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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 Chrisner. It's

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Speaker 2: all about tariffs, isn't it. On Tuesday, President Trump said

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Speaker 2: he will not offer additional extensions on country specific levies

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Speaker 2: those set to take effect in early August. Interestingly, though,

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Speaker 2: Monday evening, Trump said he was not one hundred percent

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Speaker 2: firm on that deadline. Also today, Trump said he's planning

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Speaker 2: to implement a fifty percent tariff on imported copper. In

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Speaker 2: a moment, we'll get the view of former US trade

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Speaker 2: negotiator Steven Olsen. First, let's bring in Francis Stacy. She's

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Speaker 2: economic strategist at Scarlett Oak Financial. Francis, thank you so

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Speaker 2: much for making time to chat with me. When it

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Speaker 2: comes to trade negotiations, we've already seen two deadlines move.

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Speaker 2: Perhaps there's the possibility of a new deadline moving as well.

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Speaker 2: Think it's pretty good illustration of how difficult it is

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Speaker 2: to get trade deals done. In many cases, it takes months,

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Speaker 2: if not years, to negotiate. Where are we right now

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Speaker 2: in this process? Are we nearing an end? I guess

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Speaker 2: that's the question.

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Speaker 3: I think that this deadline moving or deadline shifting has

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Speaker 3: been very strategic on the part of the Trump administration

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Speaker 3: because basically what it does is they saw what happened

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Speaker 3: with the volatility in the equity market, but particularly the

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Speaker 3: volatility in the bond market around the Liberation Day announcement,

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Speaker 3: and so what they would like to do is not

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Speaker 3: create a news event. And so they're trying, in my mind,

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Speaker 3: to manage market volatility by keeping this sort of an

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Speaker 3: ever shifting sand and that way the market is not

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Speaker 3: really able to price it in immediately whatever the eventual

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Speaker 3: outcome is, and I believe it's just literally to reduce

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Speaker 3: market and bond market volatility in addition to the fact,

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Speaker 3: as you say, it doesn't happen overnight.

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Speaker 2: One of the things that was a little surprising today

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Speaker 2: perhaps for the market was the President saying that he

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Speaker 2: plans to implement a fifty percent tariff on imported copper.

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Speaker 2: What does that mean? Are we going to be looking

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Speaker 2: at a higher tariff rate for copper? No matter what

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Speaker 2: the rate may be up for debate, but we're looking

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Speaker 2: at higher taxes on imported copper?

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Speaker 3: Yes, I mean, goodness if he sticks with that. I mean,

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Speaker 3: the thing about copper that's most notable is it's gone

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Speaker 3: up six point four percent in the last month, and

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Speaker 3: it's on the rise alongside other commodities, and so yeah,

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Speaker 3: if that sticks, you're definitely going to see those prices

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Speaker 3: continue to go up. And then that sort of circles

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Speaker 3: us back around to this conversation about the FED and inflation.

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Speaker 3: Is it a one time price adjustment? Is it a

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Speaker 3: multi time price adjustment? And then you look at things

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Speaker 3: like copper and other commodities where they have several places

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Speaker 3: in supply chains, and then you kind of have to

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Speaker 3: go there's a concatenation of events that occurs which could

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Speaker 3: end up being, you know, have multiple price hikes even

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Speaker 3: though it's supposedly a one time adjustment, and all of

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Speaker 3: this is speculation, so it just remains to be seen.

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Speaker 3: But copper prices are moving higher in addition to silver

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Speaker 3: prices and oil prices, and so the biggest thing that

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Speaker 3: we look like we're having right now is potentially a

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Speaker 3: recceleration of inflation.

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Speaker 2: You know, coming into this third quarter, the term stagflation

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Speaker 2: comes to mind. Is that really what you're describing the

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Speaker 2: threat of weaker growth and persistently higher prices.

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Speaker 3: It looks that way. It looks that way. And even

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Speaker 3: if you look at the jobs numbers, you know, you've

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Speaker 3: got to that was positive, which then you know, gives

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Speaker 3: the Fed an excuse to delay their you know movement,

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Speaker 3: delay cutting rates, you know, continue their pause. Trump's got

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Speaker 3: sort of a war going on with Powell publicly, and

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Speaker 3: but if you look under the hood, you see you know,

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Speaker 3: seasonal adjustments, you see government employees, you see various little things.

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Speaker 3: So the Fed is probably going to wait until the

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Speaker 3: labor market cracks. Meaning but yeah, I mean it's it's hard.

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Speaker 3: Trump wants some to lower rates. We understand why Yellen

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Speaker 3: issued all those bills. They're coming up for maturity. He's

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Speaker 3: got to re you know, liquefy the economy since fiscal

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Speaker 3: stimulus is basically this has been the source of liquidity

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Speaker 3: since the FED started reducing the FED balance sheet due

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Speaker 3: to quantitative tightening. And yeah, with rates higher, I think

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Speaker 3: Trump came out publicly and said that's going to cost

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Speaker 3: everybody nine hundred billion dollars. And we have a fiscal situation.

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Speaker 3: So he is in a very bad position. He's serving

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Speaker 3: multiple masters. And I would and I would say Powell

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Speaker 3: is in just as bad of a position.

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Speaker 2: So you mentioned the fiscal position that takes us to

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Speaker 2: the Big Beautiful Bill which is now law, and the

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Speaker 2: CBO estimating that over the next decade that will add

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Speaker 2: around three point four trillion to the deficit. Low and

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Speaker 2: behold we hear from the Treasury Secretary of today saying,

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Speaker 2: wait a minute, we could see over three hundred billion

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Speaker 2: dollars of new money coming in to the coffers for

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Speaker 2: the US Treasury. Do we need to consider the financial

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Speaker 2: impact of tariffs when we're talking about the deficit?

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Speaker 4: Now?

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Speaker 3: Certainly what's interesting is when okay, so I'm sure you're

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Speaker 3: familiar with Ray Dalio coming out and giving these sort

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Speaker 3: of warnings that we have to get our debt to GDP,

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Speaker 3: I mean, our deficit to GDP ratio down to about

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Speaker 3: three and a half percent, otherwise we're going to fall

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Speaker 3: off of a debt cliff. If you reverse engineer the

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Speaker 3: math from Liberation Day, the nebulous math that was presented,

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Speaker 3: you actually effectively do that with last year's trade numbers.

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Speaker 3: So now we've moved off of the rates from Liberation Day.

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Speaker 3: But yes, they are hoping to quote unquote grow ourselves

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Speaker 3: out of that deficit and out of that dire warning

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Speaker 3: from Ray Dalio. So that's and trade revenue is obviously

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Speaker 3: going to assist with that. Trade revenue is sort of

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Speaker 3: a justification for the big beautiful bill that's now law,

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Speaker 3: and as you say, project deficits going forward. And I

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Speaker 3: think this was some of the consternation potentially behind the

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Speaker 3: scenes with Elon Musk. Elon Musk was sort of an absolutist.

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Speaker 3: You have to, you know, you know, make massive fiscal cuts.

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Speaker 3: But the whole catch twenty two here is fiscal was

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Speaker 3: providing the liquidity in the system after the Fed raised

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Speaker 3: rates and started reducing their balance sheet. And so you

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Speaker 3: can't just reduce fiscal too drastically because you remove the

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Speaker 3: liquidity for the system and then incidentally that you know

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Speaker 3: that increases credit risk.

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Speaker 2: Let's talk about the difficult position that corporate America is in.

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Speaker 2: Goldman Sachs saying today that companies will have to adjust

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Speaker 2: their cost savings and pricing strategy to offset the impact

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Speaker 2: of tariffs. So when you look at margins, now, are

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Speaker 2: you concerned about margin compression in a meaningful way?

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Speaker 3: So again, the Trump administration with the sort of shifting

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Speaker 3: sands on these deadlines and what the ultimate numbers are

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Speaker 3: going to be I mean, you know, any Wall Street

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Speaker 3: practitioner wants hard numbers to put into that, you know,

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Speaker 3: discounted cash flow calculator on any asset. Same goes for margins,

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Speaker 3: same goes for any fundamental analysis. And I think companies

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Speaker 3: are going to do the best that they can to

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Speaker 3: preemptively plan for the worst case scenario. But it depends

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Speaker 3: on their sector, depends on their consumer and how much

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Speaker 3: their consumer can bear because consumers are stretched, and we

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Speaker 3: can see that with credit card debt. We can see

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Speaker 3: that with the interest rates on credit card debt. And

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Speaker 3: you know, we've had an inflection point in defaults. It

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Speaker 3: hasn't hit a systemic level yet, but yeah, I think

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Speaker 3: I think corporations have a time They're probably going to

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Speaker 3: plan for the worst.

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Speaker 2: Where does that leave you with the equity market? Are

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Speaker 2: you constructive?

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Speaker 3: I'm constructive. What I found most fascinating was when the

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Speaker 3: market sold off earlier this year, it departed measurably from

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Speaker 3: the M two money stock, which is the liquidity. So

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Speaker 3: the S and P five hundred is very correlated with that,

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Speaker 3: and I thought, okay, so either the liquidity is going

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Speaker 3: to come down and marry the s and P or

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Speaker 3: the s and P is going to go back up

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Speaker 3: and marry the liquidity. The SMP went back up, now

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Speaker 3: the liquidity is dropping out of the system again, so

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Speaker 3: we'll have to wait and see what that is. What

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Speaker 3: I find most fascinating right now is historical correlations versus

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Speaker 3: what's occurring now. And for instance, the US dollar has

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Speaker 3: a massively negative correlation to the SPX, to bitcoin we

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Speaker 3: learned that bitcoin was not gold during this sell off,

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Speaker 3: and then to the CRB index, So I think that

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Speaker 3: that is a fascinating thing to watch. I think the

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Speaker 3: correlation between the SMP and liquidity in the system the

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Speaker 3: M two is important to watch because either you're dealing

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Speaker 3: with historical cycles and they will play out as they

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Speaker 3: have historically, or the mechanics behind the scenes with dedollarization

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Speaker 3: and other things going on around these trade deals are

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Speaker 3: going to start to break down. And I think the

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Speaker 3: early indicators of where these mechanics break down is you're

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Speaker 3: going to see it in correlations doing very strange things.

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Speaker 3: And so that's what I'm going to continue to watch.

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Speaker 3: As far as the equity markets until they have a catalyst,

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Speaker 3: there's a lot of upward momentum, and so I don't

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Speaker 3: see that being interrupted.

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Speaker 2: It seems like you're a little dubious that we're going

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Speaker 2: to get two rate cuts this year.

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Speaker 3: Well, hard to say. Hard to say. I think if

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Speaker 3: inflation reaccelerates, which I think is possible based on the

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Speaker 3: fact that these commodities prices are moving higher at the moment,

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Speaker 3: then potentially not and then Trump is baiting Powell like crazy,

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Speaker 3: So you know, doesn't that incentivize Powell to kind of

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Speaker 3: hold his ground in some kind of a power struggle there.

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Speaker 3: I think that's an interesting strategy.

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Speaker 2: Where are you in terms of looking at ertunities offshore

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Speaker 2: right now? Let's stay first in the equity space. Are

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Speaker 2: there places that you would rather be other than the

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Speaker 2: US right now? If you had to put on an

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Speaker 2: equity trade.

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Speaker 3: I think growth and inflation is going to broadly continue

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Speaker 3: to expand in Europe and other countries where I think

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Speaker 3: that we're going to start to have a deceleration of

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Speaker 3: growth in the US. So again, those markets are already up,

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Speaker 3: those trades are already in. But I think that's what

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Speaker 3: I'm going to be watching. You know, some other countries

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Speaker 3: are doing better, you know, coming out of their sovereign

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Speaker 3: debt crises, you know, Argentina being one of them watching

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Speaker 3: those things, watching the bond yields. So I can't say definitively,

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Speaker 3: but at some point in time there's going to be

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Speaker 3: extra volatility in the US markets, and I think that

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Speaker 3: the global markets, who have all the same fiscal issues,

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Speaker 3: all the same debt issues, are going to maybe be

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Speaker 3: a little more able and a little bit more attractive

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Speaker 3: to investors. But again be tactical because the variables can

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Speaker 3: change with a truth social or a tweet or something

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Speaker 3: that comes out quickly.

