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

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Speaker 2: Welcome to the Bloomberg day Break Asia podcast. I'm deg Krisner.

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Speaker 2: In the US. On Tuesday, shares in software firms tumbled

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Speaker 2: on fears over how AI will impact their core businesses,

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Speaker 2: and the catalyst was the release of a new AI

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Speaker 2: tool from Anthropic. The company says it can automate worklike

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Speaker 2: contract reviewing and legal briefings. So, not surprisingly, the first

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Speaker 2: wave of selling was in stocks associated with legal and

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Speaker 2: data services technology. Then most of the software sector and

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Speaker 2: much of the fintech sector were hit as well. All told,

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Speaker 2: roughly two hundred and eighty five billion dollars in market

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Speaker 2: value was erased from stocks in those industries. Here is

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Speaker 2: Bloomberg analyst Mandeep Singh.

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Speaker 3: It is a valuation story. These companies were rich when

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Speaker 3: it comes to their multiples and so as a sector,

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Speaker 3: and right now investors are selling everything in software. They're

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Speaker 3: not looking for, Oh, is this a critical system or

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Speaker 3: a system of record that you can't really replace with

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Speaker 3: any I system. They're just selling everything in software and

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Speaker 3: so to me, this is a sign of you know,

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Speaker 3: just indiscriminate selling and at some point will have a bottom.

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Speaker 2: That's Bloomberg analyst Mandeep Singh. Let's turn to the FED

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Speaker 2: next and the nomination of Kevin Walsh as chair. Now

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Speaker 2: markets are already betting on a more Dubvish tilt. If confirmed,

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Speaker 2: Worsh would take his post just in time for the

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Speaker 2: fed's June meeting. For a closer look, now, I'm joined

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Speaker 2: by Bill Lee, he as chief economist at Global Economic Advisors. Bill,

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Speaker 2: thank you so much for being here in the past.

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Speaker 2: You know well that Walsh has been considered to be

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Speaker 2: a hawk. So let's assume for a moment that he

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Speaker 2: has confirmed as FED share how would you characterize what

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Speaker 2: we're likely to see from the FED under his leadership.

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Speaker 4: Well, you know, wash has been really mischaracterized in the

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Speaker 4: sense that he cares particularly about inflation, but that doesn't

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Speaker 4: mean that he can't let interest rates go down. He

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Speaker 4: has been really propagating something that I've been calling the

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Speaker 4: wash maneuver. You can lawer rates if so long as

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Speaker 4: you remove the inflationary pressure by changing the balance sheet.

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Speaker 4: And he's also said the FED balance sheet has way overbloated.

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Speaker 4: So what Kevin Walsh is proposing to do is the

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Speaker 4: law rates. But at the same time offset the inflationary

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Speaker 4: pressure from the law rates from by contracting the balance sheet.

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Speaker 4: And for him, the balance sheet bloat that we've seen

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Speaker 4: since essentially since two thousand and eight, since Killy two,

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Speaker 4: is something that really has to be addressed, because in

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Speaker 4: his opinion, the FED shouldn't be so prominent in the

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Speaker 4: marketplace and in emergencies like two thousand and eight. Of

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Speaker 4: course that was the right thing to do and expand

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Speaker 4: the balance sheet. But when Bernaki proposed, look, I'm going

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Speaker 4: to go into QILI two to keep providing the economy

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Speaker 4: of support, Warsh said to him, I wouldn't do that

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Speaker 4: if I were in your seat, but not dissenting publicly

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Speaker 4: on the on the committee. But what I am doing

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Speaker 4: if you, if you're going to continue to do QI two,

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Speaker 4: I quit because I don't believe in what you're doing.

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Speaker 4: So so that gives you a sense that he is.

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Speaker 4: He is very concerned about inflation, he's very concerned about

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Speaker 4: the proper role the theed financial markets, and he's a

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Speaker 4: man of principle.

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Speaker 2: So if the aim of reducing the balance sheet is

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Speaker 2: to essentially remove liquidity from the system, doesn't lowering rates

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Speaker 2: just do the opposite help me understand that tension.

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Speaker 4: I think that what what what you have to keep

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Speaker 4: in mind is lower rates will enable consumers and small

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Speaker 4: businesses to get loans at a lower rate, But whether

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Speaker 4: the banks can give the loans or not will depend

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Speaker 4: upon how much liquidity they have right now. Where consumers

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Speaker 4: are most concerned would be at the long end of

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Speaker 4: the market, and that's really controlled more by the ten

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Speaker 4: year rate and fiscal policy. But but in terms of

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Speaker 4: the shorter term inventory lending that that businesses do, the

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Speaker 4: liquidity is a big factor along with the rate itself.

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Speaker 4: So for the businesses that are able to get loans

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Speaker 4: at the law rates, uh, they're they're they're very happy.

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Speaker 4: But but the FED can still contain the amount of

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Speaker 4: loans that are given by banks by limiting their ability

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Speaker 4: to lend, and and that that is partly by bye

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Speaker 4: by draining the reserves and liquidity in that short term market.

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Speaker 4: So so the rates have a role, but also the

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Speaker 4: amount of liquidity has a role.

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Speaker 2: During the period of time that we were waiting for

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Speaker 2: the nominee for FED share, there was a lot of

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Speaker 2: discussion around the notion of FED independence. Is that something

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Speaker 2: that you're concerned by?

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Speaker 4: FED independence is probably the single most important thing for

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Speaker 4: any central bank, because a central bank won't be credible

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Speaker 4: unless it has that independence. But but I think what

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Speaker 4: what we've misunderstood, or the press has misunderstood about the

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Speaker 4: charges against Powell is not so much an issue of independence,

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Speaker 4: although it's related, because let's face it, Trump doesn't like

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Speaker 4: power because he has lord rates. But that's true. I mean, Doug,

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Speaker 4: we know that's true of every American president. Going back

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Speaker 4: to Linda Johnson and I don't know, I don't think

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Speaker 4: you're as old as I am. But but Linda Johnson,

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Speaker 4: back in nineteen sixty five, when Vietnam was was was

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Speaker 4: starting to grow, William mc chesney Martin had just raised

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Speaker 4: interest rates. And what what did Linda Johnson do? He

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Speaker 4: brought Chesney Martin to ranch in Texas and said, I

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Speaker 4: shoved them against the wall and said, my boys are

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Speaker 4: dying in Vietnam and you won't give me any money.

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Speaker 4: What's wrong with you? Right right now? Now? That that

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Speaker 4: kind of you know, physical bullying right makes what the

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Speaker 4: name calling of Donald Trump looked like he's a pussycat?

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Speaker 4: So and and and rumor had it, by the way,

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Speaker 4: that since that incident with Mt. Chesney Martin Race stayed

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Speaker 4: unchanged until Johnson announced his retirement, So so so in

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Speaker 4: that sense, I mean, I think FED independence is one thing,

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Speaker 4: but I think get back to the issue of why

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Speaker 4: was was Why is the FED being put in the

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Speaker 4: on on the on the you know, in the sights

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Speaker 4: of the retirement justice over the else is because the

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Speaker 4: FED has really grown beyond its main mandate of Montreal

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Speaker 4: policy and Banks of revision. What the FED has done

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Speaker 4: over the last twenty years is that it's increases budget

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Speaker 4: by four times, which is bigger than the growth of

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Speaker 4: federal spending, bigger than larger than inflation. And the FED

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Speaker 4: has gone the mission creep has really set in, allowing

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Speaker 4: the FED to go into climate policy, diversity, equity and

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Speaker 4: inclusion policies and essentially increased staff and going into areas

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Speaker 4: that it really has no business doing. And Kevin Walsh

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Speaker 4: has been very serious about limiting the role of the

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Speaker 4: FED in the marketplace. For him, the ideal central bank

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Speaker 4: would be one where no one really cares about what

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Speaker 4: it's doing. It's going to be in the background. And

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Speaker 4: I think that's where he's trying to bring back the

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Speaker 4: FED bill.

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Speaker 2: Let's pivot and look at the impact of tariffs on

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Speaker 2: the economy today.

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Speaker 1: There was a.

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Speaker 2: Coalition of former Farm Group leaders and former US government

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Speaker 2: officials said tariff policies from the Trump administration are causing

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Speaker 2: damage to American farmers, and the group went on to

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Speaker 2: say that substantial action is needed. This group also said

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Speaker 2: the indiscriminate and haphazard nature of current tariff policy has

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Speaker 2: not revitalized American manufacturing and it significantly damaged the American

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Speaker 2: farm economy. So how do you understand the impact of

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Speaker 2: tariffs on the economy.

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Speaker 4: Well, broadly speaking, I think the program that Donald Trump's

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Speaker 4: from in place is less a direct tariff policy but

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Speaker 4: rather an investment incentive policy. What he's done when he

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Speaker 4: got elected was he made some promises of lowering taxes,

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Speaker 4: shrinking the size of government, and removing regulation. And he

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Speaker 4: said to the world in the first Doval speech he

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Speaker 4: made last year, was to say, the US is open

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Speaker 4: for business. If you come, do business and build factories

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Speaker 4: and create jobs in United States, we will put a

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Speaker 4: terifire around you to prevent you from suffering from unfair competition.

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Speaker 4: So so the tariffs were hand in hand with investment

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Speaker 4: policies Now, you're right to say that some of the

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Speaker 4: tariffs have really hurt specific sectors and farmers in particular,

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Speaker 4: because the trade deals were made with a lot of

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Speaker 4: agricultural promises. Remember phase one of the Donald Trump's first administration, right,

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Speaker 4: the Chinese promised to buy a lot of soybeans. Uh, Well,

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Speaker 4: there was a lot of heavy and haying, and eventually

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Speaker 4: the purchases of soybeans, instead of going to American farmers,

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Speaker 4: went to Brazil. So we've had deals where the our

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Speaker 4: Karna parties didn't fulfill their obligation as part of the deal. Currently,

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Speaker 4: I think what the administration has tried to do, and

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Speaker 4: even in the first administration, has been to repay the farmers, right,

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Speaker 4: giving them some help and some some some relief through

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Speaker 4: the use of the tariff refn News. So secretor and

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Speaker 4: certain sectors have been hurt, there's no question about it.

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Speaker 4: But the overall impact on the economy has been a

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Speaker 4: massive infusion of capital into the economy, and a lot

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Speaker 4: of it is toward manufacturing, but I think the a

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Speaker 4: lot of it is toward investment, Like you know the

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Speaker 4: kind of deals that we see with Nippon Steel trying

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Speaker 4: to revive US steal right, the the the TSMC coming

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Speaker 4: into Arizona and trying to revive the chip industry. That

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Speaker 4: that those are the kind of I think the investment

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Speaker 4: policies that Donald Trump has tried to put in place

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Speaker 4: to using tariffs as an incentive.

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Speaker 2: So what is your assessment on how well the American

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Speaker 2: economy is performing these days?

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Speaker 4: Oh, it is doing spectacularly. I mean in growth right

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Speaker 4: now is estimated to be well above five percent, five

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Speaker 4: and a half almost six percent. And if you sort

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Speaker 4: of take into account that in the in the in

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Speaker 4: the last quarter, the shutdown of government took away about

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Speaker 4: a percentage point from growth, and Atlanta FED is estimating

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Speaker 4: that the quarter growth to be about five point six

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Speaker 4: point five point seven. We're above six which is phenomenal. Now,

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Speaker 4: is that inflation or non inflationtionary? Well, from the labor market,

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Speaker 4: you can see that very few jobs are being created,

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Speaker 4: So all of this growth is coming from productivity. Companies

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Speaker 4: are just not willing or less incentivized to hire people

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Speaker 4: because the proctivity is making work so productive. Now, this

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Speaker 4: productivity is not ai yet anyway, because it really has

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Speaker 4: come from the investments that were made in the post

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Speaker 4: covid era over the last three years, and that's when

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Speaker 4: proctivity has really surged. Just the magic will happen when

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Speaker 4: AI starts to kick in. So the real issue I

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Speaker 4: think faced the American economy is we're going into a slow,

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Speaker 4: higher economy. New people coming into the labor force are

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Speaker 4: having our tough time finding jobs, and that's something that

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Speaker 4: has to be addressed, which is why Trump and Wash

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Speaker 4: themself says we need to lower rates to encourage the

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Speaker 4: employment and at least the intersensitive sectors like housing and construction.

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Speaker 4: And meanwhile, you know, the growth itself and then profits.

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Speaker 4: Wall Street is happy that you know, margins are growing

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Speaker 4: because we were able to produce the same stuff but

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Speaker 4: as we before, at lower costs or given the same costs,

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Speaker 4: we could produce a hell a lot more stuff without

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Speaker 4: having to raise prices. And so I think we're in

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Speaker 4: the best of all worlds.

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Speaker 2: So what's your expectation then, in terms of rate cuts

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Speaker 2: this year?

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Speaker 4: Well, as I said, I think the opinion of the

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Speaker 4: Governor Warsh is that we still need to help the

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Speaker 4: job creation process. And the best way for the FED

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Speaker 4: to help job creation and keep to its mandate of

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Speaker 4: maximum employment is the lower interest rates to help the

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Speaker 4: interest sensitive sectors, specifically housing and construction. But I think

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Speaker 4: the mandate for meeting inflation is less a concern because

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Speaker 4: productivity it gives us a huge inflation hedge. And on

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Speaker 4: top of that, if Chairman Powell is right about the

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Speaker 4: tariffs bleeding off toward the middle of this year, well

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Speaker 4: then the inflation is less of a problem because, as

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Speaker 4: you said, if it warnt for inflation, we'd be closer

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Speaker 4: to two point two percent on the PC the flavor

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Speaker 4: which is their main engage inflation than we are than

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Speaker 4: the two point seven percent that we are at currently indicates.

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Speaker 4: So the gap between where we are and the target

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Speaker 4: is actually quite small. Once the towers roll off, and

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Speaker 4: even the Fed anticipates it'll roll off by the middle

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Speaker 4: of the year, Bill will.

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Speaker 2: Leave it there. It's always a pleasure. Thanks so much, Billy.

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Speaker 2: They're chief economist at Global Economic Advisors, joining us here

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Speaker 2: on the Daybreak Asian Podcast. Welcome back to the Daybreak

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Speaker 2: Asia Podcast. I'm deg Krisner, and as I mentioned earlier,

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Speaker 2: we had a sell off in software stocks in the

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Speaker 2: US session that in turn led the equity benchmarks lower,

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Speaker 2: and we're seeing similar weakness in several markets in the APEC,

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Speaker 2: especially Japan. That's where we begin our conversation with Christian Nolting.

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Speaker 2: He is the global CIO at Deutsche Bank Wealth Management.

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Speaker 2: Christian spoke with Bloomberg TV host Sherry on and.

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Speaker 5: April harm Perhaps investors looking for the next fresh macro

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Speaker 5: catalysts watching oil prices as well. With this on again

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Speaker 5: off again risk premium being revived between the US and

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Speaker 5: Iran tensions, there is a lot to unpack. Joining us

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Speaker 5: now is Kristin Nolte, global CIO at Deutsche Bang. So Kristin,

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Speaker 5: let's start off with tech if we can. What do

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Speaker 5: you make of this route on the way?

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Speaker 6: Yeah, I think look here today it is still okay.

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Speaker 6: But I think we need to watch the earning season

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Speaker 6: very closely, where I think on average, of course there's

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Speaker 6: some disappointments, some upsides. Companies do deliver results, but I

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Speaker 6: think from my point of view, the difference is the

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Speaker 6: upside surprise is a bit lower than in previous earning season,

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Speaker 6: so the market whisper was always a bit higher. And

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Speaker 6: then even if companies come with their results as expected,

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Speaker 6: then there's some downside because probably the market was expecting

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Speaker 6: or hoping even for a bit more and those companies

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Speaker 6: who don't deliver then of course much to the downside

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Speaker 6: that has been seen last time as well. But the

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Speaker 6: difference I think is the upset surprise, which is a

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Speaker 6: bit lower this time.

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Speaker 5: Okay, you've also been sort of looking for other opportunities

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Speaker 5: along the AI value chain. With that in mind, you

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Speaker 5: look at utilities as well. What are you seeing in

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Speaker 5: terms of the earnings performance in the trajectory there?

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Speaker 6: So I think that's very positive so far what we

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Speaker 6: have been seeing. So it's not only so first of all,

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Speaker 6: we think the AI trade is not over. We think

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Speaker 6: it's a structural change which will continue. But last October

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Speaker 6: we did start really to look into not only chips

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Speaker 6: but other parts of the business as well. So data

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Speaker 6: center needs electricity and that's why we came to utilities

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Speaker 6: as well. And the good thing about this is it

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Speaker 6: has balanced quite nicely the portfolio. Even in times where

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Speaker 6: markets came back a little bit like last October last November,

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Speaker 6: where we see a little bit of setback, it creates

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Speaker 6: quite a robust portfolio. Because sometimes people say utilities are

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Speaker 6: much more stable, yes, less volatile for sure, Normally pay

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Speaker 6: good dividend as well. So I think this is also

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Speaker 6: a topic for this year to balance out the portfolio.

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Speaker 6: Maybe some there are some let's say higher weights because

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Speaker 6: of positive price development, but let's revisit this and say

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Speaker 6: what creates a robust portfolio. I think very important for

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Speaker 6: twenty six.

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Speaker 1: And Christian is the revisiting that's very important, right because

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Speaker 1: I remember just a year ago or so that we

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Speaker 1: were very much watching the software makers because we thought

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Speaker 1: we're going to be looking on hardware stocks this year,

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Speaker 1: but then the next upside could be in software. And

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Speaker 1: then you have Anthropics new AI tool just sending all

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Speaker 1: of these stocks on a cell off. Given that we

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Speaker 1: really can't anticipate what sort of disruption artificial intelligence could bring,

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Speaker 1: are there any bulletproof calls in this sector that you

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Speaker 1: can make at this point that doesn't matter what sort

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Speaker 1: of innovation we could see next, Well.

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Speaker 6: I think bulletproof. I wish, to be very honest, we

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Speaker 6: need to see the development in the markets, and I

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Speaker 6: think around this time last year we had deep Sea

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Speaker 6: coming up, which also disrupted the market. Now you see

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Speaker 6: further developments in AI, especially when it comes like you

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Speaker 6: mentioned to agentic AI, which I think is the next step.

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Speaker 6: So I think this tool brings probably some cost reduction,

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Speaker 6: some discussion which companies could prove to be still on

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Speaker 6: the right space. Of course you need software, but I

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Speaker 6: think here also we go down the value chain. So

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Speaker 6: from my point of view, what helps most is to say, okay,

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Speaker 6: you have some in chips, you have some data centers,

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Speaker 6: you have some electricity. That's why we are saying, look

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Speaker 6: at all the value chain really to balance out, and

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Speaker 6: I think again this year shows that probably that's had

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Speaker 6: to create the right portfolio for this year.

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Speaker 1: And how do you factor the currency shocks, especially when

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Speaker 1: we're not quite sure what the Trump administration wants to

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Speaker 1: do on that end.

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Speaker 6: Yeah, of course there is a lot of discussion or

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Speaker 6: has been already this year of the weaker dollar. So

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Speaker 6: from my point of view, it's probably also not in

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Speaker 6: the interest of the years to get a very weak dollar,

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Speaker 6: because eventually that would create or add to inflation, and

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Speaker 6: inflation then would mean that at least the longer end

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Speaker 6: of the curve in the US would rise. We've been

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Speaker 6: seeing this. We've always factored that if tenure treasuries go

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Speaker 6: to four fifty. There's also a kind of a negative

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Speaker 6: market reaction on the equity side, So I think inflation

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Speaker 6: is something to be watched. I think the good news

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Speaker 6: for the S what we see is for the next

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Speaker 6: month is coming months, so not only one some more.

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Speaker 6: It's coming down a little bit. But after this I

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Speaker 6: could imagine that inflation comes up again. So our forecast

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Speaker 6: is for US inflation to stay far above two two

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Speaker 6: and a half to two point eight percent towards the

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Speaker 6: end of the year. And that's why you need to

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Speaker 6: watch this. That's why I think the US is not

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Speaker 6: interested to get extremely a week a dollar, So some

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Speaker 6: movement we can see, but I think over the last

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Speaker 6: days we have also seen some stabilization after some calls

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Speaker 6: from the US as well.

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Speaker 5: We are seeing though I guess your point about utility

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Speaker 5: is embroadening out of the AI tree. That value is

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Speaker 5: beating growth. Where do you see that playing out for

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Speaker 5: the rest of you.

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Speaker 6: Yeah, I think that could potentially continue. As I said, right,

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Speaker 6: you need to reshuffle a little bit on the portfolio

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Speaker 6: space because if you think last year, sorry to say,

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Speaker 6: you did not really need diversification because some stocks have

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Speaker 6: driven everything. So I think to broaden out makes a

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Speaker 6: lot of sense. We look especially into midkips, which oftentimes

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Speaker 6: is more value than the take large caps from our

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Speaker 6: point of view, and the performance starts to be better.

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Speaker 6: And here we also have a call more on Europe

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Speaker 6: because herem and small kIPS could be interesting from one

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Speaker 6: point of view, if you know, eventually see some growth

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Speaker 6: coming up in Europe as well. So at least there's

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Speaker 6: some demand I can see from clients here from Asia

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Speaker 6: but also from the US looking into Europe.

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Speaker 2: That was Christian Nolting, Global CIO at Deutsche Bank Wealth Management,

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Speaker 2: speaking to Bloomberg TV host Cherry Hann in April Hong

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Speaker 2: and we're bringing it to you here on the Daybreak

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

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

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

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

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Speaker 2: Tube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Prisoner and this is

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Speaker 2: Bloomberg