Bloomberg Audio Studios, podcasts, radio news.
This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis along with Doug Krisner. Join us each day for the stories making news and moving markets in the Asia Pacific. You can subscribe to the show anywhere you get your podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.
Today, President Biden and Chinese President She held a call earlier there first since one on one back in November. Let's take a closer look now with Bloomberg White House correspondent Michelle jem Risco, who joins us from the District of Columbia. Good of you to make time for us.
Always say thank you guys.
So at least they're talking, right, I mean, what do we know about what was said in detail?
Yeah, at least they're talking is the key here. I mean, this call was more than four months in the making. Really started where they finished off in November at Woodside in California, talking about the meaning of actually maintaining communications, especially at the leader level. So they had a laundry
list of topics. In fact, it was only after we got readouts from both sides, from the US side and from the China side, And of course those are a little bit different in terms of interpretation of how the meeting went, the priorities. But it was only after all that that I, you know, put on a piece of paper. Okay, here are the ones the issues they talked about where there are areas of cooperation. Here are the areas where there are attentions. And really the lists are similar in lengths.
I would say the weighty ones are more on the tension side. They talked a lot about tariffs and export controls. The China side thinks that there are so called endless restrictions on tech sector from the US. Their data security concerns of TikTok came up, as you mentioned, election interference, and then a range of geopolitical issues South China Sea, you know, support for Russians defense industrial base, that's really
concerning on the US side, Taiwan, Hong Kong. I mean, the list goes on and on cooperation side, I mean they're looking to kind of advance some progress out of those meetings in California and the fall, especially on combating sentinel and drug trafficking.
Then yeah, let's talk a little bit more about that, because I think the state media in China is actually portraying this as a kind of conciliatory stance taken by President She not with a lot of examples of it, but it seems like it's in contrast to what we heard before. And in fact, the People's Daily also called for improved tie. So that's the general thrust. What would the you know, if we had, if we had, let's say, a softer, gentler communist party, what would the US most like to see here?
Well, I think they would most like to see you. Top of the list in terms of cooperation is that further progress and drug trafficking. They've talked to the US, Asians talked about wanting to see more cooperation, further signs that Chinese are cracking down on drug producers and what they call precursor chemicals to fentanyl, which of course is is coming in to Mexico and then and coming over the border. And so that is that was high on the list of November and remains high on the list
in terms of trying to find ways of cooperation. I think there also one burseoning issue which is really interesting is artificial intelligence risks. Now we saw a resolution of the UN approved last week that was co sponsored by many countries, over one hundred countries, including China, but was written by the US, and it was all about just
kind of finding ways to share information around AI. Not so popular a discussion when you're talking at the same time about the US trying to restrict data security issues and finding many reasons to restrict data going into China from the US and trying to protect American data as they see it.
So, Michelle, from what I understand, the White House also hinted at a pending decision on tariffs. I mean, what do we know about this? Are there areas of specificity?
Yeah, that is a tricky one, Doug, because that is something that we have been waiting for on the heels of some other announcements they've made around data security and
Chinese cranes and other issues earlier this year. We have been waiting for those potential revisions to what they call the three oh one tariffs, the tariffs that were put in under in the Trump administration, and the read has been for quite some time that we don't know when it's coming, but that we do expect the Biden administration to maintain those tariffs and maybe even enhance them in some way, and sort of they've signaled that they want to kind of update them for the next generation, to
kind of put finer points on certain areas of tariffs that will kind of match the US goal of trying to counter China's tech issues and trying to protect again data security for Americans.
So we don't know.
We know that it came up the White House booksman John Kirby today and the briefing was saying the three oh one tariffs did come up, but or excuse me, they did not come up. I'm getting confused with the TikTok issue.
Yeah, did.
They did talk. Us did talk in broad strokes about the needs to kind of keep up some of these tariffs and export controls, which, as I say, was not of course popular with President she at this time.
You must have been reading my mind because I wanted to ask you about TikTok. I know that we can't know. We all wish that we could fly on the wall in those discussions or on the phone call between the two. I mean so many things. It's hard for China in a sense to agree to what the US wants. I mean, China simply cannot come out and say, Okay, well we'll go slow on tech development. You know, you wouldn't expect them to say that it's impossible, and on TikTok, you know,
to sell it. It seems like a tall order. I mean, what do you imagine they discussed about TikTok?
