Stock Rally Loses Steam After Wavering Tariff News
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Earlier today, U.S. Treasury Secretary Scott Besson seemed to cast doubt on a timely resolution to the U.S.-China trade war. He said the White House had not offered to cut tariffs on China on a unilateral basis. Now, those remarks came in response to a report indicating the U.S. was considering slashing levies on Chinese goods. The Wall Street Journal reported in some cases tariffs could be cut by more than half.

Prior to the report, China signaled it was open to trade talks with the U.S. Here is Treasury Secretary Besson speaking at an event hosted by the Institute for International Finance in Washington. If China is serious on less dependence on export-led manufacturing growth and a rebalancing toward a domestic economy,

I think they use the term dual circulation. Well, right now it's really singular circulation. And if they want to rebalance, let's do it together. That is Treasury Secretary Bessent. He went on to say a full rebalancing of trade might take two to three years.

Then later in the day, after the closing bell, President Trump said China may receive a new tariff rate in the next two to three weeks. Here's Trump. We're dealing with a lot of countries right now and could be with China, but maybe we'll make a special, you know, a deal.

And we'll see what it will be. Right now, it's 145 percent. That's very high. It got there because of the fentanyl. They're sending, you know, massive amounts of fentanyl into our country. At the same time, President Trump dismissed a report in the Financial Times that he's planning to spare carmakers from some of his most onerous tariffs. He told reporters he's not considering changes to tariffs on autos or on auto parts.

Earlier, the FT had reported a move is being considered to exempt car parts from the tariffs on U.S. imports from China, put in place to counter fentanyl production. Now, carmakers reportedly would also get a break from tariffs on steel and aluminum.

For more, we heard from Bloomberg MLive market strategist Mark Cranfield. He spoke with Bloomberg's Paul Allen. And Mark, some more soothing rhetoric coming out of the Oval Office today. And we did see the U.S. dollar strengthen, stocks rally as well. But considering how dependent markets seem to be on news flow at the moment, how sustainable does this rally look?

Not very. I would suggest chaotic conditions are not what investors need, particularly if you're a medium-term, long-term portfolio manager. You need things to be a little bit clearer. A colleague in New York, Cameron Christ, was writing overnight

that the the realized volatility on the S&P 500 is getting close to 60%. We've never seen those kind of levels except during the global financial crisis and the Wall Street crash in the 1930s. So that shows you how extreme these kind of day-to-day swings are that we're seeing in the most important financial index in the world.

Now, the only way for this to resolve itself is either we go through a quiet period, a few weeks of limited trading where volatility gradually dies because the ranges are smaller.

Or the market needs to decline substantially to take out that extreme level of volatility. One or the other needs to happen. And when you see that the trade talks so far have been pretty inconclusive, there seems to be a lot of changing of mind about what they mean, where they're going to be imposed. Investors are not going to take this well. They're going to take a defensive approach.

And that likely means that U.S. equities need to decline further. That will be the outcome that resolves this extreme period of price action, which cannot, it's unsustainable. It cannot go on like this without big things breaking. And the way for that to happen is for money to gradually ease out of the markets faster.

and for U.S. markets to lose their premium over the rest of the world. We're already beginning to see flows into Europe, into China, parts of Asia. That is likely to continue. And the result also will lead to a weaker U.S. dollar as well. Even though Mr. Besant might not have a clear target for the yen himself.

Financial markets seem to have decided investors seem to prefer the idea that the US dollar is still overvalued and it needs to adjust with the yen, the euro and the Swiss franc. The main beneficiaries of that, that is likely to continue to for a while. So this theme of sell American assets looks as though it still has quite a way to play out unless we have a very quick resolution to all the trade talks, which doesn't seem to be on the cards for now.

Yeah, certainly UBS is out with a note today as well with dollar weakness continuing to be a theme there. Although we have seen yields on some of these longer dated U.S. notes starting to fall a little. PIMCO saying they're looking attractive. What message is the bond market sending here?

It's still a very mixed signal. I mean, to be honest, investors listening to this wouldn't expect anything else from PIMCO. PIMCO is a fixed income fund manager. What else are they going to do with their money apart from buy bonds? So you would expect them to be supporting the market. Steepening of the curve is the bigger theme here. It has flattened slightly this week.

But every US Treasury auction continues to be a landmine. We have a big one coming up next week, which is a 10 year auction to get through. Every auction this week has been pretty dicey. They've had to cheapen up the yields, even the five year last night, which is usually a very easy one to sell. They had to squeeze some extra yield out of the market to make it go through. There's a seven year tonight, which is going to be pretty tricky as well.

Foreign investors are the key to this, and that's where people will get the idea whether they really support the US yield curve or not. Most likely, they will stand back until yields are very attractive and the curve is much steeper to compensate them for the fact that if the US continues on this policy path, investors will be expecting the major rating agencies to downgrade the United States. It seems inevitable that there will have to be

The fiscal situation in the States is unsustainable. The trade situation is unsustainable. They need to stop the growth. The growth projections in the United States are getting lower and lower. That means that it will affect the credit rating. People are starting to price that in. And the simple way to do that is to steepen the U.S. Treasury curve, which ultimately means that long-end yields will need to go higher.

We also heard some remarks from President Trump about Jay Powell today. Of course, it was 24 hours ago that he said that he had no intention to fire Jay Powell. And now Trump's saying, look, he might pick up the phone and call him regarding rates. I mean, it's a bit of a tightrope act here for the Fed chair. It does suggest, though, that the two haven't spoken yet. What's the path ahead for Jay Powell here? How does he react?

It's an extremely difficult situation for everybody at the Federal Reserve when you have the president speaking so often. It's a very unusual situation. People in the central bank in the United States are not used to almost daily messaging coming from the White House. They're usually left alone to do their job, set monetary policy, and once in a while they report to Congress, usually twice a year, to give them an update. That's usually as far as it goes. The big question for investors is the independence question.

of the central bank in the United States. So far, President Trump has not addressed that at all. He speaks about Mr. Powell on a personal level. He does not speak about wanting to sustain Federal Reserve independence. That is what investors want to see. That's what they have been relying on for years and years. If they don't get that clarification, again, it will mean there has to be a discount for US assets, particularly for treasuries.

and the US dollar, because that is where foreign money assesses every country based on partly whether the central bank can make decisions for monetary policy based on the data it sees, not by looking over its shoulder to see whether the president thinks it's good or bad. Foreign investors need that clarity and reassurance that the Federal Reserve can make its decisions based on the data it sees and do its job. For the time being, that is not a clear outcome.

That's Bloomberg Market Live strategist Mark Cranfield there in conversation with Bloomberg's Paul Allen here on the Daybreak Asia podcast. Want to understand trends shaping the global investment landscape?

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. We had earnings this morning from the South Korean chipmaker SK Hynix. The company's operating profits soared by 158%. Now, this reflects a global race in AI as well as a stockpiling ahead of U.S. tariffs of both advanced chips and memory chips used in both PCs and smartphones.

We heard earlier from SK Kim, the executive director at Daiwa Securities. Here's Mr. Kim in conversation with Bloomberg's Paul Allen in Sydney. SK, a blowout set of numbers here. I just want to start by getting your initial response to what we've seen this morning. Yeah, SK Heinrich announces some of the upbeat market expectations. So I think that the upside is coming from DRAM.

So especially the fishment growth, the actual result is higher than previous company's guidance. So which means that we see the more stage of the high-valued product such as the HBM and DDR5. But on the other hand, NAND flash business remain weak. It's in line with our market estimate.

How much of what we have seen today can you put down to front loading and around fear about the tariff uncertainty? Are these sorts of numbers going to be sustainable in future quarters as the clouds around the trade war gather?

Yeah, clearly there's some food in demand from the therapy issue, but also at the same time there are some additional demand from the deep sea, in the demand from China, and also the China government, the stimulus measure, that is some, yeah, we see some higher demand for commodity memory.

And according to the company, the data point, they already guided for the higher shipment growth for the second quarter. It's almost double-digit growth for both DRAM and NAND flash, which means the power of the strong result will continue in the second quarter as well.

Certainly under normal circumstances, that increased demand from China would seem encouraging. But considering that the changes that we're seeing on trade and tariffs and the news flow that comes out of the White House is quite unpredictable at the moment, how challenging is it to make accurate forecasts about future quarters for SK Hynix and other chip makers as well?

Yeah, that's correct. But recently we see some concerns on the therapy with EEG and also some AI demand seems to remain relatively solid. Originally, AI demand is a little bit safe from this therapy issue.

uh because of even the there's some the ai uh demand is now uh it's from uh everywhere uh and yeah so the concern is more about some you know the second half uh is for the commodity side because of which is the unexpected uh you know demand

concentrated in the commodity dealer but HPM uh is is a you know the hynix have dating they're reading in HPM so they're relatively uh their uh revenue portion of HPM is way higher than other uh supplier uh so in that perspective so

So the SK Hynix, I think their earnings and performance will rather depending on the AI, which means some roadmap of the NVIDIA GB300, which will use the 12 high HPM3 product. And also I rather see some potential risk from some export control from the U.S. government.

And relatively, overall, we can say that AI demand is a lot more comfortable and more visible compared with the commodity side. And we previously said the same thing.

Definitely the story around AI driven demand seems very robust. But you mentioned DRAM a little bit earlier. How about DRAM demands? It's connected to some of those more traditional markets like PCs and smartphones. How do you see demand in that sector?

Yeah, so overall the PC smartphone demand remains weak. We can say it's stable, it's not that strong. But this year, clearly the replacement cycle for PC, because of the Windows, Microsoft will stop supplying support for the Windows 10.

so we already see some signal of the replacement cycle demand from the PC and the smartphone yes smartphone is a little bit uh the question mark uh but

I think that the iPhone, this year Apple, while there's uncertainty in the U.S., but Apple is working with the Chinese local AI companies such as Alibaba and preparing AI models for China market. So that will result in some higher shipment.

And also some positive numbers from Chinese smartphone maker already this year. So yeah, some AI, on-device AI demand is cautiously anticipating late this year. But we see more visibility in the PC side now.

SK, before we let you go, I just want to get your thoughts on the share price outlook for SK Hynix. Because if we take a look at its performance over the past year, it's been a wild ride, but it's essentially flat on year. We've got short selling of SK Hynix at a record. What's your price target for this stock?

Yeah, our target price is 267,000 won. So we still see some upside close across the way higher than like more than 40%. The reason the weakness is come from the short selling ban in Korea. So some short selling from the end of March.

And also, one of the reasons is that the share price of Micron, the key competitor in the NASDAQ, Micron share price is down so much. So now the valuation gap between SK Hynix and Micron is quite narrowing. So that is kind of pressure on the stock price until now.

Hynix, they showed that it's a strong earnings performance. It's based on the leadership. And then, yeah, according to some research from SK Hynix, they achieved number one market share position in DRAM recently.

So, yeah, if we see if there is some uncertainty there and maybe Korea government and U.S. government, they would discuss on the traffic maybe tomorrow.

So we will see, but hopefully some better situation for the semiconductor industry. And then I think there's upside in the share price. There's some buying opportunity for investors. All right, SK, we'll have to leave it there. Thanks so much for joining us. That is SK Kim, Executive Director and Analyst at Daiwa Securities.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story 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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