US Futures Higher on Trade Talk Optimism
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Bloomberg Audio Studios. Podcasts, radio, news. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. There are just 10 days left until President Trump's country-specific tariffs are set to take effect. And the impact of these levies will be a key topic this week for five of the world's leading central bankers. They will be meeting at the ECB's annual retreat in central Portugal. And in a moment, we'll get a preview of the

from Luis Liu, lead economist at Oxford Economics. But we begin with trade. On Sunday in the States, President Trump said he does not plan to extend the July 9th deadline for U.S. trading partners. As of now, that is when they must decide either to strike trade deals with the U.S. or face reciprocal tariffs of 25%. Interestingly, Trump didn't completely rule out an extension. Here he is speaking to Fox News Sunday Morning Futures.

I'm for doing it right now. We send letters out to all of the countries explaining to them a problem. We'll look at the deficit we have or whatever it is with the country. We'll look at how a country treats us.

Are they good? Are they not so good? Some countries, we don't care. We'll just send the high number out. But we're going to be sending letters out starting pretty soon. President Trump speaking earlier to Fox News. Joining me now for a closer look at what's going on with the tariff story is Shams Afzal, Managing Director at the Carnegie Investment Council. Shams is on the line from Toledo, Ohio. Good of you to make time to chat with me on this. What is your sense of the way in which

tariffs are impacting global economies right now? Well, I think, you know, the clip that you just played basically ensures that the second half's uncertainty will be no better than the first.

You know, as you and I know that there's probably at most about a half a dozen deals that is potentially at a place that can be announced and be called the success. But those six will not quite calm the nerves come July 9th or beyond where a lot more was expected 90 days ago. So I assume that this this

This, you know, thread that started 2025 will remain throughout the end of the year, unfortunately. But the markets have a different view of it. I, you know, I go forward as to say even that we're experiencing some form of analgesia, which is the human body's response of sort of shutting down pain points because it's experiencing stress

somewhere else to a larger degree. And I think April 2nd was the major stress event, and everything that has followed seems to have been really dialed down and tempered down to a point where the market has completely ignored everything else that has happened since then. So I feel that 25% tariffs across the board is probably not a bad forecast to assume for the rest of the year.

How are you seeing tariffs as a contributor to inflationary pressure? Well, interestingly, you know, after four some years of very sticky areas of inflation, especially on the housing side, non-housing services side, it would have picked it. It could not have picked a better year than 2025 to start to finally show some signs of easing.

So given that one third of the inflation basket comes from housing and housing related activities, the fact that we are finally seeing some meaningful softening there is helping counteract a lot of the goods related inflation that is no longer deflationary in the basket. Right. So 2.3 percent may have ticked up a little bit compared to two months ago. But I think the Fed is going to be quite comfortable in the second half.

If the worst of the inflation news has already been digested and that these are the numbers that we have dealt with so far. So I'm going to go out on a limb and say that I think two cuts is probably the minimum for this year. I'm much more on the group side where we're expecting probably at least three. Is there still the risk of stagflation?

There always is, right? When you're dealing with 1.5% sub-GDP, it can very easily dip towards the other side.

whether it's broad-based enough where the NBER actually deems that a classic recession or not remains to be seen. But yes, I think GDP has cooled down to a place where one small shock can completely derail consumer spending to a level where you end up getting a back-to-back sub-zero GDP growth. But that's

We don't think that's going to be sort of the status quo, given that we still think there is pent-up demand

And if the AI picture was not playing out as robustly as it is, then I think we would be talking about recession as the baseline for 2025. But given the fact that that remains the strength in the U.S. economy, that is enough to actually keep the economy at one plus percent GDP for the second half.

certainly beyond that, of course, but on balance between the first and the second half, we're expecting at least one and a half to 1.6% GDP. And that should be plenty to sort of see through the high uncertainty that we have been dealing with since April 2nd. As you and I are speaking, the Senate here in the U.S. is debating President Trump's tax and spending bill. And against that backdrop, today, the Congressional Budget Office estimating the Senate's version of the bill will add...

nearly $3.3 trillion to U.S. deficits over a decade. Without getting into the particulars and to the politics of those specifics, when you hear a figure like $3.3 trillion being added to deficits over a 10-year period, what might happen in the bond market as a result of that?

Well, that's where it's, you know, why the market seemed to think that the bond market ultimately holds the cards to how much of these tariffs actually get implemented. Right now, we have been given benefit relief for the 10 years trading just under 4.3%.

But, you know, anything can change. And especially if post-July 9th, if you're seeing, you know, numbers that we saw from Vietnam and Cambodia with 44 percent, 46 percent, 36 percent kinds of the tariffs being levied, the bond market will have plenty to say. So my, I guess, I'll

Our view is that we don't think anywhere close to the April 2nd numbers will actually come to bear because the bond market will just not allow it. And we still have $7 trillion worth of debt.

We need to do as a country over the next 11, 12 months. And we do need the tenure to behave. And it's not going to behave if the bill moves forward without making some significant tough decisions. And I just don't think any side, anybody is looking to make those tough decisions at this point.

We get a key piece of economic news in the U.S. on Thursday because of the July 4th holiday at the end of the week. That's normally when we get non-farm payrolls. Instead, it will happen this week on Thursday. Our survey indicates that economists are looking for the addition of around 113,000 jobs, an unemployment rate that may creep up to around 4.3%. What's your assessment of the American labor market right now?

Well, I think it's very much remained slow to hire and slow to fire. I would say that the 100,000 number seems to be where our thinking is, just given the weekly numbers from unemployment.

newly unemployed numbers being about 20 to 25,000 higher per week. That should pretty much put the 150,000 plus number out of reach, whether significantly closer to 100,000 or somewhere in the middle remains to be seen. We're finding that even though 4.2% should not be one unemployment number that should cause any alarms,

But when you look at the household numbers where you see the long-term unemployed, which is very much close to the 1.9 million at this point, that should give the Fed

a lot of reasons for them to start considering cuts as early as July, because the labor market is not as balanced as the Fed seems to be suggesting, if you look at the disparities between the long-term unemployed, which is not something that happens in a solid job market.

So, Monday is the final day of the second quarter. We're just weeks away then from the earnings season. Data from Bloomberg Intelligence show that analysts are essentially looking at profit growth year over year for the S&P in Q2 of around 2.8%. That would be the smallest increase

in about two years. We can talk about that in the context of an equity market that is at record highs for the S&P, the NASDAQ 100 and the NASDAQ composite. How are you feeling about the equity market these days? Well, at 22 times earnings, you know, you have to exercise more discretion than ever.

We continue to think that there are parts of the market that remain fairly valued, especially banking and other places, which will tend to benefit from a steepening yield curve.

But overall, when we think about the 22 times, if you extract the top 10 tech names, the numbers are a little bit more palatable. So I'm not quite worried about the valuation at a higher level. I will also say that one of the tailwinds that earnings season will likely see in the second quarter

which none of the guidance actually includes, is the fact that the dollar's weakness this year that has persisted potentially adds between 2% to 3% an EPS jump from what has been guided. So the 2.5%, I will not be surprised if it actually ends up being between 5% and 6%, which will keep it very much in track for the year to deliver close to 9% gains, which should be substantially supportive of EPS.

of maybe another 4% to 5% gains in the equity in the market. So I would say that the dollar is probably going to work some wonders for our multinationals. And that is one of the rare tailwinds that we can look to into 2025. Shams, we'll leave it there. Thank you so much. Shams Havzal, Managing Director at the Carnegie Investment Council, joining from Toledo, Ohio, here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. This week, five of the world's leading central bankers will be speaking at the ECB's annual retreat in central Portugal. This is a public forum. It will feature Fed Chair Jay Powell, along with ECB President Christine Lagarde and their peers from Japan, South Korea, and the UK. Now, they've been forced lately to navigate the risk of both inflation and growth in the wake of President Trump's tariff actions.

On Sunday, the Bank for International Settlements reported growth prospects have diminished, while risk have intensified with regard to the stability in consumer prices, as well as public finances and even the financial system. For more, we heard from Louise Liu. She is the lead economist at Oxford Economics. She spoke with Bloomberg's Sherry Ahn and Heidi Stroud-Watts.

Louise, I'm curious at this sort of in-between stage when it comes to not knowing too much about how trade is going to play out for the rest of the year. How are you, I guess, baking tariffs into the economic outlook, not just for the U.S., but certainly the potential for implications around the world? Well, so there are two things.

There are two channels by which we see this play out. One is through the very direct export channels, so how much trade gets strung back on, how much contraction we see in trade. To a large extent, that's actually been supported by a lot of front-loading activity. And I think this week, some of the trade data we work at, we are expecting that front-loading strength to still persist for a little bit. The second way by which we think the trade uncertainty would transmit to the rest of the economy is really through

where we think private investments will be, where we think businesses will respond to some of these uncertainties that are looming in the very near term. Our expectations is that across Asia, we would see a bit of a dampener on private investments, which probably would set the conditions right for public investments, for the government to really step in to do a bit of the heavy lifting at a time when the economy seems to be quite moving along quite, quite typically.

It's one of the channels that we talk about is sort of the embedded nature of tariffs, right, and potentially how entrenched those expectations are. Is that a risk when it comes to confidence levels, investment from companies, but also from consumers and households too? Yeah, absolutely. And I think there are two risks. One is that because of the volatility in trade negotiations, the uncertainty that we saw in the last decade,

two or three months, governments and maybe businesses now have the ability to, well, at least they have the inclination to look through short-term noise, to really think about what the ultimate level of tariffs might be. And I suspect that, you know, that implies that any of the short-term news or volatility that we see coming up due in July 9th

that might actually have less of an impact than what we saw at the Liberation Day announcements. So that's one. Second is I think also investments are going to be weighed down heavily, but also what's happening by some of the second order effects. So if you have China slowing as a result of the trade tensions with the US, then what's that going to imply for the rest of Asia? So I think that the

the ripple-on effects on the rest of the economy seem to be twofold. And I think we're perhaps right at the start of that playing out in the economic data. And how fast is the transmission mechanism of that ripple effect that you talk about? Because already given the temporary truce that we've seen between China and the U.S., we're supposed to expect June manufacturing PMI from China to turn positive?

No, well, our house view is that we don't think it would turn positive. We think that it would stay kind of in the 49 region. Obviously, it's been at a 49 area for a while now. We're talking about June PMIs for China here. So I think the impact

when you talk about the speed of transmission, we think that it will likely be quite immediate, as we've seen in the last two or three months. But going back up, so recovering from that, that's going to be quite sticky, because I think of the tremendous amount of uncertainty around that, the fact that some of these trade deals don't really seem to be the conventional trade deals that people understand them to be. So there is a little bit of a disappointment around the details of that. And I think that will weigh on sentiment for much longer.

We have seen, for example, South Korea's industrial production coming in in contraction territory and we're expecting actually a boost. Exactly. So I think going forward, the risk is that data would surprise us to the downside rather than the upside.

Just because I think the strength that we saw the last few months could plausibly be temporary in nature, front-loading, rerouting trade. A lot of these, I suppose, for a lot of the Asian exporters, including Korea, the resilience in tech exports is also one of the factors that we think will potentially normalize in the second half of this year. So a lot of the strength that we saw, a lot of the optimism, a lot of the upside surprises to data in the last month or two,

has been kind of the temporary factors. So there is no reason to think that we're not kind of on the way down from here on. And is that the case when it comes to China as well? Does the sort of temporary truce add any upside potential for the PMIs, given that they're leading indicators anyway? And given there are structural issues that we know of with the Chinese economy, even without looking at the tariff situation?

Yeah, well, for China, I think the PMIs are notoriously noisy. So we don't really want to be too hung up on one data point. Having said that...

The situation with China is a little bit different. I think for China, we are not really seeing substantial upside. But on the other hand, because of the truce, because of the fact that we think Beijing officials will continue to leverage on its critical minerals dominance, that would remove a tail risk scenario. So I think at this stage, if we talk about macro growth,

any growth below 4.5% is probably quite impossible for China. So I think growth will probably be relatively stable and decent this year, but nowhere near spectacular, I think. Louis Zhu, always good to have you with us. Lead economist at Oxford Economics.

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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