Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Today we're looking at the risk facing Asian markets in the final stretch of twenty twenty four. In a short while, we'll hear from Naomi Fink, chief Global strategist at Nico Asset Management. But first, the Bank of Korea cut its key interest rate today by a quarter point to three percent. This move was very much unexpected, and it follows a policy pivot last month. For a closer look at the Bok's action, we're joined by Bloomberg's Mark Cranfield. He is Bloomberg M Live strategist and you can read Mark's writing on the terminal at m liv go. Mark. Thanks for joining us. I know you're in Singapore today. I'm sure you've had a very busy day. Why was this so surprising that the BOK decided to cut rates.

Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Today we're looking at the risk facing Asian markets in the final stretch of twenty twenty four. In a short while, we'll hear from Naomi Fink, chief Global strategist at Nico Asset Management. But first, the Bank of Korea cut its key interest rate today by a quarter point to three percent. This move was very much unexpected, and it follows a policy pivot last month. For a closer look at the Bok's action, we're joined by Bloomberg's Mark Cranfield. He is Bloomberg M Live strategist and you can read Mark's writing on the terminal at m liv go. Mark. Thanks for joining us. I know you're in Singapore today. I'm sure you've had a very busy day. Why was this so surprising that the BOK decided to cut rates.

They've been hinting that they were comfortable with taking a very gradual approach, and I think some investors were thinking that they would take more time to see how things played out in terms of the next Donald Trump administration, And today only four people were expecting this out of twenty two people surveyed for the meeting, so you can tell it was definitely a surprise to the market. It looks very much as although the Bank of Career cited the fact that they do see inflation coming down next year, they see growth slowing a bit as well. I think there's a big nod to the trade risks which could encompass the world next year. So Korea is very dependent on its exports sector, and from some of the things they would have heard from mister Trump in the last few days, they're probably pretty nervous that there could be a slowing of global trade next year, which would definitely affect them as it would most of Asia. So this is beginning to look like a preemptive move. It looks like they're getting out ahead of the rest of the pack, trying to do something that could help the Korean economy before they face too much competition from other people.

They've been hinting that they were comfortable with taking a very gradual approach, and I think some investors were thinking that they would take more time to see how things played out in terms of the next Donald Trump administration, And today only four people were expecting this out of twenty two people surveyed for the meeting, so you can tell it was definitely a surprise to the market. It looks very much as although the Bank of Career cited the fact that they do see inflation coming down next year, they see growth slowing a bit as well. I think there's a big nod to the trade risks which could encompass the world next year. So Korea is very dependent on its exports sector, and from some of the things they would have heard from mister Trump in the last few days, they're probably pretty nervous that there could be a slowing of global trade next year, which would definitely affect them as it would most of Asia. So this is beginning to look like a preemptive move. It looks like they're getting out ahead of the rest of the pack, trying to do something that could help the Korean economy before they face too much competition from other people.

So the idea here is to try to weaken the currency just a bit to be a little bit more competitive with your exports.

So the idea here is to try to weaken the currency just a bit to be a little bit more competitive with your exports.

Right, there's nothing on you in Asian central banks doing things to help their currency in terms of the trade situation. So allowing currencies to be a bit softer than usual to maximizing the dollar strength, which we're generally seeing the dollar in a pretty good condition since the recent elections. It was strong before the elections, but it's got even stronger since the presidential elections. But it's not it's typical for Asian central banks to allow the currency to take the strain by doing it at the same time as lowering interest rates obviously gives it even more impetus as well. So you've got a competitive situation between the Korea and one, the Chinese yu, one the Japanese yen. They're all competing in similar areas, so every country obviously wants to do the best they can do to help its own trade situation.

Right, there's nothing on you in Asian central banks doing things to help their currency in terms of the trade situation. So allowing currencies to be a bit softer than usual to maximizing the dollar strength, which we're generally seeing the dollar in a pretty good condition since the recent elections. It was strong before the elections, but it's got even stronger since the presidential elections. But it's not it's typical for Asian central banks to allow the currency to take the strain by doing it at the same time as lowering interest rates obviously gives it even more impetus as well. So you've got a competitive situation between the Korea and one, the Chinese yu, one the Japanese yen. They're all competing in similar areas, so every country obviously wants to do the best they can do to help its own trade situation.

When I think of Trump tariffs and markets in Asia, I think of obviously China. Is there a way that we're seeing Chinese firms beginning to move some of their production line through South Korea as a way of avoiding cares in the future.

When I think of Trump tariffs and markets in Asia, I think of obviously China. Is there a way that we're seeing Chinese firms beginning to move some of their production line through South Korea as a way of avoiding cares in the future.

