Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So
Speaker 2: we begin with a story on trade. At the end
Speaker 2: of last week, you may recall President Trump threatened a
Speaker 2: fifty percent tariff on imports from the European Union effective
Speaker 2: June first. Now, he said this was in response to
Speaker 2: what he called unsatisfactory trade negotiations with Brussels. However, now
Speaker 2: the President says he has agreed to extend that fifty
Speaker 2: percent tariff for the EU until July ninth. Trump made
Speaker 2: the change after a phone call with European Commissioned President
Speaker 2: Ursula Vanderleyan.
Speaker 3: We had a very nice call and I agreed to movement.
Speaker 3: I believe June ninth would be July ninth would be
Speaker 3: the day.
Speaker 4: That was the date.
Speaker 3: She requested, Could we move it from June first to
Speaker 3: July ninth? And I agreed to do that, and that
Speaker 3: she said, we will rapidly get together and see if
Speaker 3: we could work something out.
Speaker 2: Now in a post on x, vonder Layan said the
Speaker 2: European Union is ready to advance talk swiftly and decisively.
Speaker 2: By the way, the date of July ninth is the
Speaker 2: same day, Trump's ninety day pause on those so called
Speaker 2: reciprocal tariffs had been set to end. For a closer
Speaker 2: look at some of the market action, I am joined
Speaker 2: now by Stephanie Lunghi is the CIO at Stashaway, joining
Speaker 2: from our studios in Hong Kong. Stephanie, thank you so
Speaker 2: much for making time to chat with me. Can we
Speaker 2: start with a trade story and what I think may
Speaker 2: be a little bit of whiplash for markets? How do
Speaker 2: you understand the situation right now, not just where the
Speaker 2: European Union is concerned, but more broadly how the Trump
Speaker 2: administration is dealing with these various trade negotiations.
Speaker 4: Yeah. I think indeed, if you look at kind of
Speaker 4: a broad set of things going on, it's it's quite
Speaker 4: a lot. I mean, they try to negotiate with eighteen
Speaker 4: key kind of trading partners, but also I mean there
Speaker 4: are a lot of other things line up for them
Speaker 4: to sort of try to make a deal as well.
Speaker 4: And I think if we kind of roll back in history,
Speaker 4: twenty eighteen was actually a very very good playbook for
Speaker 4: kind of understanding or sort of I guess, of putting
Speaker 4: a framework as to what's happening so if you kind
Speaker 4: of remember twenty eighteen, we also had a sort of
Speaker 4: a trade short, short term trade war between US and
Speaker 4: China in the last quarter of twenty eighteen, and the
Speaker 4: market actually found it slow on December twenty fourth of
Speaker 4: that year, And similar to kind of what's happening right now,
Speaker 4: I think initially, I mean, Trump tries to put out
Speaker 4: a very very forceful kind of ask and they try
Speaker 4: to negotiate down from there, and of course during the
Speaker 4: negotiation it.
Speaker 5: Was also very very messy.
Speaker 4: There was a lot of back and forth, and I
Speaker 4: mean one of Trump's tactics that he likes to use
Speaker 4: when he's trying to make deals is he walks out
Speaker 4: of the room at the last minute. So I mean,
Speaker 4: I wouldn't be surprised that if Trump is kind of
Speaker 4: deployed some of the similar tactics. But I think we
Speaker 4: have to remember that, I mean, Trump is not a
Speaker 4: person without constraints, right He being the President of the
Speaker 4: United States, of course have a lot of power, but
Speaker 4: at the end of the day, he needs to answer
Speaker 4: to the median vota, and also he needs to kind
Speaker 4: of realize that there are economic constraints as we've seen
Speaker 4: just very very recently with bond yields.
Speaker 2: So you mentioned the backup that we had in US
Speaker 2: treasury yields last week. There has been a debate, as
Speaker 2: you well know, in the bond market about the extent
Speaker 2: to which these tariffs may be inflationary. But for the moment,
Speaker 2: what seems to be driving a lot of the price
Speaker 2: section in the bond market is the concern over the
Speaker 2: government's ability to continue to cover these massive budget deficits.
Speaker 2: Are we going to be in a world now until
Speaker 2: this tax bill has been signed in the law where
Speaker 2: there's going to be a lot more volatility in the
Speaker 2: bond market.
Speaker 4: So at the beginning of the year, we put out
Speaker 4: our twenty and twenty five outlook and the title I
Speaker 4: use was FAT as the New Normal FAT And the
Speaker 4: reason why I use FAT. F stands for Fiscal dominance,
Speaker 4: A stands for AI, T stands for Trump, and it's
Speaker 4: basically I think these are three forces that would drive
Speaker 4: markets for quite some time, and not just this year,
Speaker 4: but perhaps I mean for the rest of the decade
Speaker 4: to come. And in terms of physical dominance, when we're
Speaker 4: seeing a lot of that happening, and I think if
Speaker 4: you look at that the US treasury yield.
Speaker 5: Of course it's in spiking.
Speaker 4: I mean there's a lot of kind of I think
Speaker 4: US centric concerns, but also it's not just a US story,
Speaker 4: right if even if you look at the Japanese long rates,
Speaker 4: I mean, these are at historical highs. So I do
Speaker 4: think that there is a reflection of the market's concern
Speaker 4: on the fiscal deficits for governments or across the world,
Speaker 4: and sort of the I guess the return they demand
Speaker 4: from holding a lot of these sovereign debt is increasing
Speaker 4: because of the long time concern on the sustainability of
Speaker 4: these debt levels.
Speaker 5: So I think again, if you look at.
Speaker 4: Kind of a as a classes during this past a
Speaker 4: few months of trade war concerns, you can see that
Speaker 4: actually bond is the weakest link. And I think if
Speaker 4: you kind of ask around of as allocatus a few
Speaker 4: months ago, I think very very few people would have
Speaker 4: predicted that. I mean, actually, I mean bond is even weaker.
Speaker 4: It's even kind of more concerning than that equities.
Speaker 2: So we've talked about the f fiscal We've talked about
Speaker 2: the t Trump, let's talk about the A now artificial intelligence.
Speaker 2: We get the Nvidia earnings after the closing bell on
Speaker 2: Wednesday here in the US, Bloomberg data showed that revenue
Speaker 2: from that core chip business is forecast to rise over
Speaker 2: the next four quarters. But a number of analysts are
Speaker 2: now beginning to talk about how the trade pressures could
Speaker 2: put in Vidia's guidance at risk. Do you think that's
Speaker 2: a fair criticism or at least a fair warning.
Speaker 4: Yeah, I think that's if you look at invidious revenue mix,
Speaker 4: I mean, the significant part of that does come from China,
Speaker 4: and of course, I think over the years, I mean,
Speaker 4: they have tried to kind of I guess more of
Speaker 4: their business in order to get rounds of these regulations.
Speaker 4: I think indeed, I mean this morning, we're seeing that
Speaker 4: they are gonna adopt a lower kind of power version
Speaker 4: of the GPUs to be able to sell to China.
Speaker 5: And I think that.
Speaker 4: I mean, of course, for the past two and a
Speaker 4: half years, I mean, a video was sort of the
Speaker 4: only story in te right. If you look at the
Speaker 4: phases of AI development, I mean, the first kind of
Speaker 4: obvious phase or the first obvious traits are buying chips
Speaker 4: and training of the large language models. I think I
Speaker 4: do think that apart from the regulations. I mean there
Speaker 4: are some of the more structural movements or moves away
Speaker 4: from this phase one that I mean we're now kind
Speaker 4: of entering phase two.
Speaker 5: So I mean what is phase two?
Speaker 6: Right?
Speaker 4: If you look at the l ms, I mean a
Speaker 4: lot of them are already quite commoditized. They are very
Speaker 4: very powerful already with kind of the lms more stabilized,
Speaker 4: like stabilizing in the developments. I mean that actually enables
Speaker 4: application developers to be able to make use of these
Speaker 4: lms to develop a lot of different use cases. And indeed,
Speaker 4: if you look at the within the equity markets, I
Speaker 4: mean what's leading in this round of rebounds is a
Speaker 4: lot of the so called AI first software companies, right,
Speaker 4: companies like appalenteer companies like Spotify, even like do Lingo,
Speaker 4: and a lot of these companies that are actually realizing
Speaker 4: the benefit of AI in the business, either from the revenue.
Speaker 5: Side or the cost site.
Speaker 4: I mean, these are sort of the leading pack in
Speaker 4: this round of rebound.
Speaker 2: I'm curious to get your take on how you expect
Speaker 2: AI in China to advance, at least over the near term.
Speaker 2: Reuters was reporting that in videos planning to launch a
Speaker 2: new AI chip especially for the Chinese market. Do you
Speaker 2: think that is going to accelerate the chain in Ai
Speaker 2: in China that they would have perhaps a little bit
Speaker 2: more advanced technology.
Speaker 4: The key devolvement in China, I think has been that
Speaker 4: the of course, we had the deep Seek moment, and
Speaker 4: it shows us that, I mean, the Chinese technology companies
Speaker 4: can can do quite a bit of things with limited resources.
Speaker 4: But I think what I guess more importantly is that
Speaker 4: the because of the I guess, the restrictions that Trump
Speaker 4: has put onto exporting technology to China, it forces China
Speaker 4: to really I mean think about and invest into his
Speaker 4: own technology stack. And if you look at companies like Huawei,
Speaker 4: right they I mean they already possessed quite a bit
Speaker 4: of good technology, and I think the Chinese government or
Speaker 4: kind of Chinese companies is going to double down that
Speaker 4: just because of security reasons. Right you don't know when
Speaker 4: I mean the US is going.
Speaker 5: To restrict.
Speaker 4: Exports of chips or various other kind of important technologies.
Speaker 4: And I think what the Deep Seat moment shows us
Speaker 4: is that, I mean, China is not too far behind.
Speaker 5: And I think Nvidia.
Speaker 4: Is announcing this kind of news chip because they realize
Speaker 4: that fress all right there for it perhaps is not
Speaker 4: so much AMV or other chip companies, but really like
Speaker 4: Chinese companies like Huawei.
Speaker 2: Okay, we'll leave it there, Stephanie. It's always a pleasure.
Speaker 2: Thank you so much. Stephanie Lyung. She is the CIO
Speaker 2: at Stashuay. Joining from Hong Kong here on the Daybreak
Speaker 2: Asia Podcast. Welcome back to the Daybreak Asia Podcast. I'm
Speaker 2: Doug Chrisner. We go to Japan next, where shares and
Speaker 2: Nippon Steele are trading higher in the Tokyo session. This
Speaker 2: comes after President Trump said he will back up partnership
Speaker 2: between the Japanese company and US Steel. We've got reaction
Speaker 2: from Kurt Tong. He is managing partner at the Asia Group.
Speaker 2: Mister Tong spoke with Bloomberg's Paul Allen and Heidi Stroud Watts.
Speaker 7: US Steel Knipon Steel deal details are scant, a little
Speaker 7: bit confusing here, but at least can we say that
Speaker 7: this is a good i'mon ahead of US Japan talks.
Speaker 8: It certainly establishes positive momentum going into this next month
Speaker 8: of negotiations. It's also a very interesting signal that the
Speaker 8: Japan side is thinking of trying to finish earlier rather
Speaker 8: than later. As you know, there's an election coming up
Speaker 8: later in July, and the Japanese government really needs to
Speaker 8: have a positive outcome in this negotiation to set up
Speaker 8: for that election or punt the entire negotiation until after
Speaker 8: the election. So I actually think this is very very
Speaker 8: positive news for the atmosphere of the negotiations, for the
Speaker 8: level of trust between the two sides. But it still
Speaker 8: comes down to a game of chicken over the automobiles.
Speaker 7: Tariffs and perhaps currency as well applays a factor here
Speaker 7: as well. We heard from the Finance Minister of Scott
Speaker 7: Basin last week saying, look, let's let the market handle
Speaker 7: the currency. But is the end just always there in
Speaker 7: the background.
Speaker 8: I think it's in the background, and the japan side
Speaker 8: interestingly has waived that flag a bit as well to
Speaker 8: remind the United States that it's a mutually beneficial and
Speaker 8: potentially mutually destructive relationship in the financial markets. At the
Speaker 8: negotiating table, I believe the two sides, just as they've indicated,
Speaker 8: pretty much decided to set that aside as a negotiation item.
Speaker 1: Negotiations with the TPP feels like, you know, millennials ago, right,
Speaker 1: But that was so much concentrated on the monutier of
Speaker 1: trade clauses. What kind of deal do you think do
Speaker 1: we end up getting? Is it sort of more on
Speaker 1: the vibe as we've seen with some of the other
Speaker 1: trade deals that have been tentatively agreed between the US
Speaker 1: and its trading partners. Do you expect a fair degree
Speaker 1: of actual substantive detail.
Speaker 8: I think there will be some substance on trade barrier reduction,
Speaker 8: and agriculture has been mentioned, and as a clear point
Speaker 8: of contention, there are some non tariff barriers around automobiles
Speaker 8: which could be eased. The main thrust of it, however,
Speaker 8: is how much is Japan going to jump in and
Speaker 8: help Donald Trump reindustrialize the United States? And he has
Speaker 8: specific asks on shipbuilding and on the energy infrastructure, particularly
Speaker 8: Alaska gas that Japan is considering. But these are big,
Speaker 8: risky projects, very high ticket, extraordinarily risky, and so how
Speaker 8: they could participate in these sort of things I think
Speaker 8: is another really important topic of discussion.
Speaker 1: Some of those sectors are also quite domestically sensitive, right,
Speaker 1: how much you know we've seen kind of the success
Speaker 1: story for cgmping, for example, in holding that strong line.
Speaker 1: Does Japan and the government they need to do that
Speaker 1: to a certain extent or risk domestic further diminishing popularity.
Speaker 6: I think that's right.
Speaker 8: Well, they're going to make clear to the US side
Speaker 8: we can do this, we can't do that, and then
Speaker 8: help to use the timeline to their advantage edge in
Speaker 8: convincing the United States. Well, okay, that's good enough. We
Speaker 8: do want to reach a deal, we do want to
Speaker 8: move on. We don't want to have to raise retaliatory
Speaker 8: tariffs again. So the deadline's in a sense starting to
Speaker 8: work in Japan's favor. But again, I want to emphasize
Speaker 8: the crucial importance of the automobile's tariff. It's twenty five
Speaker 8: percent tariff could have a devastating impact on some Japanese
Speaker 8: companies if it's allowed to drag on for a long time.
Speaker 7: Let's talk more broadly about some of these other trade
Speaker 7: deals that are going on, because the US is trying
Speaker 7: to negotiate dozens within a ninety day period. I mean,
Speaker 7: normally free trade agreements take years to reach agreement on.
Speaker 7: Does this suggest to you that some of what's being
Speaker 7: achieved here is cosmetic for domestic political purposes and can
Speaker 7: some of these wins in due beyond the Trump p residency.
Speaker 8: This process has been excruciating for all of the partners
Speaker 8: working with the United States. That said, there will be
Speaker 8: some substantive outcomes which are mutually beneficial, some which are
Speaker 8: just complete concessions to the United States in order to
Speaker 8: get the deal done, and a lot of cosmetics. A
Speaker 8: lot of cosmetics will also go into this because the
Speaker 8: US side has now discovered that the tariffs can be
Speaker 8: a problem for the United States as much as for
Speaker 8: the counterpart, and that leverage reduction that is implicit when
Speaker 8: the President walked back a week after Liberation Day does
Speaker 8: really change the dynamic of the situation.
Speaker 7: If you're advising some of these other countries in their
Speaker 7: negotiations with the US, what would you be saying.
Speaker 8: Choose a few really interesting things, sell them to Donald Trump,
Speaker 8: dress them up a little bit if necessary, but they
Speaker 8: do need to be substantive at the same time, and
Speaker 8: then be consistent and sell them over and over again
Speaker 8: until you get across the finish line.
Speaker 1: The big focus is still on whether the daytone with
Speaker 1: China can be sustained. How do you feel about that?
Speaker 6: So Dayton's a great word for it.
Speaker 8: They have I agreed to talk, there's no agenda, there's
Speaker 8: no timeline.
Speaker 6: And both sides have reserved the right and.
Speaker 8: Are already exercising the right to continue to take action
Speaker 8: against one another on other issues technology controls, export controls,
Speaker 8: the Section two three to two tariff investigations. So what
Speaker 8: I expect is that this truce on the big tariffs
Speaker 8: will hold.
Speaker 6: The negotiations will take.
Speaker 8: A long time, and it'll be a very bumpy ride,
Speaker 8: with lots of ups and downs, action, counteraction, angry words,
Speaker 8: stretching all the way to and past the first meeting
Speaker 8: of the leaders, which I would anticipate taking place in
Speaker 8: the fall. I see two real milestones on this. One
Speaker 8: is the meeting of President Trump and mister she The
Speaker 8: other is the midterm election, where I think by the
Speaker 8: midterm election, President Trump needs to demonstrate that all of
Speaker 8: this effort that he's put into leveraging the size of
Speaker 8: the US economy has paid off, because the American public
Speaker 8: is starting to get skeptical about how this tariff strategy
Speaker 8: is working for them.
Speaker 9: We've talked a lot about the stickiness of tariffs and
Speaker 9: whether you know there are views that you know obviously
Speaker 9: the previous Trump administration policies, some which are still in place.
Speaker 9: But do you also look at the stickiness of what, say,
Speaker 9: Beijingia is trying to do with its outreach in terms
Speaker 9: of building those economics and soft and you know, harder
Speaker 9: power alliances. Do you think that's going to be something
Speaker 9: that extends beyond this administration?
Speaker 6: Absolutely?
Speaker 8: I mean this is a long term strategy for China. Now,
Speaker 8: the Belton Road was a piece of it that's now
Speaker 8: been refined, made less transactional, if you will, less focused
Speaker 8: on China's needs, and there's more discussion about trade agreements,
Speaker 8: about softer forms of investment and economic interaction, more digital,
Speaker 8: less infrastructure, and I would expect China to really continue
Speaker 8: to push that. And they have a bit of a
Speaker 8: tear win right now because of the distrust that's been
Speaker 8: engendered by the US tariff approach. That may be temporary,
Speaker 8: may last a little while, but I expect China to
Speaker 8: continue this effort to make friends and try to rally
Speaker 8: them against the United States for years to come. That
Speaker 8: latter part is harder because they don't want to burn
Speaker 8: bridges with the United States either.
Speaker 7: Can you see a scenario in which China joins the
Speaker 7: cp TPP.
Speaker 8: I think that it's not inconceivable. A couple of years
Speaker 8: ago it was close to inconceivable. I think Australia has
Speaker 8: a major vote in this. Japan has a very strong
Speaker 8: opinion about it holding the content of the TPP and
Speaker 8: keeping it high level penetrating liberalization. China is not yet
Speaker 8: ready to make the compromises necessary to meet those standards,
Speaker 8: but it's not inconceivable, especially as the Chinese onomy grows
Speaker 8: slower in future years, that they'll be more willing to
Speaker 8: revisit economic reforms that would qualify them for TPP.
Speaker 6: As an American citizen, I.
Speaker 8: Hope that the US gets its act together first and
Speaker 8: makes it in before that happens.
Speaker 1: Trump has a very unconventional approach when it comes to trade, right,
Speaker 1: He's not interested in looking at you revisiting FDAs and
Speaker 1: multilateral bilateral agreements. Does that make the structure of these
Speaker 1: agreements less relevant in sort of today's political atmosphere?
Speaker 8: It makes their outcomes less lasting? I think that in
Speaker 8: the short term they're highly relevant. For example, the Nippon
Speaker 8: Steel deal that you mentioned at the outset very significant,
Speaker 8: very positive realignment of the rhetoric around Uster Pan economic relations.
Speaker 6: But that's one episode.
Speaker 8: It'll be good for the relationship for a few couple months,
Speaker 8: but the structures are really important over time, and that
Speaker 8: unwillingness to commit the United States to lasting structures and
Speaker 8: the economic realm is a problem for the US. On
Speaker 8: the defense side, I think the US is still very
Speaker 8: much there, but the economic policy side, it's been absent
Speaker 8: from the table for over eight years now.
Speaker 1: Really great to have you with us, and great to
Speaker 1: see here is Sydney Koktong, who's a managing partner of
Speaker 1: the Asia Group.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg