WEBVTT - US Futures Higher on Trade Talk Optimism

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Krisner. There

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<v Speaker 2>are just ten days left until President Trump's country specific

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<v Speaker 2>tariffs are set to take effect, and the impact of

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<v Speaker 2>these levees will be a key topic this week for

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<v Speaker 2>five of the world's leading central bankers. They will be

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<v Speaker 2>meeting at the ECB's annual retreat in Central Portugal, and

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<v Speaker 2>in a moment we'll get a preview from Luis lou

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<v Speaker 2>lead economist at Oxford Economics. But we begin with trade.

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<v Speaker 2>On Sunday in the States, President Trump said he does

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<v Speaker 2>not plan to extend the July ninth deadline for US

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<v Speaker 2>trading partners as of now. That is when they must

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<v Speaker 2>decide either to strike trade deals with the US or

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

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<v Speaker 2>completely rule out an extension here he is speaking to

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<v Speaker 2>Fox News Sunday Morning Futures.

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<v Speaker 3>I'm for doing it right now.

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<v Speaker 4>We send letters out to all of the countries explaining

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<v Speaker 4>to them, we'll look at the deficit we have or

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<v Speaker 4>whatever it is with the country. We'll look at how

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<v Speaker 4>a country treats us. Are they good, are they not

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

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<v Speaker 4>we'll just send an I number out. But we're going

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<v Speaker 4>to be sending letters out starting pretty soon.

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<v Speaker 2>President Trump, speaking earlier to Fox News, joining me now

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<v Speaker 2>for a closer look at what's going on with the

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<v Speaker 2>tariff story is chams have solved. Managing director at the

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<v Speaker 2>Carnegie Investment Council Chums, is on the line from Toledo, Ohio.

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<v Speaker 2>Good of you to make time to chat with me

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<v Speaker 2>on this. What is your sense of the way in

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<v Speaker 2>which tariffs are impacting global economies right now?

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<v Speaker 5>Well, I think you know the clip that you just

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<v Speaker 5>played basically insures that the second half uncertainty will be

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<v Speaker 5>no better than the first You know, as you and

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<v Speaker 5>I and know that there's probably at most about a

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<v Speaker 5>half a dozen deals that is potentially at a place

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<v Speaker 5>that can be announced and be called the success. But

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<v Speaker 5>those six will not quite come the nerves come July

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<v Speaker 5>ninth or beyond, where a lot more was expected ninety

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<v Speaker 5>days ago. So I assume that this this this you

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<v Speaker 5>know thread that started twenty twenty five will remain throughout

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<v Speaker 5>the end of the year, unfortunately, but the markets have

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<v Speaker 5>a different view of it. I you know, I go

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<v Speaker 5>forward as to say even that we're experiencing some form

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<v Speaker 5>of analgesia, which is the human body's response of sort

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<v Speaker 5>of shutting down pain points because it's experiencing stress somewhere

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<v Speaker 5>else to a larger degree. And I think April tewond

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<v Speaker 5>was the major stress event, and everything that has followed

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<v Speaker 5>seems to have been really dialed down, and you know,

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<v Speaker 5>tempered down to a point where the market has completely

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<v Speaker 5>ignored everything else that has happened since then. So I

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<v Speaker 5>feel that twenty five percent tariffs across the is probably

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<v Speaker 5>not a bad forecast to assume for the rest of

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<v Speaker 5>the year.

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<v Speaker 2>How are you seeing tariff says a contributor to inflationary pressure?

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<v Speaker 5>Well, interestingly, you know, after four some years of very

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<v Speaker 5>sticky areas of inflation, especially on the housing side, non

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<v Speaker 5>housing services side, it would have picked it. It could

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<v Speaker 5>not have picked a better year than twenty twenty five

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<v Speaker 5>to start to finally show some signs of easing. So,

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<v Speaker 5>given that one third of the inflation basket comes from

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<v Speaker 5>housing and housing related activities, the fact that we are

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<v Speaker 5>finally seeing some meaningful softening there is helping counteract a

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<v Speaker 5>lot of the goods related inflation that is no longer

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<v Speaker 5>deflationary in the basket, right, So two point three percent

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<v Speaker 5>may have ticked up a little bit compared to two

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<v Speaker 5>months ago, But I think the FED is going to

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<v Speaker 5>be quite comfortable in the second half if the worst

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<v Speaker 5>of the inflation news has already been digested and that

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<v Speaker 5>these are the numbers that we have dealt with so far.

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<v Speaker 5>So I'm going to go out and live and say

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<v Speaker 5>that I think two cuts is probably the minimum for

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

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<v Speaker 5>we're expecting probably at least three.

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<v Speaker 2>Is there still the risk of stagflation?

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<v Speaker 5>There always is, right when you're dealing with one point

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<v Speaker 5>five percent sub GDP, it can very easily dip towards

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<v Speaker 5>the other side. Whether it is broad based enough where

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<v Speaker 5>the NBER actually deems that a classic recession or not

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<v Speaker 5>remains to be seen. But yes, I think GDP has

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<v Speaker 5>cooled down to a place where one small shock can

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<v Speaker 5>completely derail consumer spending to a level where you end

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<v Speaker 5>up getting a you know, back to back, you know,

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<v Speaker 5>sub zero GDP growth. But that's we don't think that's

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<v Speaker 5>going to be sort of the status quo, given that

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<v Speaker 5>we still think there is pent of demand. If the

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<v Speaker 5>AI picture was not playing out as robustly as it is,

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<v Speaker 5>then I think we would be talking about recession as

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<v Speaker 5>the baseline for twenty twenty five. But given the fact

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<v Speaker 5>that that remains the strength in the US economy, that

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<v Speaker 5>is enough to actually keep the economy at one plus

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<v Speaker 5>percent GDP for the second half. Certainly beyond that, of course,

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<v Speaker 5>but on balance between the first and the second half,

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<v Speaker 5>we're expecting at least one and a half to one

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<v Speaker 5>point six percent GDP, and that should be plenty to

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<v Speaker 5>sort of see through the high uncertainty that we have

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<v Speaker 5>been dealing with since April.

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<v Speaker 2>Second, as you and I are speaking, the Senate here

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

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<v Speaker 2>and against that backdrop, today the Congressional Budget Office estimating

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<v Speaker 2>the Senate's version of the bill will add nearly three

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<v Speaker 2>point three trillion to US deficits over a decade. Without

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<v Speaker 2>getting into the particulars and to the politics of those specifics.

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<v Speaker 2>When you hear a figure like three point three trillion

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<v Speaker 2>being added to deficits over a ten year period, what

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

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<v Speaker 5>That's where it's it's you know, why the market seem

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<v Speaker 5>to think that the bond market ultimately holds the cards

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<v Speaker 5>to how much of these tariffs actually get implemented. Right now,

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<v Speaker 5>we have been given bit of a relief for the

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<v Speaker 5>ten years, trading just under four point three, but you know,

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<v Speaker 5>anything can change, and especially if post July nine, if

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<v Speaker 5>you're seeing in the numbers that we saw from Vietnam

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<v Speaker 5>and Cambodia with forty four, forty six percent, thirty six

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<v Speaker 5>percent kinds of the tariffs being levied, the bond market

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<v Speaker 5>will have plenty to say. So my I guess our

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<v Speaker 5>view is that we don't think anywhere close to the

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<v Speaker 5>April second numbers will actually come to bear because the

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<v Speaker 5>bond market will just not allow it. And we still

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<v Speaker 5>have seven trillion dollars worth of refinancing we need to

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<v Speaker 5>do as a country over the next eleven to twelve months,

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<v Speaker 5>and we do need the ten year to behave and

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<v Speaker 5>it's not going to behave if the bill moves forward

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<v Speaker 5>without making some significant tough decisions. And I just don't

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<v Speaker 5>think any side anybody is looking to make those tough

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<v Speaker 5>decisions at this point.

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<v Speaker 2>We get a key piece of economic news in the

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<v Speaker 2>US on Thursday because of the July fourth holiday. At

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<v Speaker 2>the end of the week that's normally when we get

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<v Speaker 2>non farm payrolls instead, it will happen this week on Thursday.

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<v Speaker 2>Our survey indicates that economists are looking for the addition

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<v Speaker 2>of around one hundred and thirteen thousand jobs, an unemployment

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<v Speaker 2>rate that may creep up to around four point three percent.

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<v Speaker 2>What's your assessment of the American labor market right now?

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<v Speaker 5>Well, I think it's very much remained slow to hire

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<v Speaker 5>and slow to fire. I would say that the one

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<v Speaker 5>hundred thousand numbers seems to be where our thinking is.

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<v Speaker 5>Just given the weekly numbers from unemployment newly unemployed numbers

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<v Speaker 5>being about twenty to twenty five thousand higher per week,

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<v Speaker 5>that should pretty much put the one hundred and fifty

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<v Speaker 5>thousand plus number out of reach. Whether it's significantly closer

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<v Speaker 5>to one hundred thousand or somewhere in the middle remains

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<v Speaker 5>to be seen. We're finding that even though four point

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<v Speaker 5>two percent should not be one an unemployment number that

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<v Speaker 5>should cause any alarms. But when you look at the

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<v Speaker 5>household numbers, where you see the long term unemployed, which

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<v Speaker 5>is very much close to the one point nine million

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<v Speaker 5>at this point. That is giving. That should give the

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<v Speaker 5>Fed a lot of reasons for them to start considering

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<v Speaker 5>cuts as early as July, because the house the labor

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<v Speaker 5>market is not as balanced as the Fed seems to

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<v Speaker 5>be suggesting if you look at the disparities between the

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<v Speaker 5>long term unemployed, which is not something that happens in

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<v Speaker 5>a solid job market.

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<v Speaker 2>So Monday is the final day of the second quarter.

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<v Speaker 2>We're just weeks away then from the earning season. Data

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<v Speaker 2>from Bloomberg Intelligence show that analysts are essentially looking at

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<v Speaker 2>profit growth year over year for the S and P

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<v Speaker 2>in Q two of around two point eight percent. That

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<v Speaker 2>would be the smallest increase in about two years. We

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<v Speaker 2>can talk about that in the context of an equity

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<v Speaker 2>market that is at record highs for the S and P,

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<v Speaker 2>the Nasdaq one hundred, and the NASDAK composite. How are

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<v Speaker 2>you feeling about the equity market these days?

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<v Speaker 5>Well, at twenty two times earnings, you know you have

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<v Speaker 5>to exercise more discretion than ever. We continue to think

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<v Speaker 5>that there are parts of the market that remain fairly valued,

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<v Speaker 5>especially banking and other places, which will tend to benefit

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<v Speaker 5>from a steepening yield curve. But overall, you know, when

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<v Speaker 5>we think about the twenty two times, if you extract

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<v Speaker 5>the top ten tech names, the numbers are a little

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<v Speaker 5>bit more palatable, so I'm not quite worried about the

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<v Speaker 5>valuation at a higher level. I will also say that

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<v Speaker 5>one of the tailwinds that earning season will likely see

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<v Speaker 5>in the second quarter, which none of the guidance actually includes,

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<v Speaker 5>is the fact that the dollars weakness this year that

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<v Speaker 5>has persisted potentially adds between two to three percent and

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<v Speaker 5>EPs jump from what has been guided. So the two

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<v Speaker 5>and a half percent, I will not be surprised if

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<v Speaker 5>it actually ends up being between five and six percent,

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<v Speaker 5>which will keep it very much in track for the

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<v Speaker 5>year to deliver close to nine percent gains, which should

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<v Speaker 5>be substantially supportive of maybe another four to five percent

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<v Speaker 5>gains in the equity in the market. So I would

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<v Speaker 5>say that the dollar is probably going to who works

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<v Speaker 5>some wonders for our multinationals, and that's one of the

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<v Speaker 5>rare killwinds that we can look to into twenty twenty five.

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<v Speaker 2>Schams will leave it there, Thank you so much. Shams Afzaal,

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<v Speaker 2>Managing Director at the Carnegie Investment Council. Joining from Toledo, Ohio.

