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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Krisner. On the trade front. Today,

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Speaker 1: President Trump said he's not considering a delay of his

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Speaker 1: July ninth deadline for those higher tariffs to resume. He

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Speaker 1: threatened to cut off trade talks and impost TERRAF freights

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Speaker 1: on several nations, including Japan. Coming up, we'll be speaking

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Speaker 1: with Jeff Grills. He is head of em Debt at

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Speaker 1: Agon Asset Management. But we begin with China. The latest

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Speaker 1: flash data reading from China beij Book International showed slowing

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Speaker 1: in June. Even so, the weaker print may not bother

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Speaker 1: Beijing as much as outsiders think. Joining me now is

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Speaker 1: Shazad Kazi. He is the COO also managing director at

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Speaker 1: China beij Book. He is on the line from here

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Speaker 1: in New York City. Chazad, it's always a pleasure. Thank

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Speaker 1: you so much for making time to chat with me

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Speaker 1: on this. Can I begin by asking for the big

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Speaker 1: picture as a result of your survey, how do things

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Speaker 1: look in China right now?

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Speaker 2: Hi, Doug, Good to be with you. The big picture

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Speaker 2: takeaway from June was that there was soft data or

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Speaker 2: concerning data all around. If you're just looking at the

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Speaker 2: health of the economy from that lens alone, but if

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Speaker 2: you're putting it in the larger scheme of things, you're

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Speaker 2: thinking about the trade war and the tariff war and

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Speaker 2: export controls rather and so forth. As we said, we

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Speaker 2: don't think this one month off weakness is going to

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Speaker 2: be a particular concern to the CCP, or I think

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Speaker 2: to President she, who's feeling pretty confident about his position

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Speaker 2: in the US China trade war right now, is.

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Speaker 1: That to say that you believe, based on your survey,

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Speaker 1: that she believes that he has the upper hand.

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Speaker 2: That's correct, you know, it is definitely our understanding that

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Speaker 2: she and several top party officials believe that they now

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Speaker 2: have the upper hand, especially the manner in which they

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Speaker 2: think they got the US just cream uncle when it

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Speaker 2: comes to export controls over earth rors and magnets and such.

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Speaker 2: At the same time, I think they're probably thinking there's

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Speaker 2: got to be another round of front loading that will

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Speaker 2: eventually happen, and manufacturer may eventually benefit off of that.

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Speaker 2: So all around, I think they feel like they're in

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Speaker 2: a pretty strong position right now.

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Speaker 1: So having said that, how does the manufacturing economy and China.

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Speaker 1: Look right now, if you look at exports, where are

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Speaker 1: they headed and what is particularly robust?

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Speaker 2: So export orders right now have most certainly in China,

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Speaker 2: bacebook data slowed down. If you look at especially orders

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Speaker 2: directly from the US, they've remained in contraction territory. Not

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Speaker 2: a huge surprise given the fact that you know, we

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Speaker 2: had these sky high tariff levels that were only brought

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Speaker 2: down somewhat recently. And it's very likely that a lot

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Speaker 2: of the exports to the US eventually are coming through

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Speaker 2: third party countries from Southeast Asia. So that number may

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Speaker 2: not look very very very strong for a while here.

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Speaker 2: But right now the manufacturing story is one off being dull.

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Speaker 2: The real question is does this change come July August,

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Speaker 2: when do we see firms starting starting to buy directly

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Speaker 2: from China again.

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Speaker 1: When you and I have spoken in the past, a

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Speaker 1: lot of the focus has been on the domestic demand

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Speaker 1: story in China. What are you seeing The.

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Speaker 2: Domestic demand again has gotten quite soft. Now we have

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Speaker 2: to acknowledge again that the year started off on a

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Speaker 2: positive note around Chinese New Year, around things like the

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Speaker 2: May Day holiday, we saw good spending happening, But in

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Speaker 2: between the trade in programs and the Chinese subsidies expiring

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Speaker 2: provinces pulling them back or essentially running out of funds

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Speaker 2: to carry them on, and there'd be no real event

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Speaker 2: or series of holidays sparking another round of consumer spending.

