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Speaker 1: This is Bloomberg Daybreak Asia for this Thursday, May fourth

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Speaker 1: in Hong Kong, Wednesday May third in New York and

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Speaker 1: coming up today.

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Speaker 2: The FED raises interest rates by twenty five basis points

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Speaker 2: and signals the end of its tightening cycle may be near.

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Speaker 1: Pack West is said to be weighing a range of

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Speaker 1: strategic options, including a sale.

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Speaker 2: And Qualcomm signals. Demand for mobile devices remain sluggish.

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Speaker 3: Effort in the US legislature to put together a wide

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Speaker 3: ranging plan to combat Chinese competition capabilities. Vladimer Zelenski flatly

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Speaker 3: denies Russian claims that Ukraine tried to assassinate Vladimir Putin.

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

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Asia, The business

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

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

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Speaker 4: app and everywhere you get your podcasts.

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

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Speaker 1: are the stories we're following today. The Fed hiked interest

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Speaker 1: rates by a quarter percentage point to a target range

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Speaker 1: of five to five and a quarter percent. It also

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Speaker 1: hinted at a possible pause in its rate hiking cycle.

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Speaker 1: The FOMC omitted a line from its previous statement back

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Speaker 1: in March, in which the committee said that it anticipates

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Speaker 1: that some additional policy firming may be appropriate, so that

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Speaker 1: is now out. At a news conference, the FED Chief J.

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Speaker 1: Powell said there won't be any rate cuts if inflation

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Speaker 1: remains too high.

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Speaker 5: We on the Committee have a view that inflation is

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Speaker 5: going to come down not so quickly, but it'll take

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Speaker 5: some time. And in that world, if that forecast is

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Speaker 5: broadly right, it would not be appropriate and to cut rates,

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Speaker 5: and we won't cut rates. If you have a different forecast,

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Speaker 5: and you know markets have been from time to time

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Speaker 5: pricing in you know, quite rapid reductions in inflation, you

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Speaker 5: know we'd factor that in, but that's not our forecast.

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Speaker 6: So that's the FED chief.

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Speaker 1: In his news conference, he did note that interest rates

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Speaker 1: are not far off from the restrictive level, but he

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Speaker 1: said that future monetary policy would be driven by a

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Speaker 1: data dependent.

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Speaker 6: Approach and that would be meeting by meeting.

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Speaker 1: And with regard to the banking crisis, pal said that

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Speaker 1: tiderocratic conditions are likely to weigh on economic activity, as

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Speaker 1: well as hiring and even inflation going forward, but Palell

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Speaker 1: added that the labor market remains extremely tight, and for

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Speaker 1: that reason he expects the US to dodge a recession

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Speaker 1: this year.

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Speaker 2: Then there is the issue of the US debt ceiling,

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Speaker 2: and Powell went on to say the FED cannot protect

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Speaker 2: the American economy in the event of debt default. He

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Speaker 2: said the FED does not get involved in these debt negotiations.

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Speaker 2: He did, however, stress the significance of finding a solution.

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Speaker 5: It's essential that the debt ceiling be raised in a

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Speaker 5: timely way so that the US government can pay all

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Speaker 5: of its bills when they're due. A failure to do

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Speaker 5: that would be unprecedented. We'd be an unshortened territory, and

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Speaker 5: the consequences to the US economy would be highly uncertain

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Speaker 5: and could be quite averse.

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Speaker 2: Now, Powell went on to say if FED officials did

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Speaker 2: discuss the debt limit as a risk, but he said

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Speaker 2: it did not influence their decision on rates today. Earlier

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Speaker 2: in the week, you might recall, Secretary Yellen said the

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Speaker 2: Treasury's ability to stay within the federal debt limit could

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Speaker 2: be exhausted by June first. Now, President Biden and members

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Speaker 2: of the House and Senator scheduled to be in town

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Speaker 2: that would be Washington, d C. At the same time

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Speaker 2: for only one week between now and June first. That's

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Speaker 2: a very short time frame and it makes it a

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Speaker 2: lot less likely that these two groups will be able

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Speaker 2: to come together and reach a deal a long term solution.

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Speaker 1: Ran and a story that just broke in the last

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Speaker 1: thirty minutes or so, Doug and we've been talking about this.

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Speaker 1: Bloomberg reporting that Packwest, the California bank, has been weighing

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Speaker 1: up a range of strategic options, including a safe of

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Speaker 1: the bank.