Yeah, I think this one is more kind of a reiteration of positions they talk a lot about. Okay, yeah, we know we disagree on things like Taiwan, and we know we disagree on things like TikTok, and we know we disagree on you know, how much the US might try to apply export controls and China from the other side, and both sides are angry at the other on those issues.
But they do see value, the Biden administration says in at least explaining yourself, you know, and we've heard this from National Security Advisor Jake Sullivan, that they should be able to He talks about having a sustainable China policy is about holding multiple truths at the same time and
working to reconcile those truths with the other side. So they see value in sending cabinet officials over to Beijing consistently and explaining what's coming, even if what's coming is then a hit on nose or in the form of export controls or something else that might restrict China's economic rise in some way.
Yeah, and from a president chief's perspective in the background, the fact that President Biden is facing re election and wonder if that was kind of suggested in any way, Joe, I wish you the best or whatever was said, Michelle, Thank you so much, Bloomberg White House correspondent Michelle jem risco us as we took a close look at the phone call today between Presidents Biden and She, their first
since November. Let's get to Singapore next in Our guest is Mark Cudmore, Bloomberg m Live Macro Strategistics focuses on the foreign exchange rates markets, and we're going to talk about what we heard today from two Fed officials who happened to be voters on the Monetary Policy Committee at least for this year, and they are still, my friend, expecting three rate cuts in twenty twenty four. What is very interesting, Mark, is that the market seems to be
expecting fewer rate cuts than the Fed. Why do you think we're getting this disconnect?
Well, I just find that both the markets and the FED just ridiculous. At the moment. There's no way we're gonna get three right cuts. The economy is way too strong. There's no justification for any rate cuts at all at the moment. The only way you're going to get right cuts is if you have a severe deterioration in the US economy. And I'm just not saying it's going to cause that at the moment. I know that the FED is desperate to cut, and that's fueling part of the problem.
They kind of gave that signal December. I feel they repeated the twenty twenty one policy error. You know, Jerome Powell made very clear that despite the former rhetoric, he basically wants to be Arthur Burns not Vulcar, and he wants to fuel another inflationary bubble. So that's what we got through the December message. He reiter around that in March, and I know they're inclined to try cutting one. Maybe they'll get away with one before they'll be proven what
folly that is, and I'll say something else. Not only do I think it's very unlikely that we get more than one rate cut, if we even get one, but I think it's more likely. I know it's the extreme that we'd end out getting one hundred and fifty rather than just fifty. And what I mean by that is the only justification for getting more than one rate cut, if even one, is because you've got a severe decline in the US economy, in which case the Fed will be panicking and cutting rights stratigally.
We would possibly be cutting grades not because of strong economic growth or lack of it, but more because inflation is coming down. And you have to admit mark the PCE numbers that the Fed looks at most closely do have a two hand all two point five and two point eight percent, And with the FED funds rate at five and a half percent, does it not have a little bit of room to move to the downside? Your answer, right no is no.
So is that PC that we're celebrating has come down to this level. It's still above target, I think importantly, But not only that, we know that we're through the disinflationary way from base effects, so we always knew that inflation was going to come much softer into the first quarter this year, which is part of the reason why the FED was hoping to be able to cut rights. We've now kind of reached near the end of that trend, so base effects will start being less supportive for this
disinflation trend. And now we got oil prices way higher, and we've got a strong economy that seems to be reaccelerating. So now the answer is most definitely no. I mean, like, this is where we're we if we're not at the trough in a in core PC where we're pretty close to it, and it's where with the trough, member is still where above target. So this is an economy of just saying, hey, wait a second monetary policy is still too loose, so why would you ease it further? You need to tighten it more.
Well, can you help me understand why or what may explain the heads inclination to want to cut And I'm wondering whether or not it's something underneath the hood here, something in the market where they're trying to stay true to that course as a way of alleviating stress down the road, somewhere in the credit market. Is that possible?
Yeah, yeah, So I think there's a there's a few expansions. It's a great question. So I think there's a few expansions. Let's let's go to that. The eleph of the room, not of people think that there's politics involved in this, maybe maybe not. I don't have enough to spec I ignore that. But then there's two other issues. I think There's one is you know where they were at the
economy and it fairness to them. I think that a lot of the metrics for judging the strength US consumer have been completely broken in recent years, not just because the pandemic distortions, but behaviors changed, and then we all these have these buy now, pay later models, which means that the metrics are used to would say that the consumers should have fallen off a cliff around the start of this year end of last year, in which case
the FED should have been worried. But the consumer has clearly not fallen off cliff and the economy is still very strong, so that's not come through. So I understand why they might have been worried, but they should now change their mind. So I understand why they did the conversation in December, but it's time to now change their mind in that. And the final thing is are they worried about a credit crisis? Are they word of commercial real estate maybe, but I'm just not saying that it's
being systemic. Yeah. Sure, it's gonna be problematic for certain regions, certain regional banks will suffer. But you know, there's thousands of banks in the US and they are far too many, so I think some regional banks can sadly go and it won't be systemic.
So, Mark yours is a very bullish view. You're quite bullish on Yeah.
I look, since the December FED. I think the December FED was just was mind blowing. I did not expect it. I actually wrote a piece that day going there's no way the FED will repeat the errors of twenty twenty one by being super dubbish while reiterating economic ecoptimism. I said, the only reason they could be ubbish is because they express concern about the economy, and instead they were like, we think growths fine, and yet we still want to cut and therefore.
But a brief reason, Mark Bush, you're bullish on the economy. Clearly are you bullish on stocks here?
I'm not even super bullish and the economy. I'm very bullish stocks globally. I'm always less excited about US stocks incorrectly so, clearly because they always keep on out performing. I just think because they're more expensive, but look, I wouldn't. I'm bullish stocks everywhere. I just think there are better opportunities elsewhere. I've said that before and been wrong, but I'm very bullush stocks everywhere Sincember. I don't think the economy is is. I think the economy is perfectly fine.
But the point is is that the economy is saying we can cope with the level of rates the moment, and therefore earnings aren't going to suffer. The consumer is going to keep spending their markets still strong, companies are still going to make a lot of money. So yes, stocks, I'm very bull of stocks from a macro point of view for a good while. Yeah, I just do not anything on the horizon to change that.
So I was going to ask about strong dollar week in and possible intervention on the part of the monetary authority in Japan, but we're out of time. We'll have to save that for later. Mark, it's always a pleasure. Thanks for making time for up. Mark Cudmore Bloomberg m live macro strategist. He focuses on the foreign exchange and the rates markets.
Well.
Joining us now is Michael Leon chief investment officer at Foundation Asset Management. So, Michael, we just heard about how strong economic news in the US is causing some concerns that will be higher for longer on rates. Is it such now that good news is bad news.
To certain extent. Yes, rising interest rates or higher for longer interest rates is a tightening bias for Asian equities. But havn't said that, you know, given the valuation is so low right now, you have two different driving forces behind it.
When you say two driving forces, what's the other one? I mean, if we can talk about higher US interest rates, what's the other driving force? Valuation? Yeah?
I mean, you know, I mean, for example, MS see China training eight times learnings for this year, and Japan about twenty five, Indian about twenty seven s and P five hundred and about twenty. So it's really about half of the evaluation of the major markets.
Yeah. Well, we always have overhangs in markets. Obviously we're worried now about higher for longer in the West. Here we've had policy has been one very deep consideration for whether or not you want to buy Chinese in Hong Kong stock. So how do you gauge policy at the moment, and you know, with valuations where they are, are you seeing a green light policy?
Impulse is the difficult one to judge over my thirty experience, I do not consider fig running policies will be in the investment strategy, especially given the longer term had wins of Chinese economy, you know, namingly, you know, demographics, probably the leveraging and so and so forth. So that's probably much longer driving force behind me. In the short run. I'm sure a policy going to come out here and there to support, but probably going to change the trajectory here.
When you look at the deflation story in China, I know we're going to get to the official inflation reports next week. Is this something that's going to be persistent? Do you think is China going to be dealing with maybe what Japan dealt with for for a very long time, beginning with late nineteen eighties.
Well, if I have a crystal ball, I would say yes to that question. The you know, I mean you would have volatility in the cpis in China. But the trajectory is, you know, demand is slowing people and aging propertly is more abandoned, you know, in supply, I don't think there're as a rush. You know, I fee will pay out prices because they think price is going to go up in future. Right, But given the situation we're in today, there's just no rush to buy everything today.
This is very interesting because you started off as saying that low valuations were a consideration, and yet when we mentioned one challenge possible challenge policy, you say, hey, they're even bigger challenges. You know, the demographics is one and the property crisis is another. So how do you actually sit on the line between bullish and bearish? Are you bullish or are you not?
Well, that's a very good question, Brian. At Foundation, we more of long short equity per se. There's always positives and negatives, especially given the headwinds we have in China. Actually stronger companies when we look at them, actually the holding up okay, But in this challenging environment you have many companies the weaker peers actually suffering a lot. So yes,
it's not our right bullish or parish. It's more of a where you see from a bottom up point of view, where you see the values and versus a company probably not going to.
Do You were talking a moment about volatility and I'm wondering whether you're attempted to abandon your role as investor and take on the role of trader and exploit that volatility and maybe make short term trades rather than investing for the long term. Is that Is that a viable strategy for China?
It maybe is a viable strategy from for the others, but not for us. We're bottom up fundamental guys. Our horizon is number in numbers of years rather the number of days. Well, for example, I mean, let's take a look at the EV right, I mean, yesterday show me is pre order was very very strong. Stock went up, but at the same time, I don't want to name names, but you know, the usual suspects. Some shares actually went down yesterday in the EV space. So the JET forecasts
for global EV demand is about twenty million globally this year. Okay, Sara seventeen million this year. But China alone the production capacity is twenty million. Okay, there's a massive oversupply on the horizon. In the end, there's an eguity investor. You prefer a business not only can sell well, and also can sell well at the good price, good margins, and in this environment, even the ev not everybody gonna be happy at the end of the day.
So, Doug, you know, Michael is very interesting because to my question, are you bullish or bearish? You know what his answer was, Yes.
I'm both.
Yeah. I mean he's really looking through the markets. And I find this other line here from one of your themes to be kind of intriguing. You like PCs over smartphones? Wow, lay that out for us.
All right, Again, it's probably come from the competition. A PC is not rocket science. I mean, during the COVID the global people work from home, a lot of PCs being bort during that time. But having said that, for the last two years wins row slump. It's a very cyclical business. Now we come out this PC cycle, replacement is coming in again or happening again for next one or two years, not only AI driven PCs, but just general piece replacement is coming in. For the smartphone. It
is very difficult because there are so many smallphone makers. Yeah, and for aipower smartphones, we're a little further out.
Well, that's interesting that you bring up artificial intelligence because we were talking a moment ago about this phone call that took place between Presidents Biden and ch earlier, and I think from the China side, just a little bit of criticism at the restrictions that the Biden administration has placed on access to some of this most sophisticated high
technology equipment. Do you think do you have confidence in China's ability, given the world that we're living in right now, to kind of cultivate its own high technology I want to use the term sector. I don't even know that that's right. Semiconductors clearly are going to be an issue and where AI is concerned, do you have confidence in China's ability to maybe create cultivate a homegrown semiconductor industry.
I have a confidence for China to do well in the traditional legacy notes, you know, the the lower attack semiconductions, the leading edge semiconductors. Given the restriction sanctions in place, that progress is being slowed. Eventually China might achieve that, but you know, maybe two x of the time.
You're going strong there on PC makers, you know, replacement cycle and all any that you favor.
Well, there are only three major PC makers in the world, right, Lenovo, Lenovo, now and HP take a pick. You pick, well, I'll think I'll take the first two.
Yeah, great. So you're long and short, so I want to know who you're going short. I will say the HP. Yeah, all rights. Thanks very much, Michael, Pleasure, a real interesting discussion. Michael Leong, Chief Investment Officer at Foundation Asset Management.
This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app