Bloomberg Audio Studios podcasts radio

news.

Welcome to the Daybreak Asia podcast.

I'm Doug Krer. In Japan, the equity

market is breaking to fresh record

highs. And these gains reflect

expectations for more fiscal spending as

well as a cut in the sales tax on food

items. All of that comes after Prime

Minister Taki's snap election victory

over the weekend seemed to give her a

mandate to make economic change. Main

time here in the states, equities

recovered, especially those software

stocks following last week's sharp

losses. Now, at the time, the spotlight

was on how AI could undermine various

software businesses. And not

surprisingly, many of those shares were

punished. Although last Friday, the mood

began to shift and it continued today.

The IGV software ETF picked up 6.8% over

the last two sessions. For a closer

look, I'm joined by Ross Mayfield. He is

investment strategist at Baird. Ross is

on the line from Milwaukee, Wisconsin.

Thank you for being here. What did you

make of the bounce in software shares

today?

Well, I think generally I'm of the view

that um there might be some disruption

and there probably will be, but I I

don't think that um you know most large

companies are going to rip their their

tech stack out in favor of um you know

AI tools overnight. I think I think the

the selling is overdone and and this is

when I would I would be kind of legging

into some of these names even if the

recovery could take some time. I mean,

these these charts are are pretty beat

up right now.

>> It was interesting today Goldman Sachs

noted that hedge funds had piled into

short positions on the notion that we

were going to see AI disrupt various

business models. And I'm wondering

whether or not some of the positivity

that we had today may have been tied to

some short covering. What do you think

about that?

>> Yeah, I think so. I mean, this is um you

know, the software names were by a lot

of metrics at their most oversold um as

they'd been in decades um probably since

the dot bubble. Um and so anytime you

get that kind of, you know, violent

shift in the markets, you're going to

get some some technical selling and some

short covering. Um and I I I think that,

you know, this could be an an oversold

bounce here. I think you could see a

resume or a resumption downward or at

least kind of some sideways trading as

as these names carve out a new base. But

again, if you're investing with a year

plus timeline, I I just think these that

the selling is overdone and and you've

got a lot of babies thrown out with the

bath water. There are a lot of

companies, you know, that are software

adjacent that have been sold but have

really diversified businesses with big

entrenched user bases.

>> We had a very interesting development

today from Alphabet. The company is

going global now is in so far as

financing ambitions for AI. Alphabet is

set to raise about 20 billion from a US

dollar bond offering. And this offering

was more than five times overs

subscribed. At the same time today,

Alphabet began pitching what would be

the company's first ever offerings. This

is a debt offering, one in Switzerland,

the other in the UK. What does this

speak to when you have one of the

hyperscalers going into the credit

markets to try to raise capital to build

out AI infrastructure?

>> Well, it changes the narrative on these

companies entirely. I mean for for

decades the story around you know the

big tech companies you know fang to mag

7 to all the different acronyms in

between was huge free cash flow low debt

um you know businesses that just print

money and then you can if you're

Alphabet you can plunge all that extra

cash into into moonshots like Whimo. Um

the these businesses are fundamentally

changed. They are now um asset heavy.

They are tapping debt markets. Um, it

doesn't mean that they're bad

investments, but it it requires

basically a whole new way of thinking

about the the big tech companies at the

top of the market um, from asset light

um, to asset heavy and what that

requires and and what that means. Um,

but it it it changes how investors who

have leaned on these companies for

decades uh, a change in how you have to

think about them. So, does it create

anxiety for you to the extent that if

you were long, let's say a name like

Alphabet, that you would try to reduce

your position slightly?

>> You know, I I don't think I would take

it that far. Um, you know, I I do think

it it raises the stakes a little bit.

So, you know, we keep a really close eye

on on broader credit spreads and um you

know, make sure the bond market is is

well behaved. But you know I I think

there's an interesting dichotomy in the

market right now which is that if you

look at the software selloff and you

believe that even some of it is

justified by the incredible potential of

AI tools whether it's you know um

anthropic or or Gemini or or you know

all of the above then perhaps the level

of spending that Amazon and Alphabet

laid out last week is justified. Um and

and I I would be, you know, buyers of

the names that again are are kind of

selling the the picks and shovels and

and building out the infrastructure to

um you know, keep this trend going. So

it it requires extra due diligence. Um

but I would not be, you know, selling a

company like Alphabet at this point in

time with what I think is an AI um you

know, trend that's still in the early

innings, quite frankly. So, we've seen

enormous volatility recently in a number

of asset classes and that would include

Bitcoin. Uh, we saw a bit of a rebound

from the recent sell-off today and we

kind of fluctuated on either side of

70,000. How are you feeling about the

crypto space?

>> Well, you know, crypto is is very

narrative driven. I mean, like any asset

that doesn't uh, you know, produce cash

flow or or have like a real industrial

use. Um I mean it's it doesn't act as a

currency particularly in developed

markets. Um it trades on narrative and

you know over the last three four years

some of the predominant narratives have

been really beat up. It was not a good

inflation hedge in 2022 and it has not

really acted like a store of value to

hedge you know geopolitical or

debasement risk. It's not a good sign if

if you know as the digital gold for a

modern era um it's going down while real

gold and silver are going up and to the

right. And so the the complete um split

of those two assets I think really hurts

the narrative that crypto and Bitcoin in

particular is this store of value that

can be counted on. Um, now anyone who's

who's watched the space for a while

knows that this sort of volatility is is

not uncommon, but every crypto bull and

bear cycle we go through, as

institutional adoption picks up, um, and

as these narratives get beat up, I think

there's going to be more and more um,

behind the the demand for use case and

for, you know, what what is this? And so

I I'm somewhat of a skeptic. I you know

it's it's um just kind of entrenched in

me to be a little skeptical of this sort

of stuff. But I do think that that

narrative being so beat up over the last

couple of months is is concerning as we

go forward.

>> We also had news today that the

privately held firm Jump Trading is set

to take some small stakes in both Kshi

and Poly Market. This would be done in

exchange for providing liquidity on

these prediction market platforms. How

do you view the prediction markets

overall?

>> You know, for financial markets for

investors, I mean, I I it could add some

level of uh volatility to markets, you

know, if if these platforms really get

up to scale. Um, you know, I I think

it's probably not too big of an issue um

for broad investors at this point. you

know, it it it probably says more about

um you know, society than it than it is

an indicator for financial markets, but

um you know, anytime you have a lot of

interest in leverage in, you know, the

kind of meme stocks or and I think that

these kind of prediction markets and

event contracts start to fall under that

umbrella of, you know, retail getting

really creative with ways to try and hit

it big. you know, maybe even crypto

falls under that umbrella. Um, you know,

it adds a level of volatility and a

level of systemic risk that um is is

hard to price because they're so new,

but I I it's not a concern, you know, I

think if you're just an investor in a a

6040 or someone who has kind of a

diversified portfolio. Um, now what it

says about the state of the world is

maybe a different conversation.

>> Change gears very quickly here. talk a

little bit about Japan because yesterday

we had a pretty powerful rally in the

equity market in Tokyo. That was after

Prime Minister Takichi managed that

historic landslide win in the snap

election on Sunday. And we've got, as I

speak to you, uh the Nikk trading at a

record high. If you had to look at a

market offshore, would you would you

take notice of what's happening in Japan

and maybe put a little cash to work?

>> Absolutely. um Japan, Korea, there are a

lot of uh stock markets around the world

um that are acting like leadership and

and leading this global bull market. I

think of all the asset classes, US uh

investors are probably the most

underweight international after, you

know, 15 years of underperformance. I

think um US investors should really

consider adding to international here. I

think the weaker dollar story has legs.

there are structural drivers in not just

Japan, although there that that's a

great story and a great looking chart.

Um, but in other markets around the

world, I think international is is a

really interesting place to be right

now. It's a kind of a natural hedge to

the tech ccentric US markets. Um, and I

think it's it's just frankly underowned

in the US. So, Japan looks great, but I

would be adding to international more

broadly as well.

>> All right, Ross, thank you so much.

We'll leave it there. Ross Mayfield is

investment strategist at Baird joining

from Milwaukee, Wisconsin here on the

Daybreak Asia podcast.

Welcome back to the Daybreak Asia

podcast. I'm Doug Krer. The US

employment report for the month of

January is due on Wednesday. And today,

the director of the National Economic

Council, Kevin Hassid, said softer

monthly jobs gains are likely in the

coming months as labor force growth

slows. Today, it was anxiety about the

jobs data that helped to weaken the

dollar. We had the Bloomberg dollar spot

index falling 6/10 of 1% in New York

trading. And that's where we begin our

conversation with Carrie Lee. She is the

global market strategist at DBS. Carrie

spoke to Bloomberg TV hosts Cherion and

April Hong.

>> Where are we in these conversations and

debate around the dollar debasement

trade?

>> Yeah. Um well um I think over the past

two sessions the decline in the US uh

dollar actually was driven mainly by the

resumption of this debasement trade. But

in the short term on the tactical

horizon actually we think the dollar

index may still find some support around

95 to 96 cuz first of all we've seen the

latest data like ISM manufacturing and

services index actually point to a still

resilient US economy and then uh last

night we've also seen the quite

resilient US stock market and because of

the still u solid uh solid equity market

and economy it feels like the Federal

Reserve itself may not be as dovish as

expected. If this is the case, then the

EU advantage itself may also help to um

support the US dollar around the 95 to

96 level at this moment.

>> How closely are you watching who becomes

the next chair of the Federal Reserve?

We just got the latest comments from

Kevin Walsh talking about how he wanted

to transform the institution.

>> Well, um for the upcoming um Fed chair

actually we think um he is going to

still protect um the US the Federal

Reserve's um independence which is

actually not a negative factor for the

US dollar. But however at the end of the

day we've seen in the longer term the US

dollar itself may still have a

structural moderate downtrend which has

already formed since 2022 the start of

Russia Ukraine war cuz this is not uh

about the next fure but more about the

US policy uncertainty actually uh shakes

the US-led world order and the market is

also still concerned about the US fiscal

sustainability in the long term which

probably the reason why we will see this

on and off debasement trade still um

weighing down the US dollar in the

longer term.

Carrie talk to us about the other side

of the dollar trade in Asia specifically

for the Ramy. We saw a bit of firmness

following Bloomberg reports that China

has told financial institutions or banks

to reduce the exposure to treasuries and

this is not because of geopolitical

maneuverings to be clear but more

because of pairing back some of the risk

in markets as investors rethink what the

US assets are going to look like this

year. What are you seeing in China?

Well uh in China we've seen the PBOC

always talk about riming be

internationalization

and they also try to transform uh the

economy towards a growth

consumptiondriven growth model and this

probably needs the roming B to

strengthen a fair bit and in the

meantime we've also seen quite a fair

bit of capital inflows as well as a

record high current account surplus all

supporting the UN and more importantly

ly the PBOC has set the dollar CNY daily

fixing rate lower and lower gradually

firstly below the seven mark and now

towards the 6.95

level. It feels like the PBOC does allow

some further strength in the reming B

and um if we look at the reming B index

actually is still below its 5-year

average which means that the catch up

play for the reming B still has some

room to run. So um we do expect the

dollar c to um fall a fair bit towards

the 9 6.9 level and then um for the next

step whether it will go to 6.8 or even

6.7 it depends of the next move of the

US dollar. If the dollar index is

showing lower towards 94 and if there is

signs that the uh China's economy is

improving further then it's possible for

the dollar CN or dollar CNY to try lower

towards uh 6.8 or even 6.7 in the rest

of this year.

Carrie, what about dollar Japanese yen?

Is the verbal intervention we've been

getting off late going to be enough to

keep things down?

Well, um actually I think the yen's

strength over the past session is a bit

surprising but uh it's mainly driven by

the retracement in the US dollar as well

as uh the verbal intervention. I think

the market probably is still concerned

about another round of coordinated rate

check by the US and Japan. But as long

as there is only verbal intervention and

there is no real intervention then um

probably the market's focus will uh

shift back towards the concerns about

the fiscal sustainability

uh under Takai government. If that is

the case then um probably the Japanese

yen is not yet out of the wood. The

dollar yen will still find some support

around um 154.5

before 152 and then the risk is still

tilted uh towards the upside probably uh

towards the previous high around 159.45.

>> Yeah, that was achieved around mid

January, right? That 2024 low against

the greenback. What are we expecting in

terms of the Bank of Japan? Could we see

accelerated rate hikes given the

weakness in the yen?

>> Well, um in terms of BOJ, actually our

expectation is for them to hike once

more this year towards 1%. But there is

also scope for them to hike further in

the later part of this year or the early

uh 2027 if uh the Takayichi government's

upcoming fiscal expansion is going to

support uh the economy and support the

wage growth and if that is the case then

probably for uh Japanese yen they may

also find some scope for further

interest rate hikes. That is Carrie Lee,

global market strategist at DBS,

speaking to Bloomberg TV host Sheran and

April Hong, giving you the conversation

right here on the Daybreak Asia podcast.

Thanks for listening to today's episode

of the Bloomberg Daybreak Asia Edition

podcast. Each weekday, we look at the

stories shaping markets, finance, and

geopolitics in the Asia-Pacific. You can

find us on Apple, Spotify, the Bloomberg

Podcast YouTube channel, or anywhere

else you listen. Join us again tomorrow

for insight on the market moves from

Hong Kong to Singapore and Australia.

I'm Doug Krer, and this is Bloomberg.