US Trade Negotiations Continue This Week
18:55 Share

There are presentations.

And then there are Canva presentations. With Canva, you can use AI to take your presentation to the next level. You can generate dynamic slides and text with a simple prompt. You can drag and drop graphics and charts from Canva's media library and add interactive elements to plus up your deck. And with collaboration tools built in, the whole team can work together better. You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com.

Bloomberg Audio Studios. Podcasts. Radio. News.

Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. It's the Easter Monday holiday in the Asia-Pacific, so we have markets in Australia and Hong Kong closed. Now, this week's sentiment will likely remain at the mercy of evolving trade policies from the Trump administration. South Korea's top trade official will be in Washington this week to kickstart trade negotiations. Now, this will be the second Asian nation to sit down with the U.S. to assess so-called reciprocal tariffs.

Japan was the first. For more, we heard from Naomi Fink, chief global strategist at Nikko Asset Management. She spoke with Bloomberg's Paul Allen and Sherry On. Naomi, great to have you with us. At least for now, we haven't seen too many trade negotiations back and forth over the weekend, at least. But when it comes to the rest of the week, what will you be watching? Well, I think...

Given what we've seen so far, especially since the tariffs have been announced, it might be that we do not get a straight answer even when we reach the conclusion of these negotiations. The negotiation...

not only with Japan, but the negotiations may continue far longer than we're really expecting right now. Even if we do get an outcome, that outcome is probably liable to get renegotiated. We've seen a lot of changes. So I think right now what we can really only expect is that there are

going to be several possible outcomes. One of those outcomes, I think, is probably at least more favorable in terms of risk assets than others and may involve the U.S. not falling into a near-term recession. But at the same time, we cannot rule out the possibility of near-term recession. And I would emphasize that the whole idea of tariffs is probably going to be hardest on the U.S. consumer. That's who it's going to be toughest for.

And of course, that potential recession could also come with just disinflation, as the Fed has wanted to see, or even just stagflation, right, because of continuing to prices rising because of the tariffs. What would the implications be for the markets depending on those two scenarios? Well, if we do see continued disinflation, then the Fed probably can be more comfortable with rate cuts.

If we do see weaker growth and softer inflation, that's usually a typical environment in which a central bank would cut rates. But if we see weaker growth, but the inflation does not come lower, then they will be a bit hobbled by that high inflation. So we won't be able to see relief from monetary policy. That's just how central banks work.

Where do you go for cover at a time like this? Because some of those traditional plays, the U.S. dollar we're seeing getting beaten up at the moment. U.S. treasuries have been selling off. I mean, we've got gold at a record. But do you look to other bond markets elsewhere? Where are you finding safety? Well, I think it's probably hard to find safety.

certainty, even if you just put cash under the mattress, which is what has happened in Japan for decades and which is now finally reversing. I think it's going to be very hard to find one asset that's just the magic bullet. So probably the best idea is to diversify, which means that you're not going to be completely insulated from market moves. You don't want to have zero allocation to risk assets because they also do rise. They don't only fall. So

probably what you want to do is find some areas that will at least insulate you against the worst of the declines. One of the things that we have been looking at is the potential for domestic demand in some of these surplus economies, especially in Asia, to a bit longer term come through. Because what do you do when one of your largest trade partners says,

well, we don't really want to buy many of your products anymore. Well, you see what you can do internally. And then a lot of these countries do have huge built-up surpluses, so they can use it to stimulate domestic demand. There are other assets, such as gold, which is...

remaining supported probably because of this lack of other risk havens. And I would see that as part of a diversified portfolio as well. But I wouldn't be too hasty to dump any asset. I would look to try and diversify well with some of these indicators that I mentioned just now.

Yeah, when you see selling like we've seen, the conversation inevitably turns to dip buying. There's certainly some bargains to be had, but what's the risk here? Are we still in catch-the-falling-knife territory, or is this a time to take a look at some purchases?

Well, I think if we are long-term investors, then probably what we want to do is just calm down and maybe dollar-cost average. So, yeah, we'll be dip buying some of the time. Some of the time we won't be. But what we're looking for is long-term compounding. And if we do average at a rate where long-term we can still benefit from

economic growth over many years, then we should be okay. What I would discourage is trading around these volatile markets, unless, of course, you are somebody who wants to benefit off of that. Long-term investors, though, I find typically aren't very successful at timing markets. So what you want to do is, yes, position, yes, diversify markets.

But you don't really want to be timing a lot of these moves because you might lose some of that opportunity to long-term compound. Would you invest for the long-term in China? Because we have seen that they're not as trade dependent as they used to be. Some saying that they could actually come out okay on the other side of this trade war. So I think China is too large an economy and too large a market and still long-term growing to ignore. I don't think that...

I know that some have called China uninvestable before. I don't think that's true. I think it is a risky market, but we are investors who invest in risky markets. It's just the degree of risk and how we can diversify. So, of course, it definitely involves an understanding and a strategy. But I would definitely say that China is part of a well-diversified global portfolio.

We continue to see the weakness in the U.S. dollar and on the other side of that trade, of course, the strength of the Japanese yen. Mineral security is now talking about 1.30 is also being a level at this point by year end. What do you think? Well, we've certainly seen dollar-yen at that level before. But what we want, I think, if we are going to have some sort of a

ability to avoid U.S. recession, for example, is we want to have moves that are not sudden and not kind of a flight to riskless assets if those exist anymore. Maybe the yen is closer to the idea of a riskless asset.

Now, if we do see a sudden strengthening in the yen, that could upend a lot of corporates' plans, and it could probably cause a lot of disruption. But if we see gradual strengthening of the yen, it allows the economy some time to adjust. Of course, it's not as good for exporters, but a lot of the exporters are large firms who can hedge, who can move their investments around, they can deal with it. A lot of the smaller

Want to understand trends shaping the global investment landscape?

People endure presentations.

But they engage with Canva Presentations. You click through a normal presentation. You impress with a Canva presentation. With Canva, you can use AI to instantly elevate your presentation, generating slides and text in seconds with a simple prompt. Dynamic, visually imaginative, difference-making slides. Canva Presentations provides everything you need to build your deck, so you never need to switch between apps. Just focus on what you're doing.

You can drag and drop images, graphics, charts, and data from Canva's media library, or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too, and everyone knows presentations are a team effort. Comments, reactions, and version control are designed to help teams work together better. Working from stunning templates, you don't need to be a designer to make it look great. It's just a smarter way to build a better looking deck.

You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com.

Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. In the States on Sunday, we heard from the head of the Chicago Fed, Austin Goolsbee, who warned against efforts to curtail the Fed's independence. Now, his remarks come just days after President Trump publicly expressed his displeasure with Fed Chair Jay Powell and said that Powell's termination couldn't come fast enough.

Here is Goolsbee speaking earlier to CBS Face the Nation. There is virtual unanimity among economists that monetary independence from political interference, that the Fed or any central bank be able to do the job that it needs to do, is really important. And they came to that not as a theory, but just by looking around the world at places where they don't have monetary independence.

And the fact is, the inflation rate is higher, growth is slower, the job market is worse. Austin Goolsbee there, speaking to CBS Face the Nation. For more on this story, we heard from Alicia Garcia Herrero, chief APAC economist for Natixis.

And she spoke to Bloomberg's Paul Allen in Sydney. Alicia, thanks for joining us. We have, of course, seen President Trump in the first hundred days or so picking fights with friends, foes, starting trade wars. And, of course, the Fed in his sights as well, saying on Truth Social, Powell's termination can't come fast enough. Look, even if it is just rhetoric, is there more risk here, more volatility in store for markets with this kind of talk?

Absolutely. And this is not only because of the Fed independence as such, meaning the ability to cut or hide breaks if needed, but also because at the end of the day, the Fed has been instrumental during COVID, and this could happen again, in actually buying U.S. treasuries, and basically through QE, through quantitative easing. So Trump knows very well that the Fed has...

in store ability to lower long-term rates, not only short-term rates. So the Fed is a very, very juicy opportunity for Trump if what he wants is really not only to lower the dollar, but also to lower the cost of funding for the massive debt, sovereign debt, that the U.S. has accumulated over time.

Aside from defending its independence, the Fed's saying very much on message at the moment when it comes to price stability, getting inflation under control. But can you foresee a set of circumstances, the way this year's been going so far, where growth becomes a greater concern for the Fed?

Well, it is likely, isn't it? Because growth depends very much on investment. Investment depends on, if not certainty, at least some certainty. And here we are in a world of uncertainty. So the most obvious channel is really investment for Trump's policies to affect growth.

And therefore, I think it's quite easy to see that. The other one, obviously, is the labor force, meaning if Trump continues to be so strict on immigration policies, because that is needed for growth as well.

Well, in terms of growth, we're going to get a new set of forecasts from the IMF on Tuesday. Kristalina Georgieva, managing director, has already said, look, there's going to be notable markdowns in those forecasts, but she doesn't see a recession. Where do you see the risk of recession, not just in the US, but are there other markets at risk as well?

Well, we still don't know whether these tariffs are going to be permanent to start. I mean, they aren't really there except for China and some sectors. We have exemptions even on ICT and electronics.

We didn't have tariffs for semiconductors. We're still waiting for pharma. So we haven't really seen the full range of tariffs. So in that regard, I think the world might escape recession if Trump realizes that these tariffs are very costly, in a way, ironically, if the markets—since we're at Bloomberg—if the markets are wise enough to put a cost, a high cost,

on additional tariffs, which is what we've been seeing, especially during that terrible week of the sell-off in the U.S. Treasury market. I think that is making it more expensive, if you want, for Trump to put the world into a recession. So I would say markets going down in a way will hopefully protect the world from this policy, thus avoid a recession, a global recession.

You mentioned that sell-off that we saw in US Treasuries. Do you feel like some uncomfortable questions are being asked around the haven status of US bonds? And do you see people going elsewhere for safety? Where might that be? Well, clearly so far the euro. That's what we've seen. And the reason is that Asian currencies are in a way reacting

with the exception of the yen but more will be what more will be warranted from from best and i'm sure but generally if you look at the if you look at the reaction of the r b then when the sell-off happened another asian currency is all depreciation so there's very few that are actually standing out

basically, appreciating against a weakening dollar. And that was the euro big time. And I think there may be other currencies that will fulfill that role, maybe Swiss franc, maybe British pound, maybe. Not the Aussie, because the Aussie is kind of a proxy of RMB or China's currency. But

But other than that, I think you did have the euro as a big winner. I don't know whether that's a winning strategy for Europe. If you think, in fact, the ECB cut rates, although it was expected, but a very, very strong euro, which takes all of this anxiety about the dollar, could bring the euro to 130, and that would kill the European economy. So nobody wants to be the next dollar as far as I'm concerned.

strong appreciation is concerned, let me tell you. Nobody is ready because everybody is suffering from a worse economic environment, but most likely it's the euro indeed.

Yeah. And in terms of the tension between U.S. and China on the trade front at the moment, we have seen China not really willing to come to the negotiating table. Instead, it's added another seven rare earths to its export control list. Who do you see blinking first in this dispute? Which economy is best placed to withstand the most pain?

Well, the U.S. is blinking first. You just have to listen to what Trump has to say about this. He's ready to negotiate, basically. And I think he went too far. He basically said that he doesn't want to go further on retaliation with higher and higher tariffs. Tariffs have already closed the market, so it doesn't really matter whether you go further. But that is a signal of willingness to negotiate. And it's not so much because China will not suffer. I think China will suffer from this trade war.

but it's mostly about the resilience about that suffering. I think Chinese citizens, if you want, especially households, but even corporations, let's focus on households. They're ready for this. They've been prepared that this has to happen, that they need to withstand the shock.

AMERICANS HAVE NOT BEEN PREPARED BECAUSE THEY ARE BEING BASICALLY THE TRUMP ADMINISTRATION STANDING THAT IS GOING TO BE WONDERFUL SO SO YOU KNOW THAT THAT IS WHY THE US IS IS IS GOING TO BLINK FIRST IN MY VIEW AND DO YOU FEEL THAT UH WE MIGHT SEE SOME MORE STIMULUS COMING FROM CHINA PARTICULARLY SUPPORT FOR CONSUMERS AND HOUSEHOLDS WELL UM I THINK CHINA IS KNOWS THAT

Of course China has some bullets, but it doesn't have all of the bullets that it used to have for many reasons. We all know that, you know, too much debt. But even on the monetary policy side, which is what we're going to see today,

with the long prime rate is that if they cut very quickly, the depreciation of the RMB will be faster. And I think that's not a very good negotiating tool that they let the currency go. And also it could prompt capital outflows. Not now, because the U.S. is not attractive in terms of stock market and so on. But it could happen all of a sudden if data

you know, gets worse for China. So I think they need to be careful with the bullets. They need to move them slowly and steadily. And I don't know whether today they will show that. Maybe they are in a position of strength so far because they had quite good data for the first quarter GDP. And people are looking at Trump like, you're blinking, you're blinking. So, you know, maybe the confidence is still there and they don't need to cut now. They may spare it for later.

Well, we do have a lot of PMIs coming out this week, which should make interesting reading. Australia, Japan, India among them, but also the U.S. as well. And if we take a look at this chart, I'll describe it to you on the Bloomberg Terminal. It's a look at the last set of PMIs that we had out of the U.S. Now, it shows a big lift to the services outlook, but manufacturing definitely seeing signs of pessimism here. Do you anticipate that there's more of this to come?

Surely, because those manufacturers now are confronted with humongous import tariffs, at least from China, but they also have, you know, still sectoral tariffs, auto tariffs, steel and aluminum, which is an important intermediate good, the 10%, you know, regularity.

regular tariff. So all of this is additional cost for manufacturers. So, yes, I think that's going to happen. It's already quite impressive that the service sector is still doing well in the U.S., at least PMI-wise. All right. Alicia Garcia-Herrero, Chief Asia-Pacific Economist at Natixis. Thanks, as always, for joining us with your insights.

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.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. Resolve to earn your degree in the new year in the Valley with WGU. With

With courses available online 24/7 and monthly start dates, WGU offers maximum flexibility so you can focus on your future. Learn more at wgu.edu.