Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm deg Krisner. So
Speaker 2: we made it. It's the final trading day of the week,
Speaker 2: one that has been characterized by elevated market volatility and
Speaker 2: that has very much been connected to the story on
Speaker 2: US tariffs. The consensus seems to be that these tariffs
Speaker 2: will lead to much slower economic growth, possibly a recession.
Speaker 2: Let's take a closer look at what we have seen
Speaker 2: in markets and where we may go from here. Joining
Speaker 2: us now from Singapore is Mary Nicola. She is Bloomberg
Speaker 2: Markets Live strategist. How would you characterize this week?
Speaker 1: Oh, it's been a rough week. Let's say, just happy
Speaker 1: Friday from us here in Singapore. It's obviously there's the
Speaker 1: focus on the tariffs, and then of course you have
Speaker 1: the government budget deadline as well, so there's been a
Speaker 1: lot of heightened volatility as a result. But of course
Speaker 1: the tradespat this constant back and forth on tariffs, and
Speaker 1: then of course the retaliation measures that other countries have
Speaker 1: been taking as a result is keeping markets on edge,
Speaker 1: and of course here in Asia where potentially they could
Speaker 1: be they're going to be affected by all of these tariffs.
Speaker 1: This week hasn't been very good to them.
Speaker 2: Is it dollar positive though? Is that really the story
Speaker 2: of the week, when the US begins to take these
Speaker 2: extreme measures, that the dollar becomes the beneficiary.
Speaker 1: Yeah, you would think so, because let's say, if we
Speaker 1: look back at the dollar smile. So the dollar has
Speaker 1: been benefiting from US exceptionalism for quite some time. Now
Speaker 1: that story has faded and the narrative is now shifting
Speaker 1: towards does the dollar start benefiting from a haven status?
Speaker 1: And there are pockets of that scene over the course
Speaker 1: of the week, But for example, right now, it'll be
Speaker 1: very difficult to invest in emerging market currencies when there's
Speaker 1: so much volatility. You know, when the US is going
Speaker 1: to slow, so is the rest of the world, and
Speaker 1: most likely is emerging markets, especially when you don't see
Speaker 1: that strong recovery in that pull really coming through yet
Speaker 1: from China. So you would think that, especially against emerging markets,
Speaker 1: the US dollar is going to gain.
Speaker 2: One of the things that's been underpinning dollar strength, and
Speaker 2: you and I have talked about this in the past,
Speaker 2: is FED policy. Today we heard from the former head
Speaker 2: of the New York Fed, Bill Dudley, and he was
Speaker 2: saying the FED could essentially be in a bind if
Speaker 2: tariffs lead to slower growth and then at the same
Speaker 2: time higher inflation expectations. So it could be setting the
Speaker 2: stage for something that feels a lot like stagflation. Does
Speaker 2: it not?
Speaker 1: Absolutely? And I think you're getting whiffs of that coming through.
Speaker 1: And the last thing that the market wants to see
Speaker 1: is stagnation, so slow growth, no growth, and then higher
Speaker 1: inflation because at that point you don't want to keep
Speaker 1: onto any US assets, So that's really hurts US equities,
Speaker 1: that hurts the dollar. They don't know where to go,
Speaker 1: but you're trying to look for alternatives. So right now,
Speaker 1: where the alternative is or where you're seeing some positivity
Speaker 1: is coming from places where you're seeing, for example, the
Speaker 1: looser fiscal policy, so from Europe and China. But at
Speaker 1: the same time, you know the FED is just stuck
Speaker 1: in such a has seen a more difficult trajectory for
Speaker 1: their policy given these headwinds.
Speaker 2: You were talking about haven's status a moment ago. Is
Speaker 2: it related to the dollar? Has the end been a
Speaker 2: haven at all in this period?
Speaker 1: Yeah, we've started seeing pockets of the end and obviously
Speaker 1: the yen has an extra tailwind coming through because the
Speaker 1: BOJ has been a lot more clear about its objectives
Speaker 1: and saying that it's not concerned about the recent rise
Speaker 1: and yields and that you know, the economic outlook is
Speaker 1: being realized, almost setting the stage for next week's meeting
Speaker 1: to be more of a hawkish hold, and that's going
Speaker 1: to get yen bulls excited.
Speaker 2: So when are we expecting the next great hike from
Speaker 2: the BOJ?
