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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg day Break Asia podcast. I'm Doug Chrisner,

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Speaker 2: and we begin with tariffs. On Monday, President Trump is

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Speaker 2: planning to announce levies of twenty five percent on imported

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Speaker 2: steel and aluminum. Joining me now for a closer look

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Speaker 2: is Brian Fowler. He is senior editor for Bloomberg's North

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Speaker 2: Asia Eco GUV team. He joins us from our studios

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Speaker 2: in Tokyo. Thanks for making time. I'm sure it's a

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Speaker 2: busy day where you are. So we know, Brian, that Japan,

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Speaker 2: South Korea, and Taiwan are Asia's biggest steel exporters to

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Speaker 2: the US. I think Australia also exports some steel and

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Speaker 2: aluminum to the US. Do you have a sense of

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Speaker 2: how these tariffs will bite.

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Speaker 1: Yeah, and I would also just I would add Vietnam

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Speaker 1: to that lift. So we don't know exactly. I mean,

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Speaker 1: there's always the possibility that we'll see some exemptions coclusions

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Speaker 1: that kick in. I think Trump's general strategies to start

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Speaker 1: with the big sweeping gesture and then see how that

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Speaker 1: gets each country to kind of react and what he

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Speaker 1: can get from them in order to maybe mitigate some

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Speaker 1: of that impact, but we've seen share prices fall across

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Speaker 1: the board. Pasco and Korea was down four percent at

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Speaker 1: the open. Nippon Steel was down more than two and

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Speaker 1: a half percent here in Tokyo. So it's definitely bad

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Speaker 1: news for all these suppliers of steel and aluminum in Asia,

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Speaker 1: and of course Canada and Mexico and Brazil as well.

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Speaker 2: I think the timing here is very interesting, particularly in

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Speaker 2: light of the fact that just last week Prime Minister

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Speaker 2: Ishiba was at the White House and Nipon Steel came

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Speaker 2: up as a part of the discussions. One of the

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Speaker 2: takeaways here, at least from President Trump's viewpoint, is that

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Speaker 2: Nipon will now invest heavily in US Steel rather than

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Speaker 2: a full blown acquisition of the company. Give me your

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Speaker 2: take on that before we talk a little bit about

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Speaker 2: the pact that Ishiba's visit had.

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Speaker 1: Yeah, so that was a big question going into Ishuba's visit.

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Speaker 1: We kind of knew that Trump was not in favor

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Speaker 1: of an outright acquisition. We didn't know exactly how far

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Speaker 1: or how hard Ishiba would push for it. The companies,

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Speaker 1: of course, are still trying to push for an actual

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Speaker 1: deal an acquisition deal. But that seems that the two

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Speaker 1: leaders did agree that if that's maybe a bridge too far,

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Speaker 1: that a big investment from the pone steal and US

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Speaker 1: Steel would be another way to go. Ishiba came back

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Speaker 1: from the trip and on Sunday he was on TV

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Speaker 1: in Japan talking about it, and he voiced support for

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Speaker 1: the idea of an investment, citing Trump's sort of emphasis

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Speaker 1: on not letting that US deal asset be controlled by

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Speaker 1: a foreign entity. So it seems that the two leaders

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Speaker 1: are on board with that. We'll have to see how

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Speaker 1: the companies react later today.

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Speaker 2: From what I've read according to Bloomberg's reporting is that

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Speaker 2: Ishiba had an easy win when it came to energy policy.

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Speaker 2: What happened here?

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Speaker 1: Yeah, So first of all, I mean the trip was

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Speaker 1: kind of a gamble on the part of Ishiva. I mean,

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Speaker 1: we really did not know how he was going to do.

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Speaker 1: We knew, you know, Abe Shinzo Abe and Trump forged

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Speaker 1: a really fond close relationship that was genuine, and Ishiba

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Speaker 1: is a little bit more you know, soft, soft, muted.

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Speaker 1: He's a little bit introverted, and we didn't think he

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Speaker 1: would do that well. But it turns out that he

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Speaker 1: got there, and he managed to combine flattery with an

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Speaker 1: emphasis on all the investment that Japanese companies are going

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Speaker 1: to make in the US to set a positive tone

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Speaker 1: for those talks. And Trump did say, well, you know,

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Speaker 1: I do want you to help help us reduce the

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Speaker 1: US trade deficit of Japan. But that's a relatively tame push,

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Speaker 1: and there was no direct thread of tariffs against Japanese

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Speaker 1: cars or pharmaceuticals, so it really looked like a big

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Speaker 1: win for Ishiba. But then, of course, you know, hours

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Speaker 1: later we had not only the steel and aluminum terariffs,

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Speaker 1: but talk of reciprocal tariffs. So obviously trade remains a

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Speaker 1: huge sort of point of concern and uncertainty for the

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Speaker 1: whole world.

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Speaker 2: As you know, well, Japan imports nearly all of its energy,

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Speaker 2: and I think there's a deal now for Japan to

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Speaker 2: take a little bit more LNG from the US.

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Speaker 1: Is that right? Yeah? And that was a big plus.

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Speaker 1: I think it was kind of a win win for

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Speaker 1: both sides because, as you say, Japan needs that energy

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Speaker 1: and Trump wants pledges for purchasing that. Japan also talked

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Speaker 1: about possibly investing and contributing to the pipeline project in Alaska.

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Speaker 1: That's for gas and oil. That's another thing that Trump

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Speaker 1: was looking for and probably kind of an easy win

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Speaker 1: for Ishiba to suggest because it's in Japan's interest as well.

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Speaker 2: What about the security alliance between these two countries their

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Speaker 2: allies after all.

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Speaker 1: Yeah, their allies, And let's be clear, being allies hasn't

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Speaker 1: really helped everyone, you know, Canada and Mexico or allies.

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Speaker 1: But Japan, of course is not involved in any kind

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Speaker 1: of fentanyl or drug trade. No one accuses Japan of

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Speaker 1: being in that area, and it doesn't share a border

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Speaker 1: with the US, so there's no complaints about immigrants or

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Speaker 1: anything like that. And instead, in place of that, Japan

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Speaker 1: remains the bulwark for democracy and US security interests in Asia.

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Speaker 1: So I think that played into the hands of Ishiba

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Speaker 1: and helped create a very friendly atmosphere for those talks.

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Speaker 2: One of the things that happened during the Biden administration,

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Speaker 2: the administration then was effectively able to enlist Japan with

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Speaker 2: a lot of export controls targeting China. Do you expect

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Speaker 2: there to be a continuation of that type of policy

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Speaker 2: now that mister Trump is in the office.

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Speaker 1: It's going to be very interesting to watch and see

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Speaker 1: how that plays out. Ishiba has not been particularly tough

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Speaker 1: on China to date since taking over the premiership, but

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Speaker 1: I think he's definitely whey of the security threats, and

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Speaker 1: Japan is very interested in protecting its regional assets in

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Speaker 1: the san Kakus, for example, and so I think maybe

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Speaker 1: with the relationship forged over the weekend, Japan probably would

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Speaker 1: be very likely to go along with what the US

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Speaker 1: requests in this part of the world.

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Speaker 2: Brian, before I let you go, the Bank of Japan

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Speaker 2: is on many people's minds in terms of tightening a

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Speaker 2: little bit here as Japan deals with more robust inflation.

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Speaker 2: Do we have a sense of how well inflation is

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Speaker 2: under control in Japan right now or is there an

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Speaker 2: upward push that may cause the BOJ maybe to raise

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Speaker 2: rates as soon as March.

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Speaker 1: Yeah, that's an excellent question. I'm glad you asked. So

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Speaker 1: the consensus is analysts are looking for the next hike

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Speaker 1: to come in summer in July, but I would say no,

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Speaker 1: I think it could come earlier than that. We're going

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Speaker 1: to see not only inflation which has been at the

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Speaker 1: boj's target for about three years, at or above that target,

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Speaker 1: for three years. But we're also going to see the

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Speaker 1: culmination of annual wage negotiations in March, and it's looking

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Speaker 1: like we're going to see it robust pledges for wage

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Speaker 1: increases this year, which would feed into the whole cycle

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Speaker 1: that the BOJ wants to see of wages boosting consumption

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Speaker 1: boosting prices. So I think there's a pretty good case

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Speaker 1: to be made for Actually, I would say April, late April,

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Speaker 1: early May. The next meeting that I'm looking at is

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Speaker 1: a two day meeting that kind of is over that

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Speaker 1: late end of April, top beginning of May.

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Speaker 2: All right, we'll leave it there, Brian, Thank you so much,

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Speaker 2: great stuff. Brian Fowler, senior editor for Bloomberg's North Asia

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Speaker 2: Eco Gov team, joining us from Tokyo here on the

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Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast

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Speaker 2: Time Doug Chrisner. A key data point and the week

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Speaker 2: ahead will be the report on US retail inflation. It

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Speaker 2: is due on Wednesday. Now, it seems as though the

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Speaker 2: progress toward further disinflation has essentially stalled, just as the

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Speaker 2: job market revvved up late last year. You might recall

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Speaker 2: it last Friday in the States, the government reported that

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Speaker 2: employment growth showed kind of moderation, but still a very

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Speaker 2: healthy labor market. Joining me now for a closer look

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Speaker 2: at Shem's of Zaul. He is managing director at the

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Speaker 2: Carnegie Investment Council. Joining from Toledo, Ohio, Shams, thank you

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Speaker 2: so much for making time to chat with us. Talk

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Speaker 2: to me a little bit about how you see the

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Speaker 2: progress on inflation right now and whether there is the

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Speaker 2: risk that it could prove perhaps a little more sticky

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Speaker 2: than the market is braced for, and whether that could

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Speaker 2: lead to higher for longer rates.

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Speaker 3: Yes, I think the dynamics today obviously are taking into

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Speaker 3: consideration the unknowns from the tariffront, and so you know,

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Speaker 3: three months ago we may have expected two to three

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Speaker 3: rate cuts and now most people are thinking maybe one

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Speaker 3: to two. So that has been in minor adjustment there.

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Speaker 3: It could end up becoming only one if it ends

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Speaker 3: up being that, you know, Mexico and Canada are back

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Speaker 3: on at the twenty five percent tariff level, so certainly

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Speaker 3: a lot of uncertainty there, and we're looking at the

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Speaker 3: markets also sort of reacting to this. When you see

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Speaker 3: some days when the market takes to dive then but

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Speaker 3: the yield goes up, and then there are other days

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Speaker 3: markets sell off and the yields don't go down. And

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Speaker 3: generally speaking, we're only seeing any improvement on the ten

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Speaker 3: year yield when there's an actual growth scare. Without the

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Speaker 3: growth scare, we're not seeing the yield's budge. And when

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Speaker 3: we think about inflation, the housing component of inflation, still

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Speaker 3: being about one third of it, is becoming one of

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Speaker 3: the stickiest pieces of the puzzle. So it's a chicken

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Speaker 3: and egg kind of problem where you want inflation to

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Speaker 3: go down, but the housing component is not going down,

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Speaker 3: but you need the rates to go down before housing

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Speaker 3: inflation goes down. So which one happens first remains to

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Speaker 3: be seen.

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Speaker 2: I mentioned that jobs data on Friday, but the other

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Speaker 2: report that we got that I think is especially significant,

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Speaker 2: the University of Missing a data on consumers sentiment. We

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Speaker 2: saw a deterioration in early February. I think that metric

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Speaker 2: fell to a seven month low, consumers expressing a lot

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Speaker 2: of concern about rising inflation going forward. I think the

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Speaker 2: prediction here consumers seeing an annual rate of around four

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Speaker 2: point three percent, that in and of itself has to

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Speaker 2: be troubling, and I would imagine that consumers are making

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Speaker 2: the direct connection to the thread of tariffs.

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Speaker 3: Absolutely. I think there was a deeper dive into the

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Speaker 3: cross tabs, if you will, of that survey, and what

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Speaker 3: the survey is showing is the partiesivean divide in terms

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Speaker 3: of how half the country was looking at inflation the

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Speaker 3: last four years versus the other half looking at inflation

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Speaker 3: this time around. And there's a bit of a political

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Speaker 3: bias there, so I think we need to take that

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Speaker 3: into consideration. But I think overall, the expectations are that

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Speaker 3: from the first term he did see prices domestically go

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Speaker 3: up because when steel tariffs were announced back in twenty eighteen,

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Speaker 3: domestic producers actually matched the price increases to remain at

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Speaker 3: the same price discrepancy, so that there is no price

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Speaker 3: arbitrage remaining. And if the same thing actually shows up

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Speaker 3: this year, then you have to expect the goods component

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Speaker 3: of inflation will remain very much elevated, and that becomes

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Speaker 3: quite a big, quite a bit of a risk for

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Speaker 3: those of us wanting to see five percent thirty year mortgages,

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Speaker 3: you know, show up at any point this year.

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Speaker 2: We will also hear from Fetcher J. Powell In the

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Speaker 2: week ahead, he has two days of testimony before Congress,

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Speaker 2: the Senate first on Tuesday, then the House Financial Service

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Speaker 2: Committee on Wednesday. Does he have a particularly tough job

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Speaker 2: right now? Yes, the economy seems to be resilient, but

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Speaker 2: there is so much unknown when it comes to the

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Speaker 2: policies of the new administration.

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Speaker 3: Absolutely, I think he probably caught a bit of a break.

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Speaker 3: Was the most surprising I think aspect of last week,

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Speaker 3: which is when Treasury Secretary Scott Besson came out and

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Speaker 3: said that they're going to be hyper focused on the

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Speaker 3: ten year yield and how they could bring about dysflationary

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Speaker 3: disinflationary aspects of you know, supply side economics to bear

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Speaker 3: rather than put the pressure on Chairman Powell as they

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Speaker 3: did the first term. So that was benefit relief. So

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Speaker 3: I think, you know, we may not see that much

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Speaker 3: of a contentious, contentious relationship this time around, but how

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Speaker 3: Powell speaks to the uncertainties of the you know, sort

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Speaker 3: of the ted for tat of the tariff wars will

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Speaker 3: be eliminating in terms of how they're making policy decisions.

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Speaker 3: As a result of you know, the very early you

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Speaker 3: know months of the Trump.

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Speaker 2: Administration, so I hear what Treasury Secretary Besont was saying

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Speaker 2: about short term FED policy the FED funds rate. But

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Speaker 2: I'm wondering whether there is a risk that at some point,

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Speaker 2: if the ten year yield does not come down, that

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Speaker 2: the administration could put a little bit of pressure on

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Speaker 2: the Fed to use something like quantitative easing as a

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Speaker 2: way of bringing yields in. Do you think that's a

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Speaker 2: risk at all.

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Speaker 3: Well, the administration wanting to put them on the scale

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Speaker 3: in itself is not a risk. How the Fed deals

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Speaker 3: with that, you know, remains to be seen. My feeling

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Speaker 3: is that the treasury, the ten year treasury rather, has

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Speaker 3: had a high correlation over the last two years with

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Speaker 3: the US dollar. So if the threat of tariffs actually

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Speaker 3: take a back seat, I think so will the yields.

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Speaker 3: So regardless of whether we get two rate cuts or

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Speaker 3: more than that, if the yield follows the US dollar,

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Speaker 3: then we should be quite okay.

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Speaker 2: Are we going to have to just accept that there's

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Speaker 2: just going to be so much more volatility in markets,

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Speaker 2: particularly on the equity side.

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Speaker 3: Well, that's I think very much a given at this point. Generally,

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Speaker 3: the first term of an incoming president is not that

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Speaker 3: volatile because you know, you have quite a lot of

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Speaker 3: of you know, expansionary policy, and markets tend to like that.

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Speaker 3: But this time around, with the DOGE and everything else,

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Speaker 3: that has sort of added to the mix, you know,

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Speaker 3: you have to brace for much higher levels of volatility

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Speaker 3: than the mid teens. You know, VIX reading that we're

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Speaker 3: getting so far into February.

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Speaker 2: What about leadership? Last year the story was about megacap technology,

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Speaker 2: particularly as it relates to artificial intelligence. Will that continue

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Speaker 2: to be kind of the driving theme this year?

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Speaker 3: Well, from the very early readings from the quarter four

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Speaker 3: earning scores that we have seen from Google, Microsoft, Amazon,

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Speaker 3: et cetera, that if you felt that one hundred and

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Speaker 3: eighty five billion dollars worth of capital expenditures from five

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Speaker 3: names alone in technology was going to be, you know,

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Speaker 3: a high water mark. I think many of them are

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Speaker 3: basically doubling down. And we're looking at more than one

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Speaker 3: percent of US GDP worth of capital expenditures coming from

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Speaker 3: four names alone in this space. So I think the

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Speaker 3: growth scare aspect of the market volatility is probably overdone.

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Speaker 3: We don't see recession in the horizon anytime soon. The

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Speaker 3: challenge ends up becoming you know that the expansionary policy

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Speaker 3: remains in place, and therefore, you know, any further improvement

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Speaker 3: on the yield curve, you know, remains pushed back, perhaps

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Speaker 3: into late twenty twenty five or even twenty twenty six.

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Speaker 2: To what extent has the thesis on artificial intelligence in

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Speaker 2: the US been disrupted by the story on China's Deep Seek, Well, I.

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Speaker 3: Think, you know, it's gone through multiple phases over the weekend,

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Speaker 3: maybe a weekend ago, or perhaps two weekends. At this

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Speaker 3: point it was all about, okay, you know, maybe the

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Speaker 3: stranglehold that the MAC seven have on AI is going

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Speaker 3: to be no longer. But as we have dug into

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Speaker 3: really the output from Deep Seak, it's appearing to be

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Speaker 3: that a lot of the output is very derivative in

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Speaker 3: terms of perhaps the model was trained on the output

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Speaker 3: of chat GBT itself. Right. But I think there's some

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Speaker 3: significant breakthroughs that the Chinese have achieved, especially when it

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Speaker 3: comes to assembly language efficiency, which I think our engineers

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Speaker 3: probably can learn from and can adapt to. But I

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Speaker 3: think some of the fears have subsided because people are

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Speaker 3: realizing that some of the breakthroughs that Deep Seek has

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Speaker 3: brought to bear can be easily replicated, and again the

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Speaker 3: US will still have the treasure trove of the data

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Speaker 3: that future models are going to be trained upon. So

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Speaker 3: the long term AI leadership doesn't really change in my eyes,

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Speaker 3: but I think we have a competitor to take seriously

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Speaker 3: at this point for sure.

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Speaker 2: So Sham's in terms of an investment strategy for the

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Speaker 2: year ahead, I'm hearing strong dollar that may be a

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Speaker 2: headwind for US multinationals and maybe you just don't have

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Speaker 2: enough in terms of economic growth here in the US

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Speaker 2: to justify a big bed on some of the small

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Speaker 2: cap names. I'm wondering whether you want to be more

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Speaker 2: exposed in the days ahead to kind of MidCap companies.

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Speaker 3: Well MidCap unless you know you're picking individual names. You know,

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Speaker 3: making a bed on Russell one thousands of the world

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Speaker 3: does end up bringing a lot of regional banks in

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Speaker 3: the mix, a lot of mortgage companies in the mix,

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Speaker 3: So that may not be an ideal solution. We are

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Speaker 3: thinking that, you know, when you look across maybe the

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Speaker 3: large caps and look into MechTech space within healthcare that

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Speaker 3: does not have, you know, seem to be caught into

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Speaker 3: the tit for tat when it comes to the trade wars.

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Speaker 3: I think that's probably a reasonable place to look at

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Speaker 3: some of the pharmaceutical names that have taken a massive

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Speaker 3: hit as a result of some of the fears from

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Speaker 3: RFK Junior's you know, nomination announcement. We start to see

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Speaker 3: that maybe there's some value there as well. And certainly

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Speaker 3: we don't think Max seven is going to give up

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Speaker 3: the leadership anytime soon. But I think within the large

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Speaker 3: cap space is where we would recommend more want investors

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Speaker 3: to remain in place, unless you know, we start to

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Speaker 3: see a growth scare and maybe a faster curbing of

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Speaker 3: the you know, yield on the ten year, that might

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Speaker 3: change the equation, But for now we suggest that, you know,

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Speaker 3: stick to the large caps.

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Speaker 2: Shams will leave it there. Shams Azal is Managing director

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Speaker 2: at the Carnegie Investment Council, joining us from Toledo, Ohio.

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Speaker 2: Here on the Daybreak Asia Podcast. Thanks for listening to

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

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

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

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

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

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

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Speaker 2: and this is Bloomberg