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Speaker 2: What you're getting all around is pretty soft data. So,

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Speaker 2: as I said, the June picture really is just from

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Speaker 2: an economic health of the economy standpoint, You'll see a

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Speaker 2: lot of negative storylines in there.

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Speaker 1: What is the status of the property market? Is that

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Speaker 1: showing any sign of improvement?

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Speaker 2: You know, I've been particularly positive on property in the

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Speaker 2: sense that I've repeatedly said that the pain is lessing

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Speaker 2: and the data who is what was driving that view. Unfortunately,

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Speaker 2: over the last couple of months now, over May and

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Speaker 2: most certainly into June, now we can see now that

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Speaker 2: some of these recent gains that the housing market had

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Speaker 2: made even in twenty twenty five are being reversed, are

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Speaker 2: being lost. And so the question is is this is

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Speaker 2: this just a temporary blip, Is this along the lines

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Speaker 2: of software consumer sentiment anyway, or are we headed towards

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Speaker 2: a pat now where property actually, instead of becoming less worse,

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Speaker 2: is going and you know, the pain starts to increase

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Speaker 2: instead of continuing to decrease.

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Speaker 1: What about the job market, What is the data say

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Speaker 1: about how well people are doing on the employment front.

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Speaker 2: Yeah, look, you know things are things have slowed down,

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Speaker 2: but I don't think the job market has been that

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Speaker 2: big of a warrior. The job market in the larger

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Speaker 2: scheme of things, of course, has not been has been.

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Speaker 2: It has been a pain point. It's been talked about

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Speaker 2: over and over again. But in recent data, even though

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Speaker 2: of course we've got a slow down in June, I

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Speaker 2: wouldn't say that the housing market has been you know,

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Speaker 2: flashing red by any stretch of the imagination. Again, China

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Speaker 2: has its long run issues with what's going to happen

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Speaker 2: to their labor force and the fact that they are

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Speaker 2: not enough jobs for you on graduates and so forth.

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Speaker 2: But if you just want to look at what's what's

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Speaker 2: happening right now, you know, I wouldn't put it in

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Speaker 2: the concerning basket.

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Speaker 1: There's been a lot of talk around the AI movement

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Speaker 1: in China and other areas of technology. If you look

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Speaker 1: at the economy on a sector bi sector basis, how

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Speaker 1: is technology performing right now?

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Speaker 2: You know? The thing is we're not picking up the

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Speaker 2: technological revolutions big economic impact right now. There's no question

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Speaker 2: about the fact that the tech scene in China has

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Speaker 2: become incredibly interesting from the Deep Seek moment onwards. But

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Speaker 2: I think some of that, you know, some of the

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Speaker 2: positive views of ofware tech in China and the boom

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Speaker 2: of check in China that was taking place, I think

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Speaker 2: some of that has dampened down a little bit. But nevertheless,

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Speaker 2: I think it's going to take a couple of years

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Speaker 2: for us to really start to see its impact on

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Speaker 2: the broader economy. The sector is still exciting, there's just

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Speaker 2: no question about it.

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Speaker 1: So this is kind of dull. I mean, isn't that

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Speaker 1: the way you describe the economy right now? And I'm

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Speaker 1: wondering whether you're seeing any green shoots. Should we be

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Speaker 1: a little bit more optimistic or are things almost in

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Speaker 1: a stagnation.

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Speaker 2: I think what's going to happen is that as we

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Speaker 2: get closer to the fall, unless something blows up on trade,

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Speaker 2: we will probably get a boost on that export side.

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Speaker 2: You also have to remember that right now, I think

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Speaker 2: companies are having a hard time getting just stuff out

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Speaker 2: because they're not enough container ships, so everything had frozen

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Speaker 2: and everything had come to a standstill. They kind of

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Speaker 2: revive that, so you will see some kind of economic

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Speaker 2: impact of that taking place, however, unless Beijing continues to

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Speaker 2: ramp up stimulus. So the most exciting part I would

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Speaker 2: say right now is the fact that you're seeing more

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Speaker 2: fiscal activity than you have in recently, and so if

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Speaker 2: they continue doing policiesing on that front, they can get

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Speaker 2: some mileage out of that. They are arguing to have

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Speaker 2: to figure out a more sustainable way to juice the

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Speaker 2: consumer side. Maybe they'll do some more trade in programs.

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Speaker 2: So are there reasons to be optimistic. Yes, absolutely, But

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Speaker 2: at the same time, there's no big blockbuster, you know,

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Speaker 2: mega growth story coming out of China right now, and

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Speaker 2: by the same token, there's no big disaster that's looming

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Speaker 2: in twenty twenty five either.

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Speaker 1: Shazad will leave it there. It's always a pleasure. Thank

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Speaker 1: you so much. Shazad kase Coo, also managing director at

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Speaker 1: China Beijbook, joining us here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.

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Speaker 1: It was the first day of trading for the third quarter,

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Speaker 1: so there may have been a bit of rotation in

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Speaker 1: the equity market from winners to losers, from growth to momentum.

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Speaker 1: At the end of the day, stocks were mixed. The

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Speaker 1: Dow was high, but we had the S and P

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Speaker 1: and the Nasdaq each slipping from record highs. Small caps outperformed.

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Speaker 1: We had the Russell picking up nine tens of one percent.

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Speaker 1: The outlook for FED raid cuts, meantime, seemed to dim

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Speaker 1: a bit on signs of a still healthy labor market.

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Speaker 1: Job openings in the US hit the highest level since November,

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Speaker 1: largely fueled by leisure and hospitality, and at the same

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Speaker 1: time layoffs declined. We also heard from Fedhair J. Powell.

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Speaker 1: He reiterated his weight and see stance on rates given

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Speaker 1: the inflationary implications of those tariffs. Here is Powell speaking

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Speaker 1: at the European Central Bank Forum in Central Portugal.

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Speaker 3: In effect, we went on hold when we saw the

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Speaker 3: size of the tariffs and where and essentially all inflation

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Speaker 3: forecasts for the United States went up materially as a

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Speaker 3: consequence of the tariffs.

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Speaker 1: Fedchhair J. Powell there Joining me now for a closer

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Speaker 1: look at market action is Jeff Grills. He is head

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Speaker 1: of e M Debt at Agon Asset management. Jeff is

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Speaker 1: on the line from Chicago. Thank you for making time

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Speaker 1: to chat with me. Give me your sense of the

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Speaker 1: predicament that the FED is in right now.

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Speaker 4: Well, I think the Fed is waiting to see what

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Speaker 4: the ultimate impact of the tariffs will be and where

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Speaker 4: we get posts July ninth. You know, our view right

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Speaker 4: now on the tariffs is that you have to remember

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Speaker 4: they're generally a one time adjustment, so we don't view

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Speaker 4: them as being long term inflationary. So I think the

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Speaker 4: FED is just trying to see how many adjustments where

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Speaker 4: are we going to go? And so our view right

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Speaker 4: now is that the Fed is still likely to ease

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Speaker 4: in the second half of this year.

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Speaker 5: I think they have room to ease policy.

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Speaker 4: We are expecting growth to come back down, and they'll

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Speaker 4: be data dependent and watch where you know, the indicators go.

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Speaker 4: But they're just trying to make sure that they have

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Speaker 4: ample room to ease when needed. They haven't needed to

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Speaker 4: at this point.

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Speaker 1: So that's the monetary side. Then we have the deal

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Speaker 1: with the fiscal side. Because today the Senate narrowly passed

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Speaker 1: the President's tax and spending bill, not a lot of

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Speaker 1: movement in the bond market. I mean yields did back

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Speaker 1: up a bit more so at the short end to

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Speaker 1: the curve. How do you view the response given the

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Speaker 1: things that we're describing with the Fed and now this

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Speaker 1: big beautiful bill, how do you see what the treasury

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Speaker 1: market is telling us in that context?

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Speaker 4: Well, you have seen the treasury market steep in over

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Speaker 4: the last couple of months. So where you have the

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Speaker 4: short end two years now pricing in around three eighty.

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Speaker 4: You know, the general view is that you have about

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Speaker 4: one hundred and thirty basis points overall being priced into

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Speaker 4: FED funds, and the long end is what has been

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Speaker 4: a little bit more stubborn. So the thirty year has

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Speaker 4: come in from that five percent level, but still stuck

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Speaker 4: around four to seventy five four eighty, and I think

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Speaker 4: you'll see that long end probably stay a little bit elevated.

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Speaker 4: This bill estimates runningwhere from two point seven to three

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Speaker 4: point three trillion. That'll add over time. The big thing

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Speaker 4: that's going to be interesting, I think which bomb markets

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Speaker 4: will be watching is where will growth go? Because if

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Speaker 4: we can get better growth rates, then you don't have

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Speaker 4: as much of a depth you a debt to GDP

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Speaker 4: type problem. And the second piece is that the tariff policy.

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Speaker 4: I mean, keep in mind that ten percent tariffs are

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Speaker 4: on across the board. We've seen receipts go up both

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Speaker 4: in April and May. We saw a much improved trade

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Speaker 4: deficit in May. And so if tariff revenue starts to

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Speaker 4: offset some of these tax cuts, that will keep the

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Speaker 4: bond market at bay. But at the end, the bond

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Speaker 4: market is going to react to if they think this

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Speaker 4: this fiscal loosening is just too great, and they'll also

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Speaker 4: look to see what do they do on spending cuts

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Speaker 4: once we get past this big bill, big beautiful bill.

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Speaker 1: So the dollar was steady today in New York trading,

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Speaker 1: but for the month of let's say June, the Bloomberg

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Speaker 1: Dollar Spot index was down about two percent. So we're

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Speaker 1: trading near the lows that we reached back in March

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Speaker 1: of twenty twenty two. How are you understanding that the

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Speaker 1: dollars role right now as a factor for fixed income markets?

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Speaker 4: Well, I think secretly the Trump administration is somewhat happy

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Speaker 4: to have a week or dollar right.

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Speaker 5: I mean, the dollar has been pretty strong.

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Speaker 4: Over the last really almost two decades, and you could

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Speaker 4: argue that the dollars over val relative to most currencies.

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Speaker 4: So having that weaker dollar starts to make the trade

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Speaker 4: should should cause an adjustment in the trade deficit. So

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Speaker 4: I think that the administration is fine with for the dollars.

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Speaker 4: We don't expect it to continue to weaken too much,

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Speaker 4: but it will be on a gradually weakening path. I

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Speaker 4: think that's something that's been set in motion. As the

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Speaker 4: tariffs again will remain in effect, we should see trade

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Speaker 4: deficits come down. I think it's a natural reaction see

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Speaker 4: the dollar weekend, But I don't think that's necessarily going

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Speaker 4: to be this dramatic. I mean, everybody's talking about massive

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Speaker 4: shifts out of dollars.

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Speaker 5: Continued excessive weakness.

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Speaker 4: I argue against that because people in other countries Europe,

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Speaker 4: you know, that have ascid allocations. They move one to

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Speaker 4: two or three percent at a time. They don't move

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Speaker 4: ten to twenty percent at a time. So it'll be

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Speaker 4: a gradual shift, and I expect the dollar to really

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Speaker 4: have moved for the majority for this year, and then

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Speaker 4: we'll just see a gradual weakening trend going forward.

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Speaker 1: So that said, Jeff, how is it influencing your thinking

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Speaker 1: when you look at offshore debt markets right now?

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Speaker 4: Yeah, we've seen what we've I've seen the continued rally

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Speaker 4: in em local markets. Right, so many money of these

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Speaker 4: currencies are up anywhere from five to fifteen percent. As

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Speaker 4: we look at what policy has been done and where

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Speaker 4: local rates are, we think em local looks reasonably attractive.

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Speaker 4: I mean, it's moved some, but places like Brazil where

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Speaker 4: you're still getting double digit yields, you know, eleven, twelve,

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Speaker 4: thirteen percent type yields and even higher.

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Speaker 5: That that looks attractive.

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Speaker 4: And we do expect that as growth starts to slow

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Speaker 4: down in the second half of this year, just naturally,

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Speaker 4: a lot of the stimulus that was being done, the

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Speaker 4: tax cuts that have just been passed, aren't really going

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Speaker 4: to hit until twenty twenty six. So I think that

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Speaker 4: creates this window for the second half of this year

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Speaker 4: where we'll continue to see some easing of rates as

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Speaker 4: likely global inflationary pressures continue to say subdued. I mean,

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Speaker 4: the tariff may have impact on us on US inflation,

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Speaker 4: but not really on anything else, especially in the emerging markets.

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Speaker 1: But I think we can agree there there is an

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Speaker 1: elevated level of uncertainty, and I'm wondering how that then

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Speaker 1: positions you across the curve, where do you want to focus.

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Speaker 4: Well, first, let's just address the uncertainty. I think the

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Speaker 4: uncertainty lies with mostly with China within the EM and

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Speaker 4: I think that's what Liberation Day was about, was targeting

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Speaker 4: China to really try to correct what the administration and

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Speaker 4: many economists have seen as a big imbalance. And beyond that,

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Speaker 4: it's really you know, European Union, UK, Japan. You don't

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Speaker 4: hear much about EM as the major focus for trade deals,

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Speaker 4: and I don't think you will. So I think this

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Speaker 4: ten percent tariff is pretty much likely to stay. Maybe

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Speaker 4: there'll be somebody who gets announced, so I think that

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Speaker 4: keeps EM at least in a better spot.

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Speaker 5: Right.

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Speaker 4: So as far as curves, I mean, it's really about

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Speaker 4: picking the right country. So again I think Bloom I

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Speaker 4: think Brazil can be a beneficiary of this. We think

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Speaker 4: Latin American can generally be a beneficiary. So it'll be

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Speaker 4: a combination of the currency appreciation, which I think you

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Speaker 4: can get anywhere from two to five percent over the

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Speaker 4: next twelve months, and then for those curves where rates

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Speaker 4: are very high, we would go out to the to

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Speaker 4: the ten year and even longer. Parts of the curves

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Speaker 4: to take advantage of the higher yields.

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Speaker 1: So you mentioned a moment ago that in your view,

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Speaker 1: the tariff story is basically a one time event in

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Speaker 1: terms of inflationary implications. How do you read the inflationary

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Speaker 1: environment right now globally?

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Speaker 4: Globally, I think for the most part, we are going

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Speaker 4: to be okay. I mean, again, what typically happens in

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Speaker 4: you know, focusing on my history in em is as

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Speaker 4: you get appreciation in the currencies of major economies, that

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Speaker 4: tends to have a deflationary impact on those countries. So

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Speaker 4: our view is that inflation will remain contained. We don't

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Speaker 4: see a massive amount of you know, inflation domestically in

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Speaker 4: these economies, so I think that that will remain well

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Speaker 4: controlled and we'll see central banks starting to ease policy again.

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Speaker 4: I mean, keep in mind that they have been on

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Speaker 4: most most countries have been on hiking rates, which is

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Speaker 4: counter to what we've seen in the develop markets. And

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Speaker 4: I think they're going to start to be able to

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Speaker 4: ease those rates now for the next six, twelve, eighteen months. Overall,

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Speaker 4: again getting back to the tariffs, it's gonna be I

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Speaker 4: don't think it's over, but we're going to see some

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Speaker 4: trade deals.

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Speaker 5: Somebody's going to be held out as an example.

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Speaker 4: But in the end, we're expecting average the tariff to

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Speaker 4: be about fifteen to maybe eighteen percent, not not the

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Speaker 4: levels that we saw on Liberation Day back on April second.

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Speaker 1: All right, good stuff, Jeff, we'll leave it there. Thank

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Speaker 1: you so much. Jeff Grills, as head of em Debt

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Speaker 1: at Agon Asset Management, on the line from Chicago here

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Speaker 1: on the Daybreak Asia Podcast. Thanks for listening to today's

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Speaker 1: 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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Speaker 1: from Hong Kong to Singapore and US Australia. I'm Doug

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Speaker 1: Prisoner and this is Bloomberg

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Speaker 2: M