Traders Focus in Ukraine, US Eco Data Lookahead
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. U.S. 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 Walsh. He 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 pledged 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 us from the Lion City of Singapore. So

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 close on Friday. You've got to remember that currency markets were still open when they had the Oval Office incident between Trump and Zelensky, which was seen as negative for Europe. And so there's already price to that initial reaction.

And then over the weekend, there's signs that Europe is 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 that this whole idea of a 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 interest rate differentials, Eurodollar should be a chunk higher and it's not. So it's actually lagging the interest rate differentials 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 around 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 could be squeezed significantly further over the coming months. One is that fiscal stimulus is...

in Europe has been a big part of the missing picture. And if we suddenly get that, whether it's under the guise of defence spending, it is still an extra amount of spending in Europe that will be positive for the region. And on the other hand, we've got a longer-term dynamic where at the margin...

Trump's policies are eroding the appeal of parking so much of your reserves in the dollar. And the dollar is going to remain the world's reserve currency. It's not being challenged. This is not about the end of the dollar as a reserve currency or anything like that. It just means that you might want a slightly lower share in the U.S. And part of the reason the U.S. is going to remain the world's reserve currency, the U.S. dollar, is because there isn't a good alternative. But one of the best alternatives

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 Eurodollar 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 Eurodollar can go a chunk higher this year and I think that's both from the squeeze of the Euro shorts but also because 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 rate cuts have intensified. That's only going to remove support for the greenback. Yeah, absolutely. I think, again, that's another widening of the rates differential. I think 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 they'd be pro-growth and they'd be very pro-dollar and they'd be pro-US stocks. You know, it was a perpetuation of US exceptionalism 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 18 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 tariffs on Canada and Mexico are set to go into effect on Tuesday. China will likewise be charged an additional 10% tariff beginning March 4th 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, PPFC has the ammo 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 outperform 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 beta to the move. I

I really find it hard to understand what the short-term dynamic is around China this week. You have the tariffs 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, 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. DeepSeek is emphasizing that China will also get the benefits of the productivity boom from AI. It's not just for U.S. stocks. And meanwhile, they've been discounted because they're perceived to be out of that kind of benefit. But the short-term dynamic is very much dominated, not just by the tariff news, but also 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 action, but I think the structural story is pretty good this year. Yes, indeed. It's the two sessions meetings that happened March 4th and 5th. And Premier Lee 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 5%? It probably will, but it doesn't really matter. Like,

you know, no one really believes exactly what's achieved and, you know, we'll probably get a number. I'd be surprised if it is above 5% because I think that, you know, it's a GDP number which is trending down more towards 4%, 4.5%. And,

And that's still fine. That's still faster than most of the rest of the world. And it's faster than the US, for example, faster than Europe, faster than most major peers. So I think even if it was a GDP target of 4%, the market would be massively disappointed in 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 4% and if it's a real 4%, 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 of sight. I don't know. It's very hard to anticipate the short-term thinking of the Chinese government. I think longer term it's easier because they think in long-term ways. And what's been happening the last four or five years is they had 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 haven't fully taken all that pain yet, but they're a long way through that process. And that's very impressive without seeing a collapse of the economy. So I think that China, what they've done is they've preemptively 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 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 about whether they want to kind of boost markets in the short term or are they happy to go sideways 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 tariffs meant to come in 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 going to excite the bulls. Before I let you go, Mark, I've got to get your take on the Japanese yen, 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 150 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 yen 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's 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...

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 yen 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 U.S.?

Do you know what? I haven't even got that far ahead in my vision because it's so important what happens on tariffs. Do they actually come through in the reaction? So I think the tariff reaction and the Chinese Congress meeting are far more important. And in fact, actually, the jobs 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 going to see real impact on the US jobs market over the coming months.

but it won't show up in this report yet. That's another month away. So in fact, I think people will look through this jobs report 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 weak another month from now. We'll leave it there. Mark, it's always a pleasure. Bloomberg's Mark Cudmore from our Markets Live team joining us from Singapore here on the Daybreak Asia podcast.

I'm Alpine skier Michaela Schifrin. I've won the most World Cup ski races in history. But what does success mean to me? Success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stiefel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.

At Stiefel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stiefel has won the J.D. Power Award for Employee Advisor Satisfaction two years in a row.

If you're an advisor or investor, choose Stiefel. Where success meets success. Stiefel Nicholas & Company, Inc., member SIPC and NYSE. For J.D. Power 2024 award information, visit jdpower.com slash awards. Compensation provided for using, not obtaining the award. The average time to hire for most organizations is 30 to 45 days. Are you tired of a costly and lengthy hiring process? Simplify and speed up your recruitment by using the experts at Express Employment Professionals.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. 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, readings on 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 Walsh. He 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 U.S. 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 10-year is down about 50 basis 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. PCE 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 10-year coming down below that. What we view as a yellow light area, that 4.5% level on the 10-year, 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 growth.

you know, a pulling back of rates, but within a range. Is some of this due 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 10-year was going to go to 5%. And what we're seeing overall, Doug, is

Market participants, investors have just gotten off two years of pretty easy 25% plus gains in the S&P 500. 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, you know,

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 heels 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 30,000 feet up and look at the major trends that are going to be ongoing through 2025 and beyond. Well, you mentioned the tariffs there. The proposed tariffs on Canada and Mexico are set to go into effect Tuesday. And today, Treasury Secretary Besant was saying they're unlikely to raise inflation. Would you agree with that? Yeah.

In the long run, probably not. And, you know, we could have quite a debate about whether tariffs are inflationary 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. 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 hates instability, we've got a great recipe for a sawtooth market and outsized volatility, especially on the sectors that have done so well the last two years. And we've already seen some of that so far year to date. You mentioned the crypto space a moment ago. You're right. President Trump did spark a rally earlier in 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 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 starts, 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. It looks pretty positive in the last couple of weeks, but 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, 12 months, 18 months, which brings the dividend value trade right to the fore.

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 earnings season. I think roughly 450 companies in the S&P 500 have reported so far. 75% have beaten expectations. We get some key data points in terms of earnings this week. Costco, I think,

on the list along with Target. 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 U.S. 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 co-pilot,

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 their price for perfection, and it's going to be difficult to exceed that in a year where, quite frankly, anyone who has to move is in a tough position with housing and rates 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, and I think we're going to see it in the data this week.

Todd, we'll 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 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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