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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: So President Trump's Big Beautiful Bill was passed today by

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Speaker 2: the House. It will be signed into law on the

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Speaker 2: fourth of July, and in a moment or two we'll

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Speaker 2: bring you a conversation on the bill's impact with US

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Speaker 2: Treasury Secretary Scott Bessant. But we begin with markets and

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Speaker 2: record highs today for both the S and P five

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Speaker 2: hundred and the Nasdaq composite. The monthly employment report was

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Speaker 2: stronger than forecast. It tempered worries over a slowing economy,

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Speaker 2: and it also reduced speculation on the Fed cutting its

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Speaker 2: policy rate anytime soon. Joining me now for a look

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Speaker 2: at the price section and the overall macro is Rob Hayworth.

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Speaker 2: He is Senior investment strategy director at US Bank Asset Management.

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Speaker 2: Rob is on the line from Seattle, Washington. Thank you

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Speaker 2: for making time to chat with me. Can I begin

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Speaker 2: by getting your reaction to the jobs data?

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Speaker 3: Absolutely? Yeah.

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Speaker 4: The job's data today was certainly, I think a surprise,

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Speaker 4: surprisingly strong, even though one hundred and forty seven thousand

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Speaker 4: new payroll jobs is not the highest we've seen of late.

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Speaker 4: It is much stronger than people expected, and I think

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Speaker 4: that tells us we're seeing a resilient economy, which is

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Speaker 4: some of what we saw on the PMI data, some

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Speaker 4: of what we saw in the job openings to data

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Speaker 4: today as well this week, and the market certainly reacted

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Speaker 4: that way.

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Speaker 2: Where does it leave the Fed? Do you think? I

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Speaker 2: mean July obviously, at least in the market's view, is

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Speaker 2: off the table for a rate cut. Perhaps the first

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Speaker 2: move is in September. Is that about right? Yeah?

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Speaker 4: I think it leaves the Fed in their wait and

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Speaker 4: see mode, as chair Powell even hinted at the CenTra

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Speaker 4: conference in Europe this week, and that maybe means they'll

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Speaker 4: get to two cuts this year. It's what they're expecting,

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Speaker 4: it's what the market expects, but we'll have to see

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Speaker 4: how the data unfolds. We still really haven't seeing much

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Speaker 4: impact one way or the other, whether it's inflation or

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Speaker 4: profit margin pressure from tariffs just yet. And when it

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Speaker 4: comes to the reconciliation bill that just passed and the

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Speaker 4: President will likely sign tomorrow, the benefits of that to

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Speaker 4: the economy are probably not until late this year early

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Speaker 4: next year, so there's probably some tough sledding ahead that

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Speaker 4: gives the FED room to cut rates.

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Speaker 2: So we have the big, beautiful bill that will become

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Speaker 2: law as of July fourth. One of the things that

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Speaker 2: the Congressional Budget Office is quick to point out it

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Speaker 2: will add about three point four trillion dollars to the

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Speaker 2: US deficit over the next ten years. Is that problematic

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Speaker 2: for you?

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Speaker 4: I think it's something we're watching, and the bond market

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Speaker 4: is watching closely, and that's what we're watching to tell

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Speaker 4: us if it's problematic. Right now, with the ten year

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Speaker 4: treasury below four and a half percent, we'd say the

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Speaker 4: bond market is a little seguine about it at the moment,

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Speaker 4: and certainly over the next ten years there's a lot

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Speaker 4: can change when it comes to the US debt burden,

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Speaker 4: but it's something that could be a problem. We think

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Speaker 4: the signal for that to us would be if we

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Speaker 4: start seeing the tenure treasury yield to get closer to

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Speaker 4: five percent. That may be the market either having some

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Speaker 4: trouble with a growing debt burden here.

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Speaker 2: In the US. One of the things I think that's

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Speaker 2: been a little confounding. The impact of tariffs really hasn't

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Speaker 2: shown up to be kind of an inflationary problem at

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Speaker 2: this point. Anyway, I think to go back to your

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Speaker 2: point about the FED being in a weight and see mode,

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Speaker 2: I think that that's perhaps one of the things that

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Speaker 2: is really causing them the tread water at the moment.

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Speaker 2: Today the President said the administration may begin sending out

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Speaker 2: letters to trading partners on those so called unilateral tariffs

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Speaker 2: ahead of the July ninth deadline for more trade negotiations.

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Speaker 2: Do you think that the situation with tariffs has the

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Speaker 2: potential to worsen in a way that we could in

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Speaker 2: fact see an inflationary effect.

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Speaker 4: I think what will happen with tariffs is one of

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Speaker 4: two things.

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Speaker 5: Right.

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Speaker 4: Either consumers will have to pay for them. That will

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Speaker 4: be inflationary, and we'll see that in a one time

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Speaker 4: bump to inflation, where businesses will have to pay for them,

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Speaker 4: whether here or abroad, and that will come out of

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Speaker 4: profit margins. That means a tougher road for labor. So

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Speaker 4: I think the challenge will be there is a cost

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Speaker 4: somewhere to this economy. It's probably a bit of both,

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Speaker 4: and that's what we'll have to watch out for. And

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Speaker 4: I think that's maybe the biggest kind of headwind for

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Speaker 4: the market in time, which is not our base case,

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Speaker 4: but it is that that companies may not be able

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Speaker 4: to grow quite as quickly as they'd hoped, and consumers

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Speaker 4: will face some bump in inflation, which could slow activity

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Speaker 4: here for a little bit. And when we look at

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Speaker 4: kind of average growth over the course of twenty twenty five,

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Speaker 4: we certainly that's really what we're seeing in the Consensus

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Speaker 4: Economist data around one one and a half percent is

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Speaker 4: they're expecting hit from either a slower consumer because they're

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Speaker 4: facing some inflationary pressure, or slower corporate spending because they're

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Speaker 4: facing some profit margin pressure from the tariffs.

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Speaker 2: One of the other things that has kind of shown

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Speaker 2: up here is dollar weakness, particularly since the beginning of

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Speaker 2: the year, and some of this has to do, obviously

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Speaker 2: with a tariff story. I think that the dollar has

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Speaker 2: weakened by roughly ten percent over the first half of

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Speaker 2: the year, and I'm wondering whether or not that may

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Speaker 2: have a little bit of a positive impact for some

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Speaker 2: of the big US multinationals, or maybe that won't manifest

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Speaker 2: because of this trade tension. I mean, how do you

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Speaker 2: see the role of the dollars position in kind of

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Speaker 2: global markets right now. Yeah.

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Speaker 4: I think certainly the way tariffs are positioning it is

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Speaker 4: there's not as much demand for the dollar as we

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Speaker 4: may have seen. We're hearing and we've had some reports

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Speaker 4: that exporters to the US are demanding payment in their

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Speaker 4: currency rather than dollars, which is probably putting a little

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Speaker 4: downward pressure on the dollar. The fact that the FEDS

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Speaker 4: on hold isn't really helping the dollar at this point,

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Speaker 4: even though you've had the European Central Bank and the

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Speaker 4: Bank of England cutting interest rates. But I think the

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Speaker 4: good news is you're not seeing it show up in

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Speaker 4: financial flows, meaning we're not seeing foreign sales of treasuries

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Speaker 4: at this point. So this weakness and the dollar maybe

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Speaker 4: reflects some concern that the US may not be getting

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Speaker 4: as demanding as much from the rest of the world

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Speaker 4: as we try and reshore goods, and so that's going

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Speaker 4: to keep a little pressure on the dollar. I think

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Speaker 4: for multinationals, the hope is that is making their goods

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Speaker 4: cheaper when they look to export overseas, and maybe that

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Speaker 4: will help certainly if we think about the trade deal

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Speaker 4: with Vietnam, the fact that US exporters face no tariffs

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Speaker 4: headed into Vietnam could help, although Vietnam is such a

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Speaker 4: small economy and really what we need to be selling

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Speaker 4: into is some of the larger economies and some of

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Speaker 4: our our largest trading partners Canada, Mexico, China and Europe.

