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

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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Speaker 2: You can join Brian Curtis and myself for the stories,

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Speaker 2: making news and moving markets in the APAC region. You

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Speaker 2: can subscribe to the show anywhere you get your podcast

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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business App.

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Speaker 3: Canada is clamping down on imports of Chinese made electric vehicles,

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Speaker 3: and at the same time, Beijing has suggested that it

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Speaker 3: would cut tariffs on Germany's large engine cars if Berlin

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Speaker 3: can convince the EU to drop tariffs on Chinese evs.

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Speaker 3: So a couple of angles to this very interesting story.

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Speaker 3: Joining us now in our studios in Hong Kong is

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Speaker 3: Min Min Low, Bloomberg China correspondent. Min Min Thanks very

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Speaker 3: much for coming into three double duty on television and

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Speaker 3: radio and keeping the audience as well informed. Let's talk

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Speaker 3: first about the Canada moves. So this is Canada clamping

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Speaker 3: down and kind of aligning itself more. I guess with

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Speaker 3: the US position first having a thirty day public consultation period,

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Speaker 3: and then it moves on from there.

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Speaker 4: Walk us through what we expect might happen.

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Speaker 5: Yeah, so the thirty day public consultation period is really

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Speaker 5: the first stage before Canada can bring in tariffs.

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Speaker 1: On Chinese evs.

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Speaker 5: But the Finance Minister said that it's not just tariffs

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Speaker 5: and focus. They're also examining changes to the list of

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Speaker 5: electric vehicles that are eligible for federal consumer incentives because

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Speaker 5: currently any electric vehicles from foreign countries qualify for the

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Speaker 5: federal rebate. And they're also looking at changes or restrictions

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Speaker 5: to broader investments into the EV sector. So pretty sweeping

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Speaker 5: changes that could be possibly coming for Chinese evs.

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Speaker 2: So what is the criticism from the Canadian government when

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Speaker 2: it comes to the competition the Chinese evs represent versus

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Speaker 2: some of the domestically manufactured cars in Canada.

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Speaker 5: Yeah, the strongest pressure is really coming from the Province

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Speaker 5: of Ontario, the Premier. They're saying that Chinese ev makers

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Speaker 5: are able to sell very cheap evs because they have

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Speaker 5: very low labor standards and they're using quote dirty energy

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Speaker 5: as well. So they're putting pressure on Prime Minister Trudeau

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Speaker 5: to really match those terriffs they're imposed by the Biden administration,

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Speaker 5: and of course the Canadian automakers as well as calling

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Speaker 5: for steep terriffs. They say that they want the government

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Speaker 5: to protect Canadian jobs and Canadian wages. But really there

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Speaker 5: is not actually that much of a threat from Chinese

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Speaker 5: EV makers at the current moment, because there is not

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Speaker 5: a huge presence of Chinese evs in Canada right now.

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Speaker 5: Canada last year saw this fivefold search in evs from China,

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Speaker 5: but most of that are teslas rather than the Chinese brands.

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Speaker 3: And was there any mention in this about what might

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Speaker 3: happen to Chinese cars if they're manufactured in Mexico, because

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Speaker 3: that could be an issue for both the US and Canada.

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Speaker 5: Yeah, So I think the intention of this investigation, or

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Speaker 5: perhaps this relooking into possible tariffs, is really to close

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Speaker 5: the back door for Chinese evs to get into America,

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Speaker 5: because Canada, Mexico, and the US have a free trade

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Speaker 5: agreement that's coming up under review in twenty twenty six.

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Speaker 5: I believe so by getting both Canada and perhaps Mexico,

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Speaker 5: well Mexico hasn't announced that, but we don't know if

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Speaker 5: they would in the future, but getting these countries to

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Speaker 5: be aligned when it comes to their China trade would

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Speaker 5: really close off any potential side doors for China to

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Speaker 5: circumvent those one hundred percent tariffs on Chinese electric vehicles

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Speaker 5: that the Biden administration has imposed.

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Speaker 2: How carefully does the Canadian government have to tread here?

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Speaker 2: From what I understand, China is Canada's second largest trading partner,

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Speaker 2: and I'm sure beyond electric vehicles there are many other

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Speaker 2: industries that are involved in trade relations between these two countries.

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Speaker 2: I mean, is this something that's going to take a

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Speaker 2: little bit of nuance here and sensitivity on the part

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Speaker 2: of the Canadian government.

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Speaker 5: Yeah, so Prime minist Trudeau will really have to tread

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Speaker 5: carefully because, as you said, China is the second largest

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Speaker 5: trading partner. But again, you know it's Canada is it's

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Speaker 5: basically the US's neighbor, and if you look at the

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Speaker 5: auto sector in particular, they are very tightly integrated with

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Speaker 5: the US supply chain. Canada sells both finished products and

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Speaker 5: parts to the US, and in fact, majority of their

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Speaker 5: exports by far is going to the US. So US

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Speaker 5: still is its most important partner if you just look

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Speaker 5: at the overall scheme of things, just by proximity, by

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Speaker 5: trade volume and all that.

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Speaker 3: Now let's talk about this second aspect of these developments.

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Speaker 3: China offering a perk to Germany. Tell us more about that.

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Speaker 5: Yes, so apparently this took place over the weekend. According

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Speaker 5: to our sources, it was a conversation between the Chinese

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Speaker 5: Commerce Minister one Went Tau and the German Economic Minister

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Speaker 5: Robert Hebek when he was in China over the weekend.

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Speaker 5: China is now floating this idea of lifting the existing

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Speaker 5: fifteen percent terriffs on vehicles with large engines that come

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Speaker 5: from Europe. So this would affect companies like BMW, Volkswagen, Mercedes,

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Speaker 5: and it's, you know, really Beijing's way of dangling carrots

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Speaker 5: and sticks for Germany because previously Beijing had hinted that

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Speaker 5: they will impose twenty five percent tariffs on those very

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Speaker 5: same vehicles. So you know, the permutations of this negotiation

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Speaker 5: is just unlimited.

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Speaker 2: Now, Well, you were talking about the limited demand for

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Speaker 2: Chinese evs in Canada a moment ago, and I'm wondering

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Speaker 2: how the appetite for Chinese evs happens to be in

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Speaker 2: Europe right now? Is it about the same little.

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Speaker 5: Tepid Well, Europe is a much more important market for

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Speaker 5: Chinese evs. I believe it is forty percent of EVS

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Speaker 5: in Europe that comes from China. I'm not sure I

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Speaker 5: got that number one, but I believe it's forty percent,

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Speaker 5: So a very important market packed to Canada. And again,

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Speaker 5: as we've previously discussed before, China is now experiencing this

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Speaker 5: over capacity problem and all these EV makers are engaging

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Speaker 5: in a very steep and brutal price war back in China,

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Speaker 5: so they are really looking overseas for higher profit margins.

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Speaker 5: And it's not just Chinese ev is trying to get

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Speaker 5: market in Europe. Germany as well. Together all these German

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Speaker 5: companies they sell millions of cars to China, and that's

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Speaker 5: why Germany is such an important partner for China to lobby,

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Speaker 5: and Germany can really lean on other countries to break

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Speaker 5: ranks with the EC just by using its weight as

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Speaker 5: the U's largest economy.

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Speaker 3: All right, me Man, thank you very much for coming

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Speaker 3: into the studios with this min min Low. Bloomberg China

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Speaker 3: correspondent joining us now is Carol Schleive Cio at BEMO

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Speaker 3: Family Office to take a closer look at markets. Carol,

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Speaker 3: thank you for joining us here on the program again.

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Speaker 3: We've seen the broader market hold up pretty well here,

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Speaker 3: even with the leadership getting slammed. We just talked about

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Speaker 3: Nvidia down something like fifteen percent or so in the

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Speaker 3: past week. What comes next is interesting. Perhaps the broader

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Speaker 3: market falls infected by the lack of leadership here, or

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Speaker 3: maybe you'll get this sort of benign movement that we've

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Speaker 3: seen over the past week, where things broaden out and

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Speaker 3: money flows into laggards and other themes. How do you

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Speaker 3: see things moving here over the next few weeks.

