Cautious Open as Israel-Iran Ceasefire Appears to Hold
16:59 Share

This is an iHeart Podcast. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support.

In business, plans change fast and your brand has to keep up. That's why teams rely on 4imprint for promotional products that deliver. 4imprint offers thousands of options including apparel, drinkware, tech, and trade show gear. Many available with 24-hour turnaround, helping you move quickly and never compromise in quality. You'll enjoy free samples, expert support, and every order back by their 360-degree guarantee. So it arrives right and on time. Explore more at 4imprint.com. 4imprint.

Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Israel and Iran appear to be honoring a ceasefire brokered by President Trump late Monday, despite some early reporting of violations on both sides. Early

Earlier in the day, President Trump issued some harsh criticism to both countries. We basically have two countries that have been fighting so long and so hard that they don't know what the f*** they're doing. You understand that? President Trump speaking there as he traveled to The Hague.

for this week's NATO summit. We also heard in the last session from Fed Chair Jay Powell. He began two days of congressional testimony on Tuesday, and he repeated that he's not in a hurry to cut interest rates. In a moment or two, we'll take a look at the Fed's path with Joanne Bianco, Senior Investment Strategist at BondBlocks.

But we begin this morning with geopolitics. Israel and Iran have spent the better part of the past two weeks exchanging strikes, and in the process, the U.S. was drawn into this conflict. The situation highlights the role of another power player, though—

China. Joining me now is Jenny Marsh. Jenny is Greater China EcoGov team leader for Bloomberg News, and she joins us from our studios in Hong Kong. It's always a pleasure to benefit from your perspective. And as long as we're talking about geopolitics, let's talk about what's going on between the U.S., Israel, and Iran.

Now, after the strikes, the recent strikes by the U.S. government on Iranian nuclear facilities, Beijing issued a strong condemnation and basically called it a violation of the U.N. charter and of international law. I'm wondering whether or not China may have played a role in this. Do you have a sense of that? My sense is that China very much here will be remembered for sitting on the sidelines.

You know, like they issued this very strong statement condemning the U.S. and they talked about how America was sort of blowing up, you know, the international system for sort of maintaining order, i.e. the U.S.-led, you know, U.N. framework for resolving conflicts.

And before the US strikes, you know, Xi and Putin had got on the phone and sort of worked out this four-point plan for peace. But really, for China, they kind of left it at diplomacy. And I don't think, you know, they were particularly effective in what they were messaging. We know that Wang Yi spoke to both the Israeli and the Iranian foreign ministers. So there was some sort of attempt at sort of back-channeling. But essentially, you know,

China is one of Tehran's strongest partners. And when it came to its darkest hour, China really didn't do much apart from call for peace. Is it pretty much a selfish move that boils down to crude oil? Is that really what this is about, this relationship? I think this relationship is about the U.S.,

And I think one of the reasons I say that is, yes, China is one of the places that will buy sanctioned Iranian oil. It's a very, very slim percentage of China's oil supplies, about 10%. And they can easily source this oil from other places. And I think there's a couple of practical reasons why it's mainly these teapot refineries in northern China that take this oil. It's much cheaper. But also, I think the Chinese government tolerates it because...

they are vehemently opposed to the U.S. sanctions regime. And so they let this go as a way of sort of defying the U.S. sanctions regime, which is something they and Russia and Iran are all united in opposing. But I think the broader relationship with Iran has been about sort of finding partners that will join hands with Beijing and challenge the U.S. sub-world order. And I think you can see that through

She has ushered Iran into the BRICS group of emerging markets, which is this block that is expanding with India and South Africa and Brazil as a rival framework to the G20. It also welcomed Iran in the last couple of years into the Shanghai Cooperation Organization, which is another grouping that is expanding, which has more of a security flavor.

But when it comes to trade with Iran, the trade isn't significant. It doesn't sell much to Iran. Trade with Iran actually fell off in the first four months of this year. It was down about 20%. And the broader Middle Eastern region, from a Belt and Road perspective, is more important to Beijing.

So, I think, really, this was sort of a partnership of convenience. And for China, it was always about finding partners that will join hands with it to stand against the U.S. So, to that point, maybe China is not solely reliant on Iranian crude oil. I get the fact that they're only going to import, let's say, 10%. But the Strait of Hormuz, I would imagine, is perhaps more critical.

If there were a way for Beijing to become influential in dialing down a lot of this tension just so that the conflict didn't extend into the Strait, is that part of the thinking here as well? Yeah. So I think the Strait of Hormuz is definitely a different story and a much sort of more alarming concern for China. Yeah.

About 45% of its oil shipments come through that strait. And China is the country that is most dependent on the oil coming through that waterway globally.

So, yeah, massive exposure there. That being said, China has been stockpiling on oil. So, if there was a crisis that closed the strait for a short period of time, it wouldn't feel the immediate impact. But in the long term, absolutely doesn't want this conflict to spiral. And I think that was the message from the four-point plan that Xi put forward. He talked about not wanting this to expand.

And when they were condemning the U.S., they were saying, you know, the U.S. is fanning the flames of war and would be to blame, essentially, if this did become a broader conflict. I think the problem for China is like,

How can it affect, or what is it willing to do to stop it from becoming a broader conflict? And the answer is not very much. China doesn't like to get its hands dirty in foreign conflicts. It definitely doesn't go anywhere near the U.S. playbook of these sort of faraway wars and military operations. And even with Russia, which it has a much stronger trade relationship and sort of interdependency with, and Russia has now overtaken Saudi as the top supplier of crude oil to China,

Even when Putin went to war in Ukraine, she was very careful not to do anything that would invite U.S. sanctions. So, yes, he stepped up economic support and diplomatic support. And then there was some controversy about sort of, you know, the dual use items that have been shipped, but never any direct, you know, military support that would cross these red lines that America and Europe laid out very clearly. You know, and I think China is a country, you have to remember, that has no formal allies whatsoever.

by design, you know, and its self-interest will always be its sort of North Star of what it does when these kind of conflicts break out. Do we want to include North Korea even at the fringe?

Yeah, North Korea is the closest that China does have to an ally. And obviously, in the 1950s, it did go to war for the North Koreans. But it's still today. I mean, it doesn't want North Korea to have nuclear weapons. China has a non-proliferation policy.

You know, and ties between Xi and Kim have been sort of entering this frostier period over recent years. And we've seen then North Korea become closer to Putin. And actually, the North Koreans being the one that did offer Russia substantial support as the war on Ukraine sort of ground on into its sort of fourth year. What is the degree of anti-American feeling right now in China? Not just because of what we're describing here in terms of Israel, Iran, but I'm thinking of

whether it's Taiwan, whether it's the U.S.-China trade war, give me a sense of the degree to which people in China are feeling very anti-American.

I think that is a really interesting question. It hasn't been as prominent as you might have thought, broadly towards American people. The Minecraft movie came out in China and did pretty well. We've seen other examples of American soft power being powerful, even though the US and China are locked in this trade war. I almost wonder if the Chinese people are able to separate Trump

you know, the aberration or, you know, that is Trump from the average American people. There were people talking about, you know, how foolish Iran had been to sort of trust the U.S., saying, you know, the U.S. came in to negotiate, then its ally hit Iran, and then the U.S. hit Iran. You know, the Iranians were fools forever trusting America. So there was a lot of that kind of sentiment. But I think actually the Chinese people sort of

It is not this sort of rise in nationalism. And I think that is partly because the Chinese government has learned from the first time around, the first trade war, you had this wolf warrior policy that really stoked up a lot of bad feeling. Then you had people like Hu Xijin, the former editor-in-chief of the Global Times, who were allowed to really run wild on social media. When Nancy Pelosi was flying into Taiwan, he was posting things about perhaps

shooting down the jet as she came in, which obviously just was a step too far. And I think this time, the nationalist voices on social media and state media have been tampered down because the government doesn't want it to get out of control to a point where they are not the ones managing the narrative. Jenny, it's always a pleasure. Thank you so very much. Jenny Marsh there. She is Bloomberg Greater China EcoGov team leader, joining us from our studios in Hong Kong here on the Daybreak Asia podcast.

Thank you.

It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support. Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build the financial roadmap for the future.

while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So tensions in the Middle East seem to have eased, at least for the moment. Israel and Iran appear to be honoring their ceasefire agreement. At the same time during the last session, we had constructive comments from Fed Chair Jay Powell on rate cuts.

Here's Powell. Despite elevated uncertainty, the economy is in a solid position. Overall, a wide set of indicators suggest that the conditions in the labor market are broadly in balance and consistent with maximum employment. The effects of tariffs will depend, among other things, on their ultimate level. For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.

So, yields were down across the Treasury curve. The two-year, in fact, closed at its lowest yield since May. And money markets are fully pricing in two Fed rate cuts by the end of the year. For a closer look now at the fixed income space, I'm joined by Joanne Bianco, Senior Investment Strategist at BondBlock's Investment Management. Joanne, thank you so very much for joining us. So, based on what you heard today from the Fed chairman, what is your outlook for the point at which we get the first rate cut?

Well, first of all, thank you for having me. Happy to be here. And I think that, you know, he the Fed will want to see, you know, more progress on inflation or just even that inflation is is contained instead of eventually surging from tariffs. So do you think that July could be the first cut or is that too soon?

I still feel like that's too soon, but I think September is more likely. That's certainly what the markets think as well. So, you feel pretty comfortable with the inflation story right now, irrespective of the fact that I don't think we have enough clarity on the impact that tariffs are having on prices?

Actually, yeah, I don't know that I necessarily feel comfortable about where inflation may go. I do think that there is a lot of uncertainty. But, you know, if there is this path where we don't see a surge that is sustained in inflation, then that gives the Fed room to cut rates. But, you know, it could go the other way, too. What do you feel about the labor market and the indicators that you're seeing on that front?

Yeah, I mean, they're definitely softer, but they haven't weakened materially. So I think with respect to the labor market, if the Fed were going to act based upon the labor market, they'd want to see it materially weaken from here before that would be their reason for cutaway.

So do you think that the Fed has got it right in terms of how prudent policymakers are being saved? A couple of comments that we have had recently, I'm thinking of Michelle Bowman and Chris Waller, who are advocating for a cut as soon as July. But the majority of voices that we have heard from who sit at the Fed seem to be a little bit more prudent. Do you think that's the right tone?

Yeah, and I think it reflects the continued resiliency of the U.S. economy. It does give the Fed a little bit more time before they act. So how are you deploying money in the bond market these days?

Well, you know, fixed income has been performing very well in the first half of the year. It's definitely the income generation from fixed income and the higher yields that investors are getting in a lot of different segments within fixed income.

have been very nice for investors and have cushioned volatility that they might have experienced otherwise if they had more equities in their portfolio. So we're seeing a lot of interest in our suite of our different suites of fixed income ETFs from

from those very same type of clients that want the income but don't want the return volatility. So, if I were to look at putting money to work in the bond market irrespective of an ETF, is there a point in the curve that you favor right now?

Well, in terms of the treasury yield curve, we're most constructive on the short to intermediate part of the curve. We still think that the long end of the curve is just more volatile in terms of returns and maybe too volatile for some investors. So we think you get great returns.

income from the middle part of the curve with less return volatility. So your resistance to put money to work at the long end, I'm wondering whether that has to do with the uncertainty around inflation or are you concerned a little bit about the deficit story when it comes to federal spending? Yeah, it could actually be both of those reasons. Is there one that predominates in your mind? I think in the near term for us, it's really been more about the inflation story.

longer term, it would be the deficit story. I'm curious as to whether or not you're looking offshore at, let's say, fixed income markets in Asia or in Europe. Are there opportunities on those fronts?

Yeah, well, we've definitely seen opportunities because we have an ETF, the ticker is XEMD, and it's short to intermediate term U.S. dollar denominated emerging markets debt. And that's been like one of the best performers in our fund lineup this year because you've seen, you know, there's less interest rate sensitivity, but there's like a

strong yields there. And there's been spread tightening in a number of the sovereigns. So it's been like a great place for investors. Joanne, we'll leave it there. Thank you so very much. Joanne Bianco, their senior investment strategist at BondBlock's Investment Management, 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 stories 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 Krisner, and this is Bloomberg.

Learn more about the technology, insights, and support available at AmazonBusiness.com.

Thank you.

Whatever challenge comes next, let Microsoft help you keep pushing forward. For more details, visit Microsoft.com slash challengers. This is an iHeart Podcast. ♪