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Speaker 6: The regional bank has been working.

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Speaker 1: With a financial advisor and has also been considering a

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Speaker 1: breakup or a capital raise, which told it PacWest is

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Speaker 1: open to a sale. The company hasn't started a formal

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Speaker 1: auction process yet. It comes as Packwest shares have been

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Speaker 1: unsteady following the collapse of three rival lenders Bloomberg Herman

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Speaker 1: Chen explains why.

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Speaker 7: Really the issue is that when SVB was facing issues

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Speaker 7: with the positive flows with its technology and venture capital clients,

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Speaker 7: PACKWST was facing the same because they do also bank

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Speaker 7: with startups and those same cohort of customers.

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Speaker 1: Just not to the same extent Packway shares it down

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Speaker 1: fifty eight percent in after hours, and right now we're

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Speaker 1: saying that the range of value that PacWest has lost

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Speaker 1: since this all started was between eighty five and ninety percent,

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Speaker 1: with the market value now of less than seven hundred

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Speaker 1: and seventy two million dollars. And again in late trading

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Speaker 1: down fifty eight percent. Western Alliance shares down thirty five percent.

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Speaker 2: I'm looking at chairs in. Qualcomm off by nearly seven

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Speaker 2: percent right now in the late US session. It was

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Speaker 2: after the bell the company gave a disappointing forecast for

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Speaker 2: sales and profit in the current quarter. We have that

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Speaker 2: story from Bloomberg's Charlie Pellett.

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Speaker 8: Qualcomm is the largest maker of smartphone processors, and the

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Speaker 8: quarter signals that demand for mobile devices remains sluggish. Qualcomm

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Speaker 8: said revenue will be eight point one billion to eight

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Speaker 8: point nine billion dollars in the fiscal third quarter, falling

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Speaker 8: well short of the nine point two five billion dollar

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Speaker 8: average analyst estimate. The outlook shows the challenge that Qualcom

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Speaker 8: is facing in navigating an industry wide downturn. Week demand

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Speaker 8: for phones has led to a build up in handset chips.

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Speaker 8: The company's main source of revenue in New York. Charlie Palette,

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Speaker 8: Bloomberg Daybreak Asia.

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Speaker 1: Chinese financial data providers have recently stopped providing key information

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Speaker 1: on the nation's companies to overseas clients.

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Speaker 6: We hear more on that from Bloomberg's Joanne Wong.

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Speaker 9: We're told the providers included wind information, Chi Cha Cha

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Speaker 9: and Tan Yen Cha when said the changes due to

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Speaker 9: regulatory requirements, but refused to give more information, saying it's sensitive.

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Speaker 9: The Wall Street Journal also reported foreign firms were unable

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Speaker 9: to renew subscriptions to win Investors operating in China are

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Speaker 9: facing a more challenging environment despite Beijing's push to improve

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Speaker 9: ties globally. US consultancy firms in particular, are in the spotlight.

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Speaker 9: Authorities are said to be targeting China offices of Bain

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Speaker 9: and Company, Min's Group and cap Vision in Hong Kong.

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Speaker 9: Joann Wong, Bloomberg Day Brigeisia.

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Speaker 1: I'm Brian Curtis, along with Doug Christner and Rashad Salama

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Speaker 1: will join us in a few moments and just reminder,

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Speaker 1: James Bontes coming up from Center Asset Management, so it's

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Speaker 1: always dangerous Doug to say it's different this time, but

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Speaker 1: consider this, We've had five hundred basis points of hikes,

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Speaker 1: and Palell reminded us of this. We've had five hundred

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Speaker 1: basis points of hikes and unemployment has actually gone down

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Speaker 1: since the.

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Speaker 6: Beginning, and that is not what's supposed to be happening.

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Speaker 2: That's pretty phenomenal. I would agree with that, Brian. And

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Speaker 2: today the ADP Private Payroll Survey showed that US companies

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Speaker 2: increase their payrolls in April by the most in nine months.

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Speaker 2: Imagine that. And the next data point, and the important

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Speaker 2: data point is on Friday, when we get the monthly

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Speaker 2: jobs data for the month of April. A lot of surveys,

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Speaker 2: including our own, are projecting strong gains in employment. And

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Speaker 2: if you remember that employment cost index reading last week,

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Speaker 2: strong wage pressure. So if you look at the inflationary

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Speaker 2: implications of a tight labor market and wage growth, that

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Speaker 2: is pretty impressive. I mean to go back to the

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Speaker 2: point that we were talking about a moment ago, what

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Speaker 2: will hold back this economy?

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Speaker 1: Yeah, and Powell was pretty careful not to really talk

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Speaker 1: about pause because he noted that many times over the

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Speaker 1: past year you've had inflation actually start to come down

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Speaker 1: but then re energize, and some of the condition that

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Speaker 1: you just mentioned indicate that, I mean, that is a

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Speaker 1: possibility that we could see inflation pick up again, So

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Speaker 1: they have to keep their options open, their data dependent.

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Speaker 1: That's probably good news for a lot of people. And

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Speaker 1: it was a great question by our Matt Boslow when

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Speaker 1: he said, you don't see recession or cuts, your staff does,

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Speaker 1: and the market does you know, implying are you a

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Speaker 1: little lonely out there seeing a soft landing? And he

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Speaker 1: had a great answer. He said, well, look, if your

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Speaker 1: forecast is that inflation comes down quickly, then you might

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Speaker 1: see room for cuts. That's not my position. I don't

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Speaker 1: see inflation coming down. And that was pretty telling.

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Speaker 2: Yeah, I think you're right. But to go back to

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Speaker 2: kind of the jobs component, I mean you could argue

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Speaker 2: too that labor market strength and is kind of a

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Speaker 2: lagging indicator, so we could see an abrupt pivot on

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Speaker 2: the jobs front. But I don't know that the market

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Speaker 2: fully agrees with Powell's position. If you saw the yield

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Speaker 2: curve today, we were down pretty dramatically, So I understand

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Speaker 2: what we are hearing from the Fed chairman. I don't

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Speaker 2: know that the market fully buys into the narrative at

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Speaker 2: this point.

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Speaker 1: All right, we will get two more on all of

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Speaker 1: this again as mentioned with James Abonte coming up from

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Speaker 1: Center Asset Management.

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Speaker 6: But now it's time for Global News.

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Speaker 1: A bipartisan group of US senators has come together to

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Speaker 1: work on enhancing US competition capabilities against China and back

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Speaker 1: to with Global News and the nine to sixty News

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Speaker 1: WROM in San Francisco. Ed.

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Speaker 3: Yeah, that's a plan, Brian. The plan comes in mid

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Speaker 3: efforts to combat China's efforts to gain economic as Strategic

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Speaker 3: Cloud Center majority leader Chuck Schumer says, beginning with technology.

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Speaker 10: Committing the flow of advanced technology to the Chinese government,

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Speaker 10: we will work to halt the Chinese government's development of

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Speaker 10: advanced technologies that we know will shape the course of this.

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Speaker 3: Century, as well as investments that allow China to enhance

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Speaker 3: its power using US moneyes.

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Speaker 10: We must make sure that we can prevent the Chinese

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Speaker 10: government from using our own free society to acquire and

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Speaker 10: even steal innovations and critical technologies.

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Speaker 3: And to provide an alternative to China's Belt and Road initiative.

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Speaker 10: And send a strong message to the Chinese government that

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Speaker 10: were united in this pressing national security effort, and we

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Speaker 10: are committed to maintaining America's lead in the future.

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Speaker 3: And Schumer says also one section of any legislation will

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Speaker 3: deal in the US commitment to defend Taiwan. As the

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Speaker 3: US tries to intensify efforts to keep India on its

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Speaker 3: side in the rivalry with China, the Biden administration is

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Speaker 3: reportedly remaining publicly very quiet on India's democratic backsliding. It's

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Speaker 3: a demonstration on the Biden balancing Act on human rights

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Speaker 3: and democracy against fighting autocracy. Ukraine's President of Vladimir Zelensky,

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Speaker 3: is denying the Kremlin's claims that Ukrainian drones try to

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Speaker 3: assassinate Vladimir Futin.

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Speaker 6: We don't attack Putin for Moscow. How we apply on

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Speaker 6: our territory.

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Speaker 3: In Zelenski says, they use all their munitions to defend

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Speaker 3: Ukrainian territory, not enough to attack Moscow. Meanwhile, Russia has

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Speaker 3: claimed that the two down drones were part of a

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Speaker 3: planned terrorist act, and former NSC director Daniel Freed on

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Speaker 3: Bloomberg's Balance of power says, a Russian claim, well, it

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Speaker 3: just doesn't make any sense.

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Speaker 11: We can be pretty confident though, so this was not

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Speaker 11: a Ukrainian attempt to assassinate Vladimir Putin. For one thing,

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Speaker 11: it occurred at two thirty in the morning in Moscow,

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Speaker 11: Moscow time, and Putin doesn't spend.

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Speaker 3: The night in the Kremlin very much, if at all,

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Speaker 3: and says it could very well be a false flag

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Speaker 3: because Russia was fully prepared to carry out drone strikes

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Speaker 3: on Kiev. Right afterward, NATO's intelligence chief says that Russia

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Speaker 3: is mapping a critical undersea system that warns of a

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Speaker 3: significant risk that Moscow could target infrastructure in Europe and

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Speaker 3: North America. They talk undersea cables and other critical infrat

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Speaker 3: structure Global news power by more than twenty seven hundred

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Speaker 3: journalists and analysts in over one hundred twenty countries. In

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Speaker 3: San Francisco, I'm at Baxter and this is Bloomberg.

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Speaker 1: This is Bloomberg, Gabreak Asia, Brian Curtis, San Rishad Salomat here.

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Speaker 1: We just heard from Doug Crisner and obviously at Baxter

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Speaker 1: on news. Our guest is James Debonte, Managing director and

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Speaker 1: chief investment Officer at Center Asset Management. So, James, if

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Speaker 1: we are truly data dependent here, which data what's most important.

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Speaker 12: Well, with regards to FED policy, I think you could

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Speaker 12: make an argument that the tightening cycle is over. I

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Speaker 12: think when you look at what the FED was trying

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Speaker 12: to accomplish at the very start of its titaning cycle,

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Speaker 12: it was to try to move real yields positive. So

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Speaker 12: when you measure real yields now, whether it's a five

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Speaker 12: or the ten year tip shield, it shows a real

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Speaker 12: rate of about one point three percent. Now, that's below

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Speaker 12: the two percent that the FED probably hoped for when

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Speaker 12: they started out, but it's still good enough. And when

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Speaker 12: you look at where the dollar index is, it's still

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Speaker 12: high and stable. Industrial commodity prices, whether it's copper, nickel oil,

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Speaker 12: they continue their downtrend for input costs. So I think

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Speaker 12: we're at the point now where we're at the waiting

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Speaker 12: game period at which peak rates are on hold for

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Speaker 12: a while. Now. People forget sometimes that we're not just

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Speaker 12: going to revert to some kind of easing cycle. If

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Speaker 12: you go back to the Great Financial Crisis, the FED

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Speaker 12: was on hold for sixty four weeks before it began

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Speaker 12: to ease. Go back to the dot com bubble, it

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Speaker 12: was on hold for thirty three weeks from peak rates

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Speaker 12: before they started to move. The thing to remember, however,

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Speaker 12: is that bad things tend to happen during these periods

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Speaker 12: as the lagged effects from previous FED sightening finally starts

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Speaker 12: to make their way into the economy, but doesn't necessarily

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Speaker 12: have to end in recession though this time, because this

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Speaker 12: cycle is quite special.

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Speaker 13: James, it does seem as though, you know, there has

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Speaker 13: been a huge lag in terms of Montro policy and

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Speaker 13: its effects. But I guess the first touch point has

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Speaker 13: been banking, and we are in a situation now where

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Speaker 13: in a banking mailstream of some form that week is

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Speaker 13: perhaps ununderstandable as to what the consequences are. So in

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Speaker 13: some ways, as Robert Kaplan was saying, former Dallas FED

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Speaker 13: president that he wanted a hawkish boys but saying that

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Speaker 13: we just don't know how the situation will evolve when

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Speaker 13: it comes to banking, it could be much more serious

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Speaker 13: than we currently understand.

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Speaker 6: Yeah.

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Speaker 12: No, I agree with that point because I hate to

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Speaker 12: say it, but what we've really done is we've destroyed

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Speaker 12: competitive banking and created this oligopoly structure here in the

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Speaker 12: United States. I mean, think about it. Why would you

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Speaker 12: bank anywhere else outside of energy, outside of any of

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Speaker 12: the major banks such as JP Morgan or what have you.

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Speaker 12: And in fact, when we look at the deal that

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Speaker 12: just got announced over the weekend with AP Morgan buying

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Speaker 12: First Republic, I mean it was a sweetheart deal for

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Speaker 12: JP Morgan. They bought you know, one hundred and eighty

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Speaker 12: six billion dollars in assets that's marked to market as

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Speaker 12: loans and securities, and they only assumed one hundred and

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Speaker 12: twenty two billion dollars in deposits. So for ten billion

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Speaker 12: dollars that they paid to the FDIC, JP Morgan got

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Speaker 12: sixty billion dollars in assets, plus the FDIC agreed to

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Speaker 12: absorb eighty percent of the losses for the next five years.

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Speaker 1: Well we probably, yeah, we see many fewer banks in

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Speaker 1: Canada that that's their model, and Australia kind of fits

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Speaker 1: that bill as well. So it's the US that has

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Speaker 1: believed that all these you know, multitude of regional banks

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Speaker 1: is good for the economy. Do you think that there's

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Speaker 1: a big rethink underway on that.

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Speaker 12: But what the federal we have tried to do and

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Speaker 12: historically anyway, is that when they raise rates are trying

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Speaker 12: to do two things they're trying to in essence, mix

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Speaker 12: the cost of finance more expensive for loans, but they're

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Speaker 12: also trying to lure money away from speculative assets to

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Speaker 12: safe deposits JP Morgan City Bank, Bank of America. They

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Speaker 12: don't have to pay competitive deposits. If you and I

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Speaker 12: went and opened up a money market account at JP Morgan,

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Speaker 12: we'd be getting zero point one percent at this point

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Speaker 12: in time, whereas the small banks forced to pay off

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Speaker 12: for deposits. So this is creating a dichotomy. So the

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Speaker 12: news with Packwest tonight. I don't know how this kind

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Speaker 12: of you know, rolling rock ends up stopping at some

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Speaker 12: point in time, because you're still going to see deposits

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Speaker 12: outflow out of these small and mid sized banks and

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Speaker 12: by nature go to banks where they feel that their

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Speaker 12: security in terms of guarantee in the too big to

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Speaker 12: fail types of banks.

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Speaker 8: James was a solution, you know.

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Speaker 12: The solution might be basically to give blanket FDIC insurance

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Speaker 12: on all deposits. I think you need to have some

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Speaker 12: kind of congressional investigation as to why, indeed we haven't

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Speaker 12: had yet any type of you know, transmission mechanism where

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Speaker 12: there is gigantic dichotomy between what the largest banks have

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Speaker 12: to pay or are paying to their depositors versus what

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Speaker 12: you know true market rates are for banks that are

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Speaker 12: smaller in size, that have to compete for underwirning customers.

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Speaker 12: At this point in time, I think Congress needs to

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Speaker 12: start to look at this in a very serious way.

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Speaker 1: James, let's get to what you do with your money.

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Speaker 1: Is this not a good time to buy equities?

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Speaker 12: The thing is, we haven't yet had an earnings recession,

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Speaker 12: and that's been the thing that we've always felt would

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Speaker 12: be the downside risk for this type of environment. When

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Speaker 12: we entered the year, we felt we could go down

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Speaker 12: two paths. One would be that earnings would be flat.

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Speaker 12: You might get some kind of modest uptick in the

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Speaker 12: market from multiple expansion, which is what we've had. It's

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Speaker 12: been concentrated in the largest cap technology companies. Earnings have

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Speaker 12: basically come in now year over year about zero percent.

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Speaker 12: Right now, seventy four percent of companies are topping expectations.

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Speaker 12: But you haven't had that collapse yet in terms of earnings.

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Speaker 12: That would lead to a very significant decline in the markets.

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Speaker 12: I think where people have opportunity in the market and

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Speaker 12: where the big mistake or misperception of investmentors might be

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Speaker 12: is in the differentiation of what we traditionally called defensive

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Speaker 12: growth stocks healthcare Staples versus what people somehow are kind

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Speaker 12: of conflating with defensive growth stocks, meaning the big cap

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Speaker 12: tech stocks. So I think that's where you want to rotate,

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Speaker 12: is to kind of the old fashioned defensive stocks that

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Speaker 12: are still posting great numbers actually in these environments.

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Speaker 1: So in twenty seconds, would that just be, you know,

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Speaker 1: the perceived best company in each industry.

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Speaker 6: You don't have to pick say Staples, you just go

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Speaker 6: with the.

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Speaker 1: Best company in healthcare, in industrials and so on.

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Speaker 12: That's right. You want idiosyncratic companies that have fortress like

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Speaker 12: balance sheets. The fact that companies may have less exposure

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Speaker 12: to cyclicality will be an overall benefit as well.

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