WEBVTT - Trump Steps Up Tariff Threats, Eco Data Look Ahead

0:00:00.080 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

0:00:10.880 --> 0:00:14.480
<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So

0:00:14.640 --> 0:00:17.440
<v Speaker 2>markets are now dealing with a new thread of tariffs

0:00:17.480 --> 0:00:21.240
<v Speaker 2>on US imports. Last Friday, President Trump declared a thirty

0:00:21.280 --> 0:00:24.600
<v Speaker 2>percent tariff on goods from both the European Union and

0:00:24.800 --> 0:00:28.560
<v Speaker 2>Mexico effective August first. It was just the day before

0:00:28.680 --> 0:00:32.320
<v Speaker 2>Trump threatened Canada with a thirty five percent tariff. So

0:00:32.479 --> 0:00:35.599
<v Speaker 2>markets have been somewhat well behaved as if they are

0:00:35.640 --> 0:00:38.440
<v Speaker 2>counting on mister Trump to back down, having seen you

0:00:38.640 --> 0:00:42.440
<v Speaker 2>turns before. The question is whether that remains the best

0:00:42.479 --> 0:00:45.840
<v Speaker 2>bet In a moment, we'll travel to Singapore and speak

0:00:45.880 --> 0:00:49.760
<v Speaker 2>with Bloomberg Markets Live strategist Mary Nicola. We begin in

0:00:49.800 --> 0:00:52.680
<v Speaker 2>the States, though, as we look ahead to second quarter earnings.

0:00:52.800 --> 0:00:55.920
<v Speaker 2>Joining me now is Rod Van Lipsey. He is managing

0:00:55.920 --> 0:01:00.320
<v Speaker 2>director at UBS Private Wealth Management. On the line from Washington, DC. Rod,

0:01:00.360 --> 0:01:02.280
<v Speaker 2>thank you so much for making time to chat with me.

0:01:02.880 --> 0:01:05.240
<v Speaker 2>So earnings from a couple of the big banks are

0:01:05.240 --> 0:01:07.959
<v Speaker 2>on the list this week, we'll also get numbers from

0:01:07.959 --> 0:01:11.479
<v Speaker 2>TSMC and Netflix. I'm curious, how do you feel about

0:01:11.480 --> 0:01:13.480
<v Speaker 2>the quality of the results that we're going to see

0:01:13.560 --> 0:01:14.160
<v Speaker 2>for Q two.

0:01:14.520 --> 0:01:16.200
<v Speaker 3>You know, this is going to be a very interesting

0:01:16.800 --> 0:01:20.720
<v Speaker 3>quarter over quarter year over year look in part because

0:01:21.080 --> 0:01:23.480
<v Speaker 3>we go back just to a quarter ago and the

0:01:23.520 --> 0:01:27.959
<v Speaker 3>whole tariff scenario really put corporations in a very strange place.

0:01:28.680 --> 0:01:31.119
<v Speaker 3>The estimates right now on the street, we're looking at

0:01:31.240 --> 0:01:35.520
<v Speaker 3>under five percent earnings for EPs growth year every year.

0:01:35.640 --> 0:01:37.880
<v Speaker 3>We at UBS believe are going to come in closer

0:01:37.920 --> 0:01:40.320
<v Speaker 3>to about six percent when we look at twenty twenty

0:01:40.360 --> 0:01:43.479
<v Speaker 3>five and growing to call it two hundred and sixty

0:01:43.480 --> 0:01:46.600
<v Speaker 3>five dollars a share on the S and P five hundred.

0:01:47.040 --> 0:01:49.760
<v Speaker 3>I think that this busy week, you know, you're really

0:01:49.760 --> 0:01:54.200
<v Speaker 3>going to see some acceleration in the earnings reports, you know,

0:01:54.280 --> 0:01:57.200
<v Speaker 3>from Monday Tuesday, Wednesday, the big banks really start to

0:01:57.280 --> 0:02:01.000
<v Speaker 3>kick off on Tuesday, and our expectation is that those

0:02:01.240 --> 0:02:03.880
<v Speaker 3>estimates are going to beat consensus. They're going to be

0:02:03.880 --> 0:02:07.320
<v Speaker 3>pretty strong in one case, because the higher interest rates,

0:02:07.400 --> 0:02:11.280
<v Speaker 3>especially for financials, have been very very supportive of NII

0:02:11.360 --> 0:02:15.560
<v Speaker 3>and that interest income and that interest margin for these banks.

0:02:15.600 --> 0:02:18.320
<v Speaker 3>So we'll see some good numbers there. And I expect

0:02:18.400 --> 0:02:22.400
<v Speaker 3>that some of the economic activity has been pulled forward

0:02:22.400 --> 0:02:26.120
<v Speaker 3>in this second quarter, especially since tariffs have been threatened

0:02:26.160 --> 0:02:29.840
<v Speaker 3>and delayed and postponed, so lots of activity, but it's

0:02:29.880 --> 0:02:31.640
<v Speaker 3>going to be a strange one and everyone is going

0:02:31.680 --> 0:02:34.080
<v Speaker 3>to be looking at not just the second quarter results,

0:02:34.120 --> 0:02:36.360
<v Speaker 3>but what will be the forecast for third quarter and

0:02:36.440 --> 0:02:37.120
<v Speaker 3>looking forward.

0:02:37.280 --> 0:02:39.520
<v Speaker 2>Before we leave the banks, I want to ask about

0:02:39.639 --> 0:02:43.679
<v Speaker 2>whether trading revenue has the potential to be a real

0:02:43.840 --> 0:02:46.919
<v Speaker 2>standout here given the volatility that we had in markets

0:02:47.080 --> 0:02:49.680
<v Speaker 2>in the second quarter, whether banks really benefited from that

0:02:49.800 --> 0:02:50.800
<v Speaker 2>on the trading side.

0:02:50.919 --> 0:02:54.760
<v Speaker 3>Anecdotally, dug absolutely. And that's why we are not only

0:02:55.440 --> 0:02:58.960
<v Speaker 3>sort of very very bullish, if you will, on financials

0:02:59.000 --> 0:03:02.520
<v Speaker 3>and the asset manager because we think the trading activity

0:03:02.560 --> 0:03:05.240
<v Speaker 3>in this second quarter was just off the charts, especially

0:03:05.280 --> 0:03:08.680
<v Speaker 3>during April, and so with that pick up an activity,

0:03:08.760 --> 0:03:12.079
<v Speaker 3>with all of that uncertainty and all of the activity

0:03:12.080 --> 0:03:13.400
<v Speaker 3>that went around that, I think it's going to be

0:03:13.400 --> 0:03:16.639
<v Speaker 3>a pretty strong, strong especially for the broker dealers, is

0:03:16.680 --> 0:03:18.200
<v Speaker 3>going to be a very very strong second quarter.

0:03:18.840 --> 0:03:21.320
<v Speaker 2>We mentioned earlier the impact of the tariffs, and I

0:03:21.320 --> 0:03:24.840
<v Speaker 2>thought it was very interesting. Last Thursday we heard from

0:03:25.040 --> 0:03:29.840
<v Speaker 2>ConAgra the outlook well below expectations, and the company pointed

0:03:29.840 --> 0:03:32.960
<v Speaker 2>out that rising cost for tin plate steel used for

0:03:33.040 --> 0:03:35.800
<v Speaker 2>food cans due to tariffs is going to have a

0:03:35.920 --> 0:03:39.320
<v Speaker 2>very consequential negative impact. Is this something that's going to

0:03:39.360 --> 0:03:42.880
<v Speaker 2>be more predominant when we talk about margins? Just how

0:03:42.920 --> 0:03:44.680
<v Speaker 2>this begins to manifest.

0:03:44.240 --> 0:03:47.120
<v Speaker 3>It's interesting. The UBS base case is that we're going

0:03:47.200 --> 0:03:50.760
<v Speaker 3>to end up somewhere around the fifteen percent, you know,

0:03:50.840 --> 0:03:54.280
<v Speaker 3>sort of across the board tariff rate, and that the

0:03:54.560 --> 0:03:57.160
<v Speaker 3>consumer is going to be asked to bear the brunt

0:03:57.160 --> 0:03:59.680
<v Speaker 3>of much of that, and so that works into our

0:03:59.720 --> 0:04:04.160
<v Speaker 3>echnomic forecast numbers. But the commodity prices, quite frankly, are

0:04:04.280 --> 0:04:07.920
<v Speaker 3>just all over the charts because of the dramatic uncertainty.

0:04:08.160 --> 0:04:11.240
<v Speaker 3>Most of our investors are focused on commodities like gold

0:04:11.240 --> 0:04:15.320
<v Speaker 3>and oil and don't dig too far into the commodity indices.

0:04:15.720 --> 0:04:19.080
<v Speaker 3>But when we look at commodities, they truly are really

0:04:19.120 --> 0:04:21.920
<v Speaker 3>all over the charts because it's very difficult to understand

0:04:21.960 --> 0:04:25.640
<v Speaker 3>how the policy and the tariffs and the trade considerations

0:04:25.680 --> 0:04:29.680
<v Speaker 3>will affect those utter blank commodities. But I think it

0:04:29.839 --> 0:04:33.960
<v Speaker 3>manifests itself at least in our forecasts on inflation that

0:04:34.080 --> 0:04:38.520
<v Speaker 3>remains fairly pernicious in stays above the FED state of

0:04:38.560 --> 0:04:39.080
<v Speaker 3>two percent.

0:04:39.120 --> 0:04:42.559
<v Speaker 2>Target interesting, and yet with all the risk out there,

0:04:42.960 --> 0:04:45.200
<v Speaker 2>we've got an S and P five hundred trading at

0:04:45.200 --> 0:04:47.520
<v Speaker 2>twenty four times earnings. Is that a little bit of

0:04:47.520 --> 0:04:48.680
<v Speaker 2>a headscratcher for you?

0:04:51.720 --> 0:04:55.840
<v Speaker 3>It truly is, because we have different things, especially if

0:04:55.839 --> 0:05:00.800
<v Speaker 3>we look at our ubs macro economic forecasts see for

0:05:00.880 --> 0:05:04.200
<v Speaker 3>example GDP growth in the Americas for twenty twenty five,

0:05:04.400 --> 0:05:07.320
<v Speaker 3>estimating you know, one and a half percent GDP growth.

0:05:07.760 --> 0:05:11.039
<v Speaker 3>But we're looking at CPI or inflation. Can we have

0:05:11.080 --> 0:05:13.440
<v Speaker 3>some releases this week that will tell us. But we

0:05:13.480 --> 0:05:16.919
<v Speaker 3>see inflation coming in almost to three percent and actually

0:05:16.960 --> 0:05:21.960
<v Speaker 3>accelerating into twenty twenty six, and that is directly because

0:05:22.000 --> 0:05:25.760
<v Speaker 3>of this concern about how tariffs are going to flow

0:05:25.800 --> 0:05:28.160
<v Speaker 3>through to the consumer and how they're going to keep

0:05:28.160 --> 0:05:32.599
<v Speaker 3>inflation fairly high. Now, the markets seem to be unfhazed

0:05:32.680 --> 0:05:35.200
<v Speaker 3>by the tariff talks. The markets seem to believe that

0:05:35.240 --> 0:05:37.920
<v Speaker 3>we're going to get to August first and either we'll

0:05:37.920 --> 0:05:41.080
<v Speaker 3>have a favorable outcome or things will get pushed back again,

0:05:41.880 --> 0:05:44.680
<v Speaker 3>and so they are completely unfazed. At least if we

0:05:44.760 --> 0:05:46.760
<v Speaker 3>look at the you know, at all time highs and

0:05:46.839 --> 0:05:50.000
<v Speaker 3>continuing to be there and so on. A macro level.

0:05:50.120 --> 0:05:53.240
<v Speaker 3>We think that this bull market that we've been experiencing

0:05:53.960 --> 0:05:57.520
<v Speaker 3>continues to have legs, it continues to have momentum, But

0:05:57.640 --> 0:05:59.600
<v Speaker 3>the real place to keep an eye out is going

0:05:59.640 --> 0:06:02.280
<v Speaker 3>to be the market, because at some point in time,

0:06:02.480 --> 0:06:04.120
<v Speaker 3>a lot of the things that were in the big

0:06:04.160 --> 0:06:07.080
<v Speaker 3>beautiful bill, a lot of the things that are coming

0:06:07.120 --> 0:06:10.000
<v Speaker 3>into the economy because of increasing tariffs, at some point

0:06:10.000 --> 0:06:11.920
<v Speaker 3>in time, the bond market is going to give us

0:06:11.920 --> 0:06:15.120
<v Speaker 3>a signal. And that's really where we have a cautious outlook.

0:06:15.640 --> 0:06:17.760
<v Speaker 2>So, if you were going to be in the fixed

0:06:17.760 --> 0:06:19.839
<v Speaker 2>income space, where do you want to hide out the

0:06:19.880 --> 0:06:21.320
<v Speaker 2>belly of the curve or do you want to be

0:06:21.400 --> 0:06:24.680
<v Speaker 2>maybe more exposed to the short end. What's the strategy?

0:06:24.880 --> 0:06:27.880
<v Speaker 3>Listen, we think that in the belly of the curve,

0:06:28.080 --> 0:06:31.320
<v Speaker 3>and we think that on balance again with our forecasts

0:06:31.400 --> 0:06:34.400
<v Speaker 3>looking one year out, with ten year rates coming back

0:06:34.400 --> 0:06:37.320
<v Speaker 3>down to four percent, we think that the bond market

0:06:37.400 --> 0:06:41.200
<v Speaker 3>provides an opportunity for the long term investor. These are

0:06:41.240 --> 0:06:45.080
<v Speaker 3>actually attractive levels, especially when you look at spreads for

0:06:45.360 --> 0:06:48.440
<v Speaker 3>high quality municipal bonds for taxable investors in the US,

0:06:48.560 --> 0:06:52.840
<v Speaker 3>or corporate corporate bonds. We're seeing an opportunity there to

0:06:53.360 --> 0:06:56.360
<v Speaker 3>get nice returns, but that does not mean it's not

0:06:56.400 --> 0:06:58.760
<v Speaker 3>going to be volatile in the short term. And that's

0:06:58.800 --> 0:07:01.640
<v Speaker 3>the real challenge for the bond investor is to take

0:07:01.640 --> 0:07:04.440
<v Speaker 3>a look at it, dick your yield, say this is

0:07:04.480 --> 0:07:06.320
<v Speaker 3>the yield that I think is going to work, and

0:07:06.480 --> 0:07:10.320
<v Speaker 3>recognize that next week, next month, that might feel like

0:07:10.360 --> 0:07:13.239
<v Speaker 3>a bad decision, but by next year you'll be glad

0:07:13.240 --> 0:07:15.120
<v Speaker 3>that you're sitting on that high quality paper.

0:07:15.560 --> 0:07:18.720
<v Speaker 2>Does the Big Beautiful Bill at any point in the

0:07:18.760 --> 0:07:23.720
<v Speaker 2>future begin to negatively impact the muni market, particularly at

0:07:23.720 --> 0:07:24.480
<v Speaker 2>the state level.

0:07:24.640 --> 0:07:27.160
<v Speaker 3>Well, that's a fantastic question, and I think that that

0:07:27.920 --> 0:07:32.120
<v Speaker 3>has been structurally appears to be something that's been pushed

0:07:32.320 --> 0:07:36.080
<v Speaker 3>down the road a little bit. Doug. I've got to

0:07:36.080 --> 0:07:38.280
<v Speaker 3>say that I have not read The Big Beautiful Bill,

0:07:38.480 --> 0:07:40.560
<v Speaker 3>and I don't know very many people who have actually

0:07:40.720 --> 0:07:43.600
<v Speaker 3>been able to read that book cover to cover. But

0:07:43.680 --> 0:07:47.000
<v Speaker 3>it's my understanding that much of the good news has

0:07:47.040 --> 0:07:49.880
<v Speaker 3>been baked in and takes immediate effect, and then some

0:07:49.920 --> 0:07:51.880
<v Speaker 3>of the ways to pay for that good news have

0:07:51.960 --> 0:07:54.840
<v Speaker 3>been pushed back, some of it beyond the midterm elections,

0:07:55.640 --> 0:07:58.920
<v Speaker 3>and so that is going to create some challenges. It's

0:07:58.960 --> 0:08:01.320
<v Speaker 3>going to create pressure for things that are being put

0:08:01.440 --> 0:08:05.960
<v Speaker 3>on states and municipalities. There's been a lot of bond issuance,

0:08:06.040 --> 0:08:09.320
<v Speaker 3>especially by municipal issuers there this year to try to

0:08:09.360 --> 0:08:13.000
<v Speaker 3>get out in front of this before rates potentially go up.

0:08:13.400 --> 0:08:16.000
<v Speaker 3>So I yes, I do think there's some challenges that'll

0:08:16.000 --> 0:08:18.320
<v Speaker 3>be ahead, but I don't know that those are near term.

0:08:18.440 --> 0:08:21.560
<v Speaker 3>I think those are pushed into twenty twenty six and beyond.

0:08:21.920 --> 0:08:24.360
<v Speaker 2>Okay, fair enough, But I'm wondering whether or not, given

0:08:24.400 --> 0:08:26.640
<v Speaker 2>everything that we've been laying out that you're attempted to

0:08:26.640 --> 0:08:30.520
<v Speaker 2>look a little offshore right now to remain diversified, do

0:08:30.520 --> 0:08:31.960
<v Speaker 2>you want to look at foreign markets.

0:08:32.080 --> 0:08:35.680
<v Speaker 3>Our investors have been the clamoring to understand ways to

0:08:35.720 --> 0:08:41.240
<v Speaker 3>diversify against either monetary or fiscal pressures and challenges here

0:08:41.520 --> 0:08:44.280
<v Speaker 3>in the US, and so listen. That's why we're seeing

0:08:44.280 --> 0:08:47.720
<v Speaker 3>gold prices in the current range. But we're also seeing

0:08:47.840 --> 0:08:51.560
<v Speaker 3>lots of great performance out of the international markets. I

0:08:51.559 --> 0:08:55.240
<v Speaker 3>think one of the questions is whether the international equity markets,

0:08:55.320 --> 0:08:58.720
<v Speaker 3>especially the Eurozone, whether it's it's fully caught up or

0:08:58.760 --> 0:09:01.800
<v Speaker 3>is there more room to grow. We think that selectively

0:09:01.880 --> 0:09:06.600
<v Speaker 3>looking offshore holding foreign currency holding gold that those are

0:09:06.679 --> 0:09:09.600
<v Speaker 3>nice hedges, But when it comes to actually making an

0:09:09.600 --> 0:09:12.719
<v Speaker 3>investment that will outperform the US markets, that becomes a

0:09:12.760 --> 0:09:16.520
<v Speaker 3>little bit more of a murky question, very very difficult

0:09:16.720 --> 0:09:20.280
<v Speaker 3>to us to look at European equity market growth in

0:09:20.559 --> 0:09:23.480
<v Speaker 3>US equity market growth, especially when we look at the

0:09:23.520 --> 0:09:26.800
<v Speaker 3>focus of it and financials here in the US and

0:09:26.920 --> 0:09:30.640
<v Speaker 3>believe that there's a lot of room for outperformance there.

0:09:30.679 --> 0:09:34.960
<v Speaker 3>In the developed international markets, emerging markets, both on the

0:09:35.040 --> 0:09:38.880
<v Speaker 3>debt and the equity side, do show some grain shoots

0:09:39.160 --> 0:09:43.840
<v Speaker 3>and do show some very very strong either sovereign balance

0:09:43.840 --> 0:09:48.640
<v Speaker 3>sheets or good positions for these corporations. But the path

0:09:48.720 --> 0:09:51.920
<v Speaker 3>of tariffs will really really make a difference, and so

0:09:52.000 --> 0:09:53.600
<v Speaker 3>that makes it a little bit of a challenge for

0:09:53.880 --> 0:09:56.880
<v Speaker 3>US investors to go too deeply and go too far

0:09:57.559 --> 0:10:01.000
<v Speaker 3>either out of dollar investing or entered national equities.

0:10:01.320 --> 0:10:04.720
<v Speaker 2>House Republicans have declared the week ahead is crypto week,

0:10:04.760 --> 0:10:07.520
<v Speaker 2>and I'm curious to get the take from the private

0:10:07.520 --> 0:10:14.200
<v Speaker 2>wealth management perspective. How is the cryptocurrency space viewed? Is

0:10:14.200 --> 0:10:18.840
<v Speaker 2>is bitcoin something that represents opportunity or do you see

0:10:18.880 --> 0:10:21.160
<v Speaker 2>it pretty much as kind of noise around the edges?

0:10:21.200 --> 0:10:23.400
<v Speaker 2>Of what the market is involved in these days.

0:10:23.520 --> 0:10:26.360
<v Speaker 3>Boy, that is a really challenging one. It's also very

0:10:26.440 --> 0:10:30.760
<v Speaker 3>challenging for someone in a broker dealer, especially a big

0:10:30.800 --> 0:10:35.560
<v Speaker 3>firm facing the FED, to really understand the path and

0:10:35.600 --> 0:10:40.000
<v Speaker 3>the fate of cryptocurrencies. I think three points though, One

0:10:40.080 --> 0:10:43.240
<v Speaker 3>is that these are certainly with us, and they're going

0:10:43.320 --> 0:10:45.760
<v Speaker 3>to stay with us. To believe that there are many

0:10:45.800 --> 0:10:49.440
<v Speaker 3>of the cryptocurrencies themselves that are highly speculative, and we

0:10:49.480 --> 0:10:52.240
<v Speaker 3>are now starting to see a number of stable coins

0:10:52.640 --> 0:10:57.160
<v Speaker 3>that are actually buying treasuries and basing them on treasury.

0:10:57.200 --> 0:10:59.800
<v Speaker 3>And so one of the interesting things, interesting dynamics that

0:10:59.800 --> 0:11:02.400
<v Speaker 3>we're seeing in the stable coin or the crypto assets

0:11:03.040 --> 0:11:06.160
<v Speaker 3>is the purchase of treasuries, which is, you know, if

0:11:06.200 --> 0:11:10.120
<v Speaker 3>you would had sort of thought about it initially or

0:11:10.160 --> 0:11:13.400
<v Speaker 3>off the cuff, you would think that that the crypto

0:11:13.480 --> 0:11:16.839
<v Speaker 3>or emergence of more crypto options would actually be a

0:11:17.800 --> 0:11:21.280
<v Speaker 3>move away from from treasuries, when in fact, the underlying

0:11:21.320 --> 0:11:24.560
<v Speaker 3>securities and the underlying issuers are actually buying treasuries to make

0:11:24.559 --> 0:11:27.440
<v Speaker 3>sure that they get that stability. So I think that

0:11:27.480 --> 0:11:30.200
<v Speaker 3>it's going to be a very very interesting thing. Obviously,

0:11:30.200 --> 0:11:36.160
<v Speaker 3>there's administration and on the hill there's support for crypto assets,

0:11:36.880 --> 0:11:40.600
<v Speaker 3>but we continue to look at them as being highly speculative.

0:11:41.160 --> 0:11:43.120
<v Speaker 2>Okay, we'll leave it there, Rod, thank you so much

0:11:43.120 --> 0:11:46.319
<v Speaker 2>for joining us. Rod van Lipsey there, Managing director, UBS

0:11:46.440 --> 0:11:49.640
<v Speaker 2>Private Wealth Management, on the line from Washington, d C.

0:11:49.840 --> 0:11:59.240
<v Speaker 2>Here on the Daybreak Asia podcast. Welcome back to the

0:11:59.320 --> 0:12:03.280
<v Speaker 2>Daybreak Asia Podcast. I'm Doug Krisner. So we know last Friday,

0:12:03.280 --> 0:12:07.160
<v Speaker 2>President Trump declared a thirty percent tariff on goods from

0:12:07.200 --> 0:12:11.520
<v Speaker 2>both the European Union and Mexico. They are effective August first,

0:12:12.040 --> 0:12:16.240
<v Speaker 2>unless there is some sort of trade deal with both jurisdictions.

0:12:16.720 --> 0:12:19.640
<v Speaker 2>Over the weekend, we heard from Ursula vander Lyon. She

0:12:19.960 --> 0:12:23.120
<v Speaker 2>is the President of the European Commission, and she said

0:12:23.240 --> 0:12:27.640
<v Speaker 2>the EU will extend the suspension of trade countermeasures against

0:12:27.679 --> 0:12:30.520
<v Speaker 2>the US until August first, and that in fact will

0:12:30.520 --> 0:12:33.920
<v Speaker 2>allow for further trade talks. We also heard from Mexican

0:12:33.960 --> 0:12:37.840
<v Speaker 2>President Claudia Sinbaum. She said that her team had already

0:12:37.840 --> 0:12:41.080
<v Speaker 2>begun discussions with the US on Friday. Joining me now

0:12:41.120 --> 0:12:43.720
<v Speaker 2>for a closer look at the tariff story is Mary Nicola,

0:12:43.920 --> 0:12:48.520
<v Speaker 2>Bloomberg Markets Live strategist. Mary joins us from Singapore, It's

0:12:48.520 --> 0:12:51.160
<v Speaker 2>always a pleasure to chat with you. I'm curious as

0:12:51.200 --> 0:12:54.080
<v Speaker 2>to get your take on the tariff headwinds where you

0:12:54.160 --> 0:12:58.679
<v Speaker 2>are and what's being said about whether President Trump may

0:12:58.720 --> 0:12:59.320
<v Speaker 2>be bluffing.

0:13:00.080 --> 0:13:03.240
<v Speaker 1>I think that is very much the case, especially if

0:13:03.280 --> 0:13:07.800
<v Speaker 1>you saw the way Asian equities had reacted last week,

0:13:07.880 --> 0:13:10.000
<v Speaker 1>and it looked like they were shrugging off a lot

0:13:10.040 --> 0:13:13.880
<v Speaker 1>of the noise that was coming through on tariffs. They

0:13:13.960 --> 0:13:17.360
<v Speaker 1>shrugged off the noise on fifty percent on Brazil. Obviously

0:13:17.400 --> 0:13:21.560
<v Speaker 1>this morning, Japanese stocks are down, but actually if you

0:13:21.559 --> 0:13:24.680
<v Speaker 1>look at the Cosby in Korea, that's holding up quite well.

0:13:25.200 --> 0:13:27.920
<v Speaker 1>So there has been this disparity in terms of they're

0:13:27.920 --> 0:13:31.800
<v Speaker 1>shrugging it off because doors are still open for negotiations,

0:13:31.840 --> 0:13:34.600
<v Speaker 1>and I think that's key for market and also the

0:13:34.640 --> 0:13:39.280
<v Speaker 1>fact that we could potentially see President Trump backpedaling. Also,

0:13:39.360 --> 0:13:43.320
<v Speaker 1>the fact is that the data is holding up quite well.

0:13:43.440 --> 0:13:47.240
<v Speaker 1>So I don't think you'll start seeing cracks coming through

0:13:47.320 --> 0:13:50.240
<v Speaker 1>into markets until we actually see some of the data

0:13:50.320 --> 0:13:53.680
<v Speaker 1>come through fruition or the fact that you're seeing weakness

0:13:54.080 --> 0:13:57.720
<v Speaker 1>coming through, And because we haven't seen that, it looks like,

0:13:58.400 --> 0:14:01.120
<v Speaker 1>you know, the markets here in Asia are holding up relatively.

0:14:01.160 --> 0:14:04.320
<v Speaker 2>Well, it's interesting tonight here in the US. So we

0:14:04.360 --> 0:14:06.640
<v Speaker 2>had Trump saying that South Korea wants to make a

0:14:06.640 --> 0:14:09.920
<v Speaker 2>trade deal. Now that's coming from mister Trump's perspective. I'm

0:14:09.960 --> 0:14:12.360
<v Speaker 2>not so sure that the same thing could be said

0:14:12.400 --> 0:14:15.319
<v Speaker 2>for the South Korean side. Isn't it really difficult to

0:14:15.400 --> 0:14:16.960
<v Speaker 2>kind of get a sense of where we are in

0:14:17.000 --> 0:14:18.280
<v Speaker 2>the negotiating process.

0:14:19.440 --> 0:14:22.480
<v Speaker 1>Yeah, it's interesting too because if you look at Korea,

0:14:22.560 --> 0:14:24.880
<v Speaker 1>the US has a free trade agreement with Korea, so

0:14:24.960 --> 0:14:27.920
<v Speaker 1>obviously the building blocks are solid and they're already there.

0:14:27.960 --> 0:14:31.720
<v Speaker 1>But it's a matter of what more is the US

0:14:31.880 --> 0:14:36.040
<v Speaker 1>looking for? And I think that keeps coming up, especially

0:14:36.040 --> 0:14:38.880
<v Speaker 1>in negotiations. So for example, which a pan you've had

0:14:38.920 --> 0:14:42.640
<v Speaker 1>a set back because of agriculture. Agriculture is always a

0:14:42.720 --> 0:14:46.440
<v Speaker 1>key sticking point when you're discussing trade negotiations and trade

0:14:46.440 --> 0:14:51.040
<v Speaker 1>agreements because obviously agriculture is considered some sort of national

0:14:51.080 --> 0:14:55.600
<v Speaker 1>security issue as well. And then but for Korea specifically,

0:14:55.800 --> 0:14:58.600
<v Speaker 1>it's interesting because you do have solid building blocks, you

0:14:58.640 --> 0:15:01.920
<v Speaker 1>do have a free trade agreement, but of course it's

0:15:01.960 --> 0:15:06.040
<v Speaker 1>a matter of the twenty five percent tariffs on cars.

0:15:06.280 --> 0:15:10.040
<v Speaker 1>That's obviously a key sticking point for the Koreans, and

0:15:10.400 --> 0:15:13.760
<v Speaker 1>they want it to go away because obviously cars are

0:15:13.840 --> 0:15:16.880
<v Speaker 1>a big part of what they're sending and what they're

0:15:16.920 --> 0:15:21.400
<v Speaker 1>selling to the US. So unless those sectoral tariffs, which

0:15:21.440 --> 0:15:25.120
<v Speaker 1>are still some of the bigger issues, go away, I

0:15:25.160 --> 0:15:29.040
<v Speaker 1>think that might still hold Korea back and hold off

0:15:29.280 --> 0:15:31.040
<v Speaker 1>an agreement between the two nations.

0:15:31.120 --> 0:15:32.880
<v Speaker 2>So I'm curious Mary as to whether or not we

0:15:33.000 --> 0:15:36.160
<v Speaker 2>have any data, high frequency or otherwise that might give

0:15:36.200 --> 0:15:39.400
<v Speaker 2>a little bit of insight into how this trade war

0:15:39.520 --> 0:15:43.080
<v Speaker 2>is impacting not only Japan but South Korea as well economically.

0:15:43.120 --> 0:15:46.160
<v Speaker 2>Do we know anything, Yeah, so so far.

0:15:46.240 --> 0:15:49.600
<v Speaker 1>Actually, if you look at some of the Korea, for example,

0:15:49.680 --> 0:15:53.680
<v Speaker 1>releases export data ten days, twenty days, and then also

0:15:53.720 --> 0:15:56.280
<v Speaker 1>if you look at the current account data, actually all

0:15:56.360 --> 0:15:59.120
<v Speaker 1>of them have been quite solid. So that's another key

0:15:59.160 --> 0:16:03.120
<v Speaker 1>reason as to want the Asian. Asian markets have been

0:16:03.160 --> 0:16:06.560
<v Speaker 1>holding up relatively well. Not to mention the fact that

0:16:07.280 --> 0:16:11.080
<v Speaker 1>China as well has been holding holding up relatively well

0:16:12.920 --> 0:16:15.520
<v Speaker 1>as well in addition to that, but if you look

0:16:15.520 --> 0:16:17.600
<v Speaker 1>at some of the trade data coming out of Korea,

0:16:17.880 --> 0:16:21.360
<v Speaker 1>there's no real indications that there has been a real slump,

0:16:21.760 --> 0:16:24.720
<v Speaker 1>and that's really helping a lot of the markets, and

0:16:24.760 --> 0:16:26.680
<v Speaker 1>I think as long as you see the strength in

0:16:26.720 --> 0:16:29.680
<v Speaker 1>the current account, the strength in the external sector, that's

0:16:29.720 --> 0:16:33.160
<v Speaker 1>going to keep equity markets, at least in the region robust.

0:16:33.760 --> 0:16:36.080
<v Speaker 2>So I know, we get a couple of key data

0:16:36.120 --> 0:16:39.880
<v Speaker 2>points for the Japanese economy this week, machine tool orders,

0:16:40.240 --> 0:16:44.160
<v Speaker 2>industrial production. I think there's some inflation data in there

0:16:44.200 --> 0:16:45.720
<v Speaker 2>as well. What are you going to be looking at?

0:16:46.360 --> 0:16:49.200
<v Speaker 1>Yeah, I think the main thing for investors right now

0:16:49.240 --> 0:16:52.520
<v Speaker 1>for the Japanese economy is on CPI. Obviously there's a

0:16:52.520 --> 0:16:55.600
<v Speaker 1>lot of concern about inflation. There's a lot of concern

0:16:55.800 --> 0:17:00.360
<v Speaker 1>about what because especially we're seeing yields rise, and there's

0:17:00.400 --> 0:17:04.520
<v Speaker 1>this toxic mix for Japan, whether you're seeing it because

0:17:04.520 --> 0:17:07.840
<v Speaker 1>of quantitative tightening, whether you're seeing it because of inflation,

0:17:08.280 --> 0:17:11.520
<v Speaker 1>whether you're seeing it because of worries about fiscal profligacy,

0:17:12.000 --> 0:17:15.160
<v Speaker 1>and especially with the elections coming through and the potential

0:17:15.200 --> 0:17:18.880
<v Speaker 1>for more fiscal spending. So there is really the heightened

0:17:18.880 --> 0:17:22.280
<v Speaker 1>focus is on CPI. Is CPI still high? And of

0:17:22.359 --> 0:17:25.480
<v Speaker 1>course we know that the Bank of Japan has been

0:17:25.560 --> 0:17:30.120
<v Speaker 1>quite reluctant to high grates, so real rates remain quite high,

0:17:30.359 --> 0:17:33.119
<v Speaker 1>and as a result, I think you're seeing investors just

0:17:33.280 --> 0:17:37.760
<v Speaker 1>incredibly wary of especially Japanese bonds. That's also going to

0:17:37.800 --> 0:17:42.080
<v Speaker 1>weigh on the yen in addition, So I think the

0:17:42.080 --> 0:17:45.239
<v Speaker 1>focus for investors this week is going to be not

0:17:45.320 --> 0:17:47.359
<v Speaker 1>only on CPI, but also on the election.

0:17:47.640 --> 0:17:49.720
<v Speaker 2>So is the BOJ in a little bit of a

0:17:49.760 --> 0:17:52.199
<v Speaker 2>bind here. I mean, if there is upward pressure on

0:17:52.640 --> 0:17:57.159
<v Speaker 2>price action, or to say, upward pressure on inflation and

0:17:57.240 --> 0:18:00.200
<v Speaker 2>the risk of more economic slowing, I mean, how do

0:18:00.280 --> 0:18:01.679
<v Speaker 2>you engineer your way out of that?

0:18:03.119 --> 0:18:05.680
<v Speaker 1>Absolutely, and that's a really good question in terms of

0:18:05.960 --> 0:18:09.320
<v Speaker 1>what do they do. And so far they've sent a

0:18:09.320 --> 0:18:12.600
<v Speaker 1>message that, especially on the tightening side, that they're sitting

0:18:12.600 --> 0:18:16.520
<v Speaker 1>on their hands, They're weighing what is happening externally. They're

0:18:16.880 --> 0:18:20.879
<v Speaker 1>concerned more about the external challenges and the implications on

0:18:20.920 --> 0:18:25.280
<v Speaker 1>the economy than inflation. And that has actually been to

0:18:25.320 --> 0:18:27.960
<v Speaker 1>the dutchment of the Japanese bond market and will likely

0:18:28.080 --> 0:18:31.520
<v Speaker 1>hurt the end as well. But in the meantime we

0:18:31.600 --> 0:18:35.320
<v Speaker 1>are seeing quantitative tightening, and it's interesting to see the

0:18:35.359 --> 0:18:38.959
<v Speaker 1>bond market reaction that despite the tweaks they've made. So

0:18:39.119 --> 0:18:42.359
<v Speaker 1>for example, the Ministry of Finance has already decided to

0:18:42.440 --> 0:18:46.080
<v Speaker 1>reduce issuance in the back end, and we've seen some

0:18:46.119 --> 0:18:50.000
<v Speaker 1>of those tweaks, yet we're still seeing pressure on bonds.

0:18:50.000 --> 0:18:52.320
<v Speaker 1>So it's almost like they've let out their tools, but

0:18:52.480 --> 0:18:56.920
<v Speaker 1>the tools aren't working, and that's just very much indicative

0:18:56.960 --> 0:18:59.840
<v Speaker 1>of the bind that they're in. And of course adding

0:18:59.840 --> 0:19:03.280
<v Speaker 1>to that is just the potential of fiscal expansion and

0:19:03.320 --> 0:19:06.280
<v Speaker 1>that will just only add to the pressures on the

0:19:06.280 --> 0:19:07.000
<v Speaker 1>bond market.

0:19:07.320 --> 0:19:11.400
<v Speaker 2>So I know, based on our history of conversations over

0:19:11.440 --> 0:19:13.919
<v Speaker 2>the last several years, you pay very close attention to

0:19:14.000 --> 0:19:16.879
<v Speaker 2>what the FED is doing. And we've got President Trump

0:19:16.920 --> 0:19:20.119
<v Speaker 2>and some of his allies who have been very critical

0:19:20.280 --> 0:19:23.400
<v Speaker 2>of FED Shair J. Powell's handling of some of the

0:19:23.480 --> 0:19:27.160
<v Speaker 2>renovations being done at the FED headquarters, and a few

0:19:27.200 --> 0:19:29.720
<v Speaker 2>people in the administration have been now building the case

0:19:29.760 --> 0:19:33.760
<v Speaker 2>to remove Powell from the fed's Board of Governors. Were

0:19:33.760 --> 0:19:37.760
<v Speaker 2>that to happen, it's probably a very extreme type scenario.

0:19:38.400 --> 0:19:41.080
<v Speaker 2>What would the reaction do you think in Asian markets

0:19:41.119 --> 0:19:42.440
<v Speaker 2>be under that scenario?

0:19:43.880 --> 0:19:46.520
<v Speaker 1>Yeah, I think it's actually still a very dangerous game

0:19:46.560 --> 0:19:50.000
<v Speaker 1>to play where where you're potentially cracking and ruining the

0:19:50.080 --> 0:19:53.840
<v Speaker 1>credibility of the FED. And that's essentially what's been happening

0:19:53.880 --> 0:19:56.000
<v Speaker 1>with all this pressure on the FED. Where you do

0:19:56.119 --> 0:19:59.159
<v Speaker 1>see is a potential reaction, is that a move and

0:19:59.200 --> 0:20:02.760
<v Speaker 1>a shift away from the dollar, and that actually could

0:20:02.800 --> 0:20:05.400
<v Speaker 1>be beneficial to a lot of the Asian currencies. We've

0:20:05.400 --> 0:20:10.520
<v Speaker 1>seen the dollar slowly decline, actually more than slowly decline

0:20:10.680 --> 0:20:12.920
<v Speaker 1>since the start of this year, and I think that

0:20:13.080 --> 0:20:15.760
<v Speaker 1>just precipitates it. And what you'll see is a switch

0:20:15.880 --> 0:20:21.360
<v Speaker 1>over to a lot of the Asian currencies, for example,

0:20:21.400 --> 0:20:24.840
<v Speaker 1>the c and y, the Korean wan as well, where

0:20:24.880 --> 0:20:27.200
<v Speaker 1>they are likely to get a bid as a result

0:20:27.400 --> 0:20:30.359
<v Speaker 1>because of the fact that you know, there is just

0:20:30.720 --> 0:20:33.840
<v Speaker 1>this loss of credibility because if you do put someone

0:20:34.160 --> 0:20:39.440
<v Speaker 1>who is in that is complies with what the fiscal

0:20:39.480 --> 0:20:44.399
<v Speaker 1>policy and what the administration wants, that just risks where

0:20:44.480 --> 0:20:49.440
<v Speaker 1>we could see inflation and how potential policy monetary policy

0:20:49.520 --> 0:20:52.479
<v Speaker 1>just gets out of control. So I think in general

0:20:52.520 --> 0:20:55.360
<v Speaker 1>what you'll see is just that shift continue away from

0:20:55.400 --> 0:20:58.679
<v Speaker 1>the dollar as a result, if you see further cracks

0:20:58.680 --> 0:21:00.480
<v Speaker 1>in the fence credibility.

0:21:00.119 --> 0:21:01.960
<v Speaker 2>Mary, we'll leave it there. It's always a pleasure. I

0:21:01.960 --> 0:21:05.080
<v Speaker 2>hope you have a productive week in the Lion City. Mary, Nicola.

0:21:05.119 --> 0:21:08.600
<v Speaker 2>There Bloomberg Markets Live Strategists joining from Singapore here on

0:21:08.600 --> 0:21:13.359
<v Speaker 2>the Daybreak Asia podcast. Thanks for listening to today's episode

0:21:13.440 --> 0:21:17.439
<v Speaker 2>of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

0:21:17.480 --> 0:21:21.359
<v Speaker 2>look at the story shaping markets, finance, and geopolitics in

0:21:21.400 --> 0:21:24.560
<v Speaker 2>the Asia Pacific. You can find us on Apple, Spotify,

0:21:24.720 --> 0:21:28.200
<v Speaker 2>the Bloomberg Podcast YouTube channel, or anywhere else you listen.

0:21:28.640 --> 0:21:31.520
<v Speaker 2>Join us again tomorrow for insight on the market moves

0:21:31.600 --> 0:21:36.120
<v Speaker 2>from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

0:21:36.280 --> 0:21:37.680
<v Speaker 2>and this is Bloomberg