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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 Pella.

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Speaker 2: Doug Prisoners off. This week, the S and P five

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Speaker 2: hundred was on the brink of all time highs in

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Speaker 2: the Tuesday session before losing steam. Coming up, we'll get

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Speaker 2: a look at markets from the APAK perspective when we

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Speaker 2: hear from Vishnu Varathan, the head of Economics and Strategy

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Speaker 2: at Misaho Bank. But we begin with trade. President Trump

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Speaker 2: says tariffs on semiconductor and pharmaceutical imports will be announced

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Speaker 2: within the next week or so. Trump added that he

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Speaker 2: was getting very close to a deal with China to

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Speaker 2: extend a trade truce between the two countries. For more,

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Speaker 2: we heard from Bloomberg News Desk editor Jill Dissis. She

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Speaker 2: spoke with Bloomberg's Heidi Stroud Watts.

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Speaker 1: Let's start off with the fam thread that it will

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Speaker 1: start off small, but then potentially one hundred and fifty

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Speaker 1: two hundred and fifty percent.

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Speaker 3: Yeah, I mean, HEDI I think at this point, you know,

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Speaker 3: this is just the latest in this round of sectoral

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Speaker 3: tariffs that we're really expecting from Trump. In addition to

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Speaker 3: pharmaceutical goods. He's also talked about tariffs on you know, chips,

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Speaker 3: semiconductor opponents, that kind of thing that I think he's

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Speaker 3: still a little bit fuzzy on what exactly those numbers

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Speaker 3: would look like. You know, obviously, you know, we do

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Speaker 3: have to emphasize this is trump. You know, a lot

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Speaker 3: of this you know, has the tendency to kind of

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Speaker 3: change and sort of shift over time. I think at

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Speaker 3: this stage, when it comes to some of those pharmaceutical

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Speaker 3: tariffs that he's talking about, it's really just about seeing

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Speaker 3: what that initial number is and then how much he

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Speaker 3: actually sticks to this idea of hiking rates. I mean,

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Speaker 3: you know, one hundred and fifty percent, two hundred and

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Speaker 3: fifty percent, we're talking incredibly high terraf rates that could

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Speaker 3: potentially be faced in this industry, very very industry disrupting.

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Speaker 3: But the one thing that I do also want to

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Speaker 3: emphasize with some of these tariffs that he's talking about,

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Speaker 3: these sectoral tariffs, so the pharmaceutical ones, what he's talked

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Speaker 3: about on chips, is that you know a big difference

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Speaker 3: between this and then say these other reciprocal tariffs that

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Speaker 3: he's you know, been you know, handing down country by country.

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Speaker 3: Is that these sectoral tariffs are something that you know,

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Speaker 3: comes out of a Commerce Department investigation, and they're actually

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Speaker 3: much more difficult to roll back, you know, once they're

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Speaker 3: in place. So I do think that's one thing that

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Speaker 3: maybe you're looking at in terms of market reaction. But yeah,

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Speaker 3: I mean, again a lot of uncertainty about this, but

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Speaker 3: that's you know, often the case when it comes to Trump.

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Speaker 1: And uncertainty, so always sound with China, but it all

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Speaker 1: kind of sounds like the move music is positive on,

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Speaker 1: you know, pushing back this this deadline.

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Speaker 3: Really yeah, so that's the the ninety day reprieve that

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Speaker 3: we've got from those incredibly high China tariffs. It does

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Speaker 3: seem like they're pretty well situated to push that maybe

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Speaker 3: another you know ninety days or so, so that that

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Speaker 3: deadline for that reprieve is supposed to expire on August twelfth,

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Speaker 3: so you know, getting into next week there, I think,

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Speaker 3: you know, when it comes to China, really, you know,

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Speaker 3: the big sort of looming thing in the background is

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Speaker 3: this idea that there could potentially be a meeting between

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Speaker 3: President Trump and Chinese President Chijinping later this year. You know,

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Speaker 3: maybe you know, in soul during an APEX summit is

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Speaker 3: a good opportunity to make that happen. Trump did say

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Speaker 3: overnight that, you know, he's not necessarily focused on, you know,

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Speaker 3: wanting to have that kind of meeting. He said, you know, essentially,

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Speaker 3: if it happens, it happens. If it doesn't, it doesn't.

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Speaker 3: But I do think that that, at least in the

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Speaker 3: broader context of US China relations, is one thing that

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Speaker 3: you know, maybe is you know, kind of that impetus

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Speaker 3: for you know, having that meeting. Although you know, I

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Speaker 3: would point out that as part of Trump's larger, you know,

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Speaker 3: sort of campaign to try to pressure Putin into ending

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Speaker 3: of Russia's war in Ukraine, He's really kind of targeted

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Speaker 3: the potential for higher tariffs on nations that sell oil

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Speaker 3: to that buy oil from Russia. You know, obviously India

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Speaker 3: being the primary target, but China is also a pretty

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Speaker 3: significant buyer of Russian oils. So not sure how much

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Speaker 3: that might sort of put a wrinkle in some of

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Speaker 3: these talks about a potential truce there.

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Speaker 1: Yeah, it's really interesting to see if that pros is

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Speaker 1: going to differ when it comes to how they approach

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Speaker 1: that with Beijing. Versus New Delhi ride because they seem

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Speaker 1: to be sticking into a hard line with India.

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Speaker 3: Yeah, that's right. It's actually really interesting to see sort

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Speaker 3: of those parallels there because you know, while you know,

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Speaker 3: obviously we just had this discussion about a potential pause

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Speaker 3: and you know, further truce with the China tariffs. Yeah,

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Speaker 3: I mean, India, you know, was slapped with a twenty

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Speaker 3: five percent tariff you know, last week, you know, going

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Speaker 3: into effect later this week. And it's really Trump has

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Speaker 3: really seized on that idea of India as a buyer

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Speaker 3: of Russian oil as a significant reason for that. And

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Speaker 3: then obviously we've talked about these threats he's threatening to

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Speaker 3: you know, impose even higher tariffs talking about that oil specifically.

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Speaker 3: I mean, you know, India obviously has made great strides

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Speaker 3: trying to get lower rates. You know, they were really

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Speaker 3: one of the first out of the gate earlier this

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Speaker 3: year when they were trying to negotiate early low rates

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Speaker 3: from the Trump administration. Obviously that hasn't panned out, and

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Speaker 3: they really have become you know, sort of this collateral

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Speaker 3: damage and Trump's ultimate push to try to put pressure

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Speaker 3: on Putin you know, where we kind of go from here.

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Speaker 3: We'll have to see whether India is successful negotiating there.

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Speaker 3: But yeah, I mean at this point, Moon music not

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Speaker 3: very positive at the moments, and we're still kind of

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Speaker 3: waiting to see what exactly Trump's threats of higher tariffs

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Speaker 3: that could impact India will ultimately look like.

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Speaker 1: The news desk editor Jodes is there.

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

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Speaker 2: for Doug Curisner. This week, US stocks faltered Tuesday after

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Speaker 2: weakening services data fueled uncertainty about the federal reserves policy path.

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Speaker 2: The pullback highlights investor anxiety over the Fed's next move,

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Speaker 2: and for a closer look, we heard from Vishnu Varathan,

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Speaker 2: the head of economics and Strategy at Mizoho Bank. He

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Speaker 2: spoke with Bloomberg's Heidi Stroud Watts and Hustlinda Ahman.

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Speaker 4: You could have you with us. You know, when you

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Speaker 4: take a look at the data, increasingly you get a

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Speaker 4: sense that perhaps there's a shift in the US economy.

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Speaker 4: First it was the labor data, we can expect it

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Speaker 4: now its services. Is there a sense things have changed?

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Speaker 5: Well, I think we always took a view that you know,

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Speaker 5: the household cash flows were tightening up, so as a

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Speaker 5: result of that, you were going to get softer outlook

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Speaker 5: coming through, and I think that the corporates as well.

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Speaker 5: Our sense was that the hiring intent was somehow less

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Speaker 5: aggressive at the very least, and now it's turned cautious,

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Speaker 5: which is why sometimes you get numbers that suggest that

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Speaker 5: hours being worked are longer, but that may be getting

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Speaker 5: more out of what you have rather than hiring more. So, yes,

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Speaker 5: there is a softening in the data. But there are

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Speaker 5: two fair warnings here. One is there's a lot of

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Speaker 5: distortions due to the tariffs anticipation of which means corporate

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Speaker 5: behavior is different, front loading, so on and so forth.

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Speaker 5: Consumer behavior could all be different in so far that

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Speaker 5: consumers you're watching these headlines, it's hard not to look

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Speaker 5: at the elephant in the room, my frontload some spending saying,

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Speaker 5: you know, I much rather take on inventory that is

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Speaker 5: not tariffy at than take on the cost later. So

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Speaker 5: the data would be bumpy, and the second layer of

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Speaker 5: uncertainty is but it still doesn't take away the problem

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Speaker 5: that simultaneously you could have a price shock and then

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Speaker 5: you end up with a fat that still sits on

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Speaker 5: a sharper dilemma, but a dilemma nonetheless, so it doesn't

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Speaker 5: distract from the Fat's dilemma, but it does point to

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Speaker 5: the fact that we probably need to, you know, actively

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Speaker 5: look at two sided risks rather than just focus on

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Speaker 5: prices alone.

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Speaker 4: So data is weakening, and that's even before you factor

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Speaker 4: in the impact of terrorists, which will come Powell says

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Speaker 4: at the end of the year. So Powell could be wrong,

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Speaker 4: he could be too late in the game.

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Speaker 5: I'm glad some could be right. I'm glad you brought

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Speaker 5: that out because to your point, the teriff effect will

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Speaker 5: come through later. But the real question around that is

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Speaker 5: that durably inflationary or is it actually ultimately deflationary because

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Speaker 5: the consumer ends up having to dish out more cash

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Speaker 5: but end up consuming less, hence starts to pull back

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Speaker 5: in terms of the equality of consumption or quantity of consumption.

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Speaker 5: So those are the things that we don't know yet,

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Speaker 5: and I think that's really what Power is alluding to.

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Speaker 5: He doesn't know what the outcomes are, and to be

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Speaker 5: fair to Power, I don't think he wants to be late.

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Speaker 5: But he has suggested the direction of travel for rates

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Speaker 5: is lower. It's just that given the uncertainty and the

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Speaker 5: things that keep moving all around, he doesn't know which

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Speaker 5: way to go yet. My last point on that is

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Speaker 5: pausing is not aesthetic thing. As time passes, the economy

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Speaker 5: weakens further, so your response function needs to be there.

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Speaker 5: So by pausing and saying we're assessing, you're actively, perhaps

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Speaker 5: possibly weakening the economy further than you have to. So

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Speaker 5: that's a point that we must be cognizant of.

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Speaker 1: In the meantime, we've seen data for the age of

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Speaker 1: Pacific holding up pretty well right, and we've seen central

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Speaker 1: banks really kind of be able to focus more on

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Speaker 1: growth this part of the world. There are some exceptions.

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Speaker 1: How much pressure is the Indian economy going to come

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Speaker 1: under as we look to the RBI decision. Is there

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Speaker 1: any way out in terms of that structural relationship with

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Speaker 1: Russian crews?

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Speaker 5: I think highly that's perhaps the question on every Indian

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Speaker 5: policy maker's mind. Probably for context, we have to put

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Speaker 5: this in place, which is the imports of Russian crude

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Speaker 5: goes well beyond the net trate balance involved. It is

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Speaker 5: integral to the economy because the economy needs low cost

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Speaker 5: energy to supply and broaden growth out which is why

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Speaker 5: it becomes a painful decision. That kind of informs us

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Speaker 5: why India has pushed back so hard as well, rather

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Speaker 5: than just conceding. But I don't think the RBI has

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Speaker 5: a solution here. There are two parts that need to work.

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Speaker 5: One part is because the Russian crude imports will ramped

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Speaker 5: up so quickly from almost being a negligible share of

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Speaker 5: crude imports pre Ukraine War, it has come up to

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Speaker 5: about the eight percent. Surely they can pare that back

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Speaker 5: as a negotiation, but they might want to keep that

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Speaker 5: option intact. Whereas the RBI has rightly front loaded its cuts.

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Speaker 5: Probably the best position to be is to pause right

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Speaker 5: now because the RBA doesn't want to compromise the rupee

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Speaker 5: further at this point. That would just add to the

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Speaker 5: stress rather than easy. So the trade off in terms

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Speaker 5: of getting some easy, you know, easy for the economy

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Speaker 5: versus rupe instability suggests that the RBI should hold even

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Speaker 5: though they've got scope to ease a lot more. And

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Speaker 5: I think that's what the RBI will stick with, Especially

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Speaker 5: after the fifty basis point cut where RBA shifted to

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Speaker 5: neutral stands they probably wouldn't want to back pedal on

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Speaker 5: that too quickly.

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Speaker 1: At the same time, we're also watching these sort of

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Speaker 1: extended conversations about extension of the truth with China. Right,

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Speaker 1: is it interesting to you that they kind of seem

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Speaker 1: to be happy to kick the can down the road

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Speaker 1: for what is probably the most complex of these trade

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Speaker 1: and strategic, you know, strategically competitive conversations.

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Speaker 5: It's not at all surprising. I mean, China just came

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Speaker 5: out saying I've got swag and I'm not afraid to

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Speaker 5: use it. Sorry, I meant leverage. So clearly we saw

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Speaker 5: that this is not the Trump one point, Oh China,

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Speaker 5: who's willing to concede and say let's get on with

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Speaker 5: business as usual because we hope things will revert. This

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Speaker 5: is a China that's realized there's no reversion and there

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Speaker 5: is a certain element of industrial survival and so on

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Speaker 5: and so forth. So they're going to push hard, use

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Speaker 5: every leverage, and I think the US now knows that

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Speaker 5: there are some buttons they can't push it, which is

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Speaker 5: why there's an extension. There's further concessions and there will

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Speaker 5: be some sort of a compromise. But structurally, the US

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Speaker 5: trying to antagonism is not going well because in the

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Speaker 5: background we do still see tightening on chips, so on

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Speaker 5: and so forth, so that we can't get distracted about.

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Speaker 5: What we need to be aware of is perhaps the

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Speaker 5: US will not go all out to hit China because

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Speaker 5: the very near term impact on market stability, particularly long

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Speaker 5: end yields, is not going to augur well. And the

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Speaker 5: Cell America team is something that they wouldn't want to

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Speaker 5: push them. They're the envelope on too much.

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Speaker 4: China has swagged. It also has a lot of liquidity

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Speaker 4: along with the US, right, so that means the markets

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Speaker 4: where you be well supported. Is that a fair assumption.

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Speaker 5: I would say that the markets will be well supported,

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Speaker 5: particularly given some of the optimism around the stimulus they're

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Speaker 5: putting in place, backstops, so on and so forth. But

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Speaker 5: let's not forget the fact that China is coming from

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Speaker 5: a place of weakness. There is that property market overhang

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Speaker 5: that doesn't go away near term fiscal backstop to get

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Speaker 5: demand going on the household and not quite a done deal.

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Speaker 5: I mean, it's a great start, but you know it's

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Speaker 5: a thousand mile journey. Baby steps are important, but they

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Speaker 5: haven't concluded the game. And I think on the industrial end.

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Speaker 5: China is still has caught some edge, but needs to

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Speaker 5: really keep that edge. And that's probably where I think

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Speaker 5: the policy tradeoffs come because between financial stability and providing

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Speaker 5: sufficient credit, that trade off has an goneaway. We just

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Speaker 5: need to look at how the relocation plays out as

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Speaker 5: we look at China.

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Speaker 4: Vishn great insight, always very candid. Vishnu Varraiton, Head of

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Speaker 4: Economics and Strategy at Misiho Bank.

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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