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Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. It's the Easter Monday holiday in the Asia Pacific, so we have markets in Australia and Hong Kong closed. Now, this week's sentiment will likely remain at the mercy of evolving trade policies from the Trump administration. South Korea's top trade official will be in Washington this week to kickstar trade negotiations. Now, this will be the second Asian nation to sit down with the US to assess so called
reciprocal tariffs. Japan was the first. For more, we heard from Naomi Fink, chief Global strategist at Nico Asset Management. She spoke with Bloomberg's Paul Allen and.
Sherry On Naomi, great to have you with us, at least for now, we haven't seen too many trade negotiations back and forth over the weekend at least, But when it comes to the rest of the week, what will you be watching?
Well, I think since given what we've seen so far, especially since the tariffs have been announced, it might be that we do not get a straight answer even when we reach the conclusion of these negotiations, the negotiation not only with Japan, but the negotiations may continue far longer than than we're we're really expecting right now.
Even if we do.
Get a an outcome, that outcome is probably liable to get renegotiated. We've seen a lot of changes, so I think right now what we can really only expect is that is that there are going to be several possible outcomes. One of those outcomes I think is probably at least more favorable in terms of risk assets than others, and may involve the US not falling into a year term recession. But at the same time, we cannot rule out that
the possibility of near term recession. And I would emphasize that the whole idea of tariffs is probably going to be hardest on the US consumer. That's who it's going to be toughest for.
And of course that potential recession could also come with just disinflation as the FED has wanted to see, or even just stackflation right because of continuing to prices rising because of the tariffs. What would the implications be for the markets depending on those two scenarios.
Well, if we do see continued disinflation, then the FED probably can be more comfortable with rate cuts if we do see weaker growth and softer inflation. That's usually a typical environment in which a central bank would cut rates. But if we see weaker growth but the inflation does not.
Come lower, then they will be a bit.
Hobbled by that high inflation, so we won't be able to see relief from monetary policy.
That's just how central banks work.
When do you go for cover at a time like this, because some of those traditional plays, the US dollar was saying getting beaten up at the moment, US treasuries have been selling off. I mean, we've got gold to a record, But do you look to other bond markets elsewhere where are you finding safety?
Well, I think it's probably hard to find certainty.
Even if you just put cash under the mattress, which is what has happened in Japan for decades and which is now finally reversing, I think it's going to be very hard to find one asset that's just the magic bullet. So probably the best idea is to diversify, which means that you're not going to be completely.
Insulated from market moves.
You don't want to have zero allocation to risk assets because they also do rise.
They don't only fall.
So probably what you want to do is find some areas that will at least insulate you against the worst
of the declines. One of the things that we have been looking at is the potential for domestic demand in some of these surplus economies, especially in Asia to a bit longer term come through, because what do you do when one of your largest trade partners says, well, we don't really want to buy many of your products anymore, while you see what you can do internally, and then a lot of these countries do have huge built up surpluses,
so they can use it to stimulate domestic demands. There are other assets as gold, which are which is remaining supported probably because of this lack of other risk havens, and I would see that as part of a diversified portfolio as well, But I wouldn't be too hasty to.
Dump any asset.
I would look to to try and diversify well with some of these these indicators that they mentioned just now.
Yeah, when you see selling like we've seen, the conversation inevitably turns to dip buying. There's certainly some boggains to be had. But what's the risk here? Are we still in catch the falling knife territory or is this the time to take a look at some purchases.
Well, I think if we're if we are long term investors, then probably what we want to do is just calm down and maybe dollar cost average. So yeah, we'll be dip buying some of the time, some of the time we won't be. But what we're looking for is long term compounding.
And if we do.
Average at a rate where long term we can still benefit from economic growth over many years, then we should be Okay.
What I would discourage is.
Trading around these volatile markets, unless, of course, you are somebody who wants to benefit off of that. Long Term investors, though I find, typically aren't very successful at timing markets. So what you want to do is, yes, position, yes, diversify, but you don't really want to be timing a lot of these moves because you might lose some of that opportunity to long term compound.
Would you invest for the long term in China because we have seen that they're not as trade dependent as they used to be, some saying that they could actually come out okay On the other side of this trade war.
So I think China is too large an economy, too and too large a market and still long.
Term growing to ignore. I don't think that.
