Asian stocks edged up and US equity-index futures reversed losses Friday after China said it's evaluating possible US trade talks, boosting optimism that tariff tensions will tamp down. China's Commerce Ministry said in a Friday statement that it had noted senior US officials repeatedly expressing their willingness to talk to Beijing about tariffs, and urged officials in Washington to show "sincerity" towards China. Meanwhile, Japanese shares gained 1.2% on optimistic comments from Japan's chief trade negotiator on their own talks. We get reaction to the day's market headlines from David Finnerty, Bloomberg FX and Rates Strategist in Singapore.
Plus - the S&P 500 has gained for eight consecutive days, its longest run since August, amid increased optimism that trade tensions are waning since President Donald Trump announced century-high levies April 2nd. Investors will turn their attention to the US jobs report due Friday, the last piece of significant data this week, after disappointing earnings from Apple Inc. and Amazon Inc. We speak with Bill Adams, Senior Vice President and Chief Economist at Comerica Bank.
Bloomberg Audio Studios, podcasts, radio news. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. So we're less than twelve hours away from the US employment report. Bloomberg Economics is expecting to see a solid net gain in nonfarm payrolls of around one hundred and sixty five thousand. Also a stable unemployment rate at around four point two percent. And in a moment we'll get some insight from Bill Adams. He is the chief economist at Comerica Bank. But we begin in the Asia Pacific where this morning the Chinese government said it's currently evaluating possible trade talks with the US. The Commerce Ministry has said senior US officials have repeatedly expressed their willingness to talk with Beijing about tariffs. Joining me now is David Finnerdy. He is Bloomberg FX and Rate strategists. David joining from our studios in Singapore. I know it's a market holiday in China, David, so we're not going to get any reaction action to this, but it's a positive sign still, right.
Yeah, I think that's the key thing, any sign that there's some negotiations be had, even tho It's very early days and you certainly don't expect any deal to be hashed out quickly. But I think any idea, any sign that there will be negotiations to even start, will be taken positively by the market. Obviously, you know that the tarests between China and US are you know, well over one hundred percent, and that's not good really for anyone in terms of trade. So I think any resolution will be the market will quite apply welcome that.
I thought it was very interesting that Japan's finance minister said today that Japan's holdings of US treasuries could be a card in Japan's trade negotiations with the US. I think Japan currently has around one point one trillion dollars in US treasuries. Is that a friendly way of making a threat.
Well, it's certainly a shot across the bout, I think they'd say, of course. And he did at the same time say hey, whether we use or not as a different thing. So but again, the fact that it's even alluded to does sort of say hey, look, we do have this card, and if need be, we will pay it. Of Course, the catch to some degree is okay, if you want to get with the treasure sor if you can, it's like, well, where do you put that money? You know, you have to put it somewhere, and certainly if you be the obvious place to put it into. But again it's not quite as deep and liquid market. It's certainly a big market, but it's certainly not quite the treasury market. So you know, the question I think the market will go if you are going to shoot, say that you are going to change holdings, and if you did know to how much could you? But again, any reduction of holdings is not going to be received as well by the market if it was to happen. I mean, it really feeds into the big question of moving forward. How does the West or other countries keep funding US deficits really at the end of the day, and if they show an unwillingness to fund it to the same extent, you know, it does create a pop for the US at the moment. You know, historically the US has been fine because it has these twin deficits and but the market, guys, we don't mind. We were happy to fund them. But if the question I think really has become in a long term question is given how this trade's played out, and we don't know how the remainder of Trump's presidency will play out. But are we seeing a fundamental shift in terms of how people view US assets for whatever reason that that may be. And if there is a change in dynamics saying okay, we're not quite as willing to fund it as possible, then for the US economy that would not be a positive.
So, and I'm listening to you, I'm thinking of the dollar's role in all of this, and so far in the trade war, the dollar has suffered just a bit. I mean on a relative basis. I understand that we're still very strong and one of the benefits of being the world's reserve currency, but the flows have clearly benefited the end and the euro.
Right, Yes, definitely, I think you know, since if you look at look to say, the Bloomberg Dollar Index, since basically in the February, the trend's been down. Yes, for dollars rebound did a bit over this week from the lows. But I do think the key thing is, and I'm saying i'll discuss them as contacts last night, is you've seen a lot of say this, if you break down, say you've got the macro fund the hedge fund community, you have corports and you have real money funds. To make it very simple, so we know the macro fund community has been like, okay, it's self a dollar. Obviously it's been a good trade. Its overall, say overall, because obviously the short dollar yend got crushed yesterday, but overall short dollar has been a good trade. But the quick question is, okay, what a corport's move slower and real money funds move even slower than that, And so these two are beginning to come into play. They haven't really come into player as much talking to all my contacts. So I think the question is because it's like an old tanker, particularly real money funds, it takes a long time to make decision, but once that decision is made, it's made. So they are discussions going on now talking to the money funds of what they want to do, how they want to allocate holding today, want to change or not change, and so even and I said, this isn't if because we don't know what plays. But if they they say, you know, we are going to minimize or cut back on our dollar holdings and this is a long term play, then I think you've got another big wave coming in on the dollar, which will add pressure to it. So I think you've seen the macro funds at play that sort of played out for the moment, and our working to see what the corporates do and what does real money funds do as well, and I think we'll need a few more months before we see what those decisions.
Are, So help me understand what that may mean for the Bank of Japan. We had the meeting yesterday BOJ holding that policy rated fifty basis points, not a big surprise, and then policymakers saying afterwards that it's going to take essentially longer than previously thought for the Bank of Japan to hit its inflation target. Where do we go from here in terms of BOJ tightening.
Well, I think certainly it was interesting that one thing that raided did say he goes even where we've moved our target for inflation, it doesn't mean rate hikes are off the table. So the market obviously took how it interpreted certain industry was okay, well, right, hikes off the table. Certainly for Dolly Yen. What happened took into my trade of contact yesterday was basically it wasn't people buying, It was just the shorts. It was quite a well positioned short position on dolly En, so those got squeezed out. Liquidity didn't help because in Asia a lot of markets were closed yesterday for public holiday, so there was relatively thin liquidity, so that exacerbated these moves. So it's been a bit of a painful trade for those shorts, shall we say. Having said that, I do think the question you've got two parts of the equation versus Japan side of the equation, and there's the US side of the equation, and at the moment with Japan's side of the equation to the BJ well they won't they The market's gone, okay, we kicked that can down the road. Yes, it may materialize. You did see the CPI coming strong for Japan. I think if the earnings coming strong, there is a case to say, look, there will be there is inflationary pressure still there, so maybe they will.
Hike at some point this year.
But I think initially we go to the US side of the equation with obviously the payroll report today, and in that I'd heavily focus on the unemployment rate is supposed to say the same at four point two. You know, if it's does that, then I think the fact can say, look, we said, well, we know hurried to hike was we don't need to. If it does uptick the market, well obviously is very happy to price some rate cuts as we know. Then I think if it does uptick the market, go, look at this pressure on it, we're going to run with the growth side of the equation, not the inflation side of the equation, and pricing more rate cuts, which obviously would be dollar negative. So I think where it goes from now, really today's payroll report is key.
So we were mentioning the positive developments when it comes to US China trade and the possibility that we're going to have some level of negotiation happening maybe in the near term. We just don't know what does that mean for the Chinese currency.
Yeah, it's interesting because certainly if you look at dollar, you one it's being offshore, you won. It's basically been in a pretty much very tight range really seven twenty six to seven point thirty one, chopping around in that range the yuan against the basket of currencies and see if that's basket so has weakened so China's obviously played out. Say look, we're not going to go weak and much at the moment or gradually against the dollar, but we'll have the weekend against the other markets to help support our economy. Now, what is interesting, though, is we're starting to see some interest and it is I say starting so I wouldn't go heavily on it. We're starting some interest in completing the macro fund community looking at downside dollar yu wan so you know we'll cletely with like put options or downside digital options or stuff like that. So the market sentiment which initially was hey, we're going for dollar y one higher. There was certainly the case go before after Trump's election and even started this year. Now it's sort of to neutral or now we're starting to actually they think, actually it's going to not being dollar on everything could be dollar you one positive. I do say these are initial signs though, but it is interesting that you are seeing the change of sentiment in terms of where do you want maybe headed This idea of the one is going to take the seven forty against the dollar, not that it won't, but those they're not quite you're not hearing though, that sort of noise as much nowadays as you were say a month ago.
David, Thank you so much. David Finnerty there, Bloomberg, EFX and rat Strategist. Joining from Singapore here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Derek Krisner. The US equity market was hired today for an eighth straight session, helped by gains in both Meta and Microsoft. However, after the bell, Apple and Amazon delivered some disappointment. Apple said that sales in China were worse than expected. The company is also warning the tariffs will increase cost in the current quarter by nine hundred million dollars. Then there's Amazon forecasting operating profit in the current quarter that was a little disappointing, and the companies saying the tariffs and trade policy may cause consumers to pull back on their spending. So it's clear that tariffs are beginning to bite. The question is whether this is going to be reflected in tomorrow's report on April employment. Joining me now for a look at the data is Bill Adams, a senior VP also chief economist at Comerica Bank, on the line from Dallas, Texas. Bill, thank you for making time to chat with me. Is it too soon for the impact of the tariffs to manifest in tomorrow's employment data?
Hi, Doug, I.
Think we'll start to see some of the effect of the tariffs in the April jobs numbers. I think in the month of April, businesses we're trying to figure out what the changes in tariffs actually were, of course, and then starting to think through how that would affect their profit expectations, their revenue expectations, and their needs for the next three, six and twelve months. So I'm expecting the data to show that while businesses didn't make big layoffs during the month of April, they probably slow rolled the pace of hiring, and so I'm expecting nonfarm payroll jobs to rise a relatively blackluster one hundred and fifteen thousand.
In the month. So we also had today activity from manufacturers. This is the isms manufacturing PMI. It eased by about three tenths of a point. We've got a reading of forty eight seven. Obviously, that indicates contraction what's going on with a manufacturing economy from your point of view.
So I think you have to draw a distinction here between surveys which look pretty scary right now versus hard data. Where As you just pointed out with the jobs report, we don't have very much at hand yet. Surveys are pointing a lot of pointing to a lot of anxiety and a lot of increased caution due to expectations for the impact of terrorists, but also who really knows where teriff rates are going to settle out in another week or another month, And so the ism saying that businesses are reducing production, businesses are slowing hiring, businesses are seeing higher input costs. But we'll just have to wait until we get hard data on producer prices to see how much of that increase in input costs is just expectations and emotions rather than hard numbers and big shares of input costs rising. I think I do expect to see a slower pace of manufacturing growth, if not a decline, in the next couple of months, and I think we're likely to see a pullback and demand, especially for capital equipment, in the next three to six months because of that same more cautious approach causing businesses to stretch out their capax plans and to just be a little more cautious in their usage of cash. In the next couple of months while they figure out what's going on.
So the other day, as you know, we got the first print on first quarter GDP. A little bit of a contraction here. Some of that may have been skewed by heavy imports sales of a lot of merchandise coming into the US to avoid tariffs. But do you think there's a risk now that we're going to see another or a downward revision to that first quarter GDP print.
It wouldn't surprise me, to be honest, My forecast going into the release of the first estimate was for a one point four percent annualized contractions. So I'm kind of my bias is to be anchored to what I thought I was going to get. But we'll see in the revisions. I think in the second quarter we're likely to see a strong rebound in GDP and maybe see that sustained into the third quarter because that huge rush to get goods on shore ahead of the higher tariffs is going to drop off, and imports are going to be much much much lower come May and June and July and August, and so that will translate into a swinged of the trade deficit in a more favorable kind that the numbers will look better for GDP. At the same time, final demand for business spending and consumer spending was pretty good in the first quarter. I think those components of GDP are likely to slow in the second.
Quarter and third quarter. So we had yields down across the treasury curve today. I think the two year was off about nine basis points. That's a pretty sizable move if you look at what the swaps market is telling us right now, the first quarter point rate cut from the Fed is fully priced in for July, not June, but fully priced in for July. And interestingly, today we heard from the Treasury Secretary Scott Bessen who was saying that what the bond market right now is telegraphing is that the Fed ought to be lowering interest rates. Would you agree with that.
The Fed isn't a pickle. On the one hand, it does look like the job market is likely to weaken your term. On the other hand, inflations head at higher and so they're being pulled in opposite directions by the two parts of their mandate. I think it is somewhat reasonable to think that between a rock and a hard place, the FED will choose to support the job market, since there's a good case to be made that the inflation from higher tariffs will be a one off, especially if the labor market is weaker a year from now than it is today, and that means less negotiating power for workers to ask for raises and to cause that inflation increase to persist. But the FED doesn't like to be cutting with inflation rising. The FED will be very unhappy to cut given that consumer and business inflation expectations have picked up in the last couple of months, and the bar for the FED to ease is considerably higher right now than it would be in a more normal economic shock, which brings down prices as well as brings down hiring. So I think, yes, my call is for the FED to ease in the next couple of months. But I think if my forecast misses, it's more likely that the FED cuts rates by less than I'm forecasting, and I'm looking for three quarters of a percent and cuts by the end of the year, to be clear, I think it's more likely that I miss by seeing less rate cuts than that than by seeing more.
Without getting into too much politics, how do you feel about the Treasury Secretary weighing in on what the FED should do.
The independence of the FED is really an anchor of the US financial system and by extent, the US economy, and so I think it's important that the FED be independent and that actors both within the United States and outside of the United States understand the Fed's independence. Now, I will say I still am very confident that the FED does have independence in setting monetary policy. And I think the institutional supports of the Fed's independence in the US system are very strong. They're still in place despite the noise that you're here in the headlines, and I think Chair Powell in particular has a lot of credibility across Washington that allows him to tune out the noise and focus on the fence dual mandate for stable prices and for maximum employment and to set interest rates according to that bill.
Do you have a view on how effective this tariff policy may be in reshoring American manufacturing is if that's the ultimate goal, do you think it's likely to succeed?
I think for tariffs to cause American businesses to make a big shift towards reshoring, businesses have to be confident that tariff rates are going to stay high over the longer run, and so I would I think if we see legislation that bakes tariff revenue into the ten year projection for fiscal revenues and the fiscal balance depends on tariffs, then businesses are more likely to say, aha, I guess this is a permanent shift to make decisions accordingly than if tariffs continue to be exclusively something that comes out of the executive branch and which could change under a change in administration.
Bill Thank you so much, Bill Adams. There. He is Senior VP, also chief economist at Comerica Bank. On the line from Dallas, Texas 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, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Chrisner, and this is Bloomberg