October 12, 2025 • 20 mins
US equity-index futures jumped in early trading and oil rebounded as President Donald Trump's administration signaled openness Sunday to a deal with China to quell fresh trade tensions while also warning that recent export controls announced by Beijing were a major barrier to talks. Vice President JD Vance called on Beijing to "choose the path of reason" in the latest spiraling trade fight between the world's two leading economies, claiming that Trump has more leverage if the fight drags on. Trump later posted a statement that hinted at a possible off-ramp for Chinese President Xi Jinping while issuing a veiled threat that a full trade war would wound China. For more, we spoke to Paul Dobson, Bloomberg's Executive Editor for Asia Markets.
Plus - The bull market in US stocks is having its third anniversary on Sunday, but if history is any guide it needs to broaden out soon to keep running. The S&P 500 Index began its current bull run on Oct. 12, 2022, soaring 83% in that time and adding about $28 trillion in market value. While the gain was 88% before Friday's selloff on President Donald Trump's threat of a "massive increase" in tariffs on goods from China, the benchmark's 13% jump over the past 12 months is still twice the average rise in the third year of a bull market, according to CFRA Research. We speak to Frances Stacey, Wealth Manager at Scarlet Oak Financial.
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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. We begin in China, where
the government said over the weekend it will not back
down in the face of a renewed tariff threat from
President Trump. It was late Friday. Trump suggested new levies
(00:25):
on Chinese imports of one hundred percent, and he also
said the US would impose export controls on any and
all critical software beginning November first. Now, these moves came
in reaction to China imposing export curbs on rare earth
minerals on Sunday. Though Beijing said the US should stop
issuing threats, the Ministry of Commerce also urged further negotiations,
(00:49):
while at the same time saying it will not hesitate
to retaliate. Joining me now for a closer look is
Paul Dobson. He is Bloomberg's executive editor for Asia Markets.
Paul joined us from Singapore. Paul, thank you for making time.
It looks as though China is drawing a clear red
line here in response to these export controls. How bad
(01:11):
could this get? Do you think?
Speaker 2 (01:12):
Yeah?
Speaker 3 (01:13):
Hi there, Doug, Well, it could suddenly escalate further from here,
it seems like China feels the latest measures it's put
in place so already a response to the action that
the US has taken over various curbs on shipments of
goods and technology to China, and so the fact that
the US is then escalating it again does certainly ramp
(01:36):
up the tensions, and I think that that's why we
saw a fairly severe market reaction in US hours in
Friday trading. But over the weekend, the latest developments that
we've seen, with some comments from Donald Trump that seem
to suggest there's still room for negotiations, is giving the
market a little bit of renewed hope as we get
going on Monday morning with a little bit of a
(01:57):
rebound in US futures. And I think that, you know,
the market's broad interpretation of this at the moment is
that both China and the US are jostling for positions
ahead of a potential meeting between Trump and She. They
both want to show, you know, kind of what their
firepower is, what they have in reserve, what they could
(02:18):
use if things escalate. But it's telling that both of
them have set the deadline for when these new measures
would begin sometime in November, So after that moment when
there's the possibility of this meeting, so I think that,
you know, there's a strong possibility that the market has
in its mind that somebody will back down, or that
there'll be another compromise, or they'll be delaying more talks.
(02:40):
At the same time, you know, each time we get
a headline that shows one hundred percent tariff threat or
something like that, the market has to react and start
to price in some of the risks that that may
happen and that we may get another escalation and another fallout.
Speaker 1 (02:53):
We heard from Vice President JD. Vance over the weekend,
and he called on Beijing, in his words, to choose
the path of reason, and in his view, the US
has a lot of leverage. I'm wondering, if we had
to gauge here between who has more of an advantage
right now? Could you say that it's the US or
(03:14):
do you necessarily think that it's China who has the
best position here in terms of negotiation.
Speaker 3 (03:21):
China is definitely in a far better stronger position than
it was at the time of the first Trump presidency.
It's much better organized and much better prepared for the
escalations of these tariffs, and it holds the cards when
it comes to rare earth materials, also high powered magnets,
and on top of that, some of the electric vehicle
(03:45):
batteries as well as something that China is exporting both
the technology and the product to the rest of the world,
so that's all giving it some power. On top of that,
you know, it's causing the US some more issues by
withholding purchases of beans, which is annoying the farmers, which
is a key sort of area of support for Donald Trump.
On the other side, China clearly doesn't want to be
(04:07):
facing these hundred percent harris and Trump knows that that
gives him their forage back. The other way, he's willing
to escalate and go that extra sort of step and
that extra place that China might not be able to
or might not want to. So I'm not sure that
it's easy to tease out who exactly is holding the
strongest out of cards here. That's the whole point of
you know, what the sparring and the positioning and the
(04:28):
negotiations is over. What we do know is that if
they continue to ratchet it up, then everybody.
