$800 Billion China Risk, Powell Holds Line, No Rush to Russia
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This is the Bloomberg Daybreak Hour podcast, available every morning on Apple, Spotify or wherever you listen. It's Thursday, the 17th of April in London. I'm Caroline Hepke. And I'm Stephen Carroll. Coming up today, Goldman Sachs warns that US investors may be forced to dump $800 billion of Chinese stocks in a full financial decoupling. Stock markets fall as Jerome Powell signals the Fed is in no rush to cut interest rates.

Plus, no rush to Russia. Companies remain wary of returning to the radically changed market amid talk of a warming of relations between Washington and Moscow. Let's start with a roundup of our top stories. Goldman Sachs says US investors could be forced to offload up to $800 billion in Chinese stocks in a worst-case financial decoupling with China.

The bank joins others bracing for deeper US-China tensions as the White House looks to rally allies against Beijing's manufacturing dominance, potentially offering tariff relief in exchange for support in a move seen as an effort to encircle Beijing. But Carlyle Group CEO Harvey Schwartz says that global economic growth relies on the two countries finding a way to work together.

I don't think it's a good outcome if the number one and two largest economies in the world haven't found an equilibrium around cooperation. It's really critical for the global economy and for trade that we and China find a place of cooperation and an equilibrium. And I think the faster that can happen, the better it is for all business activity globally, especially in the United States.

Schwartz was speaking to Shinali Basik for Bloomberg Original's upcoming series Bullish. Meanwhile, China's President Xi Jinping touring Southeast Asia called for unity around what he called an Asian family.

And President Donald Trump says that there was big progress in talks with the Japanese trade delegation on Wednesday. Tokyo is working to avoid a snapback to higher rates of U.S. tariffs, which are currently paused for 90 days. Isabel Reynolds is Bloomberg's Tokyo bureau chief.

From the Japanese side, obviously the ask is very obvious. They want all these tariffs removed. They're subject at the moment to the minimum 10% tariff. Also, their vital car industry is subject to 25% tariffs already. And of course, they want to get away from the prospect of having 24% tariffs across the board. Isabel Reynolds says that the US-Japan talks are being closely watched as a test case for other nations uncertain over what concessions President Trump will seek to extract.

Jerome Powell is doubling down on his message that the central bank must ensure tariffs don't trigger a more persistent rise in inflation. Speaking at the Economic Club of Chicago, the Federal Reserve chair made clear that the White House's sweeping levies on foreign imports are front of mind for policymakers. Trade now is the focus and the effects of that are likely to move us away from our goals.

Unemployment is likely to go up as the economy slows in all likelihood and inflation is likely to go up as tariffs find their way and some part of those tariffs

come to be paid by the public. Powell's comments deepened a sell-off in US stocks yesterday. The S&P 500 index closed down 2.2% while the Nasdaq 100 plunged by 3%. Treasuries, however, rallied for a third day on Wednesday as investors refocused on the asset as a hedge against risk.

US consumers are rushing to make big ticket purchases before tariffs feed into prices. Retail sales jumped by 1.4% in March, the largest move in more than two years. Professor of Public Policy and Economics Betsy Stevenson says that it will be a short-lived boost.

It's always surprising to me how many business owners just are like, wow, this is great. We got this big bump up in sales. This is going to be going on forever. It's not. It's actually pulling sales forward. People do expect prices to jump up. And then we're going to see, you know, sort of a exaggerated or magnified slowdown that comes because people tried to get ahead of those price increases.

The University of Michigan's Betsy Stevenson speaking there. Cars were a key driver of the sales increase, despite brands like Volkswagen promising to keep prices flat until May as a way of reassuring U.S. buyers. Data suggests a buying frenzy, but consumer sentiment is near its lowest, reading on record in data going back to the 1950s.

Let's bring another perspective on the tariff story now from one of our key conversations on Bloomberg Radio. The question of how far and for how long Donald Trump's trade war will go on is on many investors' minds. Here's the view of Janet Henry, Global Chief Economist at HSBC, has been talking to us about the potential lasting effect.

of these trade announcements. The intention of the US president is to relocate manufacturing to the US, but manufacturing only accounts for less than 10% of US employment. It's the damage that will be caused on the other 90% of employment from that much weaker spending. But also he really does want to significantly reduce the relationship between the US and China. And that's where there will be knock-on impacts within the rest of the world. And I think it is longer term.

HSBC's Janet Henry speaking to us on Bloomberg Radio, her point being underlined by the pressure now from the Trump administration on their partners to squeeze out China.

Well, gold hit another all-time high as volatility on Wall Street drove investors to once again pile into the safe haven asset. Bullion rose as much as 0.4% to bring the yellow metal close to $3,360 an ounce before pairing those gains. Gold has climbed almost 28% this year. That is out

pacing the 27% gain that it managed to notch up in 2024 as the escalating trade war creates anxiety over a possible global recession.

The European Central Bank is expected to cut interest rates today amid US tariff-related growth concerns. According to an almost unanimous Bloomberg survey of analysts, borrowing costs will be lowered to 2.25% from 2.5% later today. The unveiling of US trade levies earlier this month has quashed talk that today's ECB meeting could bring a pause in monetary easing beyond January.

today, investors are pricing in at least two more rate cuts by the end of the year as a stronger euro helps to contain price pressures. And those are our top stories for you this morning. Let's run you through the markets then. MSCI Asia Pacific Index is up 0.6% this morning. You've also got stock futures for the S&P 500 gaining 0.7% and NASDAQ stock futures up 0.8%. Your stocks 50 futures though are down in the red 0.2%. A few

Thank you very much.

Japanese yen this morning is down by half of 1%, although Japan's Akazawa was saying that currencies weren't discussed in those U.S.-Japan tariff discussions yesterday. You've also seen a lift to Japanese equities because of those discussions. The euro this morning is edging down three-tenths of 1% against the U.S. dollar, and that gold spot price down a tenth this morning, trading at 3,385.

and 39 with the 10-year US Treasury yield now at 429, up almost two basis points. Those are the markets. In a moment, we'll bring you more on the latest warning about potential consequences of the US-China trade war, plus our reporting on how Western companies are thinking about the potential for sanctions on Russia being lifted.

Before that, though, another story caught my eye. It's kind of tariff related, kind of Trump related, but also not at all. So U.S. politicians may be eyeing up Greenland for its strategic location, for all of those natural resources. But the island also has got its own kind of specific story around trying just to tempt tourists to come to visit.

There is a newly expanded airport in the capital city. Apparently, there are going to be flights starting in June twice a week into New Jersey, to Newark in New Jersey. Already connections to, obviously, plenty of flights to Denmark, Iceland, France, for example. I was looking at New Carport website this morning, actually. Oh, were you? Yeah.

Maybe it's your holiday destination. Well, obviously, we know that it's very sparsely populated, only 57,000 people on the island. They get lots of tourists, but apparently only kind of day tourists because often you go on a boat on a kind of cruise or something. Now they want more high value tourists to come to stay overnight to sort of enjoy the island. Yeah, it's this idea of opening up

the accessibility of the island, but doing so in sort of a carefully thought out way where they're not bringing in huge numbers, but as you say, bringing in people who are going to spend quality time and crucially quality money in the place as well, that's going to be able to, I suppose, expand some of the economics involved. And I mean, the attitudes of people that our colleagues spoke to

in Greenland as well is very much that, that it should be, you know, people who are kind of coming and interesting and learning, but people already have a good quality of life in Greenland. They don't need to be making massive amounts of money from tourism. Well, I learnt also a new word from our reporter, Jackie Caradonio, and that is salt box house. I didn't realise that the homes in Newk

that have that long kind of slanted roof. Apparently, that's called a saltbox house. I didn't know that. This is a Friday fact for you. Well, you can read more on Bloomberg.com and on the Terminal.

Let's bring you more on our top story now, though. The escalation of the trade war between the U.S. and China could see U.S. investors forced to offload up to $800 billion worth of Chinese equities, according to estimates from Goldman Sachs. Let's bring in our Asia Stocks editor, Catherine Nye, for more. Catherine, great to have you with us. Talk us through what Goldman is saying. Under what conditions would they see this sort of outflow happening? Goldman is putting out quite a forecast here. So they're looking at sort of the entire universe of

holdings by U.S. institutional investors. And they're doing all the math in terms of how much they own of U.S.-listed Chinese stocks, as well as U.S. institutional holdings of Hong Kong and Chinese stocks listed in their respective locales. And doing that math, they've come up to $800 billion. And this would be only in this extreme scenario of

financial decoupling if the U.S. administration does move forward and kicks out all of these Chinese companies from U.S. exchanges and puts in this kind of blanket banner, so to speak, of not allowing these U.S. institutions to buy Chinese equities. Yeah, they also did the flip side calculations of what it would mean from the Chinese side of things with the U.S.,

What would this mean, though, for Chinese companies, you know, this whole idea of decoupling?

I mean, this is the nuclear option, right? This has been a long, at-risk kind of thing. We saw it even back in 2021, 2022, when there was this risk of possibly being kicked off of U.S. exchanges. These are the two economic superpowers, two markets here. This would obviously hurt China's market and Hong Kong's equity markets, but obviously it would

also have huge ramifications on the U.S. equity market. These are really key companies here. The likes of these giants like Alibaba, JD.com, Baidu. But we're also talking about companies that are just listed in the U.S., like PDD that owns Taimou.

And some of those names, of course, quite familiar internationally as well. But kind of broadly, how important are these financial ties between the US and China? And how have they been affected already by the trade war?

So, like many other countries, obviously, there's been gyrations in the equities market here in Hong Kong and in China. The market has tanked. And I think that Hong Kong in particular, where a lot of these Chinese companies are listed, we went from being the best equities market in the world to -- I wouldn't say one of the worst -- losing a lot of those gains.

This would be catastrophic. Since what happened in 2022, a lot of investors have already started, if they were able to, switching their shares

like Alibaba, moving their U.S. shares into Hong Kong. But a lot of these companies, the liquidity is not quite the same in Hong Kong as in the U.S. So, this would be quite detrimental. This would be the biggest blow of massive proportions that we've seen. There's just a lot of worry. And I think that Goldman, along with Morgan Stanley and Jefferies and UBS, they're saying this is an extreme scenario. I don't think that there's a lot of people who are really betting that this is going to happen.

But, I mean, we heard from Scott Besson. I mean, that is a risk. And who knew? I mean, I didn't have this on my 2025 bingo card, but this is back on the table now and lots of worries. And the market hasn't quite responded to it. I mean, the Nasdaq Golden Dragon is still outperforming the S&P this year. So it's not like people are saying, you know, people aren't actually trading this yet. But it's something that investors are keeping their eye on because any noise here could cause major jitters. Yeah.

Yeah, absolutely. And I think just worth citing, you know, what Goldman uses, the words that they have in their assessment, uncertainty, extraordinary volatility, concerns about global recession and decoupling. You know, I think kind of reflecting some of the things maybe that the markets are thinking about in terms of scenarios, at least. Catherine, thank you so much for your time. Bloomberg's Asia Stocks editor, Catherine Nye.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on emirates.com. Fly Emirates. Fly better.

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Donald Trump's efforts to secure a ceasefire in Ukraine have so far fallen short of their stated aim, but that hasn't stopped an increase in chatter around what happens when Russia eventually opens up again to Western companies. Bloomberg's Russia economy and government editor Greg Sullivan joins us now for more on this story. Greg, what do we know about what a post-sanctions return for Russia might look like?

For one, right now, it's still very early in this process. But what's interesting to note is that Russian President Vladimir Putin has actually tasked his government with coming up with a framework for what that kind of return could look like. Now, in Russia, among officials and companies, there's concern about a potential return of Western companies, because there's been a whole bunch of new homegrown companies that took advantage of the space.

after these Western companies exited post-invasion. And they're worried about the competition that might come from return. So as part of that framework, one of the proposals is that some of these Russian businesses might actually get a say on who gets to return to certain sectors. Some other early proposals that we've seen include asking companies to localize some production or even agree to technology transfers.

One of the interesting things we've heard, and we've heard it quite consistently from officials and even Vladimir Putin himself, is that they don't want these companies that sold at fire sale prices—Hundi, for instance, sold their subsidiary at a nominal value of $111—they don't want them to come back in and reclaim them cheaply. They've been pretty adamant that these companies will have to reclaim them at market value. Nonetheless, there are signs of interest. Putin's economic envoy, Kirill Dmitriev, he's been in the news a lot lately.

He said that he met with 150 American firms that are still working in Russia at a meeting this month. So there is still some interest in a return to this market. Okay. What is the perspective of Western companies then looking at this in terms of a potential opportunity? I mean, how realistic is it really for firms to return now or at some point in the future?

At the moment, it's not very realistic at all. A lot of companies are actually worried about potentially returning and having to leave again. If we zoom out a little bit on the geopolitical front, there hasn't been much apparent progress in the peace talks. Attacks have still continued. The war is very much...

ongoing. And, you know, one Kremlin official we spoke to was very explicit. He said that nobody has been knocking on the door yet. I would note, however, that there are still companies that never fully left. PepsiCo, for instance, is still a player in the dairy and milk market in Russia. Some foreign lenders are still present.

But even for companies that are still there, they're still wondering what will a return to full operations potentially look like, or even being able to sell and finally exit again, as some of them have not been able to in the current market situations. So for now, what we see is companies doing a lot of due diligence, but not planning an imminent return. It's very clear that risk reward calculations have changed from the 90s and the 2000s. What about the buyback options that some companies had when they sold their assets in Russia?

Well, these were really interesting. Some of the big Western companies, when they were exiting and selling their assets, they included these buyback clauses, these options to be the first buyer or potentially the right of first refusal. One such company was actually McDonald's,

But McDonald's has had a very successful successor. The franchisee who bought it, he started Vkusna Ytocna, and it's actually seemingly done quite well, at least on paper. Last year, they doubled their revenue in ruble terms from pre-war levels. So even with these buyback clauses that some of these companies have included, it's not entirely clear those will even stand or work. A lot of these homegrown companies, if they have a say in who gets to return,

that might put up obstacles to the buyback clauses, or they might impose onerous conditions on the returns. So even with them, it's unclear how they will work, but definitely interesting that many of these companies took that precaution before exiting.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepke. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day, right here on Bloomberg Daybreak Europe.

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