Cautious Start to Trading Ahead of Week's Eco Data, Earnings
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So we'll get a flurry of economic data this week, and these numbers, along with the developments on trade and tariffs, will ultimately shape a lot of this week's narrative. And for the data, I think the big question is whether we will begin to see the impact of the trade war. In a moment or two, we'll be speaking with Lawrence Werther. He is the chief U.S. economist at Dyewalk Capital Markets.

But we begin this morning in the Asia Pacific and friend of the show, Peter McGuire, who is the CEO of Trading.com Australia on the line from Sydney. Peter, it's always a pleasure. And I want to begin with the currency market because I know that's your specialty. And I'd like to get your take on what we've been seeing in the dollar and the degree to which a lot of the weakening, especially since the beginning of the month when these tariffs were announced, has

I'm curious to get your reaction to the speed, the rate of change here, and whether or not that's been a big surprise for you. Well, good morning, Doug. Greetings from Sydney, and thanks for sharing this Monday morning. I'll tell you what, as you said, from the start of the month, we were nearly at that 105 hand or US dollar index. It crated to about a 97.8, 97.75, and it's bounced, certainly. It's at 99.75 at the moment. But I

think the velocity of it, Doug, really hit everyone by between the eyes. And the sell off was immense. That's been very much enjoyed from a trading perspective with the euro that ratcheted up to 115 nearly yet at 140, you know, at the peak. And we had an Aussie dollar that was crated at six at 58. It's back at that, you know, 64 sort of handle at the moment. But it's just been, I think, in summarise it in one word, mind blowing since the start of the month.

So I'm wondering whether what we've seen in N2 maybe is a little like this. You buy dollars, you plough the proceeds into the S&P 500, into the Nasdaq stocks. Has that completely blown up, that trade? No, not really. I mean, you know, it's certainly been... If you're looking as far as...

You know, the equity markets, they were certainly hammered to the downside. One can't say that they haven't been. That's just been a dramatic fall. But they've certainly bounced in the last week or so to the upside. And that's been positive. So that's a good sign. Again, probably oversold and then maybe a little bit of momentum to the upside. Let's see how this week goes. You've got some big data drops this week and that, you know, market sentiment and so on.

But, you know, again, huge volatility across that equity market complex. And, you know, you had a VIX that ratcheted up, it went crazy. And it's certainly given out a lot of that hot air now. But we keep a very close eye on that. But you've got a VIX under 25 now and you were running close to that 50 plus. So all of those components, Doug, are really dynamic for trading and investing.

All I'll say is this, it's not for the faint-hearted, but if you're brave to enter the markets and you use your logic, I think they've been very kind over the month of April. So as I mentioned, we're going to get a lot of key data in the week ahead. And I think the key question here is whether these numbers will support the case for the Fed to begin lowering interest rates. I'd like to get your expectations here, not only from the macro, let's say, but how quickly the Fed may respond to signs of economic weakness. Yes.

Well, I don't think they're going to do anything in May. I'll say that one. I'll start it with that. But there is a very big chance you could see something in June opposed to July for a 25 basis point cut.

And the two points that are going to really, I think, drive that one home would be a disappointing NFP print on Friday if it came in sub $130,000, $120,000, considering that the previous month was at $228,000. So there's the first point. And then if you had soft core PCE reading, that

could bolster expectations. So again, we've got those numbers coming out. We've just got to see how they map through and then, you know, what the Fed's prepared to do. But I think that it's about an even spin of the dice at the moment. Yeah, well, a flick of the coin, I should say, for a June versus July scenario.

25 basis point cut. Over the weekend, Bill Ackman from Pershing Square was saying that China really needs to strike a trade deal quickly with the U.S. because it can't win a drawn-out trade war. So if China is put in a difficult position here, are we likely to see much more weakening of the currency? Do you think authorities in Beijing would try to hold the line on the yuan so as not to raise the risk of capital flight?

Yeah, I mean, that's a difficult one for them. They understand the position from the property sector. They understand the positioning now with tariffs. And, you know, it's a I'm not suggesting it's the first one blinks losers, but the Chinese, they know the situation. I think President Trump, there's a very big chance you did have a probably a high ball expectation, what he what he pushed out there as far as from a tariff perspective, you know, a number. And, you

he's willing to lower it. So I think that if you see that deal within the next couple of weeks, that's going to be a plus for China. But if you don't and it drags on, then that really could cause a lot of internal friction. And I don't think that's a happy place where they want to be. So would you be short the yuan right now offshore?

A little bit. I think, you know, traders will certainly look at it, but it's conscious as far as it's a day-by-day proposition. There could be a surprise. We could hear something within the next week or so. And I won't say no, but I think there's just been other markets that have offered far more opportunity than possibly, you know, from a yuan perspective. But, hey, that could change very much within the next week or so, dependent upon the two parties'

coming to an agreement or not. So are those opportunities related to kind of haven safety? I'm thinking maybe even the euro, but certainly Japanese yen. Oh, yeah. Yen. Have a look at what's happened. Of course, one of the greatest trades has been Swiss franc Aussie. But yeah, yen's been dynamic. You know, that's been a great trade. And, you know, euro, of course. So those two have been the standout, or those three have been the standouts. And, you

you know, against that, also cross rates against the Aussie because it got hammered so incredibly that, you know, traders were all over that from a currency pair perspective. So we mentioned a Fed move being maybe on the horizon at some point here in the near term. What about the Bank of Japan?

Absolutely. You know, you've got inflation at 3.2% year on year in March and, you know, you've got that core measure coming out. I feel as though, you know, the downside risk to growth have increased markedly since February with, you know, when President Trump unleashed the first wave of, you know, the tariffs and that Japan hasn't been spared. They've got a universal 10% levy, nor the sectoral tariffs on steel and autos. But, you know, I'm expecting

possibly lower its growth forecast, the BOJ, for this quarter. And that's the latest quarterly outlook. And then how it moves from there, you might see some move, some, yeah, you may see something. I mean, I'll be waiting to probably inhale it, Doug. You know, everything is just very dynamic at the moment, but we wouldn't be surprised to see some sort of movement from them. Are you betting on much weaker growth globally right now?

Yeah, in some ways, yes. You know, there's a, you know, you hear some nations are performing relatively well, but the overall theme, you know, yes, softer and that's going to be an issue rolling certainly into Q2 and Q3.

That how that looks by Q4, if you do see softer growth, then, you know, how does central banks play that? And naturally, you know, from a consumption standpoint, the overall earnings moving forward for, you know, equity markets and so on. So as that becomes a little clearer, do we expect less volatility in markets when we understand what the terrain looks like?

I don't know about that. You know, when you say that you would hope so, Doug, but the other side of it is you've still got an unknown unknown in the sense of where do the tariffs end? Who is coming to the table? Who is negotiated? And

President Trump is saying and Scott Bessette, you get in early and you cut a deal and then you move forward from there. But if countries are prepared to sit on the sidelines, then that, I think, is going to force their hand. And that, in turn, will create, I think, you know, additional volatility moving forward. But I'm imagining that if you get much weaker growth, governments are going to sense greater urgency to get these trade deals done.

Absolutely. I think that's going to be, you know, the old Clint Eastwood make my day sort of thing. You'll be just sitting there and they'll be forced, their hand will be forced, Doug. And that's the other side of it, I'd say. So what is your favorite trade to put on right now? The easiest, most cost effective way of making money in the foreign exchange?

I think one's got to be really mindful where that US dollar index trades over the next week or so with those numbers coming out because it's had the big sell off and it's bounced from the low from 97.7 to back 99.60. So keep a very close eye on euro US dollar and

and yen US dollar. So I think that that's where the general focus is at the moment. Peter, we'll leave it there. Always a pleasure. I hope you have a productive week. Peter McGuire, CEO of Trading.com Australia, joining us from Sydney here on the Daybreak Asia podcast. Want to understand trends shaping the global investment landscape?

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. Economic forecasters in the U.S. are now expecting the trade war to hit growth this year and next as companies pass on the cost of tariffs and higher commodity prices. In fact, the Bloomberg survey is showing that economists say the American economy is set to expand by only 1.4% this year and 1.5% in 2026. Now, that is down 5%.

from last month's survey. Obviously, the tariff story is driving this narrative. Let's take a closer look now. Joining me is Lawrence Werther. He is the chief U.S. economist at Daiwa Capital Markets. He's on the line from here in New York City. Larry, I'm glad you could make time to chat with us here. Let me begin with the macro and the extent to which we're going to see a lot of weakness in the economic numbers. Does that necessarily mean that recession is a higher probability event right now?

Sure. Well, Doug, first off, thanks so much for having me this evening. I'm pleased to be with you to help you unpack a challenging period for the U.S. So you're right. I think the trade war and the reverberations that it's had on sentiment for businesses and consumers does unfortunately mean slower growth in the near term, although recession is not my baseline.

at least right now. One of the things that we've been looking for is labor market weakness. And yes, I know these figures tend to lag. At this point, though, the figures haven't been particularly worrisome. Yeah, maybe a little bit of softness, but I don't think it's anything that the Fed would sound the alarm over right now. I'm wondering whether you think that could change on Friday when we get the non-farm payrolls data. You know, Doug, as I think about it, you know, it's a good question, but I wouldn't necessarily...

look for weakness, at least for another, say, two to three payroll reports. I penciled in a number that's right around consensus. I'm looking for $125,000 for non-farm payrolls on Friday. But as I said, I don't think you've seen the layoff activity that would align with a full-blown trade war to this point. And certainly, as I said, the lag could be several months before we really get a good sense of that if it does, in fact, materialize.

But I'm wondering whether that reading that we had last Friday on consumer sentiment, weak as it was, one of the lowest on record, could be kind of indicating that we should expect weakness in the labor market in the near term.

You know, Doug, it's tough. If you recall, consumer sentiment has been pretty lousy for the entirety of this expansion. You know, and just last quarter, the closing quarter of last year, consumer spending grew at a 4% clip. I think this time the signal that we were derived from the data is a little bit worse. But I would say to date, I think firms, after experiencing labor shortages coming out of the pandemic,

aren't quite ready to pull the trigger on layoffs just yet. What about the level of inflation expectations that consumers are expecting? I think an annual rate of 4.4%. If you're sitting at the Fed, that's got to be worrisome. Sure. You know, I think it

Could be in a vacuum, a bit worrisome, but I would emphasize two things. First, Fed officials are looking at a broad array of indicators of inflation expectations. And moreover, they're focused on the long term. So I think it's a bit difficult right now to unpack signal from noise specifically with respect to the Michigan survey.

But I would say concurrently, one should be watching the New York Fed survey of inflation expectations for consumers. Moves there are upward, but they're a bit more benign. Moreover, inflation break-evens have been relatively favorable at your five-year, five-year forward and 10-year ahead. I think they're still in the vicinity of 225 basis points. So I think Fed officials are vigilant.

But they're going to stay on message two weeks from now that longer term inflation expectations remain anchored, at least for right now. So what's your base case for the American economy?

Sure. Base case is expansion this year. I'm not particularly optimistic about the first quarter. I think you'll see sub-1% growth almost certainly on account of wild trade data. I'm thinking Q4 to Q4, somewhere in the vicinity of 50 basis points to 80 basis points of growth. I think we'll do better in 26 when the smoke clears. But I'm hoping that sanity prevails with respect to trade deals and tariffs.

And we can start focusing on the positives, tailwind from domestic investment, tailwind from tax cuts and the like. But it just remains to be seen how long the Trump administration drags out these tariff negotiations or threats as they were, depending on how one characterizes them. So what about total magnitude of Fed easing?

I'm not in the camp currently that we're going to see a cut at the June meeting, although it's heavily priced in the market. I'm thinking two cuts this year and then additional cuts early in 2026. And I'm thinking September and December. My thought there is that ultimately the pass through from tariffs to inflation that we'll see will be lighter than many are penciling in right now. You know, it's

It's pretty risky to put a number on inflation, but I'm thinking a three handle on core, something in the low threes, substantially less than some estimates around four. And I think there's some favorable underlying dynamics with rents.

and wages coming down. So I think the Fed remains patient until they get a better pulse on tariffs and its knock-on effects. And I think the labor market, at least right now, will give them some cover to do so, to be patient. So if there is a question mark over inflation, and we can agree that growth is quite a bit weaker now, do we have to bring into the conversation this idea of stagflation, or is that kind of an extreme position? Is that a little hyperbole?

Say there's a little bit of hyperbole there, but, you know, at the same time, it's a fair question. I mean, I think President Trump, in choosing the tariff battle to be his first fight in the first hundred days, has won.

market has forced forecasters to think about tail risk in his chair palace said you know the pale the tails right now on the distribution of outcomes for both growth and inflation are. Are pretty fat- so I'm not necessarily thinking stagflation- I think it's

I think the economy rebounds when we get some clarity, and I think inflation won't necessarily be as bad as some are thinking, but it's certainly a risk that one has to consider, Doug. So if you look at where a lot of the market volatility has been coming from, yes, the tariff story, a major part of that, but we've also heard a lot of criticism about the Fed coming from the White House, and it seems as though those two factors have kind of converged and come together.

Are you confident that cooler heads will prevail as time goes by and we'll hear less criticism of the Fed and ultimately on the tariff side? Yes, perhaps they've been an effective tool to begin negotiations, but ultimately they're really not going to deliver what Trump is after, which is to bring manufacturing back to the United States. Sure. You know, there's a lot to unpack in that question. First, you know, I would emphasize off the bat that that

You know, I think the Fed has a tricky job. I think they're navigating rough waters. But I remain confident that the Fed is an independent body and they will

pushback zealously against President Trump. I mean, you've seen as much from Powell and his colleagues. I think Fed independence is really at the heart of our dollar policy and our ability to, you know, fight inflation and the like. And I think Chair Powell has done a good job, you know, not backing down on that front. So I remain fairly optimistic. You know, with respect to

on-shoring of manufacturing and supply chains. You know, Doug, again, you raise, I think, a critical issue. President Biden previously and President Trump, both at their hearts are industrialists, both realized vulnerabilities of the U.S. economy coming out of COVID with supply chain disruptions and the like. I don't know about the wisdom necessarily of Trump's policy, but I am optimistic that you at least will see some on-shoring of domestic production. You've seen it in the

A little bit with pharmaceuticals, you know, there is I think a lot of CEOs are coming to the table. Businesses are attempting to act preemptively because any new domestic investment and getting a factory online has a pretty long lead time. So I think you're seeing some movement in that direction, although I wish President Trump would have deployed the carrot perhaps more so than the stick initially. But.

He may achieve his goals yet, and it would benefit the U.S., I would add. Larry, we'll leave it there. Thank you. Always a pleasure. Lawrence Werther, their chief U.S. economist at Daiwa Capital Markets, joining from here in New York City 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. ♪

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