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Speaker 1: This is Bloomberg Daybreak Asia for this Friday, April twenty

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Speaker 1: first in Hong Kong, Thursday April twentieth in New York,

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Speaker 1: and coming up today.

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Speaker 2: The Biden administration may be seeking to limit investment in

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Speaker 2: key hearts of China's economy by US businesses.

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Speaker 1: Treasury Secretary Jennet Yellen says the US will accept economic

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Speaker 1: costs to protect national security interests.

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Speaker 2: With China and Cleveland Fed President Lorettamester's signal support for

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Speaker 2: another rate hike to lower.

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Speaker 3: Inflation, macranasshures a united front with regard to China in

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Speaker 3: a call with Biden. China announces more military drills. SpaceX

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Speaker 3: Starship successful lift off than malfunction and it is blown up.

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Speaker 3: I'm Ed 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 Apple, Spotify, the Bloomberg

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Speaker 4: Business App, and everywhere you get your podcasts.

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

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Speaker 1: Here are the stories we're following today. Treasury Secretary Janet

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Speaker 1: Yellen says the US will defend national security interests with

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Speaker 1: regards to threats posed by China. Here's Yellen delivering remarks

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Speaker 1: today in Washington.

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Speaker 5: Even though these policies may have economic impacts, they are

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Speaker 5: driven by straightforward national security considerations, and we will not

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Speaker 5: compromise on these concerns even when they force trade offs

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Speaker 5: with our economic interests.

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Speaker 1: Yellen also said that the US is not seeking to

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Speaker 1: decouple its economy from China, and she added that the

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Speaker 1: nation will aim to seek healthy and fair economic competition

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Speaker 1: with Beijing. She also said that the Biden administration will

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Speaker 1: engage on issues like climate change and debt relief in

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Speaker 1: the developing world, and Yellen repeated that she plans to

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Speaker 1: travel to China at the appropriate time.

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Speaker 2: At the same time we are being told to Biden

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Speaker 2: administration is aiming to get an executive order signed by

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Speaker 2: the President in the coming weeks that will limit investment

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Speaker 2: in key parts of China's economy by US businesses. That

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Speaker 2: story from Bloomberg's Charlie Pellett.

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Speaker 6: The administration has been debating the measure for almost two years,

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Speaker 6: and it plans to take action around the time of

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Speaker 6: a summit of the Group of Seven Advanced Economies. That's

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Speaker 6: due to start on May nineteenth. In Japan, the US

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Speaker 6: has been briefing its G seven partners on the investment

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Speaker 6: curbs for high tech industries. The executive order will cover

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Speaker 6: the fields of semiconductors, artificial intelligence, and quantum computing, focusing

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Speaker 6: on investments where American firms play an active role in management.

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Speaker 6: In New York, Charlie Pellett Bloomberg Daybreak, Asia.

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Speaker 1: Cleveland FED President Loretamester signaled support for another rate hike

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Speaker 1: to lower inflation. Here's Mester speaking at the University of

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Speaker 1: Akron in Ohio.

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Speaker 7: I anticipate that monetary policy will need to move somewhat

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Speaker 7: further into restrict territory this year, but Fed Funds rate

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Speaker 7: moving above five percent and the real Fed funds rates

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Speaker 7: staying in positive territory for some time now. Precisely how

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Speaker 7: much higher the Fed funds rate will need to go

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Speaker 7: from here and for how long policy will need to

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Speaker 7: remain restrictive will depend on economic and financial developments.

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Speaker 1: Mester also urged cautiousness. She said that recent financial developments

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Speaker 1: could cause banks to tighten access to credit, and she

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Speaker 1: warned that that could slow spending and growth and doug

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Speaker 1: If you want to look at maybe one of the

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Speaker 1: understatements of the day. Mester said that she sees the

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Speaker 1: FED closer to the end of its tightening journey rather

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Speaker 1: than the beginning after five hundred bases points or so.

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Speaker 2: Well, let's stay with the banks. We heard today from

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Speaker 2: Brian moynihan, the CEO of Bank of America. He told

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Speaker 2: us the banking industry is sound despite some of the

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Speaker 2: recent turmoil we have seen in the sector. Here is

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Speaker 2: Moynihan speaking earlier with Bloomberg.

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Speaker 8: Well, I think at the end of day, crisis is

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Speaker 8: too strong a and.

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Speaker 9: Words like that get used a lot.

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Speaker 8: But at the end of the day, there was a

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Speaker 8: fair amount of disruption for a few weeks there. Well,

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Speaker 8: certain business models were sorted through. But on the other hand,

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Speaker 8: you could see and we could see the stability in

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Speaker 8: the other business models.

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Speaker 2: That is Brian moynihan, the CEO of Bank of America. Now,

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Speaker 2: his remarks follow BAA's first quarter results that were released

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Speaker 2: earlier in the week. The bank's deposits fell less than

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Speaker 2: analysts had expected. Customers seemed to be turning to larger

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Speaker 2: institutions following the collapse of Silicon Valley Bank. By the

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Speaker 2: way Bank of America was among eleven companies that helped

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Speaker 2: to shore up finances of that ailing First Republic bank

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Speaker 2: A combined thirty billion dollars in deposit infusion, and of

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Speaker 2: that BAA contributed about five billion to the effort.

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Speaker 1: Ran Taiwan Semiconductor or TSMC reaffirmed its target for capital

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Speaker 1: spending this year. It comes despite an ongoing slump into

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Speaker 1: and for everything from smartphones to server chips. TSMC did

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Speaker 1: warrant that demand would remain soft for now, but it

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Speaker 1: plans to spend as much as thirty six billion dollars

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Speaker 1: upgrading and expanding production capacity this year.

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Speaker 9: We heard from Bloomberg's Mandeep Singh.

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Speaker 10: They have to open overseas fabs, one in Arizona, one

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Speaker 10: in Japan. They're talking about, you know, production being live

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Speaker 10: by twenty twenty four. So clearly they are diversifying. They

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Speaker 10: have no choice, and that is where the growth Martin

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Speaker 10: impact may show up, because those fabs aren't going to

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Speaker 10: be as profitable as the ones they have in Taiwan

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Speaker 10: right now.

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Speaker 6: So that's the longer term.

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Speaker 10: Risk they have because as they diversify their locations and

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Speaker 10: the factories, it will have an impact on their pricing

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Speaker 10: and you know the cost structure.

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Speaker 1: Over the longer term, investors are hopeful that TSMC would

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Speaker 1: benefit from a surge in artificial intelligence development and applications

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Speaker 1: power demand. TSMC's high end computing chips, along with data

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Speaker 1: centers will be required for train and hosting AI models.

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Speaker 1: TSMC ad R has gained as much as five point

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Speaker 1: three percent the most sense February twenty third. I'm Brian

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Speaker 1: Curtis along with Doug Krisner. So we mentioned geopolitics. It's

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Speaker 1: interesting in looking at US China and China Taiwan. Certainly,

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Speaker 1: for China Taiwan is more a sovereignty story, Doug, than

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Speaker 1: a semiconductor story. But for US China, a lot of

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Speaker 1: it does come down to those sorts of flows and

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Speaker 1: business and economics. And so for Jennet Yellen to say

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Speaker 1: that they're willing to sacrifice on the economic side for

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Speaker 1: national security really shows you that there probably is some

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Speaker 1: teeth in this from the Biden administration.

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Speaker 2: Yes, I would agree with that. And for companies like

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Speaker 2: Lamb Research. We were talking about this earlier in in

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Speaker 2: our pre show meeting, Brian that Lamb yesterday was indicating

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Speaker 2: that now it's received some clarification on US trade restrictions.

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Speaker 2: Lamb is one of the big makers of machines used

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Speaker 2: to make semiconductors, and so now it's going to be

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Speaker 2: able to sell a little bit more more of its

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Speaker 2: product into China, more than was previously expected. So there

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Speaker 2: are a number of American companies that are going to

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Speaker 2: be very, very much impacted by this new way of thinking.

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Speaker 1: I was interested to see the response from China this morning.

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Speaker 1: It's actually fairly muted. I'd call it a conciliatory response

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Speaker 1: to Yellen's comments. If you look at the Global Times now,

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Speaker 1: it's a little bit early. We may see a change

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Speaker 1: once officials come out a little bit later in the day,

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Speaker 1: but getting the early reading, it referred back to Chinese

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Speaker 1: and US commerce officials.