Speaker 1: So the market is currently not even positioning for anything
Speaker 1: next week. There's about a twenty four percent chance for
Speaker 1: something in April, but I would suspect that if we
Speaker 1: get a hawkish hold, that could increase those odds quite significantly.
Speaker 1: But a lot of the expectation for it is going
Speaker 1: to be further out, more so towards the middle middle
Speaker 1: of the year. That where you could where markets are
Speaker 1: currently pricing, but based on the rhetoric, we could see
Speaker 1: that moving a lot sooner rather than later.
Speaker 2: You were also talking there briefly about China stimulus. It's
Speaker 2: not just what's happening on the fiscal side, it's happening
Speaker 2: in vis VI the PBOC.
Speaker 1: Right, Yeah, So we're the currency has been really quite stable,
Speaker 1: especially in what we're seeing, and the stability of the
Speaker 1: currency has been absolutely crucial. What has been quite disappointing
Speaker 1: is messages from the PBOC that they're not looking to
Speaker 1: anytime soon, and that's been quite disappointing. But where we're
Speaker 1: seeing is that they're anchoring the currency, and the anchoring
Speaker 1: in the currency has been quite important in terms of
Speaker 1: how it guides other currencies, and it's been the anchor
Speaker 1: of stability. So you haven't seen drastic losses in other
Speaker 1: currencies as a result of this stability in the Chinese
Speaker 1: You on.
Speaker 2: What about other markets that are especially prone or sensitive
Speaker 2: to changes in trade policy. I'm thinking of South Korea
Speaker 2: in particular.
Speaker 1: Yeah, South Korea is one of the ones that is
Speaker 1: probably going to be one of the hardest hit. Not
Speaker 1: only is it a small, open economy, but it also
Speaker 1: has the US runs a deficit with Korea, so that's
Speaker 1: also in the eye of the storm. Anything that we're
Speaker 1: seeing in discussion on steel, aluminum autos, those are all
Speaker 1: put Korea in a particularly vulnerable position. So we have
Speaker 1: to keep in mind too that this region is filled
Speaker 1: with a lot of small, open economies. So if that's
Speaker 1: if these trade wars escalate, or this trade escalates, a
Speaker 1: lot of these countries are going to be very hard hit.
Speaker 2: You mentioned physical stimulus or fiscal spending at the very
Speaker 2: least happening in Europe, especially Germany, and we've talked a
Speaker 2: little bit earlier in the week about money flowing into
Speaker 2: those European markets. Is that something you expect will continue.
Speaker 1: Yeah, so it looks like there's some hiccups right now
Speaker 1: that the German Parliament is experienced in terms of passing
Speaker 1: a budget. I think once we get that budget solidified
Speaker 1: and confirmed that we're going to see more defense spending
Speaker 1: and more and more infrastructure spending. I think Europe has
Speaker 1: significantly potential upside because remember we've Germany especially has been
Speaker 1: marred by a couple of years of stagnation, and so
Speaker 1: it now looks like, especially with this with more spending,
Speaker 1: the outlook for growth looks a lot more optimistic and
Speaker 1: that really can help push equities and the euro.
Speaker 2: You mentioned the BOJ meeting in the week ahead. Are
Speaker 2: there other things that you're looking at next week that
Speaker 2: really have the potential to move markets other than the
Speaker 2: tear off story.
Speaker 1: Yeah. So the China data dump on Monday is going
Speaker 1: to be big because of the fact that we're trying
Speaker 1: to see if the fiscal push is still coming through.
Speaker 1: We saw that in the data, the loans data, especially
Speaker 1: in January, where we started seeing fiscal stimulus coming through
Speaker 1: and having an impact. But now because of the measures
Speaker 1: that the government has announced, every single data dump that
Speaker 1: comes through from China is going to be highly scrutinized
Speaker 1: to see whether a lot of these if the policy
Speaker 1: implementation is really coming through and coming through into the data.
Speaker 1: So I would say that's one of the main ones.
Speaker 1: Of course the FED as well in terms of how
Speaker 1: especially because they're releasing their forecasts in their projections, so
Speaker 1: do they start showing, as we discussed earlier, do we
Speaker 1: start seeing slower growth and higher inflation, because that would
Speaker 1: really spook the market.
