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

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

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Speaker 2: markets are gearing up for President Trump's long promised tariffs

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Speaker 2: on China, Canada, and Mexico. These new levies are set

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Speaker 2: to go into effect at twelve oh one am Wall

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Speaker 2: Street Time. Coming up. In a moment or two, we'll

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Speaker 2: be speaking with Patrick Kennedy. He is founding partner at

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Speaker 2: All Source Investment Management. But let's begin in China because

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Speaker 2: all eyes today will be on the two Sessions meetings.

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Speaker 2: This is the National People's Congress and the Chinese People's

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Speaker 2: Political Consultative Conference. They will hold their meetings beginning today.

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Speaker 2: For a closer look, I'm joined by Shazad Kazi. He

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Speaker 2: is the COO also Managing director at China beij Book,

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Speaker 2: joining me in the Interactive Broker studio here in New York.

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Speaker 2: Good of you to drop by. What are markets going

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Speaker 2: to be looking for it from the two sessions? Do

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Speaker 2: you think?

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Speaker 1: Well?

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Speaker 3: I think the biggest thing that markets are looking for

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Speaker 3: is how big or how robust a stimulus package are

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Speaker 3: they going to unveil at these these at this meeting?

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Speaker 3: What the fiscal and budget deficits are going to look

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Speaker 3: like for the next year.

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Speaker 2: So do you think a growth target of five percent

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Speaker 2: is something that leadership will offer up?

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Speaker 3: Most likely they'll at least hint at it. You know,

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Speaker 3: I think they've had a change of mind for suggesting

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Speaker 3: that they were going to do away with annual growth

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Speaker 3: targets but never actually doing that and now seemingly setting

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Speaker 3: them every year. Anyway, again, five percent seems to be

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Speaker 3: what they're going to most likely highlight. I think markets

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Speaker 3: are more or less agreed on that, so there may

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Speaker 3: not be very many surprises there.

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Speaker 2: But doesn't leadership have to agree to expand the deficit

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Speaker 2: to meet that growth target? Are we likely to see

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Speaker 2: that happen? Or do you think the accumulation of a

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Speaker 2: little bit more dead is something that China is really

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Speaker 2: trying to avoid? Right now, let me.

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Speaker 3: Just quickly say that, first of all, this new five

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Speaker 3: percent target that they've been going after, it's starting to

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Speaker 3: look a lot like that old six point eight percent,

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Speaker 3: where the economy would just grow six point eight percent

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Speaker 3: quarter after quarter a year after year.

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Speaker 2: So you know, they just to say that, you really

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Speaker 2: don't put a lot of you don't believe it.

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Speaker 3: I think markets should take it with a grade assault,

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Speaker 3: maybe two or three, and so I think that that's

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Speaker 3: number one. Number two is yes, of course they are

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Speaker 3: absolutely going to have to throw some money at it. Now.

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Speaker 3: The economy is not doing nearly as terribly as I

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Speaker 3: think a lot of the consensus would have had you

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Speaker 3: believe late last year, so the deficit spending may not

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Speaker 3: actually have to be as large. Of course, we'll see

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Speaker 3: what the numbers look like.

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Speaker 2: You could make the case that the leadership is being

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Speaker 2: very prudent in trying to unwind a lot of the

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Speaker 2: excess that may have built up visa VI the property market.

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Speaker 2: Do you think that what is happening right now is

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Speaker 2: basically sound economic policy or is China taking a big risk,

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Speaker 2: maybe going into something that's going to be a little

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Speaker 2: bit more protracted and difficult from which to extras.

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Speaker 3: There's sort of a trouble spot here. On the one hand,

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Speaker 3: they are trying to bring the economy back to life,

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Speaker 3: especially the property market. I think they've slowly tried to

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Speaker 3: resuscitate it, and there are signs that they are being

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Speaker 3: successful there. Their biggest challenge that's been talked about for

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Speaker 3: well over a decade at least is how do you

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Speaker 3: transform the economy so that you can actually spur more

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Speaker 3: consumption and less savings among Chinese households. They don't seem

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Speaker 3: to want to do anything about that from a policy standpoint.

