July 1, 2025 • 17 mins
Asian shares edged lower at the Wednesday open after President Donald Trump said he won't delay the July 9 deadline for imposing higher levies on trading partners, ratcheting up trade tensions yet again.
Back in June, China and the US reaffirmed their May trade truce, sustaining a rebound in trade flows and propelling China's economic momentum. Bloomberg Economics says consumption also showed signs of revival, but the trend is unlikely to last without continuous policy efforts that promote domestic demand. We take a look at the state of the Chinese economy with Shehzad Qazi, Chief Operating Officer and Managing Director at China Beige Book International.
Plus - US job openings hit the highest since November, largely fueled by leisure and hospitality, and layoffs declined. Federal Reserve policymakers have consistently characterized labor-market conditions as strong in recent weeks. Fed Chair Jerome Powell repeated that the US central bank probably would have cut rates further this year absent Trump's expanded use of tariffs, although he didn't rule out easing at its meeting later this month. We get market insights from Jeff Grills, Head of EM Debt at Aegon Asset Management.
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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 Daybreak
Asia podcast. I'm Doug Krisner. On the trade front. Today,
President Trump said he's not considering a delay of his
July ninth deadline for those higher tariffs to resume. He
(00:22):
threatened to cut off trade talks and impost TERRAF freights
on several nations, including Japan. Coming up, we'll be speaking
with Jeff Grills. He is head of em Debt at
Agon Asset Management. But we begin with China. The latest
flash data reading from China beij Book International showed slowing
in June. Even so, the weaker print may not bother
(00:43):
Beijing as much as outsiders think. Joining me now is
Shazad Kazi. He is the COO also managing director at
China beij Book. He is on the line from here
in New York City. Chazad, it's always a pleasure. Thank
you so much for making time to chat with me
on this. Can I begin by asking for the big
picture as a result of your survey, how do things
look in China right now?
Speaker 2 (01:05):
Hi, Doug, Good to be with you. The big picture
takeaway from June was that there was soft data or
concerning data all around. If you're just looking at the
health of the economy from that lens alone, but if
you're putting it in the larger scheme of things, you're
thinking about the trade war and the tariff war and
export controls rather and so forth. As we said, we
(01:29):
don't think this one month off weakness is going to
be a particular concern to the CCP, or I think
to President she, who's feeling pretty confident about his position
in the US China trade war right now, is.
Speaker 1 (01:41):
That to say that you believe, based on your survey,
that she believes that he has the upper hand.
Speaker 2 (01:48):
That's correct, you know, it is definitely our understanding that
she and several top party officials believe that they now
have the upper hand, especially the manner in which they
think they got the US just cream uncle when it
comes to export controls over earth rors and magnets and such.
At the same time, I think they're probably thinking there's
(02:11):
got to be another round of front loading that will
eventually happen, and manufacturer may eventually benefit off of that.
So all around, I think they feel like they're in
a pretty strong position right now.
Speaker 1 (02:21):
So having said that, how does the manufacturing economy and China.
Look right now, if you look at exports, where are
they headed and what is particularly robust?
Speaker 2 (02:31):
So export orders right now have most certainly in China,
bacebook data slowed down. If you look at especially orders
directly from the US, they've remained in contraction territory. Not
a huge surprise given the fact that you know, we
had these sky high tariff levels that were only brought
down somewhat recently. And it's very likely that a lot
(02:52):
of the exports to the US eventually are coming through
third party countries from Southeast Asia. So that number may
not look very very very strong for a while here.
But right now the manufacturing story is one off being dull.
The real question is does this change come July August,
when do we see firms starting starting to buy directly
(03:13):
from China again.
Speaker 1 (03:14):
When you and I have spoken in the past, a
lot of the focus has been on the domestic demand
story in China. What are you seeing The.
Speaker 2 (03:22):
Domestic demand again has gotten quite soft. Now we have
to acknowledge again that the year started off on a
positive note around Chinese New Year, around things like the
May Day holiday, we saw good spending happening, But in
between the trade in programs and the Chinese subsidies expiring
provinces pulling them back or essentially running out of funds
to carry them on, and there'd be no real event
or series of holidays sparking another round of consumer spending.
