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Speaker 1: Bloomberg Audio Studios, podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. So

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Speaker 2: we will begin today with tariffs and the July ninth

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Speaker 2: deadline for deals with the US. Ostensibly, it's pretty simple,

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Speaker 2: secure a deal by the deadline and avoid those higher

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Speaker 2: reciprocal tariffs. So we know that Japan, South Korea, and

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Speaker 2: India are among those jurisdictions scrambling. Earlier today here in

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Speaker 2: the States, Treasury Secretary Besson suggested some countries will have

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Speaker 2: the option of a three week extension to negotiate. He

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Speaker 2: did acknowledge the sheer number of ongoing talks is complicating

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Speaker 2: the final stages. So far, there have been announcements on

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Speaker 2: a limited framework with the UK, a truce with China,

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Speaker 2: and the outline of an agreement pact with Vietnam. For

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Speaker 2: a closer look, I'm joined by Paul Dobson. He is

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Speaker 2: Bloomberg Executive at A for Asia Markets, joining from our

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Speaker 2: studios in Singapore. Paul, thank you for making time to

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Speaker 2: chat with me on this. To what extent is there

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Speaker 2: murkiness here as we walk up to that July ninth deadline.

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Speaker 3: Plenty of murkiness and not very promising signs. You know,

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Speaker 3: the fact that they're already talking about a three week

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Speaker 3: extension for some countries suggests that, you know, there's not

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Speaker 3: that much progress being made in a lot of cases,

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Speaker 3: or that there's still sticking points and matters that need

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Speaker 3: to be able to come even to achieve some of

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Speaker 3: the more advanced trade negotiations that have been going on.

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Speaker 3: So as the market opened in Asia on Monday, there

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Speaker 3: was a little bit of cautious optimism on the idea that,

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Speaker 3: you know, the US isn't going to move to impose

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Speaker 3: very strict tariffs again on trading partners right away. On

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Speaker 3: the other hand, the market is pretty cautious now about

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Speaker 3: this because it really doesn't know. And at the same

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Speaker 3: time as the administration has been talking about the possibility

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Speaker 3: of an extended three week for you know, kind of

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Speaker 3: trying to get over the line, at the same time,

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Speaker 3: it's saying that it is going to be sending out

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Speaker 3: letters to some nations as soon as this week telling

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Speaker 3: them what their new tariffs are going to look like.

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Speaker 3: So we don't know what the details of that are,

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Speaker 3: we don't know what countries that's going to go to,

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Speaker 3: and that's keeping everybody a little bit in watching wait

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Speaker 3: mode as we get off to a new week of trading.

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Speaker 2: So maybe we can focus on some of the trading

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Speaker 2: partners in the Asia Pacific because I think the initial

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Speaker 2: deal with Vietnam maybe a little instructive here in terms

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Speaker 2: of how the Trump administration is pushing countries to cut

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Speaker 2: back on trade with China, and this is something that

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Speaker 2: Beijing has explicitly addressed. How is this playing out?

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Speaker 3: Yeah, So I think that the Vietnam dealers you said

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Speaker 3: was really interesting and important. Vietnam itself had twenty percent

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Speaker 3: tariffs imposed. That was seen as being Okay, it's more

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Speaker 3: than the existing ten percent, but it's less than what

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Speaker 3: had been initially muted, which was somewhere quite a lot higher.

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Speaker 3: So for Vietnamese stocks, that was seen as a reasonably

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Speaker 3: positive sign. The other part of that detail, though, that

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Speaker 3: we got was the idea that Chinese transshipments would receive

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Speaker 3: tariffs of forty percent rather than twenty percent for Vietnam's exports,

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Speaker 3: and so that points to this idea that you know,

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Speaker 3: the US is trying to get at China in various

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Speaker 3: different ways. Then again, even with that, the market was

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Speaker 3: not completely perturbed by the idea of forty percent transhipments. Basically,

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Speaker 3: there's sort of three ways of thinking about this. One,

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Speaker 3: the Chinese manufacturers had been so clever already at finding

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Speaker 3: loopholes and ways around it that they'd probably be able

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Speaker 3: to so converent it in some way or too, that

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Speaker 3: they'd be able to find ways to add enough value

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Speaker 3: in the supply chain in Vietnam that they became inverted

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Speaker 3: commas Vietnamese exports and so avoided the transshipment costs. And

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Speaker 3: the third thing is that the market thing's a combination

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Speaker 3: of those would mean that the producers on the one

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Speaker 3: hand and the vendors in the US on the other hand,

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Speaker 3: would between them be able to manage those costs and

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Speaker 3: pass them through in an equitable way. And so what

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Speaker 3: we saw was companies that link to US manufacturers with

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Speaker 3: supply chains in Vietnam actually did well in trading last week,

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Speaker 3: so they continued to post some gains, some relief there

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Speaker 3: that things could have been a lot worse.

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Speaker 2: So let's talk a little bit about the performance of

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Speaker 2: markets in Asia in the first half of the year,

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Speaker 2: given the fact that we are now at the half

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Speaker 2: yere mark. What was it like in the first six

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Speaker 2: months of calendar twenty twenty five.

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Speaker 3: Yeah, so I was really excited about it. I think

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Speaker 3: that Asia's markets are starting to look a lot more

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Speaker 3: positive across the board. You know, we've been at the

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Speaker 3: highest level since twenty twenty one in a number of

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Speaker 3: our markets. Even China has showing greater science of recovery.

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Speaker 3: And there's lots of other signs of more excited market.

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Speaker 3: Plenty of IPOs going on, not just in Hong Kong,

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Speaker 3: but particularly in Hong Kong as well as that we've

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Speaker 3: seen in Australia, we've seen India, we've seen Malaysia, all

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Speaker 3: all with plenty of interesting ECM activity. And for that matter,

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Speaker 3: the DCM markets are buzzing along quite nicely as well.

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Speaker 3: So it feels like things that are heating up a

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Speaker 3: little bit. Part of that is helped by the fact

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Speaker 3: that a weaker US dollar is buying Asian currencies across

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Speaker 3: the board. I was really excited about that until I

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Speaker 3: talked to my colleagues who are covering Eastern Europe, who

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Speaker 3: are covering Latin America, who told me, you know, calm

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Speaker 3: down a little bit. If you look at your market's performance,

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Speaker 3: if you look at Asia relative to those other parts

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Speaker 3: of em actually, you know, kind of like it's still

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Speaker 3: training in the wake of some of those places where

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Speaker 3: we're really seeing a hubbub of excitement and particularly strong

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Speaker 3: gains this year. So Asia's doing well and it's hew

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Speaker 3: performing the US, particularly if you look at it in

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Speaker 3: dollar terms, but relative to some of the other parts

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Speaker 3: of the world could be better still.

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Speaker 2: So as long as we're talking currencies, it's going to

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Speaker 2: be a busy week for some of the big central

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Speaker 2: banks in the APAC. I think we'll hear from the

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Speaker 2: Reserve Banks of Australia and New Zealand. We'll also hear

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Speaker 2: from the Bank of Korea and the Central Bank in

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Speaker 2: Malaysia as well. I know, it's a lot to cover

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Speaker 2: under one kind of broad brush stroke. Is there a

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Speaker 2: general trend here to kind of easier credit, to kind

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Speaker 2: of accommodating the market and supplying great cuts. Is that

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Speaker 2: really what we're talking about.

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Speaker 3: Yeah, And let's put it this way, Doug. I mean,

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Speaker 3: everybody's still looking to the FED, right and what we've

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Speaker 3: heard recently from the FED has been the idea that

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Speaker 3: policymakers are starting to think about when they're going to

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Speaker 3: be cutting interest rates. Now. Last week, some of the

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Speaker 3: payrolls data and the other economic data meant that people

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Speaker 3: ruled out the idea the Fed would move as soon

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Speaker 3: as July. But nonetheless people are looking for two cuts

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Speaker 3: by the Federal Reserve this year, and that opens the

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Speaker 3: door for Asian central bankers to also feel a little

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Speaker 3: bit more confident that they'll be able to ease monetary

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Speaker 3: policy and tandem with that, so in the Australia and

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Speaker 3: New Zealand region we're looking at easier monetary policy, but

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Speaker 3: across them Asia as well, we might be moving into

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Speaker 3: that area where policymakers are a little bit more comfortable

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Speaker 3: about cutting rates, particularly because their currencies have been strong,

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Speaker 3: so that gives them that little bit more bigal.

