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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner. Join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business App.

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Speaker 3: Today, President Biden and Chinese President She held a call

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Speaker 3: earlier there first since one on one back in November.

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Speaker 3: Let's take a closer look now with Bloomberg White House

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Speaker 3: correspondent Michelle jem Risco, who joins us from the District

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Speaker 3: of Columbia. Good of you to make time for us.

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Speaker 2: Always say thank you guys.

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Speaker 3: So at least they're talking, right, I mean, what do

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Speaker 3: we know about what was said in detail?

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Speaker 4: Yeah, at least they're talking is the key here. I mean,

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Speaker 4: this call was more than four months in the making.

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Speaker 4: Really started where they finished off in November at Woodside

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Speaker 4: in California, talking about the meaning of actually maintaining communications,

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Speaker 4: especially at the leader level. So they had a laundry

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Speaker 4: list of topics. In fact, it was only after we

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Speaker 4: got readouts from both sides, from the US side and

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Speaker 4: from the China side, And of course those are a

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Speaker 4: little bit different in terms of interpretation of how the

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Speaker 4: meeting went, the priorities. But it was only after all

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Speaker 4: that that I, you know, put on a piece of paper. Okay,

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Speaker 4: here are the ones the issues they talked about where

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Speaker 4: there are areas of cooperation. Here are the areas where

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Speaker 4: there are attentions. And really the lists are similar in lengths.

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Speaker 4: I would say the weighty ones are more on the

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Speaker 4: tension side. They talked a lot about tariffs and export controls.

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Speaker 4: The China side thinks that there are so called endless

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Speaker 4: restrictions on tech sector from the US. Their data security

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Speaker 4: concerns of TikTok came up, as you mentioned, election interference,

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Speaker 4: and then a range of geopolitical issues South China Sea,

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Speaker 4: you know, support for Russians defense industrial base, that's really

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Speaker 4: concerning on the US side, Taiwan, Hong Kong. I mean,

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Speaker 4: the list goes on and on cooperation side, I mean

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Speaker 4: they're looking to kind of advance some progress out of

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Speaker 4: those meetings in California and the fall, especially on combating

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Speaker 4: sentinel and drug trafficking.

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Speaker 2: Then yeah, let's talk a little bit more about that,

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Speaker 2: because I think the state media in China is actually

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Speaker 2: portraying this as a kind of conciliatory stance taken by

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Speaker 2: President She not with a lot of examples of it,

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Speaker 2: but it seems like it's in contrast to what we

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Speaker 2: heard before. And in fact, the People's Daily also called

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Speaker 2: for improved tie. So that's the general thrust. What would

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Speaker 2: the you know, if we had, if we had, let's say,

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Speaker 2: a softer, gentler communist party, what would the US most

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Speaker 2: like to see here?

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Speaker 4: Well, I think they would most like to see you.

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Speaker 4: Top of the list in terms of cooperation is that

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Speaker 4: further progress and drug trafficking. They've talked to the US,

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Speaker 4: Asians talked about wanting to see more cooperation, further signs

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Speaker 4: that Chinese are cracking down on drug producers and what

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Speaker 4: they call precursor chemicals to fentanyl, which of course is

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Speaker 4: is coming in to Mexico and then and coming over

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Speaker 4: the border. And so that is that was high on

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Speaker 4: the list of November and remains high on the list

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Speaker 4: in terms of trying to find ways of cooperation. I

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Speaker 4: think there also one burseoning issue which is really interesting

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Speaker 4: is artificial intelligence risks. Now we saw a resolution of

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Speaker 4: the UN approved last week that was co sponsored by

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Speaker 4: many countries, over one hundred countries, including China, but was

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Speaker 4: written by the US, and it was all about just

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Speaker 4: kind of finding ways to share information around AI. Not

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Speaker 4: so popular a discussion when you're talking at the same

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Speaker 4: time about the US trying to restrict data security issues

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Speaker 4: and finding many reasons to restrict data going into China

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Speaker 4: from the US and trying to protect American data as

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Speaker 4: they see it.

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Speaker 3: So, Michelle, from what I understand, the White House also

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Speaker 3: hinted at a pending decision on tariffs. I mean, what

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Speaker 3: do we know about this? Are there areas of specificity?

