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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 Doug Chrisner.

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Speaker 2: The US equity market rose to record highs today. That

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Speaker 2: was after President Trump said he reached a trade deal

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Speaker 2: with Vietnam and in the process, Vietnam will avoid higher

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Speaker 2: tariffs that were set to take effect next week. In

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Speaker 2: a moment, we'll get more on this deal from Bloomberg's

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Speaker 2: Jill Disis in Hong Kong, but we begin here in

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Speaker 2: the States for a look at market action. I'm joined

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Speaker 2: by Brian Krowez. He is the president at Sharf Investments.

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Speaker 2: Brian is on the line from Los Gatos, California. Brian,

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Speaker 2: thank you for making time to chat with me. Certainly,

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Speaker 2: there is still a lot of uncertainty in the market.

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Speaker 2: Can you justify record high levels today for the S

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Speaker 2: and P and the Nasdaq comp?

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Speaker 3: Well, it's getting harder on a valuation basis. The S

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Speaker 3: and P is in the ninety fifth percent on evaluation,

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Speaker 3: and as you said, there's still a lot of uncertainty.

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Speaker 3: I mean, you just mentioned there's a tariff deal with Vietnam,

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Speaker 3: but if you look at the last twenty years, the

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Speaker 3: average tariff has been sort of one to two percent

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Speaker 3: on the US economy. Now many economists are thinking once

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Speaker 3: these deals are all done, they're going to be ten,

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Speaker 3: fifteen to twenty percent in aggregate. I mean, that's a

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Speaker 3: pretty big change from what we've been used to. So

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Speaker 3: it's sort of like investors were really really nervous about

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Speaker 3: tariffs and other policy uncertainty in April, and we've seem

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Speaker 3: to have forgotten that.

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Speaker 4: In fact, last quarter was the first quarter the.

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Speaker 3: S and P had gone down ten percent and finished

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Speaker 3: up by more than five in the history of the

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Speaker 3: S and P five hundred, So it's been a real

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Speaker 3: crazy run. I think given where evaluations are now, it's

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Speaker 3: getting a little harder to justify even with positive news

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Speaker 3: on tariffs.

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Speaker 2: So we're going to get the monthly jobs data tomorrow.

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Speaker 2: Today we had ADP reporting employment for American private firms

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Speaker 2: was down for the first time in more than two years.

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Speaker 2: We've heard from the FED that the labor market remains solid.

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Speaker 2: If we get evidence tomorrow of maybe a bit of

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Speaker 2: softening and payroll growth and maybe a spike in the

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Speaker 2: unemployment rate, is it too much to say that the

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Speaker 2: FED is behind the curve?

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Speaker 3: You know, it's very hard to say that the FED

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Speaker 3: is in a tough spot because, first of all, as

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Speaker 3: they've said, you've got tariffs coming. A lot of the

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Speaker 3: big companies have said, we did pre buying, we've done

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Speaker 3: other stuff, and so they're out ahead of these tariffs.

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Speaker 3: But you're starting to see some of it translate through,

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Speaker 3: and we haven't even really seen the tariffs go into

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Speaker 3: effect yet. So you've got tariffs as number one, But

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Speaker 3: i'd also point out, you know, there's other potential risks healthcare.

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Speaker 3: You saw senteen today down forty percent. They said healthcare

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Speaker 3: costs or higher than they thought. You've had this consistent

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Speaker 3: problem in the ACA, which is the is the pool

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Speaker 3: of ensured buyers that can't quite qualify for Medicaid. Likely

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Speaker 3: rates they are going to be going up quite a bit.

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Speaker 3: You could have people coming out of the pool. So

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Speaker 3: as we go into next year, we think healthcare costs

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Speaker 3: could be spiking up, and that would be another problem

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Speaker 3: in terms of inflation. So sure, if we get weakening labor,

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Speaker 3: you could maybe see inflation come down. Maybe let the FED,

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Speaker 3: you know, do something. But you know, we're certainly not

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Speaker 3: out of the woods yet. With terras and I think

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Speaker 3: healthcare is something that people need to also be looking

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Speaker 3: at in terms of inflation.

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Speaker 2: As we're talking about the labor market. I'm reminded of

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Speaker 2: the news today from Microsoft that it's got more job

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Speaker 2: cuts coming, about nine thousand workers. This is the second

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Speaker 2: major wave of layoffs this year for Microsoft. The company,

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Speaker 2: as we know, is looking to control cost. It's also

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Speaker 2: trying to ramp up artificial intelligence spending. Do we need

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Speaker 2: to consider the impact now of AI as companies begin

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Speaker 2: to adopt it more aggressively, the impact that AI is

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Speaker 2: going to have on the labor market.

