July 27, 2025 • 18 mins
Stock-index futures climbed after the European Union struck a deal with President Donald Trump that will see the bloc face 15% tariffs on most exports, averting a potentially damaging trade war. S&P 500 contracts rose 0.4% and those for European stocks jumped 1%. The euro was slightly stronger against the dollar after the US-EU deal. Asian shares fluctuated at the open as Japanese equities declined 0.4%. Treasuries dipped slightly with yields on the 10-year gaining one basis point to 4.4%. Gold edged lower and oil was marginally higher. Investors are bracing for a busy week of data - including meetings of the Federal Reserve and the Bank of Japan - and earnings from megacap companies that could set the tone for the rest of the year in markets and the economy. Stocks have risen from their slump in April as investors speculate the US will strike trade deals with countries and that will help avoid significant damage to company earnings and the global economy. We preview the trading week ahead with Clark Geranen, Chief Market Strategist at CalBay Investments.
Plus - Australia and the UK signed a landmark 50-year defense treaty on Saturday to underpin the construction of nuclear-powered submarines, senior ministers from both nations said. Both sides stressed that the treaty doesn't impact the AUKUS security partnership between Australia, the UK and the US - currently under review by the Trump administration. For a closer look, we speak with Paul Allen, Australia Correspondent for Bloomberg Television.
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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 Krisner. This
Friday is when President Trump's higher reciprocal tariffs are set
to take effect for those countries without trade agreements. Well
ahead of that deadline, the US and the European Union
did reach a deal. Here's President Trump.
Speaker 3 (00:27):
We are agreeing that the tariff straight across for automobiles
and everything else will be a straight across tariff of
fifteen percent.
Speaker 2 (00:40):
President Trump went on to say the deal did not
include pharmaceuticals and medals, and he said the tariff on
steel and aluminum will stay the way it is, that's
fifty percent. Also, as a part of this deal, the
EU agreed to buy seven hundred and fifty billion dollars
in US energy and to invest six hundred billion dollars
in the US on time of existing investments. We're also
(01:02):
tracking a treaty between Australia and the UK to bolster
cooperation on the August Nuclear Submarine partnership. In a moment,
I'll be joined by Bloomberg Australia correspondent Paul Allen. But
we begin with markets. Certainly a lot to digest. In
the coming week, we have earnings from megacap tech, there's
the US jobs data do at the end of the weekend.
(01:23):
Most importantly midweek, it's the FED meeting. Let's take a
closer look now. Joining me is Clark Garnon. He is
the chief market strategist at Calba Investments. Joining from the
San Francisco Bay Area. Clark, thank you so much for
joining me. This week is going to be the season's
busiest week for earnings. I think we have over forty
percent of companies in the S and P five hundred
(01:45):
due to report Microsoft Meta Wednesday. We get Apple and
Amazon on Thursday. How are you feeling right now about
the quality of earnings from big cap tech.
Speaker 1 (01:54):
We're feeling very positive.
Speaker 4 (01:56):
I think even this week we saw some great earnings
come out and beating expectations, and so we're expecting to
see the same. I mean, thankfully, with the news that
came out today between the United States and the EU,
I think that's just going to continue to push US markets.
Speaker 2 (02:13):
In terms of artificial intelligence being a big part of
this megacap tech story, is there something that you're going
to be looking for in particular, Maybe not so much
on what has been reported for Q two, but the
guidance on capex going forward.
Speaker 4 (02:29):
The capex guidance is probably the number one thing that
I'm going to be looking at, just because over the
past few months there is so much uncertainty between tariffs
to a political et cetera, that guidance was murky. You know,
some companies were even coming out with multiple options as
to their potential earnings. But now I think that there's
(02:49):
so much more clarity. I think companies are able to
provide a better guidance, and so I think that's important.
And just seeing that the capex numbers are not reduced
and are continuing to grow, that's really going to be
what's most important.
Speaker 2 (03:04):
So we have record highs now for the S and
P and the Nasdaq as of Friday session, and I'm
looking at a PE for the S and P right
now that's about twenty five times. You're not concerned in
the lease that this market may be a little overextended
and is perhaps a little expensive.
Speaker 1 (03:21):
So I would say.
Speaker 4 (03:22):
That we are concerned with the PE being up around
that twenty five number. I mean, if you do look
at the S and P four ninety three, so excluding
the MAG seven, we're actually closer to about twenty, which
if you're taking a look at internationally, they're right around
nineteen and so we actually feel confident that there has
been some breadth within the S and P five hundred.
(03:45):
You know, equal Weighted is slightly trailing the S and
P five hundred. So we actually feel strongly about the
other companies as well, so not just these MAG seven.
But the thing is with the MAG seven, we have
been seeing these strong earnings. So when you see strong
earnings and they just continue to grow, it is hard
not to discount them.
Speaker 2 (04:07):
Clark, I'm interested to get your take on what you
see in the macro. Right now, we get the jobs
data for the US at the end of the week,
we're only expecting non farm payrolls to rise by about
one hundred and nine thousand for July, maybe a move
up in the unemployment rate to around.
Speaker 1 (04:22):
Four to two.
Speaker 2 (04:24):
Are you concerned about building weakness in the labor market
right now?
Speaker 1 (04:28):
No, we're really not.
Speaker 4 (04:29):
I mean, we've seen that unemployment number holds strong and
we're not expecting to see a difference this week. From
our stance, it's really looking at the rate cuts moving forward.
I mean We've had so many things that we've had
to bounce our focal attention on this year. Unemployment in
rate cuts obviously are the two that the FED are
looking at.
Speaker 1 (04:49):
And I think the pressure has.
Speaker 4 (04:51):
Just been so heavy on the FED and your own
Powell over the past few months to cut rates. I mean,
obviously we've seen some interactions between President Trump and Jerome Powell,
but we actually aren't thinking that there's going to be
a rape cut this week. So we had said from
(05:11):
the beginning of the year that we'd anticipate that more
towards the end of the year, and I think at
this point we are going to see it, probably in September.
Speaker 2 (05:19):
So what might move the FED to reduce rates maybe
as soon as September. Would it be the fact that
they feel confident about inflation remaining under control, or that
there is more deterioration in the labor market that might
cause them to act.
Speaker 4 (05:35):
You know, I think it would be the deterioration in
the labor market, because there really hasn't been any sign
of them cutting based on the inflation, and obviously with
the decision on Wednesday and not fully knowing what those
unemployment numbers are going to be. I just don't see
it happening this week.
Speaker 2 (05:55):
You don't think with everything that we're talking about in
terms of new tariffs fifteen percent coming from European goods
that will be paid by US consumers, whether it's a
business or an individual. We have yet to see a
lot of that trickle down, I guess to the retail level.
But at some point consumers will be asked to maybe
pay a little bit more. And you're not concerned in
(06:15):
the least about the inflationary impact of tariffs.
Speaker 1 (06:19):
No, I think there will be an inflationary impact. I
do think that it'll be more of a one time issue.
Speaker 4 (06:27):
But that being said, I also think that it's a
matter of taking a look at wants versus needs.
Speaker 1 (06:34):
So I think there's going to be certain companies that are.
Speaker 4 (06:36):
Able to thrive and those companies that are more of
needs based. You know, that's just going to be something
that we're going to have to look at, like, for instance,
some of the luxury goods. And this kind of plays
into actually the deal today between the EU and the
United States. Obviously some of those companies hand Daggs, for instance,
(07:01):
we still could see a strong year, you know, some
of those companies Louis Vuitton in particular, have already had
a strong year. But I think between the wants and
the needs, I think people still are going to be purchasing.
Speaker 2 (07:14):
So we have an initial print on GDP DO this
week and expectations that maybe we'll see just a modest
increase in household demand and business investment. How are you
feeling right now about the American consumer? First?
Speaker 4 (07:29):
So, I mean, as the American consumer takes up roughly
two thirds of the GDP, I mean, we feel strongly
that consumer has been resilient.
Speaker 1 (07:36):
I mean, through probably one.
Speaker 4 (07:38):
Of the rockier years that we've had in the last decade,
the resilience of the consumer has been incredible, and so
we really do feel like we're going to rely on
us consumer to keep pushing us forward, and they've done
it so far this year, and I think we're going
to continue to see that.
Speaker 2 (07:54):
So we're getting more of these trade deals done and
with that presumably greater certainty. Do you think the uncertainty
factor in this trade war has kept businesses from deploying
a lot of capital right now? Have they've been very
very cautious in your view?
Speaker 4 (08:09):
Yes, I would say they have been cautious. This has
been the most uncertain that it's been in years. I mean,
even though we saw both equities and bonds go down
double digits in twenty twenty two, I think this year
has felt like a lot more of a shock, especially
to investors. You know, we've had clients that have been
worried out of their mind when their portfolios were maybe
(08:31):
even only down ten percent at the worst. And now
we're looking at markets that are up ten percent for
the year. But all of the uncertainty that we saw
throughout this year, each one of those has really started
to fall off of the table. You know, first it
was the terrorifrist, then it was geopolitical. We even were
worried more about the deficit at a certain point, and
(08:51):
to us, it's really just the rate cuts that's now
left on the table. So with all of these headwinds
falling off, I think we're going to see companies and
individuals feel more comfortable in order to deploy some of
that capital.
Speaker 2 (09:05):
Clark will leave it there. Thank you so much for
joining us, Clark Garrinon. He is the chief market strategist
at Calbay Investments, joining from the Bay Area of San Francisco,
here on the Daybreak Asia podcast. Welcome back to the
Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. Last Friday, Australia
(09:27):
and the UK reached a fifty year defense treaty to
underpin the construction of nuclear powered submarines. For a closer look,
I'm joined by Bloomberg's Paul Allen, joining us from our
studios in Sydney. Paul, it's always a pleasure. It's been
far too long and I'm wondering if you could begin
by just explaining to me how this deal is being framed.
Speaker 5 (09:47):
This sort of fits into August, Doug, but at the
same time stands apart from it, and we can talk
a little bit about August in the moments. But over
the course of the twenty thirties and twenty forties, the
UKA an Australia plan to develop their own class of
nuclear powered submarines, the Shorthand SS and Aucust class subs.
(10:08):
So they'll be spending forty one billion to build up
to a dozen of these submarines in the first one
will be ready by the early twenty forties. They would
be built first in the UK, but then shipbuilding would
moved to Adelaide and South Australia as well, So it's
a jobs, jobs, jobs, high tech jobs at that. The
UK's pretty pleased with this deal as well. It would
be worth twenty seven billion to the UK economy over
(10:30):
the next twenty five years. But also see the United
Kingdom's nuclear submarine fleet expand from seven subs at the
moment to up to twelve. So this is sort of
an effort to really cement this part of UCUS, even
though the US seems to be well is conducting a
review of the broader deal at the moment.
Speaker 2 (10:50):
So talk to me a little bit about the from
your point of view, what you understand to be this
review of the Biden era deal when it comes to
aucas something that the Trump administration has undertaken. Is this
being seen as a potential threat, Yes, it.
Speaker 5 (11:05):
Is, and as with other US policy towards Australia, it's
being met with a mixture of sort of confusion and
trepidation as well, because, as you mentioned, this is a
Biden raror deal and it was unveiled with much fanfare
three years ago and it has already seen Australia contribute
(11:27):
quite a bit of money towards US shipbuilding capacity. I
think it's been the second eight hundred million dollar payment
has just been made, so Australias spent one point six
billion so far and the plan is to contribute to
billion by the end of this year as well. And
that is to boost US shipbuilding capacity because I'm sure,
as you know, the US fleet at the moment is
(11:49):
probably about a quarter below where it should be. Boats
are being produced at half the rate required, so this
is going to be a useful cash injection. So Australia's
sort of been keeping it end up in the bargain
and then suddenly we hear that albertge Colby, the Undersecretary
Defense but Policy has become a household name in Australia
now is running a review. So there's some head scratching
(12:13):
in Australia. There's some sort of an attitude that, well,
the British government the same thing when Kars Starmer came
to power. It's every government's right to conduct a review
when there's a new government in power. But there's just
a little bit of concern that considering this is a
Trump administration decision, who knows what's going to happen next, right.
Speaker 2 (12:33):
So if we can agree, at least in the near term,
that this defense partnership between Australia and the US and
the United Kingdom will endure and it will continue to
work on trying to create a bit of security for
the Indo Pacific region. I'm curious as to whether or
not Beijing has weighed in on.
Speaker 1 (12:49):
This at all.
Speaker 5 (12:51):
Beijing has weighed in on this. They are not a
big fan of the Orchesteele. So it's funny in a
way that if the US did end up pulling out,
scaling back, canceling, this would be very much a win
for China and to ORCUS would be something that Beijing
would very much like to see. In terms of Australia's
(13:13):
point of view, I mean that there is the financial
commitment that I mentioned. There is also broad but qualified
support for proceeding with this defense spending never a particularly
popular domestic policy. But at the same time I mentioned
that qualification of support. China is Australia's largest trading partner.
There is absolutely no desire to put that relationship at risk.
(13:38):
You might remember a few years ago China levied a
number of trade strikes against Australia, which have now all
been wound back. And a couple of weeks ago we
had quite an extraordinary spectacle that you wouldn't have expected
to see three years ago for the Albanese the Australian
Prime Minister in China for a six day visit, taking
in a number of cities, having a banquet, lunch with
(13:58):
Xi Jinping, carpet really being rolled out for the Australian
leader in China, and there is no desire for that
relationship to go back where it was three years ago.
Speaker 2 (14:08):
So you indicated a moment ago that initially these attack
submarines will be constructed in the UK and that at
some point transferred for kind of completion in the shipyards
in Australia. I didn't realize that Australia had that capacity
to do to actually construct vessels.
Speaker 5 (14:25):
Yeah, it does. I've had the good fortune to be
able to visit the shipyards in Adelaide. That's where a
lot of the ship building takes place, and yeah, a
lot of Australia's boats are built there. The previous agreements
with New Zealand, the small neighbor to the just to
the east off here to supply frigates in the past.
So yeah, there is a pretty solid shipbuilding capability in Adelaide,
(14:46):
and that would be given a huge boost if nuclear
submarines were to be a start getting built there, and
that would also require the the beginning of a nuclear
power industry in Australia, which we don't have at the moment.
There's quite a bit of excitement around the number of
high tech jobs that this would create and really support
the South Australian economy as well, because South Australia is
(15:08):
a state that's typically struggled a bit economically.
Speaker 2 (15:11):
So these new vessels I'm imagining would be under the
command of the Australian Navy.
Speaker 5 (15:16):
Those vessels would that's right, And the first part of
the Auchice Agreement while these new vessels are being constructed
would be that Australia would take possession of up to
five US Virginia class submarines. Now that's kind of where
the US part of ORCUS is getting a bit unglued,
because I mentioned before, and I'm sure you're aware as well,
(15:38):
that the US fleet isn't quite where policymakers would like
it to be. So giving Australia a Virginia class submarine,
we're not giving it. We'll be paying for it would
require the assent of the President of the day to say, Look,
this isn't going to diminish the US ability to project
force wherever it might need to under the current circumstances,
(15:59):
that would be open question. So that's kind of where
the deal is struggling a little bit at the moment.
Where does Australia get a nuclear powered submarine in the
meantime until the orchest powered subs are ready and the
current Columns class submarines in Australia, well, would you for
retirement next year that the life of those is now
(16:19):
being extended.
Speaker 2 (16:20):
Paul, Before I let you go, we've been talking a
lot today about this trade deal between the US and
the European Union, and it would be helpful if you
could bring me up to speed on where the US
and Australia are in the process of negotiating a deal.
If I'm recalling this correctly. Last week President Trump praised
Australia's decision to lift the import curbs on US beef.
(16:42):
Are there more things being if you're pardoned upon fleshed
out at this point.
Speaker 5 (16:47):
Yeah, potentially. That appears to be one of the main
sticking points. Was that beef issue Now that's one of
those unusual trade barriers that US beef wasn't being allowed
into Australia for biosecurity reasons and dates way back to
the mad Car epidemic of well many many years ago. Now,
so that was a sticking point that's now been removed.