Speaker 2: So before I let you go to start your weekend,
Speaker 2: you're in Singapore and we know that that is particularly
Speaker 2: a sensitive market to trade flows. What is the mood
Speaker 2: right now in the Lion City.
Speaker 1: Confusion? I would say I think it's more of a
Speaker 1: it's definitely taken on a much more somber tone in
Speaker 1: terms of where does this leave us and how are
Speaker 1: we going to be affected? So there's a combination of uncertainty.
Speaker 1: There's a combination of confusion, and of course there's always
Speaker 1: that glimmer of hope because we've seen President Trump renege
Speaker 1: on policies over and over again. Is that does he
Speaker 1: renege on some of these tariffs as well, and does
Speaker 1: he just use them as a bait in terms of
Speaker 1: getting a better deal, which is still shows there's a
Speaker 1: glimmer of underlying hope. But I think, just like what
Speaker 1: we're seeing in the US, there's just a lot of
Speaker 1: uncertainty out there.
Speaker 2: No doubt about it, especially when you consider that those
Speaker 2: reciprocal tariffs have yet to take effect. I think we're
Speaker 2: expecting some sort of announcement as soon as April to second, Mary,
Speaker 2: thank you so much. Enjoy the weekend, Mary Nicola. There
Speaker 2: Bloomberg Markets Live strategists joining us from our studios in
Speaker 2: Singapore here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Dog Prisner. The equity market
Speaker 2: retreated into a correction today. That was after some heated
Speaker 2: rhetoric on the trade war. President Trump threatened to enact
Speaker 2: at two hundred percent levy on European wine, champagne and
Speaker 2: other alcoholic beverages. He made this threat in response to
Speaker 2: the EU's plan to tax American whiskey. Now, I think
Speaker 2: it's painfully obvious that Trump's policies on trade have rattled
Speaker 2: nerves in global markets. Closer look, let's bring in Sandy Braeger.
Speaker 2: She is the chief client officer at Esperience, joining us
Speaker 2: from San Francisco, California. Sandy, thank you for making time
Speaker 2: to chat with us. Where are you right now in
Speaker 2: understanding the risk of this tariff policy. I mean, we've
Speaker 2: been talking a lot in the last few days about
Speaker 2: the weakness in the equity market and about the fact
Speaker 2: that yields have come in just a little bit. Is
Speaker 2: this concerning to you right now, Doug.
Speaker 3: It's a pleasure to be back, and it is definitely
Speaker 3: something that we're watching. It's early days in all of
Speaker 3: this new policy matter. Things are changing by the hour.
Speaker 3: We do have some concerns about how this could play out,
Speaker 3: but there is we think more stimulative news to come
Speaker 3: from the administration in the form of text cuts and deregulation.
Speaker 3: So it is a little disappointing. The sequencing is a
Speaker 3: little disappointing to start with, the tariffs and spending cuts
Speaker 3: that's causing a lot of concern, and so we've definitely
Speaker 3: been holding clients' hands as we all try to understand
Speaker 3: exactly what's going on. But in the near term, it's
Speaker 3: not causing us to make any changes to our portfolios.
Speaker 2: It's interesting that you make that point about kind of
Speaker 2: M and A and activity. Bill Dudley was making a
Speaker 2: similar point. Expectations before mister Trump was sworn in were
Speaker 2: that the administration would work vigorously at trying to get
Speaker 2: some of the regulations kind of dialed back, and merger
Speaker 2: activity would pick up. We really haven't seen that at
Speaker 2: this point in time. The focus has been clearly on
Speaker 2: trade policy. Does that concern you a little bit that
Speaker 2: the M and A part of the story is still
Speaker 2: kind of tepid.
Speaker 3: Well, we do expect it to come, so we're not disappointed,
Speaker 3: maybe a little more annoyed because the markets really are
Speaker 3: concerned about what's happening from the tear perspective, and people
Speaker 3: are really playing that forward and being worried about recession.
Speaker 3: We think it's still early days, and we think that
Speaker 3: it's really important for our clients who are corporate executives,
Speaker 3: family business owners, and entrepreneurs to remain invested and to
Speaker 3: maintain very diversified portfolios. We think that's going to continue
Speaker 3: to help, as it has over the last several weeks.
Speaker 2: Dudley was also saying that what we're dealing with right
Speaker 2: now could put the FED in a bind, which is
Speaker 2: to say, of tariff's lead to the combination of slower
Speaker 2: growth and higher inflation expectations. That sounds to me a
Speaker 2: little like stagflation. Is that a risk that you share?
Speaker 3: Well, you know, I'm glad I'm not working for the
Speaker 3: FED right now. I think it'd be very difficult to
Speaker 3: administer monetary policy when there's all these fiscal variables in
Speaker 3: flux and they're changing rapidly. In terms of our outlook,
Speaker 3: we think that the key here is the labor market
Speaker 3: because right now, inflation but it's not decreasing as quickly
Speaker 3: as people would like. It's actually the progress is slower,
Speaker 3: but it does seem to be cooling in most areas
Speaker 3: outside of housing, which we think is generally positive. But
Speaker 3: we think the labor market's really important here. So if
Speaker 3: we see that inflation remains sticky and the labor market
Speaker 3: stays strong, then we think the FED will just continue
Speaker 3: to maintain policy rates, which will be good. And if
Speaker 3: we do see some slack in the labor market, then
Speaker 3: I think we would be in a position where we
Speaker 3: would expect FED to cut rates. And you know, it's
Speaker 3: really a matter of how quickly they can fight inflation
Speaker 3: and then what is happening with growth in the economy.
Speaker 2: I alluded to the fact a moment ago that we
Speaker 2: are now technically into kind of correction territory. Does that
Speaker 2: lead you to maybe identify some opportunities Given the pullback
Speaker 2: that we have seen in stocks, are you still feeling
Speaker 2: that we could perhaps trade lower from here?
Speaker 3: We think volatility is likely to continue, Doug and so
Speaker 3: the way we've been thinking about portfolios and deploying them
Speaker 3: is to be well diversified, as I mentioned before, and
Speaker 3: we do see some opportunities in that, and they've been
Speaker 3: playing out as the SMP five hundred has taken its
Speaker 3: recent dips. So we definitely have some allocation to bonds.
Speaker 3: We're staying on the short side there, sorry, the shorter
Speaker 3: term side there. In equities. We think there are some
Speaker 3: great opportunities around the globe, in the US as well
Speaker 3: as overseas, particularly in the areas of the equity markets
Speaker 3: that haven't rallied as much in recent years as those
Speaker 3: mag seven stocks. So talking about value stocks, quality stocks,
Speaker 3: and small cap stocks here in the US in particular,
Speaker 3: we think that if there's investors wanting to take more
Speaker 3: risk in the portfolio, small cap US stocks definitely has
Speaker 3: some room to run over the next several years. Outside
Speaker 3: of the United States, we're pretty you know, we're pretty
Speaker 3: excited about Europe overall from a valuation play. Valuations are
Speaker 3: genuinely generally lower over there, and we're definitely keeping an
Speaker 3: eye on the developments in Germany as a potential catalyst
Speaker 3: for upside economic growth because you know, it does seem
Speaker 3: like that country is getting ready to spend some money.
Speaker 2: Yeah, definitely. So yeah, So I'd like for you to
Speaker 2: kind of give me maybe your definition when you talk
Speaker 2: about quality whether a company like Adobe represents a quality name.
Speaker 2: The stock was down fourteen percent a day on a
Speaker 2: disappointing outlook. I mean, it's unbelievable how sometimes a stock
Speaker 2: can be punished severely with the slightest miss in terms
Speaker 2: of investor expectations. Is that. I know, maybe you can't
Speaker 2: comment on specific names, but with a company like Adobe,
Speaker 2: when you see a pullback to that magnitude, does it
Speaker 2: get your interest at all? Yeah.
Speaker 3: I think to answer the first question about quality for US,
Speaker 3: it's companies that are positioned to do well during good
Speaker 3: economic times and bad economic times, and also companies that
Speaker 3: have very strong balance sheets so little or no debt.
Speaker 3: So that does tend to include many tech names, healthcare providers,
Speaker 3: financial services, and certainly within those types of companies when
Speaker 3: there is a pullback on the stock price and they
Speaker 3: become less expensive than they were. From a long term perspective,
Speaker 3: we do think that there are opportunities there. But the
Speaker 3: reason why we like these quality companies is because they
Speaker 3: are in general and especially on a diversified basis, bet
Speaker 3: are positioned to do well when there's volatile markets, and
Speaker 3: as I mentioned, we are expecting volatility to continue. We
Speaker 3: also like focusing on low volatility stocks in the portfolio.