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Speaker 4: Yeah, that's a very good point.

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Speaker 3: I mean, this is sort of a counter argument to

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Speaker 3: what I just said about healthcare, inflation and tariffs.

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Speaker 4: If AI leads to lots.

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Speaker 3: Of productivity, you could you could see that being a

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Speaker 3: deflationary force. It could have an impact on the labor

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Speaker 3: market for sure. I think Microsoft has already gone on

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Speaker 3: record of saying they're they're hiring less interns and they're

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Speaker 3: having a lot more computers doing their actual coding, and

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Speaker 3: so this is this is definitely already here. It's the

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Speaker 3: future is going to be a lot more, but it's

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Speaker 3: already here. It's already impacting the labor market. I've got

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Speaker 3: several friends who have kids that just graduated from school

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Speaker 3: with CS degrees, and they're actually struggling getting jobs, which is,

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Speaker 3: you know, you go back two years ago when they

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Speaker 3: were getting ten offers and now you've actually got computer

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Speaker 3: science majors much less, you know, history and English majors.

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Speaker 3: The job market for new college grads is really tough already,

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Speaker 3: and I think that's in part because of AI, and

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Speaker 3: so it's definitely impacting the labor market, you know. And

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Speaker 3: how much it does, I think is still an open question.

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Speaker 3: But it's definitely going to have some impacts.

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Speaker 2: And the spending on AI continues apace. Today we learned

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Speaker 2: that open AI is going to be running a massive

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Speaker 2: amount of computing power from Oracle data centers. How are

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Speaker 2: you feeling broadly about the AI trade? Still names like Oracle,

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Speaker 2: names like in Nvidia.

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Speaker 4: Yeah, well, we.

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Speaker 3: Actually own Oracle. We've own Oracle for a long time.

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Speaker 3: It's getting a little bit more expensive than it's been

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Speaker 3: for a while. But you know, as I'd like to

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Speaker 3: remind people, if they bought the top ten tech stocks

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Speaker 3: at the end of ninety nine, they actually would have

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Speaker 3: done pretty poorly over the next twenty years, despite the

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Speaker 3: fact that the Internet became more ubiquitous than any of

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Speaker 3: us imagined.

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Speaker 4: Cell phones became really big.

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Speaker 3: But back then you would have bought Nokia for cell phones,

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Speaker 3: not Apple. You would have bought Yahoo for the Internet,

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Speaker 3: not Google. You would have about Aol for email. You

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Speaker 3: would about Cisco Systems. You know, when I talked to

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Speaker 3: sort of a lot of people now, the thirty five

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Speaker 3: year olds, they don't even know Sun Microsystems. Had, you know,

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Speaker 3: was the dot in the dot com, you would have

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Speaker 3: bought that for sure. So it's really hard to pick

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Speaker 3: the winners. So AI will certainly be huge, but investors

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Speaker 3: might be getting a little over their skis, you know. Really,

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Speaker 3: it's particularly with these kind of down down the marketcap

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Speaker 3: ones that are that are going crazy and you're seeing

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Speaker 3: a lot of speculations. So I think there's some risk there.

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Speaker 3: Names like Oracle and Microsoft are going to be winners.

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Speaker 3: It's just a question of you know, what's the right

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Speaker 3: multiple and so even there I think maybe, uh, you know,

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Speaker 3: they're starting to get a little bit more pricey, But

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Speaker 3: certainly I would be very cautious of the kind of

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Speaker 3: more speculative.

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Speaker 2: Names Okay, so away from tech, let's talk about the financials.

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Speaker 2: A number of the big banks boasted their dividends after

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Speaker 2: passing the FED stress test. The latest stress test KBW

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Speaker 2: Bank index today was up one and a half percent.

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Speaker 2: We've got names like JP, Morgan, Bank of America, Goldman, Sachs, Wells,

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Speaker 2: far Go, the big guys. Is this a trade that

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Speaker 2: interest you right now? Taking a position in the big banks?

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Speaker 3: Well, we like quality companies for our style, so banks

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Speaker 3: are typically not as quality as we like to do.

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Speaker 4: But I will say for the banks, you know, that

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Speaker 4: was very good news.

