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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 Doug Krisner. There

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Speaker 2: has been no shortage of volatility recently for Chinese tech shares.

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Speaker 2: In the last session, as an example, the Hangsang Tech

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Speaker 2: Index was down three point eight percent, and that's after

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Speaker 2: climbing one point seven percent in the Monday session. And

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Speaker 2: that gain came after losses last Thursday and Friday, when

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Speaker 2: the Tech index was down three point four percent each day. Now,

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Speaker 2: to be fair, despite the recent turbulence, the Hangsang Tech

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Speaker 2: Index is still up more than twenty three percent so

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Speaker 2: far this year. That said, there are some analysts saying

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Speaker 2: any further selloff could undermine the narrative that Chinese markets

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Speaker 2: have become an alternative investment ground. Let's take a closer

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Speaker 2: look now with Bloomberg opinion columnist Shuley Ren Shuley, does

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Speaker 2: this really come down in terms of the enthusiasm for

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Speaker 2: Chinese tech? Is it all about the deep seek moment?

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Speaker 3: I think so. I mean, like, it's true that the

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Speaker 3: hands and tacking decks has corrected quite a bit, but

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Speaker 3: I think a lot of it is just a portfolio

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Speaker 3: flows right. There is a little bit of a zero

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Speaker 3: sum game between the US star market and Chinese and

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Speaker 3: European stock markets. As the US market seems to have

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Speaker 3: a bottom out for the short term, like a lot

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Speaker 3: of hot money will be pulling out of the hands

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Speaker 3: and tacking decks because they have made quite a bit

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Speaker 3: of money and it's good to take profit, and then

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Speaker 3: they will perhaps go back to the US star market.

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Speaker 2: On Monday, ten Cent unveiled and upgraded AI reasoning model,

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Speaker 2: and this only adds to the enthusiasm for AI related

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Speaker 2: companies in China and what they're doing. Is this going

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Speaker 2: to continue for a while longer or is there a

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Speaker 2: concern that is developing that maybe things have come too

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Speaker 2: far too fast.

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Speaker 3: I think it's both. Like people think that AI theme

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Speaker 3: in China is not just like a three month thing,

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Speaker 3: right It has been only just not not even three

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Speaker 3: months in China. It will continue on, but the rally

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Speaker 3: has been quite fast, so you will see some people

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Speaker 3: taking profit. But one thing I would like to point

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Speaker 3: out is that what you're seeing is every week we

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Speaker 3: see like Chinese companies big and small coming out with

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Speaker 3: the new AI models, large language and applications. And also

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Speaker 3: there are like you know, hardware companies like BYD and

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Speaker 3: they Shellby. They're also coming out with like new car

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Speaker 3: models and technologies that while the investors. So I think

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Speaker 3: as long as there is a continuous pace of a

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Speaker 3: product innovation, people will still be interested.

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Speaker 2: Jotsai, the chairman of Ali Baba, was saying yesterday, I

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Speaker 2: believe that he's starting to see the beginning of a

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Speaker 2: bubble in the buildout of AI data centers in China.

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Speaker 2: That's got to be a concern, I would imagine, and

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Speaker 2: maybe that contributed to some of the weakness that we

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Speaker 2: had in the equity market yesterday.

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Speaker 3: Yes, it's possible, but I will argue that I mean

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Speaker 3: the US there could be some the start of a

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Speaker 3: bubble in data centers as well, right Like I mean,

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Speaker 3: at this point globally, we know AI is a technological

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Speaker 3: leap and it's quite amazing, but how to make money

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Speaker 3: off of and how to really mass market to consumers

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Speaker 3: and get them to spend on AI products, it's still

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Speaker 3: a question globally.

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Speaker 2: So if we can use AI as a metaphor for

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Speaker 2: some of the gains that we have seen in automation,

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Speaker 2: in mechanized handling of certain processes, and in robotics as well.

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Speaker 2: Is there a risk for the overall economy in China,

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Speaker 2: particularly if you start to consider Chinese workers, Yes.

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Speaker 3: There is. There's no question that the AI and the

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Speaker 3: robotics they're talking about human like robots right will be

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Speaker 3: taking away a lot of jobs, especially in the manufacturing sector.

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Speaker 3: We have already seen that, like China is no doubt

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Speaker 3: the world's biggest factory, but even the manufacturing sector, the

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Speaker 3: number of employees has been shrinking because automation is already happening.

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Speaker 3: So there is this concern. But what the government is

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Speaker 3: trying to do is to say, Okay, China's services sector

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Speaker 3: is still underdeveloped. What China is doing is that it's

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Speaker 3: producing too many goods but not enough services, and it's

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Speaker 3: trying to push people to become small business owners. For instance,

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Speaker 3: they can open little restaurants, little like I don't know,

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Speaker 3: pat shops and then perhaps become like uber drivers, you know,

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Speaker 3: or like they can take franchises and the open little

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Speaker 3: milk shops, et cetera. Like they're trying to push these

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Speaker 3: people into the services sector.

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Speaker 2: Does the government need to reconsider how it's educating the

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Speaker 2: younger generations?

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Speaker 3: I think so, because what we are seeing the last

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Speaker 3: few years, and I think it's a glob trend, is

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Speaker 3: that the young people going into universities and they're taking

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Speaker 3: out certain majors. By the time they graduate, their majors

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Speaker 3: are no longer hot. Like in twenty twenty, like a

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Speaker 3: lot of people did the management and the finance, and

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Speaker 3: then when they graduated they realized, oh, you know, it's

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Speaker 3: actually engineering these days that are hot. So the government

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Speaker 3: does need to, you know, give people a sense of

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Speaker 3: the long term plan of the economy rather than you know,

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Speaker 3: abruptly changing policies.

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Speaker 2: I'm curious to get your take because we've been talking

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Speaker 2: so much about tariffs here in the States and the

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Speaker 2: trade tension between Washington and Beijing. What is your sense

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Speaker 2: of where we are going and how this is going

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Speaker 2: to impact the economy in China.

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Speaker 3: I think the sentiment is not good, but the Chinese like.

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Speaker 3: The sense that I got is that the Chinese have

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Speaker 3: pretty much given up and they have decided that the

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Speaker 3: tariffs are coming and it is what it is. And

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Speaker 3: of course it affects certain sectors of the economy. For instance,

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Speaker 3: like the biggest Chinese exports into US smartphones, Apple, etcetera. Right,

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Speaker 3: but the second biggest would be apparels and houseware, and

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Speaker 3: that does affect the very small businesses in the East

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Speaker 3: and the south coast of China, and there's just nothing

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Speaker 3: the government can do about this.

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Speaker 2: Surely, you and I have talked in the past about

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Speaker 2: the impact of the export controls that were put in

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Speaker 2: place under the Biden administration, particularly as semiconductors were concerned.

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Speaker 2: You could make the argument that the deep Seek moment

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Speaker 2: was tied to the controls on semiconductor technology insofar as

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Speaker 2: China being forced to innovate its way around them. And

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Speaker 2: I'm wondering what your senses on that trajectory. Are we

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Speaker 2: going to see continued advancement and innovation in China.

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Speaker 3: I think what China is doing is it's looking inward.

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Speaker 3: Like we have seen news reports that China is considering

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Speaker 3: even like installing its own export controls so that Chinese

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Speaker 3: companies are not flooding cheap goods into the rest of

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Speaker 3: the world, because the government does recognize that it's a

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Speaker 3: bit of a shock to the rest of the globe. Right, So,

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Speaker 3: like what we are hearing recently is that the goods

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Speaker 3: that are meant to be exported, they're trying to get

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Speaker 3: them consumed at home, and that's why we see a

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Speaker 3: lot of that. That's in part why we see a

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Speaker 3: lot of the so called training programs. If you have

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Speaker 3: a car that's like three year old, you can trade

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Speaker 3: in and then get some subsidy and get a brand

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Speaker 3: new car. They're trying to basically consume the access capacity

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Speaker 3: and the goods at home.

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Speaker 2: Are you seeing signs that domestic demand is improving?