Speaker 1 (04:33):
Suffers Directionally, it seems like we're looking at a further decoupling.
Is that right?
Speaker 3 (04:39):
I think the long term that's definitely the course, no
matter what happens. You know, you can see that both
countries and both sort of both both countries are carving
out sort of regions within their orbit where there's stronger
partnerships and looking for independence where they can from the
other side. So you see that very strongly with China
chrying to develop its own tech sector, its own AI
(05:01):
tech sector, its own chip makers. In due course, you
see that with the US looking at alternative sources for
rare earth materials. You know, the supply chains are definitely uncovering,
the areas of influence are definitely uncompening, but it's so
much it's almost impossible to unravel and it will take
a long long time. So there is that mutual codependence
still in certain areas and the need for cooperation. And
(05:24):
there are bigger issues as well. You know, if you
think about things like climate change that no one country
can solve on its own, there isn't a need to
be to be working together on some of those things.
So you know, that's the reality and the difficulty of
all of these negotiations. I think what the US at
least wants is a little bit of a fairer price
for those things that aren't those massively essential and critical
(05:45):
kind of supplies. And that's where the negotiations will come
back down to at some.
Speaker 1 (05:50):
Point midweek and China will get the September price data.
As you know, deflation obviously has been a persistent problem,
particularly at the wholesale level. Do you think think that's
going to be the case when these numbers are released
this week, that we'll just get a reinforcement of that
idea that deflation is firmly kind of in place in
the Chinese economy.
Speaker 3 (06:11):
Trying to get out of that trap with its anti
involution measures, but it's taking time and the property sector
in particular is still ailing as well. So resolving those
problems is a very long term issue for China. I think,
you know, if we go back to the trade negotiation
side of things, the US thinks that China is in
a bit of a weak place, that its economy is
hurting at the moment, and so it can apply maximum
(06:31):
pressure through the tariffs. China thing is probably okay with
its growth. It's still running around five percent on an
annual basis, which is the target or the plan. It
knows that it can do extra stimula if it needs
to to get to that level. But actually exports haven't
really dropped off massively despite the introduction of whatever tariffs
we've seen so far from the US. They've just been
(06:51):
redirected to other points in the world, and so China
probably doesn't feel too worried even if we have those disinflationary,
your deflationary measures coming through about the economy, although it
is trying to take all of these steps to turn
things around slowly.
Speaker 1 (07:06):
I want to go to Japan next, because we had
a pretty dramatic move in the market last week when
talks between the Liberal Democratic Party and its junior partner
Cometo simply collapsed, ending without an agreement. I mean, talk
to me a little bit about the way that you
view this and the severity of this situation now, particularly
(07:26):
considering that last week we were talking about Sana Takeiichi
becoming the first female prime minister of Japan.
Speaker 3 (07:34):
It is so much news out there to try to
get your head around on him a Monday in the
start of the week, isn't that, Doug, So I think
that it's a really interesting situation today is a holiday
in Japan, so it will take a little bit more
time before we get more clarity. But yes, the LDP
is in a quantry. Now, does Takaichi try to go
it alone and rule with a minority, Does she try
(07:56):
to find new partnerships for a coalition or there's a
remote plart distability as well. The other parties could try
to find an alternative PM candidate to Techich and circumvent
the LDP altogether. So we're in a little bit of
a chaotic moment for Japan's markets right now. Is completely
uncertain how it will all turn out. What we do
(08:18):
know is that a policy gridlock would be unfavorable for
Japan's financial markets and most likely being negative for the
equity market. What I think is really interesting is whether
that turns into a positive for yen as it behaves
like a haven, whether it becomes a negative because people
are worried about the economy and the sort of the
(08:39):
slow growth that it's facing and the rising debtload that
it's trying to contend with at the same time.
Speaker 1 (08:44):
We'll leave it there, Paul, thank you so much. Always
a pleasure. Paul Dobson is Bloomberg's executive editor for Asia Markets,
joining from Singapore, and the equity markets in the States
kind of swooned last Friday. We had the S and
P five hundred down about two point seven percent, its
worst day in about six months. Coming up, we'll speak
with Francis Stacey, wealth manager at Scarlet Oak Financial, here
(09:06):
on the Daybreak Asia podcast. Welcome back to the Daybreak
Asia Podcast. I'm Doug Chrisner. The bullmarket in US equities
is now three years old. It began October twelfth, twenty
twenty two, and since then the S and P five
(09:27):
hundred d is up. Are you ready for this? Eighty
three percent? And in that same period, twenty eight trillion
dollars has been added to market value. For a closer
look now at where things stand and where we may
go from here, I'm joined by Francis Stacey, wealth manager
at Scarlet Oak Financial. Francis, thanks for making time to
chat with me on this. What will it take for
(09:49):
this bull market to continue? Do you think? Well?
