1
00:00:02,520 --> 00:00:07,040
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:10,160 --> 00:00:13,760
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So

3
00:00:13,800 --> 00:00:15,240
Speaker 2: it's two down, one to go.

4
00:00:15,640 --> 00:00:16,400
Speaker 1: We had a.

5
00:00:16,320 --> 00:00:18,960
Speaker 2: Couple of key central bank decisions in the last twenty

6
00:00:19,000 --> 00:00:22,360
Speaker 2: four hours, and as expected, both the Bank of Japan

7
00:00:22,560 --> 00:00:25,880
Speaker 2: and the FED held their policy rates steady, although for

8
00:00:26,079 --> 00:00:29,360
Speaker 2: very different reasons. Up next, it's the Bank of England.

9
00:00:29,960 --> 00:00:32,400
Speaker 2: Let's take a closer look at how rad policy is

10
00:00:32,440 --> 00:00:35,640
Speaker 2: playing out in markets these days. Our guest is Mark Cranfield.

11
00:00:35,680 --> 00:00:40,680
Speaker 2: He is Bloomberg Markets Live strategist joining from Singapore. Mark,

12
00:00:40,840 --> 00:00:43,720
Speaker 2: First of all, have you been surprised by anything you

13
00:00:43,840 --> 00:00:46,080
Speaker 2: heard from either the BOJ or the Fed.

14
00:00:47,600 --> 00:00:51,840
Speaker 1: I think the fate to some investors may be sounding

15
00:00:52,080 --> 00:00:55,360
Speaker 1: a little bit complacent on the inflation outlook. They seem

16
00:00:55,400 --> 00:00:59,160
Speaker 1: pretty relaxed, saying that it's going to be trains at tree,

17
00:00:59,160 --> 00:01:01,040
Speaker 1: which maybe not the best word for them to use

18
00:01:01,800 --> 00:01:06,160
Speaker 1: that given the history with that, but anyway, I think

19
00:01:06,200 --> 00:01:09,240
Speaker 1: that's where they may start to feel the heat from

20
00:01:09,240 --> 00:01:11,640
Speaker 1: the market. I think the bond vigilantis in the US

21
00:01:12,319 --> 00:01:14,720
Speaker 1: we'll be looking pretty closely at that and saying, well,

22
00:01:14,840 --> 00:01:17,040
Speaker 1: we don't feel so quite so relaxed as you guys

23
00:01:17,040 --> 00:01:19,240
Speaker 1: on the Federal Reserve, and we're seeing a little bit

24
00:01:19,280 --> 00:01:22,240
Speaker 1: of steepening in the Treasury curve already, and there is

25
00:01:22,280 --> 00:01:26,280
Speaker 1: certainly room for that to play out further if investors

26
00:01:26,319 --> 00:01:28,479
Speaker 1: get the sense that the Fed is willing to look

27
00:01:28,560 --> 00:01:32,920
Speaker 1: through upticks and inflation, when at the same time the

28
00:01:33,400 --> 00:01:38,000
Speaker 1: other economic numbers may start to be affected by future terarifts,

29
00:01:38,000 --> 00:01:40,520
Speaker 1: which we expect some more to come in next week,

30
00:01:40,560 --> 00:01:43,760
Speaker 1: and clearly the whole data outlook for the US is

31
00:01:43,800 --> 00:01:46,000
Speaker 1: looking a little bit more uncertain. So if you get

32
00:01:46,640 --> 00:01:50,560
Speaker 1: a slightly weakened economy with rising inflation at the same time,

33
00:01:50,600 --> 00:01:52,720
Speaker 1: the bond vigilantes are not going to like that at all,

34
00:01:53,360 --> 00:01:55,720
Speaker 1: and they're going to they're going to punish the market

35
00:01:55,840 --> 00:01:58,600
Speaker 1: for that, even if the Federal Reserve messaging is very

36
00:01:58,600 --> 00:01:59,680
Speaker 1: relaxed about the whole thing.

37
00:02:00,080 --> 00:02:03,520
Speaker 2: Lacks indeed, with two more raid cuts forecast for the year.

38
00:02:03,560 --> 00:02:06,160
Speaker 2: But as you're suggesting, I mean, the idea here is

39
00:02:06,200 --> 00:02:10,520
Speaker 2: we're talking about a situation that feels like stagflation, does

40
00:02:10,600 --> 00:02:10,799
Speaker 2: it not.

41
00:02:12,280 --> 00:02:14,880
Speaker 1: It's certainly is begin to smell like it. It's something

42
00:02:14,960 --> 00:02:18,560
Speaker 1: which is very bad for financial markets. Typically if it

43
00:02:18,560 --> 00:02:20,880
Speaker 1: gets a route. If you don't stamp it out quickly,

44
00:02:21,680 --> 00:02:23,440
Speaker 1: it doesn't really help the bond market, doesn't help the

45
00:02:23,480 --> 00:02:26,520
Speaker 1: equity market much either as well. So it's something which

46
00:02:26,840 --> 00:02:30,840
Speaker 1: definitely private sexory commentators will be looking at very closely.

47
00:02:31,800 --> 00:02:34,280
Speaker 1: The central bank may have their own reasons for trying

48
00:02:34,280 --> 00:02:37,800
Speaker 1: to throw a more neutral path, but you can't disguise

49
00:02:37,919 --> 00:02:40,680
Speaker 1: the numbers. People will see what is going on in

50
00:02:40,680 --> 00:02:43,200
Speaker 1: the economic data and the impulse on the ground and

51
00:02:43,240 --> 00:02:45,919
Speaker 1: they'll make their own conclusions. And if they do sense

52
00:02:45,960 --> 00:02:50,040
Speaker 1: that the circulation is coming back, you will see volatility

53
00:02:50,040 --> 00:02:51,600
Speaker 1: in the financial markets off the back of that.

54
00:02:52,080 --> 00:02:55,240
Speaker 2: What are the implications for the dollar right now? There's

55
00:02:55,280 --> 00:02:58,720
Speaker 2: been so much trade tension and noise in the foreign exchange.

56
00:02:58,760 --> 00:03:01,640
Speaker 2: For a while, it felt like the threats of tariffs

57
00:03:01,680 --> 00:03:04,280
Speaker 2: from the US side were dollar positive, but there's been

58
00:03:04,320 --> 00:03:08,320
Speaker 2: so much volatility it's hard to know what's actually going on. So,

59
00:03:08,440 --> 00:03:11,000
Speaker 2: coming back to the FED and what we've heard today,

60
00:03:11,200 --> 00:03:13,360
Speaker 2: what is your sense of where the dollar goes from here?

61
00:03:14,720 --> 00:03:17,919
Speaker 1: I think initially people see it as being a slight

62
00:03:18,040 --> 00:03:20,480
Speaker 1: negative for the US dollar because if the FEDI is

63
00:03:20,520 --> 00:03:23,760
Speaker 1: going to keep to two more rate cuts this year,

64
00:03:23,840 --> 00:03:26,840
Speaker 1: that probably puts them on the dubbish side in relation

65
00:03:26,960 --> 00:03:29,320
Speaker 1: to some of the other central banks. European Central Bank

66
00:03:29,400 --> 00:03:30,960
Speaker 1: is certainly going to have to dial back a bit

67
00:03:31,000 --> 00:03:33,320
Speaker 1: now that Germany looks as though it's going to get

68
00:03:33,320 --> 00:03:37,320
Speaker 1: a very big spend for defense. That certainly is something

69
00:03:37,320 --> 00:03:39,600
Speaker 1: the ECB will take into account very closely. So that

70
00:03:40,160 --> 00:03:43,040
Speaker 1: is slightly positive for the euro and it means the

71
00:03:43,040 --> 00:03:45,120
Speaker 1: easy be can't cut rates as quickly as thought, so

72
00:03:45,200 --> 00:03:47,880
Speaker 1: if the FED does go ahead, they stand out as

73
00:03:47,880 --> 00:03:49,560
Speaker 1: being a bit softer. We're just talking about the Bank

74
00:03:49,560 --> 00:03:52,480
Speaker 1: of Japan. Clearly they want to increase interest rates again.

75
00:03:53,000 --> 00:03:55,839
Speaker 1: The timing is a bit uncertain, but that would work

76
00:03:55,840 --> 00:03:57,840
Speaker 1: out to be slightly positive for the end. So you've

77
00:03:57,840 --> 00:04:00,920
Speaker 1: got two of the biggest currencies look as are they're

78
00:04:00,920 --> 00:04:02,800
Speaker 1: going to be going in the opposite direction to where

79
00:04:02,800 --> 00:04:05,440
Speaker 1: the dollar would want to go. It's not going to

80
00:04:05,440 --> 00:04:08,520
Speaker 1: be a clear path. It's going to be along the way.

81
00:04:09,080 --> 00:04:12,000
Speaker 1: You can throw in all kinds of international issues such

82
00:04:12,040 --> 00:04:15,560
Speaker 1: as where the tario of some retaliation, geopolitical issues that

83
00:04:15,600 --> 00:04:18,760
Speaker 1: will disrupt the view. But certainly if the FED does

84
00:04:18,800 --> 00:04:21,279
Speaker 1: stick to the idea that there are more rates coming,

85
00:04:21,680 --> 00:04:23,240
Speaker 1: that generally is not going to be good for the

86
00:04:23,279 --> 00:04:23,760
Speaker 1: US dollar.

87
00:04:23,960 --> 00:04:26,359
Speaker 2: What about the influence that it would have on the

88
00:04:26,400 --> 00:04:28,200
Speaker 2: thinking at the Bank of Japan. I mean, we know

89
00:04:28,320 --> 00:04:31,240
Speaker 2: the bias right now at the BOJ is to titan.

90
00:04:31,680 --> 00:04:34,000
Speaker 2: We could talk whether or not that may happen as

91
00:04:34,000 --> 00:04:36,560
Speaker 2: soon as May or not, or maybe it gets pushed

92
00:04:36,560 --> 00:04:39,280
Speaker 2: to Midsummer. But if the Fed is a little bit

93
00:04:39,279 --> 00:04:41,600
Speaker 2: more dubbish, does that give the BOJ a little bit

94
00:04:41,600 --> 00:04:42,520
Speaker 2: more flexibility?

95
00:04:43,800 --> 00:04:45,760
Speaker 1: I think it does in terms of the exchange rate.

96
00:04:45,880 --> 00:04:48,400
Speaker 1: So if you think back to last year, Bank of

97
00:04:48,480 --> 00:04:51,760
Speaker 1: Japan raised interest rates in July pretty quickly. It triggered

98
00:04:52,320 --> 00:04:56,960
Speaker 1: meltdown in Japanese equities because people are unwinding positions in

99
00:04:57,000 --> 00:05:00,400
Speaker 1: the Japanese yend, dollarm plunged caused have it for a

100
00:05:00,440 --> 00:05:03,320
Speaker 1: while in Japanese markets. That Bank of Japan got lots

101
00:05:03,320 --> 00:05:05,560
Speaker 1: of blame from the politicians that why did you do that?

102
00:05:05,640 --> 00:05:09,359
Speaker 1: In course this big mess, And so the speed of

103
00:05:09,360 --> 00:05:12,279
Speaker 1: the yen move certainly pushed back any thinking of the

104
00:05:12,279 --> 00:05:14,400
Speaker 1: Bank of Japan had on the next rate hike. It

105
00:05:14,440 --> 00:05:17,720
Speaker 1: didn't come until January, so six months later. This time

106
00:05:17,760 --> 00:05:20,320
Speaker 1: around is quite different. Dolly yen has been coming down

107
00:05:20,400 --> 00:05:23,680
Speaker 1: gradually this year even though there's only been one rate

108
00:05:23,760 --> 00:05:27,080
Speaker 1: hike from the Bank of Japan. So if the dolly

109
00:05:27,279 --> 00:05:30,960
Speaker 1: en stays on a generally slow descent, that's actually good

110
00:05:30,960 --> 00:05:33,280
Speaker 1: for the Bank of Japan because there's much less risk

111
00:05:33,360 --> 00:05:35,599
Speaker 1: that if they raise rates again it will have a

112
00:05:35,600 --> 00:05:39,120
Speaker 1: big disruptive impact on equities in Japan. So that could

113
00:05:39,160 --> 00:05:41,600
Speaker 1: be certainly a reason for them to go a bit

114
00:05:41,640 --> 00:05:44,720
Speaker 1: earlier than the market is currently pricing for somewhere around

115
00:05:44,720 --> 00:05:47,680
Speaker 1: September October. But if they are able to go in

116
00:05:47,720 --> 00:05:50,320
Speaker 1: May or June, it would probably be because the yen

117
00:05:50,440 --> 00:05:52,919
Speaker 1: is very stable and it gives them the window to

118
00:05:53,000 --> 00:05:53,599
Speaker 1: go earlier.

119
00:05:54,040 --> 00:05:56,279
Speaker 2: One of the things we know about the Japanese currency

120
00:05:56,400 --> 00:05:59,520
Speaker 2: is that it's very strongly correlated to US Treasury yields.

121
00:05:59,600 --> 00:06:02,320
Speaker 2: And I bring us back to the yield story because

122
00:06:02,680 --> 00:06:04,559
Speaker 2: the other thing that we heard from the Fed today

123
00:06:04,600 --> 00:06:06,400
Speaker 2: is that they are going to slow the pace of

124
00:06:06,440 --> 00:06:09,360
Speaker 2: winding down the balance sheet. What are the ramifications here

125
00:06:09,360 --> 00:06:10,000
Speaker 2: for markets?

126
00:06:11,440 --> 00:06:15,760
Speaker 1: Well, that's slightly bearish for the long end of the market. Certainly.

127
00:06:17,680 --> 00:06:20,120
Speaker 1: That's partly why we're going to get some more steepening.

128
00:06:20,160 --> 00:06:23,080
Speaker 1: I suspect is because you're going to have a situation

129
00:06:23,200 --> 00:06:26,120
Speaker 1: where the FED dot plots are much more effective on

130
00:06:26,160 --> 00:06:28,400
Speaker 1: the short end of the curve, so you probably find

131
00:06:28,760 --> 00:06:31,599
Speaker 1: maturities up to about two three years in the treasury curve.

132
00:06:31,600 --> 00:06:34,560
Speaker 1: The years there can probably continue to stay a bit

133
00:06:34,640 --> 00:06:37,200
Speaker 1: soft because people are very focused on the next FED action.

134
00:06:38,000 --> 00:06:40,039
Speaker 1: But if the FED is going to look through inflation,

135
00:06:40,160 --> 00:06:44,280
Speaker 1: and if they're also reducing the tailoff in the balance sheet,

136
00:06:44,320 --> 00:06:46,720
Speaker 1: that probably negative for the longer end of the curve.

137
00:06:46,800 --> 00:06:49,400
Speaker 1: More so you're going to get it almost like a

138
00:06:49,400 --> 00:06:53,000
Speaker 1: twist situation where investors will be reluctant to be too

139
00:06:53,040 --> 00:06:55,600
Speaker 1: aggressive in buying the long end, but they're much more

140
00:06:55,680 --> 00:06:58,040
Speaker 1: keen to buy the short end, which also plays into

141
00:06:58,040 --> 00:07:01,520
Speaker 1: the geopolitical situation as well. If you want hedge against

142
00:07:01,520 --> 00:07:05,360
Speaker 1: disruptions in geopolitics, you also prefer to hold short duration

143
00:07:05,520 --> 00:07:08,599
Speaker 1: bonds as well. So more steepening looks like the outcome

144
00:07:08,600 --> 00:07:09,159
Speaker 1: in that case.

145
00:07:09,480 --> 00:07:12,120
Speaker 2: So I mentioned a decision from the Bank of England

146
00:07:12,200 --> 00:07:14,280
Speaker 2: in the next few hours, How do you think the

147
00:07:14,280 --> 00:07:15,680
Speaker 2: BOE is going to proceed.

148
00:07:17,120 --> 00:07:20,800
Speaker 1: No, they're not expected to do anything today and they'd

149
00:07:20,800 --> 00:07:23,800
Speaker 1: be very interested to see what the UK chance that

150
00:07:23,880 --> 00:07:25,760
Speaker 1: has to say next week. This is going to be

151
00:07:25,760 --> 00:07:28,280
Speaker 1: making a big statement about spending for the government. So

152
00:07:29,000 --> 00:07:32,960
Speaker 1: the Bank of England clearly seeing there's got pretty ambitious

153
00:07:32,960 --> 00:07:36,080
Speaker 1: targets from the UK government to get the deficit down.

154
00:07:36,120 --> 00:07:38,840
Speaker 1: The Bank of England obviously wants to see success in

155
00:07:38,880 --> 00:07:42,200
Speaker 1: that area before they go ahead to lower indust rates

156
00:07:42,200 --> 00:07:43,760
Speaker 1: and trade does are pretty much on the same page.

157
00:07:43,800 --> 00:07:46,600
Speaker 1: They pretty much expect that The Bank of England wants

158
00:07:46,600 --> 00:07:50,680
Speaker 1: more time to digest how successful the UK government is

159
00:07:50,720 --> 00:07:56,480
Speaker 1: in reigning in spending and to generally getting things under control.

160
00:07:56,560 --> 00:07:58,640
Speaker 1: The UK Treasury in the over the last few years

161
00:07:58,680 --> 00:08:01,120
Speaker 1: has really been a spending spree and that needs to

162
00:08:01,120 --> 00:08:02,880
Speaker 1: be rained in. So that looks as though it's starting

163
00:08:02,880 --> 00:08:06,520
Speaker 1: to happen, but it does need the official data to

164
00:08:06,600 --> 00:08:10,040
Speaker 1: show that and it isn't yet supporting the case. So

165
00:08:10,560 --> 00:08:12,640
Speaker 1: probably more time and the best thing the central banks

166
00:08:12,840 --> 00:08:14,640
Speaker 1: tend to do in when they want more time, as

167
00:08:14,640 --> 00:08:16,720
Speaker 1: they just stay on hold for a while and try

168
00:08:16,760 --> 00:08:18,680
Speaker 1: to give us neutral a message as they can and

169
00:08:18,720 --> 00:08:21,680
Speaker 1: traders will accept that. On the flip side, the pound

170
00:08:22,040 --> 00:08:24,560
Speaker 1: is having a reasonably good time generally because the US

171
00:08:24,600 --> 00:08:27,200
Speaker 1: dollar is a little bit soft, and of course it

172
00:08:27,280 --> 00:08:29,360
Speaker 1: helps that the Euro is improving, so that feeds off

173
00:08:29,400 --> 00:08:30,280
Speaker 1: to the pound as well.

174
00:08:30,680 --> 00:08:32,600
Speaker 2: Mark will leave it there. It's always a pleasure. Thank

175
00:08:32,600 --> 00:08:34,680
Speaker 2: you so much for joining us. Mark Cranfield. There he

176
00:08:34,800 --> 00:08:38,840
Speaker 2: is Bloomberg Markets Live strategist joining from Singapore. Here on

177
00:08:38,880 --> 00:08:48,640
Speaker 2: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

178
00:08:48,840 --> 00:08:52,400
Speaker 2: I'm Dead prisoner. So the Fed held interest rate policy

179
00:08:52,480 --> 00:08:55,640
Speaker 2: steady today. That wasn't a big surprise at all. Policymakers

180
00:08:55,640 --> 00:08:59,800
Speaker 2: cited uncertainty around the economic outlook as well as the

181
00:09:00,080 --> 00:09:04,319
Speaker 2: fact of President Trump's trade policies on inflation and growth,

182
00:09:04,880 --> 00:09:08,160
Speaker 2: and FED Chair j Powell said the base case is

183
00:09:08,200 --> 00:09:13,360
Speaker 2: for the inflationary impact of tariffs to prove wait for it, transitory.

184
00:09:13,600 --> 00:09:16,240
Speaker 2: Let's take a closer look now with our guest, Jamie

185
00:09:16,280 --> 00:09:20,040
Speaker 2: Coxy is managing partner at Harris Financial Group. Jamie joins

186
00:09:20,120 --> 00:09:22,800
Speaker 2: us from Richmond, Virginia. Thank you for making time to

187
00:09:22,880 --> 00:09:24,760
Speaker 2: chat with us. What do you think of when you

188
00:09:24,880 --> 00:09:28,000
Speaker 2: hear Jay Powell say transitory? Does it bring back memories?

189
00:09:29,240 --> 00:09:29,920
Speaker 3: Yes, it's sort of.

190
00:09:30,800 --> 00:09:33,440
Speaker 4: It's it's a traumatizing thing for the Fed to say

191
00:09:33,480 --> 00:09:35,920
Speaker 4: transitory when the last couple of times that they have

192
00:09:36,760 --> 00:09:41,800
Speaker 4: used the phrase, it's been terribly wrong. However, that seemed

193
00:09:41,800 --> 00:09:44,520
Speaker 4: to be the magic those are the magic words for

194
00:09:44,559 --> 00:09:47,000
Speaker 4: the for the markets today. You know, for the past

195
00:09:47,040 --> 00:09:49,760
Speaker 4: couple of weeks, markets have been all over the place

196
00:09:49,800 --> 00:09:52,720
Speaker 4: trying to figure out and cost out what, you know,

197
00:09:52,760 --> 00:09:55,040
Speaker 4: the trade policies from the administration we're going to be

198
00:09:55,160 --> 00:09:58,360
Speaker 4: and how the impact, what impact that would have on

199
00:09:58,360 --> 00:10:00,400
Speaker 4: the federal reserve. And we got some answer on that

200
00:10:00,440 --> 00:10:03,080
Speaker 4: today and it looks to me as though the Fed

201
00:10:03,640 --> 00:10:06,000
Speaker 4: is much to do about nothing. Basically, they have not

202
00:10:06,080 --> 00:10:09,440
Speaker 4: been their path of you know, the rate path that

203
00:10:09,480 --> 00:10:12,839
Speaker 4: they had set forth is really not changed. And and oh,

204
00:10:12,840 --> 00:10:15,200
Speaker 4: by the way, they've actually done a couple of things

205
00:10:15,200 --> 00:10:18,800
Speaker 4: that actually eased the minds of markets today by reducing

206
00:10:18,840 --> 00:10:22,480
Speaker 4: the pace of the runoff of the balance sheet, in.

207
00:10:22,400 --> 00:10:27,360
Speaker 3: Particular on treasuries. There was some concern that the.

208
00:10:27,360 --> 00:10:31,439
Speaker 4: FED would continue its pace of runoff and that could

209
00:10:31,600 --> 00:10:35,599
Speaker 4: precipitate some decline and reserves at a time.

210
00:10:35,480 --> 00:10:37,440
Speaker 3: When the debt ceiling could be an issue.

211
00:10:37,760 --> 00:10:39,720
Speaker 4: But the FED put that to bed as well today

212
00:10:39,800 --> 00:10:42,920
Speaker 4: by basically reducing down the runoff to near nothing, they

213
00:10:42,920 --> 00:10:46,440
Speaker 4: can basically send the duration of runoff and it not

214
00:10:46,559 --> 00:10:49,760
Speaker 4: had any impact or any negative impact on bank reserves

215
00:10:50,880 --> 00:10:52,520
Speaker 4: and so I think that was probably one of the

216
00:10:52,520 --> 00:10:54,960
Speaker 4: most important parts, maybe one of one of the most

217
00:10:55,000 --> 00:10:57,439
Speaker 4: overlooked parts of the road of the of the FED

218
00:10:57,480 --> 00:11:01,120
Speaker 4: statement today, and that's going to prove to be the

219
00:11:01,160 --> 00:11:03,920
Speaker 4: most important as we moved through the more complicated parts

220
00:11:03,920 --> 00:11:06,719
Speaker 4: of the debt ceiling debate and controversy in the next

221
00:11:06,800 --> 00:11:07,920
Speaker 4: couple of weeks and months.

222
00:11:08,040 --> 00:11:10,040
Speaker 2: Well, I can get to the thoughts that you may

223
00:11:10,080 --> 00:11:12,840
Speaker 2: have on the balance sheet and the adjustment that they

224
00:11:12,840 --> 00:11:16,120
Speaker 2: have made to the level of shrinkage, if I can

225
00:11:16,240 --> 00:11:18,480
Speaker 2: put it that way. But let's talk a little bit

226
00:11:18,520 --> 00:11:21,880
Speaker 2: about what officials are expecting in terms of slower growth

227
00:11:22,160 --> 00:11:25,520
Speaker 2: and higher inflation. That feels to me like a scenario

228
00:11:25,720 --> 00:11:27,840
Speaker 2: for stagflation. Isn't that concerning to you?

229
00:11:29,160 --> 00:11:33,360
Speaker 4: I think that that is completely in the cards. The

230
00:11:33,440 --> 00:11:38,240
Speaker 4: last thing that we want is a stagflationary environment, and

231
00:11:38,760 --> 00:11:41,800
Speaker 4: the tariff bring that back into.

232
00:11:43,120 --> 00:11:44,760
Speaker 3: In the sort of focus for everyone.

233
00:11:44,920 --> 00:11:48,320
Speaker 4: We had gotten in a place last year where inflation

234
00:11:48,520 --> 00:11:51,920
Speaker 4: was declining at a reasonable rate and growth was pretty steady.

235
00:11:52,559 --> 00:11:55,600
Speaker 4: But with tariffs you sort of you sort of have

236
00:11:55,800 --> 00:11:59,400
Speaker 4: these levers pushing the wrong way, and I think it's

237
00:11:59,440 --> 00:12:02,559
Speaker 4: all about duration. If the tariffs end up being bluster.

238
00:12:03,120 --> 00:12:06,800
Speaker 4: If the tariffs end up being shortened duration, then there's

239
00:12:06,800 --> 00:12:09,880
Speaker 4: really nothing to be concerned about. But if it precipitates

240
00:12:10,280 --> 00:12:13,640
Speaker 4: what could be a very long drawn out trade war,

241
00:12:13,840 --> 00:12:17,439
Speaker 4: for sure, it can bring stagflation into the equation.

242
00:12:17,800 --> 00:12:21,040
Speaker 3: And that's not my base case, but I do believe that.

243
00:12:21,559 --> 00:12:24,640
Speaker 4: Markets should be more concerned about it than they currently

244
00:12:24,679 --> 00:12:29,360
Speaker 4: are because we have seen the president dig in, We've

245
00:12:29,400 --> 00:12:32,439
Speaker 4: seen the tarOf regime grow as the days.

246
00:12:32,200 --> 00:12:33,000
Speaker 3: Have gone on.

247
00:12:33,600 --> 00:12:37,520
Speaker 4: So it's definitely something that all of us in markets

248
00:12:37,520 --> 00:12:39,680
Speaker 4: need to be paying attention to, particularly for those of

249
00:12:39,760 --> 00:12:42,240
Speaker 4: us who have retirees as clients and we're trying to

250
00:12:42,320 --> 00:12:48,240
Speaker 4: help them produce income and also maintain solid investment portfolios.

251
00:12:48,360 --> 00:12:51,840
Speaker 4: It's one of the worst scenarios for investment is that

252
00:12:51,920 --> 00:12:53,120
Speaker 4: stagflationary environment.

253
00:12:53,240 --> 00:12:55,720
Speaker 2: So if the market wants to discount that risk and

254
00:12:55,800 --> 00:12:59,199
Speaker 2: yields would necessarily want to move higher in that scenario.

255
00:12:59,720 --> 00:13:02,400
Speaker 2: Is a shrinking the balance sheet at a slower rate

256
00:13:02,840 --> 00:13:07,000
Speaker 2: running the risk of distorting market function a little.

257
00:13:06,800 --> 00:13:11,840
Speaker 4: Bit, possibly, But I think the FED is more interested

258
00:13:11,960 --> 00:13:14,880
Speaker 4: in making sure that they don't drain reserves. I mean,

259
00:13:14,920 --> 00:13:17,360
Speaker 4: over the past couple of years they've been able to

260
00:13:17,400 --> 00:13:20,320
Speaker 4: have a free pass on draining the balance sheet because

261
00:13:20,360 --> 00:13:24,719
Speaker 4: it has largely been financed through reverse repos but now

262
00:13:24,760 --> 00:13:26,560
Speaker 4: it's going to come from bank reserves. So I think

263
00:13:26,559 --> 00:13:30,760
Speaker 4: they're more interested in averting a banking or funding crisis

264
00:13:30,800 --> 00:13:33,680
Speaker 4: in the banking system more so than they're worried about

265
00:13:34,360 --> 00:13:35,719
Speaker 4: some of the longer run.

266
00:13:36,000 --> 00:13:37,440
Speaker 3: Components of what that can mean.

267
00:13:37,679 --> 00:13:41,439
Speaker 4: So I think that's why if I'm just sort of speculating,

268
00:13:41,480 --> 00:13:46,240
Speaker 4: I'm speculating that they didn't completely end quantitative tightening.

269
00:13:46,480 --> 00:13:48,880
Speaker 3: They just reduced it down to a sales pace.

270
00:13:49,320 --> 00:13:52,600
Speaker 4: To get through the funding crisis potential, and then they'll

271
00:13:52,640 --> 00:13:55,200
Speaker 4: reevaluate decide how they want to move forward from there.

272
00:13:55,240 --> 00:13:58,200
Speaker 4: You'll note that they did not alter the path of

273
00:13:58,240 --> 00:13:59,920
Speaker 4: their runoff of mortgage backed security.

274
00:14:00,080 --> 00:14:01,920
Speaker 3: It was very much isolated to treasuries.

275
00:14:02,120 --> 00:14:05,600
Speaker 2: Okay, fair enough. Powell also said the odds for recession

276
00:14:05,640 --> 00:14:07,839
Speaker 2: have moved up a bit, although they're not high in

277
00:14:07,880 --> 00:14:11,040
Speaker 2: his words, and the FED is still assuming that maybe

278
00:14:11,080 --> 00:14:15,400
Speaker 2: we can squeeze in two rate cuts this year. Does

279
00:14:15,440 --> 00:14:16,840
Speaker 2: that square with your thinking?

280
00:14:18,720 --> 00:14:21,560
Speaker 4: I think that the economy, based on some of the

281
00:14:21,560 --> 00:14:24,560
Speaker 4: most recent data and industrial production, may be.

282
00:14:24,720 --> 00:14:26,600
Speaker 3: Stronger than what people appreciate.

283
00:14:27,200 --> 00:14:30,160
Speaker 4: I think the headline risk and the shock of tariffs

284
00:14:30,160 --> 00:14:34,800
Speaker 4: have caused a lot of shifts in sentiment, but I'm

285
00:14:34,840 --> 00:14:38,880
Speaker 4: not so certain that it's translated into every sector of

286
00:14:38,920 --> 00:14:42,360
Speaker 4: the economy just yet. I think it may be sort

287
00:14:42,400 --> 00:14:45,040
Speaker 4: of shocking all of consumers, but the consumers are still spending,

288
00:14:45,080 --> 00:14:49,240
Speaker 4: they're still traveling, So I feel like that recession risk

289
00:14:49,400 --> 00:14:53,200
Speaker 4: is definitely not something I'm focused on in the short run.

290
00:14:53,280 --> 00:14:58,640
Speaker 4: If the tariff risk grows and the trade war escalates

291
00:14:59,000 --> 00:15:02,600
Speaker 4: and we start seeing odd loss, then perhaps.

292
00:15:02,600 --> 00:15:04,600
Speaker 3: That that might be might be an issue.

293
00:15:04,640 --> 00:15:07,080
Speaker 4: But I feel like we're in a position where the

294
00:15:07,120 --> 00:15:10,560
Speaker 4: FED can cut rates to normalize, but they're not trying

295
00:15:10,600 --> 00:15:14,840
Speaker 4: to cut rates to accommodate, and I think that that

296
00:15:15,000 --> 00:15:17,880
Speaker 4: fulcrum is something that's really important to pay attention to,

297
00:15:18,360 --> 00:15:21,160
Speaker 4: because if the FED is cutting rates to accommodate, that's

298
00:15:21,160 --> 00:15:23,720
Speaker 4: a much different thing, and I think that's the worst

299
00:15:23,760 --> 00:15:24,600
Speaker 4: of the scenarios.

300
00:15:24,720 --> 00:15:27,080
Speaker 3: What I hope is that they can just normalize with

301
00:15:27,200 --> 00:15:29,080
Speaker 3: a couple of cuts to get.

302
00:15:28,920 --> 00:15:32,080
Speaker 4: To the point where rates are not restrictive, but not

303
00:15:32,240 --> 00:15:34,520
Speaker 4: have to go all the way to make the rate

304
00:15:34,560 --> 00:15:37,480
Speaker 4: structure accommodative where they're trying to support economic growth.

305
00:15:37,680 --> 00:15:39,840
Speaker 3: I don't see that at this point.

306
00:15:40,800 --> 00:15:43,360
Speaker 4: I see right now that we just have some interruptions

307
00:15:43,360 --> 00:15:44,680
Speaker 4: and hopefully they're short lived.

308
00:15:44,760 --> 00:15:46,560
Speaker 2: So you don't feel that there is a risk that

309
00:15:46,640 --> 00:15:49,920
Speaker 2: these tariffs are protracted, that they could last for a while.

310
00:15:51,040 --> 00:15:51,120
Speaker 3: No.

311
00:15:51,360 --> 00:15:54,880
Speaker 4: I think the administration has a messaging problem on tariffs,

312
00:15:54,960 --> 00:15:57,640
Speaker 4: and I think that they've done a poor job of

313
00:15:58,280 --> 00:16:02,560
Speaker 4: using the tariffs as a cudgel for policies or trying

314
00:16:02,560 --> 00:16:05,760
Speaker 4: to push countries in different directions. But what it appears

315
00:16:05,800 --> 00:16:08,680
Speaker 4: to me is that they finally arrived at a place

316
00:16:08,720 --> 00:16:13,200
Speaker 4: where they can get the messaging right with reciprocal tariffs,

317
00:16:13,480 --> 00:16:16,640
Speaker 4: where if a country is tariffing us on a particular product,

318
00:16:16,720 --> 00:16:18,760
Speaker 4: we have a reciprocal tariff. I think people can get

319
00:16:18,760 --> 00:16:22,080
Speaker 4: behind that because it makes perfect sense. But to use

320
00:16:22,120 --> 00:16:26,120
Speaker 4: them in these broad brush, you know, manners has not

321
00:16:26,240 --> 00:16:28,760
Speaker 4: worked very well. And so I think that we're going

322
00:16:28,840 --> 00:16:30,560
Speaker 4: to see a transition and I think we're seeing it

323
00:16:30,600 --> 00:16:35,280
Speaker 4: already where the tariffs will have a shorter half life

324
00:16:35,640 --> 00:16:40,440
Speaker 4: because reciprocal tariffs have the equal ability to go lower

325
00:16:40,720 --> 00:16:42,520
Speaker 4: as they do to stay the same, and so I

326
00:16:42,520 --> 00:16:45,120
Speaker 4: think that's a maybe an unequal chance of actually being

327
00:16:45,160 --> 00:16:48,480
Speaker 4: reduced and I think the Treasury Secretary actually mentioned that.

328
00:16:48,400 --> 00:16:50,360
Speaker 3: In some of his remarks yesterday.

329
00:16:51,960 --> 00:16:54,600
Speaker 4: To some media outlets about how they had seen reciprocal

330
00:16:54,640 --> 00:16:57,360
Speaker 4: tariffs already have a positive impact where people where countries

331
00:16:57,360 --> 00:17:01,080
Speaker 4: are actually now incentivized to bring tariffs to zero in

332
00:17:01,120 --> 00:17:01,880
Speaker 4: certain products.

333
00:17:01,880 --> 00:17:02,480
Speaker 3: And I think.

334
00:17:02,320 --> 00:17:06,919
Speaker 4: That's that particular strategy is going to work out to

335
00:17:07,040 --> 00:17:11,040
Speaker 4: be beneficial and maybe what they arrive at and finally

336
00:17:11,040 --> 00:17:12,679
Speaker 4: get the messaging on tariffs correct.

337
00:17:13,040 --> 00:17:16,080
Speaker 2: But what about the aim of restoring manufacturing. Is that

338
00:17:16,160 --> 00:17:17,960
Speaker 2: going to end up happening as the result of this,

339
00:17:19,119 --> 00:17:19,879
Speaker 2: I don't think so.

340
00:17:20,200 --> 00:17:24,800
Speaker 4: I think that that there are other ways to reshore manufacturing.

341
00:17:24,880 --> 00:17:28,800
Speaker 4: Foreign trade zones which have been around for decades, you

342
00:17:28,840 --> 00:17:33,240
Speaker 4: could do. You could provide economic consentives through those, you know, vehicles,

343
00:17:33,440 --> 00:17:38,439
Speaker 4: rather than trying to disincentivize, you know, using using tariffs. Now,

344
00:17:38,440 --> 00:17:41,120
Speaker 4: I think there's probably one country in particular that may

345
00:17:41,240 --> 00:17:45,040
Speaker 4: face a solid tariff regime.

346
00:17:44,760 --> 00:17:45,679
Speaker 3: And that would be China.

347
00:17:46,400 --> 00:17:49,360
Speaker 4: I think that maybe that's the one country where tariffs

348
00:17:49,359 --> 00:17:51,960
Speaker 4: have been in place for some time there probably will

349
00:17:52,040 --> 00:17:57,480
Speaker 4: remain so, but it really hasn't affected our trade relationship

350
00:17:57,480 --> 00:17:59,720
Speaker 4: with them that much. So I think that when it's

351
00:17:59,720 --> 00:18:04,400
Speaker 4: all and done, the European, the Canadian, the Mexican tariffs,

352
00:18:04,640 --> 00:18:06,640
Speaker 4: these are all going to end up in some type

353
00:18:06,640 --> 00:18:11,280
Speaker 4: of trade deals, like a rewrite of the US MCA.

354
00:18:11,480 --> 00:18:12,600
Speaker 3: Or something with Europe.

355
00:18:12,640 --> 00:18:14,160
Speaker 4: But I think that when it's all said and downe

356
00:18:14,200 --> 00:18:16,520
Speaker 4: the dust settles, our tariff regime.

357
00:18:16,280 --> 00:18:17,720
Speaker 3: Is largely going to be focused on China.

358
00:18:18,320 --> 00:18:22,000
Speaker 2: So trade policy is obviously just one aspect of what

359
00:18:22,040 --> 00:18:25,000
Speaker 2: the Trump administration is intending to do. In terms of

360
00:18:25,000 --> 00:18:30,000
Speaker 2: overall economic policy, deregulation has been another centerpiece. Are you

361
00:18:30,080 --> 00:18:33,400
Speaker 2: optimistic that we're going to see some signs on deregulation

362
00:18:33,520 --> 00:18:33,920
Speaker 2: this year?

363
00:18:34,960 --> 00:18:38,520
Speaker 4: I think they're I think in the banking sector and

364
00:18:38,920 --> 00:18:43,760
Speaker 4: in cryptocurrency. I think there's you know, an enormous amount

365
00:18:43,760 --> 00:18:47,400
Speaker 4: of deregulation that will that is happening and will continue

366
00:18:47,440 --> 00:18:51,600
Speaker 4: to happen. I don't know yet whether it will all

367
00:18:51,640 --> 00:18:54,919
Speaker 4: be good, but I do know that it is, you know,

368
00:18:55,080 --> 00:18:58,520
Speaker 4: basically in motion. I'm not certain about the other sectors,

369
00:18:58,520 --> 00:19:00,440
Speaker 4: but it seems like where it is going to crew

370
00:19:00,800 --> 00:19:04,480
Speaker 4: and be most beneficial from people who buy stocks. I

371
00:19:04,560 --> 00:19:06,760
Speaker 4: think that if you're buying financials, I think that's one

372
00:19:06,800 --> 00:19:10,960
Speaker 4: area where deregulation is going to accrue positively for profitability

373
00:19:10,960 --> 00:19:16,199
Speaker 4: of these firms otherwise yet to be determined, but it

374
00:19:16,200 --> 00:19:18,119
Speaker 4: seems like that's where the focus is at the moment.

375
00:19:18,400 --> 00:19:21,040
Speaker 2: What about tax policy, I mean that Trump tax cuts

376
00:19:21,080 --> 00:19:24,600
Speaker 2: is something that the market really was looking forward to

377
00:19:25,280 --> 00:19:28,919
Speaker 2: seeing unfold this year. You probably optimistic that is going

378
00:19:28,960 --> 00:19:31,760
Speaker 2: to happen as a result of congressional legislation, right.

379
00:19:32,800 --> 00:19:34,840
Speaker 4: I think it will happen, but I think the market

380
00:19:34,880 --> 00:19:38,639
Speaker 4: may underappreciate how complicated it's going to be. In my

381
00:19:38,760 --> 00:19:43,640
Speaker 4: meetings on the Hill with various committee staff, I've done

382
00:19:43,680 --> 00:19:45,960
Speaker 4: that four or five times over the past six months.

383
00:19:46,960 --> 00:19:50,080
Speaker 4: There is a lot of back and forth. There's a

384
00:19:50,119 --> 00:19:52,720
Speaker 4: lot of horse trading that will have to happen to

385
00:19:52,960 --> 00:19:58,760
Speaker 4: get the pay fors necessary to facilitate even keeping the

386
00:19:59,320 --> 00:20:02,000
Speaker 4: law as is is. And I think it's important for

387
00:20:02,000 --> 00:20:04,680
Speaker 4: people to recognize how thin the margins are in the

388
00:20:04,720 --> 00:20:08,399
Speaker 4: House of Representatives. You have in the House currently a

389
00:20:08,480 --> 00:20:13,919
Speaker 4: two seat majority, and one of those members Thomas Massive

390
00:20:13,920 --> 00:20:18,400
Speaker 4: for Kentucky. He's well known to vote against most spending

391
00:20:18,440 --> 00:20:21,639
Speaker 4: packages anyway, So you really only have a one seat

392
00:20:21,840 --> 00:20:24,880
Speaker 4: majority for at least a month or two, and so

393
00:20:25,000 --> 00:20:27,760
Speaker 4: you then have to couple that with the last time

394
00:20:27,800 --> 00:20:32,440
Speaker 4: that Trump had a tax package, I think thirteen Republicans

395
00:20:32,480 --> 00:20:36,440
Speaker 4: voted against it. These are tough votes for people, tough

396
00:20:36,520 --> 00:20:39,240
Speaker 4: votes for some members because there are parts of the

397
00:20:39,320 --> 00:20:43,440
Speaker 4: law that could be detrimental to you know, their districts.

398
00:20:43,520 --> 00:20:46,800
Speaker 4: And in particular, there were the New York and California

399
00:20:46,840 --> 00:20:50,000
Speaker 4: delegations had difficulties with the tax cut jawback because of

400
00:20:50,040 --> 00:20:53,359
Speaker 4: the salt deduction. And so there are going to be

401
00:20:53,440 --> 00:20:56,960
Speaker 4: some components of the tax legislation that are going to

402
00:20:56,960 --> 00:21:01,280
Speaker 4: be difficult pills to swallow for you know, House Republicans,

403
00:21:01,320 --> 00:21:02,960
Speaker 4: and so I think that's going to it's going to

404
00:21:03,280 --> 00:21:07,720
Speaker 4: people may underappreciate how complicated it will be to get

405
00:21:07,800 --> 00:21:11,080
Speaker 4: to the end product and then what it will take

406
00:21:11,200 --> 00:21:14,919
Speaker 4: to you know, get some of the revenue raised, to

407
00:21:15,040 --> 00:21:17,919
Speaker 4: get the bill through reconciliation, to make it through the

408
00:21:17,920 --> 00:21:25,520
Speaker 4: Bird rule. Last time, there was repatriation of foreign you know,

409
00:21:25,760 --> 00:21:29,760
Speaker 4: earnings that that was financing a fair portion of the

410
00:21:29,800 --> 00:21:32,720
Speaker 4: tax cut. That no longer exists in a big way.

411
00:21:32,800 --> 00:21:35,120
Speaker 4: So you have difficult you have you have to raise

412
00:21:35,160 --> 00:21:38,119
Speaker 4: revenue in other ways. And I think that's going to

413
00:21:38,160 --> 00:21:40,320
Speaker 4: be in fact, I know because That's what they keep

414
00:21:40,359 --> 00:21:43,240
Speaker 4: asking every time we go is how give us ideas,

415
00:21:43,280 --> 00:21:45,560
Speaker 4: give us suggestions on what we can do to pay

416
00:21:45,600 --> 00:21:48,399
Speaker 4: for and continue to finance the tax cuts.

417
00:21:48,920 --> 00:21:51,639
Speaker 2: Jamie, thank you so much. Great to get your perspective

418
00:21:51,680 --> 00:21:55,120
Speaker 2: on a number of topics. Jamie Cox, their managing partner

419
00:21:55,160 --> 00:21:58,919
Speaker 2: at Harris Financial Group, joining from Richmond, Virginia here on

420
00:21:58,920 --> 00:22:04,960
Speaker 2: the Daybreak Asia podc Thanks for listening to today's episode

421
00:22:05,040 --> 00:22:09,040
Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

422
00:22:09,119 --> 00:22:13,000
Speaker 2: look at the story shaping markets, finance, and geopolitics in

423
00:22:13,000 --> 00:22:16,200
Speaker 2: the Asia Pacific. You can find us on Apple, Spotify,

424
00:22:16,320 --> 00:22:19,840
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

425
00:22:20,240 --> 00:22:23,160
Speaker 2: Join us again tomorrow for insight on the market moves

426
00:22:23,200 --> 00:22:27,720
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

427
00:22:27,920 --> 00:22:29,280
Speaker 2: and this is Bloomberg