Asian Development Bank Lowers Growth Forecast on Tariff Concerns
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. We had a mixed finish for U.S. equities, given some angst ahead of earnings this week from four MAG7 members. And sentiment was dampened a bit as well by news over the weekend that China's Huawei Technologies is set to test a new chip for

Here is Bloomberg's Valerie Taito. Huawei is reportedly preparing to test a new AI chip that it hopes can replace some of those products replaced by Nvidia. This comes from the Wall Street Journal, reporting that Huawei has approached some Chinese tech companies about

testing the new chip. The new processor would put China's capabilities around two generations behind NVIDIA's new Blackwell chip. That is Bloomberg's Valerie Teitel there. Shares in NVIDIA were down today by more than 2%. Now, we're also expecting a flurry of economic data this week. And in a moment, I'll be speaking with Clayton Trick. He is head of portfolio management at Angel Oak Capital Advisors. But we begin this morning in the Asia-Pacific.

The Asian Development Bank has lowered its growth forecast for the continent, the institution saying that U.S. tariffs will shave growth in the region by a third of a percentage point, falling to 4.9% in 2025, and then dropping by a full percentage point in 2026,

to 4.7%. Now, the ADB released its annual outlook on Wednesday, numbers for which were calculated before the April 2nd tariff announcement was made by President Trump. And the ADB's chief economist has already said those numbers will be revised lower in its July report. For more, we heard from the president of the Asian Development Bank, Masato Kanda. He spoke exclusively with Bloomberg Sherry on in Tokyo.

You're really coming directly from Washington, D.C. Tell us a little bit about those conversations about the trade negotiations and how that's really weighing on developing Asia. Of course, we have talked about the challenges, particularly from the trade conflict, geopolitical tensions.

But also we discuss much more about the opportunities because, you know, of course this is a rather difficult time, but we've got to translate these challenges into the opportunities to improve.

We have talked very much about, for instance, the private sector development and private capital mobilizations. And it resonated with the ministers, including U.S. Treasury Secretary Scott Besant and all of the MDP heads, including the World Bank President Jay Banga, and particularly President

I put my ambition to increase private sector lending fourfold to 13 billion annual lending to private sector. How feasible are those plans when the global economy faces a potential downturn given, of course, all of the challenges around trade?

Of course, this is a challenging time, but this is a great opportunity to make more resilience and building the enabling environment for private sector to invest. For instance, through the very good policies, including the deregulations or even the privatization and capital market development,

and regional cooperation, the connectivity, all of them we can support. Do you see the potential and risk of a downturn globally? Of course, we are pretty much vigilant because, as you mentioned, the Asian economies are rather exposed to the global market.

So through not only the trade, but also the financial capital market, by the decreased confidence, the rather weak sentiment. But I think the Asian countries are stronger than in the past, but no room for complacency. So this is the time for

or Asia to boost domestic demand and pursue the sound economic policy and diversify the industries and the trade partners as well. Diversify partners and trading within the region, even more so when you have...

when you're facing these incredible rates of tariffs coming from Washington, D.C.? Yeah, I believe this is an opportunity to even open more. Actually, this is the moment they need more.

Does that trade include China because Washington wants to restrict any conversations with Beijing?

Not really, but of course the United States is a very much important partner for us. The foundational shareholders and one of the largest that I really value the advice is looking forward to even closer partnership with the United States. But also China is a very important member country. So we will try to find a solution benefiting all memberships.

How much of an opportunity is the fact that we could see stronger Asian currencies given this sell America, sell US dollar trade?

It's quite difficult to tell because, you know, particularly the trade situation is full of uncertainty and changing day by day. So what we can do is to protect the regional economies against external shocks and build resilience in the future shocks.

The fact that, for example, here in Japan, the yen wasn't incorporated in the trade negotiations, how important is it for all of these trading partners to separate those negotiations pertaining to trade, pertaining to financial markets like currencies? All are interrelated, but trade and currency are quite different animals and probably needs to be negotiated from the market.

you know, professional point of views, respectively. But also for the policy side, always, for instance, we need to pursue the sound macroeconomic policy, which is the best protection about the currency's values. So, and also the deepening of the capital market, financial market, will be very good in any case. So, you know, the fact we can do and we should do is quite the same.

Japan is one of the first to negotiate with Washington. Could this serve as a model in trade negotiations for developing Asia? Yeah, not really. I don't think so. But anyway, ADB will help all member countries to build their resilience against these things. And if the shocks come,

We have a variety of instruments to support, including the counter-cyclical assistance and also the data management or capital market development, many things we can do. Why don't you think that this trade negotiation model could apply, for example, for the likes of Thailand, Vietnam? We know that they also face really stiff tariffs coming from Washington. But as I said, what they can do and we can assist

is, for instance, the diversification of their trade partners will increase their resilience. So not only inside, for instance, the ASEAN, we are supporting more connectivity amongst ASEAN countries or sub-regional countries,

initiatives but also trying to find more partners beyond the region and also deepening the trade agreement inside the region could be possible including further developing towards the services sectors. Like Prime Minister Ichiba for example was in Thailand, in Vietnam, what sort of cooperation do we need to see more between developing and developed countries?

This is quite simple. Deeper and more open. So in terms of the products, it could be broadened, including the services sectors, and also the level of protection could be lowered further. So there are many things we can do.

It depends on the specific situations. Particularly, each country has their own domestic political situations. So we've got to be very careful. But in principle, probably sticking to the open economy would be good for the region. Masato Kanda, really good to have you with us here in the Tokyo studio. He's president of the Asian Development Bank.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So in the States, it will be a busy week for both corporate earnings and economic data. And I think it's fair to say that a key question here is whether these numbers will begin to illustrate the impacts of the trade war. We're joined now by Clayton Trick. He is head of portfolio management at Angel Oak Capital Advisors. Clayton, joining us from Atlanta, Georgia.

Good of you to make time to chat with us. Give me your sense of where you think the overall economy is right now up against the tariffs that the Trump administration has put into effect.

Yeah, definitely been an interesting start to the year. We really had anticipated this year could have a lot of turbulence. Investors went into 2025 very, very bullish on potential deregulation in tax cut bill at some point in 2025. But we definitely got a lot of turbulence in the short term. I think the U.S. economy or at least capital markets

in the last week really stabilized. But we are at different levels. The S&P is down about 10% from the peak in the first quarter. Corporate credit spreads are a little bit wider, but we are sensing a stabilization here in the markets. It's really trying to see if some of the soft data

which has been getting a lot weaker in the last 30 days, translates to weakness in hard data. And so, the jobs numbers coming out Friday, we're getting ISM report very soon. And so there's a lot that we're going to have to digest as market participants.

We had an interesting piece on the Bloomberg today indicating that the U.S. is still receiving container ships that departed China pre-tariff. And if you accept the idea that it takes maybe 30 days, perhaps a little more for those vessels to travel from China to the nearest U.S. port, we really haven't felt the full impact quite yet, have we?

Yeah, I don't think we have. I think that especially in DC, things are moving very quickly. It does seem that deals are potentially going to get done very fast. So, you know, things could evolve in the coming days and weeks on what deals get done, you know, between global leaders.

But I agree, we haven't seen that full impact yet. The hard data has continued to be very strong. First quarter data looks to continue to be strong. We haven't really seen much of a slowing in the labor market. We really haven't seen a big, large increase in jobless claims, right, and in companies laying off. So overall, the hard data still looks pretty strong. It's really around trying to dissect

when the data potentially does change later this year. And for us, the big question is there are a lot of cross-currents right now happening in D.C. Some are expansionary policy. Some are contractionary policy. It's really around...

what is going to outweigh each other. And we think that returns for market investors are really going to have much larger tails, both in the upside and downside risk. So, a lot of things can really be evolving here.

So we had a measure of manufacturing activity today for Texas published by the Dallas Fed, and it weakened significantly. A lot of the businesses that were surveyed used words like chaos and insanity to describe the turmoil as a result of these tariffs.

And I'm wondering whether or not if things follow the same path, whether the level of pain expressed in market action is going to put some pressure on the administration to get deals done sooner rather than later, or whether you think there's a risk that the administration may stick to its guns and try to get more of what it's after, irrespective of what markets are saying.

Yeah, no, we think that starting to happen, it seems the administration was definitely holding its ground early in April when there was the initial sell-off in the equity markets. It really was the sharp move higher in the treasury yield that really happened over one week from 4% to north of 4.5%. That really seemed to create indigestion, if you will, in D.C. And so it does seem like the...

overall tone is shifting and the data has been slowing to your point that Dallas Fed was a pretty shocking lower number. A lot of soft data through surveys don't look quite good in the beige book talks about, you know, a slowing of hiring.

So all those things are starting to collaborate and create an environment where we do think the tone is changing in D.C. And so that's why we think markets in the short term are at least stabilized. You know, we're not seeing a return of stock market to previous highs. We do think it's stabilized here as the tone is shifting. And there's a lot more discussion around a tax bill that seems a little more imminent. So it seems like things are happening in the background, but

but you know, don't feel like markets are out of the woods yet.

It's going to be a very interesting week when it comes to the economic data. A couple of data points on the growth side, GDP, and at the end of the week, the April employment report. And then we've got numbers that are more aligned with the inflation story. And I'm thinking here of the employment cost index and the report on first quarter PCE. Where are you right now in your view when you look at the balance between inflation on one hand and growth on the other?

Yeah, we're in the camp that typically when you get an inflation shock to tariffs, it is a little more transitory. We think the bond market right now is really pricing a Fed that has changed their tune from an inflation-reducing regime to more of a growth support.

quarter regime. This is the kind of the biggest wildcard. And that's where the markets are pricing in the Fed funds rate to get sub 3% in the coming quarters. So that's a pretty big change in Fed policy in an environment where inflation could rise here. That's a huge wildcard that the market's pricing in. If we don't get the cuts that are expected, it could be quite different. Our

perspective, what we think is going to happen, we definitely think you could see a slight move higher in inflation. But we are in the camp that growth was expected to continue to slow into 2025. So we've been looking for slower growth

in the United States. The U.S. consumer, which is the largest portion of GDP consumer spending, and the consumer was extremely strong, continued to have really strong consumer spending through the fourth quarter. If you didn't have that strong of a consumer, you would have

not had a positive GDP print. And so if you get a pause in a slowing of consumer spending throughout the middle of this year, we think that the Fed's going to be more focused on the growth side of the equation, which we thought was already going to take place before this new kind of self-inflicted uncertainty we're getting in DT. So if growth is going to slow and you're confident that any inflationary impact from the tariffs will be temporary, does that mean there are compelling opportunities right now in the bond market, let's say at the long end?

Yeah, we would definitely agree the bond market looks quite attractive. The figures we were talking about as a team today was that the fixed income market looks very solid, especially amidst the amount of volatility we are facing and headwinds we're potentially facing here in 2025. And so we think there's great opportunities in really investment-grade fixed income and

areas like agency mortgages, even just treasuries. You're wrapped around kind of a 4% treasury yield that's north of inflation, so positive real rate level. So at this juncture, given the really uncertainty you have on growth and the valuations you see in equities, we've been recommending investors look to be overweight, U.S. fixed income, but really focus on higher quality

Given that the tails seem like you could have a lot more, could be a lot fatter later in 2025. We're a little more cautious on lower quality areas of U.S. fixed income. So we're more focused on the front end of the yield curve relative to the long end. But U.S. high quality looks really attractive right now. In terms of corporate versus munis versus sovereign, how are you balanced right now?

Yeah, so we're more weighted to two areas, one being the U.S. homeowner and then also U.S. corporate high investment grade corporate credit. So while corporate credit is going to be more correlated with equity returns, we think that below investment grade corporate credit will be more correlated. We think high quality should actually perform quite well.

The best opportunity we're tilted toward is the U.S. homeowner. Agency mortgages being the primary example, one of the largest bond markets in the world. That is an area that is really benefiting from this higher rate volatility, i.e., you get a much higher income historically today than you do relative to treasury yields. Also, investors tend to overlook areas like non-agency mortgages and asset-backed bonds. Those markets, it's really never fully retraced

from the sell-off in 2022 that we saw equities and

corporate credit retrace, not agency mortgages and asset-backed bonds, never got back to the levels that we had in '21. And so we see that as really the best opportunity for later in this year. We've been overweight those areas of the market, you know, really throughout '20 and '25 to start, and we plan to continue to do that in the second quarter. - All right, we'll leave it there. Clayton, thank you so much. Clayton Trick, he is head of portfolio management at Angel Oak Capital Advisors, joining us from Atlanta, Georgia, 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. There are presentations.

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