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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 Deuk Krisner. So

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Speaker 2: officials from the US and China have reached a framework

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Speaker 2: on keeping TikTok running in the US. This will set

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Speaker 2: the stage for a phone call on Friday between President

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Speaker 2: Trump and Chinese President Chi Jinping. The framework was reached

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Speaker 2: in Madrid Treasury Secretary Besson confirming a plan for US

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Speaker 2: ownership of TikTok. Tom Orlick is chief economist for Bloomberg Economics.

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Speaker 3: If we think about this from Beijing's perspective, they've got

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Speaker 3: conflicting objectives. On the one hand, they would dearly love

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Speaker 3: to have unlimited access to leading edge chips from Nvidia

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Speaker 3: to accelerate their artificial intelligence progress. On the other hand,

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Speaker 3: they recognize that the US is using access to chips

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Speaker 3: as an instrument control and negotiating leverage. They don't like that.

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Speaker 2: That is Bloomberg's tom Orlick. Now, we'll get some perspective

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Speaker 2: from the Asia Pacific momentarily, but we begin here in

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Speaker 2: the States, where the fed's two day meeting gets underway

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Speaker 2: in a matter of hours. Joining me now is Katie Kaminski,

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Speaker 2: Chief for Search strategist, also portfolio manager at Alpha Simplex. Katie,

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Speaker 2: good to see you. Thank you so much for spending

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Speaker 2: time with me. So a rate cut, I think we

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Speaker 2: can agree, seems like it's a sure thing. The question

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Speaker 2: is whether the FED begins to signal a series of

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Speaker 2: reductions extending into next year. Is that a fair statement?

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Speaker 4: I definitely agree.

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Speaker 5: I feel like the market has already priced in and

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Speaker 5: has really sort of foregone the conclusion that we'll have

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Speaker 5: rate cuts this week. But what I'm really interested in

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Speaker 5: is how many and what till do they make so

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Speaker 5: that we kind of understand the trajectory of the FED

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Speaker 5: as opposed to just this week.

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Speaker 2: What is your sense the probability of a fifty basis

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Speaker 2: point rate cut this week? Is that too too aggressive?

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Speaker 2: Do you think?

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Speaker 5: Well? I think based on most indications, there's a low

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Speaker 5: probability of that, but there still is a small probability.

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Speaker 5: There are a few officials that also probably will dissent

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Speaker 5: in favor of a fifty point cut, and I think

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Speaker 5: that sort of indicates the amount of descents that we've had,

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Speaker 5: and we haven't had a lot of descents in the

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Speaker 5: FED until recently, so I think that is something to

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Speaker 5: watch and think about.

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Speaker 2: One of the things that we know is that President

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Speaker 2: Trump has been pressuring the FED to cut interest rates.

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Speaker 2: David Kelly over at JP Morgan Asset Management was saying

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Speaker 2: a rate cut will increase risk for stock spawns and

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Speaker 2: the dollar if it's perceived to be driven by political pressure,

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Speaker 2: if it's perceived to be driven by political pressure and

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Speaker 2: doesn't align with the Fed's forecast for the economy. Fair statement.

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Speaker 4: I definitely so.

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Speaker 5: And the reason for this is if you look at

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Speaker 5: the dual mandate, I mean, inflation numbers have actually been

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Speaker 5: going up some so you know, you're really sitting in

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Speaker 5: a situation where if it's perceived that this is not

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Speaker 5: given by a sort of economic analysism based on the

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Speaker 5: fed's view, then real view, that could definitely cause people

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Speaker 5: to wonder if it could go too far. And I

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Speaker 5: think there's definitely people out there thinking about that.

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Speaker 2: So we had records today for the S and P

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Speaker 2: and the NASDAK. What does it say to you that the

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Speaker 2: market is trading at record highs at a time when

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Speaker 2: the FED is going to be easy. Does that make

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Speaker 2: you constructive on equities or are maybe a little cautious.

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Speaker 5: Right now, I'd say it's still constructive in terms of

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Speaker 5: the signals because it's all about the magnitude. So how

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Speaker 5: severe is the job situation versus the benefits of lower

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Speaker 5: rates potentially stimulating the economy, And so I.

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Speaker 4: Think that's where the market is right now.

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Speaker 5: It's leaning towards having lower rates could be positive, and

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Speaker 5: it's not more positive than a worsening job situation. So

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Speaker 5: I think we have to wait and see the next

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Speaker 5: trajectory because the severity of multiple cuts could actually have

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Speaker 5: a much more stimulative or a larger effect.

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Speaker 4: So it's just the beginning now, I would say.

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Speaker 2: So a moment ago, I mentioned the US in China

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Speaker 2: reaching the framework on keeping TikTok running in the US

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Speaker 2: maybe step one in trade negotiations between Washington and Beijing. Tariffs,

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Speaker 2: as we know, are still in effect. How are you

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Speaker 2: reading the tariff story right now as it relates to inflation.

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Speaker 5: Well, the challenge with this particular situation, if you look

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Speaker 5: at this conversation with China is it just shows how

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Speaker 5: complex it is that this could really take a long

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Speaker 5: time to actually come to fruition that there is a

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Speaker 5: deal which means that these tariffs stay in place, and there.

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Speaker 4: Will be ramifications of those tariffs.

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Speaker 5: So I think what we've noticed, though, is that headlines

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Speaker 5: are not moving the markets as much as they were before.

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Speaker 5: So you're really not seeing as much reaction to such information.

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Speaker 5: And I think it's going to take a long time

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Speaker 5: and it's going to be quite complex to understand the

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Speaker 5: US China situation.

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Speaker 2: So we had yields down just a bit today. There's

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Speaker 2: been a lot of movement in the bond market recently

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Speaker 2: as players in that space have been discounting an aggressive FED.

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Speaker 2: How much more room to run is there in the

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Speaker 2: bond market right now? How far can yields decline further?

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Speaker 5: Well, this is a very good question because a lot

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Speaker 5: of times the market gets ahead.

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Speaker 4: Of the FED. So I think a surprising.

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Speaker 5: Thing would be that we might actually be underwhelmed and

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Speaker 5: the market correct. This is because a lot of traders

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Speaker 5: and investors have been getting in sort of ahead of

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Speaker 5: the FED, and if the FED sort of slows down

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Speaker 5: or pumps the brakes, you might actually see a tick

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Speaker 5: up and yields, which is kind of counterintuitive for some investors.

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Speaker 5: So my view is that it's going to be touch

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Speaker 5: and go, and we're going to have to watch and

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Speaker 5: see how the markets move, but moving abruptly more. I

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Speaker 5: don't see that at this point, so I think we'll

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Speaker 5: have to wait until later this week and see how

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Speaker 5: that reactions.

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Speaker 2: So worst case scenario, though we're just above four percent

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Speaker 2: now in the tenure in yield terms, could we get

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Speaker 2: back up to a round four and a half?

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Speaker 5: I mean it's possible, but I think that would require

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Speaker 5: us to have signaling that the FED is still being

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Speaker 5: very steady, and that has not really been the direction

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Speaker 5: momentum that you've seen with the FED. There's been just

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Speaker 5: sort of a slow pivot towards easing, and that, in

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Speaker 5: some sense, I would.

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Speaker 4: Suggest, is a little bit less likely.

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Speaker 5: You could see yields tick up a little bit if

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Speaker 5: people where markets are underwhelmed by cuts not coming as

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Speaker 5: fast as they think, or people pricing in aggressive cuts

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Speaker 5: that don't.

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Speaker 4: Come to fruition.

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Speaker 2: I'm just wondering about a negative prints on inflation.

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Speaker 5: Right.

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Speaker 2: We talk a little bit about the risk of stagflation

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Speaker 2: in the current environment, and I'm wondering whether that could

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Speaker 2: precipitate a move up and yield at the long end.

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Speaker 5: Oh, definitely, And we started to see some indications in

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Speaker 5: the technical signals this summer.

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Speaker 4: We saw steepening trades.

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Speaker 5: Going on for sure, and that could definitely be back

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Speaker 5: in focus again. If we start to see an acceleration

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Speaker 5: in inflation and we're cutting rates at the same time,

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Speaker 5: that always gets everyone concerned about low growth, lots more

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Speaker 5: inflation aka stagflation. I think that's the corner case that

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Speaker 5: many investors are concerned about with cutting rates too fast.

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Speaker 2: So we had some dollar weakness today that shouldn't surprise you.

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Speaker 2: It seems like the dollar has been in this process

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Speaker 2: right now of giving back a lot of the gains

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Speaker 2: that we saw a short while ago. Are we firmly

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Speaker 2: now in a new paradigm where the dollar is concerned

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Speaker 2: against the majors?

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Speaker 5: Well this that's a good question because we have seen

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Speaker 5: a persistent, persistent weakness in the US dollar most of

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Speaker 5: the year, and there's several factors that are against the

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Speaker 5: dollar right now. So cutting rates tends to in general

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Speaker 5: be negative for the dollar. Positive sentiment cash flows regarding

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Speaker 5: positive sentiment can also be negative for the dollar.

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Speaker 4: So there's just a few.

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Speaker 5: Factors at play right now that don't make the dollar

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Speaker 5: look as desirable. So I think that could continue to

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Speaker 5: be the case, especially if we continue to see ray

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Speaker 5: cuts over the next couple of months. So I think

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Speaker 5: people are positioning in anticipation of that.

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Speaker 2: One of the things the market is prepared for is

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Speaker 2: a Dubvish tilt as the fed's Board of Governors kind

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Speaker 2: of gets reconfigured here, and I know there's been some

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Speaker 2: question at the margin about FED independence. We spoke a

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Speaker 2: moment ago about the influence that the president may be

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Speaker 2: having on policy right now. Is that something that you're

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Speaker 2: concerned about a great extent.

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Speaker 5: I mean, I think the market is definitely concerned about

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Speaker 5: that and has moved some on those type of reactions,

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Speaker 5: especially earlier on.

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Speaker 4: I think the fact that you have several.

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Speaker 5: More descents and disagreement in the FED is something that

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Speaker 5: we're not used to seeing for quite some time. So

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Speaker 5: I think as things start to shift even further, this

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Speaker 5: question will continue to be at the top of minds,

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Speaker 5: and if it becomes more apparent, you could see a

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Speaker 5: market reaction where investors get nervous thinking sort of is

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Speaker 5: this really the right decision given the current inflation scenario

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Speaker 5: and unemployment or the current economic situation in the US.

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Speaker 2: Katie, before I let you go I have to ask

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Speaker 2: you about the story in China. We had the monthly

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Speaker 2: activity data in the prior session, both retail sales industrial

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Speaker 2: production coming in on the weak side. How do you

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Speaker 2: see the global economy right now outside the US, how

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Speaker 2: do you see it performing well?

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Speaker 5: The interesting thing is in certain areas like Japan merging markets,

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Speaker 5: they have been very strong. China, on the other hand,

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Speaker 5: has lagged, for example em in general. But you're also

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Speaker 5: seeing positive and mixed signals in other portions of the

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Speaker 5: Europe and also even in the US across different sectors.

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Speaker 4: So I'd say.

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Speaker 5: That China is definitely one of the laggards when many

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Speaker 5: of the markets have been up substantially this month, and

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Speaker 5: that may be due to that fundamental data that's just

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Speaker 5: suggesting there's not as much growth.

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Speaker 4: There right now.

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Speaker 2: Katie, we'll leave it there, Thank you so very much.

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Speaker 2: Kati Kaminski is chief for Search Strategist, also portfolio manager

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Speaker 2: at Alpha Simplex. Joining us here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia podcast Time Doug Krisner. So,

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Speaker 2: as I mentioned a moment ago, officials from the US

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Speaker 2: and China reached a framework on keeping TikTok running in

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Speaker 2: the US. President Trump spoke earlier to reporters in the

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Speaker 2: Oval Office.

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Speaker 1: It's important and it can maybe even bring us closer

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Speaker 1: to Jenna.

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Speaker 6: We had a very good meeting with John.

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Speaker 7: I was surprised.

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Speaker 4: I didn't expect it to that extent.

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Speaker 7: And I'm going to speak again with President she on.

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Speaker 6: Friday, and you know, I think that'll confirm.

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Speaker 2: Things up now. China's Commerce ministry called the deal a consensus.

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Speaker 2: Although some technical hurdles do remain. This breakthrough, nonetheless could

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Speaker 2: unlock a long awaited Trump She's summit at APEC next month.

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Speaker 2: For a closer look, we heard from Wendy Cutler, vice

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Speaker 2: president at the Asia Society Policy Institute. She formerly served

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Speaker 2: as acting Deputy US Trade Representative. Cutler spoke with Bloomberg

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Speaker 2: TV host Sherry On and Annabelle Droolers on the Asia.

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Speaker 1: Trade Wendy, always great to have you with us. What

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Speaker 1: do you make of the Madrid talks because we saw

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Speaker 1: some progress on TikTok, but at the same time, China

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Speaker 1: in the backdrop continues to apply pressure to the US

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Speaker 1: chip settor.

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Speaker 6: Look, the TikTok framework deal is a welcome development. This

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Speaker 6: has been a long term irritant in our relations with China.

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Speaker 6: So it's good that it's on the path to solution.

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Speaker 6: But there's so many other issues that are challenging this relationship.

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Speaker 6: And if it took two days of talks to basically

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Speaker 6: deal with TikTok, it's hard to see these other issues

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Speaker 6: being resolved over the coming months. I think it's just

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Speaker 6: going to take longer.

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Speaker 1: Could something of a breakthrough be achieved in the President

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Speaker 1: cGMP and Trump and Leader summit.

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Speaker 6: Well, first, they're going to have a call on Friday.

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Speaker 6: I think that call is important in that they can

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Speaker 6: confirm the TikTok deal and hopefully they can set a

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Speaker 6: direction forward for their staffs to work together in tech

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Speaker 6: leading up to the APEC meeting. But again there's you know,

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Speaker 6: between fetanyl and export controls and soybeans, there's just so

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Speaker 6: many issues that these two countries need to work on intensively.

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Speaker 1: How big of a priority was TikTok in the grand

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Speaker 1: scheme of things when it comes to those low hanging

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Speaker 1: fruits that the two countries can target at the moment

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Speaker 1: and what could be next?

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Speaker 6: So I do TikTok is as of medium importance? What

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Speaker 6: made it rise to the top was the Wednesday deadline

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Speaker 6: to reach a decision or else to kick TikTok out

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Speaker 6: of the United States, And so that deadline I think

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Speaker 6: served to reach a resolution, you know, in this area.

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Speaker 6: But again there are issues including semiconductors and soybean purchases

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Speaker 6: and excess capacity. All of these issues need to be

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Speaker 6: looked at between the two countries to help stabilize the relationship.

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Speaker 6: I'm not talking about strengthening or improving it. I'm talking

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Speaker 6: about stabilizing it. And that is going to take more

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Speaker 6: work from both sides, particularly if the tariffs are going

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Speaker 6: to be rolled over. The tariff cuts are going to

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Speaker 6: be rolled over again on November tenth when their ninety

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Speaker 6: day clock expires.

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Speaker 7: Yeah, you mentioned semiconductors. I mean, how much do we

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Speaker 7: really need to read into the TikTok deal when you

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Speaker 7: had as well China targeting and video for instance, over

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Speaker 7: and I going back to a twenty twenty deal exactly.

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Speaker 6: And I have to say, as a trade negotiator, I

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Speaker 6: have never seen a trading partner overnight in the middle

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Speaker 6: of trade negotiations to hit the other country with such

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Speaker 6: a strong measure like finding one of its key tech

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Speaker 6: companies in violation of its anti monopoly law. So you know,

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Speaker 6: I don't think that helped contribute to a good atmosphere

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Speaker 6: in the talks, but I give kudos to both sides

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Speaker 6: for finding a way forward at least on one issue

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Speaker 6: of concern TikTok.

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Speaker 7: Do you think then enough has been done right now

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Speaker 7: to sort of set the stage for any travel of

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Speaker 7: President Trump to Beijing later this year or does that

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Speaker 7: sort of look unlikely still for now?

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Speaker 6: I think we're there's a good start, and Secretary Besson

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Speaker 6: mentioned that the two sides will get together at his

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Speaker 6: level within a month, so you could see other issues

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Speaker 6: being worked at at the working level and then you know,

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Speaker 6: being put forward to Vice Premier Hoa and Secretary Besson.

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Speaker 6: So I think there still is a good chance of

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Speaker 6: at least a meeting in Korea. I'm not sure if

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Speaker 6: circumstances are right for a President Trump visit to China.

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Speaker 1: Yet, Wendy, I find it really funny that you mentioned

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Speaker 1: imagining being a trade negotiator now and how Nvidia became

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Speaker 1: targeted while the China used conversations went ongoing. But that

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Speaker 1: seems to be the case these days, isn't it. Even

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Speaker 1: in the US. I mean, could you have imagined an

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Speaker 1: immigration rate in that Georgia plant by South Korea after

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Speaker 1: that trade agreement was announced? I mean, how big of

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Speaker 1: an issue is this for Soul Because that issue seems

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Speaker 1: to be dealt with, But what's happening to all of

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Speaker 1: those investments going into the US.

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Speaker 6: Well, I couldn't agree more. And I've just returned from Korea,

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Speaker 6: and believe me, I've heard a lot of concerns and

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Speaker 6: a lot of caution about of investing more in the

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Speaker 6: United States. And at the same time that we're detaining

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Speaker 6: we were detaining Korean workers in Georgia, we're pressing the

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Speaker 6: Korean government to set up an investment fund of three

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Speaker 6: hundred and fifty billion dollars in the US, where basically

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Speaker 6: Donald Trump would decide which investments made sense and which

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Speaker 6: one should go forward. So it's it's kind of a

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Speaker 6: tense time in Seul, and I think that I was

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Speaker 6: heartened by the depth the Secretary of State apologizing for

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Speaker 6: the visa raids and emphasizing the need to find a

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Speaker 6: way forward on visas, because that's going to be critical

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Speaker 6: if Korean companies are going to have the confidence to

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Speaker 6: keep investing at those same levels in the United States.

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Speaker 7: Yeah, it certainly was a mere culpa of sorts yesterday.

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Speaker 7: I mean, it's really hard to not sort of reinforce

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Speaker 7: just that maybe the level of damage that's been done

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Speaker 7: from this, and not just the signal that it sends

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Speaker 7: to Korea, but also the signal it sends to other

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Speaker 7: places like Taiwan where you're asking businesses to shift investment

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Speaker 7: to the US. But how much of this is a setback?

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Speaker 7: Then just go back to what you learn in Soul

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Speaker 7: and what did you learn more on the ground there

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Speaker 7: about sort of the inclination or to strike a deal.

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Speaker 6: Well, again, I think the Koreans are concerned about going

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Speaker 6: forward with this huge investment fund, and after they read

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Speaker 6: the MoU between the US and Japan, which made it

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Speaker 6: clear that while there's a committee where the Japanese can

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Speaker 6: input into recommended projects, at the end of the day,

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Speaker 6: it's a US decision. Japan focused on just getting those

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Speaker 6: auto tariffs down was willing to make that concession. It's

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Speaker 6: unclear whether Korea is in a similar position, but still

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Speaker 6: it places top priority on reaching an agreement with a

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Speaker 6: close ally and getting the tariff's down, particularly in the

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Speaker 6: automotive sector and.

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Speaker 1: Talk about allies getting blindsided by the Trump administration. India

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Speaker 1: US officials now they're trying to negotiate a trade agreement.

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Speaker 1: What are your expectations when we have, of course seen

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Speaker 1: the threats of fifty percent tariffs on all Indian goods.

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Speaker 6: Yeah, actually, I'm kind of optimistic on the India front.

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Speaker 6: I think we got very close to a trade deal

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Speaker 6: with them, and the signals coming out of both Washington

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Speaker 6: and Delhi suggest that both sides do want to finalize

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Speaker 6: an agreement. That's positive, but again, we need to keep

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Speaker 6: in mind that trust has been broken and that it's

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Speaker 6: going to be hard to get back to where we were.

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Speaker 6: It's going to take time and effort, and hopefully a

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Speaker 6: trade agreement concluded between the US and India and a

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Speaker 6: reduction in those high tariffs would be a positive first

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Speaker 6: step to kind of repairing this relationship.

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Speaker 7: Wendy, thanks so much for joining us this morning. That's

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Speaker 7: Wendy Kutla, their vice president at the Asia Society Policy Institute.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Chrisner and this is Bloomberg.

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Speaker 4: Hmm