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

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Speaker 2: Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner.

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Speaker 2: On today's episode, we'll be taking a deep dive into

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Speaker 2: what's next for the now blocked merger of US Deal

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Speaker 2: and Nipon Steele. I'll be joined in a moment by

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Speaker 2: Geradridi of Bloomberg Opinion. US equity markets were closed Thursday

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Speaker 2: in observance of a national day of mourning for former

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Speaker 2: President Jimmy Carter. Shares in Australia open slightly hire a

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Speaker 2: head of US jobs data. Those numbers will surely shape

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Speaker 2: fed rate policy going forward. Joining me now for a

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Speaker 2: closer look at today's market action. Mary Nicola, Bloomberg m

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Speaker 2: Live Strategist, friend of the program, joining us from our

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Speaker 2: studios in Singapore. Thanks for making time to chat with us.

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Speaker 2: One of the things that's curious is the range of

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Speaker 2: forecast for non farm payrolls is pretty wide. I think

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Speaker 2: at the low end one hundred and twenty thousand all

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Speaker 2: the way up to two hundred and sixty eight thousand.

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Speaker 2: So obviously, economists have a diversity of viewpoints on the

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Speaker 2: strength of the American labor market, where would you come

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Speaker 2: down if I ask you for a number on non

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Speaker 2: farm jobs? Where do you think you would arrive?

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Speaker 1: Well, I think the widespread range that we see in

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Speaker 1: the labor market report and the estimates there is an

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Speaker 1: indication of how volatile the number is. We have to

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Speaker 1: remember that it is a very volatile number with a

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Speaker 1: standard deviation that is quite high. So you know, you

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Speaker 1: could still project two hundred and twenty or one twenty,

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Speaker 1: but you could still be within the what is expected

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Speaker 1: to be that technical term of the standard deviation, within

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Speaker 1: the limits. But I think what it is is what

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Speaker 1: the key thing is that we're going to see signs

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Speaker 1: of cooling. The likelihood is that the labor market is cooling,

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Speaker 1: but not to the point to trigger any concern about

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Speaker 1: the broader US economy. And that's absolutely crucial because what

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Speaker 1: the market is striving on and what the market is

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Speaker 1: reacting to is that actually good news is bad news.

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Speaker 1: And why is good news bad news for risk assets?

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Speaker 1: Because the FED is likely to delay inflation is coming back.

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Speaker 1: We saw that in some of the ism reports. We're

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Speaker 1: showing that there's a lot of terror front running that

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Speaker 1: is coming through and that's having an impact on prices,

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Speaker 1: So it really comes down to concerns about, you know,

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Speaker 1: how high can yields go, And right now people are

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Speaker 1: talking about ten year five percent, even six percent, and

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Speaker 1: that's worrying.

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Speaker 2: So you've been writing a lot about persistent dollar strength.

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Speaker 2: So if you get a good number tomorrow and the

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Speaker 2: dollar will remain well bid, I mean that kind of

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Speaker 2: is consistent with your viewpoint that the dollar will remain

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Speaker 2: very robust for a while longer. Is that right?

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Speaker 1: Yeah? Absolutely, And I think there's a lot of catalysts

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Speaker 1: in support of dollar strength. So for example, there's still

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Speaker 1: that outperformance of the US. We're seeing growth actually performing

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Speaker 1: pretty well. Projections for earnings as well has been a

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Speaker 1: lot stronger in the US versus the rest of the world.

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Speaker 1: So there is still a bit of that US exceptional

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Speaker 1: exceptionalism that is supporting the dollar. Now, all the labor

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Speaker 1: market report shows, especially if let's say the unemployment rate

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Speaker 1: remains unchanged, then you see that it just highlights that

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Speaker 1: theme even more and shows the resilience of the US economy.

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Speaker 1: So I think in general, the dollar has a lot

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Speaker 1: to in support of it. And now add to that

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Speaker 1: the policy uncertainty. The policy uncertainty coming from trade policy

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Speaker 1: and from fiscal policy, and that's still going to weigh

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Speaker 1: on concerns where the dollar could actually get a bid

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Speaker 1: just because of the nervousness and the fact that the

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Speaker 1: rest of the world isn't doing so great, especially China.

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Speaker 2: One of the things that became clear when you look

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Speaker 2: at the minutes of the last FED meeting is that

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Speaker 2: the FED staff have now incorporated placeholder assumptions about those

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Speaker 2: policy changes that you just kind of hinted at from

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Speaker 2: the incoming Trump administration. And one of the things that

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Speaker 2: struck me is the economic forecast is for slightly slower growth,

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Speaker 2: but this is maybe a little bit more complicated because

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Speaker 2: of policies from the administration, and also, which kind of

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Speaker 2: goes back to what we were talking about a moment ago,

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Speaker 2: expectations that inflation will remain firm. So is there a

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Speaker 2: concern do you think in the part of the market.

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Speaker 2: I know that's been weakness in the equity market today

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Speaker 2: and yields have been kind of stubborn. I'm wondering whether

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Speaker 2: the market's beginning to really look more closely at the

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Speaker 2: degree to which growth could slow. Maybe it will be

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Speaker 2: more meaningful than the market anticipates.

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Speaker 1: Yeah, the problem right now is that there's just so

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Speaker 1: much uncertainty in terms of the policy projections and what

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Speaker 1: is expected for twenty twenty five and under the new administration.

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Speaker 1: So we know, for ex sample, that the likes of

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Speaker 1: the tax cut, the tax cuts are likely to extend.

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Speaker 1: But if you throw in things like you know, getting

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Speaker 1: rid of the debt ceiling, you know, cutting corporate taxes

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Speaker 1: even more than where they are now, that adds a

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Speaker 1: little hesitancy into the markets. Then of course you have

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Speaker 1: the impact or the potential impact of tariffs because last time,

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Speaker 1: we have to remember during the last tariff war under

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Speaker 1: the administration of under the Trump administration, you saw a

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Speaker 1: slowdown in business investment as a result, you saw it

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Speaker 1: as a concern among companies of what to do and

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Speaker 1: how to manage these tariffs. So there is still so

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Speaker 1: much uncertainty surrounding how the implications of what the implications

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Speaker 1: of the tariff policy will be, and what fiscal policy

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Speaker 1: will be for now, though it seems that bond markets

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Speaker 1: and investors are more focused on fiscal policy and the

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Speaker 1: impact of fiscal policy with the fact that you have

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Speaker 1: inflation rising and fiscal discipline basically out the window. So

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Speaker 1: that's just bringing the bond vigilante vigilantes back in full force.

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Speaker 2: Before I let you go, can we talk a little

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Speaker 2: bit about China and light of that consumer price and

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Speaker 2: producer price inflation data or deflation probably is the more

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Speaker 2: accurate term here is the PBOC Do you think at

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Speaker 2: a point now where they can do very little to

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Speaker 2: address this problem. It's largely going to have to come

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Speaker 2: from the policy side in Beijing.

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Speaker 1: Yeah, I think they're in a very difficult position because

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Speaker 1: if they cut rates even more, it exacerbates pressure on

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Speaker 1: the currency and that's not something they want to see,

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Speaker 1: especially because they're trying to push back on the depreciation

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Speaker 1: and the currency. But it's not doing anything except slowing

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Speaker 1: the pace of depreciation. It's not reversing the depreciation at all.

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Speaker 1: So there's a lot of concern within the PBOC in

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Speaker 1: terms of there's expectations are high that they're going to

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Speaker 1: ease policy, and that's probably the right thing to do

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Speaker 1: for the for the for the economy, and bond yields

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Speaker 1: need to stay low, especially with the fact that you

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Speaker 1: have a massive uh consumption malaise and the and the

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Speaker 1: economy is not in a in a in a healthy state.

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Speaker 1: So there is still support for further monetary easing, but

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Speaker 1: I think a lot of the because of the concern

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Speaker 1: on the currency, the onus is going to fall back

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Speaker 1: to fiscal policy and what fiscal policy will do. The

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Speaker 1: problem is, so far fiscal policy has underwhelmed, and so

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Speaker 1: for example, the announcements that came out this week were underwhelming,

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Speaker 1: to say the least in terms of what they can

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Speaker 1: do to reinvigorate consumption. That's fallen short of expectation and

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Speaker 1: did very little to boost sentiment. So now it's all

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Speaker 1: about fiscal policy coming out in full force, and maybe

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Speaker 1: they are saving their bullets until they see what the

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Speaker 1: upcoming Trumpet administration does and.

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Speaker 2: The tariff story. You're absolutely right about that, Mary, Thank

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Speaker 2: you so much. Enjoy the weekend there in the Lion City.

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Speaker 2: Bloomberg's Mary Nicola joining us here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.

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Speaker 2: Earlier this week, President Biden blocked Nippon Steele's deal to

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Speaker 2: acquire US deal. Now, that may have been widely expected,

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Speaker 2: although the language in Biden's executive order referred to national

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Speaker 2: security concerns, and that may have left many scratching their heads.

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Speaker 2: So what's next for these two steel makers and for

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Speaker 2: relations between the US and Japan. To help answer these questions,

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Speaker 2: I spoke with Gerode Reedi, who covers Japan for Bloomberg Opinion.

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Speaker 2: Let's begin with Biden's rationale for blocking this transaction. I'm

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Speaker 2: curious as to whether you understand it, whether it makes

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Speaker 2: sense to you.

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Speaker 3: The rationale absolutely does not make sense, and I think

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Speaker 3: that is the most difficult to understand part about this deal.

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Speaker 3: You know, we knew that Biden opposed the deal. We

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Speaker 3: knew that this decision was likely coming. But I think

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Speaker 3: what was shocking here was to see it put, you know,

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Speaker 3: so starkly in writing that, you know, the wording of

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Speaker 3: Biden's executive order, that he has credible evidence that Nippon's

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Speaker 3: DEEL might take action that threatens to impair the national

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Speaker 3: security of the US. You know, we're talking about a

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Speaker 3: Japanese company, Japan is you know, the US's I think

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Speaker 3: it's it's most important ally at this point in time,

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Speaker 3: and obviously you know it's a security the US is

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Speaker 3: Japan Security guardn tour to say that a company based

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Speaker 3: in Japan presents a national security threat to the US

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Speaker 3: just doesn't make any sense at all.

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Speaker 2: I find it particularly interesting because from what I read,

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Speaker 2: many people who advise President Biden were actually in favor

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Speaker 2: of this deal, and they wanted him to kind of

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Speaker 2: give his blessing, to give his approval. At the end

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Speaker 2: of the day, we know he blocked it, And I'm

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Speaker 2: wondering whether some of this had to do with the

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Speaker 2: fact that Biden would like to be seen in his

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Speaker 2: legacy as a pro labor president. Do you think that's plausible.

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Speaker 3: That obviously seems to be, you know, the main factor,

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Speaker 3: and you know, to a certain extent, that's understandable from

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Speaker 3: Biden's point of view, you know, to to to say

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Speaker 3: that there, you know, there obviously are political considerations for

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Speaker 3: him in this matter. As you say, the reporting behind

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Speaker 3: the scenes seems to indicate that the people who are

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Speaker 3: in charge of deciding whether it represents a national security

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Speaker 3: threat or not came down on the side of that

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Speaker 3: it wasn't. And indeed, we're trying to persuade Biden to

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Speaker 3: go back on this deal, you know, because it obviously

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Speaker 3: it is you know, as I described it, as a

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Speaker 3: slap in the face of one of the US's most

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Speaker 3: important allies.

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Speaker 2: So how is it being read in Japan right now?

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Speaker 2: What is the Japanese press saying about this?

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Speaker 3: I think it is, as I say, the fact that

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Speaker 3: it was coming was expected. I don't think anyone really

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Speaker 3: expected this deal to go through. I think in Japan

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Speaker 3: as well, you know, as well as in you know, everywhere.

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Speaker 3: Really it is a little bit of a matter of well,

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Speaker 3: we'll wait and see. You know, President Biden only has

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Speaker 3: a couple more weeks in office, and then we're going

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Speaker 3: to have somebody else in the White House. So I

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Speaker 3: think there is a little bit of an attitude of like, well,

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Speaker 3: let's let's see what happens for now. Obviously, President alec

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Speaker 3: Trump has also said that he has opposed the deal,

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Speaker 3: but it wouldn't be surprising, or it wouldn't be the

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Speaker 3: first time, shall we say, if he went back and

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Speaker 3: did the opposite of something that he had previously said.

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Speaker 3: So I think there is a little bit of a

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Speaker 3: you know, let's wait and see what happens in a

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Speaker 3: couple of weeks and then we'll decide.

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Speaker 2: So are there things that we need to understand, perhaps

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Speaker 2: about Nipon's relations in China that need to be kind

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Speaker 2: of a little bit. Do we need to explore that personally?

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Speaker 3: I don't think so. I think that is quite spurious,

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Speaker 3: you know. I think one of the things that we

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Speaker 3: would like to see in this and one of the

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Speaker 3: things that indeed Prime Minister Isshuba has asked the US

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Speaker 3: is to present this so called credible evidence of this

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Speaker 3: supposed national security threat in a Nippon Steel has already

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Speaker 3: leading up to this deal, has already unwound some of

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Speaker 3: its dealings in China. I mean, I don't I don't

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Speaker 3: think that really has has anything has anything to do

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Speaker 3: with it. And like I say, you know, if there

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Speaker 3: is a national security rationale's let's see the evidence of it.

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Speaker 2: What do you think failure of this deal, Let's assume

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Speaker 2: for a moment that it does not get done, what

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Speaker 2: does it mean for US Japan relations?

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Speaker 3: I think it will have consequences, not just not just

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Speaker 3: necessarily the failure of this deal, but the way that

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Speaker 3: it is presented. There are already, you know, we are

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Speaker 3: in a bit of a different different mode in you know,

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Speaker 3: not just in pan but in Asia in general at

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Speaker 3: the moment, especially with you know, Trump coming back to

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Speaker 3: the White House, potential you know, new leader in South

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Speaker 3: Korea in the next couple of months. And also we

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Speaker 3: have in Japan we have Prime Minister Ishiba, who is

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Speaker 3: he takes a different look at regional security in Japan's

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Speaker 3: place in Asia and Japan's place, you know, visa vi

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Speaker 3: the US to many of his his predecessors, and I

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Speaker 3: think especially compared to his predecessor Kishida and obviously to

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Speaker 3: Ti shinzo Abe, I think this will be a black

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Speaker 3: mark on US Japan relations going forward, just the way

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Speaker 3: that it's described. I don't know if this deal in

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Speaker 3: and of itself will have, you know, massive consequences. But

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Speaker 3: I think the next time the US comes to Japan

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Speaker 3: looking for something, let's say they're looking for more export

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Speaker 3: controls on semiconductor part exports to China, which obviously Japan

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Speaker 3: has been quite cooperative with the US requests in that respect,

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Speaker 3: I think Japan will be like they'll they'll they'll say,

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Speaker 3: you know, what have you done for us lately?

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Speaker 2: Let me ask you if you think it's a bit

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Speaker 2: ironic that President elect Trump has already had kind of

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Speaker 2: an event with the chairman of SoftBank Masayoshi's son and

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Speaker 2: has agreed to receive or accept one hundred billion dollars

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Speaker 2: in investments from soft Bank in certain areas of advanced

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Speaker 2: technology like semiconductors and artificial intelligence in the United States.

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Speaker 2: Does that seem ironic to you?

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Speaker 3: I think, you know, when it comes to masiohis he

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Speaker 3: knows how this game is played, and he is following

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Speaker 3: a rule book that you know he did, but basically

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Speaker 3: exactly the same thing. When Trump was first in the

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Speaker 3: White House, promised fifty billion I think at that point

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Speaker 3: of investments in the US, and so now he's turned

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Speaker 3: up and double it that those investments ever actually happened,

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Speaker 3: the jobs that he promised, you know, were they actually created.

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Speaker 3: I'm not sure that's necessarily important to either side in

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Speaker 3: this so to a certain extent, you know, I think

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Speaker 3: from the Japanese side, or at least during the first

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Speaker 3: Trump term Japan, both the government and the business community,

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Speaker 3: they had a pretty good idea of what it was

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Speaker 3: Trump was looking for, and the fact that he is

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Speaker 3: quite transactional makes him quite easy to understand as opposed

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Speaker 3: to I think, you know, some of the political considerations.

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Speaker 3: You know, one thing I would say here is that,

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Speaker 3: you know, Nippon Steele were not I think smart in

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Speaker 3: the way that Massioch Soon is in terms of how

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Speaker 3: they approached this deal. The fact that they thought they

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Speaker 3: could get this deal done in an election year, you know,

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Speaker 3: from the moment it was announced, was a huge question

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Speaker 3: mark over this thing. So I think maybe when Trump

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Speaker 3: is in the White House, you know, it is a

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Speaker 3: little bit easier to deal with them, and you know,

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Speaker 3: perhaps the case with this deal will be, well, does

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Speaker 3: what does Trump want in order to give it his approval?

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Speaker 2: No doubt about that. We'll see where we go from here.

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Speaker 2: Thank you so much, Happy New Year two. Thanks for

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Speaker 2: joining us. Garod Reedy is Bloomberg opinion columnist joining us

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Speaker 2: from Tokyo. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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

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

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Speaker 2: YouTube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Prisner, and this is

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Speaker 2: Bloomberg