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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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

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Speaker 2: are just ten days left until President Trump's country specific

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Speaker 2: tariffs are set to take effect, and the impact of

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Speaker 2: these levees will be a key topic this week for

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Speaker 2: five of the world's leading central bankers. They will be

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Speaker 2: meeting at the ECB's annual retreat in Central Portugal, and

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Speaker 2: in a moment we'll get a preview from Luis lou

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Speaker 2: lead economist at Oxford Economics. But we begin with trade.

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Speaker 2: On Sunday in the States, President Trump said he does

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Speaker 2: not plan to extend the July ninth deadline for US

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Speaker 2: trading partners as of now. That is when they must

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Speaker 2: decide either to strike trade deals with the US or

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Speaker 2: face reciprocal tariffs of twenty five percent. Interestingly, Trump didn't

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Speaker 2: completely rule out an extension here he is speaking to

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Speaker 2: Fox News Sunday Morning Futures.

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Speaker 3: I'm for doing it right now.

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Speaker 4: We send letters out to all of the countries explaining

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Speaker 4: to them, we'll look at the deficit we have or

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Speaker 4: whatever it is with the country. We'll look at how

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Speaker 4: a country treats us. Are they good, are they not

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Speaker 4: so good. Some countries we don't care. Well, you know,

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Speaker 4: we'll just send an I number out. But we're going

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Speaker 4: to be sending letters out starting pretty soon.

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Speaker 2: President Trump, speaking earlier to Fox News, joining me now

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Speaker 2: for a closer look at what's going on with the

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Speaker 2: tariff story is chams have solved. Managing director at the

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Speaker 2: Carnegie Investment Council Chums, is on the line from Toledo, Ohio.

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Speaker 2: Good of you to make time to chat with me

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Speaker 2: on this. What is your sense of the way in

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Speaker 2: which tariffs are impacting global economies right now?

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Speaker 5: Well, I think you know the clip that you just

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Speaker 5: played basically insures that the second half uncertainty will be

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Speaker 5: no better than the first You know, as you and

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Speaker 5: I and know that there's probably at most about a

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Speaker 5: half a dozen deals that is potentially at a place

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Speaker 5: that can be announced and be called the success. But

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Speaker 5: those six will not quite come the nerves come July

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Speaker 5: ninth or beyond, where a lot more was expected ninety

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Speaker 5: days ago. So I assume that this this this you

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Speaker 5: know thread that started twenty twenty five will remain throughout

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Speaker 5: the end of the year, unfortunately, but the markets have

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Speaker 5: a different view of it. I you know, I go

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Speaker 5: forward as to say even that we're experiencing some form

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Speaker 5: of analgesia, which is the human body's response of sort

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Speaker 5: of shutting down pain points because it's experiencing stress somewhere

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Speaker 5: else to a larger degree. And I think April tewond

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Speaker 5: was the major stress event, and everything that has followed

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Speaker 5: seems to have been really dialed down, and you know,

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Speaker 5: tempered down to a point where the market has completely

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Speaker 5: ignored everything else that has happened since then. So I

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Speaker 5: feel that twenty five percent tariffs across the is probably

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Speaker 5: not a bad forecast to assume for the rest of

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Speaker 5: the year.

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Speaker 2: How are you seeing tariff says a contributor to inflationary pressure?

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Speaker 5: Well, interestingly, you know, after four some years of very

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Speaker 5: sticky areas of inflation, especially on the housing side, non

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Speaker 5: housing services side, it would have picked it. It could

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Speaker 5: not have picked a better year than twenty twenty five

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Speaker 5: to start to finally show some signs of easing. So,

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Speaker 5: given that one third of the inflation basket comes from

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Speaker 5: housing and housing related activities, the fact that we are

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Speaker 5: finally seeing some meaningful softening there is helping counteract a

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Speaker 5: lot of the goods related inflation that is no longer

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Speaker 5: deflationary in the basket, right, So two point three percent

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Speaker 5: may have ticked up a little bit compared to two

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Speaker 5: months ago, But I think the FED is going to

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Speaker 5: be quite comfortable in the second half if the worst

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Speaker 5: of the inflation news has already been digested and that

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Speaker 5: these are the numbers that we have dealt with so far.

