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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So

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Speaker 2: we begin with a story on trade. At the end

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Speaker 2: of last week, you may recall President Trump threatened a

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Speaker 2: fifty percent tariff on imports from the European Union effective

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Speaker 2: June first. Now, he said this was in response to

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Speaker 2: what he called unsatisfactory trade negotiations with Brussels. However, now

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Speaker 2: the President says he has agreed to extend that fifty

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Speaker 2: percent tariff for the EU until July ninth. Trump made

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Speaker 2: the change after a phone call with European Commissioned President

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Speaker 2: Ursula Vanderleyan.

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Speaker 3: We had a very nice call and I agreed to movement.

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Speaker 3: I believe June ninth would be July ninth would be

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Speaker 3: the day.

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Speaker 4: That was the date.

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Speaker 3: She requested, Could we move it from June first to

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Speaker 3: July ninth? And I agreed to do that, and that

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Speaker 3: she said, we will rapidly get together and see if

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Speaker 3: we could work something out.

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Speaker 2: Now in a post on x, vonder Layan said the

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Speaker 2: European Union is ready to advance talk swiftly and decisively.

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Speaker 2: By the way, the date of July ninth is the

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Speaker 2: same day, Trump's ninety day pause on those so called

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Speaker 2: reciprocal tariffs had been set to end. For a closer

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Speaker 2: look at some of the market action, I am joined

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Speaker 2: now by Stephanie Lunghi is the CIO at Stashaway, joining

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Speaker 2: from our studios in Hong Kong. Stephanie, thank you so

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Speaker 2: much for making time to chat with me. Can we

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Speaker 2: start with a trade story and what I think may

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Speaker 2: be a little bit of whiplash for markets? How do

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Speaker 2: you understand the situation right now, not just where the

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Speaker 2: European Union is concerned, but more broadly how the Trump

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Speaker 2: administration is dealing with these various trade negotiations.

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Speaker 4: Yeah. I think indeed, if you look at kind of

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Speaker 4: a broad set of things going on, it's it's quite

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Speaker 4: a lot. I mean, they try to negotiate with eighteen

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Speaker 4: key kind of trading partners, but also I mean there

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Speaker 4: are a lot of other things line up for them

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Speaker 4: to sort of try to make a deal as well.

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Speaker 4: And I think if we kind of roll back in history,

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Speaker 4: twenty eighteen was actually a very very good playbook for

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Speaker 4: kind of understanding or sort of I guess, of putting

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Speaker 4: a framework as to what's happening so if you kind

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Speaker 4: of remember twenty eighteen, we also had a sort of

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Speaker 4: a trade short, short term trade war between US and

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Speaker 4: China in the last quarter of twenty eighteen, and the

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Speaker 4: market actually found it slow on December twenty fourth of

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Speaker 4: that year, And similar to kind of what's happening right now,

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Speaker 4: I think initially, I mean, Trump tries to put out

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Speaker 4: a very very forceful kind of ask and they try

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Speaker 4: to negotiate down from there, and of course during the

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Speaker 4: negotiation it.

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Speaker 5: Was also very very messy.

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Speaker 4: There was a lot of back and forth, and I

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Speaker 4: mean one of Trump's tactics that he likes to use

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Speaker 4: when he's trying to make deals is he walks out

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Speaker 4: of the room at the last minute. So I mean,

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Speaker 4: I wouldn't be surprised that if Trump is kind of

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Speaker 4: deployed some of the similar tactics. But I think we

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Speaker 4: have to remember that, I mean, Trump is not a

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Speaker 4: person without constraints, right He being the President of the

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Speaker 4: United States, of course have a lot of power, but

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Speaker 4: at the end of the day, he needs to answer

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Speaker 4: to the median vota, and also he needs to kind

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Speaker 4: of realize that there are economic constraints as we've seen

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Speaker 4: just very very recently with bond yields.

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Speaker 2: So you mentioned the backup that we had in US

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Speaker 2: treasury yields last week. There has been a debate, as

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Speaker 2: you well know, in the bond market about the extent

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Speaker 2: to which these tariffs may be inflationary. But for the moment,

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Speaker 2: what seems to be driving a lot of the price

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Speaker 2: section in the bond market is the concern over the

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Speaker 2: government's ability to continue to cover these massive budget deficits.

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Speaker 2: Are we going to be in a world now until

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Speaker 2: this tax bill has been signed in the law where

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Speaker 2: there's going to be a lot more volatility in the

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Speaker 2: bond market.

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Speaker 4: So at the beginning of the year, we put out

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Speaker 4: our twenty and twenty five outlook and the title I

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Speaker 4: use was FAT as the New Normal FAT And the

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Speaker 4: reason why I use FAT. F stands for Fiscal dominance,

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Speaker 4: A stands for AI, T stands for Trump, and it's

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Speaker 4: basically I think these are three forces that would drive

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Speaker 4: markets for quite some time, and not just this year,

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Speaker 4: but perhaps I mean for the rest of the decade

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Speaker 4: to come. And in terms of physical dominance, when we're

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Speaker 4: seeing a lot of that happening, and I think if

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Speaker 4: you look at that the US treasury yield.

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Speaker 5: Of course it's in spiking.

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Speaker 4: I mean there's a lot of kind of I think

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Speaker 4: US centric concerns, but also it's not just a US story,

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Speaker 4: right if even if you look at the Japanese long rates,

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Speaker 4: I mean, these are at historical highs. So I do

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Speaker 4: think that there is a reflection of the market's concern

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Speaker 4: on the fiscal deficits for governments or across the world,

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Speaker 4: and sort of the I guess the return they demand

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Speaker 4: from holding a lot of these sovereign debt is increasing

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Speaker 4: because of the long time concern on the sustainability of

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Speaker 4: these debt levels.

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Speaker 5: So I think again, if you look at.

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Speaker 4: Kind of a as a classes during this past a

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Speaker 4: few months of trade war concerns, you can see that

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Speaker 4: actually bond is the weakest link. And I think if

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Speaker 4: you kind of ask around of as allocatus a few

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Speaker 4: months ago, I think very very few people would have

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Speaker 4: predicted that. I mean, actually, I mean bond is even weaker.

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Speaker 4: It's even kind of more concerning than that equities.

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Speaker 2: So we've talked about the f fiscal We've talked about

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Speaker 2: the t Trump, let's talk about the A now artificial intelligence.

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Speaker 2: We get the Nvidia earnings after the closing bell on

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Speaker 2: Wednesday here in the US, Bloomberg data showed that revenue

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Speaker 2: from that core chip business is forecast to rise over

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Speaker 2: the next four quarters. But a number of analysts are

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Speaker 2: now beginning to talk about how the trade pressures could

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Speaker 2: put in Vidia's guidance at risk. Do you think that's

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Speaker 2: a fair criticism or at least a fair warning.

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Speaker 4: Yeah, I think that's if you look at invidious revenue mix,

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Speaker 4: I mean, the significant part of that does come from China,

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Speaker 4: and of course, I think over the years, I mean,

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Speaker 4: they have tried to kind of I guess more of

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Speaker 4: their business in order to get rounds of these regulations.

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Speaker 4: I think indeed, I mean this morning, we're seeing that

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Speaker 4: they are gonna adopt a lower kind of power version

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Speaker 4: of the GPUs to be able to sell to China.

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Speaker 5: And I think that.

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Speaker 4: I mean, of course, for the past two and a

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Speaker 4: half years, I mean, a video was sort of the

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Speaker 4: only story in te right. If you look at the

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Speaker 4: phases of AI development, I mean, the first kind of

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Speaker 4: obvious phase or the first obvious traits are buying chips

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Speaker 4: and training of the large language models. I think I

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Speaker 4: do think that apart from the regulations. I mean there

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Speaker 4: are some of the more structural movements or moves away

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Speaker 4: from this phase one that I mean we're now kind

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Speaker 4: of entering phase two.

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Speaker 5: So I mean what is phase two?

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Speaker 6: Right?

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Speaker 4: If you look at the l ms, I mean a

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Speaker 4: lot of them are already quite commoditized. They are very

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Speaker 4: very powerful already with kind of the lms more stabilized,

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Speaker 4: like stabilizing in the developments. I mean that actually enables

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Speaker 4: application developers to be able to make use of these

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Speaker 4: lms to develop a lot of different use cases. And indeed,

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Speaker 4: if you look at the within the equity markets, I

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Speaker 4: mean what's leading in this round of rebounds is a

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Speaker 4: lot of the so called AI first software companies, right,

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Speaker 4: companies like appalenteer companies like Spotify, even like do Lingo,

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Speaker 4: and a lot of these companies that are actually realizing

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Speaker 4: the benefit of AI in the business, either from the revenue.

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Speaker 5: Side or the cost site.

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Speaker 4: I mean, these are sort of the leading pack in

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Speaker 4: this round of rebound.

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Speaker 2: I'm curious to get your take on how you expect

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Speaker 2: AI in China to advance, at least over the near term.

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Speaker 2: Reuters was reporting that in videos planning to launch a

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Speaker 2: new AI chip especially for the Chinese market. Do you

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Speaker 2: think that is going to accelerate the chain in Ai

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Speaker 2: in China that they would have perhaps a little bit

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Speaker 2: more advanced technology.

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Speaker 4: The key devolvement in China, I think has been that

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Speaker 4: the of course, we had the deep Seek moment, and

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Speaker 4: it shows us that, I mean, the Chinese technology companies

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Speaker 4: can can do quite a bit of things with limited resources.

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Speaker 4: But I think what I guess more importantly is that

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Speaker 4: the because of the I guess, the restrictions that Trump

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Speaker 4: has put onto exporting technology to China, it forces China

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Speaker 4: to really I mean think about and invest into his

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Speaker 4: own technology stack. And if you look at companies like Huawei,

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Speaker 4: right they I mean they already possessed quite a bit

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Speaker 4: of good technology, and I think the Chinese government or

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Speaker 4: kind of Chinese companies is going to double down that

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Speaker 4: just because of security reasons. Right you don't know when

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Speaker 4: I mean the US is going.

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Speaker 5: To restrict.

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Speaker 4: Exports of chips or various other kind of important technologies.

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Speaker 4: And I think what the Deep Seat moment shows us

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Speaker 4: is that, I mean, China is not too far behind.

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Speaker 5: And I think Nvidia.

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Speaker 4: Is announcing this kind of news chip because they realize

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Speaker 4: that fress all right there for it perhaps is not

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Speaker 4: so much AMV or other chip companies, but really like

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Speaker 4: Chinese companies like Huawei.

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Speaker 2: Okay, we'll leave it there, Stephanie. It's always a pleasure.

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Speaker 2: Thank you so much. Stephanie Lyung. She is the CIO

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Speaker 2: at Stashuay. Joining from Hong Kong here on the Daybreak

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

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Speaker 2: Doug Chrisner. We go to Japan next, where shares and

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Speaker 2: Nippon Steele are trading higher in the Tokyo session. This

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Speaker 2: comes after President Trump said he will back up partnership

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Speaker 2: between the Japanese company and US Steel. We've got reaction

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Speaker 2: from Kurt Tong. He is managing partner at the Asia Group.

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Speaker 2: Mister Tong spoke with Bloomberg's Paul Allen and Heidi Stroud Watts.

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Speaker 7: US Steel Knipon Steel deal details are scant, a little

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Speaker 7: bit confusing here, but at least can we say that

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Speaker 7: this is a good i'mon ahead of US Japan talks.

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Speaker 8: It certainly establishes positive momentum going into this next month

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Speaker 8: of negotiations. It's also a very interesting signal that the

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Speaker 8: Japan side is thinking of trying to finish earlier rather

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Speaker 8: than later. As you know, there's an election coming up

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Speaker 8: later in July, and the Japanese government really needs to

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Speaker 8: have a positive outcome in this negotiation to set up

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Speaker 8: for that election or punt the entire negotiation until after

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Speaker 8: the election. So I actually think this is very very

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Speaker 8: positive news for the atmosphere of the negotiations, for the

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Speaker 8: level of trust between the two sides. But it still

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Speaker 8: comes down to a game of chicken over the automobiles.

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Speaker 7: Tariffs and perhaps currency as well applays a factor here

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Speaker 7: as well. We heard from the Finance Minister of Scott

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Speaker 7: Basin last week saying, look, let's let the market handle

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Speaker 7: the currency. But is the end just always there in

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Speaker 7: the background.

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Speaker 8: I think it's in the background, and the japan side

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Speaker 8: interestingly has waived that flag a bit as well to

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Speaker 8: remind the United States that it's a mutually beneficial and

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Speaker 8: potentially mutually destructive relationship in the financial markets. At the

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Speaker 8: negotiating table, I believe the two sides, just as they've indicated,

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Speaker 8: pretty much decided to set that aside as a negotiation item.

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Speaker 1: Negotiations with the TPP feels like, you know, millennials ago, right,

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Speaker 1: But that was so much concentrated on the monutier of

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Speaker 1: trade clauses. What kind of deal do you think do

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Speaker 1: we end up getting? Is it sort of more on

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Speaker 1: the vibe as we've seen with some of the other

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Speaker 1: trade deals that have been tentatively agreed between the US

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Speaker 1: and its trading partners. Do you expect a fair degree

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Speaker 1: of actual substantive detail.

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Speaker 8: I think there will be some substance on trade barrier reduction,

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Speaker 8: and agriculture has been mentioned, and as a clear point

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Speaker 8: of contention, there are some non tariff barriers around automobiles

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Speaker 8: which could be eased. The main thrust of it, however,

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Speaker 8: is how much is Japan going to jump in and

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Speaker 8: help Donald Trump reindustrialize the United States? And he has

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Speaker 8: specific asks on shipbuilding and on the energy infrastructure, particularly

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Speaker 8: Alaska gas that Japan is considering. But these are big,

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Speaker 8: risky projects, very high ticket, extraordinarily risky, and so how

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Speaker 8: they could participate in these sort of things I think

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Speaker 8: is another really important topic of discussion.

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Speaker 1: Some of those sectors are also quite domestically sensitive, right,

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Speaker 1: how much you know we've seen kind of the success

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Speaker 1: story for cgmping, for example, in holding that strong line.

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Speaker 1: Does Japan and the government they need to do that

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Speaker 1: to a certain extent or risk domestic further diminishing popularity.

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Speaker 6: I think that's right.

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Speaker 8: Well, they're going to make clear to the US side

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Speaker 8: we can do this, we can't do that, and then

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Speaker 8: help to use the timeline to their advantage edge in

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Speaker 8: convincing the United States. Well, okay, that's good enough. We

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Speaker 8: do want to reach a deal, we do want to

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Speaker 8: move on. We don't want to have to raise retaliatory

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Speaker 8: tariffs again. So the deadline's in a sense starting to

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Speaker 8: work in Japan's favor. But again, I want to emphasize

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Speaker 8: the crucial importance of the automobile's tariff. It's twenty five

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Speaker 8: percent tariff could have a devastating impact on some Japanese

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Speaker 8: companies if it's allowed to drag on for a long time.

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Speaker 7: Let's talk more broadly about some of these other trade

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Speaker 7: deals that are going on, because the US is trying

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Speaker 7: to negotiate dozens within a ninety day period. I mean,

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Speaker 7: normally free trade agreements take years to reach agreement on.

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Speaker 7: Does this suggest to you that some of what's being

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Speaker 7: achieved here is cosmetic for domestic political purposes and can

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Speaker 7: some of these wins in due beyond the Trump p residency.

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Speaker 8: This process has been excruciating for all of the partners

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Speaker 8: working with the United States. That said, there will be

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Speaker 8: some substantive outcomes which are mutually beneficial, some which are

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Speaker 8: just complete concessions to the United States in order to

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Speaker 8: get the deal done, and a lot of cosmetics. A

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Speaker 8: lot of cosmetics will also go into this because the

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Speaker 8: US side has now discovered that the tariffs can be

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Speaker 8: a problem for the United States as much as for

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Speaker 8: the counterpart, and that leverage reduction that is implicit when

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Speaker 8: the President walked back a week after Liberation Day does

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Speaker 8: really change the dynamic of the situation.

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Speaker 7: If you're advising some of these other countries in their

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Speaker 7: negotiations with the US, what would you be saying.

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Speaker 8: Choose a few really interesting things, sell them to Donald Trump,

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Speaker 8: dress them up a little bit if necessary, but they

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Speaker 8: do need to be substantive at the same time, and

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Speaker 8: then be consistent and sell them over and over again

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Speaker 8: until you get across the finish line.

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Speaker 1: The big focus is still on whether the daytone with

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Speaker 1: China can be sustained. How do you feel about that?

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Speaker 6: So Dayton's a great word for it.

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Speaker 8: They have I agreed to talk, there's no agenda, there's

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Speaker 8: no timeline.

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Speaker 6: And both sides have reserved the right and.

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Speaker 8: Are already exercising the right to continue to take action

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Speaker 8: against one another on other issues technology controls, export controls,

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Speaker 8: the Section two three to two tariff investigations. So what

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Speaker 8: I expect is that this truce on the big tariffs

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Speaker 8: will hold.

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Speaker 6: The negotiations will take.

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Speaker 8: A long time, and it'll be a very bumpy ride,

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Speaker 8: with lots of ups and downs, action, counteraction, angry words,

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Speaker 8: stretching all the way to and past the first meeting

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Speaker 8: of the leaders, which I would anticipate taking place in

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Speaker 8: the fall. I see two real milestones on this. One

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Speaker 8: is the meeting of President Trump and mister she The

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Speaker 8: other is the midterm election, where I think by the

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Speaker 8: midterm election, President Trump needs to demonstrate that all of

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Speaker 8: this effort that he's put into leveraging the size of

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Speaker 8: the US economy has paid off, because the American public

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Speaker 8: is starting to get skeptical about how this tariff strategy

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Speaker 8: is working for them.

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Speaker 9: We've talked a lot about the stickiness of tariffs and

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Speaker 9: whether you know there are views that you know obviously

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Speaker 9: the previous Trump administration policies, some which are still in place.

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Speaker 9: But do you also look at the stickiness of what, say,

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Speaker 9: Beijingia is trying to do with its outreach in terms

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Speaker 9: of building those economics and soft and you know, harder

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Speaker 9: power alliances. Do you think that's going to be something

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Speaker 9: that extends beyond this administration?

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Speaker 6: Absolutely?

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Speaker 8: I mean this is a long term strategy for China. Now,

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Speaker 8: the Belton Road was a piece of it that's now

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Speaker 8: been refined, made less transactional, if you will, less focused

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Speaker 8: on China's needs, and there's more discussion about trade agreements,

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Speaker 8: about softer forms of investment and economic interaction, more digital,

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Speaker 8: less infrastructure, and I would expect China to really continue

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Speaker 8: to push that. And they have a bit of a

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Speaker 8: tear win right now because of the distrust that's been

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Speaker 8: engendered by the US tariff approach. That may be temporary,

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Speaker 8: may last a little while, but I expect China to

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Speaker 8: continue this effort to make friends and try to rally

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Speaker 8: them against the United States for years to come. That

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Speaker 8: latter part is harder because they don't want to burn

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Speaker 8: bridges with the United States either.

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Speaker 7: Can you see a scenario in which China joins the

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Speaker 7: cp TPP.

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Speaker 8: I think that it's not inconceivable. A couple of years

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Speaker 8: ago it was close to inconceivable. I think Australia has

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Speaker 8: a major vote in this. Japan has a very strong

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Speaker 8: opinion about it holding the content of the TPP and

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Speaker 8: keeping it high level penetrating liberalization. China is not yet

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Speaker 8: ready to make the compromises necessary to meet those standards,

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Speaker 8: but it's not inconceivable, especially as the Chinese onomy grows

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Speaker 8: slower in future years, that they'll be more willing to

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Speaker 8: revisit economic reforms that would qualify them for TPP.

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Speaker 6: As an American citizen, I.

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Speaker 8: Hope that the US gets its act together first and

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Speaker 8: makes it in before that happens.

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Speaker 1: Trump has a very unconventional approach when it comes to trade, right,

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Speaker 1: He's not interested in looking at you revisiting FDAs and

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Speaker 1: multilateral bilateral agreements. Does that make the structure of these

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Speaker 1: agreements less relevant in sort of today's political atmosphere?

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Speaker 8: It makes their outcomes less lasting? I think that in

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Speaker 8: the short term they're highly relevant. For example, the Nippon

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Speaker 8: Steel deal that you mentioned at the outset very significant,

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Speaker 8: very positive realignment of the rhetoric around Uster Pan economic relations.

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Speaker 6: But that's one episode.

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Speaker 8: It'll be good for the relationship for a few couple months,

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Speaker 8: but the structures are really important over time, and that

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Speaker 8: unwillingness to commit the United States to lasting structures and

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Speaker 8: the economic realm is a problem for the US. On

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Speaker 8: the defense side, I think the US is still very

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Speaker 8: much there, but the economic policy side, it's been absent

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Speaker 8: from the table for over eight years now.

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Speaker 1: Really great to have you with us, and great to

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Speaker 1: see here is Sydney Koktong, who's a managing partner of

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Speaker 1: the Asia Group.

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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