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Speaker 1: This is Bloomberg Daybreak Asia for this Friday, May twelfth

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Speaker 1: in Hong Kong, Thursday May eleventh in New York and

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Speaker 1: coming up today.

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Speaker 2: US inflation data suggests the FEDS tightening campaign may be

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Speaker 2: finally having an effect.

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Speaker 1: The FDIIC says larger banks will face billions of extra

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Speaker 1: fees to replenish the agency's insurance fund.

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Speaker 2: And JD dot Com CEO exits after the Chinese internet

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Speaker 2: retailer reports its slowest pace of growth on record.

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Speaker 3: Big five debt ceiling summit moved the next week. Both

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Speaker 3: sides say a good sign. Top officials from China and

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Speaker 3: the US have met in Vienna Immigration Goodbye, Title forty two,

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Speaker 3: Hello Title eight. I'm at Baxter with Global News. That's

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Speaker 3: all straight ahead on Bloomberg Daybreak Asia. The business news

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Speaker 3: you need to start your day in just one fifteen

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Speaker 3: minute podcast available on Apples, Spotify, the Bloomberg Business app

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Speaker 3: and everywhere you get your podcasts.

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Speaker 1: Good morning, I'm Doug Krisner and I'm Brian Curtiz. Here

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Speaker 1: are the stories we're following today. The shares of big

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Speaker 1: banks were weak today and the FDIC said that larger

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Speaker 1: lenders will face billions of extra fees to replenish the

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Speaker 1: agency's insurance fund. The agency said that the institutions with

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Speaker 1: more than fifty billion in assets would pay ninety five

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Speaker 1: percent of the fees, and those with less than five

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Speaker 1: billion wouldn't have to pay at all. This comes after

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Speaker 1: the FDIC made the decision back in March to backstop

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Speaker 1: uninsured depositors at the failed Silicon Valley Bank and Signature

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Speaker 1: Bank JP Morgan Chase CEO Jamie Diamond says it's time

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Speaker 1: for the regulators to help put an end to the

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Speaker 1: turmoil in the banking industry.

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Speaker 2: We've had uncertain policy on mergers.

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Speaker 1: Is first horizon deal.

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Speaker 4: I think we have to assume they'll be a little

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Speaker 4: bit more so, you know, whatever the FDIC, the occ

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Speaker 4: the Fellow Reserve, you know, whatever they need to do to.

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Speaker 1: Make it better, they should do.

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Speaker 3: Be thoughtful, be very forward looking, surprised constantly because some

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Speaker 3: of these things have been known about for quite a while.

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Speaker 1: Diamond said that regulators are likely to overreact in their

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Speaker 1: response to the regional bank turmoil with more rules and

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Speaker 1: more requirements, but he also advocated for a probe into

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Speaker 1: the short selling of bank stocks. Diamond said that those

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Speaker 1: involved should be punished to the fullest extent of the law.

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Speaker 2: Well, in the US, today's economic news was a bit

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Speaker 2: on the soft side. We begin with first time jobless

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Speaker 2: claims reaching the highest level since October twenty twenty one,

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Speaker 2: and at the same time today producer prices in the

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Speaker 2: month of March dropping by the most since the beginning

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Speaker 2: of the pandemic. Now, these data points suggest the Fed's

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Speaker 2: policy tightening campaign may be having an effect on inflation.

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Speaker 2: Even so, the head of the Minneapolis Fed, Neil Kashkari,

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Speaker 2: is saying price pressures remain too hot. Inflation has come down,

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Speaker 2: but it's still well above our two percent target.

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Speaker 3: We have seen some softening in wage growth nationally, but

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Speaker 3: it's very.

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Speaker 2: Mixed, that is Neil Cashkari. He went on to say

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Speaker 2: he sees no evidence yet of slowing on the services

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Speaker 2: side of the American economy, and he thinks that tight

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Speaker 2: monetary policy may be needed for an extended time.

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Speaker 1: Brian and Doug we talked earlier about the rebound in

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Speaker 1: Chinese shares listed in New York. The National Golden Dragon

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Speaker 1: China Index is up three point eight percent, and part

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Speaker 1: of the reason was this one JD dot Com CEO

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Speaker 1: is leaving the company after only about a year in

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Speaker 1: the post. Bloomberg's Bonnie Ao has the story from Hong Kong.

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Speaker 5: CEO Schule will hand over the rings to CFO Sandy

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Speaker 5: Shou next month. Schule had been at the company for

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Speaker 5: more than a decade, but only took over the CEO

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Speaker 5: job in April of last year. The management reshuffle was

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Speaker 5: announced after JD reported its latest results. Revenue grew one

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Speaker 5: point four percent to thirty five billion dollars that beat projections,

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Speaker 5: but it was the slowest ever pace of expansion. The

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Speaker 5: firm has been struggling with competition from Pindordor and byte Dance.

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Speaker 5: Analysts say the personnel change suggests a shift and focus

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Speaker 5: towards profitability. Jd'sadrs in New York row seven two percent.

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Speaker 5: In Hong Kong, I'm Bonny out Bloomberg day Break Asia.

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Speaker 2: And today in the States, the Nasdaq Golden Dragon China

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Speaker 2: Index was up about three point eight percent on the day.

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Speaker 2: We move next to soft Bank, the company has lost

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Speaker 2: money in its vision fund again, despite that rebound that

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Speaker 2: we've been seeing lately in tech stocks. Bloomberg's Joan Wong

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Speaker 2: has more from Hong Kong.

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Speaker 6: The Vision Fund unit lost two hundred and ninety seven

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Speaker 6: and a half billion yen or two billion dollars in

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Speaker 6: the three months ending March. A year ago, it suffered

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Speaker 6: an even bigger loss of two point two trillion yen.

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Speaker 6: The Investment Fund lost the record four point three trillion

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Speaker 6: yen for the full fiscal year. To many, the results

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Speaker 6: may seem surprising. That's because technology evaluations around the world

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Speaker 6: have largely rebounded this year. CFO Yoshimihsugoto acknowledged the past

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Speaker 6: year has been rough, reflecting that SoftBank was forced to

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Speaker 6: mark down the valuations of almost three hundred and fifty

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Speaker 6: companies in Hong Kong. I'm Joanne one Bloomberg Day brig Asia.

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Speaker 1: The Bank of England raised benchmark lending rate to the

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Speaker 1: highest level since two thousand and eight. Governor Andrew Bailey

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Speaker 1: said further increases may be needed to stay the course

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Speaker 1: in the fight to slow inflation.

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Speaker 7: And it's our job to get it all the way

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Speaker 7: down to the two percent target and have it stay there.

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Speaker 7: And this is why today we've increased bank rate by

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Speaker 7: zero point twenty five percentage points to four and a

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Speaker 7: half percent. Low and stable inflation is the foundation of

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Speaker 7: a healthy economy, and we have to stay the course

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Speaker 7: to make sure inflation falls all the way back to

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Speaker 7: the two percent target.

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Speaker 1: Officials led by Bailey, also delivered the biggest upgrade to

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Speaker 1: growth projection since the BOE gained independence back in nineteen

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Speaker 1: ninety seven. The BOE said that the real economy will

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Speaker 1: be two point twenty five percent bigger by the middle

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Speaker 1: of twenty twenty six. The Central Bank also no longer

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Speaker 1: sees a recession in the forecast. I'm Brian Curtis along

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Speaker 1: with Doug Christner and Rashad Salamat. He will join us

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Speaker 1: in a few moments, So, Doug, I'll tell you from

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Speaker 1: the bear standpoint, some might think that the jumps market

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Speaker 1: has finally begun to crack. It's probably too early to

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Speaker 1: really make that call, but it did appear to dent

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Speaker 1: optimism from the slight drop in inflation that we had earlier.

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Speaker 2: Yes, you're absolutely right about that, and Bloomberg Economics was

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Speaker 2: analyzing those warn notices. They've done so going back to

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Speaker 2: the early part of the year, and now we're beginning

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Speaker 2: to see a correlation with where the large number of

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Speaker 2: layoffs occurred and the rise in the first time jobless claim.

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Speaker 2: So I think you're right, Brian, we may be finally

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Speaker 2: seeing some kind of softening in the labor market. And

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Speaker 2: to the point about FED policy, maybe it would give

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Speaker 2: a little bit more flexibility in terms of pausing and

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Speaker 2: just kind of holding steady for a while longer.

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Speaker 8: Yeah.

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Speaker 1: And from the bears standpoint, you know, they see this

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Speaker 1: market leadership as really narrow. And another example today the

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Speaker 1: Nasdaq was up and just about everything else was down,

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Speaker 1: and the bears would say, if you strip out the

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Speaker 1: top ten company as well, the performance, you know, has

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Speaker 1: been weak. But of course the bulls would say, if

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Speaker 1: you strip out the banks all the performance would look

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Speaker 1: much better. But the reality is you can't strip things out.

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Speaker 7: Yeah.

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Speaker 2: And Jamie Diamond, the head of JP Morgan Chase, was

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Speaker 2: telling us today that it's time really to get this

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Speaker 2: banking problem solved, and he does expect that we could

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Speaker 2: see a little bit more stress building in some of

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Speaker 2: these regionals. He pointed to the problem in the commercial

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Speaker 2: real estate market and basically speculated that we could see

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Speaker 2: a couple of more failures.

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Speaker 1: Yeah, and it was a tough day actually for regional banks.

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Speaker 1: You mentioned PacWest and the basic general performance. The Regional

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Speaker 1: Bank ETFKRE was down two and a half percent on

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Speaker 1: a day when you know the tape wasn't all that bad.

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Speaker 1: The S and P five hundred, there's only down two

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Speaker 1: tenths of one percent. Now it's time for global news. Well,

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Speaker 1: the US debt ceiling summit set for tomorrow has been

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Speaker 1: moved to next week. So is that good news or

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Speaker 1: bad news? Well, let's turn to Ed Baxter, who's in

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Speaker 1: the nine to sixty newsmen in San Francisco.

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Speaker 3: D Yeah, so that is the question. You're right, Brian,

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Speaker 3: actually being seen as a positive sign. Bloomberg's Kaylee Lyons

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Speaker 3: saying the first statement seem to align early.

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Speaker 9: Next week for the Big Five, the President and these

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Speaker 9: four congressional leaders. They're not going to sit down in

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Speaker 9: a room together again for several days. That is what

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Speaker 9: has been delayed. However, their staffs are going to continue

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Speaker 9: to talk as they have been over the last two days.

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Speaker 9: And Speaker McCarthy saying that postponing does not mean that

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Speaker 9: these talks have fallen apart. In fact, he said that

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Speaker 9: they all agreed it would be more productive.

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Speaker 3: Yeah. Senate majority of Leader Chuck Schumer is saying that

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Speaker 3: some progress has been made, and Bloomberg's Wendy Benjaminson says

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Speaker 3: the staffs can work through issues without what the Big

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Speaker 3: Five feel they need to spin the.

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Speaker 10: Most promising thing we've seen today. And you were referring

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Speaker 10: to spin earlier. But if all sides agree on the

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Speaker 10: spin that it actually might be true, you know we

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Speaker 10: might be able to hold our breath just a little

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Speaker 10: less tight and know that this might be coming.

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Speaker 1: To an end now.

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Speaker 3: Both sides also agree that there will be no temporary

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Speaker 3: fix so early now next week for the Big Five.

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Speaker 3: By the way, Donald Trump was asked about the ceiling

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Speaker 3: debate last night on CNN. Their congressman Senators, if they

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Speaker 3: don't give you massive cuts, you're going to.

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Speaker 1: Have to do a default.

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Speaker 3: Democrats are responding to the interview last night, saying Trump

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Speaker 3: is not even a serious candidate. Senator Josh Holly has

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Speaker 3: thrown China into the mix and the debt ceiling debate,

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Speaker 3: saying China's a main driver in the US debt.

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Speaker 9: We ought to impose tariffs on China until we get

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Speaker 9: our trade into balance and we give our manufacturers and

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Speaker 9: our workers and even plaving field.

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Speaker 3: He says it's time to get serious. China cheats on trade,

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Speaker 3: he says without end, says they shouldn't be allowed to

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Speaker 3: do that. Top officials from China and the US have

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Speaker 3: met in Vienna over the past two days, Foreign Minister

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Speaker 3: Wange and US National Security Advisor Jake Sullivan with what

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Speaker 3: the White House calls substinative and constructive meetings in what

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Speaker 3: could be a sign that the sides are working to

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Speaker 3: ease some strain. US Homeland Security a secretary says that

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Speaker 3: it is prepared for the end of Title forty two

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Speaker 3: immigration controls at the end of the day, Secretary Alejandro

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Speaker 3: Majorca saying there'll be new policy. It is called Title eight.

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Speaker 4: The new rule, finalized yesterday, presumes that those who do

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Speaker 4: not use lawful pathways to enter the United States are

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Speaker 4: ineligible for asylum. It allows US the United States to

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Speaker 4: remove individuals who do not establish a reasonable fear of persecution.

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Speaker 3: Maorca says even a bit tougher than Title forty two,

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Speaker 3: but House Speaker Kevin McCarthy says damage has already been done.

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Speaker 8: Eleven thousand people came across yesterday, set a new record.

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Speaker 8: Four point five million have come across since President Biden

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Speaker 8: has taken office when he's lifted the actions of the

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Speaker 8: last administration, an administration before that.

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Speaker 3: Now, Homeland Security says that issue will be enforced and

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Speaker 3: taken care of Global News powered by more than twenty

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Speaker 3: seven hundred journalist and analysts and one one hundred and

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

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Speaker 3: is Bloomberg.

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Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis in Hong

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Speaker 1: Kong along with Rashad Salamad, and we say good morning

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Speaker 1: to our guest, Francis Stacey, director of strategy at Optimal

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Speaker 1: Capital Advisors with us in our New York studios. So, Francis,

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Speaker 1: is this is this a sign that the job market

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Speaker 1: is about to crack?

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Speaker 11: Wait, ask me that question again.

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Speaker 1: Yeah, okay, is the job market cracking? Yes?

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Speaker 11: I think the job market is cracking. I think the

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Speaker 11: internals would point to that. And you know, sometimes when

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Speaker 11: we're seeing a lot of these guy these jobs added,

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Speaker 11: and of course we had those revisions lower it's because

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Speaker 11: some of the gig economy has to be added now

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Speaker 11: as employees, and there's some internal things like that. But no,

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Speaker 11: I do see it cracking, and you know, even the

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Speaker 11: continuing claims, although they haven't skyrocketed yet, they are you know,

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Speaker 11: forty five percent off of the low absolutely frosts.

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Speaker 12: And what we did see in the jobs were pool

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Speaker 12: was the main beneficiaries of job creation were healthcare and education.

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Speaker 12: Now these are not cyclical, so one should really look

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Speaker 12: at the rest of the jobs market, and you could

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Speaker 12: see it sewing and also of course added to the

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Speaker 12: revisions you just mentioned.

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Speaker 11: Yeah, I mean, it's slowing very very slowly, but you're

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Speaker 11: seeing people take on secondary jobs. You're seeing you know,

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Speaker 11: people start to have to take on you know, the

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Speaker 11: temporary jobs are sort of falling apart in the background

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Speaker 11: and things like that. So you're starting to see these

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Speaker 11: very very early indicators that it is actually softening.

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Speaker 1: Yeah. I said earlier when I was chatting with Doug that, well,

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Speaker 1: you know, you don't get to strip things out, but

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Speaker 1: of course you do when you're in the stock market.

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Speaker 1: You can make your targets and make your picks. So

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Speaker 1: if you were long tech for the first part of

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Speaker 1: this year and short at the banking sector, you'd be

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Speaker 1: smiling all the way to the bank.

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Speaker 11: Yes, Indeed, it's really interesting because with the Fed conversation.

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Speaker 11: You know, tech has Tech was hit very heavily because

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Speaker 11: it was the rates and it was the tightening cycle conversation.

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Speaker 11: And obviously that doesn't help TECH. And now it's rolling

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Speaker 11: over into an economic situation. And what's fascinating is to

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Speaker 11: look at tech as sort of a flight to safety

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Speaker 11: because of balance sheet strength. I don't think it's going to,

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Speaker 11: you know, continue to be elevated because I think there's

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Speaker 11: a lot of demand destruction going on in the background

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Speaker 11: that is not yet visible, and I think that that's

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Speaker 11: going to be a tendant to the credit cycle, which

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Speaker 11: is going to affect demand drastically, and we don't see

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Speaker 11: that in the background yet. But it is just really

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Speaker 11: interesting that now that we've had a lot of tightening

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Speaker 11: with interest rates, we now see tightening in consumer credit

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Speaker 11: and really credit across the board, and we haven't had

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Speaker 11: that next shoe drop, so we just see these strong

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Speaker 11: balance sheets.

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Speaker 1: So where do you see that demand destruction if not

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Speaker 1: in retail sales or some of the obvious places.

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Speaker 11: Well, what I see is that this is mechanically what

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Speaker 11: occurs with every one of these credit events. And you

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Speaker 11: take the yield curve inversion and that always with the

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Speaker 11: exception of once leads to recession. And the reason is

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Speaker 11: is because it preempts this credit situation. Because what happens

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Speaker 11: is when you have an expansionary period, and of course

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Speaker 11: historically expansionary like what occurred with both fiscal and monetary

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Speaker 11: policy during COVID, and then you start to drain liquidity

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Speaker 11: out of the system, which the FED is very committed

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Speaker 11: to doing. You can you can get rid of the liquidity,

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Speaker 11: but you cannot get rid of the debt. And what

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Speaker 11: happens is then the yield curve starts to resteep in.

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Speaker 11: At the time that it starts to re steep in

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Speaker 11: is when you have credit spreads widen, and then of

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Speaker 11: course you have an attendant credit situation, and you know,

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Speaker 11: it's anyone's guess. We're overlevered so in so many areas.

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Speaker 11: But commercial real estate is going to be a big problem,

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Speaker 11: Corporate debt's going to be a big problem, and so

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Speaker 11: we're just sort of in this calm before the storm.

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Speaker 11: Labor is such a lagging indicator, but of course that's

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Speaker 11: going to be affected too by this absolutely.

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Speaker 12: And you know, regional banks would be hit by that.

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Speaker 12: Moved down for commercial real estate but the FED keeps

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Speaker 12: telling markets to take it's tough talk seriously. And you know,

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Speaker 12: but we've got many investors and pricing stocks as if

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Speaker 12: it returned to the good old days of easy money

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Speaker 12: just around around the corner.

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Speaker 1: Now.

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Speaker 12: They seem to be convinced that there's going to be

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Speaker 12: a pivot by the US economy very soon. In other words,

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Speaker 12: investors just what their bubble back.

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Speaker 1: Yes, of course.

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Speaker 11: And the funny thing is is that I think, you know,

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Speaker 11: when you just look at the history of Powell, when

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Speaker 11: Yellen started the previous iteration of tightening, and they carried

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Speaker 11: on until you know, the markets sold off at Christmas

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Speaker 11: time and the money market funds had a bit of

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Speaker 11: a crunch. You know, he stopped raising rates at that point.

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Speaker 11: He continued to drain the balance sheet through nineteen until

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Speaker 11: the third quarter when you had the spike in the

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Speaker 11: overnight markets in rates because you know, I'm assuming that

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Speaker 11: corporate uh you know, stocks were not stock trates were

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Speaker 11: not being settled for corporate tax paid. But there was

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Speaker 11: some issue where the liquidity in the system was not enough,

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Speaker 11: and he quickly threw half a trillion dollars of q

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Speaker 11: back into the system even before COVID, and so that's

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Speaker 11: the Powell history. So I think markets it's funny because

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Speaker 11: you say, just don't fight the Fed, But I think

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Speaker 11: markets are expecting that if too many things break all

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Speaker 11: at once, that he is going to pivot, and he's

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Speaker 11: going to pivot hard remains to be seen.

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Speaker 12: Well, that's right, because investors are perhaps looking at their

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Speaker 12: previous call and they underestimated essentially inflation. The question is

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Speaker 12: are they underestimating a recession?

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Speaker 11: Yes, yes, you know, we have a bifurcated economy. The

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Speaker 11: upper forty percent that owns assets, the lower sixty percent

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Speaker 11: can't grab five hundred dollars in savings. They're living paycheck

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Speaker 11: to paycheck. Even if they have big paychecks, they're living

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Speaker 11: paycheck to paycheck. There's a record amount of leverage in

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Speaker 11: credit cards. Every time we you know, high creates that

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Speaker 11: debt service becomes more onerous, and you've got a try

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Speaker 11: effecta of things coming. You've got one point eight trillion

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Speaker 11: in real estate, those loans rolling over, and those loans

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Speaker 11: were issued I don't know, three and a half four percent,

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Speaker 11: and now they're going to be reissued at six and

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Speaker 11: a half or seven percent. And then you've got the

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Speaker 11: debt sealing discussion coming, and then I don't know if

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Speaker 11: the student loan forgiveness thing is going to make it

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Speaker 11: through the Supreme Court. And if it doesn't, then you've

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Speaker 11: got a huge portion of the population that now adds

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Speaker 11: a quote unquote three hundred dollars payment per month onto

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Speaker 11: that with cumulative interest, right, And what happens is that

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Speaker 11: lower sixty percent when they're pushed to the threshold and

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Speaker 11: they can't get credit anymore and they can no longer

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Speaker 11: paper over their own personal situations. You're starting to see it.

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Speaker 11: You're starting to see it in the one month delinquencies,

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Speaker 11: well one month delinquencies. We don't know what percentage end

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Speaker 11: up being defaults eventually, but they start with that.

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Speaker 1: It's quite a bearish mosaic that you have, friends, So

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Speaker 1: let's talk. Let's talk about how do we make that

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Speaker 1: work in portfolios? So what are the couple of steps

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Speaker 1: that you would take or that you know you could

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Speaker 1: advise people to take to sort of hunker down here.

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Speaker 11: Yeah, So quint Essentially, when you have growth and inflation

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Speaker 11: decelerating at the same time, you go back to sort

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Speaker 11: of some of these old faithfuls and gold works very

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Speaker 11: well in that environment. You've got relatively speaking, staples that

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Speaker 11: work very well. Utilities work very well. Looking watching defense

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Speaker 11: obviously with what's happening geopolitically, and also healthcare works very

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Speaker 11: well as defensives. But it's it's kind of more of

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Speaker 11: a bonds and gold conversation, bonds and gold bonds and

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Speaker 11: gold bonds and gold. And I do think that the

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Speaker 11: FED is taken investors by surprise because I think myself included,

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Speaker 11: we didn't think he was going to be able to

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Speaker 11: tighten this far this fast. About more than you know,

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Speaker 11: the bank's breaking down, okay, And I think that that's

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Speaker 11: because the upper forty percent is so flush and they're

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Speaker 11: now getting these ERC payments and they're getting these refunds,

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Speaker 11: and so we went from stimulating the lower half of

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Speaker 11: the economy to now stimulating the upper half of the economy,

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Speaker 11: and these people are still buying.

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Speaker 1: And you're also likely to get some stimulus from AI.

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Speaker 4: Now.

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Speaker 1: I know this is probably red meat to you, but

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Speaker 1: in terms of turning back the argument, but some in

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Speaker 1: the market think that AI has the potential to really

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Speaker 1: reduce the markets.

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Speaker 11: I think if it really has that potential stably, it's

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Speaker 11: going to happen over a very long period of time.

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Speaker 11: Just funnily enough, I happened through an AI conference yesterday

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Speaker 11: and they were just talking about how some of the

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Speaker 11: answers that pop out of these things are incredibly intelligent,

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Speaker 11: and some of them are incredibly stupid. So you still

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Speaker 11: have to have a human that's kind of driving that bus.

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Speaker 11: And the best analogy I heard was the Captain Sully

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Speaker 11: analogy when you had to land the plane in the

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Speaker 11: Hudson because they used to have five people in the cockpit.

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Speaker 11: They now only have two people in the cockpit because

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Speaker 11: they have computers, but you still need somebody running those computers.

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Speaker 1: That's a very nice image to draw. Francis, Thank you.

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Speaker 1: Francis Stacy, Director's Strategy at Optimal Capital Advisors. This is

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