Speaker 1: This is Bloomberg Daybreak Asia for this Friday, May twelfth
Speaker 1: in Hong Kong, Thursday May eleventh in New York and
Speaker 1: coming up today.
Speaker 2: US inflation data suggests the FEDS tightening campaign may be
Speaker 2: finally having an effect.
Speaker 1: The FDIIC says larger banks will face billions of extra
Speaker 1: fees to replenish the agency's insurance fund.
Speaker 2: And JD dot Com CEO exits after the Chinese internet
Speaker 2: retailer reports its slowest pace of growth on record.
Speaker 3: Big five debt ceiling summit moved the next week. Both
Speaker 3: sides say a good sign. Top officials from China and
Speaker 3: the US have met in Vienna Immigration Goodbye, Title forty two,
Speaker 3: Hello Title eight. I'm at Baxter with Global News. That's
Speaker 3: all straight ahead on Bloomberg Daybreak Asia. The business news
Speaker 3: you need to start your day in just one fifteen
Speaker 3: minute podcast available on Apples, Spotify, the Bloomberg Business app
Speaker 3: and everywhere you get your podcasts.
Speaker 1: Good morning, I'm Doug Krisner and I'm Brian Curtiz. Here
Speaker 1: are the stories we're following today. The shares of big
Speaker 1: banks were weak today and the FDIC said that larger
Speaker 1: lenders will face billions of extra fees to replenish the
Speaker 1: agency's insurance fund. The agency said that the institutions with
Speaker 1: more than fifty billion in assets would pay ninety five
Speaker 1: percent of the fees, and those with less than five
Speaker 1: billion wouldn't have to pay at all. This comes after
Speaker 1: the FDIC made the decision back in March to backstop
Speaker 1: uninsured depositors at the failed Silicon Valley Bank and Signature
Speaker 1: Bank JP Morgan Chase CEO Jamie Diamond says it's time
Speaker 1: for the regulators to help put an end to the
Speaker 1: turmoil in the banking industry.
Speaker 2: We've had uncertain policy on mergers.
Speaker 1: Is first horizon deal.
Speaker 4: I think we have to assume they'll be a little
Speaker 4: bit more so, you know, whatever the FDIC, the occ
Speaker 4: the Fellow Reserve, you know, whatever they need to do to.
Speaker 1: Make it better, they should do.
Speaker 3: Be thoughtful, be very forward looking, surprised constantly because some
Speaker 3: of these things have been known about for quite a while.
Speaker 1: Diamond said that regulators are likely to overreact in their
Speaker 1: response to the regional bank turmoil with more rules and
Speaker 1: more requirements, but he also advocated for a probe into
Speaker 1: the short selling of bank stocks. Diamond said that those
Speaker 1: involved should be punished to the fullest extent of the law.
Speaker 2: Well, in the US, today's economic news was a bit
Speaker 2: on the soft side. We begin with first time jobless
Speaker 2: claims reaching the highest level since October twenty twenty one,
Speaker 2: and at the same time today producer prices in the
Speaker 2: month of March dropping by the most since the beginning
Speaker 2: of the pandemic. Now, these data points suggest the Fed's
Speaker 2: policy tightening campaign may be having an effect on inflation.
Speaker 2: Even so, the head of the Minneapolis Fed, Neil Kashkari,
Speaker 2: is saying price pressures remain too hot. Inflation has come down,
Speaker 2: but it's still well above our two percent target.
Speaker 3: We have seen some softening in wage growth nationally, but
Speaker 3: it's very.
Speaker 2: Mixed, that is Neil Cashkari. He went on to say
Speaker 2: he sees no evidence yet of slowing on the services
Speaker 2: side of the American economy, and he thinks that tight
Speaker 2: monetary policy may be needed for an extended time.
Speaker 1: Brian and Doug we talked earlier about the rebound in
Speaker 1: Chinese shares listed in New York. The National Golden Dragon
Speaker 1: China Index is up three point eight percent, and part
Speaker 1: of the reason was this one JD dot Com CEO
Speaker 1: is leaving the company after only about a year in
Speaker 1: the post. Bloomberg's Bonnie Ao has the story from Hong Kong.
Speaker 5: CEO Schule will hand over the rings to CFO Sandy
Speaker 5: Shou next month. Schule had been at the company for
Speaker 5: more than a decade, but only took over the CEO
Speaker 5: job in April of last year. The management reshuffle was
Speaker 5: announced after JD reported its latest results. Revenue grew one
Speaker 5: point four percent to thirty five billion dollars that beat projections,
Speaker 5: but it was the slowest ever pace of expansion. The
Speaker 5: firm has been struggling with competition from Pindordor and byte Dance.
Speaker 5: Analysts say the personnel change suggests a shift and focus
Speaker 5: towards profitability. Jd'sadrs in New York row seven two percent.
Speaker 5: In Hong Kong, I'm Bonny out Bloomberg day Break Asia.
Speaker 2: And today in the States, the Nasdaq Golden Dragon China
Speaker 2: Index was up about three point eight percent on the day.
Speaker 2: We move next to soft Bank, the company has lost
Speaker 2: money in its vision fund again, despite that rebound that
Speaker 2: we've been seeing lately in tech stocks. Bloomberg's Joan Wong
Speaker 2: has more from Hong Kong.
Speaker 6: The Vision Fund unit lost two hundred and ninety seven
Speaker 6: and a half billion yen or two billion dollars in
Speaker 6: the three months ending March. A year ago, it suffered
Speaker 6: an even bigger loss of two point two trillion yen.
Speaker 6: The Investment Fund lost the record four point three trillion
Speaker 6: yen for the full fiscal year. To many, the results
Speaker 6: may seem surprising. That's because technology evaluations around the world
Speaker 6: have largely rebounded this year. CFO Yoshimihsugoto acknowledged the past
Speaker 6: year has been rough, reflecting that SoftBank was forced to
Speaker 6: mark down the valuations of almost three hundred and fifty
Speaker 6: companies in Hong Kong. I'm Joanne one Bloomberg Day brig Asia.
Speaker 1: The Bank of England raised benchmark lending rate to the
Speaker 1: highest level since two thousand and eight. Governor Andrew Bailey
Speaker 1: said further increases may be needed to stay the course
Speaker 1: in the fight to slow inflation.
Speaker 7: And it's our job to get it all the way
Speaker 7: down to the two percent target and have it stay there.
Speaker 7: And this is why today we've increased bank rate by
Speaker 7: zero point twenty five percentage points to four and a
Speaker 7: half percent. Low and stable inflation is the foundation of
Speaker 7: a healthy economy, and we have to stay the course
Speaker 7: to make sure inflation falls all the way back to
Speaker 7: the two percent target.
Speaker 1: Officials led by Bailey, also delivered the biggest upgrade to
Speaker 1: growth projection since the BOE gained independence back in nineteen
Speaker 1: ninety seven. The BOE said that the real economy will
Speaker 1: be two point twenty five percent bigger by the middle
Speaker 1: of twenty twenty six. The Central Bank also no longer
Speaker 1: sees a recession in the forecast. I'm Brian Curtis along
Speaker 1: with Doug Christner and Rashad Salamat. He will join us
Speaker 1: in a few moments, So, Doug, I'll tell you from
Speaker 1: the bear standpoint, some might think that the jumps market
Speaker 1: has finally begun to crack. It's probably too early to
Speaker 1: really make that call, but it did appear to dent
Speaker 1: optimism from the slight drop in inflation that we had earlier.
Speaker 2: Yes, you're absolutely right about that, and Bloomberg Economics was
Speaker 2: analyzing those warn notices. They've done so going back to
Speaker 2: the early part of the year, and now we're beginning
Speaker 2: to see a correlation with where the large number of
Speaker 2: layoffs occurred and the rise in the first time jobless claim.
Speaker 2: So I think you're right, Brian, we may be finally
Speaker 2: seeing some kind of softening in the labor market. And
Speaker 2: to the point about FED policy, maybe it would give
Speaker 2: a little bit more flexibility in terms of pausing and
Speaker 2: just kind of holding steady for a while longer.
Speaker 8: Yeah.
Speaker 1: And from the bears standpoint, you know, they see this
Speaker 1: market leadership as really narrow. And another example today the
Speaker 1: Nasdaq was up and just about everything else was down,
Speaker 1: and the bears would say, if you strip out the
Speaker 1: top ten company as well, the performance, you know, has
Speaker 1: been weak. But of course the bulls would say, if
Speaker 1: you strip out the banks all the performance would look
Speaker 1: much better. But the reality is you can't strip things out.
Speaker 7: Yeah.
Speaker 2: And Jamie Diamond, the head of JP Morgan Chase, was
Speaker 2: telling us today that it's time really to get this
Speaker 2: banking problem solved, and he does expect that we could
Speaker 2: see a little bit more stress building in some of
Speaker 2: these regionals. He pointed to the problem in the commercial
Speaker 2: real estate market and basically speculated that we could see
Speaker 2: a couple of more failures.
Speaker 1: Yeah, and it was a tough day actually for regional banks.
Speaker 1: You mentioned PacWest and the basic general performance. The Regional
Speaker 1: Bank ETFKRE was down two and a half percent on
Speaker 1: a day when you know the tape wasn't all that bad.
Speaker 1: The S and P five hundred, there's only down two
Speaker 1: tenths of one percent. Now it's time for global news. Well,
Speaker 1: the US debt ceiling summit set for tomorrow has been
Speaker 1: moved to next week. So is that good news or
Speaker 1: bad news? Well, let's turn to Ed Baxter, who's in
Speaker 1: the nine to sixty newsmen in San Francisco.
Speaker 3: D Yeah, so that is the question. You're right, Brian,
Speaker 3: actually being seen as a positive sign. Bloomberg's Kaylee Lyons
Speaker 3: saying the first statement seem to align early.
Speaker 9: Next week for the Big Five, the President and these
Speaker 9: four congressional leaders. They're not going to sit down in
Speaker 9: a room together again for several days. That is what
Speaker 9: has been delayed. However, their staffs are going to continue
Speaker 9: to talk as they have been over the last two days.
Speaker 9: And Speaker McCarthy saying that postponing does not mean that
Speaker 9: these talks have fallen apart. In fact, he said that
Speaker 9: they all agreed it would be more productive.
Speaker 3: Yeah. Senate majority of Leader Chuck Schumer is saying that
Speaker 3: some progress has been made, and Bloomberg's Wendy Benjaminson says
Speaker 3: the staffs can work through issues without what the Big
Speaker 3: Five feel they need to spin the.
Speaker 10: Most promising thing we've seen today. And you were referring
Speaker 10: to spin earlier. But if all sides agree on the
Speaker 10: spin that it actually might be true, you know we
Speaker 10: might be able to hold our breath just a little
Speaker 10: less tight and know that this might be coming.
Speaker 1: To an end now.
Speaker 3: Both sides also agree that there will be no temporary
Speaker 3: fix so early now next week for the Big Five.
Speaker 3: By the way, Donald Trump was asked about the ceiling
Speaker 3: debate last night on CNN. Their congressman Senators, if they
Speaker 3: don't give you massive cuts, you're going to.
Speaker 1: Have to do a default.
Speaker 3: Democrats are responding to the interview last night, saying Trump
Speaker 3: is not even a serious candidate. Senator Josh Holly has
Speaker 3: thrown China into the mix and the debt ceiling debate,
Speaker 3: saying China's a main driver in the US debt.
Speaker 9: We ought to impose tariffs on China until we get
Speaker 9: our trade into balance and we give our manufacturers and
Speaker 9: our workers and even plaving field.
Speaker 3: He says it's time to get serious. China cheats on trade,
Speaker 3: he says without end, says they shouldn't be allowed to
Speaker 3: do that. Top officials from China and the US have
Speaker 3: met in Vienna over the past two days, Foreign Minister
Speaker 3: Wange and US National Security Advisor Jake Sullivan with what
Speaker 3: the White House calls substinative and constructive meetings in what
Speaker 3: could be a sign that the sides are working to
Speaker 3: ease some strain. US Homeland Security a secretary says that
Speaker 3: it is prepared for the end of Title forty two
Speaker 3: immigration controls at the end of the day, Secretary Alejandro
Speaker 3: Majorca saying there'll be new policy. It is called Title eight.
Speaker 4: The new rule, finalized yesterday, presumes that those who do
Speaker 4: not use lawful pathways to enter the United States are
Speaker 4: ineligible for asylum. It allows US the United States to
Speaker 4: remove individuals who do not establish a reasonable fear of persecution.
Speaker 3: Maorca says even a bit tougher than Title forty two,
Speaker 3: but House Speaker Kevin McCarthy says damage has already been done.
Speaker 8: Eleven thousand people came across yesterday, set a new record.
Speaker 8: Four point five million have come across since President Biden
Speaker 8: has taken office when he's lifted the actions of the
Speaker 8: last administration, an administration before that.
Speaker 3: Now, Homeland Security says that issue will be enforced and
Speaker 3: taken care of Global News powered by more than twenty
Speaker 3: seven hundred journalist and analysts and one one hundred and
Speaker 3: twenty countries. In San Francisco, I'm Ed Baxter, and this
Speaker 3: is Bloomberg.
Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis in Hong
Speaker 1: Kong along with Rashad Salamad, and we say good morning
Speaker 1: to our guest, Francis Stacey, director of strategy at Optimal
Speaker 1: Capital Advisors with us in our New York studios. So, Francis,
Speaker 1: is this is this a sign that the job market
Speaker 1: is about to crack?
Speaker 11: Wait, ask me that question again.
Speaker 1: Yeah, okay, is the job market cracking? Yes?
Speaker 11: I think the job market is cracking. I think the
Speaker 11: internals would point to that. And you know, sometimes when
Speaker 11: we're seeing a lot of these guy these jobs added,
Speaker 11: and of course we had those revisions lower it's because
Speaker 11: some of the gig economy has to be added now
Speaker 11: as employees, and there's some internal things like that. But no,
Speaker 11: I do see it cracking, and you know, even the
Speaker 11: continuing claims, although they haven't skyrocketed yet, they are you know,
Speaker 11: forty five percent off of the low absolutely frosts.
Speaker 12: And what we did see in the jobs were pool
Speaker 12: was the main beneficiaries of job creation were healthcare and education.
Speaker 12: Now these are not cyclical, so one should really look
Speaker 12: at the rest of the jobs market, and you could
Speaker 12: see it sewing and also of course added to the
Speaker 12: revisions you just mentioned.
Speaker 11: Yeah, I mean, it's slowing very very slowly, but you're
Speaker 11: seeing people take on secondary jobs. You're seeing you know,
Speaker 11: people start to have to take on you know, the
Speaker 11: temporary jobs are sort of falling apart in the background
Speaker 11: and things like that. So you're starting to see these
Speaker 11: very very early indicators that it is actually softening.
Speaker 1: Yeah. I said earlier when I was chatting with Doug that, well,
Speaker 1: you know, you don't get to strip things out, but
Speaker 1: of course you do when you're in the stock market.
Speaker 1: You can make your targets and make your picks. So
Speaker 1: if you were long tech for the first part of
Speaker 1: this year and short at the banking sector, you'd be
Speaker 1: smiling all the way to the bank.
Speaker 11: Yes, Indeed, it's really interesting because with the Fed conversation.
Speaker 11: You know, tech has Tech was hit very heavily because
Speaker 11: it was the rates and it was the tightening cycle conversation.
Speaker 11: And obviously that doesn't help TECH. And now it's rolling
Speaker 11: over into an economic situation. And what's fascinating is to
Speaker 11: look at tech as sort of a flight to safety
Speaker 11: because of balance sheet strength. I don't think it's going to,
Speaker 11: you know, continue to be elevated because I think there's
Speaker 11: a lot of demand destruction going on in the background
Speaker 11: that is not yet visible, and I think that that's
Speaker 11: going to be a tendant to the credit cycle, which
Speaker 11: is going to affect demand drastically, and we don't see
Speaker 11: that in the background yet. But it is just really
Speaker 11: interesting that now that we've had a lot of tightening
Speaker 11: with interest rates, we now see tightening in consumer credit
Speaker 11: and really credit across the board, and we haven't had
Speaker 11: that next shoe drop, so we just see these strong
Speaker 11: balance sheets.
Speaker 1: So where do you see that demand destruction if not
Speaker 1: in retail sales or some of the obvious places.
Speaker 11: Well, what I see is that this is mechanically what
Speaker 11: occurs with every one of these credit events. And you
Speaker 11: take the yield curve inversion and that always with the
Speaker 11: exception of once leads to recession. And the reason is
Speaker 11: is because it preempts this credit situation. Because what happens
Speaker 11: is when you have an expansionary period, and of course
Speaker 11: historically expansionary like what occurred with both fiscal and monetary
Speaker 11: policy during COVID, and then you start to drain liquidity
Speaker 11: out of the system, which the FED is very committed
Speaker 11: to doing. You can you can get rid of the liquidity,
Speaker 11: but you cannot get rid of the debt. And what
Speaker 11: happens is then the yield curve starts to resteep in.
Speaker 11: At the time that it starts to re steep in
Speaker 11: is when you have credit spreads widen, and then of
Speaker 11: course you have an attendant credit situation, and you know,
Speaker 11: it's anyone's guess. We're overlevered so in so many areas.
Speaker 11: But commercial real estate is going to be a big problem,
Speaker 11: Corporate debt's going to be a big problem, and so
Speaker 11: we're just sort of in this calm before the storm.
Speaker 11: Labor is such a lagging indicator, but of course that's
Speaker 11: going to be affected too by this absolutely.
Speaker 12: And you know, regional banks would be hit by that.
Speaker 12: Moved down for commercial real estate but the FED keeps
Speaker 12: telling markets to take it's tough talk seriously. And you know,
Speaker 12: but we've got many investors and pricing stocks as if
Speaker 12: it returned to the good old days of easy money
Speaker 12: just around around the corner.
Speaker 1: Now.
Speaker 12: They seem to be convinced that there's going to be
Speaker 12: a pivot by the US economy very soon. In other words,
Speaker 12: investors just what their bubble back.
Speaker 1: Yes, of course.
Speaker 11: And the funny thing is is that I think, you know,
Speaker 11: when you just look at the history of Powell, when
Speaker 11: Yellen started the previous iteration of tightening, and they carried
Speaker 11: on until you know, the markets sold off at Christmas
Speaker 11: time and the money market funds had a bit of
Speaker 11: a crunch. You know, he stopped raising rates at that point.
Speaker 11: He continued to drain the balance sheet through nineteen until
Speaker 11: the third quarter when you had the spike in the
Speaker 11: overnight markets in rates because you know, I'm assuming that
Speaker 11: corporate uh you know, stocks were not stock trates were
Speaker 11: not being settled for corporate tax paid. But there was
Speaker 11: some issue where the liquidity in the system was not enough,
Speaker 11: and he quickly threw half a trillion dollars of q
Speaker 11: back into the system even before COVID, and so that's
Speaker 11: the Powell history. So I think markets it's funny because
Speaker 11: you say, just don't fight the Fed, But I think
Speaker 11: markets are expecting that if too many things break all
Speaker 11: at once, that he is going to pivot, and he's
Speaker 11: going to pivot hard remains to be seen.
Speaker 12: Well, that's right, because investors are perhaps looking at their
Speaker 12: previous call and they underestimated essentially inflation. The question is
Speaker 12: are they underestimating a recession?
Speaker 11: Yes, yes, you know, we have a bifurcated economy. The
Speaker 11: upper forty percent that owns assets, the lower sixty percent
Speaker 11: can't grab five hundred dollars in savings. They're living paycheck
Speaker 11: to paycheck. Even if they have big paychecks, they're living
Speaker 11: paycheck to paycheck. There's a record amount of leverage in
Speaker 11: credit cards. Every time we you know, high creates that
Speaker 11: debt service becomes more onerous, and you've got a try
Speaker 11: effecta of things coming. You've got one point eight trillion
Speaker 11: in real estate, those loans rolling over, and those loans
Speaker 11: were issued I don't know, three and a half four percent,
Speaker 11: and now they're going to be reissued at six and
Speaker 11: a half or seven percent. And then you've got the
Speaker 11: debt sealing discussion coming, and then I don't know if
Speaker 11: the student loan forgiveness thing is going to make it
Speaker 11: through the Supreme Court. And if it doesn't, then you've
Speaker 11: got a huge portion of the population that now adds
Speaker 11: a quote unquote three hundred dollars payment per month onto
Speaker 11: that with cumulative interest, right, And what happens is that
Speaker 11: lower sixty percent when they're pushed to the threshold and
Speaker 11: they can't get credit anymore and they can no longer
Speaker 11: paper over their own personal situations. You're starting to see it.
Speaker 11: You're starting to see it in the one month delinquencies,
Speaker 11: well one month delinquencies. We don't know what percentage end
Speaker 11: up being defaults eventually, but they start with that.
Speaker 1: It's quite a bearish mosaic that you have, friends, So
Speaker 1: let's talk. Let's talk about how do we make that
Speaker 1: work in portfolios? So what are the couple of steps
Speaker 1: that you would take or that you know you could
Speaker 1: advise people to take to sort of hunker down here.
Speaker 11: Yeah, So quint Essentially, when you have growth and inflation
Speaker 11: decelerating at the same time, you go back to sort
Speaker 11: of some of these old faithfuls and gold works very
Speaker 11: well in that environment. You've got relatively speaking, staples that
Speaker 11: work very well. Utilities work very well. Looking watching defense
Speaker 11: obviously with what's happening geopolitically, and also healthcare works very
Speaker 11: well as defensives. But it's it's kind of more of
Speaker 11: a bonds and gold conversation, bonds and gold bonds and
Speaker 11: gold bonds and gold. And I do think that the
Speaker 11: FED is taken investors by surprise because I think myself included,
Speaker 11: we didn't think he was going to be able to
Speaker 11: tighten this far this fast. About more than you know,
Speaker 11: the bank's breaking down, okay, And I think that that's
Speaker 11: because the upper forty percent is so flush and they're
Speaker 11: now getting these ERC payments and they're getting these refunds,
Speaker 11: and so we went from stimulating the lower half of
Speaker 11: the economy to now stimulating the upper half of the economy,
Speaker 11: and these people are still buying.
Speaker 1: And you're also likely to get some stimulus from AI.
Speaker 4: Now.
Speaker 1: I know this is probably red meat to you, but
Speaker 1: in terms of turning back the argument, but some in
Speaker 1: the market think that AI has the potential to really
Speaker 1: reduce the markets.
Speaker 11: I think if it really has that potential stably, it's
Speaker 11: going to happen over a very long period of time.
Speaker 11: Just funnily enough, I happened through an AI conference yesterday
Speaker 11: and they were just talking about how some of the
Speaker 11: answers that pop out of these things are incredibly intelligent,
Speaker 11: and some of them are incredibly stupid. So you still
Speaker 11: have to have a human that's kind of driving that bus.
Speaker 11: And the best analogy I heard was the Captain Sully
Speaker 11: analogy when you had to land the plane in the
Speaker 11: Hudson because they used to have five people in the cockpit.
Speaker 11: They now only have two people in the cockpit because
Speaker 11: they have computers, but you still need somebody running those computers.
Speaker 1: That's a very nice image to draw. Francis, Thank you.
Speaker 1: Francis Stacy, Director's Strategy at Optimal Capital Advisors. This is
Speaker 1: Bloomberg Daybreak Asia, your morning brief on the story's making
Speaker 1: news from Hong Kong to Singapore and Wall Street.
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