April 24, 2025 • 19 mins
President Donald Trump said Thursday that his administration was talking with China on trade, after Beijing denied the existence of negotiations on a deal and demanded the US revoke all unilateral tariffs. The Chinese Commerce Ministry dismissed speculation that progress has been made in bilateral communications, saying "any reports on development in talks are groundless," while urging the US to "show sincerity" if it wants to make a deal. We discuss the latest on the trade war with David Chao, Global Market Strategist, APAC at Invesco.
Plus - Fed Governor Christopher Waller said he'd support rate cuts in the event aggressive tariff levels hurt the jobs market, speaking in an interview on Bloomberg Television. Cleveland Fed President Beth Hammack says the central bank could move on rates as early as June if it has clear evidence of the economy's direction. We dissect the latest Fed speak with Steven Schoenfeld, CEO at MarketVector Indexes.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. So market's got mixed
signals on the US China trade war today, President Trump
said his administration did hold meetings with Chinese officials as
(00:23):
recently as this morning. Now, those remarks came after Beijing
called reports of negotiations groundless. At the same time, today
the Fed speak revive talk of a rate cut as
early as June. And in a moment we'll be speaking
with Stephen Schoenfeld, CEO of Market Vector Indexes. But we
begin this morning in the Lion City. Joining me now
(00:45):
is David Chow. He is the global market strategist for
the Asia Pacific at Invesco. He is on the line
from Singapore. David, thank you so much for making time
to chat with us. I think we can agree that
the signals on the trade war were a bit confusing,
President Trump saying his team is talking to China, Beijing
denying the existence of negotiations. I'm curious to begin with,
(01:08):
how are you understanding this situation and do you see
one side as having a particular advantage at the moment.
Speaker 2 (01:16):
I think what we saw from China's reaction is very
revealing of how China's approach to the tariff war is
very different from all other countries. As you know, China
is the only country that retaliated with these reciprocal tariffs,
and the calculation I think that was coming out of
Beijing was that Trump was going to go out to
(01:39):
China anyways, and so less China appear weak in front
of its domestic audience, they had to hit back. And
so now I think that the calculus is perhaps less
about the economic impact than there are other geopolitical and
political considerations that are going on right now. I think
(02:00):
from China side, they the calculus is that the tariffs
are going to hurt America's economy a lot more than
China's economy. And as you know, in China, they have,
you know, the the political party controls monetary policy like
you know, interest rates, fiscal policy such as infrastructure or investment,
(02:23):
and also other components of the economy. So I think
that the calculus is that China has more tools to
respond to these terrorisms than other major economies.
Speaker 1 (02:32):
Are you expecting this trade war to go on for
the foreseeable future or do you think the pain is
going to reach a particular threshold on both sides that
would lead to some type of negotiation in the near term.
Speaker 2 (02:46):
I'm skeptical that we're going to have a near term
trade resolution. I know that the markets are pricing info
on for and I think it must be very difficult
to trade the tariff sentiment. But what you know, and
so if we look back at twenty eighteen or the
first trade war, those who negotiations took a long time,
(03:07):
you know, one plus year or for the tariff negotiations
to finally conclude. And I think this time around it's
likely as well. I don't expect any kind of near
term terraff resolution with China, you know, in the coming months.
Speaker 1 (03:23):
So Treasury Secretary Besett was saying today the US and
South Korea could reach an agreement of understanding on trade
and soon as next week, presumably that would be step one.
Japan has already been in negotiations with the Trump administration.
It seems like both Japan and South Korea would be
the first countries in the APEC region to come to
some type of agreement with the United States. What does
(03:45):
that do at the end.
Speaker 2 (03:47):
Of the day, Well, I think that makes sense because
the US has security packs with both South Korea and Japan,
and they've historically been regarded as America's friends, whereas I
think the strategy between US China is a lot different.
But I think that certainly opens the door more for
(04:09):
trade deals to be done in the APAC region, and
I think that is a very positive development for a
pack since many Northeast Asian economies rely on trade a
lot more than other parts of the world, and so
this could be a catalyst to galvanize Asian stocks.
Speaker 1 (04:30):
So how are you discovering opportunity in markets these days?
Especially in the Asia Pacific. There's been so much volatility
that represents trading opportunities. I understand that, But if the
strategy is not trading per se, and you're looking for
something to hold on to, whether it's six to nine months,
maybe even a year from now, how are you finding opportunity?
Speaker 2 (04:53):
Well, I think that we are looking at opportunities in
places where the economies are re flating, specifically Europe with
its defense spending announcement in Germany, but also other places
we expect significantly higher government stimulus and infrastructure, defense and
(05:15):
other places. And also in places like China, where the
government has announced additional measures to boost consumption spending. We
expect cuts to the reserve requirement and policy rate in China.
Other places in Asia, we're starting to see more monetary easing,
which is a new thing. Historically, Asian central banks have
(05:38):
waited for the FED to cut rates before they cut themselves.
But we're starting to see that the APAC region is
moving more toward towards boosting liquidity, which should be a
boom for markets.
Speaker 1 (05:49):
So, David, I'm curious as to whether there are particular
themes that you may be interested in, and whether high
technology is one of them. Sure, we have.
Speaker 2 (05:59):
To remember that the start of this year there was
a very positive development in China with deep Seek, which
was one of the competitors I think for some of
the AI apps and the belief that China was catching
up to the US when it comes to AI. I'm
also a big believer of robotics plus AI, and that's
(06:20):
really China's differentiating, you know, strategic goal. It's kind of
different than than what we're seeing in the US. Beijing
recently hosted this half marathon for robots, which was quite interesting,
and I think the development of Humani robots coupled with
AI and other high tech manufacturing is a investment theme
(06:42):
that I'm very interested in.
Speaker 1 (06:44):
You mentioned Beijing. There are there opportunities you're seeing right
now in China overall.
Speaker 2 (06:49):
Well, I think that you know, for for China, we
we take a more bullish view on China compared to
the street. And I think that, you know, although the
external headwinds for the Chinese economy have been amplified with
the tariff, you know risk, but I think we really
have to watch what's going on in Beijing in terms
(07:10):
of further stimulus that's coming down the pike, and that
that should be uh, you know, focused on trying to
boost consumption in China. Consumption, as you know, is a
third propeller of Chinese economy, and it's been rather weak
due to things like a more of a property sector.
But I think that's going to start to change as government,
(07:31):
as the government focuses more on trying to ramp up
this propeller, and we could expect additional measures to boost
consumption things like you know, domestic consumption, staples, consumption, consumer
cyclicals in China, but also things like you know, China
eight shares on tech. I think that one investors foreign
investors start to show interest back in China. The first
(07:53):
place that the allocate capital is actually on eight shares
in big Chinese tech companies.
Speaker 1 (07:59):
So, broadly speaking, David, if you're not expecting a near
term resolution to this trade war, and when I say that,
I'm kind of highlighting the US China relationship, is it
safe to say that there is a pretty high risk
of a recession still perhaps extending beyond the US and
impacting the global economy.
Speaker 2 (08:20):
I do think that the risks have have certainly increased
over the past couple of weeks since Liberation Day, and
the soft data certainly reflects that in things like consumer
expectations for inflation, consumer and sentiment sourwing. Recently, some of
the CEOs and earnings calls in the US have come
(08:43):
out quite dour about the potential impact of the tariffs,
but that hasn't really translated into the hard data yet. Both,
you know, things like retail sales and some of the
earnings reports that we've seen have been pretty strong and resilient.
So so I'd say that the recessionary risks have been amplified,
(09:04):
but we're not really seeing that yet in the hard data,
but overall the you know, the global economic growth. We've
seen the IMF cut expectations for growth this year because
of some of the uncertainties, and I think I like
to highlight that it's really the uncertainty that's coming out
(09:25):
of policy makers in Washington that I think is ultimately
what we have to watch out for it in terms
of the impact on growth.
Speaker 1 (09:31):
Okay, we'll leave it there, David, always a pleasure. Thank
you so very much. David Chow, Global market strategist for
the APEC Region at Invesco, joining from Singapore here on
the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
(09:52):
I'm Doug Chrisner. Bets are rising on the FED cutting
infrast rates sooner than expected as a way of preventing recession.
Today we heard from FED Governor Chris Waller. He told
Bloomberg Television he supports rate cuts in the event aggressive
tariff levels do hurt the labor market.
Speaker 3 (10:08):
If the tariffs, the large tariffs had stayed on or
come back on, then firms are trying to figure out
how they're going to absorb some of that cost. And
the minute they do that, they're looking at other ways
to cut costs, and labor's obviously one way they do that.
Speaker 1 (10:21):
Meantime, the head of the Cleveland Fed, Beth Hammick, was
telling CNBC the Central Bank could move on rates as
early as July if it has clear evidence of the
economy's direction. Now, in the treasury market today we had
yields down right across the curve, and in turn, those
yields at lower levels propelled the equity market higher for
(10:41):
a third straight session. For a closer look, I'm joined
now by Stephen Schoenfeld. He is the CEO at Market
Vector Indexes, joining us from here in New York City. Stephen,
thank you so much for making time to chat with us.
How much right now are you betting on the Fed
easing before the end of the year. I think the
swaps market right now is only pricing in about sixteen
(11:02):
basis points of easing at the June meeting. Obviously that's
not a full quarter point rate cut. Where do you
see the Fed going in the current environment?
Speaker 4 (11:10):
Well, Doug, just as you said, the market today is
clearly moving past that expectation. We've had some signs of
bottoming in the equity market, but today was the first
day that you really saw yields drop across the curve.
And so the market is more than smelling it, it
heard it from the two Fed governors, and it feels
(11:31):
like there's a little bit of a Fed put being
put in the market because the equities loved it, and
you saw the dollar fall, foreign currencies go up, gold
rallied even as the equity market rallied. So that's a
break of this kind of strange pattern we've had in
(11:52):
the past month or two where you had US equities,
US bonds and the dollar dropping. So I feel that
the market is sniffing out some possible easing or at
least an insurance policy being articulated by the Fed.
Speaker 1 (12:07):
It seems painfully clear that markets right now are struggling
to way the impact of the trade war. Key question
is whether the tariffs are going to hurt growth or
spur inflation. I think the answer is both potentially. Are
you worried about stagflation still.
Speaker 4 (12:22):
It's certainly a worry, But we're seeing a lot of
concessionary signals from the White House in some ways, even
getting ahead of the Chinese, who are still denying that
they're in conversations with the White House, but Secretary Besson
and the White House are clearly signaling that deals are coming.
It's probably safe to assume now that the numbers that
(12:45):
we were most afraid of are sort of peak fear,
and that we will settle into lower tariffs. The question
is they'll still be high and the markets are beginning
to worry less about it. I'm really encouraged by the
fact that we had three straight days of up movement
in the US. That's quite rare for this year.
Speaker 1 (13:07):
Obviously, we're in the middle of earning season, and a
number of companies have already cited macroeconomic uncertainty as one
of the things that really clouds the outlook. Today we
heard from the CEO of Southwest Airlines saying, as far
as he's concerned, the recession has already started. Would you
think that that is a fair statement or is he
(13:27):
going a bit too far?
Speaker 4 (13:28):
Well, if I was an airline CEO, I'd be pretty worried.
Not just about consumer sentiment in the US, but foreign
tourism numbers look like they are going to plummet. Not
just you know from Canada the bookings are down seventy percent.
A lot of Europeans are canceling. So if you're in
a business like aviation, it could be the case that
(13:50):
the recession has started. But you've got plenty of businesses
that are demonstrating that they are not as affected by tariff's.
Google's results today indicate that you look at a company
like palunteer, Netflix certainly is impervious to tariffs. So it
really will vary industry by industry. But for US at
(14:13):
market vector, it just reinforces the critical importance of diversification,
not just have exposure to the US equity market.
Speaker 1 (14:22):
So within that umbrella then of diversification, is there a
specific strategy that you're taking. Are you apt to become
a little bit more defensive? Are you hiding out in
certain areas of the market right now?
Speaker 4 (14:34):
So we have a number of indexes that are tracked
by ETFs that provide a hedge. We have gold and
gold mining indexes, we have crypto and digital acid indexes,
and also international equities. So you can pick certain countries
that are performing better, or you could pick sectors such
(14:56):
as defense, which has been doing incredib You know the
defense Our Defense index is up thirty four percent this
year because it's it's not tied to tariffs, it's tied
to government spending. So if we had a single watchword
for our investors, it would be diversify internationally as well
(15:17):
as you know, not have as much in the US
as you might have had in the past, and then
look for sectors, whether it's gold mining or defense, that
can provide diversification when the big US market is dropping.
Speaker 1 (15:33):
A number of analysts have already soured on the profit
outlook due to the risk of a slowdown, whether we
want to call it a recession or not. And we
know that the tariff story is going to really confront
corporate America with some very difficult challenges. Where are you
right now in the overall market in terms of your
target for the S and P five hundred this year?
Speaker 4 (15:54):
Yeah, so we don't pick specific targets, but I think
what what is very telling, Doug is we entered the
year and the US was seventy percent of total world
market cap. That's an unprecedented relative weight of the US
to the rest of the world. It even surpassed his
Japan's weight in the world. At the peak of the
(16:16):
Japanese bubble in the late eighties, it was about sixty percent.
So our view has been to be rebalancing away from
US equities. I think we might have seen the lows
of the year in the S and P, or we
might have another leg down, but certainly things feel more constructive.
I wouldn't look for a major source of return in
(16:39):
US equities, not after two straight years of twenty five
percent return and the US becoming so dominant over the
last few years. All you have to do is look
at some of the analyst reports from late last year,
where you know people are talking about US exceptionalism. You
have to be in the US and that was probably
(17:00):
the peak, right, So I think investors are better served
to be spreading their allocation across the globe.
Speaker 1 (17:09):
So to what extent do you believe this trade war
initiated by the US has done more, let's not necessarily
say permanent damage, but lasting damage to the US brand.
Speaker 4 (17:22):
So I wish I didn't feel this way, Doug, but
I really do feel that the way the tariffs were
rolled out, the incoherence with how they were explained, hearing
different explanations, and even now you know different views about
whether they're when, whether and how they might be rolled back,
it has hurt not just the US brand, but the
(17:44):
US reputation as a safe haven. We've seen it in treasuries,
We've seen it in US equities. The US has such
a large deficit to fund that we have to attract
are in capital, and unfortunately, I think we're going to
pay a higher price for it. And I think global
asset allocators, whether they're based in Europe or Asia, sovereign
(18:04):
wealth funds or big asset managers, are going to be
very reluctant to return to the very high allocation levels
they had in US.
Speaker 1 (18:12):
Secrtis Steven will leave it there. On that note to
Steven Schoenfeld, CEO of Market Vector Index's, thank you very much. Steven.
Joining us today from New York City here on the
Daybreak Asia Podcast. Thanks for listening to today's episode of
the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
(18:33):
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 and Australia. I'm Doug Chrisner and
this is Bloomberg,
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. So market's got mixed
signals on the US China trade war today, President Trump
said his administration did hold meetings with Chinese officials as
(00:23):
recently as this morning. Now, those remarks came after Beijing
called reports of negotiations groundless. At the same time, today
the Fed speak revive talk of a rate cut as
early as June. And in a moment we'll be speaking
with Stephen Schoenfeld, CEO of Market Vector Indexes. But we
begin this morning in the Lion City. Joining me now
(00:45):
is David Chow. He is the global market strategist for
the Asia Pacific at Invesco. He is on the line
from Singapore. David, thank you so much for making time
to chat with us. I think we can agree that
the signals on the trade war were a bit confusing,
President Trump saying his team is talking to China, Beijing
denying the existence of negotiations. I'm curious to begin with,
(01:08):
how are you understanding this situation and do you see
one side as having a particular advantage at the moment.
Speaker 2 (01:16):
I think what we saw from China's reaction is very
revealing of how China's approach to the tariff war is
very different from all other countries. As you know, China
is the only country that retaliated with these reciprocal tariffs,
and the calculation I think that was coming out of
Beijing was that Trump was going to go out to
(01:39):
China anyways, and so less China appear weak in front
of its domestic audience, they had to hit back. And
so now I think that the calculus is perhaps less
about the economic impact than there are other geopolitical and
political considerations that are going on right now. I think
(02:00):
from China side, they the calculus is that the tariffs
are going to hurt America's economy a lot more than
China's economy. And as you know, in China, they have,
you know, the the political party controls monetary policy like
you know, interest rates, fiscal policy such as infrastructure or investment,
(02:23):
and also other components of the economy. So I think
that the calculus is that China has more tools to
respond to these terrorisms than other major economies.
Speaker 1 (02:32):
Are you expecting this trade war to go on for
the foreseeable future or do you think the pain is
going to reach a particular threshold on both sides that
would lead to some type of negotiation in the near term.
Speaker 2 (02:46):
I'm skeptical that we're going to have a near term
trade resolution. I know that the markets are pricing info
on for and I think it must be very difficult
to trade the tariff sentiment. But what you know, and
so if we look back at twenty eighteen or the
first trade war, those who negotiations took a long time,
(03:07):
you know, one plus year or for the tariff negotiations
to finally conclude. And I think this time around it's
likely as well. I don't expect any kind of near
term terraff resolution with China, you know, in the coming months.
Speaker 1 (03:23):
So Treasury Secretary Besett was saying today the US and
South Korea could reach an agreement of understanding on trade
and soon as next week, presumably that would be step one.
Japan has already been in negotiations with the Trump administration.
It seems like both Japan and South Korea would be
the first countries in the APEC region to come to
some type of agreement with the United States. What does
(03:45):
that do at the end.
Speaker 2 (03:47):
Of the day, Well, I think that makes sense because
the US has security packs with both South Korea and Japan,
and they've historically been regarded as America's friends, whereas I
think the strategy between US China is a lot different.
But I think that certainly opens the door more for
(04:09):
trade deals to be done in the APAC region, and
I think that is a very positive development for a
pack since many Northeast Asian economies rely on trade a
lot more than other parts of the world, and so
this could be a catalyst to galvanize Asian stocks.
Speaker 1 (04:30):
So how are you discovering opportunity in markets these days?
Especially in the Asia Pacific. There's been so much volatility
that represents trading opportunities. I understand that, But if the
strategy is not trading per se, and you're looking for
something to hold on to, whether it's six to nine months,
maybe even a year from now, how are you finding opportunity?
Speaker 2 (04:53):
Well, I think that we are looking at opportunities in
places where the economies are re flating, specifically Europe with
its defense spending announcement in Germany, but also other places
we expect significantly higher government stimulus and infrastructure, defense and
(05:15):
other places. And also in places like China, where the
government has announced additional measures to boost consumption spending. We
expect cuts to the reserve requirement and policy rate in China.
Other places in Asia, we're starting to see more monetary easing,
which is a new thing. Historically, Asian central banks have
(05:38):
waited for the FED to cut rates before they cut themselves.
But we're starting to see that the APAC region is
moving more toward towards boosting liquidity, which should be a
boom for markets.
Speaker 1 (05:49):
So, David, I'm curious as to whether there are particular
themes that you may be interested in, and whether high
technology is one of them. Sure, we have.
Speaker 2 (05:59):
To remember that the start of this year there was
a very positive development in China with deep Seek, which
was one of the competitors I think for some of
the AI apps and the belief that China was catching
up to the US when it comes to AI. I'm
also a big believer of robotics plus AI, and that's
(06:20):
really China's differentiating, you know, strategic goal. It's kind of
different than than what we're seeing in the US. Beijing
recently hosted this half marathon for robots, which was quite interesting,
and I think the development of Humani robots coupled with
AI and other high tech manufacturing is a investment theme
(06:42):
that I'm very interested in.
Speaker 1 (06:44):
You mentioned Beijing. There are there opportunities you're seeing right
now in China overall.
Speaker 2 (06:49):
Well, I think that you know, for for China, we
we take a more bullish view on China compared to
the street. And I think that, you know, although the
external headwinds for the Chinese economy have been amplified with
the tariff, you know risk, but I think we really
have to watch what's going on in Beijing in terms
(07:10):
of further stimulus that's coming down the pike, and that
that should be uh, you know, focused on trying to
boost consumption in China. Consumption, as you know, is a
third propeller of Chinese economy, and it's been rather weak
due to things like a more of a property sector.
But I think that's going to start to change as government,
(07:31):
as the government focuses more on trying to ramp up
this propeller, and we could expect additional measures to boost
consumption things like you know, domestic consumption, staples, consumption, consumer
cyclicals in China, but also things like you know, China
eight shares on tech. I think that one investors foreign
investors start to show interest back in China. The first
(07:53):
place that the allocate capital is actually on eight shares
in big Chinese tech companies.
Speaker 1 (07:59):
So, broadly speaking, David, if you're not expecting a near
term resolution to this trade war, and when I say that,
I'm kind of highlighting the US China relationship, is it
safe to say that there is a pretty high risk
of a recession still perhaps extending beyond the US and
impacting the global economy.
Speaker 2 (08:20):
I do think that the risks have have certainly increased
over the past couple of weeks since Liberation Day, and
the soft data certainly reflects that in things like consumer
expectations for inflation, consumer and sentiment sourwing. Recently, some of
the CEOs and earnings calls in the US have come
(08:43):
out quite dour about the potential impact of the tariffs,
but that hasn't really translated into the hard data yet. Both,
you know, things like retail sales and some of the
earnings reports that we've seen have been pretty strong and resilient.
So so I'd say that the recessionary risks have been amplified,
(09:04):
but we're not really seeing that yet in the hard data,
but overall the you know, the global economic growth. We've
seen the IMF cut expectations for growth this year because
of some of the uncertainties, and I think I like
to highlight that it's really the uncertainty that's coming out
(09:25):
of policy makers in Washington that I think is ultimately
what we have to watch out for it in terms
of the impact on growth.
Speaker 1 (09:31):
Okay, we'll leave it there, David, always a pleasure. Thank
you so very much. David Chow, Global market strategist for
the APEC Region at Invesco, joining from Singapore here on
the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
(09:52):
I'm Doug Chrisner. Bets are rising on the FED cutting
infrast rates sooner than expected as a way of preventing recession.
Today we heard from FED Governor Chris Waller. He told
Bloomberg Television he supports rate cuts in the event aggressive
tariff levels do hurt the labor market.
Speaker 3 (10:08):
If the tariffs, the large tariffs had stayed on or
come back on, then firms are trying to figure out
how they're going to absorb some of that cost. And
the minute they do that, they're looking at other ways
to cut costs, and labor's obviously one way they do that.
Speaker 1 (10:21):
Meantime, the head of the Cleveland Fed, Beth Hammick, was
telling CNBC the Central Bank could move on rates as
early as July if it has clear evidence of the
economy's direction. Now, in the treasury market today we had
yields down right across the curve, and in turn, those
yields at lower levels propelled the equity market higher for
(10:41):
a third straight session. For a closer look, I'm joined
now by Stephen Schoenfeld. He is the CEO at Market
Vector Indexes, joining us from here in New York City. Stephen,
thank you so much for making time to chat with us.
How much right now are you betting on the Fed
easing before the end of the year. I think the
swaps market right now is only pricing in about sixteen
(11:02):
basis points of easing at the June meeting. Obviously that's
not a full quarter point rate cut. Where do you
see the Fed going in the current environment?
Speaker 4 (11:10):
Well, Doug, just as you said, the market today is
clearly moving past that expectation. We've had some signs of
bottoming in the equity market, but today was the first
day that you really saw yields drop across the curve.
And so the market is more than smelling it, it
heard it from the two Fed governors, and it feels
(11:31):
like there's a little bit of a Fed put being
put in the market because the equities loved it, and
you saw the dollar fall, foreign currencies go up, gold
rallied even as the equity market rallied. So that's a
break of this kind of strange pattern we've had in
(11:52):
the past month or two where you had US equities,
US bonds and the dollar dropping. So I feel that
the market is sniffing out some possible easing or at
least an insurance policy being articulated by the Fed.
Speaker 1 (12:07):
It seems painfully clear that markets right now are struggling
to way the impact of the trade war. Key question
is whether the tariffs are going to hurt growth or
spur inflation. I think the answer is both potentially. Are
you worried about stagflation still.
Speaker 4 (12:22):
It's certainly a worry, But we're seeing a lot of
concessionary signals from the White House in some ways, even
getting ahead of the Chinese, who are still denying that
they're in conversations with the White House, but Secretary Besson
and the White House are clearly signaling that deals are coming.
It's probably safe to assume now that the numbers that
(12:45):
we were most afraid of are sort of peak fear,
and that we will settle into lower tariffs. The question
is they'll still be high and the markets are beginning
to worry less about it. I'm really encouraged by the
fact that we had three straight days of up movement
in the US. That's quite rare for this year.
Speaker 1 (13:07):
Obviously, we're in the middle of earning season, and a
number of companies have already cited macroeconomic uncertainty as one
of the things that really clouds the outlook. Today we
heard from the CEO of Southwest Airlines saying, as far
as he's concerned, the recession has already started. Would you
think that that is a fair statement or is he
(13:27):
going a bit too far?
Speaker 4 (13:28):
Well, if I was an airline CEO, I'd be pretty worried.
Not just about consumer sentiment in the US, but foreign
tourism numbers look like they are going to plummet. Not
just you know from Canada the bookings are down seventy percent.
A lot of Europeans are canceling. So if you're in
a business like aviation, it could be the case that
(13:50):
the recession has started. But you've got plenty of businesses
that are demonstrating that they are not as affected by tariff's.
Google's results today indicate that you look at a company
like palunteer, Netflix certainly is impervious to tariffs. So it
really will vary industry by industry. But for US at
(14:13):
market vector, it just reinforces the critical importance of diversification,
not just have exposure to the US equity market.
Speaker 1 (14:22):
So within that umbrella then of diversification, is there a
specific strategy that you're taking. Are you apt to become
a little bit more defensive? Are you hiding out in
certain areas of the market right now?
Speaker 4 (14:34):
So we have a number of indexes that are tracked
by ETFs that provide a hedge. We have gold and
gold mining indexes, we have crypto and digital acid indexes,
and also international equities. So you can pick certain countries
that are performing better, or you could pick sectors such
(14:56):
as defense, which has been doing incredib You know the
defense Our Defense index is up thirty four percent this
year because it's it's not tied to tariffs, it's tied
to government spending. So if we had a single watchword
for our investors, it would be diversify internationally as well
(15:17):
as you know, not have as much in the US
as you might have had in the past, and then
look for sectors, whether it's gold mining or defense, that
can provide diversification when the big US market is dropping.
Speaker 1 (15:33):
A number of analysts have already soured on the profit
outlook due to the risk of a slowdown, whether we
want to call it a recession or not. And we
know that the tariff story is going to really confront
corporate America with some very difficult challenges. Where are you
right now in the overall market in terms of your
target for the S and P five hundred this year?
Speaker 4 (15:54):
Yeah, so we don't pick specific targets, but I think
what what is very telling, Doug is we entered the
year and the US was seventy percent of total world
market cap. That's an unprecedented relative weight of the US
to the rest of the world. It even surpassed his
Japan's weight in the world. At the peak of the
(16:16):
Japanese bubble in the late eighties, it was about sixty percent.
So our view has been to be rebalancing away from
US equities. I think we might have seen the lows
of the year in the S and P, or we
might have another leg down, but certainly things feel more constructive.
I wouldn't look for a major source of return in
(16:39):
US equities, not after two straight years of twenty five
percent return and the US becoming so dominant over the
last few years. All you have to do is look
at some of the analyst reports from late last year,
where you know people are talking about US exceptionalism. You
have to be in the US and that was probably
(17:00):
the peak, right, So I think investors are better served
to be spreading their allocation across the globe.
Speaker 1 (17:09):
So to what extent do you believe this trade war
initiated by the US has done more, let's not necessarily
say permanent damage, but lasting damage to the US brand.
Speaker 4 (17:22):
So I wish I didn't feel this way, Doug, but
I really do feel that the way the tariffs were
rolled out, the incoherence with how they were explained, hearing
different explanations, and even now you know different views about
whether they're when, whether and how they might be rolled back,
it has hurt not just the US brand, but the
(17:44):
US reputation as a safe haven. We've seen it in treasuries,
We've seen it in US equities. The US has such
a large deficit to fund that we have to attract
are in capital, and unfortunately, I think we're going to
pay a higher price for it. And I think global
asset allocators, whether they're based in Europe or Asia, sovereign
(18:04):
wealth funds or big asset managers, are going to be
very reluctant to return to the very high allocation levels
they had in US.
Speaker 1 (18:12):
Secrtis Steven will leave it there. On that note to
Steven Schoenfeld, CEO of Market Vector Index's, thank you very much. Steven.
Joining us today from New York City here on the
Daybreak Asia Podcast. Thanks for listening to today's episode of
the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
(18:33):
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 and Australia. I'm Doug Chrisner and
this is Bloomberg,
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