(17:08):
So now there are no barriers to US beef coming
into Australia. The broader question is anybody going to buy it?
Because Australian beef is well, it's plentiful and it's popular
as well. So I guess that's the question for another day.
But now that that trade parrier has been removed, hopefully
the relationship can proceed. Because the US still put a
(17:28):
tariff on Australia even though Australia runs a trade surplus
with the US, one of the few countries to do so.
So that's a bit of a head scratcher too.
Speaker 2 (17:36):
We'll leave it there, Paul. It's always a pleasure. Thank
you sir very much. Bloomberg's Paul Allen joining from Sydney
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 on Apple, Spotify,
(17:57):
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 Prisoner
and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio News.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Krisner. This
Friday is when President Trump's higher reciprocal tariffs are set
to take effect for those countries without trade agreements. Well
ahead of that deadline, the US and the European Union
did reach a deal. Here's President Trump.
Speaker 3 (00:27):
We are agreeing that the tariff straight across for automobiles
and everything else will be a straight across tariff of
fifteen percent.
Speaker 2 (00:40):
President Trump went on to say the deal did not
include pharmaceuticals and medals, and he said the tariff on
steel and aluminum will stay the way it is, that's
fifty percent. Also, as a part of this deal, the
EU agreed to buy seven hundred and fifty billion dollars
in US energy and to invest six hundred billion dollars
in the US on time of existing investments. We're also
(01:02):
tracking a treaty between Australia and the UK to bolster
cooperation on the August Nuclear Submarine partnership. In a moment,
I'll be joined by Bloomberg Australia correspondent Paul Allen. But
we begin with markets. Certainly a lot to digest. In
the coming week, we have earnings from megacap tech, there's
the US jobs data do at the end of the weekend.
(01:23):
Most importantly midweek, it's the FED meeting. Let's take a
closer look now. Joining me is Clark Garnon. He is
the chief market strategist at Calba Investments. Joining from the
San Francisco Bay Area. Clark, thank you so much for
joining me. This week is going to be the season's
busiest week for earnings. I think we have over forty
percent of companies in the S and P five hundred
(01:45):
due to report Microsoft Meta Wednesday. We get Apple and
Amazon on Thursday. How are you feeling right now about
the quality of earnings from big cap tech.
Speaker 1 (01:54):
We're feeling very positive.
Speaker 4 (01:56):
I think even this week we saw some great earnings
come out and beating expectations, and so we're expecting to
see the same. I mean, thankfully, with the news that
came out today between the United States and the EU,
I think that's just going to continue to push US markets.
Speaker 2 (02:13):
In terms of artificial intelligence being a big part of
this megacap tech story, is there something that you're going
to be looking for in particular, Maybe not so much
on what has been reported for Q two, but the
guidance on capex going forward.
Speaker 4 (02:29):
The capex guidance is probably the number one thing that
I'm going to be looking at, just because over the
past few months there is so much uncertainty between tariffs
to a political et cetera, that guidance was murky. You know,
some companies were even coming out with multiple options as
to their potential earnings. But now I think that there's
(02:49):
so much more clarity. I think companies are able to
provide a better guidance, and so I think that's important.
And just seeing that the capex numbers are not reduced
and are continuing to grow, that's really going to be
what's most important.
Speaker 2 (03:04):
So we have record highs now for the S and
P and the Nasdaq as of Friday session, and I'm
looking at a PE for the S and P right
now that's about twenty five times. You're not concerned in
the lease that this market may be a little overextended
and is perhaps a little expensive.
Speaker 1 (03:21):
So I would say.
Speaker 4 (03:22):
That we are concerned with the PE being up around
that twenty five number. I mean, if you do look
at the S and P four ninety three, so excluding
the MAG seven, we're actually closer to about twenty, which
if you're taking a look at internationally, they're right around
nineteen and so we actually feel confident that there has
been some breadth within the S and P five hundred.
(03:45):
You know, equal Weighted is slightly trailing the S and
P five hundred. So we actually feel strongly about the
other companies as well, so not just these MAG seven.
But the thing is with the MAG seven, we have
been seeing these strong earnings. So when you see strong
earnings and they just continue to grow, it is hard
not to discount them.
Speaker 2 (04:07):
Clark, I'm interested to get your take on what you
see in the macro. Right now, we get the jobs
data for the US at the end of the week,
we're only expecting non farm payrolls to rise by about
one hundred and nine thousand for July, maybe a move
up in the unemployment rate to around.
Speaker 1 (04:22):
Four to two.
Speaker 2 (04:24):
Are you concerned about building weakness in the labor market
right now?
Speaker 1 (04:28):
No, we're really not.
Speaker 4 (04:29):
I mean, we've seen that unemployment number holds strong and
we're not expecting to see a difference this week. From
our stance, it's really looking at the rate cuts moving forward.
I mean We've had so many things that we've had
to bounce our focal attention on this year. Unemployment in
rate cuts obviously are the two that the FED are
looking at.
Speaker 1 (04:49):
And I think the pressure has.
Speaker 4 (04:51):
Just been so heavy on the FED and your own
Powell over the past few months to cut rates. I mean,
obviously we've seen some interactions between President Trump and Jerome Powell,
but we actually aren't thinking that there's going to be
a rape cut this week. So we had said from
(05:11):
the beginning of the year that we'd anticipate that more
towards the end of the year, and I think at
this point we are going to see it, probably in September.
Speaker 2 (05:19):
So what might move the FED to reduce rates maybe
as soon as September. Would it be the fact that
they feel confident about inflation remaining under control, or that
there is more deterioration in the labor market that might
cause them to act.
Speaker 4 (05:35):
You know, I think it would be the deterioration in
the labor market, because there really hasn't been any sign
of them cutting based on the inflation, and obviously with
the decision on Wednesday and not fully knowing what those
unemployment numbers are going to be. I just don't see
it happening this week.
Speaker 2 (05:55):
You don't think with everything that we're talking about in
terms of new tariffs fifteen percent coming from European goods
that will be paid by US consumers, whether it's a
business or an individual. We have yet to see a
lot of that trickle down, I guess to the retail level.
But at some point consumers will be asked to maybe
pay a little bit more. And you're not concerned in
(06:15):
the least about the inflationary impact of tariffs.
Speaker 1 (06:19):
No, I think there will be an inflationary impact. I
do think that it'll be more of a one time issue.
Speaker 4 (06:27):
But that being said, I also think that it's a
matter of taking a look at wants versus needs.
Speaker 1 (06:34):
So I think there's going to be certain companies that are.
Speaker 4 (06:36):
Able to thrive and those companies that are more of
needs based. You know, that's just going to be something
that we're going to have to look at, like, for instance,
some of the luxury goods. And this kind of plays
into actually the deal today between the EU and the
United States. Obviously some of those companies hand Daggs, for instance,
(07:01):
we still could see a strong year, you know, some
of those companies Louis Vuitton in particular, have already had
a strong year. But I think between the wants and
the needs, I think people still are going to be purchasing.
Speaker 2 (07:14):
So we have an initial print on GDP DO this
week and expectations that maybe we'll see just a modest
increase in household demand and business investment. How are you
feeling right now about the American consumer? First?
Speaker 4 (07:29):
So, I mean, as the American consumer takes up roughly
two thirds of the GDP, I mean, we feel strongly
that consumer has been resilient.
Speaker 1 (07:36):
I mean, through probably one.
Speaker 4 (07:38):
Of the rockier years that we've had in the last decade,
the resilience of the consumer has been incredible, and so
we really do feel like we're going to rely on
us consumer to keep pushing us forward, and they've done
it so far this year, and I think we're going
to continue to see that.
Speaker 2 (07:54):
So we're getting more of these trade deals done and
with that presumably greater certainty. Do you think the uncertainty
factor in this trade war has kept businesses from deploying
a lot of capital right now? Have they've been very
very cautious in your view?
