1 00:00:02,200 --> 00:00:04,760 Speaker 1: This is Bloomberg day Break Weekend, our global look at 2 00:00:04,760 --> 00:00:06,840 Speaker 1: the top stories in the coming week from our day 3 00:00:06,880 --> 00:00:09,079 Speaker 1: Break anchors all around the world, and straight ahead on 4 00:00:09,119 --> 00:00:12,880 Speaker 1: the program, here comes US Bank earnings. I'm Tom Busby 5 00:00:12,960 --> 00:00:13,480 Speaker 1: in New York. 6 00:00:13,560 --> 00:00:16,799 Speaker 2: I'm Kaye Lines in Washington, where we're looking toward Lithuania 7 00:00:16,840 --> 00:00:19,080 Speaker 2: as President Biden heads to the nat of Summit. 8 00:00:19,120 --> 00:00:21,840 Speaker 3: I'm Brian Curtis in Hong Kong. We weigh up monetary 9 00:00:21,960 --> 00:00:26,360 Speaker 3: versus fiscal stimulus in China and weather Beijing is actually 10 00:00:26,400 --> 00:00:28,240 Speaker 3: prepared to loosen the purse strings. 11 00:00:28,360 --> 00:00:30,760 Speaker 4: I'm Karlin Hedge in London, where we're looking to the 12 00:00:30,880 --> 00:00:33,920 Speaker 4: Chancellor's mansion house speech and weather he delivers on a 13 00:00:34,080 --> 00:00:35,000 Speaker 4: UK growth songs. 14 00:00:35,479 --> 00:00:38,760 Speaker 5: That's all straight ahead on Bloomberg day Break Weekend on 15 00:00:38,920 --> 00:00:41,959 Speaker 5: Bloomberg eleve on three Own, New York, Bloomberg ninety nine 16 00:00:42,000 --> 00:00:45,400 Speaker 5: to one, Washington, DC, Bloomberg one O six one, Boston, 17 00:00:45,440 --> 00:00:50,280 Speaker 5: Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 18 00:00:50,400 --> 00:00:53,640 Speaker 5: XM one nineteen and around the world on Bloomberg Radio 19 00:00:53,720 --> 00:00:56,040 Speaker 5: dot com and via the Bloomberg Business App. 20 00:01:00,280 --> 00:01:02,160 Speaker 1: Good day to you. I'm Tom Busby, and we begin 21 00:01:02,200 --> 00:01:05,360 Speaker 1: today's program with second quarter earning season beginning this week, 22 00:01:05,360 --> 00:01:08,520 Speaker 1: and that means big bank earnings to kick things off, 23 00:01:08,640 --> 00:01:10,480 Speaker 1: and for what to expect and why, we turned to 24 00:01:10,560 --> 00:01:14,360 Speaker 1: Alison Williams, senior analyst with Bloomberg Intelligence. Well, the major 25 00:01:14,400 --> 00:01:16,880 Speaker 1: Wall Street banks turned in pretty solid results for the 26 00:01:16,920 --> 00:01:19,600 Speaker 1: first quarter of this year. Things may be a little 27 00:01:19,720 --> 00:01:23,800 Speaker 1: softer this quarter, and there are several reasons why. One, 28 00:01:24,319 --> 00:01:28,360 Speaker 1: higher interest rates just this past week approaching seven percent 29 00:01:28,720 --> 00:01:32,320 Speaker 1: for long term mortgage loans, putting the squeeze on loan originations, 30 00:01:32,360 --> 00:01:36,120 Speaker 1: weighing on commercial real estate, that's one. What are your 31 00:01:36,120 --> 00:01:38,280 Speaker 1: thoughts on how that may impact things. 32 00:01:38,560 --> 00:01:43,440 Speaker 6: Higher rates have provided a big boost to banks, much 33 00:01:43,480 --> 00:01:47,160 Speaker 6: of which we saw in twenty twenty two, But now 34 00:01:47,200 --> 00:01:51,240 Speaker 6: we're starting to see the downside of higher rates, which 35 00:01:51,280 --> 00:01:55,000 Speaker 6: is that the bank's cost of funding is going up. 36 00:01:55,120 --> 00:02:00,160 Speaker 6: And there's two key reasons, one of which is deposit it. 37 00:02:00,640 --> 00:02:05,200 Speaker 6: The price of those deposits is rising. And then secondly, 38 00:02:05,320 --> 00:02:11,800 Speaker 6: deposits are flowing out of sources such as free checking 39 00:02:12,960 --> 00:02:16,640 Speaker 6: or low rate savings accounts and flowing into things like 40 00:02:16,720 --> 00:02:20,840 Speaker 6: money funds. So there's a there's a shift happening, you know, 41 00:02:21,440 --> 00:02:25,239 Speaker 6: within the mix going to money funds, going to CDs, 42 00:02:25,919 --> 00:02:32,000 Speaker 6: and then across all deposits, that cost of deposits is 43 00:02:32,040 --> 00:02:32,520 Speaker 6: going up. 44 00:02:32,720 --> 00:02:37,280 Speaker 1: Now also continued caution after this Springs banking crisis and 45 00:02:37,440 --> 00:02:40,639 Speaker 1: failures of a signature bank. We had Silicon Valley Bank, 46 00:02:40,680 --> 00:02:43,359 Speaker 1: first Republic Bank now part of JP Morgan Chase. Now 47 00:02:43,960 --> 00:02:47,679 Speaker 1: some say still unresolved this crisis. How has that impacted 48 00:02:47,800 --> 00:02:48,720 Speaker 1: the major lenders? 49 00:02:49,120 --> 00:02:51,760 Speaker 6: So part of it really I think has been a 50 00:02:51,800 --> 00:02:55,440 Speaker 6: wake up call to consumers that maybe haven't looked for 51 00:02:56,880 --> 00:03:00,400 Speaker 6: haven't looked at their deposits in a while, and so 52 00:03:00,680 --> 00:03:04,600 Speaker 6: part of it is that sort of accelerating that that 53 00:03:04,680 --> 00:03:08,799 Speaker 6: shift into higher yielding deposits, which is good for consumers, 54 00:03:08,880 --> 00:03:11,400 Speaker 6: but not as good for the banks that have to 55 00:03:11,480 --> 00:03:15,120 Speaker 6: pay those rates. If we look at the broad landscape, 56 00:03:15,160 --> 00:03:17,840 Speaker 6: we had heard from most of the banks in April 57 00:03:17,880 --> 00:03:20,760 Speaker 6: that things had sort of stabilized, and so I think 58 00:03:20,800 --> 00:03:27,240 Speaker 6: that stability continues. So we the concern was really very 59 00:03:27,320 --> 00:03:30,600 Speaker 6: significant to positve flight at a few banks, so things 60 00:03:30,639 --> 00:03:34,440 Speaker 6: were extreme in those cases, but the but the broad 61 00:03:34,720 --> 00:03:39,800 Speaker 6: trend for the banking industry continues. The second part of 62 00:03:39,840 --> 00:03:45,120 Speaker 6: that is bank investment portfolios. You know, this was another 63 00:03:45,800 --> 00:03:47,960 Speaker 6: issue that led to some of the problems at the 64 00:03:48,000 --> 00:03:53,320 Speaker 6: banks during the pandemic. As those balance deposit balances swelled, 65 00:03:53,960 --> 00:03:57,240 Speaker 6: they were invested in securities. As rates have risen, those 66 00:03:57,280 --> 00:04:03,280 Speaker 6: securities are worth less than they were and so as 67 00:04:03,400 --> 00:04:07,280 Speaker 6: rates move up, will continue to see some pressure on 68 00:04:07,320 --> 00:04:08,320 Speaker 6: those portfolios. 69 00:04:08,720 --> 00:04:11,240 Speaker 1: A dearth of deals this past quarter of the IPO 70 00:04:11,360 --> 00:04:14,920 Speaker 1: market nearly non existent, mergers few and far between. I mean, 71 00:04:15,360 --> 00:04:17,240 Speaker 1: is this a real concern for lenders as well? 72 00:04:17,520 --> 00:04:23,200 Speaker 6: So for the banks broadly, it's really the big six 73 00:04:23,400 --> 00:04:27,720 Speaker 6: universal banks, if you will, that are most impacted by 74 00:04:27,760 --> 00:04:31,120 Speaker 6: trends in the global investment banking landscape, So that's fees 75 00:04:31,240 --> 00:04:34,919 Speaker 6: as well as trading, and of the big six, it 76 00:04:35,000 --> 00:04:38,000 Speaker 6: tends to be a smaller part of the business for 77 00:04:38,040 --> 00:04:40,320 Speaker 6: Wells Fargo, though they did have some very good results 78 00:04:40,440 --> 00:04:44,400 Speaker 6: last quarter, so on the investment banking fee front. As 79 00:04:44,440 --> 00:04:49,119 Speaker 6: you know, we had a really solid year in twenty 80 00:04:49,160 --> 00:04:52,920 Speaker 6: twenty one, record levels in businesses like M and A 81 00:04:53,040 --> 00:04:57,240 Speaker 6: and IPOs. Last year things softened and I think the 82 00:04:57,279 --> 00:05:00,720 Speaker 6: banks were still hopeful that things would pick up coming 83 00:05:00,800 --> 00:05:07,080 Speaker 6: into this year. There were some very optimistic expectations built 84 00:05:07,120 --> 00:05:11,440 Speaker 6: into estimates, but as things have progressed. It's looking like 85 00:05:12,680 --> 00:05:16,080 Speaker 6: those fees are going to be studying at much lower 86 00:05:16,200 --> 00:05:19,240 Speaker 6: levels now. We did see some signs of life in 87 00:05:19,279 --> 00:05:23,640 Speaker 6: the IPO market in the quarter. High yield is also 88 00:05:23,680 --> 00:05:26,680 Speaker 6: an area where we've seen some very good issuance in 89 00:05:26,720 --> 00:05:30,320 Speaker 6: the quarter. But M and A, which really sort of 90 00:05:30,400 --> 00:05:33,479 Speaker 6: held things up last year, has really now turned into 91 00:05:33,520 --> 00:05:36,600 Speaker 6: a headwind. So on the feed front, we do expect 92 00:05:36,720 --> 00:05:39,520 Speaker 6: things to be weaker. The question is how are the 93 00:05:39,560 --> 00:05:44,680 Speaker 6: banks making adjustments to their headcount because all of last 94 00:05:44,720 --> 00:05:47,320 Speaker 6: year the banks really did hold out hope and keep 95 00:05:47,360 --> 00:05:51,760 Speaker 6: that headcount steady. They had to really scramble to add 96 00:05:51,800 --> 00:05:55,320 Speaker 6: bankers when things were going really well, and they were 97 00:05:55,480 --> 00:05:58,200 Speaker 6: hesitant to sort of let those people go. But I 98 00:05:58,200 --> 00:06:01,400 Speaker 6: think now we are seeing some adjustment by the banks 99 00:06:01,440 --> 00:06:05,680 Speaker 6: in terms of the expectations going forward that things could 100 00:06:05,680 --> 00:06:06,359 Speaker 6: be soft. 101 00:06:06,600 --> 00:06:09,599 Speaker 1: Well, let's talk about how the banks, big ones, small ones, 102 00:06:09,640 --> 00:06:13,760 Speaker 1: twenty three in all navigated the Federal Reserve's latest stress test. 103 00:06:14,040 --> 00:06:15,760 Speaker 1: What was different this time? 104 00:06:15,880 --> 00:06:20,919 Speaker 6: So for the big banks, really it was generally pretty positive. 105 00:06:21,080 --> 00:06:24,200 Speaker 6: All five of the six banks are going to see 106 00:06:24,240 --> 00:06:26,960 Speaker 6: their capital requirements come down as a result of the 107 00:06:27,000 --> 00:06:31,560 Speaker 6: stress test. So City group is the outlier, their stressed 108 00:06:31,680 --> 00:06:35,719 Speaker 6: capital in the tests actually looked a little worse, and 109 00:06:35,760 --> 00:06:39,280 Speaker 6: so their requirement is going to be going up. I 110 00:06:39,320 --> 00:06:43,960 Speaker 6: think one thing that is highlighted by the results both 111 00:06:44,000 --> 00:06:47,039 Speaker 6: this year and last year is just the volatility that 112 00:06:47,080 --> 00:06:50,720 Speaker 6: we're getting in terms of capital requirements for these big banks. 113 00:06:50,720 --> 00:06:54,760 Speaker 6: So last year, JP Morgan, Bank of American, City Group 114 00:06:54,960 --> 00:06:58,600 Speaker 6: all so very big increases in their capital requirements. They 115 00:06:58,640 --> 00:07:03,320 Speaker 6: had to very rapidly shrink their balance sheets to make 116 00:07:03,360 --> 00:07:06,040 Speaker 6: sure that they were going to comply with the newer requirements. 117 00:07:06,440 --> 00:07:09,200 Speaker 6: This year, for the most part, it's the opposite. Again. 118 00:07:09,840 --> 00:07:12,840 Speaker 6: City was a little bit of different story, but also 119 00:07:13,960 --> 00:07:16,720 Speaker 6: there's these big changes that we're seeing. But then also 120 00:07:16,760 --> 00:07:20,080 Speaker 6: if the banks are trying to understand some of the 121 00:07:20,120 --> 00:07:22,520 Speaker 6: numbers that we get from the FED are so different 122 00:07:22,560 --> 00:07:25,240 Speaker 6: than the tests that they run themselves, and so in 123 00:07:25,280 --> 00:07:31,920 Speaker 6: particular Bank of America, which had a very significantly better result, 124 00:07:32,840 --> 00:07:35,880 Speaker 6: it's not going to fully translate into a lower ratio 125 00:07:35,920 --> 00:07:39,240 Speaker 6: because there is a minimum there. So a lot of 126 00:07:39,240 --> 00:07:42,960 Speaker 6: that had to do with changes in their other comprehensive 127 00:07:43,600 --> 00:07:47,120 Speaker 6: income and they are talking to the FED to try 128 00:07:47,120 --> 00:07:49,960 Speaker 6: to understand why their number is so much different than the. 129 00:07:49,840 --> 00:07:53,800 Speaker 1: FED, And at the fed's meeting just now the following 130 00:07:53,880 --> 00:07:57,040 Speaker 1: week after Earning start, we're expected to see some new 131 00:07:57,080 --> 00:07:59,520 Speaker 1: proposals on bank capital requirements. 132 00:07:59,560 --> 00:08:00,000 Speaker 5: Is that right? 133 00:08:00,200 --> 00:08:04,040 Speaker 6: That is that is correct? We're waiting for the big 134 00:08:04,040 --> 00:08:07,600 Speaker 6: banks are waiting to see what we're calling the Basil 135 00:08:07,640 --> 00:08:13,040 Speaker 6: three endgame. So the finalization of some rules which Powell 136 00:08:13,160 --> 00:08:16,920 Speaker 6: to confirm could lead to the banks having to hold 137 00:08:17,160 --> 00:08:21,040 Speaker 6: more capital. And so that's another reason why that the 138 00:08:21,080 --> 00:08:24,680 Speaker 6: stress tests were sort of, you know, one piece of 139 00:08:24,680 --> 00:08:28,080 Speaker 6: information that we have for the for the near term. 140 00:08:28,640 --> 00:08:34,840 Speaker 6: But the banks are conservative, we think on buybacks. Despite 141 00:08:35,280 --> 00:08:38,080 Speaker 6: the good results from the test for most banks, because 142 00:08:39,040 --> 00:08:42,040 Speaker 6: they don't know what's coming from these endgame rules. I 143 00:08:42,040 --> 00:08:45,360 Speaker 6: would say that these rules will obviously be phased in 144 00:08:45,440 --> 00:08:50,520 Speaker 6: over time. The banks have a significant amount of capital 145 00:08:50,559 --> 00:08:53,680 Speaker 6: that they're generating every quarter and every year to meet 146 00:08:53,679 --> 00:08:57,400 Speaker 6: these higher requirements. But it is a question that the 147 00:08:57,400 --> 00:08:58,960 Speaker 6: banks are looking to be resolved. 148 00:08:59,200 --> 00:09:01,600 Speaker 1: Wow, well, let's talk then about these some of the 149 00:09:01,600 --> 00:09:05,600 Speaker 1: individual banks that are reporting later this week, JP, Morgan, Chase, Wells, 150 00:09:05,679 --> 00:09:09,400 Speaker 1: Fargo City Group, those three giants, Alison, what are you 151 00:09:09,440 --> 00:09:12,560 Speaker 1: expecting to see and will they be different? Those three 152 00:09:12,840 --> 00:09:15,160 Speaker 1: are we going to see sort of a similar pattern. 153 00:09:16,320 --> 00:09:19,280 Speaker 6: So I think we'll see sort of a similar pattern 154 00:09:20,120 --> 00:09:24,280 Speaker 6: as we saw last quarter. That interest income growth still 155 00:09:24,480 --> 00:09:28,960 Speaker 6: is very strong. So the issue is really not that 156 00:09:29,120 --> 00:09:32,640 Speaker 6: it's weak, it's just that the strength is slowing, if 157 00:09:32,679 --> 00:09:36,720 Speaker 6: you will. And so Bank of America, JP, Morgan, and 158 00:09:36,800 --> 00:09:39,840 Speaker 6: Wells Fargo, we think are all still going to be 159 00:09:39,920 --> 00:09:42,720 Speaker 6: able to are going to be the bigger beneficiaries there 160 00:09:43,120 --> 00:09:47,080 Speaker 6: in terms of seeing revenue growth and operating leverage for 161 00:09:47,160 --> 00:09:50,400 Speaker 6: a city group. On the cost side of things that 162 00:09:50,520 --> 00:09:54,880 Speaker 6: you know, they're they're still working through some regulatory issues 163 00:09:54,920 --> 00:09:59,679 Speaker 6: what they call the transformational costs, and so that will 164 00:09:59,760 --> 00:10:03,280 Speaker 6: eat into their ability to post operating leverage. And then 165 00:10:03,320 --> 00:10:06,760 Speaker 6: on Goldman Sachs and Morgan Stanley, because these banks are 166 00:10:06,840 --> 00:10:11,240 Speaker 6: much more capital markets focused, we're seeing trading normalizing. We 167 00:10:11,320 --> 00:10:16,400 Speaker 6: discuss the weaker fees, and so these banks may also 168 00:10:16,600 --> 00:10:20,960 Speaker 6: have several costs as they adjust our workforce and so 169 00:10:21,840 --> 00:10:24,319 Speaker 6: less positive for those banks. 170 00:10:24,679 --> 00:10:26,679 Speaker 1: Oh, Allison, a lot to look forward to. Thank you 171 00:10:26,760 --> 00:10:29,559 Speaker 1: so much for joining us. Coming up on Bloomberg Day 172 00:10:29,559 --> 00:10:33,960 Speaker 1: Break weekend, President Biden and US relations with NATO. I'm 173 00:10:33,960 --> 00:10:49,120 Speaker 1: Tom Busby, and this is Bloomberg. This is Bloomberg Daybreak weekend, 174 00:10:49,200 --> 00:10:51,760 Speaker 1: our global look ahead at the top stories for investors 175 00:10:51,800 --> 00:10:54,360 Speaker 1: in the coming week. I'm Tom Busby in New York. 176 00:10:54,920 --> 00:10:57,320 Speaker 1: Up later in our program a look at China's struggling 177 00:10:57,360 --> 00:10:59,800 Speaker 1: economy and what to watch for this coming week on 178 00:10:59,840 --> 00:11:02,920 Speaker 1: that front. But first, President Biden has been working on 179 00:11:03,040 --> 00:11:07,160 Speaker 1: rebuilding closer relations with some NATO countries after the Trump 180 00:11:07,200 --> 00:11:11,720 Speaker 1: administration's emphasis elsewhere. Now for more on why we'll be 181 00:11:11,760 --> 00:11:14,160 Speaker 1: watching this in the coming days, let's head to our 182 00:11:14,160 --> 00:11:17,439 Speaker 1: Bloomberg ninety nine one news from in Washington and Bloomberg 183 00:11:17,720 --> 00:11:19,880 Speaker 1: Sound On host Kaylee Liones. 184 00:11:20,240 --> 00:11:22,640 Speaker 2: Yeah, Tom all eyes will be not on Washington this 185 00:11:22,720 --> 00:11:26,280 Speaker 2: coming week, but Lithuania, where the NATO Alliance is set 186 00:11:26,280 --> 00:11:28,800 Speaker 2: to meet with a focus on Russia's war in Ukraine. 187 00:11:29,040 --> 00:11:31,679 Speaker 2: US President Joe Biden will meet with his counterparts about 188 00:11:31,720 --> 00:11:35,200 Speaker 2: future security assistance and economic deterrence and the future of 189 00:11:35,200 --> 00:11:38,400 Speaker 2: the alliance, as well as Finland officially enters the group 190 00:11:38,480 --> 00:11:42,880 Speaker 2: and Sweden faces stubborn opposition from Turkey on acceptance. President 191 00:11:42,920 --> 00:11:45,920 Speaker 2: Joe Biden actually in advance of the summit welcomed Sweden's 192 00:11:45,920 --> 00:11:48,480 Speaker 2: Prime minister to the White House this past week and 193 00:11:48,559 --> 00:11:50,959 Speaker 2: praised the prospect of his country joining NATO. 194 00:11:51,200 --> 00:11:55,680 Speaker 7: The United States fully, fully, fully support Sweden membership in NATO, 195 00:11:56,360 --> 00:11:59,680 Speaker 7: and the bottom line is simple, Sweden that is going 196 00:11:59,760 --> 00:12:03,880 Speaker 7: to make Carliance stronger and has the same value set 197 00:12:03,920 --> 00:12:07,439 Speaker 7: that we have in NATO. And I'm really looking anxiously 198 00:12:07,559 --> 00:12:08,880 Speaker 7: looking forward. 199 00:12:08,840 --> 00:12:10,040 Speaker 8: For your membership now. 200 00:12:10,080 --> 00:12:13,520 Speaker 2: Sweden's Foreign minister also spoke to Bloomberg TV after meeting 201 00:12:13,520 --> 00:12:16,680 Speaker 2: with his counterparts from Turkey and Finland at NATO headquarters 202 00:12:16,880 --> 00:12:21,079 Speaker 2: this past Thursday about his hopes for completing a session we. 203 00:12:21,080 --> 00:12:24,360 Speaker 9: Are now closing in towards the summit in Bilnius next week. 204 00:12:24,400 --> 00:12:27,960 Speaker 9: It is Minam the Swedish government's hope that we will 205 00:12:28,000 --> 00:12:32,080 Speaker 9: now see a clear response from the Turkish side so 206 00:12:32,080 --> 00:12:35,400 Speaker 9: that the ratification process can start in the Turkish parliament 207 00:12:35,480 --> 00:12:37,000 Speaker 9: and Sweden can become NATO member. 208 00:12:37,040 --> 00:12:38,880 Speaker 2: All right, so let's talk more about what is to 209 00:12:38,880 --> 00:12:41,400 Speaker 2: come from this NATO summit. Joining me here in Washington 210 00:12:41,520 --> 00:12:43,839 Speaker 2: is Justin Sinc who covers the White House for US 211 00:12:44,120 --> 00:12:47,920 Speaker 2: here at Bloomberg, So Justin at least for President Biden, 212 00:12:48,440 --> 00:12:51,920 Speaker 2: what is his primary objective at NATO this coming week? 213 00:12:52,000 --> 00:12:52,800 Speaker 2: Is it Sweden? 214 00:12:53,640 --> 00:12:55,880 Speaker 8: I think Sweden's a huge part of it, because for 215 00:12:56,000 --> 00:13:01,000 Speaker 8: President Biden, the ascension of Sweden and Finland into NATO 216 00:13:01,120 --> 00:13:08,439 Speaker 8: is representative of a new sort of block against Russia. 217 00:13:09,000 --> 00:13:12,360 Speaker 8: For a long time, those Nordic states had stayed neutral, 218 00:13:12,559 --> 00:13:15,320 Speaker 8: not wanted to depict sides, actually really celebrated the fact 219 00:13:15,360 --> 00:13:18,200 Speaker 8: that between Russia and the United States or Russia in 220 00:13:18,200 --> 00:13:22,600 Speaker 8: the West, they were a neutral party. The Russia's invasion 221 00:13:22,640 --> 00:13:27,240 Speaker 8: of Ukraine has sort of jambled politics in those countries 222 00:13:27,280 --> 00:13:30,200 Speaker 8: that are now looking at what happened in Ukraine and 223 00:13:30,240 --> 00:13:32,960 Speaker 8: worried about their own defense, and so getting them into 224 00:13:33,000 --> 00:13:37,560 Speaker 8: the NATO alliance is a big symbolic move for President Biden, 225 00:13:37,640 --> 00:13:41,319 Speaker 8: who has really sort of stressed that NATO has gotten 226 00:13:41,400 --> 00:13:45,079 Speaker 8: larger and stronger since the invasion, contrary to what he 227 00:13:45,160 --> 00:13:49,400 Speaker 8: believes Russian President of Vladimir Putin thought going in, which 228 00:13:49,400 --> 00:13:51,560 Speaker 8: is that NATO would splinter under an attack and that 229 00:13:51,600 --> 00:13:53,720 Speaker 8: there wouldn't be sustained support for Ukraine. 230 00:13:53,960 --> 00:13:56,840 Speaker 2: So of what President Biden wants is to get Sweden 231 00:13:56,840 --> 00:13:58,839 Speaker 2: into this alliance, it's a question of what he's willing 232 00:13:58,880 --> 00:14:00,320 Speaker 2: to give up to make that happen. 233 00:14:00,440 --> 00:14:00,600 Speaker 3: Right. 234 00:14:00,640 --> 00:14:04,120 Speaker 2: The issue of f sixteens and Turkey. Do we have 235 00:14:04,160 --> 00:14:07,200 Speaker 2: a full understanding of where exactly the administration comes down 236 00:14:07,200 --> 00:14:07,520 Speaker 2: on this. 237 00:14:08,160 --> 00:14:10,679 Speaker 8: It's a little tricky. I do think that there's broadly 238 00:14:10,720 --> 00:14:15,000 Speaker 8: support within the Administration for giving Turkey F sixteens, despite 239 00:14:15,040 --> 00:14:18,400 Speaker 8: some of the problems that they've had with Turkey adopting 240 00:14:19,040 --> 00:14:24,520 Speaker 8: Russian technology into their military platforms that have caused sort 241 00:14:24,560 --> 00:14:28,120 Speaker 8: of problems with the NATO alliance through the years. That 242 00:14:28,240 --> 00:14:32,240 Speaker 8: you know, even with those concerns, there is support from 243 00:14:32,240 --> 00:14:35,400 Speaker 8: the White House for these F sixteens. But there are 244 00:14:35,440 --> 00:14:39,800 Speaker 8: Democrats on Capitol Hill, including Senator Menendez of who chairs 245 00:14:39,840 --> 00:14:43,080 Speaker 8: the Foreign Relations Committee, who is opposed to the sale. 246 00:14:43,240 --> 00:14:47,120 Speaker 8: And it will take some real legislative strong army from 247 00:14:47,120 --> 00:14:50,640 Speaker 8: the White House to get a possible deal through, particularly 248 00:14:50,800 --> 00:14:54,000 Speaker 8: if everybody is upset with Turkey because they're holding up 249 00:14:54,040 --> 00:14:57,640 Speaker 8: Sweden's membership, and so Turkey doesn't want to move first 250 00:14:57,960 --> 00:15:00,640 Speaker 8: and potentially lose out on these F sixteen because they 251 00:15:00,640 --> 00:15:03,120 Speaker 8: have already sort of publicly said that they'd accept Sweden. 252 00:15:03,680 --> 00:15:07,479 Speaker 8: But in the US, you know, both Democrats and Republicans 253 00:15:07,640 --> 00:15:11,800 Speaker 8: are skeptical about authorizing this defense deal unless they have 254 00:15:11,880 --> 00:15:12,800 Speaker 8: that sort of in hand. 255 00:15:13,520 --> 00:15:16,040 Speaker 2: So Obviously it's a tricky situation and frankly we might 256 00:15:16,040 --> 00:15:18,760 Speaker 2: not even be talking about Sweden trying to join NATO 257 00:15:18,880 --> 00:15:20,840 Speaker 2: or the US, you know, trying to put forward that 258 00:15:20,840 --> 00:15:22,960 Speaker 2: effort if not for the war in Ukraine, as you 259 00:15:23,000 --> 00:15:26,280 Speaker 2: were alluding to. So Ukraine has to feature highly on 260 00:15:26,320 --> 00:15:29,120 Speaker 2: the agenda as well expansion of NATO aside, what else 261 00:15:29,160 --> 00:15:33,400 Speaker 2: are we expecting to come from this summit Regarding Ukraine specifically. 262 00:15:32,960 --> 00:15:35,640 Speaker 8: I think there's two things that we'll really be looking for. 263 00:15:36,160 --> 00:15:39,560 Speaker 8: One is what the new stepped up defense packages that 264 00:15:39,600 --> 00:15:43,000 Speaker 8: the US and other allies are shipping to Ukraine. Shortly 265 00:15:43,000 --> 00:15:45,160 Speaker 8: before the summit, it was announced that the US would 266 00:15:45,160 --> 00:15:50,440 Speaker 8: start providing cluster bombs, which have been controversial because of 267 00:15:50,680 --> 00:15:53,280 Speaker 8: how they are not as sort of precision guided as 268 00:15:53,320 --> 00:15:56,560 Speaker 8: other weapon systems and that can lead to collateral damage. 269 00:15:56,560 --> 00:15:59,040 Speaker 8: But it's something that Ukraine has said could be really 270 00:15:59,040 --> 00:16:02,480 Speaker 8: helpful to them, especially in areas where Russia has sort 271 00:16:02,480 --> 00:16:04,520 Speaker 8: of dug in on the battlefield. So that was a 272 00:16:04,520 --> 00:16:09,600 Speaker 8: big concession. Ukraine is always pushing for more supplies, new 273 00:16:09,680 --> 00:16:14,200 Speaker 8: types of supplies, bigger supplies, and so that will be 274 00:16:14,600 --> 00:16:17,360 Speaker 8: an area to look and it'll especially be interesting within 275 00:16:17,400 --> 00:16:20,280 Speaker 8: the prism of the sort of two percent of GDP 276 00:16:20,520 --> 00:16:24,840 Speaker 8: goal that NATO countries have long set but long for 277 00:16:24,880 --> 00:16:27,800 Speaker 8: the most part failed to sort of reach up to, 278 00:16:27,920 --> 00:16:33,120 Speaker 8: and so less tangible but almost as significant thing will 279 00:16:33,160 --> 00:16:36,440 Speaker 8: be if there's new language about that two percent goal, 280 00:16:36,480 --> 00:16:40,040 Speaker 8: and whether it becomes rather than an aspiration or a 281 00:16:40,080 --> 00:16:43,440 Speaker 8: ceiling of floor for defense mending for NATO countries. 282 00:16:43,800 --> 00:16:46,400 Speaker 2: Is there a real conversation to be had or currently 283 00:16:46,440 --> 00:16:50,880 Speaker 2: being had about Ukraine becoming a part of NATO, because obviously, 284 00:16:50,880 --> 00:16:53,840 Speaker 2: given articles of the Alliance, an attack against one is 285 00:16:53,840 --> 00:16:55,720 Speaker 2: an attack against all, and this is a country that 286 00:16:55,880 --> 00:16:58,920 Speaker 2: is at war, which makes that a highly complicated proposition. 287 00:16:59,440 --> 00:17:02,280 Speaker 8: Yeah, it's it's a huge question, especially because Ukraine is 288 00:17:02,400 --> 00:17:05,480 Speaker 8: very eager to enter the Alliance because it would offer 289 00:17:05,520 --> 00:17:11,200 Speaker 8: them new protections and sort of trigger a more aggressive 290 00:17:11,960 --> 00:17:16,040 Speaker 8: potential response from the West. But at the same time, 291 00:17:16,359 --> 00:17:19,280 Speaker 8: you know, the United States and many of its allies 292 00:17:19,320 --> 00:17:23,480 Speaker 8: are very wary of escalating the current the current conflict 293 00:17:23,520 --> 00:17:26,520 Speaker 8: beyond what is already obviously a sort of tragic and 294 00:17:26,560 --> 00:17:31,360 Speaker 8: sweeping situation. So I think what we'll see is language 295 00:17:31,400 --> 00:17:35,720 Speaker 8: that you know, post war may make it much easier 296 00:17:35,720 --> 00:17:38,600 Speaker 8: for Ukraine to enter the Alliance. This is even before 297 00:17:38,640 --> 00:17:43,040 Speaker 8: the invasion, been an aspiration of Theirs and a long 298 00:17:43,080 --> 00:17:46,840 Speaker 8: and winding path to get there. So there's no doubt 299 00:17:46,920 --> 00:17:50,879 Speaker 8: that President Selenski and some of the countries that are 300 00:17:50,880 --> 00:17:52,600 Speaker 8: really close to Ukraine, like Poland, are going to be 301 00:17:52,680 --> 00:17:56,959 Speaker 8: pushing hard on this front. But it's unclear how exactly 302 00:17:56,960 --> 00:17:57,840 Speaker 8: it's all going to shake out. 303 00:17:57,920 --> 00:18:00,760 Speaker 2: Yeah, and it's very unclear when post war or even 304 00:18:00,880 --> 00:18:03,960 Speaker 2: will be. We have no real endgame that's in sight 305 00:18:04,080 --> 00:18:06,679 Speaker 2: at this point, and as the war is ongoing, just 306 00:18:06,720 --> 00:18:09,040 Speaker 2: talking about the composition of the Alliance and who really 307 00:18:09,080 --> 00:18:11,399 Speaker 2: is at the helm. Jen Stoltenberg's going to be sticking 308 00:18:11,440 --> 00:18:13,119 Speaker 2: around for a while longer. 309 00:18:13,119 --> 00:18:15,240 Speaker 8: There's a real ye once. 310 00:18:15,000 --> 00:18:15,399 Speaker 1: You get in it. 311 00:18:16,320 --> 00:18:22,399 Speaker 8: Yeah, he is sticking around because the Alliance could not 312 00:18:22,480 --> 00:18:26,440 Speaker 8: come to a consensus around a replacement candidate. The UK 313 00:18:26,560 --> 00:18:30,080 Speaker 8: had put forward a candidate, there were other candidates within Europe, 314 00:18:30,080 --> 00:18:34,199 Speaker 8: and there had not really been somebody that everybody co 315 00:18:34,320 --> 00:18:36,879 Speaker 8: lust around, and part of the reason is that we 316 00:18:36,920 --> 00:18:39,879 Speaker 8: didn't see the US sort of pick aside. There have 317 00:18:39,920 --> 00:18:44,080 Speaker 8: been reports, though the White House is flatly declined to 318 00:18:44,119 --> 00:18:47,480 Speaker 8: comment on them, that we were upset over the UK 319 00:18:47,880 --> 00:18:54,760 Speaker 8: sort of pressuring US and other countries into going forward 320 00:18:54,760 --> 00:18:59,119 Speaker 8: with the F sixteen program for Ukraine, which there was 321 00:18:59,359 --> 00:19:02,399 Speaker 8: a genuine concern that it could escalate the conflict, and 322 00:19:02,440 --> 00:19:06,720 Speaker 8: so as a as a result, it may have resulted 323 00:19:06,800 --> 00:19:11,679 Speaker 8: in it may have resulted in the US not backing 324 00:19:12,200 --> 00:19:16,200 Speaker 8: the UK bid to lead NATO. But a big conversation 325 00:19:16,240 --> 00:19:18,720 Speaker 8: among leaders is going to be who can bring the 326 00:19:18,760 --> 00:19:22,240 Speaker 8: alliance forward. Stolenberg's not going to be there forever and 327 00:19:22,280 --> 00:19:23,920 Speaker 8: they need to find a consensus. 328 00:19:24,000 --> 00:19:25,919 Speaker 2: Canada, all right, So it's a busy week ahead for 329 00:19:26,040 --> 00:19:28,520 Speaker 2: President Biden and for those who cover him like are 330 00:19:28,600 --> 00:19:30,480 Speaker 2: very own Justin Sink, who covers the White House for 331 00:19:30,560 --> 00:19:33,520 Speaker 2: us here at Bloomberg. Thank you so much. Tom. We'll 332 00:19:33,520 --> 00:19:34,199 Speaker 2: send it back to you. 333 00:19:34,320 --> 00:19:36,640 Speaker 1: Thank you, Kaylee. That was Bloomberg Sound don co host 334 00:19:36,720 --> 00:19:39,480 Speaker 1: Kaylee Lines, reporting from our Bloomberg ninety nine to one 335 00:19:39,520 --> 00:19:43,200 Speaker 1: newsroom in Washington, and you can hear sound on weekdays 336 00:19:43,240 --> 00:19:45,879 Speaker 1: one to three pm on Bloomberg Radio and coming up 337 00:19:45,920 --> 00:19:49,560 Speaker 1: on Bloomberg Day Break weekend, What's next for China's economy. 338 00:19:49,840 --> 00:19:51,840 Speaker 1: I'm Tom Busby and this is. 339 00:19:51,800 --> 00:20:06,320 Speaker 5: Bloomberg broadcasting live from the Bloomberg It a active Brokers 340 00:20:06,359 --> 00:20:09,760 Speaker 5: Studio in New York, Bloomberg Elemon three ozho to Washington, 341 00:20:09,840 --> 00:20:13,160 Speaker 5: d C, Bloomberg ninety nine one to Boston, Bloomberg one 342 00:20:13,200 --> 00:20:16,439 Speaker 5: oh six one to San Francisco, Bloomberg nine sixteen to 343 00:20:16,520 --> 00:20:19,720 Speaker 5: the Country, Syrius XM Channel one to nineteen to London 344 00:20:19,840 --> 00:20:23,600 Speaker 5: DAB Digital Radio, and around the globe the Bloomberg Business 345 00:20:23,600 --> 00:20:28,200 Speaker 5: app in Bloomberg Radio dot Com. This is Bloomberg Daybreak Weekend. 346 00:20:34,520 --> 00:20:36,560 Speaker 1: I'm Tom Busby in New York with your global look 347 00:20:36,560 --> 00:20:39,080 Speaker 1: ahead at the top stories for investors in the coming week. 348 00:20:39,520 --> 00:20:43,400 Speaker 1: Next wee look at China's faltering recovery. Can policymakers crack 349 00:20:43,520 --> 00:20:47,080 Speaker 1: the code and unleash the animal spirits? Let's get to 350 00:20:47,119 --> 00:20:50,159 Speaker 1: Brian Curtis, co host of Bloomberg Daybreak Asia. 351 00:20:50,520 --> 00:20:54,639 Speaker 3: Tom, investors are dropping their expectations for gains in Chinese 352 00:20:54,720 --> 00:20:57,840 Speaker 3: assets this year. Now, there's a wealth of disappointment in 353 00:20:57,920 --> 00:21:00,800 Speaker 3: the measures being taken to try to re vitalize the 354 00:21:00,880 --> 00:21:05,919 Speaker 3: Chinese economy. Despite calls for more aggressive stimulus, policymakers at 355 00:21:06,000 --> 00:21:09,320 Speaker 3: least at the moment, appear to be sticking with targeted measures. 356 00:21:09,720 --> 00:21:12,440 Speaker 3: What might change that. We've got a lot to discuss 357 00:21:12,520 --> 00:21:14,879 Speaker 3: I've asked ten Chen, the team leader for FX and 358 00:21:14,960 --> 00:21:18,920 Speaker 3: rates in Asia, to join us here on the program. Tenchen, 359 00:21:19,000 --> 00:21:21,800 Speaker 3: thanks very much for being with us well. The PBOC 360 00:21:22,040 --> 00:21:25,159 Speaker 3: has extended its support for the yuan with some of 361 00:21:25,200 --> 00:21:27,959 Speaker 3: these stronger fixes that we've seen of late. But this 362 00:21:28,080 --> 00:21:31,920 Speaker 3: is really more about arresting the decline in the currency. 363 00:21:31,960 --> 00:21:35,320 Speaker 3: It's not really about stimulus. But let's talk a little 364 00:21:35,359 --> 00:21:39,960 Speaker 3: bit about why the PBOC wants to address that decline. 365 00:21:40,400 --> 00:21:43,360 Speaker 10: Yes, of course that's a good question. So basically, PBOC 366 00:21:43,520 --> 00:21:48,440 Speaker 10: is in a very difficult dilemma right now. So PBOC 367 00:21:48,600 --> 00:21:51,040 Speaker 10: knows that if the yuan is weak, when the economic 368 00:21:51,080 --> 00:21:53,920 Speaker 10: fundamentals are weak, a weaker currency is going to help 369 00:21:53,960 --> 00:21:57,400 Speaker 10: the economy because it's a big support for the exports sector. 370 00:21:58,040 --> 00:22:01,399 Speaker 10: But at the same time, a very weak yuan means 371 00:22:01,440 --> 00:22:04,520 Speaker 10: that we're going to see financial on stability because a 372 00:22:04,640 --> 00:22:07,080 Speaker 10: very fast decline in the un that means that it's 373 00:22:07,119 --> 00:22:09,439 Speaker 10: gonna spill over to the stocks market, it's gonna spill 374 00:22:09,480 --> 00:22:11,919 Speaker 10: over to the to the bunk market, and that's going 375 00:22:12,000 --> 00:22:15,879 Speaker 10: to prevent foreign investors from buying Chinese assets. So so 376 00:22:15,960 --> 00:22:18,840 Speaker 10: in the STYLEMA, BBOC has to strike a balance of 377 00:22:19,200 --> 00:22:23,240 Speaker 10: you know, keeping the yuana weak, but not so weak 378 00:22:23,280 --> 00:22:25,920 Speaker 10: that's going to trigger any sort of panic. That's why 379 00:22:25,920 --> 00:22:29,159 Speaker 10: you are seeing this. We're in this situation where the 380 00:22:29,200 --> 00:22:33,400 Speaker 10: PBOC is supporting the yuan with stronger than expected fixings, 381 00:22:33,680 --> 00:22:36,800 Speaker 10: but the bias, I mean, that's the actual fixing versus 382 00:22:36,880 --> 00:22:39,920 Speaker 10: the Bloombird estimate. The bias is not very big. It's 383 00:22:39,920 --> 00:22:43,359 Speaker 10: about three hundred pips every single day, and that's far 384 00:22:43,600 --> 00:22:46,200 Speaker 10: away from the levels that we saw last year where 385 00:22:46,240 --> 00:22:49,040 Speaker 10: it went to as high as eight hundred pips. So 386 00:22:49,080 --> 00:22:52,240 Speaker 10: the PBOC is only taking very moderate measures to support 387 00:22:52,280 --> 00:22:55,679 Speaker 10: the yuan, and it has a ton of tools they 388 00:22:55,680 --> 00:22:59,320 Speaker 10: can use to be more aggressive when it sees the 389 00:22:59,400 --> 00:23:02,639 Speaker 10: yuan being two week But right now the PBOs is 390 00:23:02,680 --> 00:23:06,320 Speaker 10: really keeping spowder dry, just using the fixing with a 391 00:23:06,359 --> 00:23:07,760 Speaker 10: little bit of verbal intervention. 392 00:23:08,119 --> 00:23:10,600 Speaker 3: It's something else you didn't mention, which has been an 393 00:23:10,640 --> 00:23:13,479 Speaker 3: issue at times in the past is capital flight. But 394 00:23:13,520 --> 00:23:15,840 Speaker 3: they have made a number of moves on this front 395 00:23:15,880 --> 00:23:19,000 Speaker 3: to keep capital from flowing out of China, but still 396 00:23:19,160 --> 00:23:21,080 Speaker 3: must be in the back of everyone's minds. 397 00:23:21,600 --> 00:23:25,520 Speaker 10: Yeah, there's still pentap demand to take capital out of China. 398 00:23:26,119 --> 00:23:29,560 Speaker 10: Remember that on shore investors onshore residents. They can only 399 00:23:29,960 --> 00:23:35,600 Speaker 10: convert fifty k of US dollars into the of US dollars. 400 00:23:36,680 --> 00:23:39,480 Speaker 10: They can only buy fifty k of US dollars, So 401 00:23:40,000 --> 00:23:41,760 Speaker 10: that's not a lot of money. Like if you want 402 00:23:41,760 --> 00:23:44,320 Speaker 10: to buy apartment in Hong Kong that it can only 403 00:23:44,359 --> 00:23:48,240 Speaker 10: buy you like one square feet or something. So it 404 00:23:48,359 --> 00:23:51,200 Speaker 10: does it is the curbs are very high. I mean, 405 00:23:51,240 --> 00:23:53,520 Speaker 10: once the curbs got dropped, we're going to see a 406 00:23:53,560 --> 00:23:58,000 Speaker 10: lot of outflows happening. Right now, we haven't seen very 407 00:23:58,000 --> 00:24:01,960 Speaker 10: recent measures of the PBOC titan macro prudential measures on 408 00:24:02,080 --> 00:24:04,120 Speaker 10: the on the corporate side. But when if it wants 409 00:24:04,160 --> 00:24:05,840 Speaker 10: to it can You really can't do. 410 00:24:05,760 --> 00:24:09,120 Speaker 3: That now people ask me sometimes you know, how uncomfortable 411 00:24:09,200 --> 00:24:11,359 Speaker 3: is the PBOC with you on weakness, And I think 412 00:24:11,400 --> 00:24:14,200 Speaker 3: you've outlined that, well, there's a balance there. A slightly 413 00:24:14,200 --> 00:24:16,680 Speaker 3: weaker currency is actually good in some ways for China, 414 00:24:16,720 --> 00:24:20,760 Speaker 3: stimulating exports and such. But they do have these other concerns. 415 00:24:21,040 --> 00:24:24,040 Speaker 3: But where does it get uncomfortable for them in terms 416 00:24:24,080 --> 00:24:26,200 Speaker 3: of like at the moment we're around seven to twenty 417 00:24:26,200 --> 00:24:30,040 Speaker 3: five and change against the greenback for the offshore Chinese currency, 418 00:24:30,640 --> 00:24:32,240 Speaker 3: where would it have to be for all of a 419 00:24:32,280 --> 00:24:36,320 Speaker 3: sudden more aggressive measures to come into play. 420 00:24:36,440 --> 00:24:38,960 Speaker 10: I think it's going to be seven point three because 421 00:24:38,960 --> 00:24:42,000 Speaker 10: that would be very close to the low in twenty 422 00:24:42,040 --> 00:24:46,520 Speaker 10: twenty three, twenty twenty two last year in November. So 423 00:24:46,640 --> 00:24:49,080 Speaker 10: if we reach that level, that's gonna the UN's gonna 424 00:24:49,080 --> 00:24:53,719 Speaker 10: get a lot of interest from shorting overseas. And another 425 00:24:53,880 --> 00:24:55,520 Speaker 10: thing that we have to watch out for is the 426 00:24:55,600 --> 00:24:58,760 Speaker 10: R and B C fast Index. That's Uan's value against 427 00:24:58,760 --> 00:25:01,640 Speaker 10: not just the dollar, but a bunch of other effects. 428 00:25:02,280 --> 00:25:04,800 Speaker 10: So if that basket keeps falling, that means the UN 429 00:25:04,960 --> 00:25:08,240 Speaker 10: is falling against a lot of things. So that's really 430 00:25:08,280 --> 00:25:11,199 Speaker 10: gonna hurt trade. So that's another thing the PBOC is 431 00:25:11,200 --> 00:25:13,520 Speaker 10: looking at, and of course hard behavior. 432 00:25:13,320 --> 00:25:15,640 Speaker 3: Now in terms of the other area of what can 433 00:25:15,720 --> 00:25:20,440 Speaker 3: the PBOC do to actually help stimulate the Chinese economy, 434 00:25:20,960 --> 00:25:24,800 Speaker 3: interest rates is one thing, and also the triple RS 435 00:25:25,000 --> 00:25:30,240 Speaker 3: is another. How much do we expect more aggressive behavior 436 00:25:30,280 --> 00:25:31,040 Speaker 3: here coming soon? 437 00:25:32,080 --> 00:25:34,600 Speaker 10: It is pretty hard, and the PBOC has done a 438 00:25:34,640 --> 00:25:38,359 Speaker 10: lot already and it's not doing more because there's nothing 439 00:25:38,359 --> 00:25:40,720 Speaker 10: else it can do. I mean the triple R cut. 440 00:25:40,800 --> 00:25:43,359 Speaker 10: Of course it can it can cut rids further, but 441 00:25:43,440 --> 00:25:47,520 Speaker 10: that's just for a sentiment, like for to restore market sentiment, 442 00:25:47,720 --> 00:25:49,080 Speaker 10: But is it going to be useful. It's not going 443 00:25:49,119 --> 00:25:51,160 Speaker 10: to be useful because the problem is that the demand 444 00:25:51,240 --> 00:25:54,440 Speaker 10: is very weak no matter how much raised the PBOC cut. 445 00:25:54,880 --> 00:25:57,720 Speaker 10: If an investor, like if a Chinese individual doesn't want 446 00:25:57,720 --> 00:25:59,439 Speaker 10: to buy a new home or doesn't want to buy 447 00:25:59,440 --> 00:26:01,760 Speaker 10: a new car, she's not going to buy a new car. 448 00:26:02,520 --> 00:26:05,960 Speaker 10: So what needs to be done right now is fiscal policy, 449 00:26:06,040 --> 00:26:09,520 Speaker 10: Like that's not under PBOs, that's under the Ministry of Finance. 450 00:26:10,440 --> 00:26:14,920 Speaker 10: So if that's if we see more physical stimulus, local 451 00:26:14,960 --> 00:26:19,160 Speaker 10: governments start to sell bonds and to build infrastructure, that's 452 00:26:19,200 --> 00:26:22,080 Speaker 10: going to stimulate economy, but that's going to carry risks 453 00:26:22,119 --> 00:26:25,800 Speaker 10: Like in twenty eight during a financial crisis, the massive 454 00:26:25,840 --> 00:26:30,280 Speaker 10: stimulus package resulted in a lot of local government dead 455 00:26:30,320 --> 00:26:34,000 Speaker 10: and other issues. And obviously the government is aware of that. 456 00:26:34,560 --> 00:26:37,199 Speaker 3: Yeah, we heard a lot from Richard Ku from Nomura 457 00:26:37,400 --> 00:26:40,720 Speaker 3: Research Institute about how fiscal stimulus should be done in 458 00:26:40,840 --> 00:26:45,200 Speaker 3: China and basically, even if they wanted to do that, 459 00:26:45,680 --> 00:26:49,359 Speaker 3: what are the constraints for strong fiscal stimulus that the 460 00:26:49,400 --> 00:26:50,399 Speaker 3: government feels. 461 00:26:50,800 --> 00:26:55,800 Speaker 10: Yeah, there is a side effect for physcal policy, if 462 00:26:55,840 --> 00:26:59,680 Speaker 10: you'll let local governments to sell a lot of bonds 463 00:26:59,800 --> 00:27:03,720 Speaker 10: to that to build infrastructure like highways and then subways, 464 00:27:04,720 --> 00:27:07,400 Speaker 10: when in the end they have to repay the debt 465 00:27:07,880 --> 00:27:11,560 Speaker 10: in like ten years time. And China is already having 466 00:27:11,600 --> 00:27:17,120 Speaker 10: a massive local government debt problem and we have vis 467 00:27:17,160 --> 00:27:22,320 Speaker 10: facing issues, have credit risks with corporates. So that's that 468 00:27:22,560 --> 00:27:25,919 Speaker 10: is well. It can resolve the problem, maybe stimulate economy today, 469 00:27:26,400 --> 00:27:29,119 Speaker 10: but years from now it can be a bigger problem 470 00:27:29,200 --> 00:27:30,280 Speaker 10: for the government. 471 00:27:30,280 --> 00:27:32,920 Speaker 3: In terms of institutional strength in China. I wanted to 472 00:27:32,960 --> 00:27:36,119 Speaker 3: ask you about Pangong Chung, who has been named the 473 00:27:36,160 --> 00:27:39,760 Speaker 3: new party Secretary for the PBOC and we think will 474 00:27:39,800 --> 00:27:43,480 Speaker 3: become the next governor of the PBOC. Now, he was 475 00:27:43,520 --> 00:27:46,480 Speaker 3: not on the list of the Central Committee, the two 476 00:27:46,560 --> 00:27:51,280 Speaker 3: hundred highest ranking party officials. In any way, does that 477 00:27:51,560 --> 00:27:54,840 Speaker 3: weaken the institution of the PBOC. We already know the 478 00:27:54,840 --> 00:27:57,040 Speaker 3: PBOC has been put under the State Council, right, so 479 00:27:57,440 --> 00:27:59,800 Speaker 3: from that standpoint, it would seem to have a little 480 00:27:59,800 --> 00:28:03,679 Speaker 3: bit less independence than it did before. How do you 481 00:28:03,720 --> 00:28:04,040 Speaker 3: see it? 482 00:28:04,640 --> 00:28:08,240 Speaker 10: That's definitely right. That's the interpretation a lot of people 483 00:28:08,280 --> 00:28:11,200 Speaker 10: are getting from this change, not just from Pangoshian. It 484 00:28:11,200 --> 00:28:14,439 Speaker 10: has been going on for a while, so before Pangonshan 485 00:28:14,520 --> 00:28:18,040 Speaker 10: in the egon age, they have Gaciating as the party secretary, 486 00:28:18,560 --> 00:28:22,440 Speaker 10: and Egan's level as PBS a governor is being seen 487 00:28:22,520 --> 00:28:26,920 Speaker 10: as less important than Gotiuting's role as a part of governor. 488 00:28:27,280 --> 00:28:29,760 Speaker 10: And it still remains a mystery. We don't know whether 489 00:28:29,800 --> 00:28:32,119 Speaker 10: Pugonnhan is going to be the governor, but that's the 490 00:28:32,160 --> 00:28:35,840 Speaker 10: party secretary is definitely a bigger boss than a governor job. 491 00:28:37,000 --> 00:28:40,800 Speaker 10: And the role of the PBOC is is becoming less 492 00:28:40,800 --> 00:28:44,480 Speaker 10: and less independent for sure. I'm now it's under the 493 00:28:44,520 --> 00:28:48,680 Speaker 10: State Council, and starting from years ago, before the PBSC 494 00:28:48,680 --> 00:28:50,960 Speaker 10: country pollar, you can always get some sort of a 495 00:28:51,040 --> 00:28:53,640 Speaker 10: spoiler from the State State Council saying that, oh, we 496 00:28:53,720 --> 00:28:56,520 Speaker 10: think the PBOs should culture plar soon, and two days 497 00:28:56,600 --> 00:28:57,800 Speaker 10: later the PBOC does that. 498 00:28:58,360 --> 00:29:00,720 Speaker 3: I wonder how much it matters in that power really 499 00:29:00,760 --> 00:29:03,440 Speaker 3: flows from the very top anyway in China, doesn't it. 500 00:29:03,760 --> 00:29:08,960 Speaker 10: Yeah, yeah, yeah, so's it is all the government agencies 501 00:29:09,040 --> 00:29:12,200 Speaker 10: are to some extent losing a bit of a power 502 00:29:12,360 --> 00:29:15,680 Speaker 10: and is quite concerning if this is happening. 503 00:29:15,240 --> 00:29:15,920 Speaker 4: To the PBOC. 504 00:29:16,120 --> 00:29:19,360 Speaker 3: Tinggent thanks so much for joining us Tangent team leader 505 00:29:19,400 --> 00:29:22,520 Speaker 3: for FX and Rates in Asia. I'm Brian Curtis along 506 00:29:22,560 --> 00:29:25,240 Speaker 3: with Doug Chrisner. You can catch us every weekday here 507 00:29:25,400 --> 00:29:28,160 Speaker 3: for Bloomberg day Break Asia, beginning at six am in 508 00:29:28,200 --> 00:29:31,760 Speaker 3: Hong Kong and six pm on Wall Street. Tom. 509 00:29:31,960 --> 00:29:34,640 Speaker 1: Thank you, Brian, and coming up here. On Bloomberg day 510 00:29:34,640 --> 00:29:37,520 Speaker 1: Break weekend, we turned to the UK economy and one 511 00:29:37,680 --> 00:29:41,280 Speaker 1: controversial idea to get things going again. I'm Tom Busby 512 00:29:41,400 --> 00:29:54,680 Speaker 1: and this is Bloomberg. This is Bloomberg day Break weekend, 513 00:29:54,680 --> 00:29:57,160 Speaker 1: our global look ahead at the top stories for investors 514 00:29:57,160 --> 00:29:59,840 Speaker 1: in the coming week. I'm Tom Busby in New York. 515 00:30:00,440 --> 00:30:04,120 Speaker 1: The UK needs to boost economic growth and one strategy 516 00:30:04,200 --> 00:30:08,120 Speaker 1: being pressed amid a dearth of London IPOs is tapping 517 00:30:08,160 --> 00:30:11,640 Speaker 1: the cash in pension funds. It's thought that a plan 518 00:30:11,800 --> 00:30:14,400 Speaker 1: may be announced by the UK Chancellor next week at 519 00:30:14,400 --> 00:30:17,320 Speaker 1: a major City of London event. And for more, let's 520 00:30:17,320 --> 00:30:20,000 Speaker 1: head to London and bring in Bloomberg Daybreak Europe Banker 521 00:30:20,120 --> 00:30:21,520 Speaker 1: Caroline Hepgar Tom. 522 00:30:21,560 --> 00:30:25,120 Speaker 4: The Chancellor Jeremy Hunt's Mansion House speech is a set 523 00:30:25,200 --> 00:30:28,680 Speaker 4: piece event of the financial calendar in London this year, 524 00:30:28,720 --> 00:30:32,680 Speaker 4: though maybe particularly important for the pensions industry, with big 525 00:30:32,720 --> 00:30:36,800 Speaker 4: pension funds potentially agreeing to invest up to five percent 526 00:30:36,880 --> 00:30:41,200 Speaker 4: of their assets into unlisted UK companies to provide better 527 00:30:41,280 --> 00:30:44,360 Speaker 4: returns and grow the British economy well. For more on 528 00:30:44,440 --> 00:30:47,800 Speaker 4: the story, I'm joined by Bloomberg City editor Katherine Griffiths. 529 00:30:47,920 --> 00:30:50,440 Speaker 4: Welcome to Radio Katherine, great to have you with us. 530 00:30:51,000 --> 00:30:55,400 Speaker 4: Lots of focus then on the Lord Mayor of London's initiative, 531 00:30:55,800 --> 00:30:59,680 Speaker 4: his idea fifty billion pounds a future growth fund. Who 532 00:30:59,720 --> 00:31:02,240 Speaker 4: do you think is actually going to be in favor? 533 00:31:02,280 --> 00:31:04,440 Speaker 4: Will it get rolled out in this speech? 534 00:31:04,680 --> 00:31:06,920 Speaker 11: It probably will get rolled out in this speech, and 535 00:31:06,960 --> 00:31:09,880 Speaker 11: it's kind of all to play for in the run up. 536 00:31:10,240 --> 00:31:14,680 Speaker 11: There's lots of different conflicting groups. Some are quite in favor, 537 00:31:14,760 --> 00:31:19,080 Speaker 11: some are not even within the same industry. Among the insurers, 538 00:31:19,080 --> 00:31:21,320 Speaker 11: which is other group that are really affected by this, 539 00:31:21,720 --> 00:31:24,760 Speaker 11: Some are quite keen on the idea of signing up 540 00:31:24,800 --> 00:31:28,920 Speaker 11: and allowing about five percent of their defined contribution pension 541 00:31:28,960 --> 00:31:31,840 Speaker 11: funds to go into growth assets, but some are really 542 00:31:31,920 --> 00:31:33,800 Speaker 11: kind of holding out and saying that it could be 543 00:31:33,840 --> 00:31:37,040 Speaker 11: quite problematic. So it's going to the wire ahead of 544 00:31:37,080 --> 00:31:40,320 Speaker 11: the speech as to what the details will actually be Yeah, absolutely, 545 00:31:40,880 --> 00:31:42,440 Speaker 11: How do you think it's going to work though? Is 546 00:31:42,480 --> 00:31:44,080 Speaker 11: it going to be mandatory? Is it going to be 547 00:31:44,160 --> 00:31:47,000 Speaker 11: a nudgs A deal? So I think it's not going 548 00:31:47,040 --> 00:31:50,680 Speaker 11: to be mandatory. So Nick Lyons, who is interestingly of 549 00:31:50,720 --> 00:31:53,160 Speaker 11: the industry, he is the chairman of Phoenix, which is 550 00:31:53,200 --> 00:31:57,640 Speaker 11: the UK's biggest pensions provider, he was suggesting that the 551 00:31:57,720 --> 00:32:01,720 Speaker 11: contributions could be mandatory. That's not his preferred option, but 552 00:32:01,760 --> 00:32:04,720 Speaker 11: they could be mandatory. He's not a fool. The reason 553 00:32:04,760 --> 00:32:08,280 Speaker 11: why he raised that quite contentious idea is because if 554 00:32:08,320 --> 00:32:11,200 Speaker 11: insurers and other asset managers are not forced to hand 555 00:32:11,200 --> 00:32:13,720 Speaker 11: over these funds or to direct them in a certain way, 556 00:32:14,080 --> 00:32:17,400 Speaker 11: they may not do it. A decade ago, the Cameron 557 00:32:17,560 --> 00:32:21,080 Speaker 11: Osborne government tried to do something really quite similar. The 558 00:32:21,120 --> 00:32:24,560 Speaker 11: whole project just didn't go anywhere because the insurers and 559 00:32:24,600 --> 00:32:27,400 Speaker 11: the asset managers and the pension funds just couldn't really 560 00:32:27,880 --> 00:32:30,440 Speaker 11: agree on the terms and who to invest in and 561 00:32:30,480 --> 00:32:34,120 Speaker 11: how so that's where this mandatory idea came from. But 562 00:32:34,400 --> 00:32:36,280 Speaker 11: it's been killed certainly in the run up to the 563 00:32:36,280 --> 00:32:38,520 Speaker 11: Mansion House speech. But as you say, it's also quite 564 00:32:38,680 --> 00:32:43,360 Speaker 11: fraught with difficulty. I mean, to my mind, I think 565 00:32:43,400 --> 00:32:46,920 Speaker 11: back to one of London's star investors, Neil Woodford, who 566 00:32:46,920 --> 00:32:49,680 Speaker 11: only a few years ago ran it's a huge difficulty 567 00:32:49,760 --> 00:32:56,880 Speaker 11: with much less liquid investments in UK assets, and it's 568 00:32:56,920 --> 00:32:58,680 Speaker 11: sort of did for him in some ways. So I 569 00:32:58,760 --> 00:33:00,600 Speaker 11: guess maybe you could think of that being a kind 570 00:33:00,600 --> 00:33:03,800 Speaker 11: of a risk sure, And actually yes, I think the 571 00:33:03,840 --> 00:33:06,680 Speaker 11: industry says, look, it's all very well to want to 572 00:33:06,720 --> 00:33:10,560 Speaker 11: invest in these startups and I liquid assets, but you 573 00:33:10,640 --> 00:33:14,120 Speaker 11: have to face the fact that the rate of failure 574 00:33:14,320 --> 00:33:17,280 Speaker 11: is higher in those areas. They are inherently riskier. And 575 00:33:17,320 --> 00:33:19,600 Speaker 11: the counter argument there as well. You know, you invest 576 00:33:19,640 --> 00:33:23,760 Speaker 11: in a wide range and overtime things come good, but 577 00:33:23,800 --> 00:33:26,480 Speaker 11: when you're talking about people's pensions money, there is clearly 578 00:33:26,520 --> 00:33:27,080 Speaker 11: a problem. 579 00:33:27,240 --> 00:33:30,160 Speaker 4: The pressure there is on the government to deliver better growth. 580 00:33:30,160 --> 00:33:34,040 Speaker 4: We've seen, you know, months of anemic growth. Bloomberg Economics 581 00:33:34,080 --> 00:33:37,040 Speaker 4: now expects a recession in the fourth quarter of this year. 582 00:33:37,080 --> 00:33:40,440 Speaker 4: So the pressure is on this Chancellor and the Prime Minister. 583 00:33:40,800 --> 00:33:43,200 Speaker 11: The pressure is massively on and I suppose they would 584 00:33:43,280 --> 00:33:45,680 Speaker 11: say the hope, and some in the city would say too, 585 00:33:45,720 --> 00:33:48,040 Speaker 11: that the hope is to kind of create a virtuous 586 00:33:48,040 --> 00:33:50,880 Speaker 11: circle where you do invest more in the UK and 587 00:33:50,920 --> 00:33:54,400 Speaker 11: they hark back to say twenty thirty years ago when 588 00:33:54,760 --> 00:33:57,920 Speaker 11: pension funds did invest in UK companies, And so of 589 00:33:57,960 --> 00:34:00,240 Speaker 11: course if you've got that kind of bank of money 590 00:34:00,280 --> 00:34:04,000 Speaker 11: being invested into UK companies, the chances are those companies 591 00:34:04,360 --> 00:34:07,400 Speaker 11: may do better, their valuations will rise. That in turn, 592 00:34:07,440 --> 00:34:09,759 Speaker 11: of course is good for their owners. So the hope 593 00:34:09,800 --> 00:34:11,320 Speaker 11: is to create that virtuous circle. 594 00:34:11,440 --> 00:34:13,800 Speaker 4: Kathy, thank you so much for being with us. Bloomberg 595 00:34:13,880 --> 00:34:17,400 Speaker 4: City Editor Kathy Griffith, and I'm Caroline Hepge. Here in London. 596 00:34:17,400 --> 00:34:19,960 Speaker 4: You can catch us every weekday morning for Bloomberg Daybreak. 597 00:34:19,960 --> 00:34:22,399 Speaker 4: Youre at beginning at six am in London. That's one 598 00:34:22,440 --> 00:34:23,560 Speaker 4: am on Wall Street. 599 00:34:23,719 --> 00:34:26,200 Speaker 1: Tom, thank you Caroline, and that does it for this 600 00:34:26,360 --> 00:34:29,200 Speaker 1: edition of Bloomberg day Break Weekend. Join us again Monday 601 00:34:29,200 --> 00:34:31,400 Speaker 1: morning at five am Wall Street time for the latest 602 00:34:31,440 --> 00:34:34,279 Speaker 1: on markets overseas and the news you need to start 603 00:34:34,320 --> 00:34:37,840 Speaker 1: your day. I'm Tom Buzzby. Stay with us. Top stories 604 00:34:37,840 --> 00:34:41,719 Speaker 1: and global business headlines are coming up right now.