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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 Prisner. There

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Speaker 2: was a dramatic recovery in the US equity market on

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Speaker 2: the final day of the first quarter, driven by speculation

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Speaker 2: that both the US and Iran might be looking for

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Speaker 2: a way out of the war. Late Monday, the Wall

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Speaker 2: Street Journal reported President Trump would be willing to exit

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Speaker 2: the conflict even with the straight of hormones largely closed. Well.

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Speaker 2: Then on Tuesday, after the bell, Trump said he foresees

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Speaker 2: the US ending the war in two to three weeks.

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Speaker 2: He also said securing the strait of hormones is not

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Speaker 2: for US, and that that responsibility will rest with countries

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Speaker 2: that rely on it now. Earlier in the day, Iran

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Speaker 2: state media reported President Mussud Prjeskin said the Islamic Republic

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Speaker 2: has the necessary will to end the war, but only

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Speaker 2: with guarantees to prevent recurrence of aggression. The conflict began

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Speaker 2: at the end of February. US crude oil is up

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Speaker 2: nearly fifty percent. For a closer look at the price action,

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Speaker 2: I'm joined by Ross Mayfield. He is an investment strategist

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Speaker 2: at Baird Ross. Thank you for being with us. In

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Speaker 2: your note, you call this a tricky market to navigate.

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Speaker 2: I think that's an understatement. Give me your sense of

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Speaker 2: what we're seeing right now.

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Speaker 3: Yeah, well, obviously, the way you summed it up, I

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Speaker 3: think puts the point to it, which is, we don't

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Speaker 3: have a lot of certainty here. We don't know what

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Speaker 3: the world is going to look like. But the market

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Speaker 3: was obviously happy with the direction, right. I think directionality

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Speaker 3: is the most important thing here, which is shifting from

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Speaker 3: escalation to uncertainty to at least both sides. I mean

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Speaker 3: to aim for de escalation, and that was clearly all

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Speaker 3: the market needed to have one of the best days

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Speaker 3: in a long time today. You know, a lot of

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Speaker 3: the finer points I think still leave a lot to

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Speaker 3: be desired. I wouldn't bet on this thing being over

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Speaker 3: in terms of the conflict and the market volatility associated

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Speaker 3: with it. Obviously, oil still very elevated, and you know

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Speaker 3: to the comment about securing the straight offor moves for

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Speaker 3: the countries that use it. You know, obviously Americans are

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Speaker 3: paying higher gas prices because oil is set on a

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Speaker 3: global scale. Those prices so I think there's a lot

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Speaker 3: to be hammered out, but directionally we're headed, you know,

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Speaker 3: to the right place.

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Speaker 2: So there seems to be a little bit of debate

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Speaker 2: here on the impact of higher oil. Yes, inflation could

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Speaker 2: be a problem. The FED doesn't seem to be so

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Speaker 2: much concerned by it right now, given the fact that

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Speaker 2: this is essentially a shock. But there seems to be

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Speaker 2: a debate now that higher oil could ultimately lead to

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Speaker 2: a much weaker economic growth. Where do you come down

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Speaker 2: in that debate?

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Speaker 3: Yeah, I mean, I think the first thing is I'm

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Speaker 3: of the opinion that if the FED shifts rate hikes

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Speaker 3: here because of an oil shock, that would represent a

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Speaker 3: policy mistake. The cure for high oil prices is high

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Speaker 3: oil prices, you can't have energy into perpetuity. Eventually you

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Speaker 3: get demand destruction, you get economic pullback and potentially recessions.

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Speaker 3: So I think the FED is fine to be on

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Speaker 3: pause right now given the uncertainty. But I do think

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Speaker 3: that the major risk is not inflation, although the next

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Speaker 3: couple of CPI prints will probably be pretty ugly. I

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Speaker 3: think the real risk is, you know, you get this

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Speaker 3: drag on growth and then we're looking out at a

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Speaker 3: potential contraction of the economy in the back half of

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Speaker 3: the year. So I am of the opinion that it's

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Speaker 3: a bigger concern on the growth front than the inflation front,

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Speaker 3: and hopefully the FED feels the same way, and you know,

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Speaker 3: resist the urge to get hawkish when you know we

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Speaker 3: potentially have a three and a half four percent CPI

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Speaker 3: and PC over the next couple of months.

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Speaker 2: The other issue that we haven't heard much about lately,

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Speaker 2: given the fact that the war has been so dominant

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Speaker 2: in my market psychology, private credit risk. Today, Warren Buffett

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Speaker 2: was speaking to CNBC and he said that he is

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Speaker 2: seeing signs of fragility emerging in the banking system, which

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Speaker 2: has obviously become a little bit more connected to non

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Speaker 2: bank players. Now, you and I both know there have

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Speaker 2: been a series of recent blow ups in the credit

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Speaker 2: markets and that may have created a little bit of

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Speaker 2: fear about what we're seeing on bank balance sheets. Buffett

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Speaker 2: told CNBC the troubles from one can spread to another,

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Speaker 2: and I'm wondering if this is very much a concern

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Speaker 2: for you.

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Speaker 3: Yeah, it's absolutely a concern. I mean to the extent

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Speaker 3: that these markets are pretty opaque, that we're relying on

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Speaker 3: private marks that might not be all that accurate. It's

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Speaker 3: a concern now. I do think that, you know, we're

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Speaker 3: always kind of the general fighting the last war, right,

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Speaker 3: so anyone who's been around for long enough immediately goes

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Speaker 3: to two thousand and eight and what extent this kind

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Speaker 3: of mirrors that crisis. I think the private credit market,

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Speaker 3: as big as it's gotten, is still meaningfully smaller than

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Speaker 3: mortgage and mortgage back secure were in two thousand and

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Speaker 3: seven or so. And I also think that, you know,

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Speaker 3: as much as the problems in private credit and some

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Speaker 3: of the headlines about gating funds are pr issues for

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Speaker 3: the firms, I actually think it. You know, it does

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Speaker 3: a lot in preventing the kind of run on a

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Speaker 3: bank that could really cause this to spiral out of control,

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Speaker 3: in the sense that you know that people can't get

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Speaker 3: money out, can't induce the run on the bank. There's

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Speaker 3: a little bit more stability and a little bit more

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Speaker 3: time for these companies to get their marks right secure,

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Speaker 3: you know, other forms of lending if they need it,

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Speaker 3: and kind of settle this in a reasonable fashion. But yeah,

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Speaker 3: I mean, if you look at the bank stocks, the

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Speaker 3: financials such high flyers last year and have really taking

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Speaker 3: it on the chin I think to believe in whatever

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Speaker 3: the next rally looks like, that there would be, you know,

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Speaker 3: a couple more years to this bull market. At a minimum,

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Speaker 3: you do want to see participation from the banks, from

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Speaker 3: the money center banks, from the regionals, and you want

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Speaker 3: to see credit growth as well, which is hard in

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Speaker 3: an environment like this.

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Speaker 2: So where are you finding opportun unity these days?

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Speaker 3: You know, in a market like this, I think you

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Speaker 3: want to look for names or sectors and uptrends that

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Speaker 3: have just been oversold, and you know, we look at

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Speaker 3: something like industrials. I think right now a lot of

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Speaker 3: the tech names are kind of falling under that umbrella.

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Speaker 3: So I still think there's a lot of growth to

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Speaker 3: be had in the market. Earnings estimates have been incredibly

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Speaker 3: resilient and in many cases are accelerating here despite all

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Speaker 3: the headwinds abroad. So I think there's plenty of value

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Speaker 3: in this market right now. I like industrials. I think

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Speaker 3: kind of phishing in software, presuming you have the patience

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Speaker 3: to kind of wait it out, could be really beneficial

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Speaker 3: or really lucrative over the long term. So oversold but

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Speaker 3: in up trends, and there's still plenty of that in

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Speaker 3: this market.

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Speaker 2: I'm wondering about your feelings in regard to artificial intelligence.

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Speaker 2: We've got word today that open ai was able to

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Speaker 2: raise one hundred and twenty two billion in its latest

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Speaker 2: un around. The company is still considering an I p

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Speaker 2: O later in the year, and also were today that

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Speaker 2: Nvidia is taking a two billion dollar steak in Marvell technology.

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Speaker 2: How do you feel about the AI trade?

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Speaker 3: I think that it's clear to me that the demand

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Speaker 3: for chips for AI for compute is still completely fine.

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Speaker 3: I mean, it's obviously been somewhat you know, resilient in

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Speaker 3: the face of whatever the economic backdrop looks like over

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Speaker 3: the last three to four years.

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Speaker 4: So I think the.

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Speaker 3: Demand is there. You know, we have obviously seen great results,

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Speaker 3: particularly from the chip makers. On the software front. I

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Speaker 3: think there have been plenty of babies thrown out with

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Speaker 3: the bathwater. As impressive as these tools are, I haven't

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Speaker 3: you know, had an inkling that they're going to replace

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Speaker 3: white collar jobs, or that big companies are going to

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Speaker 3: rip out their tech stack and replace it, you know,

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Speaker 3: with AI coded apps. So I think, you know, presuming

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Speaker 3: again you have the patients to write out what are

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Speaker 3: some pretty broken charts and some pretty bad trends in

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Speaker 3: the software space. I think there's plenty of good value

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Speaker 3: there and I think the AI theme is pretty undented

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Speaker 3: by this whole thing. I don't think it's a bubble,

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Speaker 3: but there's still clearly plenty of demand and you know,

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Speaker 3: as being fulfilled as best we can.

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Speaker 2: So before I let you go, Ross, I have to

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Speaker 2: ask about the employment report, which is due Friday, and

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Speaker 2: we will have special coverage on the Bloomberg platforms even

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Speaker 2: though the market will be on holiday in the States. Today,

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Speaker 2: we had indications of a little bit of softening demand

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Speaker 2: for labor, at least in the month of February, with

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Speaker 2: job openings down and to slow down in hiring. How

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Speaker 2: do you view the American labor market right now?

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Speaker 3: It's you know, it's kind of a cliche at this point,

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Speaker 3: but it's a low hiring, low firing environment right Obviously

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Speaker 3: there's not a lot of new hiring. But for every

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Speaker 3: headline we get, I think it was Oracle today with

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Speaker 3: some layoffs. You know, just we've gotten these headlines time

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Speaker 3: and again over the last year, and it's just not

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Speaker 3: showing up in the claims data. And that's kind of

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Speaker 3: my north star here is until I see a meaningful

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Speaker 3: and kind of sticky upticking claims. I'm not overly worried

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Speaker 3: about it. I think the labor market is not adding

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Speaker 3: jobs at a high pace, but I think that has

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Speaker 3: a lot to do with immigration reform, has a lot

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Speaker 3: to do with demographics in the US. Obviously, it's not

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Speaker 3: a perfect backdrop, but I think it's good enough to

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Speaker 3: keep the consumer spending. I think there's a healthy tail

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Speaker 3: end of stimulus on top of solid wage growth and

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Speaker 3: a low unemployment rate. So it's not the most robust

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Speaker 3: labor market, but I think it's plenty good enough to

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Speaker 3: keep the consumer part of the economy in decent shape.

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Speaker 3: We should get a I think we get a retail

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Speaker 3: sales report tomorrow that will hopefully confirm that trend. But

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Speaker 3: you know, in a perfect world, we'd see more hiring

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Speaker 3: as well, So hopefully we get a you know, we

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Speaker 3: can resume that cyclical upturn that we had evidence of

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Speaker 3: to start the year. There was good commentary about hiring

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Speaker 3: in the PMI reports that everybody was so excited about

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Speaker 3: if we can put the Iran conflict behind us. I

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Speaker 3: think there's still legs to that story.

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Speaker 2: All right, ross we'll leave it there. Thanks very much,

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Speaker 2: Ross Mayfield there he is investment strategist at Baird. Joining

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Speaker 2: us here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm deg Prisner And as I

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Speaker 2: mentioned earlier, President Trump said he sees the US ending

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Speaker 2: the war with Iran in about two to three weeks,

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Speaker 2: and he indicated it's possible Iran could still reach a

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Speaker 2: deal with the US during that time frame. However, Trump

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Speaker 2: said the agreement with Tehran was not necessary for the

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Speaker 2: war to end. And that's where we begin our conversation

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Speaker 2: with Jessica Ganauer. Jessica is an academic director of the

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Speaker 2: Public Policy Institute at the University of New South Wales.

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Speaker 2: She spoke with Bloomberg tea host sharing on and Heidi

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Speaker 2: Stroud Watts.

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Speaker 5: Is this sort of what's happening right now because the

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Speaker 5: US doesn't necessarily seem to be winning the war, the

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Speaker 5: President Trump doesn't seem to be wanting an agreement right

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Speaker 5: now in order to be ending the war. Is there

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Speaker 5: more of that sort of retreat that you're talking about.

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Speaker 4: Yeah, that's absolutely right.

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Speaker 6: So essentially President Trump is now at a crossroads where

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Speaker 6: he has one of two choices. He can either double

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Speaker 6: down now in the war and actually utilize the marines

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Speaker 6: who've been moving into the region and start to put

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Speaker 6: boots on the ground. So that might be trying to

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Speaker 6: take control of some of the small islands in the

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Speaker 6: Strait of Homors, it could be boots on the ground

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Speaker 6: on the Iranian mainland, even though that's likely to be

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Speaker 6: quite disastrous for.

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Speaker 4: The US in the medium term.

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Speaker 6: Or the second choice for President Trump right now is

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Speaker 6: that he could unilaterally withdraw, pressure Israel to also withdraw

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Speaker 6: and end their military operation, and try to claim this

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Speaker 6: as some kind of victory, even though the Iranian regime.

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Speaker 4: Would stay in place at this point in time.

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Speaker 6: And as long as the Iranian regime is in place,

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Speaker 6: they are still going to have ultimately control over the

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Speaker 6: Strait of Hormuors in that they can make it too

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Speaker 6: dangerous for ships to pass through if they threaten those

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Speaker 6: ships with attack. So yes, what we're starting to see

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Speaker 6: emerging now is that neither of those two options are

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Speaker 6: particularly good for President Trump.

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Speaker 4: At this stage.

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Speaker 6: And because the Iranian regime has managed to survive to

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Speaker 6: this point in time, despite the fact that a large

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Speaker 6: number of the leadership have been killed, the Iranian regime

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Speaker 6: can claim a kind of a victory by saying we

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Speaker 6: withstood this massive onslaught from the greatest military power globally

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Speaker 6: and we're still standing.

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Speaker 5: That's the whole point in especially what you're saying your

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Speaker 5: notes about insurgent tactics. Right, if you have a weak player,

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Speaker 5: you just need to survive long enough to apply political

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Speaker 5: military pressure on your opponent. And this would be the

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Speaker 5: Trump administration. So where do we go from here, and

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Speaker 5: what would Iran be able to call a victory itself,

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Speaker 5: and what could the US take away from here, because

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Speaker 5: it seems President Trump just wants an end to Iran's

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Speaker 5: nuclear capabilities at this point.

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Speaker 4: That's right.

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Speaker 6: So what's a sort of a paradox of asymmetric warfare

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Speaker 6: where we have a very strong military actor. So in

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Speaker 6: this case, the US fighting against a clearly much weaker

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Speaker 6: actor with far less military capability.

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Speaker 4: What we tend to find is that the stronger actor.

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Speaker 6: Will really overuse their military force and they will almost

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Speaker 6: use that as though it's the only dimension that matters.

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Speaker 6: So they will focus on trying to completely militarily eliminate

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Speaker 6: the military capability of the weaker actor. And that's basically

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Speaker 6: the playbook that the US is following. They're trying to

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Speaker 6: degrade Iran in terms of its military capability and its

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Speaker 6: ability to operate in terms of eliminating the security and

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Speaker 6: political leadership. But on the other hand, the weaker actor

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Speaker 6: doesn't need to focus on trying to eliminate the military

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Speaker 6: capability of the stronger actor, which is something they would

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Speaker 6: never be able to do anyway. They just need to

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Speaker 6: focus on creating enough political and economic disruption and pressure

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Speaker 6: on the stronger actor to essentially force a withdrawal. And

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Speaker 6: that's what we've seen Iran doing by blocking the Strait

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Speaker 6: of Hormuz and creating an energy crisis that's now gone

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Speaker 6: global and is being felt as far afield as you know,

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Speaker 6: Singapore and Australia, and by also attacking the Gulf countries,

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Speaker 6: which puts a lot of political.

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Speaker 4: Pressure as well on the US. So we're seeing that Iran.

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Speaker 6: Through using these kind of asymmetric tactics of focusing on

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Speaker 6: the political and economic dimensions, probably will manage to bring

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Speaker 6: enough pressure to bear on the US government because the

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Speaker 6: war is becoming increasingly unpopular within the US domestic context,

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Speaker 6: not that it was ever very populate in the first

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Speaker 6: place to actually try to force that withdrawal and then

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Speaker 6: try to claim that as a victory. So for the

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Speaker 6: Iranian regime, their key objective right now is purely to survive.

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Speaker 6: They're not really thinking beyond that at this point in time.

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Speaker 6: They'll start to think about rebuilding the regime if slash,

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Speaker 6: when the war actually ceases.

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Speaker 4: For the US, there.

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Speaker 6: Are a few different objectives, and it's not exactly clear

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Speaker 6: when President Trump is going to say, we've achieved our

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Speaker 6: objectives and we can now sort of successfully withdraw Trump

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Speaker 6: has started to try to claim that actually the Iranian

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Speaker 6: regime has sort of been degraded or collapsed, which clearly

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Speaker 6: has not exactly happened at this point in time.

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Speaker 4: And then there's the nuclear issue, So.

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Speaker 6: That's ensuring that Iran cannot develop or commits not to

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Speaker 6: develop a nuclear weapon now or at any time in

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Speaker 6: the future. And again it's very unclear where that sits.

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Speaker 6: So there might be some kind of negotiated deal around that.

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Speaker 4: But would we now.

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Speaker 6: See the Iranian regime as a credible actor after this war.

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Speaker 6: That sort of still very much remains to be seen.

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Speaker 1: I mean, in fact, he said overnight that he's not

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Speaker 1: even thinking about the removal of enriching uranium at this point, right,

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Speaker 1: So to your point of I guess shifting goldposts. I

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Speaker 1: do wonder, though, can Tyrone really claim this as a

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Speaker 1: victory because they've shown the world how much of a

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Speaker 1: chokehold and leverage they have with global energy supply.

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Speaker 6: Well, that's right, So certainly, I mean, coming out of this,

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Speaker 6: whenever this war does end, and mores inevitably do end,

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Speaker 6: even if they tend to take longer than typically, the

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Speaker 6: stronger actor thinks going into the war that when this ends,

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Speaker 6: both Tehran and Washington will be claiming a victory from this.

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Speaker 6: So certainly as long as the Iranian regime stays intact,

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Speaker 6: which again looks like that's going to be the case

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Speaker 6: at the moment. I mean, I think the regime has

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Speaker 6: been severely degraded, and we might see in a sort

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Speaker 6: of three to seven year timeline that actually there is

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Speaker 6: some type of more fundamental collapse or fracturing of the

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Speaker 6: Iranean regime, which is of course also deeply unpopular with

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Speaker 6: you know, a large proportion of the population within Iran.

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Speaker 6: But in the meantime, the fact that they're staying intact

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Speaker 6: means that they can always pull the kind of straight

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Speaker 6: of Humu's trump card, if you will, so as long

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Speaker 6: as the regime remains in place, whenever there is tension

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Speaker 6: with Israel, if Israel ever chooses to strike into Iran,

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Speaker 6: if there is you know, conflict that rises, tensions that

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Speaker 6: rise with the US, if they feel a threat from

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Speaker 6: the US, they will now always have the ability to say, Okay,

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Speaker 6: we are now going to block you know that shipping

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Speaker 6: through the Strait of Hormus, or they might even take

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Speaker 6: the approach that they want to say, going forward, we're

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Speaker 6: only going to let tankers go through the Strait of

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Speaker 6: Hormus that we feel a friendly to Iran or meet

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Speaker 6: certain conditions that Iran puts forward. So yes, this is

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Speaker 6: a massive leverage point, and the fact that they've chosen

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Speaker 6: to block the Strait of Horwords so quickly shows that

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Speaker 6: they really understand that and understand the powerful nature of

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Speaker 6: that for the Iranian regime going forward.

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Speaker 1: Does this walk continue with Israel? We haven't heard their

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Speaker 1: take on what this exit plant might look like, and

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Speaker 1: we know that this is a conflict that they've been

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Speaker 1: wanting for a number of years.

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Speaker 6: So interestingly, the US and Israel, whilst this is a

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Speaker 6: joint military operation. They both have slightly different objectives, So

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Speaker 6: I actually see you retreating from this war or sort

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Speaker 6: of a unilateral withdrawal. Is much more complicated for President

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Speaker 6: Trump at this stage because the world is really looking

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Speaker 6: on and associating the current global oil crisis and all

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Speaker 6: of the implications of that with President Trump's specific decisions

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Speaker 6: and actions visa v Iran. So I almost see Trump

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Speaker 6: in or the US in sort of a more difficult

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Speaker 6: position in terms of what they do now. Whereas for

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Speaker 6: Israel and the Israeli government, in many ways, they really

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Speaker 6: have achieved a lot of their objectives. So whilst they

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Speaker 6: might like to see the Iranian regime fall, ultimately Israel

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Speaker 6: is primarily concerned with degrading any kind of threat.

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Speaker 4: Towards Israel itself.

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Speaker 6: So as long as they see that the Iranian regime

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Speaker 6: has been degraded, their military capability has been severely damaged,

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Speaker 6: their ability to shoot missiles towards Israel has lessened. That's

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Speaker 6: kind of a victory for Israel in many ways. Or

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Speaker 6: they've achieved a large proportion of their objectives visa vi Iran.

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Speaker 6: And then of course we have Israel's ongoing boots on

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Speaker 6: the ground operation in Lebanon, which is sort of a

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Speaker 6: different point, and I think that that is probably likely

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Speaker 6: to continue for a while, whereas Visa vie Iran, I

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Speaker 6: could see a situation where if Trump decides to withdraw,

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Speaker 6: he would be able to bring.

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Speaker 4: Enough to bear on net Yahoo to inst the Israel

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Speaker 4: withdraws as well.

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Speaker 2: That's Jessica Genauer, Academic director of the Public Policy Institute

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Speaker 2: at the University of New South Wales, speaking with Bloomberg

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Speaker 2: TV host Sherry On and Heidi Stroud Watts bringing you

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Speaker 2: their conversation here on the Daybreak Asia podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisoner and this is Bloomberg