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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. So market's got mixed

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Speaker 1: signals on the US China trade war today, President Trump

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Speaker 1: said his administration did hold meetings with Chinese officials as

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Speaker 1: recently as this morning. Now, those remarks came after Beijing

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Speaker 1: called reports of negotiations groundless. At the same time, today

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Speaker 1: the Fed speak revive talk of a rate cut as

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Speaker 1: early as June. And in a moment we'll be speaking

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Speaker 1: with Stephen Schoenfeld, CEO of Market Vector Indexes. But we

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Speaker 1: begin this morning in the Lion City. Joining me now

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Speaker 1: is David Chow. He is the global market strategist for

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Speaker 1: the Asia Pacific at Invesco. He is on the line

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Speaker 1: from Singapore. David, thank you so much for making time

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Speaker 1: to chat with us. I think we can agree that

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Speaker 1: the signals on the trade war were a bit confusing,

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Speaker 1: President Trump saying his team is talking to China, Beijing

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Speaker 1: denying the existence of negotiations. I'm curious to begin with,

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Speaker 1: how are you understanding this situation and do you see

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Speaker 1: one side as having a particular advantage at the moment.

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Speaker 2: I think what we saw from China's reaction is very

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Speaker 2: revealing of how China's approach to the tariff war is

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Speaker 2: very different from all other countries. As you know, China

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Speaker 2: is the only country that retaliated with these reciprocal tariffs,

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Speaker 2: and the calculation I think that was coming out of

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Speaker 2: Beijing was that Trump was going to go out to

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Speaker 2: China anyways, and so less China appear weak in front

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Speaker 2: of its domestic audience, they had to hit back. And

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Speaker 2: so now I think that the calculus is perhaps less

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Speaker 2: about the economic impact than there are other geopolitical and

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Speaker 2: political considerations that are going on right now. I think

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Speaker 2: from China side, they the calculus is that the tariffs

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Speaker 2: are going to hurt America's economy a lot more than

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Speaker 2: China's economy. And as you know, in China, they have,

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Speaker 2: you know, the the political party controls monetary policy like

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Speaker 2: you know, interest rates, fiscal policy such as infrastructure or investment,

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Speaker 2: and also other components of the economy. So I think

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Speaker 2: that the calculus is that China has more tools to

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Speaker 2: respond to these terrorisms than other major economies.

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Speaker 1: Are you expecting this trade war to go on for

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Speaker 1: the foreseeable future or do you think the pain is

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Speaker 1: going to reach a particular threshold on both sides that

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Speaker 1: would lead to some type of negotiation in the near term.

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Speaker 2: I'm skeptical that we're going to have a near term

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Speaker 2: trade resolution. I know that the markets are pricing info

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Speaker 2: on for and I think it must be very difficult

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Speaker 2: to trade the tariff sentiment. But what you know, and

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Speaker 2: so if we look back at twenty eighteen or the

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Speaker 2: first trade war, those who negotiations took a long time,

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Speaker 2: you know, one plus year or for the tariff negotiations

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Speaker 2: to finally conclude. And I think this time around it's

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Speaker 2: likely as well. I don't expect any kind of near

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Speaker 2: term terraff resolution with China, you know, in the coming months.

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Speaker 1: So Treasury Secretary Besett was saying today the US and

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Speaker 1: South Korea could reach an agreement of understanding on trade

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Speaker 1: and soon as next week, presumably that would be step one.

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Speaker 1: Japan has already been in negotiations with the Trump administration.

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Speaker 1: It seems like both Japan and South Korea would be

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Speaker 1: the first countries in the APEC region to come to

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Speaker 1: some type of agreement with the United States. What does

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Speaker 1: that do at the end.

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Speaker 2: Of the day, Well, I think that makes sense because

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Speaker 2: the US has security packs with both South Korea and Japan,

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Speaker 2: and they've historically been regarded as America's friends, whereas I

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Speaker 2: think the strategy between US China is a lot different.

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Speaker 2: But I think that certainly opens the door more for

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Speaker 2: trade deals to be done in the APAC region, and

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Speaker 2: I think that is a very positive development for a

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Speaker 2: pack since many Northeast Asian economies rely on trade a

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Speaker 2: lot more than other parts of the world, and so

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Speaker 2: this could be a catalyst to galvanize Asian stocks.

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Speaker 1: So how are you discovering opportunity in markets these days?

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Speaker 1: Especially in the Asia Pacific. There's been so much volatility

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Speaker 1: that represents trading opportunities. I understand that, But if the

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Speaker 1: strategy is not trading per se, and you're looking for

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Speaker 1: something to hold on to, whether it's six to nine months,

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Speaker 1: maybe even a year from now, how are you finding opportunity?

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Speaker 2: Well, I think that we are looking at opportunities in

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Speaker 2: places where the economies are re flating, specifically Europe with

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Speaker 2: its defense spending announcement in Germany, but also other places

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Speaker 2: we expect significantly higher government stimulus and infrastructure, defense and

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Speaker 2: other places. And also in places like China, where the

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Speaker 2: government has announced additional measures to boost consumption spending. We

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Speaker 2: expect cuts to the reserve requirement and policy rate in China.

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Speaker 2: Other places in Asia, we're starting to see more monetary easing,

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Speaker 2: which is a new thing. Historically, Asian central banks have

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Speaker 2: waited for the FED to cut rates before they cut themselves.

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Speaker 2: But we're starting to see that the APAC region is

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Speaker 2: moving more toward towards boosting liquidity, which should be a

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Speaker 2: boom for markets.

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Speaker 1: So, David, I'm curious as to whether there are particular

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Speaker 1: themes that you may be interested in, and whether high

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Speaker 1: technology is one of them. Sure, we have.

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Speaker 2: To remember that the start of this year there was

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Speaker 2: a very positive development in China with deep Seek, which

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Speaker 2: was one of the competitors I think for some of

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Speaker 2: the AI apps and the belief that China was catching

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Speaker 2: up to the US when it comes to AI. I'm

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Speaker 2: also a big believer of robotics plus AI, and that's

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Speaker 2: really China's differentiating, you know, strategic goal. It's kind of

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Speaker 2: different than than what we're seeing in the US. Beijing

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Speaker 2: recently hosted this half marathon for robots, which was quite interesting,

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Speaker 2: and I think the development of Humani robots coupled with

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Speaker 2: AI and other high tech manufacturing is a investment theme

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Speaker 2: that I'm very interested in.

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Speaker 1: You mentioned Beijing. There are there opportunities you're seeing right

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Speaker 1: now in China overall.

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Speaker 2: Well, I think that you know, for for China, we

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Speaker 2: we take a more bullish view on China compared to

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Speaker 2: the street. And I think that, you know, although the

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Speaker 2: external headwinds for the Chinese economy have been amplified with

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Speaker 2: the tariff, you know risk, but I think we really

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Speaker 2: have to watch what's going on in Beijing in terms

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Speaker 2: of further stimulus that's coming down the pike, and that

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Speaker 2: that should be uh, you know, focused on trying to

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Speaker 2: boost consumption in China. Consumption, as you know, is a

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Speaker 2: third propeller of Chinese economy, and it's been rather weak

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Speaker 2: due to things like a more of a property sector.

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Speaker 2: But I think that's going to start to change as government,

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Speaker 2: as the government focuses more on trying to ramp up

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Speaker 2: this propeller, and we could expect additional measures to boost

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Speaker 2: consumption things like you know, domestic consumption, staples, consumption, consumer

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Speaker 2: cyclicals in China, but also things like you know, China

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Speaker 2: eight shares on tech. I think that one investors foreign

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Speaker 2: investors start to show interest back in China. The first

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Speaker 2: place that the allocate capital is actually on eight shares

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Speaker 2: in big Chinese tech companies.

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Speaker 1: So, broadly speaking, David, if you're not expecting a near

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Speaker 1: term resolution to this trade war, and when I say that,

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Speaker 1: I'm kind of highlighting the US China relationship, is it

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Speaker 1: safe to say that there is a pretty high risk

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Speaker 1: of a recession still perhaps extending beyond the US and

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Speaker 1: impacting the global economy.

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Speaker 2: I do think that the risks have have certainly increased

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Speaker 2: over the past couple of weeks since Liberation Day, and

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Speaker 2: the soft data certainly reflects that in things like consumer

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Speaker 2: expectations for inflation, consumer and sentiment sourwing. Recently, some of

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Speaker 2: the CEOs and earnings calls in the US have come

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Speaker 2: out quite dour about the potential impact of the tariffs,

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Speaker 2: but that hasn't really translated into the hard data yet. Both,

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Speaker 2: you know, things like retail sales and some of the

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Speaker 2: earnings reports that we've seen have been pretty strong and resilient.

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Speaker 2: So so I'd say that the recessionary risks have been amplified,

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Speaker 2: but we're not really seeing that yet in the hard data,

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Speaker 2: but overall the you know, the global economic growth. We've

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Speaker 2: seen the IMF cut expectations for growth this year because

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Speaker 2: of some of the uncertainties, and I think I like

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Speaker 2: to highlight that it's really the uncertainty that's coming out

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Speaker 2: of policy makers in Washington that I think is ultimately

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Speaker 2: what we have to watch out for it in terms

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Speaker 2: of the impact on growth.

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Speaker 1: Okay, we'll leave it there, David, always a pleasure. Thank

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Speaker 1: you so very much. David Chow, Global market strategist for

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Speaker 1: the APEC Region at Invesco, joining from Singapore here on

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Speaker 1: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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Speaker 1: I'm Doug Chrisner. Bets are rising on the FED cutting

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Speaker 1: infrast rates sooner than expected as a way of preventing recession.