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Speaker 2: Fair point that said, would you be surprised if we

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Speaker 2: had ten percent pulled back in the equity market here

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Speaker 2: in the US.

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Speaker 3: No, And if you look at the M two money

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Speaker 3: stock again that's pulled off. And so for that reason alone,

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Speaker 3: I wouldn't be surprised. And if he's really you know,

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Speaker 3: he's now saying that he will not move the deadlines anymore,

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Speaker 3: and August first is absolutely it. If those if the

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Speaker 3: trade deals don't come in favorably, you know the market's

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Speaker 3: opinion about that, then yeah, I could see a lot

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Speaker 3: of heightened volatility come back into equities and also into bonds.

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Speaker 2: Francis before I let you go, can we talk a

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Speaker 2: little bit about the fixed income space and the advice

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Speaker 2: that you're giving clients if they want to be exposed

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Speaker 2: to the bond market right now. And I'm wondering whether

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Speaker 2: not the safe place is kind of the belly of

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Speaker 2: the curve.

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Speaker 3: Well, I'm limited of it here by compliance, but I

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Speaker 3: will just generally say, uh, yes, obviously, you know that

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Speaker 3: is where people are hanging out, because again, you have

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Speaker 3: a curve that steepening. Is it going to end up

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Speaker 3: being more of a bull steepener or a bear steepener When

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Speaker 3: you have the steep the re steepening after a massive inversion,

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Speaker 3: which we had, you know, almost a record inversion for

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Speaker 3: almost a record amount of time, I think the great

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Speaker 3: depression is right there with it, and you come into

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Speaker 3: the re steepening. That's usually when you see your credit issues, right,

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Speaker 3: And so hanging out sort of in the belly of

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Speaker 3: the curve, uh, is what some practitioners are saying. I

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Speaker 3: think at the moment, we are just staying the course.

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Speaker 3: What's working is working, and we will be kind of

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Speaker 3: staying the course and looking at the momentum until there

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Speaker 3: is a catalyst for something to change, and I think

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Speaker 3: the markets are probably just going to wait and see

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Speaker 3: what the shoe what shoe drops, and then they're going

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Speaker 3: to price it in very violently. But I really see

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Speaker 3: until we get some certainty or some specific numbers to

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Speaker 3: punch into the calculator that you know, markets are going

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Speaker 3: to stay up. Now looking at gold, you know, is

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Speaker 3: the bull run for gold over? Are we buying the

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Speaker 3: dips on gold? Well? Again, historic correlations. You know, gold

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Speaker 3: has a negative correlation with real rates. Is that going

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Speaker 3: to hold? Is that not going to hold? The fundamental

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Speaker 3: case for gold is really strong. Bloomberg reported today that

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Speaker 3: Tether has eight billion of gold stuck in some vault

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Speaker 3: in Switzerland because now that the prominence of the US

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Speaker 3: dollar is a little bit in flux as these trade

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Speaker 3: negotiations go on and the dollars falling, you know, there

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Speaker 3: really is a flight to gold, which is really interesting.

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Speaker 3: So just watching these correlations for early indicators, but for

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Speaker 3: the moment, staying the course.

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Speaker 2: Francis will leave it there, Thank you so very much.

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Speaker 2: Francis Stacey, economic strategist at Scarlet Oak Financial, joining us

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Speaker 2: here on the Daybreak Asia Podcast. Welcome back to the

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Speaker 2: Daybreak Asia Podcast. I'm Deuk Krisner. So President Trump is

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Speaker 2: vowed to push forward with his aggressive tariff regime, and

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Speaker 2: for some analysis, we spoke with former US trade negotiator

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Speaker 2: Stephen Olsen. Steven spoke to Bloomberg s sherry On and

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Speaker 2: Heidi Stroud Watts. Sherry asked the first question as to

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Speaker 2: whether or not we've got more clarity about where we're going.

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Speaker 4: Well, to be honest, I don't think anything has really

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Speaker 4: fundamentally changed over the course of the past day or so.

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Speaker 4: We've still got a bookload of tariffs, in some cases

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Speaker 4: a substantial tariff scheduled or threatened to go into effect

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Speaker 4: at some point in the future, and we've still got

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Speaker 4: a long line of countries lined up trying to strike

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Speaker 4: trade agreements to alleviate those talks. Now, what I think

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Speaker 4: has come into sharper focus is that the United States

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Speaker 4: perhaps was a little bit overconfident entering these negotiations. You

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Speaker 4: recall that we initially heard a lot of talk about

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Speaker 4: quote unquote ninety deals in ninety days. Well we're at

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Speaker 4: the end of ninety days and we've got a grand

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Speaker 4: total of two deals done, eighty eight still pending.

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Speaker 1: Not just overconfidence but the fact that perhaps the goal

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Speaker 1: of these trade negotiations might be shifting for even Washington,

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Speaker 1: because if you take a look at all of the

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Speaker 1: trade negotiations, we thought that one with India was actually

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Speaker 1: going pretty well, and now you have threats of tariffs

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Speaker 1: on bricks nations. How does this vote for negotiating partners well, well, exactly.

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Speaker 4: These extraneous factors can pop in at any time. All

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Speaker 4: of the mood music around the prospects for an India

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Speaker 4: agreement were very positive, and then we got a late

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Speaker 4: Sunday night, I believe it was social media posts from

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Speaker 4: the President rallying against bricks and threading an extra ten percent,

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Speaker 4: which which could derail those talks for the countries, particularly

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Speaker 4: in the Aussion region. The other extraneous factor is their

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Speaker 4: relationship with China, because it's becoming increasingly clear that the

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Speaker 4: United States is using these negotiations to really put pressure

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Speaker 4: on these countries to try to squeeze China out of

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Speaker 4: their supply chain. So that's an additional complication for these negotiations.

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Speaker 5: You just touched on the issue of transhipments, right, which

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Speaker 5: has been sort of a real key focus for President Trump.

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Speaker 5: Is there anything that these Southeast Asian nausea. Nations can

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Speaker 5: do substantively to be able to change that dynamic.

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Speaker 4: Well, look, certainly they can step up enforcement on illegal transhipments.

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Speaker 4: This is a case where a product enters Vietnam, for instance,

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Speaker 4: from China, and the customs documentation is fraudulently altered to

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Speaker 4: to convey Vietnamese country of origin status. Now that's flat

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Speaker 4: out fraud, it's flat out illegal, and so some enhanced

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Speaker 4: procedures to crack down on those practices certainly could move

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Speaker 4: the dial at least a little bit.

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Speaker 5: The really havehazard nature of the way that President Trump

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Speaker 5: releases the news and you know, makes these headlines. We

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Speaker 5: just had a post on social media saying that they'll

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Speaker 5: be releasing a minimum of seven countries having to do

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Speaker 5: with trade, with an additional number of countries being released

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Speaker 5: in the afternoon. I assume that means sort of an

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Speaker 5: update on a minimum of seven countries when it comes

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Speaker 5: to trade. We've had conflicting news as to you know,

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Speaker 5: whether July ninth was a true deadline, whether it could

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Speaker 5: be extended. It's now being extended. Could August now also

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Speaker 5: be flexible as well? Do you think this sort of

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Speaker 5: piecemeal approach is helpful for other nations because you raise

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Speaker 5: the point, at what point do these counterparties just think, well,

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Speaker 5: what's the actual point in trying to negotiate when everything

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Speaker 5: is just constantly up in the air.

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Speaker 4: No, I don't think it's helpful, And I think you

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Speaker 4: used a fairly generous and kind word referring to the

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Speaker 4: approach as being haphazard. It's been even more discombobulated than that.

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Speaker 4: And at a certain point countries start wondering, Look, if

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Speaker 4: the goalposts are constantly being moved, if extraneous issues are

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Speaker 4: constantly being dragged in, and if we never know if

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Speaker 4: a deadline is a real deadline or not. At what

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Speaker 4: point the country start to question the point of engaging

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Speaker 4: in the process.

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Speaker 1: And when does the American public also start questioning the negotiations.

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Speaker 1: When you were part of the negotiating team for NAFTA,

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Speaker 1: was that something that you had to perhaps keep an

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Speaker 1: eye on on how this would affect actual American people

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Speaker 1: because all of these tariffs will eventually translate to higher

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Speaker 1: prices for these consumers.

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Speaker 4: Busy this community, yes, general public at large, to a

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Speaker 4: lesser extent, Typically you won't see the American public getting

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Speaker 4: engaged on trade issues unlesser until it starts to hit

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Speaker 4: them in the pocketbook, and that will be a little

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Speaker 4: bit further down the line.

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Speaker 5: There's this idea that transtwer policy has the intention of

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Speaker 5: reshaping global trade, the contours of global trade. Right, But

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Speaker 5: even the agreements, if you can call them that, that we've

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Speaker 5: gotten so far have really just been broad frameworks or

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Speaker 5: sort of more MOUs even just sort of handshake agreements.

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Speaker 5: Can we truly say that whatever is achieved is going

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Speaker 5: to change the trajectory of the global trading system?

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Speaker 4: I don't think so. I mean, for any trade agreement,

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Speaker 4: the devil always lies in the details, and as you

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Speaker 4: pointed out, in all of the agreements we've seen thus far,

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Speaker 4: there are virtually no details, and beyond that, a number

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Speaker 4: of issues. In many cases the most important and the

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Speaker 4: most difficult issues, require further negotiation. So what any of

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Speaker 4: these agreements ultimately end up looking like could be quite

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Speaker 4: different from what we see today, or in the worst

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Speaker 4: case scenario, some of these quote unquote deals could actually unraveled.

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Speaker 1: Is that going to be potentially the case with the

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Speaker 1: Geneva framework agreed with China? And will President Trump still

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Speaker 1: have the political capital in order to go back to

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Speaker 1: the negotiating table.

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Speaker 4: Well, it's certainly going to be tough sledding With China.

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Speaker 4: We saw an additional round of meetings necessitated to take

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Speaker 4: place in London just to sort of reiterate what they

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Speaker 4: thought had already previously been agreed in Geneva. If that's

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Speaker 4: the case moving forward, these are going to be long

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Speaker 4: and arduous negotiations. But keep in mind the issues between

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Speaker 4: the United States are deep, structural and fundamental and are

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Speaker 4: not going to be resolved in a number of weeks

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Speaker 4: or number of months.

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Speaker 5: The point that Sherry just mentioned in terms of political

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Speaker 5: capital is an interesting one because I also wonder in

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Speaker 5: your experience as a trade negotiated is it sort of

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Speaker 5: commonplace for trade issues to be rolled up also with

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Speaker 5: sort of broader issues in terms of geostrategic alliance in

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Speaker 5: terms of broader diplomatic relationships, because you see these terse

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Speaker 5: relations when it comes to trade with key security allies

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Speaker 5: like South Korea, like Japan in this part of the world,

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Speaker 5: huge implications for the Indo Pacific. Do you think that

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Speaker 5: side is going to be damaged when they can't even

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Speaker 5: reach an agreement or compromise on trade.

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Speaker 4: This is a new sort of innovation, if you will,

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Speaker 4: introduced into trade policy by President Trump. When I was

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Speaker 4: a trade negotiator, the thought that we would be discussing

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Speaker 4: with our Canadian and Mexican colleagues bentanyl or illegal immigration

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Speaker 4: would have been astounding and mind boggling to us. Trump's

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Speaker 4: approach is everything is on the table, and this is

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Speaker 4: very much of a different approach and is going to

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Speaker 4: complicate things significantly.

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Speaker 5: Steven, really great to have you with Stephen Olson, visiting

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Speaker 5: Senior Fellow at the Assis Use of Ishak Institute.

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

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

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

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

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

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

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Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg