Fed Rate-Hike Bets Ease on Tame CPI; Tech Shares Rally | The Asia Trade 8/13/2026

U.S. Inflation Data and Fed Policy [00:00:00]

• Asian stocks are set for gains following a tame U.S. inflation report that eases concerns about a Federal Reserve rate hike.
• The subdued core inflation reading suggests a potential easing of pressure on the Fed to raise interest rates in September.

• "So the July reading really kind of likely easing pressure on this pressure to raise interest rates. By the Federal Reserve."

Treasury Auction Yields Surge [00:00:00]

• An auction of 10-year U.S. treasuries drew the highest yield since the 2007 financial crisis.
• This indicates ongoing investor wariness about the mismatch between U.S. government spending and future funding needs.

• "That's not a good omen for the 30-year bonds coming today."

Tech Earnings in Focus: Cisco and Cerebra [00:00:00]

• Cisco's quarterly revenue and profit beat expectations but failed to meet investors' high demands.
• Cerebra's stock tumbled as hardware sales declined.

• "Tech earnings in focus with Cisco's quarterly revenue and profit beat failing to meet investors' high expectations and Cerebra's tumbling as hardware sales decline."

Tencent ADRs Plunge Amid AI Spending Skepticism [00:00:00]

• Tencent ADRs plunged as markets are skeptical that its increased AI spending will help it catch up with rivals.
• The company more than doubled spending on AI projects and computing last quarter.

• "Plus, Tencent ADR's plunge with markets skeptical that its big boost in AI spending will see it catch up with rivals."

Implications of Inflation Data for the Fed [00:01:00]

• Christopher Condon, leading Fed coverage, discusses the implications of the CPI data for the September meeting.
• While the report is not bad news and eased some investor worries, it doesn't significantly change the math for a September hike.

• "Well, I think you're right, Heidi, in first of all pointing out that this is not bad news. Some investors were worried about a slighter, hotter report."

Fed Policymakers and Future Data Points [00:01:00]

• Multiple Fed policymakers were ready to hike rates in July, and this CPI report won't sway hawkish policymakers to the dovish side.
• Upcoming data, including PPI and August CPI, will be crucial before the September meeting.

• "This this CPI report, when you look at the core, obviously, that number is not going to grow as a result of this report."

Jackson Hole Symposium's Importance [00:01:00]

• Jackson Hole will be a critical platform for Fed Chairman Kevin Walsh to fine-tune his message and provide insight into the Fed's reaction function.
• Investors are seeking clarity on how the Fed views the economy and how monetary policy should react under different scenarios.

• "I think this is massively important platform for Kevin Walsh."

Asian Market Reaction to U.S. Data [00:02:00]

• The equity market is relieved by a decent finish for U.S. markets overnight, which is expected to feed into Asia.
• Chipmakers in Asia are likely to have another decent session, but Tencent's woes may weigh on the Hong Kong market.

• "Well, certainly from the equity market point of view, you can see people are very relieved with a decent finish for U.S. markets overnight."

Concerns Over Long-End Treasury Curve [00:02:00]

• The bigger concern for markets is the long end of the Treasury curve, especially with a 30-year U.S. Treasury auction upcoming.
• The U.S. budget deficit was 25% worse than expected, and the 10-year auction had to offer the highest yield since 2007.

• "The bigger concerns really are to do with the long end of the Treasury curve."

Yen's Pressure and Intervention Effectiveness [00:03:00]

• Initial rounds of intervention were effective in knocking dollar-yen down, but it's gradually ticking up again.
• Traders are rebuilding short yen positions, heading back towards the 160 level.

• "It looks as though what we saw, the the initial rounds of intervention were effective, knock dollar yen down quite a long way."

Bank of Japan's Role in Yen Support [00:03:00]

• The Bank of Japan's actions are crucial for changing the yen's direction; back-to-back rate hikes are likely needed to jolt the market.
• Intervention alone is effective only in short bursts unless aligned with monetary policy.

• "But really that the far more important thing is what's the Bank of Japan going to do?"

U.S.-Japan Policy Friction [00:04:00]

• There's potential friction between U.S. expectations for a tighter monetary policy and Japan's desire for continued easy policy.
• External pressure on Japanese leadership is likely greater now, but they may choose to ignore it to pursue their domestic agenda.

• "I'm really interested to see how Washington will view the comprehensive policy here in Japan, because, as you mentioned, they have helped with the intervention and supporting of the yen."

Tencent's AI Investment and Earnings [00:05:00]

• Tencent's ADRs fell 5% despite revenue growth, as it more than doubled spending on AI projects and computing.
• The company's CapEx spending increased by over 170% year-on-year in the second quarter.

• "China's biggest company more than doubled spending on AI projects and computing last quarter, reflecting intensifying efforts to catch up with rivals."

AI Race and Foundational Models [00:05:00]

• Tencent is investing heavily in AI infrastructure and products, with its desktop AI agent WorkBuddy showing early success.
• However, its foundational AI model, Hi3 (formerly HunYuan), is considered small compared to rivals like Kimi K3 and Alibaba's Quinn.

• "But speaking of that foundational model, Tencent is still seen as a laggard when it comes to its AI models, right?"

DeepSeek and Hon Hai's AI Infrastructure [00:06:00]

• Chinese startup DeepSeek is developing AI agents and has upgraded its V4 Pro model.
• Hon Hai's second-quarter profit beat estimates, driven by AI infrastructure spending, and it's on track to mass-produce NVIDIA's next-generation platform.

• "And DeepSeek has launched an official social media account, set up a dedicated team, and begun hiring to develop AI agents capable of taking on services like Anthropics Claude Code."

U.S. Inflation and Consumer Health [00:10:00]

• The U.S. CPI data matched expectations, suggesting the Fed is in a good position to wait, especially with recent weak labor numbers.
• July retail sales are expected to be lower, potentially negative, further supporting a Fed hold.

• "Yep, so on Friday, we're actually expecting a relatively lower print. We're expecting a negative number here."

AI's Impact on Inflation and Markets [00:10:00]

• The AI story is a key one the Fed is watching, as it may contribute to inflation and keep Fed officials on their toes.
• The memory shortage related to AI could also impact price trajectories.

• "Yeah, the AI story, I would say, is definitely a key one that the Fed is watching and seeing how that plays out in the data."

Yen Weakness and Intervention Gains [00:11:00]

• The dollar has strengthened despite softer U.S. inflation, pushing down the Japanese yen.
• Gains from U.S.-Japan intervention have been cut by about half, and markets are pricing in a 60% chance of a September Bank of Japan hike.

• "On the other side of that trade, we've seen the weakness of the Japanese yen as well."

Ed Yardeni on F.I.M.O. and Market Outlook [00:12:00]

• Ed Yardeni coins the term "FIMO" (Fabulous Earnings Momentum) to describe the market's current drive, raising his S&P 500 year-end target to 8400.
• He highlights phenomenal earnings growth, with a 25% increase in the second quarter, driven by the economy's resilience.

• "I think the market's going higher and I think it's going higher on earnings."

AI's Reach into Blue-Collar Jobs [00:14:00]

• AI is expanding beyond white-collar roles to impact blue-collar workers, with AI firms recruiting shoemakers, welders, and tailors to train robots.
• Companies are collecting egocentric video data of workers performing tasks to train AI models for robots.

• "But that technology is coming for blue collar workers, too."

Data Collection in India and China for AI [00:14:00]

• India and China have an advantage in collecting data for embodied AI due to a large workforce performing physical tasks and lower costs.
• This data collection effort is crucial for training AI models for robots, with potential concerns about worker exploitation.

• "So there's this enormous data collection effort going on in India in particular, which is where this story focuses."

Japanese PPI and Yen's Purchasing Power [00:16:00]

• Japan's PPI for July showed a 0.1% month-on-month growth and 7.2% year-on-year, below expectations.
• The yen's weakness is a major driver of price pressures, eroding purchasing power, as illustrated by the "Katsu Index."

• "When it comes to the year-on-year number, 7.2 percent."

Korean Market Rally Driven by AI [00:18:00]

• The Korean market is experiencing a strong rally, with the KOSPI up significantly from its July low, driven by AI-related stocks and LLM launches.
• Reduced volatility and improved liquidity are creating a safer playing ground for the Korean rally.

• "Yeah, pretty strong session yesterday, and we have some very strong leads today, 3% higher."

AI Trade Evolution and Sector Differentiation [00:20:00]

• The AI trade is evolving into a more nuanced phase where single stock differentiation matters.
• Hyperscalers face a balance between maintaining capex and providing evidence for monetization, leading to dispersion between companies.

• "Where we are today, we think, is going to be a more nuanced phase where single stock differentiation and dispersion matters."

U.S. Treasury Auction and Bond Market Concerns [00:21:00]

• The upcoming 30-year U.S. Treasury auction is crucial, especially after a weak 10-year auction.
• Concerns remain about term premiums and the Federal Reserve's withdrawal of forward guidance, demanding an uncertainty premium from long-duration bonds.

• "Right. So thankfully, we've got a couple of soft prints. We had a soft labor market print and we had a pretty benign CPI print."

Oil Market Faces Shortfall Amid Iran Tensions [00:23:00]

• The global oil market faces an estimated 1.8 million barrel a day shortfall this quarter, more than double previous forecasts, due to Iran war disruptions.
• Iran is signaling a more aggressive military posture, preparing for a longer period of confrontation.

• "The IEA now saying that the global oil market faces a shortfall of around 1.8 million barrels a day this quarter."

Iran's Strategic Thinking and U.S. Response [00:23:00]

• Iran is betting on producing missiles faster than the U.S. can produce interceptors and is focused on controlling the Strait of Hormuz.
• The U.S. is shifting towards economic pressure and sanctions, though their effectiveness is debated.

• "So this is one of the things they're doing. They're also looking at producing more ballistic missiles."

Zhu Rongji's Legacy and China's Economic Reforms [00:27:00]

• Former Chinese Premier Zhu Rongji, a key architect of China's economic rise, has died at 97.
• He was instrumental in state-owned enterprise reform, recapitalizing banks, and paving the way for China's WTO entry.

• "He absolutely was the architect of today's modern, more market-focused economy."

Tencent's AI Spending and Profitability Concerns [00:30:00]

• Tencent's ADRs fell 5% despite beating revenue estimates, as AI and compute spending more than doubled, leading to negative cash outflow.
• Investors question the sustainability of this spending and its impact on profitability.

• "Yes, that big AI spending, definitely a concern because they're spending so much so that they're seeing negative cash outflow for the first time since 2021 because they are spending more than they are taking in in operation income."

China's Tech Sector and AI Rally [00:32:00]

• Hao Hong believes Chinese tech markets are resilient, with AI-related sectors performing well, and valuations have corrected to more reasonable levels.
• The rally has entered a second phase where quality and earnings matter more than just the story.

• "Yeah, I think, you know, after two months of correction, many of the names are back, you know, back down to earth and many of the names are trading at a more reasonable valuation."

Export Strength vs. Domestic Demand in China [00:33:00]

• China's export sector is strong, but domestic consumption growth is slowing significantly.
• There's an increasing urgency to boost consumption to avoid over-reliance on exports, which are facing growing trade friction.

• "But already, you know, the urge to boost consumption probably is becoming more prominent in the sense that, you know, consumption growth, retail sales growth is slowing down."