The Fed Holds Rates Steady, US-China Trade Talks in Focus
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Bloomberg Audio Studios, podcasts, radio, news. Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Pellett. Doug Krizner's off this week. Coming up, we will bring you a roundtable discussion on tariffs and U.S.-China trade talks. But we begin with the day's market action.

Treasury's edge tire after Fed Chair Jay Powell emphasized that the Federal Reserve is in no hurry to lower rates, though the central bank cites growing risks of higher inflation and rising unemployment. The S&P 500 halted a two-day slide led by chipmakers.

as Bloomberg News reported that the Trump administration plans to rescind Biden-era curbs for the industry. And for more on the market outlook, we heard from Alex Wolff, head of Asia Investment Strategy at J.P. Morgan Private Bank, and he spoke with Bloomberg's Sherry Ahn and Heidi Stroud-Watts.

Alex, good to have you with us. Of course, we saw the dollar rebounding for the first time in about four sessions or so. But you're actually telling us in your notes that you have changed your view on the dollar. Tell us about what's happening here.

Yeah, we came into the year still expecting dollar strength, largely driven by rates differentials as we saw higher rates, higher yields in the U.S. relative to the rest of the world. But we have seen a gap emerge where the dollar has weakened relative to where you would expect from a rates perspective. And that's largely driven by flows as we see U.S. net investment position as extraordinarily negative and the rest of the world building up.

pretty significant overweight in U.S. assets. And as we're seeing flows and repatriation as a relative growth differential shift and more money flows back to Europe, more money flows back to Asia, obviously what we've seen in Asia FX recently in terms of covering some of the unhedged positions, we think the flows picture will drive the dollar weaker. Not significantly so, and we still see it as very cyclical versus structural, but drive it slightly weaker through year end.

Alex, what does, on the other hand, then mean when we do get Asian currencies appreciating against a weaker U.S. dollar? What are the implications for other assets? Yeah, Asia currencies tend to either be quite stable, as we see with the Taiwan dollar, or even their M&B against the dollar, or they position themselves as remaining fairly weak. And so as we see Asia currencies strengthen, that does hit exports, that does feed through to earnings. And so there is very much a direct pass-through there.

particularly in Taiwan, even in Korea and in Japan for that matter as well. So it does have a lot of implications both for the trade picture, for exports, for earnings as well. And then when we think about

What it means from a trade deal perspective, as well as the U.S. is beginning to negotiate on the reciprocal tariffs across countries in the region, we could see currencies even continue to maintain some strength against the dollar to pitch to themselves for trade talks. But it definitely does have implications for exports and for earnings.

Tell us about the sort of disconnect that you continue to see and expect to continue to see when it comes to soft and hard data and how that potentially gives us a better picture of how the U.S. economy is faring going into the second half.

Yeah, that's been one of the biggest mysteries really throughout the COVID period and the aftermath of COVID. We did see beginning in 2020, 2021, a real disconnect between hard and soft data. Whereas before COVID, you tend to have about a three to four month lag where you had consumer sentiment or business sentiment. Most survey data was leading by three to four months. It really disconnected where all sentiment data turned negative, but hard data still stayed relatively resilient.

So it has made it much harder to try to assess what is going on, at least judging purely by sentiment data. So right now, looking forward, we still see very weak sentiment data, but we have April data looking okay, looking resilient.

That doesn't have a full impact of tariffs, so we still are very much in a wait-and-see mode. We don't expect a recession, but we're in a wait-and-see mode to see how hard data continues to play out. While April was resilient, you'll see more impact from tariffs in May and in June. And so while we're not really putting too much weight on the sentiment data, on the soft data, we are really looking at the hard data, but it's still too early to really know what the impact of tariffs will be.

And not knowing that, of course, how does that inform your view when it comes to gold? We're up about 28% this year. Do you still think there's further upside given that it's one of your conviction calls? We do. Of course, it's rallied pretty strongly over the last year, year plus. It really comes back to that dollar view and that flows view. As we see an increase in interest in currency diversification and moving away from purely from dollar holdings, whether it's

reserve managers or it's corporates and pension funds, there aren't that many other safe havens to go to. There are not that many other markets that are liquid and deep enough as well. So we see gold as somewhat of the natural place to position as our clients and as global investors are looking to somewhat diversify their

their currency exposure so we still do see strong demand whether it's coming from central banks or coming from private investors that can continue to drive upside but we still see it in the kind of low to mid single digits in terms of upside alex what do you think of the semiconductor space because we had tsmc for example under pressure earlier this week with that huge surge in the taiwan dollar

Given that we started this conversation with what would be the impact if we do get a rally in Asian currencies on a weaker U.S. dollar, can semiconductors weather this or do they have a whole different narrative going on for them?

I think from a purely currency position, they can weather it because there's not other competition, so to speak. So currency doesn't play into the demand story as much.

I think it's more about the overall demand for semiconductors with regards to what we see from AI demand and what we see in terms of policy from the U.S. in terms of the 232 investigation or what we see around semiconductor tariffs specifically. And where we've seen very strong demand from data centers and very strong build-out, and we largely expect that to continue. We have to remember semiconductors are probably the most cyclical of cyclicals.

And any signs that we could see weakening in demand for data center build-out, weakening in demand from AI hyperscalers, that does present some headwinds to semiconductors and to broad tech hardware. In addition, just the sheer overhang of uncertainty and risk with regards to U.S. policy also does present somewhat of a headwind. So we are favoring more of the tech software side than the hardware side in terms of how we're thinking about positioning.

Alex Wolff, Asia Head of Investment Strategy at J.P. Morgan Private Bank. Really good to have you with us. Ryan Reynolds here from Mint Mobile. I don't know if you knew this, but anyone can get the same premium wireless for $15 a month plan that I've been enjoying. It's not just for celebrities. So do like I did and have one of your assistant's assistants switch you to Mint Mobile today. I'm

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Welcome back to the Daybreak Asia podcast. I'm Charlie Palatin for Doug Krizner. This week, Treasury Secretary Scott Besson said he is working with U.S. lawmakers on outbound investment rules for China that would make clear what's allowed and what's not.

His comments came ahead of trade talks later this week with Chinese Vice Premier He Li Feng in Switzerland. And for more, we heard from U.S. Treasury reporter Dan Flatley along with Bloomberg's China correspondent Min Min Liu. And they spoke with Bloomberg's Sherry Yan and Heidi Stroud-Watts.

Bloomberg's learned that the Trump administration plans to rescind some Biden-era AI chip export curbs as the US and China prepare for these critical trade talks this week. Daniel, what exactly are we hearing from the Trump administration in terms of their strategy on these AI chip restrictions? Well, you know, what we've seen and heard from Treasury Secretary Scott Besant, among others, today is this sort of general concern

toward trying to loosen up restrictions allow more deals to happen so best it was talking earlier today on Capitol Hill about this outbound investment program and wanting to kind of revise that a little bit to bake make the rules more clear and I think you're seeing something similar.

With regard to chips, as my colleagues Stephanie Lai and Mackenzie Hawkins have reported, there is this move by the Trump administration to maybe undo some of the signature Biden policies around chips that are designated or used most primarily in artificial intelligence to sort of loosen some of those restrictions.

potentially, although this isn't explicitly stated yet, but the administration has always sort of had an eye on China gaining access to some of this more sensitive technology. So I think one of the theories of the case is that maybe you loosen up some of the restrictions on these chips for allies, countries in the Middle East being one of those potential areas

And President Trump really making clear that he won't be preemptively lowering tariffs when it comes to China. Take a listen.

China says in order to have substantive negotiations, you have to bring down your 145% tariffs. Are you open to pulling back your tariffs in order to get China to the negotiating table? No. Mimin, what are we expecting from these conversations between the U.S. and China this week?

President Trump previously also saying that

the U.S. would lose nothing if China doesn't trade with U.S. He said U.S. consumers would be okay with higher prices and less selection of goods. So as we head into this weekend, it's really unclear right now whether this is just sort of icebreaker talks where both sides will try to find out what the other party wants before agreeing to more substantial trade discussions. So

essentially negotiating to agree to negotiate or is it actually going to yield some concrete outcomes which could look like maybe a pause on reciprocal tariffs as Trump has done for other countries or maybe lowering of tariffs but then to what extent is those tariffs going to be lowered because economists have said that even 50 or 60 percent tariffs

would still mean that the bulk of U.S.-China trade would be cut off. And we continue to see editorials on Chinese state media again calling on the U.S. to, quote, show sincerity, meaning they really want the U.S. to be the one to de-escalate and put its actions where its mouth is.

What are we seeing, Min Min, when it comes to the level of preparedness, regardless of what outcome we see in these ongoing trade talks? Are we seeing sort of alternative paths to growth and survival being put in place by Chinese factories?

Yes, I mean, yesterday we had the PBOC briefing where the government announced the cutting of triple R and interest rates, a slew of other measures with lending facilities to support exporters for the tech sector as well. And when we talked to exporters, for example, at the Canton Trade Fair that just recently concluded, we saw that many manufacturers, in fact,

About 20 of those that Bloomberg has interviewed showed unanimous support for China playing hardball against the U.S. And many of these companies, of course, have already taken steps to divert the sale of the products from the U.S. to other emerging markets like Southeast Asia, like the Middle East, Europe, also another potential destination for them as well.

Of course, there has been a lot of disruption. Some of these companies putting on hold their investments overseas. Some of them were looking to move production overseas, bought land in Cambodia. But we were told that they were initially prepared to start factories there. But now they're putting that on hold and just renting out their property for now, just given the uncertainty over the tariffs. But interestingly, though, I spoke to some companies, Chinese companies,

consumer sort of companies that are still looking interested in expanding to the U.S. even in this current climate and they seem to think that U.S. is still an important market that the consumers there are willing to spend the currency that they can earn from the U.S. would be good as well for their business. So some companies still not being put off by the geopolitical climate and still looking to expand or open up new stores in the U.S.?

And yet when it comes to the U.S., they actually want to stop those investments going into China. Dan, of course, we have seen Secretary Scott Besson talk about those outbound investments into China and working with Congress and also taking heat from Congress.

Yeah, that's right. I mean, you know, it's interesting. Today was Secretary Besson's first appearance before Congress, or I'm sorry, it was his second appearance before Congress since his confirmation hearing. So yesterday he was, he appeared before another House panel, much smaller panel, the House Appropriations Committee. Today, much bigger panel of lawmakers with the House Financial Services Committee. And he did get some pushback from Democrats on, you know,

from the other side of the aisle from the Democrats. And one of the themes that came up sort of repeatedly was the cost of goods to consumers after the tariffs really start to bite. And he defended that a bit. Surprisingly, he wasn't asked too much about what was ahead for his negotiations with China this weekend. But a couple of things to note. One thing was he was asked early on in the hearing

What do you expect to get out of these talks? Are these, quote unquote, advanced negotiations? And what he said was basically this is just the beginning. And by definition, they're not advanced talks.

The other thing that he talked a little bit about was who was going to be going with him. He said it was going to be himself leading the talks, along with U.S. Trade Representative Jameson Greer. He was asked specifically whether White House trade advisor Peter Navarro, who is known to be much more hawkish on trade, would be traveling with them. And he said, no, Navarro would not be traveling with them. And that sort of elicited a sort of

I guess you could call it a sigh of relief from one of the Democrats who said, oh, thank goodness that that's not the case. So, you know, read into that what you will. But certainly there seems to be a lot of concern about the impact to the economy from the tariffs, not just from Democrats, but also from some Republicans on the panel as well. And so he weathered that hearing today and his big test will come this weekend as these talks get underway.

And Min Min, before we let you go, we know that President Xi Jinping is in Russia right now. They're celebrating the or commemorating the anniversary of the end of World War Two. But at the same time, with the backdrop of Russia continuing to attack Ukraine, it must be a very awkward situation.

Yeah, and not to make light of the war in Ukraine, but it's starting to seem like President Xi's trip there is almost a backdrop for political theatre and this battle for influence because just hours after President Xi landed, both sides were still exchanging airstrikes, Russia sending ballistic missiles and drones, and they were shooting down drones coming from the other side, from Ukraine into Russia as well. And meanwhile, President Xi has been silent.

on the Ukraine war. He penned an editorial that was published on Russian newspaper that was all about how both countries are going to defend international fairness and justice. He also said in that article how Russia and China has always firmly supported each other's core interests. Without mentioning Ukraine, he mentioned the one China principle and how

Taiwan is an inalienable part of China's territory. And interestingly, Russia is actually declaring a three-day ceasefire as they commemorate the May Day parade. That was something that Ukraine has dismissed, and they said they won't be able to guarantee the safety of the dignitaries that are landing in Moscow. And then you have the Slovak PR.

Prime Minister actually complaining that Estonia didn't allow his plane to fly over the airspace. And meanwhile, of course, top of the agenda when it comes to the Xi-Putin bilateral meeting today is all about U.S.-Russia relations as well as China's trade issues.

economic issues, energy issues as well. We know that China has in the past been calling for this peaceful resolution of Ukraine, but certainly it's a very awkward sort of backdrop for presidency to be visiting at this time with all that airstrikes just happening hours before. All right, Bloomberg's Mimi Loh there, as well as Daniel Flatley.

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.

Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com.

There's no business like small business. Hiscox Small Business Insurance. Time is precious, and so are our pets. So time with our pets is extra precious. That's why we started Dutch. Dutch provides 24-7 access to licensed vets with unlimited virtual visits and follow-ups for up to five pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free.

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