There's been plenty of writing on the Bloomberg term where itself saying that really since the first presidential term for Donald Trump, Chinese companies in general have been very active around the world trying to diversify their strategies are away from directly going to the United States. So they've been making big investments and growing factories in various countries in order to try and circumvent any roadblocks that were put in with direct China to US trade flows, and that has resulted in the fact that now if you look at the official import numbers between the United States and China, shows that there's been quite a substantial drop in the direct imports the United States makes from China. But behind the scenes, it appears as though the trade numbers between the two are still pretty big, and that's because China's done a better job of getting around it than some other countries. We would expect something like that to continue. China is very aware that they are at risk, there could be more risk put on them, and so they certainly are going to be working hard to try and make sure that they can still sell their products, but maybe through a different route.

There's been plenty of writing on the Bloomberg term where itself saying that really since the first presidential term for Donald Trump, Chinese companies in general have been very active around the world trying to diversify their strategies are away from directly going to the United States. So they've been making big investments and growing factories in various countries in order to try and circumvent any roadblocks that were put in with direct China to US trade flows, and that has resulted in the fact that now if you look at the official import numbers between the United States and China, shows that there's been quite a substantial drop in the direct imports the United States makes from China. But behind the scenes, it appears as though the trade numbers between the two are still pretty big, and that's because China's done a better job of getting around it than some other countries. We would expect something like that to continue. China is very aware that they are at risk, there could be more risk put on them, and so they certainly are going to be working hard to try and make sure that they can still sell their products, but maybe through a different route.

So today in the US we got the Fed's preferred measure of underlying inflation. The PCEE accelerated a bit in the month of October, and I'm referring to kind of the core rate. This seems to validate a much more cautious approach when it comes to cutting interest rates. And then when you hear some analysis coming from the Mexican government that these proposed tariffs that the president elect is considering, not only for Mexico but for Canada as well, would contribute to higher inflation in the US. If we're talking about a world where the Fed is going to be a little bit more cautious, does it necessarily mean that the dollar is going to remain stronger for the foreseeable.

So today in the US we got the Fed's preferred measure of underlying inflation. The PCEE accelerated a bit in the month of October, and I'm referring to kind of the core rate. This seems to validate a much more cautious approach when it comes to cutting interest rates. And then when you hear some analysis coming from the Mexican government that these proposed tariffs that the president elect is considering, not only for Mexico but for Canada as well, would contribute to higher inflation in the US. If we're talking about a world where the Fed is going to be a little bit more cautious, does it necessarily mean that the dollar is going to remain stronger for the foreseeable.

Future from the FT's point of view. From that angle alone, you would expect the US dot to gain a reasonable amount of support if the Federal Reserve is slowing the pace of interest rate cuts, that would be a typical response that markets expect. However, the wildcard, as usual here is Donald Trump, who could easily say in a few months time, oh, I think the US dollar is too strong, and then the whole situation could change dramatically. He has been known in the past to say that he doesn't really or he favors a slightly weaker US currency to help with the trade situation. So, no matter what the Central Bank does in terms of slowing the pace of rate cuts, if you get a big intervention from the President, the whole situation could change very quickly.

Future from the FT's point of view. From that angle alone, you would expect the US dot to gain a reasonable amount of support if the Federal Reserve is slowing the pace of interest rate cuts, that would be a typical response that markets expect. However, the wildcard, as usual here is Donald Trump, who could easily say in a few months time, oh, I think the US dollar is too strong, and then the whole situation could change dramatically. He has been known in the past to say that he doesn't really or he favors a slightly weaker US currency to help with the trade situation. So, no matter what the Central Bank does in terms of slowing the pace of rate cuts, if you get a big intervention from the President, the whole situation could change very quickly.

So markets are increasingly pricing in and maybe a potential rate cut from the Fed in December a big question mark in terms of what happens in twenty twenty five. Flip side of that coin is Japan, and I from what I understand, wage negotiations are moving toward a positive conclusion. Does that necessarily mean that we could see either in December or January a rate hike from the Bank of Japan.

So markets are increasingly pricing in and maybe a potential rate cut from the Fed in December a big question mark in terms of what happens in twenty twenty five. Flip side of that coin is Japan, and I from what I understand, wage negotiations are moving toward a positive conclusion. Does that necessarily mean that we could see either in December or January a rate hike from the Bank of Japan.

Oh, trade does are certainly warming up, so the idea, if you look at the pricing in the future markets and derivative markets, we're now at something like a sixty percent probability the Bank of Japan will actually go in December. They're actually raised by twenty five basis points already, so traders are getting certainly more convinced. I think that's part of the reason for the recent yeend strength, the fact that the yenna's rebounded a bit in the past few days. The wage hikes, the proposals for next year look pretty serious. They look as though they're going again for big numbers, even though they had very substantial rises this year, and the Japanese Prime Minister has been consistently saying that he supports that he wants to see companies allowing higher wages to their workers. He's even talking about a minimum wage for the first time in Japan as well. So everything is pointing to the fact that the inflationary aspects from wages we saw this year will not dampen at all when we go in In fact, they might even get worse in twenty twenty five. That obviously helps the Bank of Japan's case for keeping interest rates high and for raising rates again next year.

Oh, trade does are certainly warming up, so the idea, if you look at the pricing in the future markets and derivative markets, we're now at something like a sixty percent probability the Bank of Japan will actually go in December. They're actually raised by twenty five basis points already, so traders are getting certainly more convinced. I think that's part of the reason for the recent yeend strength, the fact that the yenna's rebounded a bit in the past few days. The wage hikes, the proposals for next year look pretty serious. They look as though they're going again for big numbers, even though they had very substantial rises this year, and the Japanese Prime Minister has been consistently saying that he supports that he wants to see companies allowing higher wages to their workers. He's even talking about a minimum wage for the first time in Japan as well. So everything is pointing to the fact that the inflationary aspects from wages we saw this year will not dampen at all when we go in In fact, they might even get worse in twenty twenty five. That obviously helps the Bank of Japan's case for keeping interest rates high and for raising rates again next year.

Before I let you go, I have to ask you about China, because the other day we learned that industrial profits in the month of October fell ten percent year over years. So we're well aware of this deflationary pressure that China has been feeling for some time. Is there anything that can be done to begin to resuscitate the economy where it can maybe begin to emerge from this deflationary period.

Before I let you go, I have to ask you about China, because the other day we learned that industrial profits in the month of October fell ten percent year over years. So we're well aware of this deflationary pressure that China has been feeling for some time. Is there anything that can be done to begin to resuscitate the economy where it can maybe begin to emerge from this deflationary period.

It's getting the consumers to do more is really the big The thing you keep on hearing from people that watch China very closely is that Chinese consumers have become very cautious. They need a lot more incentives to get out there and spend money. The Chinese government seems to be making the right soundbites in that direction, but there's probably much more to do. So they've got some big meetings coming up in the next few weeks, and it will people will be watching very closely to see what measures are they doing to help consumers be more active in twenty twenty five That will make a huge difference to the Chinese economy.

It's getting the consumers to do more is really the big The thing you keep on hearing from people that watch China very closely is that Chinese consumers have become very cautious. They need a lot more incentives to get out there and spend money. The Chinese government seems to be making the right soundbites in that direction, but there's probably much more to do. So they've got some big meetings coming up in the next few weeks, and it will people will be watching very closely to see what measures are they doing to help consumers be more active in twenty twenty five That will make a huge difference to the Chinese economy.

Mark, It's always a pleasure. Thanks so much for joining us. Mark Cranfield, there, Bloomberg m Live strategist, joining us from the Lion City of Singapore here on the Daybreak Asia podcast. Welcome back to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. President elect Trump's announcement of an additional ten percent tariff on Chinese goods has sent ripples through the APAC region. For more, we heard from Naomi Fink. She is the chief Global strategist at Nico Asset Management. She spoke exclusively to Bloomberg, Sherry On and Heidi Stroud Watts this week.

Mark, It's always a pleasure. Thanks so much for joining us. Mark Cranfield, there, Bloomberg m Live strategist, joining us from the Lion City of Singapore here on the Daybreak Asia podcast. Welcome back to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. President elect Trump's announcement of an additional ten percent tariff on Chinese goods has sent ripples through the APAC region. For more, we heard from Naomi Fink. She is the chief Global strategist at Nico Asset Management. She spoke exclusively to Bloomberg, Sherry On and Heidi Stroud Watts this week.

We've been dissecting what the tariff impact could be on Asian markets. What's the top of mind for you.

We've been dissecting what the tariff impact could be on Asian markets. What's the top of mind for you.