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Speaker 3: I think so, like the last couple of months, especially

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Speaker 3: since the beginning of Deep. I mean when we entered

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Speaker 3: twenty twenty five, everybody was pretty pessimistic, right, and suddenly

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Speaker 3: Deep seek about and that the government is now talking

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Speaker 3: the right things. They're not necessarily doing that much like

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Speaker 3: if you look at the fiscal stimulus, it's bigger, but

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Speaker 3: it's not that big, right, But they are saying the

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Speaker 3: right things and people feel a little bit well, a

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Speaker 3: lot of it is just sentiment. People feel a little

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Speaker 3: bitter safer in this economic environment, and that you do

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Speaker 3: see the sentiment improving.

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Speaker 2: We'll leave it there. Surely it's always a pleasure. Thank

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Speaker 2: you so much. Bloomberg Opinion columnist Shuly Wren joining from

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Speaker 2: Hong Kong here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm dek Krisner. So we

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Speaker 2: had a bit of churn in the US equity market

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Speaker 2: through most of the session on Tuesday, a little bit

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Speaker 2: of assessment of risk associated with the trade war. I

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Speaker 2: think that's a fair way of describing it. Chief among

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Speaker 2: those risk stagflation and with it the rising odds of recession.

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Speaker 2: Now for a look at the price action as Bill Campbell,

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Speaker 2: he is Global bond portfolio manager at Double Line. Bill

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Speaker 2: joining from Los Angeles. Thanks for making time to chat

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Speaker 2: with us. How do you evaluate the economy right now?

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Speaker 2: Bill vis a vi the threat of a lot more

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Speaker 2: tariffs on the way.

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Speaker 1: Well, thanks for having me, Doug. The way we're looking

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Speaker 1: at things in the near term is until we remove

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Speaker 1: this cloud of uncertainty, markets and the economic outlook is

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Speaker 1: it's going to be challenged at best. I think the

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Speaker 1: place where we invest in our most active across the

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Speaker 1: bond markets. They're telling you that there is a lot

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Speaker 1: of concern not only with the upcoming April second date,

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Speaker 1: but what we haven't had clarity on and what there

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Speaker 1: still is a lot of confusion about, is April second

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Speaker 1: going to be the final date where we get a

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Speaker 1: framework for what the tariffs in the tariff package and

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Speaker 1: the goals will look like, or do we have this

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Speaker 1: risk of continued layering that potentially sectoral tariffs targeting the

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Speaker 1: auto sector, pharmaceuticals and other industries may then follow a

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Speaker 1: reciprocal tariff package. And until we get those answers, the

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Speaker 1: uncertainty is likely to keep risk assets at least it's

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Speaker 1: going to be a headwind to risk assets moving higher.

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Speaker 1: And you know, from our outlook, what we're trying to

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Speaker 1: do is get a little bit more defensive. But we're

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Speaker 1: finding some more interesting plays in the bond market and

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Speaker 1: also in markets in the US treasury market, specifically the

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Speaker 1: frunt end of the US Treasury curve, and interestingly enough,

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Speaker 1: a couple of international plays, with some focus on Europe.

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Speaker 2: Do you see the risk of stagflation as being significant

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Speaker 2: right now.

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Speaker 1: Well, that depends on what you mean by stagflation if

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Speaker 1: you are talking, you know, about a recession. I think

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Speaker 1: we're still uh, you know, looking at the odds of recession,

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Speaker 1: still about a third, but those probabilities have come up

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Speaker 1: over the past month, you know, maybe almost doubled from

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Speaker 1: where you know, our initial expectations were when the Trump

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Speaker 1: administration initially came into office. So I think that the

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Speaker 1: the questions that we need to answer to, you know,

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Speaker 1: get you know, the question that we need to answer

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Speaker 1: about stagflation really are how long are tariff's going to

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Speaker 1: be in place, how high are the tariff rates going

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Speaker 1: to be? And is there a risk that as I

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Speaker 1: mentioned before, there's going to be layering now that if

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Speaker 1: we don't have layering and we turn out to have

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Speaker 1: a one and done type tariff package on April seconds.

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Speaker 1: I think the scenario that Jay Powell articulated in the

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Speaker 1: you know, in its press conference, you know, at the

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Speaker 1: last fo MC meeting, you know, that that is plausible.

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Speaker 1: They you know, the Fed seas inflation on a core

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Speaker 1: on for the PCE core to you know, remain pretty sticky,

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Speaker 1: tick up to two point eight percent before ticking down

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Speaker 1: to two percent, So inflation would be a one year

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Speaker 1: issue before prices start to normalize. But the risk to

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Speaker 1: that outlook is the layering risk and the more that

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Speaker 1: we have additional tariffs placed on for any reason, whether

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Speaker 1: it's trying to bring manufacturing back to the US or

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Speaker 1: like we saw today with the Venezuela tariffs, trying to

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Speaker 1: achieve geopolitical outcomes using tariffs. All of that weighs on

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Speaker 1: the economic outlook, both for persistently higher inflation and you know,

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Speaker 1: downside risks to growth. And we again with that outlook,

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Speaker 1: I think right now our positioning, one of the things

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Speaker 1: we're trying to do is, you know, take more of

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Speaker 1: a barbelled position, where we're layering a little bit more

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Speaker 1: into the front end of the treasury curve, where we

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Speaker 1: think that you know, with j. Powell's current rhetoric, he's

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Speaker 1: kind of capped how much yields on the front end

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Speaker 1: of the treasury curve could back up, given the fact

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Speaker 1: that he's willing to look through the potential for higher

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Speaker 1: inflation rates in the near term. But if there is

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Speaker 1: a growth accident, if too many tariffs do cause a

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Speaker 1: growth accident, we think that then there's plenty of room

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Speaker 1: for those treasury bonds to rally, creating a decent convexity profile.

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Speaker 2: So I'm curious as to how you wait consumer confidence

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Speaker 2: in everything that we're describing right now or everything that

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Speaker 2: you've kind of laid out. Today the Conference Board published

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Speaker 2: its index. We saw a fourth straight monthly decline. It

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Speaker 2: kind of mirrors echoes perhaps what we had recently from

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Speaker 2: the University of Michigan, those data indicating that consumer sentiment

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Speaker 2: fell to something that was greater than a two year low.

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Speaker 2: I believe is there in your work a strong correlation

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Speaker 2: between how consumers are feeling that sentiment reading and how

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Speaker 2: they go about their spending.

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Speaker 1: Well, yes, when we're looking at the you know, the

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Speaker 1: the confidence numbers, both from the University of Michigan and

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Speaker 1: also the Conference Board today, they're showing clearly that you know,

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Speaker 1: the consumer in the US, uh, you know, is becoming

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Speaker 1: more cautious at the margin.

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Speaker 4: Uh.

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Speaker 1: You know, we also are watching credit card delinquencies and

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Speaker 1: you know, at the lower end of the income bracket,

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Speaker 1: we're starting to see some you know, there have been

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Speaker 1: stresses you know on the consumer there as well. Not

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Speaker 1: only is it you know, concerns that inflation will remain

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Speaker 1: higher and higher prices you know, are denting consumer confidence.

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Speaker 1: But you know, with the with the tariff risk, what

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Speaker 1: we're seeing is the potential for more margin squeeze across

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Speaker 1: many sectors. And when margins get squeezed and companies need

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Speaker 1: to start managing the bottom line, that puts jobs at risk,

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Speaker 1: and that further can crimp both consumer spending and consumer confidence.

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Speaker 1: I think the Trump administration is clearly making the bet

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Speaker 1: that with all of the upcoming government layoffs, they're anticipating

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Speaker 1: that there's going to be a handoff of those jobs

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Speaker 1: from the government sector to the private sector. And this

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Speaker 1: is where one of the risks that we've been highlighting

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Speaker 1: about the Trump administration and all of the changes that

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Speaker 1: they're putting in place so quickly is there's a high

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Speaker 1: level of execution risk, and this is an example of

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Speaker 1: that that they're hoping that the private sector is going

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Speaker 1: to be able to take a lot of the government

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Speaker 1: jobs that are going to be shed over the coming quarters.

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Speaker 1: But with increased prices, potentially tighter margins, and the subdued

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Speaker 1: outlook for near term growth, as was highlighted, you know,

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Speaker 1: most notably by the Fed marking down twenty five growth expectations,

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Speaker 1: there's an execution risk that the private sector may not

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Speaker 1: be able to handle that.

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Speaker 2: So tonight in the States, we are learning that GOP

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Speaker 2: congressional leaders are close to agreeing on a plan to

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Speaker 2: pass an extension of those twenty seventeen tax cuts, and

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Speaker 2: this plan we were told would also increase the debt ceiling.

