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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 Chrisner. The

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Speaker 2: market's attention remains on developments in the Middle East. Over

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Speaker 2: the weekend, the US struck military sites on carg Island.

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Speaker 2: This is Iran's main export hub for crude oil. Then

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Speaker 2: on Sunday, late in the day, President Trump told The

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Speaker 2: Financial Times the US was prepared to launch new strikes

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Speaker 2: on Carg Island. He also said the US could target

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Speaker 2: Iranian oil infrastructure, and at the same time, Trump told

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Speaker 2: the FT NATO faces a very bad future if US

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Speaker 2: allies failed to assist in opening up the Strait of Hormuz.

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Speaker 2: Now those comments come a day after Trump appeal to China, France, Japan,

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Speaker 2: South Korea and the UK to join a team effort

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Speaker 2: to open up this choke point. Trump also said he

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Speaker 2: could delay his summit with Chinese President Chi Jinping later

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Speaker 2: this month as he presses Beijing to help on block

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Speaker 2: the strait. To help us understand some of the market action,

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Speaker 2: I'm joined by Stephen Schoenfeld. He is the CEO at

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Speaker 2: Market Vector Indexes. Stephen, thank you so much for being

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Speaker 2: here so when you digest the latest news regarding the

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Speaker 2: Middle East, what do you come away with?

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Speaker 3: So the US sent a very strong message by hitting

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Speaker 3: military targets on carg Island, specifically avoiding energy targets for now.

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Speaker 3: It's basically put a line in the sand on that.

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Speaker 3: There's been lots of back channel discussions about different ways

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Speaker 3: to get ships through the Straits of Hormuz. India is

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Speaker 3: talking on its own deals some countries in Europe, but

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Speaker 3: I think the Straits of Hormuz are more blocked than opened.

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Speaker 3: Certainly for the next few weeks a lot is going

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Speaker 3: to depend on how much Saudi Arabia cant get out

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Speaker 3: through the Red Sea. They're pumping more than ever that way,

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Speaker 3: and it was very encouraging that. Already today the UAE

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Speaker 3: opened reopen Fujira, which is on the other side of

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Speaker 3: the Straits of Hormuz. So that's back on. I think

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Speaker 3: the pop in both Brent and WTI is natural. I'm

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Speaker 3: glad to see it's easing off. US futures are flat

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Speaker 3: to hire. Asian markets don't seem to be like they're

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Speaker 3: going to drop as much. So my guess is that

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Speaker 3: this week is going to be a little bit of

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Speaker 3: a consolidation. I don't see oil surging back up to

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Speaker 3: one point fifteen or one twenty as we saw early

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Speaker 3: last week.

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Speaker 2: So the S and P five hundred right now is

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Speaker 2: holding just above the two hundred day moving average, and

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Speaker 2: you know the old Ada John Wall Street, nothing good

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Speaker 2: happens below the two hundred day. Is there a risk

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Speaker 2: that we puncture that.

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Speaker 3: Yes, there is a risk. The Nasdaq is actually sorry.

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Speaker 3: The NAZAK one hundred is solidly below the two hundred day,

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Speaker 3: and we've seen topping patterns even in such high flying

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Speaker 3: sector indexes such as our Market Vector Semiconductor index. The

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Speaker 3: markets are vulnerable. The area for Hope Doug is that

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Speaker 3: three straight weeks the markets have been pushed down and

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Speaker 3: yet buyers keep coming back in and it's not like

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Speaker 3: there's the bad news isn't in the market. So I

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Speaker 3: think not just the two hundred day, but also the

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Speaker 3: lows of December and the S and P five hundred

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Speaker 3: are going to be very critical to watch this week.

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Speaker 3: I would have a bias to the downside. What I'm

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Speaker 3: hoping to see is that Asian emerging markets Japan find

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Speaker 3: some support. Japan is very dependent on oil exports from

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Speaker 3: the Gulf, and if it could find some support, I

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Speaker 3: think it's kind of flat to positive so far in

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Speaker 3: the futures. That would be a very good sign. So

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Speaker 3: I'd say I'm nervously bearish and cautiously optimistic at the

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Speaker 3: same time.

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Speaker 2: What about the financials? Private credit worries really continue to

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Speaker 2: cause headache for the entire banking system. Nothing yet has

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Speaker 2: manifest in a way to suggest that there is systemic risk,

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Speaker 2: but nonetheless a lot of the banking stocks have been

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Speaker 2: hard hit. How do you feel about the financials here?

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Speaker 3: So it's beyond the banking stocks what we've really We've

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Speaker 3: seen almost all the asset managers, not just private credit

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Speaker 3: asset managers, but even very large asset managers like Blackrock

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Speaker 3: and Franklin Resources. So I am concerned about it. But

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Speaker 3: as you said, systemically, this does not feel like two

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Speaker 3: thousand and eight two thousand and nine. I think systemically

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Speaker 3: we're in good shape. I wouldn't be surprised if the

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Speaker 3: statement or Palace press conference on Wednesday afternoon we'll touch

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Speaker 3: on this. I would I'd actually be very surprised if

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Speaker 3: he wasn't asked a question about this. So we'll get

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Speaker 3: a view from the fed this week as well.

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Speaker 2: So, Steven, what's your strategy in an environment that that

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Speaker 2: we find ourselves in right now? How do you make

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Speaker 2: the best of it?

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Speaker 3: Well, the starting point, as if you're going to talk

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Speaker 3: about adages or all adages, is diversification. We advocated at

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Speaker 3: the beginning of the year more international diversification. That worked

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Speaker 3: great for the first two months, but of course as

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Speaker 3: the war broke out in the Gulf, all markets, European, Asian,

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Speaker 3: emerging all fell. Korea was really hammered because of its

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Speaker 3: energy sensitivity, but also the speed at which it went up.

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Speaker 3: It was up over fifty percent for the first two months.

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Speaker 3: I would still advise investors to broadly diverse. If one

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Speaker 3: is heavily heavily overweight in US equities, we have a

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Speaker 3: great opportunity now to diversify further into both developed and

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Speaker 3: emerging markets, and also take a look at markets that

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Speaker 3: are not as negatively affected by the energy In particular,

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Speaker 3: we like Brazil for a number of reasons which I'm

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Speaker 3: happy to go into.

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Speaker 2: The bond market has been troubled by the inflationary implications

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Speaker 2: obviously of higher oil. If you look at a ten

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Speaker 2: year that is just above four twenty five right now,

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Speaker 2: give me your view on the treasury market.

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Speaker 3: So earlier this year it looks like we would have

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Speaker 3: a move toward lower rates as inflation numbers weren't as painful.

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Speaker 3: I think that's off the table. I think at best

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Speaker 3: we're going to be vacillating between three point ninety five

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Speaker 3: and four point four in the long bond. I don't

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Speaker 3: see room for much higher rates at this point because

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Speaker 3: I think the economic slowdown effect of higher energy and

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Speaker 3: how it pushes through the economy will temper that. But

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Speaker 3: I do think the Fed has a real dilemma. Whereas

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Speaker 3: before the war you might have hoped for interest rate

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Speaker 3: cuts by June, it may get pushed back. We'll get

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Speaker 3: more signals about that again on Wednesday.

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Speaker 2: Where does that leave the dollar.

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Speaker 3: The dollar had been steadily weakening going into the Mid

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Speaker 3: East crisis, and it found a lot of support. The

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Speaker 3: Euro and the Swiss franc have both weakened a lot,

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Speaker 3: but they've not broken their trend. I do think the

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Speaker 3: longer term trend is for a weaker dollar again. That

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Speaker 3: is why I believe that non US diversification in equities

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Speaker 3: will have the tailwind of a weaker dollar. Adding to

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Speaker 3: the performance as well.

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Speaker 2: So at what point do you believe that Trump administration

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Speaker 2: really takes what markets are to telegraphing to heart and

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Speaker 2: looks at the impact that this will have this policy

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Speaker 2: on economic activity and change course. Do you have a

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Speaker 2: sense that that's even a possibility or is the Trump

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Speaker 2: administration so beholden to this strategy that it's going to

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Speaker 2: take it to the wall, so to speak.

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Speaker 3: So there's a lot of hope in the markets that

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Speaker 3: the taco phenomena could come into play. Clearly, the president

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Speaker 3: and his advisors are sensitive to the equity market and

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Speaker 3: the economy. But when it comes to national security and

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Speaker 3: the commitment that the US has made publicly to ensure

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Speaker 3: that Iran does not have nuclear capabilities, and now that

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Speaker 3: energy is at play, I do think it's a little different.

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Speaker 3: It's not the same as tariffs, and I think the

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Speaker 3: administration will be firm, and as we learned from their

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Speaker 3: attack on the military side of carg Island, the US

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Speaker 3: still has plenty of cards to play. There's an amphibious

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Speaker 3: ready group that's coming in from Japan, will be coming

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Speaker 3: into the Persian Gulf that will add pressure. So I

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Speaker 3: remain of the belief that the administration is going to

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Speaker 3: continue to press it, but I don't think it'll be

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Speaker 3: to the wall, because I do think the United States

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Speaker 3: will prevail in this conflict.

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Speaker 2: When you look at markets offshore, whether it's China or India,

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Speaker 2: I know it's probably a very difficult call to make

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Speaker 2: right now, given the fact that both economies are very

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Speaker 2: much exposed to imported oil. Is there a case to

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Speaker 2: be made that you need to take a look at

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Speaker 2: China or India in this environment?

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Speaker 3: So I believe there's a broader case for both China

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Speaker 3: and India. India really was poised for a good recovery

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Speaker 3: this year. The fact that India is negotiating on its

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Speaker 3: own about oil shipments, and in fact, some shipments from

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Speaker 3: Saudi Arabia to India have already made it through. I

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Speaker 3: think both China and India will somewhat insulate themselves, and

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Speaker 3: I think investors can gradually trend in to increase India

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Speaker 3: and China exposure. And then, as I said, I think

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Speaker 3: Brazil is a very attractive market because they're energy independent

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Speaker 3: and they're really on a different cycle. They're only going

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Speaker 3: to begin to lower interest rates in the next month

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Speaker 3: or two, so I think it adds further. That is

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Speaker 3: three of the five bricks, and those are the ones

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Speaker 3: that I would certainly put a little more money to

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Speaker 3: work in.

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Speaker 2: So I know your firm market vector indexes typically doesn't

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Speaker 2: address cash positions right now, that's not really the focus

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Speaker 2: of your firm's practice. But if you had to advise

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Speaker 2: right now based on the likelihood of a pullback, let's

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Speaker 2: say in the equity market, do you want to gather

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Speaker 2: a little bit of dry powder at this point and

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Speaker 2: resist the temptation to try to find a bottom or

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Speaker 2: to buy the dip.

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Speaker 3: So I think if an investor's heavily heavily overweighted US,

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Speaker 3: it's not too late to reduce exposure. I wouldn't necessarily

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Speaker 3: allocate it all to cash. I think commodity equities, so

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Speaker 3: companies that make money from commodities across all the spectrum

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Speaker 3: could be a very good place to diversify. They're going

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Speaker 3: to benefit from some of the trends we're seeing. Also,

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Speaker 3: not to plug your indexes, but the Bloomberg Commodity Index

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Speaker 3: and the ETFF tracket have also performed very well in

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Speaker 3: the last few weeks. It's another area for diversification.

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Speaker 2: Isn't there the risk though, that those are crowded trades

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Speaker 2: at this point.

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Speaker 3: Not the broad commodity index. I think it has exposure

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Speaker 3: to energy, of course, and precious metals, but it also

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Speaker 3: has grains and industrial metals. I think it's pretty diversified.

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Speaker 3: I think the gold mining trade and silver mining got

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Speaker 3: a little crowded. We've seen a correction. Do you think

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Speaker 3: that's also an area that people can ouncate to.

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Speaker 2: Stephen will leave it there, Thank you so very much.

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Speaker 2: Stephen Schoenfeld is the CEO of Market Vector Indexes, joining

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Speaker 2: us here on the Dave Break Asia podcast. Welcome back

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Speaker 2: to the Dabreak Asia Podcast. I'm Doug Krisner. It's a

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Speaker 2: major week for central bank decisions. We'll hear from the FED,

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Speaker 2: along with the Bank of Canada, the European Central Bank,

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Speaker 2: Bank of England, and the Bank of Japan. They are

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Speaker 2: all seen as being on hold. We'll also hear from

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Speaker 2: the Reserve Bank of Australia and the RBA is seen

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Speaker 2: as raising its benchmark interest rate. Obviously, the big unknown

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Speaker 2: is the economic impact of war with Iran, and that's

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Speaker 2: where we begin our conversation with Diana Mussina. Deanna is

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Speaker 2: deputy chief economist at AMP. She spoke with Bloomberg TV

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Speaker 2: host Heidi Stroudwatts and Sherry on it feels.

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Speaker 4: Like an historically difficult time to be a central banker

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Speaker 4: at the moment.

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Speaker 5: I mean, I wouldn't want to be in their shoes

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Speaker 5: right now, because the goals of inflation and keeping growth

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Speaker 5: are sort of at odds with one another. I think

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Speaker 5: the RBA is really the only central bank in our region,

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Speaker 5: not really the only major central bank around the world

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Speaker 5: that's even considering the prospect of hiking race besides the

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Speaker 5: Bank of Japan, of course, and that's really because we

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Speaker 5: are an outlier in the inflation story. Besides what's going

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Speaker 5: on with oil markets, we have a lot of domestic

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Speaker 5: services inflation. And I think the RBA is also less

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Speaker 5: tolerant to hire core inflation compared to some of the

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Speaker 5: other central banks around US.

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Speaker 4: Do you think in these uncertain times that they should hold?

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Speaker 5: I mean, my personal view is that they should hold.

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Speaker 5: And this was a difficult decision when we were thinking

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Speaker 5: about what was going to happen tomorrow. Would the RBA

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Speaker 5: hold or would they hike? And our view at AMPS

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Speaker 5: that we think that they should be holding because it's

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Speaker 5: just too uncertain when things are going to slow down.

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Speaker 5: The war would end this week and oil prices could

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Speaker 5: moderate again. I mean they probably will take a while

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Speaker 5: to moderate back to their pre Iran levels. But there's

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Speaker 5: the hit to consumer spending and to business spending from

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Speaker 5: high oil prices. Is sort of the negative growth implication

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Speaker 5: that we could have from high oil prices. It's not

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Speaker 5: just that inflation impact. I think we're more cognizant of

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Speaker 5: the secondary hit to growth that could occur. So in

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Speaker 5: those times, our view is that's probably better to wait.

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Speaker 5: But given the RBA is quite concerned with already elevated

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Speaker 5: inflation Australia, they probably will will look to hike.

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Speaker 4: I think that point is an interesting one that you say,

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Speaker 4: if the Energy Secretary is right, this war finishes in

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Speaker 4: a matter of weeks, we know kind of the pass

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Speaker 4: through to oil process will take X amount of time

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Speaker 4: to dissipate. Do you think there could be more of

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Speaker 4: a permanent or a longer term shocked or confidence because

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Speaker 4: I'm sure there are households and businesses out there that

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Speaker 4: are thinking, we didn't you know that this war wasn't

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Speaker 4: on the being card. What else could happen, we're not

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Speaker 4: going to be as risk taking as we were previously.

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Speaker 5: Well, it sort of felt like that for a while,

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Speaker 5: it really hasn't. I mean, we've had so much policy

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Speaker 5: uncertainty in the past twelve months to get what came before.

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Speaker 5: That's right, And I mean consumers are quite short term focus.

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Speaker 5: When we look at inflation expectations, consumers basically expect inflation

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Speaker 5: to be whatever it was, and petrol is actually a

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Speaker 5: key driver of inflation expectations. So consumers generally are a

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Speaker 5: bit shorter lived. I guess in that process of thinking

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Speaker 5: about what's ahead. Businesses, yes, it might it might take

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Speaker 5: a bit longer for them to become a bit more

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Speaker 5: confident again. But again, the macro environment is just changing

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Speaker 5: so quickly. I mean a few months ago we were

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Speaker 5: talking about the impact of tariffs, and then the Supreme

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Speaker 5: Court decision around tariffs in the US, and now we're

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Speaker 5: talking about a war. So what could happen next? Is

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Speaker 5: just when we look at things like trade policy, uncertainty

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Speaker 5: around the world is actually around a record high, and

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Speaker 5: that is fundamentally due to the politics and the policies

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Speaker 5: that are coming out of the different of the different

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Speaker 5: governments around the world and in particular the US.

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Speaker 1: In the US, you guys were talking about the gas prices,

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Speaker 1: retail gas prices averaging at the highest level in more

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Speaker 1: than two years. When you have a midterm election coming

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Speaker 1: up in November. How does this change sort of the

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Speaker 1: retrajectory and the views on inflation expectations for the Federal

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Speaker 1: Reserve And what are the implications then of those change

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Speaker 1: expectations for central banks across Asia.

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Speaker 5: Well, we know that Trump in the administration is very

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Speaker 5: cognizant of the housing affordability store in the US and

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Speaker 5: just the general cost of living affordability story. So I

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Speaker 5: think from that point of view, that's a major constraint

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Speaker 5: on the war in the Middle East, that they have

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Speaker 5: to reduce the cost of living pressures for consumers, and

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Speaker 5: that's likely that is one of the main reasons why

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Speaker 5: the war probably will not be prolonged for the rest

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Speaker 5: of this year, because they do have the midterms coming up.

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Speaker 5: I think for the FED, they're probably more comfortable with

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Speaker 5: holding rates steady for a bit longer compared to a

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Speaker 5: bank like the Reserve Bank, because growth is holding up

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Speaker 5: a k In the US, it's sort of been mixed lately.

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Speaker 5: Inflation is at an okay level too, you know, they're

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Speaker 5: sort of obviously higher than the target, but it's not

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Speaker 5: at a runaway level or a problematic level like the

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Speaker 5: RBA would see it here. So, I mean, the FED

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Speaker 5: is being put in a difficult place right now because

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Speaker 5: inflation is going to increase in the short term, but

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Speaker 5: there's probably no real need right now to cut interest

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Speaker 5: rates at a very quick level. In the US.

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Speaker 1: We're seeing sort of a similar feeling across the world

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Speaker 1: with major central banks. Traders thinking that major central banks

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Speaker 1: will actually delay any rate cuts and perhaps being a

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Speaker 1: little bit more hawkishly given those inflation expectations. One of

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Speaker 1: the implications for banks like the Bank of Japan because

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Speaker 1: that also it's more pressure on the Japanese yen.

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Speaker 5: Yeah, I mean, all the central banks are sort of

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Speaker 5: going through the same thought process, I suppose. I mean, again,

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Speaker 5: for Japan, the focus will probably be more on the

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Speaker 5: fiscal side in the short term rather than on the

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Speaker 5: monetary side. My personal bias is that at a time

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Speaker 5: when inflation's rising mostly or mostly due to supply issues

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Speaker 5: because of higher oil prices and the impact that that

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Speaker 5: has going through the supply chain. It doesn't really make

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Speaker 5: sense to be raising interest rates when the impact of

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Speaker 5: that is really on the demand side. So I think

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Speaker 5: that's probably just means that most central banks will probably

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Speaker 5: want to wait and see what happens in the next

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Speaker 5: month or two, because we keep on getting headlines from

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Speaker 5: the US that this is not going to be a

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Speaker 5: prolonged war, that they want this to end soon, and

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Speaker 5: clearly they're trying to find ways to reduce oil prices

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Speaker 5: right now, through through trying to open up the straight

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Speaker 5: of Haull moves, for example. So I think most central

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Speaker 5: banks will probably try and look through some of the

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Speaker 5: supply is shoes right now and hold policy unchanged.

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Speaker 2: That was Diana Mussina, Deputy Chief economist at AMP, speaking

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Speaker 2: with Bloomberg TV host Heidi Stroudwatts and Sherry On bringing

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Speaker 2: you their conversation here on the Daybreak Asia Podcast. Thanks

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Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia

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Speaker 2: Edition podcast. 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 Prisner, and this is Bloomberg