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<v Speaker 2>Here on the Daybreak Asia podcast. Welcome back to the

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<v Speaker 2>Daybreak Asia podcast. I'm Doug Krisner. This week, five of

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<v Speaker 2>the world's leading central bankers will be speaking at the

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

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<v Speaker 2>It will feature Fetcher J. Powell, along with ECB President

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<v Speaker 2>Christine Legard and their peers from Japan, South Korea and

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<v Speaker 2>the UK. Now they've been forced lately to navigate the

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<v Speaker 2>risk of both inflation and growth in the wake of

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

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<v Speaker 2>Settlements reported growth prospects have diminished, while risk have intensified

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<v Speaker 2>with regard to the stability and consumer prices, as well

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<v Speaker 2>as public finances and even the financial system. For more,

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<v Speaker 2>we heard from Louise Leu. She is the lead economist

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<v Speaker 2>at Oxford Economics. She spoke with Bloomberg, Sherry On, and

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<v Speaker 2>Heidi straud Watts some.

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<v Speaker 6>Louise, I'm curious at this sort of in between stage

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<v Speaker 6>when it comes to not knowing too much about how

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<v Speaker 6>trade is going to play out for the rest of

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<v Speaker 6>the year.

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<v Speaker 3>How are you, I.

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<v Speaker 6>Guess baking tariffs into the economy the economic outlook not

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<v Speaker 6>just for the US, but certainly the potential for implications.

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<v Speaker 3>Around the world.

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<v Speaker 7>Well, so there are there are two There are two

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<v Speaker 7>channels by which we see this play out. One is

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<v Speaker 7>true the very direct export channels. So how much trade

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<v Speaker 7>gets strunk back on how much contraction we see in.

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<v Speaker 3>Trade to a large extent.

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<v Speaker 7>That's actually been supported by a lot of uploading activity,

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<v Speaker 7>and I think this week some of the trade data

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<v Speaker 7>we will get, we're expecting that frontloading our strength to

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<v Speaker 7>still persist for a little bit. The second way by

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<v Speaker 7>which we think the trade uncertainty would transmit to the

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<v Speaker 7>rest of economy is really true where we think private

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<v Speaker 7>investments would be, where we think businesses would respond to

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<v Speaker 7>some of these uncertainties that are looming in a very

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<v Speaker 7>near term.

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<v Speaker 3>Our expectations is that across.

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<v Speaker 7>Asia we would see a bit of a dampener on

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<v Speaker 7>private investments, which probably would set the conditions right for

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<v Speaker 7>public investments for the government to really step in to

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<v Speaker 7>do a bit of the heavy lifting at a time

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<v Speaker 7>when the economy seems to be quite moving along, quite

0:13:26.520 --> 0:13:27.199
<v Speaker 7>quite tepidly.

0:13:28.400 --> 0:13:30.320
<v Speaker 6>It's one of the channels that we talk about is

0:13:30.320 --> 0:13:33.239
<v Speaker 6>sort of the embedded nature of towerffs, right, and potentially

0:13:33.280 --> 0:13:37.200
<v Speaker 6>how entrenched those expectations are. Is that a risk when

0:13:37.240 --> 0:13:40.320
<v Speaker 6>it comes to confidence levels investment from companies but also

0:13:40.360 --> 0:13:41.920
<v Speaker 6>from consumers and households too.

0:13:42.960 --> 0:13:46.959
<v Speaker 3>Yeah, absolutely, And I think the well, there are two risks.

0:13:47.040 --> 0:13:51.240
<v Speaker 7>One is that because of the volatility in trade negotiations,

0:13:51.320 --> 0:13:53.920
<v Speaker 7>the uncertainty that we saw in the last two or

0:13:53.960 --> 0:13:58.120
<v Speaker 7>three months, governments and maybe businesses now have the ability to, well,

0:13:58.120 --> 0:14:01.360
<v Speaker 7>at least they have the inclination to look true short

0:14:01.400 --> 0:14:05.319
<v Speaker 7>term noise, to really think about what the ultimate level

0:14:05.320 --> 0:14:07.960
<v Speaker 7>of tariffs might be. And I suspect that, you know,

0:14:08.040 --> 0:14:10.480
<v Speaker 7>that that implies that any of the short term news

0:14:10.559 --> 0:14:13.880
<v Speaker 7>or quality that we see coming coming up due in

0:14:14.280 --> 0:14:17.960
<v Speaker 7>July ninth, that might actually have less of an impact

0:14:18.040 --> 0:14:20.440
<v Speaker 7>than than what we saw at the pre at the

0:14:20.560 --> 0:14:24.520
<v Speaker 7>Liberation Day announcements. So that's one second is I think

0:14:24.560 --> 0:14:28.280
<v Speaker 7>also investments are going to be weight down heavily.

