Wall Street Erases 2025 Losses; Global Trade Tensions Cool Down
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So the stock market has now recovered its losses for the year. Today, we had the S&P picking up around seven tenths of one percent, a move led higher by semiconductor stocks. And at the same time, the cooling tensions in the U.S.-China trade war has kind of brightened the outlook. In a moment, we'll hear from former U.S. Ambassador to China Nick Burns and

He says the U.S.-China trade war has effectively become a trade embargo. Byrne spoke with Bloomberg's David Gura and will bring you part of their conversation. But we begin today with markets and the reading on U.S. retail inflation for April. It was cooler than expected. Core CPI increased at a rate of two-tenths of one percent from March.

And we got reaction from David Kelly. He is the chief global strategist at J.P. Morgan Asset Management on what the CPI print means for the Fed. I think we will get at least one cut this year by the end of the year. I think the Fed realizes they can edge rates down a little bit, but I don't expect a cut in June. I don't expect a

cut in July to be honest. I think they'll want to see much more of a, you know, a much more certainty around what the tariff picture really is and how much stimulus is in this bill before they contemplate any for any cut. So I think we're going to have to wait some time for the first rate cut. That is JP Morgan's David Kelly.

For another view on what we're seeing in the price action, I'm joined now by Todd Walsh. Todd is the CEO, also the chief technical analyst at Alpha Cubed Investments. He joins us from Irvine, California. Todd, it's always a pleasure to benefit from your perspective. Thank you so much for joining us.

Let's put the CPI print aside for a moment. Talk to me about the tension or what appears to be less tension now in the U.S.-China trade war and how that is brightening the outlook. Are you a believer? Have we turned a corner here? Well, I think I'm a believer in more volatility, Doug, and thanks for having me on.

Technically, it's extremely important that we have crossed over and above the 200-day moving average as of yesterday and extended that today. As you know, Paul Tudor Jones famously says, nothing good happens under the 200-day, and we certainly had our share of white-knuckling over the last month and a half.

I think the biggest concern that we've had since the election is the investor's tendency to take any narrative or the prevailing narrative and project it out into infinity. So we had the election happen. We had a business-friendly president. The market rockets up through February, pretty much moves straight up. And then it shifts to the administration maybe is going to take the economy. We have a 20% drop.

And now we've had some movement in the trade talks from saber rattling to negotiations, and now peace, prosperity, and hope have broken out. But I think we need to be careful about this tendency to project too far into the future. I think volatility is with us for a while.

And we've just got to get used to that normal state for 2025. I think we're going to have more volatility ahead, but let's enjoy the break for now and this run that we're in the middle of, and hope it extends quite a ways. I'm curious to get your take on market leadership today. We had the semis out in front, news that Nvidia and AMD will be supplying chips

to a Saudi Arabian firm for a massive data center project. Do you put a lot of stock in where the leadership seems to be coming from?

In the short term, no, Doug, because it represents sort of the bipolar nature of investor activity this year. In what we're calling a sawtooth market, it's important to look at what's been happening, these major moves in one direction or another, and not run from one side of the ferry to the other and disrupt our long-term investment plan.

Our thesis has been that after AI and the AI innovation names had such tremendous returns in 2023 and 2024, it would be very normal to have a consolidating year, outsize volatility. That's exactly what we're seeing. We just went from market leadership going from the defensive names, utilities, things like that, immediately whipsawing back over to the innovation AI and some of the chip names.

We need to stay the course, and our plan this year has been to expect a consolidating year, which means more volatility, and use that volatility to add to the strong AI, the strong chip names, which we think will continue to be in a secular bull market.

To us, since AI has national security implications and it's not fully built out, we expect that trend to continue, but it's going to be volatile after two big years. Think of the internet ecosystem in 1995 or 1996. Wasn't quite ready for prime time, a lot of volatility, but still had a long ways to go. We think that's a good analogy. So we talked a moment ago about the cool reading that we had on consumer prices, which I guess you could say is supportive of

of Fed rate cuts. We don't know when that first move may happen. Right now, I think the swaps market is indicating it's fully priced in a 25 basis point cut for September. What kind of message are you getting these days from the bond market? Today, yields were very little changed in New York.

I'm glad you brought that up, Doug, because the 10-year has been moving up above resistance technically and is suggesting it may want to go a little bit higher. But one thing I want to caution investors about is think of the environment within which the Fed would be comfortable cutting rates. It's probably not a market at all-time highs. It's probably not a 10-year bond moving up.

It's a market where there's some volatility, some concerns, and some issues that are causing the market to be just more volatile. So, you know, these Fed fund futures have been all over the map this year, and now we're back at two.

But we think that's going to continue to evolve as the next hand-wringing crisis comes out in the market. It's important to remember, we're at 23 times earnings on the S&P 500 again. The market's not cheap, and the more expensive it gets, the more vulnerable it is to this kind of volatility that we've already seen this year.

It's interesting that you make that point because I was looking at a measure of earnings revisions from Citigroup today. It's turned positive for the first time in six months. Generally, this implies that analyst estimates could be headed higher soon, but you don't think that that is likely? Is that what I'm hearing, that you think there is really some downside risk to the earnings story going forward?

Well, we've already seen earnings for 2025 on the S&P 500 come in from $273 to $265. So that's a 15% gain going down to a 7.5% estimated earnings gain for 2025.

We need to see those estimates coming up if we're going to have a robust market. So I'm on the same page as you. I wouldn't be surprised to see those start drifting up. But we've got such extreme emotional activity going on in the markets. We've just gone through a pretty traumatic market event. We seem to have a V bottom in place. A lot of people were looking for that W retest bottom like we got in 1997 and 1998.

Or we could have had no bottom. A lot of people thinking we were going a lot lower and we're 100% convinced we were going to have a recession. The jury's still out on that, of course. But I think we're going to get mixed data as we continue to go through the year. The tariff turbulence might have caused a little bit more disruption in

Then, you know, people are expecting right now we might start seeing some of that in the hard data as we get into the months ahead. And those situations are not resolved and completely worked out as of this moment. It's still a picture that's in flux. Do you pay attention in your work to the movement in the dollar today? We had some dollar weakness yesterday, a big rally. Talk about volatility. I think you look no further than the currency space to see that.

But do you look at where the dollar is headed to try to kind of predict overall market movement?

To a degree, the dollar has been declining quite a bit this year, but I think we've reached a point where we should see dollar strength. We've been seeing that over the last week or so, and it's our projection that that's going to continue. What we don't want to see is excessive dollar strength or excessive dollar weakness. And so that's kind of the little lens through which we look at it.

And right now, though, we do see it firming up. Not a big factor in terms of what we're seeing in terms of the domestic market action. We've got a pretty strong move here. We've resolved that 200-day. And I wouldn't be surprised to see a little animal spirits kick in over the next couple of weeks before we get to the next volatility spate. Does that necessarily cause you to take a look at some of the haven trades, whether we're talking about gold or even the Japanese yen?

No, we're focusing on the dividend value trade here at Alpha Cubed Investments. We've got a Fed that

arguably is inclined to lower rates to some degree or another. And that should put the wind at the back of that trade. You know, that dividend value trade on the S&P 500, if you track it and index it to November 2023, has almost kept pace, believe it or not, with the white-hot NASDAQ 100 just on a price basis. So we call that having your cake and eating it, too.

So, we like that trade for 2025 as well. Todd, we'll leave it there. It's always a pleasure. Thank you so much for making time to chat with us. Todd Walsh there. He is the CEO, also the Chief Technical Analyst at Alpha Cubed Investments, joining from Irvine, California, here on the Daybreak Asia podcast.

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while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So we know the U.S. and China will temporarily lower tariffs on each other's products, and the two countries have allotted three months to work toward a broader trade agreement.

Well, today we got reaction to these developments from former U.S. Ambassador to China Nick Burns. He said the U.S.-China trade war has effectively become a trade embargo driven by extreme tariffs and deepening strategic rivalry. Burns also said the world's two largest economies must strike a deal within 90 days to prevent long-term economic decoupling. Burns spoke with Bloomberg's David Gura here as part of their conversation.

I want to start with the meetings that took place over the weekend in Geneva, and I'm curious sort of how you look at the way they unfolded and the outcome of them. Do you see it as a positive step, the agreement that was come to? Well, first of all, I start from a first principle, and that is that China's been the largest and most important disruptor in the global trade system for about three decades right now. There's a reason why.

The United States and many other countries around the world have placed tariffs on China. China's manufactured exports in particular is because China's been dumping them around the world below the cost of production. And it's been a killer for jobs, both in the United States historically in the last several decades, but also around the world. You have a situation now where Turkey and India and Brazil and Colombia and Mexico and Canada and the United States and the European Union have all put tariffs on China.

So I have a degree of sympathy for the situation that President Trump and his team inherited, which was a situation that we left when I left in mid-January as ambassador to China. President Biden, a year ago, May 2024, placed 100% tariffs on Chinese EVs, 50% on semiconductors, 25% on lithium batteries. So the root of this problem is China.

and Chinese trade policy. The Chinese are trying to act now, you saw it in the statements over the weekend from Vice Premier He Lifeng, is that they're the innocent party, that they're the victim of this trade war by President Trump, and that they're the responsible party when in fact the reality is quite different. I think it's important to set the stage. Having said that, these are going to be very, very difficult negotiations over the next 90 days. I think in the end,

self-interest and logic will prevail. Both sides need an agreement. It was encouraging to hear Treasury Secretary Scott Besant say that they had agreed in principle they don't want to decouple these two economies.

Last year we had a $642 billion two-way trade relationship in goods and services with China. China is our third largest trade partner. About a million American jobs depend on trade with China. Upwards of 20 million manufacturing jobs in China depend on trade with the United States. So neither country can afford trade.

to sunder the economic ties and the millions of interactions that our private sector has had with the Chinese economy over the last 40 years. And I think in the end, there will be a trade agreement. But getting there, I think, is going to be extraordinarily difficult. During your tenure, you were trying to, if I may, rehabilitate a relationship that had worsened during the first Trump administration, develop conduits for communication, reestablish economic and security ties.

When you left that post, could you have envisioned this turning out the way that it has in terms of how the rhetoric has been ratcheted up, the tariffs have been put in place? Is it the worst case that you envisioned or worse yet still? I certainly did not anticipate 145% American tariffs on China or 125% Chinese tariffs on American goods.

And the trade war that has resulted effectively led to a trade embargo as of the past week, when no ships were sailing with goods back and forth, when manufacturers couldn't export to each other's countries. And you see the significant shortage of goods that traditionally are important to both economies. I didn't expect that to happen at all. And that's the most important thing happening in the global economy right now, which is another reason why

I think that eventually both sides have to agree to a deal to calm global markets. We're the two largest global economies, so we have a profound impact on the health of a global economy, but we also need the global economy to be functioning in a rational and stable way. There's so much at stake. I didn't see that happening. I think few people saw that happening. You remember candidate Trump

pledged 60% tariffs on Chinese goods and people thought that would be a revolution. Well, 145 was a revolution of a different magnitude. And I think, you know, we're not anywhere close to being out of the woods. If the levels now are set at 30% tariffs on the American side imposed on China and 10% by China imposed on the United States, those are historically high levels.

And a lot of trade will not be able to take place. It just simply won't be economical for people to be importing manufacturers at that level. So this is an urgent crisis. I assume this is going to be one of the highest priorities of the Trump administration and of the Chinese government. But I hope that cooler heads will prevail. And I do think for the long term here, health of the U.S.-China relationship, trade's a major part of it.

and a decoupling of the two economies, let me say that again, a decoupling.

of the US and Chinese economies would have profoundly negative consequences for both. So getting this right is going to be very important. Trade negotiations normally take a year or two or three to try to compress this level of complexity in the 90 days is going to be a real negotiating challenge, but it has to be done. You know well the difficulty of establishing dialogue between these two countries. The Treasury Secretary talks a lot about

a consultative mechanism, he's called it the Geneva Mechanism, going forward here and establishing kind of regular communication

What's it going to take to make sure that happens? We don't yet know when they're next going to talk or their next going to meet. I think self-interest is going to dictate a fast pace of these negotiations over the next 90 days. Both sides have committed to this consultative process and it has to happen at a very high level. In China, the decision maker below President Xi Jinping is Vice Premier He Li Feng, the head of the Chinese delegation who met Secretary Besant.

Secretary Besant has a, I think, a good reputation globally, and he's the logical person to lead, along with James Dean Greer, the US Trade Representative from the American side. So the right people are gonna be involved, but it's gonna have to be at a really quick pace, and it's gonna have to be done with a lot of alacrity and a lot of determination to get to the finish line. - A minute ago, you spoke about how China is portraying not just the talks, but the way that this trade war is unfolding.

And I'm very curious sort of how effective you think that is. Do they walk away from this feeling like they have the upper hand? Do you think the world views them as having the upper hand in these these negotiations? Well, the Chinese press, the Nationalist press and to an extent the government of China have been saying that they held out, that they stood strong and that they faced up to the American tariff threats and they did not blink.

And they've been trumpeting that line in the global south. President Xi just hosted most of the major leaders from South America at a major summit. He made a trip in Southeast Asia to the ASEAN countries. So they clearly are signaling to the United States, you're not going to bully us. We have other options. You've seen a big increase in Chinese manufactured exports to their neighbors in the Southeast Asian countries.

organization, ASEAN. And so they're very definitely standing up. It's become a nationalist issue when Vice President J.D. Vance referred to the Chinese as peasants.

an unfortunate term under any circumstances, but that really lit a fire in Chinese social media, which is a force in Chinese society. So yes, the government of China is trying to portray itself as the steady, solid country that stood up to the United States. I think that China needs a deal too. There's a reason why the Chinese met with Secretary Besant. The economy is slowing down.

If they grew by 5% in 2024, well, most economists would say they probably grew by less. They're facing

Lower GDP growth for the next five to ten years. They have a property crisis that continues to linger They have a consumption problem the Chinese people are not Consuming in a rational way sitting on their money because of the uncertainty of the investment Environment in China itself they have strengths in the Chinese economy enormous strengths, but they also have these weaknesses China could not afford a sustained trade

That is former U.S. Ambassador to China Nick Burns in conversation with Bloomberg's David Gurra. And you can hear the entire conversation on the Bloomberg Talks podcast feed. It's available wherever you get your 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.

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