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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. There are just ten days left until President Trump's country specific tariffs are set to take effect, and the impact of these levees will be a key topic this week for five of the world's leading central bankers. They will be meeting at the ECB's annual retreat in Central Portugal, and in a moment we'll get a preview from Luis lou lead economist at Oxford Economics. But we begin with trade.
On Sunday in the States, President Trump said he does not plan to extend the July ninth deadline for US trading partners as of now. That is when they must decide either to strike trade deals with the US or face reciprocal tariffs of twenty five percent. Interestingly, Trump didn't completely rule out an extension here he is speaking to Fox News Sunday Morning Futures.
I'm for doing it right now.
We send letters out to all of the countries explaining to them, we'll look at the deficit we have or whatever it is with the country. We'll look at how a country treats us. Are they good, are they not so good. Some countries we don't care. Well, you know, we'll just send an I number out. But we're going to be sending letters out starting pretty soon.
President Trump, speaking earlier to Fox News, joining me now for a closer look at what's going on with the tariff story is chams have solved. Managing director at the Carnegie Investment Council Chums, is on the line from Toledo, Ohio. Good of you to make time to chat with me on this. What is your sense of the way in which tariffs are impacting global economies right now?
Well, I think you know the clip that you just played basically insures that the second half uncertainty will be no better than the first You know, as you and I and know that there's probably at most about a half a dozen deals that is potentially at a place that can be announced and be called the success. But those six will not quite come the nerves come July ninth or beyond, where a lot more was expected ninety
days ago. So I assume that this this this you know thread that started twenty twenty five will remain throughout the end of the year, unfortunately, but the markets have a different view of it. I you know, I go forward as to say even that we're experiencing some form of analgesia, which is the human body's response of sort of shutting down pain points because it's experiencing stress somewhere
else to a larger degree. And I think April tewond was the major stress event, and everything that has followed seems to have been really dialed down, and you know, tempered down to a point where the market has completely ignored everything else that has happened since then. So I feel that twenty five percent tariffs across the is probably not a bad forecast to assume for the rest of the year.
How are you seeing tariff says a contributor to inflationary pressure?
Well, interestingly, you know, after four some years of very sticky areas of inflation, especially on the housing side, non housing services side, it would have picked it. It could not have picked a better year than twenty twenty five
to start to finally show some signs of easing. So, given that one third of the inflation basket comes from housing and housing related activities, the fact that we are finally seeing some meaningful softening there is helping counteract a lot of the goods related inflation that is no longer deflationary in the basket, right, So two point three percent may have ticked up a little bit compared to two months ago, But I think the FED is going to be quite comfortable in the second half if the worst
of the inflation news has already been digested and that these are the numbers that we have dealt with so far. So I'm going to go out and live and say that I think two cuts is probably the minimum for this year. I'm much more on the group side, where we're expecting probably at least three.
Is there still the risk of stagflation?
There always is, right when you're dealing with one point five percent sub GDP, it can very easily dip towards the other side. Whether it is broad based enough where the NBER actually deems that a classic recession or not remains to be seen. But yes, I think GDP has cooled down to a place where one small shock can completely derail consumer spending to a level where you end up getting a you know, back to back, you know,
sub zero GDP growth. But that's we don't think that's going to be sort of the status quo, given that we still think there is pent of demand. If the AI picture was not playing out as robustly as it is, then I think we would be talking about recession as the baseline for twenty twenty five. But given the fact that that remains the strength in the US economy, that is enough to actually keep the economy at one plus
percent GDP for the second half. Certainly beyond that, of course, but on balance between the first and the second half, we're expecting at least one and a half to one point six percent GDP, and that should be plenty to sort of see through the high uncertainty that we have been dealing with since April.
Second, as you and I are speaking, the Senate here in the US is debating President Trump's tax and spending bill, and against that backdrop, today the Congressional Budget Office estimating the Senate's version of the bill will add nearly three point three trillion to US deficits over a decade. Without getting into the particulars and to the politics of those specifics.
When you hear a figure like three point three trillion being added to deficits over a ten year period, what might happen in the bond market as a result of that, Well.
That's where it's it's you know, why the market seem to think that the bond market ultimately holds the cards
to how much of these tariffs actually get implemented. Right now, we have been given bit of a relief for the ten years, trading just under four point three, but you know, anything can change, and especially if post July nine, if you're seeing in the numbers that we saw from Vietnam and Cambodia with forty four, forty six percent, thirty six percent kinds of the tariffs being levied, the bond market
will have plenty to say. So my I guess our view is that we don't think anywhere close to the April second numbers will actually come to bear because the bond market will just not allow it. And we still have seven trillion dollars worth of refinancing we need to do as a country over the next eleven to twelve months, and we do need the ten year to behave and it's not going to behave if the bill moves forward
without making some significant tough decisions. And I just don't think any side anybody is looking to make those tough decisions at this point.
We get a key piece of economic news in the US on Thursday because of the July fourth holiday. At the end of the week that's normally when we get non farm payrolls instead, it will happen this week on Thursday. Our survey indicates that economists are looking for the addition of around one hundred and thirteen thousand jobs, an unemployment rate that may creep up to around four point three percent. What's your assessment of the American labor market right now?
Well, I think it's very much remained slow to hire and slow to fire. I would say that the one hundred thousand numbers seems to be where our thinking is. Just given the weekly numbers from unemployment newly unemployed numbers being about twenty to twenty five thousand higher per week, that should pretty much put the one hundred and fifty thousand plus number out of reach. Whether it's significantly closer to one hundred thousand or somewhere in the middle remains
to be seen. We're finding that even though four point two percent should not be one an unemployment number that should cause any alarms. But when you look at the household numbers, where you see the long term unemployed, which is very much close to the one point nine million
at this point. That is giving. That should give the Fed a lot of reasons for them to start considering cuts as early as July, because the house the labor market is not as balanced as the Fed seems to be suggesting if you look at the disparities between the long term unemployed, which is not something that happens in a solid job market.
So Monday is the final day of the second quarter. We're just weeks away then from the earning season. Data from Bloomberg Intelligence show that analysts are essentially looking at profit growth year over year for the S and P in Q two of around two point eight percent. That would be the smallest increase in about two years. We can talk about that in the context of an equity market that is at record highs for the S and P,
the Nasdaq one hundred, and the NASDAK composite. How are you feeling about the equity market these days?
Well, at twenty two times earnings, you know you have to exercise more discretion than ever. We continue to think that there are parts of the market that remain fairly valued, especially banking and other places, which will tend to benefit from a steepening yield curve. But overall, you know, when we think about the twenty two times, if you extract the top ten tech names, the numbers are a little bit more palatable, so I'm not quite worried about the
valuation at a higher level. I will also say that one of the tailwinds that earning season will likely see in the second quarter, which none of the guidance actually includes, is the fact that the dollars weakness this year that has persisted potentially adds between two to three percent and
EPs jump from what has been guided. So the two and a half percent, I will not be surprised if it actually ends up being between five and six percent, which will keep it very much in track for the year to deliver close to nine percent gains, which should be substantially supportive of maybe another four to five percent
gains in the equity in the market. So I would say that the dollar is probably going to who works some wonders for our multinationals, and that's one of the rare killwinds that we can look to into twenty twenty five.
Schams will leave it there, Thank you so much. Shams Afzaal, Managing Director at the Carnegie Investment Council. Joining from Toledo, Ohio. Here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. This week, five of the world's leading central bankers will be speaking at the ECB's annual retreat in Central Portugal. This is a public forum.
It will feature Fetcher J. Powell, along with ECB President Christine Legard and their peers from Japan, South Korea and the UK. Now they've been forced lately to navigate the risk of both inflation and growth in the wake of President Trump's tariff actions. On Sunday, the Bank for International Settlements reported growth prospects have diminished, while risk have intensified with regard to the stability and consumer prices, as well as public finances and even the financial system. For more,
we heard from Louise Leu. She is the lead economist at Oxford Economics. She spoke with Bloomberg, Sherry On, and Heidi straud Watts some.
Louise, I'm curious at this sort of in between stage when it comes to not knowing too much about how trade is going to play out for the rest of the year.
How are you, I.
Guess baking tariffs into the economy the economic outlook not just for the US, but certainly the potential for implications.
Around the world.
Well, so there are there are two There are two channels by which we see this play out. One is true the very direct export channels. So how much trade gets strunk back on how much contraction we see in.
Trade to a large extent.
That's actually been supported by a lot of uploading activity, and I think this week some of the trade data we will get, we're expecting that frontloading our strength to still persist for a little bit. The second way by which we think the trade uncertainty would transmit to the rest of economy is really true where we think private investments would be, where we think businesses would respond to some of these uncertainties that are looming in a very near term.
Our expectations is that across.
Asia we would see a bit of a dampener on private investments, which probably would set the conditions right for public investments for the government to really step in to do a bit of the heavy lifting at a time when the economy seems to be quite moving along, quite quite tepidly.
It's one of the channels that we talk about is sort of the embedded nature of towerffs, right, and potentially how entrenched those expectations are. Is that a risk when it comes to confidence levels investment from companies but also from consumers and households too.
Yeah, absolutely, And I think the well, there are two risks.
One is that because of the volatility in trade negotiations, the uncertainty that we saw in the last two or three months, governments and maybe businesses now have the ability to, well, at least they have the inclination to look true short term noise, to really think about what the ultimate level
of tariffs might be. And I suspect that, you know, that that implies that any of the short term news or quality that we see coming coming up due in July ninth, that might actually have less of an impact than than what we saw at the pre at the Liberation Day announcements. So that's one second is I think also investments are going to be weight down heavily.
But also what's.
Happening by some of the second order effects, So you know, if you have China slowly as a result of the trade war, as a result of the trade trade tensions with the US, then what's that gonna was gonna imply for the rest of the Asia. So so I think that the the the effects, the ripple on effects on the rest of the country seem to be twofold, and I think that we're perhaps right at the start of that playing out, for for in the ecadiemic data.
And how fast is the transmission mechanism of that ripple ripple effect that you talk about, because already, given the temporary truth that we've seen between China and the US, we're supposed to expect June manufacturing PMI from China to turn positive.
No, Well, our house view is that we don't think it was term positive. We think that we stay kind of in the forty nine region. Obviously it's been at a forty nine area for for a while now we're talking about June PMIS for China here.
So I think.
When you talk about the speed of transmission, we think that they will likely be quite immediate, as we've seen in the last two or three months by going back up, so recovering from that that's going to be quite sticky because I think of the tremendous amount of uncertainty around that, the fact that some of these trade deals don't really seem to be the conventional trade views that people understand
them to be. So there is a little bit of a disappointment around the details of that, and I think that would weigh unsentiment for much longer.
We have seen, for example, South Korea's industrial production coming in in contraction territory and we're expecting actually a boost.
Exactly.
So I think going forward the risks that data would supprise us the downside rather than the upside, just because I think the strength that we solved in the last few months could plausibly be temporary nature.
Frontloading, rerouting trade, a lot.
Of these, and suppose for a lot of the Asian exporters, including Korea, the resilience in tech exports is also one of the factors that we think will potentially normalize in the second half of this year. So a lot of a lot of the strength that we saw, a lot of the optimists, a lot of the upside surprises to data in the last one month or two has been kind of the temporary factors. So there is no reason to think that, you know, we're not kind of on the way down from here on.
And is that the case when it comes to China as well, does that sort of temporary truth add any upside potential for the payms, given that they're leading indicators anyway, and then given there are structural issues that we know of with the Chinese economy, even without looking at the tower situation.
Yeah, well, the for China, I think the peers are notoriously noisy, so we want to we don't really want to be too hung up on one data point. Having said that, the situation with China's is a little bit different. I think for China we are not really seeing substantial upside. But on the other hand, because of the truth, because of the fact that we think Beijing officials will continue to leverage on its critical minerals are dominant, that would
remove a tail rist scenario. So you know, I think at this stage, if we talk about macro growth, any growth below four point five percent is probably quite impossible for China. So I think growth will probably be relatively stable and decent this year, but know any spectacular I think.
Luis Zoo always good to have you with us, lead economist add off for the economics.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shape 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 Prisner, and this is Bloomberg