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Speaker 1: This is Bloomberg day Break Asia for this Wednesday, May

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Speaker 1: third in Hong Kong, Tuesday May second in New York

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Speaker 1: and coming up today.

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Speaker 2: Shares in regional banks Pack West and Western Alliance plunge

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Speaker 2: and renew concern over the health of the US financial system.

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Speaker 1: Traders look ahead to tomorrow's FED decision. Officials may hike

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Speaker 1: interest rates one more time.

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Speaker 2: Shares an Icon enterprises drop after Hindenburg Research discloses a

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Speaker 2: short call against the investment firm.

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Speaker 3: First Japan, South Korea Leader summit and twelve years is

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Speaker 3: set House. Democrats try workarounds on debt ceiling, Hong Kong

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Speaker 3: cuts number of directly elected council seats. Hollywood writers on strike.

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Speaker 3: I'm at Baxter with Global News.

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Speaker 4: That's all straight ahead on Bloomberg day Break Asia, the

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Speaker 4: business news you need to start your day in just

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Speaker 4: one fifteen minute podcast available on Apples, Spotify, the Bloomberg

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Speaker 4: Business app and everywhere you get your podcast.

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Speaker 2: Good morning, I'm Doug Prisner and I'm Brian Curtiz.

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Speaker 1: Here are the stories we're following today. Pack West and

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Speaker 1: Western Alliance leading a big sell off in regional lenders.

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Speaker 1: Trading in both firms triggered multiple volatility halts. Pack West

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Speaker 1: shares were down twenty eight percent to a record low,

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Speaker 1: while Western Alliance tumbled fifteen percent. This renewed fears over

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Speaker 1: the health of the financial system following the failure of

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Speaker 1: First Republic Bank. Here's Bloomberg's Max rayos.

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Speaker 5: If you're a bank investor and you're thinking about the

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Speaker 5: profitability of these banks or the kind of runway, right,

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Speaker 5: the picture has not improved for you. And if anything, given,

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Speaker 5: you haven't seen a systemic sort of intervention on the

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Speaker 5: part of the fbase. You haven't seen them raise insurance

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Speaker 5: levels for deposits. You haven't seen any kind of backstop

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Speaker 5: beyond the FED liquidity facility. You can be concerned.

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Speaker 1: The TERMOL comes a day after JP Morgan CEO Jamie

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Speaker 1: Diamond said the current banking crisis was nearing its end. However,

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Speaker 1: Diamond did acknowledge that it's possible we'd see another small

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Speaker 1: lender fail. The regional bank gage is already down twenty

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Speaker 1: eight percent so far this year.

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Speaker 2: Well, the route in those regional banks only deep in

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Speaker 2: the sense of uneasiness today, as the FED considers its

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Speaker 2: next move tomorrow, will have a decision from the Fed

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Speaker 2: two PM. Wall Street Time, Bloomberg's Michael McKee has a preview.

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Speaker 6: Investors are convinced the Fed will raise rates once more

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Speaker 6: by a quarter percentage point, but after that one they're done.

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Speaker 6: They will signal rates are high enough and need to

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Speaker 6: stay there for at least the rest of the year

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Speaker 6: to ensure that inflation continues to slow. The owners for

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Speaker 6: convincing Wall Street they will follow through will fall on

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Speaker 6: Chairman J. Powell. Markets are pricing in two rate cuts

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Speaker 6: by the end of twenty twenty three. Powell will also

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Speaker 6: get questions about the status of the banking system and

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Speaker 6: regulatory reforms the Central Bank needs to make, and no

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Speaker 6: doubt about the debt ceiling, although that's an issue he's

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Speaker 6: likely to dodge for the time being. Michael McKee, Bloomberg Daybreak.

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Speaker 2: Asia and separately today, a group of US lawmakers row

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Speaker 2: to Fetcher J. Powell and urged him to pause those

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Speaker 2: raps hikes. Speaking here of senators that include Elizabeth Warren

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Speaker 2: and Bernie Sanders, they say recent bank failures, along with

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Speaker 2: the impact of those prior rate hikes, have left the

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Speaker 2: US economy more vulnerable to an overreaction by the Fed.

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Speaker 1: Right well, Doug Kon Enterprises has seen it stop drop

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Speaker 1: the most on record after being targeted by a short seller.

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Speaker 1: We hear more from Bloomberg's Joanne Wong.

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Speaker 7: Icon Enterprises plummeted twenty percent after Hindenberg Research disclosed a

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Speaker 7: short call against the investment firm. Hinderburg said have found

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Speaker 7: evidence of inflated valuations for some of Icon's assets and

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Speaker 7: thus that the stock was overpriced. Icon rejected the claims.

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Speaker 7: It said the Hindenburg report was solely to generate profits

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Speaker 7: on a short position. The one day losses for Icons

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Speaker 7: standout among those seen for Hindenberg's recent bets against a

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Speaker 7: Donni Group and Block in Hong Kong. Joanne Wong, Bloomberg Debrigaisia.

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Speaker 2: After the bell here in the US, Starbucks gave a

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Speaker 2: positive earnings report. It's thanks to strong demand in the

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Speaker 2: US and China. More from Bloomberg's Tom Busby.

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Speaker 8: Starbucks easily topping earnings and sales estimates for last quarter

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Speaker 8: a positive sign that consumers are willing to spend money

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Speaker 8: on discretionary items like coffee, even though stubbornly high inflation

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Speaker 8: keeps pushing prices higher. Now globally, comp sales rows eleven

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Speaker 8: percent last quarter, well above the forecast of a seven

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Speaker 8: point three percent gain, and that was in large part

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Speaker 8: due to a three percent increase in sales in China

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Speaker 8: after some pandemic related lockdowns were lifted. The coffee giant

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Speaker 8: had expected to see a decline in comparable sales there.

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Speaker 8: Tom Busby Bloomberg Daybreak Asia.

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Speaker 2: And then on the call with analyst, Starbucks said the

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Speaker 2: coffee chain is reaffirming its guidance for the full year,

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Speaker 2: and the company also indicating it's out of stock on

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Speaker 2: more items than it would like to be. Stock right

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Speaker 2: now is weaker by nearly four percent in the late

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Speaker 2: US session.

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Speaker 1: Advanced micro Device is giving a lackluster sales forecast for

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Speaker 1: the current quarter as it struggles to bounce back from

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Speaker 1: a severe PC slowdown. We get the story from Bloomberg's

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Speaker 1: te Harley Pellett.

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Speaker 9: AMD is the second largest maker of computer processors. It

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Speaker 9: said second quarter revenue will be five point three billion

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Speaker 9: dollars plus or minus three hundred million. Now that compares

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Speaker 9: with an average analyst production of five point five to

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Speaker 9: one billion dollars. Its gross margin the percentage of sales

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Speaker 9: remaining after deducting the cost of production will be fifty percent,

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Speaker 9: in line with estimates. Like large arrival Intel, AMD is

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Speaker 9: navigating one of the worst ever downturns for the personal

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Speaker 9: computer industry, which is suffering from a post pandemic Funk

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Speaker 9: in New York Charlie Pellett Bloomberg Daybreak Asia.

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Speaker 1: AMD shares down six point three percent in late trading.

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Speaker 1: I'm Brian Curtis in Hong Kong alongside Rashad Salomt and

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Speaker 1: Krisner in New York. So, Doug, as you mentioned, the

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Speaker 1: regional banks were slammed today. Part of that is kind

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Speaker 1: of who's next thinking, But part of it may also

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Speaker 1: be that the profitability of these banks is just looking

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Speaker 1: more and more in question. And I took the broader

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Speaker 1: KBW Indix and went back twenty years. It's flat tough

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Speaker 1: period for any bank.

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Speaker 2: Yeah, most definitely. And then if you add into the

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Speaker 2: equation this concern about poor balance sheets. There was a

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Speaker 2: piece today in the New York Times by opinion opinion

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Speaker 2: columnist Peter Coy and he was citing some academic analysis

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Speaker 2: that was done initially in March and revised recently. It

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Speaker 2: looks at forty eight hundred US banks and the latest

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Speaker 2: figure show unrealized losses. This is just beyond the regionals

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Speaker 2: unrealized losses for those banks right now close to one

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Speaker 2: point six trillion as a result of the move up

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Speaker 2: that we have seen or did see earlier this year

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Speaker 2: in yields. We know now that yields have been moving

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Speaker 2: in the opposite direction, but obviously these banks are still exposed.

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Speaker 1: Yeah, just imagine going back eight months, you probably would

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Speaker 1: have thought, well, we're going to get real expansion in

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Speaker 1: the net interest margins for these banks because the heading

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Speaker 1: up to five percent or so. It has done that,

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Speaker 1: the rates have gone up, and still look at the

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Speaker 1: situation that these banks find themselves in. It's one thing

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Speaker 1: to say JP Morgan has done fine and the big

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Speaker 1: banks are fine, but the broad swath of the banking

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Speaker 1: sector very much in trouble. And it really does point

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Speaker 1: some attention to the Fed. You wonder whether not JR.

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Speaker 1: Own Powell will be seen as Author Burns or as

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Speaker 1: Jean Claude Trichetti hiking at the most inappropriate time. All right,

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Speaker 1: now it's time for global news. Let's get right over

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Speaker 1: to Ed Baxter in the nine to sixty newsroom in

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Speaker 1: San Francisco, he's tracking some of the top stories of

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Speaker 1: the hour.

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Speaker 3: Eduardo, all right, thank you very much, Brian. Leaders of

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Speaker 3: Japan South Korea set to hold their first formal summit

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Speaker 3: in twelve years. A formal announcement today says it'll be

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Speaker 3: a two day meeting in Soul to begin on Sunday.

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Speaker 3: The announcement says it's a chance for it Japan's Prime

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Speaker 3: Minister Fumio Keishia and South Korean President unsukju ale to

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Speaker 3: restore a shuttle to plomacy. The statement says the international

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Speaker 3: climate is changing, there is a need for unity against

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Speaker 3: China and North Korean threats. US House Democrats are putting

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Speaker 3: together a workaround to try and pass a debt ceiling

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Speaker 3: rise without the spending cuts tied end. They're courting some

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Speaker 3: moderate Republicans and would only need five but Bloombridge Jack

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Speaker 3: Fitzpatrick says there are a number of things being floated, so.

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Speaker 10: The discharge petition to get things moving in the House

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Speaker 10: is there, but it looks pretty unlikely unless a bunch

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Speaker 10: of moderate Republicans change their stance. Short term measure is

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Speaker 10: something people keep mentioning, but Senator Schumer just said today

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Speaker 10: he doesn't want something a few months. He wants a

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Speaker 10: two year deal.

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Speaker 3: Jack says a May nine meeting will show who has leverage,

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Speaker 3: and right now there's almost a sense of desperation, he says.

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Speaker 3: On the Hill, Hong Kong plans to slash the number

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Speaker 3: of directly elected seats and local district councils. This is

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Speaker 3: a direct effort to prevent activists from gaining power. The

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Speaker 3: proposal would see the City Hall direct elections for just

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Speaker 3: twenty percent of Hong Kong's district council seats. Hollywood writers

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Speaker 3: are on strike for the first time in fifteen years.

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Speaker 3: They're striking for higher pay amid rapid changes in the

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Speaker 3: way people watch TV and film. There is more streaming.

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Speaker 11: There's less writers working on a show, there are less

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Speaker 11: seasons typically made. All of that means less money to

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Speaker 11: the writers, you know residuals.

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Speaker 3: And Bloomberg's Felix Gillette is saying there's concern about AI

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Speaker 3: taking jobs as well.

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Speaker 11: The issue is they don't want residuals going to people

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Speaker 11: who created generative AI to create scripts, and they want

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Speaker 11: some control about how that technology is being employed in

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Speaker 11: the writer's room.

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Speaker 3: The first thing we will notice is a late night

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Speaker 3: broadcast shows will be get airing reruns tonight. Speaking of AI,

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Speaker 3: co founder of Apple Steve Wozniak is one of the

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Speaker 3: signators now of a scientific petition to slow the development

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Speaker 3: of AI, not so much afraid of a societal takeover,

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Speaker 3: but because of new ways to spam, hack and destroy

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Speaker 3: lives by bad guys who can replicate everything, including your

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Speaker 3: family's voices. He looks at it in a very interesting way.

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Speaker 12: Okay, technology, AI is going to take care of me.

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Speaker 12: So I will have all my food and all my

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Speaker 12: clothing and all my shelter, and my kids and my

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Speaker 12: family and a lot of entertainments, and I'll just be

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Speaker 12: like a family pet. Totally taken care of. Sounds like

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Speaker 12: a good thing. So if I'm going to be a

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Speaker 12: pet someday, I thought about it, how do I want

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Speaker 12: to be treated? So that's when I started feeding my

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Speaker 12: dogs for life steaks and wrote it. Just read chicken

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Speaker 12: and stuff.

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Speaker 3: Wasniak on Bloomberg. Technology says advances cannot be stopped, but

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Speaker 3: responsible people need to be watching global news powered by

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Speaker 3: more than twenty seven hundred journalists and analysts in over

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Speaker 3: one hundred and twenty countries. In San Francisco. I'm Ed Baxter,

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Speaker 3: and this is Bloomberg.

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Speaker 1: I'm Brian Curtis here in Hong Kong along with Rashad Salama,

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Speaker 1: and our guest is Peter Cheer, head of macro strategy

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Speaker 1: at Academy Securities, and never fails to to add some

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Speaker 1: pearls of wisdom to the program. Peter, great to have

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Speaker 1: you with us. So it's kind of hard to argue

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Speaker 1: that you know that Silicon Valley Bank was a one

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Speaker 1: off and Signature Bank was a one off, and you

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Speaker 1: know down the line to this week, there's something going

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Speaker 1: on there and investors are probably right to assume that

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Speaker 1: it's more likely it continues than goes the other direction.

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Speaker 13: Right, Yeah, it's definitely a little concerning. Late last week

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Speaker 13: I felt that it was a slight positive that we

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Speaker 13: had First Republics going down and KRE was actually the

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Speaker 13: Regional bank ETF was doing fine, and all of a

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Speaker 13: sudden this morning that really started reversing and did look.

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Speaker 13: As I think you mentioned earlier, people are starting to

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Speaker 13: look for who is the next candidate, and that's unfortunate.

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Speaker 13: I think there's two issues facing the banks. One, what

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Speaker 13: are they going to have to pay on deposits to

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Speaker 13: keep deposits. So I think that's a margin and equity story.

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Speaker 13: But clearly more people are starting to dig through balance

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Speaker 13: sheets and trying to figure out which balance sheets are

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Speaker 13: in trouble and how does that go from there?

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Speaker 14: Yeah, and the thing is there's also on the other

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Speaker 14: side of the coin a degree certainly of complacency.

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Speaker 13: Well certainly, you know, the FED seems set to high rates. Again,

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Speaker 13: the Fed doesn't seem to want to take any responsibility

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Speaker 13: that the rapid rise and rates caused some of these

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Speaker 13: balance sheet issues, where maybe they could have been slower,

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Speaker 13: they could have done something bigger upfront and let rates

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Speaker 13: not get as high. So, yeah, there's a different placency

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Speaker 13: and I think now that's creeping in and that is

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Speaker 13: the worry, right is if it wasn't one off and

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Speaker 13: each lay comes down. I think a lot of people

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Speaker 13: are also a little bit concerned the amount of support

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Speaker 13: JP Morgan felt it needed from the Fed in terms

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Speaker 13: of the balance sheet. A first Republic, maybe that's what

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Speaker 13: triggers the eyes to and saying, well JP Morgan's taking

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Speaker 13: this balance sheet overthinks they need that much support from

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Speaker 13: the Fed? What's really wrong? What's going on.

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Speaker 1: Out there under the hood. Investors are probably more nervous

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Speaker 1: than what the indexes read. And we talk about the

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Speaker 1: price action and looking at equity and maybe that, you know,

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Speaker 1: kind of prompts questions like complacency. But if you're not

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Speaker 1: a leader in an industry, you know you've you've taken

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Speaker 1: it on the chin. And if you've reported earnings that

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Speaker 1: you know missed anywhere along the line, especially on the forecast,

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Speaker 1: you've been hit pretty hard. Witness AMD after hours. Here

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Speaker 1: is that the scenario we're in, that only the biggest

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Speaker 1: and strongest will collect the flows. And you know, because

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Speaker 1: these big tech companies have fortress balance, she said, it

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Speaker 1: props up the indexes when they aren't so healthy.

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Speaker 13: So part of that, I find it very healthy that

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Speaker 13: this time around it's not just the shorts, the highest

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Speaker 13: short interest stocks leading the way. So last year, every

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Speaker 13: time we had a strong rally, it really felt extremely

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Speaker 13: like shortcovering, right, no one was really paying attention to earnings.

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Speaker 13: No one was paying attention is I need to buy everything?

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Speaker 13: So everything shot off at once, and this time Brett

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Speaker 13: is not very good, So I think we are poised

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Speaker 13: to see some sort of reversal where some of the

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Speaker 13: leaders start maybe flagging a litle little bit and people

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Speaker 13: start buying some of these underperformers who maybe have a

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Speaker 13: good story. Right now, we're not through that. I think

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Speaker 13: we've got to make it through earnings to see something

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Speaker 13: like that occur. You know, we've had this huge discrepancy

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Speaker 13: between the Nazaq one hundred or QQQ on the ETF

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Speaker 13: side of things versus the Russell two thousand. I think

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Speaker 13: there's going to be opportunities. I'm not quite prepared to

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Speaker 13: get long. I'm still a little bit nervous about markets.

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Speaker 13: So on a scale of minus ten to positive ten,

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Speaker 13: I'm about a minus four right now. That hasn't really

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Speaker 13: changed even after today. But when I start buying, I'm

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Speaker 13: actually going to want to buy all the laggers because

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Speaker 13: I think that's where the real rally is going to

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Speaker 13: come from.

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Speaker 14: That is interesting, and so give us typically what you're

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Speaker 14: looking at then, so.

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Speaker 13: Again, I think the Russell two thousand becomes an interesting thing.

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Speaker 13: I do want to own these regional banks. At some point.

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Speaker 13: We're starting to dabble around in commercial real estate. Yes,

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Speaker 13: they are real problems of commercial real estate. They're not

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Speaker 13: going away anytime soon. Having said that, you look at

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Speaker 13: how far down some of these stocks have come, how

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Speaker 13: negative sentiment is, and as a contrarion, that's things that

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Speaker 13: can my eye. Who's going to manage through this? Not

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Speaker 13: every property is bad. Even within the US, you see

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Speaker 13: certain cities and certain city centers maybe in trouble, but

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Speaker 13: other areas are growing, So there's going to be opportunity.

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Speaker 13: And I think we've almost hit the stage on commercial

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Speaker 13: real estate. The baby's been thrown up with the bath water,

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Speaker 13: and you can opportunistically trade that from the long end.

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Speaker 1: So we had a big drop in yields today that

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Speaker 1: was quite notable. The two year down seventeen basis points,

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Speaker 1: the ten year down fourteen basis points. You're starting to

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Speaker 1: get these yields down to a place where it suggests

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Speaker 1: that people are positioning for recession. And you know, it

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Speaker 1: kind of makes people trying to buy the bond market here,

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Speaker 1: the treasury market for safety. You know, does it tilt

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Speaker 1: the risk reward too? Like you said, to the equity market,

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Speaker 1: just because those yields have dropped as much as they.

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Speaker 13: Are right now, I really would be betting heavily against

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Speaker 13: the two year I kind of I think we're going

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Speaker 13: to see a little bit more of an inversion again,

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Speaker 13: because I think the SET is going to deliver a

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Speaker 13: very strong higher for longer message to the market doesn't

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Speaker 13: believe it. But the FED is I think, going to

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Speaker 13: be very adamant that they are going to be very

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Speaker 13: reluctant to cut. I think the market still almost views

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Speaker 13: the FED put as active. So we see moves like

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Speaker 13: this today, where oh, the Fed is going to have to,

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Speaker 13: you know, react to the banking problems. I don't think

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Speaker 13: that's how the SET is going to behave. So I'm

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Speaker 13: looking for two years to rise from here, and I

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Speaker 13: think the ten years probably going to stay about stable

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Speaker 13: because we are probably going to push ourselves into a recession.

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Speaker 14: And of course one of the things we should contribute

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Speaker 14: to recession would be credit drawing up, and certainly with

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Speaker 14: a lot of the regional banks, we're taking their balance sheets.

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Speaker 14: That's a distinct possibility.

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Speaker 13: Yes, it's you know, I've got admit as a larger macroperson,

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Speaker 13: I have not paid as much attention to the local banks.

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Speaker 13: But as I've been digging through this for the last

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Speaker 13: month or so, I'm amazed, and maybe I shouldn't be,

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Speaker 13: just how important the local banks and community banks are

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Speaker 13: too small and medium sized business. So much gets done

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Speaker 13: through those small banks, and if they have to start

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Speaker 13: pulling back, those companies are going to have to scramble.

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Speaker 13: They're going to have to figure out how to do

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Speaker 13: their payroll. They'll get it accomplished, but I think it

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Speaker 13: is going to provide this credit contraction and it's really

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Speaker 13: going to be a bottom small company up, which is

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Speaker 13: unfortunate because that's been one of the big areas of

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Speaker 13: growth in the US really as small companies. So I

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Speaker 13: think this is going to be way more disruptive than

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Speaker 13: the FED seems to think right now.

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Speaker 14: Very quickly, small businesses rely on small banks, and there's

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Speaker 14: a huge problem. Surely half of Americans are employed by

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Speaker 14: small businesses.

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Speaker 13: Yes, and you know, people will figure its way around.

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Speaker 13: But I think that's where you get that issue where

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Speaker 13: small banks are either going to have to raise rates

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Speaker 13: to keep some of those deposits, or those deposits are

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Speaker 13: going to keep going to the bigger banks. And in

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Speaker 13: the meantime, I think it's going to effectively gum up

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Speaker 13: the system, right, It's going to slow things down, It's

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Speaker 13: going to make everyone a little bit more conservative if

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Speaker 13: you were a small business person who felt that I

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Speaker 13: could walk in my bank if I need a million

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Speaker 13: dollars to expand, and they will give it to you.

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Speaker 13: Now you've got to be a little bit more concerned

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Speaker 13: if you're not dealing with that local banker who understands

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Speaker 13: your market very well.

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Speaker 1: So, yes, it's going to thirty seconds thirty seconds. Should

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Speaker 1: the FED take that into consideration.

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Speaker 13: I think the Fed should. I think they should have

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Speaker 13: taken it into con iteration last month. I think in

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Speaker 13: the middle of all this they should have said no more.

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Speaker 13: I don't know whether that would have been enough to

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Speaker 13: stop what happened to First Republic, but I think they

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Speaker 13: are pushing this hard, and they're being They're almost acting

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Speaker 13: as though they're blinders on, and they pushed too far.

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Speaker 13: But I think this set is going to continue to

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Speaker 13: push too far.

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Speaker 2: Mm hmm