Well, I think going into year end and next year, a new administration in the US, we're all to some extent playing the waiting game. We did have the initial reaction to the results of the election, but now that's all news, and now we're in the difficult situation of trying to separate the news from the noise. And while there is news, there's also, as tends to be the case when new administrations have not yet taken power, a lot of noise. So's we don't necessarily want to take We want to make big reactions to things, policies that may not actually come to fruition. We've had some noise about tariffs. Will those actually happen or are they just a negotiating tactic. We don't know that yet. So I think at the moment, we still see some pretty robust fundamentals in the US economy, for example, So I don't think there's any reason to think that's suddenly going to stop. But what I would advise is to take a healthy hedge against some of the tail risks that might be coming up.

Well, I think going into year end and next year, a new administration in the US, we're all to some extent playing the waiting game. We did have the initial reaction to the results of the election, but now that's all news, and now we're in the difficult situation of trying to separate the news from the noise. And while there is news, there's also, as tends to be the case when new administrations have not yet taken power, a lot of noise. So's we don't necessarily want to take We want to make big reactions to things, policies that may not actually come to fruition. We've had some noise about tariffs. Will those actually happen or are they just a negotiating tactic. We don't know that yet. So I think at the moment, we still see some pretty robust fundamentals in the US economy, for example, So I don't think there's any reason to think that's suddenly going to stop. But what I would advise is to take a healthy hedge against some of the tail risks that might be coming up.

Next year, like spiking yields for example.

Next year, like spiking yields for example.

For example, we do have one hundred and twenty percent US debt to GDP, and even though if we have fiscal easing that on its own might look really good for stocks. We also do have the fear that eventually that might lead to some unwieldiness of the debt, and foreign investors who are necessary to fund the US current account deficit saying that they're not receiving enough of a yield premium, so that that is always a risk, and.

For example, we do have one hundred and twenty percent US debt to GDP, and even though if we have fiscal easing that on its own might look really good for stocks. We also do have the fear that eventually that might lead to some unwieldiness of the debt, and foreign investors who are necessary to fund the US current account deficit saying that they're not receiving enough of a yield premium, so that that is always a risk, and.

Of course a stronger US dollar that we continue to see right now, and the pressure on their counterparts across Asia. How big of a problem could this be for some central banks like South Korea? For example? As I mentioned earlier, the BOK seems to be really focused on financial stability despite the fact that the economy seems to be struggling well.

Of course a stronger US dollar that we continue to see right now, and the pressure on their counterparts across Asia. How big of a problem could this be for some central banks like South Korea? For example? As I mentioned earlier, the BOK seems to be really focused on financial stability despite the fact that the economy seems to be struggling well.

Of course, the Bank of Korea's job is probably to take a look inwards at the domestic economy and respond to that, but I think it cannot ignore what's going on with currencies and the weakening one. For example, I think it in some ways it might allow the weakening one, might allow the luxury to wait a little bit and see what actually comes to the foe in terms of news, because I think that's probably many of the economies in Asia right now that we're actually waiting for the news to hit rather than reacting to the noise.

Of course, the Bank of Korea's job is probably to take a look inwards at the domestic economy and respond to that, but I think it cannot ignore what's going on with currencies and the weakening one. For example, I think it in some ways it might allow the weakening one, might allow the luxury to wait a little bit and see what actually comes to the foe in terms of news, because I think that's probably many of the economies in Asia right now that we're actually waiting for the news to hit rather than reacting to the noise.

Yeah, wait, wait, waiting. It's a difficult game, right because you've seen a lot of corporates, for example, not wanting to wait. They think that they know what's going to happen. They're front loading a lot of their moves ahead of going into next year.

Yeah, wait, wait, waiting. It's a difficult game, right because you've seen a lot of corporates, for example, not wanting to wait. They think that they know what's going to happen. They're front loading a lot of their moves ahead of going into next year.

Right easy.

Right easy.

Your gut feeling, based on sort of you know, previous expectations, is that President Trump the second time around will make good on all of his campaign rhetoric and that we should expect him to do what he said that he's going to do so far.

Your gut feeling, based on sort of you know, previous expectations, is that President Trump the second time around will make good on all of his campaign rhetoric and that we should expect him to do what he said that he's going to do so far.

So if we're thinking about all the campaign rehetric, I would think that's unlikely. Some that's more likely, And I think that is the crux of separating the news from the noise. Some of its news, but a lot of it's probably noise. And we do have the potential for some of what looks like news to be a negotiating tactic to achieve another end that that's not necessarily a parent. So I wouldn't necessarily go hook line and sinker into all of the campaign promises. I would take a look at the likelihood of these policies material right now it's very confusing, but it should become clearer as we go into twenty twenty five.

So if we're thinking about all the campaign rehetric, I would think that's unlikely. Some that's more likely, And I think that is the crux of separating the news from the noise. Some of its news, but a lot of it's probably noise. And we do have the potential for some of what looks like news to be a negotiating tactic to achieve another end that that's not necessarily a parent. So I wouldn't necessarily go hook line and sinker into all of the campaign promises. I would take a look at the likelihood of these policies material right now it's very confusing, but it should become clearer as we go into twenty twenty five.

When you take a look at some of the economies that he's targeted so far. Obviously China is one of them. And you know, it's quite interesting looking at what his potential years trade representative talks about in terms of a real fundamental revocation of the existing relationship. Right, do you think some of these economies, you know, a better place than others to withstand that there's a lot of decorrelated assets in China that might be okay.

When you take a look at some of the economies that he's targeted so far. Obviously China is one of them. And you know, it's quite interesting looking at what his potential years trade representative talks about in terms of a real fundamental revocation of the existing relationship. Right, do you think some of these economies, you know, a better place than others to withstand that there's a lot of decorrelated assets in China that might be okay.

Well, yes, let's look at China for a second. The one thing that China probably has in its favor is that it hasn't dispensed a lot of the fiscal easing that it can dispense with just yet. And perhaps that's purposeful. Maybe China is waiting for the first move to come from the new US administration and then to try and react to that. It's keeping its powder dry. Right now, there is a pretty good issuance environment for Chinese bonds, and with those Chinese bonds probably possible to finance quite a lot of new fiscal stimulus. So I don't think we're done seeing fiscal stimulus in China just yet. I don't think we necessarily want to trade on it right now, but there is some potential for things not being as verish as initially perceived in China going into twenty twenty five.

Well, yes, let's look at China for a second. The one thing that China probably has in its favor is that it hasn't dispensed a lot of the fiscal easing that it can dispense with just yet. And perhaps that's purposeful. Maybe China is waiting for the first move to come from the new US administration and then to try and react to that. It's keeping its powder dry. Right now, there is a pretty good issuance environment for Chinese bonds, and with those Chinese bonds probably possible to finance quite a lot of new fiscal stimulus. So I don't think we're done seeing fiscal stimulus in China just yet. I don't think we necessarily want to trade on it right now, but there is some potential for things not being as verish as initially perceived in China going into twenty twenty five.

No, I mean, what's happening with the Japanese yen right now? I mean this week. I was a little bit surprised to see the strength that seemed to get started around the time when we heard about the tariff threats from Trump and before especially the past year. I mean, the downside pressure on the yen has been so strong that anytime we had some geopolitical risk or what we were supposed to think we could see some haven flows into the Japanese yen, we haven't. So what's changed this week?

No, I mean, what's happening with the Japanese yen right now? I mean this week. I was a little bit surprised to see the strength that seemed to get started around the time when we heard about the tariff threats from Trump and before especially the past year. I mean, the downside pressure on the yen has been so strong that anytime we had some geopolitical risk or what we were supposed to think we could see some haven flows into the Japanese yen, we haven't. So what's changed this week?

Well, I think during the last year we didn't really see haven flows into almost anything, even when geopolitical risk grows. Yes, for example, we saw strong gold, but that seemed to be to really try and gain a diversification away from the main event, which is basically major concentration in US stocks. It's concentrated in seven names, and perhaps we too don't think that it's time to get barish on US stocks just yet, but you need a good diversification tool, and I think that the yen right now is one of those diversification tools. Yes, it's not a relatively favorable yield that's attached to the end, but maybe you can sacrifice a little bit of that yield, especially on the bond side, in order to hedge against some of the downside risk. And when markets do actually get a little bit frightened and there are risk off trades, then the en usually does benefit. So I think the yen is an important part of your global.

Well, I think during the last year we didn't really see haven flows into almost anything, even when geopolitical risk grows. Yes, for example, we saw strong gold, but that seemed to be to really try and gain a diversification away from the main event, which is basically major concentration in US stocks. It's concentrated in seven names, and perhaps we too don't think that it's time to get barish on US stocks just yet, but you need a good diversification tool, and I think that the yen right now is one of those diversification tools. Yes, it's not a relatively favorable yield that's attached to the end, but maybe you can sacrifice a little bit of that yield, especially on the bond side, in order to hedge against some of the downside risk. And when markets do actually get a little bit frightened and there are risk off trades, then the en usually does benefit. So I think the yen is an important part of your global.

Portfolio now, me think, chief Global strategists at Nico Asset Management.

Portfolio now, me think, chief Global strategists at Nico Asset Management.

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 and Australia. I'm Doug Prisoner and this is Bloomberg

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 and Australia. I'm Doug Prisoner and this is Bloomberg