Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
Speaker 2: along with Doug Krisner. Join us each day for the
Speaker 2: stories making news and moving markets in the Asia Pacific.
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Speaker 3: Today, President Biden and Chinese President She held a call
Speaker 3: earlier there first since one on one back in November.
Speaker 3: Let's take a closer look now with Bloomberg White House
Speaker 3: correspondent Michelle jem Risco, who joins us from the District
Speaker 3: of Columbia. Good of you to make time for us.
Speaker 2: Always say thank you guys.
Speaker 3: So at least they're talking, right, I mean, what do
Speaker 3: we know about what was said in detail?
Speaker 4: Yeah, at least they're talking is the key here. I mean,
Speaker 4: this call was more than four months in the making.
Speaker 4: Really started where they finished off in November at Woodside
Speaker 4: in California, talking about the meaning of actually maintaining communications,
Speaker 4: especially at the leader level. So they had a laundry
Speaker 4: list of topics. In fact, it was only after we
Speaker 4: got readouts from both sides, from the US side and
Speaker 4: from the China side, And of course those are a
Speaker 4: little bit different in terms of interpretation of how the
Speaker 4: meeting went, the priorities. But it was only after all
Speaker 4: that that I, you know, put on a piece of paper. Okay,
Speaker 4: here are the ones the issues they talked about where
Speaker 4: there are areas of cooperation. Here are the areas where
Speaker 4: there are attentions. And really the lists are similar in lengths.
Speaker 4: I would say the weighty ones are more on the
Speaker 4: tension side. They talked a lot about tariffs and export controls.
Speaker 4: The China side thinks that there are so called endless
Speaker 4: restrictions on tech sector from the US. Their data security
Speaker 4: concerns of TikTok came up, as you mentioned, election interference,
Speaker 4: and then a range of geopolitical issues South China Sea,
Speaker 4: you know, support for Russians defense industrial base, that's really
Speaker 4: concerning on the US side, Taiwan, Hong Kong. I mean,
Speaker 4: the list goes on and on cooperation side, I mean
Speaker 4: they're looking to kind of advance some progress out of
Speaker 4: those meetings in California and the fall, especially on combating
Speaker 4: sentinel and drug trafficking.
Speaker 2: Then yeah, let's talk a little bit more about that,
Speaker 2: because I think the state media in China is actually
Speaker 2: portraying this as a kind of conciliatory stance taken by
Speaker 2: President She not with a lot of examples of it,
Speaker 2: but it seems like it's in contrast to what we
Speaker 2: heard before. And in fact, the People's Daily also called
Speaker 2: for improved tie. So that's the general thrust. What would
Speaker 2: the you know, if we had, if we had, let's say,
Speaker 2: a softer, gentler communist party, what would the US most
Speaker 2: like to see here?
Speaker 4: Well, I think they would most like to see you.
Speaker 4: Top of the list in terms of cooperation is that
Speaker 4: further progress and drug trafficking. They've talked to the US,
Speaker 4: Asians talked about wanting to see more cooperation, further signs
Speaker 4: that Chinese are cracking down on drug producers and what
Speaker 4: they call precursor chemicals to fentanyl, which of course is
Speaker 4: is coming in to Mexico and then and coming over
Speaker 4: the border. And so that is that was high on
Speaker 4: the list of November and remains high on the list
Speaker 4: in terms of trying to find ways of cooperation. I
Speaker 4: think there also one burseoning issue which is really interesting
Speaker 4: is artificial intelligence risks. Now we saw a resolution of
Speaker 4: the UN approved last week that was co sponsored by
Speaker 4: many countries, over one hundred countries, including China, but was
Speaker 4: written by the US, and it was all about just
Speaker 4: kind of finding ways to share information around AI. Not
Speaker 4: so popular a discussion when you're talking at the same
Speaker 4: time about the US trying to restrict data security issues
Speaker 4: and finding many reasons to restrict data going into China
Speaker 4: from the US and trying to protect American data as
Speaker 4: they see it.
Speaker 3: So, Michelle, from what I understand, the White House also
Speaker 3: hinted at a pending decision on tariffs. I mean, what
Speaker 3: do we know about this? Are there areas of specificity?
Speaker 4: Yeah, that is a tricky one, Doug, because that is
Speaker 4: something that we have been waiting for on the heels
Speaker 4: of some other announcements they've made around data security and
Speaker 4: Chinese cranes and other issues earlier this year. We have
Speaker 4: been waiting for those potential revisions to what they call
Speaker 4: the three oh one tariffs, the tariffs that were put
Speaker 4: in under in the Trump administration, and the read has
Speaker 4: been for quite some time that we don't know when
Speaker 4: it's coming, but that we do expect the Biden administration
Speaker 4: to maintain those tariffs and maybe even enhance them in
Speaker 4: some way, and sort of they've signaled that they want
Speaker 4: to kind of update them for the next generation, to
Speaker 4: kind of put finer points on certain areas of tariffs
Speaker 4: that will kind of match the US goal of trying
Speaker 4: to counter China's tech issues and trying to protect again
Speaker 4: data security for Americans.
Speaker 2: So we don't know.
Speaker 4: We know that it came up the White House booksman
Speaker 4: John Kirby today and the briefing was saying the three
Speaker 4: oh one tariffs did come up, but or excuse me,
Speaker 4: they did not come up. I'm getting confused with the
Speaker 4: TikTok issue.
Speaker 2: Yeah, did.
Speaker 4: They did talk. Us did talk in broad strokes about
Speaker 4: the needs to kind of keep up some of these
Speaker 4: tariffs and export controls, which, as I say, was not
Speaker 4: of course popular with President she at this time.
Speaker 2: You must have been reading my mind because I wanted
Speaker 2: to ask you about TikTok. I know that we can't know.
Speaker 2: We all wish that we could fly on the wall
Speaker 2: in those discussions or on the phone call between the two.
Speaker 2: I mean so many things. It's hard for China in
Speaker 2: a sense to agree to what the US wants. I mean,
Speaker 2: China simply cannot come out and say, Okay, well we'll
Speaker 2: go slow on tech development. You know, you wouldn't expect
Speaker 2: them to say that it's impossible, and on TikTok, you know,
Speaker 2: to sell it. It seems like a tall order. I mean,
Speaker 2: what do you imagine they discussed about TikTok?
Speaker 4: Yeah, I think this one is more kind of a
Speaker 4: reiteration of positions they talk a lot about. Okay, yeah,
Speaker 4: we know we disagree on things like Taiwan, and we
Speaker 4: know we disagree on things like TikTok, and we know
Speaker 4: we disagree on you know, how much the US might
Speaker 4: try to apply export controls and China from the other side,
Speaker 4: and both sides are angry at the other on those issues.
Speaker 4: But they do see value, the Biden administration says in
Speaker 4: at least explaining yourself, you know, and we've heard this
Speaker 4: from National Security Advisor Jake Sullivan, that they should be
Speaker 4: able to He talks about having a sustainable China policy
Speaker 4: is about holding multiple truths at the same time and
Speaker 4: working to reconcile those truths with the other side. So
Speaker 4: they see value in sending cabinet officials over to Beijing
Speaker 4: consistently and explaining what's coming, even if what's coming is
Speaker 4: then a hit on nose or in the form of
Speaker 4: export controls or something else that might restrict China's economic
Speaker 4: rise in some way.
Speaker 3: Yeah, and from a president chief's perspective in the background,
Speaker 3: the fact that President Biden is facing re election and
Speaker 3: wonder if that was kind of suggested in any way, Joe,
Speaker 3: I wish you the best or whatever was said, Michelle,
Speaker 3: Thank you so much, Bloomberg White House correspondent Michelle jem
Speaker 3: risco us as we took a close look at the
Speaker 3: phone call today between Presidents Biden and She, their first
Speaker 3: since November. Let's get to Singapore next in Our guest
Speaker 3: is Mark Cudmore, Bloomberg m Live Macro Strategistics focuses on
Speaker 3: the foreign exchange rates markets, and we're going to talk
Speaker 3: about what we heard today from two Fed officials who
Speaker 3: happened to be voters on the Monetary Policy Committee at
Speaker 3: least for this year, and they are still, my friend,
Speaker 3: expecting three rate cuts in twenty twenty four. What is
Speaker 3: very interesting, Mark, is that the market seems to be
Speaker 3: expecting fewer rate cuts than the Fed. Why do you
Speaker 3: think we're getting this disconnect?
Speaker 5: Well, I just find that both the markets and the
Speaker 5: FED just ridiculous. At the moment. There's no way we're
Speaker 5: gonna get three right cuts. The economy is way too strong.
Speaker 5: There's no justification for any rate cuts at all at
Speaker 5: the moment. The only way you're going to get right
Speaker 5: cuts is if you have a severe deterioration in the
Speaker 5: US economy. And I'm just not saying it's going to
Speaker 5: cause that at the moment. I know that the FED
Speaker 5: is desperate to cut, and that's fueling part of the problem.
Speaker 5: They kind of gave that signal December. I feel they
Speaker 5: repeated the twenty twenty one policy error. You know, Jerome
Speaker 5: Powell made very clear that despite the former rhetoric, he
Speaker 5: basically wants to be Arthur Burns not Vulcar, and he
Speaker 5: wants to fuel another inflationary bubble. So that's what we
Speaker 5: got through the December message. He reiter around that in March,
Speaker 5: and I know they're inclined to try cutting one. Maybe
Speaker 5: they'll get away with one before they'll be proven what
Speaker 5: folly that is, and I'll say something else. Not only
Speaker 5: do I think it's very unlikely that we get more
Speaker 5: than one rate cut, if we even get one, but
Speaker 5: I think it's more likely. I know it's the extreme
Speaker 5: that we'd end out getting one hundred and fifty rather
Speaker 5: than just fifty. And what I mean by that is
Speaker 5: the only justification for getting more than one rate cut,
Speaker 5: if even one, is because you've got a severe decline
Speaker 5: in the US economy, in which case the Fed will
Speaker 5: be panicking and cutting rights stratigally.
Speaker 2: We would possibly be cutting grades not because of strong
Speaker 2: economic growth or lack of it, but more because inflation
Speaker 2: is coming down. And you have to admit mark the
Speaker 2: PCE numbers that the Fed looks at most closely do
Speaker 2: have a two hand all two point five and two
Speaker 2: point eight percent, And with the FED funds rate at
Speaker 2: five and a half percent, does it not have a
Speaker 2: little bit of room to move to the downside? Your answer,
Speaker 2: right no is no.
Speaker 5: So is that PC that we're celebrating has come down
Speaker 5: to this level. It's still above target, I think importantly,
Speaker 5: But not only that, we know that we're through the
Speaker 5: disinflationary way from base effects, so we always knew that
Speaker 5: inflation was going to come much softer into the first
Speaker 5: quarter this year, which is part of the reason why
Speaker 5: the FED was hoping to be able to cut rights.
Speaker 5: We've now kind of reached near the end of that trend,
Speaker 5: so base effects will start being less supportive for this
Speaker 5: disinflation trend. And now we got oil prices way higher,
Speaker 5: and we've got a strong economy that seems to be reaccelerating.
Speaker 5: So now the answer is most definitely no. I mean, like,
Speaker 5: this is where we're we if we're not at the
Speaker 5: trough in a in core PC where we're pretty close
Speaker 5: to it, and it's where with the trough, member is
Speaker 5: still where above target. So this is an economy of
Speaker 5: just saying, hey, wait a second monetary policy is still
Speaker 5: too loose, so why would you ease it further? You
Speaker 5: need to tighten it more.
Speaker 3: Well, can you help me understand why or what may
Speaker 3: explain the heads inclination to want to cut And I'm
Speaker 3: wondering whether or not it's something underneath the hood here,
Speaker 3: something in the market where they're trying to stay true
Speaker 3: to that course as a way of alleviating stress down
Speaker 3: the road, somewhere in the credit market. Is that possible?
Speaker 5: Yeah, yeah, So I think there's a there's a few expansions.
Speaker 5: It's a great question. So I think there's a few expansions.
Speaker 5: Let's let's go to that. The eleph of the room,
Speaker 5: not of people think that there's politics involved in this,
Speaker 5: maybe maybe not. I don't have enough to spec I
Speaker 5: ignore that. But then there's two other issues. I think
Speaker 5: There's one is you know where they were at the
Speaker 5: economy and it fairness to them. I think that a
Speaker 5: lot of the metrics for judging the strength US consumer
Speaker 5: have been completely broken in recent years, not just because
Speaker 5: the pandemic distortions, but behaviors changed, and then we all
Speaker 5: these have these buy now, pay later models, which means
Speaker 5: that the metrics are used to would say that the
Speaker 5: consumers should have fallen off a cliff around the start
Speaker 5: of this year end of last year, in which case
Speaker 5: the FED should have been worried. But the consumer has
Speaker 5: clearly not fallen off cliff and the economy is still
Speaker 5: very strong, so that's not come through. So I understand
Speaker 5: why they might have been worried, but they should now
Speaker 5: change their mind. So I understand why they did the
Speaker 5: conversation in December, but it's time to now change their
Speaker 5: mind in that. And the final thing is are they
Speaker 5: worried about a credit crisis? Are they word of commercial
Speaker 5: real estate maybe, but I'm just not saying that it's
Speaker 5: being systemic. Yeah. Sure, it's gonna be problematic for certain regions,
Speaker 5: certain regional banks will suffer. But you know, there's thousands
Speaker 5: of banks in the US and they are far too many,
Speaker 5: so I think some regional banks can sadly go and
Speaker 5: it won't be systemic.
Speaker 2: So, Mark yours is a very bullish view. You're quite
Speaker 2: bullish on Yeah.
Speaker 5: I look, since the December FED. I think the December
Speaker 5: FED was just was mind blowing. I did not expect it.
Speaker 5: I actually wrote a piece that day going there's no
Speaker 5: way the FED will repeat the errors of twenty twenty
Speaker 5: one by being super dubbish while reiterating economic ecoptimism. I said,
Speaker 5: the only reason they could be ubbish is because they
Speaker 5: express concern about the economy, and instead they were like,
Speaker 5: we think growths fine, and yet we still want to
Speaker 5: cut and therefore.
Speaker 2: But a brief reason, Mark Bush, you're bullish on the economy.
Speaker 2: Clearly are you bullish on stocks here?
Speaker 5: I'm not even super bullish and the economy. I'm very
Speaker 5: bullish stocks globally. I'm always less excited about US stocks
Speaker 5: incorrectly so, clearly because they always keep on out performing.
Speaker 5: I just think because they're more expensive, but look, I wouldn't.
Speaker 5: I'm bullish stocks everywhere. I just think there are better
Speaker 5: opportunities elsewhere. I've said that before and been wrong, but
Speaker 5: I'm very bullush stocks everywhere Sincember. I don't think the
Speaker 5: economy is is. I think the economy is perfectly fine.
Speaker 5: But the point is is that the economy is saying
Speaker 5: we can cope with the level of rates the moment,
Speaker 5: and therefore earnings aren't going to suffer. The consumer is
Speaker 5: going to keep spending their markets still strong, companies are
Speaker 5: still going to make a lot of money. So yes, stocks,
Speaker 5: I'm very bull of stocks from a macro point of
Speaker 5: view for a good while. Yeah, I just do not
Speaker 5: anything on the horizon to change that.
Speaker 3: So I was going to ask about strong dollar week
Speaker 3: in and possible intervention on the part of the monetary
Speaker 3: authority in Japan, but we're out of time. We'll have
Speaker 3: to save that for later. Mark, it's always a pleasure.
Speaker 3: Thanks for making time for up. Mark Cudmore Bloomberg m
Speaker 3: live macro strategist. He focuses on the foreign exchange and
Speaker 3: the rates markets.
Speaker 5: Well.
Speaker 2: Joining us now is Michael Leon chief investment officer at
Speaker 2: Foundation Asset Management. So, Michael, we just heard about how
Speaker 2: strong economic news in the US is causing some concerns
Speaker 2: that will be higher for longer on rates. Is it
Speaker 2: such now that good news is bad news.
Speaker 1: To certain extent. Yes, rising interest rates or higher for
Speaker 1: longer interest rates is a tightening bias for Asian equities.
Speaker 1: But havn't said that, you know, given the valuation is
Speaker 1: so low right now, you have two different driving forces
Speaker 1: behind it.
Speaker 3: When you say two driving forces, what's the other one?
Speaker 3: I mean, if we can talk about higher US interest rates,
Speaker 3: what's the other driving force? Valuation? Yeah?
Speaker 1: I mean, you know, I mean, for example, MS see
Speaker 1: China training eight times learnings for this year, and Japan
Speaker 1: about twenty five, Indian about twenty seven s and P
Speaker 1: five hundred and about twenty. So it's really about half
Speaker 1: of the evaluation of the major markets.
Speaker 2: Yeah. Well, we always have overhangs in markets. Obviously we're
Speaker 2: worried now about higher for longer in the West. Here
Speaker 2: we've had policy has been one very deep consideration for
Speaker 2: whether or not you want to buy Chinese in Hong
Speaker 2: Kong stock. So how do you gauge policy at the moment,
Speaker 2: and you know, with valuations where they are, are you
Speaker 2: seeing a green light policy?
Speaker 1: Impulse is the difficult one to judge over my thirty experience,
Speaker 1: I do not consider fig running policies will be in
Speaker 1: the investment strategy, especially given the longer term had wins
Speaker 1: of Chinese economy, you know, namingly, you know, demographics, probably
Speaker 1: the leveraging and so and so forth. So that's probably
Speaker 1: much longer driving force behind me. In the short run.
Speaker 1: I'm sure a policy going to come out here and
Speaker 1: there to support, but probably going to change the trajectory here.
Speaker 3: When you look at the deflation story in China, I
Speaker 3: know we're going to get to the official inflation reports
Speaker 3: next week. Is this something that's going to be persistent?
Speaker 3: Do you think is China going to be dealing with
Speaker 3: maybe what Japan dealt with for for a very long time,
Speaker 3: beginning with late nineteen eighties.
Speaker 1: Well, if I have a crystal ball, I would say
Speaker 1: yes to that question. The you know, I mean you
Speaker 1: would have volatility in the cpis in China. But the
Speaker 1: trajectory is, you know, demand is slowing people and aging
Speaker 1: propertly is more abandoned, you know, in supply, I don't
Speaker 1: think there're as a rush. You know, I fee will
Speaker 1: pay out prices because they think price is going to
Speaker 1: go up in future. Right, But given the situation we're
Speaker 1: in today, there's just no rush to buy everything today.
Speaker 2: This is very interesting because you started off as saying
Speaker 2: that low valuations were a consideration, and yet when we
Speaker 2: mentioned one challenge possible challenge policy, you say, hey, they're
Speaker 2: even bigger challenges. You know, the demographics is one and
Speaker 2: the property crisis is another. So how do you actually
Speaker 2: sit on the line between bullish and bearish? Are you
Speaker 2: bullish or are you not?
Speaker 1: Well, that's a very good question, Brian. At Foundation, we
Speaker 1: more of long short equity per se. There's always positives
Speaker 1: and negatives, especially given the headwinds we have in China.
Speaker 1: Actually stronger companies when we look at them, actually the
Speaker 1: holding up okay, But in this challenging environment you have
Speaker 1: many companies the weaker peers actually suffering a lot. So yes,
Speaker 1: it's not our right bullish or parish. It's more of
Speaker 1: a where you see from a bottom up point of view,
Speaker 1: where you see the values and versus a company probably
Speaker 1: not going to.
Speaker 3: Do You were talking a moment about volatility and I'm
Speaker 3: wondering whether you're attempted to abandon your role as investor
Speaker 3: and take on the role of trader and exploit that
Speaker 3: volatility and maybe make short term trades rather than investing
Speaker 3: for the long term. Is that Is that a viable
Speaker 3: strategy for China?
Speaker 1: It maybe is a viable strategy from for the others,
Speaker 1: but not for us. We're bottom up fundamental guys. Our
Speaker 1: horizon is number in numbers of years rather the number
Speaker 1: of days. Well, for example, I mean, let's take a
Speaker 1: look at the EV right, I mean, yesterday show me
Speaker 1: is pre order was very very strong. Stock went up,
Speaker 1: but at the same time, I don't want to name names,
Speaker 1: but you know, the usual suspects. Some shares actually went
Speaker 1: down yesterday in the EV space. So the JET forecasts
Speaker 1: for global EV demand is about twenty million globally this year. Okay,
Speaker 1: Sara seventeen million this year. But China alone the production
Speaker 1: capacity is twenty million. Okay, there's a massive oversupply on
Speaker 1: the horizon. In the end, there's an eguity investor. You
Speaker 1: prefer a business not only can sell well, and also
Speaker 1: can sell well at the good price, good margins, and
Speaker 1: in this environment, even the ev not everybody gonna be
Speaker 1: happy at the end of the day.
Speaker 2: So, Doug, you know, Michael is very interesting because to
Speaker 2: my question, are you bullish or bearish? You know what
Speaker 2: his answer was, Yes.
Speaker 3: I'm both.
Speaker 2: Yeah. I mean he's really looking through the markets. And
Speaker 2: I find this other line here from one of your
Speaker 2: themes to be kind of intriguing. You like PCs over smartphones? Wow,
Speaker 2: lay that out for us.
Speaker 1: All right, Again, it's probably come from the competition. A
Speaker 1: PC is not rocket science. I mean, during the COVID
Speaker 1: the global people work from home, a lot of PCs
Speaker 1: being bort during that time. But having said that, for
Speaker 1: the last two years wins row slump. It's a very
Speaker 1: cyclical business. Now we come out this PC cycle, replacement
Speaker 1: is coming in again or happening again for next one
Speaker 1: or two years, not only AI driven PCs, but just
Speaker 1: general piece replacement is coming in. For the smartphone. It
Speaker 1: is very difficult because there are so many smallphone makers. Yeah,
Speaker 1: and for aipower smartphones, we're a little further out.
Speaker 3: Well, that's interesting that you bring up artificial intelligence because
Speaker 3: we were talking a moment ago about this phone call
Speaker 3: that took place between Presidents Biden and ch earlier, and
Speaker 3: I think from the China side, just a little bit
Speaker 3: of criticism at the restrictions that the Biden administration has
Speaker 3: placed on access to some of this most sophisticated high
Speaker 3: technology equipment. Do you think do you have confidence in
Speaker 3: China's ability, given the world that we're living in right now,
Speaker 3: to kind of cultivate its own high technology I want
Speaker 3: to use the term sector. I don't even know that
Speaker 3: that's right. Semiconductors clearly are going to be an issue
Speaker 3: and where AI is concerned, do you have confidence in
Speaker 3: China's ability to maybe create cultivate a homegrown semiconductor industry.
Speaker 1: I have a confidence for China to do well in
Speaker 1: the traditional legacy notes, you know, the the lower attack semiconductions,
Speaker 1: the leading edge semiconductors. Given the restriction sanctions in place,
Speaker 1: that progress is being slowed. Eventually China might achieve that,
Speaker 1: but you know, maybe two x of the time.
Speaker 2: You're going strong there on PC makers, you know, replacement
Speaker 2: cycle and all any that you favor.
Speaker 1: Well, there are only three major PC makers in the world, right, Lenovo, Lenovo,
Speaker 1: now and HP take a pick. You pick, well, I'll
Speaker 1: think I'll take the first two.
Speaker 2: Yeah, great. So you're long and short, so I want
Speaker 2: to know who you're going short. I will say the HP. Yeah,
Speaker 2: all rights. Thanks very much, Michael, Pleasure, a real interesting discussion.
Speaker 2: Michael Leong, Chief Investment Officer at Foundation Asset Management.
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