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Speaker 2: What are the fiscal ramifications of this and how do

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Speaker 2: you think the market will treat it well?

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Speaker 1: So there's fiscal ramifications and there's also a liquidity ramification

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Speaker 1: that you know, I'd like to highlight.

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Speaker 4: At the end of this.

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Speaker 1: First of all, I think the extension of the tax

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Speaker 1: cuts is needed for you know, the current economic environment

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Speaker 1: of a cooling consumer or a more consumer that's growing

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Speaker 1: ever more stretched. Our concern and double line has been that,

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Speaker 1: you know, the outlook or our fiscal deficit currently standing

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Speaker 1: you know around seven percent deficit to GDP is really

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Speaker 1: on an unsustainable path. The more that we're unable to

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Speaker 1: correct the deficit in the near term, if we do

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Speaker 1: have a growth slowdown, all the automatic stabilizers such as

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Speaker 1: unemployment insurance are just going to automatically, uh, you know,

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Speaker 1: increase the demands on the government to basically print money

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Speaker 1: or sell treasury more treasury bonds into the market. Uh

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Speaker 1: need to pay for those expenditures. And what that's going

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Speaker 1: to do is put upward pressure on back end yields.

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Speaker 1: So what I had highlighted earlier that we like to

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Speaker 1: you know, right now we're uh, we're waiting more heavily

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Speaker 1: in our portfolios the front end of the treasury curve.

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Speaker 1: What we're doing that at the expense of is we're

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Speaker 1: underweighting the back end of the treasury curve, you know,

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Speaker 1: due to these increased fiscal risks. Now on the liquidity side,

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Speaker 1: when the debt ceiling gets extended, perversely, there is a

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Speaker 1: tightening of market liquidity in the background. So when we

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Speaker 1: started into the excessive deficit procedures, the Treasury started drawing

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Speaker 1: down their cash account that they keep at the FED

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Speaker 1: called the Treasury General Account, in order to pay for

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Speaker 1: all of their bills instead of issuing new debt. But

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Speaker 1: what that does is it puts money into the banking system.

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Speaker 4: When the debt.

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Speaker 1: Ceiling is passed, then the Treasury can issue new Treasury

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Speaker 1: bonds and they refill that bank account sitting at the FED,

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Speaker 1: the Treasury General Account. But what that does is it

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Speaker 1: pulls money out of the banking system, or liquidity out

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Speaker 1: of the banking system. So if this bill does pass,

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Speaker 1: what initially may look like a good headline, you could

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Speaker 1: have some tightening effects in the market and be another

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Speaker 1: headwind for overall all risk assets and it's something that

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Speaker 1: we should keep it close eye on in the coming months.

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Speaker 2: Bill. Before I let you go, you were talking there

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Speaker 2: about the FED today. Governor Adriana Kougeler was offering some

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Speaker 2: support for this idea that the FED would keep rate

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Speaker 2: steady for some time given rising inflation expectations and this

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Speaker 2: uptick that we have seen in goods inflation. Very quickly,

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Speaker 2: give me your outlook for FED rate cuts this year.

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Speaker 2: How many are you forecasting?

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Speaker 4: Well, that's a great question. I think for now.

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Speaker 1: One to two potentially this year, because we think that

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Speaker 1: there is the potential that growth could slow a little

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Speaker 1: bit more than maybe other.

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Speaker 4: Market participants are expecting, but that.

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Speaker 1: Would come at the end of the year, because we

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Speaker 1: do think that near term April second will cause a

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Speaker 1: temporary spike in inflation.

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Speaker 4: But we have to see, as you pointed.

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Speaker 1: Out, what is that growth and inflation profile after we

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Speaker 1: get through whatever these Trump tariff policies will be both

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Speaker 1: the April twid and the potential for sectoral tariffs and

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Speaker 1: additional tariffs afterwards.

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Speaker 2: Bill will leave it there, Thank you so much. A

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Speaker 2: great conversation with Bill Campbell. He is Global bond portfolio

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Speaker 2: manager at Double Line joining us from Los Angeles here

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Speaker 2: on the Daybreak Asia Podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg