WEBVTT - Markets Slip as Tariff Sentiment Cools

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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<v Speaker 2>Trade negotiators from Washington and Beijing met for over seven

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<v Speaker 2>hours in Stockholm on Monday with a name of extending

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<v Speaker 2>a tear offf truce. More talks are set for Tuesday.

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<v Speaker 2>US Treasury Secretary Scott Besson said an extension to the

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<v Speaker 2>current pause is likely, but there are some key sticking

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<v Speaker 2>points that do remain, and they include fentanyl related levies

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<v Speaker 2>as well as export controls on semiconductors. We got reaction

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<v Speaker 2>from Andrew Bishop, Global head of Policy research at Signum

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<v Speaker 2>Global Advisors.

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<v Speaker 3>I think the saraf truth is absolutely going to be extended.

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<v Speaker 3>But the main reason for that is not so much

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<v Speaker 3>because I think there's great progress being made on the

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<v Speaker 3>substance of these talks. Rather, I think President Trump essentially

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<v Speaker 3>realized back in April May that high tariffs on China

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<v Speaker 3>just work because the impact on the US economy is

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<v Speaker 3>too great and China has too much leverage in the

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<v Speaker 3>form of its control over rare earths.

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<v Speaker 2>That's Andrew Bishop of Signum Global Advisors, speaking earlier to

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<v Speaker 2>Bloomberg meantime, the dollar jumped today by the most since

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<v Speaker 2>early May, putting the greenback on track for its first

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<v Speaker 2>monthly gain this year. Now, the trade agreement between the

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<v Speaker 2>US and the European Union is stoking concern over the

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<v Speaker 2>negative impact of tariffs on global growth. You know, the

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<v Speaker 2>next few days will be pivotal for markets. It's the

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<v Speaker 2>busiest week of the earning season and it features big

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<v Speaker 2>cap tech. We've got the FED meeting on Wednesday, and

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<v Speaker 2>on Friday the US jobs report. In a moment, we'll

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<v Speaker 2>get some perspective from the Asia Pacific side. We'll hear

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<v Speaker 2>from Mark Franklin at Menu Life Investment Management, but we

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<v Speaker 2>begin here in the States. Joining me now is Vance Howard.

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<v Speaker 2>He is the CEO also the portfolio manager at Howard

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<v Speaker 2>Capital Management. Vance, thank you so much for making time

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<v Speaker 2>to chat with me. So we've got the big earnings

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<v Speaker 2>this week, Microsoft, Amazon, Apple. How are you feeling about

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<v Speaker 2>big cap tech right now?

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<v Speaker 4>I'm feeling very very good about big cap tech, Doug.

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<v Speaker 4>I mean, you look at eighty three percent of reported

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<v Speaker 4>so far, and I know we haven't have that many

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<v Speaker 4>that have reported, but so far the beat has been

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<v Speaker 4>quite quite amazing. They're beaten by quite a bit. Earnings

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<v Speaker 4>are looking really really strong, and as you know, as

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<v Speaker 4>you well know, earnings are what fuels a bull market.

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<v Speaker 2>A lot of the centers on artificial intelligence, and a

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<v Speaker 2>lot of the analysts that I've been speaking with have

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<v Speaker 2>pointed to the issue of capex spending as being critical

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<v Speaker 2>to try to get a little bit more of a

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<v Speaker 2>sense of the confidence that these companies have in terms

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<v Speaker 2>of further spending in this AI revolution. Is that an

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<v Speaker 2>important metric for you, cap X.

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<v Speaker 4>I think it's great. I think cap Tex is looking

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<v Speaker 4>very very strong. It looks like they're going to make

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<v Speaker 4>a lot of investment in that area. And I know

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<v Speaker 4>and Trump was in DC either yesterday the day before

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<v Speaker 4>and he signed a number of executive orders pushing AI

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<v Speaker 4>and really get behind AAI over here. So you know,

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<v Speaker 4>there's a lot of thrust with they have moving forward.

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<v Speaker 4>So I mean, can't mean anything but bullish about it.

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<v Speaker 4>And you know, if you want to go deeper into AI. Unfortunately,

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<v Speaker 4>I think that we're going to see some jobs that

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<v Speaker 4>are going to go away, but I think you're going

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<v Speaker 4>to see corporate earnings go up because I think you're

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<v Speaker 4>going to see an additional efficiency that's created through AI.

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<v Speaker 2>There's been this cloud that's been hanging over markets for

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<v Speaker 2>some time related to the trade war and a lot

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<v Speaker 2>of these tariffs. Do you think we're a significant turning

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<v Speaker 2>point right now as we approach that deadline of August first?

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<v Speaker 4>You know, I think this thing with EU was critical.

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<v Speaker 4>You know, the fifteen percent tariff on the European Union,

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<v Speaker 4>I think was a good deal for us. Actually, I

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<v Speaker 4>think it's a pretty decent deal for them too. But

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<v Speaker 4>you know, let's talk about terraces for a minute, Doug.

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<v Speaker 4>Did you know that in June blast month that we

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<v Speaker 4>had a twenty seven billion dollar surplus mainly due to terrists.

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<v Speaker 4>That's the first surplus that we've had since twenty seventeen.

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<v Speaker 2>One of the things I want to talk about is

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<v Speaker 2>the energy space here there in Texas, and I know

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<v Speaker 2>that oil and gas typically is close to the heart

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<v Speaker 2>of investors in Texas. And I'm getting indications now that

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<v Speaker 2>the oil and gas equipment a supplier, Baker Hughes, is

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<v Speaker 2>reportedly nearing a deal to buy Chart Industries. That's according

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<v Speaker 2>to the ft and they cite a source saying that

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<v Speaker 2>this would be a cash transaction worth something around thirteen

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<v Speaker 2>point six billion. How are you feeling these days about

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<v Speaker 2>the energy complex?

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<v Speaker 4>I think the energy complex is very, very stable. I

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<v Speaker 4>know in Euston, Texas, We've got an office down there,

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<v Speaker 4>and I know that the friends of mine that are

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<v Speaker 4>in the energy industry are pretty happy with the way

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<v Speaker 4>things are going. I think been more stable than it

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<v Speaker 4>has bollatile, which I think is actually creates a more

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<v Speaker 4>secure environment for the energy dependent industry. And when you

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<v Speaker 4>talk about thirteen billion dollars for a check from a

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<v Speaker 4>Baker US, that's a pretty good sized check.

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<v Speaker 2>How are you feeling about this week's FED meeting? There

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<v Speaker 2>has been some speculation that maybe a Powell and Company

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<v Speaker 2>would feel the pressure to cut interest rates, but the

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<v Speaker 2>market doesn't seem to be convinced to that fact. How

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<v Speaker 2>are you understanding what the Fed may do this week?

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<v Speaker 4>This has been the most hated the recovery I think

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<v Speaker 4>I've ever seen. I mean, it's just nobody's really buying

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<v Speaker 4>into it, even though it keeps just slowly melting up.

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<v Speaker 4>And I think it's going to continue to melt up.

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<v Speaker 4>But when you look at the Fed and you look

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<v Speaker 4>at what's going on, did you know that they had

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<v Speaker 4>three of the governors that descended last time. So that's

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<v Speaker 4>one of the few times ever that we've had that

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<v Speaker 4>many governors on the FED board that had descended. So

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<v Speaker 4>I think he's going to be under a lot of

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<v Speaker 4>pressure to start to drop rates. To be quite candid, Doug,

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<v Speaker 4>I think he needs to start dropping rates. If he's

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<v Speaker 4>truly data dependent, then he should start dropping rates here

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<v Speaker 4>here in the near term.

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<v Speaker 2>Okay, So if we can accept maybe the notion that

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<v Speaker 2>we'll get two rate cuts before the end of the year,

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<v Speaker 2>don't you believe that's been fully discounted right now by

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<v Speaker 2>markets at this point.

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<v Speaker 4>I don't, and I don't because I think that there's

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<v Speaker 4>still a lot of speculation. Know, the FED keeps saying

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<v Speaker 4>this word which really bothers me a lot, which is

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<v Speaker 4>that there's no security, there's no surety out there. Well,

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<v Speaker 4>there's never any surity out We don't even know if

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<v Speaker 4>we're going to get up and live tomorrow. So to

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<v Speaker 4>sit there and bank upon the insecurity of what's going

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<v Speaker 4>to happen next week or next year. The FED keeps

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<v Speaker 4>saying that their data dependent, well, their data dependent, they

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<v Speaker 4>should start to drop rates because things are pointing in

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<v Speaker 4>that direction. I mean, we have a good economy, we

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<v Speaker 4>have low ue employment. Things are working very well, corporate

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<v Speaker 4>earnings are going up, but you know rates need to

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<v Speaker 4>start to come down.

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<v Speaker 2>Okay, So does that mean that there are opportunities in

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<v Speaker 2>the bond market right now?

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<v Speaker 4>I think there's a lot of opportunities, Especially if you

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<v Speaker 4>look at the ten, twenty, and thirty year treasuries. I

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<v Speaker 4>think there's opportunities there. I would be very cautious in

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<v Speaker 4>trading them because they are incredibly volatile. You look at

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<v Speaker 4>the ten year, the thirty year treasury dug and there's

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<v Speaker 4>volatile as s and p if not more so so

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<v Speaker 4>trading you know, the treasuries can be a little bit tricky.

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<v Speaker 4>But you know what a lot of people overlook and

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<v Speaker 4>we don't. We've invested in quite a bit is convertible bonds.

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<v Speaker 4>I think convertible bonds are really a nice investment alternative

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<v Speaker 4>to some of the other bond areas that you can

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<v Speaker 4>invest in, and we've done really well with the convertibles.

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<v Speaker 2>Help me understand the labor market right now, just anecdotally

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<v Speaker 2>from where you sit in in Texas. I know we

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<v Speaker 2>get the jobs numbers on Friday, Well, you know from Texas.

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<v Speaker 4>The economy here's doing very very well. I mean, we've

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<v Speaker 4>set ourselves up for growth. We've deregulated quite a bit.

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<v Speaker 5>You know.

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<v Speaker 4>Governor Rabbit, I think's done a pretty darn good job

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<v Speaker 4>with managing our state and managing our money. And you know,

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<v Speaker 4>we just got out of session with the our state

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<v Speaker 4>senators and reps, and I think that they come up

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<v Speaker 4>with a pretty good budget that's going to do very

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<v Speaker 4>very well for Texans. So I'd be very optimistic if

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<v Speaker 4>I was an employee in this great state of Texas.

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<v Speaker 2>Okay, we'll leave it there. Vance, it's always a pleasure.

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<v Speaker 2>Thank you so much for joining us. He is Vance Howard,

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<v Speaker 2>the CEO also portfolio manager at Howard Capital Management. Joining

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<v Speaker 2>us here on the Daybreak Asia podcast. Welcome back to

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<v Speaker 2>the Daybreak Asia Podcast. I'm Doug Chrisner. Equities across the

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<v Speaker 2>APAC region are a little weaker off the opening bell

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<v Speaker 2>after a flat session here in New York. The MSCI

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<v Speaker 2>Asia Pacific gauge down about six tens of one percent

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<v Speaker 2>for its third consecutive day of weakness. This buoyant move

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<v Speaker 2>from tariff deals seems to be running out of steam

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<v Speaker 2>as investors turn their focused to a raft of key

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<v Speaker 2>data here in the US. We'll get numbers on key

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<v Speaker 2>inflation that the FED watches as well as employment. And

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<v Speaker 2>let's not forget the FED meeting midweek. Let's get more

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<v Speaker 2>on market action from the Asia perspective from Mark Franklin.

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<v Speaker 2>He is Deputy head of Asset Allocation Asia for Manual

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<v Speaker 2>Life Investment Management. He spoke earlier with Bloomberg TV host

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<v Speaker 2>Sherry On and Avril Hon on the Asia trade mark.

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<v Speaker 5>Is a busy week, we got the Fed, among the

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<v Speaker 5>central banks, we got earnings. But just one of your

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<v Speaker 5>thoughts first, what we're seeing on the dollar in the

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<v Speaker 5>past day against the backdrop of these trade deals. Do

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<v Speaker 5>you think this is short lived? Because some of our

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<v Speaker 5>analysts think so.

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<v Speaker 6>That's a great question. Good morning. We've seen quite an

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<v Speaker 6>underweight position built up in US dollars in the market

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<v Speaker 6>by investors, and so there's a bit of an asymmetry

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<v Speaker 6>now which could partially unwind in the short term, particularly

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<v Speaker 6>if the FED remains on hold. That the trade deal

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<v Speaker 6>that the US and the EU have purportedly signed suggest

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<v Speaker 6>that the US comes out of it much stronger and

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<v Speaker 6>the ear a little bit weaker, and so that's created

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<v Speaker 6>a bit of selling pressure on Euro assets, but the

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<v Speaker 6>trend over the medium term still looks intact visa the

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<v Speaker 6>weakening dollar cyclically, and if you zoom out, it's really

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<v Speaker 6>effectively a reversal of the US dollar appreciation that we

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<v Speaker 6>saw under the previous four or five years.

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<v Speaker 5>What about the feds path, What do you think is

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<v Speaker 5>realistic to expect in terms of cuts?

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<v Speaker 6>The market's pricing at present is not unreasonable. I think

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<v Speaker 6>we've got about one and a half cuts priced in

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<v Speaker 6>between now and the end of this year, although next

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<v Speaker 6>year's rate cut pricing about four to five times suggests

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<v Speaker 6>there's a building sense of optimism that the terminal rate

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<v Speaker 6>is meaningfully below where it is now. Clearly the Feder's

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<v Speaker 6>move towards an approach of data dependency, and so we're

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<v Speaker 6>really moving from one data points to the next. And

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<v Speaker 6>let's focus on the non farm pay rolls that are

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<v Speaker 6>coming up. Surely that could be quite decisive for short

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<v Speaker 6>term policy decision making.

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<v Speaker 1>Mike, how much is the trajectory of the Fed and

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<v Speaker 1>expectations about what the central back will do affect the

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<v Speaker 1>broader markets, because it seems risk sentiment is pretty strong

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<v Speaker 1>in the United States, especially with profits coming up surprising

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<v Speaker 1>to the upside.

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<v Speaker 6>The short onto is the market is not overly focused

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<v Speaker 6>on the FED these days. Ironically, we're moving into more

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<v Speaker 6>of a fiscal world, a world of fiscal dominance, and

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<v Speaker 6>really it's about government spending and tax policy, which is

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<v Speaker 6>the marginal driver of financial conditions.

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<v Speaker 1>What about when it comes to the rest of Asia,

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<v Speaker 1>because we are now seeing earning season again and with

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<v Speaker 1>some of these trade deals out of the way, what

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<v Speaker 1>will move markets like Japan.

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<v Speaker 6>Japan's an interesting one because the earning season is likely

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<v Speaker 6>to reflect a headwind from currency appreciation over the last

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<v Speaker 6>few months, and at the same time as well, the

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<v Speaker 6>domestic economic picture in Japan is one of anemic growth

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<v Speaker 6>and somewhat inflationary pressures on costs, and so we're not

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<v Speaker 6>overly positive on this immediate earth season for the Japan

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<v Speaker 6>equities market. But clearly, if we move into a more

0:11:03.720 --> 0:11:07.240
<v Speaker 6>persistent weakening of the end against it, even if it's cyclical,

0:11:07.280 --> 0:11:10.240
<v Speaker 6>that should help to arrest that momentum. The next time around.

0:11:11.240 --> 0:11:14.040
<v Speaker 1>We'll see momentum for South Korean assets. I mean, we

0:11:14.160 --> 0:11:17.400
<v Speaker 1>had big influence from overseas. When it comes to the

0:11:17.480 --> 0:11:20.640
<v Speaker 1>cost be now we're headed towards a potential trade deal.

0:11:20.720 --> 0:11:22.000
<v Speaker 1>How much more will this help.

0:11:22.679 --> 0:11:25.320
<v Speaker 6>The election was also a major positive catalyst, with the

0:11:25.320 --> 0:11:28.400
<v Speaker 6>starting point being that most foreign investors were pretty cautious

0:11:28.400 --> 0:11:31.400
<v Speaker 6>towards career given the previous one or two years of

0:11:31.440 --> 0:11:34.240
<v Speaker 6>political experience, So we saw a big rally post election.

0:11:34.679 --> 0:11:36.839
<v Speaker 6>I think we're in a situation now where those gains

0:11:36.840 --> 0:11:40.640
<v Speaker 6>are being consolidated, maybe some recycling of ownership of the market.

0:11:40.960 --> 0:11:43.160
<v Speaker 6>What we probably need to see from here is evidence

0:11:43.200 --> 0:11:46.240
<v Speaker 6>of the government is genuinely focused on corporate governance, reform

0:11:46.679 --> 0:11:51.000
<v Speaker 6>and supply side growth, alongside the prospects for progress on

0:11:51.040 --> 0:11:52.720
<v Speaker 6>a trade deal as well.

0:11:52.760 --> 0:11:57.000
<v Speaker 5>Mark, help me get my head around this, because we

0:11:57.080 --> 0:12:00.880
<v Speaker 5>are seeing terror levels lower than what was first feared,

0:12:00.920 --> 0:12:03.880
<v Speaker 5>but they are still higher than prior to liberation. The

0:12:04.040 --> 0:12:07.120
<v Speaker 5>markets are looking past is when do you think that

0:12:07.320 --> 0:12:11.079
<v Speaker 5>tariff impair comes to bear and when does that kind

0:12:11.080 --> 0:12:13.480
<v Speaker 5>of become a breaking point of sorts for markets?

0:12:13.880 --> 0:12:16.120
<v Speaker 6>Two points on this one. It's not so much about tariffs.

0:12:16.120 --> 0:12:20.120
<v Speaker 6>It's the degree of uncertainty that market participants observe. And

0:12:20.160 --> 0:12:22.400
<v Speaker 6>what we've seen is we saw a major spike in

0:12:22.440 --> 0:12:25.160
<v Speaker 6>policy uncertainty in and around March and April given the

0:12:25.200 --> 0:12:30.280
<v Speaker 6>Liberation Day shock events, and since then, policy uncertainty has

0:12:30.320 --> 0:12:33.480
<v Speaker 6>actually come down and that's generally constructive for risk appetites.

0:12:33.520 --> 0:12:36.080
<v Speaker 6>So even though tariff levels are settling in at a

0:12:36.120 --> 0:12:39.200
<v Speaker 6>level that's meaningfully higher than where they were before, it's

0:12:39.240 --> 0:12:41.920
<v Speaker 6>the uncertainty index that really drives. And then the second

0:12:41.920 --> 0:12:44.800
<v Speaker 6>point i'd highlight is there's still pretty mixed evidence over

0:12:45.120 --> 0:12:48.320
<v Speaker 6>the extent to which tariffs are inflationary. We've still got

0:12:48.360 --> 0:12:51.760
<v Speaker 6>disinflationary pressures on the services side in the US economy,

0:12:51.920 --> 0:12:53.839
<v Speaker 6>and then on the good side, it's really set to

0:12:53.920 --> 0:12:57.920
<v Speaker 6>specific particularly those sectors where they're running more shorter inventory cycles.

0:12:58.280 --> 0:13:01.079
<v Speaker 6>In the absence of that, there's still a limited amount

0:13:01.080 --> 0:13:03.800
<v Speaker 6>of evidence that the tariff increases that have been announced

0:13:03.800 --> 0:13:07.080
<v Speaker 6>so far have meaningfully changed the medium term inflation trajectory,

0:13:07.280 --> 0:13:09.080
<v Speaker 6>and that's important for risk appetite as well.

0:13:09.200 --> 0:13:11.800
<v Speaker 5>That's interesting. So the jury is still out on tariff

0:13:11.840 --> 0:13:15.000
<v Speaker 5>impact on inflation. But what are you seeing in terms

0:13:15.040 --> 0:13:18.960
<v Speaker 5>of how it's potentially going to eat into earnings Because

0:13:19.000 --> 0:13:20.280
<v Speaker 5>that's a bit one to watch as well.

0:13:20.559 --> 0:13:23.120
<v Speaker 6>If you look at the US perspective, actually earning season

0:13:23.160 --> 0:13:25.880
<v Speaker 6>is tracking reads me well we have got a major

0:13:25.920 --> 0:13:28.080
<v Speaker 6>set of announcements coming up in the next few days.

0:13:28.080 --> 0:13:30.680
<v Speaker 6>But again going back to the point about currency, US

0:13:30.760 --> 0:13:33.120
<v Speaker 6>dollar weakness has served as a nice tailwind for large

0:13:33.160 --> 0:13:36.720
<v Speaker 6>cap US companies given the offshore earnings exposure. The second

0:13:36.760 --> 0:13:38.920
<v Speaker 6>factor as well is that the uncertainty that I mentioned

0:13:38.960 --> 0:13:42.200
<v Speaker 6>earlier from tariff policy that will eventually start to crimp

0:13:42.240 --> 0:13:44.840
<v Speaker 6>investment decisions by corporates in the US. But the investment

0:13:44.880 --> 0:13:47.920
<v Speaker 6>decisions that are being committed now really were already made

0:13:47.960 --> 0:13:51.040
<v Speaker 6>a few months ago before the tariff story became central

0:13:51.040 --> 0:13:53.320
<v Speaker 6>to market development. So it's probably going to be a

0:13:53.360 --> 0:13:55.480
<v Speaker 6>deferred reaction to the downside in that sense.

0:13:55.559 --> 0:13:56.760
<v Speaker 5>Now we'll have to keep watching.

0:13:56.840 --> 0:13:57.080
<v Speaker 4>Mark.

0:13:57.120 --> 0:13:59.960
<v Speaker 5>Thank you for your analysis. Good to chat. Mark Franklin

0:14:00.280 --> 0:14:03.680
<v Speaker 5>is MD and senior portfolio manager, Asset Allocation Asia and

0:14:03.800 --> 0:14:05.600
<v Speaker 5>Manual Life Investment Management.

0:14:07.520 --> 0:14:10.880
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:14:11.040 --> 0:14:14.400
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:14:14.480 --> 0:14:18.840
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:14:18.880 --> 0:14:22.960
<v Speaker 2>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:14:23.080 --> 0:14:26.120
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:14:26.240 --> 0:14:29.720
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:14:30.120 --> 0:14:33.880
<v Speaker 2>and Australia. I'm Doug Chrisner, and this is Bloomberg