Examining FX Volatility, The AI Trade
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welcome to the bloomberg daybreak asia podcast i'm doug chrisner stocks in asia got off to an uneven start earlier today after a rally in u.s mega cap tech names in a moment we'll be talking with larry tantarelli of blue chip daily trend report we'll take a closer look at some of the price action in the states but we'll begin in hong kong for a look at some of the recent volatility that we've been seeing in the foreign exchange

Joining me now is Ju Wong, head of Greater China FX and Rate Strategy at BNP Paribas, joining us from Hong Kong. Ju Wong, thank you so much for making time to chat with us. I think we can agree that a lot of the volatility that we have seen recently in the foreign exchange is really a story of dollar strength. And that really has been driven by U.S. trade policy from the incoming Trump administration, right?

Absolutely. We've seen the expectation building up for potential tariff since the U.S. election. And we're already three, four months into this trade. And at the current level, I think a lot has been pricing, given the fact that President Trump did not announce tariffs in day one. I mean, of course, he's still talking about

that potentially introduced 25% tariff for Mexico and Canada and 10% for China by February 1st. But the market thinking maybe there's still some uncertainty, particularly given he has announced the 75 days reprieve for TikToks. And I think the market treated that as a sign. There could be still underneath the table negotiation on that. So the uncertainty is quite high. Hence, we've seen

The FX market traded quite a volatile dollar lower the day after the inauguration, but yesterday there was some squeezing back up in dollar and min B. But I would say overall the volatility, the noise is still quite high here. The other thing that's very interesting,

There is the understanding, or at least the interpretation from a number of economists in the U.S., that tariffs would be inflationary. And I think for the people at the Federal Reserve, that is a big question. And if U.S. interest rates must remain elevated to guard against inflationary pressure, that's only going to add to a stronger dollar, will it not?

Yes, absolutely. That's in line with the BNP's view that Fed may not be able to cut rates as the market originally thinks. And then we also hold the view that the dollar will stay relatively high.

for longer, the euro can potentially test the parity and dollar and B eventually can go to 7.5. But I have to say for the very, very near term, the uncertainty is high, particularly given the positioning is already very long dollar and short the U.S. durations and the Trump's decision of not making tariffs

effective immediately, it does suggest that he also is highly aware that inflation is a big concern in the U.S. So if anything, Markey treated his inauguration speech as he put a lot of priority on immigration issues, but second to that would be inflation. So certainly with him paying a lot of attention to inflation that has added to the uncertainty on the tariff front,

in the very near term. So if the dollar remains strong and tariffs do remain a threat, what will the policy response in China look like, particularly if the yuan remains under pressure?

We do think a median term, once the tariffs become effective, the PBUC, the Chinese central bank, will allow the dollar and renminbi fixing to go higher. And once we get the signal of a dollar fixing go beyond $7.20, and then the market will immediately push the renminbi spot towards the $7.40, $7.50-ish level. At the same time, China's domestic policy will probably turn more of

Today we're waiting for this press conference out of the state council where they're going to introduce measures to encourage long-term funds, i.e. the pensions, the social securities, to enter the equity market. So capital market and fiscal market

policy and monetary policy, these will all be used as measures to support growth and partially to counter the negative impact coming from the U.S. tariff front. In terms of the risk of capital outflows when it comes to the yuan, how would you evaluate that risk right now? Is it high?

I think the expectation of a yuan depreciation is quite high because most market participants, including us, believe that if there's a tariff, China will allow certain amount of RMB depreciation. But in terms of managing the flows, I do think PBOC has a lot of room to manage the flows because after all, we're talking about China depreciating.

taking a record nearly one trillion US dollar trade surplus that year, last year. That put in any history context, that's an enormous number. So even though interest rate differential between the dollar and the renminbi is very wide, but with that trade surplus,

and the capital controls in the portfolio side, there is still room, plenty of room for China to ensure this RMB depreciation will be very, very measured. But at the same time, we do think there's a lot of money going to leaving mainland China and go to the overseas market. And the first priority, you know, go-to place would be the Hong Kong market.

I know your focus is mainly on Greater China, but I have to ask about Japan because we have a rate decision later in the week from the Bank of Japan. Expectations are that we're going to get a rate hike of 25 basis points in the policy rate. How do you expect that to affect the foreign exchange? Hasn't a lot of this already been discounted when you look at the behavior of the yen against the majors?

Yes, absolutely. A lot has been pricing. I think the market is already pricing 21, 22 basis points of rate hikes for this Friday's BOJ decision. Having said that, I mean, it's still diverging monetary policy between BOJ and China. On top of that, with this tariff, it's more likely to hit China.

Mexico, Canada, and Europe rather than Japan. We think, you know, the valuation-wise, the

The CNHY is also at a relatively high level. So risk reward is quite good to sell the CNH versus yen. We also have that trade on as a median term recommendation at the moment. Zhu Wang, we'll leave it there. Thank you so much for making time to chat with us. Zhu Wang, head of Greater China FX and Rate Strategy at BNP Paribas, joining us here on the Bloomberg Daybreak Asia podcast.

Capital Ideas, conversations with Mike Gitlin from Capital Group, features our top investment professionals sharing what drives them in today's market. Get stories and actionable insights. Subscribe wherever you get your podcasts. Capital Client Group, Inc.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. The U.S. equity market rose to near record highs today on the back of a rally in big cap tech. We had the S&P closing up about six-tenths of one percent to 6,086. That's four points shy of an all-time high. But most stocks in the benchmark actually fell.

Of the 11 industry groups within the S&P, only two were positive, information tech and communication services. For a closer look, I'm joined now by Larry Tenterelli. He is the chief technical strategist at Blue Chip Daily Trend Report. Larry, thanks for making time to chat with us.

I think it's fair to say that poor breadth in the market has been a concern for a while now, especially among those who have been a bit nervous about elevated levels of valuation. Does that concern you right now? - It doesn't right now. We actually just came off of a major breadth thrust

where for six days in a row, over 68% of the stocks in the S&P 500 were higher. That's the longest on record. So the market's got to be overbought as far as the internals go. So I think today's pullback under the surface

is constructive. The index was higher, but as you said, only 34% of the S&P stocks were higher today. What about the froth, if I can use that term, that's been assigned to a lot of the stocks that are related to artificial intelligence? Today, we heard from the head of JPMorgan Chase, Jamie Dimon, he was saying there are signs that the market may be overheated. And I'm just imagining that he's kind of looking at the AI trade as an example.

I don't see it if we look at valuations and the companies today versus let's say 2000 in the dot-com bubble. And I was actively in the markets back then. The companies that are leading today,

are very cash rich. So Apple, Amazon, Google, their valuations aren't very high if you look at their historical valuations. And I think that the earnings growth is there to support the valuations overall. One of the things that the bond market has been debating, and I think you're well aware of this fact,

is whether President Trump's plans on tariffs have the potential to kind of push inflation up a bit. Today, we had a bit of a move higher across the Treasury curve in yields. Are you concerned that maybe some of the economic policies that we're getting from the new administration could contribute to maybe a little bit of upward pressure on inflation? Yes, that is a concern. So bond yields, the 10-year Treasury yield,

Recently broke out to about 4.80. And we got lucky last week. The CPI from November actually came in lower for December. So month over month.

CPI came in a lower. After that, the 10-year treasury yields pulled back 23 basis points. They trade at about 460 right now. But yes, that is one of my concerns, is if we get a breakout in bond yields, then I think that that would create some negative headwinds for stocks. Is there a level in yield on the 10-year that would be particularly alarming to you? Would that be 5%?

It would be 5%. So, 5% held when it was tested before over the past year or so, 5% is held. That is a major technical resistance level. And if for some reason we broke out over 5%, I think that the equity markets would have to adjust lower. So, I know that you're a technical strategist. You focus a lot on the charts. But can I ask you about how Fed policy enters your thinking?

- Sure, so I absolutely pay attention to Fed policy because the Fed really drives everything and what we saw

after their last meeting in December is when Jerome Powell came in a little bit more hawkish. And when the dot plot was adjusted lower, we saw the equity markets pull back and we saw bond yields break out. So I absolutely pay attention to what the Fed has to say. I think the Fed is in a very good spot right now. The

the labor market is strong. Inflation is still sticky, but it has been moderating. And I think the Fed is in a position where they can really sit. They don't have to cut right now. Luckily, they don't have to raise. And I think that they can just sit, wait to see how the economic data comes in. But what the markets know is if the labor market

does get into trouble, or if the economy starts to slow down, there is a Fed put that's out there, but I don't think that they'll need to use it. I'm wondering how you're viewing markets offshore right now. Are there opportunities overseas that are particularly interesting?

Europe is starting to show a lot of strength. The DAX has been breaking out to new highs. There's a lot of European banks that are breaking out. HSBC has been very strong. In Asia, I see stocks like Taiwan Semi breaking out to new all-time highs. C Limited in Singapore is near three-year highs. But overall, where I'm seeing a lot of strength as a region is in Europe.

When you look at some of the economic policies of the Trump administration, we were talking a moment ago about tariffs. I'm just wondering whether you're looking at maybe the reconfiguration of trade flows right now and whether that's entering your thinking at all. I think that the tariffs might be more of a bargaining chip than anything else. And the reason that I say that is these economies are

are so interconnected. China is our biggest trading partner and vice versa. And I don't think that either country or Canada

I really don't think that anyone wants to upset the apple cart. So I know that tariffs are out there as a potential bargaining chip. And if they start to get enacted, then it could put some pressure on profits. It could put some pressure on certain currencies. But I don't know if the bite is going to be as strong as the bark.

What is the one theme, the investment theme that you're looking at this year that you expect will deliver the best return? I think right now it still has to be technology and AI, but not just the tech part of AI, but the industrial and the infrastructure build out. And obviously yesterday, the Stargate project was announced. And I think that's a major theme.

at least for this year, but probably for the next few years because they've committed to $500 billion in AI data center spending. And this was rolled out by the White House. They've got some very deep pocket investors, including the Abu Dhabi Sovereign Wealth Fund. So I think it's a very big commitment. And what we've seen over the past few days is

is not only has tech performed well, but a lot of industrial sector stocks have performed very well. Power generation like nuclear. This data center infrastructure theme really permeates over quite a few sectors and it's a long-term

secular theme. This is not going to be a six-month or a one-year window. Larry, we'll leave it there. Interesting insights from Larry Tenterelli. He is the chief technical strategist at Blue Chip Daily Trend Report. Joining us 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 Krisner, and this is Bloomberg.

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