Speaker 3: They've been doing pretty good this year four percent as
Speaker 3: of today, when the SMP five hundreds down about six percent.
Speaker 3: So this diversification is really important. A lot of folks
Speaker 3: get tricked into thinking because they have index holdings that
Speaker 3: they have a diversified portfolio. But with the SMP five
Speaker 3: hundred in particular, so concentrated among a few stocks. There's
Speaker 3: not nearly as much diversification there as people think, and
Speaker 3: we think there's opportunity outside of those really big holdings.
Speaker 2: So you deal with a lot of clients directly on
Speaker 2: a daily basis at a time when it's much easier
Speaker 2: for people to kind of track moment to moment the
Speaker 2: fluctuation in market activity and at the same time track
Speaker 2: their net worth as well. Do you see this route
Speaker 2: right now that we have seen in the equity market
Speaker 2: having potential at all to kind of feed on itself
Speaker 2: and take the economy down with it. I know tomorrow
Speaker 2: we're going to get data from the University of Michigan
Speaker 2: on consumer centiment. But if sentiment were to a road here,
Speaker 2: does that put us in a very precarious situation.
Speaker 3: I do think there is a possibility for all sorts
Speaker 3: of outcomes, and I think it's important to be prepared
Speaker 3: for them. When we're working with clients. One of the
Speaker 3: first things that we do during volatile times is we
Speaker 3: review their long term financial plan with them, so they
Speaker 3: have a chance to understand what the market volatility means
Speaker 3: to them from the perspective of their personal long range plan,
Speaker 3: so we're putting it in their context, and that's usually
Speaker 3: very helpful. Many of our clients have very long investment
Speaker 3: time horizons, and so it's important to remind them of that,
Speaker 3: and it's important to remind them of what their reliance
Speaker 3: is on market returns. I think, having lived through it
Speaker 3: and work through many, many volatile market periods, one of
Speaker 3: the biggest lessons is for investors to stay fully invested.
Speaker 3: The biggest risk I think to investors is pulling out
Speaker 3: of the market, because while that can make you feel
Speaker 3: good when things are falling around you, you never know
Speaker 3: when to go back into the market, and chances are
Speaker 3: if you wait till you feel comfortable going back in,
Speaker 3: the market is already rallied back. So I'm not sure
Speaker 3: what will happen from here, Doug, We're not. We don't
Speaker 3: expect this guy to fall. We think things are okay,
Speaker 3: but there are a lot of things in our world
Speaker 3: that are in flux, and so we think investors should
Speaker 3: be ready for all of that and should remain invested
Speaker 3: and really think about their portfolio from what they needed
Speaker 3: to do for them.
Speaker 2: Okay, So, if a client wants to dial back his
Speaker 2: or her risk profile. Let's say lighten up on the
Speaker 2: equity side, choose the bond market instead. Is there a
Speaker 2: point at the curve that you feel represents the greatest
Speaker 2: value right now? You know.
Speaker 3: I think one of the ways we would also recommend
Speaker 3: clients be diversified beyond stocks and bonds is adding diversified
Speaker 3: strategies into their portfolios. So these are strategies that may
Speaker 3: be grounded in bonds and stocks, but they're traded differently.
Speaker 3: So I think liquid alternatives managers who are investing around
Speaker 3: the globe without being constrained to any particular benchmark investments
Speaker 3: in things like gold, those are really powerful diversifiers in
Speaker 3: markets like this. So at this point we are you know,
Speaker 3: we've been deploying these three general asset classes bonds, equities,
Speaker 3: and diversifiers for quite some time, and so I would
Speaker 3: say there's no real magic allocation between those three. It
Speaker 3: really just depends upon where on the overall risk return
Speaker 3: spectrum the client is trying to be in how their
Speaker 3: own risk tolerance measures up to various asset allocations.
Speaker 2: Sandy will leave it there. It's always a pleasure. Thank
Speaker 2: you so much for making time to chat with us.
Speaker 2: Sandy Breger. There. She is the chief client Officer at Esperian.
Speaker 2: She's joining from San Francisco here on the Daybreak Asia Podcast.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg