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

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Speaker 2: Welcome to the Daybreak Asia Podcast. I'm deg Krisner. Some

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Speaker 2: renewed tension today in the US China relationship. It was

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Speaker 2: early on Tuesday that China sanctioned five US units of

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Speaker 2: the South Korean shipping firm Hanwa Ocean Company, and at

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Speaker 2: the same time Beijing threatened more retaliation. Then later in

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Speaker 2: the day we heard from US Trade Rep Jamison Greer.

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Speaker 2: He told c NBC President Trump was still set to

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Speaker 2: meet with Chinese President Shei at the end of the month.

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Speaker 1: Right now, there is a plan, there's a scheduled time

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Speaker 1: for that. There is it's on the schedule. There's a

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Speaker 1: scheduled time for that. You know whether it'll go through

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Speaker 1: or not. I don't want to pre commit, either ourselves

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Speaker 1: or the Chinese, but I think it makes sense for

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Speaker 1: people to talk when they can, so.

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Speaker 2: Jamison Greer's remarks helped provide a little bit of hope

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Speaker 2: for negotiation. But then near the close of US trading,

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Speaker 2: President Trump said the US might stop trade in cooking

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Speaker 2: oil with China, and he framed this potential move as

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Speaker 2: retaliation against Beijing for its refusal to buy American soybeans.

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Speaker 2: For a closer look now at the state of US

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Speaker 2: China trade. I'm joined by Sandra Swirsky. She is the

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Speaker 2: founder and CEO of the advisory firm Integer. She joins

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Speaker 2: us from Washington, d C. Sandra, thank you so much

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Speaker 2: for making time to chat with me. Do you have

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Speaker 2: a sense of where we are in this process of

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Speaker 2: the US and China attempting to reach some type of

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Speaker 2: workable path forward?

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Speaker 3: Well, thanks for having me on. I think it's safe

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Speaker 3: to say that both China and the US have plenty

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Speaker 3: of balls that they can put in the air, and

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Speaker 3: they're increasingly doing that, from tariff to export controls on

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Speaker 3: key rare earth minerals in the case of China, and

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Speaker 3: key semiconductors in the case of the US, to agriculture products.

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Speaker 3: And it appears that both sides, in anticipation in the

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Speaker 3: lead up to what are supposed to be trade talks

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Speaker 3: later this month, both sides are throwing everything they have

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Speaker 3: at each other to try to gain some leverage at

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Speaker 3: these talks. So one to look at this really as posturing, but.

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Speaker 2: It is.

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Speaker 3: Very unsettling given to given these superpowers.

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Speaker 2: It certainly has helped to contribute to a lot of

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Speaker 2: volatility in markets, that's for sure. Moments ago, we learned

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Speaker 2: that Apple is preparing to expand it's manufacturing operations in Vietnam.

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Speaker 2: It's part of a push on the part of Apple

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Speaker 2: to lessons it's dependence on China. This is something the

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Speaker 2: company has been pretty transparent about in the past, and

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Speaker 2: for years we've seemed to kind of attempt to focus

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Speaker 2: on this issue of decoupling between the US and China.

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Speaker 2: It seems that that's inevitable, right that these two very

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Speaker 2: large economies, the largest in the world, are going to

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Speaker 2: kind of begin to become less dependent on one another.

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Speaker 3: I think it makes complete sense they're looking for other

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Speaker 3: supply chains because the US is a supply chain to

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Speaker 3: China and vice versa just isn't working. And so, just

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Speaker 3: just like Apple, the US nd China are looking for

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Speaker 3: other countries to supply the raw materials, the goods that

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Speaker 3: they need so that they can continue to advance the

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Speaker 3: super technologies that are going to revolutionize our day to

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Speaker 3: day lives. I think recently I saw that Australia has

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Speaker 3: ramped up its production of rare earth minerals, which is

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Speaker 3: increasingly important to the US and to all of our

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Speaker 3: advanced technologies, but even with them ramping up, it is

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Speaker 3: hardly going to replace if it needs to replace, hardly

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Speaker 3: going to replace what we're buying from China.

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Speaker 2: So lately, as a part of this tit for tat,

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Speaker 2: President Trump threatened new tariffs of one hundred percent on

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Speaker 2: Chinese goods that would be imported by the United States.

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Speaker 2: There are already a number of tariffs in place, and

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Speaker 2: one of the things that the markets have been wrestling

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Speaker 2: with is whether or not these tariffs are going to

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Speaker 2: produce much higher inflation. Now we really haven't seen much

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Speaker 2: of that, although there is the suggestion that inflation expectations

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Speaker 2: on the part of consumers are beginning to rise. How

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Speaker 2: do you feel about the way in which these tariffs

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Speaker 2: potentially have the ability to contribute to a higher rate

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Speaker 2: of inflation in the US.

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Speaker 3: That's a great question. I think that when tariffs started

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Speaker 3: to go north back in the spring, there was a

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Speaker 3: lot of concern that consumers were going to feel the

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Speaker 3: pinch almost immediately. And what we saw was that June

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Speaker 3: came July August, and the inflation rate, the pain point

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Speaker 3: for consumers just wasn't there, and in large part it's

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Speaker 3: because businesses weren't passing along the tariffs to consumers. They

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Speaker 3: didn't want to lock out their customers, and so they

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Speaker 3: ate those tariffs. At this point, tariffs are becoming so

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Speaker 3: high and companies and businesses are not able to continue

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Speaker 3: to eat those extra costs. The concern now is that

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Speaker 3: we are going to see higher prices because of those

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Speaker 3: tariffs hitting consumers right when we start to head into

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Speaker 3: the holiday season, when the store shelves are packed with

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Speaker 3: all the goodies that we want to buy, and we've

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Speaker 3: all got Amazon purchases on our minds. Now there is

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Speaker 3: a greater concern that inflation is going to begin to

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Speaker 3: pinch the consumer, and.

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Speaker 2: I think that may be a little troubling for the Fed.

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Speaker 2: Although we heard from Chair Jay Powell today and a

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Speaker 2: lot of his focus continues to be on this weakness

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Speaker 2: in the labor market. It's going to be very very

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Speaker 2: interesting to see how the FED navigates this terrain and

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Speaker 2: at what point the Fed really has to do a

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Speaker 2: better job of balancing the risk between weakness in the

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Speaker 2: labor market with the potential for very very sticky inflation.

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Speaker 2: But if the market has to dial back from expectations

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Speaker 2: of aggressive FED easing. Given the clients that you have,

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Speaker 2: the folks that you speak to in Washington, would that

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Speaker 2: be deeply concerning? Are these people that you speak with

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Speaker 2: very dependent on the idea that we're going to see

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Speaker 2: easier monetary policy.

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Speaker 3: I think the expectation after September and the lead up

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Speaker 3: to the next FED meeting is that we are going

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Speaker 3: to see another cut, maybe not in October, but certainly

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Speaker 3: before the end of the year. We are going to

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Speaker 3: see another cut, based in large part on the weekending

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Speaker 3: job market. Now, we don't have numbers, prospective numbers because

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Speaker 3: the government is shut down and so all of those

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Speaker 3: indicators are not being supplied by the Bureau of Labor Statistics.

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Speaker 3: So we have some really good guesses based upon some

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Speaker 3: private sector data and all of those and all of

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Speaker 3: that data looks like it is a much weekend job market,

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Speaker 3: and that is going to play into the Fed's decision

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Speaker 3: to perhaps ups lower interest rates. But again, they're looking

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Speaker 3: at all of the threat of all the increased tariffs,

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Speaker 3: which at one hundred percent coming out of China on

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Speaker 3: all those Chinese input imports, will affect consumers, will affect inflation.

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Speaker 3: So boy, I don't envy their next couple of weeks.

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Speaker 2: I'm curious and Andre, given the client base that you have,

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Speaker 2: how do they feel about the way in which the

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Speaker 2: Trump administration has been been managing the economy, whether it's

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Speaker 2: tariffs or tax policy deregulation. I mean, is there a

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Speaker 2: consensus here that you can address or is there a

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Speaker 2: kind of a range of opinion in terms of how

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Speaker 2: the administration is doing.

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Speaker 3: So, I think when the administration first took office and

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Speaker 3: our clients saw the tariff threats and the safe rattling

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Speaker 3: and the rest, there is a lot of concern and

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Speaker 3: a lot of pause, but they've come to expect some

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Speaker 3: of that. In some cases, the Trump administration has normalized

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Speaker 3: the threatening tariffs and the saber rattling, and despite what

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Speaker 3: appears to be instability in the government, the market continues

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Speaker 3: to go up. So I think the market and our

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Speaker 3: clients that rely on the market and are part of

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Speaker 3: the market feel like they've believed that they have figured

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Speaker 3: out the secret sauce, figured out that the administration is

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Speaker 3: going to continue to threaten and to provoke, but many

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Speaker 3: of them believe that that will have little real impact

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Speaker 3: in the long term on the market or their companies.

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Speaker 3: There may be some short term instability and volatility, but

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Speaker 3: long term they believe that the president wants a strong

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Speaker 3: economy and we'll do what he and is doing what

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Speaker 3: he's doing in order to get us to a stronger economy,

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Speaker 3: even though if you look at the day to day

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Speaker 3: it does not. It seems it's very unsettling.

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Speaker 2: Sandra will leave it there, Thank you so very much.

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Speaker 2: Sandra Swirsky is the founder also the CEO of the

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Speaker 2: advisory firm Integer, joining us from Washington, d C. In

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Speaker 2: a moment or two, we'll bring in Rob Williams from

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Speaker 2: Sage Advisory Services. He's in Austin, Texas, and we'll take

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Speaker 2: a look at the interest rate environment and what's happening

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Speaker 2: in the fixed income space. Coming up here on the

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Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.

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Speaker 2: I'm Doug Krisner. The earning season is underway in the

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Speaker 2: US and in the last session we heard from several

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Speaker 2: of the big banks. The results were by and large

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Speaker 2: pretty solid, although the commentary seemed to be a little mixed.

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Speaker 2: We had bank stocks finishing mixed as well. The KBW

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Speaker 2: Bank index was up one point eight percent, but it

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Speaker 2: closed off its session high for a look at the

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Speaker 2: earning season. I'm joined by Rob Williams. He is managing

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Speaker 2: partner also the chief investment strategist at Sage Advisory Services.

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Speaker 2: Rob is based in Austin, Texas. Thank you so much

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Speaker 2: for making time to chat with me. Give me your

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Speaker 2: sense of what you heard today from the big banks.

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Speaker 4: Yeah, I mean, we look w'ere fix think a manager.

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Speaker 4: We do a lot of investing in credit obviously, and

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Speaker 4: we're very concerned about the consumer, so we wanted the

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Speaker 4: overall thing we wanted to see is any read on

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Speaker 4: insight on the consumer, especially kind of write down things

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Speaker 4: like that. And overall, like you said earlier, very healthy,

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Speaker 4: driven a lot by IPO activity, trading revenue, things like that,

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Speaker 4: not much damage. You know, these big banks hold very

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Speaker 4: little limited subprime auto type of exposure or anything that

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Speaker 4: would have hurt them that much. So pretty positive overall.

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Speaker 4: But the comments, like you also said, kind of looking forward,

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Speaker 4: not as optimistic as kind of the current run rate

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Speaker 4: that you've seen, you know, slow down the consumer.

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Speaker 5: Maybe some cracks on the credit side.

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Speaker 4: You've seen a few little cracks and you know, and

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Speaker 4: we all know how tight credit spreads are so there's

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Speaker 4: not a lot of room for any kind of you know,

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Speaker 4: bigger systemic sort of crisis would certainly impact the credit

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Speaker 4: markets overall.

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Speaker 2: So I'm glad you mentioned Jamie Diamond there, the CEO

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Speaker 2: of JP Morgan. He was warning today of a potential

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Speaker 2: deterioration in credit quality. Now you and I both know

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Speaker 2: that lately we have seen the implosion of Tricolor holdings,

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Speaker 2: the auto lender, as well as the car parks supplier

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Speaker 2: First Brands, and Diamond was remarking when he sees situations

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Speaker 2: like this, is his antenna go up. And he also said,

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Speaker 2: when you see one cockroach, there are probably more. Does

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Speaker 2: he have a point there?

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Speaker 4: Yeah, I mean, look, there's a lot of opaque sides

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Speaker 4: of the credit market now, in private credit and other things.

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Speaker 4: So for sure there needs to be a little more

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Speaker 4: dispersion amongst some of these BDCs and other things because

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Speaker 4: there are some problems under there. Whether they're going to

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Speaker 4: be big enough to bleed up to you know, investment

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Speaker 4: grade credit. Uh, you know, we don't see that happening

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Speaker 4: anytime soon, but we certainly think it's not a bad

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Speaker 4: time to be thinking about, Hey, should I be moving

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Speaker 4: up in liquidity in my income side of my portfolio, right,

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Speaker 4: you know, bank you know, bank reserves have been going down.

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Speaker 4: Bank reserves as a percentage of GDP, which is what

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Speaker 4: the kind of the FED measures sort of when we're

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Speaker 4: in ample liquidity situation. That's been kind of getting down

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Speaker 4: lower and lower, kind of out of that band of

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Speaker 4: like ample. So maybe liquidity is shrinking a little bit.

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Speaker 4: We've seen some cracks. Not a bad time to stay

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Speaker 4: in more liquid, transparent, higher you know, not just higher quality,

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Speaker 4: but lower volatility kind of markets in the fixed income space.

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Speaker 2: Well, that takes us to FED share j Powell today

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Speaker 2: he kind of reinforced bets on a raidcat in October.

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Speaker 2: That shouldn't be a big surprise if you've been tracking

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Speaker 2: the FED speak. A number of policymakers have been very

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Speaker 2: concerned about the weakness of the labor market. Powell also

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Speaker 2: indicated that FED may stop shrinking its balance sheet in

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Speaker 2: the coming months as a way of perhaps maintaining, to

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Speaker 2: your point, a little of the liquidity, especially in the

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Speaker 2: overnight funding markets. So are you really seeing evidence now

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Speaker 2: that things are kind of drying up a bit?

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Speaker 5: Yeah?

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Speaker 4: I mean bankers have certainly been run down, right, and

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Speaker 4: the FED has has been engaging and triggering their balance

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Speaker 4: sheet for a while. They've said when when liquidity is

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Speaker 4: gone from excessive to ample is when they would think

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Speaker 4: about and down QT. And we're in that zone. We're

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Speaker 4: the bottom of that zone. I think some of the

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Speaker 4: governors has pointed at put the number in that kind

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Speaker 4: of twelve ten to twelve percent of GDP for bank reserves.

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Speaker 5: We're right around ten. So we're right at the lower

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Speaker 5: end of that.

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Speaker 4: So the good news is they're probably getting ready to

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Speaker 4: fold up that and ENQT. The bad news is that, yeah,

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Speaker 4: liquidity has shrunk a little bit. It's not like tight

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Speaker 4: at this moment, but like I said earlier, maybe a

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Speaker 4: good time to be thinking about, Hey, I want to

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Speaker 4: be a little more liquid in my fixed income side.

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Speaker 2: I'm curious about how you view the macro these days,

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Speaker 2: particularly in the absence of a lot of government data.

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Speaker 2: We've been lacking some key data points here because of

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Speaker 2: the shutdown and the CPI report, which was to have

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Speaker 2: been released tomorrow that would have been the October fifteenth

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Speaker 2: here in the States. It's been pushed out to I

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Speaker 2: think the twenty fourth. Give me a sense of how

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Speaker 2: you've had to navigate this landscape right now without a

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Speaker 2: lack of or with a lack of government data.

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Speaker 4: Yeah, that is a problem, especially if it continues on.

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Speaker 4: You know, Fortunately, there's a good there's been a you know,

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Speaker 4: twenty years ago it would have been more difficult, but

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Speaker 4: there's been a growing amount of sort of alternative private

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Speaker 4: data that you can sort of lean into, and you know,

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Speaker 4: Bloomberg certainly, you know, has a good read on that.

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Speaker 4: There's even a worksheet of all the various private sources

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Speaker 4: like you had one today, the one piece of data

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Speaker 4: you had with small business optimism, right, and that ticked down.

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Speaker 4: If you crack that open. There are some inflation components

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Speaker 4: to that, so you have to be a little more

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Speaker 4: creative and dig a little deeper. But that one, we

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Speaker 4: actually look at that small business and there's a reading

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Speaker 4: in that that says, hey, what percentage of small businesses

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Speaker 4: are expecting to increase prices? So it's a good indication

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Speaker 4: of price pressures and that that's been ticking up. So

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Speaker 4: that tells us, yeah, there's price pressure still coming. And

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Speaker 4: you have to kind of lean into some of the

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Speaker 4: other alternative data sources for job the job numbers and

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Speaker 4: they've basically been telling you the same thing. Jobs are weakening,

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Speaker 4: pricing pressures, okay, but we're seeing some sign that are

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Speaker 4: starting to percolate.

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Speaker 2: Does that necessarily equate to stagflation?

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Speaker 4: No, I think because you just haven't seen the goods.

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Speaker 4: You're getting some stag and the job numbers, you know,

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Speaker 4: but you're not getting inflation coming through. The goods path

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Speaker 4: through has not been that bad. The housing and the

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Speaker 4: energy and the service sector slowing down to sort of

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Speaker 4: contain that. What we're kind of looking for is, hey,

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Speaker 4: you know, we know inventories have been built up, they're

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Speaker 4: running down. And when we start to see more margin

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Speaker 4: pressures and things like that small business price index and

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Speaker 4: really starting to come through, we get a little nervous.

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Speaker 4: But right now it looks more like the Fed is

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Speaker 4: going to be more and they've said it more worried

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Speaker 4: about jobs and inflation at the moment.

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Speaker 2: I'd like to get your view Rob on this debasement

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Speaker 2: trade that's been rippling across not just markets here in

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Speaker 2: the States, but globally is well. It seems like a

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Speaker 2: number of investors are pulling away from sovereign debt, chasing

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Speaker 2: gold maybe's even silver give me your sense of what's

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Speaker 2: happening and what the risks are right now.

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Speaker 4: Yeah, you know, there's many reasons, but it's just like

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Speaker 4: when you saw that back end volatility in the curve.

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Speaker 4: There's still a lot of uncertainty policy politically for inflation,

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Speaker 4: and there's also deficits.

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Speaker 5: Are not a US problem.

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Speaker 4: They are a global problem and they're not going away

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Speaker 4: anytime soon. So that's going to kind of keep pushing

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Speaker 4: people away from some of the traditional things and creating

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Speaker 4: some volatility on the back end of the curve and

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Speaker 4: pushing people towards gold and things like and even crypto

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Speaker 4: and things like that. And it's not going away anytime soon.

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Speaker 4: But it's also from a rape perspective, I think it's

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Speaker 4: not going to get out of hand either. I think

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Speaker 4: it'll be contained because, like I said, inflation is not

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Speaker 4: out of the bag. Here apply demand for for rates

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Speaker 4: and some of this stuff is still pretty favorable.

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Speaker 5: We just talked about QT ending.

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Speaker 4: You know, the Treasury is going to issue more bills

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Speaker 4: in long paper, so they're going to do their level

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Speaker 4: best to keep the volatility sort of down at the long.

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Speaker 5: End of the curve.

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Speaker 4: But people are certainly the driving forces I think global deficits.

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Speaker 2: So you wouldn't be shunning US treasuries in favor of

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Speaker 2: high quality IG credit like a Microsoft, would you.

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Speaker 4: Uh No, Look, I'd have a diversified portfolio. I wouldn't

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Speaker 4: shy away from duration. Right, the cash is not going

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Speaker 4: to look is going to look increasingly less attractive in

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Speaker 4: an easing cycle. Right, You've gotten good returns and save

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Speaker 4: fixed income treasuries IG credit six seven percent, you're going

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Speaker 4: to get just in carry. You're going to get another

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Speaker 4: percent percent and a half in the fourth quarter just

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Speaker 4: in carry. So I wouldn't. I wouldn't worry a whole

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Speaker 4: lot about duration. And again, you're not. If you're in

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Speaker 4: a diversified portfolio, you don't have a a lot of

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Speaker 4: the extreme long end exposure. If that's what you're worried about,

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Speaker 4: and we're frankly, I'm not too worried about having that

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Speaker 4: long end. But I'm just saying, typical investor is not

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Speaker 4: going to have a bunch of thirty year paper. They're

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Speaker 4: going to have you in the one to ten year

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Speaker 4: part of the curve anyhow. So No, I wouldn't shy

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Speaker 4: away from duration or high quality fixed income.

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Speaker 2: Okay, Robill leave it there. Thank you so much. Rob

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Speaker 2: Williams is managing partner also the Chief Investment Strategist at

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Speaker 2: Sage Advisory Services from Austin, Texas. Here on the Daybreak

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Speaker 2: Asia Podcast, Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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