Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. The uncertainty around those ever changing tariffs from the Trump administration has fueled the debate as to whether a global recession is inevitable. The head of JP Morgan Chase, Jamie Diamond, at this point,
is not willing to take it off the table. Diamond spoke exclusively to Bloomberg and said, there is still a lot of uncertainty, although some of it preceded the Trump administration.
We had large deficits, instur rates going up, inflation going up in summer, you know, tariffs and things, and of course the geopolitical situation is very tense, very difficult and hard to resolve.
Jamie Diamond there, the CEO of JP Morgan Chase, speaking to Bloomberg from the bank's Global Markets conference in Paris. In a moment, we'll be taking a look at the ev industry in China and preview next week's earning from expun We'll be hearing from Linda Leu, China auto reporter for Bloomberg News. But we begin this morning with markets and in the States, where the latest economic news was on the soft side and very much supportive of FED
rate cuts. Wholesale prices unexpectedly fell last month by the most in five years. Growth in retail sales decelerated notably, factory production fell for the first time in six months, and confidence among homebuilders slumped. So now, at this point, markets are betting on at least two FED rate cuts this year to prevent a recession. For a closer look, I'm joined now by Michael Green. He is the chief strategist at Simplify Asset Management. Michael is on the line
from here in New York City. Good of you to make time to chat with us. Michael, Where are you on the recession call right now?
So I lean towards what Jamie is reiterating, which is that we have to consider that the prospect of the economy slowing markedly and continuing to slow, given the disruption of tariffs, given the uncertainty around interest rate, and much more importantly, I would actually argue giving the now acknowledged deterioration in household balance sheets, where we're seeing student loan debt come on very quickly, We're seeing credit card delinquencies
and defaults start to rise. Dramatically. Auto repossessions and delinquencies are also rising. The evidence is very clear that at least the lower fifty percent of the US consumer is under tremendous amounts of stress that was largely camouflaged by the coverage that was provided. And when we decided not to collect student loans for example, now we're actually going in the opposite direction. We're beginning the process of garnishing wages, etc.
People cannot escape from this. It's important to remember that the combination of tariffs and the resumption of student loan debt, as well as the increase in reporting around things like buy now, pay later, are effectively forcing austerity onto a sizable fraction of US households. That can feel like caution, but it actually very quickly turns into they can't do what they want want to do, and that shows up as reduced corporate earnings, it shows up as reduced economic vitality.
Introduce even more uncertainty into that with only a ninety day pause around tariffs, and it really does feel like we are setting up for something that will ultimately be called a recession.
So a ninety day pause while the two sides, the US and China, negotiate. There is still a risk that some of the tariffs that are already in place will produce a higher level of inflation. Look at Walmart today saying that it will begin raising some prices. Is there the risk now that we could see a reacceleration in the level of inflation.
Well, I think there's absolutely a risk, but I think we have to keep it in context. Right, we've experienced largely goods deflation for the past two years. That is meant that the price of eggs has fallen relative to its peaks during the COVID component's, toilet paper has fallen, new car prices have fallen, et cetera. There have really only been two or three key areas that have sustained or accelerated pricing. Those would be things like insurance. To
a certain extent. Home prices and certainly the costs associated with homes, whether that is maintenance, insurance, taxes, etc. Have all risen dramatically and placed additional stress on us households.
But buying large goods has been a very good story from the inflation front for the past two years or so, and now that is coming under pressure at exactly the time that we're starting to see the services component, things like owner's equivalent rent or rent itself begin to turn negative, and so it's going to be a We're going to be skating a very very fine line. Those things that have helped for the past two years are going to
become less important. The things that have hurt us over the past two years are finally starting to get the catalysts to push the more negative. The net result is it's a toss up, and I think we'll probably see a little bit of inflation, but certainly nothing that strikes me as anything like what we experienced in twenty twenty and twenty twenty one.
Well, let's talk a little bit about how the FED may navigate this. Today we heard from FED Governor Michael Barr and he was saying the econ yes, HiT's on solid ground, but he added that terraff related supply chain disruptions could lead to lower growth and higher inflation. Kind of what we've been talking about a little bit. Where is the FED right now in your view and the degree to which we could see some sort of accommodation between now and the end of the year.
Well, I think it's really important to remember that when you introduce inflation. And I'm using that almost in air quotes. When you introduce inflation that is tied to tax increases, things like tariffs, et cetera, that's restrictive. It's not the sign of inflation that is being driven by excessive demand. It's being driven by costs that are being imposed upon the system. To raise interest rates or to resist cutting interest rates in response to that is beyond any economic
policy that I know. The FED itself explicitly addressed this, and it's twenty eighteen or it's analysis of the twenty eighteen teriffs saying the right answer is simply to have done nothing, to have allowed it to pass through the system. And I'm hopeful that they will do something like that. I think the FED, like many of us, though, is at this point so scarred by the transitory inflation, which it was. It was transitory in terms of the rate of price change, but it has been durable in terms
of the level of prices. And so we all look at the eggs that we buy, in the milk that we buy, and we recognize that we pay more for it. Now that has created effectively a scar or a scab that we just can't help but pick at and the
FED is unfortunately kind of trapped by that. They're very, very frightened that inflation could pick up again, even though forward looking metrics inflation swaps and in particular, long dated inflation swaps, have shown absolutely no sign that the market is trying to price in significant inflation risks.
So, to go back to the tariff story briefly, we know that the aim, at least articulated by the Trump administration was to reshore American manufacturing. Do you have a sense of whether this is going to be effective? Is it too soon to know given what you're hearing from the administration? And I know now the President is in the Middle East where he is trying to kind of drum up a lot of foreign direct investment into the
United States. But do you have a sense of whether or not this tariff policy is going to produce the desired outcome?
Well, again, I think you have to be very careful in terms of interpreting what is being used as press versus what is being used as an actual objective. With unemployment in the four percent range, with a very few Americans trained or desiring work, and in a traditional assembly line type framework, we're not going to see manufacturing, at
least in its traditional form. Come back. What we have provided is significant cover for items that are of national security importance to be reshored to at least be friendshored in terms of their underlying components, and equally important, I think it's it would be you would be remiss if you did not acknowledge that, for all the bluster and for all the headline about how terribly this was going for the United States, in this ninety day cooling off period,
China has accepted significantly higher trade barriers on its products into the United States and largely lifted restrictions and trade barriers and tariffs on products from the United States. So it's very hard to score this as anything other than a win for the Trump administration. We may not like the manner in which it transpired, but it does bring home the real heart of the message, which is, at the end of the day, when you are talking about
trade policy, the customer is always right. The US runs a massive trade surplus in goods with China and largely with the rest of the world. We run a significant trade surplus in services. Those in many situations, things like Google searches or AI searches, etc. Are somewhat irreplaceable chashki's
from China. We can figure out how to get by without them, right, most of the stuff that we're buying from China, Americans, if forced to economize and have one less potato peeler for a six month period, we'll probably figure out how to do it with a knife again. And so again, I'm not trying to denigrate the incredible innovation stuff that China produces, but the simple reality it's
the customer is always right. And the stage that we are in this trade negotiation suggests that that logic has played through.
One of the major developments that occurred during the President's tour of the Mid East his team working out with agreements for parties in Saudi Arabia to acquire tens of thousands of semiconductors used for artificial intelligence from both in Nvidia and advanced micro devices. Where are we right now in the global race for AI and has this visit by the President to the Mid East changed the landscape in any way? Well, again, I.
Would just emphasize that it's very early to know. Right, we know what we've been told, we know the articulation, the attraction of AI and surveillance hardware is incredibly attractive to many of these governments, so I'm not the least bit surprised that they're very happy to increase their spend in these areas. But the simple reality is that AI
is somewhat the real deal. I will tell you from a professional standpoint, I have flipped a massive amount of the time that I would have spent doing Google searches or traditional data analysis using cell side research. Much of that has now migrated over to chat, GBT or to GROCK. If I want to seek out inflammatory positions or to perplexity with their clawed AI, I am increasingly using those.
I would suggest that somewhere around fifty to sixty percent of my search activity has been now replaced by various forms of AI utilization. And I liken it to having an almost unlimited number of first year analysts. Are they really smart?
Yes?
Can they be trusted to arrive at the right answer, right answer and have extraords nearly high quality work product? No, I have to manage them in that process. But it is an incredible revolution, and I think we're seeing both the combination of fear and recognition that this is a true revolutionary framework that is not significantly different than what we saw with the Internet. It's starting to sync in.
Michael will leave it there, great conversation. Thank you so much for joining us. Michael Green, he is the chief strategist at Simplify Asset Management. Joining from here in New York City on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. The Chinese EV maker Xpong is gearing up for its earnings report, and according to options data compiled by Bloomberg, Xpong shares may
move by nearly eight percent. Xpong, if you're wondering, is set to release results next Wednesday before the market opens. For a closer look now at what we may hear from this automaker. I'm joined by Bloomberg's Linda Liu. She is China autos reporter. She's on the line from Hong Kong. Linda, thank you for making time to chat with me. This is such a competitive space when you talk about EV manufacturers in China. How does x pun differentiate it self from the crowd.
So x Pung is a really interesting EV maker. It's been tilted as the Tesla of China because their advanced driver assistance technology that's similar to Tesla's FSD is considered one of the best in China, so they use that as a strong selling point to set themselves apart from the other competition, which can go from very affordable mass market models sold by BYD to a very upscale large family size SUVs sold by rivals like Neo.
There was recently the Auto show in Shanghai, and I'm curious about what x pun unveiled at that exhibit.
It's actually it was really funny at the Shanghai Auto Show because the object that stole the show was a humanoid robot that X Punk's CEO brought with him to the stage. And again you can see the similarity to Tesla there, who is also working on their own humanoid robots. So the robots took a walk around the stage. But the CEO, you know, also introduced new models for the company as well as projecting very strong confidence for the
rest of the year. Its sales have been on the roll is growing pretty fast and that's driven largely by a new affordable model called the Mona, which they launched last year. So the year ahead, I think x punk is very confident of a good performance to.
What extent is this company looking to markets outside of China. I'm thinking in particular of Europe and perhaps to a lesser extent in South America.
Yes, x said that they are ramping up global sales this year. They marked their expansion drive with a really big, glitzy event in Hong Kong where they invited media as well as EV owners to fly in from all over the world to see their latest flagship MPV, which is a luxury minivan launch. X Pong is going to start localizing production in Indonesia this year, and they said they've
also set up operations in Germany. Obviously, Europe is going to be a very important market for them because it's a market where they're very friendly to evs and has the spending power. Latin America is definitely another place where x pong is working to expand into, but they are also going to face intense competition there because other Chinese EV makers like Byd as well as another automaker called
great Wall Motor, already has factories in Brazil. So x pong is also going to have to contend with a lot of competition globally.
When I think of some of the Chinese EV makers automakers generally speaking, I think about the degree to which the smartphone has been integrated into some of the designs. Is that the case very much with x Pong.
Yes, x Pong has a very i would say advanced entertainment system in their evs, although I will have to say that's becoming very common amongst Chinese evs. So not only x Pong, You've got an actual smartphone maker, sell Me that has entered the industry their first EV that s U seven are sold really well, and that just shows how fast the Chinese market is kind of adapting to this changing, changing case. You've got customers are very
open to technology. So now cars are not just I guess, the transportation tool that takes you from A to B, but people now also expect to be able to look up their roots on a very large screen mounted on the dash and be able to talk to their car as well as watch movies because some of these cars have theater screens installed. So yeah, the pace from Chinese customers are very tech focused.
When you and I have spoken in the past about the EV market in China, one of the issues has been over capacity or certainly a crowded industry to the extent that we may see even more consolidation. Is that still the case right now?
Yes, you're right, Doug, So over capacity is still quite a big issue for legacy automakers, especially foreign joint ventures. You've got companies like the Japanese automakers Toyota, Nissan, and Honda, as well as American ones GM and Ford. Are they facing slumping demand in China? They are trying very hard to come up with new models that probably fit more
to the taste of Chinese customers. We also saw Toyota announce a new EV factory that's for the Lexus brand in Shanghai, So you see they are trying to grow EV capacity, but that means they are going to have to slash internal combustion engine capacity, which just is not selling well these days.
What do we know about the research and development that x pund has undertaken, maybe for something like a flying car. Is that a reality?
Yes, x PUND is very confident about rolling out their flying car. It's more of a like a package. They have kind of a package where you have the flying car part that also lands onto a land vehicle. So for this product, they are expecting mass production within the next couple of years, and they're hoping that with regulatory approval also coming online, they'll be able to sell this to the mass market soon. And so we're watching this space closely as well, because xpongs not only not the
only company exploring this new type of technology. Other automakers like another Guangzhou based automaker called GAC is also working on their evy toll slash flying car. Another area of research that x poem is focusing on is their own
chip development. Given how much geopolitics is impacting the auto supply chain, expunks that they are hoping to launch their own AI chip and start fitting it into the evs, So hopefully with more of bringing more of these technology in house, they can minimize the impact to their supply chain from geopolitics.
You mentioned a moment ago that expectations are that we will see pretty strong sales from x PUNK. I'm curious about the extent to which the government may be trying to stimulate demand for evs to an even greater extent. Is that happening, Yes.
For the second year, Chinese government has extended ash cash for Clunker's scheme where buyers who purchase qualifying evs or even fuel efficient gasoline cars may qualify for a subsidy of up to twenty thousand yen. That subsidy has been a key driver for maintaining EV sales because a previous
subsidies scheme ended in twenty twenty three. So I think the government probably will extend our programs like this in the future to try to keep up consumption because the economy slowdown is weighing on sentiment in China, so we expect support to continue from the government's.
Linda, thank you so much for helping us preview the earnings in the week ahead from x punk. Linda Liu is a Bloomberg China autos reporter joining from Hong Kong here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg,