Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Chrisner. So we're less than
Speaker 1: twelve hours away from the US employment report. Bloomberg Economics
Speaker 1: is expecting to see a solid net gain in nonfarm
Speaker 1: payrolls of around one hundred and sixty five thousand. Also
Speaker 1: a stable unemployment rate at around four point two percent.
Speaker 1: And in a moment we'll get some insight from Bill Adams.
Speaker 1: He is the chief economist at Comerica Bank. But we
Speaker 1: begin in the Asia Pacific where this morning the Chinese
Speaker 1: government said it's currently evaluating possible trade talks with the US.
Speaker 1: The Commerce Ministry has said senior US officials have repeatedly
Speaker 1: expressed their willingness to talk with Beijing about tariffs. Joining
Speaker 1: me now is David Finnerdy. He is Bloomberg FX and
Speaker 1: Rate strategists. David joining from our studios in Singapore. I
Speaker 1: know it's a market holiday in China, David, so we're
Speaker 1: not going to get any reaction action to this, but
Speaker 1: it's a positive sign still, right.
Speaker 2: Yeah, I think that's the key thing, any sign that
Speaker 2: there's some negotiations be had, even tho It's very early
Speaker 2: days and you certainly don't expect any deal to be
Speaker 2: hashed out quickly. But I think any idea, any sign
Speaker 2: that there will be negotiations to even start, will be
Speaker 2: taken positively by the market. Obviously, you know that the
Speaker 2: tarests between China and US are you know, well over
Speaker 2: one hundred percent, and that's not good really for anyone
Speaker 2: in terms of trade. So I think any resolution will
Speaker 2: be the market will quite apply welcome that.
Speaker 1: I thought it was very interesting that Japan's finance minister
Speaker 1: said today that Japan's holdings of US treasuries could be
Speaker 1: a card in Japan's trade negotiations with the US. I
Speaker 1: think Japan currently has around one point one trillion dollars
Speaker 1: in US treasuries. Is that a friendly way of making
Speaker 1: a threat.
Speaker 2: Well, it's certainly a shot across the bout, I think
Speaker 2: they'd say, of course. And he did at the same
Speaker 2: time say hey, whether we use or not as a
Speaker 2: different thing. So but again, the fact that it's even
Speaker 2: alluded to does sort of say hey, look, we do
Speaker 2: have this card, and if need be, we will pay it.
Speaker 2: Of Course, the catch to some degree is okay, if
Speaker 2: you want to get with the treasure sor if you can,
Speaker 2: it's like, well, where do you put that money? You know,
Speaker 2: you have to put it somewhere, and certainly if you
Speaker 2: be the obvious place to put it into. But again
Speaker 2: it's not quite as deep and liquid market. It's certainly
Speaker 2: a big market, but it's certainly not quite the treasury market.
Speaker 2: So you know, the question I think the market will
Speaker 2: go if you are going to shoot, say that you
Speaker 2: are going to change holdings, and if you did know
Speaker 2: to how much could you? But again, any reduction of
Speaker 2: holdings is not going to be received as well by
Speaker 2: the market if it was to happen. I mean, it
Speaker 2: really feeds into the big question of moving forward. How
Speaker 2: does the West or other countries keep funding US deficits
Speaker 2: really at the end of the day, and if they
Speaker 2: show an unwillingness to fund it to the same extent,
Speaker 2: you know, it does create a pop for the US
Speaker 2: at the moment. You know, historically the US has been
Speaker 2: fine because it has these twin deficits and but the market, guys,
Speaker 2: we don't mind. We were happy to fund them. But
Speaker 2: if the question I think really has become in a
Speaker 2: long term question is given how this trade's played out,
Speaker 2: and we don't know how the remainder of Trump's presidency
Speaker 2: will play out. But are we seeing a fundamental shift
Speaker 2: in terms of how people view US assets for whatever
Speaker 2: reason that that may be. And if there is a
Speaker 2: change in dynamics saying okay, we're not quite as willing
Speaker 2: to fund it as possible, then for the US economy
Speaker 2: that would not be a positive.
Speaker 1: So, and I'm listening to you, I'm thinking of the
Speaker 1: dollar's role in all of this, and so far in
Speaker 1: the trade war, the dollar has suffered just a bit.
Speaker 1: I mean on a relative basis. I understand that we're
Speaker 1: still very strong and one of the benefits of being
Speaker 1: the world's reserve currency, but the flows have clearly benefited
Speaker 1: the end and the euro.
Speaker 2: Right, Yes, definitely, I think you know, since if you
Speaker 2: look at look to say, the Bloomberg Dollar Index, since
Speaker 2: basically in the February, the trend's been down. Yes, for
Speaker 2: dollars rebound did a bit over this week from the lows.
Speaker 2: But I do think the key thing is, and I'm
Speaker 2: saying i'll discuss them as contacts last night, is you've
Speaker 2: seen a lot of say this, if you break down,
Speaker 2: say you've got the macro fund the hedge fund community,
Speaker 2: you have corports and you have real money funds. To
Speaker 2: make it very simple, so we know the macro fund
Speaker 2: community has been like, okay, it's self a dollar. Obviously
Speaker 2: it's been a good trade. Its overall, say overall, because
Speaker 2: obviously the short dollar yend got crushed yesterday, but overall
Speaker 2: short dollar has been a good trade. But the quick
Speaker 2: question is, okay, what a corport's move slower and real
Speaker 2: money funds move even slower than that, And so these
Speaker 2: two are beginning to come into play. They haven't really
Speaker 2: come into player as much talking to all my contacts.
Speaker 2: So I think the question is because it's like an
Speaker 2: old tanker, particularly real money funds, it takes a long
Speaker 2: time to make decision, but once that decision is made,
Speaker 2: it's made. So they are discussions going on now talking
Speaker 2: to the money funds of what they want to do,
Speaker 2: how they want to allocate holding today, want to change
Speaker 2: or not change, and so even and I said, this
Speaker 2: isn't if because we don't know what plays. But if
Speaker 2: they they say, you know, we are going to minimize
Speaker 2: or cut back on our dollar holdings and this is
Speaker 2: a long term play, then I think you've got another
Speaker 2: big wave coming in on the dollar, which will add
Speaker 2: pressure to it. So I think you've seen the macro
Speaker 2: funds at play that sort of played out for the moment,
Speaker 2: and our working to see what the corporates do and
Speaker 2: what does real money funds do as well, and I
Speaker 2: think we'll need a few more months before we see
Speaker 2: what those decisions.
Speaker 1: Are, So help me understand what that may mean for
Speaker 1: the Bank of Japan. We had the meeting yesterday BOJ
Speaker 1: holding that policy rated fifty basis points, not a big surprise,
Speaker 1: and then policymakers saying afterwards that it's going to take
Speaker 1: essentially longer than previously thought for the Bank of Japan
Speaker 1: to hit its inflation target. Where do we go from
Speaker 1: here in terms of BOJ tightening.
Speaker 2: Well, I think certainly it was interesting that one thing
Speaker 2: that raided did say he goes even where we've moved
Speaker 2: our target for inflation, it doesn't mean rate hikes are
Speaker 2: off the table. So the market obviously took how it
Speaker 2: interpreted certain industry was okay, well, right, hikes off the table.
Speaker 2: Certainly for Dolly Yen. What happened took into my trade
Speaker 2: of contact yesterday was basically it wasn't people buying, It
Speaker 2: was just the shorts. It was quite a well positioned
Speaker 2: short position on dolly En, so those got squeezed out.
Speaker 2: Liquidity didn't help because in Asia a lot of markets
Speaker 2: were closed yesterday for public holiday, so there was relatively
Speaker 2: thin liquidity, so that exacerbated these moves. So it's been
Speaker 2: a bit of a painful trade for those shorts, shall
Speaker 2: we say. Having said that, I do think the question
Speaker 2: you've got two parts of the equation versus Japan side
Speaker 2: of the equation, and there's the US side of the equation,
Speaker 2: and at the moment with Japan's side of the equation
Speaker 2: to the BJ well they won't they The market's gone, okay,
Speaker 2: we kicked that can down the road. Yes, it may materialize.
Speaker 2: You did see the CPI coming strong for Japan. I
Speaker 2: think if the earnings coming strong, there is a case
Speaker 2: to say, look, there will be there is inflationary pressure
Speaker 2: still there, so maybe they will.
Speaker 1: Hike at some point this year.
Speaker 2: But I think initially we go to the US side
Speaker 2: of the equation with obviously the payroll report today, and
Speaker 2: in that I'd heavily focus on the unemployment rate is
Speaker 2: supposed to say the same at four point two. You know,
Speaker 2: if it's does that, then I think the fact can say, look,
Speaker 2: we said, well, we know hurried to hike was we
Speaker 2: don't need to. If it does uptick the market, well
Speaker 2: obviously is very happy to price some rate cuts as
Speaker 2: we know. Then I think if it does uptick the market, go,
Speaker 2: look at this pressure on it, we're going to run
Speaker 2: with the growth side of the equation, not the inflation
Speaker 2: side of the equation, and pricing more rate cuts, which
Speaker 2: obviously would be dollar negative. So I think where it
Speaker 2: goes from now, really today's payroll report is key.
Speaker 1: So we were mentioning the positive developments when it comes
Speaker 1: to US China trade and the possibility that we're going
Speaker 1: to have some level of negotiation happening maybe in the
Speaker 1: near term. We just don't know what does that mean
Speaker 1: for the Chinese currency.
Speaker 2: Yeah, it's interesting because certainly if you look at dollar,
Speaker 2: you one it's being offshore, you won. It's basically been
Speaker 2: in a pretty much very tight range really seven twenty
Speaker 2: six to seven point thirty one, chopping around in that
Speaker 2: range the yuan against the basket of currencies and see
Speaker 2: if that's basket so has weakened so China's obviously played out.
Speaker 2: Say look, we're not going to go weak and much
Speaker 2: at the moment or gradually against the dollar, but we'll
Speaker 2: have the weekend against the other markets to help support
Speaker 2: our economy. Now, what is interesting, though, is we're starting
Speaker 2: to see some interest and it is I say starting
Speaker 2: so I wouldn't go heavily on it. We're starting some
Speaker 2: interest in completing the macro fund community looking at downside
Speaker 2: dollar yu wan so you know we'll cletely with like
Speaker 2: put options or downside digital options or stuff like that.
Speaker 2: So the market sentiment which initially was hey, we're going
Speaker 2: for dollar y one higher. There was certainly the case
Speaker 2: go before after Trump's election and even started this year.
Speaker 2: Now it's sort of to neutral or now we're starting
Speaker 2: to actually they think, actually it's going to not being
Speaker 2: dollar on everything could be dollar you one positive. I
Speaker 2: do say these are initial signs though, but it is
Speaker 2: interesting that you are seeing the change of sentiment in
Speaker 2: terms of where do you want maybe headed This idea
Speaker 2: of the one is going to take the seven forty
Speaker 2: against the dollar, not that it won't, but those they're
Speaker 2: not quite you're not hearing though, that sort of noise
Speaker 2: as much nowadays as you were say a month ago.
Speaker 1: David, Thank you so much. David Finnerty there, Bloomberg, EFX
Speaker 1: and rat Strategist. Joining from Singapore here on the Daybreak
Speaker 1: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Speaker 1: Derek Krisner. The US equity market was hired today for
Speaker 1: an eighth straight session, helped by gains in both Meta
Speaker 1: and Microsoft. However, after the bell, Apple and Amazon delivered
Speaker 1: some disappointment. Apple said that sales in China were worse
Speaker 1: than expected. The company is also warning the tariffs will
Speaker 1: increase cost in the current quarter by nine hundred million dollars.
Speaker 1: Then there's Amazon forecasting operating profit in the current quarter
Speaker 1: that was a little disappointing, and the companies saying the
Speaker 1: tariffs and trade policy may cause consumers to pull back
Speaker 1: on their spending. So it's clear that tariffs are beginning
Speaker 1: to bite. The question is whether this is going to
Speaker 1: be reflected in tomorrow's report on April employment. Joining me
Speaker 1: now for a look at the data is Bill Adams,
Speaker 1: a senior VP also chief economist at Comerica Bank, on
Speaker 1: the line from Dallas, Texas. Bill, thank you for making
Speaker 1: time to chat with me. Is it too soon for
Speaker 1: the impact of the tariffs to manifest in tomorrow's employment data?
Speaker 2: Hi, Doug, I.
Speaker 3: Think we'll start to see some of the effect of
Speaker 3: the tariffs in the April jobs numbers. I think in
Speaker 3: the month of April, businesses we're trying to figure out
Speaker 3: what the changes in tariffs actually were, of course, and
Speaker 3: then starting to think through how that would affect their
Speaker 3: profit expectations, their revenue expectations, and their needs for the
Speaker 3: next three, six and twelve months. So I'm expecting the
Speaker 3: data to show that while businesses didn't make big layoffs
Speaker 3: during the month of April, they probably slow rolled the
Speaker 3: pace of hiring, and so I'm expecting nonfarm payroll jobs
Speaker 3: to rise a relatively blackluster one hundred and fifteen thousand.
Speaker 1: In the month. So we also had today activity from manufacturers.
Speaker 1: This is the isms manufacturing PMI. It eased by about
Speaker 1: three tenths of a point. We've got a reading of
Speaker 1: forty eight seven. Obviously, that indicates contraction what's going on
Speaker 1: with a manufacturing economy from your point of view.
Speaker 3: So I think you have to draw a distinction here
Speaker 3: between surveys which look pretty scary right now versus hard data.
Speaker 3: Where As you just pointed out with the jobs report,
Speaker 3: we don't have very much at hand yet. Surveys are
Speaker 3: pointing a lot of pointing to a lot of anxiety
Speaker 3: and a lot of increased caution due to expectations for
Speaker 3: the impact of terrorists, but also who really knows where
Speaker 3: teriff rates are going to settle out in another week
Speaker 3: or another month, And so the ism saying that businesses
Speaker 3: are reducing production, businesses are slowing hiring, businesses are seeing
Speaker 3: higher input costs. But we'll just have to wait until
Speaker 3: we get hard data on producer prices to see how
Speaker 3: much of that increase in input costs is just expectations
Speaker 3: and emotions rather than hard numbers and big shares of
Speaker 3: input costs rising. I think I do expect to see
Speaker 3: a slower pace of manufacturing growth, if not a decline,
Speaker 3: in the next couple of months, and I think we're
Speaker 3: likely to see a pullback and demand, especially for capital equipment,
Speaker 3: in the next three to six months because of that
Speaker 3: same more cautious approach causing businesses to stretch out their
Speaker 3: capax plans and to just be a little more cautious
Speaker 3: in their usage of cash. In the next couple of
Speaker 3: months while they figure out what's going on.
Speaker 1: So the other day, as you know, we got the
Speaker 1: first print on first quarter GDP. A little bit of
Speaker 1: a contraction here. Some of that may have been skewed
Speaker 1: by heavy imports sales of a lot of merchandise coming
Speaker 1: into the US to avoid tariffs. But do you think
Speaker 1: there's a risk now that we're going to see another
Speaker 1: or a downward revision to that first quarter GDP print.
Speaker 3: It wouldn't surprise me, to be honest, My forecast going
Speaker 3: into the release of the first estimate was for a
Speaker 3: one point four percent annualized contractions. So I'm kind of
Speaker 3: my bias is to be anchored to what I thought
Speaker 3: I was going to get. But we'll see in the revisions.
Speaker 3: I think in the second quarter we're likely to see
Speaker 3: a strong rebound in GDP and maybe see that sustained
Speaker 3: into the third quarter because that huge rush to get
Speaker 3: goods on shore ahead of the higher tariffs is going
Speaker 3: to drop off, and imports are going to be much
Speaker 3: much much lower come May and June and July and August,
Speaker 3: and so that will translate into a swinged of the
Speaker 3: trade deficit in a more favorable kind that the numbers
Speaker 3: will look better for GDP. At the same time, final
Speaker 3: demand for business spending and consumer spending was pretty good
Speaker 3: in the first quarter. I think those components of GDP
Speaker 3: are likely to slow in the second.
Speaker 1: Quarter and third quarter. So we had yields down across
Speaker 1: the treasury curve today. I think the two year was
Speaker 1: off about nine basis points. That's a pretty sizable move
Speaker 1: if you look at what the swaps market is telling
Speaker 1: us right now, the first quarter point rate cut from
Speaker 1: the Fed is fully priced in for July, not June,
Speaker 1: but fully priced in for July. And interestingly, today we
Speaker 1: heard from the Treasury Secretary Scott Bessen who was saying
Speaker 1: that what the bond market right now is telegraphing is
Speaker 1: that the Fed ought to be lowering interest rates. Would
Speaker 1: you agree with that.
Speaker 3: The Fed isn't a pickle. On the one hand, it
Speaker 3: does look like the job market is likely to weaken
Speaker 3: your term. On the other hand, inflations head at higher
Speaker 3: and so they're being pulled in opposite directions by the
Speaker 3: two parts of their mandate. I think it is somewhat
Speaker 3: reasonable to think that between a rock and a hard place,
Speaker 3: the FED will choose to support the job market, since
Speaker 3: there's a good case to be made that the inflation
Speaker 3: from higher tariffs will be a one off, especially if
Speaker 3: the labor market is weaker a year from now than
Speaker 3: it is today, and that means less negotiating power for
Speaker 3: workers to ask for raises and to cause that inflation
Speaker 3: increase to persist. But the FED doesn't like to be
Speaker 3: cutting with inflation rising. The FED will be very unhappy
Speaker 3: to cut given that consumer and business inflation expectations have
Speaker 3: picked up in the last couple of months, and the
Speaker 3: bar for the FED to ease is considerably higher right
Speaker 3: now than it would be in a more normal economic shock,
Speaker 3: which brings down prices as well as brings down hiring.
Speaker 3: So I think, yes, my call is for the FED
Speaker 3: to ease in the next couple of months. But I
Speaker 3: think if my forecast misses, it's more likely that the
Speaker 3: FED cuts rates by less than I'm forecasting, and I'm
Speaker 3: looking for three quarters of a percent and cuts by
Speaker 3: the end of the year, to be clear, I think
Speaker 3: it's more likely that I miss by seeing less rate
Speaker 3: cuts than that than by seeing more.
Speaker 1: Without getting into too much politics, how do you feel
Speaker 1: about the Treasury Secretary weighing in on what the FED
Speaker 1: should do.
Speaker 3: The independence of the FED is really an anchor of
Speaker 3: the US financial system and by extent, the US economy,
Speaker 3: and so I think it's important that the FED be
Speaker 3: independent and that actors both within the United States and
Speaker 3: outside of the United States understand the Fed's independence. Now,
Speaker 3: I will say I still am very confident that the
Speaker 3: FED does have independence in setting monetary policy. And I
Speaker 3: think the institutional supports of the Fed's independence in the
Speaker 3: US system are very strong. They're still in place despite
Speaker 3: the noise that you're here in the headlines, and I
Speaker 3: think Chair Powell in particular has a lot of credibility
Speaker 3: across Washington that allows him to tune out the noise
Speaker 3: and focus on the fence dual mandate for stable prices
Speaker 3: and for maximum employment and to set interest rates according
Speaker 3: to that bill.
Speaker 1: Do you have a view on how effective this tariff
Speaker 1: policy may be in reshoring American manufacturing is if that's
Speaker 1: the ultimate goal, do you think it's likely to succeed?
Speaker 3: I think for tariffs to cause American businesses to make
Speaker 3: a big shift towards reshoring, businesses have to be confident
Speaker 3: that tariff rates are going to stay high over the
Speaker 3: longer run, and so I would I think if we
Speaker 3: see legislation that bakes tariff revenue into the ten year
Speaker 3: projection for fiscal revenues and the fiscal balance depends on tariffs,
Speaker 3: then businesses are more likely to say, aha, I guess
Speaker 3: this is a permanent shift to make decisions accordingly than
Speaker 3: if tariffs continue to be exclusively something that comes out
Speaker 3: of the executive branch and which could change under a
Speaker 3: change in administration.
Speaker 1: Bill Thank you so much, Bill Adams. There. He is
Speaker 1: Senior VP, also chief economist at Comerica Bank. On the
Speaker 1: line from Dallas, Texas here on the Daybreak Asia Podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 1: or anywhere else you listen. Join us again tomorrow for
Speaker 1: insight on the market moves from Hong Kong to Singapore
Speaker 1: and Australia. I'm Doug Chrisner, and this is Bloomberg