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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner, US Markets whipsaud on conflicting signals as to whether President Trump was considering firing fed Share J. Powell, and in a moment we'll look at the Trump Powell controversy with Rich Mullen. He is the CEO at Palace Capital Advisors. But we begin this morning in the Asia Pacific. Joining me now is Ekaterina Bigos, CIO for Asia ex Japan Core Investments at AXA Investment Managers. Ekaterina joining from our
studios in Hong Kong. Thank you for making time to chat with me. So we had the monthly activity data for China earlier in the week and the figures on industrial production beat forecast. I feel like this is a story of Chinese exports, may be a little surprising in that I don't know how much it's a traf story. How are you viewing the Chinese export economy right now?
Well, I mean the Chinese explorer economy has done fairly
well through the spirit of uncertainty around tires. First of all, I mean it was the escalation and the escalation which I think was positive, but the key one was the redirection of the trades to Asian and a lot of it then from Asian actually ended up to be in US, so I think redirection, so that the escalation and the redirection has certainly provided easing on the impact that otherwise would have materialized if those didn't happen, right, So I
think that's ultimately led to China still driving the growth through the external part, which is the exports.
So markets have been dealing with the reality of this US terraff regime for a couple of months. Now. Are you surprised at how well economies and markets seem to be holding up?
I think they ultimately comes down to the point that I made earlier. I think the tire of delay, the front loading that we've seen from some of the US as well in other markets, and the transcripment, as I said, through other economies that part of it ended in the US, and just a general redirection for China and to other markets has obviously provided a relief but also has supported
the growth for US in economies. So that resilience and redirection that we've seen and certainly has benefited the US in economy then other theme that obviously has been present is the tex So tech is still alive and AI and development, which has led to increased demand for chips, which as in again is part of that supply chain for chips, which has provided resilience as gone to the
second part of the year. I think that element related to tire delay, the front loading and transhipment is going to wind down, but I think the tech team is still going to be present. But a combination of that with probably deceleration of the onshore demand will probably have a weaker growth in a broader Asia, including China. So the broader view for China and Asia is decelerating growth from here.
Well, I'm glad you mentioned the AI story because we've been getting indications that the American government has lifted certain restrictions export restrictions to some types of AI chips to the Chinese market. I don't know if this indicates maybe a little bit of movement in terms of overall trade negotiations, but what do you think it means for the technology industry on the mainland.
I think it's positive and we've seen already the sector taking that news in a very positive light, and I think it just gives China more room to advance in that technological the technological sphere, and ultimately I think is positive as well because US is using this as a way of negotiating and getting outcome from China to deliver
certain elements that are beneficial for the US. Again, the level of chips or the high performance of the chips that being allowed to be exported to China, They're not the highest performance level of chips, which again puts them still back and potentially advancing some sphere of that technological drive.
We heard recently from President Trump saying that he's likely to impose tariffs on pharmaceuticals as soon as the end of the month. Do you have a sense of the ramifications of a move like that.
Yeah, and I think some of the company is, particularly places like Singapore, stand to be impacted more India to a certain degree, and I think it could have ramifications for China. I think the broader pharma and biotech sector just as a spillover, but I think the manufacturing per se. I think the Singapore and India, I said the less degree are likely to be more impacted. But certainly those victorial tires we need to get prepared for. They will come.
Is a question of how they're going to get implemented, because the aim for the US is to reshore some of that activity back home, and it's a strategic move which is likely to evolve as we go into the second part of the year.
So Trump was also saying that he's recently reached a deal with Indonesia. Imported goods the US from Indonesia will face a nineteen percent tearoff. That seems maybe a little high relative to what the market may have been expecting. I think for Trump, what's more important is that US exports moving into the Indonesian market will not be taxed. How would you evaluate this deal?
I think ultimately is what is the perception of Indonesia. Did they get the good deal out of that? And the signs at the moment is that the Indonesian are relatively happy in how the deal was negotiated. And again, the previous tariffs would have been higher, so obviously it's
a desceleration from that. And I think if I had to covet and kind of broaden and canvas the trade negotiations, I think the market expectation is by enlarge that the tariffs that were voiced in the past, were the kind of the upper limit of it, and the majority of the trading partners will get a lower rate, unless, of course they they tried to impost tier from the US and again escalation of tit for tat, which we've seen
in case of China. But I think market is that's a positive sign because again the level is just lower to what it was voiced in the past.
I'm curious about the degree to which you're looking at the behavior of the dollar recently and guiding a lot of the decision making that you're having to confront right now. The dollar seems to have weakened a bit. I mean, we're strong over the last several days, but I think generally speaking, the trend has been to the weak side here.
I mean, talk to me a little bit about how you understand that, particularly in light of what the Fed may be doing between now and the end of the year, and how that's influencing your decision making.
That's certainly, I mean, if you look at the beginning of the year and the expectations that many cell side and by side put in place, certainly was dollar strengthening or dollar staying kind of range bound? The dynamics of the dollar. There's one point to highlight hasn't been uniform. It's not just a dollar weakness across the board. Is
dollar weakness against various economies. We've seen that against the Euro because, of course we've seen as part of the tariff's escalation is the uncertainty of US assets has been in the spotlight, so investors looked increasingly to diversify away from US into other markets, and Europe, despite DCB being ahead of the FED, was a key beneficiary of that
inflows also from Asia. What we've seen a trend that we've seen again materializing this year is that the hedging costs for Dollar assets is still prohibitive relative to European assets, and we've seen Asian investors starting from hedge bases and diversification need bases to move into assets away from US into Again, this is not a structural shift away from US, but this is a diversification drive that is materializing.
When you look at South Asia versus the Northern Asian economist, and I'm thinking principally of Japan and South Korea, what's the contrast here.
Yeah, the different dynamics that are driving those economy there's some Ultimately tariffs is again impacting both economies. But one part that is challenging for Japan at the moment, as we've seen, is obviously policy or fiscal policy, which has brought a lot of attention from the investors, particularly on the thirty year jgb's fields elevating higher. And again, what is Japan government conflicted with at the moment is economy that is emerging out of kind of this stagnation but
is not yet thriving. It needs a support, a support when the monetary policy is normalized and the fiscal policy does not have room, so they would have and they should use some element of support, but again the room is limited, and we've seen obviously the elections that are coming up in Upper House on the twentieth of July kind of putting a lot of pressure on the JGBS because of that need to provide additional fiscal stimulus, which again the room is limited. When it comes to Koreas,
certainly the dynamics related to tyres. Of course, tech is part of the theme that has kept career resilient. And in Korea what we had is a lot of political instability and also you can say by and large. Korea has a lot more fiscal room unmonitored room to support the economy, so slightly different dynamics macrodynamics between the two economies.
Ekaterina will leave it there, Thank you so very much. Ekaterina bigos Cio for Asia ex Japan Core Investments at Axa Investment Managers. Joining from our studios in Hong Kong. Here on the Daybreak Asia Podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. President Trump is denying that he intends to fire Fetcher J. Powell. Late this morning, a White House official told us the President was likely
to oust Powell soon. However, a short while later, President and Trump said he has no plans to fire the FED share and he said he was only discussing it in concept during a closed door meeting with House Republicans. So when the dust settled, it seems as though the market was looking through this episode as political theater. Nonetheless, the race is on to find a successor to Powell. We have learned that ANYC director Kevin Hassett is an early favorite. Here is Bloomberg's and Marie hor Dern.
This is someone that he would be willing to cut rates, and he's telling people inside and outside the administration that he would like the job. The President also said yesterday, which I thought was really interesting, that Scott Bessett is still an option, but he's not his top option because he liked the job he's doing at Treasury. And we've
been talking about that really for weeks. If the President was going to pull the Treasury secretary to move him over to the FED, this would create almost another problem and a huge hole for the president.
That is Bloomberg's and Marie hor Dern in the Washington Let's get some reaction to all of this now from Rich Mullen, he is founding partner and CEO at Palace Capital Advisor's Riches on the line from just outside Boston, thank you for making time to chat with me. What did you make of this whole episode today, Rich, I think we've got.
Some more gamemanship, quite frankly, I mean, we've seen this in the behavior out of Trump and the tariffs. I know that this is a far more dangerous game to be playing, but I really feel it's unlikely that Trump would fire the FED chair. I mean, we'd be extremely destabilizing to the markets. We saw that. When the announcement was out, I think the S and P dropped forty
or fifty points. There was a spike in gold, and then on the denial, all that kind of reverse then seemed to the market found a little solace in it. I think that, you know, Trump is not unaware that this would be an extremely negative event for the markets. You know, there's no secret that Trump follows the markets
very very closely. You know, if he were, you know, to fire the FED chairman right now, I think you'd see the gold sore, you'd see a massive spike in interest rates, and obviously it would affect the equity market. You know, I really kind of feel like this is the game that he's playing here is we've seen the dollar depreciate considerably. You know, there's it's kind of pick your adventure here watching the markets respond to Fed's to
the Trump administration's policy. You know, we're seeing this depreciation in the dollar, and Trump administrations made no bones about it that the weaker dollar is something that they favor. You know, is really supportive of the country's industrial fabric. It encourages exports, it may offset some of the damage that you know, the economy's feeling are potentially fearing, I
should say, from the tariffs. But I think it's a it's a remote situation that the FED that Trump would fire the FED President Powell right now, especially with ten months left in his term.
I mentioned that a leading candidate to become the FED share when Powell's term is over next to May, is Kevin Hasset, one of the President's longest serving economic aids. Are you concerned in a scenario such as that where maybe the Fed's independence would be at risk?
I am. I mean, I think, you know, appointing a dubbish successor, which I don't know whether you could label the Hazzard like that. You certainly could label him as perhaps you know, a shadow of Trump's you know, impact on the on the FED. But I think that would also have the same effect. It might not be as dramatic, but it would gradually continue to weeken. The dollar, bond prices would would I think, you know, yields would continue to rise, and certainly gold and would would also assume
it's a cent in that scenario. So I think you really have to be careful. I think that the the Fed's independence is paramount here and I think you have to rely on the fact that this is a pro business administration, and I think there's still a lot of gamesmanship here, So I think any sort of replacement to Powell has to be looked at, and I believe will be through that lens.
Nonetheless, if you look at let's say, today's PPI report, which kind of reinforces the case for FED rate cuts this year, I know that there's been some debate about the impact of tariffs and whether or not they will indeed be inflationary, But at this point where you said, is there the risk maybe that the FED is a little behind the curve.
I think it's a little early to tell, and I think what we need to see is some of this play out. I mean, we don't really know necessarily in my opinion, with the start and stops of the tariffs. You know, it's our opinion here that tariffs are you know, take typically two months or so to show up in inflation numbers, not seeing that in space certainly, and then a quarter or two to show up in the economy.
So you're right, I mean today, yesterday's PPI was a bit benign and certainly you know, lower than expected, but the CPI came in a little bit hotter, you know, at ex Food and Energy it was actually a little bit cooler. So we're not seeing the effects of tariffs play out, you know, certainly to the degree that people
had expected in the inflation numbers. I've been looking at the jobs market, you know, I've been kind of looking at We all know that this economy's consumer driven, right, and we're starting to see a little bit of slack and softening in the jobs market still though, you know, you can trast that with what the banks reported today. The consumers alive and well swiping away if you will, at cards delinquencies and cards card balances are up, at
delinquencies aren't. So there's a you know, a bit of a mosaic here of a lot of different moving parts, and I think it's a little early to draw some conclusions. You know, let's just talk about the market. You know, while it's trading at fairly fully priced, if not rich valuations, you still have Nvidio four trillion dollar company growing at sixty nine percent. Somebody spending money.
Yeah, most definitely. But you mentioned the banks. I'm glad you did, because some of this trading revenue data that we got today from the likes of Goldman Sachs, Bank of America, Morgan Stanley. That's very, very impressive performance.
Yeah, I mean you can you could tie that right to volatility. You know, if you think about the fact that you know, we started the year in the market in the s and P five hundred, you know, making all time highs in February, followed by our Liberation Day pullback of twenty plus percent, and then a subsequent bounce and now sitting again at new highs. All that plays a great music to the traders on the desk? Is that volatility? Is it really? I think enhances an exacerbased trading revenues.
We also had the fed's Page Book Survey today. Economic growth activity, according to the FED, increased slightly between late May and early June, but a level of uncertainty remained elevated, and that is contributing to this ongoing caution on the part of businesses. We're talking about the tariff story here.
Do you think it's an urgent matter now that the administration really needs to resolve these trade deals before things kind of progress further and maybe deteriorate confidence to a greater degree.
I really do I mean, I started off the conversation by saying that I think there's a lot of gamesmanship going on here. You know, I think, you know, the art of the deal right is seemingly in play every
single day with the with the current administration. But I do think that, you know, with this heightened level of uncertainty and corporation's failure to do any sort of long range planning, I think the longer that that goes on, I think it could have a you know, kind of a deleterious effect going forward, and maybe even a negative
feedback loop. I mean, listen, we're in the midst of earning season right now, and I think we're going to get some clarity on that as to what these companies are seeing, what they're able to do, how they're able to project going forward, and maybe some insight is to how they're kind of preparing or planning for this uncertainty.
Are you focused more on what's going on in the States or are you looking for opportunities offshore right now? Do you want to be diversified a little bit in foreign markets?
We've been moving up our allocation to the international markets. The national markets Europe in particular have had a prolific gain. And you know, you can contribute that to a bunch of different things, but certainly the effects of some of the trade policy or Trump trade policies, and also the mandate for increased defense spending that's going on over there. But I think you're seeing some of the trade policies
and the Trump administration policies play out in Europe. I think, you know, europe x age is up about nineteen percent, So I mean there's a market rally over there that we're attending to. Certainly in our allocations, we don't think it's a blip. We think it's somewhat of a secular move as a result of some of these policies taking hold over there. So that is certainly I think the focus of our portfolios right now.
Okay, Rich, well leave it there. Very good. Thank you so much, Rich Mullin. He is founding partner also the CEO at Palace Capital Advisors. On the line from just outside Boston 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 Chrisner, and this is Bloomberg.
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