July 8, 2025 • 22 mins
President Donald Trump vowed to push forward with his aggressive tariff regime in the coming days, stressing he would not offer additional extensions on country-specific levies set to now hit in early August while indicating he could announce substantial new rates on imports of copper and pharmaceuticals. The posturing on social media and at a Cabinet meeting on Tuesday came after traders initially shrugged off a series of letters and executive actions Trump issued Monday, pushing back the deadline for his so-called “reciprocal” tariffs while announcing the latest rates he planned for more than a dozen countries that had not succeeded in brokering quick trade agreements. For more the market outlook, we speak to Frances Stacey, Economic Strategist at Scarlet Oak Financial.
Plus - Stephen Olson, Yusof Ishak Institute Senior Visiting Fellow and Former US Trade Negotiator gives us insight on where President Trump is going with his latest tariff announcement.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's
all about tariffs, isn't it. On Tuesday, President Trump said
he will not offer additional extensions on country specific levies
those set to take effect in early August. Interestingly, though,
Monday evening, Trump said he was not one hundred percent
firm on that deadline. Also today, Trump said he's planning
(00:33):
to implement a fifty percent tariff on imported copper. In
a moment, we'll get the view of former US trade
negotiator Steven Olsen. First, let's bring in Francis Stacy. She's
economic strategist at Scarlett Oak Financial. Francis, thank you so
much for making time to chat with me. When it
comes to trade negotiations, we've already seen two deadlines move.
(00:55):
Perhaps there's the possibility of a new deadline moving as well.
Think it's pretty good illustration of how difficult it is
to get trade deals done. In many cases, it takes months,
if not years, to negotiate. Where are we right now
in this process? Are we nearing an end? I guess
that's the question.
Speaker 3 (01:15):
I think that this deadline moving or deadline shifting has
been very strategic on the part of the Trump administration
because basically what it does is they saw what happened
with the volatility in the equity market, but particularly the
volatility in the bond market around the Liberation Day announcement,
and so what they would like to do is not
(01:35):
create a news event. And so they're trying, in my mind,
to manage market volatility by keeping this sort of an
ever shifting sand and that way the market is not
really able to price it in immediately whatever the eventual
outcome is, and I believe it's just literally to reduce
market and bond market volatility in addition to the fact,
(01:57):
as you say, it doesn't happen overnight.
Speaker 2 (02:00):
One of the things that was a little surprising today
perhaps for the market was the President saying that he
plans to implement a fifty percent tariff on imported copper.
What does that mean? Are we going to be looking
at a higher tariff rate for copper? No matter what
the rate may be up for debate, but we're looking
at higher taxes on imported copper?
Speaker 3 (02:21):
Yes, I mean, goodness if he sticks with that. I mean,
the thing about copper that's most notable is it's gone
up six point four percent in the last month, and
it's on the rise alongside other commodities, and so yeah,
if that sticks, you're definitely going to see those prices
continue to go up. And then that sort of circles
us back around to this conversation about the FED and inflation.
(02:43):
Is it a one time price adjustment? Is it a
multi time price adjustment? And then you look at things
like copper and other commodities where they have several places
in supply chains, and then you kind of have to
go there's a concatenation of events that occurs which could
end up being, you know, have multiple price hikes even
though it's supposedly a one time adjustment, and all of
(03:06):
this is speculation, so it just remains to be seen.
But copper prices are moving higher in addition to silver
prices and oil prices, and so the biggest thing that
we look like we're having right now is potentially a
recceleration of inflation.
Speaker 2 (03:19):
You know, coming into this third quarter, the term stagflation
comes to mind. Is that really what you're describing the
threat of weaker growth and persistently higher prices.
Speaker 3 (03:30):
It looks that way. It looks that way. And even
if you look at the jobs numbers, you know, you've
got to that was positive, which then you know, gives
the Fed an excuse to delay their you know movement,
delay cutting rates, you know, continue their pause. Trump's got
sort of a war going on with Powell publicly, and
but if you look under the hood, you see you know,
(03:51):
seasonal adjustments, you see government employees, you see various little things.
So the Fed is probably going to wait until the
labor market cracks. Meaning but yeah, I mean it's it's hard.
Trump wants some to lower rates. We understand why Yellen
issued all those bills. They're coming up for maturity. He's
got to re you know, liquefy the economy since fiscal
(04:13):
stimulus is basically this has been the source of liquidity
since the FED started reducing the FED balance sheet due
to quantitative tightening. And yeah, with rates higher, I think
Trump came out publicly and said that's going to cost
everybody nine hundred billion dollars. And we have a fiscal situation.
So he is in a very bad position. He's serving
(04:34):
multiple masters. And I would and I would say Powell
is in just as bad of a position.
