July 28, 2025 • 14 mins
Asian stocks slipped after a flat session on Wall Street, as investors stayed cautious amid a week packed with economic data and corporate earnings. The MSCI Asia-Pacific gauge dropped 0.7%, a third consecutive day of decline. The dollar steadied Tuesday after climbing the most since May in the prior session. The S&P 500 briefly topped 6,400, but closed little changed. Oil held its gain after President Donald Trump pushed for Russia to reach a swift truce with Ukraine or face potential economic penalties. We talk markets with Vance Howard, CEO and Portfolio Manager at Howard Capital Management.
Plus - Commerce Secretary Howard Lutnick says a 90-day extension of a trade truce with China was a likely outcome with negotiations between the two countries underway in Stockholm. Lutnick's comments followed the start of a new round of talks between the world's two largest economies - this time in Stockholm, where Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Bessent led the respective delegations. Earlier rounds saw Washington and Beijing agree to reduce tit-for-tat levies and ease export controls on certain technology and rare-earth minerals, easing tensions that had rattled financial markets as Trump moves to enact a sweeping tariff agenda. We get perspective from Marc Franklin, Managing Director & Senior Portfolio Manager, Asset Allocation, Asia at Manulife Investment Management. He speaks with Bloomberg's Shery Ahn and Avril Hong 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 Krisner.
Trade negotiators from Washington and Beijing met for over seven
hours in Stockholm on Monday with a name of extending
a tear offf truce. More talks are set for Tuesday.
US Treasury Secretary Scott Besson said an extension to the
current pause is likely, but there are some key sticking
(00:31):
points that do remain, and they include fentanyl related levies
as well as export controls on semiconductors. We got reaction
from Andrew Bishop, Global head of Policy research at Signum
Global Advisors.
Speaker 3 (00:44):
I think the saraf truth is absolutely going to be extended.
But the main reason for that is not so much
because I think there's great progress being made on the
substance of these talks. Rather, I think President Trump essentially
realized back in April May that high tariffs on China
just work because the impact on the US economy is
too great and China has too much leverage in the
(01:05):
form of its control over rare earths.
Speaker 2 (01:07):
That's Andrew Bishop of Signum Global Advisors, speaking earlier to
Bloomberg meantime, the dollar jumped today by the most since
early May, putting the greenback on track for its first
monthly gain this year. Now, the trade agreement between the
US and the European Union is stoking concern over the
negative impact of tariffs on global growth. You know, the
(01:27):
next few days will be pivotal for markets. It's the
busiest week of the earning season and it features big
cap tech. We've got the FED meeting on Wednesday, and
on Friday the US jobs report. In a moment, we'll
get some perspective from the Asia Pacific side. We'll hear
from Mark Franklin at Menu Life Investment Management, but we
begin here in the States. Joining me now is Vance Howard.
(01:49):
He is the CEO also the portfolio manager at Howard
Capital Management. Vance, thank you so much for making time
to chat with me. So we've got the big earnings
this week, Microsoft, Amazon, Apple. How are you feeling about
big cap tech right now?
Speaker 4 (02:05):
I'm feeling very very good about big cap tech, Doug.
I mean, you look at eighty three percent of reported
so far, and I know we haven't have that many
that have reported, but so far the beat has been
quite quite amazing. They're beaten by quite a bit. Earnings
are looking really really strong, and as you know, as
you well know, earnings are what fuels a bull market.
Speaker 2 (02:22):
A lot of the centers on artificial intelligence, and a
lot of the analysts that I've been speaking with have
pointed to the issue of capex spending as being critical
to try to get a little bit more of a
sense of the confidence that these companies have in terms
of further spending in this AI revolution. Is that an
important metric for you, cap X.
Speaker 4 (02:43):
I think it's great. I think cap Tex is looking
very very strong. It looks like they're going to make
a lot of investment in that area. And I know
and Trump was in DC either yesterday the day before
and he signed a number of executive orders pushing AI
and really get behind AAI over here. So you know,
there's a lot of thrust with they have moving forward.
So I mean, can't mean anything but bullish about it.
And you know, if you want to go deeper into AI. Unfortunately,
(03:05):
I think that we're going to see some jobs that
are going to go away, but I think you're going
to see corporate earnings go up because I think you're
going to see an additional efficiency that's created through AI.
Speaker 2 (03:13):
There's been this cloud that's been hanging over markets for
some time related to the trade war and a lot
of these tariffs. Do you think we're a significant turning
point right now as we approach that deadline of August first?
Speaker 4 (03:26):
You know, I think this thing with EU was critical.
You know, the fifteen percent tariff on the European Union,
I think was a good deal for us. Actually, I
think it's a pretty decent deal for them too. But
you know, let's talk about terraces for a minute, Doug.
Did you know that in June blast month that we
had a twenty seven billion dollar surplus mainly due to terrists.
That's the first surplus that we've had since twenty seventeen.
Speaker 2 (03:48):
One of the things I want to talk about is
the energy space here there in Texas, and I know
that oil and gas typically is close to the heart
of investors in Texas. And I'm getting indications now that
the oil and gas equipment a supplier, Baker Hughes, is
reportedly nearing a deal to buy Chart Industries. That's according
to the ft and they cite a source saying that
(04:09):
this would be a cash transaction worth something around thirteen
point six billion. How are you feeling these days about
the energy complex?
Speaker 4 (04:18):
I think the energy complex is very, very stable. I
know in Euston, Texas, We've got an office down there,
and I know that the friends of mine that are
in the energy industry are pretty happy with the way
things are going. I think been more stable than it
has bollatile, which I think is actually creates a more
secure environment for the energy dependent industry. And when you
talk about thirteen billion dollars for a check from a
(04:39):
Baker US, that's a pretty good sized check.
Speaker 2 (04:41):
How are you feeling about this week's FED meeting? There
has been some speculation that maybe a Powell and Company
would feel the pressure to cut interest rates, but the
market doesn't seem to be convinced to that fact. How
are you understanding what the Fed may do this week?
Speaker 4 (04:56):
This has been the most hated the recovery I think
I've ever seen. I mean, it's just nobody's really buying
into it, even though it keeps just slowly melting up.
And I think it's going to continue to melt up.
But when you look at the Fed and you look
at what's going on, did you know that they had
three of the governors that descended last time. So that's
one of the few times ever that we've had that
many governors on the FED board that had descended. So
I think he's going to be under a lot of
(05:17):
pressure to start to drop rates. To be quite candid, Doug,
I think he needs to start dropping rates. If he's
truly data dependent, then he should start dropping rates here
here in the near term.
Speaker 2 (05:27):
Okay, So if we can accept maybe the notion that
we'll get two rate cuts before the end of the year,
don't you believe that's been fully discounted right now by
markets at this point.
Speaker 4 (05:36):
I don't, and I don't because I think that there's
still a lot of speculation. Know, the FED keeps saying
this word which really bothers me a lot, which is
that there's no security, there's no surety out there. Well,
there's never any surity out We don't even know if
we're going to get up and live tomorrow. So to
sit there and bank upon the insecurity of what's going
to happen next week or next year. The FED keeps
(05:56):
saying that their data dependent, well, their data dependent, they
should start to drop rates because things are pointing in
that direction. I mean, we have a good economy, we
have low ue employment. Things are working very well, corporate
earnings are going up, but you know rates need to
start to come down.
Speaker 2 (06:09):
Okay, So does that mean that there are opportunities in
the bond market right now?
Speaker 4 (06:14):
I think there's a lot of opportunities, Especially if you
look at the ten, twenty, and thirty year treasuries. I
think there's opportunities there. I would be very cautious in
trading them because they are incredibly volatile. You look at
the ten year, the thirty year treasury dug and there's
volatile as s and p if not more so so
trading you know, the treasuries can be a little bit tricky.
But you know what a lot of people overlook and
we don't. We've invested in quite a bit is convertible bonds.
(06:36):
I think convertible bonds are really a nice investment alternative
to some of the other bond areas that you can
invest in, and we've done really well with the convertibles.
Speaker 2 (06:44):
Help me understand the labor market right now, just anecdotally
from where you sit in in Texas. I know we
get the jobs numbers on Friday, Well, you know from Texas.
Speaker 4 (06:55):
The economy here's doing very very well. I mean, we've
set ourselves up for growth. We've deregulated quite a bit.
Speaker 5 (07:02):
You know.
Speaker 4 (07:02):
Governor Rabbit, I think's done a pretty darn good job
with managing our state and managing our money. And you know,
we just got out of session with the our state
senators and reps, and I think that they come up
with a pretty good budget that's going to do very
very well for Texans. So I'd be very optimistic if
I was an employee in this great state of Texas.
Speaker 2 (07:19):
Okay, we'll leave it there. Vance, it's always a pleasure.
Thank you so much for joining us. He is Vance Howard,
the CEO also portfolio manager at Howard Capital Management. Joining
us here on the Daybreak Asia podcast. Welcome back to
the Daybreak Asia Podcast. I'm Doug Chrisner. Equities across the
(07:41):
APAC region are a little weaker off the opening bell
after a flat session here in New York. The MSCI
Asia Pacific gauge down about six tens of one percent
for its third consecutive day of weakness. This buoyant move
from tariff deals seems to be running out of steam
as investors turn their focused to a raft of key
data here in the US. We'll get numbers on key
(08:04):
inflation that the FED watches as well as employment. And
let's not forget the FED meeting midweek. Let's get more
on market action from the Asia perspective from Mark Franklin.
He is Deputy head of Asset Allocation Asia for Manual
Life Investment Management. He spoke earlier with Bloomberg TV host
Sherry On and Avril Hon on the Asia trade mark.
Speaker 5 (08:26):
Is a busy week, we got the Fed, among the
central banks, we got earnings. But just one of your
thoughts first, what we're seeing on the dollar in the
past day against the backdrop of these trade deals. Do
you think this is short lived? Because some of our
analysts think so.
Speaker 6 (08:42):
That's a great question. Good morning. We've seen quite an
underweight position built up in US dollars in the market
by investors, and so there's a bit of an asymmetry
now which could partially unwind in the short term, particularly
if the FED remains on hold. That the trade deal
that the US and the EU have purportedly signed suggest
that the US comes out of it much stronger and
the ear a little bit weaker, and so that's created
(09:04):
a bit of selling pressure on Euro assets, but the
trend over the medium term still looks intact visa the
weakening dollar cyclically, and if you zoom out, it's really
effectively a reversal of the US dollar appreciation that we
saw under the previous four or five years.
Speaker 5 (09:19):
What about the feds path, What do you think is
realistic to expect in terms of cuts?
Speaker 6 (09:25):
The market's pricing at present is not unreasonable. I think
we've got about one and a half cuts priced in
between now and the end of this year, although next
year's rate cut pricing about four to five times suggests
there's a building sense of optimism that the terminal rate
is meaningfully below where it is now. Clearly the Feder's
move towards an approach of data dependency, and so we're
(09:45):
really moving from one data points to the next. And
let's focus on the non farm pay rolls that are
coming up. Surely that could be quite decisive for short
term policy decision making.
Speaker 1 (09:55):
Mike, how much is the trajectory of the Fed and
expectations about what the central back will do affect the
broader markets, because it seems risk sentiment is pretty strong
in the United States, especially with profits coming up surprising
to the upside.
Speaker 6 (10:10):
The short onto is the market is not overly focused
on the FED these days. Ironically, we're moving into more
of a fiscal world, a world of fiscal dominance, and
really it's about government spending and tax policy, which is
the marginal driver of financial conditions.
Speaker 1 (10:26):
What about when it comes to the rest of Asia,
because we are now seeing earning season again and with
some of these trade deals out of the way, what
will move markets like Japan.
Speaker 6 (10:38):
Japan's an interesting one because the earning season is likely
to reflect a headwind from currency appreciation over the last
few months, and at the same time as well, the
domestic economic picture in Japan is one of anemic growth
and somewhat inflationary pressures on costs, and so we're not
overly positive on this immediate earth season for the Japan
(11:01):
equities market. But clearly, if we move into a more
persistent weakening of the end against it, even if it's cyclical,
that should help to arrest that momentum. The next time around.
Speaker 1 (11:11):
We'll see momentum for South Korean assets. I mean, we
had big influence from overseas. When it comes to the
cost be now we're headed towards a potential trade deal.
How much more will this help.
Speaker 6 (11:22):
The election was also a major positive catalyst, with the
starting point being that most foreign investors were pretty cautious
towards career given the previous one or two years of
political experience, So we saw a big rally post election.
I think we're in a situation now where those gains
are being consolidated, maybe some recycling of ownership of the market.
What we probably need to see from here is evidence
(11:43):
of the government is genuinely focused on corporate governance, reform
and supply side growth, alongside the prospects for progress on
a trade deal as well.
Speaker 5 (11:52):
Mark, help me get my head around this, because we
are seeing terror levels lower than what was first feared,
but they are still higher than prior to liberation. The
markets are looking past is when do you think that
tariff impair comes to bear and when does that kind
of become a breaking point of sorts for markets?
Speaker 6 (12:13):
Two points on this one. It's not so much about tariffs.
It's the degree of uncertainty that market participants observe. And
what we've seen is we saw a major spike in
policy uncertainty in and around March and April given the
Liberation Day shock events, and since then, policy uncertainty has
actually come down and that's generally constructive for risk appetites.
So even though tariff levels are settling in at a
(12:36):
level that's meaningfully higher than where they were before, it's
the uncertainty index that really drives. And then the second
point i'd highlight is there's still pretty mixed evidence over
the extent to which tariffs are inflationary. We've still got
disinflationary pressures on the services side in the US economy,
and then on the good side, it's really set to
specific particularly those sectors where they're running more shorter inventory cycles.
(12:58):
In the absence of that, there's still a limited amount
of evidence that the tariff increases that have been announced
so far have meaningfully changed the medium term inflation trajectory,
and that's important for risk appetite as well.
Speaker 5 (13:09):
That's interesting. So the jury is still out on tariff
impact on inflation. But what are you seeing in terms
of how it's potentially going to eat into earnings Because
that's a bit one to watch as well.
Speaker 6 (13:20):
If you look at the US perspective, actually earning season
is tracking reads me well we have got a major
set of announcements coming up in the next few days.
But again going back to the point about currency, US
dollar weakness has served as a nice tailwind for large
cap US companies given the offshore earnings exposure. The second
factor as well is that the uncertainty that I mentioned
earlier from tariff policy that will eventually start to crimp
(13:42):
investment decisions by corporates in the US. But the investment
decisions that are being committed now really were already made
a few months ago before the tariff story became central
to market development. So it's probably going to be a
deferred reaction to the downside in that sense.
Speaker 5 (13:55):
Now we'll have to keep watching.
Speaker 4 (13:56):
Mark.
Speaker 5 (13:57):
Thank you for your analysis. Good to chat. Mark Franklin
is MD and senior portfolio manager, Asset Allocation Asia and
Manual Life Investment Management.
Speaker 2 (14:07):
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 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
(14:30):
and Australia. I'm Doug Chrisner, and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
Trade negotiators from Washington and Beijing met for over seven
hours in Stockholm on Monday with a name of extending
a tear offf truce. More talks are set for Tuesday.
US Treasury Secretary Scott Besson said an extension to the
current pause is likely, but there are some key sticking
(00:31):
points that do remain, and they include fentanyl related levies
as well as export controls on semiconductors. We got reaction
from Andrew Bishop, Global head of Policy research at Signum
Global Advisors.
Speaker 3 (00:44):
I think the saraf truth is absolutely going to be extended.
But the main reason for that is not so much
because I think there's great progress being made on the
substance of these talks. Rather, I think President Trump essentially
realized back in April May that high tariffs on China
just work because the impact on the US economy is
too great and China has too much leverage in the
(01:05):
form of its control over rare earths.
Speaker 2 (01:07):
That's Andrew Bishop of Signum Global Advisors, speaking earlier to
Bloomberg meantime, the dollar jumped today by the most since
early May, putting the greenback on track for its first
monthly gain this year. Now, the trade agreement between the
US and the European Union is stoking concern over the
negative impact of tariffs on global growth. You know, the
(01:27):
next few days will be pivotal for markets. It's the
busiest week of the earning season and it features big
cap tech. We've got the FED meeting on Wednesday, and
on Friday the US jobs report. In a moment, we'll
get some perspective from the Asia Pacific side. We'll hear
from Mark Franklin at Menu Life Investment Management, but we
begin here in the States. Joining me now is Vance Howard.
(01:49):
He is the CEO also the portfolio manager at Howard
Capital Management. Vance, thank you so much for making time
to chat with me. So we've got the big earnings
this week, Microsoft, Amazon, Apple. How are you feeling about
big cap tech right now?
Speaker 4 (02:05):
I'm feeling very very good about big cap tech, Doug.
I mean, you look at eighty three percent of reported
so far, and I know we haven't have that many
that have reported, but so far the beat has been
quite quite amazing. They're beaten by quite a bit. Earnings
are looking really really strong, and as you know, as
you well know, earnings are what fuels a bull market.
Speaker 2 (02:22):
A lot of the centers on artificial intelligence, and a
lot of the analysts that I've been speaking with have
pointed to the issue of capex spending as being critical
to try to get a little bit more of a
sense of the confidence that these companies have in terms
of further spending in this AI revolution. Is that an
important metric for you, cap X.
Speaker 4 (02:43):
I think it's great. I think cap Tex is looking
very very strong. It looks like they're going to make
a lot of investment in that area. And I know
and Trump was in DC either yesterday the day before
and he signed a number of executive orders pushing AI
and really get behind AAI over here. So you know,
there's a lot of thrust with they have moving forward.
So I mean, can't mean anything but bullish about it.
And you know, if you want to go deeper into AI. Unfortunately,
(03:05):
I think that we're going to see some jobs that
are going to go away, but I think you're going
to see corporate earnings go up because I think you're
going to see an additional efficiency that's created through AI.
Speaker 2 (03:13):
There's been this cloud that's been hanging over markets for
some time related to the trade war and a lot
of these tariffs. Do you think we're a significant turning
point right now as we approach that deadline of August first?
Speaker 4 (03:26):
You know, I think this thing with EU was critical.
You know, the fifteen percent tariff on the European Union,
I think was a good deal for us. Actually, I
think it's a pretty decent deal for them too. But
you know, let's talk about terraces for a minute, Doug.
Did you know that in June blast month that we
had a twenty seven billion dollar surplus mainly due to terrists.
That's the first surplus that we've had since twenty seventeen.
Speaker 2 (03:48):
One of the things I want to talk about is
the energy space here there in Texas, and I know
that oil and gas typically is close to the heart
of investors in Texas. And I'm getting indications now that
the oil and gas equipment a supplier, Baker Hughes, is
reportedly nearing a deal to buy Chart Industries. That's according
to the ft and they cite a source saying that
(04:09):
this would be a cash transaction worth something around thirteen
point six billion. How are you feeling these days about
the energy complex?
Speaker 4 (04:18):
I think the energy complex is very, very stable. I
know in Euston, Texas, We've got an office down there,
and I know that the friends of mine that are
in the energy industry are pretty happy with the way
things are going. I think been more stable than it
has bollatile, which I think is actually creates a more
secure environment for the energy dependent industry. And when you
talk about thirteen billion dollars for a check from a
(04:39):
Baker US, that's a pretty good sized check.
Speaker 2 (04:41):
How are you feeling about this week's FED meeting? There
has been some speculation that maybe a Powell and Company
would feel the pressure to cut interest rates, but the
market doesn't seem to be convinced to that fact. How
are you understanding what the Fed may do this week?
Speaker 4 (04:56):
This has been the most hated the recovery I think
I've ever seen. I mean, it's just nobody's really buying
into it, even though it keeps just slowly melting up.
And I think it's going to continue to melt up.
But when you look at the Fed and you look
at what's going on, did you know that they had
three of the governors that descended last time. So that's
one of the few times ever that we've had that
many governors on the FED board that had descended. So
I think he's going to be under a lot of
(05:17):
pressure to start to drop rates. To be quite candid, Doug,
I think he needs to start dropping rates. If he's
truly data dependent, then he should start dropping rates here
here in the near term.
Speaker 2 (05:27):
Okay, So if we can accept maybe the notion that
we'll get two rate cuts before the end of the year,
don't you believe that's been fully discounted right now by
markets at this point.
Speaker 4 (05:36):
I don't, and I don't because I think that there's
still a lot of speculation. Know, the FED keeps saying
this word which really bothers me a lot, which is
that there's no security, there's no surety out there. Well,
there's never any surity out We don't even know if
we're going to get up and live tomorrow. So to
sit there and bank upon the insecurity of what's going
to happen next week or next year. The FED keeps
(05:56):
saying that their data dependent, well, their data dependent, they
should start to drop rates because things are pointing in
that direction. I mean, we have a good economy, we
have low ue employment. Things are working very well, corporate
earnings are going up, but you know rates need to
start to come down.
Speaker 2 (06:09):
Okay, So does that mean that there are opportunities in
the bond market right now?
Speaker 4 (06:14):
I think there's a lot of opportunities, Especially if you
look at the ten, twenty, and thirty year treasuries. I
think there's opportunities there. I would be very cautious in
trading them because they are incredibly volatile. You look at
the ten year, the thirty year treasury dug and there's
volatile as s and p if not more so so
trading you know, the treasuries can be a little bit tricky.
But you know what a lot of people overlook and
we don't. We've invested in quite a bit is convertible bonds.
(06:36):
I think convertible bonds are really a nice investment alternative
to some of the other bond areas that you can
invest in, and we've done really well with the convertibles.
Speaker 2 (06:44):
Help me understand the labor market right now, just anecdotally
from where you sit in in Texas. I know we
get the jobs numbers on Friday, Well, you know from Texas.
Speaker 4 (06:55):
The economy here's doing very very well. I mean, we've
set ourselves up for growth. We've deregulated quite a bit.
Speaker 5 (07:02):
You know.
Speaker 4 (07:02):
Governor Rabbit, I think's done a pretty darn good job
with managing our state and managing our money. And you know,
we just got out of session with the our state
senators and reps, and I think that they come up
with a pretty good budget that's going to do very
very well for Texans. So I'd be very optimistic if
I was an employee in this great state of Texas.
Speaker 2 (07:19):
Okay, we'll leave it there. Vance, it's always a pleasure.
Thank you so much for joining us. He is Vance Howard,
the CEO also portfolio manager at Howard Capital Management. Joining
us here on the Daybreak Asia podcast. Welcome back to
the Daybreak Asia Podcast. I'm Doug Chrisner. Equities across the
(07:41):
APAC region are a little weaker off the opening bell
after a flat session here in New York. The MSCI
Asia Pacific gauge down about six tens of one percent
for its third consecutive day of weakness. This buoyant move
from tariff deals seems to be running out of steam
as investors turn their focused to a raft of key
data here in the US. We'll get numbers on key
(08:04):
inflation that the FED watches as well as employment. And
let's not forget the FED meeting midweek. Let's get more
on market action from the Asia perspective from Mark Franklin.
He is Deputy head of Asset Allocation Asia for Manual
Life Investment Management. He spoke earlier with Bloomberg TV host
Sherry On and Avril Hon on the Asia trade mark.
Speaker 5 (08:26):
Is a busy week, we got the Fed, among the
central banks, we got earnings. But just one of your
thoughts first, what we're seeing on the dollar in the
past day against the backdrop of these trade deals. Do
you think this is short lived? Because some of our
analysts think so.
Speaker 6 (08:42):
That's a great question. Good morning. We've seen quite an
underweight position built up in US dollars in the market
by investors, and so there's a bit of an asymmetry
now which could partially unwind in the short term, particularly
if the FED remains on hold. That the trade deal
that the US and the EU have purportedly signed suggest
that the US comes out of it much stronger and
the ear a little bit weaker, and so that's created
(09:04):
a bit of selling pressure on Euro assets, but the
trend over the medium term still looks intact visa the
weakening dollar cyclically, and if you zoom out, it's really
effectively a reversal of the US dollar appreciation that we
saw under the previous four or five years.
Speaker 5 (09:19):
What about the feds path, What do you think is
realistic to expect in terms of cuts?
Speaker 6 (09:25):
The market's pricing at present is not unreasonable. I think
we've got about one and a half cuts priced in
between now and the end of this year, although next
year's rate cut pricing about four to five times suggests
there's a building sense of optimism that the terminal rate
is meaningfully below where it is now. Clearly the Feder's
move towards an approach of data dependency, and so we're
(09:45):
really moving from one data points to the next. And
let's focus on the non farm pay rolls that are
coming up. Surely that could be quite decisive for short
term policy decision making.
Speaker 1 (09:55):
Mike, how much is the trajectory of the Fed and
expectations about what the central back will do affect the
broader markets, because it seems risk sentiment is pretty strong
in the United States, especially with profits coming up surprising
to the upside.
Speaker 6 (10:10):
The short onto is the market is not overly focused
on the FED these days. Ironically, we're moving into more
of a fiscal world, a world of fiscal dominance, and
really it's about government spending and tax policy, which is
the marginal driver of financial conditions.
Speaker 1 (10:26):
What about when it comes to the rest of Asia,
because we are now seeing earning season again and with
some of these trade deals out of the way, what
will move markets like Japan.
Speaker 6 (10:38):
Japan's an interesting one because the earning season is likely
to reflect a headwind from currency appreciation over the last
few months, and at the same time as well, the
domestic economic picture in Japan is one of anemic growth
and somewhat inflationary pressures on costs, and so we're not
overly positive on this immediate earth season for the Japan
(11:01):
equities market. But clearly, if we move into a more
persistent weakening of the end against it, even if it's cyclical,
that should help to arrest that momentum. The next time around.
Speaker 1 (11:11):
We'll see momentum for South Korean assets. I mean, we
had big influence from overseas. When it comes to the
cost be now we're headed towards a potential trade deal.
How much more will this help.
Speaker 6 (11:22):
The election was also a major positive catalyst, with the
starting point being that most foreign investors were pretty cautious
towards career given the previous one or two years of
political experience, So we saw a big rally post election.
I think we're in a situation now where those gains
are being consolidated, maybe some recycling of ownership of the market.
What we probably need to see from here is evidence
(11:43):
of the government is genuinely focused on corporate governance, reform
and supply side growth, alongside the prospects for progress on
a trade deal as well.
Speaker 5 (11:52):
Mark, help me get my head around this, because we
are seeing terror levels lower than what was first feared,
but they are still higher than prior to liberation. The
markets are looking past is when do you think that
tariff impair comes to bear and when does that kind
of become a breaking point of sorts for markets?
Speaker 6 (12:13):
Two points on this one. It's not so much about tariffs.
It's the degree of uncertainty that market participants observe. And
what we've seen is we saw a major spike in
policy uncertainty in and around March and April given the
Liberation Day shock events, and since then, policy uncertainty has
actually come down and that's generally constructive for risk appetites.
So even though tariff levels are settling in at a
(12:36):
level that's meaningfully higher than where they were before, it's
the uncertainty index that really drives. And then the second
point i'd highlight is there's still pretty mixed evidence over
the extent to which tariffs are inflationary. We've still got
disinflationary pressures on the services side in the US economy,
and then on the good side, it's really set to
specific particularly those sectors where they're running more shorter inventory cycles.
(12:58):
In the absence of that, there's still a limited amount
of evidence that the tariff increases that have been announced
so far have meaningfully changed the medium term inflation trajectory,
and that's important for risk appetite as well.
Speaker 5 (13:09):
That's interesting. So the jury is still out on tariff
impact on inflation. But what are you seeing in terms
of how it's potentially going to eat into earnings Because
that's a bit one to watch as well.
Speaker 6 (13:20):
If you look at the US perspective, actually earning season
is tracking reads me well we have got a major
set of announcements coming up in the next few days.
But again going back to the point about currency, US
dollar weakness has served as a nice tailwind for large
cap US companies given the offshore earnings exposure. The second
factor as well is that the uncertainty that I mentioned
earlier from tariff policy that will eventually start to crimp
(13:42):
investment decisions by corporates in the US. But the investment
decisions that are being committed now really were already made
a few months ago before the tariff story became central
to market development. So it's probably going to be a
deferred reaction to the downside in that sense.
Speaker 5 (13:55):
Now we'll have to keep watching.
Speaker 4 (13:56):
Mark.
Speaker 5 (13:57):
Thank you for your analysis. Good to chat. Mark Franklin
is MD and senior portfolio manager, Asset Allocation Asia and
Manual Life Investment Management.
Speaker 2 (14:07):
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 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
(14:30):
and Australia. I'm Doug Chrisner, and this is Bloomberg
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