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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 Krisner. This

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Speaker 2: Friday is when President Trump's higher reciprocal tariffs are set

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Speaker 2: to take effect for those countries without trade agreements. Well

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Speaker 2: ahead of that deadline, the US and the European Union

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Speaker 2: did reach a deal. Here's President Trump.

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Speaker 3: We are agreeing that the tariff straight across for automobiles

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Speaker 3: and everything else will be a straight across tariff of

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Speaker 3: fifteen percent.

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Speaker 2: President Trump went on to say the deal did not

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Speaker 2: include pharmaceuticals and medals, and he said the tariff on

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Speaker 2: steel and aluminum will stay the way it is, that's

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Speaker 2: fifty percent. Also, as a part of this deal, the

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Speaker 2: EU agreed to buy seven hundred and fifty billion dollars

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Speaker 2: in US energy and to invest six hundred billion dollars

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Speaker 2: in the US on time of existing investments. We're also

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Speaker 2: tracking a treaty between Australia and the UK to bolster

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Speaker 2: cooperation on the August Nuclear Submarine partnership. In a moment,

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Speaker 2: I'll be joined by Bloomberg Australia correspondent Paul Allen. But

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Speaker 2: we begin with markets. Certainly a lot to digest. In

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Speaker 2: the coming week, we have earnings from megacap tech, there's

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Speaker 2: the US jobs data do at the end of the weekend.

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Speaker 2: Most importantly midweek, it's the FED meeting. Let's take a

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Speaker 2: closer look now. Joining me is Clark Garnon. He is

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Speaker 2: the chief market strategist at Calba Investments. Joining from the

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Speaker 2: San Francisco Bay Area. Clark, thank you so much for

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Speaker 2: joining me. This week is going to be the season's

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Speaker 2: busiest week for earnings. I think we have over forty

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Speaker 2: percent of companies in the S and P five hundred

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Speaker 2: due to report Microsoft Meta Wednesday. We get Apple and

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Speaker 2: Amazon on Thursday. How are you feeling right now about

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Speaker 2: the quality of earnings from big cap tech.

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Speaker 1: We're feeling very positive.

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Speaker 4: I think even this week we saw some great earnings

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Speaker 4: come out and beating expectations, and so we're expecting to

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Speaker 4: see the same. I mean, thankfully, with the news that

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Speaker 4: came out today between the United States and the EU,

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Speaker 4: I think that's just going to continue to push US markets.

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Speaker 2: In terms of artificial intelligence being a big part of

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Speaker 2: this megacap tech story, is there something that you're going

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Speaker 2: to be looking for in particular, Maybe not so much

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Speaker 2: on what has been reported for Q two, but the

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Speaker 2: guidance on capex going forward.

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Speaker 4: The capex guidance is probably the number one thing that

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Speaker 4: I'm going to be looking at, just because over the

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Speaker 4: past few months there is so much uncertainty between tariffs

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Speaker 4: to a political et cetera, that guidance was murky. You know,

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Speaker 4: some companies were even coming out with multiple options as

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Speaker 4: to their potential earnings. But now I think that there's

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Speaker 4: so much more clarity. I think companies are able to

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Speaker 4: provide a better guidance, and so I think that's important.

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Speaker 4: And just seeing that the capex numbers are not reduced

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Speaker 4: and are continuing to grow, that's really going to be

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Speaker 4: what's most important.

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Speaker 2: So we have record highs now for the S and

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Speaker 2: P and the Nasdaq as of Friday session, and I'm

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Speaker 2: looking at a PE for the S and P right

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Speaker 2: now that's about twenty five times. You're not concerned in

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Speaker 2: the lease that this market may be a little overextended

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Speaker 2: and is perhaps a little expensive.

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Speaker 1: So I would say.

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Speaker 4: That we are concerned with the PE being up around

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Speaker 4: that twenty five number. I mean, if you do look

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Speaker 4: at the S and P four ninety three, so excluding

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Speaker 4: the MAG seven, we're actually closer to about twenty, which

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Speaker 4: if you're taking a look at internationally, they're right around

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Speaker 4: nineteen and so we actually feel confident that there has

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Speaker 4: been some breadth within the S and P five hundred.

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Speaker 4: You know, equal Weighted is slightly trailing the S and

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Speaker 4: P five hundred. So we actually feel strongly about the

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Speaker 4: other companies as well, so not just these MAG seven.

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Speaker 4: But the thing is with the MAG seven, we have

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Speaker 4: been seeing these strong earnings. So when you see strong

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Speaker 4: earnings and they just continue to grow, it is hard

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Speaker 4: not to discount them.

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Speaker 2: Clark, I'm interested to get your take on what you

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Speaker 2: see in the macro. Right now, we get the jobs

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Speaker 2: data for the US at the end of the week,

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Speaker 2: we're only expecting non farm payrolls to rise by about

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Speaker 2: one hundred and nine thousand for July, maybe a move

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Speaker 2: up in the unemployment rate to around.

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Speaker 1: Four to two.

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Speaker 2: Are you concerned about building weakness in the labor market

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Speaker 2: right now?

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Speaker 1: No, we're really not.

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Speaker 4: I mean, we've seen that unemployment number holds strong and

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Speaker 4: we're not expecting to see a difference this week. From

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Speaker 4: our stance, it's really looking at the rate cuts moving forward.

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Speaker 4: I mean We've had so many things that we've had

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Speaker 4: to bounce our focal attention on this year. Unemployment in

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Speaker 4: rate cuts obviously are the two that the FED are

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Speaker 4: looking at.

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Speaker 1: And I think the pressure has.

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Speaker 4: Just been so heavy on the FED and your own

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Speaker 4: Powell over the past few months to cut rates. I mean,

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Speaker 4: obviously we've seen some interactions between President Trump and Jerome Powell,

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Speaker 4: but we actually aren't thinking that there's going to be

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Speaker 4: a rape cut this week. So we had said from

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Speaker 4: the beginning of the year that we'd anticipate that more

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Speaker 4: towards the end of the year, and I think at

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Speaker 4: this point we are going to see it, probably in September.

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Speaker 2: So what might move the FED to reduce rates maybe

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Speaker 2: as soon as September. Would it be the fact that

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Speaker 2: they feel confident about inflation remaining under control, or that

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Speaker 2: there is more deterioration in the labor market that might

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Speaker 2: cause them to act.

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Speaker 4: You know, I think it would be the deterioration in

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Speaker 4: the labor market, because there really hasn't been any sign

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Speaker 4: of them cutting based on the inflation, and obviously with

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Speaker 4: the decision on Wednesday and not fully knowing what those

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Speaker 4: unemployment numbers are going to be. I just don't see

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Speaker 4: it happening this week.

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Speaker 2: You don't think with everything that we're talking about in

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Speaker 2: terms of new tariffs fifteen percent coming from European goods

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Speaker 2: that will be paid by US consumers, whether it's a

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Speaker 2: business or an individual. We have yet to see a

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Speaker 2: lot of that trickle down, I guess to the retail level.

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Speaker 2: But at some point consumers will be asked to maybe

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Speaker 2: pay a little bit more. And you're not concerned in

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Speaker 2: the least about the inflationary impact of tariffs.

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Speaker 1: No, I think there will be an inflationary impact. I

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Speaker 1: do think that it'll be more of a one time issue.

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Speaker 4: But that being said, I also think that it's a

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Speaker 4: matter of taking a look at wants versus needs.

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Speaker 1: So I think there's going to be certain companies that are.

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Speaker 4: Able to thrive and those companies that are more of

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Speaker 4: needs based. You know, that's just going to be something

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Speaker 4: that we're going to have to look at, like, for instance,

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Speaker 4: some of the luxury goods. And this kind of plays

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Speaker 4: into actually the deal today between the EU and the

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Speaker 4: United States. Obviously some of those companies hand Daggs, for instance,

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Speaker 4: we still could see a strong year, you know, some

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Speaker 4: of those companies Louis Vuitton in particular, have already had

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Speaker 4: a strong year. But I think between the wants and

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Speaker 4: the needs, I think people still are going to be purchasing.

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Speaker 2: So we have an initial print on GDP DO this

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Speaker 2: week and expectations that maybe we'll see just a modest

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Speaker 2: increase in household demand and business investment. How are you

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Speaker 2: feeling right now about the American consumer? First?

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Speaker 4: So, I mean, as the American consumer takes up roughly

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Speaker 4: two thirds of the GDP, I mean, we feel strongly

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Speaker 4: that consumer has been resilient.

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Speaker 1: I mean, through probably one.

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Speaker 4: Of the rockier years that we've had in the last decade,

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Speaker 4: the resilience of the consumer has been incredible, and so

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Speaker 4: we really do feel like we're going to rely on

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Speaker 4: us consumer to keep pushing us forward, and they've done

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Speaker 4: it so far this year, and I think we're going

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Speaker 4: to continue to see that.

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Speaker 2: So we're getting more of these trade deals done and

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Speaker 2: with that presumably greater certainty. Do you think the uncertainty

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Speaker 2: factor in this trade war has kept businesses from deploying

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Speaker 2: a lot of capital right now? Have they've been very

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Speaker 2: very cautious in your view?

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Speaker 4: Yes, I would say they have been cautious. This has

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Speaker 4: been the most uncertain that it's been in years. I mean,

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Speaker 4: even though we saw both equities and bonds go down

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Speaker 4: double digits in twenty twenty two, I think this year

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Speaker 4: has felt like a lot more of a shock, especially

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Speaker 4: to investors. You know, we've had clients that have been

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Speaker 4: worried out of their mind when their portfolios were maybe

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Speaker 4: even only down ten percent at the worst. And now

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Speaker 4: we're looking at markets that are up ten percent for

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Speaker 4: the year. But all of the uncertainty that we saw

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Speaker 4: throughout this year, each one of those has really started

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Speaker 4: to fall off of the table. You know, first it

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Speaker 4: was the terrorifrist, then it was geopolitical. We even were

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Speaker 4: worried more about the deficit at a certain point, and

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Speaker 4: to us, it's really just the rate cuts that's now

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Speaker 4: left on the table. So with all of these headwinds

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Speaker 4: falling off, I think we're going to see companies and

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Speaker 4: individuals feel more comfortable in order to deploy some of

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Speaker 4: that capital.

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Speaker 2: Clark will leave it there. Thank you so much for

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Speaker 2: joining us, Clark Garrinon. He is the chief market strategist

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Speaker 2: at Calbay Investments, joining from the Bay Area of San Francisco,

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

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Speaker 2: Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. Last Friday, Australia

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Speaker 2: and the UK reached a fifty year defense treaty to

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Speaker 2: underpin the construction of nuclear powered submarines. For a closer look,

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Speaker 2: I'm joined by Bloomberg's Paul Allen, joining us from our

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Speaker 2: studios in Sydney. Paul, it's always a pleasure. It's been

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Speaker 2: far too long and I'm wondering if you could begin

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Speaker 2: by just explaining to me how this deal is being framed.

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Speaker 5: This sort of fits into August, Doug, but at the

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Speaker 5: same time stands apart from it, and we can talk

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Speaker 5: a little bit about August in the moments. But over

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Speaker 5: the course of the twenty thirties and twenty forties, the

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Speaker 5: UKA an Australia plan to develop their own class of

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Speaker 5: nuclear powered submarines, the Shorthand SS and Aucust class subs.

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Speaker 5: So they'll be spending forty one billion to build up

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Speaker 5: to a dozen of these submarines in the first one

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Speaker 5: will be ready by the early twenty forties. They would

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Speaker 5: be built first in the UK, but then shipbuilding would

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Speaker 5: moved to Adelaide and South Australia as well, So it's

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Speaker 5: a jobs, jobs, jobs, high tech jobs at that. The

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Speaker 5: UK's pretty pleased with this deal as well. It would

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Speaker 5: be worth twenty seven billion to the UK economy over

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Speaker 5: the next twenty five years. But also see the United

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Speaker 5: Kingdom's nuclear submarine fleet expand from seven subs at the

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Speaker 5: moment to up to twelve. So this is sort of

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Speaker 5: an effort to really cement this part of UCUS, even

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Speaker 5: though the US seems to be well is conducting a

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Speaker 5: review of the broader deal at the moment.

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Speaker 2: So talk to me a little bit about the from

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Speaker 2: your point of view, what you understand to be this

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Speaker 2: review of the Biden era deal when it comes to

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Speaker 2: aucas something that the Trump administration has undertaken. Is this

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Speaker 2: being seen as a potential threat, Yes, it.

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Speaker 5: Is, and as with other US policy towards Australia, it's

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Speaker 5: being met with a mixture of sort of confusion and

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Speaker 5: trepidation as well, because, as you mentioned, this is a

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Speaker 5: Biden raror deal and it was unveiled with much fanfare

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Speaker 5: three years ago and it has already seen Australia contribute

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Speaker 5: quite a bit of money towards US shipbuilding capacity. I

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Speaker 5: think it's been the second eight hundred million dollar payment

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Speaker 5: has just been made, so Australias spent one point six

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Speaker 5: billion so far and the plan is to contribute to

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Speaker 5: billion by the end of this year as well. And

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Speaker 5: that is to boost US shipbuilding capacity because I'm sure,

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Speaker 5: as you know, the US fleet at the moment is

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Speaker 5: probably about a quarter below where it should be. Boats

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Speaker 5: are being produced at half the rate required, so this

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Speaker 5: is going to be a useful cash injection. So Australia's

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Speaker 5: sort of been keeping it end up in the bargain

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Speaker 5: and then suddenly we hear that albertge Colby, the Undersecretary

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Speaker 5: Defense but Policy has become a household name in Australia

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Speaker 5: now is running a review. So there's some head scratching

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Speaker 5: in Australia. There's some sort of an attitude that, well,

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Speaker 5: the British government the same thing when Kars Starmer came

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Speaker 5: to power. It's every government's right to conduct a review

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Speaker 5: when there's a new government in power. But there's just

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Speaker 5: a little bit of concern that considering this is a

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Speaker 5: Trump administration decision, who knows what's going to happen next, right.

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Speaker 2: So if we can agree, at least in the near term,

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Speaker 2: that this defense partnership between Australia and the US and

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Speaker 2: the United Kingdom will endure and it will continue to

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Speaker 2: work on trying to create a bit of security for

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Speaker 2: the Indo Pacific region. I'm curious as to whether or

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Speaker 2: not Beijing has weighed in on.

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Speaker 1: This at all.

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Speaker 5: Beijing has weighed in on this. They are not a

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Speaker 5: big fan of the Orchesteele. So it's funny in a

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Speaker 5: way that if the US did end up pulling out,

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Speaker 5: scaling back, canceling, this would be very much a win

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Speaker 5: for China and to ORCUS would be something that Beijing

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Speaker 5: would very much like to see. In terms of Australia's

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Speaker 5: point of view, I mean that there is the financial

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Speaker 5: commitment that I mentioned. There is also broad but qualified

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Speaker 5: support for proceeding with this defense spending never a particularly

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Speaker 5: popular domestic policy. But at the same time I mentioned

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Speaker 5: that qualification of support. China is Australia's largest trading partner.

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Speaker 5: There is absolutely no desire to put that relationship at risk.

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Speaker 5: You might remember a few years ago China levied a

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Speaker 5: number of trade strikes against Australia, which have now all

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Speaker 5: been wound back. And a couple of weeks ago we

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Speaker 5: had quite an extraordinary spectacle that you wouldn't have expected

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Speaker 5: to see three years ago for the Albanese the Australian

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Speaker 5: Prime Minister in China for a six day visit, taking

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Speaker 5: in a number of cities, having a banquet, lunch with

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Speaker 5: Xi Jinping, carpet really being rolled out for the Australian

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Speaker 5: leader in China, and there is no desire for that

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Speaker 5: relationship to go back where it was three years ago.

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Speaker 2: So you indicated a moment ago that initially these attack

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Speaker 2: submarines will be constructed in the UK and that at

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Speaker 2: some point transferred for kind of completion in the shipyards

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Speaker 2: in Australia. I didn't realize that Australia had that capacity

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Speaker 2: to do to actually construct vessels.

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Speaker 5: Yeah, it does. I've had the good fortune to be

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Speaker 5: able to visit the shipyards in Adelaide. That's where a

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Speaker 5: lot of the ship building takes place, and yeah, a

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Speaker 5: lot of Australia's boats are built there. The previous agreements

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Speaker 5: with New Zealand, the small neighbor to the just to

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Speaker 5: the east off here to supply frigates in the past.

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Speaker 5: So yeah, there is a pretty solid shipbuilding capability in Adelaide,

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Speaker 5: and that would be given a huge boost if nuclear

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Speaker 5: submarines were to be a start getting built there, and

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Speaker 5: that would also require the the beginning of a nuclear

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Speaker 5: power industry in Australia, which we don't have at the moment.

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Speaker 5: There's quite a bit of excitement around the number of

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Speaker 5: high tech jobs that this would create and really support

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Speaker 5: the South Australian economy as well, because South Australia is

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Speaker 5: a state that's typically struggled a bit economically.

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Speaker 2: So these new vessels I'm imagining would be under the

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Speaker 2: command of the Australian Navy.

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Speaker 5: Those vessels would that's right, And the first part of

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Speaker 5: the Auchice Agreement while these new vessels are being constructed

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Speaker 5: would be that Australia would take possession of up to

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Speaker 5: five US Virginia class submarines. Now that's kind of where

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Speaker 5: the US part of ORCUS is getting a bit unglued,

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Speaker 5: because I mentioned before, and I'm sure you're aware as well,

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Speaker 5: that the US fleet isn't quite where policymakers would like

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Speaker 5: it to be. So giving Australia a Virginia class submarine,

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Speaker 5: we're not giving it. We'll be paying for it would

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Speaker 5: require the assent of the President of the day to say, Look,

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Speaker 5: this isn't going to diminish the US ability to project

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Speaker 5: force wherever it might need to under the current circumstances,

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Speaker 5: that would be open question. So that's kind of where

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Speaker 5: the deal is struggling a little bit at the moment.

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Speaker 5: Where does Australia get a nuclear powered submarine in the

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Speaker 5: meantime until the orchest powered subs are ready and the

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Speaker 5: current Columns class submarines in Australia, well, would you for

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Speaker 5: retirement next year that the life of those is now

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Speaker 5: being extended.

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Speaker 2: Paul, Before I let you go, we've been talking a

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Speaker 2: lot today about this trade deal between the US and

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Speaker 2: the European Union, and it would be helpful if you

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Speaker 2: could bring me up to speed on where the US

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Speaker 2: and Australia are in the process of negotiating a deal.

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Speaker 2: If I'm recalling this correctly. Last week President Trump praised

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Speaker 2: Australia's decision to lift the import curbs on US beef.

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Speaker 2: Are there more things being if you're pardoned upon fleshed

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Speaker 2: out at this point.

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Speaker 5: Yeah, potentially. That appears to be one of the main

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Speaker 5: sticking points. Was that beef issue Now that's one of

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Speaker 5: those unusual trade barriers that US beef wasn't being allowed

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Speaker 5: into Australia for biosecurity reasons and dates way back to

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Speaker 5: the mad Car epidemic of well many many years ago. Now,

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Speaker 5: so that was a sticking point that's now been removed.

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Speaker 5: So now there are no barriers to US beef coming

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Speaker 5: into Australia. The broader question is anybody going to buy it?

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Speaker 5: Because Australian beef is well, it's plentiful and it's popular

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Speaker 5: as well. So I guess that's the question for another day.

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Speaker 5: But now that that trade parrier has been removed, hopefully

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Speaker 5: the relationship can proceed. Because the US still put a

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Speaker 5: tariff on Australia even though Australia runs a trade surplus

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Speaker 5: with the US, one of the few countries to do so.

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Speaker 5: So that's a bit of a head scratcher too.

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Speaker 2: We'll leave it there, Paul. It's always a pleasure. Thank

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Speaker 2: you sir very much. Bloomberg's Paul Allen joining from Sydney

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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 Prisoner

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Speaker 2: and this is Bloomberg