July 29, 2025 • 16 mins
Shares in Japan fluctuated at the open while those in South Korea and Australia were flat Wednesday after the S&P 500 snapped a six-day rally. Treasuries were steady in early Asian trading after jumping the most in a month in the prior session. In the US, Federal Reserve policymakers are largely expected to hold interest rates steady for a fifth consecutive meeting at the conclusion of their July 29-30 gathering. Dissents from one or more officials could send the message that some members of the rate-setting Federal Open Market Committee prefer to reduce borrowing costs sooner rather than later. We preview Thursday's FOMC decision with Mark Heppenstall, President and CIO at Penn Mutual Asset Management.
Plus - US and China will continue talks over maintaining a tariff truce before it expires in two weeks and Trump will make the final call on any extension. Adding an extra 90 days is one option, according to US Treasury Secretary Scott Bessent. Meantime, the International Monetary Fund said Tuesday that the world economy will keep weakening and remains vulnerable to trade shocks even though it is showing some resilience to Donald Trump's tariffs. We break down the latest trade headlines with Paul Donovan, Chief Economist at UBS Global Wealth Management. He speaks with Bloomberg's Shery Ahn and Haidi Stroud-Watts on The Asia Trade.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Talks between the US and China will continue as the
two sides work to extend a tear off truce. It's
set to expire August twelfth. Speaking after meetings in Stockholm earlier,
US Treasury Secretary Scott Besson confirmed that President Trump will
ultimately make the final decision.
Speaker 3 (00:30):
I noticed as the earlier question said that the Chinese
Deputy minister did say that we had agreed on a pause.
We have nothing is agreed until we speak with President Trump.
Speaker 2 (00:46):
We'll have more on the tariff story in a moment
when we hear from Paul Donovan. He is the chief
economist at UBS Global Wealth Management. But we begin here
in the States, where the equity market drifted lower ahead
of tomorrow's decision from the Fed. Join me now is
Mark Heppenstall. He is president and the CIO at Pen
Mutual Asset Management. Mark is on the line from just
(01:07):
outside Philadelphia. Thank you so much for making time to
chat with me. Is it too much to say that
the Fed is not going to cut rights this month?
Even though President Trump has been arguing for that for
a while now.
Speaker 4 (01:18):
Hey Doug, Well, first off, great to be with you again.
Thanks for having me on the program. So I think,
you know, if a rate cut were happening tomorrow, then
I think that it would have already been spread through
the rumor mail coming out of the Federal Reserve. That
just seems to be the way they operate. They have
never really surprised markets under Powell's leadership, so I think
(01:42):
it's likely to be more of a discussion around September.
I do think it is interesting that, you know, we've
had certain members of the FOMC lobbying for a rate
cut this month. But I will say, in some ways,
I'm not so sure this isn't being orchestrated by Chair
Pow sort of this dissension, because it's going to be
(02:02):
a lot easier for when the time comes to cut
interest rates to say that he's listening to fellow FMC
members as opposed to being caving in to some of
the pressure from President Trump.
Speaker 2 (02:12):
The price action today was a little interesting. It seemed
as though money was shifting out of the equity market
and into the bond market a bit, yields lower across
the curve, and I'm wondering whether or not there may
have been a little bit of short covering going on
at the bond market in front of the Fed's decision.
What do you think, Well, I.
Speaker 4 (02:29):
Do think that is part of it. Yeah, I mean
the seven year auction came in, you know, stronger than
a lot of folks were expecting. So you know, the
market was starting to rally in the bond market to
start the day, and then when the seven year auction
came out strong, we really started to see people grab
for bond. So I do think in some ways people
(02:49):
are likely to be neutral tomorrow because again, even though
I don't think we're going to get at a rate move,
I do think there could be a lot of volatility
around the press conference. And as you mentioned earlier, we
have a lot of important earnings this week. We have GDP,
we have the employment report. So again it isn't surprising
to me that people would want to square positions in
light of all of the news that's happening.
Speaker 2 (03:11):
How are you making sense of the day's economic news.
We had word that consumer confidence was up in the
month of July. Job openings were down, yes, although they're
hovering at a level right now that implies a stable
labor market. How are you viewing the macro these days?
Speaker 4 (03:27):
Well, I guess if you had to pick one word,
it probably would be stable. You know, we've seen a
moderation in some of the strong growth numbers that we
witnessed last year. You know, the first quarter negative print
on GDP I think was somewhat of an anomaly driven
by trade imbalances. So again, this GDP report will give
us a much better sense of what's happening with the consumer,
(03:49):
because it was you know, the consumer was weak in
the first quarter. So it'll be interesting to see what
type of a rebound we see here in the GDP
report tomorrow. But again with labor market, it's relatively strong,
and with you know, the unemployment rate pretty much close
to indicating full employment picture at this point, I think
it's you know, again, consumer spending is likely to not
(04:12):
fall off a cliff, and so I would go back
to that word stable.
Speaker 2 (04:15):
Okay, So we also get the Fed's preferred measure of
inflation this week, core PCE. How are you feeling about
inflation in spite of the fact that people have been
saying for a while now that with these tariffs and
some of these new trade deals, inflation is likely to
tick up. The market doesn't seem to be too concerned
about that right now.
Speaker 4 (04:34):
No, it is interesting, and I will say we're seeing
a lot of mixed signals. If you look at the
ten year break even inflation on you know, looking at
tips versus anomenal bonds, it's implying two point four percent.
So certainly that's not sort of a runaway high type
of number, but it is above the Fed's two percent target,
and it has been trending higher more recently, so that's
something to be watchful for. Oil prices have been well behaved.
(04:58):
You mentioned they are up strongly day, but you know,
I do think with oil being well behaved and a
lot of these you know, sort of severe terror shifting
into sort of moderate trade deals with still some you know,
high tariffs, but again, I don't think it's enough at
this point to really cause the spike in inflation that
a lot of analysts were expecting after Liberation Day.
Speaker 2 (05:19):
Are you still finding opportunity in the bond market these days,
even though yields have come in pretty substantially as of late.
And I'm wondering if that's the case. If there is opportunity,
where on the curve are you finding it?
Speaker 4 (05:33):
You know, I will say we've seen you know, I
would say a normalization of the yield curve, and I
will say for fixed income managers, having some one of
a positive slope to the yeld curve that allows the
passive of time to basically improve the performance for fixed
income assets, I think is a benefit. So we you know,
we're still forecasting a moderate steepening of the yield curves,
(05:54):
so sort of in that five to ten years zip code,
I will say, corporate credit spreads are you know, basically
very close to the post financial crisis tights today. That's
both an investment great and high yield. So we're finding
better opportunities in securitize credit, including residential mortgage backed securities.
Speaker 2 (06:10):
What are you most concerned about right now?
Speaker 4 (06:13):
Well, I do think the debt and deficits, which is
you know, one of the reasons that we've seen the
steepening of the yield curve, and you know, we've seen
the thirty year treasury tests the five percent level so
many times recently. I do worry that it could be
ready to break through the next time that we test
the five percent level. So again I think it's going
to be pressure at the long end of the yield curve.
(06:35):
And basically, you know, you discount financial assets at risk
free rates across the yield curve, and so to the
extent that should long term interest rates rise, that should
be a headwind for other financial assets. So again that's
something we're watching for. It'll be interesting to see what
the sort of the breakdown is of the debt issuance. Tomorrow,
I think the Treasury is going to announce how much
short versus long term debt they're going to be issuing.
Speaker 2 (06:57):
Are you tempted to look offshore for fixed income opportunities?
Speaker 4 (07:02):
Well, I will say our focus is primarily in US
fixed income markets. So you know, we have a little
bit of form bond exposure, a little bit of emerging
market exposure. But again I will say the opportunity set
for US fixed income in light of you know, close
to a four and a half percent tenure treasure yield
(07:22):
is so much better than it was four or five
years ago. So again we're taking advantage of absolute yields,
which we think are attractive for a lot of spread assets.
Speaker 2 (07:30):
Okay, so for talking the US, how much exposure do
you have right now to the muni market.
Speaker 4 (07:35):
Well, we do tax wimmunis, and I will say, you know,
we've had as much as let's say, ten to fifteen
percent of our portfolio and tax communis. However, tax community
issuance has really fallen off a cliff, and that's partly
because the exempt market has been so strong. So again
that's been an area where we're seeing a declining percentage
(07:56):
within the portfolio. But you know, there still are sort
of diamonds and they're rough you can find in attractive opportunities.
But again, as sort of a broad asset class, it's
a little bit tough to find opportunities there.
Speaker 2 (08:07):
Okay, Mark, we'll leave it there, Thank you so very much.
Mark Heppenstall, Presidency IO at Pen Mutual Asset Management. Joining
from just outside Philadelphia here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm dig Chrisner.
(08:28):
So the earning season moves into high gear in the
States tomorrow when we'll get the numbers from Meta, Microsoft
and Qualcom after the closing bell. But it seems as
though neither earnings nor even the Fed's decision are enough
to take the market's attention away from tariffs and issues
on trade. On Tuesday, the IMF said the global economy
will keep weakening and it remains vulnerable to trade shocks,
(08:53):
and that's despite the fact that we're seeing some signs
of resilience when it comes to those US tariffs. We
got reaction from Paul Donovan. He is the chief economist
at UBS Global Wealth Management. Paul spoke with Bloomberg TV
host Sherry On and Heidi Stroud Watts on the Asia trade.
Speaker 5 (09:09):
Has the brasilience in the data surprised you or is
it just a result of sort of front loading before
it all hits in the coming months.
Speaker 6 (09:17):
It's not a surprise.
Speaker 7 (09:18):
The impatience of people to see the tariffs and the numbers,
I think is actually a little surprising.
Speaker 6 (09:24):
It takes time. So there's two things here.
Speaker 7 (09:27):
Firstly, any goods that were already on board ship heading
off to the United States on the ninth of April,
they're not subject to tariff. So that means some of
the stuff that's being unloaded from Asia in late May
and June that's still not subject to tariff. And then
when you get from the port to the shopping basket
of the consumer. You've got another three months on average,
(09:48):
so you're not expecting to see the full effects of
these tariffs showing up. The consumer isn't paying the tax
until June the very earliest, and frankly, with the April
that's probably not going to be fully visible until September.
And with the August taxes that Trump's putting on consumers,
they're not going to be paid until probably January of
(10:10):
next year. So it's a staggered effect. But in the
details of the data, we are seeing this start to
come through.
Speaker 5 (10:17):
And it sounds like it could be sort of a
holiday season hit that we're seeing as well. But what
about the stickiness and the longevity of tariffs? Is that
something been the longer term concerns you more well.
Speaker 7 (10:27):
So this is the great unknown. It's the unknown for economists,
it's the unknown for the FED. It's not the first
round effects. The first round effects are nice and simple
to calculate. Basically, this is going to add about one
and a half percentage points to US inflation. That's effectively
the sales tax that the tariffs are likely to represent.
The question is the second round effects do we see
(10:48):
us manufacturers raising their prices because they're facing less price
competition from foreign competitors.
Speaker 6 (10:55):
Do we see US.
Speaker 7 (10:57):
Retailers going into profit led in flom and using this
tariff story as a as a convenient cover to sneak
in a bit more profit margin and a bit higher prices.
And the more you get those second round effects, the
longer the negative impact of the trade taxes is going
to weigh on the US consumer.
Speaker 1 (11:15):
Does it mean that it makes sense for the Federal
Reserve to be cutting rates now in order to pre
empt that impact?
Speaker 6 (11:22):
Well, this is a great problem. You know.
Speaker 7 (11:24):
I'm not somebody who has a great deal of support
for for Chair Pale, I have to say, but nevertheless,
I do have quite a bit of sympathy for him
at the moment because he's in a really difficult position
that we don't know how big the second round effects
are going to be in total. We don't even know
actually how big the directive effects of the tariffs are
(11:44):
going to be, because firstly, we don't know what all
of the trade taxes are going to be, and secondly,
we don't know if they're going to survive the court reviews,
and you know, there may will be some dialing back
of these taxes as the courts reject them. So it's
a lot of uncertainty there, and the wait and see
approach is basically I think saying, well, look, if the
economy is going to slow down, and it almost certainly
(12:05):
is going to weaken significantly as we go into the
second half, really should we be cutting rates now or
should we wait to see how bad the damage is
going to be?
Speaker 6 (12:16):
And that's the great uncertainty.
Speaker 7 (12:18):
So the FED is in weight and see mode, I
think justifiably at the moment, I think they'll cut probably
one percent over the course of the next twelve months.
But when they start that process that's quite uncertain. Do
they cut in September or do they kick it into
the fourth quarter? That's uncertain because the data is uncertain,
The tariffs are uncertain, you know. Uncertainty is the hallmark
(12:39):
of the current administration in the States.
Speaker 1 (12:42):
And the job data is one that we're really watching
closely that the FED is referring to when it comes
to also economic fragility. Right, what are you seeing in
the labor market?
Speaker 7 (12:52):
So fragile is exactly the right word I think there,
because what's going on is the labor market is clearly
experiencing some stress because in this climate of uncertainty, companies
are refusing to hire.
Speaker 6 (13:07):
They're not firing workers.
Speaker 7 (13:09):
If you've got a job, your job is probably safe,
but they're not keen to go out and take on
new labor because you know.
Speaker 6 (13:14):
Who knows what the next twelve months is going to bring.
Speaker 7 (13:17):
And so as a result, we're not seeing, you know,
job vacancies be particularly strong. We're not seeing that recruitment.
Now that's negative, but it's not disastrous. It's negative because
obviously the labor market is weakening. If you're somebody leaving university,
you're going to struggle to find work. On the other hand,
(13:37):
twenty one year olds aren't that important as consumers.
Speaker 6 (13:40):
You know.
Speaker 7 (13:40):
It's the middle aged people like me who are actually
the bigger consumers overall. So you know, it's what I'm doing,
you know, not what my twenty one year old niece
is doing that is actually going to matter to economic performance. Well, no,
fortunately we haven't gone down that route. But the TikTok
shop does get more of her income than it should.
But yeah, that's the pattern that we're going to be
(14:02):
looking for. So the FED is going to be very
very focused on the labor market. Unfortunately, the labor market
data is not very good quality, and that's where one
of the risks of policy era comes in, not because
Powell is more incompetent than normal, but because the data
gives a misleading signal and is corrected in revision.
Speaker 6 (14:21):
That's where the real risk lies.
Speaker 5 (14:22):
I think, speaking of Labuobos, how are you viewing US
China at the moment? I mean, is this sort of
the instinct is to kick the gun down the road
for another ninety days because this is obviously the hardest
decision of the hardest tariff negotiation to have.
Speaker 7 (14:36):
I think that is very much the case, and so
I think there will be an inclination to extend and
to try and push this further out. And one of
the things about the China trade, of course, is that
the China trade is likely to be quite.
Speaker 6 (14:51):
Visible to US consumers.
Speaker 7 (14:53):
They're going to notice when the trade tax comes in
on China's products because these are things that they do
buy a bit more frequently, or they're obsessing about. They're
smaller items. It's not steel so much. Steel is not
something you don't go out and buy any good of
steel on a Saturday morning, do you. But you might
go out and think, oh I need a new toast store,
(15:14):
I need a new cattle, or I need a labuba.
Nobody needs a labooboo. But you know that sort of thing.
You're going out to spend on a frequent basis, you
notice the price increases a bit more.
Speaker 6 (15:23):
There.
Speaker 2 (15:24):
That's Paul Donovan, chief economist at UBS Global Wealth Management,
speaking with Bloomberg's Sherry On and Heidi Stroud Watts right
here on the Daybreak Asia Podcast. 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
(15:46):
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 Prisoner
and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Talks between the US and China will continue as the
two sides work to extend a tear off truce. It's
set to expire August twelfth. Speaking after meetings in Stockholm earlier,
US Treasury Secretary Scott Besson confirmed that President Trump will
ultimately make the final decision.
Speaker 3 (00:30):
I noticed as the earlier question said that the Chinese
Deputy minister did say that we had agreed on a pause.
We have nothing is agreed until we speak with President Trump.
Speaker 2 (00:46):
We'll have more on the tariff story in a moment
when we hear from Paul Donovan. He is the chief
economist at UBS Global Wealth Management. But we begin here
in the States, where the equity market drifted lower ahead
of tomorrow's decision from the Fed. Join me now is
Mark Heppenstall. He is president and the CIO at Pen
Mutual Asset Management. Mark is on the line from just
(01:07):
outside Philadelphia. Thank you so much for making time to
chat with me. Is it too much to say that
the Fed is not going to cut rights this month?
Even though President Trump has been arguing for that for
a while now.
Speaker 4 (01:18):
Hey Doug, Well, first off, great to be with you again.
Thanks for having me on the program. So I think,
you know, if a rate cut were happening tomorrow, then
I think that it would have already been spread through
the rumor mail coming out of the Federal Reserve. That
just seems to be the way they operate. They have
never really surprised markets under Powell's leadership, so I think
(01:42):
it's likely to be more of a discussion around September.
I do think it is interesting that, you know, we've
had certain members of the FOMC lobbying for a rate
cut this month. But I will say, in some ways,
I'm not so sure this isn't being orchestrated by Chair
Pow sort of this dissension, because it's going to be
(02:02):
a lot easier for when the time comes to cut
interest rates to say that he's listening to fellow FMC
members as opposed to being caving in to some of
the pressure from President Trump.
Speaker 2 (02:12):
The price action today was a little interesting. It seemed
as though money was shifting out of the equity market
and into the bond market a bit, yields lower across
the curve, and I'm wondering whether or not there may
have been a little bit of short covering going on
at the bond market in front of the Fed's decision.
What do you think, Well, I.
Speaker 4 (02:29):
Do think that is part of it. Yeah, I mean
the seven year auction came in, you know, stronger than
a lot of folks were expecting. So you know, the
market was starting to rally in the bond market to
start the day, and then when the seven year auction
came out strong, we really started to see people grab
for bond. So I do think in some ways people
(02:49):
are likely to be neutral tomorrow because again, even though
I don't think we're going to get at a rate move,
I do think there could be a lot of volatility
around the press conference. And as you mentioned earlier, we
have a lot of important earnings this week. We have GDP,
we have the employment report. So again it isn't surprising
to me that people would want to square positions in
light of all of the news that's happening.
Speaker 2 (03:11):
How are you making sense of the day's economic news.
We had word that consumer confidence was up in the
month of July. Job openings were down, yes, although they're
hovering at a level right now that implies a stable
labor market. How are you viewing the macro these days?
Speaker 4 (03:27):
Well, I guess if you had to pick one word,
it probably would be stable. You know, we've seen a
moderation in some of the strong growth numbers that we
witnessed last year. You know, the first quarter negative print
on GDP I think was somewhat of an anomaly driven
by trade imbalances. So again, this GDP report will give
us a much better sense of what's happening with the consumer,
(03:49):
because it was you know, the consumer was weak in
the first quarter. So it'll be interesting to see what
type of a rebound we see here in the GDP
report tomorrow. But again with labor market, it's relatively strong,
and with you know, the unemployment rate pretty much close
to indicating full employment picture at this point, I think
it's you know, again, consumer spending is likely to not
(04:12):
fall off a cliff, and so I would go back
to that word stable.
Speaker 2 (04:15):
Okay, So we also get the Fed's preferred measure of
inflation this week, core PCE. How are you feeling about
inflation in spite of the fact that people have been
saying for a while now that with these tariffs and
some of these new trade deals, inflation is likely to
tick up. The market doesn't seem to be too concerned
about that right now.
Speaker 4 (04:34):
No, it is interesting, and I will say we're seeing
a lot of mixed signals. If you look at the
ten year break even inflation on you know, looking at
tips versus anomenal bonds, it's implying two point four percent.
So certainly that's not sort of a runaway high type
of number, but it is above the Fed's two percent target,
and it has been trending higher more recently, so that's
something to be watchful for. Oil prices have been well behaved.
(04:58):
You mentioned they are up strongly day, but you know,
I do think with oil being well behaved and a
lot of these you know, sort of severe terror shifting
into sort of moderate trade deals with still some you know,
high tariffs, but again, I don't think it's enough at
this point to really cause the spike in inflation that
a lot of analysts were expecting after Liberation Day.
Speaker 2 (05:19):
Are you still finding opportunity in the bond market these days,
even though yields have come in pretty substantially as of late.
And I'm wondering if that's the case. If there is opportunity,
where on the curve are you finding it?
Speaker 4 (05:33):
You know, I will say we've seen you know, I
would say a normalization of the yield curve, and I
will say for fixed income managers, having some one of
a positive slope to the yeld curve that allows the
passive of time to basically improve the performance for fixed
income assets, I think is a benefit. So we you know,
we're still forecasting a moderate steepening of the yield curves,
(05:54):
so sort of in that five to ten years zip code,
I will say, corporate credit spreads are you know, basically
very close to the post financial crisis tights today. That's
both an investment great and high yield. So we're finding
better opportunities in securitize credit, including residential mortgage backed securities.
Speaker 2 (06:10):
What are you most concerned about right now?
Speaker 4 (06:13):
Well, I do think the debt and deficits, which is
you know, one of the reasons that we've seen the
steepening of the yield curve, and you know, we've seen
the thirty year treasury tests the five percent level so
many times recently. I do worry that it could be
ready to break through the next time that we test
the five percent level. So again I think it's going
to be pressure at the long end of the yield curve.
(06:35):
And basically, you know, you discount financial assets at risk
free rates across the yield curve, and so to the
extent that should long term interest rates rise, that should
be a headwind for other financial assets. So again that's
something we're watching for. It'll be interesting to see what
the sort of the breakdown is of the debt issuance. Tomorrow,
I think the Treasury is going to announce how much
short versus long term debt they're going to be issuing.
Speaker 2 (06:57):
Are you tempted to look offshore for fixed income opportunities?
Speaker 4 (07:02):
Well, I will say our focus is primarily in US
fixed income markets. So you know, we have a little
bit of form bond exposure, a little bit of emerging
market exposure. But again I will say the opportunity set
for US fixed income in light of you know, close
to a four and a half percent tenure treasure yield
(07:22):
is so much better than it was four or five
years ago. So again we're taking advantage of absolute yields,
which we think are attractive for a lot of spread assets.
Speaker 2 (07:30):
Okay, so for talking the US, how much exposure do
you have right now to the muni market.
Speaker 4 (07:35):
Well, we do tax wimmunis, and I will say, you know,
we've had as much as let's say, ten to fifteen
percent of our portfolio and tax communis. However, tax community
issuance has really fallen off a cliff, and that's partly
because the exempt market has been so strong. So again
that's been an area where we're seeing a declining percentage
(07:56):
within the portfolio. But you know, there still are sort
of diamonds and they're rough you can find in attractive opportunities.
But again, as sort of a broad asset class, it's
a little bit tough to find opportunities there.
Speaker 2 (08:07):
Okay, Mark, we'll leave it there, Thank you so very much.
Mark Heppenstall, Presidency IO at Pen Mutual Asset Management. Joining
from just outside Philadelphia here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm dig Chrisner.
(08:28):
So the earning season moves into high gear in the
States tomorrow when we'll get the numbers from Meta, Microsoft
and Qualcom after the closing bell. But it seems as
though neither earnings nor even the Fed's decision are enough
to take the market's attention away from tariffs and issues
on trade. On Tuesday, the IMF said the global economy
will keep weakening and it remains vulnerable to trade shocks,
(08:53):
and that's despite the fact that we're seeing some signs
of resilience when it comes to those US tariffs. We
got reaction from Paul Donovan. He is the chief economist
at UBS Global Wealth Management. Paul spoke with Bloomberg TV
host Sherry On and Heidi Stroud Watts on the Asia trade.
Speaker 5 (09:09):
Has the brasilience in the data surprised you or is
it just a result of sort of front loading before
it all hits in the coming months.
Speaker 6 (09:17):
It's not a surprise.
Speaker 7 (09:18):
The impatience of people to see the tariffs and the numbers,
I think is actually a little surprising.
Speaker 6 (09:24):
It takes time. So there's two things here.
Speaker 7 (09:27):
Firstly, any goods that were already on board ship heading
off to the United States on the ninth of April,
they're not subject to tariff. So that means some of
the stuff that's being unloaded from Asia in late May
and June that's still not subject to tariff. And then
when you get from the port to the shopping basket
of the consumer. You've got another three months on average,
(09:48):
so you're not expecting to see the full effects of
these tariffs showing up. The consumer isn't paying the tax
until June the very earliest, and frankly, with the April
that's probably not going to be fully visible until September.
And with the August taxes that Trump's putting on consumers,
they're not going to be paid until probably January of
(10:10):
next year. So it's a staggered effect. But in the
details of the data, we are seeing this start to
come through.
Speaker 5 (10:17):
And it sounds like it could be sort of a
holiday season hit that we're seeing as well. But what
about the stickiness and the longevity of tariffs? Is that
something been the longer term concerns you more well.
Speaker 7 (10:27):
So this is the great unknown. It's the unknown for economists,
it's the unknown for the FED. It's not the first
round effects. The first round effects are nice and simple
to calculate. Basically, this is going to add about one
and a half percentage points to US inflation. That's effectively
the sales tax that the tariffs are likely to represent.
The question is the second round effects do we see
(10:48):
us manufacturers raising their prices because they're facing less price
competition from foreign competitors.
Speaker 6 (10:55):
Do we see US.
Speaker 7 (10:57):
Retailers going into profit led in flom and using this
tariff story as a as a convenient cover to sneak
in a bit more profit margin and a bit higher prices.
And the more you get those second round effects, the
longer the negative impact of the trade taxes is going
to weigh on the US consumer.
Speaker 1 (11:15):
Does it mean that it makes sense for the Federal
Reserve to be cutting rates now in order to pre
empt that impact?
Speaker 6 (11:22):
Well, this is a great problem. You know.
Speaker 7 (11:24):
I'm not somebody who has a great deal of support
for for Chair Pale, I have to say, but nevertheless,
I do have quite a bit of sympathy for him
at the moment because he's in a really difficult position
that we don't know how big the second round effects
are going to be in total. We don't even know
actually how big the directive effects of the tariffs are
(11:44):
going to be, because firstly, we don't know what all
of the trade taxes are going to be, and secondly,
we don't know if they're going to survive the court reviews,
and you know, there may will be some dialing back
of these taxes as the courts reject them. So it's
a lot of uncertainty there, and the wait and see
approach is basically I think saying, well, look, if the
economy is going to slow down, and it almost certainly
(12:05):
is going to weaken significantly as we go into the
second half, really should we be cutting rates now or
should we wait to see how bad the damage is
going to be?
Speaker 6 (12:16):
And that's the great uncertainty.
Speaker 7 (12:18):
So the FED is in weight and see mode, I
think justifiably at the moment, I think they'll cut probably
one percent over the course of the next twelve months.
But when they start that process that's quite uncertain. Do
they cut in September or do they kick it into
the fourth quarter? That's uncertain because the data is uncertain,
The tariffs are uncertain, you know. Uncertainty is the hallmark
(12:39):
of the current administration in the States.
Speaker 1 (12:42):
And the job data is one that we're really watching
closely that the FED is referring to when it comes
to also economic fragility. Right, what are you seeing in
the labor market?
Speaker 7 (12:52):
So fragile is exactly the right word I think there,
because what's going on is the labor market is clearly
experiencing some stress because in this climate of uncertainty, companies
are refusing to hire.
Speaker 6 (13:07):
They're not firing workers.
Speaker 7 (13:09):
If you've got a job, your job is probably safe,
but they're not keen to go out and take on
new labor because you know.
Speaker 6 (13:14):
Who knows what the next twelve months is going to bring.
Speaker 7 (13:17):
And so as a result, we're not seeing, you know,
job vacancies be particularly strong. We're not seeing that recruitment.
Now that's negative, but it's not disastrous. It's negative because
obviously the labor market is weakening. If you're somebody leaving university,
you're going to struggle to find work. On the other hand,
(13:37):
twenty one year olds aren't that important as consumers.
Speaker 6 (13:40):
You know.
Speaker 7 (13:40):
It's the middle aged people like me who are actually
the bigger consumers overall. So you know, it's what I'm doing,
you know, not what my twenty one year old niece
is doing that is actually going to matter to economic performance. Well, no,
fortunately we haven't gone down that route. But the TikTok
shop does get more of her income than it should.
But yeah, that's the pattern that we're going to be
(14:02):
looking for. So the FED is going to be very
very focused on the labor market. Unfortunately, the labor market
data is not very good quality, and that's where one
of the risks of policy era comes in, not because
Powell is more incompetent than normal, but because the data
gives a misleading signal and is corrected in revision.
Speaker 6 (14:21):
That's where the real risk lies.
Speaker 5 (14:22):
I think, speaking of Labuobos, how are you viewing US
China at the moment? I mean, is this sort of
the instinct is to kick the gun down the road
for another ninety days because this is obviously the hardest
decision of the hardest tariff negotiation to have.
Speaker 7 (14:36):
I think that is very much the case, and so
I think there will be an inclination to extend and
to try and push this further out. And one of
the things about the China trade, of course, is that
the China trade is likely to be quite.
Speaker 6 (14:51):
Visible to US consumers.
Speaker 7 (14:53):
They're going to notice when the trade tax comes in
on China's products because these are things that they do
buy a bit more frequently, or they're obsessing about. They're
smaller items. It's not steel so much. Steel is not
something you don't go out and buy any good of
steel on a Saturday morning, do you. But you might
go out and think, oh I need a new toast store,
(15:14):
I need a new cattle, or I need a labuba.
Nobody needs a labooboo. But you know that sort of thing.
You're going out to spend on a frequent basis, you
notice the price increases a bit more.
Speaker 6 (15:23):
There.
Speaker 2 (15:24):
That's Paul Donovan, chief economist at UBS Global Wealth Management,
speaking with Bloomberg's Sherry On and Heidi Stroud Watts right
here on the Daybreak Asia Podcast. 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
(15:46):
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 Prisoner
and this is Bloomberg
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