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Speaker 9: Meeting last week in Beijing, and.

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Speaker 1: That they exchanged a lot of views on bilateral economic ties,

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Speaker 1: a lot about climate, and a lot about debt relief,

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Speaker 1: as we mentioned in our story. But it said that

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Speaker 1: this re engagement could actually lead to a kind of

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Speaker 1: thawing in strained relations. So that's pretty interesting that China

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Speaker 1: didn't issue vitriol after the overnight comments.

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Speaker 2: You might remember a conversation that you and I had

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Speaker 2: recently about the green movement here in the United States

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Speaker 2: and the degree to which a lot of that is

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Speaker 2: going to depend on green technologies. Think wind turbines, Think

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Speaker 2: solar panels produced in large part by China that will

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Speaker 2: be used in the United States.

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Speaker 1: Yeah, and rare earth materials still something that needs to

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Speaker 1: get resolved from everybody who isn't China. Well, we have

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Speaker 1: Rebecca Felton coming up in a few moments, senior market

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Speaker 1: strategists at Riverfront Investment Group to take a look at

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Speaker 1: the markets in addition to some of these geopolitical concerns.

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Speaker 9: Now it's time for global news.

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Speaker 1: The presidents of the United States in France have talked

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Speaker 1: about Taiwan and China in a call today. Bloombergs Ed

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Speaker 1: Baxter is covering that and has the rest of the

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Speaker 1: Global news from a nine to sixty news room at

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Speaker 1: San Francisco ahead.

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Speaker 3: Yeah, Brian, As you know, relations have been at an

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Speaker 3: interesting point Cincerimonia, Macron's trip to Beijing and Macron promoting

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Speaker 3: China's trying to maneuver piece in Ukraine. The joint statement

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Speaker 3: today says both reaffirm the importance of maintaining peace and

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Speaker 3: stability in the Taiwan strait. Bloomberg's nik Watam.

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Speaker 11: So, I think what you're seeing with the Biden Macron

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Speaker 11: call there is more of a like, hey, we're on

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Speaker 11: the same page. Don't worry, We're still allied. Here's what

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Speaker 11: we want to do toward Taiwan. The French position his

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Speaker 11: statement did not represent a significant change in policy. Flip

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Speaker 11: the channel back to regular programming now.

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Speaker 3: The joint statement also says they talk to Ukraine and

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Speaker 3: pledged continued support there. Ireland's Prime Minister is urging a

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Speaker 3: United EU tact and dealing with China US conflict. Leo

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Speaker 3: Varadkar saying Bloomberg New Economy Gateway Europe Events says EU

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Speaker 3: can't be caught in the middle.

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Speaker 9: Trade of China is very important.

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Speaker 12: We don't want to entered any sorts of political conflicts

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Speaker 12: which China. They're competitor, they're also a partner, but we

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Speaker 12: do need to bear in minds that there are potential risks.

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Speaker 3: So competitor but trade partner as well. Meanwhile, military announcing

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Speaker 3: plans to conduct at least five drills in various areas

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Speaker 3: that include waters off the coast and the South China Sea.

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Speaker 3: This goes along with China's escalated military and aerospace activities

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Speaker 3: of its off its coast in recent days, and a

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Speaker 3: group of US lawmakers gathered around maps spread out on

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Speaker 3: tables in a committee room on Capitol Hill last night,

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Speaker 3: pretending to advise the president after a hypothetical Chinese invasion

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Speaker 3: of Taiwan. Committee chair Mike Gallagher said the US is

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Speaker 3: well within the window of maximum danger for a Chinese

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Speaker 3: invasion of Taiwan, saying it would be disastrous economic consequence

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Speaker 3: for the global economy. He says Taiwan has to be

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Speaker 3: armed to the teeth to prevent such an event. Debt

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Speaker 3: Ceiling Freedom Caucus members of the Republican Party demanding more

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Speaker 3: cost saving measures at Speaker Kevin McCarthy's plan things dealing

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Speaker 3: with Medicare, social security, Bloomberg'slaura Davison says it complicated. It's

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Speaker 3: the vote count.

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Speaker 9: He doesn't have enough, you'll mention.