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Speaker 4: Yeah, that is a tricky one, Doug, because that is

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Speaker 4: something that we have been waiting for on the heels

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Speaker 4: of some other announcements they've made around data security and

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Speaker 4: Chinese cranes and other issues earlier this year. We have

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Speaker 4: been waiting for those potential revisions to what they call

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Speaker 4: the three oh one tariffs, the tariffs that were put

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Speaker 4: in under in the Trump administration, and the read has

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Speaker 4: been for quite some time that we don't know when

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Speaker 4: it's coming, but that we do expect the Biden administration

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Speaker 4: to maintain those tariffs and maybe even enhance them in

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Speaker 4: some way, and sort of they've signaled that they want

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Speaker 4: to kind of update them for the next generation, to

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Speaker 4: kind of put finer points on certain areas of tariffs

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Speaker 4: that will kind of match the US goal of trying

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Speaker 4: to counter China's tech issues and trying to protect again

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Speaker 4: data security for Americans.

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Speaker 2: So we don't know.

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Speaker 4: We know that it came up the White House booksman

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Speaker 4: John Kirby today and the briefing was saying the three

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Speaker 4: oh one tariffs did come up, but or excuse me,

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Speaker 4: they did not come up. I'm getting confused with the

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Speaker 4: TikTok issue.

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Speaker 2: Yeah, did.

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Speaker 4: They did talk. Us did talk in broad strokes about

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Speaker 4: the needs to kind of keep up some of these

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Speaker 4: tariffs and export controls, which, as I say, was not

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Speaker 4: of course popular with President she at this time.

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Speaker 2: You must have been reading my mind because I wanted

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Speaker 2: to ask you about TikTok. I know that we can't know.

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Speaker 2: We all wish that we could fly on the wall

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Speaker 2: in those discussions or on the phone call between the two.

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Speaker 2: I mean so many things. It's hard for China in

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Speaker 2: a sense to agree to what the US wants. I mean,

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Speaker 2: China simply cannot come out and say, Okay, well we'll

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Speaker 2: go slow on tech development. You know, you wouldn't expect

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Speaker 2: them to say that it's impossible, and on TikTok, you know,

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Speaker 2: to sell it. It seems like a tall order. I mean,

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Speaker 2: what do you imagine they discussed about TikTok?

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Speaker 4: Yeah, I think this one is more kind of a

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Speaker 4: reiteration of positions they talk a lot about. Okay, yeah,

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Speaker 4: we know we disagree on things like Taiwan, and we

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Speaker 4: know we disagree on things like TikTok, and we know

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Speaker 4: we disagree on you know, how much the US might

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Speaker 4: try to apply export controls and China from the other side,

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Speaker 4: and both sides are angry at the other on those issues.

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Speaker 4: But they do see value, the Biden administration says in

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Speaker 4: at least explaining yourself, you know, and we've heard this

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Speaker 4: from National Security Advisor Jake Sullivan, that they should be

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Speaker 4: able to He talks about having a sustainable China policy

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Speaker 4: is about holding multiple truths at the same time and

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Speaker 4: working to reconcile those truths with the other side. So

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Speaker 4: they see value in sending cabinet officials over to Beijing

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Speaker 4: consistently and explaining what's coming, even if what's coming is

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Speaker 4: then a hit on nose or in the form of

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Speaker 4: export controls or something else that might restrict China's economic

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Speaker 4: rise in some way.

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Speaker 3: Yeah, and from a president chief's perspective in the background,

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Speaker 3: the fact that President Biden is facing re election and

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Speaker 3: wonder if that was kind of suggested in any way, Joe,

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Speaker 3: I wish you the best or whatever was said, Michelle,

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Speaker 3: Thank you so much, Bloomberg White House correspondent Michelle jem

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Speaker 3: risco us as we took a close look at the

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Speaker 3: phone call today between Presidents Biden and She, their first

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Speaker 3: since November. Let's get to Singapore next in Our guest

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Speaker 3: is Mark Cudmore, Bloomberg m Live Macro Strategistics focuses on

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Speaker 3: the foreign exchange rates markets, and we're going to talk

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Speaker 3: about what we heard today from two Fed officials who

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Speaker 3: happened to be voters on the Monetary Policy Committee at

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Speaker 3: least for this year, and they are still, my friend,

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Speaker 3: expecting three rate cuts in twenty twenty four. What is

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Speaker 3: very interesting, Mark, is that the market seems to be

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Speaker 3: expecting fewer rate cuts than the Fed. Why do you

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Speaker 3: think we're getting this disconnect?

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Speaker 5: Well, I just find that both the markets and the

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Speaker 5: FED just ridiculous. At the moment. There's no way we're

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Speaker 5: gonna get three right cuts. The economy is way too strong.

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Speaker 5: There's no justification for any rate cuts at all at

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Speaker 5: the moment. The only way you're going to get right

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Speaker 5: cuts is if you have a severe deterioration in the

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Speaker 5: US economy. And I'm just not saying it's going to

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Speaker 5: cause that at the moment. I know that the FED

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Speaker 5: is desperate to cut, and that's fueling part of the problem.

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Speaker 5: They kind of gave that signal December. I feel they

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Speaker 5: repeated the twenty twenty one policy error. You know, Jerome

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Speaker 5: Powell made very clear that despite the former rhetoric, he

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Speaker 5: basically wants to be Arthur Burns not Vulcar, and he

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Speaker 5: wants to fuel another inflationary bubble. So that's what we

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Speaker 5: got through the December message. He reiter around that in March,

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Speaker 5: and I know they're inclined to try cutting one. Maybe

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Speaker 5: they'll get away with one before they'll be proven what

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Speaker 5: folly that is, and I'll say something else. Not only

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Speaker 5: do I think it's very unlikely that we get more

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Speaker 5: than one rate cut, if we even get one, but

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Speaker 5: I think it's more likely. I know it's the extreme

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Speaker 5: that we'd end out getting one hundred and fifty rather

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Speaker 5: than just fifty. And what I mean by that is

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Speaker 5: the only justification for getting more than one rate cut,

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Speaker 5: if even one, is because you've got a severe decline

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Speaker 5: in the US economy, in which case the Fed will

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Speaker 5: be panicking and cutting rights stratigally.

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Speaker 2: We would possibly be cutting grades not because of strong

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Speaker 2: economic growth or lack of it, but more because inflation

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Speaker 2: is coming down. And you have to admit mark the

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Speaker 2: PCE numbers that the Fed looks at most closely do

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Speaker 2: have a two hand all two point five and two

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Speaker 2: point eight percent, And with the FED funds rate at

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Speaker 2: five and a half percent, does it not have a

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Speaker 2: little bit of room to move to the downside? Your answer,

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Speaker 2: right no is no.

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Speaker 5: So is that PC that we're celebrating has come down

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Speaker 5: to this level. It's still above target, I think importantly,

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Speaker 5: But not only that, we know that we're through the

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Speaker 5: disinflationary way from base effects, so we always knew that

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Speaker 5: inflation was going to come much softer into the first

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Speaker 5: quarter this year, which is part of the reason why

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Speaker 5: the FED was hoping to be able to cut rights.

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Speaker 5: We've now kind of reached near the end of that trend,

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Speaker 5: so base effects will start being less supportive for this

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Speaker 5: disinflation trend. And now we got oil prices way higher,

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Speaker 5: and we've got a strong economy that seems to be reaccelerating.

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Speaker 5: So now the answer is most definitely no. I mean, like,

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Speaker 5: this is where we're we if we're not at the

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Speaker 5: trough in a in core PC where we're pretty close

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Speaker 5: to it, and it's where with the trough, member is

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Speaker 5: still where above target. So this is an economy of

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Speaker 5: just saying, hey, wait a second monetary policy is still

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Speaker 5: too loose, so why would you ease it further? You

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Speaker 5: need to tighten it more.

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Speaker 3: Well, can you help me understand why or what may

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Speaker 3: explain the heads inclination to want to cut And I'm

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Speaker 3: wondering whether or not it's something underneath the hood here,

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Speaker 3: something in the market where they're trying to stay true

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Speaker 3: to that course as a way of alleviating stress down

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Speaker 3: the road, somewhere in the credit market. Is that possible?

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Speaker 5: Yeah, yeah, So I think there's a there's a few expansions.

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Speaker 5: It's a great question. So I think there's a few expansions.

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Speaker 5: Let's let's go to that. The eleph of the room,

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Speaker 5: not of people think that there's politics involved in this,

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Speaker 5: maybe maybe not. I don't have enough to spec I

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Speaker 5: ignore that. But then there's two other issues. I think

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Speaker 5: There's one is you know where they were at the

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Speaker 5: economy and it fairness to them. I think that a

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Speaker 5: lot of the metrics for judging the strength US consumer

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Speaker 5: have been completely broken in recent years, not just because

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Speaker 5: the pandemic distortions, but behaviors changed, and then we all

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Speaker 5: these have these buy now, pay later models, which means

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Speaker 5: that the metrics are used to would say that the

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Speaker 5: consumers should have fallen off a cliff around the start

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Speaker 5: of this year end of last year, in which case

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Speaker 5: the FED should have been worried. But the consumer has

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Speaker 5: clearly not fallen off cliff and the economy is still

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Speaker 5: very strong, so that's not come through. So I understand

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Speaker 5: why they might have been worried, but they should now

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Speaker 5: change their mind. So I understand why they did the

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Speaker 5: conversation in December, but it's time to now change their

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Speaker 5: mind in that. And the final thing is are they

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Speaker 5: worried about a credit crisis? Are they word of commercial

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Speaker 5: real estate maybe, but I'm just not saying that it's

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Speaker 5: being systemic. Yeah. Sure, it's gonna be problematic for certain regions,

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Speaker 5: certain regional banks will suffer. But you know, there's thousands

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Speaker 5: of banks in the US and they are far too many,

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Speaker 5: so I think some regional banks can sadly go and

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Speaker 5: it won't be systemic.

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Speaker 2: So, Mark yours is a very bullish view. You're quite

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Speaker 2: bullish on Yeah.

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Speaker 5: I look, since the December FED. I think the December

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Speaker 5: FED was just was mind blowing. I did not expect it.

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Speaker 5: I actually wrote a piece that day going there's no

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Speaker 5: way the FED will repeat the errors of twenty twenty

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Speaker 5: one by being super dubbish while reiterating economic ecoptimism. I said,

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Speaker 5: the only reason they could be ubbish is because they

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Speaker 5: express concern about the economy, and instead they were like,

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Speaker 5: we think growths fine, and yet we still want to

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Speaker 5: cut and therefore.

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Speaker 2: But a brief reason, Mark Bush, you're bullish on the economy.

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Speaker 2: Clearly are you bullish on stocks here?

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Speaker 5: I'm not even super bullish and the economy. I'm very

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Speaker 5: bullish stocks globally. I'm always less excited about US stocks

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Speaker 5: incorrectly so, clearly because they always keep on out performing.

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Speaker 5: I just think because they're more expensive, but look, I wouldn't.

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Speaker 5: I'm bullish stocks everywhere. I just think there are better

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Speaker 5: opportunities elsewhere. I've said that before and been wrong, but

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Speaker 5: I'm very bullush stocks everywhere Sincember. I don't think the

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Speaker 5: economy is is. I think the economy is perfectly fine.

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Speaker 5: But the point is is that the economy is saying

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Speaker 5: we can cope with the level of rates the moment,

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Speaker 5: and therefore earnings aren't going to suffer. The consumer is

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Speaker 5: going to keep spending their markets still strong, companies are

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Speaker 5: still going to make a lot of money. So yes, stocks,

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Speaker 5: I'm very bull of stocks from a macro point of

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Speaker 5: view for a good while. Yeah, I just do not

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Speaker 5: anything on the horizon to change that.

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Speaker 3: So I was going to ask about strong dollar week

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Speaker 3: in and possible intervention on the part of the monetary

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Speaker 3: authority in Japan, but we're out of time. We'll have

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Speaker 3: to save that for later. Mark, it's always a pleasure.

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Speaker 3: Thanks for making time for up. Mark Cudmore Bloomberg m

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Speaker 3: live macro strategist. He focuses on the foreign exchange and

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Speaker 3: the rates markets.

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Speaker 5: Well.

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Speaker 2: Joining us now is Michael Leon chief investment officer at

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Speaker 2: Foundation Asset Management. So, Michael, we just heard about how

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Speaker 2: strong economic news in the US is causing some concerns

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Speaker 2: that will be higher for longer on rates. Is it

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Speaker 2: such now that good news is bad news.

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Speaker 1: To certain extent. Yes, rising interest rates or higher for

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Speaker 1: longer interest rates is a tightening bias for Asian equities.

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Speaker 1: But havn't said that, you know, given the valuation is

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Speaker 1: so low right now, you have two different driving forces

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Speaker 1: behind it.

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Speaker 3: When you say two driving forces, what's the other one?

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Speaker 3: I mean, if we can talk about higher US interest rates,

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Speaker 3: what's the other driving force? Valuation? Yeah?

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Speaker 1: I mean, you know, I mean, for example, MS see

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Speaker 1: China training eight times learnings for this year, and Japan

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Speaker 1: about twenty five, Indian about twenty seven s and P

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Speaker 1: five hundred and about twenty. So it's really about half

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Speaker 1: of the evaluation of the major markets.

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Speaker 2: Yeah. Well, we always have overhangs in markets. Obviously we're

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Speaker 2: worried now about higher for longer in the West. Here

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Speaker 2: we've had policy has been one very deep consideration for

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Speaker 2: whether or not you want to buy Chinese in Hong

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Speaker 2: Kong stock. So how do you gauge policy at the moment,

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Speaker 2: and you know, with valuations where they are, are you

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Speaker 2: seeing a green light policy?

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Speaker 1: Impulse is the difficult one to judge over my thirty experience,

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Speaker 1: I do not consider fig running policies will be in

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Speaker 1: the investment strategy, especially given the longer term had wins

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Speaker 1: of Chinese economy, you know, namingly, you know, demographics, probably

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Speaker 1: the leveraging and so and so forth. So that's probably

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Speaker 1: much longer driving force behind me. In the short run.

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Speaker 1: I'm sure a policy going to come out here and

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Speaker 1: there to support, but probably going to change the trajectory here.

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Speaker 3: When you look at the deflation story in China, I

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Speaker 3: know we're going to get to the official inflation reports

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Speaker 3: next week. Is this something that's going to be persistent?

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Speaker 3: Do you think is China going to be dealing with

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Speaker 3: maybe what Japan dealt with for for a very long time,

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Speaker 3: beginning with late nineteen eighties.

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Speaker 1: Well, if I have a crystal ball, I would say

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Speaker 1: yes to that question. The you know, I mean you

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Speaker 1: would have volatility in the cpis in China. But the

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Speaker 1: trajectory is, you know, demand is slowing people and aging

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Speaker 1: propertly is more abandoned, you know, in supply, I don't

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Speaker 1: think there're as a rush. You know, I fee will

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Speaker 1: pay out prices because they think price is going to

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Speaker 1: go up in future. Right, But given the situation we're

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Speaker 1: in today, there's just no rush to buy everything today.

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Speaker 2: This is very interesting because you started off as saying

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Speaker 2: that low valuations were a consideration, and yet when we

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Speaker 2: mentioned one challenge possible challenge policy, you say, hey, they're

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Speaker 2: even bigger challenges. You know, the demographics is one and

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Speaker 2: the property crisis is another. So how do you actually

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Speaker 2: sit on the line between bullish and bearish? Are you

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Speaker 2: bullish or are you not?

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Speaker 1: Well, that's a very good question, Brian. At Foundation, we

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Speaker 1: more of long short equity per se. There's always positives

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Speaker 1: and negatives, especially given the headwinds we have in China.

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Speaker 1: Actually stronger companies when we look at them, actually the

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Speaker 1: holding up okay, But in this challenging environment you have

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Speaker 1: many companies the weaker peers actually suffering a lot. So yes,

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Speaker 1: it's not our right bullish or parish. It's more of

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Speaker 1: a where you see from a bottom up point of view,

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Speaker 1: where you see the values and versus a company probably

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Speaker 1: not going to.

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Speaker 3: Do You were talking a moment about volatility and I'm

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Speaker 3: wondering whether you're attempted to abandon your role as investor

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Speaker 3: and take on the role of trader and exploit that

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Speaker 3: volatility and maybe make short term trades rather than investing

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Speaker 3: for the long term. Is that Is that a viable

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Speaker 3: strategy for China?

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Speaker 1: It maybe is a viable strategy from for the others,

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Speaker 1: but not for us. We're bottom up fundamental guys. Our

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Speaker 1: horizon is number in numbers of years rather the number

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Speaker 1: of days. Well, for example, I mean, let's take a

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Speaker 1: look at the EV right, I mean, yesterday show me

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Speaker 1: is pre order was very very strong. Stock went up,

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Speaker 1: but at the same time, I don't want to name names,

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Speaker 1: but you know, the usual suspects. Some shares actually went

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Speaker 1: down yesterday in the EV space. So the JET forecasts

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Speaker 1: for global EV demand is about twenty million globally this year. Okay,

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Speaker 1: Sara seventeen million this year. But China alone the production

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Speaker 1: capacity is twenty million. Okay, there's a massive oversupply on

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Speaker 1: the horizon. In the end, there's an eguity investor. You

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Speaker 1: prefer a business not only can sell well, and also

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Speaker 1: can sell well at the good price, good margins, and

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Speaker 1: in this environment, even the ev not everybody gonna be

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Speaker 1: happy at the end of the day.

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Speaker 2: So, Doug, you know, Michael is very interesting because to

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Speaker 2: my question, are you bullish or bearish? You know what

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Speaker 2: his answer was, Yes.

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Speaker 3: I'm both.

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Speaker 2: Yeah. I mean he's really looking through the markets. And

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Speaker 2: I find this other line here from one of your

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Speaker 2: themes to be kind of intriguing. You like PCs over smartphones? Wow,

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Speaker 2: lay that out for us.

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Speaker 1: All right, Again, it's probably come from the competition. A

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Speaker 1: PC is not rocket science. I mean, during the COVID

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Speaker 1: the global people work from home, a lot of PCs

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Speaker 1: being bort during that time. But having said that, for

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Speaker 1: the last two years wins row slump. It's a very

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Speaker 1: cyclical business. Now we come out this PC cycle, replacement

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Speaker 1: is coming in again or happening again for next one

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Speaker 1: or two years, not only AI driven PCs, but just

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Speaker 1: general piece replacement is coming in. For the smartphone. It

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Speaker 1: is very difficult because there are so many smallphone makers. Yeah,

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Speaker 1: and for aipower smartphones, we're a little further out.

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Speaker 3: Well, that's interesting that you bring up artificial intelligence because

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Speaker 3: we were talking a moment ago about this phone call

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Speaker 3: that took place between Presidents Biden and ch earlier, and

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Speaker 3: I think from the China side, just a little bit

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Speaker 3: of criticism at the restrictions that the Biden administration has

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Speaker 3: placed on access to some of this most sophisticated high

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Speaker 3: technology equipment. Do you think do you have confidence in

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Speaker 3: China's ability, given the world that we're living in right now,

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Speaker 3: to kind of cultivate its own high technology I want

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Speaker 3: to use the term sector. I don't even know that

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Speaker 3: that's right. Semiconductors clearly are going to be an issue

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Speaker 3: and where AI is concerned, do you have confidence in

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Speaker 3: China's ability to maybe create cultivate a homegrown semiconductor industry.

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Speaker 1: I have a confidence for China to do well in

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Speaker 1: the traditional legacy notes, you know, the the lower attack semiconductions,

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Speaker 1: the leading edge semiconductors. Given the restriction sanctions in place,

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Speaker 1: that progress is being slowed. Eventually China might achieve that,

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Speaker 1: but you know, maybe two x of the time.

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Speaker 2: You're going strong there on PC makers, you know, replacement

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Speaker 2: cycle and all any that you favor.

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Speaker 1: Well, there are only three major PC makers in the world, right, Lenovo, Lenovo,

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Speaker 1: now and HP take a pick. You pick, well, I'll

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Speaker 1: think I'll take the first two.

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Speaker 2: Yeah, great. So you're long and short, so I want

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Speaker 2: to know who you're going short. I will say the HP. Yeah,

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Speaker 2: all rights. Thanks very much, Michael, Pleasure, a real interesting discussion.

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Speaker 2: Michael Leong, Chief Investment Officer at Foundation Asset Management.

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Speaker 3: the stories making news and moving markets in the Asia Pacific.

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