Speaker 2 (04:39):
So you mentioned the fiscal position that takes us to
the Big Beautiful Bill which is now law, and the
CBO estimating that over the next decade that will add
around three point four trillion to the deficit. Low and
behold we hear from the Treasury Secretary of today saying,
wait a minute, we could see over three hundred billion
dollars of new money coming in to the coffers for
(05:00):
the US Treasury. Do we need to consider the financial
impact of tariffs when we're talking about the deficit?
Speaker 4 (05:07):
Now?
Speaker 3 (05:10):
Certainly what's interesting is when okay, so I'm sure you're
familiar with Ray Dalio coming out and giving these sort
of warnings that we have to get our debt to GDP,
I mean, our deficit to GDP ratio down to about
three and a half percent, otherwise we're going to fall
off of a debt cliff. If you reverse engineer the
math from Liberation Day, the nebulous math that was presented,
(05:34):
you actually effectively do that with last year's trade numbers.
So now we've moved off of the rates from Liberation Day.
But yes, they are hoping to quote unquote grow ourselves
out of that deficit and out of that dire warning
from Ray Dalio. So that's and trade revenue is obviously
going to assist with that. Trade revenue is sort of
(05:55):
a justification for the big beautiful bill that's now law,
and as you say, project deficits going forward. And I
think this was some of the consternation potentially behind the
scenes with Elon Musk. Elon Musk was sort of an absolutist.
You have to, you know, you know, make massive fiscal cuts.
But the whole catch twenty two here is fiscal was
(06:17):
providing the liquidity in the system after the Fed raised
rates and started reducing their balance sheet. And so you
can't just reduce fiscal too drastically because you remove the
liquidity for the system and then incidentally that you know
that increases credit risk.
Speaker 2 (06:34):
Let's talk about the difficult position that corporate America is in.
Goldman Sachs saying today that companies will have to adjust
their cost savings and pricing strategy to offset the impact
of tariffs. So when you look at margins, now, are
you concerned about margin compression in a meaningful way?
Speaker 3 (06:55):
So again, the Trump administration with the sort of shifting
sands on these deadlines and what the ultimate numbers are
going to be I mean, you know, any Wall Street
practitioner wants hard numbers to put into that, you know,
discounted cash flow calculator on any asset. Same goes for margins,
same goes for any fundamental analysis. And I think companies
(07:16):
are going to do the best that they can to
preemptively plan for the worst case scenario. But it depends
on their sector, depends on their consumer and how much
their consumer can bear because consumers are stretched, and we
can see that with credit card debt. We can see
that with the interest rates on credit card debt. And
you know, we've had an inflection point in defaults. It
(07:39):
hasn't hit a systemic level yet, but yeah, I think
I think corporations have a time They're probably going to
plan for the worst.
Speaker 2 (07:49):
Where does that leave you with the equity market? Are
you constructive?
Speaker 3 (07:53):
I'm constructive. What I found most fascinating was when the
market sold off earlier this year, it departed measurably from
the M two money stock, which is the liquidity. So
the S and P five hundred is very correlated with that,
and I thought, okay, so either the liquidity is going
to come down and marry the s and P or
the s and P is going to go back up
(08:14):
and marry the liquidity. The SMP went back up, now
the liquidity is dropping out of the system again, so
we'll have to wait and see what that is. What
I find most fascinating right now is historical correlations versus
what's occurring now. And for instance, the US dollar has
a massively negative correlation to the SPX, to bitcoin we
learned that bitcoin was not gold during this sell off,
(08:37):
and then to the CRB index, So I think that
that is a fascinating thing to watch. I think the
correlation between the SMP and liquidity in the system the
M two is important to watch because either you're dealing
with historical cycles and they will play out as they
have historically, or the mechanics behind the scenes with dedollarization
(09:00):
and other things going on around these trade deals are
going to start to break down. And I think the
early indicators of where these mechanics break down is you're
going to see it in correlations doing very strange things.
And so that's what I'm going to continue to watch.
As far as the equity markets until they have a catalyst,
there's a lot of upward momentum, and so I don't
(09:23):
see that being interrupted.
Speaker 2 (09:24):
It seems like you're a little dubious that we're going
to get two rate cuts this year.
Speaker 3 (09:29):
Well, hard to say. Hard to say. I think if
inflation reaccelerates, which I think is possible based on the
fact that these commodities prices are moving higher at the moment,
then potentially not and then Trump is baiting Powell like crazy,
So you know, doesn't that incentivize Powell to kind of
(09:51):
hold his ground in some kind of a power struggle there.
I think that's an interesting strategy.
Speaker 2 (09:57):
Where are you in terms of looking at ertunities offshore
right now? Let's stay first in the equity space. Are
there places that you would rather be other than the
US right now? If you had to put on an
equity trade.
Speaker 3 (10:12):
I think growth and inflation is going to broadly continue
to expand in Europe and other countries where I think
that we're going to start to have a deceleration of
growth in the US. So again, those markets are already up,
those trades are already in. But I think that's what
I'm going to be watching. You know, some other countries
(10:34):
are doing better, you know, coming out of their sovereign
debt crises, you know, Argentina being one of them watching
those things, watching the bond yields. So I can't say definitively,
but at some point in time there's going to be
extra volatility in the US markets, and I think that
the global markets, who have all the same fiscal issues,
(10:55):
all the same debt issues, are going to maybe be
a little more able and a little bit more attractive
to investors. But again be tactical because the variables can
change with a truth social or a tweet or something
that comes out quickly.
Speaker 2 (11:11):
Fair point that said, would you be surprised if we
had ten percent pulled back in the equity market here
in the US.
Speaker 3 (11:18):
No, And if you look at the M two money
stock again that's pulled off. And so for that reason alone,
I wouldn't be surprised. And if he's really you know,
he's now saying that he will not move the deadlines anymore,
and August first is absolutely it. If those if the
trade deals don't come in favorably, you know the market's
(11:42):
opinion about that, then yeah, I could see a lot
of heightened volatility come back into equities and also into bonds.
Speaker 2 (11:48):
Francis before I let you go, can we talk a
little bit about the fixed income space and the advice
that you're giving clients if they want to be exposed
to the bond market right now. And I'm wondering whether
not the safe place is kind of the belly of
the curve.
Speaker 3 (12:04):
Well, I'm limited of it here by compliance, but I
will just generally say, uh, yes, obviously, you know that
is where people are hanging out, because again, you have
a curve that steepening. Is it going to end up
being more of a bull steepener or a bear steepener When
you have the steep the re steepening after a massive inversion,
which we had, you know, almost a record inversion for
(12:25):
almost a record amount of time, I think the great
depression is right there with it, and you come into
the re steepening. That's usually when you see your credit issues, right,
And so hanging out sort of in the belly of
the curve, uh, is what some practitioners are saying. I
think at the moment, we are just staying the course.
What's working is working, and we will be kind of
(12:46):
staying the course and looking at the momentum until there
is a catalyst for something to change, and I think
the markets are probably just going to wait and see
what the shoe what shoe drops, and then they're going
to price it in very violently. But I really see
until we get some certainty or some specific numbers to
punch into the calculator that you know, markets are going
(13:09):
to stay up. Now looking at gold, you know, is
the bull run for gold over? Are we buying the
dips on gold? Well? Again, historic correlations. You know, gold
has a negative correlation with real rates. Is that going
to hold? Is that not going to hold? The fundamental
case for gold is really strong. Bloomberg reported today that
Tether has eight billion of gold stuck in some vault
(13:32):
in Switzerland because now that the prominence of the US
dollar is a little bit in flux as these trade
negotiations go on and the dollars falling, you know, there
really is a flight to gold, which is really interesting.
So just watching these correlations for early indicators, but for
the moment, staying the course.
Speaker 2 (13:49):
Francis will leave it there, Thank you so very much.
Francis Stacey, economic strategist at Scarlet Oak Financial, joining us
here on the Daybreak Asia Podcast. Welcome back to the
Daybreak Asia Podcast. I'm Deuk Krisner. So President Trump is
(14:09):
vowed to push forward with his aggressive tariff regime, and
for some analysis, we spoke with former US trade negotiator
Stephen Olsen. Steven spoke to Bloomberg s sherry On and
Heidi Stroud Watts. Sherry asked the first question as to
whether or not we've got more clarity about where we're going.
Speaker 4 (14:27):
Well, to be honest, I don't think anything has really
fundamentally changed over the course of the past day or so.
We've still got a bookload of tariffs, in some cases
a substantial tariff scheduled or threatened to go into effect
at some point in the future, and we've still got
a long line of countries lined up trying to strike
(14:49):
trade agreements to alleviate those talks. Now, what I think
has come into sharper focus is that the United States
perhaps was a little bit overconfident entering these negotiations. You
recall that we initially heard a lot of talk about
quote unquote ninety deals in ninety days. Well we're at
the end of ninety days and we've got a grand
(15:11):
total of two deals done, eighty eight still pending.
Speaker 1 (15:18):
Not just overconfidence but the fact that perhaps the goal
of these trade negotiations might be shifting for even Washington,
because if you take a look at all of the
trade negotiations, we thought that one with India was actually
going pretty well, and now you have threats of tariffs
on bricks nations. How does this vote for negotiating partners well, well, exactly.
Speaker 4 (15:42):
These extraneous factors can pop in at any time. All
of the mood music around the prospects for an India
agreement were very positive, and then we got a late
Sunday night, I believe it was social media posts from
the President rallying against bricks and threading an extra ten percent,
which which could derail those talks for the countries, particularly
(16:05):
in the Aussion region. The other extraneous factor is their
relationship with China, because it's becoming increasingly clear that the
United States is using these negotiations to really put pressure
on these countries to try to squeeze China out of
their supply chain. So that's an additional complication for these negotiations.
Speaker 5 (16:28):
You just touched on the issue of transhipments, right, which
has been sort of a real key focus for President Trump.
Is there anything that these Southeast Asian nausea. Nations can
do substantively to be able to change that dynamic.
Speaker 4 (16:43):
Well, look, certainly they can step up enforcement on illegal transhipments.
This is a case where a product enters Vietnam, for instance,
from China, and the customs documentation is fraudulently altered to
to convey Vietnamese country of origin status. Now that's flat
(17:05):
out fraud, it's flat out illegal, and so some enhanced
procedures to crack down on those practices certainly could move
the dial at least a little bit.
Speaker 5 (17:18):
The really havehazard nature of the way that President Trump
releases the news and you know, makes these headlines. We
just had a post on social media saying that they'll
be releasing a minimum of seven countries having to do
with trade, with an additional number of countries being released
in the afternoon. I assume that means sort of an
(17:39):
update on a minimum of seven countries when it comes
to trade. We've had conflicting news as to you know,
whether July ninth was a true deadline, whether it could
be extended. It's now being extended. Could August now also
be flexible as well? Do you think this sort of
piecemeal approach is helpful for other nations because you raise
the point, at what point do these counterparties just think, well,
(18:01):
what's the actual point in trying to negotiate when everything
is just constantly up in the air.
Speaker 4 (18:07):
No, I don't think it's helpful, And I think you
used a fairly generous and kind word referring to the
approach as being haphazard. It's been even more discombobulated than that.
And at a certain point countries start wondering, Look, if
the goalposts are constantly being moved, if extraneous issues are
(18:27):
constantly being dragged in, and if we never know if
a deadline is a real deadline or not. At what
point the country start to question the point of engaging
in the process.
Speaker 1 (18:40):
And when does the American public also start questioning the negotiations.
When you were part of the negotiating team for NAFTA,
was that something that you had to perhaps keep an
eye on on how this would affect actual American people
because all of these tariffs will eventually translate to higher
prices for these consumers.
Speaker 4 (18:59):
Busy this community, yes, general public at large, to a
lesser extent, Typically you won't see the American public getting
engaged on trade issues unlesser until it starts to hit
them in the pocketbook, and that will be a little
bit further down the line.
Speaker 5 (19:17):
There's this idea that transtwer policy has the intention of
reshaping global trade, the contours of global trade. Right, But
even the agreements, if you can call them that, that we've
gotten so far have really just been broad frameworks or
sort of more MOUs even just sort of handshake agreements.
Can we truly say that whatever is achieved is going
to change the trajectory of the global trading system?
Speaker 4 (19:41):
I don't think so. I mean, for any trade agreement,
the devil always lies in the details, and as you
pointed out, in all of the agreements we've seen thus far,
there are virtually no details, and beyond that, a number
of issues. In many cases the most important and the
most difficult issues, require further negotiation. So what any of
(20:04):
these agreements ultimately end up looking like could be quite
different from what we see today, or in the worst
case scenario, some of these quote unquote deals could actually unraveled.
Speaker 1 (20:17):
Is that going to be potentially the case with the
Geneva framework agreed with China? And will President Trump still
have the political capital in order to go back to
the negotiating table.
Speaker 4 (20:30):
Well, it's certainly going to be tough sledding With China.
We saw an additional round of meetings necessitated to take
place in London just to sort of reiterate what they
thought had already previously been agreed in Geneva. If that's
the case moving forward, these are going to be long
and arduous negotiations. But keep in mind the issues between
(20:51):
the United States are deep, structural and fundamental and are
not going to be resolved in a number of weeks
or number of months.
Speaker 5 (21:01):
The point that Sherry just mentioned in terms of political
capital is an interesting one because I also wonder in
your experience as a trade negotiated is it sort of
commonplace for trade issues to be rolled up also with
sort of broader issues in terms of geostrategic alliance in
terms of broader diplomatic relationships, because you see these terse
(21:23):
relations when it comes to trade with key security allies
like South Korea, like Japan in this part of the world,
huge implications for the Indo Pacific. Do you think that
side is going to be damaged when they can't even
reach an agreement or compromise on trade.
Speaker 4 (21:39):
This is a new sort of innovation, if you will,
introduced into trade policy by President Trump. When I was
a trade negotiator, the thought that we would be discussing
with our Canadian and Mexican colleagues bentanyl or illegal immigration
would have been astounding and mind boggling to us. Trump's
approach is everything is on the table, and this is
(22:01):
very much of a different approach and is going to
complicate things significantly.
Speaker 5 (22:07):
Steven, really great to have you with Stephen Olson, visiting
Senior Fellow at the Assis Use of Ishak Institute.
Speaker 2 (22:15):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
(22:37):
and Australia. I'm Doug Chrisner, and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's
all about tariffs, isn't it. On Tuesday, President Trump said
he will not offer additional extensions on country specific levies
those set to take effect in early August. Interestingly, though,
Monday evening, Trump said he was not one hundred percent
firm on that deadline. Also today, Trump said he's planning
(00:33):
to implement a fifty percent tariff on imported copper. In
a moment, we'll get the view of former US trade
negotiator Steven Olsen. First, let's bring in Francis Stacy. She's
economic strategist at Scarlett Oak Financial. Francis, thank you so
much for making time to chat with me. When it
comes to trade negotiations, we've already seen two deadlines move.
(00:55):
Perhaps there's the possibility of a new deadline moving as well.
Think it's pretty good illustration of how difficult it is
to get trade deals done. In many cases, it takes months,
if not years, to negotiate. Where are we right now
in this process? Are we nearing an end? I guess
that's the question.
Speaker 3 (01:15):
I think that this deadline moving or deadline shifting has
been very strategic on the part of the Trump administration
because basically what it does is they saw what happened
with the volatility in the equity market, but particularly the
volatility in the bond market around the Liberation Day announcement,
and so what they would like to do is not
(01:35):
create a news event. And so they're trying, in my mind,
to manage market volatility by keeping this sort of an
ever shifting sand and that way the market is not
really able to price it in immediately whatever the eventual
outcome is, and I believe it's just literally to reduce
market and bond market volatility in addition to the fact,
(01:57):
as you say, it doesn't happen overnight.
Speaker 2 (02:00):
One of the things that was a little surprising today
perhaps for the market was the President saying that he
plans to implement a fifty percent tariff on imported copper.
What does that mean? Are we going to be looking
at a higher tariff rate for copper? No matter what
the rate may be up for debate, but we're looking
at higher taxes on imported copper?
Speaker 3 (02:21):
Yes, I mean, goodness if he sticks with that. I mean,
the thing about copper that's most notable is it's gone
up six point four percent in the last month, and
it's on the rise alongside other commodities, and so yeah,
if that sticks, you're definitely going to see those prices
continue to go up. And then that sort of circles
us back around to this conversation about the FED and inflation.
(02:43):
Is it a one time price adjustment? Is it a
multi time price adjustment? And then you look at things
like copper and other commodities where they have several places
in supply chains, and then you kind of have to
go there's a concatenation of events that occurs which could
end up being, you know, have multiple price hikes even
though it's supposedly a one time adjustment, and all of
(03:06):
this is speculation, so it just remains to be seen.
But copper prices are moving higher in addition to silver
prices and oil prices, and so the biggest thing that
we look like we're having right now is potentially a
recceleration of inflation.
Speaker 2 (03:19):
You know, coming into this third quarter, the term stagflation
comes to mind. Is that really what you're describing the
threat of weaker growth and persistently higher prices.
Speaker 3 (03:30):
It looks that way. It looks that way. And even
if you look at the jobs numbers, you know, you've
got to that was positive, which then you know, gives
the Fed an excuse to delay their you know movement,
delay cutting rates, you know, continue their pause. Trump's got
sort of a war going on with Powell publicly, and
but if you look under the hood, you see you know,
(03:51):
seasonal adjustments, you see government employees, you see various little things.
So the Fed is probably going to wait until the
labor market cracks. Meaning but yeah, I mean it's it's hard.
Trump wants some to lower rates. We understand why Yellen
issued all those bills. They're coming up for maturity. He's
got to re you know, liquefy the economy since fiscal
(04:13):
stimulus is basically this has been the source of liquidity
since the FED started reducing the FED balance sheet due
to quantitative tightening. And yeah, with rates higher, I think
Trump came out publicly and said that's going to cost
everybody nine hundred billion dollars. And we have a fiscal situation.
So he is in a very bad position. He's serving
(04:34):
multiple masters. And I would and I would say Powell
is in just as bad of a position.
Speaker 2 (04:39):
So you mentioned the fiscal position that takes us to
the Big Beautiful Bill which is now law, and the
CBO estimating that over the next decade that will add
around three point four trillion to the deficit. Low and
behold we hear from the Treasury Secretary of today saying,
wait a minute, we could see over three hundred billion
dollars of new money coming in to the coffers for
(05:00):
the US Treasury. Do we need to consider the financial
impact of tariffs when we're talking about the deficit?
Speaker 4 (05:07):
Now?
Speaker 3 (05:10):
Certainly what's interesting is when okay, so I'm sure you're
familiar with Ray Dalio coming out and giving these sort
of warnings that we have to get our debt to GDP,
I mean, our deficit to GDP ratio down to about
three and a half percent, otherwise we're going to fall
off of a debt cliff. If you reverse engineer the
math from Liberation Day, the nebulous math that was presented,
(05:34):
you actually effectively do that with last year's trade numbers.
So now we've moved off of the rates from Liberation Day.
But yes, they are hoping to quote unquote grow ourselves
out of that deficit and out of that dire warning
from Ray Dalio. So that's and trade revenue is obviously
going to assist with that. Trade revenue is sort of
(05:55):
a justification for the big beautiful bill that's now law,
and as you say, project deficits going forward. And I
think this was some of the consternation potentially behind the
scenes with Elon Musk. Elon Musk was sort of an absolutist.
You have to, you know, you know, make massive fiscal cuts.
But the whole catch twenty two here is fiscal was
(06:17):
providing the liquidity in the system after the Fed raised
rates and started reducing their balance sheet. And so you
can't just reduce fiscal too drastically because you remove the
liquidity for the system and then incidentally that you know
that increases credit risk.
Speaker 2 (06:34):
Let's talk about the difficult position that corporate America is in.
Goldman Sachs saying today that companies will have to adjust
their cost savings and pricing strategy to offset the impact
of tariffs. So when you look at margins, now, are
you concerned about margin compression in a meaningful way?
Speaker 3 (06:55):
So again, the Trump administration with the sort of shifting
sands on these deadlines and what the ultimate numbers are
going to be I mean, you know, any Wall Street
practitioner wants hard numbers to put into that, you know,
discounted cash flow calculator on any asset. Same goes for margins,
same goes for any fundamental analysis. And I think companies
(07:16):
are going to do the best that they can to
preemptively plan for the worst case scenario. But it depends
on their sector, depends on their consumer and how much
their consumer can bear because consumers are stretched, and we
can see that with credit card debt. We can see
that with the interest rates on credit card debt. And
you know, we've had an inflection point in defaults. It
(07:39):
hasn't hit a systemic level yet, but yeah, I think
I think corporations have a time They're probably going to
plan for the worst.
Speaker 2 (07:49):
Where does that leave you with the equity market? Are
you constructive?
Speaker 3 (07:53):
I'm constructive. What I found most fascinating was when the
market sold off earlier this year, it departed measurably from
the M two money stock, which is the liquidity. So
the S and P five hundred is very correlated with that,
and I thought, okay, so either the liquidity is going
to come down and marry the s and P or
the s and P is going to go back up
(08:14):
and marry the liquidity. The SMP went back up, now
the liquidity is dropping out of the system again, so
we'll have to wait and see what that is. What
I find most fascinating right now is historical correlations versus
what's occurring now. And for instance, the US dollar has
a massively negative correlation to the SPX, to bitcoin we
learned that bitcoin was not gold during this sell off,
(08:37):
and then to the CRB index, So I think that
that is a fascinating thing to watch. I think the
correlation between the SMP and liquidity in the system the
M two is important to watch because either you're dealing
with historical cycles and they will play out as they
have historically, or the mechanics behind the scenes with dedollarization
(09:00):
and other things going on around these trade deals are
going to start to break down. And I think the
early indicators of where these mechanics break down is you're
going to see it in correlations doing very strange things.
And so that's what I'm going to continue to watch.
As far as the equity markets until they have a catalyst,
there's a lot of upward momentum, and so I don't
(09:23):
see that being interrupted.
Speaker 2 (09:24):
It seems like you're a little dubious that we're going
to get two rate cuts this year.
Speaker 3 (09:29):
Well, hard to say. Hard to say. I think if
inflation reaccelerates, which I think is possible based on the
fact that these commodities prices are moving higher at the moment,
then potentially not and then Trump is baiting Powell like crazy,
So you know, doesn't that incentivize Powell to kind of
(09:51):
hold his ground in some kind of a power struggle there.
I think that's an interesting strategy.
Speaker 2 (09:57):
Where are you in terms of looking at ertunities offshore
right now? Let's stay first in the equity space. Are
there places that you would rather be other than the
US right now? If you had to put on an
equity trade.
Speaker 3 (10:12):
I think growth and inflation is going to broadly continue
to expand in Europe and other countries where I think
that we're going to start to have a deceleration of
growth in the US. So again, those markets are already up,
those trades are already in. But I think that's what
I'm going to be watching. You know, some other countries
(10:34):
are doing better, you know, coming out of their sovereign
debt crises, you know, Argentina being one of them watching
those things, watching the bond yields. So I can't say definitively,
but at some point in time there's going to be
extra volatility in the US markets, and I think that
the global markets, who have all the same fiscal issues,
(10:55):
all the same debt issues, are going to maybe be
a little more able and a little bit more attractive
to investors. But again be tactical because the variables can
change with a truth social or a tweet or something
that comes out quickly.
Speaker 2 (11:11):
Fair point that said, would you be surprised if we
had ten percent pulled back in the equity market here
in the US.
Speaker 3 (11:18):
No, And if you look at the M two money
stock again that's pulled off. And so for that reason alone,
I wouldn't be surprised. And if he's really you know,
he's now saying that he will not move the deadlines anymore,
and August first is absolutely it. If those if the
trade deals don't come in favorably, you know the market's
(11:42):
opinion about that, then yeah, I could see a lot
of heightened volatility come back into equities and also into bonds.
Speaker 2 (11:48):
Francis before I let you go, can we talk a
little bit about the fixed income space and the advice
that you're giving clients if they want to be exposed
to the bond market right now. And I'm wondering whether
not the safe place is kind of the belly of
the curve.
Speaker 3 (12:04):
Well, I'm limited of it here by compliance, but I
will just generally say, uh, yes, obviously, you know that
is where people are hanging out, because again, you have
a curve that steepening. Is it going to end up
being more of a bull steepener or a bear steepener When
you have the steep the re steepening after a massive inversion,
which we had, you know, almost a record inversion for
(12:25):
almost a record amount of time, I think the great
depression is right there with it, and you come into
the re steepening. That's usually when you see your credit issues, right,
And so hanging out sort of in the belly of
the curve, uh, is what some practitioners are saying. I
think at the moment, we are just staying the course.
What's working is working, and we will be kind of
(12:46):
staying the course and looking at the momentum until there
is a catalyst for something to change, and I think
the markets are probably just going to wait and see
what the shoe what shoe drops, and then they're going
to price it in very violently. But I really see
until we get some certainty or some specific numbers to
punch into the calculator that you know, markets are going
(13:09):
to stay up. Now looking at gold, you know, is
the bull run for gold over? Are we buying the
dips on gold? Well? Again, historic correlations. You know, gold
has a negative correlation with real rates. Is that going
to hold? Is that not going to hold? The fundamental
case for gold is really strong. Bloomberg reported today that
Tether has eight billion of gold stuck in some vault
(13:32):
in Switzerland because now that the prominence of the US
dollar is a little bit in flux as these trade
negotiations go on and the dollars falling, you know, there
really is a flight to gold, which is really interesting.
So just watching these correlations for early indicators, but for
the moment, staying the course.
Speaker 2 (13:49):
Francis will leave it there, Thank you so very much.
Francis Stacey, economic strategist at Scarlet Oak Financial, joining us
here on the Daybreak Asia Podcast. Welcome back to the
Daybreak Asia Podcast. I'm Deuk Krisner. So President Trump is
(14:09):
vowed to push forward with his aggressive tariff regime, and
for some analysis, we spoke with former US trade negotiator
Stephen Olsen. Steven spoke to Bloomberg s sherry On and
Heidi Stroud Watts. Sherry asked the first question as to
whether or not we've got more clarity about where we're going.
Speaker 4 (14:27):
Well, to be honest, I don't think anything has really
fundamentally changed over the course of the past day or so.
We've still got a bookload of tariffs, in some cases
a substantial tariff scheduled or threatened to go into effect
at some point in the future, and we've still got
a long line of countries lined up trying to strike
(14:49):
trade agreements to alleviate those talks. Now, what I think
has come into sharper focus is that the United States
perhaps was a little bit overconfident entering these negotiations. You
recall that we initially heard a lot of talk about
quote unquote ninety deals in ninety days. Well we're at
the end of ninety days and we've got a grand
(15:11):
total of two deals done, eighty eight still pending.
Speaker 1 (15:18):
Not just overconfidence but the fact that perhaps the goal
of these trade negotiations might be shifting for even Washington,
because if you take a look at all of the
trade negotiations, we thought that one with India was actually
going pretty well, and now you have threats of tariffs
on bricks nations. How does this vote for negotiating partners well, well, exactly.
Speaker 4 (15:42):
These extraneous factors can pop in at any time. All
of the mood music around the prospects for an India
agreement were very positive, and then we got a late
Sunday night, I believe it was social media posts from
the President rallying against bricks and threading an extra ten percent,
which which could derail those talks for the countries, particularly
(16:05):
in the Aussion region. The other extraneous factor is their
relationship with China, because it's becoming increasingly clear that the
United States is using these negotiations to really put pressure
on these countries to try to squeeze China out of
their supply chain. So that's an additional complication for these negotiations.
Speaker 5 (16:28):
You just touched on the issue of transhipments, right, which
has been sort of a real key focus for President Trump.
Is there anything that these Southeast Asian nausea. Nations can
do substantively to be able to change that dynamic.
Speaker 4 (16:43):
Well, look, certainly they can step up enforcement on illegal transhipments.
This is a case where a product enters Vietnam, for instance,
from China, and the customs documentation is fraudulently altered to
to convey Vietnamese country of origin status. Now that's flat
(17:05):
out fraud, it's flat out illegal, and so some enhanced
procedures to crack down on those practices certainly could move
the dial at least a little bit.
Speaker 5 (17:18):
The really havehazard nature of the way that President Trump
releases the news and you know, makes these headlines. We
just had a post on social media saying that they'll
be releasing a minimum of seven countries having to do
with trade, with an additional number of countries being released
in the afternoon. I assume that means sort of an
(17:39):
update on a minimum of seven countries when it comes
to trade. We've had conflicting news as to you know,
whether July ninth was a true deadline, whether it could
be extended. It's now being extended. Could August now also
be flexible as well? Do you think this sort of
piecemeal approach is helpful for other nations because you raise
the point, at what point do these counterparties just think, well,
(18:01):
what's the actual point in trying to negotiate when everything
is just constantly up in the air.
Speaker 4 (18:07):
No, I don't think it's helpful, And I think you
used a fairly generous and kind word referring to the
approach as being haphazard. It's been even more discombobulated than that.
And at a certain point countries start wondering, Look, if
the goalposts are constantly being moved, if extraneous issues are
(18:27):
constantly being dragged in, and if we never know if
a deadline is a real deadline or not. At what
point the country start to question the point of engaging
in the process.
Speaker 1 (18:40):
And when does the American public also start questioning the negotiations.
When you were part of the negotiating team for NAFTA,
was that something that you had to perhaps keep an
eye on on how this would affect actual American people
because all of these tariffs will eventually translate to higher
prices for these consumers.
Speaker 4 (18:59):
Busy this community, yes, general public at large, to a
lesser extent, Typically you won't see the American public getting
engaged on trade issues unlesser until it starts to hit
them in the pocketbook, and that will be a little
bit further down the line.
Speaker 5 (19:17):
There's this idea that transtwer policy has the intention of
reshaping global trade, the contours of global trade. Right, But
even the agreements, if you can call them that, that we've
gotten so far have really just been broad frameworks or
sort of more MOUs even just sort of handshake agreements.
Can we truly say that whatever is achieved is going
to change the trajectory of the global trading system?
Speaker 4 (19:41):
I don't think so. I mean, for any trade agreement,
the devil always lies in the details, and as you
pointed out, in all of the agreements we've seen thus far,
there are virtually no details, and beyond that, a number
of issues. In many cases the most important and the
most difficult issues, require further negotiation. So what any of
(20:04):
these agreements ultimately end up looking like could be quite
different from what we see today, or in the worst
case scenario, some of these quote unquote deals could actually unraveled.
Speaker 1 (20:17):
Is that going to be potentially the case with the
Geneva framework agreed with China? And will President Trump still
have the political capital in order to go back to
the negotiating table.
Speaker 4 (20:30):
Well, it's certainly going to be tough sledding With China.
We saw an additional round of meetings necessitated to take
place in London just to sort of reiterate what they
thought had already previously been agreed in Geneva. If that's
the case moving forward, these are going to be long
and arduous negotiations. But keep in mind the issues between
(20:51):
the United States are deep, structural and fundamental and are
not going to be resolved in a number of weeks
or number of months.
Speaker 5 (21:01):
The point that Sherry just mentioned in terms of political
capital is an interesting one because I also wonder in
your experience as a trade negotiated is it sort of
commonplace for trade issues to be rolled up also with
sort of broader issues in terms of geostrategic alliance in
terms of broader diplomatic relationships, because you see these terse
(21:23):
relations when it comes to trade with key security allies
like South Korea, like Japan in this part of the world,
huge implications for the Indo Pacific. Do you think that
side is going to be damaged when they can't even
reach an agreement or compromise on trade.
Speaker 4 (21:39):
This is a new sort of innovation, if you will,
introduced into trade policy by President Trump. When I was
a trade negotiator, the thought that we would be discussing
with our Canadian and Mexican colleagues bentanyl or illegal immigration
would have been astounding and mind boggling to us. Trump's
approach is everything is on the table, and this is
(22:01):
very much of a different approach and is going to
complicate things significantly.
Speaker 5 (22:07):
Steven, really great to have you with Stephen Olson, visiting
Senior Fellow at the Assis Use of Ishak Institute.
Speaker 2 (22:15):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
(22:37):
and Australia. I'm Doug Chrisner, and this is Bloomberg
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