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Speaker 3: So it's not so much that they've been prudent. I

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Speaker 3: think that political will to make some of those tough

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Speaker 3: decisions and to really say we're going to actually transform

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Speaker 3: our policy making in order to become a consumer driven

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Speaker 3: economy five, ten, fifteen years down the road, they're just

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Speaker 3: not able or willing to do it.

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Speaker 2: The risk of a trade war. We're getting some headlines

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Speaker 2: right now as I'm talking to you about how China

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Speaker 2: strongly opposes these new tariff measures. We're in something that

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Speaker 2: feels like a lot more than a trade war. I mean,

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Speaker 2: we can talk about de coupling if that's the way

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Speaker 2: that you see this further decoupling. How problematic is this

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Speaker 2: right now in terms of what the US is trying

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Speaker 2: to achieve and the way in which that may hold

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Speaker 2: back Chinese growth.

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Speaker 3: Yeah, Look, I think they expected tariffs to hit. They

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Speaker 3: were hoping perhaps that the tariff would hit later in

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Speaker 3: the year or could and therefore potentially could be avoided

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Speaker 3: with an interim deal. Now that's all out the window,

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Speaker 3: at least as far as we're concerned. Now they're going

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Speaker 3: to try to counteract that by supporting their manufacturing base,

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Speaker 3: by supporting the exporters in China, whether it's through cheap credit,

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Speaker 3: whether it's through other subsidies and so forth. Now this

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Speaker 3: really comes down to how much more do we see

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Speaker 3: the tariffs getting ramped up? We know ten percent hit,

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Speaker 3: we know another ten percent is coming down the road,

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Speaker 3: and then of course what follows after that, which is

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Speaker 3: of course the big unknown for now.

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Speaker 2: Would you be optimistic that there can be dialogue given

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Speaker 2: the current cast of characters.

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Speaker 3: I think a deal is not as close as markets

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Speaker 3: may have presumed. After in Trump was elected, the theory

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Speaker 3: was that they're going to be able to clinch a

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Speaker 3: deal pretty quickly. I don't think that happens anytime soon.

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Speaker 3: I think between now and a potential deal, at some point,

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Speaker 3: if a big deal is even possible, you're going to

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Speaker 3: get more potentially muscular foreign investment restrictions, More export controls

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Speaker 3: are being discussed. Of course, we're seeing the new report

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Speaker 3: out from USTR where they wanted to levy essentially fees

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Speaker 3: on Chinese ships, So I think a lot more tension

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Speaker 3: and friction is ahead of us, and that pushes back

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Speaker 3: prospects of a deal.

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Speaker 2: Currently, we've seen a change in sentiment, particularly since the

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Speaker 2: story on Deep Seek and a lot of the technology

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Speaker 2: companies in China that have been capturing the interest of

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Speaker 2: she Chinping. I think there were some meetings that he

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Speaker 2: was a part of a couple of weeks back. Is

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Speaker 2: that enough to change sentiment in China right now? A

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Speaker 2: story on high technology? Are the problems far greater than that?

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Speaker 3: Well, I think in the short run, there's no question

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Speaker 3: that that has created a lot of optimism, and we

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Speaker 3: should see a lot of positive sentiment I think within

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Speaker 3: the real economy, not just within markets. The real question

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Speaker 3: ultimately is as usual. I think what's happening here is

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Speaker 3: that the private sector and their creative and innovative juices,

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Speaker 3: I suppose, are probably going to be used to empower

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Speaker 3: the state and to strengthen the Chinese state, and not

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Speaker 3: just for the sake of having a successful, you know, business,

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Speaker 3: and for the sake of just making money or selling

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Speaker 3: in creative ways to Chinese consumers or so forth. And

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Speaker 3: that has a very different upside potential than what you

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Speaker 3: would have, for example, in a more freer economy like

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Speaker 3: like ours.

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Speaker 2: When you speak with your contacts on the mainline, what

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Speaker 2: are they saying about current business conditions.