0:14:28.320 --> 0:14:29.080
<v Speaker 3>But also what's.

0:14:28.880 --> 0:14:32.800
<v Speaker 7>Happening by some of the second order effects, So you know,

0:14:32.800 --> 0:14:34.560
<v Speaker 7>if you have China slowly as a result of the

0:14:34.560 --> 0:14:36.840
<v Speaker 7>trade war, as a result of the trade trade tensions

0:14:36.880 --> 0:14:40.000
<v Speaker 7>with the US, then what's that gonna was gonna imply

0:14:40.080 --> 0:14:42.240
<v Speaker 7>for the rest of the Asia. So so I think

0:14:42.280 --> 0:14:45.360
<v Speaker 7>that the the the effects, the ripple on effects on

0:14:45.360 --> 0:14:47.040
<v Speaker 7>the rest of the country seem to be twofold, and

0:14:47.080 --> 0:14:49.400
<v Speaker 7>I think that we're perhaps right at the start of

0:14:49.440 --> 0:14:52.440
<v Speaker 7>that playing out, for for in the ecadiemic data.

0:14:53.400 --> 0:14:56.560
<v Speaker 1>And how fast is the transmission mechanism of that ripple

0:14:56.760 --> 0:15:01.480
<v Speaker 1>ripple effect that you talk about, because already, given the

0:15:01.520 --> 0:15:04.040
<v Speaker 1>temporary truth that we've seen between China and the US,

0:15:04.040 --> 0:15:07.040
<v Speaker 1>we're supposed to expect June manufacturing PMI from China to

0:15:07.080 --> 0:15:07.760
<v Speaker 1>turn positive.

0:15:08.680 --> 0:15:11.680
<v Speaker 7>No, Well, our house view is that we don't think

0:15:11.720 --> 0:15:13.840
<v Speaker 7>it was term positive. We think that we stay kind

0:15:13.840 --> 0:15:16.560
<v Speaker 7>of in the forty nine region. Obviously it's been at

0:15:16.560 --> 0:15:19.000
<v Speaker 7>a forty nine area for for a while now we're

0:15:19.040 --> 0:15:21.360
<v Speaker 7>talking about June PMIS for China here.

0:15:21.680 --> 0:15:22.440
<v Speaker 3>So I think.

0:15:24.280 --> 0:15:26.400
<v Speaker 7>When you talk about the speed of transmission, we think

0:15:26.440 --> 0:15:28.680
<v Speaker 7>that they will likely be quite immediate, as we've seen

0:15:28.720 --> 0:15:31.040
<v Speaker 7>in the last two or three months by going back up,

0:15:31.080 --> 0:15:33.200
<v Speaker 7>so recovering from that that's going to be quite sticky

0:15:33.440 --> 0:15:36.640
<v Speaker 7>because I think of the tremendous amount of uncertainty around that,

0:15:37.160 --> 0:15:39.400
<v Speaker 7>the fact that some of these trade deals don't really

0:15:39.440 --> 0:15:42.440
<v Speaker 7>seem to be the conventional trade views that people understand

0:15:42.520 --> 0:15:44.280
<v Speaker 7>them to be. So there is a little bit of

0:15:44.280 --> 0:15:46.800
<v Speaker 7>a disappointment around the details of that, and I think

0:15:46.840 --> 0:15:49.200
<v Speaker 7>that would weigh unsentiment for much longer.

0:15:50.000 --> 0:15:54.160
<v Speaker 1>We have seen, for example, South Korea's industrial production coming

0:15:54.200 --> 0:15:58.520
<v Speaker 1>in in contraction territory and we're expecting actually a boost.

0:15:59.640 --> 0:15:59.960
<v Speaker 3>Exactly.

0:16:00.200 --> 0:16:03.040
<v Speaker 7>So I think going forward the risks that data would

0:16:03.040 --> 0:16:07.360
<v Speaker 7>supprise us the downside rather than the upside, just because

0:16:07.400 --> 0:16:09.000
<v Speaker 7>I think the strength that we solved in the last

0:16:09.080 --> 0:16:12.200
<v Speaker 7>few months could plausibly be temporary nature.

0:16:12.320 --> 0:16:14.560
<v Speaker 3>Frontloading, rerouting trade, a lot.

0:16:14.440 --> 0:16:17.120
<v Speaker 7>Of these, and suppose for a lot of the Asian exporters,

0:16:17.120 --> 0:16:21.160
<v Speaker 7>including Korea, the resilience in tech exports is also one

0:16:21.200 --> 0:16:24.880
<v Speaker 7>of the factors that we think will potentially normalize in

0:16:24.920 --> 0:16:26.920
<v Speaker 7>the second half of this year. So a lot of

0:16:27.280 --> 0:16:28.480
<v Speaker 7>a lot of the strength that we saw, a lot

0:16:28.520 --> 0:16:30.680
<v Speaker 7>of the optimists, a lot of the upside surprises to

0:16:30.800 --> 0:16:34.280
<v Speaker 7>data in the last one month or two has been

0:16:34.600 --> 0:16:37.440
<v Speaker 7>kind of the temporary factors. So there is no reason

0:16:37.480 --> 0:16:39.040
<v Speaker 7>to think that, you know, we're not kind of on

0:16:39.080 --> 0:16:40.640
<v Speaker 7>the way down from here on.

0:16:41.400 --> 0:16:43.040
<v Speaker 6>And is that the case when it comes to China

0:16:43.080 --> 0:16:45.560
<v Speaker 6>as well, does that sort of temporary truth add any

0:16:45.640 --> 0:16:49.840
<v Speaker 6>upside potential for the payms, given that they're leading indicators anyway,

0:16:50.360 --> 0:16:52.520
<v Speaker 6>and then given there are structural issues that we know

0:16:52.560 --> 0:16:55.520
<v Speaker 6>of with the Chinese economy, even without looking at the

0:16:55.560 --> 0:16:56.400
<v Speaker 6>tower situation.

0:16:57.360 --> 0:17:00.560
<v Speaker 7>Yeah, well, the for China, I think the peers are

0:17:00.600 --> 0:17:03.840
<v Speaker 7>notoriously noisy, so we want to we don't really want

0:17:03.880 --> 0:17:06.560
<v Speaker 7>to be too hung up on one data point. Having

0:17:06.600 --> 0:17:11.720
<v Speaker 7>said that, the situation with China's is a little bit different.

0:17:11.760 --> 0:17:16.200
<v Speaker 7>I think for China we are not really seeing substantial upside.

0:17:16.680 --> 0:17:18.919
<v Speaker 7>But on the other hand, because of the truth, because

0:17:18.920 --> 0:17:22.640
<v Speaker 7>of the fact that we think Beijing officials will continue

0:17:22.640 --> 0:17:26.280
<v Speaker 7>to leverage on its critical minerals are dominant, that would

0:17:26.320 --> 0:17:29.280
<v Speaker 7>remove a tail rist scenario. So you know, I think

0:17:29.320 --> 0:17:33.440
<v Speaker 7>at this stage, if we talk about macro growth, any

0:17:33.480 --> 0:17:37.240
<v Speaker 7>growth below four point five percent is probably quite impossible

0:17:37.280 --> 0:17:40.560
<v Speaker 7>for China. So I think growth will probably be relatively

0:17:40.600 --> 0:17:44.560
<v Speaker 7>stable and decent this year, but know any spectacular I think.

0:17:45.400 --> 0:17:47.480
<v Speaker 1>Luis Zoo always good to have you with us, lead

0:17:47.520 --> 0:17:49.879
<v Speaker 1>economist add off for the economics.

0:17:52.760 --> 0:17:56.160
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:17:56.280 --> 0:17:59.679
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:17:59.720 --> 0:18:04.080
<v Speaker 2>shape markets, finance, and geopolitics in the Asia Pacific. You

0:18:04.119 --> 0:18:08.240
<v Speaker 2>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:18:08.359 --> 0:18:11.359
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:18:11.480 --> 0:18:15.000
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:18:15.400 --> 0:18:19.119
<v Speaker 2>and Australia. I'm Doug Prisner, and this is Bloomberg