AI Momentum Drives Stocks, US Trade Representative Jamieson Greer

**SPEAKER_2** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Doug Krizner** (0:10)
Welcome to the Daybreak Asia podcast. I'm Doug Krizner. The US equity market rose to fresh record highs on Thursday, given a revival in the AI trade. We had both the S&P and the NASDAQ comp closing at all-time highs. A lot of this momentum seems to be powered by retail buyers. In fact, research from Goldman Sachs estimates that retail trading volumes are up by 28% since mid-April. And this morning, it's kind of a mixed picture for equities in the Asia-Pacific. For a closer look at the price action, let's bring in Bloomberg strategist Mark Cudmore. Mark is the global leader of the Markets Live team, and he joins from our studios in Singapore. Thank you for being here.
I think we've got to start with the impact of the Trump-Xin meeting.
Maybe this is more about keeping relations stable rather than trying to create change, but give me your take on what you think it means for markets.

**Mark Cudmore** (1:04)
Yeah, I think that the key thing is to avoid the tail risks. So we're most the way through that, and we seem to have avoided any scary headlines. The expectations weren't particularly high. The base case expectation was that we'd get a bunch of platitudes. Trump would say, hey, they have such a beautiful relationship, all is beautiful, all is wonderful. We'd get a few promising headlines potentially on, you know, buying soybeans or something to do with agriculture or farm. We've seen some beef headlines already, and the soy ones have disappointed. We've got, you know, the chips potential, but again, not for a particularly ambitious deal, but just like something positive there. So I think we're expecting positive platitudes, some good headlines, but nothing groundbreaking.
And the most important thing for investors was to avoid any of the tail risks that could happen. There are banana skins there, like the Taiwan issue, or even that just, you know, the trade war flares up again. So it seems like we're going through that, and it seems like it's a positive dynamic, but not like major.

**Doug Krizner** (2:00)
So I mentioned the fact that we had a lot of positivity in the AI trade in the US session. I'm wondering what the outlook for tech in Asia is like right now, particularly the China story.

**Mark Cudmore** (2:12)
Really good.
I think there's a couple of different time spans here. I think the first picture is what's the overall kind of AI perspective. My one there is that the AI capex bubble is still very much in the inflation stage. It's late on in the inflation stage, but I think we've got at least another quarter to go of this immense money pouring into the system. I am so many thinks that this bubble will collapse horrendously because it's very circular. A lot of the gains in these stock prices are based on the increased valuation of the other stocks in this cycle. They're ultimately going to be competing for earnings and they ultimately can't keep on having their earnings projections basically implied they're going to make way more earnings than the end companies that they supposedly supply AI services to. So like the whole thing is definitely not sustainable long term, but the point is that we're absolutely in the inflation stage at the moment. The economy is still strong. It's a K-shaped economy in the US, but the high-end consumption at the high-income level is basically driving the economy and that's because there's a positive wealth effect. You've got massive private sector spending because there's CapEx boom from AI, and you've also got massive fiscal injections from governments around the world. The bubble is still ongoing, so that's the bigger picture backdrop. Specifically for Asia, it's actually a much better story. It's much more sustainable in terms of that. As I said, the big core AI names, a lot of them are ultimately competing against each other for these earnings. They can't all make extraordinary earnings. That's less of a problem in a lot of the dynamics in Asia. So I think ultimately, Asia will be the sustainable outperformer on this. I think maybe not in the next couple of months, but longer term. They'll probably be the bigger winners. So I think that's kind of the backdrop here. They don't have such extreme valuations.
Shorter term, look, my argument for the last couple of weeks is that we're going to continue to trade positively for now, going through the Trump-Xi summit, as long as we don't get any tail risk. It looks like we'll get another kind of relief rally into that. I think that as soon as we get through the Trump-Xi summit, and my reason for why we would be positive into the Trump-Xi summit was the idea that the straight would be kept quiet until then because that meeting could not go ahead while the straight was flaring up. But as soon as we get through the summit, attention returns to the straight and the US administration has to try solving that or admitting they have no solution. Either way, that's really bad for markets in the short term. So I think we're due for a bout of tactical risk aversion next week. Given the extraordinary gains, I think that will be quite dramatic, but this is not the end of the bubble. This is ultimately another dip that will be bought. You got to remember, there's various sizes and scopes you can do in markets, and you could see really dramatic pullbacks over a week or two, and will still be immensely higher than a few months ago. So we'll have people say, this is the end of the bubble, this is it. It won't be the end of the bubble yet.