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Speaker 2: Run Inflation, I think is the other part of that story,

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Speaker 2: and I think if you look at Japan, inflation this

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Speaker 2: year has been surprisingly strong. Is Japan really the outlier

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Speaker 2: here and very unique in terms of what we're seeing

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Speaker 2: across the region?

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Speaker 3: It is? It is. It is an outlier, and it

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Speaker 3: is really interesting, you know, and they've been so desperate

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Speaker 3: for inflation for so long that the central bank is

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Speaker 3: you know, really happy that it's finally starting to see

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Speaker 3: it in the economy and very keen to kindle it

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Speaker 3: and make sure that it doesn't snuff it out by

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Speaker 3: moving too quickly, which is why we see so much

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Speaker 3: caution from the central bank in terms of how quickly

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Speaker 3: it's raising interest rates. Nonetheless, you know it is it

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Speaker 3: is the fact that the inflation is high and it's

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Speaker 3: actually starting to hurt a little bit consumer sentiment and

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Speaker 3: the outlook for the economy too. So what does the

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Speaker 3: central bank do in a bit of a bind. It

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Speaker 3: doesn't want the currency to appreciate too rapidly either, but

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Speaker 3: it will be, you know, gradually signaling that it wants

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Speaker 3: to continue with that rate hike cycle based on everything

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Speaker 3: that we've heard from the central bank governor and particularly

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Speaker 3: the hawkish elements of the BOJ already, So.

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Speaker 2: Part before I let you go, I know, we have

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Speaker 2: Chinese inflation data this week. Is this going to be

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Speaker 2: another story about deflation on the producer side and maybe

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Speaker 2: disinflation when it comes to consumer inflation?

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Speaker 3: Yeah, And I think that, you know, the China story

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Speaker 3: is interesting because a lot of what's driving that has

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Speaker 3: been this really kind of cutthroat price competition that you've

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Speaker 3: seen in various parts of Chinese manufacturing, be it the

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Speaker 3: sort of solar tech industries, all the platform economies, you know,

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Speaker 3: the delivery firms, all of that they seem to be

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Speaker 3: and the electric vehicle companies too, they all seem to be,

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Speaker 3: you know, really thriving to try to gain more share.

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Speaker 3: And actually, what we've heard from Chinese policy makers recently

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Speaker 3: is enough is enough. They're fed up of this kind

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Speaker 3: of like desperate sort of race to the bottom in

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Speaker 3: terms of pricing on razor thin margins, and they'd rather

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Speaker 3: you know, people took out some capacity and that allow

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Speaker 3: prices to stabilize. So while that might not show up

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Speaker 3: in the data immediately, that is something that is clearly

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Speaker 3: on the minds of the Chinese officials. If you look

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Speaker 3: at what the bond market is telling us, you know,

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Speaker 3: yields are still rooted at very low levels. It shows

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Speaker 3: that people are betting interest rates. Our policy is going

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Speaker 3: to have to remain easy for a long time because

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Speaker 3: of that disinflationary impulse. But at least we see scigns.

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Speaker 3: The policy makers, both on the fiscal side and on

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Speaker 3: the monetary side, are trying to find smart ways to

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Speaker 3: try to try to prevent that from getting any worse.

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Speaker 2: Paul, We'll leave it there, Thank you so much. Paul Dobson.

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Speaker 2: He is Executive editor for Asia Markets here at Bloomberg,

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Speaker 2: joining from our studios in Singapore on the Daybreak Asia podcast.

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Speaker 2: Back to the Daybreak Asia Podcast. I'm Doug Prisner. So

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Speaker 2: major US trading partner is hurried over the weekend to

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Speaker 2: secure deals with the US or in some cases lobby

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Speaker 2: for extra time before that July ninth deadline. Now on Sunday,

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Speaker 2: Treasury Secretary Best indicated some countries lacking an agreement by

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Speaker 2: the deadline will have an option of a three week

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Speaker 2: extension to negotiate. However, later in the day, President Trump

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Speaker 2: indicated that letters regarding tariffs will begin going out to

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Speaker 2: between twelve to fifteen partners on Monday. Now, some of

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Speaker 2: these countries are expected to reach agreements, others are expected

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Speaker 2: to be hit with higher tariffs. We got some insight

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Speaker 2: on this from trend un She is the senior Emerging

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Speaker 2: Asia economist at ned Tixas Trend spoke earlier with Heidi Stroud,

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Speaker 2: Watts and Cherry On. Heidi asked the first question on

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Speaker 2: what may appear to be a conflicting picture from the administration.

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Speaker 4: Well, one thing is very clear is that tariff's op

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Speaker 4: under the Trump administration two point zero. But the US

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Speaker 4: also needs trade partners. The maximalist position we saw on

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Speaker 4: Reciprocal Trade Day is likely maximalist, and we're probably going

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Speaker 4: to settle much lower. And that's why markets are comfortable

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Speaker 4: in that the US needs trade partners and there's room

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Speaker 4: for Asian policy makers to strike a deal, meaning extensions

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Speaker 4: are likely. Secondly, there's room for India, there's room for Japan,

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Speaker 4: there's room for South Korea and across the spectrum in

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Speaker 4: Asia to have trade relationship with the US. But there's

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Speaker 4: still certainly a lot more friction to trade and we

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Speaker 4: have to accept that certainty.

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Speaker 5: We've seen some good news when it comes to sort

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Speaker 5: of frameworks with Vietnam, for example, Does that matter as

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Speaker 5: much when there's not as much certainty when it comes

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Speaker 5: to China because it is still sort of the anchor

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Speaker 5: economy across Emerging Asia.

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Speaker 4: Absolutely, what the Vietnam deal shows is that the US

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Speaker 4: needs Vietnam. Obviously, Vietnam needs the US more proportionally than

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Speaker 4: any country in Asia, given the huge, huge exposure to

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Speaker 4: the US and trade in general. That being said, the

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Speaker 4: fact that it climbed down from forty six to twenty

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Speaker 4: percent with a caveat of forty percent on transhipment means

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Speaker 4: that it does need Vietnam to do labor intensive manufacturing

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Speaker 4: in particular, and the China plus one if it's going

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Speaker 4: to go hawkish on China and does need other trade

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Speaker 4: partners within the region. So the Vietnamnam deal shows that

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Speaker 4: the US will also need countries lined India, also Japan

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Speaker 4: and South Korea to do trade for supply chains to

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Speaker 4: reshuffle away from giving the fact that labor market in

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Speaker 4: the US is very very tight at the moment and

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Speaker 4: it is not competitive in manufacturing, and US firms need

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Speaker 4: Vietnam as much as the US as well.

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Speaker 1: But will other countries not need Vietnam as much if

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Speaker 1: we're talking about that forty percent levy when it comes

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Speaker 1: to tranship goods. I mean, there was a lot of

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Speaker 1: investment going into these economies because other countries wanted to

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Speaker 1: manufacture there. But will that become an issue long term?

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Speaker 4: The ESMN shows that it's roughly around at a maximum

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Speaker 4: sixteen percent if you look at the Harvard study. The

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Speaker 4: second thing is that the forty percent actually will encourage

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Speaker 4: more localization in Vietnam. That's a key issue is that

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Speaker 4: when you attract FDI into a country, you don't just

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Speaker 4: want to add the final packaging, the final assembling. You

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Speaker 4: do want your inputs to rise over time, and this

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Speaker 4: puts the onus on Vietnam and countries like it over

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Speaker 4: time to move up the value chain, just like China.

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Speaker 4: So I do think that this is a positive. The

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Speaker 4: second one is the fact that China was able to

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Speaker 4: reshuffle its supply chains via these countries means that the

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Speaker 4: US will try to block this around and an example

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Speaker 4: of Vietnam the cost for it is the solar sector.

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Speaker 4: The US left four hundred tariffs percent tariffs on Vietnam

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Speaker 4: solar and that means that if a Vietnamese companies firms

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Speaker 4: I want to export to the US, that market is

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Speaker 4: now shut. And the reason why I did that is

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Speaker 4: due to the rerouting of Chinese solar via Vietnam. Vietnam

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Speaker 4: is a country that has a lot to lose and

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Speaker 4: it also has a lot to gain to protect its

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Speaker 4: number one markets. The China PPI today shows that the

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Speaker 4: US remains the market where the highest profit margins for

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Speaker 4: US traders because on shore in China, we have a

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Speaker 4: situation where demand remains very weak and producers prices are

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Speaker 4: very very low, which means the competition for China is

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Speaker 4: very fierce, not just within China, but when it exports

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Speaker 4: to the rest of the region, for the for the Vietnamese,

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Speaker 4: and for the rest of the Asian The US market

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Speaker 4: therefore remains the most competitive, particularly if tariffs on China

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Speaker 4: remains relatively high and higher than the rest of the

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Speaker 4: Asian countries.

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Speaker 1: How is the two track economy in China evolving right

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Speaker 1: now when it comes especially to that slump that we

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Speaker 1: continue to see in the property space, Well, I.

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Speaker 4: Think it's one of the situations where it's lowing down,

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Speaker 4: but it's still I think it's a problem that it's

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Speaker 4: going to auvantize over years versus the US where you

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Speaker 4: have a massive crush and recovery. For China, it will

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Speaker 4: need the government help versus just such as cutting interest rates.

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Speaker 4: At the moment, given the fact that the dollar is

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Speaker 4: very weak, it gives it more space to do so.

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Speaker 4: But it's also very vigilant right in helping a lot

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Speaker 4: of these deflated sectors, and that it also looks with

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Speaker 4: a keen eye on what's happening with trade. Export to

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Speaker 4: the US has slowed down materially because of higher turfs

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Speaker 4: and higher friction, and that's a key driver to growth

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Speaker 4: historically for China in recent decades. So for it, the

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Speaker 4: yuon is an important one. It has appreciate against the dollar,

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Speaker 4: but that appreciation is very weak visa v countryside the

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Speaker 4: European Union for example, where it's gone up shot up

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Speaker 4: fourteen percent, but the yuon is only roughly two dollars

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Speaker 4: versus to two percent versus the dollar. So for China,

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Speaker 4: I think it wants to balance both being able to

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Speaker 4: help the domestic economy but at the same time making

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Speaker 4: sure that external sectors are still competitive, so it needs

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Speaker 4: export that deflation abroad at the same time shore up

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Speaker 4: domest to demand.

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Speaker 1: Super quickly because we're out of time central back decisions.

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Speaker 1: We have them from Malaysia. In South Korea, anything you're watching,

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Speaker 1: brake cuts up.

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Speaker 4: In front loading. Obviously the RBA will cut, but four

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Speaker 4: countries like South Korea, we now have stable government, which

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Speaker 4: means fiscal policy is at the forefront. So at the

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Speaker 4: same at the moment, Korea is actually sitting pretty comfortable

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Speaker 4: in that the center Bank does not have to pull

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Speaker 4: the trigger as aggressively as it did because we have

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Speaker 4: stable politics to negotiate trade and to front load fiscal spending.

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Speaker 1: Trin Newian. Great to have you back Emerging Markets, Asia,

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Speaker 1: Economists and the Taxis.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again and tomorrow

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Speaker 2: for insight on the market moves from Hong Kong to

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Speaker 2: Singapore and Australia. I'm Doug Prisoner and this is Bloomberg