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Speaker 3: Yeah, look, business conditions are getting a lot better. And

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Speaker 3: the year has actually started out quite positively. I mean,

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Speaker 3: you know, in the month of January, for example, when

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Speaker 3: China Facebook data came out, we saw very clearly in

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Speaker 3: the results that there was improvement across the board across

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Speaker 3: multiple sectors. We've were quite you know, a surprise in

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Speaker 3: a positive upside surprise there in the property market. Consumer

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Speaker 3: spending in the lead up to the new year looked

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Speaker 3: quite decent. So I think the business climate, as I said,

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Speaker 3: is not nearly as bad, and I think that brings

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Speaker 3: down a lot of the pressure on leadership today to

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Speaker 3: have to unveil these big spending plans and try to

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Speaker 3: rescue the economy.

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Speaker 2: So I think that's the key question, is it not?

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Speaker 2: I mean, what comes out of the two sessions and

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Speaker 2: whether or not anything that is positive right now in

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Speaker 2: terms of momentum is sustainable. Shazad, Thank you so much.

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Speaker 2: Shazad Kasi there also the managing director at China Beige Book.

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Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Dek Krisner. There's no

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Speaker 2: room left for Canada and Mexico to avoid tariffs. Those

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Speaker 2: are the words of President Trump. He said the countries

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Speaker 2: could not negotiate any reprieve from twenty five percent tariff

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Speaker 2: scheduled to take effect at twelve oh one am Wall

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Speaker 2: Street time. Also today, Trump signed in order to raise

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Speaker 2: the tariff on Chinese goods to twenty percent from the

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Speaker 2: current ten percent. And on top of that, the day's

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Speaker 2: economic news was bearish. US manufacturing approached stagnation during February.

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Speaker 2: Joining me now for a look at the price action

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Speaker 2: is Patrick Kennedy. He is founding partner at All Source

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Speaker 2: Investment Management. Patrick joins from just outside Hartford, Connecticut. Can

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Speaker 2: we begin by talking about the manufacturing PMI When you

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Speaker 2: look at a reading of fifty point three for the

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Speaker 2: month of February, that's barely positive and I'm sure in

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Speaker 2: your mind it's raising a lot of concern.

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Speaker 1: Hi, Doug, thanks so much for having me back on.

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Speaker 1: I think the way to look at it as the trend.

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Speaker 3: Right.

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Speaker 1: So six months ago we were on the program, and

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Speaker 1: we were talking a lot about hot inflation and sticky inflation.

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Speaker 1: And at the time, I'm sure you remember, most analysts

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Speaker 1: out there were expecting six cuts this year, and we

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Speaker 1: came on we said, we don't expect any cuts, if anything,

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Speaker 1: hike could be possible. Right. So you fast forward to today,

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Speaker 1: and inflation has been very sticky. Right, It's been very,

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Speaker 1: very sticky. It's been around that three percent level and

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Speaker 1: they just haven't been able to break it. And sure enough,

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Speaker 1: we went from six cuts down to four cuts, down

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Speaker 1: to no cuts, and now potentially even a hike. The

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Speaker 1: reason why the market is selling off and our view

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Speaker 1: is the market can handle the inflation data coming in

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Speaker 1: a little hotter than expected. What it can't handle is

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Speaker 1: a growth scare on top of that. So now we're

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Speaker 1: looking at the stagflationary environment. Right. You had jobs data

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Speaker 1: fairly weak last week when it came in, and now

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Speaker 1: the PMI data is trending lower. So I think all

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Speaker 1: eyes are going to be on the jobs data coming

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Speaker 1: out Friday. But the reason why the market is so

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Speaker 1: worried is you're putting together now these data points and

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Speaker 1: you're starting to look at an overall trend of growth

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Speaker 1: weakening but inflation staying sticky. Right, Typically, when you have

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Speaker 1: growth coming down, you have inflation coming down with it,

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Speaker 1: and you get the benefit of inflation at least coming

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Speaker 1: off a bit and rates potentially lowering and that sort

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Speaker 1: of thing. If inflation stays hot in growth comes in

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Speaker 1: weak and starts to fall, the FED is not going

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Speaker 1: to be able to let their foot off the gas

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Speaker 1: pedal with stickier inflation. So there's going to be very

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Speaker 1: little we can do about a big potential growth scare,

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Speaker 1: which I think the market is pricing in now.

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Speaker 2: It's interesting that you make that point because, as a

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Speaker 2: part of the ISM data, the price is paid component

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Speaker 2: really jumped, I think a reading of sixty two to four,

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Speaker 2: which was the highest level since mid twenty twenty two.

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Speaker 2: So explain to me if the dynamic is really one

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Speaker 2: of stagflation that you're kind of sketching out there, why

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Speaker 2: are yields moving lower across the curve. Don't you think

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Speaker 2: there would be a little bit more resistance in the

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Speaker 2: bond market.

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Speaker 1: I think it's more of a knee jerk reaction at

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Speaker 1: this point, right, and I think people are still kind

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Speaker 1: of looking at where we settle here, both in growth

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Speaker 1: terms and inflation terms. So if we get a few

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Speaker 1: more hot inflation prints, or if the trend starts going up,

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Speaker 1: I think yields react pretty quickly to that. What you're

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Speaker 1: seeing right now is yields in the last three weeks

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Speaker 1: of growth data coming in later than expected. I think

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Speaker 1: very quickly, if we start to see inflation data continue

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Speaker 1: to come in hot, the fields will be pricing that

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Speaker 1: data and accordingly over the growth scare, simply because it

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Speaker 1: has longer term effects than the growth scared does.

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Speaker 2: I was struck by news today that Singapore is investigating

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Speaker 2: whether or not in Vidia chips initially shipped to Malaysia

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Speaker 2: ended up in China in violation of US sanctions. We

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Speaker 2: were told that the focus is on these servers, the

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Speaker 2: AI servers from Dell Technologies and super micro Computer. Now

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Speaker 2: these devices contain those high end in Vidia GPUs and

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Speaker 2: we know that they're currently under export controls. But local

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Speaker 2: media in Singapore was reporting that police have arrested several

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Speaker 2: people for alleged roles in procuring and shipping these chips

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Speaker 2: to the Chinese mainland. This goes to the deep seek story.

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Speaker 2: I know there's been a lot of rumors, some speculation

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Speaker 2: as to whether or not that AI model was adopted

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Speaker 2: or built on the back of more sophisticated in Nvidia chips.

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Speaker 2: But you look at the price section in in Nvidia

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Speaker 2: today down by more than eight and a half percent.

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Speaker 2: Does this kind of change you're thinking about the AI

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Speaker 2: trade at all?

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Speaker 1: It changes my thinking about these large multinational companies right

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Speaker 1: in general. So if you're doing business with China, which

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Speaker 1: you know most of these companies are trying to tap

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Speaker 1: into China, and you have tensions increasing increasingly rising, that's

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Speaker 1: not a good outcome for any sector, right especially AI

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Speaker 1: with a growth story behind it. But I think any

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Speaker 1: multinational company right now has to be sitting down boardrooms

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Speaker 1: thinking about how a ten or twenty percent tariff is

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Speaker 1: not only going to affect across the chips, but anything

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Speaker 1: else coming out of these countries. When you look at

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Speaker 1: like Mexico and Canada, these are two of our core

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Speaker 1: trading partners, right so it's definitely going to have an

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Speaker 1: impact not only on the chip industry, but we think

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Speaker 1: across the board.

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Speaker 2: On Semiconductor was in Washington today, they're CEO cc way

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Speaker 2: alongside President Trump announcing plans to invest one hundred billion

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Speaker 2: dollars of additional capital into producing chip plants in Arizona

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Speaker 2: that we know that there have already been about sixty

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Speaker 2: five billion dollars in funds that TSMC has allocated to

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Speaker 2: kind of expand US capacity. Do you think this is

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Speaker 2: happening too late in the process in terms of kind

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Speaker 2: of what you're describing the risk of geopolitical stress tensions

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Speaker 2: and perhaps more harsh tariff policy.

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Speaker 1: I do, unfortunately, Doug. I think it's going to have

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Speaker 1: to take a lot more than just one story like

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Speaker 1: that to move the market. So it's funny you mentioned

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Speaker 1: deepsek because from that story when it came out until now,

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Speaker 1: I think that's really the key point in which sentiment

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Speaker 1: turned right. So that's the first kind of kink into

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Speaker 1: the AI chain that we've seen. You had a big

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Speaker 1: sell off coming off that news, and then the data

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Speaker 1: on top of that, the macro data coming in weak

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Speaker 1: created this downward trend, right. So I know that the

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Speaker 1: current administration has been pointing at some of the stories

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Speaker 1: around Apple investing big into the US and now time

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Speaker 1: on Semi. But as you can see, you know, the

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Speaker 1: price action in the market really just hasn't been adjusting

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Speaker 1: to it whatsoever in a positive manner. I think that

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Speaker 1: we're really gonna have to either see a flush out here, right,

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Speaker 1: see a flush out and the VIC spike and all

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Speaker 1: all that good stuff when you typically see a bottom

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Speaker 1: those technicals play out. If we don't see that there's

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Speaker 1: gonna be half, there's there's going to have to be

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Speaker 1: some progress on the tariff front. Right, either we come

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Speaker 1: to an agreement with Canada and Mexico or we don't

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Speaker 1: go as heavy on China. There has to be some

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Speaker 1: progress on that, or at least some willingness to negotiate

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Speaker 1: amongst parties that CEOs will finally step out and say, Okay,

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Speaker 1: we feel good about making decisions again with some of

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Speaker 1: these countries that we're doing business with and hence calming

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Speaker 1: the market.

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Speaker 2: Before I let you go, I want to go to

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Speaker 2: Washington and get your perspective on the movement that DOZE

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Speaker 2: has been undertaking to reduce the federal workforce.

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Speaker 3: Now.

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Speaker 2: I know we get the employment report for the month

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Speaker 2: of February Friday. These numbers are not going to show

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Speaker 2: up in this employment data. But give me your sense

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Speaker 2: about what is unfolding in Washington right now, and the

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Speaker 2: knock on effect that this could have for maybe the

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Speaker 2: economy or markets more broadly.

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Speaker 1: So a great question, Doug. So the employment data is

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Speaker 1: obviously going to be impacted by this, right what we're

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Speaker 1: going to be watching closely is what the bottom line

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Speaker 1: impact is to the overall deficit. Right If there's a

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Speaker 1: meaningful impact to the deficits and you see an uptick

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Speaker 1: in employ unemployment, then okay. But if you see a

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Speaker 1: big uptick in unemployment and there's really not much of

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Speaker 1: a debt to the deficit, then we're going to start

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Speaker 1: to be a little concerned about these efforts being more

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Speaker 1: harmful than being good. So our big concern was around

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Speaker 1: the debt as well last year. I'm sure you remember

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Speaker 1: us discussing that a few times. The debt's gotten to

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Speaker 1: this point now where it's ballooned and the deficil is

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Speaker 1: really growing at a rapid rate, and we're at this

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Speaker 1: crossroads where if we don't handle it, it can very

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Speaker 1: quickly get out of control, not within like twenty years,

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Speaker 1: but within the next five ten years. So I think

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Speaker 1: that the effort to cut waste is a great effort,

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Speaker 1: but I just think that it needs to be truly

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Speaker 1: impactful in order for it to be a real impact

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Speaker 1: for the markets in a positive way. If it's not

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Speaker 1: impactful to the deficit, but you see an uptick in unemployment,

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Speaker 1: that's not going to be a good thing.

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Speaker 2: Obviously, Patrick, good stuff. We'll leave it there. Thank you

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Speaker 2: so much. Patrick Kennedy is founding partner at All Source

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Speaker 2: Investment Management. Joining us from Hartford, Connecticut here on the

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Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of

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Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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Speaker 2: at the story shaping markets, finance, and geopolitics in the

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Speaker 2: Asia Pacific. You can find us on Apple, Spotify, the

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Speaker 2: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

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Speaker 2: us again tomorrow Insight on the Market moves from Hong

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Speaker 2: Kong to Singapore and Australia. I'm Doug Prisoner and this

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Speaker 2: is Bloomberg