Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner,
Speaker 2: US Markets whipsaud on conflicting signals as to whether President
Speaker 2: Trump was considering firing fed Share J. Powell, and in
Speaker 2: a moment we'll look at the Trump Powell controversy with
Speaker 2: Rich Mullen. He is the CEO at Palace Capital Advisors.
Speaker 2: But we begin this morning in the Asia Pacific. Joining
Speaker 2: me now is Ekaterina Bigos, CIO for Asia ex Japan
Speaker 2: Core Investments at AXA Investment Managers. Ekaterina joining from our
Speaker 2: studios in Hong Kong. Thank you for making time to
Speaker 2: chat with me. So we had the monthly activity data
Speaker 2: for China earlier in the week and the figures on
Speaker 2: industrial production beat forecast. I feel like this is a
Speaker 2: story of Chinese exports, may be a little surprising in
Speaker 2: that I don't know how much it's a traf story.
Speaker 2: How are you viewing the Chinese export economy right now?
Speaker 3: Well, I mean the Chinese explorer economy has done fairly
Speaker 3: well through the spirit of uncertainty around tires. First of all,
Speaker 3: I mean it was the escalation and the escalation which
Speaker 3: I think was positive, but the key one was the
Speaker 3: redirection of the trades to Asian and a lot of
Speaker 3: it then from Asian actually ended up to be in US,
Speaker 3: so I think redirection, so that the escalation and the
Speaker 3: redirection has certainly provided easing on the impact that otherwise
Speaker 3: would have materialized if those didn't happen, right, So I
Speaker 3: think that's ultimately led to China still driving the growth
Speaker 3: through the external part, which is the exports.
Speaker 2: So markets have been dealing with the reality of this
Speaker 2: US terraff regime for a couple of months. Now. Are
Speaker 2: you surprised at how well economies and markets seem to
Speaker 2: be holding up?
Speaker 3: I think they ultimately comes down to the point that
Speaker 3: I made earlier. I think the tire of delay, the
Speaker 3: front loading that we've seen from some of the US
Speaker 3: as well in other markets, and the transcripment, as I said,
Speaker 3: through other economies that part of it ended in the US,
Speaker 3: and just a general redirection for China and to other
Speaker 3: markets has obviously provided a relief but also has supported
Speaker 3: the growth for US in economies. So that resilience and
Speaker 3: redirection that we've seen and certainly has benefited the US
Speaker 3: in economy then other theme that obviously has been present
Speaker 3: is the tex So tech is still alive and AI
Speaker 3: and development, which has led to increased demand for chips,
Speaker 3: which as in again is part of that supply chain
Speaker 3: for chips, which has provided resilience as gone to the
Speaker 3: second part of the year. I think that element related
Speaker 3: to tire delay, the front loading and transhipment is going
Speaker 3: to wind down, but I think the tech team is
Speaker 3: still going to be present. But a combination of that
Speaker 3: with probably deceleration of the onshore demand will probably have
Speaker 3: a weaker growth in a broader Asia, including China. So
Speaker 3: the broader view for China and Asia is decelerating growth
Speaker 3: from here.
Speaker 2: Well, I'm glad you mentioned the AI story because we've
Speaker 2: been getting indications that the American government has lifted certain
Speaker 2: restrictions export restrictions to some types of AI chips to
Speaker 2: the Chinese market. I don't know if this indicates maybe
Speaker 2: a little bit of movement in terms of overall trade negotiations,
Speaker 2: but what do you think it means for the technology
Speaker 2: industry on the mainland.
Speaker 3: I think it's positive and we've seen already the sector
Speaker 3: taking that news in a very positive light, and I
Speaker 3: think it just gives China more room to advance in
Speaker 3: that technological the technological sphere, and ultimately I think is
Speaker 3: positive as well because US is using this as a
Speaker 3: way of negotiating and getting outcome from China to deliver
Speaker 3: certain elements that are beneficial for the US. Again, the
Speaker 3: level of chips or the high performance of the chips
Speaker 3: that being allowed to be exported to China, They're not
Speaker 3: the highest performance level of chips, which again puts them
Speaker 3: still back and potentially advancing some sphere of that technological drive.
Speaker 2: We heard recently from President Trump saying that he's likely
Speaker 2: to impose tariffs on pharmaceuticals as soon as the end
Speaker 2: of the month. Do you have a sense of the
Speaker 2: ramifications of a move like that.
Speaker 3: Yeah, and I think some of the company is, particularly
Speaker 3: places like Singapore, stand to be impacted more India to
Speaker 3: a certain degree, and I think it could have ramifications
Speaker 3: for China. I think the broader pharma and biotech sector
Speaker 3: just as a spillover, but I think the manufacturing per se.
Speaker 3: I think the Singapore and India, I said the less
Speaker 3: degree are likely to be more impacted. But certainly those
Speaker 3: victorial tires we need to get prepared for. They will come.
Speaker 3: Is a question of how they're going to get implemented,
Speaker 3: because the aim for the US is to reshore some
Speaker 3: of that activity back home, and it's a strategic move
Speaker 3: which is likely to evolve as we go into the
Speaker 3: second part of the year.
Speaker 2: So Trump was also saying that he's recently reached a
Speaker 2: deal with Indonesia. Imported goods the US from Indonesia will
Speaker 2: face a nineteen percent tearoff. That seems maybe a little
Speaker 2: high relative to what the market may have been expecting.
Speaker 2: I think for Trump, what's more important is that US
Speaker 2: exports moving into the Indonesian market will not be taxed.
Speaker 2: How would you evaluate this deal?
Speaker 3: I think ultimately is what is the perception of Indonesia.
Speaker 3: Did they get the good deal out of that? And
Speaker 3: the signs at the moment is that the Indonesian are
Speaker 3: relatively happy in how the deal was negotiated. And again,
Speaker 3: the previous tariffs would have been higher, so obviously it's
Speaker 3: a desceleration from that. And I think if I had
Speaker 3: to covet and kind of broaden and canvas the trade negotiations,
Speaker 3: I think the market expectation is by enlarge that the
Speaker 3: tariffs that were voiced in the past, were the kind
Speaker 3: of the upper limit of it, and the majority of
Speaker 3: the trading partners will get a lower rate, unless, of
Speaker 3: course they they tried to impost tier from the US
Speaker 3: and again escalation of tit for tat, which we've seen
Speaker 3: in case of China. But I think market is that's
Speaker 3: a positive sign because again the level is just lower
Speaker 3: to what it was voiced in the past.
Speaker 2: I'm curious about the degree to which you're looking at
Speaker 2: the behavior of the dollar recently and guiding a lot
Speaker 2: of the decision making that you're having to confront right now.
Speaker 2: The dollar seems to have weakened a bit. I mean,
Speaker 2: we're strong over the last several days, but I think
Speaker 2: generally speaking, the trend has been to the weak side here.
Speaker 2: I mean, talk to me a little bit about how
Speaker 2: you understand that, particularly in light of what the Fed
Speaker 2: may be doing between now and the end of the year,
Speaker 2: and how that's influencing your decision making.
Speaker 3: That's certainly, I mean, if you look at the beginning
Speaker 3: of the year and the expectations that many cell side
Speaker 3: and by side put in place, certainly was dollar strengthening
Speaker 3: or dollar staying kind of range bound? The dynamics of
Speaker 3: the dollar. There's one point to highlight hasn't been uniform.
Speaker 3: It's not just a dollar weakness across the board. Is
Speaker 3: dollar weakness against various economies. We've seen that against the
Speaker 3: Euro because, of course we've seen as part of the
Speaker 3: tariff's escalation is the uncertainty of US assets has been
Speaker 3: in the spotlight, so investors looked increasingly to diversify away
Speaker 3: from US into other markets, and Europe, despite DCB being
Speaker 3: ahead of the FED, was a key beneficiary of that
Speaker 3: inflows also from Asia. What we've seen a trend that
Speaker 3: we've seen again materializing this year is that the hedging
Speaker 3: costs for Dollar assets is still prohibitive relative to European assets,
Speaker 3: and we've seen Asian investors starting from hedge bases and
Speaker 3: diversification need bases to move into assets away from US
Speaker 3: into Again, this is not a structural shift away from US,
Speaker 3: but this is a diversification drive that is materializing.
Speaker 2: When you look at South Asia versus the Northern Asian economist,
Speaker 2: and I'm thinking principally of Japan and South Korea, what's
Speaker 2: the contrast here.
Speaker 3: Yeah, the different dynamics that are driving those economy there's
Speaker 3: some Ultimately tariffs is again impacting both economies. But one
Speaker 3: part that is challenging for Japan at the moment, as
Speaker 3: we've seen, is obviously policy or fiscal policy, which has
Speaker 3: brought a lot of attention from the investors, particularly on
Speaker 3: the thirty year jgb's fields elevating higher. And again, what
Speaker 3: is Japan government conflicted with at the moment is economy
Speaker 3: that is emerging out of kind of this stagnation but
Speaker 3: is not yet thriving. It needs a support, a support
Speaker 3: when the monetary policy is normalized and the fiscal policy
Speaker 3: does not have room, so they would have and they
Speaker 3: should use some element of support, but again the room
Speaker 3: is limited, and we've seen obviously the elections that are
Speaker 3: coming up in Upper House on the twentieth of July
Speaker 3: kind of putting a lot of pressure on the JGBS
Speaker 3: because of that need to provide additional fiscal stimulus, which
Speaker 3: again the room is limited. When it comes to Koreas,
Speaker 3: certainly the dynamics related to tyres. Of course, tech is
Speaker 3: part of the theme that has kept career resilient. And
Speaker 3: in Korea what we had is a lot of political
Speaker 3: instability and also you can say by and large. Korea
Speaker 3: has a lot more fiscal room unmonitored room to support
Speaker 3: the economy, so slightly different dynamics macrodynamics between the two economies.
Speaker 2: Ekaterina will leave it there, Thank you so very much.
Speaker 2: Ekaterina bigos Cio for Asia ex Japan Core Investments at
Speaker 2: Axa Investment Managers. Joining from our studios in Hong Kong.
Speaker 2: Here on the Daybreak Asia Podcast. Welcome back to the
Speaker 2: Daybreak Asia Podcast. I'm Doug Krisner. President Trump is denying
Speaker 2: that he intends to fire Fetcher J. Powell. Late this morning,
Speaker 2: a White House official told us the President was likely
Speaker 2: to oust Powell soon. However, a short while later, President
Speaker 2: and Trump said he has no plans to fire the
Speaker 2: FED share and he said he was only discussing it
Speaker 2: in concept during a closed door meeting with House Republicans.
Speaker 2: So when the dust settled, it seems as though the
Speaker 2: market was looking through this episode as political theater. Nonetheless,
Speaker 2: the race is on to find a successor to Powell.
Speaker 2: We have learned that ANYC director Kevin Hassett is an
Speaker 2: early favorite. Here is Bloomberg's and Marie hor Dern.
Speaker 4: This is someone that he would be willing to cut rates,
Speaker 4: and he's telling people inside and outside the administration that
Speaker 4: he would like the job. The President also said yesterday,
Speaker 4: which I thought was really interesting, that Scott Bessett is
Speaker 4: still an option, but he's not his top option because
Speaker 4: he liked the job he's doing at Treasury. And we've
Speaker 4: been talking about that really for weeks. If the President
Speaker 4: was going to pull the Treasury secretary to move him
Speaker 4: over to the FED, this would create almost another problem
Speaker 4: and a huge hole for the president.
Speaker 2: That is Bloomberg's and Marie hor Dern in the Washington
Speaker 2: Let's get some reaction to all of this now from
Speaker 2: Rich Mullen, he is founding partner and CEO at Palace
Speaker 2: Capital Advisor's Riches on the line from just outside Boston,
Speaker 2: thank you for making time to chat with me. What
Speaker 2: did you make of this whole episode today, Rich, I
Speaker 2: think we've got.
Speaker 1: Some more gamemanship, quite frankly, I mean, we've seen this
Speaker 1: in the behavior out of Trump and the tariffs. I
Speaker 1: know that this is a far more dangerous game to
Speaker 1: be playing, but I really feel it's unlikely that Trump
Speaker 1: would fire the FED chair. I mean, we'd be extremely
Speaker 1: destabilizing to the markets. We saw that. When the announcement
Speaker 1: was out, I think the S and P dropped forty
Speaker 1: or fifty points. There was a spike in gold, and
Speaker 1: then on the denial, all that kind of reverse then
Speaker 1: seemed to the market found a little solace in it.
Speaker 1: I think that, you know, Trump is not unaware that
Speaker 1: this would be an extremely negative event for the markets.
Speaker 1: You know, there's no secret that Trump follows the markets
Speaker 1: very very closely. You know, if he were, you know,
Speaker 1: to fire the FED chairman right now, I think you'd
Speaker 1: see the gold sore, you'd see a massive spike in
Speaker 1: interest rates, and obviously it would affect the equity market.
Speaker 1: You know, I really kind of feel like this is
Speaker 1: the game that he's playing here is we've seen the
Speaker 1: dollar depreciate considerably. You know, there's it's kind of pick
Speaker 1: your adventure here watching the markets respond to Fed's to
Speaker 1: the Trump administration's policy. You know, we're seeing this depreciation
Speaker 1: in the dollar, and Trump administrations made no bones about
Speaker 1: it that the weaker dollar is something that they favor.
Speaker 1: You know, is really supportive of the country's industrial fabric.
Speaker 1: It encourages exports, it may offset some of the damage
Speaker 1: that you know, the economy's feeling are potentially fearing, I
Speaker 1: should say, from the tariffs. But I think it's a
Speaker 1: it's a remote situation that the FED that Trump would
Speaker 1: fire the FED President Powell right now, especially with ten
Speaker 1: months left in his term.
Speaker 2: I mentioned that a leading candidate to become the FED
Speaker 2: share when Powell's term is over next to May, is
Speaker 2: Kevin Hasset, one of the President's longest serving economic aids.
Speaker 2: Are you concerned in a scenario such as that where
Speaker 2: maybe the Fed's independence would be at risk?
Speaker 1: I am. I mean, I think, you know, appointing a
Speaker 1: dubbish successor, which I don't know whether you could label
Speaker 1: the Hazzard like that. You certainly could label him as
Speaker 1: perhaps you know, a shadow of Trump's you know, impact
Speaker 1: on the on the FED. But I think that would
Speaker 1: also have the same effect. It might not be as dramatic,
Speaker 1: but it would gradually continue to weeken. The dollar, bond
Speaker 1: prices would would I think, you know, yields would continue
Speaker 1: to rise, and certainly gold and would would also assume
Speaker 1: it's a cent in that scenario. So I think you
Speaker 1: really have to be careful. I think that the the
Speaker 1: Fed's independence is paramount here and I think you have
Speaker 1: to rely on the fact that this is a pro
Speaker 1: business administration, and I think there's still a lot of
Speaker 1: gamesmanship here, So I think any sort of replacement to
Speaker 1: Powell has to be looked at, and I believe will
Speaker 1: be through that lens.
Speaker 2: Nonetheless, if you look at let's say, today's PPI report,
Speaker 2: which kind of reinforces the case for FED rate cuts
Speaker 2: this year, I know that there's been some debate about
Speaker 2: the impact of tariffs and whether or not they will
Speaker 2: indeed be inflationary, But at this point where you said,
Speaker 2: is there the risk maybe that the FED is a
Speaker 2: little behind the curve.
Speaker 1: I think it's a little early to tell, and I
Speaker 1: think what we need to see is some of this
Speaker 1: play out. I mean, we don't really know necessarily in
Speaker 1: my opinion, with the start and stops of the tariffs.
Speaker 1: You know, it's our opinion here that tariffs are you know,
Speaker 1: take typically two months or so to show up in
Speaker 1: inflation numbers, not seeing that in space certainly, and then
Speaker 1: a quarter or two to show up in the economy.
Speaker 1: So you're right, I mean today, yesterday's PPI was a
Speaker 1: bit benign and certainly you know, lower than expected, but
Speaker 1: the CPI came in a little bit hotter, you know,
Speaker 1: at ex Food and Energy it was actually a little
Speaker 1: bit cooler. So we're not seeing the effects of tariffs
Speaker 1: play out, you know, certainly to the degree that people
Speaker 1: had expected in the inflation numbers. I've been looking at
Speaker 1: the jobs market, you know, I've been kind of looking
Speaker 1: at We all know that this economy's consumer driven, right,
Speaker 1: and we're starting to see a little bit of slack
Speaker 1: and softening in the jobs market still though, you know,
Speaker 1: you can trast that with what the banks reported today.
Speaker 1: The consumers alive and well swiping away if you will,
Speaker 1: at cards delinquencies and cards card balances are up, at
Speaker 1: delinquencies aren't. So there's a you know, a bit of
Speaker 1: a mosaic here of a lot of different moving parts,
Speaker 1: and I think it's a little early to draw some conclusions.
Speaker 1: You know, let's just talk about the market. You know,
Speaker 1: while it's trading at fairly fully priced, if not rich valuations,
Speaker 1: you still have Nvidio four trillion dollar company growing at
Speaker 1: sixty nine percent. Somebody spending money.
Speaker 2: Yeah, most definitely. But you mentioned the banks. I'm glad
Speaker 2: you did, because some of this trading revenue data that
Speaker 2: we got today from the likes of Goldman Sachs, Bank
Speaker 2: of America, Morgan Stanley. That's very, very impressive performance.
Speaker 1: Yeah, I mean you can you could tie that right
Speaker 1: to volatility. You know, if you think about the fact
Speaker 1: that you know, we started the year in the market
Speaker 1: in the s and P five hundred, you know, making
Speaker 1: all time highs in February, followed by our Liberation Day
Speaker 1: pullback of twenty plus percent, and then a subsequent bounce
Speaker 1: and now sitting again at new highs. All that plays
Speaker 1: a great music to the traders on the desk? Is
Speaker 1: that volatility? Is it really? I think enhances an exacerbased
Speaker 1: trading revenues.
Speaker 2: We also had the fed's Page Book Survey today. Economic
Speaker 2: growth activity, according to the FED, increased slightly between late
Speaker 2: May and early June, but a level of uncertainty remained elevated,
Speaker 2: and that is contributing to this ongoing caution on the
Speaker 2: part of businesses. We're talking about the tariff story here.
Speaker 2: Do you think it's an urgent matter now that the
Speaker 2: administration really needs to resolve these trade deals before things
Speaker 2: kind of progress further and maybe deteriorate confidence to a
Speaker 2: greater degree.
Speaker 1: I really do I mean, I started off the conversation
Speaker 1: by saying that I think there's a lot of gamesmanship
Speaker 1: going on here. You know, I think, you know, the
Speaker 1: art of the deal right is seemingly in play every
Speaker 1: single day with the with the current administration. But I
Speaker 1: do think that, you know, with this heightened level of
Speaker 1: uncertainty and corporation's failure to do any sort of long
Speaker 1: range planning, I think the longer that that goes on,
Speaker 1: I think it could have a you know, kind of
Speaker 1: a deleterious effect going forward, and maybe even a negative
Speaker 1: feedback loop. I mean, listen, we're in the midst of
Speaker 1: earning season right now, and I think we're going to
Speaker 1: get some clarity on that as to what these companies
Speaker 1: are seeing, what they're able to do, how they're able
Speaker 1: to project going forward, and maybe some insight is to
Speaker 1: how they're kind of preparing or planning for this uncertainty.
Speaker 2: Are you focused more on what's going on in the
Speaker 2: States or are you looking for opportunities offshore right now?
Speaker 2: Do you want to be diversified a little bit in
Speaker 2: foreign markets?
Speaker 1: We've been moving up our allocation to the international markets.
Speaker 1: The national markets Europe in particular have had a prolific gain.
Speaker 1: And you know, you can contribute that to a bunch
Speaker 1: of different things, but certainly the effects of some of
Speaker 1: the trade policy or Trump trade policies, and also the
Speaker 1: mandate for increased defense spending that's going on over there.
Speaker 1: But I think you're seeing some of the trade policies
Speaker 1: and the Trump administration policies play out in Europe. I think,
Speaker 1: you know, europe x age is up about nineteen percent,
Speaker 1: So I mean there's a market rally over there that
Speaker 1: we're attending to. Certainly in our allocations, we don't think
Speaker 1: it's a blip. We think it's somewhat of a secular
Speaker 1: move as a result of some of these policies taking
Speaker 1: hold over there. So that is certainly I think the
Speaker 1: focus of our portfolios right now.
Speaker 2: Okay, Rich, well leave it there. Very good. Thank you
Speaker 2: so much, Rich Mullin. He is founding partner also the
Speaker 2: CEO at Palace Capital Advisors. On the line from just
Speaker 2: outside Boston here on the Daybreak Asia podcast. Thanks for
Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 2: Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia. Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Chrisner, and this is Bloomberg.
Speaker 3: He