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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. So

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Speaker 2: markets are now dealing with a new thread of tariffs

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Speaker 2: on US imports. Last Friday, President Trump declared a thirty

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Speaker 2: percent tariff on goods from both the European Union and

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Speaker 2: Mexico effective August first. It was just the day before

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Speaker 2: Trump threatened Canada with a thirty five percent tariff. So

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Speaker 2: markets have been somewhat well behaved as if they are

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Speaker 2: counting on mister Trump to back down, having seen you

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Speaker 2: turns before. The question is whether that remains the best

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Speaker 2: bet In a moment, we'll travel to Singapore and speak

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Speaker 2: with Bloomberg Markets Live strategist Mary Nicola. We begin in

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Speaker 2: the States, though, as we look ahead to second quarter earnings.

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Speaker 2: Joining me now is Rod Van Lipsey. He is managing

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Speaker 2: director at UBS Private Wealth Management. On the line from Washington, DC. Rod,

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Speaker 2: thank you so much for making time to chat with me.

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Speaker 2: So earnings from a couple of the big banks are

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Speaker 2: on the list this week, we'll also get numbers from

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Speaker 2: TSMC and Netflix. I'm curious, how do you feel about

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Speaker 2: the quality of the results that we're going to see

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Speaker 2: for Q two.

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Speaker 3: You know, this is going to be a very interesting

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Speaker 3: quarter over quarter year over year look in part because

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Speaker 3: we go back just to a quarter ago and the

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Speaker 3: whole tariff scenario really put corporations in a very strange place.

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Speaker 3: The estimates right now on the street, we're looking at

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Speaker 3: under five percent earnings for EPs growth year every year.

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Speaker 3: We at UBS believe are going to come in closer

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Speaker 3: to about six percent when we look at twenty twenty

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Speaker 3: five and growing to call it two hundred and sixty

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Speaker 3: five dollars a share on the S and P five hundred.

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Speaker 3: I think that this busy week, you know, you're really

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Speaker 3: going to see some acceleration in the earnings reports, you know,

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Speaker 3: from Monday Tuesday, Wednesday, the big banks really start to

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Speaker 3: kick off on Tuesday, and our expectation is that those

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Speaker 3: estimates are going to beat consensus. They're going to be

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Speaker 3: pretty strong in one case, because the higher interest rates,

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Speaker 3: especially for financials, have been very very supportive of NII

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Speaker 3: and that interest income and that interest margin for these banks.

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Speaker 3: So we'll see some good numbers there. And I expect

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Speaker 3: that some of the economic activity has been pulled forward

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Speaker 3: in this second quarter, especially since tariffs have been threatened

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Speaker 3: and delayed and postponed, so lots of activity, but it's

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Speaker 3: going to be a strange one and everyone is going

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Speaker 3: to be looking at not just the second quarter results,

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Speaker 3: but what will be the forecast for third quarter and

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Speaker 3: looking forward.

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Speaker 2: Before we leave the banks, I want to ask about

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Speaker 2: whether trading revenue has the potential to be a real

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Speaker 2: standout here given the volatility that we had in markets

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Speaker 2: in the second quarter, whether banks really benefited from that

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Speaker 2: on the trading side.

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Speaker 3: Anecdotally, dug absolutely. And that's why we are not only

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Speaker 3: sort of very very bullish, if you will, on financials

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Speaker 3: and the asset manager because we think the trading activity

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Speaker 3: in this second quarter was just off the charts, especially

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Speaker 3: during April, and so with that pick up an activity,

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Speaker 3: with all of that uncertainty and all of the activity

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Speaker 3: that went around that, I think it's going to be

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Speaker 3: a pretty strong, strong especially for the broker dealers, is

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Speaker 3: going to be a very very strong second quarter.

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Speaker 2: We mentioned earlier the impact of the tariffs, and I

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Speaker 2: thought it was very interesting. Last Thursday we heard from

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Speaker 2: ConAgra the outlook well below expectations, and the company pointed

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Speaker 2: out that rising cost for tin plate steel used for

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Speaker 2: food cans due to tariffs is going to have a

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Speaker 2: very consequential negative impact. Is this something that's going to

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Speaker 2: be more predominant when we talk about margins? Just how

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Speaker 2: this begins to manifest.

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Speaker 3: It's interesting. The UBS base case is that we're going

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Speaker 3: to end up somewhere around the fifteen percent, you know,

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Speaker 3: sort of across the board tariff rate, and that the

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Speaker 3: consumer is going to be asked to bear the brunt

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Speaker 3: of much of that, and so that works into our

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Speaker 3: echnomic forecast numbers. But the commodity prices, quite frankly, are

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Speaker 3: just all over the charts because of the dramatic uncertainty.

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Speaker 3: Most of our investors are focused on commodities like gold

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Speaker 3: and oil and don't dig too far into the commodity indices.

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Speaker 3: But when we look at commodities, they truly are really

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Speaker 3: all over the charts because it's very difficult to understand

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Speaker 3: how the policy and the tariffs and the trade considerations

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Speaker 3: will affect those utter blank commodities. But I think it

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Speaker 3: manifests itself at least in our forecasts on inflation that

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Speaker 3: remains fairly pernicious in stays above the FED state of

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Speaker 3: two percent.

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Speaker 2: Target interesting, and yet with all the risk out there,

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Speaker 2: we've got an S and P five hundred trading at

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Speaker 2: twenty four times earnings. Is that a little bit of

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Speaker 2: a headscratcher for you?

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Speaker 3: It truly is, because we have different things, especially if

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Speaker 3: we look at our ubs macro economic forecasts see for

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Speaker 3: example GDP growth in the Americas for twenty twenty five,

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Speaker 3: estimating you know, one and a half percent GDP growth.

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Speaker 3: But we're looking at CPI or inflation. Can we have

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Speaker 3: some releases this week that will tell us. But we

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Speaker 3: see inflation coming in almost to three percent and actually

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Speaker 3: accelerating into twenty twenty six, and that is directly because

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Speaker 3: of this concern about how tariffs are going to flow

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Speaker 3: through to the consumer and how they're going to keep

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Speaker 3: inflation fairly high. Now, the markets seem to be unfhazed

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Speaker 3: by the tariff talks. The markets seem to believe that

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Speaker 3: we're going to get to August first and either we'll

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Speaker 3: have a favorable outcome or things will get pushed back again,

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Speaker 3: and so they are completely unfazed. At least if we

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Speaker 3: look at the you know, at all time highs and

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Speaker 3: continuing to be there and so on. A macro level.

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Speaker 3: We think that this bull market that we've been experiencing

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Speaker 3: continues to have legs, it continues to have momentum, But

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Speaker 3: the real place to keep an eye out is going

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Speaker 3: to be the market, because at some point in time,

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Speaker 3: a lot of the things that were in the big

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Speaker 3: beautiful bill, a lot of the things that are coming

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Speaker 3: into the economy because of increasing tariffs, at some point

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Speaker 3: in time, the bond market is going to give us

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Speaker 3: a signal. And that's really where we have a cautious outlook.

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Speaker 2: So, if you were going to be in the fixed

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Speaker 2: income space, where do you want to hide out the

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Speaker 2: belly of the curve or do you want to be

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Speaker 2: maybe more exposed to the short end. What's the strategy?

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Speaker 3: Listen, we think that in the belly of the curve,

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Speaker 3: and we think that on balance again with our forecasts

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Speaker 3: looking one year out, with ten year rates coming back

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Speaker 3: down to four percent, we think that the bond market

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Speaker 3: provides an opportunity for the long term investor. These are

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Speaker 3: actually attractive levels, especially when you look at spreads for

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Speaker 3: high quality municipal bonds for taxable investors in the US,

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Speaker 3: or corporate corporate bonds. We're seeing an opportunity there to

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Speaker 3: get nice returns, but that does not mean it's not

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Speaker 3: going to be volatile in the short term. And that's

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Speaker 3: the real challenge for the bond investor is to take

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Speaker 3: a look at it, dick your yield, say this is

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Speaker 3: the yield that I think is going to work, and

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Speaker 3: recognize that next week, next month, that might feel like

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Speaker 3: a bad decision, but by next year you'll be glad

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Speaker 3: that you're sitting on that high quality paper.

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Speaker 2: Does the Big Beautiful Bill at any point in the

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Speaker 2: future begin to negatively impact the muni market, particularly at

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Speaker 2: the state level.

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Speaker 3: Well, that's a fantastic question, and I think that that

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Speaker 3: has been structurally appears to be something that's been pushed

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Speaker 3: down the road a little bit. Doug. I've got to

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Speaker 3: say that I have not read The Big Beautiful Bill,

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Speaker 3: and I don't know very many people who have actually

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Speaker 3: been able to read that book cover to cover. But

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Speaker 3: it's my understanding that much of the good news has

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Speaker 3: been baked in and takes immediate effect, and then some

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Speaker 3: of the ways to pay for that good news have

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Speaker 3: been pushed back, some of it beyond the midterm elections,

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Speaker 3: and so that is going to create some challenges. It's

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Speaker 3: going to create pressure for things that are being put

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Speaker 3: on states and municipalities. There's been a lot of bond issuance,

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Speaker 3: especially by municipal issuers there this year to try to

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Speaker 3: get out in front of this before rates potentially go up.

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Speaker 3: So I yes, I do think there's some challenges that'll

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Speaker 3: be ahead, but I don't know that those are near term.

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Speaker 3: I think those are pushed into twenty twenty six and beyond.

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Speaker 2: Okay, fair enough, But I'm wondering whether or not, given

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Speaker 2: everything that we've been laying out that you're attempted to

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Speaker 2: look a little offshore right now to remain diversified, do

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Speaker 2: you want to look at foreign markets.

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Speaker 3: Our investors have been the clamoring to understand ways to

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Speaker 3: diversify against either monetary or fiscal pressures and challenges here

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Speaker 3: in the US, and so listen. That's why we're seeing

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Speaker 3: gold prices in the current range. But we're also seeing

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Speaker 3: lots of great performance out of the international markets. I

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Speaker 3: think one of the questions is whether the international equity markets,

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Speaker 3: especially the Eurozone, whether it's it's fully caught up or

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Speaker 3: is there more room to grow. We think that selectively

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Speaker 3: looking offshore holding foreign currency holding gold that those are

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Speaker 3: nice hedges, But when it comes to actually making an

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Speaker 3: investment that will outperform the US markets, that becomes a

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Speaker 3: little bit more of a murky question, very very difficult

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Speaker 3: to us to look at European equity market growth in

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Speaker 3: US equity market growth, especially when we look at the

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Speaker 3: focus of it and financials here in the US and

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Speaker 3: believe that there's a lot of room for outperformance there.

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Speaker 3: In the developed international markets, emerging markets, both on the

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Speaker 3: debt and the equity side, do show some grain shoots

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Speaker 3: and do show some very very strong either sovereign balance

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Speaker 3: sheets or good positions for these corporations. But the path

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Speaker 3: of tariffs will really really make a difference, and so

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Speaker 3: that makes it a little bit of a challenge for

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Speaker 3: US investors to go too deeply and go too far

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Speaker 3: either out of dollar investing or entered national equities.

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Speaker 2: House Republicans have declared the week ahead is crypto week,

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Speaker 2: and I'm curious to get the take from the private

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Speaker 2: wealth management perspective. How is the cryptocurrency space viewed? Is

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Speaker 2: is bitcoin something that represents opportunity or do you see

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Speaker 2: it pretty much as kind of noise around the edges?

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Speaker 2: Of what the market is involved in these days.

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Speaker 3: Boy, that is a really challenging one. It's also very

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Speaker 3: challenging for someone in a broker dealer, especially a big

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Speaker 3: firm facing the FED, to really understand the path and

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Speaker 3: the fate of cryptocurrencies. I think three points though, One

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Speaker 3: is that these are certainly with us, and they're going

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Speaker 3: to stay with us. To believe that there are many

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Speaker 3: of the cryptocurrencies themselves that are highly speculative, and we

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Speaker 3: are now starting to see a number of stable coins

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Speaker 3: that are actually buying treasuries and basing them on treasury.

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Speaker 3: And so one of the interesting things, interesting dynamics that

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Speaker 3: we're seeing in the stable coin or the crypto assets

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Speaker 3: is the purchase of treasuries, which is, you know, if

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Speaker 3: you would had sort of thought about it initially or

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Speaker 3: off the cuff, you would think that that the crypto

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Speaker 3: or emergence of more crypto options would actually be a

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Speaker 3: move away from from treasuries, when in fact, the underlying

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Speaker 3: securities and the underlying issuers are actually buying treasuries to make

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Speaker 3: sure that they get that stability. So I think that

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Speaker 3: it's going to be a very very interesting thing. Obviously,

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Speaker 3: there's administration and on the hill there's support for crypto assets,

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Speaker 3: but we continue to look at them as being highly speculative.

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Speaker 2: Okay, we'll leave it there, Rod, thank you so much

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Speaker 2: for joining us. Rod van Lipsey there, Managing director, UBS

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Speaker 2: Private Wealth Management, on the line from Washington, d C.

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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 Doug Krisner. So we know last Friday,

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Speaker 2: President Trump declared a thirty percent tariff on goods from

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Speaker 2: both the European Union and Mexico. They are effective August first,

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Speaker 2: unless there is some sort of trade deal with both jurisdictions.

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Speaker 2: Over the weekend, we heard from Ursula vander Lyon. She

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Speaker 2: is the President of the European Commission, and she said

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Speaker 2: the EU will extend the suspension of trade countermeasures against

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Speaker 2: the US until August first, and that in fact will

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Speaker 2: allow for further trade talks. We also heard from Mexican

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Speaker 2: President Claudia Sinbaum. She said that her team had already

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Speaker 2: begun discussions with the US on Friday. Joining me now

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Speaker 2: for a closer look at the tariff story is Mary Nicola,

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Speaker 2: Bloomberg Markets Live strategist. Mary joins us from Singapore, It's

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Speaker 2: always a pleasure to chat with you. I'm curious as

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Speaker 2: to get your take on the tariff headwinds where you

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Speaker 2: are and what's being said about whether President Trump may

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Speaker 2: be bluffing.

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Speaker 1: I think that is very much the case, especially if

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Speaker 1: you saw the way Asian equities had reacted last week,

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Speaker 1: and it looked like they were shrugging off a lot

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Speaker 1: of the noise that was coming through on tariffs. They

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Speaker 1: shrugged off the noise on fifty percent on Brazil. Obviously

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Speaker 1: this morning, Japanese stocks are down, but actually if you

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Speaker 1: look at the Cosby in Korea, that's holding up quite well.

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Speaker 1: So there has been this disparity in terms of they're

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Speaker 1: shrugging it off because doors are still open for negotiations,

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Speaker 1: and I think that's key for market and also the

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Speaker 1: fact that we could potentially see President Trump backpedaling. Also,

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Speaker 1: the fact is that the data is holding up quite well.

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Speaker 1: So I don't think you'll start seeing cracks coming through

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Speaker 1: into markets until we actually see some of the data

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Speaker 1: come through fruition or the fact that you're seeing weakness

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Speaker 1: coming through, And because we haven't seen that, it looks like,

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Speaker 1: you know, the markets here in Asia are holding up relatively.

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Speaker 2: Well, it's interesting tonight here in the US. So we

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Speaker 2: had Trump saying that South Korea wants to make a

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Speaker 2: trade deal. Now that's coming from mister Trump's perspective. I'm

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Speaker 2: not so sure that the same thing could be said

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Speaker 2: for the South Korean side. Isn't it really difficult to

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Speaker 2: kind of get a sense of where we are in

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Speaker 2: the negotiating process.

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Speaker 1: Yeah, it's interesting too because if you look at Korea,

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Speaker 1: the US has a free trade agreement with Korea, so

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Speaker 1: obviously the building blocks are solid and they're already there.

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Speaker 1: But it's a matter of what more is the US

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Speaker 1: looking for? And I think that keeps coming up, especially

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Speaker 1: in negotiations. So for example, which a pan you've had

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Speaker 1: a set back because of agriculture. Agriculture is always a

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Speaker 1: key sticking point when you're discussing trade negotiations and trade

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Speaker 1: agreements because obviously agriculture is considered some sort of national

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Speaker 1: security issue as well. And then but for Korea specifically,

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Speaker 1: it's interesting because you do have solid building blocks, you

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Speaker 1: do have a free trade agreement, but of course it's

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Speaker 1: a matter of the twenty five percent tariffs on cars.

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Speaker 1: That's obviously a key sticking point for the Koreans, and

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Speaker 1: they want it to go away because obviously cars are

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Speaker 1: a big part of what they're sending and what they're

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Speaker 1: selling to the US. So unless those sectoral tariffs, which

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Speaker 1: are still some of the bigger issues, go away, I

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Speaker 1: think that might still hold Korea back and hold off

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Speaker 1: an agreement between the two nations.

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Speaker 2: So I'm curious Mary as to whether or not we

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Speaker 2: have any data, high frequency or otherwise that might give

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Speaker 2: a little bit of insight into how this trade war

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Speaker 2: is impacting not only Japan but South Korea as well economically.

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Speaker 2: Do we know anything, Yeah, so so far.

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Speaker 1: Actually, if you look at some of the Korea, for example,

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Speaker 1: releases export data ten days, twenty days, and then also

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Speaker 1: if you look at the current account data, actually all

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Speaker 1: of them have been quite solid. So that's another key

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Speaker 1: reason as to want the Asian. Asian markets have been

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Speaker 1: holding up relatively well. Not to mention the fact that

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Speaker 1: China as well has been holding holding up relatively well

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Speaker 1: as well in addition to that, but if you look

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Speaker 1: at some of the trade data coming out of Korea,

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Speaker 1: there's no real indications that there has been a real slump,

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Speaker 1: and that's really helping a lot of the markets, and

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Speaker 1: I think as long as you see the strength in

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Speaker 1: the current account, the strength in the external sector, that's

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Speaker 1: going to keep equity markets, at least in the region robust.

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Speaker 2: So I know, we get a couple of key data

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Speaker 2: points for the Japanese economy this week, machine tool orders,

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Speaker 2: industrial production. I think there's some inflation data in there

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Speaker 2: as well. What are you going to be looking at?

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Speaker 1: Yeah, I think the main thing for investors right now

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Speaker 1: for the Japanese economy is on CPI. Obviously there's a

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Speaker 1: lot of concern about inflation. There's a lot of concern

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Speaker 1: about what because especially we're seeing yields rise, and there's

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Speaker 1: this toxic mix for Japan, whether you're seeing it because

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Speaker 1: of quantitative tightening, whether you're seeing it because of inflation,

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Speaker 1: whether you're seeing it because of worries about fiscal profligacy,

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Speaker 1: and especially with the elections coming through and the potential

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Speaker 1: for more fiscal spending. So there is really the heightened

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Speaker 1: focus is on CPI. Is CPI still high? And of

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Speaker 1: course we know that the Bank of Japan has been

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Speaker 1: quite reluctant to high grates, so real rates remain quite high,

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Speaker 1: and as a result, I think you're seeing investors just

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Speaker 1: incredibly wary of especially Japanese bonds. That's also going to

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Speaker 1: weigh on the yen in addition, So I think the

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Speaker 1: focus for investors this week is going to be not

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Speaker 1: only on CPI, but also on the election.

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Speaker 2: So is the BOJ in a little bit of a

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Speaker 2: bind here. I mean, if there is upward pressure on

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Speaker 2: price action, or to say, upward pressure on inflation and

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Speaker 2: the risk of more economic slowing, I mean, how do

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Speaker 2: you engineer your way out of that?

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Speaker 1: Absolutely, and that's a really good question in terms of

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Speaker 1: what do they do. And so far they've sent a

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Speaker 1: message that, especially on the tightening side, that they're sitting

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Speaker 1: on their hands, They're weighing what is happening externally. They're

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Speaker 1: concerned more about the external challenges and the implications on

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Speaker 1: the economy than inflation. And that has actually been to

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Speaker 1: the dutchment of the Japanese bond market and will likely

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Speaker 1: hurt the end as well. But in the meantime we

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Speaker 1: are seeing quantitative tightening, and it's interesting to see the

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Speaker 1: bond market reaction that despite the tweaks they've made. So

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Speaker 1: for example, the Ministry of Finance has already decided to

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Speaker 1: reduce issuance in the back end, and we've seen some

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Speaker 1: of those tweaks, yet we're still seeing pressure on bonds.

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Speaker 1: So it's almost like they've let out their tools, but

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Speaker 1: the tools aren't working, and that's just very much indicative

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Speaker 1: of the bind that they're in. And of course adding

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Speaker 1: to that is just the potential of fiscal expansion and

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Speaker 1: that will just only add to the pressures on the

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Speaker 1: bond market.

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Speaker 2: So I know, based on our history of conversations over

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Speaker 2: the last several years, you pay very close attention to

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Speaker 2: what the FED is doing. And we've got President Trump

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Speaker 2: and some of his allies who have been very critical

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Speaker 2: of FED Shair J. Powell's handling of some of the

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Speaker 2: renovations being done at the FED headquarters, and a few

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Speaker 2: people in the administration have been now building the case

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Speaker 2: to remove Powell from the fed's Board of Governors. Were

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Speaker 2: that to happen, it's probably a very extreme type scenario.

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Speaker 2: What would the reaction do you think in Asian markets

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Speaker 2: be under that scenario?

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Speaker 1: Yeah, I think it's actually still a very dangerous game

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Speaker 1: to play where where you're potentially cracking and ruining the

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Speaker 1: credibility of the FED. And that's essentially what's been happening

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Speaker 1: with all this pressure on the FED. Where you do

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Speaker 1: see is a potential reaction, is that a move and

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Speaker 1: a shift away from the dollar, and that actually could

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Speaker 1: be beneficial to a lot of the Asian currencies. We've

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Speaker 1: seen the dollar slowly decline, actually more than slowly decline

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Speaker 1: since the start of this year, and I think that

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Speaker 1: just precipitates it. And what you'll see is a switch

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Speaker 1: over to a lot of the Asian currencies, for example,

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Speaker 1: the c and y, the Korean wan as well, where

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Speaker 1: they are likely to get a bid as a result

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Speaker 1: because of the fact that you know, there is just

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Speaker 1: this loss of credibility because if you do put someone

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Speaker 1: who is in that is complies with what the fiscal

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Speaker 1: policy and what the administration wants, that just risks where

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Speaker 1: we could see inflation and how potential policy monetary policy

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Speaker 1: just gets out of control. So I think in general

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Speaker 1: what you'll see is just that shift continue away from

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Speaker 1: the dollar as a result, if you see further cracks

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Speaker 1: in the fence credibility.

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Speaker 2: Mary, we'll leave it there. It's always a pleasure. I

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Speaker 2: hope you have a productive week in the Lion City. Mary, Nicola.

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Speaker 2: There Bloomberg Markets Live Strategists joining from Singapore here on

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Speaker 2: the Daybreak Asia podcast. Thanks for listening to today's episode

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

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

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

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

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg