, when
you look at the inflation, and I'm not a Phillips
curve guy, I'm not convinced that inflation and growth are
a trade off versus one another. So from that standpoint,
(08:39):
I think, barring the barring the dollar actually continuing to fall,
which I don't not sure it will, I think it
will steady here, I think looking at an environment where, yes,
will inflation stay above the two percent target. I think
that's probably the case, but I don't foresee inflation moving higher,
(09:00):
so that I think is a positive. So I think
on the long end of the curve, you're probably going
to make the coupon, maybe not fur the capital appreciation,
but if you do get the fifty base point cut,
that steeper yield curve is going to be panacea to
a lot of the regional banks who are going to
benefit from an increase in an interest margin be able
to improve their lending capabilities. So all this is very positive,
(09:21):
and I think if we look out to twenty twenty six,
I think people are going to be surprised how robust
the economy actually is. And again, all that's going to
lead to Again, I think a rethink within the market,
maybe get rid of the style distortion that we've had
in the market as well as be a very positive thing.
But remember the stock market doesn't always equal to the
(09:42):
economy from that perspective, so it might be an environment
where because we're so top heavy in the stock market
that the indices don't move very much, but there's a
lot of money to be made in other areas of
the market, and people who are fearful of both the
dollar falling further and the back end coming up signific
only higher might be disappointed if they are leveraging those straits.
Speaker 2 (10:04):
James, I want to get your take on how politics
could end up impacting the markets, whether we're talking about
a government shutdown or fed independence. Obviously we have this
funding deadline of October first, a meeting tomorrow at the
White House. Maybe things are resolved in such a way
to avoid a government shutdown, but assume for the moment
(10:26):
that one does occur and it's protracted. Talk to me
a little bit about the way in which politics has
the potential to influence a lot of the price action,
whether we're talking about the equity side or in the
bond market.
Speaker 3 (10:39):
Yeah, I think that is if you think about what
could derail kind of the positive scenario that have just
laid out. It's politics, and probably more so geopolitics. Now
clearly what we're talking about in terms of a government shutdown,
and I actually think that the chance of a government
shutdown out is probably greater than it's in the past.
(11:00):
Usually you can dismiss that it's just mere theater between
the two parties, but I think both sides have kind
of dug in their heels here. So having some type
of shutdown for a week, a month, two months, whatever,
I think is positive. But remember, you know, the DOSEE
cuts and other things have already led to a large curtailment,
(11:21):
at least in terms of the growth of the government.
So I don't think it's going to have the same
impact in terms of employment that we've seen in the past,
particularly when you think about what's occurred over the Obama
and Obama administrations where government has grown significantly. But I
think one point that I do want to raise is
that you know, people do forget. And this again goes
back to the divorce between the economy and the stock market.
(11:42):
But you go way back to like two thousand and two.
You know, the economy had turned up, you know, and
was doing reasonably well, but the stock market had one
of its worst years ever, you know, even small caps.
So geopolitical is at that point in time, obviously the
tension in the run up to the war with Iraq
and the derating a tech stock. So people I think
sometimes remember sometimes the economy can do reasonably well while
(12:06):
the stock market does not do so well, and frankly
vice versa.
Speaker 2 (12:10):
I'm curious to get your take on the labor market,
because if there is a government shutdown, the president has
threatened to begin laying off government employees. We mentioned earlier
that we have non farm payrolls day to do Friday
on Tuesday, it's the job opening data from the government.
Give me your sense of how you understand the labor
(12:31):
market right now.
Speaker 3 (12:33):
Yeah, I think essentially it's been at a point in
time where you know, people have been warning that we're
on the verge of a hard landing. But you know,
typically to get into a hard landing from stall speed,
which I would argue we're kind of coming out of
to a certain degree, you need a shock. And when
I look at essentially what the government shutdown could be
(12:53):
in terms of a magnitude of a shock to demand,
I don't foresee that to be enough of demand shock
to actually reverse the course that growth is actually starting
to firm up ahead, and you know, leading indices from
what we look at, you know, aren't indicating any type
(13:14):
of you know, picture that indicates recession and inflation spire,
We're in stagflation ahead.
Speaker 2 (13:21):
All right, James, We'll leave it there. It's always a pleasure.
Thank you. So very much. James Abat is Managing director
also the head of Fundamental Strategies at Horizon Investments. Joining
us here on the Daybreak Asia podcast. Welcome back to
the Daybreak Asia Podcast. I'm Doug Chrisner. Markets in the
(13:45):
Asia Pacific are somewhat mixed after China reported strong industrial
profits over the weekend. For more, we heard from Sean Fenner,
head of Business and Industry Economics at Westpac. Shawn spoke
with Bloomberg's Avril Hong on the Asia trade.
Speaker 4 (13:59):
Give us your thoughts on the data over the weekend
out of China industrial profits maybe a buck some expectations
of a decline. How much to you do you think
is meaningful signs that the government's efforts to tackle over
capacity are seeing effect.
Speaker 1 (14:16):
Hi, I think it's probably a little bit too early
to say that the policy that they've undertaken is actually
having a true effect.
Speaker 5 (14:24):
The reason I say this is that it's quite volatile from.
Speaker 1 (14:27):
Month to month, and as the stats off as themselves said,
it is actually partly that big jump that we saw
was due to base effects. Coupled with that, we also
had sort of some bring forward in tariff, So it's
something that it's positive, it's moving in the right direction,
but we've got to see about some longevity whether or
not it's going to persist.
Speaker 4 (14:46):
All right. We are also keeping tabs on the situation
in the US. I mean, the problem now is that
even the data that for example, bond market is going
to be focusing on that that could be disrupt How
do you assess the US economy when you know the
data that's incoming that's crucial for markets might not come
(15:08):
in as expected.
Speaker 1 (15:12):
Yeah, I mean, I think that's a real thing about
this sort of shutdown. Obviously it has implications both in
terms of growth the short term impact. You know, every
week sort of a rule of thumb takes off about
point one off that quarter, you can get some bounce back.
Speaker 5 (15:24):
But I mean it's the data.
Speaker 1 (15:26):
So particularly, you know, we're in this situation where we're
wanting to be sort of analyzing, know how is how
a tarift's actually feeding through into inflation and of course
the labor market. We sell back in twenty thirteen, you
know it sixteen days for a total shutdown, and that
sort of delays both in terms of the non farm
payrolls and inflation data going forward. So it's not just
whether or not we'll get Friday's data for the non
(15:47):
farm payrolls, but could we actually even you know, not
actually receive the inflation figures as well.
Speaker 4 (15:56):
That means said we did get PC numbers pretty much
in line much. Do you think this economistif the focus
to look at, you know, the path of inflation and
how that informs what.
Speaker 5 (16:08):
The Federal Reserve is going to do?
Speaker 2 (16:10):
Yeah?
Speaker 1 (16:11):
Yeah, So, I mean I think, you know, the data
we've been seeing, I mean it's a bit of a
conundrum really because I mean we've got on one side,
I mean, we had it's backward looking, but you know,
we have had strong GDP upward revisions.
Speaker 5 (16:21):
You know, monthly household spending.
Speaker 1 (16:23):
Is also running at a fairly solid rate, although that
was with the dragon sort of set the saving straight.
So households are pulling back, you know, are drawing on
their savings. How much more can they do that? Ahead
if we've got inflation rising as we know expect, you know,
they're purchasing power is going to decline with tariffs combined
that where you've got that softening in the labor market,
you know, you're not getting those new jobs, and it
(16:45):
does sort of suggest that, you know, the head winds
for the consumers going ahead is rising.
Speaker 4 (16:52):
It's interesting because that backdrop that you just highlighted could
also apply to Australia. I mean, hotter than next directed
inflation and then potential weakness in the limber market. How
are we expecting the RBA to evolve when it comes
to it's signaling to the markets.
Speaker 5 (17:11):
Yeah, so, I mean, firstly, I mean, I think if
anything that's.
Speaker 1 (17:13):
Sort of a little hotter sort of partial inflation reinforces
our sort of long held view that September was going
to be the RBA remaining on hold, it's probably going
to be unanimous. I think really people will be sort
of looking for exactly as you said that signing. I
suppose a couple of things i'd sort of add to that.
First of all, this is a partial indicator. The RBA
has signaled that they you know, while they will take
(17:35):
note of this, it's not they want to see a
full quarter. And with that, we also expect that there's
probably going to be some payback in September. So while
September quarter as a whole may be a little bit
hotter than the RBA's forecast, you know, as we move
into the December, we're actually expecting that to come down
a little bit.
Speaker 5 (17:52):
And going forward, you.
Speaker 1 (17:54):
Know, we still see inflationary pressures as being such that
the RBA doesn't need to keep rates at sort of
this sort of slightly tight at three point six and
further rate cuts her ahead.
Speaker 4 (18:06):
Sean, what about the tariff risk, because last Friday was
a reminder, given the headlines that came through from Trump
of this very risk. We saw, you know, the impact
on the Indian markets for example, and this is also
an economy that has quite squarely been in the crosshairs
of the US president. Now were these threats of pharmaceutical tariffs?
(18:28):
How at risk is the Indian economy? And to what
extent can perhaps want dubbish monetary policy from the IBI,
which also meets this week.
Speaker 1 (18:37):
I've set some of that, yes, So, I mean India
has definitely been in the crosshairs with that fifty percent tariff,
and now you know also with visas where you know
they're sort of heavily involved for US, and now the pharmaceuticals.
I suppose there's a couple of things. First of all,
this is a post so we're still waiting for a
little bit of details there and also whether or not
(18:59):
you know at the moment, there's some carve outs if.
Speaker 5 (19:02):
You like, in pure Trump fashion, So carve outs.
Speaker 1 (19:05):
For those that are actually you know, breaking ground or
have construction underway, and also those that are you know, if.
Speaker 5 (19:10):
It's a generic good.
Speaker 1 (19:13):
And for India that matters because most of their pharmaceutical.
Speaker 5 (19:16):
Goods to the US are generic.
Speaker 1 (19:20):
That said, you know, clearly this is a headwind, particularly
the longer that these tarrats are fifty percent remain for
the Indian economy.
Speaker 5 (19:28):
But there's some offsets as well. So they've also had
the GST cut.
Speaker 1 (19:33):
And that you know, will provide some boostful for consumers.
I think for the RBI, we're looking for them to
keep rates on hold. It's probably going to be a
tight sort of a live call if you like, because
inflation is low. But we're looking for them to remain
not hold this week. But we do see that they
do have the space. If we do see that these
tariffs remain in place at fifty percent and consumption, particularly
(19:55):
after Devali, maybe if that fell off that they may
they will actually provide some more support.
Speaker 4 (20:01):
Sean, great to chat. Thanks for setting us up for
this week. Sean Van, ahead of Business and Industry Economics
at westpac.
Speaker 2 (20:10):
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 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
(20:32):
and Australia. I'm Doug Prisner, and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug. Prisoner. Markets
in the Asia Pacific are finding some support from a
key data point for China released over the weekend. Industrial
profits climbed in August by twenty point four percent compared
to last year. Now, this suggests that those national campaigns
to tackle things like over capacity and excessive competition are
(00:33):
beginning to bear fruit. In a moment, we'll hear from
Sean Fenner, head of Business and Industry Economics at Westpac.
But we begin here in the States, where the government
is facing a funding deadline of October first. Now, tomorrow,
top congressional leaders will be at the White House meeting
with President Trump. They'll discuss a short term spending bill.
This is necessary in order to avert a government shutdown,
(00:56):
and if a shutdown were to occur, that would likely
delay the release of the September jobs report. It's due Friday.
Bloomberg Economics is expecting non farm payroll growth of fifty
four thousand. The unemployment rate is seen holding steady at
four point three percent. For more, let's bring in James Abat.
He is managing director also the head of Fundamental Strategies
(01:17):
at Horizon Investments. James is on the line from here
in New York City. James, it's always a pleasure. Thank
you so very much. We can talk about the labor
market in a moment. You and I were speaking just
a moment ago about the change in leadership for the
equity market. I'd like to hear more on that. Talk
to me about what you're seeing right now in equities,
you know, in a.
Speaker 3 (01:37):
Market that's richly priced and speculation rampid. I think it's
always good to go back to basics and remain discipline.
If you're sitting here trying to make sense of logic
and friendship. You read Aristotle. I think for me, when
you're sitting here trying to make sense of what's happening
in the market, it's always helpful to go back to
(01:59):
the long term legendary chief market strategies for Merrill Lynch,
Bob Farrell and his market rules. And you know, one
of the key things that File emphasized was investment styles.
You know, essentially you had growth, you have value or
cyclical stocks, you had small cap stocks and defensive stocks,
(02:21):
and markets tend to rotate between styles depend upon the
stage of economic or the market cycle. I think the
uniqueness of this cycle is that we have a confluence
of growth and defenses. If you look at most high
growth funds or defensively oriented funds, they own the same things.
(02:45):
Right now, they both look like Nasdaq one hundred portfolios
basically because you know, healthcare staples have been disappointed. They're
absent in many of the low volatility portfolios and defensive portfolios. So,
you know, File always talked about the style distortions and
they tend to overshoot, and I think we're at a
point potentially that we're seeing excesses and exhaustion. The Magnificent
(03:12):
Seven have become the de facto new defensive stocks and
safe havens as well as the high growth leadership. So
all this, you know, leadership is emerging, you know, in
terms of potential for change, because we're at a point
in time where you look at kind of the economic cycle,
(03:32):
we're at a stage where growth is actually firming, inflation
is stable, if not coming down. All that modes exceptionally
well or a very positive economic backdrop in the United
States for twenty twenty six. And from that perspective, we
think we can see, you know, a significant change in
(03:55):
leadership in the stock market. But because we have this
you know, so called style distortion, you know, it's the
potential for volatility and I would say very violent kind
of market action because everybody's on one side of the
boat to really lead to you know, some outside gains
when you see, you know, that genuine inflection in terms
(04:18):
of economic activity and economic growth. At the exact same time,
they were finally starting to see chinks in the armor
of the return on an investment. The AI trade and
a lot of the shenanigans with regard to vendor financing
transactions that were reminiscent of you know, lucent Nortel, Alcatel,
(04:40):
and Cisco back in nineteen ninety nine and two thousand,
happening again with Nvidia, core Weave, and a bunch of
other companies that are kind of paying to play in
this type of environment.
Speaker 2 (04:52):
So I'm glad you brought up the AI trade because
it was last week that hedge fund manager David Einhorn
said the amount of spending on AI infrastructure may destroy
vast amounts of capital. He said, the numbers being thrown
around today are so extreme that eventual returns are highly uncertain.
I mean, this kind of dovetails with what you're talking
(05:13):
about here, but do you have a sense of the
vulnerability and the potential downside should markets begin to question
this thesis a little bit?
Speaker 3 (05:24):
And this is a great point because you know, I
very much agree with what he said. I've probably been
a little bit earlier in saying it than he has
been because one of the things that we pointed out
in the most recent earnings results or alphabet was that
for the very first time in a number of orders,
we saw return on capital and return on assets actually
(05:45):
trend or inflect lower, meaning that despite you know, pretty
healthy sales gains, we started to see act efficiency diminish
quite greatly, leading to a negative inflection in return on capital,
which for a growth stock that's that usually spells a
very difficult environment and the de rating I think the
(06:05):
real case to see, you know, how damaging this could be.
And I think if you just look at some of
the numbers. I mean, there's been a bunch of studies
that have come out, whether it's Morgan Stanley or Bane
or even some of the other consulting firms that the
volume of revenue to justify the spend that needs to
(06:26):
be made by many of these companies is just is gargantuan.
And you know the fact that chat GBT is making
promises or capital expenditure promises that are vast above or
multiples of what their potential revenue could be over those
years highlights the cash flow shortage that they're going to have.
(06:47):
And we'll see where that goes. But for now, you know,
people are willing to look the other way, and you know,
these hyper scalers alone are expected to spend you know,
four hundred billion dollars in capital investment next year. I
think what you have to wait and see, though, is
when you see a company announce that it's increasing its
(07:08):
capital investment on AI and the stock price has a
negative reaction. We haven't seen that yet. When that happens,
that's when the light bulb overhere, every cfo's head is
going to go off and rethink what they're doing in
terms of capital expenditure in the AI space.
Speaker 2 (07:25):
So beyond AI, I think a lot of what the
market has been hoping for is aggressive easing. Maybe we
get two more rate cuts this year. I guess critical
to that story is going to be the non farm
payrolls day that we get on Friday. But you made
the point a moment ago that inflation is trending lower.
Is there the risk though, that maybe it becomes a
(07:47):
little sticky here and the long end of the curve
may be a little vulnerable.
Speaker 3 (07:54):
That's a potential. Yes, Clearly, what we're seeing is an
economy that's firm. It's not stalling, which is basically what
the consensus has been. Let's remember we basically have been
in a recession or a stall type procession, not a
kind of V shaped downdraft, but a stall type procession
(08:16):
four years. So we're really coming out of that, and
the tax bill has a lot of stimuli that's embedded
in it. They will allow us to actually grow out
of basically this environment that we've been in. However, when
you look at the inflation, and I'm not a Phillips
curve guy, I'm not convinced that inflation and growth are
a trade off versus one another. So from that standpoint,
(08:39):
I think, barring the barring the dollar actually continuing to fall,
which I don't not sure it will, I think it
will steady here, I think looking at an environment where, yes,
will inflation stay above the two percent target. I think
that's probably the case, but I don't foresee inflation moving higher,
(09:00):
so that I think is a positive. So I think
on the long end of the curve, you're probably going
to make the coupon, maybe not fur the capital appreciation,
but if you do get the fifty base point cut,
that steeper yield curve is going to be panacea to
a lot of the regional banks who are going to
benefit from an increase in an interest margin be able
to improve their lending capabilities. So all this is very positive,
(09:21):
and I think if we look out to twenty twenty six,
I think people are going to be surprised how robust
the economy actually is. And again, all that's going to
lead to Again, I think a rethink within the market,
maybe get rid of the style distortion that we've had
in the market as well as be a very positive thing.
But remember the stock market doesn't always equal to the
(09:42):
economy from that perspective, so it might be an environment
where because we're so top heavy in the stock market
that the indices don't move very much, but there's a
lot of money to be made in other areas of
the market, and people who are fearful of both the
dollar falling further and the back end coming up signific
only higher might be disappointed if they are leveraging those straits.
Speaker 2 (10:04):
James, I want to get your take on how politics
could end up impacting the markets, whether we're talking about
a government shutdown or fed independence. Obviously we have this
funding deadline of October first, a meeting tomorrow at the
White House. Maybe things are resolved in such a way
to avoid a government shutdown, but assume for the moment
(10:26):
that one does occur and it's protracted. Talk to me
a little bit about the way in which politics has
the potential to influence a lot of the price action,
whether we're talking about the equity side or in the
bond market.
Speaker 3 (10:39):
Yeah, I think that is if you think about what
could derail kind of the positive scenario that have just
laid out. It's politics, and probably more so geopolitics. Now
clearly what we're talking about in terms of a government shutdown,
and I actually think that the chance of a government
shutdown out is probably greater than it's in the past.
(11:00):
Usually you can dismiss that it's just mere theater between
the two parties, but I think both sides have kind
of dug in their heels here. So having some type
of shutdown for a week, a month, two months, whatever,
I think is positive. But remember, you know, the DOSEE
cuts and other things have already led to a large curtailment,
(11:21):
at least in terms of the growth of the government.
So I don't think it's going to have the same
impact in terms of employment that we've seen in the past,
particularly when you think about what's occurred over the Obama
and Obama administrations where government has grown significantly. But I
think one point that I do want to raise is
that you know, people do forget. And this again goes
back to the divorce between the economy and the stock market.
(11:42):
But you go way back to like two thousand and two.
You know, the economy had turned up, you know, and
was doing reasonably well, but the stock market had one
of its worst years ever, you know, even small caps.
So geopolitical is at that point in time, obviously the
tension in the run up to the war with Iraq
and the derating a tech stock. So people I think
sometimes remember sometimes the economy can do reasonably well while
(12:06):
the stock market does not do so well, and frankly
vice versa.
Speaker 2 (12:10):
I'm curious to get your take on the labor market,
because if there is a government shutdown, the president has
threatened to begin laying off government employees. We mentioned earlier
that we have non farm payrolls day to do Friday
on Tuesday, it's the job opening data from the government.
Give me your sense of how you understand the labor
(12:31):
market right now.
Speaker 3 (12:33):
Yeah, I think essentially it's been at a point in
time where you know, people have been warning that we're
on the verge of a hard landing. But you know,
typically to get into a hard landing from stall speed,
which I would argue we're kind of coming out of
to a certain degree, you need a shock. And when
I look at essentially what the government shutdown could be
(12:53):
in terms of a magnitude of a shock to demand,
I don't foresee that to be enough of demand shock
to actually reverse the course that growth is actually starting
to firm up ahead, and you know, leading indices from
what we look at, you know, aren't indicating any type
(13:14):
of you know, picture that indicates recession and inflation spire,
We're in stagflation ahead.
Speaker 2 (13:21):
All right, James, We'll leave it there. It's always a pleasure.
Thank you. So very much. James Abat is Managing director
also the head of Fundamental Strategies at Horizon Investments. Joining
us here on the Daybreak Asia podcast. Welcome back to
the Daybreak Asia Podcast. I'm Doug Chrisner. Markets in the
(13:45):
Asia Pacific are somewhat mixed after China reported strong industrial
profits over the weekend. For more, we heard from Sean Fenner,
head of Business and Industry Economics at Westpac. Shawn spoke
with Bloomberg's Avril Hong on the Asia trade.
Speaker 4 (13:59):
Give us your thoughts on the data over the weekend
out of China industrial profits maybe a buck some expectations
of a decline. How much to you do you think
is meaningful signs that the government's efforts to tackle over
capacity are seeing effect.
Speaker 1 (14:16):
Hi, I think it's probably a little bit too early
to say that the policy that they've undertaken is actually
having a true effect.
Speaker 5 (14:24):
The reason I say this is that it's quite volatile from.
Speaker 1 (14:27):
Month to month, and as the stats off as themselves said,
it is actually partly that big jump that we saw
was due to base effects. Coupled with that, we also
had sort of some bring forward in tariff, So it's
something that it's positive, it's moving in the right direction,
but we've got to see about some longevity whether or
not it's going to persist.
Speaker 4 (14:46):
All right. We are also keeping tabs on the situation
in the US. I mean, the problem now is that
even the data that for example, bond market is going
to be focusing on that that could be disrupt How
do you assess the US economy when you know the
data that's incoming that's crucial for markets might not come
(15:08):
in as expected.
Speaker 1 (15:12):
Yeah, I mean, I think that's a real thing about
this sort of shutdown. Obviously it has implications both in
terms of growth the short term impact. You know, every
week sort of a rule of thumb takes off about
point one off that quarter, you can get some bounce back.
Speaker 5 (15:24):
But I mean it's the data.
Speaker 1 (15:26):
So particularly, you know, we're in this situation where we're
wanting to be sort of analyzing, know how is how
a tarift's actually feeding through into inflation and of course
the labor market. We sell back in twenty thirteen, you
know it sixteen days for a total shutdown, and that
sort of delays both in terms of the non farm
payrolls and inflation data going forward. So it's not just
whether or not we'll get Friday's data for the non
(15:47):
farm payrolls, but could we actually even you know, not
actually receive the inflation figures as well.
Speaker 4 (15:56):
That means said we did get PC numbers pretty much
in line much. Do you think this economistif the focus
to look at, you know, the path of inflation and
how that informs what.
Speaker 5 (16:08):
The Federal Reserve is going to do?
Speaker 2 (16:10):
Yeah?
Speaker 1 (16:11):
Yeah, So, I mean I think, you know, the data
we've been seeing, I mean it's a bit of a
conundrum really because I mean we've got on one side,
I mean, we had it's backward looking, but you know,
we have had strong GDP upward revisions.
Speaker 5 (16:21):
You know, monthly household spending.
Speaker 1 (16:23):
Is also running at a fairly solid rate, although that
was with the dragon sort of set the saving straight.
So households are pulling back, you know, are drawing on
their savings. How much more can they do that? Ahead
if we've got inflation rising as we know expect, you know,
they're purchasing power is going to decline with tariffs combined
that where you've got that softening in the labor market,
you know, you're not getting those new jobs, and it
(16:45):
does sort of suggest that, you know, the head winds
for the consumers going ahead is rising.
Speaker 4 (16:52):
It's interesting because that backdrop that you just highlighted could
also apply to Australia. I mean, hotter than next directed
inflation and then potential weakness in the limber market. How
are we expecting the RBA to evolve when it comes
to it's signaling to the markets.
Speaker 5 (17:11):
Yeah, so, I mean, firstly, I mean, I think if
anything that's.
Speaker 1 (17:13):
Sort of a little hotter sort of partial inflation reinforces
our sort of long held view that September was going
to be the RBA remaining on hold, it's probably going
to be unanimous. I think really people will be sort
of looking for exactly as you said that signing. I
suppose a couple of things i'd sort of add to that.
First of all, this is a partial indicator. The RBA
has signaled that they you know, while they will take
(17:35):
note of this, it's not they want to see a
full quarter. And with that, we also expect that there's
probably going to be some payback in September. So while
September quarter as a whole may be a little bit
hotter than the RBA's forecast, you know, as we move
into the December, we're actually expecting that to come down
a little bit.
Speaker 5 (17:52):
And going forward, you.
Speaker 1 (17:54):
Know, we still see inflationary pressures as being such that
the RBA doesn't need to keep rates at sort of
this sort of slightly tight at three point six and
further rate cuts her ahead.
Speaker 4 (18:06):
Sean, what about the tariff risk, because last Friday was
a reminder, given the headlines that came through from Trump
of this very risk. We saw, you know, the impact
on the Indian markets for example, and this is also
an economy that has quite squarely been in the crosshairs
of the US president. Now were these threats of pharmaceutical tariffs?
(18:28):
How at risk is the Indian economy? And to what
extent can perhaps want dubbish monetary policy from the IBI,
which also meets this week.
Speaker 1 (18:37):
I've set some of that, yes, So, I mean India
has definitely been in the crosshairs with that fifty percent tariff,
and now you know also with visas where you know
they're sort of heavily involved for US, and now the pharmaceuticals.
I suppose there's a couple of things. First of all,
this is a post so we're still waiting for a
little bit of details there and also whether or not
(18:59):
you know at the moment, there's some carve outs if.
Speaker 5 (19:02):
You like, in pure Trump fashion, So carve outs.
Speaker 1 (19:05):
For those that are actually you know, breaking ground or
have construction underway, and also those that are you know, if.
Speaker 5 (19:10):
It's a generic good.
Speaker 1 (19:13):
And for India that matters because most of their pharmaceutical.
Speaker 5 (19:16):
Goods to the US are generic.
Speaker 1 (19:20):
That said, you know, clearly this is a headwind, particularly
the longer that these tarrats are fifty percent remain for
the Indian economy.
Speaker 5 (19:28):
But there's some offsets as well. So they've also had
the GST cut.
Speaker 1 (19:33):
And that you know, will provide some boostful for consumers.
I think for the RBI, we're looking for them to
keep rates on hold. It's probably going to be a
tight sort of a live call if you like, because
inflation is low. But we're looking for them to remain
not hold this week. But we do see that they
do have the space. If we do see that these
tariffs remain in place at fifty percent and consumption, particularly
(19:55):
after Devali, maybe if that fell off that they may
they will actually provide some more support.
Speaker 4 (20:01):
Sean, great to chat. Thanks for setting us up for
this week. Sean Van, ahead of Business and Industry Economics
at westpac.
Speaker 2 (20:10):
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 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
(20:32):
and Australia. I'm Doug Prisner, and this is Bloomberg
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