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Speaker 3: And some of the reserve requirements are also going down,

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Speaker 3: so I think the quality of those banks is going

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Speaker 3: to go up. We talked about AI. AI actually can

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Speaker 3: be a big help in the financial sector going forward,

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Speaker 3: and so actually, you know, for the a I tried,

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Speaker 3: we think things like that that are really going to

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Speaker 3: able to get benefited from productivity enhancements are probably a

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Speaker 3: good good way to play it. Within financials, we like

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Speaker 3: things like insurance, We like insurance brokerage. You know, things

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Speaker 3: like Visa are going to continue to be winners. FI

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Speaker 3: Serve is one of our favorite names. So there's a

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Speaker 3: lot of things within financials we like, but banks are

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Speaker 3: one of those that are also benefiting. But financials broadly,

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Speaker 3: I think is a sector that is going to continue

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Speaker 3: to do well.

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Speaker 2: So you're very close to Silicon Valley. I'm curious, Brian

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Speaker 2: about the conversation that you're hearing there. What's it like,

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Speaker 2: what are people discussing, what's the focal point?

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Speaker 4: Yeah, well it's enough.

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Speaker 3: My brother's an executive at Microsoft. Definitely, there are conversations about,

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Speaker 3: you know, cutting, It's it's very interesting to see young

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Speaker 3: people coming out with engineering degrees suddenly finding themselves struggling

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Speaker 3: to get jobs.

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Speaker 4: And so that's that's the biggest thing. That's a very

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Speaker 4: big change.

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Speaker 3: I haven't heard that kind of thing since say two

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Speaker 3: thousand and two thousand and one, when you know, a

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Speaker 3: lot of layoffs are happening and we're still in a

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Speaker 3: pretty good period.

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Speaker 4: Tech stocks are going up, so it's not like back.

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Speaker 3: Then when you had a big Internet bubble and a

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Speaker 3: lot of companies that were just hanging on and a

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Speaker 3: lot of layoffs.

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Speaker 4: But today, even with all the success, you are hearing

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Speaker 4: a lot of younger people having trouble getting jobs. So

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Speaker 4: that's that's a very interesting development. That I would say

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Speaker 4: is really only like.

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Speaker 3: In the last six seven months, and that I think

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Speaker 3: that's in all likelihood AI and kind of where tech

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Speaker 3: companies are putting their money. You mentioned AI, they're putting

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Speaker 3: their money into capital investments and less in the labor

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Speaker 3: and so it definitely is affecting the labor market. I

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Speaker 3: still think though in silicon value there's a lot of

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Speaker 3: optimism for AI, and so it's not all doom and gloom,

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Speaker 3: but it is for people in certain parts of laborpool,

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Speaker 3: you know, a tougher market.

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Speaker 2: So tonight in the US, the House of Representatives is

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Speaker 2: kind of debating the next procedure here for a President

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Speaker 2: Trumps signature tax bill. It seems like there's a little

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Speaker 2: bit of resistance for the moment. Let's just set that

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Speaker 2: resistance aside and assume that this big beautiful bill does

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Speaker 2: get done, it moves to the President's desk. Do you

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Speaker 2: have a sense of the impact that this may have

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Speaker 2: on the economy.

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Speaker 3: Well, it's a big, beautiful bill, so I haven't read it,

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Speaker 3: and it's hard to know.

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Speaker 4: I mentioned sent in earlier.

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Speaker 3: I think that you know, if you're going to cut

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Speaker 3: Medicaid and you're already having problems with one of the

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Speaker 3: major ACA insurance providers who's already going to have a

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Speaker 3: big increase before this announcement, and now they're going to

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Speaker 3: go back and ask for an even bigger.

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Speaker 4: Increase in twenty twenty six.

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Speaker 3: I think we're going to have, you know, one impact

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Speaker 3: of it, in my opinion, would be a higher uninsured population,

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Speaker 3: which always translates into more healthcare inflation. And that might

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Speaker 3: be an unintended consequence of this bill. You know, obviously

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Speaker 3: we could be wrong on this, but that that's usually

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Speaker 3: what you end up with if you have more uninsured population,

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Speaker 3: and whenever you have health care inflation, it tends to

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Speaker 3: ripple through the economy and tends to be one of

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Speaker 3: those issues that your average American really cares about. Your

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Speaker 3: average Americans really looking at, you know, food, housing, and healthcare.

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Speaker 3: And so if that's going to really impact them, I

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Speaker 3: think it could have rapifications for the economy as we

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Speaker 3: go forward. In terms of the keeping the tax cut,

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Speaker 3: that's obviously positive for the economy, and there's all kinds

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Speaker 3: of things like they're taking away solar credits and stuff

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Speaker 3: like that. But one thing I haven't heard a lot

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Speaker 3: of people talk about is sort of the impacts of

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Speaker 3: healthcare translating to the economy. So for us, that's one

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Speaker 3: of the things we're kind of evaluating.

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Speaker 2: Brian will leave it there. It's always a pleasure. Thank

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Speaker 2: you so much. Brian Crowez. He is the president at

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Speaker 2: Scharf Investments. Joining from Los Gatos, California, here on the

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

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Speaker 2: I'm Doug Prisner. President Trump says the US has reached

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Speaker 2: a trade agreement with Vietnam. It will give American companies

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Speaker 2: full market access and at the same time, the US

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Speaker 2: is slapping a twenty percent tariff on all Vietnamese imports. Now,

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Speaker 2: Hanoi hasn't confirmed the framework deal. For more, we heard

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Speaker 2: from Bloomberg News Desk editor Jill Desis. She spoke with

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Speaker 2: Bloomberg Cherry On and Heidi Strout Watts on the Asia trade.

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Speaker 5: Joe, what do we know about sort of the contours

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Speaker 5: of this steal and what's been agreed even though of

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Speaker 5: course that hasn't been a confirmation from the Vietnam side.

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Speaker 6: Well, yeah, I mean, Heidi, I think first of all,

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Speaker 6: I just want to point out that we do not

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Speaker 6: yet have a term sheet from the White House. They

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Speaker 6: haven't released anything, you know, giving a lot of further

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Speaker 6: details on there. So really I think there's just two

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Speaker 6: numbers that I can give you here. First of all,

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Speaker 6: the deal that Trump is announced would include a twenty

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Speaker 6: percent tariff on Vietnamese exports to the US, as well

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Speaker 6: as a forty percent levey on goods deemed to be

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Speaker 6: transshipped through the country. So what that tells me is

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Speaker 6: that as part of this steal, there's at least somewhat

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Speaker 6: of a focus perhaps on goods that you know, maybe

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Speaker 6: shipped through Vietnam from China for example. That's one thing

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Speaker 6: that the Trump administration has made very clear as it

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Speaker 6: continues to negotiate these types of deals, that one thing

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Speaker 6: it's focused on, particularly in some of these Southeast Asian countries,

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Speaker 6: is that it really wants to try to figure out

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Speaker 6: a way to box out China or otherwise, you know,

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Speaker 6: convince more manufacturers to to move goods that they manufacture

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Speaker 6: from China to other parts of Southeast Asia, including say Vietnam.

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Speaker 6: So that's one thing that those numbers perhaps tell me.

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Speaker 6: But again I do want to caution that we don't

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Speaker 6: have a term sheet. We don't know exactly what the

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Speaker 6: Vietnamese are saying about this, still obviously waiting more fulsome

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Speaker 6: confirmation from Hanoi about what exactly we're expecting with this deal.

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Speaker 6: But yeah, so it does tell you obviously, you know,

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Speaker 6: we're approaching that July ninth deadline that Trump has set

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Speaker 6: for you know, kind of coming up with some deals

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Speaker 6: to announce to address the reciprocal tariffs they'd announced back

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Speaker 6: in April. But we're still getting a lot of information

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Speaker 6: that's you know, still coming out. We'll see what ultimately

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Speaker 6: is in really kind of the nitty gritty of this

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Speaker 6: particular deal.

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Speaker 1: Jill, Let's talk a little bit about China, because, as

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Speaker 1: you mentioned, they're trying to box in China despite the

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Speaker 1: fact that they do have the supposed framework in place

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Speaker 1: that has cool tensions when it comes to those tariffs.

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Speaker 1: What are they trying to do in terms of using

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Speaker 1: O their trading partners and new deals in order to

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Speaker 1: restrict Chinese content.

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Speaker 6: Well, again, Sherry, I think you know, you look at

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Speaker 6: some of them, you know, the strategy that's actually being

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Speaker 6: you know, uh com here. I think that you know,

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Speaker 6: first of all, the idea is really kind of putting

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Speaker 6: pressure on the US trade partners to restrict trade that

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Speaker 6: they're doing with China. Obviously, we've seen this happen not

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Speaker 6: just in this latest round of trade deals, but over

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Speaker 6: the last several years of the US attitude towards China

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Speaker 6: has been very much particularly with its biggest allies, saying

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Speaker 6: you know, are there, are there you know, sanctions or

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Speaker 6: the restrictions you can put in place in terms of

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Speaker 6: dealing with uh, you know, in terms of working with

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Speaker 6: the Chinese technology, Chinese good there's a lot of you know,

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Speaker 6: obviously this more fulsome effort uh to sort of you know,

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Speaker 6: prevent China from developing you know, advanced technologies or you know,

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Speaker 6: working with say, you know, manufacturing parts or you know

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Speaker 6: parts that you know other uh other you know companies

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Speaker 6: and other countries might make and sending those to China.

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Speaker 6: So that's always a big part of this equation. But again,

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Speaker 6: now you're seeing this kind of play out I think

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Speaker 6: a little bit in some of these trade deals here. Obviously,

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Speaker 6: you know, we're still waiting for more on that Vietnam deal,

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Speaker 6: but that transshipment element of this trade deal again does

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Speaker 6: lead me to believe that there's a component in there

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Speaker 6: that's kind of directed toward trying to shut out China.

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Speaker 6: So again, you know, yes, obviously, as the United States

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Speaker 6: continues to you know, it's made its own trade deal

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Speaker 6: with China in the wake of all of this, the

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Speaker 6: fact that you've got all of these other countries that

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Speaker 6: are still up in the air in terms of what

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Speaker 6: their individual agreements look like the United States, you know,

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Speaker 6: I think does suggest that there is a strategy on

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Speaker 6: the part of the United States here to try to

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Speaker 6: you know, unite a lot of these countries and kind

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Speaker 6: of you know, create deals that you know are obviously

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Speaker 6: favorable to the United States, but that also maybe I'm

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Speaker 6: ultimately unfavorable to Beijing, which is.

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Speaker 5: Also why we've seen Beijing on this you know, multilateral

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Speaker 5: trade and diplomatic charm offensive right the FORIGN Minister among

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Speaker 5: Ease in Europe through to this Sunday over the weekend,

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Speaker 5: for the high level strategic dialogues with the Eues, he's

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Speaker 5: really you know, pushing home the point of collaboration and

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Speaker 5: working together confronting differences as such, there's a lot of

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Speaker 5: sort of really historic trade and diplomacy ties there. Could

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Speaker 5: that be a point of strength for Beijing.

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Speaker 6: I mean potentially and certainly, yes, I'd imagine that if

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Speaker 6: you're Wang YIV, you're for the foreign Minister, you're trying

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Speaker 6: to smooth over things in Europe, particularly ahead of there's

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Speaker 6: a pretty critical EU China summit that's happening in Beijing

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Speaker 6: later this month. So I think, you know, a lot

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Speaker 6: of what he's doing in Europe right now is kind

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Speaker 6: of paving the way for those further talks that they're

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Speaker 6: going to have at the end of the month. Yes,

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Speaker 6: obviously there's a ton of incredibly critical trade that goes

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Speaker 6: through between the EU and China. You know, we know

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Speaker 6: that Chinese EV's you know are you know, obviously have

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Speaker 6: a pretty big presence in Europe. I think, you know,

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Speaker 6: China is obviously, you know, interested in continuing to develop

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Speaker 6: some of those types of ties. So yes, obviously, if

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Speaker 6: you're the if you're Beijing in all of this, you're

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Speaker 6: trying to strengthen your position as well with all of

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Speaker 6: the trading partners that you had. I would point out that,

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Speaker 6: you know, as you know Donald Trump and the Trump administration,

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Speaker 6: we're trying to develop all of these other trade deals.

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Speaker 6: Some she jimping himself, the you know, president of China

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Speaker 6: was going through and trying to you know, foster tie

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Speaker 6: with you know a lot of you know, trading partners

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Speaker 6: in Southeast Asia. So this really is a case where

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Speaker 6: you've got the world's two foremost economic superpowers that are

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Speaker 6: ultimately trying to strategize and trying to work with you know,

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Speaker 6: their their individual trading partners. Because these are such important economies,

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Speaker 6: they do have incredibly strong trading partnerships and relationships, and

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Speaker 6: you know, they obviously have best of interests in keeping

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Speaker 6: those you know strong.

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Speaker 5: Boom My News desk out to Jode says there with

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Speaker 5: the lad us on trade.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg