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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. US trade policies will dominate the market's attention in the week ahead. You see the proposed tariffs on Canada and Mexico are set to go into effect on Tuesday, barring another last minute reprieve. And in a moment we'll check in with Todd Waalsh is the CEO and chief Technical Analyst at
Alpha Cubed Investments. First, though, a different type of geopolitics in London over the weekend, European leaders pledge to increase defense spending and to assemble a coalition of the willing as a way of securing Ukraine. Let's bring in Bloomberg's Mark Cudmore from our Markets Live team for a closer look. Mark Joins is from the Lion City of Singapore. It's
always a pleasure to have your perspective. I want to begin with the story on Europe because it's this move that we're seeing right now in the euro which seems to be a little counterintuitive, perhaps stronger against the greenback by around four tenths of one percent. What do you make of what's happening in the price action.
I think this makes sense in the short term for a couple of reasons. One is, we saw a little bit of sell off into the clothes on Friday. You've got a member that currency markets will still open when they had the Oval Office incident between Trump and Zlenski, which was seen as negative for Europe, and so there's already priced in that initial reaction, and then over the weekend there's there's signs that Europe is kind of going
to take the lead. And so this is offering the potential for a peace dividend for Europe, which would be positive.
But there's a couple of other factors here.
One is is that you know, this whole idea of peace dividend is reinforcing the idea that there's going to be greater defense spending across Europe, and that's seeing higher yields, and it's that yield support that is kind of providing extra support for the currency. In fact, if you look just at in straight differentials, your dollar should be a chunk higher and it's not. So it's actually lagging the
instrate drived move of the last few months. And part of that is that the market is still very short the euro that they're very worried about the long term structural concerns are in Europe, and those long term structural concerns are valid on a growth point of view.
But I think they miss two points, and I think they're worried that they're where.
They could be squeezed can significantly further over the coming months. One is that fiscal stimulus in Europe has been a big part of the missing picture, and if we suddenly get that, whether it's under the guise of defense spending, it is still an extra amount of spending in Europe that will be.
Positive to the region.
And on the other hand, we've got a longer term dynamic where at the at the margin, uh Trump's policies are eroding the appeal of parking so much of your reserves in the dollar, and this is the dollar is going to remain the world's reserve currency.
It's not being challenged.
This is not about the end of the dollars deserve currency or anything like that. It just means that you might want to slightly lower share in the US. And they're part of the reason the US is going to remain the world's reserve currency. Of the US dollar is because there is a good alternative, but one of the best alternatives out there is Europe, and it's perceived as being a safe place to park your money, and that
is only enhanced by the idea of fiscal spending. So I think you're a dollar short term, I don't have much conviction, but I understand why it's being helped by the news flow. I don't think it's counterintuitive medium term. Longer term, I think you're a dollar can go chunk high this year, and I think that's both from the squeeze of the euro shorts, but also because at this year I think will ultimately be negative for the dollar, but in choppy fashion.
It's interesting that you make that point. I think it's fair to say that market expectations for FED raid cuts have intensified. That's only going to remove support for the greenback.
Yeah, absolutely, I think you know, again, that's another widening of the rates differential. I think that the whole consensus narrative on what Trump's policies mean for markets have evolved significantly over the last couple of weeks. So I think a large part of people in markets kind of thought that ultimately to be pro growth and to be very pro dollar, and they'd be pro US stocks.
You know.
It was. It was a perpetuation of US exceptional in markets, and I think that's being undermined, and it's been undermined both from the market's point of view, but also.
The economic point of view.
I think there's a growing realization that the policies, whether wanted as some people believe by the administration or not, are going to be very much growth negative, at least initially now. They might ultimately longer term, in time for the midterms next year, be growth positive, but that's eighteen months away.
You can't trade off that right now.
Right now, the policy mix is definitely much more growth negative than people are anticipating, and we've yet to fully price that kind of change in consensus narrative.
So I mentioned a moment ago, proposed terrorffs on Canada and Mexico are set to go in effect on Tuesday. China will likewise be charged in additional ten percent terre of beginning March fourth as well. What's the outlook for the Chinese currency offshore right now? Given the trade tensions between Beijing and Washington.
Like kind of fine and boring, like ultimately you know, PBOC has the amor to control the currency as much as it wants. It's going for stability. You know, in a world where the dollar is appreciating, the yuan will always form other peers because it's controlled. In a world where the dollar depreciates, the yuan will underperform other peers because it's just been much more managed and kind of
lower beat it to the move. I really find it hard to understand what the short term dynamic is around China.
This week, you have the tarik coming in, which are obviously negative.
But China can cope better with this new tariff world than a lot of other countries because it's already readjusted a lot of its supply chains away, It's already kind of focused on the rest of the world, and it's other countries that have to kind of change their policies to in fact be more pro China. So in many ways that the whole tariff mix is actually China positive in a way, which is why you've seen Chinese equities do so well. And I think the structural story is
very very good for China. These are not Chinese stocks much, but Hong Kong stocks are still very discounted. Deep Seek is emphasizing that China will also get the benefits of the productivity boom from AI. It's not just for US stocks, and it meanwhile, they'd be discounted because they're perceived to
be out of that kind of that benefit. But the short term dynamic is very much dominated not just by the tariffanies, but also you know, we have this very important Chinese Congress this week, and there's high expectations for stimulus. They've repeatedly disappointed when there's been high expectations before. So I'm a little bit wary of the short term price section. But I think the structural story is pretty good this year.
Yes, indeed, it's the two sessions meetings that happened March fourth and fifth, and Premierly is expected to deliver a report on GDP that will probably include a growth target. Do you think it's going to come in anywhere near five percent?
Probably will, but it doesn't really matter, Like you know, no one really believes the exactly what's achieved, and you know, we'll probably get a number. I'd be surprised if it is above five percent because I think that you know, it's it's a GDP number, which just trending down more towards four percent, four and a half percent, and that's still fine. That's still faster than most of the rest
of the world. And you know, it's faster than the US, for example, faster than Europe, faster than most major peers. So I think even if it was a it was a GDP target of four percent, the markt would be massively disappo the short term and there'd be a real shakeout of kind of some recent bullishness. But ultimately I don't think that's too worrying a structural story if it's a sustainable four percent, and if it's a real four.
Percent, which I think a lot of people do have suspicions about.
Yeah, So the growth target plus the fiscal deficit obviously key focal points. Is it critical that Beijing step up and do more to support the economy or do you think leadership is content to have things move kind of sideways for the moment because there's so much uncertainty.
I think they are kind of content with a little bit aside it.
I don't know.
It's very hard to anticipate the short term thinking of the Chinese government. I think longer term it's easily because they think in long term ways, and what's been happening in the last four or five years is they add this just humongous debt bubble based around the real estate market, and they've done a very very good job of deflating that and taking the pain to set the economy up
for a much better place over the long term. Now they're not fully haven't fully taken all that pain yet, but there are long way through that process, and that's very impressive without seeing a class the economy. So I think that, you know, China, what they've done is they've gone they've premptively taken the pain over the last couple of years, probably another couple of years there to kind
of make their economy on a more sustainable basis. And and some would argue in fact, actually that that's actually what Trump is trying to do in the US, is that his policies are about, you know, definancialization of the US economy to make it more sustainable and make it more private sector based. So I think China are ahead in that process. It doesn't mean that they've taken all the pain, and I think they are willing to overall move slowly now.
The only reason I kind.
Of didn't answer your question very clearly in the first place, but whether they know that they want to kind of boost markets in the short term or are they happy to go side of it, is because I do think right now at the moment, they wouldn't mind a bit of a boost in context of all these tariff headlines and fresh tariffsman to coming in China, and so maybe it would suit them, especially with the Congress meeting this week, to have stocks do pretty well. So I'd be surprised
if they really disappoint this week. I just don't think they're gonna they're gonna excite the bulls.
Before I let you go, Mark, I got to get your take on the Japanese end, because over the last couple of trading days we've seen a little bit of weakness begin to build in. We've got about a one to fifty handle now against the greenback. I thought the general expectation here was that we're going to get right tightening from the boj Is there something we need to explore as to why the en is weakening ever so slightly?
I mean, really, it's just the dollar move.
Dollar's seen a powerful bounce at the end of last week, so I think it's related to that. I mean, dollar yen is still a chunk lower than it was a month ago. We are still going to get rate tightening in Japan this year, but there is another dynamic. I mean, this whole new tariff world is quite negative for Japan, and so the policy mix that's been proposed isn't great for Japan. That said, you know, I think it's really important that
the dollar is going to remain deeply volatile. The knee jerk reaction on tariff headlines will be dollar positive, and so we might get some of that this week. But I think ultimately the dollar will come lower over this year, and I think that as a result, dollar yen will also come lower. You know, people get very excited by the n side of the dynamic, and sometimes that is
really relevant. I think this year, the overall direction will be more importantly decided by what happens to the dollar, and I think that's down is.
The big data point that you're looking to this week, the employment report at the end of the week in the US.
Do you know what, I.
Haven't even got that far ahead in my own vision because it's so important what happens on tariffs, do they actually come through and in the reaction. So I think the tariff reaction and the Chinese Congress meeting are far more important. And in fact, actually the job's data this week is not as important as normal, and that's because the review period was too early to factor in the
sudden jump in initial claims out of Washington. So we're gonna see real impact on the US jobs market over the coming months, but it won't show up and disreport and yet that's another month away. So in fact, I think people will look through this job support very quickly.
If it's strong, they'll ignore it.
If it's weak, people will panic because it's not meant to be weak just yet, it's meant to be week another month from now.
We'll leave it there, Mark, It's always a pleasure, sure. Bloomberg's Mark Cudmore from our market's live team, joining us from Singapore here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. So in the week ahead, we'll get a better reading on the American economy. We have a couple of key data points, importantly, two series of PMI reports, and with those numbers, obviously
reading zon sentiment. Plus on top of that durable goods orders, there's factory orders, construction spending is in there, and then at the end of the week it's that important employment report. This go round, we're looking at numbers for the month of February. Joining us now to take a look at all of these things. Todd Waals. She is the CEO also the chief technical analyst at Alpha Cubed Investments. Todd, it's always a pleasure. Thanks so much for joining us.
I think we can agree that there have been signs of slowing in the US economy and at the same time the appearance that inflation is stubborn. One of the things that's been very interesting is that yields have been down, particularly at the long end. I think the tenuere is down about fifty bases points since the peak in January. What is the bond market telling us exactly?
I think the bond market, and thanks for having me on, Doug, it's always great, But the bond market is a little proxy for what we've been seeing throughout the market, overreacting in one direction or another all year. We've gotten mixed data. Of course, as you mentioned, CPI has been running a little hot. PC has some hot components, but we've got consumer confidence cooling. We've got housing, you know, arguably in
a deep freeze, and tariffs are not growth friendly. So the market is running to that side of the boat right now, and we've got the tenure coming down below that what we view as a yellow light area, that four point five percent level on the tenure. We're below that now and as long as we don't plummet aggressively below that in the short run, we think we're going to see, you know, pulling back of rates, but within a range.
Is some of this do perhaps to a little bit of too much optimism about the FED becoming maybe a little bit more accommodative.
I mean, remember a few weeks ago we were all worried that the tenure was going to go to five percent. And what we're seeing overall, Doug is market participants. Investors have just gotten off two years of pretty easy twenty five percent plus gains in the S and P five hundred, and they've moved into sort of a micro management strategy,
running from one scary news boomerang to the next. We had the deep seek news right everything was coming along just fine until then, and then we re evaluate the entire AI ecosystem in one day based on you know, marginal information. At that point, then the CPI is a little sticky. Then Nvidia comes out with great earnings and the market doesn't know what to do with them. And I don't know if you've been paying attention to this, but there's been some geopolitical news lately as well, not
to mention tariffs. And then on the of all that, we get a big bitcoin announcement from the administration today, and investors are hyper overreacting to all of this information, and we're really encouraging people to get about thirty thousand feet up and look at the major trends that are going to be ongoing through twenty twenty five and beyond.
Well, you mentioned the tariffs there. The proposed tariffs on Canada and Mexico are set to go into effect Tuesday, and today Treasurer Secretary Bessett was saying they're unlikely to raise inflation. Would you agree with that.
In the long run, Probably not. And you know, we could have quite a debate about whether tariffs are inflation area or not. We're leaning towards them being sort of a one time issue that the market can look through. But the tariff issue writ large is not just tariffs on Canada and Mexico and some marginal tariffs on China. This is a larger sort of administration policy that we're going to be dealing with throughout the year with other
trading partners. And the most important component there, I think is no trading partner has significantly pushed back yet, and once that happens, we may see another catalyst for volatility. You know, when you have the market run up like it did for two years in a row, notwithstanding any extraneous news issues, it wouldn't be surprising to see some consolidation, some volatility when you throw all this instability into the mix,
and you know, the market hades instability. We've got a great recipe for a sawtooth market and outsize volatility, especially on the sectors that have done so well the last two years, and we've already seen some of that so far here to date.
You mentioned the cryptos space a moment ago. You're right, President Trump did spark a rally earlier and some of the digital currencies. A lot of those gains, though, have evaporated in a post Sunday, Trump said that his executive order really directed the Presidential Working Group to move forward on a crypto strategic reserve. What do you think this means at the end end of the day. Is it a good idea? On top of that, you know.
I don't know. To be honest with you, I don't want to take a strong stance pro or against crypto at this time. If the administration does it, then it's great for crypto. If they do some measured approach, then maybe not. But the bottom line, the action in crypto today speaks to the hyper over analysis and over activity
from investors across the board. We are encouraging investors to look at the two big themes so that their investment process doesn't get upended like a ferry with passengers running from one side to the other, which we've been seeing all year long. We're looking at consolidation in the AI ecosystem names. But remember we're going to be talking about the build out of AI for another decade and it's
going to have fits and stars, consolidation, big moves. You want to use that volatility to build out some of the names maybe that you missed or you're underrepresented in and Underneath it all, the Federal Reserve, still within their dot plot, is expecting to lower rates, and it doesn't pay to fight the FED, as you know. And in addition to that, the Trump administration seems committed to bringing rates down, and we don't know when they're going to
do it. You know, it looks pretty positive in the last couple of weeks, but you know that doesn't have to keep going in the same direction quickly. But overall, we think they're going to accomplish their goal over the next six months, twelve months, eighteen months, which brings the dividend value trade right to the foe and it's a great place to kind of hide out for part of
your portfolio. Large dividends, lower volatility when you've got the FED and ostensibly the new administration on your team putting the wind at your back for that trade.
So we're at the end of earning season. I think roughly four hundred and fifty companies in the S and P five hundred have reported so far. Seventy five percent have beaten expectations. We get some key data points in terms of earnings this week. Cost go I think on the list along with targets, so we're looking at the American retail space. Talk to me a little bit about your expectations and if you can kind of make the pivot into the American consumer, how well is the US consumer holding up.
We're seeing consumer confidence come in a little bit, and the American consumer doesn't like instability and doesn't like fear. Fear causes people to contract, and I think that's going to be a little bit of a headwind as we see these retail earnings coming in this year. The hallmark as we look back on this year is going to be choppiness volatility. But if we expect volatility or a consolidating year after two big years, if logic is our copilot, that can really help us out as we build out
our portfolios. We want to fade the high value consumer names a little bit. Don't be adding to them here. They have the price for perfection and it's going to be difficult to exceed that in a year. Frankly, anyone who has to move is in a tough position with housing and rights where they're at, So it's going to be a bumpy year. We're going to see it in the high value consumer names that I think we're going to see it in the data this.
Week, Todd will leave it there. Thank you so much for joining us. Always appreciate your perspective. Todd Walsh there, he is the CEO also the chief technical analyst at Alpha Cubed Investments. Joining us 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