Trump Tariff Deadline Rattles APAC Markets
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Bloomberg Audio Studios, podcasts, radio, news. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. On the trade front today, President Trump said he's not considering a delay of his July 9th deadline for those higher tariffs to resume. He threatened to cut off trade talks and impose tariff rates on several nations, including Japan.

Coming up, we'll be speaking with Jeff Grylls. He is head of EM debt at Agon Asset Management. But we begin with China. The latest flash data reading from China Beige Book International showed slowing in June. Even so, the weaker print may not bother Beijing as much as outsiders think.

Joining me now is Shehzad Qazi. He is the COO, also managing director at China Beige Book. He is on the line from here in New York City. Shehzad, it's always a pleasure. Thank you so much for making time to chat with me on this. Can I begin by asking for the big picture as a result of your survey? How do things look in China right now?

Hi, Doug. Good to be with you. The big picture takeaway from June was that there was soft data or concerning data all around if you're just looking at the health of the economy from that lens alone. But if you're putting it in the larger scheme of things, if you're thinking about the trade war and the tariff war and export controls and so forth,

As we said, we don't think this one month of weakness is going to be of particular concern to the CCP or I think to President Xi, who's feeling pretty confident about his position in the U.S.-China trade war right now. Is that to say that you believe, based on your survey, that Xi believes that he has the upper hand?

That's correct. You know, it is definitely our understanding that she and several top party officials believe that they now have the upper hand, especially the manner in which they think they got the U.S. discreant uncle when it comes to export controls over rare earths.

rare earths and magnets and such. At the same time, I think they're probably thinking there's got to be another round of front-loading that will eventually happen, and manufacturing may eventually benefit off of that. So, all around, I think they feel like they're in a pretty strong position right now. So, having said that, how does the manufacturing economy in China look right now? If you look at exports, where are they headed and what is particularly robust?

So export orders right now have most certainly in China Beijing data slowed down. If you look at especially orders directly from the US, they've remained in contraction territory. Not a huge surprise given the fact that we had these sky high tariff levels that were only brought down somewhat recently.

And it's very likely that a lot of the exports to the U.S. eventually are coming through third-party countries from Southeast Asia. So that number may not look very strong for a while here. But right now, the manufacturing story is one of it being dull. The real question is, does this change come July, August? When do we see firms change?

starting to buy directly from China again. When you and I have spoken in the past, a lot of the focus has been on the domestic demand story in China. What are you seeing?

So domestic demand, again, has gotten quite soft. Now, we have to acknowledge, again, that the year started off on a positive note around Chinese New Year, around things like the May Day holiday. We saw good spending happening. But in between the trade-in programs and the Chinese subsidies expiring, provinces pulling them back or essentially running out of funds to carry them on, and there being no real event or series of holidays sparking another round of consumer spending, what you're getting all around is pretty soft data. So as I said, the June picture really is...

Just from an economic health of the economy standpoint, you'll see a lot of negative storylines in there. What is the status of the property market? Is that showing any sign of improvement?

You know, I've been particularly positive on property in the sense that I've repeatedly said that the pain is lessening and the data was what was driving that view. Unfortunately, over the last couple of months now, over May and most certainly into June now, we can see now that some of these recent gains that the housing market had made even in 2025 are being reversed, are being lost.

And so, the question is, is this just a temporary blip? Is this along the lines of software consumer sentiment anyway? Or are we headed towards a path now where property actually, instead of becoming less worse, the pain starts to increase instead of continuing to decrease? What about the job market? What does the data say about how well people are doing on the employment front?

Yeah, look, you know, things are, things have slowed down, but I don't think the job market has been that big of a worry. The job market in the larger scheme of things, of course, has not been, uh, has been, it has been a pain point. It's been talked about over and over again, but in recent data, uh, even though of course we've got a slowdown in June, I wouldn't say that the housing market has been, you know, flashing red, uh,

by any stretch of the imagination. Again, China has its long run issues with what's going to happen to their labor force and the fact that there are not enough jobs for young graduates and so forth. But if you just want to look at what's happening right now, you know, I wouldn't put it in the concerning basket. There's been a lot of talk around the AI movement in China and other areas of technology. If you look at the economy on a sector by sector basis, how is technology performing right now?

You know, the thing is, we're not picking up the technological revolution's big economic impact right now. There's no question about the fact that the tech scene in China has become incredibly interesting from the deep-seek moment onwards. But I think some of that, you know, some of the positive things

uh, views of, of where tech in China and the boom of tech in China that was taking place. I think some of that has dampened down a little bit. Nevertheless, um, I think, I think it's, it's, it's going to take a couple of years for us to really start to see its, its impact on the broader economy. Um,

The sector is still exciting. There's just no question about it. So this is kind of dull. I mean, isn't that the way you describe the economy right now? And I'm wondering whether you're seeing any green shoots. Should we be a little bit more optimistic or are things almost in a stagnation?

I think what's going to happen is that as we get closer to the fall, unless something blows up on trade, we will probably get a boost on that export side. You also have to remember that right now, I think companies are having a hard time getting just stuff out because there are not enough container ships.

So everything had frozen and everything had come to a standstill. I think we're going to revive that. So you will see some kind of economic impact of that taking place. However, unless Beijing continues to ramp up stimulus. So the most exciting part, I would say right now, is the fact that you're seeing more fiscal activity than you have in recent years.

And so if they continue doing policy easing on that front, they can get some mileage out of that. They are going to have to figure out a more sustainable way to juice the consumer side. Maybe they'll do some more trade-in programs. So are there reasons to be optimistic? Yes, absolutely. But at the same time, there's no big blockbuster, you know, mega growth story coming out of China right now. And by the same token, there's no big disaster that's looming in 2025 either.

Shazad, we'll leave it there. It's always a pleasure. Thank you so much. Shazad Qazi, COO, also Managing Director at China Beige Book, joining us here on the Daybreak Asia podcast.

So you can focus on scaling up.

When it's time to get growing, there's one platform for all business. PayPal Open. Grow today at paypalopen.com. Loans subject to approval in available locations. For enterprise organizations, managing all your food needs is a tall order.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. It was the first day of trading for the third quarter, so there may have been a bit of rotation in the equity market from winners to losers, from growth to momentum. At the end of the day, stocks were mixed. The Dow was higher, but we had the S&P and the Nasdaq each slipping from record highs. Small caps outperformed. We had the Russell picking up nine-tenths of one percent. The outlook for Fed rate cuts meantime seemed to dim a bit.

on signs of a still healthy labor market. Job openings in the U.S. hit the highest level since November, largely fueled by leisure and hospitality. And at the same time, layoffs declined. We also heard from Fed Chair Jay Powell. He reiterated his wait-and-see stance on rates given the inflationary implications of those tariffs.

Here is Powell speaking at the European Central Bank Forum in Central Portugal. In effect, we went on hold when we saw the size of the tariffs and where essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. Fed Chair Jay Powell there. Joining me now for a closer look at market action is Jeff Grylls. He is head of EM Debt at Agon Asset Management. Jeff is on the line from Chicago. Thank you for making time to chat with me.

Give me your sense of the predicament that the Fed is in right now. Well, I think the Fed is waiting to see what the ultimate impact of the tariffs will be and where we get post-July 9th. You know, our view right now on the tariffs is that you have to remember they're generally a one-time adjustment. So we don't view them as being long-term inflationary. So I think the Fed is just trying to see how many adjustments, where are we going to go? And so our view right now is that the Fed is

still likely to ease in the second half of this year. I think they have room to ease policy. We are expecting growth to come back down and they'll be data dependent and watch where the indicators go. But they're just trying to make sure that they have ample room to ease when needed. They haven't needed to at this point. So that's the monetary side. Then we have to deal with the fiscal side, because today the Senate narrowly passed the president's tax and spending bill. And

Not a lot of movement in the bond market. I mean, yields did back up a bit, more so at the short end of the curve. How do you view the response, given the things that we're describing with the Fed and now this big, beautiful bill? How do you see what the Treasury market is telling us in that context?

Well, you have seen the Treasury market steepen over the last couple of months. So where you have the short end, two years now pricing in around 380. The general view is that you have about 130 basis points overall being priced into Fed funds. And the long end is what has been a little bit more stubborn. So the 30-year has come in from that 5% level, but still stuck around 475, 480. And I think you'll see that long end probably stay a little bit elevated. This bill,

Estimates are anywhere from $2.7 to $3.3 trillion that it'll add over time. The big thing that's going to be interesting, I think, which bond markets will be watching is

Where will growth go? Because if we can get better growth rates, then you don't have as much of a debt to GDP type problem. And the second piece is the tariff policy. I mean, keep in mind that 10% tariffs are on across the board. We've seen receipts go up both in April and May. We saw a much improved trade deficit in May. And so if tariff revenue starts to offset some of these

tax cuts, that will keep the bond market at bay. But at the end, the bond market is going to react to if they think this fiscal loosening is too great. And they'll also look to see what do they do on spending cuts once we get past this big, beautiful bill. So the dollar was steady today in New York trading, but for the month of, let's say, June, the Bloomberg Dollar Spot Index was down about 2%. So we're trading near the lows that we reached back in March of 2022. How are you understanding that

the dollar's role right now as a factor for fixed income markets well i think secretly the trump administration is somewhat happy to have a weaker dollar right i mean the dollar has been pretty strong over the last you know really almost two decades and you could argue that the dollar is over overvalued relative to most currencies so having that weaker dollar starts to make

the trade should cause an adjustment in the trade deficit. So I think the administration is fine with where the dollar is. We don't expect it to continue to weaken too much, but it will be on a gradually weakening path. I think that's something that's been set in motion as the tariffs, again, will remain in effect. We should see trade deficits come down. I think it's a natural reaction to see the dollar weaken. But I don't think that's necessarily going to be this dramatic. I mean, everybody's talking about

massive shifts out of dollar, continued excessive weakness. I argue against that because people in other countries, Europe, that have asset allocations, they move 1% to 2% or 3% at a time. They don't move 10% to 20% at a time. So it'll be a gradual shift, and I expect the dollar to really have moved for the majority for this year, and then we'll just see a gradual weakening trend going forward. So that said, Jeff, how is it influencing your thinking when you look at offshore debt markets right now?

Yeah, we've seen the continued rally in EM local markets, right? So many of these currencies are up anywhere from 5% to 15%. As we look at what policy has been done and where local rates are, we think EM local looks reasonably attractive. I mean, it's moved some, but places like Brazil where you're still getting double-digit yields, 11%, 12%, 13% type yields and even higher,

That looks attractive, and we do expect that as growth starts to slow down in the second half of this year, just naturally a lot of the stimulus that was being done. The tax cuts that have just been passed aren't really going to hit until 2026. So I think that creates this window for the second half of this year where we'll continue to see some easing of rates as –

likely global inflationary pressures continue to stay subdued. I mean, the tariff may have impact on U.S. inflation, but not really on anything else, especially in the emerging markets. But I think we can agree there is an elevated level of uncertainty, and I'm wondering how that then positions you across the curve. Where do you want to focus?

Well, first, let's just address the uncertainty. I think the uncertainty lies with mostly with China within the EM. And I think that's what Liberation Day was about, was targeting China to really try to correct what the administration and many economists have seen as a big imbalance. And beyond that, it's really...

European Union, UK, Japan, you don't hear much about EM as the major focus for trade deals. And I don't think you will. So I think this 10% tariff is pretty much likely to stay. Maybe there'll be somebody who gets announced. So I think that keeps EM at least in a better spot, right? So as far as curves go,

I mean, it's really about picking the right country. So again, I think Brazil can be a beneficiary of this. We think Latin America can generally be a beneficiary. So it'll be a combination of the currency appreciation, which I think you can get anywhere from 2% to 5% over the next 12 months,

And then for those curves where rates are very high, we would go out to the 10-year and even longer parts of the curve to take advantage of the higher yields. So you mentioned a moment ago that in your view, the tariff story is basically a one-time event in terms of inflationary implications. How do you read the inflationary environment right now globally?

Globally, I think for the most part, we are going to be okay. I mean, again, what typically happens in focusing on my history in EM is as you get appreciation in the currencies of major economies, that tends to have a deflationary impact on those countries. So our view is that inflation will remain contained. We don't see a massive amount of

you know, inflation domestically in these economies. So I think that that will remain well controlled and we'll see central banks starting to ease policy again. I mean, keep in mind that they have been on most most countries have been on hiking rates, which is counter to what we've seen in the developed markets. And I think they're going to start to be able to ease those rates now for the next, you know, six, 12, 18 months. Overall, again, getting back to the tariffs,

I don't think it's over, but we're going to see some trade deals. Somebody's going to be held out as an example. But in the end, we're expecting average tariff to be about 15 to maybe 18 percent, not the levels that we saw on Liberation Day back on April 2nd. All right. Good stuff, Jeff. We'll leave it there. Thank you so much. Jeff Grills is head of EM debt at Agon Asset Management on the line from Chicago 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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