# Dollar Weakness, AI CapEx, and 2026 Market Volatility

**Podcast:** Bloomberg Daybreak: Asia Edition
**Published:** 2026-01-28

## Transcript

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Welcome to the Daybreak Asia Podcast.
I'm Doug Krisner.
Today there were massive moves in the currency market.
The U.S.
dollar sold off, suffering its largest one-day decline since April.
We had the Bloomberg Dollar Spot Index falling 1.1%.
Now, President Trump said he did not think the value of the dollar had declined too much.
And that's where we begin our conversation with Rob Kaplan, Vice Chair at Goldman Sachs and former president of the Dallas Fed Bank.
He spoke with Bloomberg Steven Engel at the Goldman Sachs Global Macro Conference, Asia Pacific.
What do you think is the true uh reason and manifestation of this weaker dollar trend?
And how long would that last?
I think uh around the world, I think investors, pools of money are taking a fresh look uh at the U.S.
There have been a number of events over the last couple of weeks, uh domestic and geopolitical.
And I think what you're seeing, you'll notice gold is up, uh, alternative currencies are up.
Uh I think there's a little bit of a reposition here.
You'll notice stocks in the U.S.
are not down.
So people are sticking with their risk positions, but are I think are probably buying some tail risk protection, hedging the dollar.
I think we saw that in the first half of 2025 also.
I think it will run its course.
Uh it puts an onus on calming down some of the tail risk, and I think that would help this.
I mean, it is to say that it's to help boost exports, too simplified explanation for what we're seeing here.
Yeah, I I don't, I think, yes, it is true, a weaker dollar boosts exports.
However, we have in the United States has 39 trillion of debt on its way to 40 trillion plus, and when you have that much debt, I think stability of the currency probably trumps uh exports.
And so I actually think uh the U.S.
is going to want to see a stable dollar uh uh and wants to see stability and they want to be able to sell the long end of the treasury curve.
Stable dollar helps.
I mean, there are concerns, obviously, and there is a lot of noise about it that this could be the beginning of a multi-year structural correction for the dollar.
You don't see that.
I don't know that that's the case, no.
I think there's a lot of strengths in the United States uh in terms of innovation.
Very strong year for GDP growth coming, we believe, uh, and a lot of positives.
However, uh people around the world are not, I don't think they're running away from the U.S., but they're they're managing some of the tail risk and the institutional framework.
They're trying to make sure they understand it and on the margin are taking action to to probably hedge the dollar or buy some alternative safe havens.
Gold is the most prominent example.
Absolutely.
So I uh gold obviously has seen the upside.
Do you think 6,000 announced is a target?
I know you're not the prognosticator of currency or commodity markets, but the House view is we we could see gold getting into 54, 5500.
I don't think that's an unreasonable uh view.
It's had quite a run here.
Uh you may see some retrenchment, but we think stronger gold makes sense.
How do you read what's happening in Japan?
Obviously, the yen is a beneficiary of the weaker dollars.
And change right now.
So there was a lot of chatter about intervention when it's approached 160.
There's you know, fiscal challenges, obviously, and fiscal stimulus being proposed by uh the prime minister, but there's been a bond market route and a lot of turmoil.
How do you see this dovetailing with what's happening in the world?
So here's the dilemma for Japan, and this is true of a lot of the developed world.
Aging population, in Japan's case, shrinking workforce growth because of aging, and very high leverage.
And so there isn't at this stage as much capacity or market willingness to go along with more fiscal stimulus.
Uh, on the other hand, there's there's things that the central bank would normally do to protect the currency, i.e., raise rates.
And I think uh uh I think talking about uh excess fiscal has sort of had an effect in the market.
So I think you'll see that calm, and it will probably need a combination of some fiscal action and probably the central bank taking some action to protect the currency.
Uh but I think in the in between now and the election, I think they just want to calm this.
But it ultimately it's a symptom of the structural issues, aging and leverage.
This is why productivity growth with AI being one of the catalysts is the big upside for many developed companies, countries, including the world, and a lot of the world will be watching how fast you develop AI to improve productivity growth.
How do you read the reports and the speculation that the New York Fed did a rate check uh at the behest perhaps of Treasury uh to sort of send a signal to the market that there could be coordinated intervention?
So uh I uh obviously I've seen the same reports.
I I would get i I think it's in the U.S.'s interest that you don't see the back end of the Japanese bond curve move up because it will affect the back end of the U.S.
Treasury curve.
And so I think some rhetorical intervention at least doesn't surprise me because I think it's in all of our interest to see stability.
In the kind of environment I talked about aging and leverage, we're seeing duration challenges around the world, and I think we want to calm that.
Is there a risk?
Last question on Japan.
Is there a risk that Japan could start selling off some of its 1.2 trillion dollars in treasuries as a bit of a backstop, as a bit of a way to calm the bond or currency markets?
And what would that impact be?
I think the bigger issue that Japan, I think I'll have to wrestle with is the fundamentals.
They'll probably talk about faster productivity growth initiatives, AI being part of it.
I think you've got to get to the fundamentals, which is a little bit of better growth in an aging society with all the government debt.
These other things are more on the edges.
Yeah.
You probably have to address the fundamentals.
And calm messaging from authorities.
Yeah, absolutely.
Let's talk about the FOMC.
We're gonna get the decision uh early morning Hong Kong time tomorrow.
Uh widely believe, as Esther George, we just heard saying uh it's time to pa pause.
You agree?
Yeah, I do agree.
I think the Fed right now is at neutral.
What do I mean neutral?
It's at it's we're at three and a half, three and three quarters.
The neutral rate is I I think three quarters to one percent real, uh, and then another add the inflation rate, two and three quarters.
With inflation still running to two and three quarters and the expectations of stronger GDP growth, i.e., which may help the job market, I don't think they want to move until they see demonstrable evidence that inflation is improving.
If they see that this year, they'll move, but they don't want to act until they see it.
Is there disunity though among Fed participants?
That was the concern.
I talked to Patrick Harker, uh, the former Philadelphia Fed president, who essentially said this could this causes problems.
It's he was quite surprised in the last rate meet decision in December by that disagree.
I don't think there's I think there's debate and disagreement, and I think that's a good thing.
And what here's why.
If when we were at four, four and a quarter, four and a quarter, four and a half, it was easier to go along with cuts to buy labor insurance because we were still restrict the Fed was still restrictive.
The reason the tensions got higher is once you're getting to neutral, I think a good part of the group said, I don't want to be at neutral with inflation sticky and Mo, by the way, above target for the last four or five years.
I think you'll see now that they bought the insurance, I think you'll see a pretty good consensus among the group.
We don't want to act until we see improvement.
And your views again on Fed independence.
Obviously, there's been lots of ramping up of rhetoric coming, whether it's from the DOJ and having the subpoena.
Um Jay Powell stood strong.
Uh of course, he's gonna be handing off his his position.
He could stay on as governor, though.
What do you how do you think this plays out?
So let's take it in pieces.
In December, a lot of people may not have paid attention to this.
The governors voted unanimously to extend the term of all the bank presidents, other than uh Raphael Bostik, who's retiring.
Uh, that might have surprised people.
Unanimous vote, by the way.
Okay.
So I think it's I think there's more likelihood there'll be stability among the presidents than if the Supreme Court does not uh allow action on Lisa Cook.
You've got four seats with Jay Powell's the one that's up for gr uh grabs.
I think he's likely, I would have thought not to stay on.
And so the the there'll be four seats with the new chair.
It means the new chair will push regulatory reform, may have more collaboration with the Treasury on the balance sheet, but on the Fed funds rate, he's not gonna have seven votes wired.
It's gonna have to persuade, debate, disagree.
I think that's a good thing.
Uh the he'll argue that the Fed should anticipate inflation improvement.
The committee will want to see it, and that'll be the debate.
That's Rob Kaplan, Vice Chairman of Goldman Sachs and former president of the Dallas Fed.
Speaking to Bloomberg Steven Engel at the Goldman Sachs Global Macro Conference, Asia Pacific.
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Welcome back to the Daybreak Asia Podcast.
I'm Doug Chrisner.
Three of the Mag 7 companies will be reporting earnings Wednesday after the U.S.
close.
We'll hear from Tesla as well as Microsoft and Meta Platforms.
And then the next day, Apple will report its results.
Let's take a closer look now with Phil Palumbo.
He is founder, also CEO and Chief Investment Officer at Palumba Wealth Management.
Thank you for being here, Phil.
What are you expecting to hear from these companies?
A lot of the focus is going to be around the spending on CapEx and a return on investment.
I think a lot of investors are going to be interested to see what that looks like.
Overall, um, you know, we own up we own Microsoft.
I think it's gonna be the focusing on that cloud business and how that's performing.
And on Meta, overall, I think the same story there, right?
Is there their spend rate and their focus?
Uh, you know, what that all looks like, and if they're making any type of return on investment?
I think that that's what this year is going to be really about.
So the stakes are high.
I'm curious about whether you feel this the theme of investing in artificial intelligence has maybe run its course at least in the short term.
I understand that people are optimistic longer term, but I'm wondering whether the market is ripe for maybe a little disappointment.
And and if that's the case, that some of these stocks are vulnerable, or maybe you don't agree with that.
Uh, I don't agree with that.
I actually believe that we're in the second, third inning of this AI revolution, which is the biggest revolution we're ever going to see.
Do I think there's going to be hiccups and it's going to be a little bit of a seesaw at times, just like it was back in 1995 to 2000?
I mean, absolutely yes, but I think overall it'll be a huge victory where AI would really do a lot of positive things for the economy, individual companies.
I think we start to see that broaden out the benefits of AI to all companies within the SP 500, not just the Mag 7 that everybody focuses on.
So I'm very optimistic about AI and the future of it.
So we have a Fed rate decision tomorrow as well.
And I'm curious to get your take on not so much whether we get a cut in interest rates, but what we are likely to hear from Fed Chair Jay Powell.
The economy remains strong right now.
I think he's going to talk about that.
I think that he's going to say the labor market overall, I look at it as neutral.
It's not terrible, it's not great.
And I think, due to economic growth, that he's going to be on pause.
I think he'll talk about economic growth and and I think he'll just continue to say he's going to continue to follow the data.
And if the job market gets worse, I think at that time he'll act.
I think inflation at this point, I think that he realizes that it's not much of an issue at this point.
Again, I think he's going to continue to say he's going to watch the data.
But I think for him, it's going to be all about the job market and reviewing that on a continuous basis.
I mean, specifically, it's taken people longer now, you know, which we haven't seen in about four years to find a job.
So the job market is showing some strains that I believe he's concerned about, but I think it's it's still not enough for him to continue to raise rates.
So we heard from the conference board today, consumer confidence fell in January to the lowest level in more than a decade.
Seems as though there is a little pessimism here in terms of not only the labor market but the overall economy as well.
What does that cause you to conclude here?
If you've got uh weakness in consumer confidence to that extent.
I mean, I think everybody understands why any why this consumer confidence numbers come down.
I mean, I think there's a geopolitical issues that we've had, especially with Greenland and the threats that Trump made about Greenland, obviously didn't come to fruition.
It seems like it was just a bargaining chip that he went forward with, but I think it just caused and still causes a lot of uncertainty.
And because of that, I think we see confidence doing what it's doing.
So I'm not surprised at all with everything that's going on in this country.
It was seeing in Minnes that leave you when you look at the bond market?
Are there opportunities there if you want to play the fixed income space?
So I am uh the furthest person to thinking that fixed income is a great investment longer term, just because when you factor in the average return of fixed income that you're getting, whether now historically speaking and for the future, after taxes and inflation, your real return is zero to negative.
So I just I'm just not a belief big believer in bonds being any opportunity.
I mean, the only reason why we own any bonds in the portfolio is just to help protect capital during major declines, clients who are a little bit more on the conservative side.
And then we own, you know, we'll own short-term fixed income, very short term that we can utilize to take advantage of any type of volatility.
But as far as opportunities of bond market, what I would be very, very nervous about if you are a big bond investor, is the idea about the Japanese bond market and what we're seeing there.
If rates continue to move higher parabolically, that's going to put some pressure on our bond market here, which is not good for long duration fixed income.
So I would stay very, very short term as it relates to fixed income for numerous reasons.
I mean, I think you got the economy growing here.
I think the the the yield curve steepens as a result of that.
And you got to watch the Japanese bond market, which can cause all of that can cause yields to rise.
We have seen a pretty amazing rally in the precious metal space.
Both gold and silver have uh jumped to all-time highs.
How do you view this?
Is this uh more of a haven trade right now?
Are people just so nervous that they've become defensive, or is this a hedge against something like uh dollar weakness?
You could argue that it's rates down, dollar down, gold up.
However, gold up parabolically is it's a different dynamic than a simple rates down, dollar down, gold up.
So the parabolic move, why is that?
And I do think it's a function of international, developed countries, specifically even developing countries, specifically China, really is central banks around the world buying gold.
And result of the demand that we're seeing as a result of central banks, that's what's driving up the price of gold.
I think driving up the price of silver too.
And I think there's been confidence as a result of our current administration where it's sell the dollar and buy gold.
And I think that's what's going on around the world.
So we've heard the term debasement trade applied a lot, where people are unwinding essentially from owning U.S.
assets, and the move in precious metals may also be reflective of that.
Would you agree with that analysis?
Yeah, I do think in the short term, there is a trade that is happening.
I don't believe it's a long-term investment that's happening.
I think it's a trade that is developing where you can make a couple bucks.
And I think traders are hopping on that bandwagon, and that's what we're seeing right now.
And I I think Trump, with everything that he's doing, creating the volatility that that he's creating and with tariffs, I think you know, investors around the world are losing confidence, selling the dollar, looking for opportunities uh outside of that, and that's what we're seeing right now.
So this is a trade that can continue.
Where are you finding opportunities in the uh US market these days?
A big area where if someone says, Well, what's gonna, you know, who's gonna be the biggest winner out of this whole AI investment revolution that we're seeing?
And I really do believe it is going to be Google.
Now, Google is the most vertically integrated company out of all the companies that are out there.
They have more, more intel, more better infrastructure, more data, you know, I think than any other company out there, which now, you know, with their Gemini product is which I think Gemini now is the most elite LLM model that that's out there that, and you can see it in the numbers and that number, and those numbers are only growing year after year after year.
I just think that Google, where you could have bought it with cheap at a cheap valuation, you know, due to people having uncertainty around the search business.
But as we can see, Google now is pulling ahead of all their competitors and really shining.
And they're in their cloud business is growing over 30%.
There's backlog there, great margins in that business, free cash flow of around 100 billion.
Uh I just feel Google is operating on all cylinders.
You know, they have the TPU business, you know, the recent deal they did with Anthropic.
So I think I I really, really like Google a lot here.
The other area I like a lot is Amazon up only 6% last year due to some hangover with the with the tariff issues, which is you know, obviously a big part of the business, the e-commerce business, but their e-commerce business at this point really had done a good job, laying the foundation and the platform.
I think everything here, you could see margins expand there.
Their ad business is a high margin business in the 50s, you know, growing at around 20 to 25%.
You know, their uh their AWS business, you know, they're they're leaders in the cloud business, you know, they're hitting the numbers now that everybody's looking for.
They got a very strong backlog.
So I could see a good year out of Amazon.
So the SP 500 today finished at a record high.
And I'm curious to get your take on the broader market right now for all of 2026.
To what extent will this year be an up year for the stock market in the States?
Yeah.
So what I continually say is that this year is going to be an up year, but, but, but not without a fight.
And the fight for this year, where I believe you can get a 10 to 20% correction is going to come in really three parts.
One is the uncertainty around new Fed share and the market typically tests a new Fed share.
So if there's any indication that there's lack of independence, you can get volatility around that, which I do believe you can see.
You know, that's number one.
Number two, typically a second year of a presidential election cycle.
There's always volatility around that, where correction on average could be 15%.
And then going back to what I said before, I think the the Japanese bond market and what's going on there, you know, can be that exogenous shock that can really put some pressure on the bond market, bring yields up, which will also create volatility.
So, due to these three main areas, I could see a correction of 10 to 20%.
But overall, for so many reasons, this economy is rocking and rolling.
You got the big, beautiful bill and the refunds that we're going to see from a tax standpoint in the first half of this year.
I think we're going to see a lot of the regulation, deregulation materialize more.
It's been a slow start with deregulation, but you're going to see more and more of that come in into fruition this year.
And they and that's the positive backdrop.
Why I think we could finish positive for the year.
Phil, we'll leave it there.
Thank you so very much.
Phil Palumbo, he is founder, CEO, and Chief Investment Officer at Palumbo Wealth Management joining us here on the Daybreak Asia Podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition Podcast.
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