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Speaker 5: So I'm going to go out and live and say

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Speaker 5: that I think two cuts is probably the minimum for

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Speaker 5: this year. I'm much more on the group side, where

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Speaker 5: we're expecting probably at least three.

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Speaker 2: Is there still the risk of stagflation?

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Speaker 5: There always is, right when you're dealing with one point

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Speaker 5: five percent sub GDP, it can very easily dip towards

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Speaker 5: the other side. Whether it is broad based enough where

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Speaker 5: the NBER actually deems that a classic recession or not

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Speaker 5: remains to be seen. But yes, I think GDP has

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Speaker 5: cooled down to a place where one small shock can

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Speaker 5: completely derail consumer spending to a level where you end

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Speaker 5: up getting a you know, back to back, you know,

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Speaker 5: sub zero GDP growth. But that's we don't think that's

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Speaker 5: going to be sort of the status quo, given that

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Speaker 5: we still think there is pent of demand. If the

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Speaker 5: AI picture was not playing out as robustly as it is,

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Speaker 5: then I think we would be talking about recession as

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Speaker 5: the baseline for twenty twenty five. But given the fact

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Speaker 5: that that remains the strength in the US economy, that

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Speaker 5: is enough to actually keep the economy at one plus

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Speaker 5: percent GDP for the second half. Certainly beyond that, of course,

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Speaker 5: but on balance between the first and the second half,

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Speaker 5: we're expecting at least one and a half to one

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Speaker 5: point six percent GDP, and that should be plenty to

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Speaker 5: sort of see through the high uncertainty that we have

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Speaker 5: been dealing with since April.

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Speaker 2: Second, as you and I are speaking, the Senate here

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Speaker 2: in the US is debating President Trump's tax and spending bill,

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Speaker 2: and against that backdrop, today the Congressional Budget Office estimating

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Speaker 2: the Senate's version of the bill will add nearly three

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Speaker 2: point three trillion to US deficits over a decade. Without

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Speaker 2: getting into the particulars and to the politics of those specifics.

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Speaker 2: When you hear a figure like three point three trillion

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Speaker 2: being added to deficits over a ten year period, what

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Speaker 2: might happen in the bond market as a result of that, Well.

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Speaker 5: That's where it's it's you know, why the market seem

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Speaker 5: to think that the bond market ultimately holds the cards

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Speaker 5: to how much of these tariffs actually get implemented. Right now,

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Speaker 5: we have been given bit of a relief for the

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Speaker 5: ten years, trading just under four point three, but you know,

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Speaker 5: anything can change, and especially if post July nine, if

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Speaker 5: you're seeing in the numbers that we saw from Vietnam

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Speaker 5: and Cambodia with forty four, forty six percent, thirty six

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Speaker 5: percent kinds of the tariffs being levied, the bond market

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Speaker 5: will have plenty to say. So my I guess our

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Speaker 5: view is that we don't think anywhere close to the

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Speaker 5: April second numbers will actually come to bear because the

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Speaker 5: bond market will just not allow it. And we still

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Speaker 5: have seven trillion dollars worth of refinancing we need to

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Speaker 5: do as a country over the next eleven to twelve months,

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Speaker 5: and we do need the ten year to behave and

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Speaker 5: it's not going to behave if the bill moves forward

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Speaker 5: without making some significant tough decisions. And I just don't

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Speaker 5: think any side anybody is looking to make those tough

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Speaker 5: decisions at this point.

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Speaker 2: We get a key piece of economic news in the

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Speaker 2: US on Thursday because of the July fourth holiday. At

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Speaker 2: the end of the week that's normally when we get

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Speaker 2: non farm payrolls instead, it will happen this week on Thursday.

