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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia Podcast. I'm Doug Chrisner. In a moment, we'll

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Speaker 1: look at one jurisdiction that may be benefiting from US

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Speaker 1: China trade tensions. We'll be speaking with Bloomberg opinion columnist

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Speaker 1: Shuley Wrenn on that. First, the churn of the US

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Speaker 1: equity market in the last session. That was after Moody's

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Speaker 1: Ratings downgraded the credit rating of the US late on Friday. Now,

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Speaker 1: a number of market strategists called this a non event,

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Speaker 1: since both S and P Global and Fitch made similar

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Speaker 1: adjustments years ago. We heard earlier from Jim Milstein. He

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Speaker 1: is the co chair at Guggenheim Securities. He told us

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Speaker 1: Washington could be headed for a quote fiscal disaster if

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Speaker 1: a recession were to hit.

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Speaker 2: You know, in the last five or six recessions, the

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Speaker 2: budget deficit actually blows out because tax revenues go down

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Speaker 2: and spending increases, so called automatic stabilizers. So what today

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Speaker 2: is six point four percent of GDP as a deficit

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Speaker 2: two point four trillion dollar deficit could easily expand to

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Speaker 2: four trillion dollars.

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Speaker 1: That is Jim Milstein, Co chair of Guggenheim Securities. Now.

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Speaker 1: At the same time, today, Moody's cut its ratings for

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Speaker 1: deposits at some of the big banks. That would include

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Speaker 1: Bank of America, JP, Morgan Chase, and Wells Fargo. Not surprisingly,

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Speaker 1: we had weakness in a couple of the bank stocks today,

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Speaker 1: but a number of strategists said any pullback in the

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Speaker 1: equity market could be a buying opportunity. So at today's low,

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Speaker 1: the S and P was down one percent, and indeed

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Speaker 1: the dip buyer seemed to emerge. The S and P

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Speaker 1: end of the day higher by a tenth at one percent.

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Speaker 1: Joining me now for a closer look at markets is

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Speaker 1: Rob Williams. He is managing partner also the chief investment

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Speaker 1: strategist at Sage Advisory Services. Rob is on the line

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Speaker 1: from Austin, Texas. Rob, good of you to join us.

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Speaker 1: What did you make of today's price section?

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Speaker 3: You know, just a lot of what we've seen, you know,

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Speaker 3: the ebb and flow of pessimism and optimism. You know,

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Speaker 3: the markets, you know have largely kind of decided to

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Speaker 3: call a little redo for the year. Once we had

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Speaker 3: a little de escalation in the China trade situation. You know,

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Speaker 3: recession odds have you know, fallen back. Markets have recovered,

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Speaker 3: but yet, you know, I think a lot of people

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Speaker 3: know we're still probably a little worse off than when

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Speaker 3: we began the year. So it warrants a lot of caution.

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Speaker 1: I think, are you troubled at all by the Moody's

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Speaker 1: downgrade or is that really something that's already been discounted

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Speaker 1: by the market, given the fact that S and P

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Speaker 1: Global and Fitch have already in prior years made similar moves. Yeah,

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Speaker 1: I think.

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Speaker 3: I mean it was largely you know, it's the third one,

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Speaker 3: you know, like you said, so it was largely baked in,

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Speaker 3: you know, a little bit, you know. So I don't

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Speaker 3: think it's going to have It's not a good thing

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Speaker 3: for the medium term. We all know we're gonna have

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Speaker 3: to continue to live running very high deficits relative to GDP,

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Speaker 3: which it is not a great thing.

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Speaker 1: I think it's.

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Speaker 3: Medium term, it doesn't change our rate outlook. I think

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Speaker 3: near term it does just put some you know, near

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Speaker 3: term pressure and maybe some steepness to the curve. But

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Speaker 3: I think medium term rates we still think rates go

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Speaker 3: down and the FED gets active later in the year,

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Speaker 3: you know, on economic weakness.

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Speaker 1: It's very interesting. Today the head of Switzerland Central Bank

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Speaker 1: gave a vote of confidence to the US bond market,

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Speaker 1: saying there is simply no alternative to them. Does he

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Speaker 1: have a point?

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Speaker 3: Yeah, I mean, look, we're still the reserve currency, We're

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Speaker 3: still the largest bond market, We're still the safe haven.

