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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Pellett

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Speaker 2: Doug Prisoners off. This week coming up, we will bring

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Speaker 2: you a round table discussion on tariffs and US China

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Speaker 2: trade talks. But we begin with the day's market action.

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Speaker 2: Treasury's edged tire after Fedchair J Powell emphasized that the

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Speaker 2: Federal Reserve is in no hurry to lower rates, though

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Speaker 2: the Central Bank sites growing risks of higher inflation and

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Speaker 2: rising unemployment. The S and P five hundred halted a

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Speaker 2: two day slide led by chip makers, as Bloomberg News

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Speaker 2: reported that the Trump administration plans to rescind Biden era

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Speaker 2: kurbs for the industry. And for more on the market outlook,

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Speaker 2: we heard from Alex Wolf, head of Asia Investment Strategy

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Speaker 2: at JP Morgan Private Bank, and he spoke with Bloomberg's

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Speaker 2: Sherry On and Heidi Stroud Watts.

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Speaker 1: Alex, good to have you with us. Of course, we

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Speaker 1: saw the dollar rebounding for the first time in about

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Speaker 1: four sessions or so. But you're actually telling us in

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Speaker 1: your notes, so you have changed your view.

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Speaker 2: On the dollar.

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Speaker 1: Tell us about what's happening here.

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Speaker 3: Yeah, we came into the year still expecting dollar strength

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Speaker 3: largely driven by rates differentials, as we saw higher rates,

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Speaker 3: higher yields in the US relatives the rest of the world.

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Speaker 3: But we have seen a gap emerge where the dollar

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Speaker 3: has weakened relative to where you would expect from a

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Speaker 3: rates perspective, and that's largely driven by flows. As we

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Speaker 3: see US net investment position as extraordinarily negative and the

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Speaker 3: rest of the world building up a pretty significant overweight

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Speaker 3: in US assets, and as we're seeing flows and repatriation

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Speaker 3: as a relative growth differential shift and more money flows

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Speaker 3: back to your more money flows back to Asia. Obviously

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Speaker 3: we've seen in Asia FX recently in terms of covering

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Speaker 3: some of the un hedged positions. We think the flows

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Speaker 3: picture will drive the dollar weaker, not significantly so, and

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Speaker 3: we still see it as very cyclical versus structural, but

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Speaker 3: drive its lightly weaker through year end ALEX.

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Speaker 1: What does, on the other hand, then mean when we

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Speaker 1: do get Asian currencies appreciating against a week or US dollar,

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Speaker 1: what are the implications for other acids.

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Speaker 3: Yeah, Asia currencies tend to either be quite stable, as

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Speaker 3: we see with the Taiwan dollar, with erom the m

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Speaker 3: and be against a dollar, or they position themselves as

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Speaker 3: remaining fairly weak. And so as we see Asia currencies strengthen,

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Speaker 3: that does hit exports, that does feed through to earnings,

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Speaker 3: and so there is very much a direct pass through

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Speaker 3: to earnings, particularly in Taiwan, even in Korea and Japan

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Speaker 3: for that matter as well. So it does have a

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Speaker 3: lot of implications both for the trade picture for exports,

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Speaker 3: for earnings as well, and then when we think about

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Speaker 3: what it means from a trade deal perspective as well,

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Speaker 3: as US is beginning to negotiate on the reciprocal tariffs

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Speaker 3: across countries in the region, we could see currencies even

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Speaker 3: continue to maintain some strength against a dollar toss in

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Speaker 3: themselves for trade talks. But it definitely does have implications

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Speaker 3: for exports and for earnings.

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Speaker 4: Tell us about the sort of disconnect that you continue

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Speaker 4: to see and expect to continue to see when it

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Speaker 4: comes to soft and hard data, and how that potentially

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Speaker 4: gives us a better picture of how the US economy

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Speaker 4: is varying going into the second half.

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Speaker 3: Yeah, that's been one of the biggest mysteries really throughout

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Speaker 3: the COVID period and the aftermath of COVID, we did

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Speaker 3: see beginning in twenty twenty to one, a real disconnect

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Speaker 3: between hard and soft data. Whereas before COVID you tend

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Speaker 3: to have about a three to four month lag where

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Speaker 3: you had consumer sentiment or business sentiment, most survey data

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Speaker 3: was leading by three to four months. It really disconnected

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Speaker 3: where all sentiment data turned negative, but hard data still

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Speaker 3: stayed relatively resilient. So it has made it much harder

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Speaker 3: to try to assess what is going on, at least

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Speaker 3: judging purely by sentiment data. So right now, looking forward,

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Speaker 3: we still see very weak sentiment data, but we have

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Speaker 3: April data looking okay, looking resilient, that doesn't have a

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Speaker 3: full impact of tariff's So we still are very much

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Speaker 3: in a weight and see mode. We don't expect a recession,

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Speaker 3: but we're in a wait and see mode to see

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Speaker 3: how hard data continues to play out. While April was resilient,

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Speaker 3: you'll see more impact from tariffs in May and in June.

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Speaker 3: And so while we're not really putting too much weight

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Speaker 3: on the sentiment data on the soft data, we are

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Speaker 3: really looking at the hard data. But it's still too

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Speaker 3: early to really know what the impact of tariffs will.

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Speaker 4: Be and not knowing that, of course, how does that

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Speaker 4: inform your view when it comes to gold, where put

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Speaker 4: about twenty eight percent this year. Do you still think

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Speaker 4: there is further upside given that it's one of your

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Speaker 4: conviction calls.

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Speaker 3: We do, of course, it's rallied. It's rallied pretty strongly

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Speaker 3: over the last year year plus. It really comes back

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Speaker 3: to that dollar view and that flows view. As we

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Speaker 3: see an increase in interest in currency diversification, in moving

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Speaker 3: away from purely from dollar holdings, whether it's reserve managers

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Speaker 3: or it's corporates and pension funds, there aren't that many

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Speaker 3: other safe havens to go to. They're not that many

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Speaker 3: other market cent are liquid and deep enough as well.

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Speaker 3: So we see gold as someone of the natural place

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Speaker 3: positions as our clients and as global investors are looking

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Speaker 3: to somewhat diversify their their currency exposure. So we still

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Speaker 3: do see strong demand, whether it's coming from central banks,

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Speaker 3: are coming from private investors, that can continue to drive upside,

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Speaker 3: but we still see it in the kind of low

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Speaker 3: to mid single digits in terms of upside.

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Speaker 1: Alex, what do you think of the semiconductor space, Because

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Speaker 1: we had TSMC, for example, under pressure earlier this week

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Speaker 1: with that huge surge in the Taiwan dollar. Given that

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Speaker 1: we started this conversation with what would be the impact

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Speaker 1: if we do get a rally in Asian currencies on

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Speaker 1: a week or US dollar. Can semiconductors weather this or

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Speaker 1: do they have a whole different narrative going on for them?

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Speaker 3: I think from a purely currency position, they can weather

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Speaker 3: it because there's not many others. There's no other competition,

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Speaker 3: so to speak, so currency doesn't play into the demand

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Speaker 3: story as much. I think it's more about the overall

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Speaker 3: demand for semiconductors with regards to what we see from

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Speaker 3: AI demand and what we see in terms of policy

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Speaker 3: from the US in terms of the two three two investigation,

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Speaker 3: or what we see around semiconductor tariff specifically, and where

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Speaker 3: we've seen very strong demand from data centers, a very

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Speaker 3: strong build out and we largely expect that to continue.

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Speaker 3: We have to remember semi conductors are probably the most

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Speaker 3: cyclical of cyclicals, and any signs that we could see

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Speaker 3: weakening in demand for data center build out, weakening and

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Speaker 3: demand from AI hyperscalers, that does present some headwinds to

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Speaker 3: semiconductors into broad tech hardware. In addition, just the sheer

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Speaker 3: overhang of uncertainty and risk with regards to US policy

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Speaker 3: also does present somewhat of somewhat of a headwind. So

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Speaker 3: we are favoring more of the tech software side than

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Speaker 3: the hardware side in terms of how we're thinking about positioning.

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Speaker 1: Alex Will for Asia ahead of investment strategy at JP

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Speaker 1: Morgan Private Bank. Really good to have you with us.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Charlie palletin

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Speaker 2: for Doug Crisner. This week, Treasury Secretary Scott Besson said

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Speaker 2: he is working with US lawmakers on outbound investment rules

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Speaker 2: for China that would make clear what's allowed and what's not.

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Speaker 2: His comments came ahead of trade talks later this week

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Speaker 2: with Chinese Vice Premier Holli Fung in Switzerland. And for more,

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Speaker 2: we heard from US Treasury reporter Dan Flatley along with

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Speaker 2: Bloomberg's China correspondent Minmin Low, and they spoke with Bloomberg

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Speaker 2: Sherry On and Heidi Stroud Watts.

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Speaker 4: Bloombergs learned that the Trump administration plans for a sins

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Speaker 4: Embarden era AI chip export curbs comes as the US

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Speaker 4: and China prepare for this critical trade talks this week. Daniel,

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Speaker 4: what are you exactly what we're hearing from the administration

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Speaker 4: in terms of their strategy on these AI chip restrictions.

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Speaker 5: Well, you know what we've seen and heard from Treasury

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Speaker 5: Secretary Scott Vessant among others today, is this sort of

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Speaker 5: general move toward trying to loos enough restrictions allow more

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Speaker 5: deals to happen. So Vessett was talking earlier today on

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Speaker 5: Capitol Hill about this outbound investment program and wanting to

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Speaker 5: kind of revise that a little bit to make the

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Speaker 5: rules more clear. And I think you're seeing something similar

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Speaker 5: with regard to chips. As my colleagues Stephanie Lai and

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Speaker 5: Mackenzie Howkins have reported, there is this move by the

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Speaker 5: Trump administration to maybe undo some of the signature Biden

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Speaker 5: policies around chips that are designated or used most primarily

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Speaker 5: in artificial intelligence, to sort of loosen some of those

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Speaker 5: restrictions potentially, although this isn't explicitly stated yet, but the

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Speaker 5: administration has always sort of had an eye on China

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Speaker 5: gaining access to some of this more sensitive technology. So

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Speaker 5: I think one of the theories of the case is

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Speaker 5: that maybe you loosen up some of the restrictions on

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Speaker 5: these chips for allies countries in the Middle East being

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Speaker 5: one of one of the potential one of those potential

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Speaker 5: allies or that group of allies, and maybe tighten them

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Speaker 5: a little bit for China. Of course, all of this

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Speaker 5: is happening in the context of broader trade talks that

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Speaker 5: we're expecting this weekend in Switzerland between the US and China.

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Speaker 5: So a lot of moving pieces right now, but that's

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Speaker 5: kind of the state of play at the moment.

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Speaker 1: And President and Trump really making clear that he won't

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Speaker 1: be preemptively lowering tariffs when it comes to China.

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Speaker 6: Take a listen, China says, in order to have substantive negotiations,

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Speaker 6: you have to bring down your one hundred and forty

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Speaker 6: five percent tariffs. Are you open to pulling back your

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Speaker 6: tariffs in order to get China to the negotiating table.

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Speaker 1: No, meman, What are we expecting from these conversations between

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Speaker 1: the US and China this week?

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Speaker 7: Yeah, so President Trump is saying that he's not going

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Speaker 7: to preemptively lower tariffs in order to get more substantial

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Speaker 7: discussions on negotiations with China. Meanwhile, both sides actually once

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Speaker 7: again disagreeing on actually who called for these talks, because

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Speaker 7: President Trump denied that US had initiated the trade talks,

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Speaker 7: while China has been explicit that the US has been

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Speaker 7: the party that was reaching out to China through various channels.

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Speaker 7: President Trump previously also saying that the US would lose

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Speaker 7: nothing if China doesn't trade with us. He said US

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Speaker 7: consumers would be okay with higher prices and less selection

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Speaker 7: of goods. So as we head into this weekend, it's

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Speaker 7: really unclear right now whether this is just sort of

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Speaker 7: icebreaker talks where both sides will try to find out

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Speaker 7: what the other party wants before agreeing to more substantial

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Speaker 7: trade discussions, so essentially negotiating to agree to negotiate, or

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Speaker 7: is it actually going to yield some concrete outcomes, which

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Speaker 7: could look like maybe a pause on reciprocal tariffs as

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Speaker 7: Trump has done for other countries, or maybe lowering off tariffs,

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Speaker 7: But then to what extent is those tariffs going to

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Speaker 7: be lowered, because economists have said that even fifty or

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Speaker 7: sixty percent tariffs would still mean that the bulk of

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Speaker 7: US China trade would be cut off. And we continue

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Speaker 7: to see editorials on Chinese state media again calling on

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Speaker 7: the US to quote show sincerity, meaning they really want

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Speaker 7: the US to be the one to de escalate and

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Speaker 7: put its actions where its mouth is.

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Speaker 4: What are we seeing, my men, when it comes to

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Speaker 4: the level of preparedness, right, regardless of what outcome we

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Speaker 4: see in these ongoing trade talks, are we seeing sort

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Speaker 4: of alternative paths to growth and survival being put in

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Speaker 4: place by Chinese factories?

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Speaker 7: Yes, I mean yesterday we had the PBOC briefing where

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Speaker 7: the government announced the cutting of triple r and interest rates,

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Speaker 7: a slew of other measures with lending facilities to support

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Speaker 7: exporters for the tech sector as well. And when we

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Speaker 7: talk to exporters, for example, at the Canton trade fair

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Speaker 7: that just recently closed concluded, we saw that many manufacturers,

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Speaker 7: in fact about twenty of those that Bloomberg has interviewed,

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Speaker 7: showed unanimous support for China playing hardball again in the US.

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Speaker 7: And many of these companies, of course, have already taken

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Speaker 7: steps to divert the sale of the products from the

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Speaker 7: US to other emerging markets like Southeast Asia, like the

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Speaker 7: Middle East. Europe also another potential destination for them as well.

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Speaker 7: Of course, there has been a lot of disruptions. Some

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Speaker 7: of these companies putting on hold their investments overseas. Some

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Speaker 7: of them were looking to move production overseas. Bought Land

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Speaker 7: and Cambodia, but we were told that they were initially

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Speaker 7: prepared to start factories there, but now they're putting that

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Speaker 7: on hold and just renting out their property for now,

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Speaker 7: just given the uncertainty over the terraffs. But interestingly, though,

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Speaker 7: I spoke to some companies Chinese consumers sort of companies

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Speaker 7: that are still looking interested in expanding to the US,

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Speaker 7: even in this current climate. And they seem to think

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Speaker 7: that US is still an important market, that the consumers

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Speaker 7: there are willing to spend the currency that they can

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Speaker 7: earn from the US would be good as well for

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Speaker 7: their business. So some companies still not being put off

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Speaker 7: by the geopolitical climate and still looking to expand or

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Speaker 7: open up news stores in the US.

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Speaker 1: And yet when it comes to the US, they actually

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Speaker 1: want to stop those investments going into China. Dan. Of course,

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Speaker 1: we have seen secretaries called best and talk about those

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Speaker 1: outbound investments into China and working with Congress and also

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Speaker 1: taking heat from Congress.

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Speaker 5: Yeah that's right, I mean, you know, it's interesting. Today

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Speaker 5: was Secretary Besson's first appearance before Congress. I'm sorry, it

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Speaker 5: was his second appearance before Congress since his confirmation hearing,

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Speaker 5: So yesterday was he appeared before another House panel, much

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Speaker 5: smaller panel, the House Appropriations Committee today much bigger panel

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Speaker 5: of lawmakers with the House Financial Services Committee, and he

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Speaker 5: did get some pushback from Democrats on from the either

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Speaker 5: side of the aisle from the Democrats, and one of

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Speaker 5: the themes that came up sort of repeatedly was the

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Speaker 5: cost of goods to consumers after the tariffs really start

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Speaker 5: to bite, and he defended that a bit. Surprisingly, he

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Speaker 5: wasn't asked too much about what was ahead for his

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Speaker 5: negotiations with China this weekend, but a couple of things

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Speaker 5: to note. One thing was he was asked early on

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Speaker 5: in the hearing, what do you expect to get out

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Speaker 5: of these talks? Are these quote unquote advanced negotiations, And

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Speaker 5: what he said was basically, this is just the beginning

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Speaker 5: and by definition they're not advanced talks. The other thing

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Speaker 5: that he talked a little bit about was who was

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Speaker 5: going to be going with him. He said it was

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Speaker 5: going to be himself leading the talks along with US

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Speaker 5: Trade Representative Jamison Greer. He was asked specifically whether White

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Speaker 5: House Trade advisor Peter Navarro, who is known to be

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Speaker 5: much more hawkish on trade, would be traveling with them,

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Speaker 5: and he said no, Navarro would not be traveling with them,

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Speaker 5: and that sort of elicited a sort of I guess

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Speaker 5: you could call it a sigh of relief from one

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Speaker 5: of the Democrats who said, oh, the thank goodness that

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Speaker 5: that's not the case. So you read into that what

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Speaker 5: you will. But certainly there seems to be a lot

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Speaker 5: of concern about the impact to the economy from the tariffs,

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Speaker 5: not just from Democrats but also from some Republicans on

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Speaker 5: the panel as well, And so he weathered that hearing

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Speaker 5: today and his big test will come this weekend as

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Speaker 5: these talks get underway.

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Speaker 1: And I mean mean, before we let you go, we

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Speaker 1: know the President usion Pin is in Russia right now.

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Speaker 1: They're celebrating the or commemorating the anniversary of the end

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Speaker 1: of World War Two. But at the same time, with

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Speaker 1: the backdrop of Russia continuing to attack Ukraine, it must

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Speaker 1: be a very awkward situation.

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Speaker 7: Yeah, And not to make light of the war in Ukraine,

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Speaker 7: but it's starting to seem like Presidency's trip there is

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Speaker 7: almost a backdrop for political theater and this battle for influence,

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Speaker 7: because just hours after Presidency landed, both sides were still

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Speaker 7: exchanging air strikes, Russia sending ballistic missiles and drones, and

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Speaker 7: they were shooting down drones coming from the other side

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Speaker 7: from Ukraine into Russia as well, And meanwhile, Presidency has

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Speaker 7: been silent on the Ukraine War. He penned an editorial

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Speaker 7: that was published on Russian newspaper that was all about

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Speaker 7: how you both countries are going to defend international fairness

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Speaker 7: and justice. He also said in that article how Russia

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Speaker 7: and China has always firmly supported each other's core interests

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Speaker 7: without mentioning Ukraine. He mentioned the one China principle and

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Speaker 7: how Taiwan is an inalienable part of China's territory. And interestingly,

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Speaker 7: Russia is actually declaring a three day seas fire as

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Speaker 7: they commemorate these the May Day Parade. That was something

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Speaker 7: that Ukraine has this missed, and they said they won't

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Speaker 7: be able to guarantee the safety of the dignitaries that

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Speaker 7: are lending in Moscow. And then you have the Slovaki

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Speaker 7: Prime Minister actually complaining that Estonia didn't allow his plane

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Speaker 7: to fly over the airspace. And meanwhile, of course top

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Speaker 7: of the agenda when it comes to Sea put In

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Speaker 7: bilateral meeting today is all about US Russia relations as

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Speaker 7: well as China's trade, economic issues, energy issues as well.

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Speaker 7: We know that China has in the past has been

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Speaker 7: calling for this peaceful resolution of Ukraine, but suddenly is

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Speaker 7: a very awkward sort of backdrop for Presidency to be

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Speaker 7: visiting at this time with all that air strikes just

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Speaker 7: happening hours before.

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Speaker 1: All right, Bloomberg's Mimil there as well as Daniel Flatley.

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Speaker 6: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 6: Asia Edition podcast. Each weekday we look at the story

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Speaker 6: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 6: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 6: or anywhere else you listen. Join us again tomorrow for

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Speaker 6: insight on the market moves from Hong Kong to Singapore

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Speaker 6: and Australia. I'm Doug Prisner, and this is Bloomberg