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Speaker 1: Today we heard from FED Governor Chris Waller. He told

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Speaker 1: Bloomberg Television he supports rate cuts in the event aggressive

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Speaker 1: tariff levels do hurt the labor market.

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Speaker 3: If the tariffs, the large tariffs had stayed on or

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Speaker 3: come back on, then firms are trying to figure out

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Speaker 3: how they're going to absorb some of that cost. And

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Speaker 3: the minute they do that, they're looking at other ways

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Speaker 3: to cut costs, and labor's obviously one way they do that.

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Speaker 1: Meantime, the head of the Cleveland Fed, Beth Hammick, was

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Speaker 1: telling CNBC the Central Bank could move on rates as

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Speaker 1: early as July if it has clear evidence of the

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Speaker 1: economy's direction. Now, in the treasury market today we had

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Speaker 1: yields down right across the curve, and in turn, those

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Speaker 1: yields at lower levels propelled the equity market higher for

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Speaker 1: a third straight session. For a closer look, I'm joined

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Speaker 1: now by Stephen Schoenfeld. He is the CEO at Market

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Speaker 1: Vector Indexes, joining us from here in New York City. Stephen,

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Speaker 1: thank you so much for making time to chat with us.

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Speaker 1: How much right now are you betting on the Fed

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Speaker 1: easing before the end of the year. I think the

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Speaker 1: swaps market right now is only pricing in about sixteen

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Speaker 1: basis points of easing at the June meeting. Obviously that's

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Speaker 1: not a full quarter point rate cut. Where do you

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Speaker 1: see the Fed going in the current environment?

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Speaker 4: Well, Doug, just as you said, the market today is

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Speaker 4: clearly moving past that expectation. We've had some signs of

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Speaker 4: bottoming in the equity market, but today was the first

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Speaker 4: day that you really saw yields drop across the curve.

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Speaker 4: And so the market is more than smelling it, it

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Speaker 4: heard it from the two Fed governors, and it feels

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Speaker 4: like there's a little bit of a Fed put being

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Speaker 4: put in the market because the equities loved it, and

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Speaker 4: you saw the dollar fall, foreign currencies go up, gold

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Speaker 4: rallied even as the equity market rallied. So that's a

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Speaker 4: break of this kind of strange pattern we've had in

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Speaker 4: the past month or two where you had US equities,

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Speaker 4: US bonds and the dollar dropping. So I feel that

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Speaker 4: the market is sniffing out some possible easing or at

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Speaker 4: least an insurance policy being articulated by the Fed.

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Speaker 1: It seems painfully clear that markets right now are struggling

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Speaker 1: to way the impact of the trade war. Key question

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Speaker 1: is whether the tariffs are going to hurt growth or

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Speaker 1: spur inflation. I think the answer is both potentially. Are

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Speaker 1: you worried about stagflation still.

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Speaker 4: It's certainly a worry, But we're seeing a lot of

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Speaker 4: concessionary signals from the White House in some ways, even

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Speaker 4: getting ahead of the Chinese, who are still denying that

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Speaker 4: they're in conversations with the White House, but Secretary Besson

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Speaker 4: and the White House are clearly signaling that deals are coming.

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Speaker 4: It's probably safe to assume now that the numbers that

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Speaker 4: we were most afraid of are sort of peak fear,

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Speaker 4: and that we will settle into lower tariffs. The question

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Speaker 4: is they'll still be high and the markets are beginning

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Speaker 4: to worry less about it. I'm really encouraged by the

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Speaker 4: fact that we had three straight days of up movement

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Speaker 4: in the US. That's quite rare for this year.

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Speaker 1: Obviously, we're in the middle of earning season, and a

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Speaker 1: number of companies have already cited macroeconomic uncertainty as one

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Speaker 1: of the things that really clouds the outlook. Today we

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Speaker 1: heard from the CEO of Southwest Airlines saying, as far

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Speaker 1: as he's concerned, the recession has already started. Would you

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Speaker 1: think that that is a fair statement or is he

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Speaker 1: going a bit too far?

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Speaker 4: Well, if I was an airline CEO, I'd be pretty worried.

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Speaker 4: Not just about consumer sentiment in the US, but foreign

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Speaker 4: tourism numbers look like they are going to plummet. Not

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Speaker 4: just you know from Canada the bookings are down seventy percent.

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Speaker 4: A lot of Europeans are canceling. So if you're in

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Speaker 4: a business like aviation, it could be the case that

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Speaker 4: the recession has started. But you've got plenty of businesses

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Speaker 4: that are demonstrating that they are not as affected by tariff's.

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Speaker 4: Google's results today indicate that you look at a company

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Speaker 4: like palunteer, Netflix certainly is impervious to tariffs. So it

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Speaker 4: really will vary industry by industry. But for US at

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Speaker 4: market vector, it just reinforces the critical importance of diversification,

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Speaker 4: not just have exposure to the US equity market.

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Speaker 1: So within that umbrella then of diversification, is there a

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Speaker 1: specific strategy that you're taking. Are you apt to become

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Speaker 1: a little bit more defensive? Are you hiding out in

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Speaker 1: certain areas of the market right now?

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Speaker 4: So we have a number of indexes that are tracked

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Speaker 4: by ETFs that provide a hedge. We have gold and

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Speaker 4: gold mining indexes, we have crypto and digital acid indexes,

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Speaker 4: and also international equities. So you can pick certain countries

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Speaker 4: that are performing better, or you could pick sectors such

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Speaker 4: as defense, which has been doing incredib You know the

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Speaker 4: defense Our Defense index is up thirty four percent this

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Speaker 4: year because it's it's not tied to tariffs, it's tied

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Speaker 4: to government spending. So if we had a single watchword

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Speaker 4: for our investors, it would be diversify internationally as well

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Speaker 4: as you know, not have as much in the US

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Speaker 4: as you might have had in the past, and then

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Speaker 4: look for sectors, whether it's gold mining or defense, that

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Speaker 4: can provide diversification when the big US market is dropping.

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Speaker 1: A number of analysts have already soured on the profit

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Speaker 1: outlook due to the risk of a slowdown, whether we

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Speaker 1: want to call it a recession or not. And we

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Speaker 1: know that the tariff story is going to really confront

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Speaker 1: corporate America with some very difficult challenges. Where are you

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Speaker 1: right now in the overall market in terms of your

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Speaker 1: target for the S and P five hundred this year?

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Speaker 4: Yeah, so we don't pick specific targets, but I think

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Speaker 4: what what is very telling, Doug is we entered the

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Speaker 4: year and the US was seventy percent of total world

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Speaker 4: market cap. That's an unprecedented relative weight of the US

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Speaker 4: to the rest of the world. It even surpassed his

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Speaker 4: Japan's weight in the world. At the peak of the

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Speaker 4: Japanese bubble in the late eighties, it was about sixty percent.

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Speaker 4: So our view has been to be rebalancing away from

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Speaker 4: US equities. I think we might have seen the lows

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Speaker 4: of the year in the S and P, or we

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Speaker 4: might have another leg down, but certainly things feel more constructive.

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Speaker 4: I wouldn't look for a major source of return in

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Speaker 4: US equities, not after two straight years of twenty five

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Speaker 4: percent return and the US becoming so dominant over the

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Speaker 4: last few years. All you have to do is look

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Speaker 4: at some of the analyst reports from late last year,

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Speaker 4: where you know people are talking about US exceptionalism. You

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Speaker 4: have to be in the US and that was probably

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Speaker 4: the peak, right, So I think investors are better served

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Speaker 4: to be spreading their allocation across the globe.

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Speaker 1: So to what extent do you believe this trade war

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Speaker 1: initiated by the US has done more, let's not necessarily

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Speaker 1: say permanent damage, but lasting damage to the US brand.

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Speaker 4: So I wish I didn't feel this way, Doug, but

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Speaker 4: I really do feel that the way the tariffs were

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Speaker 4: rolled out, the incoherence with how they were explained, hearing

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Speaker 4: different explanations, and even now you know different views about

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Speaker 4: whether they're when, whether and how they might be rolled back,

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Speaker 4: it has hurt not just the US brand, but the

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Speaker 4: US reputation as a safe haven. We've seen it in treasuries,

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Speaker 4: We've seen it in US equities. The US has such

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Speaker 4: a large deficit to fund that we have to attract

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Speaker 4: are in capital, and unfortunately, I think we're going to

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Speaker 4: pay a higher price for it. And I think global

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Speaker 4: asset allocators, whether they're based in Europe or Asia, sovereign

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Speaker 4: wealth funds or big asset managers, are going to be

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Speaker 4: very reluctant to return to the very high allocation levels

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Speaker 4: they had in US.

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Speaker 1: Secrtis Steven will leave it there. On that note to

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Speaker 1: Steven Schoenfeld, CEO of Market Vector Index's, thank you very much. Steven.

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Speaker 1: Joining us today from New York City here on the

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Speaker 1: Daybreak Asia Podcast. Thanks for listening to today's episode of

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Speaker 1: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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Speaker 1: at the story shaping markets, finance, and geopolitics in the

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Speaker 1: Asia Pacific. You can find us on Apple, Spotify, the

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Speaker 1: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

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Speaker 1: us again tomorrow for insight on the market moves from

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Speaker 1: Hong Kong to Singapore and Australia. I'm Doug Chrisner and

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Speaker 1: this is Bloomberg,