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Speaker 2: I know.

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Speaker 3: But like I said, things are rockier here. I think

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Speaker 3: people also realize we're not in vulnerable recession. Odds are

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Speaker 3: still significant. Trade is going to be a drag on

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Speaker 3: GDP for sure, job cuts will, the volatility in policy

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Speaker 3: decisions has increased. So I think, you know, I think

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Speaker 3: it's a the bare case for the dollar is on

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Speaker 3: for the medium term. But I think rates it's a

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Speaker 3: different story. I think I think they won't continue to

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Speaker 3: rise because I think, you know, some of the soft

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Speaker 3: sentiment data will start bleeding through to the hard data,

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Speaker 3: and the FED will have some latitude, you know, later

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Speaker 3: in the year to start easing.

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Speaker 1: So I hear that when it comes to the growth story.

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Speaker 1: But what about inflation, Because today Jamie Diamond, the head

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Speaker 1: of a JP Morgan Chase, was saying the chances of

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Speaker 1: elevated inflation and even stagflation are greater than people think.

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Speaker 1: I'm wondering what he sees that maybe the market doesn't

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Speaker 1: see at this point.

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Speaker 3: I mean, I think he sees what the FED is

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Speaker 3: worried about and why they're trying to be patient in

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Speaker 3: a difficult situation. Is you know, there's going to be

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Speaker 3: some impact on the good side of inflation. It won't

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Speaker 3: be like COVID and the supply chains break down, but

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Speaker 3: goods inflation is going to go up, right. The hope

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Speaker 3: is that or not, Maybe not the hope, but at

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Speaker 3: least weaker economic activity is going to lower the service

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Speaker 3: sector inflation. That's been the sticky part, and I think

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Speaker 3: sentiments getting bad guidance is hard to put out there.

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Speaker 3: I think the service sector weakness offset some of that

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Speaker 3: goods inflation in it and that goods inflation is somewhat temporary,

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Speaker 3: at least that's the Fed's view. But temporary still means

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Speaker 3: some ugly numbers, you know, in the future, at least

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Speaker 3: some ones that look more inflationary, and I think that's

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Speaker 3: what he's referencing.

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Speaker 1: We heard from the head of the Atlanta FED today,

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Speaker 1: Raphael Bostik, and he was saying that his expectation is

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Speaker 1: that the FED will deliver one rate cut this year.

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Speaker 1: The market right now, I think is leaning toward maybe

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Speaker 1: two twenty five bases point rate cuts. Where are you

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Speaker 1: right now in forecasting the Fed's move between now and

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Speaker 1: the end of the year.

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Speaker 3: Well, it's interesting, We've been probably two since the beginning

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Speaker 3: of the year, even when the market got all you know,

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Speaker 3: frothy over you know, you know, recession and more cuts.

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Speaker 3: You know, it's kind of come back the other way.

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Speaker 3: It's easy to get paralyzed short term volatility. But I

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Speaker 3: think they're going to go for one or two later

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Speaker 3: in the year as some of the data weaknesses right,

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Speaker 3: you know, we're going to have drag from terrorists, we

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Speaker 3: have job weakness. There's going to be some negative feedback

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Speaker 3: that we haven't felt yet on the data.

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Speaker 1: So if you believe directionally bond yields are headed lower,

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Speaker 1: I'm imagining that you don't believe that there is going

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Speaker 1: to be any stress that gets built into the balance

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Speaker 1: sheets of the big banks. I mean today we had

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Speaker 1: Moodies cutting ratings for deposits at some of the big

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Speaker 1: banks like Bank of America, JP, Morgan Chase, and Wells Fargo.

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Speaker 1: I mentioned that a moment ago when I kind of

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Speaker 1: read the note yesterday from Moody's about the overall downgrade

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Speaker 1: and the risk that was inherent in the messaging that

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Speaker 1: maybe US fields could push higher. I remembered what happened

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Speaker 1: with the Silicon Valley bank debacle and how that stressed

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Speaker 1: a lot of the regional bank balance sheets. But you

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Speaker 1: don't see that as a being at all a risk

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Speaker 1: going forward, do you?

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Speaker 4: No.

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Speaker 3: I mean, we like the banks both in credit and equities. Honestly,

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Speaker 3: I think you can car some of the same theme

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Speaker 3: through your credit side of the portfolio and the equities.

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Speaker 3: Banks have been largely improving their balance sheets, you know,

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Speaker 3: since twenty twenty three banking crisis, right, and then we're

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Speaker 3: sitting in a favorable regulatory environment, and so I think

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Speaker 3: they have some earnings tailwinds, right, and they don't have

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Speaker 3: supply chain risk. They have the tailwinds on the earning side,

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Speaker 3: and they have the deregulation story. So I think volatility

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Speaker 3: is fine, but we like the banks both within credit

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Speaker 3: and equities.

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Speaker 1: Today on Bloomberg, we heard from the co chair of

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Speaker 1: Guggenheim Securities, Jim Milstein, and he was saying that lawmakers

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Speaker 1: are risking a fiscal disaster if a recession were to

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Speaker 1: hit as they kind of move forward this package of

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Speaker 1: sweeping text cuts. Does he have a point?

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Speaker 3: Yeah, I mean he does have a point. I don't

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Speaker 3: I think, like I said, I think the markets and

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Speaker 3: perhaps the policymakers have sort of called a redo and

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Speaker 3: they're kind of taking this let's wait and see approach,

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Speaker 3: and whereas we're seeing some of the soft data has

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Speaker 3: collapsed and some of the job cuts haven't been felt

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Speaker 3: and rippled through the system. And look with terror, you know,

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Speaker 3: everyone's excited about China and going from one hundred and

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Speaker 3: forty five percent to thirty percent, but the effective tariff

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Speaker 3: rate for the for the you know, for global goods

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Speaker 3: coming into the US is still in that thirteen fourteen percent.

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Speaker 3: So that's multiples of where we were. So I think

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Speaker 3: there is a bigger I mean, I think the economy

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Speaker 3: is going to stall and to and to and to

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Speaker 3: dump a huge spending package or or a poorly thought

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Speaker 3: out package is not.

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Speaker 1: A good thing. So if stall is your base case here,

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Speaker 1: is it too much to say that we could see

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Speaker 1: a recession? Or is that not quite kind of where

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Speaker 1: you're forecasting things.

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Speaker 3: You know, it could easily happen because I think we

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Speaker 3: were already not us, but consensus in the beginning of

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Speaker 3: the year was already going to have a couple of

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Speaker 3: quarters of very low growth, you know, sub one percent

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Speaker 3: and half a percent. That is pretty much stall speed.

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Speaker 3: So you have anything that ripples through that that is

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Speaker 3: a little bit worse, and you could worse, and you

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Speaker 3: could easily hit a couple of negative quarters. But I'll

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Speaker 3: call it stall it because it's either slightly negative or

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Speaker 3: close to zero. It's basically the economy stalled. And I

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Speaker 3: you know, I think rates are more priced for that,

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Speaker 3: and equities at a twenty one plus p y or

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Speaker 3: not quite you know, ready for that reality.

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Speaker 1: I think. So if stall may be the new reality,

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Speaker 1: let's get back to the financials, why are you so bullish?

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Speaker 3: Well, like I said, I still think you know, they're

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Speaker 3: on the credit side, they're not cyclically super cyclically inclined, right,

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Speaker 3: so there's still somewhat defensive on that side, and yields

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Speaker 3: are attractive, and their balance sheets are very strong. So

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Speaker 3: I think you want something that can weather you know,

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Speaker 3: a slowdown from the balance deat perspective, right, I think

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Speaker 3: you want to minimize, you know, anything that's got obvious

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Speaker 3: exposure to the policy that's going to be driving this

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Speaker 3: in recession, like trade policy and job cuts that would

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Speaker 3: be you know, consumer cyclical. I think that will get

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Speaker 3: work worth healthcare. We're certainly worried about anything in the

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Speaker 3: supply chain like autos. So I think it's a better

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Speaker 3: place to be is in banks utilities. Certainly, utilities are

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Speaker 3: low beta, but they also have that AI driven you know,

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Speaker 3: infrastructure spending behind them. You know, I think it's they're

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Speaker 3: better off than a lot of sectors from a balance

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Speaker 3: sheep perspective.

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Speaker 1: Okay, Rob, we'll leave it there, Thank you so much.

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Speaker 1: Rob Williams is managing partner also the chief investment strategist

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Speaker 1: at Sage Advisory Services. Joining from Austin, Texas here on

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Speaker 1: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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Speaker 1: I'm Doug Chrisner. So markets are still being challenged with

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Speaker 1: having to navigate the effects of the US China trade

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Speaker 1: war at the moment, Yes, there does seem to be

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Speaker 1: a little less anxiety given the recent temporary truth and

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Speaker 1: some analysts are saying the probability of recession has been reduced.

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Speaker 1: But what about the beneficiaries of this trade skirmish? Have

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Speaker 1: there been any? Well, Bloomberg opinion columnist Truly Wren has

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Speaker 1: identified one Hong Kong. Let's get her inside. Now Shuley

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Speaker 1: joins us from Hong Kong. It's always a pleasure to

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Speaker 1: chat with you. You're such a thoughtful columnist, and you're

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Speaker 1: writing that Hong Kong is finding its footing again in

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Speaker 1: spite of the fact that we've got this trade war

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Speaker 1: between the US and China. What's happening here?

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Speaker 4: Yeah, it's ironic, right, because you imagine Hong Kong, being

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Speaker 4: a part of China, will be caught in this US

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Speaker 4: China trade war. It's a major re exporder of Chinese

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Speaker 4: electronic goods. And you know, Hong Kong has a lot

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Speaker 4: of political issues. The twenty nineteenth for Democracy movement didn't

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Speaker 4: pan out very well and there are a lot of

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Speaker 4: political dissidents. So it has been on the on the

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Speaker 4: bedside of the United States, and a lot of people

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Speaker 4: think Hong Kong has lost its status as a prime

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Speaker 4: financial center. But ironically, I think Hong Kong is finding

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Speaker 4: its futing again because now Hong Kong can actually provide

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Speaker 4: financing to Chinese companies that are eager to go abroad

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Speaker 4: and become multinationals.

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Speaker 1: Where is this foreign capital coming from? Is it coming

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Speaker 1: from countries other than the US right now? Yes?

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Speaker 4: Interestingly, because of President Donald Trump's unpredictable policies, a lot

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Speaker 4: of global investors, especially in Europe, they're looking for a

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Speaker 4: plan B. Right like the so called sell American narrative

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Speaker 4: is picking up pace, and people are trying to find

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Speaker 4: alternative growth growth models, and they are seeing that some

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Speaker 4: Chinese companies that are willing to go abroad and localize

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Speaker 4: and the build factories abroad, they might have a new

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Speaker 4: growth trajectory and that's why they're coming to Hong Kong.

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Speaker 1: So we're talking here about companies that already are established

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Speaker 1: looking for additional capital. I'm curious as to whether or

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Speaker 1: not there are new issues coming to market in Hong Kong.

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Speaker 1: How's the IPO market right now?

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Speaker 4: Ironically, it's heating up. I mean today there is a

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Speaker 4: new stock being listed in Hong Kong. It's called cattle Ctl.

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Speaker 4: It's the world's largest EV battery manufacturer and they just

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Speaker 4: raised four point six billion. Next week, we'll have a

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Speaker 4: biotech company called the Juansu hundred coming in and it's

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Speaker 4: raising one point three billion dollars, and that these are

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Speaker 4: big IPOs even on the global scale.

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Speaker 1: Right, is everything related to some form of electronic technology

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Speaker 1: or are there other industries that are joining in on

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Speaker 1: the party.

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Speaker 4: I think people are looking at the so called the

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Speaker 4: manufacturing two point zero. Right, there is electronic two poil,

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Speaker 4: such as electric vehicle makers like bid ctl, but there

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Speaker 4: is also the so called biotech two poil terms Chamsuo hundred,

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Speaker 4: the company that's going to go public in Hong Kong

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Speaker 4: next week. They are telling their story. They are actually

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Speaker 4: developing drugs quite fast, and the idea is that they

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Speaker 4: will build the R and D centers overseas and sell

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Speaker 4: their drugs overseas as well.

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Speaker 1: So you're talking about how Hong Kong is benefiting from

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Speaker 1: this flow of foreign capital. Ultimately it's going to make

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Speaker 1: its way to the mainland here, what's the effect going

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Speaker 1: to be when it reaches China.

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Speaker 4: I think all the capital raising Hong Kong actually will

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Speaker 4: stay in Hong Kong, Hong Kong and overseas, because, I mean,

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Speaker 4: it's no secret that the China's economy is not doing

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Speaker 4: so well. All these companies. They're really ambitious. They don't

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Speaker 4: want to develop further in China because they think that

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Speaker 4: the economy has saturated. What they want to do is

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Speaker 4: to use this capital raising Hong Kong outside of mainland

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Speaker 4: China and reinvest outside of the mainland China as well,

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Speaker 4: especially say in Latin America, Europe and southeas so.

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Speaker 1: I stand corrected. On the mainland. Obviously, there is the

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Speaker 1: issue of overcapacity when it comes to manufacturing. Different story

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Speaker 1: I'm imagining when it comes to Hong Kong.

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Speaker 4: Right, yes, And the reason why all these like all

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Speaker 4: the global investors are liking these companies that are wanting

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Speaker 4: to become multinationals is in part because Chinese economy is

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Speaker 4: doing so bad and because of the hyper competition at home,

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Speaker 4: these companies have become really good, you know, Like I mean,

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Speaker 4: if you're always racing for the last bit of a dollar,

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Speaker 4: you become highly competitive as well. And as a result,

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Speaker 4: they think when these companies go abroad, they will kill

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Speaker 4: the global internationals. For instance, we have already seen that

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Speaker 4: bid the ev maker, right, it's out pacing Tesla.

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Speaker 1: So I'm imagining listening to you, surely that this is

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Speaker 1: a good time for the investment banks that are established

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Speaker 1: in Hong Kong, right, it's.

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Speaker 4: Better than before. I mean, for three years investment banks

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Speaker 4: had no business. Now they have some business. But these

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Speaker 4: Chinese companies, they are also very how to put it,

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Speaker 4: like a very thrifty, right. They know their hot IPOs

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Speaker 4: and they want to squeeze the investment banking fees. So yes,

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Speaker 4: I have her bankers complaining that they're not getting so

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Speaker 4: much fees and whatever. But at least you have some business, right.

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Speaker 1: What about for the exchanges in Hong Kong, the trade equities,

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Speaker 1: how is their business performing?

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Speaker 4: That's doing well. It's kind of like the rest of

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Speaker 4: the world. It's doing pretty well. Like Hong Kong stock market,

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Speaker 4: the hands and indexes of fifteen percent, the cost of

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Speaker 4: the margin loans, the cost of financing has tumbled to

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Speaker 4: just zero point four percent from four percent at the

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Speaker 4: beginning of the month. It's doing pretty well.

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Speaker 1: When you talk to people in Hong Kong about the

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Speaker 1: weakness on the mainland, what are they saying. Are they

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Speaker 1: optimistic that things will begin to turn around and maybe

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Speaker 1: Hong Kong can benefit from a resurgence in Chinese growth.

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Speaker 4: I think people it's hard to find somebody who's optimistic

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Speaker 4: about China's economy right now. It's very hard. But on

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Speaker 4: the other hand, I would also like to say the

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Speaker 4: relative reference point is important. Right, Like, China ten years

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Speaker 4: ago was growing at ten percent, now it's growing at

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Speaker 4: one percent. So people feel that the economy is really

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Speaker 4: really bad. But how bad is it really like compared

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Speaker 4: to say, some parts of Western Europe? Right, I think

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Speaker 4: everything is relative, But I really still think that I

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Speaker 4: have not heard anyone telling me the economy is going well.

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Speaker 2: Well.

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Speaker 1: We just had the monthly activity data for the month

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Speaker 1: of April the other day. Industrial production top estimates, but

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Speaker 1: retail sales disappointed. So it's really a story about continued

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Speaker 1: weak sentiment among Chinese consumers.

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Speaker 4: Right, yes, yes, Chinese consumers. Some of them have money,

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Speaker 4: but they are a little bit cautious and they don't

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Speaker 4: really want to spend all.

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Speaker 1: Right, Well, leave it there, Truly, it's always a pleasure.

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Speaker 1: Thank you so much, Bloomberg Opinion columnist Truly Wren joining

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Speaker 1: us here on the Daybreak Asia podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets finance

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner, and this is Bloomberg