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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Chrisner. So we'll get a

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Speaker 1: flurry of economic data this week, and these numbers, along

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Speaker 1: with the developments on trade and tariffs, will ultimately shape

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Speaker 1: a lot of this week's narrative. And for the data,

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Speaker 1: I think the big question is whether we will begin

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Speaker 1: to see the impact of the trade war. In a

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Speaker 1: moment or two, we'll be speaking with Lawrence Worther. He

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Speaker 1: is the chief US economist at Diwalk Capital Markets. But

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Speaker 1: we begin this morning in the Asia Pacific and friend

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Speaker 1: of the show, Peter MacGuire, who is the CEO of

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Speaker 1: Trading dot Com Australia, on the line from Sydney. Peter,

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Speaker 1: it's always a pleasure, and I want to begin with

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Speaker 1: the currency market because I know that's your specialty and

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Speaker 1: i'd like to get your take on what we've been

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Speaker 1: seeing in the dollar and the degree to which a

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Speaker 1: lot of the weakening, especially since the beginning of the

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Speaker 1: month when these tariffs were announced. I'm curious to get

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Speaker 1: your reaction to the speed the rate of change here

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Speaker 1: and whether or not that's been a big surprise for you.

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Speaker 2: Well, Good morning, Doug, greetings from Sydney and thanks for

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Speaker 2: you know, sharing this Monday morning. I'll tell you what,

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Speaker 2: as you said, from the start of the month, we're

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Speaker 2: nearly at that one oh five hand or US dollar

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Speaker 2: index had created to about a ninety seven eight ninety

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Speaker 2: seven point seventy five, and it's about certainly it's at

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Speaker 2: ninety nine and three quarters at the moment, but I

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Speaker 2: think the velocity of it, Doug, really hit everyone by

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Speaker 2: between the eyes and the selloff was immense. That's been

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Speaker 2: very much enjoyed from a trading perspective, with a euro

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Speaker 2: that ratcheted up to one fifteen nearly yet at one forty,

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Speaker 2: you know, at the peak, and we had an Aussie

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Speaker 2: dollar that was created at six at fifty eight, it's

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Speaker 2: back that's sixty.

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Speaker 3: Four sort of handle at the moment.

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Speaker 2: But it's just been, I think, in summarized it in

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Speaker 2: one word, mind blowing since the start of the month.

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Speaker 1: So I'm wondering whether what we've seen an end to

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Speaker 1: maybe is a little like fizz I dollars you plow

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Speaker 1: the proceeds into the S and P five hundred into

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Speaker 1: the Nasdaq stocks, has that completely blown up that trade.

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Speaker 3: No, not really. I mean, you know it's certainly been that.

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Speaker 2: If you're looking as far as you know the equity markets,

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Speaker 2: they were certainly hammered to the downside. One can't say

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Speaker 2: that they haven't been. That's just been a dramatic fall.

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Speaker 2: But they've certainly bounced in the last week or say,

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Speaker 2: to the upside and that's been positive. So that's a

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Speaker 2: good sign. Again, probably over sold and then maybe a

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Speaker 2: little bit of momentum to the upside. Let's see how

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Speaker 2: this week goes. You've got some big data drops this

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Speaker 2: week and that market sentiment and so on. But you know, again,

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Speaker 2: huge volatility across that equity market complex, and you know,

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Speaker 2: you had a fix that ratcheted up, went crazy and

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Speaker 2: it's certainly given out a lot of that hot air now.

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Speaker 2: But we keep a very close eye on that. But

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Speaker 2: you've got a VIX under twenty five now and you

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Speaker 2: were running close to that fifty plus.

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Speaker 3: So all of.

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Speaker 2: Those components dug a really dynamic for trading. And all

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Speaker 2: I'll say is this, it's yeah, it's not for the

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Speaker 2: faint hearted. But if you if you're brave to win

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Speaker 2: of the markets and you use your logic, I think

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Speaker 2: they're being very kind over the month of April.

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Speaker 1: So, as I mentioned, we're going to get a lot

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Speaker 1: of key data in the week ahead, and I think

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Speaker 1: the key question here is whether these numbers will support

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Speaker 1: the case for the Fed to begin lowering interest rates.

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Speaker 1: I'd like to get your expectations here, not only from

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Speaker 1: the macro, let's say, but how quickly the Fed may

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Speaker 1: respond to signs of economic weakness.

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Speaker 3: Well, I don't think they're going to do anything in May.

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Speaker 3: I'll say that one.

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Speaker 2: I'll start it with that press, you know, but there

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Speaker 2: is a very big chance you could see something in

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Speaker 2: June opposed to July.

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Speaker 3: For a twenty five basis point cut.

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Speaker 2: If and the two points that are going to really

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Speaker 2: I think drive that one home as would be a

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Speaker 2: disappointing n FP print on Friday if it came in

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Speaker 2: sub you know, one thirty one twenty thousand, considering that,

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Speaker 2: you know, the previous month was at two twenty eight thousand.

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Speaker 3: So there's the first point.

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Speaker 2: And then if you had soft cool PCE reading, that

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Speaker 2: could bolster expectations. So again, we've got those numbers coming out,

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Speaker 2: We've just got to see how they are mapped through.

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Speaker 2: And then you know what the Fed's prepared to do.

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Speaker 2: But I think that it's about an even spin of

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Speaker 2: the dice. At the moment, we'll flick of the coin,

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Speaker 2: I should say, for a June versus July twenty five

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Speaker 2: basis point cut.

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Speaker 1: Over the weekend, Bill Ackman from Pershing Square was saying

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Speaker 1: that China really needs to strike a trade deal quickly

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Speaker 1: with the US because it can't win a drawn out

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Speaker 1: trade war. So if China is put in a difficult

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Speaker 1: position here, are we likely to see much more weakening

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Speaker 1: of the currency. Do you think authorities in Beijing would

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Speaker 1: try to hold the line on the yuan so as

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Speaker 1: not to raise the risk of capital flight.

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Speaker 2: Yeah, I mean that's a difficult one for them. They

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Speaker 2: understand the position from the property sector, They understand the

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Speaker 2: positioning now with tariffs, and you know, I'm not suggesting

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Speaker 2: it's the first one blinks losers, but the Chinese of

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Speaker 2: they know the situation. I think President Trump, there's a

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Speaker 2: very big chance you did have a probably a high

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Speaker 2: ball expectation what he pushed out there as far as

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Speaker 2: from a tariff perspective. You know a number, and he's

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Speaker 2: willing to lower it. So I think that If you

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Speaker 2: see that deal within the next couple of weeks, that's

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Speaker 2: going to be a plus for China. But if you

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Speaker 2: don't and it drags on, then that really could cause

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Speaker 2: a lot of internal friction. And I don't think that's

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Speaker 2: a happy place where they want to be.

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Speaker 1: So would you be short? Do you want right now offshore?

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Speaker 3: A little bit?

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Speaker 2: I think, you know, traders will certainly look at it,

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Speaker 2: but it's conscious as far as it's a day by

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Speaker 2: day proposition.

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Speaker 3: There could be a surprise.

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Speaker 2: We could hear something within the next week or so,

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Speaker 2: and I won't say no, but I think there's just

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Speaker 2: been other markets that have offered far more opportunity than

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Speaker 2: possibly you know, from a yuan perspective.

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Speaker 3: But hey, that could change very much.

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Speaker 2: Within the next week or so, depended upon the two

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Speaker 2: parties coming to an agreement or not.

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Speaker 1: So are those opportunities related to kind of even safety

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Speaker 1: I'm thinking maybe even the euro but certainly Japanese en?

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Speaker 3: Oh yeah, yen. Have a look at what's happened.

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Speaker 2: Of course, is one of the greatest trades has been

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Speaker 2: Swiss frank Aussie. But yeah, yen's been dynamic, you know,

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Speaker 2: that's been a great trade and you know Euro of course,

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Speaker 2: so those two have been the standard or those three

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Speaker 2: have been the standouts. And you know against that again

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Speaker 2: also cross rates against the Aussie because they've got hammered

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Speaker 2: so incredibly that you know, traders were all over that

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Speaker 2: from a from a currency pair perspective.

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Speaker 1: So we mentioned a FED move being maybe on the

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Speaker 1: horizon at some point here in the near term. What

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Speaker 1: about the Bank at Japan.

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Speaker 2: Absolutely, you know, you've got inflation at three point two

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Speaker 2: percent year on year in March, and you know you've

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Speaker 2: got that core measure coming out. I feel as though,

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Speaker 2: you know, the downside risk of growth have increased markedly

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Speaker 2: since February with the you know, when President Trump unleashed

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Speaker 2: the first wave of you know, the tariffs, and Japan

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Speaker 2: hasn't been spared. They've got a universal ten percent levy

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Speaker 2: nor the sectoral tariffs on steel and autos. But you know,

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Speaker 2: I'm expecting possibly lower its growth forecast the BOJ for

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Speaker 2: this quarter and that's the latest quarterly outlook. And then

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Speaker 2: how it moves from there, you might see some move

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Speaker 2: some Yeah, you may see something.

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Speaker 3: I mean, I'll be waiting to probably inhale it, Doug.

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Speaker 2: You know, it's everything is just very dynamic at the moment,

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Speaker 2: but we wouldn't be surprised to see some sort of

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Speaker 2: movement from them.

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Speaker 1: Are you betting on much weaker growth globally right now?

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Speaker 3: Yeah?

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Speaker 2: In some ways, yes, you know, there's a there's a

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Speaker 2: you know, you hear some some nations are performing relatively well.

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Speaker 3: But the overall theme, you.

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Speaker 2: Know, yes, softer and that's going to be an issue

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Speaker 2: rolling certainly into Q two, Q two and Q three

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Speaker 2: that how that looks by Q four If you do

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Speaker 2: see softer growth, then you know, how does central banks

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Speaker 2: play that? And naturally, you know from a consumption standpoint,

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Speaker 2: the overall and things moving forward for equity markets.

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Speaker 3: And so on.

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Speaker 1: So as that becomes a little clearer, do we expect

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Speaker 1: less volatility in markets when we understand what the terrain

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Speaker 1: looks like?

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Speaker 2: I don't know about that. You know when you say that,

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Speaker 2: you would you would hope so, Doug. But the other

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Speaker 2: side of it is you've still got an unknown in

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Speaker 2: the sense of where do the tariffs end, who is

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Speaker 2: coming to the table, who is negotiated, and President Trump

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Speaker 2: is saying and scot percent, you get in early and

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Speaker 2: you cut a deal, and then it's then you move

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Speaker 2: forward from there. But if countries are prepared to sit

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Speaker 2: on the sidelines, and that I think is going to

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Speaker 2: force their hand, and that in turn will create I think,

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Speaker 2: you know, additional volatility moving forward.

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Speaker 1: But I'm imagining that if you get much weaker growth,

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Speaker 1: governments are going to sense greater urgency to get these

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Speaker 1: trade deals done.

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Speaker 2: Absolutely, I think that's going to be you know, the

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Speaker 2: old Clint East would make my day sort of thing.

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Speaker 2: You'll be just sitting there and they'll they'll be forced,

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Speaker 2: their hand will be forced.

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Speaker 3: Dug And that's the other side of it.

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Speaker 1: I'd say, So, what is your favorite trade to put

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Speaker 1: on right now? The easiest, most cost effective way of

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Speaker 1: making money in the foreign exchange.

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Speaker 2: I think one's got to be really mindful where that

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Speaker 2: US dollar index trades over the next week or so

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Speaker 2: with those numbers coming out, because it's had the big

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Speaker 2: sell off and it's bounced from the low from ninety

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Speaker 2: seven to.

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Speaker 3: Seven to back ninety nine to sixty.

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Speaker 2: So keep a very close eye on euro US dollar

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Speaker 2: and yen US dollar. So I think that that's where

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Speaker 2: the general focus is at the moment.

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Speaker 1: Peter will leave it there always a pleasure I hope

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Speaker 1: you have a productive week. Peter maguire, CEO of Trading

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Speaker 1: dot Com Australia, joining us from Sydney here on the

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Speaker 1: Debreak Asia podcast. Welcome back to the Debreak Asia Podcast.

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Speaker 1: I'm Doug Prisner. Economic forecasters in the US are now

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Speaker 1: expecting the trade war to hit growth this year and

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Speaker 1: next as companies pass on the cost of tariffs and

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Speaker 1: higher commodity prices. In fact, the Bloomberg Survey is showing

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Speaker 1: that economists say the American economy is set to expand

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Speaker 1: by only one point four percent this year and one

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Speaker 1: point five percent in twenty twenty six. Now, that is

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Speaker 1: down from last month's survey. Obviously, the tariff story is

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Speaker 1: driving this narrative. Let's take a closer look now. Joining

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Speaker 1: me is Lawrence Worther. He is the chief US economist

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Speaker 1: at Diewalk Capital Markets. He's on the line from here

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Speaker 1: in New York City. Larry, I'm glad you could make

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Speaker 1: time to chat with us here. Let me begin with

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Speaker 1: the macro and the extent to which we're going to

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Speaker 1: see a lot of weakness in the economic numbers. Does

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Speaker 1: that necessarily mean that recession is a higher probability event

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Speaker 1: right now.

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Speaker 4: Sure. Well, Doug, first off, thanks so much for having

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Speaker 4: me this evening. I'm pleased to be with you to

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Speaker 4: help you unpack the challenging period for the US. So

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Speaker 4: you're right. I think the trade war and the reverberations

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Speaker 4: that it's had on sentiment for businesses and consumers does

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Speaker 4: unfortunately mean slow or growth in the near term. Although

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Speaker 4: recession is not my baseline at least right now.

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Speaker 1: One of the things that we've been looking for is

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Speaker 1: labor market weakness. And yes, I know these figures tend

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Speaker 1: to lag at this point, though the figures haven't been

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Speaker 1: particularly worrisome. Yeah, maybe a little bit of softness, but

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Speaker 1: I don't think it's anything that the FED would sound

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Speaker 1: the alarm over right now. I'm wondering whether you think

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Speaker 1: that could change on Friday when we get the non

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Speaker 1: farm payrolls data.

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Speaker 4: You know, Doug, as I think about it, you know

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Speaker 4: it's a good question. But I wouldn't necessarily look for

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Speaker 4: weakness at least for another say, two to three payroll reports.

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Speaker 4: I penciled in a number that's right around consensus. I'm

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Speaker 4: looking for one hundred and twenty five thousand for nonfarm

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Speaker 4: payrolls on Friday. But as I said, I don't think

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Speaker 4: you've seen the layoff activity, you know, that would align

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Speaker 4: with a full blown trade ward at this point. And certainly,

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Speaker 4: as I said, the lag could be several months before

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Speaker 4: we really get a good sense of that if it

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Speaker 4: does in fact materialize.

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Speaker 1: But I'm wondering whether that reading that we had last

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Speaker 1: Friday on consumer sentiment week, as it was one of

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Speaker 1: the lowest on record, could be kind of indicating that

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Speaker 1: we should expect weakness in the labor market in the

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Speaker 1: near term.

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Speaker 4: No, Doug, it's tough. If you recall, consumer sentiment has

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Speaker 4: been pretty lousy for the entirety of this expansion, you know,

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Speaker 4: and just last quarter, the closing quarter of last year,

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Speaker 4: consumer spending grew to four percent clip. I think this

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Speaker 4: time the signal that we would derived from the data

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Speaker 4: is a little bit worse, you know. But I would say,

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Speaker 4: to date, I think firms, after experiencing labor shortages coming

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Speaker 4: out of the pandemic, aren't quite ready to pull the

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Speaker 4: trigger on layoffs just yet.

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Speaker 1: What about the level of inflation expectations that consumers are expecting.

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Speaker 1: I think an annual rate of four point four percent

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Speaker 1: if you're sitting at the FED. That's got to be worrisome.

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Speaker 4: Sure, you know, I think it could be, in a fact,

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Speaker 4: a bit worrisome, But I would emphasize two things. First,

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Speaker 4: FED officials are looking at a broad array of indicators

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Speaker 4: of inflation expectations, and moreover, they're focused on the long term.

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Speaker 4: So I think it's a bit difficult right now to

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Speaker 4: unpack signal from noise, specifically with respect to the Michigan survey,

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Speaker 4: but I would say concurrently, one should be watching the

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Speaker 4: New York FED survey of inflation expectations for consumers. Moves

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Speaker 4: there are upward, but they're a bit more benign. Moreover,

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Speaker 4: inflation break evens have been relatively favorable. At your five year,

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Speaker 4: five year forward, and ten year ahead. I think they're

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Speaker 4: still in the vicinity of two hundred and twenty five

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Speaker 4: basis points. So I think FED officials are vigilant, but

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Speaker 4: they're going to stay on message two weeks from now

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Speaker 4: that longer term inflation expectations remain anchored, at least for

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Speaker 4: right now.

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Speaker 1: So what's your base case for the American economy?

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Speaker 4: Sure base case is expansion this year. I'm not particularly

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Speaker 4: optimatetick about the first quarter I think you'll see sub

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Speaker 4: one percent growth, almost certainly on account of wild trade data.

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Speaker 4: I'm thinking Q four to Q four, somewhere in the

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Speaker 4: vicinity of fifty basis points eighty basis points of growth.

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Speaker 4: I think we'll do better in twenty six when the

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Speaker 4: smoke clears. But I'm hoping that sanity prevails with respect

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Speaker 4: to trade deals and tariffs and we can start focusing

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Speaker 4: on the positives tailwind from domestic investment, tailwind from tax

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Speaker 4: cuts in the like. But it just remains to be

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Speaker 4: seen how long the Trump administration drags out these tariff

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Speaker 4: negotiations or threats as they were, depending on how one

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Speaker 4: characterizes them.

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Speaker 1: So what about total magnitude of FED easing.

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Speaker 4: I'm not in the camp currently that we're going to

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Speaker 4: see a cut at the June meeting, although it's heavily

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Speaker 4: priced in the market. I'm thinking two cuts this year

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Speaker 4: and then additional cuts early in twenty twenty six, and

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Speaker 4: I'm thinking September and decemb or. My thought there is

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Speaker 4: that ultimately the pass through from tariffs to inflation that

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Speaker 4: we'll see will be lighter than many are penciling in

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Speaker 4: right now. You know, it's it's pretty risky to put

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Speaker 4: a number on inflation, but I'm thinking of three handle

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Speaker 4: on core, something in the low threes, substantially less than

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Speaker 4: some estimates around four. And I think there's some favorable

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Speaker 4: underlying dynamics with rents and wages coming down. So I

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Speaker 4: think the Fed remains patient until they get a better

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Speaker 4: pulse on tariffs and it's knock on effects, and I

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Speaker 4: think the labor market at least right now will give

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Speaker 4: them some cover to do so to be patient.

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Speaker 1: So if there is a question mark over inflation, and

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Speaker 1: we can agree that growth is quite a bit weaker,

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Speaker 1: now do we have to bring into the conversation this

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Speaker 1: idea of stagflation or is that kind of an extreme position?

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Speaker 1: Is that a little hyperbole?

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Speaker 4: Say, there's a little bit of hyperbole there, but you know,

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Speaker 4: at the same time, it's a fair question. I mean,

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Speaker 4: I think President Trump, in choosing the tariff battle to

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Speaker 4: be his first fight in you know, the first one

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Speaker 4: hundred days, has forced the market, has forced forecasters to

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Speaker 4: think about tail risk, and his chair pal is said,

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Speaker 4: you know, the tails right now on the distribution of

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Speaker 4: outcomes for both growth and inflation are pretty fat. So

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Speaker 4: I'm not necessarily thinking stagflation. I think the economy rebounds

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Speaker 4: when we get some clarity, and I think inflation won't

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Speaker 4: necessarily be as bad as some are thinking, but it's

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Speaker 4: certainly a risk that one has to consider. Doug.

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Speaker 1: So, if you look at where a lot of the

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Speaker 1: market volatility has been coming from, yes, the tariff story

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Speaker 1: a major part of that. But we've also heard a

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Speaker 1: lot of criticism about the FED coming from the White House,

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Speaker 1: and it seems as though those two factors have kind

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Speaker 1: of converged and come together. Are you confident that cooler

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Speaker 1: heads will prevail as time goes by and will hear

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Speaker 1: less criticism of the FED and ultimately on the terror side. Yes,

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Speaker 1: perhaps they've been an effective tool to begin negotiations, but

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Speaker 1: ultimately they're really not going to deliver what Trump is after,

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Speaker 1: which is to bring manufacturing back to the United States.

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Speaker 4: Sure, you know there's a lot to unpack in that question. First,

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Speaker 4: you know, I would emphasize off the bat that that

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Speaker 4: you know, I think FED has a tricky job. I

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Speaker 4: think they're navigating rough waters. But I remain confident that

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Speaker 4: the that the FED is an independent body and they

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Speaker 4: will push back zealously against President Trump. I mean you've

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Speaker 4: seen as much from Powell and his colleagues. I think

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Speaker 4: fed independences is really at the heart of our dollar

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Speaker 4: policy and our ability to you know, fight inflation and

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Speaker 4: the like. And I think Shair Pale has done a

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Speaker 4: good job, you know, not backing down on that front.

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Speaker 4: So I remain fairly optimistic, you know, with respect to

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Speaker 4: on shoring of manufacturing and supply chains. You know, Doug again,

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Speaker 4: you're I think a critical issue. President Biden previously and

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Speaker 4: President Trump, both at their hearts, are are industrialists, both

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Speaker 4: realized vulnerabilities of the US economy coming out of COVID

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Speaker 4: with supply chain disruptions and the like. I don't know

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Speaker 4: about the wisdom necessarily of Trump's policy, but I am

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Speaker 4: optimistic that you at least will see some onshoring of

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Speaker 4: domestic production. You've seen it in the semiconductor space. You've

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Speaker 4: seen it a little bit with pharmaceuticals. I think a

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Speaker 4: lot of CEOs are coming to the table. Businesses are

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Speaker 4: attempting to act preemptively because any new domestic investment and

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Speaker 4: getting a factory online has a pretty long lead time.

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Speaker 4: So I think you're seeing some movement in that direction.

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Speaker 4: Although I wish President Trump would have deployed the carrict,

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Speaker 4: perhaps more so than the stick initially, but he may

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Speaker 4: achieve his goals yet, and it would benefit the US.

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Speaker 1: I would add, Larry will leave it there. Thank you

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Speaker 1: always a pleasure. Lawrence Worth are their chief US economist

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Speaker 1: at Diewalk Capital Markets. Joining from here in New York

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Speaker 1: City on the Daybreak Asia Podcast. Thanks for listening to

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Speaker 1: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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