I know that some have called China uninvestable before. I don't think that's true. I think it is a risky market, but you know, we are investors who invest in risky markets. It's just the degree of risk and how we can diversify. So of course it definitely involves an understanding and a strategy, but I would definitely say that that China is part of a well diversified global portfolio.
We continue to see the weakness in the US dollar on the other side of that trade. Of course, the strength of the Japanese yeen miso security is not talking about one thirties also being a level at this point by year end.
What do you think, Well, we've certainly seen dollars yen at that level before. But what we want, I think, if we are going to have some sort of ability to avoid US recession, for example, is we want to have moves that are are not sudden and not kind of a flight to a flight to riskless assets. If those exist anymore, Maybe the yen is closer to the idea of a riskless asset. Now, if we do see a sudden strengthening in the end, that could upend a lot of corporates plans and it could probably cause a
lot of disruption. But if we see gradual strengthening of the end, it allows the economy some time to adjust. Of course, it's not as good for exporters, but a lot of the exporters are large firms who can hedge, who can move their investments around, they can deal with it. A lot of the smaller players in Japan, though, are importers and they can benefit from a gradual strengthening of the end. So as long as the moves can remain relatively measured, then I think Japan can adapt pretty well.
No, we think good to have you with us, Chief Global Strategies, a NICO Asset Management here.
Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner. In the States. On Sunday, we heard from the head of the Chicago FED, Austin Goulsby, who warned against efforts to curtail the Fed's independence. Now, his remarks come just days after President Trump publicly expressed his displeasure with FED Shair J. Powell and said that Powell's termination couldn't come fast enough. Here's Goulesby speaking earlier to CBS Face the Nation.
There's virtual unanimity among economists that monetary independence from political interference, that the FED or any central bank be able to do the job that it needs to do, is really important. And they came to that not as a theory, but just by looking around the world at places where they don't have monetary independence. And the fact is the inflation rate is high, higher, growth is slower, the job market is worse.
Austin Goolsby there speaking to CBS Face the Nation for more on this story. We heard from Alicia Garcio Herrero, chief APAK economist for in the Texas, and she spoke to Bloomberg's Paul Allen in Sydney.
Alicia, thanks for joining us. We have, of course seen President Trump in the first hundred days or so picking fights with friends foes, starting trade wars, and of course the FEDNA in his sites as well, saying on truth social pals termination can't come fast enough. Look, even if it is just rhetoric, is there more risk here? More volatility installed for markets? With this kind of talk.
Absolutely and this is not only because of the FED independence as such, meaning the ability to cut or fight rips if needed, but also because at the end of the at the end of the day, the FED has been instrumental during Corvid and this could happen again in actually buying US treasures and basically through Q through quite that business.
So Trump knows very well that the FED has.
In store ability to lower long term rids, not only short term rates. So the FED is a very very Juesy opportunity for Trump if what he wants is really not only to lower the dollar, but also to lower the cost of funding for the massive debt so that the US has accumulated over time.
All aside from defending its independence, the FED saying very much on message at the moment when it comes to price stability, getting inflation under control. But can you foresee a set of circumstances the way this year has been going so far where growth becomes a greater concern for the FED.
Well, it is likely, isn't it, Because growth depends very much on investment. Investment depends on, if not certainty, at least some certainty, and here we are in a world of uncertainty. So the most obvious channel is really investment for Trump's policies to affect growth, and therefore I think it's quite easy to see that the other one obviously is the labor force, meaning if Trump continues to be so strict on immigration policies, because that that is needed for growth as well. Well.
In terms of growth, we're going to get a new set of forecasts from the IMF on Tuesday. Crystallina Jeojava managing director, has already said, look, there's going to be a notable markdowns in those forecasts, but she doesn't see a recession. Where do you see the risk of recession not just in the US, but there are other other markets at risk as well.
Well.
We still don't know whether these tires are going to be permanent to start, I mean, they aren't really there except for China and some sectors we have exemptions even on icit and electronics. We didn't have to for semiconductors. We're still working waiting for pharmas. So we haven't really
seen the full range of tariffs. So in that regard, I think, you know, the world might escape recession if Trump realizes that these tariffs are are very totly in a way, ironically, if the market, since we're bloombered, if the markets are wise enough to put a cost, a high cost on additional tariffs, which is what we've been seeing, especially you know during that terrible week of sell off in the US tructuring market. I think that is making it more expensive if you want for Trump to put
the world into a recession. So I would say markets going down in a way, will we hopefully protect the world from this from these policies, does avoid a recession, a global recession.
You mentioned that cellof that we saw in US treasure is do you feel like some uncomfortable questions are being asked around the haven status of of US bonds and do you see people going outsewhere for safety? Where might that be?
Well, clearly so far the Euro, that's what we've seen.
H And the reason is that Asian currencies are in a way reacting.
With the exception of the game.
But more will be more will be warranted from from best and I'm sure, but generally if you look at the if you look at the reaction of the R and B, then when the cell of happened, another.
Asian currencies is all deprecisions.
So there's very few that are actually standing out basically approceeding against a.
Weakening and that was a euro big time.
And I think there may be other currencies, you know that that will fulfill that role, maybe Swiss from maybe you know, British found maybe not the ously because the is kind of a proxy of of R and B or China's Chinese currency. But but other than that, I think you you you did have the euros as a
big winner. I don't know whether that's a winning strategy for Europe review if you think in fact they s to be cut rat although it was expected, but a very very strong euro which takes all of this anxiety about the dollar, could bring the euro to one point thirty and that would kill the European economy. So nobody wants to do the next dollar. As far as strong apprecisions concerned. Let me tell you, nobody is ready because everybody is suffering from a worse economic environment.
But most likely is the euro. Indeed.
Yeah, And in terms of the tension between US and China on the trade front, at the moment, we have seen China not really willing to come to the negotiating table. Instead, it's added another seven rare earths to a texport control list. Who do you see blinking first in this dispute? Which economy is the best place to withstand the most pain?
Well, the US is blinking first.
You just have to listen to what Trump has to say about this. He's ready to negotiate, and basically, and I think he went too far. He basically said that, you know, he doesn't want to go further on retaliation with higher and higher times. Parents have already closed the market, so it doesn't really matter whether you go further. But that is a signal of willingness to negotiate. And it's not so much because China will not suffer. I think China will suffer from the trade war, but it's mostly
about the resilience about that suffering. I think Chinese Chinese citizens, if you want to households, but even corporations, let's focus on households.
They're ready for this. They've been they've been prepared.
That this has to happen, that they need to withstand the shock. Americans have not been prepared because there have been Basically, the Trump administration is telling them that it's going to be wonderful. So so you know that that is why the use is going to blink first.
In my view, do you feel that we might see some more stimulus coming from China, particularly support for consumers and households.
Well, I think China knows that.
Of course, I has some bullets, but it doesn't have all of the bullets that it used to have.
Many reasons. We all know that you know, too much dead.
But even on the on the Montrepolitan side, which is what we're going to see today with the long primary long prime rate, is that if they cut very quickly, the deprecision of the R and B will be faster. And I think that's not a very good negotiating tool that they can't have, that they let the currency go.
And also it could prompt capital outflows. Not now, because you know, the US is not attractive in terms of stock market and so on, but it could happen all of a sudden if data, you know, gets worse for China. So I think they need to be careful with the bullets. They need to move them slowly and steadily. And I don't know whether today they will they will show that maybe maybe they're in a position of strength so far because they had quite good data for the first codor GDP and people.
Are looking at Trump like you're blinking. You're blinking, so you know.
Maybe the comfany is still there and they don't need to cut now, they may expare it for later.
Well, we do have a lot of pmis coming out this week which should make interesting reading Australia, Japan, India among them, but also the US as well. And if we take a look at this chart, I'll describe it to you on the Bloomberg terminal. It's a look at the last set of pmis that we had out of the US. It shows a big lift to these services outlook, but manufacturing definitely seeing signs of pessimism here. Do you anticipate that there's more of this to come?
Surely because those manufacturers now are confronted with humongous import tariffs, at least from China, but they also have you know, still central tarists, auto tariffs, still an aluminium which is an important intermediate good ten percent, you know, regular tariffs. So all of this is additional costs for manufacturer. So yes, I think that's going to happen. It's already quite impressive that the service sector is still doing well in the US in at least pmis.
All right, I got Sia Herrero, Chief Asia Pacific Economists Athna Texas. Thanks, as always for joining us with your own sights.
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