Speaker 2 (09:52):
The thing is is that really what we're looking for
is that the market's up until Friday, and up until
a little bit of a breakout in volatility. I've kind
of been ignoring all of the sort of catalysts for
a sellof and my reasoning for that is that the
M two money stock is at a record level, so
basically there's so much liquidity in the system. It's a
(10:12):
wash with liquidity in That is sort of the thesis
behind the bull market. You also have a situation where
we're coming out a September sort of stagflationary environment. You
now have an amelioration, you know, looking like it for
you know, continuing amelioration and inflation, and then you have
the FED taking a devish stance based on the labor markets,
(10:32):
and so you have that alongside the liquidity being a
wash in the system, and you don't have cracks in
the credit market, and so I do see that it's
possible that we could find some support here and go
back up and retest those highs.
Speaker 1 (10:45):
So we focus a lot on the big tech names
like Nvidia and Meta to what extent has the equity
market been unable to kind of broaden out or break
out from the domination that these names have That concerns
any people because it just kind of dominates market psychology.
Speaker 2 (11:03):
Absolutely, And one of the things that's being asked is,
you know, it can it be sustainable that the mag
seven in essence has such a great influence over the
markets and the market share. The reason that has been
more sustainable than anybody could have suspected from my viewpoint,
is the fact that you have an enormous amount of
capex expenditure, you know, capital expenditure in the GDP calculation
(11:28):
that is AI capex, and so AI capex is actually
propping up GDP, and I think that that's one of
the reasons those stocks have remained largely popular. Again, a
bit of a sell off on Friday, for sure, but
before that, you know, all time hihs for most of them,
except for Amazon.
Speaker 1 (11:46):
So the government shutdown is another factor. I don't really
know that it's been predominant in terms of a lot
of market psychology right now. Maybe I'm wrong. How do
you see the government shutdown fitting into this narrative?
Speaker 2 (11:58):
Well, the biggest macro economic theme for the government shutdown
is does it threaten the liquidity flow? Does it take
the liquidity in the system, Because what happened was the
Fed you know, obviously started raising interest rates and they
you know, have had such high interest rates for so
long relatives to the last decade you would think, well,
why didn't that cause a recession, and being a Monday
(12:20):
morning quarterback, The reason it didn't cause a recession is
because the fiscal spending came in and saved the day,
even though they were reducing the balance sheet and raising rates.
So that fiscal spending has been what's keeping the markets
and asset prices in general elevated and creating this sort
of bubble phenomena. And so if the government shutdown were
to go on and on and on and threaten liquidity
(12:40):
by drastic spending cuts, that would be a catalyst for
a repricing. Also, if you know enough people get unemployed
that they have you know, they can't keep up with
their credit card payments. We are living in a bifurcated
economy where the lower sixty percent are living paycheck to paycheck.
They don't have any savings, They're paying for groceries on
credit cards. The credit card interest rates are just astronomical,
(13:03):
and so there this is sort of being hung in
the balance. But if enough of these people lose their
pay or lose their jobs that you start to see
a meaningful or systemic uptick in defaults around credit, then
that could be a game changer.
Speaker 1 (13:18):
Well, let's talk a little bit about the credit markets.
We've seen some meltdowns recently. I'm thinking of names like Sacks,
New Fortress Energy, Try Color Holdings, First Brands Group, all
of which have grabbed some of the headlines here. But
I'm trying to get a sense of what's happening under
the surface, particularly as private credit is involved.
Speaker 2 (13:39):
Certainly, I mean, you do see cracks all over the system.
So you see an uptick of foreclosures in Florida and
Nevada primarily, you're seeing an uptick in auto loan defaults.
You're seeing an uptech in you know, late payments for
credit cards, credit card defaults, et cetera. Because the system
and the labor market are under pressure. However, whether that
(14:00):
results in a recession or an end to this bull
market is going to be Do these credit problems, these
cracks underneath? Do these cause a systemic issue?
Speaker 1 (14:11):
So we're going to hear from the big banks beginning Tuesday.
We'll hear from JP Morgan. Then, I'm curious as to
what you will be listening for, particularly when it comes
to loans. You mentioned credit risk a moment ago. Will
the banks necessarily be forthcoming on their exposure to loans
possibly going bad.
Speaker 2 (14:30):
Yeah, well, hard to say what they're going to say, right,
but that's definitely what you're looking for, because when you
think about it, when loans go bad, you know, the
banks are able to write them off of the balance sheet,
but by writing them off of the balance sheet, you're
actually removing that liquidity from the system. So I would
be listening for any kind of a language, any language
(14:51):
around you know, if they have an uptick and defaults,
or they have this or that, I would look. I
would be looking for language where it's so systemic that
again it's going to interrupt this huge flow of liquidity
that it's had these asset asset prices climbing for the
last you know, several years, eighty seven percent, you said
in the S and P. Five hundred. I mean, that's
just in direct correlation to the liquidity in the system.
Speaker 1 (15:12):
So with a government shutdown, we have a lack of
official data and that has made it somewhat tricky. I
think for a lot, particularly the bond market, to kind
of use in terms of guidance. We're going to hear
from Chair Powell on Tuesday. He's going to offer an
outlook on the economy, maybe give some hints about what
monetary policy may look like ahead. What are you expecting
(15:34):
from the Fed between now, let's say in the end
of the year, is it a foregone conclusion that we're
going to get two more rate cuts.
Speaker 2 (15:41):
That's certainly what's being priced in at the moment. I
think his language is going to be dubvish, more dubbish.
I think it's going to be in lockstep with Waller
without looking like their kowtowing to the Trump administration. But
I think they're going to, you know, find their data
dependent and I think that they're going to find the
fact set from the available data that supports the more
(16:03):
dubbish stance. And I do think it is some of
these little inflections that we're seeing in credit markets, or
little accelerations in credit markets, or little cracks in the
labor market, that you know, Powell just wants to get
ahead of it.
Speaker 1 (16:15):
So are you inclined to be, in terms of an
investment strategy defensive right now?
Speaker 2 (16:20):
I'm inclined to watch key support metrics. I always believe
in hedges. You know, However, I'm not sure that the
bull market is completely over yet. Some of the data
providers I look at, you know, think that you know, growth,
growth and inflation are going to reaccelerate, and you know,
so that's obviously a Goldilock scenario. And then some think
(16:41):
that actually growth is going to continue higher and inflation
is going to go back down again in the coming quarters.
So that's the trajectory we're on right now, unless we
have a catalyst that you know, makes volatility spike, something systemic,
something credit like that, you know, says that that's not possible.
So I'd be careful, But I'm right now, I'm buying
(17:03):
the dips.
Speaker 1 (17:04):
What if we get a substantial correction in the equity market?
Last week we heard from Crystallinia Gyorgheva, who is the
head of the IMF, and she acknowledged that perhaps financial
stability would be at risk if this call it a bubble,
if you will, if that bursts. Does she have a point?
Speaker 2 (17:21):
She certainly has a point. And we have axles and
wheels and credit cycles are not dead. You know, Tesla's
look very different from the Model T, but there are
still axles and wheels, and that is certainly what we
have with Fiat and credit cycles and business cycles and
this cycle will definitely come to an end, but it
could last a lot longer than people think. And if
(17:41):
it were to last a lot longer than people think,
I would, you know, look at the liquidity in the system,
because even though that liquidity is concentrated in the upper
forty percent of the economy, and we are living in
a very bifurcated economy, that upper forty percent is consuming
a lot of things. They're hiring people, you know, they're
making money, they have assets, they're spending money and stuff
(18:02):
like that, and so that's the thing that's kind of
kept US afloat.
Speaker 1 (18:05):
How are you looking at markets outside the US these days?
Speaker 2 (18:09):
It was interesting the rate cut in Europe based on
what's going on in Germany. I think, you know, probably
most they were in growth for most of this year,
but I think some of its softening, and I think,
you know, probably they will have a rollover of their
business cycle, as we will. And I don't know the
timing of it exactly, but we just have a lot
of geopolitical risk, and yet we have a lot of
(18:31):
liquidity still left in the system from COVID. So it's
going to be how that sort of plays out. I
think It's been interesting with the tariffs because they've you know,
the data has trickled in so erratically that you haven't
really been able to superprice that in which is actually
lowered volatility in the markets, and so just watching all
these factors. But credit markets are the big game changers
(18:51):
when it comes to recessions or meaningful reversals.
Speaker 1 (18:55):
So before I let you go on the subject of tariffs.
Over the weekend, the Chinese government eventually said it's not
going to back down from this renewed thread of tariffs
from President Trump. Where is the relationship right now between
the US and China and when what kind of risk
does it represent.
Speaker 2 (19:15):
It's deteriorating. I think that the risk is going to
come over a longer trajectory of time of dedollarization. We're
seeing that with precious metals prices. We're seeing that with
you know, advances from the bricks economy. We're seeing that.
And Trump is trying to word that off with the
Genius Act and trying to you know, make us so
(19:36):
relevant when it comes to crypto and FIAT as an
amalgamation that we can compete with that. I don't know
where that ends up eventually, but you know if for
decades people try to dedollarize that momentum is eventually going
to catch up with us.
Speaker 1 (19:52):
Francis will leave it there. Thank you so much. It's
always a pleasure. Francis days. He is wealth manager at
Scarlett Oak Financial. Joining us here on the Daybreak Asia
Part 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.
(20:13):
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 Chrisner, and this is
Bloomberg
Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. We begin in China, where
the government said over the weekend it will not back
down in the face of a renewed tariff threat from
President Trump. It was late Friday. Trump suggested new levies
(00:25):
on Chinese imports of one hundred percent, and he also
said the US would impose export controls on any and
all critical software beginning November first. Now, these moves came
in reaction to China imposing export curbs on rare earth
minerals on Sunday. Though Beijing said the US should stop
issuing threats, the Ministry of Commerce also urged further negotiations,
(00:49):
while at the same time saying it will not hesitate
to retaliate. Joining me now for a closer look is
Paul Dobson. He is Bloomberg's executive editor for Asia Markets.
Paul joined us from Singapore. Paul, thank you for making time.
It looks as though China is drawing a clear red
line here in response to these export controls. How bad
(01:11):
could this get? Do you think?
Speaker 2 (01:12):
Yeah?
Speaker 3 (01:13):
Hi there, Doug, Well, it could suddenly escalate further from here,
it seems like China feels the latest measures it's put
in place so already a response to the action that
the US has taken over various curbs on shipments of
goods and technology to China, and so the fact that
the US is then escalating it again does certainly ramp
(01:36):
up the tensions, and I think that that's why we
saw a fairly severe market reaction in US hours in
Friday trading. But over the weekend, the latest developments that
we've seen, with some comments from Donald Trump that seem
to suggest there's still room for negotiations, is giving the
market a little bit of renewed hope as we get
going on Monday morning with a little bit of a
(01:57):
rebound in US futures. And I think that, you know,
the market's broad interpretation of this at the moment is
that both China and the US are jostling for positions
ahead of a potential meeting between Trump and She. They
both want to show, you know, kind of what their
firepower is, what they have in reserve, what they could
(02:18):
use if things escalate. But it's telling that both of
them have set the deadline for when these new measures
would begin sometime in November, So after that moment when
there's the possibility of this meeting, so I think that,
you know, there's a strong possibility that the market has
in its mind that somebody will back down, or that
there'll be another compromise, or they'll be delaying more talks.
(02:40):
At the same time, you know, each time we get
a headline that shows one hundred percent tariff threat or
something like that, the market has to react and start
to price in some of the risks that that may
happen and that we may get another escalation and another fallout.
Speaker 1 (02:53):
We heard from Vice President JD. Vance over the weekend,
and he called on Beijing, in his words, to choose
the path of reason, and in his view, the US
has a lot of leverage. I'm wondering, if we had
to gauge here between who has more of an advantage
right now? Could you say that it's the US or
(03:14):
do you necessarily think that it's China who has the
best position here in terms of negotiation.
Speaker 3 (03:21):
China is definitely in a far better stronger position than
it was at the time of the first Trump presidency.
It's much better organized and much better prepared for the
escalations of these tariffs, and it holds the cards when
it comes to rare earth materials, also high powered magnets,
and on top of that, some of the electric vehicle
(03:45):
batteries as well as something that China is exporting both
the technology and the product to the rest of the world,
so that's all giving it some power. On top of that,
you know, it's causing the US some more issues by
withholding purchases of beans, which is annoying the farmers, which
is a key sort of area of support for Donald Trump.
On the other side, China clearly doesn't want to be
(04:07):
facing these hundred percent harris and Trump knows that that
gives him their forage back. The other way, he's willing
to escalate and go that extra sort of step and
that extra place that China might not be able to
or might not want to. So I'm not sure that
it's easy to tease out who exactly is holding the
strongest out of cards here. That's the whole point of
you know, what the sparring and the positioning and the
(04:28):
negotiations is over. What we do know is that if
they continue to ratchet it up, then everybody.
Speaker 1 (04:33):
Suffers Directionally, it seems like we're looking at a further decoupling.
Is that right?
Speaker 3 (04:39):
I think the long term that's definitely the course, no
matter what happens. You know, you can see that both
countries and both sort of both both countries are carving
out sort of regions within their orbit where there's stronger
partnerships and looking for independence where they can from the
other side. So you see that very strongly with China
chrying to develop its own tech sector, its own AI
(05:01):
tech sector, its own chip makers. In due course, you
see that with the US looking at alternative sources for
rare earth materials. You know, the supply chains are definitely uncovering,
the areas of influence are definitely uncompening, but it's so
much it's almost impossible to unravel and it will take
a long long time. So there is that mutual codependence
still in certain areas and the need for cooperation. And
(05:24):
there are bigger issues as well. You know, if you
think about things like climate change that no one country
can solve on its own, there isn't a need to
be to be working together on some of those things.
So you know, that's the reality and the difficulty of
all of these negotiations. I think what the US at
least wants is a little bit of a fairer price
for those things that aren't those massively essential and critical
(05:45):
kind of supplies. And that's where the negotiations will come
back down to at some.
Speaker 1 (05:50):
Point midweek and China will get the September price data.
As you know, deflation obviously has been a persistent problem,
particularly at the wholesale level. Do you think think that's
going to be the case when these numbers are released
this week, that we'll just get a reinforcement of that
idea that deflation is firmly kind of in place in
the Chinese economy.
Speaker 3 (06:11):
Trying to get out of that trap with its anti
involution measures, but it's taking time and the property sector
in particular is still ailing as well. So resolving those
problems is a very long term issue for China. I think,
you know, if we go back to the trade negotiation
side of things, the US thinks that China is in
a bit of a weak place, that its economy is
hurting at the moment, and so it can apply maximum
(06:31):
pressure through the tariffs. China thing is probably okay with
its growth. It's still running around five percent on an
annual basis, which is the target or the plan. It
knows that it can do extra stimula if it needs
to to get to that level. But actually exports haven't
really dropped off massively despite the introduction of whatever tariffs
we've seen so far from the US. They've just been
(06:51):
redirected to other points in the world, and so China
probably doesn't feel too worried even if we have those disinflationary,
your deflationary measures coming through about the economy, although it
is trying to take all of these steps to turn
things around slowly.
Speaker 1 (07:06):
I want to go to Japan next, because we had
a pretty dramatic move in the market last week when
talks between the Liberal Democratic Party and its junior partner
Cometo simply collapsed, ending without an agreement. I mean, talk
to me a little bit about the way that you
view this and the severity of this situation now, particularly
(07:26):
considering that last week we were talking about Sana Takeiichi
becoming the first female prime minister of Japan.
Speaker 3 (07:34):
It is so much news out there to try to
get your head around on him a Monday in the
start of the week, isn't that, Doug, So I think
that it's a really interesting situation today is a holiday
in Japan, so it will take a little bit more
time before we get more clarity. But yes, the LDP
is in a quantry. Now, does Takaichi try to go
it alone and rule with a minority, Does she try
(07:56):
to find new partnerships for a coalition or there's a
remote plart distability as well. The other parties could try
to find an alternative PM candidate to Techich and circumvent
the LDP altogether. So we're in a little bit of
a chaotic moment for Japan's markets right now. Is completely
uncertain how it will all turn out. What we do
(08:18):
know is that a policy gridlock would be unfavorable for
Japan's financial markets and most likely being negative for the
equity market. What I think is really interesting is whether
that turns into a positive for yen as it behaves
like a haven, whether it becomes a negative because people
are worried about the economy and the sort of the
(08:39):
slow growth that it's facing and the rising debtload that
it's trying to contend with at the same time.
Speaker 1 (08:44):
We'll leave it there, Paul, thank you so much. Always
a pleasure. Paul Dobson is Bloomberg's executive editor for Asia Markets,
joining from Singapore, and the equity markets in the States
kind of swooned last Friday. We had the S and
P five hundred down about two point seven percent, its
worst day in about six months. Coming up, we'll speak
with Francis Stacey, wealth manager at Scarlet Oak Financial, here
(09:06):
on the Daybreak Asia podcast. Welcome back to the Daybreak
Asia Podcast. I'm Doug Chrisner. The bullmarket in US equities
is now three years old. It began October twelfth, twenty
twenty two, and since then the S and P five
(09:27):
hundred d is up. Are you ready for this? Eighty
three percent? And in that same period, twenty eight trillion
dollars has been added to market value. For a closer
look now at where things stand and where we may
go from here, I'm joined by Francis Stacey, wealth manager
at Scarlet Oak Financial. Francis, thanks for making time to
chat with me on this. What will it take for
(09:49):
this bull market to continue? Do you think? Well?
Speaker 2 (09:52):
The thing is is that really what we're looking for
is that the market's up until Friday, and up until
a little bit of a breakout in volatility. I've kind
of been ignoring all of the sort of catalysts for
a sellof and my reasoning for that is that the
M two money stock is at a record level, so
basically there's so much liquidity in the system. It's a
(10:12):
wash with liquidity in That is sort of the thesis
behind the bull market. You also have a situation where
we're coming out a September sort of stagflationary environment. You
now have an amelioration, you know, looking like it for
you know, continuing amelioration and inflation, and then you have
the FED taking a devish stance based on the labor markets,
(10:32):
and so you have that alongside the liquidity being a
wash in the system, and you don't have cracks in
the credit market, and so I do see that it's
possible that we could find some support here and go
back up and retest those highs.
Speaker 1 (10:45):
So we focus a lot on the big tech names
like Nvidia and Meta to what extent has the equity
market been unable to kind of broaden out or break
out from the domination that these names have That concerns
any people because it just kind of dominates market psychology.
Speaker 2 (11:03):
Absolutely, And one of the things that's being asked is,
you know, it can it be sustainable that the mag
seven in essence has such a great influence over the
markets and the market share. The reason that has been
more sustainable than anybody could have suspected from my viewpoint,
is the fact that you have an enormous amount of
capex expenditure, you know, capital expenditure in the GDP calculation
(11:28):
that is AI capex, and so AI capex is actually
propping up GDP, and I think that that's one of
the reasons those stocks have remained largely popular. Again, a
bit of a sell off on Friday, for sure, but
before that, you know, all time hihs for most of them,
except for Amazon.
Speaker 1 (11:46):
So the government shutdown is another factor. I don't really
know that it's been predominant in terms of a lot
of market psychology right now. Maybe I'm wrong. How do
you see the government shutdown fitting into this narrative?
Speaker 2 (11:58):
Well, the biggest macro economic theme for the government shutdown
is does it threaten the liquidity flow? Does it take
the liquidity in the system, Because what happened was the
Fed you know, obviously started raising interest rates and they
you know, have had such high interest rates for so
long relatives to the last decade you would think, well,
why didn't that cause a recession, and being a Monday
(12:20):
morning quarterback, The reason it didn't cause a recession is
because the fiscal spending came in and saved the day,
even though they were reducing the balance sheet and raising rates.
So that fiscal spending has been what's keeping the markets
and asset prices in general elevated and creating this sort
of bubble phenomena. And so if the government shutdown were
to go on and on and on and threaten liquidity
(12:40):
by drastic spending cuts, that would be a catalyst for
a repricing. Also, if you know enough people get unemployed
that they have you know, they can't keep up with
their credit card payments. We are living in a bifurcated
economy where the lower sixty percent are living paycheck to paycheck.
They don't have any savings, They're paying for groceries on
credit cards. The credit card interest rates are just astronomical,
(13:03):
and so there this is sort of being hung in
the balance. But if enough of these people lose their
pay or lose their jobs that you start to see
a meaningful or systemic uptick in defaults around credit, then
that could be a game changer.
Speaker 1 (13:18):
Well, let's talk a little bit about the credit markets.
We've seen some meltdowns recently. I'm thinking of names like Sacks,
New Fortress Energy, Try Color Holdings, First Brands Group, all
of which have grabbed some of the headlines here. But
I'm trying to get a sense of what's happening under
the surface, particularly as private credit is involved.
Speaker 2 (13:39):
Certainly, I mean, you do see cracks all over the system.
So you see an uptick of foreclosures in Florida and
Nevada primarily, you're seeing an uptick in auto loan defaults.
You're seeing an uptech in you know, late payments for
credit cards, credit card defaults, et cetera. Because the system
and the labor market are under pressure. However, whether that
(14:00):
results in a recession or an end to this bull
market is going to be Do these credit problems, these
cracks underneath? Do these cause a systemic issue?
Speaker 1 (14:11):
So we're going to hear from the big banks beginning Tuesday.
We'll hear from JP Morgan. Then, I'm curious as to
what you will be listening for, particularly when it comes
to loans. You mentioned credit risk a moment ago. Will
the banks necessarily be forthcoming on their exposure to loans
possibly going bad.
Speaker 2 (14:30):
Yeah, well, hard to say what they're going to say, right,
but that's definitely what you're looking for, because when you
think about it, when loans go bad, you know, the
banks are able to write them off of the balance sheet,
but by writing them off of the balance sheet, you're
actually removing that liquidity from the system. So I would
be listening for any kind of a language, any language
(14:51):
around you know, if they have an uptick and defaults,
or they have this or that, I would look. I
would be looking for language where it's so systemic that
again it's going to interrupt this huge flow of liquidity
that it's had these asset asset prices climbing for the
last you know, several years, eighty seven percent, you said
in the S and P. Five hundred. I mean, that's
just in direct correlation to the liquidity in the system.
Speaker 1 (15:12):
So with a government shutdown, we have a lack of
official data and that has made it somewhat tricky. I
think for a lot, particularly the bond market, to kind
of use in terms of guidance. We're going to hear
from Chair Powell on Tuesday. He's going to offer an
outlook on the economy, maybe give some hints about what
monetary policy may look like ahead. What are you expecting
(15:34):
from the Fed between now, let's say in the end
of the year, is it a foregone conclusion that we're
going to get two more rate cuts.
Speaker 2 (15:41):
That's certainly what's being priced in at the moment. I
think his language is going to be dubvish, more dubbish.
I think it's going to be in lockstep with Waller
without looking like their kowtowing to the Trump administration. But
I think they're going to, you know, find their data
dependent and I think that they're going to find the
fact set from the available data that supports the more
(16:03):
dubbish stance. And I do think it is some of
these little inflections that we're seeing in credit markets, or
little accelerations in credit markets, or little cracks in the
labor market, that you know, Powell just wants to get
ahead of it.
Speaker 1 (16:15):
So are you inclined to be, in terms of an
investment strategy defensive right now?
Speaker 2 (16:20):
I'm inclined to watch key support metrics. I always believe
in hedges. You know, However, I'm not sure that the
bull market is completely over yet. Some of the data
providers I look at, you know, think that you know, growth,
growth and inflation are going to reaccelerate, and you know,
so that's obviously a Goldilock scenario. And then some think
(16:41):
that actually growth is going to continue higher and inflation
is going to go back down again in the coming quarters.
So that's the trajectory we're on right now, unless we
have a catalyst that you know, makes volatility spike, something systemic,
something credit like that, you know, says that that's not possible.
So I'd be careful, But I'm right now, I'm buying
(17:03):
the dips.
Speaker 1 (17:04):
What if we get a substantial correction in the equity market?
Last week we heard from Crystallinia Gyorgheva, who is the
head of the IMF, and she acknowledged that perhaps financial
stability would be at risk if this call it a bubble,
if you will, if that bursts. Does she have a point?
Speaker 2 (17:21):
She certainly has a point. And we have axles and
wheels and credit cycles are not dead. You know, Tesla's
look very different from the Model T, but there are
still axles and wheels, and that is certainly what we
have with Fiat and credit cycles and business cycles and
this cycle will definitely come to an end, but it
could last a lot longer than people think. And if
(17:41):
it were to last a lot longer than people think,
I would, you know, look at the liquidity in the system,
because even though that liquidity is concentrated in the upper
forty percent of the economy, and we are living in
a very bifurcated economy, that upper forty percent is consuming
a lot of things. They're hiring people, you know, they're
making money, they have assets, they're spending money and stuff
(18:02):
like that, and so that's the thing that's kind of
kept US afloat.
Speaker 1 (18:05):
How are you looking at markets outside the US these days?
Speaker 2 (18:09):
It was interesting the rate cut in Europe based on
what's going on in Germany. I think, you know, probably
most they were in growth for most of this year,
but I think some of its softening, and I think,
you know, probably they will have a rollover of their
business cycle, as we will. And I don't know the
timing of it exactly, but we just have a lot
of geopolitical risk, and yet we have a lot of
(18:31):
liquidity still left in the system from COVID. So it's
going to be how that sort of plays out. I
think It's been interesting with the tariffs because they've you know,
the data has trickled in so erratically that you haven't
really been able to superprice that in which is actually
lowered volatility in the markets, and so just watching all
these factors. But credit markets are the big game changers
(18:51):
when it comes to recessions or meaningful reversals.
Speaker 1 (18:55):
So before I let you go on the subject of tariffs.
Over the weekend, the Chinese government eventually said it's not
going to back down from this renewed thread of tariffs
from President Trump. Where is the relationship right now between
the US and China and when what kind of risk
does it represent.
Speaker 2 (19:15):
It's deteriorating. I think that the risk is going to
come over a longer trajectory of time of dedollarization. We're
seeing that with precious metals prices. We're seeing that with
you know, advances from the bricks economy. We're seeing that.
And Trump is trying to word that off with the
Genius Act and trying to you know, make us so
(19:36):
relevant when it comes to crypto and FIAT as an
amalgamation that we can compete with that. I don't know
where that ends up eventually, but you know if for
decades people try to dedollarize that momentum is eventually going
to catch up with us.
Speaker 1 (19:52):
Francis will leave it there. Thank you so much. It's
always a pleasure. Francis days. He is wealth manager at
Scarlett Oak Financial. Joining us here on the Daybreak Asia
Part 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.
(20:13):
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 Chrisner, and this is
Bloomberg
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