A Focus on Tariffs as S&P Slides Into Correction
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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. So we made it. It's the final trading day of the week, one that has been characterized by elevated market volatility, and that has very much been connected to the story on U.S. tariffs. The consensus seems to be that these tariffs will lead to much slower economic growth, possibly a recession.

Let's take a closer look at what we have seen in markets and where we may go from here. Joining us now from Singapore is Mary Nicola. She is Bloomberg Markets Live strategist. How would you characterize this week?

Oh, it's been a rough week. Let's say just happy Friday from us here in Singapore. It's obviously there's the focus on the tariffs. And then, of course, you have the government budget deadline as well. So there's been a lot of heightened volatility as a result. But.

Of course, the trade spat, this constant back and forth on tariffs and then, of course, the retaliation measures that other countries have been taking as a result is keeping markets on edge. And of course, here in Asia, where potentially they could be they're going to be affected by all of these tariffs.

This week hasn't been very good to them. Is it dollar positive, though? Is that really the story of the week when the U.S. begins to take these extreme measures that the dollar becomes the beneficiary?

Yeah, you would think so. Because let's say if we look back at the dollar smile, so the dollar has been benefiting from US exceptionalism for quite some time. Now that story has faded and the narrative is now shifting towards does the dollar start benefiting from a haven status? And there were pockets of that seen over the course of the week. But for example, right now, it'll be very difficult to invest in emerging market currencies when there's

so much volatility, when the US is going to slow, so is the rest of the world and most likely is emerging markets, especially when you don't see that strong recovery in that pull really coming through yet from China. So you would think that especially against emerging markets, the US dollar is going to gain.

One of the things that's been underpinning dollar strength, and you and I have talked about this in the past, is Fed policy. Today, we heard from the former head of the New York Fed, Bill Dudley, and he was saying the Fed could essentially be in a bind if tariffs lead to slower growth and then at the same time higher inflation expectations. So it could be setting the stage for something that feels a lot like stagflation, does it not?

Absolutely. And I think you're getting whiffs of that coming through. And the last thing that the market wants to see is stagnation, slow growth, no growth, and then higher inflation. Because at that point, you don't want to keep on to any U.S. assets. So that really hurts.

U.S. equities, that hurts the dollar. You really don't know where to go, but you're trying to look for alternatives. So right now, where the alternative is or where you're seeing some positivity is coming from places where you're seeing, for example, the looser fiscal policy. So from Europe and China. But at the same time, you know, the Fed is just stuck in such a

has seen a more difficult trajectory for their policy given these headwinds. You were talking about haven status a moment ago. Is it related to the dollar? Has the yen been a haven at all in this period?

Yeah, we've started seeing pockets of the yen. And obviously, the yen has an extra tailwind coming through because the BOJ has been a lot more clear about its objectives and saying that it's not concerned about the recent rise in yields and that the economic outlook is being realized, almost setting the stage for next week's meeting to be more of a hawkish hold. And that's going to get yen bulls quite excited. So when are we expecting the next rate hike from the BOJ?

So, the market is currently not even positioning for anything next week. There's about a 24% chance for something in April, but I would suspect that if we get a hawkish hold, that could increase those odds quite significantly. But a lot of the expectation for it is going to be further out, more so towards the middle of the year where markets are currently pricing.

But based on the rhetoric, we could see that moving a lot sooner rather than later. You were also talking there briefly about China's stimulus. It's not just what's happening on the fiscal side. It's happening vis-a-vis the PBOC, right?

Yeah, so the currency has been really quite stable, especially in what we're seeing. And the stability of the currency has been absolutely crucial. What has been quite disappointing is messages from the PBOC that they're not looking to cut anytime soon. And that's been quite disappointing. But where we're seeing is that they're

anchoring the currency and the anchoring in the currency has been quite important in terms of how it guides other currencies and it's been the anchor of stability. So you haven't seen drastic losses in other currencies as a result of this stability in the Chinese yuan. What about other markets that are especially prone or sensitive to changes in trade policy? I'm thinking of South Korea in particular.

Yeah, South Korea is one of the ones that is probably going to be one of the hardest hit. Not only is it a small open economy, but it also has the U.S. runs a deficit with Korea. So that's also in the eye of the storm. Anything that we're seeing in discussion on steel, aluminum, oil,

autos those are all put korea in a particularly vulnerable position so we have to keep in mind too that this region is filled with a lot of small open economies so if that's if if these trade wars escalate or this trade spat escalates a lot of these countries are going to be very hard hit you mentioned fiscal stimulus or fiscal spending at the very least happening in europe especially germany

And we've talked a little bit earlier in the week about money flowing into those European markets. Is that something you expect will continue? Yeah, so it looks like there's some hiccups right now that the German parliament has experienced in terms of passing a budget. I think once we get that budget solidified and confirmed that we're going to see more defense spending and more...

more infrastructure spending, I think Europe has significantly potential upside. Because remember, we've

Germany especially has been marred by a couple of years of stagnation. And so it now looks like, especially with more spending, the outlook for growth looks a lot more optimistic. And that really can help push equities and the euro. You mentioned the BOJ meeting in the week ahead. Are there other things that you're looking at next week that really have the potential to move markets other than the tariff story?

Yeah, so the China data dump on Monday is going to be big because of the fact that we're trying to see if the fiscal push is still coming through. We saw that in the data, the loans data, especially in January, where we started seeing fiscal stimulus coming through and having an impact.

But now, because of the measures that the government has announced, every single data dump that comes through from China is going to be highly scrutinized to see whether a lot of these, if the policy implementation is really coming through and coming through into the data. So I would say that's one of the main ones. Of course, the Fed...

as well, especially because they're releasing their forecasts and their projections. So, do they start showing, as we discussed earlier, do we start seeing slower growth and higher inflation? Because that would really spook the markets. So, before I let you go to start your weekend, you're in Singapore, and we know that that is a particularly sensitive market to trade flows. What is the mood right now in the Lion City?

Confusion, I would say. I think it's more of a it's definitely taken on a much more somber tone in terms of where does this leave us and how are we going to be affected? So there is a combination of uncertainty. There's a combination of confusion. And of course, there's always that glimmer of hope.

Because we've seen President Trump renege on policies over and over again, is that does he renege on some of these tariffs as well? And does he just use them as a bait in terms of getting a better deal, which still shows there's a glimmer of underlying hope. But I think just like what we're seeing in the U.S., there's just a lot of uncertainty out there.

out there. No doubt about it, especially when you consider that those reciprocal tariffs have yet to take effect. I think we're expecting some sort of announcement as soon as April the 2nd. Mary, thank you so much. Enjoy the weekend. Mary Nicola there, Bloomberg Markets Live strategist, joining us from our studios in 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. It's

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.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. The equity market retreated into a correction today. That was after some heated rhetoric on the trade war. President Trump threatened to enact a 200% levy on European wine, champagne, and other alcoholic beverages. He made this threat in response to the EU's plan to tax American whiskey. Now, I think it's painfully obvious that the EU's plan to tax American whiskey

that Trump's policies on trade have rattled nerves in global markets. For a closer look, let's bring in Sandy Brager. She is the chief client officer at Experian, joining us from San Francisco, California. Sandy, thank you for making time to chat with us. Where are you right now in understanding the risk of this tariff policy? I mean, we've been talking a lot in the last few days about the weakness in the equity market and about the fact that yields have come in just a little bit. Is this concerning to you right now?

Doug, it's a pleasure to be back. And it is definitely something that we're watching. It's early days in all of this new policy matter. Things are changing by the hour. We do have some concerns about how this could play out, but there is, we think, more stimulative news to come from the administration in the form of tax cuts and deregulation. So it is a little...

It's disappointing. The sequencing is a little disappointing to start with the tariffs and spending cuts. That's causing a lot of concern. And so we've definitely been holding clients' hands as we all try to understand exactly what's going on. But in the near term, it's not causing us to make any changes to our portfolios.

It's interesting that you make that point about kind of M&A and activity. Bill Dudley was making a similar point. Expectations before Mr. Trump was sworn in were that the administration would work vigorously at trying to get some of the regulations passed.

kind of dialed back and merger activity would pick up. We really haven't seen that at this point in time. The focus has been clearly on trade policy. Does that concern you a little bit, that the M&A part of the story is still kind of tepid?

Well, we do expect it to come. So we're not disappointed, maybe a little more annoyed because the markets, you know, really are concerned about what's happening from the tariff perspective. And people are really playing that forward and being worried about recession. We think it's still early days. And we think that it's really important for people

our clients who are corporate executives, family business owners, and entrepreneurs to remain invested and to maintain very diversified portfolios. We think that's going to continue to help as it has over the last several weeks. Dudley was also saying that what we're dealing with right now could put the Fed in a bind, which is to say if tariffs lead to the combination of slower growth and higher inflation expectations, that sounds to me a little like stagflation. Is that a risk that you share?

Well, you know, I'm glad I'm not working for the Fed right now. I think it'd be very difficult to administer monetary policy when there's all this fiscal variables in flux and they're changing rapidly. In terms of our outlook, we

we think that the key here is the labor market because right now inflation, it's not, it's not decreasing as quickly as people would like. It's actually, the progress is slower. But it does seem to be cooling in most areas outside of housing, which we think is generally positive. But we think the labor market's really important here. So if we see that inflation remains sticky and,

the labor market stays strong, then we think the Fed will just continue to maintain policy rates

which will be good. And if we do see some slack in the labor market, then I think we would be in a position where we would expect Fed to cut rates. And it's really a matter of how quickly they can fight inflation and then what is happening with growth in the economy. I alluded to the fact a moment ago that we are now technically into kind of correction territory. Does that lead you to

maybe identify some opportunities given the pullback that we have seen in stocks? Are you still feeling that we could perhaps trade lower from here? We think volatility is likely to continue, Doug. And so...

The way we've been thinking about portfolios and deploying them is to be well diversified, as I mentioned before. And we do see some opportunities in that. And they've been playing out as the S&P 500 has taken its recent dip. So

We definitely have some allocation to bonds. We're staying on the short side there. Sorry, the shorter term side there. In equities, we think there are some great opportunities around the globe in the U.S. as well as overseas, particularly in the areas of the equity markets that haven't rallied as much in recent years as those MAG7 stocks.

So I'm talking about value stocks, quality stocks and small cap stocks here in the U.S. in particular. We think that if there's investors wanting to take more risk in the portfolio, small cap U.S. stocks definitely has some room to run over the next several years.

Outside of the United States, we're pretty excited about Europe overall from a valuation play. Valuations are generally lower over there. And we're definitely keeping an eye on the developments in Germany as a potential catalyst for upside economic growth. Because it does seem like that country is getting ready to spend some money soon. I'd like for you to kind of give me...

Maybe your definition when you talk about quality, whether a company like Adobe represents a quality name. The stock was down 14% today on a disappointing outlook. I mean, it's unbelievable how sometimes...

a stock can be punished severely with the slightest miss in terms of investor expectations. Is that, I know maybe you can't comment on specific names, but with a company like Adobe, when you see a pullback to that magnitude, does it get your interest at all?

Yeah, I think, you know, to answer the first question about quality, for us, it's companies that are positioned to do well during good economic times and bad economic times, and also companies that have very strong balance sheets, so little or no debt. So that does tend to include many tech names, healthcare providers, financial services, and certainly within those types of companies, companies

When there is a pullback on the stock price and they become less expensive than they were from a long-term perspective, we do think that there are opportunities there. But the reason why we like these quality companies is because they are in general, and especially on a diversified basis,

better positioned to do well when there's volatile markets. And as I mentioned, we are expecting volatility to continue. We also like focusing on low volatility stocks in the portfolio. They've been doing pretty good this year up north.

you know, 4% as of today when the S&P 500 is down about 6%. So this diversification is really important. A lot of folks get tricked into thinking because they have index holdings that they have a diversified portfolio, but with the S&P 500 in particular, so concentrated among a few stocks, there's not nearly as much diversification there as people think. And we think there's opportunity outside of those really big holdings.

So you deal with a lot of clients directly on a daily basis at a time when it's much easier for people to kind of track moment to moment the fluctuation in market activity and at the same time track their net worth as well.

Do you see this route right now that we have seen in the equity market having potential at all to kind of feed on itself and take the economy down with it? I know tomorrow we're going to get data from the University of Michigan on consumer sentiment. But if sentiment were to erode here, does that put us in a very precarious situation?

I do think there is a possibility for all sorts of outcomes. And I think it's important to be prepared for them. When we're working with clients, one of the first things that we do during volatile times is we review their long-term financial plan with them so that they have a chance to understand what the market volatility means to them from the perspective of their personal long-range plan. So we're putting it in their context and that

usually very helpful. Many of our clients have very long investment time horizons. And so it's important to remind them of that. And it's important to remind them of what their reliance is on market returns. I think having lived through and worked through many, many volatile market periods,

One of the biggest lessons is for investors to stay fully invested. The biggest risk, I think, to investors is pulling out of the market because while that can make you feel good when things are falling around you, you never know when to go back into the market. And chances are if you wait till you feel comfortable going back in, the market is already rallied back.

So I'm not sure what will happen from here, Doug. We're not, we don't expect the sky to fall. You know, we, we, we think things are okay. But, but there are a lot of things in our world that are in flux. And so we think,

investors should be ready for all of that and should remain invested and really think about their portfolio from what they need it to do for them. Okay. So if a client wants to dial back his or her risk profile, let's say lighten up on the equity side, choose the bond market instead. Is there a point at the curve that you feel represents the greatest value right now? You know, I think one of the ways we would also recommend clients

be diversified beyond stocks and bonds is adding diversified strategies into their portfolios. So these are strategies that may be grounded in bonds and stocks, but they're traded differently. So think liquid alternatives, managers who are investing around the globe without being constrained to any particular benchmark.

investments in things like gold. Those are really powerful diversifiers in markets like this. So

At this point, we've been deploying these three general asset classes, bonds, equities, and diversifiers for quite some time. And so I would say there's no real magic allocation between those three. It really just depends upon where on the overall risk return spectrum the client is trying to be and how their own risk tolerance measures up.

to various asset allocations. Sandy, we'll leave it there. It's always a pleasure. Thank you so much for making time to chat with us. Sandy Brager there. She is the chief client officer at Asperian. She's joining from San Francisco 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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