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Speaker 2: Our survey indicates that economists are looking for the addition

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Speaker 2: of around one hundred and thirteen thousand jobs, an unemployment

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Speaker 2: rate that may creep up to around four point three percent.

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Speaker 2: What's your assessment of the American labor market right now?

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Speaker 5: Well, I think it's very much remained slow to hire

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Speaker 5: and slow to fire. I would say that the one

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Speaker 5: hundred thousand numbers seems to be where our thinking is.

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Speaker 5: Just given the weekly numbers from unemployment newly unemployed numbers

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Speaker 5: being about twenty to twenty five thousand higher per week,

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Speaker 5: that should pretty much put the one hundred and fifty

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Speaker 5: thousand plus number out of reach. Whether it's significantly closer

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Speaker 5: to one hundred thousand or somewhere in the middle remains

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Speaker 5: to be seen. We're finding that even though four point

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Speaker 5: two percent should not be one an unemployment number that

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Speaker 5: should cause any alarms. But when you look at the

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Speaker 5: household numbers, where you see the long term unemployed, which

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Speaker 5: is very much close to the one point nine million

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Speaker 5: at this point. That is giving. That should give the

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Speaker 5: Fed a lot of reasons for them to start considering

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Speaker 5: cuts as early as July, because the house the labor

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Speaker 5: market is not as balanced as the Fed seems to

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Speaker 5: be suggesting if you look at the disparities between the

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Speaker 5: long term unemployed, which is not something that happens in

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Speaker 5: a solid job market.

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Speaker 2: So Monday is the final day of the second quarter.

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Speaker 2: We're just weeks away then from the earning season. Data

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Speaker 2: from Bloomberg Intelligence show that analysts are essentially looking at

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Speaker 2: profit growth year over year for the S and P

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Speaker 2: in Q two of around two point eight percent. That

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Speaker 2: would be the smallest increase in about two years. We

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Speaker 2: can talk about that in the context of an equity

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Speaker 2: market that is at record highs for the S and P,

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Speaker 2: the Nasdaq one hundred, and the NASDAK composite. How are

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Speaker 2: you feeling about the equity market these days?

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Speaker 5: Well, at twenty two times earnings, you know you have

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Speaker 5: to exercise more discretion than ever. We continue to think

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Speaker 5: that there are parts of the market that remain fairly valued,

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Speaker 5: especially banking and other places, which will tend to benefit

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Speaker 5: from a steepening yield curve. But overall, you know, when

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Speaker 5: we think about the twenty two times, if you extract

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Speaker 5: the top ten tech names, the numbers are a little

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Speaker 5: bit more palatable, so I'm not quite worried about the

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Speaker 5: valuation at a higher level. I will also say that

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Speaker 5: one of the tailwinds that earning season will likely see

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Speaker 5: in the second quarter, which none of the guidance actually includes,

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Speaker 5: is the fact that the dollars weakness this year that

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Speaker 5: has persisted potentially adds between two to three percent and

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Speaker 5: EPs jump from what has been guided. So the two

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Speaker 5: and a half percent, I will not be surprised if

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Speaker 5: it actually ends up being between five and six percent,

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Speaker 5: which will keep it very much in track for the

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Speaker 5: year to deliver close to nine percent gains, which should

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Speaker 5: be substantially supportive of maybe another four to five percent

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Speaker 5: gains in the equity in the market. So I would

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Speaker 5: say that the dollar is probably going to who works

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Speaker 5: some wonders for our multinationals, and that's one of the

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Speaker 5: rare killwinds that we can look to into twenty twenty five.

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Speaker 2: Schams will leave it there, Thank you so much. Shams Afzaal,

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Speaker 2: Managing Director at the Carnegie Investment Council. Joining from Toledo, Ohio.

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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. This week, five of

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Speaker 2: the world's leading central bankers will be speaking at the

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Speaker 2: ECB's annual retreat in Central Portugal. This is a public forum.

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Speaker 2: It will feature Fetcher J. Powell, along with ECB President

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Speaker 2: Christine Legard and their peers from Japan, South Korea and

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Speaker 2: the UK. Now they've been forced lately to navigate the

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Speaker 2: risk of both inflation and growth in the wake of

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Speaker 2: President Trump's tariff actions. On Sunday, the Bank for International

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Speaker 2: Settlements reported growth prospects have diminished, while risk have intensified

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Speaker 2: with regard to the stability and consumer prices, as well

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Speaker 2: as public finances and even the financial system. For more,

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Speaker 2: we heard from Louise Leu. She is the lead economist

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Speaker 2: at Oxford Economics. She spoke with Bloomberg, Sherry On, and

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Speaker 2: Heidi straud Watts some.

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Speaker 6: Louise, I'm curious at this sort of in between stage

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Speaker 6: when it comes to not knowing too much about how

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Speaker 6: trade is going to play out for the rest of

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Speaker 6: the year.

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Speaker 3: How are you, I.

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Speaker 6: Guess baking tariffs into the economy the economic outlook not

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Speaker 6: just for the US, but certainly the potential for implications.

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Speaker 3: Around the world.

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Speaker 7: Well, so there are there are two There are two

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Speaker 7: channels by which we see this play out. One is

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Speaker 7: true the very direct export channels. So how much trade

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Speaker 7: gets strunk back on how much contraction we see in.

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Speaker 3: Trade to a large extent.

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Speaker 7: That's actually been supported by a lot of uploading activity,

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Speaker 7: and I think this week some of the trade data

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Speaker 7: we will get, we're expecting that frontloading our strength to

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Speaker 7: still persist for a little bit. The second way by

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Speaker 7: which we think the trade uncertainty would transmit to the

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Speaker 7: rest of economy is really true where we think private

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Speaker 7: investments would be, where we think businesses would respond to

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Speaker 7: some of these uncertainties that are looming in a very

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Speaker 7: near term.

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Speaker 3: Our expectations is that across.

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Speaker 7: Asia we would see a bit of a dampener on

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Speaker 7: private investments, which probably would set the conditions right for

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Speaker 7: public investments for the government to really step in to

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Speaker 7: do a bit of the heavy lifting at a time

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Speaker 7: when the economy seems to be quite moving along, quite

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Speaker 7: quite tepidly.

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Speaker 6: It's one of the channels that we talk about is

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Speaker 6: sort of the embedded nature of towerffs, right, and potentially

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Speaker 6: how entrenched those expectations are. Is that a risk when

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Speaker 6: it comes to confidence levels investment from companies but also

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Speaker 6: from consumers and households too.

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Speaker 3: Yeah, absolutely, And I think the well, there are two risks.

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Speaker 7: One is that because of the volatility in trade negotiations,

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Speaker 7: the uncertainty that we saw in the last two or

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Speaker 7: three months, governments and maybe businesses now have the ability to, well,

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Speaker 7: at least they have the inclination to look true short

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Speaker 7: term noise, to really think about what the ultimate level

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Speaker 7: of tariffs might be. And I suspect that, you know,

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Speaker 7: that that implies that any of the short term news

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Speaker 7: or quality that we see coming coming up due in

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Speaker 7: July ninth, that might actually have less of an impact

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Speaker 7: than than what we saw at the pre at the

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Speaker 7: Liberation Day announcements. So that's one second is I think

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Speaker 7: also investments are going to be weight down heavily.

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Speaker 3: But also what's.

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Speaker 7: Happening by some of the second order effects, So you know,

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Speaker 7: if you have China slowly as a result of the

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Speaker 7: trade war, as a result of the trade trade tensions

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Speaker 7: with the US, then what's that gonna was gonna imply

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Speaker 7: for the rest of the Asia. So so I think

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Speaker 7: that the the the effects, the ripple on effects on

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Speaker 7: the rest of the country seem to be twofold, and

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Speaker 7: I think that we're perhaps right at the start of

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Speaker 7: that playing out, for for in the ecadiemic data.

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Speaker 1: And how fast is the transmission mechanism of that ripple

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Speaker 1: ripple effect that you talk about, because already, given the

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Speaker 1: temporary truth that we've seen between China and the US,

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Speaker 1: we're supposed to expect June manufacturing PMI from China to

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Speaker 1: turn positive.

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Speaker 7: No, Well, our house view is that we don't think

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Speaker 7: it was term positive. We think that we stay kind

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Speaker 7: of in the forty nine region. Obviously it's been at

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Speaker 7: a forty nine area for for a while now we're

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Speaker 7: talking about June PMIS for China here.

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Speaker 3: So I think.

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Speaker 7: When you talk about the speed of transmission, we think

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Speaker 7: that they will likely be quite immediate, as we've seen

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Speaker 7: in the last two or three months by going back up,

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Speaker 7: so recovering from that that's going to be quite sticky

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Speaker 7: because I think of the tremendous amount of uncertainty around that,

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Speaker 7: the fact that some of these trade deals don't really

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Speaker 7: seem to be the conventional trade views that people understand

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Speaker 7: them to be. So there is a little bit of

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Speaker 7: a disappointment around the details of that, and I think

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Speaker 7: that would weigh unsentiment for much longer.

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Speaker 1: We have seen, for example, South Korea's industrial production coming

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Speaker 1: in in contraction territory and we're expecting actually a boost.

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Speaker 3: Exactly.

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Speaker 7: So I think going forward the risks that data would

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Speaker 7: supprise us the downside rather than the upside, just because

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Speaker 7: I think the strength that we solved in the last

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Speaker 7: few months could plausibly be temporary nature.

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Speaker 3: Frontloading, rerouting trade, a lot.

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Speaker 7: Of these, and suppose for a lot of the Asian exporters,

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Speaker 7: including Korea, the resilience in tech exports is also one

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Speaker 7: of the factors that we think will potentially normalize in

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Speaker 7: the second half of this year. So a lot of

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Speaker 7: a lot of the strength that we saw, a lot

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Speaker 7: of the optimists, a lot of the upside surprises to

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Speaker 7: data in the last one month or two has been

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Speaker 7: kind of the temporary factors. So there is no reason

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Speaker 7: to think that, you know, we're not kind of on

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Speaker 7: the way down from here on.

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Speaker 6: And is that the case when it comes to China

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Speaker 6: as well, does that sort of temporary truth add any

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Speaker 6: upside potential for the payms, given that they're leading indicators anyway,

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Speaker 6: and then given there are structural issues that we know

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Speaker 6: of with the Chinese economy, even without looking at the

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Speaker 6: tower situation.

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Speaker 7: Yeah, well, the for China, I think the peers are

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Speaker 7: notoriously noisy, so we want to we don't really want

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Speaker 7: to be too hung up on one data point. Having

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Speaker 7: said that, the situation with China's is a little bit different.

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Speaker 7: I think for China we are not really seeing substantial upside.

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Speaker 7: But on the other hand, because of the truth, because

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Speaker 7: of the fact that we think Beijing officials will continue

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Speaker 7: to leverage on its critical minerals are dominant, that would

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Speaker 7: remove a tail rist scenario. So you know, I think

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Speaker 7: at this stage, if we talk about macro growth, any

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Speaker 7: growth below four point five percent is probably quite impossible

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Speaker 7: for China. So I think growth will probably be relatively

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Speaker 7: stable and decent this year, but know any spectacular I think.

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Speaker 1: Luis Zoo always good to have you with us, lead

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Speaker 1: economist add off for the economics.

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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: shape 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 Prisner, and this is Bloomberg