Speaker 4 (08:09):
Yes, I would say they have been cautious. This has
been the most uncertain that it's been in years. I mean,
even though we saw both equities and bonds go down
double digits in twenty twenty two, I think this year
has felt like a lot more of a shock, especially
to investors. You know, we've had clients that have been
worried out of their mind when their portfolios were maybe
(08:31):
even only down ten percent at the worst. And now
we're looking at markets that are up ten percent for
the year. But all of the uncertainty that we saw
throughout this year, each one of those has really started
to fall off of the table. You know, first it
was the terrorifrist, then it was geopolitical. We even were
worried more about the deficit at a certain point, and
(08:51):
to us, it's really just the rate cuts that's now
left on the table. So with all of these headwinds
falling off, I think we're going to see companies and
individuals feel more comfortable in order to deploy some of
that capital.
Speaker 2 (09:05):
Clark will leave it there. Thank you so much for
joining us, Clark Garrinon. He is the chief market strategist
at Calbay Investments, joining from the Bay Area of San Francisco,
here on the Daybreak Asia podcast. Welcome back to the
Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. Last Friday, Australia
(09:27):
and the UK reached a fifty year defense treaty to
underpin the construction of nuclear powered submarines. For a closer look,
I'm joined by Bloomberg's Paul Allen, joining us from our
studios in Sydney. Paul, it's always a pleasure. It's been
far too long and I'm wondering if you could begin
by just explaining to me how this deal is being framed.
Speaker 5 (09:47):
This sort of fits into August, Doug, but at the
same time stands apart from it, and we can talk
a little bit about August in the moments. But over
the course of the twenty thirties and twenty forties, the
UKA an Australia plan to develop their own class of
nuclear powered submarines, the Shorthand SS and Aucust class subs.
(10:08):
So they'll be spending forty one billion to build up
to a dozen of these submarines in the first one
will be ready by the early twenty forties. They would
be built first in the UK, but then shipbuilding would
moved to Adelaide and South Australia as well, So it's
a jobs, jobs, jobs, high tech jobs at that. The
UK's pretty pleased with this deal as well. It would
be worth twenty seven billion to the UK economy over
(10:30):
the next twenty five years. But also see the United
Kingdom's nuclear submarine fleet expand from seven subs at the
moment to up to twelve. So this is sort of
an effort to really cement this part of UCUS, even
though the US seems to be well is conducting a
review of the broader deal at the moment.
Speaker 2 (10:50):
So talk to me a little bit about the from
your point of view, what you understand to be this
review of the Biden era deal when it comes to
aucas something that the Trump administration has undertaken. Is this
being seen as a potential threat, Yes, it.
Speaker 5 (11:05):
Is, and as with other US policy towards Australia, it's
being met with a mixture of sort of confusion and
trepidation as well, because, as you mentioned, this is a
Biden raror deal and it was unveiled with much fanfare
three years ago and it has already seen Australia contribute
(11:27):
quite a bit of money towards US shipbuilding capacity. I
think it's been the second eight hundred million dollar payment
has just been made, so Australias spent one point six
billion so far and the plan is to contribute to
billion by the end of this year as well. And
that is to boost US shipbuilding capacity because I'm sure,
as you know, the US fleet at the moment is
(11:49):
probably about a quarter below where it should be. Boats
are being produced at half the rate required, so this
is going to be a useful cash injection. So Australia's
sort of been keeping it end up in the bargain
and then suddenly we hear that albertge Colby, the Undersecretary
Defense but Policy has become a household name in Australia
now is running a review. So there's some head scratching
(12:13):
in Australia. There's some sort of an attitude that, well,
the British government the same thing when Kars Starmer came
to power. It's every government's right to conduct a review
when there's a new government in power. But there's just
a little bit of concern that considering this is a
Trump administration decision, who knows what's going to happen next, right.
Speaker 2 (12:33):
So if we can agree, at least in the near term,
that this defense partnership between Australia and the US and
the United Kingdom will endure and it will continue to
work on trying to create a bit of security for
the Indo Pacific region. I'm curious as to whether or
not Beijing has weighed in on.
Speaker 1 (12:49):
This at all.
Speaker 5 (12:51):
Beijing has weighed in on this. They are not a
big fan of the Orchesteele. So it's funny in a
way that if the US did end up pulling out,
scaling back, canceling, this would be very much a win
for China and to ORCUS would be something that Beijing
would very much like to see. In terms of Australia's
(13:13):
point of view, I mean that there is the financial
commitment that I mentioned. There is also broad but qualified
support for proceeding with this defense spending never a particularly
popular domestic policy. But at the same time I mentioned
that qualification of support. China is Australia's largest trading partner.
There is absolutely no desire to put that relationship at risk.
(13:38):
You might remember a few years ago China levied a
number of trade strikes against Australia, which have now all
been wound back. And a couple of weeks ago we
had quite an extraordinary spectacle that you wouldn't have expected
to see three years ago for the Albanese the Australian
Prime Minister in China for a six day visit, taking
in a number of cities, having a banquet, lunch with
(13:58):
Xi Jinping, carpet really being rolled out for the Australian
leader in China, and there is no desire for that
relationship to go back where it was three years ago.
Speaker 2 (14:08):
So you indicated a moment ago that initially these attack
submarines will be constructed in the UK and that at
some point transferred for kind of completion in the shipyards
in Australia. I didn't realize that Australia had that capacity
to do to actually construct vessels.
Speaker 5 (14:25):
Yeah, it does. I've had the good fortune to be
able to visit the shipyards in Adelaide. That's where a
lot of the ship building takes place, and yeah, a
lot of Australia's boats are built there. The previous agreements
with New Zealand, the small neighbor to the just to
the east off here to supply frigates in the past.
So yeah, there is a pretty solid shipbuilding capability in Adelaide,
(14:46):
and that would be given a huge boost if nuclear
submarines were to be a start getting built there, and
that would also require the the beginning of a nuclear
power industry in Australia, which we don't have at the moment.
There's quite a bit of excitement around the number of
high tech jobs that this would create and really support
the South Australian economy as well, because South Australia is
(15:08):
a state that's typically struggled a bit economically.
Speaker 2 (15:11):
So these new vessels I'm imagining would be under the
command of the Australian Navy.
Speaker 5 (15:16):
Those vessels would that's right, And the first part of
the Auchice Agreement while these new vessels are being constructed
would be that Australia would take possession of up to
five US Virginia class submarines. Now that's kind of where
the US part of ORCUS is getting a bit unglued,
because I mentioned before, and I'm sure you're aware as well,
(15:38):
that the US fleet isn't quite where policymakers would like
it to be. So giving Australia a Virginia class submarine,
we're not giving it. We'll be paying for it would
require the assent of the President of the day to say, Look,
this isn't going to diminish the US ability to project
force wherever it might need to under the current circumstances,
(15:59):
that would be open question. So that's kind of where
the deal is struggling a little bit at the moment.
Where does Australia get a nuclear powered submarine in the
meantime until the orchest powered subs are ready and the
current Columns class submarines in Australia, well, would you for
retirement next year that the life of those is now
(16:19):
being extended.
Speaker 2 (16:20):
Paul, Before I let you go, we've been talking a
lot today about this trade deal between the US and
the European Union, and it would be helpful if you
could bring me up to speed on where the US
and Australia are in the process of negotiating a deal.
If I'm recalling this correctly. Last week President Trump praised
Australia's decision to lift the import curbs on US beef.
(16:42):
Are there more things being if you're pardoned upon fleshed
out at this point.
Speaker 5 (16:47):
Yeah, potentially. That appears to be one of the main
sticking points. Was that beef issue Now that's one of
those unusual trade barriers that US beef wasn't being allowed
into Australia for biosecurity reasons and dates way back to
the mad Car epidemic of well many many years ago. Now,
so that was a sticking point that's now been removed.
(17:08):
So now there are no barriers to US beef coming
into Australia. The broader question is anybody going to buy it?
Because Australian beef is well, it's plentiful and it's popular
as well. So I guess that's the question for another day.
But now that that trade parrier has been removed, hopefully
the relationship can proceed. Because the US still put a
(17:28):
tariff on Australia even though Australia runs a trade surplus
with the US, one of the few countries to do so.
So that's a bit of a head scratcher too.
Speaker 2 (17:36):
We'll leave it there, Paul. It's always a pleasure. Thank
you sir very much. Bloomberg's Paul Allen joining from Sydney
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 on Apple, Spotify,
(17:57):
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 Prisoner
and this is Bloomberg
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