President & Group CEO, Mizuho Financial Group (parent holding company), Mizuho Bank, Ltd.
Markets Downplay Tariff Talk; Mizuho CEO Masahiro Kihara | Bloomberg Daybreak: Asia Edition
Asian equities are poised for a positive open as traders brush off President Donald Trump's latest tariff threats as bargaining tactics that are unlikely to derail global trade. Stock-index futures for Japan, Hong Kong and Australia pointed to a higher open in early Asian trading. The S&P 500 eked out a gain Monday as Trump indicated he's open to trade talks, though still insisted his new tariff rates are "the deals." Contracts for the S&P 500 and the Nasdaq edged lower and Bitcoin retreated from its record high. We get some market perspective from Carol Schleif, Chief Market Strategist at BMO...
Transcript (52 segments)
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Narrator0:02
Bloomberg Audio Studios, podcasts, radio, news.
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Doug Krer0:10
Welcome to the Daybreak Asia podcast. I'm Doug Krer. We begin with a story dominating much of the news cycle, tariffs. Today, President Trump seemed to be sending mixed signals when it comes to levies on European goods. He said there's still room for trade talks with the EU, but Trump also insisted the letters he recently sent outlining new tariff rates are final. Markets seemed to look past the rhetoric, US equities pushed higher. In a moment, we'll look at the tariff story from the Asian perspective, including a conversation with the CEO of Mizuho, Masahiro Kihara, but we begin here in the States. Joining me now is Carol Schlife, chief market strategist at Beimo Private Wealth. Carol is on the line from Chicago. Can we look ahead to the earnings we're expecting this week from the big banks? I'm curious as to what you're expecting.
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Carol Schlife1:01
Expecting good earnings because you actually saw it in the first quarter already. You saw trading volumes doing very well, M&A pick up. We'll be listening closely for commentary around the health of the consumer. You've also got loosened capital requirements, so a lot of money burning holes in big bank pockets.
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Doug Krer1:33
What about the trading revenue side given the market volatility in Q2? I would imagine some results will be robust.
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Carol Schlife1:43
Yeah, I would think that because we saw surprises already in the first quarter before the April 2nd tariffs. There was a lot of volatility and that trading revenue will come into this quarter.
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Doug Krer2:06
So I mentioned the tariff story. Tomorrow we get CPI. The big question is whether companies are passing along higher costs of imported goods. Would that be your expectation?
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Carol Schlife2:24
I would think we'll see it more in PPI than CPI. Companies have been hoarding and absorbing, but that's wearing thin. We'll listen to what consumer goods companies say.
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Doug Krer3:06
New research suggests the average effective tariff rate could be 17% when the dust settles. That seems high. Would that cause you to look closer at your equity holdings?
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Carol Schlife3:27
Not necessarily a closer look. Markets may be more like 12-13%. But it's important not to lose sight that tariff revenues come out of consumer or business pockets. The issue is the market is not prepared for broader sectoral tariffs. Our expectation is still for a Fed cut in September. We see a continued deceleration but not recession.
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Doug Krer5:26
Let's focus on AI. Meta is building data centers, Tesla shareholders may invest in xAI, and Trump is announcing a $70 billion investment package. Are you still playing this?
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Carol Schlife6:02
Hard not to play it. Owning an index fund gives market weight. The combination of AI and the pro-growth bill provides support. That's why we're not expecting a recession. The buildout is in early innings, like the mid-90s internet.
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Doug Krer7:16
Another development is crypto. House Republicans have a crypto week. Bitcoin is above 120,000. How do you feel about it?
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Carol Schlife7:56
It's interesting, still speculative but building infrastructure and a regulatory framework will help. We need to stay at the forefront of certain industries, and bring back battery technology and nuclear energy.
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Doug Krer8:33
Okay, Carol, we'll leave it there. Thank you. Carol Schlife, chief market strategist at Beimo Private Wealth, on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia podcast. I'm Doug Krner. The CEO of Japan's third largest bank says the US will continue to be an important trading partner for Japan even with tariff uncertainty. Mizuho CEO Masahiro Kihara spoke with Bloomberg's Francine Lqua in London. Here is part of their conversation.
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Francine Lqua9:14
Mr. Kihara, thank you so much for speaking to us here at Bloomberg. Now, how confident are you about reaching the 1 trillion yen profit within a few years given all of the global uncertainty and given what we heard on tariffs and trade?
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Masahiro Kihara9:26
Thank you very much for having me. In fact, I think from current earning profile, I think we have almost reached 1 trillion yen actually. We had 800 last year we had 880 billion. We took one-time losses around somewhere around 120 billion, so I think in reality we reached one trillion thanks to all the circumstances.
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Francine Lqua9:56
But what does the uncertainty do, the uncertainty surrounding some of the Trump policies and trade and tariffs?
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Masahiro Kihara10:01
Yes, yes, so before April 2nd we were aiming somewhere around 1.1 trillion yen for this year actually. However, because of all the uncertainties, we sort of shrink it down as a conservative base to 950 billion. But I think when things get certain, the corporate action will come back which means that we can ratchet up a little bit. Or guidance.
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Francine Lqua10:34
So where are you seeing that uncertainty play into right now? Is it loans? Is it chief executives not spending, not deploying cash?
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Masahiro Kihara10:41
Yes. Right now the CEOs are very very on the sidelines actually. But for example, if it is a domestic deal, even in each region if it is a domestic deal, things are happening which means that we don't see a lot of cross-border happening right now. All of them - we have a big chunk of pipeline but they're not executed, but from a domestically perspective people are moving a little bit. So I think there is a good chance that people will get confident at some point.
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Francine Lqua11:12
You've also built up a US investment bank basically franchise. How's that going?
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Masahiro Kihara11:19
So we started from building the capital markets by ourselves, we went to equity capital markets. M&A was missing for us but we purchased Green Hill and I think at this moment we have the necessary pieces on the ground actually. So I'm very much looking forward to see the synergies between our former Mizuho platform and the Green Hill platform to materialize actually.
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Francine Lqua11:47
But do you plan to take the model of the successful investment bank that you built and actually apply it elsewhere including in Asia?
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Masahiro Kihara11:54
Yes. So we would like to sort of use our US capabilities transplanted to Europe, Asia and so that there will be cross-regional collaboration between regions and that will bring our next growth actually.
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Francine Lqua12:22
How much of your growth will be organic and how much will be through mergers and acquisitions?
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Masahiro Kihara12:28
From now on, I think we did the Green Hill deal. It's very important that we make sure that the synergies will be built out and for us the next growth will basically be organic.
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Francine Lqua12:44
Okay, because you've said in the past that you weren't interested in buying traditional commercial banks with a physical branch network. So that's still the case.
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Masahiro Kihara12:54
That's still the case.
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Francine Lqua12:56
But how do you see Mizuho changing actually in the next four to five years?
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Masahiro Kihara12:59
Yeah, so there are a couple of areas that should be interesting for us. Just as I said, investment banking regional collaboration that will bring a lot of synergies inside our institution. Also, as you may know, asset management, wealth management is growing in Japan and this will be another area. And also one more area that will be very interesting will be Japanese midcaps.
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Francine Lqua13:27
Okay.
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Masahiro Kihara13:27
So the midcaps are keen to grow or if they cannot grow they might delist. And there are many corporate actions happening in that space. So I think this will be another interesting area for us.
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Francine Lqua13:40
Is competition very fierce in wealth management?
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Masahiro Kihara13:44
Yes. It is very competitive but I think the thing is that the overall market is growing and that is beneficial for all of the banks, I think.
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Francine Lqua13:58
And on the midcap, is there something specific? Will it be basically lending that they need or all services as they grow?
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Masahiro Kihara14:04
There will be advisories.
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Francine Lqua14:06
Yeah.
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Masahiro Kihara14:06
And also lending. So both.
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Francine Lqua14:09
How do you see the Japanese landscape for businesses changing? How much will they look? I mean Japan has been a great experiment in terms of financials for a long time.
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Masahiro Kihara14:20
Yes.
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Francine Lqua14:20
Is it companies that will then grow also abroad as the economy stabilizes?
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Masahiro Kihara14:26
I would say that if right now there's many uncertainties but I think as things get clearer, the corporate action will come back. These couple of years we have seen many corporate actions happening investing outside Japan, changing their business portfolio risk, selling parts of the business that they are not doing well so concentrating the areas that have strength. So I would say that once things get clear, corporate action will come back and many Japanese corporates will try to invest in outside of Japan too.
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Francine Lqua15:07
Are you confident in the Japanese economy overall?
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Masahiro Kihara15:11
Overall I think we still have strengths in the economy sectors that we have. So I am very confident in that. The thing is that we have to concentrate our resources in the area that we have strength. We have high quality manufacturing, high quality products. So I think we need to figure out where the strengths are and try to sell it to the world.
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Francine Lqua15:47
Do you worry or are there dangers actually to Japan given the spike in long-term interest rates?
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Masahiro Kihara15:52
Yes. So for the long end, I suppose 20 years, 30 years, there has been a spike and volatility, but I think the government said that they will try to shift the issuance to 10 years or below. I think the BOJ is a little bit shrinking its QT. I think that will help.
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Francine Lqua16:16
But is there a point where it actually starts hurting your business and starts hurting the real economy?
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Masahiro Kihara16:22
Well, I think the BOJ is saying that the neutral rate is somewhere around 1% to 1.5%. And on top of that, 10 years will be somewhere around 2 to 2.25%. I think that is the level that is okay. But if it goes beyond 3% or so, that will then hurt the budget, I think.
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Francine Lqua16:45
Are you expecting more turmoil in the yen but also in the bond market?
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Masahiro Kihara16:51
Not at this moment actually. I think the current level of 1.4 before 1.5 for 10 years is okay. I haven't seen any turmoil in the 10 years zone, so as long as the 10 year is fine, I think it's fine.
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Doug Krer17:08
That is Masahiro Kihara the CEO of Mizuho speaking with Bloomberg's Francine Lqua 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 stories 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 Krner, and this is Bloomberg.