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Speaker 2: To sort of putting a pin in that, saying, look,

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Speaker 2: you know that there is you know, we got to

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Speaker 2: move forward with something.

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Speaker 9: And McCarthy has a plan that is moving forward and

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Speaker 9: that's the only ballgame in town right now.

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Speaker 3: And add to that, the government is reporting revenue not

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Speaker 3: coming in as fast as projected, which could move the

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Speaker 3: deadline up even further. SpaceX Starship did get off the

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Speaker 3: launch pad, remember Elon Musk saying it would be successful

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Speaker 3: if it just cleared the tower, but then minutes later.

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Speaker 7: As we said before, obviously we wanted to make it

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Speaker 7: all the way through.

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Speaker 9: But to get this far, honestly, is amazing.

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Speaker 3: Yeah, an explosion. Now SpaceX is now saying it intentionally

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Speaker 3: blew up the rocket after an engine sent it into

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Speaker 3: a spin. It does point out that there is quite

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Speaker 3: a distance to go to get the Starship to the

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Speaker 3: Moon or to Mars. Global News poired by more than

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Speaker 3: twenty seven hundred journalists and listen over 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: I'm Brian Curtis, along with Rashad's Selamat in Hong Kong,

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Speaker 1: and our guest is Rebecca Felton, senior market strategist at

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Speaker 1: Riverfront Investment Group. Rebecca, you point out your notes that

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Speaker 1: the SMP five hundred is up eight percent year today,

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Speaker 1: and sometimes when we get bad economic data we say,

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Speaker 1: well the market has kind of priced this in but

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Speaker 1: actually the S and P five hundred is really dominated

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Speaker 1: by the gains in tech, and a lot of that's

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Speaker 1: driven probably by the AI excitement. If you look at

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Speaker 1: the equal weight, it's essentially flat for the year. That

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Speaker 1: you look at the Russell two thousand, it's actually flat

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Speaker 1: for the year so far as well. So we've been

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Speaker 1: getting the signals. But do you think that we head

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Speaker 1: down from here or something else?

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Speaker 13: Well, thank you so much for having me and just

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Speaker 13: listening to some of the headlines as we were coming

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Speaker 13: into this segment. It certainly doesn't feel good, does it.

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Speaker 13: I mean, this is really there are so many negative

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Speaker 13: undercurrents and there's still a lot to go as we

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Speaker 13: navigate through earning season that could point markets lower because

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Speaker 13: we are hearing some caution from these management teams. Even

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Speaker 13: though many of the companies have been on the earnings expectation,

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Speaker 13: that forward guidance is coming in a little bit more

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Speaker 13: muted than we've heard in the past.

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Speaker 14: Rebecca, can you make with yields where they are currently,

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Speaker 14: can you make really a compelling case for broad equities?

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Speaker 13: Well, we believe that the balanced portfolio can have a

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Speaker 13: good year. Obviously, if earnings can hold in. That still

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Speaker 13: is the big question here, and we're so early into

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Speaker 13: earning season and you think about how far growth forecast

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Speaker 13: have come down. I think for Q one right now,

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Speaker 13: consensus is a negative six percent and a far cry

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Speaker 13: from where we were even at the beginning of the year.

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Speaker 13: So we've got a lot of positives baked in as

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Speaker 13: we look forward to pay maybe a resumption of double

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Speaker 13: digit or high single digit growth in twenty twenty four,

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Speaker 13: but that's a long way from here to there. So

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Speaker 13: I know that's a long winded answer, but we're very

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Speaker 13: cautious about this earning season and the implications for the

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Speaker 13: markets going forward as we emerge from it.

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Speaker 14: Rebecca, you could have just said, I can't make a

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Speaker 14: compelling case for broader.

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Speaker 13: Curtis, but we're we're neutral equities right now, so we

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Speaker 13: do believe that there's opportunity. We're still somewhat underweight fixed income,

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Speaker 13: not significantly. We've got a little bit of extra cash

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Speaker 13: on the sidelines right now to be opportunistic. You know,

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Speaker 13: our tactical rules are signaling neutral right now. Our outlook

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Speaker 13: is more cautious than that, but we're following our process

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Speaker 13: rather than our emotions on this one.

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Speaker 1: So it seems like you still think stockpicking can it

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Speaker 1: can be something to look forward to.

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Speaker 9: You say, there's opportunities, So where.

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Speaker 1: Do you see the best opportunities and is it to

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Speaker 1: the short side or is it long start?

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Speaker 9: In companies as sectors, well.

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Speaker 13: Where we've been, where we have been trying to be

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Speaker 13: more selective is playing quality. Obviously, strong balance sheet, cash flow,

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Speaker 13: companies that can pay dividends, grow those dividends. And I

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Speaker 13: am reticent to use the term Barbelle, but we still

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Speaker 13: have a healthy weight to technology, those megacap names that

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Speaker 13: typically can weather economic cycles and sustain consistent revenue streams.

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Speaker 13: But we've also added back in some energy, some mining,

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Speaker 13: and then in healthcare. We're more inclined to go into

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Speaker 13: medical devices and services than we are into pharma.

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Speaker 1: Just briefly, does it surprise you that Europe has outperformed

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Speaker 1: the US and almost everywhere this.

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Speaker 13: Year, Well, it is surprising, and we have remained somewhat

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Speaker 13: underway international because their economies are still emerging from the

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Speaker 13: pandemic at a slower pace than hours. You saw probably

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Speaker 13: some of the inflation news coming out of Europe today.

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Speaker 13: UK inflation was ten percent. I think so central banks

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Speaker 13: are going to have to maybe do as much or

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Speaker 13: more as we're doing to curb inflation. And so it

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Speaker 13: feels like that snap back was more rotation into value,

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Speaker 13: which those indices are heavier into value than ours being

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Speaker 13: more tech heavy, and so it seems like it was

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Speaker 13: more of a rotation than it was anything based on fundamentals.

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Speaker 14: Rebecca, you also at the moment looking perhaps a mild

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Speaker 14: recession or perhaps a study deeper one.

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Speaker 9: For the third quarter.

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Speaker 13: You know, when you think about the global economies, when

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Speaker 13: you think about how precarious things are, it is likely

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Speaker 13: we believe that we will have a global recession in

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Speaker 13: the back half of this year or maybe early twenty

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Speaker 13: twenty four. But where we are right now in the

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Speaker 13: US with growth, it's not there yet. You know, the

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Speaker 13: GDP numbers are probably going to be very strong, although

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Speaker 13: the leading economic data that came out today was very discouraging.

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Speaker 13: It was I think the negative one point too, and

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Speaker 13: that was pretty rough.

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Speaker 1: So is that the centralized key question is are we

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Speaker 1: are we heading into a mild recession or a deep one?

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Speaker 9: Rather than can we avoid it? Is that sort of

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Speaker 9: the crux of it.

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Speaker 13: Well, we think that if we go into a recession,

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Speaker 13: it will be mild because of how strong US corporations

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Speaker 13: have maintained throughout the period coming out of the pandemic.

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Speaker 13: And even though we're worried about the consumer, net, the

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Speaker 13: consumer is in a very strong position as it relates

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Speaker 13: to overall debt levels, certainly employment levels. At this juncture,

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Speaker 13: there's a lot to be encouraged about, and we do

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Speaker 13: believe that if we have a recession here in the US,

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Speaker 13: it will be mild, just very quickly.

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Speaker 14: Is that any part of the market you think is

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Speaker 14: really really as screaming by be it you know, a

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Speaker 14: tiny little niche somewhere or something larger.

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Speaker 13: No, I mean we again the sectors that I mentioned

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Speaker 13: where we're more interested in leaning into, But we are

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Speaker 13: not overweight really any particular sectors at this juncture because

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Speaker 13: it is nothing in our view is inexpensive.

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Speaker 1: Yeah, well you mentioned mining. Would you be buying gold then,

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Speaker 1: for instance.

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Speaker 13: Not at this time.

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Speaker 1: So a lot of people look at copper versus gold

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Speaker 1: that ratio, and it don't feel comfortable about growth in

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Speaker 1: the United States with that trend line being that copper

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Speaker 1: is not expanding as much as gold is. So we'll

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Speaker 1: wait and see if we see that flip. Rebecca, thanks

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Speaker 1: so much for joining us. Rebecca Felton there from Riverfront

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Speaker 1: calling for a mild recession.

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Speaker 9: If that's indeed which direction we go?

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