(03:45):
What you're getting all around is pretty soft data. So,
as I said, the June picture really is just from
an economic health of the economy standpoint, You'll see a
lot of negative storylines in there.
Speaker 1 (03:55):
What is the status of the property market? Is that
showing any sign of improvement?
Speaker 2 (04:00):
You know, I've been particularly positive on property in the
sense that I've repeatedly said that the pain is lessing
and the data who is what was driving that view. Unfortunately,
over the last couple of months now, over May and
most certainly into June, now we can see now that
some of these recent gains that the housing market had
made even in twenty twenty five are being reversed, are
(04:22):
being lost. And so the question is is this is
this just a temporary blip, Is this along the lines
of software consumer sentiment anyway, or are we headed towards
a pat now where property actually, instead of becoming less worse,
is going and you know, the pain starts to increase
instead of continuing to decrease.
Speaker 1 (04:41):
What about the job market, What is the data say
about how well people are doing on the employment front.
Speaker 2 (04:47):
Yeah, look, you know things are things have slowed down,
but I don't think the job market has been that
big of a warrior. The job market in the larger
scheme of things, of course, has not been has been.
It has been a pain point. It's been talked about
over and over again. But in recent data, even though
of course we've got a slow down in June, I
wouldn't say that the housing market has been you know,
flashing red by any stretch of the imagination. Again, China
(05:11):
has its long run issues with what's going to happen
to their labor force and the fact that they are
not enough jobs for you on graduates and so forth.
But if you just want to look at what's what's
happening right now, you know, I wouldn't put it in
the concerning basket.
Speaker 1 (05:24):
There's been a lot of talk around the AI movement
in China and other areas of technology. If you look
at the economy on a sector bi sector basis, how
is technology performing right now?
Speaker 2 (05:37):
You know? The thing is we're not picking up the
technological revolutions big economic impact right now. There's no question
about the fact that the tech scene in China has
become incredibly interesting from the Deep Seek moment onwards. But
I think some of that, you know, some of the
positive views of ofware tech in China and the boom
of check in China that was taking place, I think
(05:58):
some of that has dampened down a little bit. But nevertheless,
I think it's going to take a couple of years
for us to really start to see its impact on
the broader economy. The sector is still exciting, there's just
no question about it.
Speaker 1 (06:11):
So this is kind of dull. I mean, isn't that
the way you describe the economy right now? And I'm
wondering whether you're seeing any green shoots. Should we be
a little bit more optimistic or are things almost in
a stagnation.
Speaker 2 (06:26):
I think what's going to happen is that as we
get closer to the fall, unless something blows up on trade,
we will probably get a boost on that export side.
You also have to remember that right now, I think
companies are having a hard time getting just stuff out
because they're not enough container ships, so everything had frozen
and everything had come to a standstill. They kind of
revive that, so you will see some kind of economic
(06:48):
impact of that taking place, however, unless Beijing continues to
ramp up stimulus. So the most exciting part I would
say right now is the fact that you're seeing more
fiscal activity than you have in recently, and so if
they continue doing policiesing on that front, they can get
some mileage out of that. They are arguing to have
to figure out a more sustainable way to juice the
(07:08):
consumer side. Maybe they'll do some more trade in programs.
So are there reasons to be optimistic. Yes, absolutely, But
at the same time, there's no big blockbuster, you know,
mega growth story coming out of China right now, and
by the same token, there's no big disaster that's looming
in twenty twenty five either.
Speaker 1 (07:27):
Shazad will leave it there. It's always a pleasure. Thank
you so much. Shazad kase Coo, also managing director at
China Beijbook, joining us here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.
(07:48):
It was the first day of trading for the third quarter,
so there may have been a bit of rotation in
the equity market from winners to losers, from growth to momentum.
At the end of the day, stocks were mixed. The
Dow was high, but we had the S and P
and the Nasdaq each slipping from record highs. Small caps outperformed.
We had the Russell picking up nine tens of one percent.
(08:08):
The outlook for FED raid cuts, meantime, seemed to dim
a bit on signs of a still healthy labor market.
Job openings in the US hit the highest level since November,
largely fueled by leisure and hospitality, and at the same
time layoffs declined. We also heard from Fedhair J. Powell.
He reiterated his weight and see stance on rates given
(08:30):
the inflationary implications of those tariffs. Here is Powell speaking
at the European Central Bank Forum in Central Portugal.
Speaker 3 (08:38):
In effect, we went on hold when we saw the
size of the tariffs and where and essentially all inflation
forecasts for the United States went up materially as a
consequence of the tariffs.
Speaker 1 (08:49):
Fedchhair J. Powell there Joining me now for a closer
look at market action is Jeff Grills. He is head
of e M Debt at Agon Asset management. Jeff is
on the line from Chicago. Thank you for making time
to chat with me. Give me your sense of the
predicament that the FED is in right now.
Speaker 4 (09:07):
Well, I think the Fed is waiting to see what
the ultimate impact of the tariffs will be and where
we get posts July ninth. You know, our view right
now on the tariffs is that you have to remember
they're generally a one time adjustment, so we don't view
them as being long term inflationary. So I think the
FED is just trying to see how many adjustments where
are we going to go? And so our view right
(09:28):
now is that the Fed is still likely to ease
in the second half of this year.
Speaker 5 (09:32):
I think they have room to ease policy.
Speaker 4 (09:34):
We are expecting growth to come back down, and they'll
be data dependent and watch where you know, the indicators go.
But they're just trying to make sure that they have
ample room to ease when needed. They haven't needed to
at this point.
Speaker 1 (09:46):
So that's the monetary side. Then we have the deal
with the fiscal side. Because today the Senate narrowly passed
the President's tax and spending bill, not a lot of
movement in the bond market. I mean yields did back
up a bit more so at the short end to
the curve. How do you view the response given the
things that we're describing with the Fed and now this
(10:06):
big beautiful bill, how do you see what the treasury
market is telling us in that context?
Speaker 4 (10:12):
Well, you have seen the treasury market steep in over
the last couple of months. So where you have the
short end two years now pricing in around three eighty.
You know, the general view is that you have about
one hundred and thirty basis points overall being priced into
FED funds, and the long end is what has been
a little bit more stubborn. So the thirty year has
come in from that five percent level, but still stuck
around four to seventy five four eighty, and I think
(10:34):
you'll see that long end probably stay a little bit elevated.
This bill estimates runningwhere from two point seven to three
point three trillion. That'll add over time. The big thing
that's going to be interesting, I think which bomb markets
will be watching is where will growth go? Because if
we can get better growth rates, then you don't have
as much of a depth you a debt to GDP
(10:55):
type problem. And the second piece is that the tariff policy.
I mean, keep in mind that ten percent tariffs are
on across the board. We've seen receipts go up both
in April and May. We saw a much improved trade
deficit in May. And so if tariff revenue starts to
offset some of these tax cuts, that will keep the
bond market at bay. But at the end, the bond
(11:16):
market is going to react to if they think this
this fiscal loosening is just too great, and they'll also
look to see what do they do on spending cuts
once we get past this big bill, big beautiful bill.
Speaker 1 (11:25):
So the dollar was steady today in New York trading,
but for the month of let's say June, the Bloomberg
Dollar Spot index was down about two percent. So we're
trading near the lows that we reached back in March
of twenty twenty two. How are you understanding that the
dollars role right now as a factor for fixed income markets?
Speaker 4 (11:46):
Well, I think secretly the Trump administration is somewhat happy
to have a week or dollar right.
Speaker 5 (11:51):
I mean, the dollar has been pretty strong.
Speaker 4 (11:54):
Over the last really almost two decades, and you could
argue that the dollars over val relative to most currencies.
So having that weaker dollar starts to make the trade
should should cause an adjustment in the trade deficit. So
I think that the administration is fine with for the dollars.
We don't expect it to continue to weaken too much,
but it will be on a gradually weakening path. I
(12:15):
think that's something that's been set in motion. As the
tariffs again will remain in effect, we should see trade
deficits come down. I think it's a natural reaction see
the dollar weekend, But I don't think that's necessarily going
to be this dramatic. I mean, everybody's talking about massive
shifts out of dollars.
Speaker 5 (12:32):
Continued excessive weakness.
Speaker 4 (12:34):
I argue against that because people in other countries Europe,
you know, that have ascid allocations. They move one to
two or three percent at a time. They don't move
ten to twenty percent at a time. So it'll be
a gradual shift, and I expect the dollar to really
have moved for the majority for this year, and then
we'll just see a gradual weakening trend going forward.
Speaker 1 (12:51):
So that said, Jeff, how is it influencing your thinking
when you look at offshore debt markets right now?
Speaker 4 (12:58):
Yeah, we've seen what we've I've seen the continued rally
in em local markets. Right, so many money of these
currencies are up anywhere from five to fifteen percent. As
we look at what policy has been done and where
local rates are, we think em local looks reasonably attractive.
I mean, it's moved some, but places like Brazil where
you're still getting double digit yields, you know, eleven, twelve,
(13:21):
thirteen percent type yields and even higher.
Speaker 5 (13:24):
That that looks attractive.
Speaker 4 (13:25):
And we do expect that as growth starts to slow
down in the second half of this year, just naturally,
a lot of the stimulus that was being done, the
tax cuts that have just been passed, aren't really going
to hit until twenty twenty six. So I think that
creates this window for the second half of this year
where we'll continue to see some easing of rates as
likely global inflationary pressures continue to say subdued. I mean,
(13:47):
the tariff may have impact on us on US inflation,
but not really on anything else, especially in the emerging markets.
Speaker 1 (13:53):
But I think we can agree there there is an
elevated level of uncertainty, and I'm wondering how that then
positions you across the curve, where do you want to focus.
Speaker 4 (14:02):
Well, first, let's just address the uncertainty. I think the
uncertainty lies with mostly with China within the EM and
I think that's what Liberation Day was about, was targeting
China to really try to correct what the administration and
many economists have seen as a big imbalance. And beyond that,
it's really you know, European Union, UK, Japan. You don't
(14:26):
hear much about EM as the major focus for trade deals,
and I don't think you will. So I think this
ten percent tariff is pretty much likely to stay. Maybe
there'll be somebody who gets announced, so I think that
keeps EM at least in a better spot.
Speaker 5 (14:41):
Right.
Speaker 4 (14:41):
So as far as curves, I mean, it's really about
picking the right country. So again I think Bloom I
think Brazil can be a beneficiary of this. We think
Latin American can generally be a beneficiary. So it'll be
a combination of the currency appreciation, which I think you
can get anywhere from two to five percent over the
next twelve months, and then for those curves where rates
(15:02):
are very high, we would go out to the to
the ten year and even longer. Parts of the curves
to take advantage of the higher yields.
Speaker 1 (15:07):
So you mentioned a moment ago that in your view,
the tariff story is basically a one time event in
terms of inflationary implications. How do you read the inflationary
environment right now globally?
Speaker 4 (15:20):
Globally, I think for the most part, we are going
to be okay. I mean, again, what typically happens in
you know, focusing on my history in em is as
you get appreciation in the currencies of major economies, that
tends to have a deflationary impact on those countries. So
our view is that inflation will remain contained. We don't
(15:42):
see a massive amount of you know, inflation domestically in
these economies, so I think that that will remain well
controlled and we'll see central banks starting to ease policy again.
I mean, keep in mind that they have been on
most most countries have been on hiking rates, which is
counter to what we've seen in the develop markets. And
I think they're going to start to be able to
(16:02):
ease those rates now for the next six, twelve, eighteen months. Overall,
again getting back to the tariffs, it's gonna be I
don't think it's over, but we're going to see some
trade deals.
Speaker 5 (16:14):
Somebody's going to be held out as an example.
Speaker 4 (16:16):
But in the end, we're expecting average the tariff to
be about fifteen to maybe eighteen percent, not not the
levels that we saw on Liberation Day back on April second.
Speaker 1 (16:25):
All right, good stuff, Jeff, we'll leave it there. Thank
you so much. Jeff Grills, as head of em Debt
at Agon Asset Management, on the line from Chicago 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
(16:46):
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves
from Hong Kong to Singapore and US Australia. I'm Doug
Prisoner and this is Bloomberg
Speaker 2 (17:10):
M
Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak
Asia podcast. I'm Doug Krisner. On the trade front. Today,
President Trump said he's not considering a delay of his
July ninth deadline for those higher tariffs to resume. He
(00:22):
threatened to cut off trade talks and impost TERRAF freights
on several nations, including Japan. Coming up, we'll be speaking
with Jeff Grills. He is head of em Debt at
Agon Asset Management. But we begin with China. The latest
flash data reading from China beij Book International showed slowing
in June. Even so, the weaker print may not bother
(00:43):
Beijing as much as outsiders think. Joining me now is
Shazad Kazi. He is the COO also managing director at
China beij Book. He is on the line from here
in New York City. Chazad, it's always a pleasure. Thank
you so much for making time to chat with me
on this. Can I begin by asking for the big
picture as a result of your survey, how do things
look in China right now?
Speaker 2 (01:05):
Hi, Doug, Good to be with you. The big picture
takeaway from June was that there was soft data or
concerning data all around. If you're just looking at the
health of the economy from that lens alone, but if
you're putting it in the larger scheme of things, you're
thinking about the trade war and the tariff war and
export controls rather and so forth. As we said, we
(01:29):
don't think this one month off weakness is going to
be a particular concern to the CCP, or I think
to President she, who's feeling pretty confident about his position
in the US China trade war right now, is.
Speaker 1 (01:41):
That to say that you believe, based on your survey,
that she believes that he has the upper hand.
Speaker 2 (01:48):
That's correct, you know, it is definitely our understanding that
she and several top party officials believe that they now
have the upper hand, especially the manner in which they
think they got the US just cream uncle when it
comes to export controls over earth rors and magnets and such.
At the same time, I think they're probably thinking there's
(02:11):
got to be another round of front loading that will
eventually happen, and manufacturer may eventually benefit off of that.
So all around, I think they feel like they're in
a pretty strong position right now.
Speaker 1 (02:21):
So having said that, how does the manufacturing economy and China.
Look right now, if you look at exports, where are
they headed and what is particularly robust?
Speaker 2 (02:31):
So export orders right now have most certainly in China,
bacebook data slowed down. If you look at especially orders
directly from the US, they've remained in contraction territory. Not
a huge surprise given the fact that you know, we
had these sky high tariff levels that were only brought
down somewhat recently. And it's very likely that a lot
(02:52):
of the exports to the US eventually are coming through
third party countries from Southeast Asia. So that number may
not look very very very strong for a while here.
But right now the manufacturing story is one off being dull.
The real question is does this change come July August,
when do we see firms starting starting to buy directly
(03:13):
from China again.
Speaker 1 (03:14):
When you and I have spoken in the past, a
lot of the focus has been on the domestic demand
story in China. What are you seeing The.
Speaker 2 (03:22):
Domestic demand again has gotten quite soft. Now we have
to acknowledge again that the year started off on a
positive note around Chinese New Year, around things like the
May Day holiday, we saw good spending happening, But in
between the trade in programs and the Chinese subsidies expiring
provinces pulling them back or essentially running out of funds
to carry them on, and there'd be no real event
or series of holidays sparking another round of consumer spending.
(03:45):
What you're getting all around is pretty soft data. So,
as I said, the June picture really is just from
an economic health of the economy standpoint, You'll see a
lot of negative storylines in there.
Speaker 1 (03:55):
What is the status of the property market? Is that
showing any sign of improvement?
Speaker 2 (04:00):
You know, I've been particularly positive on property in the
sense that I've repeatedly said that the pain is lessing
and the data who is what was driving that view. Unfortunately,
over the last couple of months now, over May and
most certainly into June, now we can see now that
some of these recent gains that the housing market had
made even in twenty twenty five are being reversed, are
(04:22):
being lost. And so the question is is this is
this just a temporary blip, Is this along the lines
of software consumer sentiment anyway, or are we headed towards
a pat now where property actually, instead of becoming less worse,
is going and you know, the pain starts to increase
instead of continuing to decrease.
Speaker 1 (04:41):
What about the job market, What is the data say
about how well people are doing on the employment front.
Speaker 2 (04:47):
Yeah, look, you know things are things have slowed down,
but I don't think the job market has been that
big of a warrior. The job market in the larger
scheme of things, of course, has not been has been.
It has been a pain point. It's been talked about
over and over again. But in recent data, even though
of course we've got a slow down in June, I
wouldn't say that the housing market has been you know,
flashing red by any stretch of the imagination. Again, China
(05:11):
has its long run issues with what's going to happen
to their labor force and the fact that they are
not enough jobs for you on graduates and so forth.
But if you just want to look at what's what's
happening right now, you know, I wouldn't put it in
the concerning basket.
Speaker 1 (05:24):
There's been a lot of talk around the AI movement
in China and other areas of technology. If you look
at the economy on a sector bi sector basis, how
is technology performing right now?
Speaker 2 (05:37):
You know? The thing is we're not picking up the
technological revolutions big economic impact right now. There's no question
about the fact that the tech scene in China has
become incredibly interesting from the Deep Seek moment onwards. But
I think some of that, you know, some of the
positive views of ofware tech in China and the boom
of check in China that was taking place, I think
(05:58):
some of that has dampened down a little bit. But nevertheless,
I think it's going to take a couple of years
for us to really start to see its impact on
the broader economy. The sector is still exciting, there's just
no question about it.
Speaker 1 (06:11):
So this is kind of dull. I mean, isn't that
the way you describe the economy right now? And I'm
wondering whether you're seeing any green shoots. Should we be
a little bit more optimistic or are things almost in
a stagnation.
Speaker 2 (06:26):
I think what's going to happen is that as we
get closer to the fall, unless something blows up on trade,
we will probably get a boost on that export side.
You also have to remember that right now, I think
companies are having a hard time getting just stuff out
because they're not enough container ships, so everything had frozen
and everything had come to a standstill. They kind of
revive that, so you will see some kind of economic
(06:48):
impact of that taking place, however, unless Beijing continues to
ramp up stimulus. So the most exciting part I would
say right now is the fact that you're seeing more
fiscal activity than you have in recently, and so if
they continue doing policiesing on that front, they can get
some mileage out of that. They are arguing to have
to figure out a more sustainable way to juice the
(07:08):
consumer side. Maybe they'll do some more trade in programs.
So are there reasons to be optimistic. Yes, absolutely, But
at the same time, there's no big blockbuster, you know,
mega growth story coming out of China right now, and
by the same token, there's no big disaster that's looming
in twenty twenty five either.
Speaker 1 (07:27):
Shazad will leave it there. It's always a pleasure. Thank
you so much. Shazad kase Coo, also managing director at
China Beijbook, joining us here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.
(07:48):
It was the first day of trading for the third quarter,
so there may have been a bit of rotation in
the equity market from winners to losers, from growth to momentum.
At the end of the day, stocks were mixed. The
Dow was high, but we had the S and P
and the Nasdaq each slipping from record highs. Small caps outperformed.
We had the Russell picking up nine tens of one percent.
(08:08):
The outlook for FED raid cuts, meantime, seemed to dim
a bit on signs of a still healthy labor market.
Job openings in the US hit the highest level since November,
largely fueled by leisure and hospitality, and at the same
time layoffs declined. We also heard from Fedhair J. Powell.
He reiterated his weight and see stance on rates given
(08:30):
the inflationary implications of those tariffs. Here is Powell speaking
at the European Central Bank Forum in Central Portugal.
Speaker 3 (08:38):
In effect, we went on hold when we saw the
size of the tariffs and where and essentially all inflation
forecasts for the United States went up materially as a
consequence of the tariffs.
Speaker 1 (08:49):
Fedchhair J. Powell there Joining me now for a closer
look at market action is Jeff Grills. He is head
of e M Debt at Agon Asset management. Jeff is
on the line from Chicago. Thank you for making time
to chat with me. Give me your sense of the
predicament that the FED is in right now.
Speaker 4 (09:07):
Well, I think the Fed is waiting to see what
the ultimate impact of the tariffs will be and where
we get posts July ninth. You know, our view right
now on the tariffs is that you have to remember
they're generally a one time adjustment, so we don't view
them as being long term inflationary. So I think the
FED is just trying to see how many adjustments where
are we going to go? And so our view right
(09:28):
now is that the Fed is still likely to ease
in the second half of this year.
Speaker 5 (09:32):
I think they have room to ease policy.
Speaker 4 (09:34):
We are expecting growth to come back down, and they'll
be data dependent and watch where you know, the indicators go.
But they're just trying to make sure that they have
ample room to ease when needed. They haven't needed to
at this point.
Speaker 1 (09:46):
So that's the monetary side. Then we have the deal
with the fiscal side. Because today the Senate narrowly passed
the President's tax and spending bill, not a lot of
movement in the bond market. I mean yields did back
up a bit more so at the short end to
the curve. How do you view the response given the
things that we're describing with the Fed and now this
(10:06):
big beautiful bill, how do you see what the treasury
market is telling us in that context?
Speaker 4 (10:12):
Well, you have seen the treasury market steep in over
the last couple of months. So where you have the
short end two years now pricing in around three eighty.
You know, the general view is that you have about
one hundred and thirty basis points overall being priced into
FED funds, and the long end is what has been
a little bit more stubborn. So the thirty year has
come in from that five percent level, but still stuck
around four to seventy five four eighty, and I think
(10:34):
you'll see that long end probably stay a little bit elevated.
This bill estimates runningwhere from two point seven to three
point three trillion. That'll add over time. The big thing
that's going to be interesting, I think which bomb markets
will be watching is where will growth go? Because if
we can get better growth rates, then you don't have
as much of a depth you a debt to GDP
(10:55):
type problem. And the second piece is that the tariff policy.
I mean, keep in mind that ten percent tariffs are
on across the board. We've seen receipts go up both
in April and May. We saw a much improved trade
deficit in May. And so if tariff revenue starts to
offset some of these tax cuts, that will keep the
bond market at bay. But at the end, the bond
(11:16):
market is going to react to if they think this
this fiscal loosening is just too great, and they'll also
look to see what do they do on spending cuts
once we get past this big bill, big beautiful bill.
Speaker 1 (11:25):
So the dollar was steady today in New York trading,
but for the month of let's say June, the Bloomberg
Dollar Spot index was down about two percent. So we're
trading near the lows that we reached back in March
of twenty twenty two. How are you understanding that the
dollars role right now as a factor for fixed income markets?
Speaker 4 (11:46):
Well, I think secretly the Trump administration is somewhat happy
to have a week or dollar right.
Speaker 5 (11:51):
I mean, the dollar has been pretty strong.
Speaker 4 (11:54):
Over the last really almost two decades, and you could
argue that the dollars over val relative to most currencies.
So having that weaker dollar starts to make the trade
should should cause an adjustment in the trade deficit. So
I think that the administration is fine with for the dollars.
We don't expect it to continue to weaken too much,
but it will be on a gradually weakening path. I
(12:15):
think that's something that's been set in motion. As the
tariffs again will remain in effect, we should see trade
deficits come down. I think it's a natural reaction see
the dollar weekend, But I don't think that's necessarily going
to be this dramatic. I mean, everybody's talking about massive
shifts out of dollars.
Speaker 5 (12:32):
Continued excessive weakness.
Speaker 4 (12:34):
I argue against that because people in other countries Europe,
you know, that have ascid allocations. They move one to
two or three percent at a time. They don't move
ten to twenty percent at a time. So it'll be
a gradual shift, and I expect the dollar to really
have moved for the majority for this year, and then
we'll just see a gradual weakening trend going forward.
Speaker 1 (12:51):
So that said, Jeff, how is it influencing your thinking
when you look at offshore debt markets right now?
Speaker 4 (12:58):
Yeah, we've seen what we've I've seen the continued rally
in em local markets. Right, so many money of these
currencies are up anywhere from five to fifteen percent. As
we look at what policy has been done and where
local rates are, we think em local looks reasonably attractive.
I mean, it's moved some, but places like Brazil where
you're still getting double digit yields, you know, eleven, twelve,
(13:21):
thirteen percent type yields and even higher.
Speaker 5 (13:24):
That that looks attractive.
Speaker 4 (13:25):
And we do expect that as growth starts to slow
down in the second half of this year, just naturally,
a lot of the stimulus that was being done, the
tax cuts that have just been passed, aren't really going
to hit until twenty twenty six. So I think that
creates this window for the second half of this year
where we'll continue to see some easing of rates as
likely global inflationary pressures continue to say subdued. I mean,
(13:47):
the tariff may have impact on us on US inflation,
but not really on anything else, especially in the emerging markets.
Speaker 1 (13:53):
But I think we can agree there there is an
elevated level of uncertainty, and I'm wondering how that then
positions you across the curve, where do you want to focus.
Speaker 4 (14:02):
Well, first, let's just address the uncertainty. I think the
uncertainty lies with mostly with China within the EM and
I think that's what Liberation Day was about, was targeting
China to really try to correct what the administration and
many economists have seen as a big imbalance. And beyond that,
it's really you know, European Union, UK, Japan. You don't
(14:26):
hear much about EM as the major focus for trade deals,
and I don't think you will. So I think this
ten percent tariff is pretty much likely to stay. Maybe
there'll be somebody who gets announced, so I think that
keeps EM at least in a better spot.
Speaker 5 (14:41):
Right.
Speaker 4 (14:41):
So as far as curves, I mean, it's really about
picking the right country. So again I think Bloom I
think Brazil can be a beneficiary of this. We think
Latin American can generally be a beneficiary. So it'll be
a combination of the currency appreciation, which I think you
can get anywhere from two to five percent over the
next twelve months, and then for those curves where rates
(15:02):
are very high, we would go out to the to
the ten year and even longer. Parts of the curves
to take advantage of the higher yields.
Speaker 1 (15:07):
So you mentioned a moment ago that in your view,
the tariff story is basically a one time event in
terms of inflationary implications. How do you read the inflationary
environment right now globally?
Speaker 4 (15:20):
Globally, I think for the most part, we are going
to be okay. I mean, again, what typically happens in
you know, focusing on my history in em is as
you get appreciation in the currencies of major economies, that
tends to have a deflationary impact on those countries. So
our view is that inflation will remain contained. We don't
(15:42):
see a massive amount of you know, inflation domestically in
these economies, so I think that that will remain well
controlled and we'll see central banks starting to ease policy again.
I mean, keep in mind that they have been on
most most countries have been on hiking rates, which is
counter to what we've seen in the develop markets. And
I think they're going to start to be able to
(16:02):
ease those rates now for the next six, twelve, eighteen months. Overall,
again getting back to the tariffs, it's gonna be I
don't think it's over, but we're going to see some
trade deals.
Speaker 5 (16:14):
Somebody's going to be held out as an example.
Speaker 4 (16:16):
But in the end, we're expecting average the tariff to
be about fifteen to maybe eighteen percent, not not the
levels that we saw on Liberation Day back on April second.
Speaker 1 (16:25):
All right, good stuff, Jeff, we'll leave it there. Thank
you so much. Jeff Grills, as head of em Debt
at Agon Asset Management, on the line from Chicago 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
(16:46):
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves
from Hong Kong to Singapore and US Australia. I'm Doug
Prisoner and this is Bloomberg
Speaker 2 (17:10):
M
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