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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Trade negotiators from Washington and Beijing met for over seven hours in Stockholm on Monday with a name of extending a tear offf truce. More talks are set for Tuesday. US Treasury Secretary Scott Besson said an extension to the current pause is likely, but there are some key sticking points that do remain, and they include fentanyl related levies
as well as export controls on semiconductors. We got reaction from Andrew Bishop, Global head of Policy research at Signum Global Advisors.
I think the saraf truth is absolutely going to be extended. But the main reason for that is not so much because I think there's great progress being made on the substance of these talks. Rather, I think President Trump essentially realized back in April May that high tariffs on China just work because the impact on the US economy is too great and China has too much leverage in the form of its control over rare earths.
That's Andrew Bishop of Signum Global Advisors, speaking earlier to Bloomberg meantime, the dollar jumped today by the most since early May, putting the greenback on track for its first monthly gain this year. Now, the trade agreement between the US and the European Union is stoking concern over the negative impact of tariffs on global growth. You know, the next few days will be pivotal for markets. It's the busiest week of the earning season and it features big
cap tech. We've got the FED meeting on Wednesday, and on Friday the US jobs report. In a moment, we'll get some perspective from the Asia Pacific side. We'll hear from Mark Franklin at Menu Life Investment Management, but we begin here in the States. Joining me now is Vance Howard. He is the CEO also the portfolio manager at Howard Capital Management. Vance, thank you so much for making time to chat with me. So we've got the big earnings
this week, Microsoft, Amazon, Apple. How are you feeling about big cap tech right now?
I'm feeling very very good about big cap tech, Doug. I mean, you look at eighty three percent of reported so far, and I know we haven't have that many that have reported, but so far the beat has been quite quite amazing. They're beaten by quite a bit. Earnings are looking really really strong, and as you know, as you well know, earnings are what fuels a bull market.
A lot of the centers on artificial intelligence, and a lot of the analysts that I've been speaking with have pointed to the issue of capex spending as being critical to try to get a little bit more of a sense of the confidence that these companies have in terms of further spending in this AI revolution. Is that an important metric for you, cap X.
I think it's great. I think cap Tex is looking very very strong. It looks like they're going to make a lot of investment in that area. And I know and Trump was in DC either yesterday the day before and he signed a number of executive orders pushing AI and really get behind AAI over here. So you know, there's a lot of thrust with they have moving forward. So I mean, can't mean anything but bullish about it.
And you know, if you want to go deeper into AI. Unfortunately, I think that we're going to see some jobs that are going to go away, but I think you're going to see corporate earnings go up because I think you're going to see an additional efficiency that's created through AI.
There's been this cloud that's been hanging over markets for some time related to the trade war and a lot of these tariffs. Do you think we're a significant turning point right now as we approach that deadline of August first?
You know, I think this thing with EU was critical. You know, the fifteen percent tariff on the European Union, I think was a good deal for us. Actually, I think it's a pretty decent deal for them too. But you know, let's talk about terraces for a minute, Doug. Did you know that in June blast month that we had a twenty seven billion dollar surplus mainly due to terrists. That's the first surplus that we've had since twenty seventeen.
One of the things I want to talk about is the energy space here there in Texas, and I know that oil and gas typically is close to the heart of investors in Texas. And I'm getting indications now that the oil and gas equipment a supplier, Baker Hughes, is reportedly nearing a deal to buy Chart Industries. That's according to the ft and they cite a source saying that this would be a cash transaction worth something around thirteen
point six billion. How are you feeling these days about the energy complex?
I think the energy complex is very, very stable. I know in Euston, Texas, We've got an office down there, and I know that the friends of mine that are in the energy industry are pretty happy with the way things are going. I think been more stable than it has bollatile, which I think is actually creates a more secure environment for the energy dependent industry. And when you talk about thirteen billion dollars for a check from a Baker US, that's a pretty good sized check.
How are you feeling about this week's FED meeting? There has been some speculation that maybe a Powell and Company would feel the pressure to cut interest rates, but the market doesn't seem to be convinced to that fact. How are you understanding what the Fed may do this week?
This has been the most hated the recovery I think I've ever seen. I mean, it's just nobody's really buying into it, even though it keeps just slowly melting up. And I think it's going to continue to melt up. But when you look at the Fed and you look at what's going on, did you know that they had three of the governors that descended last time. So that's one of the few times ever that we've had that many governors on the FED board that had descended. So I think he's going to be under a lot of
pressure to start to drop rates. To be quite candid, Doug, I think he needs to start dropping rates. If he's truly data dependent, then he should start dropping rates here here in the near term.
Okay, So if we can accept maybe the notion that we'll get two rate cuts before the end of the year, don't you believe that's been fully discounted right now by markets at this point.
I don't, and I don't because I think that there's still a lot of speculation. Know, the FED keeps saying this word which really bothers me a lot, which is that there's no security, there's no surety out there. Well, there's never any surity out We don't even know if we're going to get up and live tomorrow. So to sit there and bank upon the insecurity of what's going
to happen next week or next year. The FED keeps saying that their data dependent, well, their data dependent, they should start to drop rates because things are pointing in that direction. I mean, we have a good economy, we have low ue employment. Things are working very well, corporate earnings are going up, but you know rates need to start to come down.
Okay, So does that mean that there are opportunities in the bond market right now?
I think there's a lot of opportunities, Especially if you look at the ten, twenty, and thirty year treasuries. I think there's opportunities there. I would be very cautious in trading them because they are incredibly volatile. You look at the ten year, the thirty year treasury dug and there's volatile as s and p if not more so so trading you know, the treasuries can be a little bit tricky. But you know what a lot of people overlook and
we don't. We've invested in quite a bit is convertible bonds. I think convertible bonds are really a nice investment alternative to some of the other bond areas that you can invest in, and we've done really well with the convertibles.
Help me understand the labor market right now, just anecdotally from where you sit in in Texas. I know we get the jobs numbers on Friday, Well, you know from Texas.
The economy here's doing very very well. I mean, we've set ourselves up for growth. We've deregulated quite a bit.
You know.
Governor Rabbit, I think's done a pretty darn good job with managing our state and managing our money. And you know, we just got out of session with the our state senators and reps, and I think that they come up with a pretty good budget that's going to do very very well for Texans. So I'd be very optimistic if I was an employee in this great state of Texas.
Okay, we'll leave it there. Vance, it's always a pleasure. Thank you so much for joining us. He is Vance Howard, the CEO also portfolio manager at Howard Capital Management. Joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. Equities across the APAC region are a little weaker off the opening bell after a flat session here in New York. The MSCI Asia Pacific gauge down about six tens of one percent
for its third consecutive day of weakness. This buoyant move from tariff deals seems to be running out of steam as investors turn their focused to a raft of key data here in the US. We'll get numbers on key inflation that the FED watches as well as employment. And let's not forget the FED meeting midweek. Let's get more on market action from the Asia perspective from Mark Franklin. He is Deputy head of Asset Allocation Asia for Manual
Life Investment Management. He spoke earlier with Bloomberg TV host Sherry On and Avril Hon on the Asia trade mark.
Is a busy week, we got the Fed, among the central banks, we got earnings. But just one of your thoughts first, what we're seeing on the dollar in the past day against the backdrop of these trade deals. Do you think this is short lived? Because some of our analysts think so.
That's a great question. Good morning. We've seen quite an underweight position built up in US dollars in the market by investors, and so there's a bit of an asymmetry now which could partially unwind in the short term, particularly
if the FED remains on hold. That the trade deal that the US and the EU have purportedly signed suggest that the US comes out of it much stronger and the ear a little bit weaker, and so that's created a bit of selling pressure on Euro assets, but the trend over the medium term still looks intact visa the weakening dollar cyclically, and if you zoom out, it's really effectively a reversal of the US dollar appreciation that we saw under the previous four or five years.
What about the feds path, What do you think is realistic to expect in terms of cuts?
The market's pricing at present is not unreasonable. I think we've got about one and a half cuts priced in between now and the end of this year, although next year's rate cut pricing about four to five times suggests there's a building sense of optimism that the terminal rate is meaningfully below where it is now. Clearly the Feder's move towards an approach of data dependency, and so we're really moving from one data points to the next. And let's focus on the non farm pay rolls that are
coming up. Surely that could be quite decisive for short term policy decision making.
Mike, how much is the trajectory of the Fed and expectations about what the central back will do affect the broader markets, because it seems risk sentiment is pretty strong in the United States, especially with profits coming up surprising to the upside.
The short onto is the market is not overly focused on the FED these days. Ironically, we're moving into more of a fiscal world, a world of fiscal dominance, and really it's about government spending and tax policy, which is the marginal driver of financial conditions.
What about when it comes to the rest of Asia, because we are now seeing earning season again and with some of these trade deals out of the way, what will move markets like Japan.
Japan's an interesting one because the earning season is likely to reflect a headwind from currency appreciation over the last few months, and at the same time as well, the domestic economic picture in Japan is one of anemic growth and somewhat inflationary pressures on costs, and so we're not overly positive on this immediate earth season for the Japan equities market. But clearly, if we move into a more persistent weakening of the end against it, even if it's cyclical,
that should help to arrest that momentum. The next time around.
We'll see momentum for South Korean assets. I mean, we had big influence from overseas. When it comes to the cost be now we're headed towards a potential trade deal. How much more will this help.
The election was also a major positive catalyst, with the starting point being that most foreign investors were pretty cautious towards career given the previous one or two years of political experience, So we saw a big rally post election. I think we're in a situation now where those gains are being consolidated, maybe some recycling of ownership of the market.
What we probably need to see from here is evidence of the government is genuinely focused on corporate governance, reform and supply side growth, alongside the prospects for progress on a trade deal as well.
Mark, help me get my head around this, because we are seeing terror levels lower than what was first feared, but they are still higher than prior to liberation. The markets are looking past is when do you think that tariff impair comes to bear and when does that kind of become a breaking point of sorts for markets?
Two points on this one. It's not so much about tariffs. It's the degree of uncertainty that market participants observe. And what we've seen is we saw a major spike in policy uncertainty in and around March and April given the Liberation Day shock events, and since then, policy uncertainty has actually come down and that's generally constructive for risk appetites. So even though tariff levels are settling in at a level that's meaningfully higher than where they were before, it's
the uncertainty index that really drives. And then the second point i'd highlight is there's still pretty mixed evidence over the extent to which tariffs are inflationary. We've still got disinflationary pressures on the services side in the US economy, and then on the good side, it's really set to specific particularly those sectors where they're running more shorter inventory cycles.
In the absence of that, there's still a limited amount of evidence that the tariff increases that have been announced so far have meaningfully changed the medium term inflation trajectory, and that's important for risk appetite as well.
That's interesting. So the jury is still out on tariff impact on inflation. But what are you seeing in terms of how it's potentially going to eat into earnings Because that's a bit one to watch as well.
If you look at the US perspective, actually earning season is tracking reads me well we have got a major set of announcements coming up in the next few days. But again going back to the point about currency, US dollar weakness has served as a nice tailwind for large cap US companies given the offshore earnings exposure. The second factor as well is that the uncertainty that I mentioned earlier from tariff policy that will eventually start to crimp
investment decisions by corporates in the US. But the investment decisions that are being committed now really were already made a few months ago before the tariff story became central to market development. So it's probably going to be a deferred reaction to the downside in that sense.
Now we'll have to keep watching.
Mark.
Thank you for your analysis. Good to chat. Mark Franklin is MD and senior portfolio manager, Asset Allocation Asia and Manual Life Investment Management.
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