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Speaker 2: So I mentioned earlier that the equity market closed it

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Speaker 2: record highs today for the S and P and the

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Speaker 2: Nasdaq comp We know that valuations are elevated, maybe a

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Speaker 2: bit stretched in some cases. Are you left to conclude

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Speaker 2: that there is still opportunity here in stocks? Are you

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Speaker 2: still constructive on the market or are you getting a

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Speaker 2: little worried? Now?

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Speaker 4: We're still actually glass half full, but it's a glass

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Speaker 4: that I think we're worried that there's not a lot

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Speaker 4: of margin for error in this. I think the constructive

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Speaker 4: things fundamentally are one, the consumer is still spending money.

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Speaker 4: They may not be able to grow rapidly, but wage

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Speaker 4: growth and low unemployment are keeping the consumer able to

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Speaker 4: spend money, so that should support the economy. Two, corporate

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Speaker 4: earnings growth is remaining positive, so that should help. But

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Speaker 4: the challenge is with valuation at these levels, the market

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Speaker 4: for error is quite slim. So if we start to

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Speaker 4: see some faltering that could could take a little something

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Speaker 4: out of the market, But for now, we think it

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Speaker 4: looks like the economy can thread this needle, especially if

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Speaker 4: tariffs are maybe not as bad as people had hoped,

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Speaker 4: and we come in in this ten to twenty percent

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Speaker 4: range of tariffs, we may be able to kind of

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Speaker 4: companies may be able to handle that, consumers may be

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Speaker 4: able to handle that, and the economy can kind of

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Speaker 4: continue to grow. So we'd be a little more constructive here,

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Speaker 4: but we still would emphasize diversification and portfolios, so looking

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Speaker 4: beyond the US for opportunities, particularly because evaluation is cheaper there,

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Speaker 4: and then within the US markets, looking for more diversification

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Speaker 4: away from what the last couple of years has been

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Speaker 4: lots of strong tech performance, we'd look into other segments

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Speaker 4: of the market. You're seeing stronger performance from industrials and financials,

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Speaker 4: and certainly we'd point to utilities as the next beneficiary

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Speaker 4: from this artifictional intelligence spending boom.

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Speaker 2: So before I let you go rob so far this

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Speaker 2: year the S and P is up nearly seven percent,

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Speaker 2: So for the remainder of twenty twenty five, will that

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Speaker 2: return kind of be equivalent to what we have seen

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Speaker 2: so far, or could we be in for some choppy

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Speaker 2: waters ahead.

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Speaker 4: Yeah, we'll look to it reevaluate our s and P

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Speaker 4: five hundred forecast as we get through second quarter earning season.

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Speaker 4: I think we see a more modest bump relative to

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Speaker 4: our forecast at this point. But if things actually come

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Speaker 4: out a little better, if some of this uncertainty goes away,

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Speaker 4: I think there's room for an equal increase.

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Speaker 2: Rob, believe it there. Thank you so very much, Rob

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Speaker 2: Hayworth there. He is senior investment strategy director at us

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Speaker 2: Bank Asset Management Group. Joining from Seattle 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 Chrisner. So, as mentioned earlier, the House did

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Speaker 2: pass President trump sweeping budget and tax bill. Now, this

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Speaker 2: includes tax cuts, it also curtails spending on safety net programs,

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Speaker 2: and it reverses much of the previous administration's move toward

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Speaker 2: a clean energy economy. Before the vote, we caught up

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Speaker 2: with Treasury Secretary Scott Bessant. This was a wide ranging interview.

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Speaker 2: Bessant discussed the possible economic impact of the bill, as

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Speaker 2: well as the Treasury's financing needs and the recent decline

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Speaker 2: that we have seen in the US dollar. Here is

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Speaker 2: part of Besson's conversation with Bloomberg's Romaine Bostick and Matt Miller.

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Speaker 1: There's a lot of concern about that addition to the

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Speaker 1: federal deficit, the idea of a widening of that deficit

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Speaker 1: because of some deficiencies and pain for some of those

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Speaker 1: tax cuts. What is your message to the market.

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Speaker 3: Well, Romayne, I'm not quite sure what you mean, because

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Speaker 3: stock markets had a new high and the bond market

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Speaker 3: just had its best six months in five years, So

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Speaker 3: I disagree with that. So I think the markets are

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Speaker 3: telling us that they liked the bill and that they

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Speaker 3: believe that it is fiscally prudent and stimulative for growth.

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Speaker 3: And importantly, I think we can get back to the

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Speaker 3: kind of growth that we saw in President Trump's term

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Speaker 3: two point eight three point two percent non inflationary growth,

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Speaker 3: which the Biden administration was not capable of.

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Speaker 5: Mister Secretary Matt Miller. Here, I'm wondering, as someone who

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Speaker 5: grew up with Alex P. Keaton, watching Milton Friedman on

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Speaker 5: Phil Donahue and always thinking we were on the wrong

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Speaker 5: side of the laughter curve, why haven't these kind of

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Speaker 5: massive tax cuts worked to really stimulate growth in the past,

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Speaker 5: and they certainly haven't worked to replace the amount of

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Speaker 5: revenue that's taken out. We didn't see that with the

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Speaker 5: Reagan tax cuts. It didn't work out with the Bush

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Speaker 5: tax cuts, and it didn't work out with the TCJA

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Speaker 5: in twenty seventeen either. Why is it going to work now?

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Speaker 3: Well, I would disagree with TCJA. TCJA was a work

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Speaker 3: in products and then we hit COVID, and I think

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Speaker 3: what's different here also is we're going to be constraining spending.

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Speaker 3: I spend a lot of time with the Freedom Caucus

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Speaker 3: members and their constituents should be very proud of them.

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Speaker 3: They should be very proud of themselves. They change the

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Speaker 3: center of gravity of the debate. So we are both

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Speaker 3: going to stimulate the economy, pick up tax revenues, but

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Speaker 3: more importantly constrain and pull down spending.

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Speaker 5: So far, though, it looks like we're going to boost

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Speaker 5: deficits up to seven percent. You ran on this three

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Speaker 5: three three plan. Three percent deficit, three percent economic growth,

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Speaker 5: and three million barrels of oil, an increase of three

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Speaker 5: million barrels of oil a day in the US. Do

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Speaker 5: you expect to get to that by the end of

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Speaker 5: President Trump's term.

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Speaker 3: I do. And I'm not sure where the seven percent

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Speaker 3: number is coming from, right because I reject the CBO scoring.

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Speaker 3: But on the other side, the CBO also word terraff

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Speaker 3: income at two point eight trillion, so you know that

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Speaker 3: substance that substantially increases government revenues. I think the growth

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Speaker 3: is going to be much higher, and I believe that

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Speaker 3: what we've done in constraining spending here is just the

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Speaker 3: first bite at the apple.

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Speaker 1: Do you anticipate, mister Secretary, that the US government's financing needs,

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Speaker 1: the Treasury's financing needs will increase over the next couple

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Speaker 1: of years.

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Speaker 3: I think that we will see what happens to interest rates,

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Speaker 3: and there could be an increase in financing needs based

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Speaker 3: on yields. But everything that I'm seeing says that inflation

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Speaker 3: is under control and likely coming down.

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Speaker 1: There's, of course, the costs to finance that, and we

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Speaker 1: look at where yields had been, and we know there's

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Speaker 1: been a lot of volatility there some stability in recent

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Speaker 1: week's partly because of some of the things that you've

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Speaker 1: done and said publicly, but we've also seen a little

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Speaker 1: bit of reticence to buy into longer dated US treasuries.

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Speaker 1: I know you have been public about the idea, at

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Speaker 1: least in the short term, of relying a little bit

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Speaker 1: more on shorter term treasury issuance. Do you anticipate that

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Speaker 1: will continue?

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Speaker 3: Well, I think what we're going to see is one

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Speaker 3: of the underreported things of the One Big Beautiful Bill

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Speaker 3: is it also gets us away from this terrible debt

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Speaker 3: ceiling dilemma, and because of that, we've had to constrain issuance.

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Speaker 3: So it's likely that initially we will use bills to

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Speaker 3: refill the Treasury General account.

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Speaker 1: Do you worry about any potential rollover risk in that strategy.

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Speaker 3: No, I don't. We've seen very durable and robust treasury

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Speaker 3: auctions that I see who the buyers are. I think

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Speaker 3: that we are going to see US banks would take

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Speaker 3: up more of the debt issuance because of the supplement

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Speaker 3: supplementary leverage ratio reliefs that they're going to be getting,

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Speaker 3: and were going to pass the bill today. President Trump's

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Speaker 3: going to sign that tomorrow, and then probably the following week.

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Speaker 3: We're also going to have the stable coin legislation, which

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Speaker 3: I think could create at least two trillion in demand

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Speaker 3: for treasury bills.

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Speaker 1: So, mister Secretary, I do want to get your thoughts

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Speaker 1: about just broader policies coming out of this administration, beyond

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Speaker 1: just this one big, beautiful bill that is now appears

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Speaker 1: to be advancing in Congress. There's been a lot of

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Speaker 1: questions in the market about what the administration's stances on

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Speaker 1: the dollar, whether there truly is a strong dollar policy,

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Speaker 1: or whether that policy a long term policy. All strong

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Speaker 1: dollar support has shifted to something else.

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Speaker 3: I'm not sure why that is in the market. The

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Speaker 3: price of the dollar has nothing to do with a

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Speaker 3: strong dollar policy. Current currencies move up and down based

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Speaker 3: on a variety of factors. But a strong dollar policy

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Speaker 3: means several things. One is what is the dollar strong against?

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Speaker 3: Or other is another currency stronger higher in price of

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Speaker 3: the moment. That doesn't have anything to do with a

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Speaker 3: strong dollar policy. The strong dollar policy is are we

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Speaker 3: doing the things over the long term to ensure that

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Speaker 3: the US dollar remains a reserve currency of the world.

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Speaker 3: And we are. We are setting the stage for economic growth,

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Speaker 3: we are constraining inflation, we are making the United States

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Speaker 3: the best destination for global capital. And I think that's

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Speaker 3: going to continue to happen. I think, as A said

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Speaker 3: many times over since World War Two, the demise of

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Speaker 3: the dollar as reserve currency has been predicted, and I

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Speaker 3: think once again the skept is going to be wrong.

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Speaker 3: But there is no change in policy.

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Speaker 1: Fair enough, but I'm sure you understand that the weakness

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Speaker 1: that we've seen in the dollar to start the year

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Speaker 1: is something we have not seen in decades, and there

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Speaker 1: are other countries that have been trying to take advantage

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Speaker 1: of it. In a speech just this week, we heard

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Speaker 1: from the Chinese Central Bank governor who really laid out

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Speaker 1: at least their vision, their Chinese vision for a new

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Speaker 1: global currency order, which would of course mean a reduced

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Speaker 1: rule for the dollar and in their view, a greater

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Speaker 1: role for the Yuon Now, regardless of whether that is

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Speaker 1: a viable plan, I am curious as to what you

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Speaker 1: think about the idea that this is even being spoken

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Speaker 1: about publicly.

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Speaker 3: Well, I mean, look, what are the Chinese going to say?

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Speaker 3: And by the way, it's complete policy. They have a

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Speaker 3: non convertible currency, so how are they going to be

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Speaker 3: a reserve currency. They also have one point four billion

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Speaker 3: people who want to get their money out of China,

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Speaker 3: they have capital constraints on taking out money. The sine

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Speaker 3: kwannon for a reserve currency is that it trades freely.

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Speaker 3: And I saw my friend Christian Legard, president of the ECBST,

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Speaker 3: the other day said that maybe this is the Euro's moment,

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Speaker 3: but I can tell you if the Euro hits one twenty,

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Speaker 3: Europeans are going to be squawking that it is too strong.

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Speaker 3: They're an export economy, so let's see what happens. They

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Speaker 3: should be careful what they wish for, whereas in the

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Speaker 3: United States we recognize the responsibility that comes with being

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Speaker 3: a reserve currency.

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Speaker 1: Mister Secretary, I am curious about what comes next after this.

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Speaker 1: We know that we ostensibly have this July ninth deadline

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Speaker 1: on trade, and I know it's going to take several weeks,

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Speaker 1: if not months, following that to really start to hammer

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Speaker 1: out some of these dealsticipate that we're going to see

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Speaker 1: additional deals and more substantive deals pretty soon within the

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Speaker 1: next few weeks.

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Speaker 3: I think we're going to see a flurry of deals

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Speaker 3: before July ninth. We'll see how the President wants to

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Speaker 3: treat those who are negotiating, whether he's happy that they're

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Speaker 3: negotiating in good faith. I think that we're going to

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Speaker 3: see about one hundred countries who just get the minimum

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Speaker 3: ten percent of reciprocal tariff and we'll go from there.

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Speaker 3: So I think we are going to see a lot

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Speaker 3: of action over the coming days.

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Speaker 1: Have you been directly involved in any of those negotiations

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Speaker 1: and it's so, are there specific provisions that those other

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Speaker 1: countries have been asking the US?

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Speaker 3: Well, I'm not going to negotiate on international television.

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Speaker 1: But I want to negotiate.

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Speaker 3: Just tell us well, yeah, sorry. I would say is

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Speaker 3: some countries have come with or trading blocks, have come

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Speaker 3: with good deals, some would come with okay, some would

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Speaker 3: come with deals that are unacceptable. And we are going

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Speaker 3: to be announcing several deals. The President has the final say.

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Speaker 3: And what I can tell you is that the career staff,

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Speaker 3: whether it's a Treasury, Commerce USTR, are all saying that

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Speaker 3: they can't believe that these countries are given up things

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Speaker 3: that they haven't seen them offer in the past two

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Speaker 3: or three decades. So this is a win for the

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Speaker 3: American people. It's a win for fair trade.

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Speaker 5: Can I ask, just finally about the pressure the president

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Speaker 5: and others in an administration have put on Jerome Pallet

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Speaker 5: to cut rates. President Trump has asked now for three

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Speaker 5: full percentage points of cuts, three hundred basis points, and

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Speaker 5: it strikes me that that would either overheat the economy

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Speaker 5: or cause absolute chaos in the treasury market. Don't you

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Speaker 5: think it's important that the Federal Reserve operate with an

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Speaker 5: amount of independence?

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Speaker 3: Well, Fed Reserve does operate with the amount of independence,

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Speaker 3: just like a referee does out of the flour of

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Speaker 3: the basketball court. They're independent, but the coaches work the

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Speaker 3: ref all the time. President Trump is the most sophisticated

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Speaker 3: president economically, perhaps in the past one hundred years. Perhaps. Ever,

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Speaker 3: I will note that in his first term he was

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Speaker 3: more right than the FED was on when it was

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Speaker 3: time to cut rates. FED normally followed later on. So

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Speaker 3: I think he's going to make his views known. And

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Speaker 3: I would also point out that the market agrees with

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Speaker 3: President Trump in terms of the direction, if not the

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Speaker 3: magnitude of the cuts.

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Speaker 5: Do you agree with President Trump that the FED should

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Speaker 5: cut by three percent in July?

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Speaker 3: I believe that I followed the market and the market

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Speaker 3: both for the rest of the year, and the two

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Speaker 3: year market is signaling cuts.

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Speaker 2: That is Treasury Secretary Scott Bessant there, speaking with Bloomberg's

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Speaker 2: Romain Bostik and Matt Miller here on the Daybreak Asia podcast.

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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 Prisner, and this is Bloomberg