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Speaker 6: We would definitely err on the side of the or

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Speaker 6: lean towards the side of the ladder, because you need

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Speaker 6: a broadening market for this to have sustainability. We had

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Speaker 6: seen some broadening earlier in the year, and actually, even

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Speaker 6: when you look at today's performance, if you take out

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Speaker 6: the market capitalization waiting and look at an equal weight

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Speaker 6: on the S and P, most stocks did pretty well,

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Speaker 6: and we need that broadening to sustain this. We actually

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Speaker 6: think as we get into earnings, which will be in

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Speaker 6: the midst of within the next couple of weeks, that

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Speaker 6: you'll see stronger than expected earnings because people are forgetting

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Speaker 6: last year. The comparison to last year will be a

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Speaker 6: very soft last year versus this year. I think there's

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Speaker 6: a lot of potential for some reasonable earnings, and so

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Speaker 6: we think the fundamentals can carry through more industries than

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Speaker 6: just technology.

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Speaker 2: Is there a difference in theme as we approach the

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Speaker 2: third quarter? How will the third quarter be different than

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Speaker 2: the second?

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Speaker 6: Hopefully it's a broadening with more sectors, more capitalizations leaning in.

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Speaker 6: You know, it would be lovely if we can keep

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Speaker 6: the US economy floating along like this, where you've got

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Speaker 6: solid low to mid single digit kinds of growth rates

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Speaker 6: from companies on the top line, but reducing costs that

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Speaker 6: a lot of them have seen, and still sturdy consumers spending.

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Speaker 6: You could see a variety of sectors and hopefully some

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Speaker 6: spreading to mid and small caps would be lovely to

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Speaker 6: see as well.

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Speaker 3: You wonder whether biotech could be ready for a run.

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Speaker 6: Yep, there's definitely implications when you start thinking about a

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Speaker 6: lot of these companies and industries have really been leaning

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Speaker 6: into building use cases for artificial intelligence and other things.

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Speaker 6: You look at the rapid pace of drug development and

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Speaker 6: what's going on. There's biotechnology, there's medical discovery, there's even

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Speaker 6: some of the medical technologies. But there's uses all through

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Speaker 6: the services industries too, when you start looking at who's

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Speaker 6: already deploying artificial intelligence and other cost saving methods that

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Speaker 6: in the intermediate, longer run should really help margins, even

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Speaker 6: if it's a hit early on as they're building out

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Speaker 6: data centers and figuring out where they're going to get

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Speaker 6: their energy from.

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Speaker 2: Obviously, we have an election November first debate, the presidential

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Speaker 2: debate is on Thursday. Is it too soon for you

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Speaker 2: to begin talking with clients about potential changes in tax

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Speaker 2: policy and what a new administration may do to overall

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Speaker 2: economic policy.

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Speaker 6: No, we're getting We've been getting that question for a

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Speaker 6: very long period of time, and I would assume especially

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Speaker 6: this week, given that you've got fed speak, you've got

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Speaker 6: the debates coming up on Thursday, You've got a lot

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Speaker 6: of focus everywhere but the markets this week. But no

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Speaker 6: clients have been asking us to lay out plans. And

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Speaker 6: it's as as many commentators have noted, it's one of

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Speaker 6: the most difficult to try to to try to place

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Speaker 6: the odds on the outcomes of this one. And it's

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Speaker 6: been interesting because no matter what strategistic shop you're looking at,

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Speaker 6: there's very few that have you know, solid conviction in

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Speaker 6: more than one halfs. Everyone's playing three or four different

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Speaker 6: potential scenarios, none very high conviction, so it'll be nerve wracking.

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Speaker 6: We suspect you'll see mark volatility and most likely flatter

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Speaker 6: markets as we get into the throws of the election

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Speaker 6: season this fall, but we do think you're teed up

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Speaker 6: for a pretty reasonable summer before we hit that fall.

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Speaker 3: It's also probably a fair game to talk a little

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Speaker 3: bit about the FED. It seems like more of the

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Speaker 3: FED speakers now are talking about the impact of higher

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Speaker 3: for longer and how it might have an effect. But

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Speaker 3: when I was digging down into the Merry Daily comments,

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Speaker 3: I found a little bit of a conundrum there because

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Speaker 3: she said that the labor market could be nearing an

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Speaker 3: inflection point and that higher unemployment.

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Speaker 4: Might result as a outcome of this.

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Speaker 3: But then she also said that they may need to

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Speaker 3: see a weaker economy to get to the target. So

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Speaker 3: I wonder whether or not in her mind that's a

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Speaker 3: little hawkish or a little dovish.

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Speaker 6: I think it depends on who was asking the question

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Speaker 6: of which day, maybe, but it is It is tough

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Speaker 6: because I think the FED sensitive to market reaction too

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Speaker 6: we saw what, you know, how the market reacted to

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Speaker 6: Chairman Powell's press conference in December when all of a

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Speaker 6: sudden they were projecting six or seven rate cuts this year,

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Speaker 6: which was insane in our view. But we do think,

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Speaker 6: you know, we keep our eyes focused pretty tightly on

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Speaker 6: the on the jobs market because that is the backbone

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Speaker 6: and the driver of this economy. We do suspect that

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Speaker 6: you'll you'll see one of the things we'll be watching

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Speaker 6: for is earnings get announced. Is we suspect companies will

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Speaker 6: free up some of the cash that they've got sitting around,

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Speaker 6: if you will, to do some plant expansions, to be

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Speaker 6: thinking about stuff that got sidelined because a year ago,

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Speaker 6: everybody was expecting a recession around every quarter or a corner,

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Speaker 6: and that pulled in their expectations. So we expect businesses

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Speaker 6: to cease to to start spending a bit again, given

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Speaker 6: that things are still steady. But the employment market is

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Speaker 6: definitely worth watching because there are signs at the margin

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Speaker 6: that it's softening. You've got the weekly claims ticking up

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Speaker 6: a bit, you've got job openings coming into better balance,

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Speaker 6: and who knows how many of those are legit openings.

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Speaker 6: Versus phantom openings that companies put out there they interview

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Speaker 6: for just to build their pool, but they never really

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Speaker 6: hire for them.

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Speaker 2: How are you feeling about opportunities offshore? Are you seeing

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Speaker 2: anything at the moment.

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Speaker 1: Yeah.

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Speaker 6: We actually recently went to a more neutral rating from

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Speaker 6: an underweight on developed markets, particularly in Europe. We had

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Speaker 6: been overweight. We stepped up our exposure to Japan two

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Speaker 6: or three times over the last year and a half

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Speaker 6: or so. But then looking at the developed markets and

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Speaker 6: you're seeing some of the numbers stabilized there and come

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Speaker 6: in better in terms of economic progress. They're starting to

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Speaker 6: cut there, so they've got pretty solid economies. It's not thrilling,

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Speaker 6: but there's you know, around the globe. Actually it's there's

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Speaker 6: a lot to be optimistic about in terms of consumers

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Speaker 6: in reasonable space.

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Speaker 3: But Carol, you mentioned Japan. Do you worry that some

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Speaker 3: of the policies there are leading to continued weakness in

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Speaker 3: the currency and it seems to be kind of impacting

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Speaker 3: the economy Now.

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Speaker 6: Yeah, to a certain extent, it is, But I think

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Speaker 6: the thing that doesn't get talked about very often is

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Speaker 6: you've got a generation of workers there who have never

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Speaker 6: had salary increases that now have salary increases that are

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Speaker 6: keeping up with that inflation, and so that leads to

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Speaker 6: different behavior.

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Speaker 4: Yeah, that's a good point.

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Speaker 3: You know, we haven't really thought about the Japanese consumer

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Speaker 3: coming to life, but I mean that's what they want

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Speaker 3: in China as well. Carol, it's always a pleasure to

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Speaker 3: talk to you. Thank you for joining us. Carol Schleife,

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Speaker 3: CIO at BEMO Family Office. Joining us now for some

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Speaker 3: discussion of markets is Isaac Poole, Global CIO and portfolio

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Speaker 3: manager at Orienta Financial Services. Isaac, I give you three topics,

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Speaker 3: and you tell me what's most important and what's most

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Speaker 3: interesting the FED and Nvidia or geopolitics involving Europe, the

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Speaker 3: United States and China.

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Speaker 1: Three tough ones, but three good ones. I think.

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Speaker 7: Still right now, the FED is absolutely critical. It's still

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Speaker 7: in the driving seat, and you can see that because

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Speaker 7: markets are really struggling to get a grip on exactly

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Speaker 7: when the Fed's going to cut, how quickly they'll cut,

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Speaker 7: and how much they need to cut to head off

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Speaker 7: a harder landing.

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Speaker 2: What is your sense of exactly what you're laid out here,

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Speaker 2: I mean, right now, the futures market seems to be

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Speaker 2: indicating twenty five basis points in November, maybe another twenty

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Speaker 2: five at the December policy meeting. Is that the way

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Speaker 2: you're viewing the picture right now.

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Speaker 1: I think that's plausible.

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Speaker 7: But Mary Daly's comments earlier are really important here. The

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Speaker 7: point that the labor market is perhaps a little more

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Speaker 7: fractious than people are taking on board is really important.

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Speaker 7: The unemployment rate has gone up to four percent from

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Speaker 7: around three point four and never in history does the

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Speaker 7: unemployment rate just stop and plateau and go along that

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Speaker 7: same level for six or twelve months, like the FED

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Speaker 7: is hoping it will. It typically goes up a lot.

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Speaker 7: And so I worry that if the FED doesn't cut

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Speaker 7: until November or December, it's not going to be a

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Speaker 7: twenty five basis point cut. It could be an emergency

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Speaker 7: cutter half a percent cut, which will be absolutely needed

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Speaker 7: to get the economy even close to a soft landing.

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Speaker 3: Yeah. I almost stuck my foot in my mouth earlier

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Speaker 3: when Doug was reporting on the FED by following up

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Speaker 3: by saying, so it's either zero, one or two in

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Speaker 3: the next six months.

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Speaker 4: Who cares?

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Speaker 3: But you've just laid out why we really should care.

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Speaker 3: Particularly if, and I suppose mainly if the economy goes

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Speaker 3: into a serious downturn. But there aren't really many signs

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Speaker 3: of that either, Isaac.

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Speaker 7: There's nothing at the moment, or no one thing at

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Speaker 7: the moment at least that you can point to and say, hey,

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Speaker 7: we're right on the precipice of this doom loop. But

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Speaker 7: there are some signs there that I think people really

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Speaker 7: need to take attention of or pay attention to, and

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Speaker 7: that is the retrenchment in consumer spending. We really are

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Speaker 7: seeing retail sales in particular start to slow. It's across

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Speaker 7: all income quintiles. It's starting to put downward pressure on

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Speaker 7: consumer growth. And if that unemployment rate picks up, that's

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Speaker 7: the doom loop scenario. That's the feedback loop where incomes collapse,

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Speaker 7: household spending retrenches further.

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Speaker 1: And this is a large part of GDP growth.

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Speaker 7: And if that doom loop begins, it's going to be

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Speaker 7: really difficult for the FED to cut their way out

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Speaker 7: of it in a hurry.

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Speaker 2: So, your portfolio manager, you run money at Oreana, I'm

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Speaker 2: curious about giving everything you just laid out, how you

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Speaker 2: play that thesis? Is it a bond market buy you

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Speaker 2: begin lightning up on the equity space. So how are

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Speaker 2: you playing this?

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Speaker 7: Yeah, I mean that's exactly it. We've seen US treasuries

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Speaker 7: up around five percent along the curve over the last

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Speaker 7: six months, and yes they've come off a bit, but

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Speaker 7: that's a great place to park some money if you're

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Speaker 7: a little bit concerned about the economy's resilience over the

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Speaker 7: next six to twelve months. One thing that we absolutely

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Speaker 7: are not advocating is chasing rallies in the equity market.

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Speaker 7: That's been a great rally. Investors have done very well.

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Speaker 7: We would say it's time to start locking in some

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Speaker 7: profits and perhaps building a bit of portfolio resilience through

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Speaker 7: fixed income sleeves right now.

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Speaker 3: Yeah, it's interesting to try to find some areas that

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Speaker 3: have vastly underperformed that might be a combination of safety

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Speaker 3: and value and could provide a little protection if you

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Speaker 3: see continued selling in companies.

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Speaker 4: Like Nvidia, Broadcom, and AMD.

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Speaker 7: Yeah, it's not easy to find the real safe havens

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Speaker 7: beyond that, really high quality government bonds, US treasuries for example.

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Speaker 7: Although I would say one of the factors that has

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Speaker 7: performed very well in the equity market has been quality.

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Speaker 7: Now that has a reasonable exposure to the large megacap

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Speaker 7: companies in the US. But for US, we think tilting

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Speaker 7: to that quality value right now might be a place

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Speaker 7: just to build some defensiveness in the equity sleeve.

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Speaker 2: All right, so we've checked the box on the FED.

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Speaker 2: Let's talk about geopolitics. We had a story a moment

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Speaker 2: ago about China clamping down on imports of Chinese made

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Speaker 2: electric vehicles. That is Canada maybe following what the US

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Speaker 2: is attempting to do here. We know what the situation

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Speaker 2: in Europe is. Are you concerned about how politics may

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Speaker 2: be playing into markets right now in a way that

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Speaker 2: may not be fully discounted.

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Speaker 7: Yeah, And I think it's worth pointing out that it's

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Speaker 7: always really hard for markets to fully discount some of

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Speaker 7: these geopolitical risks, but they're there, they exist, and they

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Speaker 7: they have the risk of sort of pushing markets down

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Speaker 7: an equilibrium or a dis equilibrium in a hurry. And

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Speaker 7: I think that is what's difficult for markets to price in.

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Speaker 7: Where you might want to watch that is in bed pricing.

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Speaker 7: So if we do see markets start depricing more rate cuts,

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Speaker 7: I think that could be the bond market saying hang on,

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Speaker 7: there is a little bit of risk there.

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Speaker 1: Let's just take a little bit of protection against that.

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Speaker 3: In terms of Asia, if we set aside China for

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Speaker 3: the moment, Japan is one place that a lot of

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Speaker 3: people are still thinking about, but they've been troubled by

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Speaker 3: the weakness in the end. I see here in the

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Speaker 3: notes that you're thinking that the end stands out as

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Speaker 3: an opportunity going forward. Describe why.

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Speaker 7: Yeah, I mean it has weakened a lot this year,

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Speaker 7: and it's forced the Japan Japanese authorities to intervene in

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Speaker 7: the currency markets, but overall, we still see the end

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Speaker 7: as a as a risk off currency is something that

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Speaker 7: where Japanese nationals will buy yen. If the global economy slows,

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Speaker 7: and we think that the global economy is slowing. In

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Speaker 7: that environment, you could see the yen strengthen. And I

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Speaker 7: do suspect we'll see some more policy support, whether that's intervention,

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Speaker 7: and that could come very very quickly, according to some

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Speaker 7: of the commentary we're hearing out of Japan recently, or

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Speaker 7: the Bank of Japan actually getting their act together and

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Speaker 7: hiking while they still have a window to do so.

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Speaker 7: I mean, that could leave the yen moving back towards

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Speaker 7: one forty by the end of the year, and that's

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Speaker 7: a pretty significant move.

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Speaker 2: Last topic before we let you go, Isaac Brian mentioned

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Speaker 2: in Vidia and the downdraft that we have seen in

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Speaker 2: the stock over the last three days. Very quickly. Where

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Speaker 2: do you come when it is about the AI story?

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Speaker 2: I mean, what are you coming down on the bullish

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Speaker 2: side still or are you beginning to get a little

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Speaker 2: worried about the rally that we have seen in many

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Speaker 2: of these names.

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Speaker 7: I think a good way to put it is there

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Speaker 7: has been a lot priced in to this rally, a

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Speaker 7: real lot, and there's an onus on some of these

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Speaker 7: other companies beyond in Video to show that it's going

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Speaker 7: to deliver earnings growth, and today all we've seen is

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Speaker 7: capek spend. So that is a challenge and we are

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Speaker 7: going to see some competition come through to twin Video

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Speaker 7: over the next six to twelve months.

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Speaker 1: That's the risk I think.

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Speaker 3: All right, Isaac, thanks very much for joining us. Isaac

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Speaker 3: Pool an old friend of the program, Global CIO and

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Speaker 3: PM at Orienta Financial Services.

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Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you

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Speaker 2: the stories, making news and moving markets in the Asia Pacific.

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