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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 Krisner.

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Speaker 2: So US China trade talks are set to resume Monday

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Speaker 2: morning in London. Today we heard from the Director of

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Speaker 2: the National Economic Council, Kevin Hassett. He told CBS News

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Speaker 2: Face the Nation, the goal here is to restore the

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Speaker 2: flow of critical minerals.

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Speaker 3: Those exports of critical minerals have been getting released at

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Speaker 3: a rate that is higher than it was, but not

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Speaker 3: as high as we believe. We agree to in Geneva

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Speaker 3: at President Trump being a deal maker, talk with President

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Speaker 3: Chi and he said, let's take our senior guys, at

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Speaker 3: the people who are the same level as you. Let's

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Speaker 3: have them meet somewhere and let's get these things cleared up.

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Speaker 2: That is Kevin Hasset. He is the director of the

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Speaker 2: National Economic Council. Now, on Saturday, Beijing said it approved

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Speaker 2: some applicants for those rare earth exports, but it didn't

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Speaker 2: elaborate on the product's applications or destinations. So for a

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Speaker 2: closer look at how trade is affecting financial markets, I'm

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Speaker 2: joined by Chris Burgotti. He is the chief investment officer

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Speaker 2: at SWBC. He joins from just outside of New York City. Chris,

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Speaker 2: thank you so much for making time to chat with

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Speaker 2: me on this. I know we've seen a lot more

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Speaker 2: volatility when it comes to the equity market, certainly, but

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Speaker 2: the same is true for the bond market. I mean,

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Speaker 2: yields up one moment down the next. And there's also

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Speaker 2: this debate as to whether or not tariffs are going

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Speaker 2: to accelerate inflation and maybe at the same time slow growth.

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Speaker 2: Then there is the dollar story, which is all a

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Speaker 2: part of this. So give me your sense kind of

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Speaker 2: in the big picture when you look at markets, what

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Speaker 2: are they telling you in a nutshell as it relates

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Speaker 2: to tariffs.

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Speaker 4: Yeah, thanks for having me, Doug.

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Speaker 5: My big picture of view is basically that the challenges

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Speaker 5: to the markets the economy are all around the uncertainty

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Speaker 5: of the tariff situation. It seems like we might have

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Speaker 5: some clarity at various points at time, but then things change,

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Speaker 5: the dynamic changes. Trump says something different. He adjusted his

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Speaker 5: metric in terms of whether there will be a pause

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Speaker 5: or not. We hear more news coming out of China

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Speaker 5: that there might be some resolution, then there might not

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Speaker 5: be then there's positive news about rare metals, for example.

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Speaker 5: So the uncertainty is really what's driving the bus here

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Speaker 5: in my opinion, and markets do not like uncertainty, so

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Speaker 5: that's being priced in.

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Speaker 4: As you see, interest rates have risen remarkably.

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Speaker 5: Since the initial tariff discussion started, and I think that's

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Speaker 5: going to persist until we do have a little bit

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Speaker 5: more clarity.

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Speaker 2: So what's your sense of how tariffs are going to

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Speaker 2: impact the inflation story.

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Speaker 5: I think that the tariff situation will be somewhat inflationary

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Speaker 5: at some point in time.

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Speaker 4: We have not seen that bleed into the data as

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Speaker 4: of yet.

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Speaker 5: The data seems relatively static, and part of the problem

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Speaker 5: has been the fact that the tariffs brought forward some

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Speaker 5: customer buying, some purchasing by the US. Therefore, we saw

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Speaker 5: a lot of certain and imports when the tariffs were

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Speaker 5: initially announced, and therefore we didn't see the same effect

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Speaker 5: that we might have seen. It seemed like the markets

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Speaker 5: might be okay. Prices weren't really driven higher as of

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Speaker 5: yet due to the big problem with imports coming into

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Speaker 5: the US and surplus or deficit of goods. Therefore, I'm

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Speaker 5: seeing some supply chain issues that I expect to transposed

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Speaker 5: down the road that will affect the markets a little more,

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Speaker 5: and I expect that tariffs will ultimately add a little

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Speaker 5: bit more inflation to the picture, higher for longer inflation

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Speaker 5: as opposed to maybe drifting lower that we had seen

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Speaker 5: as of late.

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Speaker 2: I think we can agree that that's the big concern

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Speaker 2: for the FED right which is why officials time and

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Speaker 2: again have been saying we're not ready to cut rates

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Speaker 2: because there is still so much that is unknown in

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Speaker 2: terms of the impact that these tariffs will have on prices. Now,

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Speaker 2: the Fed is in a blackout period. We've got the

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Speaker 2: meeting June seventeenth and eighteenth. We also have this week

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Speaker 2: a couple of data points that will give the Fed

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Speaker 2: its last look inflation before that meeting. We have Wednesday

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Speaker 2: the CPI Thursday, it's the PPI report. What do you

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Speaker 2: think these numbers are going to kind of reveal here,

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Speaker 2: particularly CPI data. Is that going to begin to creep higher?

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Speaker 2: Do you think in a worrisome way.

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Speaker 5: I think that there's a potential for it to start

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Speaker 5: to creep higher a little bit. Maybe this month might

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Speaker 5: be flat to slightly higher. But the bigger challenge and

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Speaker 5: the issue is we just got through a big employment

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Speaker 5: report on Friday which did not say that employment unemployment

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Speaker 5: was rising. And so to me, it's again back to

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Speaker 5: what you pointed out earlier, the FED focus, which is

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Speaker 5: on inflation. They've set it time and again they seem

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Speaker 5: to be putting all of their attention on that. So

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Speaker 5: for me going forward, that will be what we need

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Speaker 5: to have measured more appropriately and more specifically. And as

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Speaker 5: I see CPI and PPI coming out this week, a

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Speaker 5: flat to slightly higher reading could be on the offing,

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Speaker 5: and that could start to edge interest rates a little

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Speaker 5: bit higher. I certainly don't expect to isterhraate to start

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Speaker 5: plummeting from here by any means.

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Speaker 2: So when you look at the corporate response to this,

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Speaker 2: to what extent are company is going to be willing

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Speaker 2: to take a hit to margin or, on the other hand,

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Speaker 2: feel the need to really pass along these higher import duties.

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Speaker 4: That's a really great question and a solid point.

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Speaker 5: And to me, about two or three weeks ago, we

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Speaker 5: saw the biggest retailer in the United States being Walmart,

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Speaker 5: come out and say they might have some problems down

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Speaker 5: the road passing on these higher prices and they might

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Speaker 5: have to pass them on to customers. They've been absorbing

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Speaker 5: them of late, as most retailers have been. But once

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Speaker 5: that kind of has to change, I expect the dynamic

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Speaker 5: to be a little bit different, and I do expect

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Speaker 5: them to have to start to pass on to customers.

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Speaker 5: They can only absorb for so long and then been

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Speaker 5: doing it thus far. Once those higher prices have to

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Speaker 5: be passed along to customers one way or another, that's

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Speaker 5: not a great thing for the consumer, and I do

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Speaker 5: expect that impact to happen in short order.

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Speaker 2: So we had some pretty sizable moves in the bond

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Speaker 2: market here in the US on Friday after that employment data.

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Speaker 2: I think the two year and the ten year we're

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Speaker 2: each up about ten basis points. What do you feel

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Speaker 2: about the bond market right now? So if you look

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Speaker 2: at the ten year around four point fifty, could that

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Speaker 2: break through it and test maybe four seventy five or

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Speaker 2: even higher.

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Speaker 5: I certainly expect higher rates. I definitively expect that because

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Speaker 5: of the inflation picture, which we just discussed. So if

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Speaker 5: inflation should be higher, we should have some challenges going

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Speaker 5: forward that will put pressure on the long end of

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Speaker 5: the market. Not to mention the fact that we've got

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Speaker 5: supply issues coming out, we got deficit hurdles that have

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Speaker 5: really started to make headlines of late. So I do

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Speaker 5: expect us to retest that four point eight oh six

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Speaker 5: I think is the exec level ten year high that

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Speaker 5: we reached earlier this year, and I expect that to

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Speaker 5: happen before the end of the summer. I do expect

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Speaker 5: also a steeper yield curve. We could get some pressure

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Speaker 5: on the long end of the market, even if the

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Speaker 5: short end of the market kind of stabilizes or feels

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Speaker 5: a little bit better, But I don't expect that necessarily,

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Speaker 5: and I do expect a steeper yil curve than we

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Speaker 5: have at the moment.

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Speaker 2: So the S and P and the Friday session was

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Speaker 2: up about one percent. I'm curious about how you view

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Speaker 2: the equity market right now and where you're finding opportunity.

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Speaker 5: The opportunity in the equity market is kind of a

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Speaker 5: little bit of a challenge to identify at various points

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Speaker 5: in time on a macro basis, Where just over six

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Speaker 5: thousand was the close on Friday, I do expect us

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Speaker 5: to possibly retest that high again that we did see

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Speaker 5: earlier in the year, and that's something that kind of

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Speaker 5: puts a top on the market, though I think we're

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Speaker 5: closer to the top than we are to a sell

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Speaker 5: off potential that could happen. Therefore, the opportunity for me

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Speaker 5: is things that will perform well in a recessionary environment.

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Speaker 5: Think of your basics, your utilities, your consumer staples. I

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Speaker 5: do see opportunity in Europe as well, so there's a

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Speaker 5: matter of moving money around the globe that could be

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Speaker 5: a benefit for at least US investors and repositioning themselves

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Speaker 5: in different ways. But go back to the basics of

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Speaker 5: what performs well in a recessionary environment, and I think

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Speaker 5: thoseastic type of entities will perform decently. I also expect

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Speaker 5: financials to form, although it's start to per form a

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Speaker 5: little bit better and have some upside potential. It's a

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Speaker 5: little bit longer runway, but a steeper yield curve, as

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Speaker 5: we all know, does benefit financial services and banks, So

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Speaker 5: in the long run, I do expect them to start

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Speaker 5: to feel a little bit better with regard to their

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Speaker 5: ability to monetize interest rates.

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Speaker 2: We were talking a moment ago about meta Platforms being

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Speaker 2: in talks to make a multi billion dollar investment into

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Speaker 2: an AI startup known as Scale Ai. We know the

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Speaker 2: story on artificial intelligence and how it has helped to

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Speaker 2: power so many companies, and I'm thinking of Nvidia primarily,

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Speaker 2: but even a company like Broadcom. How do you feel

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Speaker 2: about the AI trade right now in the current environment?

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Speaker 2: Is it a little long in the tooth at least

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Speaker 2: for this part of the cycle.

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Speaker 5: I think the AI trade does have some more opportunity

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Speaker 5: for it, but there's ebbs and flows in it. I

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Speaker 5: think we're part closer to the part. It might have

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Speaker 5: to add a little bit. It might have to back

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Speaker 5: up a little bit, settle down retrade. We've seen various

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Speaker 5: points and times the AI trade has going gangbusters and

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Speaker 5: then has resettled because news comes out that there might

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Speaker 5: be some competition for Nvidia, for example.

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Speaker 4: We saw that earlier this year.

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Speaker 5: So as those things come about, I do expect there

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Speaker 5: to be some challenges in the market to be able

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Speaker 5: to reprice and absorb them. But the long term AI

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Speaker 5: trade still has a lot of upside potential and I

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Speaker 5: do expect there to be some games to be had.

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Speaker 2: All right, Chris, Well leave it there, Thank you so much.

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Speaker 2: Chris Burgotti. He is the chief investment officer at SWBC

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Speaker 2: on the line from just outside New York City here

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

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Speaker 2: Asia Podcast. I'm Doug Chrisner. As we've been discussing, all

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Speaker 2: eyes will be on the meeting in London on Monday

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Speaker 2: between trade delegations from the US and China. More, we

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Speaker 2: heard from Alicia Garcio Horrero. She is the chief apack

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Speaker 2: economist at ne Tixas. Alicia spoke with Bloomberg, Sharry On

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Speaker 2: and Heidi Stroud Watts.

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Speaker 6: Alicia, always great to have you with us, particularly to

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Speaker 6: kind of so through everything that's going on. And of

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Speaker 6: course the big sort of respector or impossible opportunity for

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Speaker 6: some relief is how these latest round of US China

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Speaker 6: talks go. And as you mentioned, as we've been kind

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Speaker 6: of talking about, this potentially becomes more complex if we're

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Speaker 6: moving on from just straight tariffs to the issue of

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Speaker 6: export controls, which is sensitive for both sides. Are you

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Speaker 6: optimistic that an agreement, a meaningful agreement, could be reached.

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Speaker 7: I'm optimistic that an agreement will be reached, but it

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Speaker 7: won't be meaningful. That's even the previous one wasn't very meaningful.

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Speaker 7: I mean, of course gives were cut, but everybody knew

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Speaker 7: that they had to be cut.

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Speaker 8: They were too high, they were at lock pate level.

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Speaker 8: That was easy.

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Speaker 7: This time around, I think we'll only have a temporary

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Speaker 7: relief in export controls.

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Speaker 8: We have export control from both sides.

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Speaker 7: So the US went from you know what we already

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Speaker 7: had providing export controls on GPUs any semist of advance,

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Speaker 7: I mean advanced enough to be harmful for China, but

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Speaker 7: we moved even further if because of retaliation from China's

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Speaker 7: own export controls on critical row materials. We have airplane engines,

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Speaker 7: we have components of nuclear nuclear plants, you name it.

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Speaker 7: So because we've actually expanded, there is a room to

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Speaker 7: you know, to temporarily lift these export controls both sides.

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Speaker 7: But that's that won't be you know, a full deal,

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Speaker 7: so more time is needed. There's too many things happening,

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Speaker 7: you know, like from student visus, you name it, so

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Speaker 7: all of that will will just be temporary. That's the

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Speaker 7: second truth out of the very many way will see

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Speaker 7: until hopefully things get settled.

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Speaker 6: In the meantime, do sort of the economic fundamentals to

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Speaker 6: the downside continue to become entrenched.

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Speaker 8: In China obviously.

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Speaker 6: Still have a broadly deflation environment, and sick demand is

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Speaker 6: still pretty subdued. The expert's obviously getting a temporary benefit.

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Speaker 6: On the US side, Do you expect costs to continue

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Speaker 6: rising going into the end of the year.

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Speaker 7: Yeah, I mean a Now Texas we have, of course

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Speaker 7: slightly higher infection, but not to the point of really.

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Speaker 8: Unraveling. Stop in cuts from the FED.

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Speaker 7: So with think the FED is going took at three

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Speaker 7: times this year, and the reason is that although employment

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Speaker 7: data was decent, but we already see the cracks. The

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Speaker 7: companies are not laying off, but they are thinking about it.

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Speaker 7: You can see from the data that you know, there's

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Speaker 7: less sense, less, less confidence in the economy. Rightly, So, yeah,

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Speaker 7: we have so bad news overall, from tariffs to many

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Speaker 7: other things happening and in the US, so I think,

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Speaker 7: just to make a long story, sure, those inflationary pressures

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Speaker 7: will be creeping up.

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Speaker 8: And in China, I don't think the.

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Speaker 7: Inflation pressures will be fully off the table with the

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Speaker 7: data we're waiting.

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Speaker 8: Maybe slightly better, but that will be it.

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Speaker 7: So that divergence between China and the US in terms

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Speaker 7: of price movements is there to stay in the US.

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Speaker 1: How much do you think a tax bill from President

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Speaker 1: Trump could help the broader economy? And how forgiving do

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Speaker 1: you expect bond investors to be because just all over

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Speaker 1: the world right now we're seeing borrowing costs surging on

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Speaker 1: really concerns about those government budget deficits.

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Speaker 7: I wouldn't bet for investors to be for billing forgiven,

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Speaker 7: because they have not been forgiven for a while already.

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Speaker 7: So I think this build this bbbing big for sure.

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Speaker 7: I'm not sure it's beautiful. We could we could find

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Speaker 7: another objective for that one. That bill is a problem

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Speaker 7: for the US, and I hope I mean that that

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Speaker 7: there is enough attention for that investors won't take it easily.

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Speaker 7: And you're right, it's not only the US, So anybody

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Speaker 7: who is a little bit off the mark, and we

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Speaker 7: saw the jgb's for that matter, will suffer from very

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Speaker 7: high cost of funding. I think that's what we are

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Speaker 7: and this bill will be a problem for sure. I

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Speaker 7: don't think that's going to support growth because there will

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Speaker 7: be a lot of investment leaving and that will increase

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Speaker 7: the cost of funding for the US.

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Speaker 8: So I'm not sure that's going to help.

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Speaker 1: Yeah, we have seen weak demand for JGB auctions here

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Speaker 1: in Japan. We're expecting first quarter revise data for GDP

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Speaker 1: here in the country.

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Speaker 7: What are you expecting, Well, yeah, I mean it might

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Speaker 7: be a little bit better, but let's be clear that

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Speaker 7: the first potter was very negative. So we do have

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Speaker 7: a better year for Japan two point three percent, which

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Speaker 7: is quite high, but because again last year was was weak.

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Speaker 7: Now we'll revise. Now we'll have to revise down. In

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Speaker 7: other words, growth isn't really there in Japan. We have

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Speaker 7: to realize that it's it's We even heard that there

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Speaker 7: might be a new emergency package, I think nine one

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Speaker 7: hundred billion additional fiscal package. All of this is going

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Speaker 7: to be an additional supply of jgbs, going back to

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Speaker 7: the cost of funding for Japan creeping up as well,

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Speaker 7: and the reason why they need all of these first

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Speaker 7: quarter you know, experts were so underwhelming and therefore, I mean,

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Speaker 7: what to expect from the Japanese economy other than again

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Speaker 7: additional stimulus on the fiscal side, But that's not going

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Speaker 7: to solve the problem. We need more productivity, we need

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Speaker 7: more investment. The Japanese government is very keen to receive

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Speaker 7: additional FBI. That's true, but it isn't really yet happening

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Speaker 7: in big scale.

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Speaker 1: Yeah yeah, And of course we'll be watching the trade

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Speaker 1: negotiations at the G seven between Prime Minister Ishiva and

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Speaker 1: President Trump as well. Alicia Garcierrano. Always good to have

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Speaker 1: you with us chief APAG Economists and the Texas with

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Speaker 1: a look ahead on all of the economic news expected

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Speaker 1: this week.

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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 Chrisner, and this is Bloomberg