April 14, 2025 • 17 mins
Speaking exclusively to Bloomberg, Treasury Secretary Scott Bessent played down the recent selloff in the bond market, rejecting speculation that foreign nations were dumping their holdings of US Treasuries.
In her latest column, Bloomberg Opinion's Shuli Ren writes China is done retaliating against President Donald Trump's exorbitant tariffs, calling the administration's actions a "joke" that it no longer considers worthy of matching. The question now is whether President Xi Jinping will find a more potent weapon to strike back - such as its $760 billion worth of Treasury securities. We get her reaction to Bessent's comments.
Plus - a degree of calm returned to Wall Street, with stocks and bonds notching a twin rally after a tumultuous week in the grip of President Trump's disruptive trade war. We get reaction to the day's market action from Ross Mayfield, Investment Strategist at Baird.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
China appears to be done retaliating against President Trump's exorbitant tariffs.
Beijing has called the Trump administration's actions a joke that
it no longer considers worthy of matching. So the question
now is whether President Chijinping will find a more potent
(00:31):
weapon to strike back at his opponent. For a closer look, now,
I am joined by Bloomberg opinion columnist Shuley Wren her
latest column titled why wouldn't China weaponize its treasury holdings?
Shuley joins us from Hong Kong. It's always a pleasure
in this piece. Shuley, you remind us that last Friday
in Beijing, leadership essentially reiterated its vow to fight to
(00:53):
the end, and might not this fighting include selling US treasuries?
Speaker 3 (00:58):
That's the worry. So last week we saw a pretty
big treasury bound route right and with a treasury ten
year yi old up by fifty basis points, and some
of the sharpest bikes occurred during the Asia hours, leading
to speculations that you know, maybe some Asian central banks
on the move, and the japan has come out saying
(01:20):
that they were not weaponize their treasury holdings, and by
the Treasury Department's data, they're the biggest foreign creditor, but
China is next, So there are worries that China is
going to create a little bit of a chaos to
the US government bomb market.
Speaker 2 (01:38):
So on Monday, we caught up with Treasury Secretary Scott
Bessant during a trip to Buenos Aires and we asked
him whether foreign holders were dumping US treasuries. Here's what
he had to say.
Speaker 4 (01:48):
I don't think there's a dumping, and I think we
saw in the TIC data either today or Friday that
actually foreign ownerships picked up. We had two we had
three big auctions last week, and on the longer in
auction ten year, thirty year, we saw increase foreign competition.
So I actually think this is one of those occasional
(02:10):
var shocks that you get in the trading community. I
think a lot of people got very leverage, maybe out
over their skis, and then you combine that with some
real money selling and you get these moves.
Speaker 5 (02:23):
So you don't think it's sovereigns potentially it's hedge funds unwinding.
I have no.
Speaker 4 (02:28):
Evidence that it's sovereigns and look Emory the not you.
But the nature of journalism is to create a headline
that ten days ago when tenure yields hit three ninety said, well,
Secretary Besson got what he wanted, he got ten years
yields down. But it's the wrong reason. Now I figet
(02:50):
what they hit on Friday, maybe for forty something.
Speaker 5 (02:53):
We saw a fifty basis move last week and ten
year yield at the same time that the dollar was
weakening nearly three percent. How do you simultaneously look at
that situation. It feels like investors are dumping US assets.
Speaker 4 (03:07):
Well, look, I've learned that not to look at what
happens over a week. I, for better or worse, have
lived through a lot of these things in trading. In
one's personal trading history is the scar tissue that sticks
with you the most. I can tell you exactly where
I was standing in nineteen ninety eight when the long
(03:29):
term capital the backle happened. That had nothing to do
with anything other than a bunch of geniuses up in
Greenwich who had too much leverage.
Speaker 2 (03:37):
Treasury Secretary Scott Besson during his trip to Buenos Aires
speaking to Bloomberg Examary hor Dern. Surely you heard what
he had to say. Are you buying it?
Speaker 3 (03:47):
I mean, there is the sense that basis trade hatch
funds and winding basis trade rate is some turmoil in
the treasury market. But I think what treasure d Squary
Bess said. He cited the take data basically, it's it's
a data release provided by his own department. I think
(04:09):
that that's only part of the picture because this data
collects information from US custidium banks. So say I was
a China central bank, my holdings with US custidian banks
will be will be disclosed in the Treasury data. But
I can also have treasury holdings with European custidian banks
(04:30):
in Europe, stay in Belgium with the clear and that
that is not reflected in the data that the Treasury
Secretary can see.
Speaker 2 (04:39):
So in my mind, thinking of data, China's got about
seven hundred and sixty billion dollars in US Treasury securities,
three trillion dollars in US dollars held in reserve. So
there's a lot of pressure here that China could apply.
Right if this trade negotiation or whatever we're in right
now doesn't go well. And what you point out is
(05:02):
that the abrupt turn that President Trump made last week
essentially exposes the White House's Achilles heel. And I'm just
wondering how effective the Trump administration can be in these
trade negotiations with this sort of damicles kind of hanging
over its head.
Speaker 4 (05:19):
Exactly.
Speaker 3 (05:20):
I'm not sure President Trump knows what the art of
the deal is, or definitely it doesn't seem like he
knows what the art of the war is. Basically, he
showed the world his pain point last week, right he
basically said, Okay, I'm halting the terriffs on the rest
of the world because I saw the bomb market was
not doing so well. Then everyone knows that's Trump's pain point.
(05:41):
And I think, I mean, of course, the Chinese government
doesn't have strong incentives to basically fire sale and the
dumb or its usual US dollars because you know, it
will have to encour some losses, right, But it could tease,
It could tease Trump because Besson, he is in charge
of terraff negotiations and he is a self acclaimed the
(06:06):
biggest bound salesman in the US, right, and he talks
about like how much he cares about the bound market
and the bound yields. He said that the one percentage
point rise in tenure will cause the US government one
hundred billion dollars, so we all know that's their pain point.
Speaker 2 (06:25):
So surely I'm wondering whether or not these moves and
the conversations around them is really fueling talk of d
dollarization and whether major central banks around the world will
become even more aggressive in moving away from the dollar.
Speaker 3 (06:40):
I think it's already happening. If you look at the
IMF data, US dollar accounted for over seventy percent of
global foreign exchange reserves twenty years ago. Now it's less
than sixty percent, And especially in the last couple of years, right, Like,
the US treasures have been very volatile and the total
returns have not been good. So it's not just China,
(07:01):
it's everyone else as well, trying to diversify a little bit.
Speaker 2 (07:05):
One of the other topics that came up during the
conversation with Treasury Secretary Besant was independence of the FED
and the fact that the administration is going to be
looking for a replacement for FED. Shair J. Powell when
his term is up, and those conversations will happen in
the fall. We've talked a little bit in the past
about the possibility that the FED would face pressure from
(07:27):
the White House, and I'm wondering whether or not. Maybe
the pressure wouldn't come in terms of adjusting the policy rate,
but I'm wondering about pressure to use the balance sheet
as a way of controlling what's happening in the treasury market.
Do you think that's a real risk.
Speaker 3 (07:42):
I think it's very much on the table. In this sense.
The Treasury Department and the Federal Reserve aligned US government
does not have incentives to see its boring soaring right.
It's not good for the is called condition. It's also
not good for the broad economy because US government bundk
(08:06):
yield is the benchmark for everything, for blondgages, for corporate loans.
So in this case, if the ten year your bikes
to like say four point seven percent, I think the
FED could make them move.
Speaker 2 (08:21):
Well, leave it there. Surely it's always a pleasure. Thank
you so much. Bloomberg opinion columnist July Wren, in her
latest piece, writing why wouldn't China weaponize its treasury holdings?
Surely joining us from Hong Kong here on the Daybreak
Asia podcast. Welcome back to the Daybreak Asia podcast. I'm
(08:45):
Ded Krisner. So a measure of calm seem to return
to financial markets today after seven sessions of volatility. We
had US equities pushing higher, with the S and P
picking up around eight ten to one percent. All but
one of the S and p's eleven industry groups, Advanced
Consumer Discretionary was the only decliner. Joining me now for
a closer look at the price section is Ross Mayfield.
(09:08):
He is investment strategist at Baird Ross. Thank you for
joining us. So this news on trade policy has been
so dynamic and it's created a lot of volatility we've
seen that. Do you expect this volatility to be the
new normal?
Speaker 1 (09:22):
I do think so, because this policy is being rendered
via executive action and not going through the kind of normal,
you know, legislative process. I think even as some of
the tariff threats get pulled back and negotiations keep occurring,
it's going to be hard for business leaders to ever
feel a sense that they can invest for the next
three to five years because a lot of these policies
(09:44):
can be reversed back on overnight and even levied in
some sort of exchange that's not really trade or economic related.
We've seen that with deportations, fentanyl, things like that. So
it's really hard to have confidence, and that lack of
confidence leads to volatility.
Speaker 2 (09:58):
No doubt, I mean, President Trump. They flow to the
possibility of temporary exemptions for auto parts. Over the weekend,
there was this idea that maybe some of the tech
sector could be immune at least temporarily as well. And
now we're learning that the administration has started investigations on
the impact of certain imports like semiconductors and pharmaceuticals on
(10:19):
US national security. So it's difficult to kind of identify
the next potential pressure point and then as a result
making adjustment and avoid that space, is it not, Yes.
Speaker 1 (10:30):
Extremely so, I mean it's it's difficult for business owners.
I imagine it's also difficult for investors to get a
sense of how this might play out. Obviously, I think
you can feel, you know, to extend, you can feel
confident about anything right now, you can feel little confidence
that at a minimum that Trump put is still somewhere
out there. The bond market activity, you know, reversed the
(10:50):
worst possible outcome of this policy prescription. You know, we
saw the negotiations, we've seen the ninety day pause, so
I think at a minimum you can feel confident that
they're some sort of tail risk downside scenario that's removed.
But past that, we could go anywhere from here. And
I don't think anyone should be surprised.
Speaker 2 (11:07):
If there's a beneficiary or a group of beneficiaries. I
think you have to look at the big banks, right,
I mean today we had Goldman reporting its highest ever
quarter in terms of overall trading revenue, and the story
was similar for both JP, Morgan Chase, and Morgan Stanley.
So to be fair, there are some bright spots right
when you look at this market volatility, you got to
(11:28):
look at the guys who are trading and generating revenue, right.
Speaker 1 (11:31):
Yeah, absolutely, And the banks and financials are one of
the kind of cleanest ways to lever up this new administration. Anyway,
even if you didn't expect this coming, you saw a
deregulatory environment coming down the pipe, potentially a ramp up
in m and A and IPO activity with a more
you know, typically business friendly administration. So the banks and
obviously not super leveraged. Tariffs and trade either pretty pretty domestic.
(11:55):
I know they do some lending. So yeah, the banks
and the financials look in about as good a position
as you could hope for.
Speaker 2 (12:01):
Let's talk a little bit more about the bond market,
because we heard today from Treasury Secretary Scott Bessant, and
one of the questions that we put to him was
whether or not foreign holders were dumping US treasuries. He
pushed back on that a bit, saying he didn't think
there was any dumping. But I'm wondering whether you think
the conversation around tariffs and trade tensions more broadly might
(12:23):
cause foreign holders of US treasuries to perhaps take a
second look and maybe even lighten a position. Yeah.
Speaker 1 (12:31):
Absolutely, I think I think that's part of a larger
trade you've seeing here where the dollar has been down
as well, maybe against expectations for a country putting on tariff.
So yeah, I think at a minimum, other countries are
going to want to continue to diversify you away from
the dollar, if only so that they're not you know,
so linked and so potentially vulnerable in negotiations with the US.
(12:54):
You know, we've seen this big move in gold. I
imagine that has a lot to do with central bank
diversification as well. So yeah, I think it's it's completely
on the table.
Speaker 2 (13:03):
So I'm curious about the trading strategies that you're using
right now. Given everything that we're describing, what are you
doing well?
Speaker 1 (13:09):
When you get a big sell off, a big sharp
sell off, you typically are rewarded if you go, you know,
risk on as long as you can can stomach the
next you know, six to twelve months, Usually your returns
are strong year out. So just just generally buying the dip,
but focusing on high quality companies, knowing that even in
this kind of uncertain scenario, you still are in a
(13:29):
higher for longer rate environment. So sticking high quality and
then you know, to the extent you can zooming out
past the next couple of years of trade war and
tariffs and thinking about you know, adding to secular winners,
things in the AI space, for example, that might be
rocky over the next year or two, but have that
(13:50):
long term growth potential in a slower growth world.
Speaker 2 (13:53):
So higher for longer rates. And when I hear you
say that is okay, tariffs will probably be inflationary, and
the Fed is going to be on guard and keep
rate steady, and the idea that we're going to see
multiple rate cuts this year may need to be rethought.
Speaker 4 (14:08):
Is that right?
Speaker 1 (14:09):
I think so. I mean, if you you know, the
Fed can change your mind quickly as spots of weakness
pop up, and certainly the bond market has been under pressure.
But yeah, they've basically said they're worries and concerns about
the inflationary impact of tariffs outweighs their concerns about growth
right now, even as you know, the underlying economy is
cooling in many spots. And then you do have the
(14:31):
pressure on the long end just from the uncertainty around
this policy prescription so high for longer rate environment very
different from the twenty tens, and I think that, you know,
lends a credence to focusing on companies that are generating
cash flow, not relying on capital markets to a large extent.
Speaker 2 (14:47):
I'd like to get your take on the US consumer.
Interesting today that LVMH, one of the bell weathers when
it comes to the luxury industry, reported sales that were
down more than expected. Obviously, we've weak demand coming out
of China, maybe a little bit of surprise there. The
fact that the US showed some weakness as well, did
that kind of change your opinion of where the consumer
(15:10):
is right now? A lot of times we get very
concerned about the down market participation, but now we're talking
about a company that caters to the luxury sector. Yeah.
Speaker 1 (15:20):
I think it's across the board. Uncertainty has kind of
put a pause in consumer spending. Maybe we entered the
year not with the robust consumer we'd seen in twenty
twenty three and twenty four, but certainly not in a
bad spot and not over levered. I think importantly, you know,
debt to income ratios are largely in check. But this
uncertainty that's weighing on the economy via tariffs and the
(15:42):
potential for higher inflation, I think has really just put
a chill on things. You know, you look at some
of the soft data, like consumer confidence falling to lows
not seen since the financial crisis, and you can get
a sense that consumers are on pause for now, similar
to how businesses are acting just because of the uncertainty.
So I think there not a trouble point, but certainly
(16:02):
cooling and this policy uncertainty isn't helping.
Speaker 2 (16:04):
I'm wondering whether you're looking offshore at all in the
current environment, and whether or not there is still some
attraction to stocks in Europe right now. I know they've
been on an amazing run so far this year. Do
you think Europe's got more upside?
Speaker 1 (16:17):
I definitely do. I think, first and foremost, I think
international diversification becomes much more important in this post trade,
post packs Americana kind of world. You just have much
more correlated or uncorrelated return streams from different trading blocks.
The dollar perhaps not as dominant, So I think international
(16:39):
diversification in general is going to be more important. And
then on Europe, I mean they're still stimulating at a minimum.
You look at their economy and you see those fiscal promises,
and you see what the aerospace and defense stocks are doing,
you know, anticipation of getting to the NATO defense spend requirements,
and you say, well, at least that's an economy that's stimulating.
(16:59):
China's stimulates, So I think there's plenty of opportunity abroad,
even if this trade war kind of helps no one
and aggregate.
Speaker 2 (17:06):
We'll leave it there, Ross, thank you so much, Always
a pleasure, Ross Mayfield. There he's the investment strategist at Baird.
Joining us 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 in the Asia Pacific. You can find us
(17:29):
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.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
China appears to be done retaliating against President Trump's exorbitant tariffs.
Beijing has called the Trump administration's actions a joke that
it no longer considers worthy of matching. So the question
now is whether President Chijinping will find a more potent
(00:31):
weapon to strike back at his opponent. For a closer look, now,
I am joined by Bloomberg opinion columnist Shuley Wren her
latest column titled why wouldn't China weaponize its treasury holdings?
Shuley joins us from Hong Kong. It's always a pleasure
in this piece. Shuley, you remind us that last Friday
in Beijing, leadership essentially reiterated its vow to fight to
(00:53):
the end, and might not this fighting include selling US treasuries?
Speaker 3 (00:58):
That's the worry. So last week we saw a pretty
big treasury bound route right and with a treasury ten
year yi old up by fifty basis points, and some
of the sharpest bikes occurred during the Asia hours, leading
to speculations that you know, maybe some Asian central banks
on the move, and the japan has come out saying
(01:20):
that they were not weaponize their treasury holdings, and by
the Treasury Department's data, they're the biggest foreign creditor, but
China is next, So there are worries that China is
going to create a little bit of a chaos to
the US government bomb market.
Speaker 2 (01:38):
So on Monday, we caught up with Treasury Secretary Scott
Bessant during a trip to Buenos Aires and we asked
him whether foreign holders were dumping US treasuries. Here's what
he had to say.
Speaker 4 (01:48):
I don't think there's a dumping, and I think we
saw in the TIC data either today or Friday that
actually foreign ownerships picked up. We had two we had
three big auctions last week, and on the longer in
auction ten year, thirty year, we saw increase foreign competition.
So I actually think this is one of those occasional
(02:10):
var shocks that you get in the trading community. I
think a lot of people got very leverage, maybe out
over their skis, and then you combine that with some
real money selling and you get these moves.
Speaker 5 (02:23):
So you don't think it's sovereigns potentially it's hedge funds unwinding.
I have no.
Speaker 4 (02:28):
Evidence that it's sovereigns and look Emory the not you.
But the nature of journalism is to create a headline
that ten days ago when tenure yields hit three ninety said, well,
Secretary Besson got what he wanted, he got ten years
yields down. But it's the wrong reason. Now I figet
(02:50):
what they hit on Friday, maybe for forty something.
Speaker 5 (02:53):
We saw a fifty basis move last week and ten
year yield at the same time that the dollar was
weakening nearly three percent. How do you simultaneously look at
that situation. It feels like investors are dumping US assets.
Speaker 4 (03:07):
Well, look, I've learned that not to look at what
happens over a week. I, for better or worse, have
lived through a lot of these things in trading. In
one's personal trading history is the scar tissue that sticks
with you the most. I can tell you exactly where
I was standing in nineteen ninety eight when the long
(03:29):
term capital the backle happened. That had nothing to do
with anything other than a bunch of geniuses up in
Greenwich who had too much leverage.
Speaker 2 (03:37):
Treasury Secretary Scott Besson during his trip to Buenos Aires
speaking to Bloomberg Examary hor Dern. Surely you heard what
he had to say. Are you buying it?
Speaker 3 (03:47):
I mean, there is the sense that basis trade hatch
funds and winding basis trade rate is some turmoil in
the treasury market. But I think what treasure d Squary
Bess said. He cited the take data basically, it's it's
a data release provided by his own department. I think
(04:09):
that that's only part of the picture because this data
collects information from US custidium banks. So say I was
a China central bank, my holdings with US custidian banks
will be will be disclosed in the Treasury data. But
I can also have treasury holdings with European custidian banks
(04:30):
in Europe, stay in Belgium with the clear and that
that is not reflected in the data that the Treasury
Secretary can see.
Speaker 2 (04:39):
So in my mind, thinking of data, China's got about
seven hundred and sixty billion dollars in US Treasury securities,
three trillion dollars in US dollars held in reserve. So
there's a lot of pressure here that China could apply.
Right if this trade negotiation or whatever we're in right
now doesn't go well. And what you point out is
(05:02):
that the abrupt turn that President Trump made last week
essentially exposes the White House's Achilles heel. And I'm just
wondering how effective the Trump administration can be in these
trade negotiations with this sort of damicles kind of hanging
over its head.
Speaker 4 (05:19):
Exactly.
Speaker 3 (05:20):
I'm not sure President Trump knows what the art of
the deal is, or definitely it doesn't seem like he
knows what the art of the war is. Basically, he
showed the world his pain point last week, right he
basically said, Okay, I'm halting the terriffs on the rest
of the world because I saw the bomb market was
not doing so well. Then everyone knows that's Trump's pain point.
(05:41):
And I think, I mean, of course, the Chinese government
doesn't have strong incentives to basically fire sale and the
dumb or its usual US dollars because you know, it
will have to encour some losses, right, But it could tease,
It could tease Trump because Besson, he is in charge
of terraff negotiations and he is a self acclaimed the
(06:06):
biggest bound salesman in the US, right, and he talks
about like how much he cares about the bound market
and the bound yields. He said that the one percentage
point rise in tenure will cause the US government one
hundred billion dollars, so we all know that's their pain point.
Speaker 2 (06:25):
So surely I'm wondering whether or not these moves and
the conversations around them is really fueling talk of d
dollarization and whether major central banks around the world will
become even more aggressive in moving away from the dollar.
Speaker 3 (06:40):
I think it's already happening. If you look at the
IMF data, US dollar accounted for over seventy percent of
global foreign exchange reserves twenty years ago. Now it's less
than sixty percent, And especially in the last couple of years, right, Like,
the US treasures have been very volatile and the total
returns have not been good. So it's not just China,
(07:01):
it's everyone else as well, trying to diversify a little bit.
Speaker 2 (07:05):
One of the other topics that came up during the
conversation with Treasury Secretary Besant was independence of the FED
and the fact that the administration is going to be
looking for a replacement for FED. Shair J. Powell when
his term is up, and those conversations will happen in
the fall. We've talked a little bit in the past
about the possibility that the FED would face pressure from
(07:27):
the White House, and I'm wondering whether or not. Maybe
the pressure wouldn't come in terms of adjusting the policy rate,
but I'm wondering about pressure to use the balance sheet
as a way of controlling what's happening in the treasury market.
Do you think that's a real risk.
Speaker 3 (07:42):
I think it's very much on the table. In this sense.
The Treasury Department and the Federal Reserve aligned US government
does not have incentives to see its boring soaring right.
It's not good for the is called condition. It's also
not good for the broad economy because US government bundk
(08:06):
yield is the benchmark for everything, for blondgages, for corporate loans.
So in this case, if the ten year your bikes
to like say four point seven percent, I think the
FED could make them move.
Speaker 2 (08:21):
Well, leave it there. Surely it's always a pleasure. Thank
you so much. Bloomberg opinion columnist July Wren, in her
latest piece, writing why wouldn't China weaponize its treasury holdings?
Surely joining us from Hong Kong here on the Daybreak
Asia podcast. Welcome back to the Daybreak Asia podcast. I'm
(08:45):
Ded Krisner. So a measure of calm seem to return
to financial markets today after seven sessions of volatility. We
had US equities pushing higher, with the S and P
picking up around eight ten to one percent. All but
one of the S and p's eleven industry groups, Advanced
Consumer Discretionary was the only decliner. Joining me now for
a closer look at the price section is Ross Mayfield.
(09:08):
He is investment strategist at Baird Ross. Thank you for
joining us. So this news on trade policy has been
so dynamic and it's created a lot of volatility we've
seen that. Do you expect this volatility to be the
new normal?
Speaker 1 (09:22):
I do think so, because this policy is being rendered
via executive action and not going through the kind of normal,
you know, legislative process. I think even as some of
the tariff threats get pulled back and negotiations keep occurring,
it's going to be hard for business leaders to ever
feel a sense that they can invest for the next
three to five years because a lot of these policies
(09:44):
can be reversed back on overnight and even levied in
some sort of exchange that's not really trade or economic related.
We've seen that with deportations, fentanyl, things like that. So
it's really hard to have confidence, and that lack of
confidence leads to volatility.
Speaker 2 (09:58):
No doubt, I mean, President Trump. They flow to the
possibility of temporary exemptions for auto parts. Over the weekend,
there was this idea that maybe some of the tech
sector could be immune at least temporarily as well. And
now we're learning that the administration has started investigations on
the impact of certain imports like semiconductors and pharmaceuticals on
(10:19):
US national security. So it's difficult to kind of identify
the next potential pressure point and then as a result
making adjustment and avoid that space, is it not, Yes.
Speaker 1 (10:30):
Extremely so, I mean it's it's difficult for business owners.
I imagine it's also difficult for investors to get a
sense of how this might play out. Obviously, I think
you can feel, you know, to extend, you can feel
confident about anything right now, you can feel little confidence
that at a minimum that Trump put is still somewhere
out there. The bond market activity, you know, reversed the
(10:50):
worst possible outcome of this policy prescription. You know, we
saw the negotiations, we've seen the ninety day pause, so
I think at a minimum you can feel confident that
they're some sort of tail risk downside scenario that's removed.
But past that, we could go anywhere from here. And
I don't think anyone should be surprised.
Speaker 2 (11:07):
If there's a beneficiary or a group of beneficiaries. I
think you have to look at the big banks, right,
I mean today we had Goldman reporting its highest ever
quarter in terms of overall trading revenue, and the story
was similar for both JP, Morgan Chase, and Morgan Stanley.
So to be fair, there are some bright spots right
when you look at this market volatility, you got to
(11:28):
look at the guys who are trading and generating revenue, right.
Speaker 1 (11:31):
Yeah, absolutely, And the banks and financials are one of
the kind of cleanest ways to lever up this new administration. Anyway,
even if you didn't expect this coming, you saw a
deregulatory environment coming down the pipe, potentially a ramp up
in m and A and IPO activity with a more
you know, typically business friendly administration. So the banks and
obviously not super leveraged. Tariffs and trade either pretty pretty domestic.
(11:55):
I know they do some lending. So yeah, the banks
and the financials look in about as good a position
as you could hope for.
Speaker 2 (12:01):
Let's talk a little bit more about the bond market,
because we heard today from Treasury Secretary Scott Bessant, and
one of the questions that we put to him was
whether or not foreign holders were dumping US treasuries. He
pushed back on that a bit, saying he didn't think
there was any dumping. But I'm wondering whether you think
the conversation around tariffs and trade tensions more broadly might
(12:23):
cause foreign holders of US treasuries to perhaps take a
second look and maybe even lighten a position. Yeah.
Speaker 1 (12:31):
Absolutely, I think I think that's part of a larger
trade you've seeing here where the dollar has been down
as well, maybe against expectations for a country putting on tariff.
So yeah, I think at a minimum, other countries are
going to want to continue to diversify you away from
the dollar, if only so that they're not you know,
so linked and so potentially vulnerable in negotiations with the US.
(12:54):
You know, we've seen this big move in gold. I
imagine that has a lot to do with central bank
diversification as well. So yeah, I think it's it's completely
on the table.
Speaker 2 (13:03):
So I'm curious about the trading strategies that you're using
right now. Given everything that we're describing, what are you
doing well?
Speaker 1 (13:09):
When you get a big sell off, a big sharp
sell off, you typically are rewarded if you go, you know,
risk on as long as you can can stomach the
next you know, six to twelve months, Usually your returns
are strong year out. So just just generally buying the dip,
but focusing on high quality companies, knowing that even in
this kind of uncertain scenario, you still are in a
(13:29):
higher for longer rate environment. So sticking high quality and
then you know, to the extent you can zooming out
past the next couple of years of trade war and
tariffs and thinking about you know, adding to secular winners,
things in the AI space, for example, that might be
rocky over the next year or two, but have that
(13:50):
long term growth potential in a slower growth world.
Speaker 2 (13:53):
So higher for longer rates. And when I hear you
say that is okay, tariffs will probably be inflationary, and
the Fed is going to be on guard and keep
rate steady, and the idea that we're going to see
multiple rate cuts this year may need to be rethought.
Speaker 4 (14:08):
Is that right?
Speaker 1 (14:09):
I think so. I mean, if you you know, the
Fed can change your mind quickly as spots of weakness
pop up, and certainly the bond market has been under pressure.
But yeah, they've basically said they're worries and concerns about
the inflationary impact of tariffs outweighs their concerns about growth
right now, even as you know, the underlying economy is
cooling in many spots. And then you do have the
(14:31):
pressure on the long end just from the uncertainty around
this policy prescription so high for longer rate environment very
different from the twenty tens, and I think that, you know,
lends a credence to focusing on companies that are generating
cash flow, not relying on capital markets to a large extent.
Speaker 2 (14:47):
I'd like to get your take on the US consumer.
Interesting today that LVMH, one of the bell weathers when
it comes to the luxury industry, reported sales that were
down more than expected. Obviously, we've weak demand coming out
of China, maybe a little bit of surprise there. The
fact that the US showed some weakness as well, did
that kind of change your opinion of where the consumer
(15:10):
is right now? A lot of times we get very
concerned about the down market participation, but now we're talking
about a company that caters to the luxury sector. Yeah.
Speaker 1 (15:20):
I think it's across the board. Uncertainty has kind of
put a pause in consumer spending. Maybe we entered the
year not with the robust consumer we'd seen in twenty
twenty three and twenty four, but certainly not in a
bad spot and not over levered. I think importantly, you know,
debt to income ratios are largely in check. But this
uncertainty that's weighing on the economy via tariffs and the
(15:42):
potential for higher inflation, I think has really just put
a chill on things. You know, you look at some
of the soft data, like consumer confidence falling to lows
not seen since the financial crisis, and you can get
a sense that consumers are on pause for now, similar
to how businesses are acting just because of the uncertainty.
So I think there not a trouble point, but certainly
(16:02):
cooling and this policy uncertainty isn't helping.
Speaker 2 (16:04):
I'm wondering whether you're looking offshore at all in the
current environment, and whether or not there is still some
attraction to stocks in Europe right now. I know they've
been on an amazing run so far this year. Do
you think Europe's got more upside?
Speaker 1 (16:17):
I definitely do. I think, first and foremost, I think
international diversification becomes much more important in this post trade,
post packs Americana kind of world. You just have much
more correlated or uncorrelated return streams from different trading blocks.
The dollar perhaps not as dominant, So I think international
(16:39):
diversification in general is going to be more important. And
then on Europe, I mean they're still stimulating at a minimum.
You look at their economy and you see those fiscal promises,
and you see what the aerospace and defense stocks are doing,
you know, anticipation of getting to the NATO defense spend requirements,
and you say, well, at least that's an economy that's stimulating.
(16:59):
China's stimulates, So I think there's plenty of opportunity abroad,
even if this trade war kind of helps no one
and aggregate.
Speaker 2 (17:06):
We'll leave it there, Ross, thank you so much, Always
a pleasure, Ross Mayfield. There he's the investment strategist at Baird.
Joining us 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 in the Asia Pacific. You can find us
(17:29):
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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